To Our Clients, Colleagues and Friends,

· It’s interesting how our business here at Garrett, Watts & Co. changes.  A year ago, we were assisting lots of clients who were trying to sell their scratched and dented loans (80% of which were buybacks). We would stratify them in ways to achieve the best price.  This work really tapered off and trickled down to nothing as buybacks started to decline, but…

· Buy-backs are back!  We hate to say this, but we’re seeing and hearing about the following phenomenon:  The investor starts off really aggressive trying to force buybacks.  After awhile, their interest seems to wane.  Then you don’t hear from them for months and you think you’re off the hook.  But when the investor (i.e. bank) fails, the FDIC now enters the picture – and these guys are tough!  Suddenly, demand letters are back and the investor, through the FDIC, is getting really aggressive. You obviously know who we’re talking about.  We hope it’s an isolated thing, but we doubt it.

· Last week we wrote about the warehouse lenders who were doing a good job, and we referenced Texas Commerce. We obviously meant Texas Capital.  A strong bank with a top Warehouse Lending group.

· We wrote last week about the Oakland A’s trading their Manager for a catcher. A friend wrote us that in 2002, the one and only Al Davis of the NFL Oakland Raiders traded their head coach, John Gruden, to the Tampa Bay Bucs for 2 first round draft picks, 2 second round draft picks and $8 million in cash.

· We had such a response to our All-Time Pirates team that we thought we’d do the same for our Oakland A’s.  Here goes: Jimmy Foxx at 1^st, Eddie Collins at 2^nd, Miguel Tejada or Campy Campaneris at short, and Home Run Baker at third.  The outfield would be Rickey Henderson, Reggie Jackson and Al Simmons.  Our starters would be Catfish Hunter, Vida Blue, Lefty Grove, and Dave Stewart.  Relievers would be Dennis Eckersley and Rollie Fingers. This team would win 110 games. Maybe 120.

· As we write this on October 10, the Dow Index is down 21% for the month.  The 1929 loss in October was 20%  and 23% in October of 1987. Interestingly, the index was down 17% for this week – versus only 7.3% for the worst week in October of 1929.

· Here are some interesting facts about General Motors:  (a) Its market cap is $2.7 billion as opposed to about $105 billion for Toyota, (b) it’s expected to sell about 12 million vehicles this year v. 16 million last year (c) their current “burn” rate or negative cash flow is $1 billion a month and (d) they have lost a stunning $70 billion the past 3-1/2 years.  The stock is at $4. In 1999 it was $94. 

· In the early 1960’s nuclear strategist Herman Kahn wrote Thinking About the Unthinkable.  It’s good to periodically think about the worst what-if you can imagine for your company.  Example:  What if you’re a big wholesaler and Congress or regulators somehow ban third party originations?  Highly unlikely, but what if?    Better to think about it now, and not when you might be forced to.

· We were just looking at the income-property rate sheet for Union Bank of California .  Their max LTV is 65% on apartments and 60% on other types of income-property.  Smart people.  Kind of interesting how 100% financing on single-family seemed so sensible to people two years ago – and how today it seems so insane.

· Quote of the week:  “There have been only two geniuses in the world. Willie M ays and Willie Shakespeare.  But, darling, I think you should probably put Shakespeare first.”  - Tallulah Bankhead, Actress.

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

510-469-8633 or 408-395-5504