To Our Clients, Colleagues and Friends,

• Do you have a process for regularly making certain you’re in compliance with all the terms of your warehouse agreements? We’ve seen cases where covenants were broken without senior management even being aware of it. So come on, people, this is serious stuff.   Have a formal process for tracking this and do so on a monthly basis.
• We read that about 85% of all borrowers with conforming loans can now refinance into a lower rate. We read this in the Wall Street Journal, so we assume it’s true, but doesn’t that number seem a bit high?
• Match the politician with his most memorable quote.  We’re not giving out prizes to the winners, but it’s certainly something to work on at your next ALCO meeting.

Answers:  1(d), 2(b), 3(d), 4(a), 5(c and e), 6(f).  For bonus points: Bebe Rebozo was Secretary of State under which President?  

• Did you see that three-month T-bills are yielding only one basis point?  Can zero interest rates be far behind?  Japan tried it.  It didn’t work.  Bernanke apparently thinks it’s liquidity and not the cost of money that will get the economy moving again.
• The University of Washington has a quarterback named after a mortgage company.  QB Taylor Bean led the Huskies to an 0-12 season, further proving that it was a bad, bad year for mortgage bankers everywhere.  We don’t know he people sat Taylor Bean.  Have they closed on their acquisition of a bank?  How’re they doing?  Anyone?
• The National Hockey League St. Louis Blues are having a “Fannie and Freddie Mortgage Night” eleven times this season.  Each game will feature a drawing, with the winner getting $1,000 a month for four months toward their mortgage payment.
• The University of California ended the football season 8-4, but the exciting thing about Saturday’s final game was that running back Javid Best ran for an awesome 311 yards and four touchdowns.  Best is only a sophomore.  Can you imagine, 311 yards?  We watched him all year, and he is definitely the real thing.

• We just read that Who Moved My Cheese has sold 22 million copies.  We think most business books are a waste of time, but this one was really the worst.  These books take one simple truth and stretch it into 200-300 pages.  Once you get past get-the-right-people-on-the-bus, you realize that Good to Great only had one message: Hire the right people for the job.  Gee.  Cheese’s message: Adopt to change.  Pretty obvious.

• Instead of sending out Christmas cards or gifts to clients, we are making a donation to Wounded Warriors, a non-profit organization that helps the young men and women veterans of the Iraqi war. It helps those with missing limbs and other new disabilities with rehabilitation skills so they can get on with their lives.
• What was perhaps the greatest football team of all time?  In 1932, Colgate University went 9-0, not giving up a single point all season.  They are one of only three teams in all of College football history to do so. They were also known as   “Undefeated, untied, unscored upon, and uninvited,” after not getting a bid to the Rose Bowl.
• Aren’t you glad November is over?  Many of our clients, current and former, tell us that their loan closings were off 40-50%.
• Without getting into an argument over a bailout of Chrysler, Ford and GM , all of which say they’re running out of cash, let’s look at Toyota .  While not an American company, they do sell a third of their cars in the U.S. and they have plenty of plants here, manufacturing over 1.6 million cars a year in the U.S. and Canada every year.  And guess what?  Toyota is sitting on $40 billion on cash. There’s nothing wrong with the auto industry as such.  As always, bad performance is the result of bad management and bad decisions.
• Did you know that the S&P 500 has negative returns for the past 11 years? Had you put money into the U.S. market in 1997, you’d be in negative territory today, eleven long years later.  Does this weaken your buy and hold beliefs?

After a six-month lull, we’re seeing an increase in Strategic Planning projects. These are typically one-day engagements that help the company figure out “What do we want to and need to do over the next three years to survive and make a good return on capital.”  A typical assignment involves 4-5 hours going over all possibilities with senior management.  Everything is on the table, and no sacred cows are allowed. After narrowing down the options into a plan, we return for another half day, usually within a week, to go over the document. 
Everyone debates it again, finally deciding to adopt some version of it.  It’s a pretty interesting process to see people truly discuss the future of the company. And it’s truly amazing to see people cling to ways of doing things that just haven’t worked in the past few years.  But when the process is done, the company has a very clear idea of what it’s trying to do, what it needs to get it done, and good tools and benchmarks are needed to see if they’re on track. 

Garrett, Watts & Co.  -  Joe Garrett and Corky Watts

510-469-8633 or 408-497-3135