The Garrett, Watts Report (December 28, 2007)

December 29th, 2007 · No Comments


 To Our Clients, Colleagues and Friends:

· How do Americans pay for things? According to studies, we use checks 18.9% of the time v. 18.8% with debit cards 18.4% with credit cards. The rest is a combination of cash, money orders, and prepaid cards and so on. But debit card usage surpassed credit cards for the first time this year and is expected to grow much faster in the future.

· Being curious lads, we often look at insider trading activity for financial services stocks, and boy, does Morningstar stand out.  You know them, the company that tracks and analyzes mutual funds. It seems that for the last month or so, Morningstar insiders have been selling in huge amounts, day after day after day after day.  This probably fits in the category of writing something just to fill some space, but, hey, give us a break. It’s not easy being insightful (and occasionally witty) twice a week!

· Stock transactions by insiders are replete with restrictions, but still, it always looks so much better when insiders are buying rather than when they’re selling.  Don’t you agree? But perhaps you’ve heard about a fellow named Angelo Mozilo, Countrywide’s CEO. He exercised options on 5.0 million shares of Countrywide this year and sold every one of them the same day.  He made about $120 million on the sales, getting an average price per share of $35. Not bad, considering that the price now hovers around $8.75.  SEC regulations prohibit him from buying shares within six months of selling shares, so let’s mark our calendars for June 30th and check how many shares he bought within the preceding six months

· Want to read a good, scary book?  Read The Great Texas Banking Crash by Jody Grant. From 1982-1992, there were 506 commercial banks in Texas that failed. That’s one a week, every week, for ten long years.  Euphoric growth in the Texas energy sector led, as is happening now in the mortgage space, to a horrible morning-after hangover.

· Almost all bank failures the past decade have been smaller ones, but we’re still a nation of small banks.  We have only 88 banks with assets greater than $10 billion.  But we have over 3,200 banks with less than $100 million in assets. 

· And how about Sallie Mae Chairman Albert Lord’s recent conference call?  After a lot of hostile questions about the company’s earnings, Lord ended the call with his saying “Let’s go.  There’s no more questions, so let’s get the f___ out of here.”  Not cool. Also, bad grammar.  He should have said “There are no more questions, so let’s get the f___ out of here.”

· The storm next time?  As recently as 2002, barely $50 billion in commercial mortgage backed securities were issued. In the past t