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Five Things You Need to Know: Economic Mad Lib; No More "Well Contained"; Prices May Recover!; Paper Loss vs. Realized Loss; Second Life in Need of Seven More?


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Economic Mad Lib

The market is higher this morning because Gross Domestic Product, according to the seven or eight news articles we checked, either surged, propelled, raced, rocketed, rebounded, resurged or accelerated by 0.7% last quarter.

  • So that's really how it works?
  • Stock investors, pleased by initial estimates of what may have happened last quarter, bid up the prices of assets today?
  • No.
  • But hey, we're game for getting the data out there in interesting ways so that people at least know what's going on... if they're not going to bother to read the Commerce Department data for themselves that is.
  • That's why we've created the Minyanville Economic Mad Lib Game.


2. No More "Well Contained"

So this is what it's like to try and catch a fashion trend? Within hours of our order for 2,000 "I'm Well Contained" t-shirts, Treasury Secretary Hank Paulson abandoned the "Well Contained" mantra for something far less catchy: "A global repricing of risk."

  • U.S. Treasury Secretary Henry "Hank" Paulson yesterday said the meltdown in the subprime mortgage market reflects a global repricing of risk that doesn't pose a threat to the overall economy.
  • "I don't think it poses any threat to the overall economy,'' Paulson, a former chief executive officer of Goldman Sachs (GS), said according to Bloomberg.
  • "Risk is being repriced. As we get a broad reassessment of risk, we are getting volatility," Paulson said.

3. Prices May Recover!

Plummeting prices on subprime mortgage bonds have cut the value of securities held by Fannie Mae (FNM) and Freddie Mac (FRE) by $4.7 billion, Citigroup (C) analysts estimate according to the Wall Street Journal.

  • But no worries, the report apparently said. Those "paper losses" won't necessarily be realized.... because prices may recover!
  • Similarly, my receding hairline won't necessarily be realized as full-on baldness (for now it's what I refer to as "paper baldness")... because my hair may grow back!

4. Paper Loss v. Realized Loss

The Citirgoup analysis of of the $4.7 billion in "paper losses" by Freddie Mac and Fannie Mae triggered one of those "eureka moments" for us this morning.

What we realized is that pretty much anything can be divided into "paper losses" versus "realized losses." But the breakdown can easily get confusing.

Below, we take a look at how to tell the difference between a "paper loss" and a "realized loss."

  • Fannie Mae, Freddie Mac and $4.7 billion dollars? Paper Loss.
  • A real, live family in a San Diego, CA suburb who were just moved out of their home by Sheriff's Department Deputies as part of a foreclosure? Realized Loss.
  • The Soprano's' Tony Soprano no longer roaming the streets? Paper Loss.
  • Real life Genovese Crime Family street boss Dominick "Quiet Dom" Cirillo no longer roaming the streets? Realized Loss.

  • Non-winning, non-juiced Tour de France bicyclists? Paper Loss.
  • Juiced-up winning Tour de France bicyclist? Realized Loss.

    Source: New York Times
  • The losing team in the 15 NBA games refereed by Tim Donaghy last year? Paper Loss.
  • The credibility of the NBA? Realized Loss.
  • Kevin Depew's receding hairline? Paper Loss.
  • Jeff Macke's receding hairline? Realized Loss.

5. Second Life in Need of Seven More?

A little over a year ago, BusinessWeek ran an article on Second Life, a computer-generated 3-D environment that mimics the real world but is supposedly better because there is no sweat, bad breath, ugly-looking people or human contact. Second Life was (is) billed as the first, fully-realized version of Web 2.0, the pinnacle of social-networking and user-generated content, a virtual world just waiting to be monetized.

  • Now, an article in Wired magazine raises some disturbing questions about just how popular Second Life really is.
  • "Second Life partisans claim meteoric growth, with the number of "residents," or avatars created, surpassing 7 million in June," Wired says.
  • But that may be misleading.
  • For starters, according to Wired, many people create more than one avatar.
  • According to Linden Lab, the company behind Second Life, the number of avatars created by distinct individuals was closer to 4 million.
  • And of those only one million had logged on in the past 30 days.
  • Barely a third had logged in during the previous week.
  • And more than 85% of the avatars created have been abandoned.
  • Poor, abandoned avatars.
  • The real issue, says Wired, is that there's basically nothing to do in Second Life. Hey! That sounds just like real life!
  • The most popular location in Second Life is a place where virtual money is given away free.... just like real life.
  • The second most popular location is Sexy Beach, a place filled with sex shops and dancing for no-strings-attached meeting... also just like real life!
  • Among the least populated locations in Second Life? The Sears store on IBM's Innovation Island... incredibly, JUST LIKE REAL LIFE TOO!
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No positions in stocks mentioned.

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