Geldpress

Michael Jackson earned enormous sums of money in his live and lived the life of a King.  But his balance sheet showed otherwise.  Despite selling over 61 million records throughout his career, he died yesterday swimming in debt.  From the Associated Press:

Yet after selling more than 61 million albums in the U.S. and having a decade-long attraction open at Disney theme parks, the “King of Pop” died Thursday at age 50 reportedly awash in about $400 million in debt, on the cusp of a final comeback after well over a decade of scandal.

Back in 2005, Bank of America must have realized early that Jackson’s financial mess would be hard to overcome, and sold off his debt to Fortress Investments, a private hedge fund.

Jackson was not the only high income celebrity who struggled financially.  Money Magazine published an article about the Debt disasters of the rich and famous.  Here are a few points from that article below.

• Donald Trump struggled a decade ago with $900 million in personal liabilities.
• The Jackson parents went bankrupt with $45 million in debt.
• Wolfgang Amadeus Mozart fell heavily into debt and was buried in an unmarked pauper’s grave.
• Burt Reynolds declared bankruptcy in 1996, citing more than $8 million in debts.  He did however get to keep his $2.5 million estate Florida.
• Corey Haim, the star of 1987 film “The Lost Boys,” filed for bankruptcy in 1997.
  
• In 1999, the BBC reported that Elton John asked a merchant bank to help him borrow $40 million to pay off his debts. A year later he admitted running up debts more than $2 million a month.

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Struggling airline British Airways is taking an unusual step in these tough economic times, asking its 40,000 employees to keep working, but without paychecks.

From Marketwatch:

British Airways has asked its 40,000 staff to work without pay for up to a month as the ailing airline seeks to cut costs.

The group, which made a record £401 million loss in 2008 amid surging fuel prices and a collapse in premium-fare passengers, is seeking to reduce costs dramatically and has already offered staff unpaid leave or a reduction in hours.

Willie Walsh, BA’s chief executive, has now gone a step further by asking staff to volunteer for between one and four weeks of unpaid work in what he says is a “fight for survival.”

Mr Walsh, who said last week that he would work for free in July, has set a deadline of June 24 for employees to volunteer for unpaid work. He said that the salary deductions would be spread over three to six months wherever possible..

British Airways is not the only company pushing salaries down.  Here is a sampling of other salary reductions hitting the news.

• BBC cutting salaries
• Gainseville cuts teacher salaries by $100 – $200 per month
• Firefighters in Salinas take 7.5% pay cuts

David Tice, the chief bear market strategist for Federated Investments (manager of Prudent Bear Fund), shares his bearish opinion in the video below. For those that have no time to view the 8 minute video, the summary of the prediction is for the S&P to hit 400.

Optionsxpress just announced that they have acquired an online education company Optionetics.  From Businesswire:

Optionsxpress Holdings Inc. announced today that it has signed a definitive agreement to acquire Optionetics, Inc. in an all cash transaction for approximately $20 million, plus additional cash consideration based on future performance

David Fischer, CEO of OptionsXpress, said “With its focus on derivative products, we believe Optionetics will help us further one of our stated objectives of providing education to our customers with the goal of helping them be more successful in their investing.”

George Fontanills, the founder of Optionetics, has also released a new options course book, Trade Options Online.   If its good enough for the best options trading broker to purchase the company, then its good enough for me to buy the book. Regardless of your level of options trading knowledge, its always a good idea to keep studying and reading new ideas.

It’s a sad day for viewers of CNBC’s Fast Money, as Dylan Ratigan will no longer be a part of it.  From the New York Post:

THERE was high drama at CNBC yesterday as “Fast Money” anchor Dylan Ratigan quit — sources say today will be his last day on-air — and an insider is blaming his battles with network big Susan Krakower.

Whatever the reason for his departure, it will likely result in substantially fewer viewers for the nightly post market finance show.  Since the beginning of Fast Money, CNBC has been plagued by frequent departures of the commentators.  Unfortunately for the viewers, it’s usually the dull lemmings left behind at Fast Money, and those few that challenge the conventional “wisdom” of the markets end up leaving.

Now that Dylan is gone, there is only one commentator left worth listening to on Fast Money, and that’s the experienced and wise voice of Karen Finerman.  Here is a recap of Karen’s latest ideas from segments aired this week.

• Short IYR – Trouble still brewing in commercial real estate, and plenty of room left on the downside.
• Long ITRI – leader in the space of smart grids, smart water systems, and smart highways.
• Long TBT – Perhaps still to early for an entry, but Karen says there is plenty of room on the up side for this double short treasury ETF.

Disclaimer: Trade at your own risk!!!

Air France shares were trading significantly lower today as the airlines announced for the 5th time this year that profits would be lower.  One of the reasons for the lower profits is the expected $200 million loss from its fuel hedges gone wrong. From Marketwatch:

Making matters worse, hedges it’s employed have locked in fuel prices above the market’s level, Air France said. It’s expecting a 200 million euro hit from fuel.

It was not to long ago that nearly every CNBC commentator was praising Southwest for winning the fuel hedge gamble that kept them profitable longer than any other airline.  This new twist in Air France’s luck exposes fuel hedges for what they really are – a big gamble.    And in Air France’s case, the fuel hedge bet was a gamble that went wrong.

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Only one thing is clear regarding the AIG debacle and that one thing is that nothing is clear.  Last week the current  CEO Edward Liddy was paraded in front of congress and the media to answer questions regarding excessive retention bonuses.  Since those hearings there have been reports of protests outside of some Connecticut homes of AIG executives.  This came at a time when congress was threatening a 90% tax on AIG bonuses.

In a new twist, the New York Times profiled the recent AIG resignation letter today from Jake Desantis, who was allegedly working for only $1 per year along with CEO Edward Liddy.  Jake Desantis has decided not to give back his yearly rentention bonus of $742,000, but will instead donate the money to “organizations that are helping people who are suffering from the global downturn”.

It’s a well written letter and perhaps one that will help dampen the public anger over current AIG employees.  But despite the letter, you can be sure that the entire story is still not being told, even by Jake DeSantis. He may not have been part of the scandals that nearly destroyed AIG, but he does openly admit to being overpaid during his career  – “Some might argue that members of my profession have been overpaid, and I wouldn’t disagree.”   All those “overpayments” have to come from somewhere.

The real tragedy of AIG is the failure of capitalism.  A handful of idiots employees at AIG were allowed free reign to destroy the company, but the American government refused to allow it to go under.  Systemic risk was to often cited for the need to prevent AIG’s collapse.  Months later we all learned what that systemic risk really meant.  AIG was not the only financial company with a handful of idiots who had nearly destroyed their companies and the entire global economy.  What systemic risk really meant is that the government needed a scapegoat, and AIG was the obvious choice. They could spend hundreds of billions of dollars on an AIG bailout, and in the process bailout dozens of other incompetent financial institutions through CDS payments made through the biggest idiot on the block, AIG. According to businessweek, other U.S. financial institutions have gotten $43.5 billion of CDS payments from AIG, courtesy of the American taxpayer.

ABC News just profiled a story on Ken Karpman, the ex-CEO who is now delivering pizzas for $7.29 per hour and living off of taxpayer funded food stamps.  After getting two degrees from the UCLA, he landed a job as an institutional equity sales trader.  Apparently unimpressed with his $750,000 yearly salary, and his 4,000 square foot Tampa home on the golf course, he quit his job to start a hedge fund.

Karpman was so confident in his good fortune and the strong economy that he left his job in 2005 to start his own hedge fund. To pay for the new business and their standard of living, Karpman quickly burned through $500,000 in savings and, like so many Americans, took a line of credit against his house.

[Geldpress comment] Any guesses how that ended up?  You guessed it, the hedge fund collapsed, like so many other hedge funds managed by gamblers ex-traders who believed in the power of easy money, and who had no concept of risk management, let alone the definition and proper implementation of a “hedge”.

The ABC News story continues…

Desperate for quick cash, Karpman tried to find a job bartending but came up empty. Finally, he drove his Mercedes to Mike’s Pizza & Deli Station in Clearwater and applied for a job.

[Geldpress comment] Apparently, it never crossed Ken’s mind to SELL the Mercedes and buy a used Chevy.

The ABC News story continues…

…The Karpmans are now on food stamps and a tight budget that doesn’t nearly cover their children’s $30,000 private school tuition.

The family’s jet skis now collect dust in the garage near the Mercedes, with its broken transmission they cannot fix.

Stephanie Karpman has closets full of clothes and handbags she likely won’t be able to take with her and is eyeing consignment shops as a place to unload them.  She said she has found herself going through her closet and wearing clothes she hasn’t touched in years.

[Geldpress comment] – Does ABC News really expect to gain sympathy for the family forced to drive a Mercedes, with a garage full of jet skis and other toys, and kids in a $30,000 per year private school?

The ABC News video interview also mentions that the Karpman’s have not paid their mortgage in 2 years, and may lose their home in the next few months. It just begs the question of WHY a foreclosure would take over 2 years.   It sucks for a family to lose “their” home, but I still firmly believe that the best medicine for a family struggling to pay (or not paying) their mortgage is a foreclosure, and apartment living within their means.  The Karpman’s had their golden ticket but over-leveraged themselves on a hedge fund gamble, and now must pay the price.

Special message to ALL “black box of finance employees” – leverage is a bitch.  It works great on the way up but does have a way of biting you in the ass on the way down.  Did you really learn nothing from Enron?  Did you really think that 30, 40 or 50 to 1 leverage was sustainable?  Did you really think that starting and succeeding a hedge fund was easy? Did you really think over leveraging an obvious credit bubble would work?

Sorry Ken, you have no sympathy from me, but I am impressed with your humility in taking a REAL JOB, in an industry that produces a REAL, TANGIBLE, and UN-LEVERAGED products.

Thank you Comedy Central for a great compilation of CNBC stupidity.  If it were not for your remarks on Santelli, the video would be perfect.  Rick Santelli is the one of the only smart, honest and insightful guys left on CNBC.  For the record, Santelli is a reporter, not a CEO bailout recipient.  Yes he is opposed to homeowner bailouts, but he was also opposed to financial and automaker bailouts as well.  But nonetheless, great video compilation.  Enjoy.

Here is the cover of Businessweek magazine on August 12, 1979, proclaiming the death of equities.  As it turned out, the end of 1979 was the start of one of the greatest bull markets in history.

With the Dow Jones currently at 6594, and the S&P at 682, is it time for Businessweek to do a Death of Equities Part Two?  Is the recovery just about to begin, or is this downward spiral just getting started?  You decide, but whatever you do, be careful trading them there markets!

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