To Our Clients, Colleagues and Friends,
- Have you ever noticed how many colorful names there are in baseball? The A’s have pitcher Josh Outman, the Pirates have someone named Brooks Pounder, and the Marlins have Sequoyah Stonecipher. As for team names, they don’t get much better than the minor league Kansas City T-Bones and the Albuquerque Isotopes.
- We are always dismayed to see how many mortgage bankers don’t have weekly meetings of their senior managers. How can everyone be working toward common goals without everyone getting together once a week? Yes, this means you!
- Your weekly Senior Managers Meeting should include (1) the head of production, (2) the Controller or CFO, (3) the head of Secondary, and (4) the head of Operations. You can also include the head of Quality Control and Compliance, but that’s about it. Everyone gives a very brief report, and you write down in the minutes what your action items are. The next week, start off reviewing the action items and make certain they were taken care of. Think of this as a President and his Cabinet.
- We saw baseball games in Detroit and San Diego this past week. Both ballparks are really terrific, and both prove that a stadium doesn't have to be retro and look like Fenway or Wrigley to be appealing.
- While a lot of people are worried about inflation in the years to come, today’s reality is that many items are cheaper today than a year ago. Here are a number of commodities. We didn’t bother to mention what the unit of measurement is, but it’s an interesting comparison. And it doesn’t include the cost of buying a house!
|
|
1 Year Ago |
Decline |
|
|
Domestic oil |
$68 |
$131 |
48% |
|
Aluminum |
$0.75 |
$1.38 |
46% |
|
Cotton |
$0.49 |
$0.69 |
29% |
|
Corn |
$3.76 |
$6.83 |
45% |
|
Wheat |
$7.54 |
$12.12 |
38% |
|
Cheddar cheese |
$107 |
$192 |
44% |
|
Pork bellies |
$0.68 |
$0.89 |
24% |
|
Tin |
$904 |
$1,399 |
35% |
- Treasury-issued TIPS are meant to protect investors from inflation, but what about some sort of Treasury bond to protect people againstdeflation? What good will TIPS be if we have deflation? Didn’t Clauschwitz say that Generals are always busy fighting the last war?
- With Congress debating how to make banks safer, we have a thought. Yes, requiring more capital will help prevent failures, but banks can’t always raise capital when they need it most. Instead, or in addition, we’d require more granularity in the assets the banks invest in. We’d suggest that there be lower thresholds for concentrations. And maybe if a bank wishes to exceed these limits, then it must hold even greater capital against the increment.
- Army General Tommy Frank has retired from the Board of Directors at the Bank of America. It’s absurd that he was ever on it. If Tommy Franks was qualified be on the BofA’s Board, then Ken Lewis is qualified to lead the nation in war. Banking is a serious discipline, so let’s get Board members who understand the business.
- We’re believers in privatizing many government functions, so we were interested to read what happened in Chicago . The City sold off their parking meters to a group formed by Morgan Stanley, with the sale generating $1.2 billion in cash for the city. And that’ doesn’t include ongoing savings by not having meter maids on the city payroll.
- What’s a Garrett, Watts Profitability Review? It starts when someone comes to us complaining that their earnings are way off, but they can’t quite figure out why. We’ll look at the top five revenue items expressed in basis point’s (i.e. taking each revenue item as a function of loan closings). We analyze them over a 12 month period, looking to see which items have the most deterioration. Then we do the same with the top five expenses. It quickly becomes clear which metrics have deteriorated the most, and which need fixing the most. Step two is to simply look at how that function is carried out, the one that seems to be the source of the problem. We typically find underperformers doing things very differently from how top performers operate. In a very simplistic way, we can fix the problem by having the distressed company simply copy the top performers in how they perform this function. Mortgage bankers are in the manufacturing business, and all are manufacturing the exact same products. As a result, there aren’t that many ways to carry out the process. We’re in many, many shops every month, and we see how the top performers do things. We see what works, and we see what doesn't work. So once we’ve isolated the problem, it’s almost as easy as having the client change certain processes to match those performed by highly profitable companies. That’s what we do, and it works!
- Wells Fargo announced that it’s auctioning off $600 million in sub-prime mortgages. We’d love to hear what kind of price they finally get.
- People still like to refer to Berkeley as Beserkeley, but that’s no longer true. The campus is about 51% Asian kids, all very serious about their education and making it a much more conservative school. As for the City, it has a balanced budget this year without cuts in services or extra borrowings. The Council and Mayor have promoted downtown growth, and the city is so healthy that of 486 cities in the State, Berkeley ranks #16 with the highest bond ratings. Their secret is that (1) they only spend one-time revenues for one–time expenses, and (2) except for firemen and cops, they’ve capped retirement benefits for all city workers.
- We bragged last week that two elements on the Periodic Table were named Berkelium and Californium. We forgot that Lawrencium (#103) was named for a Cal physicist. And a friend snidely asked “Have you ever even used Berkelium or Californium? You Cal guys should aim at getting your school mascot on something useful, like condoms.” Our buddy is obviously a graduate of USC. For those of you who don’t follow sports, the USC mascot is the Trojans.
- Speaking of USC, remember when it used to refer to the University of Second Choice (i.e. Cal or UCLA being the first choice) or the University for Spoiled Children? Aside from our deep jealousy of their football program, it’s now one of the nation’s premier academic schools. (But it’s still a good school for spoiled children.)
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