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I disagree. All of the banks used the mark-to-market rule to include an asset value to all of their toxic assets. By the FASB essentially reversing this rule today, all of the banks are going to look MUCH worse when they report Q2 results (in comparison to the fuzzy math they were able to use for Q1 - with mark to market). I think that this will have a very negative impact on all the banks come Q2 reporting.
Hmmm, why hasn't this news received any coverage, on CNBC? LOL
Mark Patterson: "It's A Sham. The Banks Are Insolvent"
Posted by Tyler Durden at 8:40 PM
The chairman of $7 billion distressed Private Equity firm and TARP beneficiary MatlinPatterson calls a spade a spade and in the process exposes the entire Geithner plan for the complete sham that it is. His comments before the Qatar Global Investment Forum were captured by the Daily Telegraph's Evans-Pritchard earlier, and Zero Hedge republishes the piece in its entirety as it presents every nuance of our predicament with masterful simplicity.
***
US 'sham' bank bail-outs enrich speculators, says buy-out chief Mark Patterson
The US Treasury’s effort to stabilise the banking system through the TARP programme is a hopelessly ill-conceived policy that enriches speculators at public expense, according to the buy-out firm supposed to be pioneering the joint public-private bank rescues.
“The taxpayers ought to know that we are in effect receiving a subsidy. They put in 40pc of the money but get little of the equity upside,” said Mark Patterson, chairman of MatlinPatterson Advisers.
The comments are likely to infuriate Tim Geithner, the US Treasury Secretary, because MatlinPatterson took advantage of the TARP’s matching funds to buy Flagstar Bancorp in Michigan. His confession appears to validate concerns that the bail-out strategy is geared towards Wall Street.
Under the convoluted deal agreed earlier this year, MatlinPatterson has come to own 80pc of the shares while the US government has ended up with under 10pc.
Mr Patterson said the US Treasury is out of its depth and seems to be trying to put off drastic action by pretending that the banking system is still viable.
“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds. They think they’re doing this for the greater good of society,” he said, speaking at the Qatar Global Investment Forum.
Mr Patterson said it would be better for the US to bite the bullet as Britain has done, accepting that crippled lenders must be nationalised. “At least the British are not hiding the bail-out,” he said.
MatlinPatterson said private equity and hedge funds were deluding themselves in hoping to go back to business as usual after the trauma of the last 18 months.
“This is not a normal recession and there will be no V-shaped recovery. The crisis has destroyed leveraged companies. We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance,” he said.
“Alfa hedge funds have been making their money by gambling with excessive leverage, so the knife that cuts off leverage is going to cut off their heads as well,” he said.
Like many bears, Mr Patterson expects the great crunch to end in deliberate inflation, deemed a lesser evil than outright depression.
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road,” he said.
Matlin Patterson, however, has missed the Spring rebound, the most powerful rise in equities in over 70 years. “We shorted the equity rally because we thought it was lunatic. We’ve kept adding positions seven times, and we’re still holding,” he said. Ouch!
"The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention
Posted May 15, 2009 09:31am EDT by Aaron Task in Investing, Recession, Banking, Autos, Housing
Related: ^DJI, ^GSPC, DDR, XLF, GM, RWR
The green shoots story took a bit of hit this week between data on April retail sales, weekly jobless claims and foreclosures. But the whole concept of the economy finding its footing was "preposterous" to begin with, says Howard Davidowitz, chairman of Davidowitz & Associates.
"We're in a complete mess and the consumer is smart enough to know it," says Davidowitz, whose firm does consulting for the retail industry. "If the consumer isn't petrified, he or she is a damn fool."
Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: "The worst is yet to come with consumers and banks," he says. "This country is going into a 10-year decline. Living standards will never be the same."
This outlook is based on the following main points:
With the unemployment rate rising into double digits - and that's not counting the millions of "underemployed" Americans - consumers are hitting the breaks, which is having a huge impact, given consumer spending accounts for about 70% of economic activity.
Rising unemployment and the $8 trillion negative wealth effect of housing mean more Americans will default on not just mortgages but student loans and auto loans and credit card debt.
More consumer loan defaults will hit banks, which are also threatened by what Davidowitz calls a "depression" in commercial real estate, noting the recent bankruptcy of General Growth Properties and distressed sales by Developers Diversified and other REITs.
As for all the hullabaloo about the stress tests, he says they were a sham and part of a "con game to get private money to finance these institutions because [Treasury] can't get more money from Congress. It's the ‘greater fool' theory."
"We're now in Barack Obama's world where money goes into the most inefficient parts of the economy and we're bailing everyone out," says Daviowitz, who opposes bailouts for financials and automakers alike. "The bailout money is in the sewer and gone."
http://finance.yahoo.com/tech-ticker/article/248398/%22The-Worst-Is-Yet-to-Come%22-If-You
Nope, 5.48 was just a "peck" (technical term - lol), below support. Not to be confused with a "breach". :) Back up we go.
What I like today is that the financials are moving up on light volume. This tells me that this is more daytraders playing a short-term (dead cat) bounce vs. a trend reversal. The trend is still down and will continue next week. Very good news for FAZ, IMO.
gltu
FAZ will not breach 5.50. Strong support here. "So let it be written. So let it be done."
Beginning of the end? Fed cannot account for $9 trillion
The Federal Reserve apparently can't account for $9 trillion in off-balance sheet transactions. When Rep. Alan Grayson (D-Orlando) asked Inspector General Elizabeth Coleman of the Federal Reserve some very basic questions about where the trillions of dollars that have come from the Fed's expanded balance sheet, the IG didn't know. Worse, nobody at the Fed seems to have any idea what the losses on its $2 trillion portfolio really are. "I am shocked to find out that nobody at the Federal Reserve is keeping track of anything," Grayson says. Grayson asked Coleman if her agency had done any research into the decision not to save Lehman Brothers, which "sent shockwaves through the entire financial system," Coleman said it had not. "What about the $1 trillion plus expansion of the Federal reserve's balance sheet since last September?" Grayson asked. "We have different connotations," Coleman replied. "We're actually conducting a fairly high-level review of the various lending facilities collectively." Translation: Nobody at the Fed knows where the money went. - Money News
Dominant Social Theme: Some troubles need to be resolved.
Free-Market Analysis: We saw the interview with Elizabeth Coleman on TV and then again and again and again on youtube.com. It is entitled "Is Anyone Minding the Store at the Federal Reserve?" and it is one of the single most astonishing moments (or minutes) ever manifested or preserved in this already-amazing digital era. A century ago, when the powers-that-be pushed through the act that set up the American Federal Reserve - which basically kicked off the central banking era in America and abroad - the kind of technological ubiquity offered by the Internet would certainly have been seen as a major and alarming challenge. Well, it is.
The Grayson/Coleman confrontation has to be seen to be believed, and even then it may not seem quite believable. How could the Fed, in all its monied majesty, offer up someone so unprepared to answer the questions of a single quiet and persevering congressman. Grayson is a liberal, socialist-oriented legislator - a good government type who is fast making a reputation for taking on government corruption. He is pro-regulation, but has not been shy about confronting high profile institutions. He may not want to shut down The Federal Reserve but he certainly wants to make it operate under additional scrutiny. And he makes it clear he believes the Fed needs it. And now Coleman knows it.
During the questioning of Coleman, Grayson asks her over and over if there is a formal accounting available for the trillions in off-book balance sheet activity for the Fed. He asks patiently, and he repeats the question many times. Coleman stutters, makes statements that are obviously evasive and finally all-but-admits that she actually has no authority even to examine the Fed's off-balance sheet activities. She admits this in a frazzled manner, but only after losing her way so badly that she has to ask Grayson to repeat the question (which he has already asked about ten times.)
What the scenario seems to shows us - and this has already been suggested by the increasingly querulous appearances of Ben Bernanke - is that the huge monetary and organizational powers of the Fed are a thousand miles wide and an inch deep. True, the corporation can create tens of trillions of dollars out of thin air, but such power is not easily shared. Even the heads of large, money center banks are not necessarily part of the very small inner circle of the Fed. It is a group that seems to function almost on a need-to-know basis and its public resources (PR, etc.) are seemingly a great deal less massive than its monetary leverage.
The result is that the Fed is having lots of trouble during this most recent meltdown. First of all this is a most terrible financial crisis and a long way from over - and the longer it goes on, the more the blame is apportioned beyond financial centers and banks, eventually spilling (unlike, say, the 1930s) over to central banks themselves. Second, the available technology means every part of the crisis is playing out in real time with tens of millions watching and commenting. Third, the Fed is not set up as a public entity and its corporate culture is not one that easily provides insight or is amenable to a much-needed advertising campaign. To illustrate how far the Fed is from organizing a public-relations effort, just try to visualize advertising that would help turn the Fed's image around. It is pretty difficult. ("We print money so you don't have to ...?")
Western governments can easily be conceived of as damaged brands - but brands that are refreshed and renewed by elections. The Fed has no elections, or no public ones anyway. Thus there is no substantive, regularized way for the Fed to recover from the battering it is taking in hearings, in blogs and on Youtube every day. True, the Fed has enormous power and could in some manner intimidate or shut down its most prominent critics, but it is likely too late for that. The anti-banking sentiment that is sweeping America (and Europe to a lesser extent) is almost convulsive. It can be seen in on-line comments; from a legislative standpoint it is evident in twin congressional bills to audit the Fed. Here is a Campaign for Liberty update on the bill:
Congressman Paul's Audit the Fed bill (H.R. 1207) [was recently] introduced ... As it stands right now, there are already nearly 150 cosponsors of Ron Paul's AUDIT THE FED Bill -- and the companion Senate Bill (S. 604) has also been introduced.
The Fed has survived numerous challenges, but always these were fairly restricted to legislators and others that traveled in the Fed's ambit. There was no chance that the Fed's inner-most workings would be broadcast to the world, and that the world would see and comment. The Internet has changed all that. The basic trouble with the Fed - and with all central banks - is that the work they do is not defensible within the broader context of democratic rhetoric.
The political idea that carries the most weight in this day and age, in Western societies, is that groups have rights and rights to be codified and implemented by governmental authority to make things fair. Billions and trillions have been spent to create and impose the current democratic meme of fairness in the West - in part to ensure that the mechanism of central banking is left strictly alone - but now in this era of the Internet, the same mechanisms are coming back to haunt those who helped create them. There is just no way to rationalize the actions of the Fed within this context. It is not a fair organization; it has no obvious entry point and no clear relationship to the electorate.
Just as the removal of Dan Rather was a watershed moment for the rising power of the Internet from a media standpoint, the confrontation between Grayson and Coleman will come to be seen (in our humble opinion) as a watershed moment. Last week, the American Federal Reserve - and thus all central banking - was stripped like the Emperor not only of clothes but of credibility. It was revealed as naked and even shamed. (Take a look at the two individuals behind Coleman and watch as they literally writhe during her grilling.)
But here is the real issue. By putting Coleman up in front of Congress in such an unprepared manner, the behind-the-scenes leaders of the Federal Reserve have provided an unimpeachable metaphor. Coleman's testimony punctured the veil of secrecy and her lack of preparedness lance whatever aura of competence Ben Bernanke and others have been able to conjure. Metaphors can NEVER be undone. They can be covered up over a great deal of time, perhaps, but they cannot be explained away or rationalized. They exist. That's why they're metaphors.
The economic ramifications of what is going on couldn't be more obvious either (well, to us, anyway). Post Coleman, the Fed is suddenly, inconceivably, an institution fighting for its political life. (Perhaps you read it here first ...) This financial behemoth, the most powerful single entity in the world, has likely already begun to topple. But as it is with any figure of titanic proportions, the fall is still silent to begin with for contact with the ground has not yet been made.
Central banking will likely survive in one form or another. No institution of such authority simply vanishes. The money and power of central banking guarantee that the mechanism will be perpetuated somehow - even expanded from sheer momentum. But a regrouping will have to take place. Even if central bankers are able to maintain the outward manifestation of the economic mechanism, it has begun to rot from the inside as it topples. It may take a month, a year, a decade but changes are coming.
Several years ago, American news announcer Dan Rather was exposed and stepped down from one of the most powerful posts in broadcast journalism. Today mainstream newspapers are dying in droves and the mainstream media itself, especially television, has seen an aggressive contraction of viewers. The ramifications of the Coleman grilling will spread like ripples in a pond and central banking will not be same in several years and neither will the societies it served.
As the Fed loses credibility, as central banks continue to come under fire, it will become less and less feasible to blame the market itself. True, there are levers of government to pull and central bankers have been extraordinarily skilled at putting the blame on everyone else and thus accumulating even more power for their governmental and regulatory allies. But there comes a time when the power of the leaders begins to be questioned by the masses of the led. And there are a hell of a lot more who are led than lead.
A lot of socially dominant themes are in the process of collapsing as the Internet continues its merry path of destruction. Global warming, peak oil, big pharma - all these memes are under heavy attack. The monetary elite can seek to sustain them, but credibility is central to promotion. If themes cannot be promoted because they are not believable anymore, than all the money and government power in the world cannot purchase their acceptance. This is what is going on today, in our opinion. Central banking was the biggest meme of all, and one we believed would be the last to fall. But this great financial crisis has stressed the banking elite nearly to the breaking point. Those are not just words. Go see it on Youtube for yourself.
Conclusion: The erosion of the implicit authority of central banking corresponds to the single biggest bout of money creation since the 1970s. If central banks, and the Fed in particular, are so wounded by a loss of credibility that their competence becomes questionable in the public mind, then it will be a great deal more difficult for it to continue the kinds of money manipulations that have sustained Western paper money economies.
The ramifications are massive and obvious. If the Fed is audited and its actions restricted (by public opinion not legislation - which may soon seek to expand Fed powers), then much of what it does in secrecy may not be accomplished. The prices of gold and silver could rise massively along with price inflation. The dollar could indeed lose its place as a reserve currency and its survival might even be in doubt. There would certainly be more efforts at centralization of financial affairs, but we speak here of confidence and trust. It will be increasingly difficult to impose further concentrations of power as a solution for incompetence. The ramifications are a good deal closer today than yesterday.
To watch the Grayson/Coleman confrontation, click here.
http://www.thedailybell.com/bellPage.asp?nid=384&fl=
My sentiments exactly.
Interesting read posted on Yahoo:
Excerpts from last nights Dow Theory Letter. If you don’t read Russell or subscribe to his letter I highly recommend it. He has seen more cycles than just about anyone on the planet and his advice is priceless:
Now, I believe, we are in a primary bear market that will ultimately “clean house.” It will deleverage business, consumers, traders, nations and every other area that has been leveraged. The process will be extremely painful, as all bear markets are, and in the end it will bring stocks, assets, real estate, back to around the basic values that existed prior and just after WW II.
For a long time I have stated that anyone under the age of 75 has never seen “hard times.” I believe hard times lie ahead — they are already here for many people in the US and around the world. I’ve said that a house is a good buy when you can buy it, rent it out, and pay for all your expenses and still come up with a profit. I’ve said that stocks are a “bargain buy” when you can buy blue chips at 6 or 8 times earning and when dividends on the Dow or the S&P bring you a 5-6% return.
If this is true, this bear market has a long way to go. But what I did not envision is our government running deficits in the trillions of dollars. Running these fantastic and outlandish deficits in the trillions of dollars means that the US will have to sell an incredible amount of bonds to our creditors. Or we will have to inflate, create the money out of thin air. Many years ago I wrote that the fate of the US will be expressed in three words — INFLATE OR DIE. We are there now. Printing trillions of Federal Reserve Notes must end in inflation.
Ben Bernanke views deflation as “dying.” He has decided that we must “inflate or die.” Bernanke has decided that the method of fighting deflation is to smother it with money. Create enough money and deflation will be overwhelmed. But if you do that, what will happen to your currency?
If I produce 100 million toy bears, what will happen to the price of toy bears? The price will collapse, and at some point nobody will want a toy bear. They’ll hate the very look of a toy bear. They’ll buy toy hyenas or toy Bratz dolls instead.
And that’s where we are now. I see the future (and the markets) as rocky, volatile, unstable and full of cross-currents — plus unintended consequences.
Now I hear talk of devaluing the dollar. If we do that, the dollar will buy more while debt remains the same. Devaluing makes debt easier to handle. The US devalued the dollar against gold in 1933 when it raised the price of an ounce of gold from $20 to $35.
But how do you devalue today? There is no standard (like gold) any longer. You’d have to devalue the dollar against every major currency — against the pound, against the euro, against the yuan, against the yen. You can’t devalue the dollar against gold, because gold is no longer recognized as the ultimate standard of currencies.
Yet as the dollar declines against other major currencies, the price of gold will rise. The reason gold has not hit new highs against the dollar is because the dollar has been fairly strong against other major currencies and gold is priced in dollars.
Severe damage was done to the bear market rally today. At the close the Dow was 290 points below its May 8 peak. Worse, the Transports are down 352 points below their respective May 8 peak. Unless both Averages turn around and advance to new highs (and I emphasize both averages) I think this rally is over.
Note that the Transports would have to rally 352 points to better their May 8 peak of 3351.17. I don’t have a crystal ball, but I don’t think they can do it. If they can’t, the market will either sink into a trading range or test the March 9 lows. On top of everything else, today appears to have been a panic 90% down day. Holders of DIAs should be out at tomorrow’s opening.
That’s it, from the recovering –
R man.
If you have a credit card with BAC, you better scrutinize it. I just received mine, made my monthly payment on time, but was still hit with a late fee. Now, I need to call them to have this reversed. The bastards probably figure that they will try to slip through any fee they can to the consumers (regardless of the validity) before tighter restrictions go into effect.
Agreed. I expect the market to be slightly green today and tomorrow as a result of options expiration tomorrow. The downtrend in the market should resume next week with further deterioration of the financials over the coming months.
Looking to add FAZ @ 5.50.
Good job! I was not implying that FAZ buyers this morning were the amateurs. On the contrary, those buying the head fake market bounce this morning were the amateurs IMO. gltu
Amateur 1/2 hour just about done. FAZ will go green @ 10 a.m. No new news out this morning to prop up the financials.
Asian markets tumble as worries about US consumers halt rally; Tokyo, Hong Kong off 3 percent
On Wednesday May 13, 2009, 11:54 pm EDT
HONG KONG (AP) -- Asian stock markets tumbled Thursday as signs of distress among U.S. consumers dashed hopes of a quicker recovery in the world's largest economy.
Every major market was hit by sharp losses, with Japan and Hong Kong indexes down around 3 percent, as an aggressive nine-week rally started to reverse course.
The recent surge has been driven by a theme of economic renewal supported by less dismal news about the financial sector, industrial production and by government stimulus measures.
But investors saw little to pin their hopes on after the U.S. Commerce Department said overnight retail sales unexpectedly dropped in April for the second straight month. Separately, a private-sector report showed a troubling rise in home foreclosures.
The number were unsettling because any recovery -- particularly in export-driven Asian countries -- could prove elusive without a rebound in demand from the U.S., whose consumers are a lynchpin of the global economy.
Analysts say the markets were due for a correction after the spring surge.
"There has been detachment between equity markets and the fundamentals. We were in a period of suspended disbelief," said Kirby Daley, senior strategist at Newedge Group in Hong Kong. "The hype has passed and as reality sets in, there's only one direction that market can take and that's down."
Japan's Nikkei 225 stock average dropped 259.42 points, or 2.8 percent, to 9,081.07, and Hong Kong's Hang Seng lost 565.58 points, or 3.3 percent, to 16,494.04. South Korea's Kospi shed 2.1 percent to 1,385.37.
Australia's benchmark fell 3.2 percent, Shanghai's index lost 1.8 percent and Taiwan's stock measure shed 1.3 percent.
Wall Street was similarly unnerved by news about U.S. consumers.
The Dow Jones fell 184.22, or 2.2 percent, to 8,284.89. Broader stock indicators sank even more sharply. The Standard & Poor's 500 index fell 24.43, or 2.7 percent, to 883.92.
The slumping stock market helped drag oil prices even lower despite data showing shrinking crude supplies in the U.S. Benchmark crude for June delivery lost 34 cents to $57.68 a barrel in Asian trade. The contract shed 83 cents overnight.
In currencies, the dollar inched higher to 95.47 yen from 95.36 yen after a steep fall overnight. The euro was slightly lower at $1.3556 from $1.3559.
Looking for FAZ to cross FAS @ 7.29 tomorrow...
You flip-flop more than Cramer....credibility = zero IMO but gltu
One of many to fail in the coming months IMO.
I am holding FAZ through tomorrow. All indications are that the weekly unemployment #'s (scheduled out tomorrow) will be dismal. This news, on top of the poor retail #'s out today, should result in another 3-4% down day for RIFIN tomorrow = another 9-12% increase for FAZ tomorrow. JMHO
FDIC PLANNING FOR HUGE BANK FAILURE?
By TPC. |
Late reports this evening are citing an anonymous source that says the FDIC is preparing some sort of superfund that could handle the failure of a large “systemically important financial institution.”
Reuters reports:
“Another source familiar with the FDIC’s plans said on Tuesday that the agency was considering seeking to create a new fund to help deal with any resolution of systemically important financial institutions.”
The details on this story out of Reuters are very vague so this is mostly speculation, but such a development would not be shocking to anyone familiar with the state of the U.S. banking sector. FDIC losses are quickly mounting and they are certainly ill-prepared to handle a major failure. Shoring up the FDIC is a wise insurance policy if nothing else. Or they could be preparing some U.S. banks for the same fate as Chrysler and GM. A welcome development in my opinion.
As regular readers know, the recent government induced rally created the perfect environment in which to raise capital, but these capital raises only place band aids on axe wounds. The patient is suffering from cancer and we’re performing chemo to no avail. The tumors must be removed. Instead, we continue to allow the banks to operate with the toxic assets on their balance sheets. The government knows real estate losses and credit card losses are mounting. They also know the TALF & PPIP will not succeed as the banks have no incentive to sell assets.
Is there a chance the economy rebounds sharply and these banks are able to earn their way out of this crisis? Certainly, but the odds of a prolonged and sluggish recovery are far too high in my opinion to allow these banks to operate in their current state. The government knows they can’t prop up 8,000 banks forever and I suspect they are none too pleased with the stress test results if the economy were to remain sluggish for longer than expected. The only resolution: FDIC receivership. In this case, perhaps a rather large one….
http://pragcap.com/fdic-planning-for-huge-bank-failure
I think with the jobless/unemployment #'s coming out tomorrow (and not expected to be good due, in large part, to the Crysler plant closings), FAZ & FAS should cross tomorrow IMO.
Picassa, do you have a target pps for FAZ? tia
Added a bunch @ 5.22. Slow and steady will win the race.
Four bad bear markets. How does this one compare to the previous 3? Lots more downside coming IMO.
http://dshort.com/charts/bears/four-bears-large.gif
Ummm, please let the nurse know that I NEED the medical attention first!!!!!! :) Wowsa!
FAZ @ HOD and steamrolling towards $6+. Meanwhile, Bernanke is working on his next Financials pump. Unfortunately, there is not much left in his magicians hat IMHO.
Why is his pig vibrating so much? Is Bernanke standing behind him, out of view of the camera? :)
Looks like financials setting up for a hard sell-off EOD today.
Patience Grasshopper....Volume in the financials is already starting to fall off from last weeks record highs. The "media hype" is clearly fading today. The correction in the bank stocks will start this week. Not a matter of "if" but "when". gltu
Confucious say - he who sell bottom wet own bottom when market have parabolic reversal...
WFC up $3. Offering priced @ $22 and people can't get enough of it @ $27. I hope that we have enough straight jackets to go around...
Don't ask me. Obama & Bernanke just took a dump all over my crystal ball! It's going to take weeks for me to clean this thing up! :)
Thank you, may I have another? :)
BAC coming back down to earth now. Did GS/the Gov't blow all their load buying up the financials in the first 1/2 hour of trading this morning and are now out of ammunition?
Kass: Party's Over for Financials
05/08/09 - 08:02 AM EDT
Back two months ago, investors, preoccupied by the toxic assets that infected the balance sheets and capital in the world's financial institutions, ignored the value of banking franchises which possessed, at their core, a stable and low-cost deposit base.
Today, investors, preoccupied by the extraordinary reversal in price momentum, are doing the opposite -- that is, buying up the sector in Internet time as if the major money center banks are the reincarnation of late-1990s market leaders Google (GOOG Quote), Amazon (AMZN Quote) and AOL.
The proximate cause for the remarkable ramp this week is investors' optimism that the stress test and its recommendations will be the final chapter (and an exclamation point!) to improving the stead of the industry's capital inadequacy. The general view seems to be that there will be smooth sailing after a final meal at the capital trough in the weeks ahead.
I am less optimistic.
The overshoot to the downside through early March has now morphed into a frenzied buying stampede and pricing disequilibrium that, as expressed below, is ignoring the damage to the banking industry's balance sheets, a continuing negative loan-loss cycle and the reduced earnings power of the industry.
A series of dilutive capital raises has served (and in the future will likely continue to serve) to reduce the earnings power of many financial institutions, both from the standpoint of higher interest expenses and more shares outstanding.
Many financial institutions have jettisoned profitable businesses in order to replace the lost capital from the drain of toxic assets, serving to permanently cripple earnings power.
While there has been second derivative improvement, there is growing evidence that the consumer loan-loss cycle will weigh on banking profits for years to come.
The commercial or nonresidential real estate downturn is only beginning to be felt on banking industry profits; it, too, will be a drag on earnings for several more years.
Forward earnings power will be limited, owing to government restrictions on a reduced ability to lever up capital bases as well as a more moribund capital market in 2009-2011 (vis-à-vis the early 2000s).
The banking industry, more than nearly any other market sector, is exposed to a possible double-dip in the U.S. economy in late 2009-early 2010.
Even if the economy does not double-dip, my baseline expectation of an uneven, lumpy and inconsistent economy over the next three years will prove hard for the financial industry to navigate in.
From my perch, investors should sober up and reduce their holdings in financials now. Financial stocks are now priced to perfection.
Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.
http://www.thestreet.com/story/10498431/1/kass-partys-over-for-financials.html
Except for the biggest diluter of them all - BAC. Very odd.
I remember the days when this was viewed as very bad news...
Meanwhile, losses in 2009 and 2010 at the 19 banks could total $600 billion under the government's scenario of a deepening economic downturn. Mortgage loans and consumers loans could account for 70% of the potential losses.
LOL.
AIG posts $4.35 bln loss in first quarter
UPDATE 1-AIG posts $4.35 bln loss in first quarter
Thu May 7, 2009 4:52pm EDT Email | Print | Share| Reprints | Single Page[-] Text [+]
* AIG Q1 loss equal to $1.98 per share
* Shares fall after report
NEW YORK, May 7 (Reuters) - American International Group (AIG.N), the insurer bailed out by the U.S. government, reported a $4.35 billion first-quarter loss on Thursday, its sixth-consecutive quarterly loss.
A source familiar with the insurer's financial position had said on Wednesday that AIG would report a loss of about $5 billion.
AIG's first-quarter loss was equal to about $1.98 per share, according to a company statement issued after U.S. markets closed on Thursday, compared with a $7.81 billion loss in the same period a year ago.
AIG had a $61.7 billion loss in the fourth quarter, the largest quarterly loss in corporate history.
AIG shares, which closed up 6 percent at $1.95 in the regular session on Thursday, were down almost 5 percent after the report. In the last year the shares have traded between 33 cents and $48.65, according to Reuters data. (Reporting by Lilla Zuill)
© Thomson Reuters 2009 All rights reserved
FAZ open tomorrow @ 6.50++?
Crazy stuff. WFC was down $1 in AH (on this news) and now is bouncing back. Maybe GS is propping them up? Crazy chit...I still think it tanks tomorrow but with this whacky market, anythings possible.
WFC dilution news just out...WFC should open under $20 tomorrow. Will be a good day tomorrow for FAZ IMO.
Wells Fargo to sell $6 billion in common stock
By Alistair Barr
Last update: 4:10 p.m. EDT May 7, 2009Comments: 4
SAN FRANCISCO (MarketWatch) -- Wells Fargo (WFC:Wells Fargo & Co
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Last: 25.00-1.84-6.86%
3:59pm 05/07/2009
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WFC 25.00, -1.84, -6.9%) said late Thursday that it plans to sell $6 billion in new common stock to help the bank raise capital to meet requirements from the government's so-called stress test.
FAZ 6.25 close as the financials crap out in the last 1/2 hour.