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That's a thought....
Cut the fee's in half... a 1% on TRILLIONS will help.
I'm game. Then, let's allow competition to move the fees down to .5%.
I'll vote that one in.
One cannon scares the beegeebies out of everyone! The other canon is small, but the barrell is thick & heavy... it's hard to position it!
When it blasts, it blasts LOUD! I love it! Remember, WE GO DOWN LAST! That's the rule at my house!!
Any time you need a cannon Nick, I'll send it your way. But when I do, warn your radio-wave folks to turn the dishes more vertical!
I forgot the project name... is it Neti?
Bravo! Well said!
Actually, there is a great deal of opportunity in the car industry.
If you roll back time & think of when there were 1 in 100 people who had vehicles, the opportunity was highly visible. Through decades, the stat's have changed (in the USA) to 1-to-1. There is ZERO opportunity at that level.
Now then, I bet 1 in 10,000 has a hybrid. Uhmmmmm... our country MUST go that route... and Uhmmmmmmm.... maybe that opportunity is less than obvious, but it's come full circle.
This is not a pleasant environment for our country or industries to be in. The repercussions will move through many industries & affect MANY households. The points you both (Court & Richard) are making are profoundly accurate.
On the flip side, the Home Depot traffic has moved up like there is no tomorrow. You would never know, in some states, that a recession is going on. Why? Because the improvements to re-fi's & such are escalated. Talent & money has moved to that effort. "If you can't build 'em, fix 'em".
Actually, it does not affect us. I will PM you.
Bless you. It is written much better than my attempt.
Are you watching GG? Makes me sick... I sold. Dannnnnnng.
Chrysler has hit the vendors hard. GM debt, unsecured, will do even worse.
The ripple effect will be enormous, make no mistake. All the talk is about secured debt.... there is another side of the equation which is, in itself, HUGE.
I got my gun, the ammo is on the shelf, & my diamond is on my finger. Am I ready???
Like you said, when your customers turn optimistic, then the time is at hand.
Send Greenspan a list of your customers... include phone numbers... YOU MIGHT MAKE THEIR DAY!
Make the public smile... get the money flow going.
It's a MACRO effort. If you say it, they will make it happen.
Economy of Dreams... (my apologies to Kevin Costner)
VISA, in 1977, came to us with a pitch to dissolve our in-house accounts (which they tried to prove cost us 7% of CREDIT sales) in favor of giving them 4% on every transaction of credit sale.
Sounds good, but it was strictly for those that charged (which, at the time, was a small percentage of transactions). The balance of sales, not charged, were 100% ours.
Now, VISA has made the "imagine the possiblities" and everyone, everywhere, flashes plastic. Additionally, advertisements discourage use of greenbacks in favor of credit cards.
The result? Lower VISA cuts on the sale (now about 1.5%-2.0%) but nearly ALL sales are credit card. VISA also discourages you from writing a check because THEY will settle disputes & give you (in some cases) some sort of warranty.
If you would imagine that ALL sales in the USA were credit and that VISA & gang gets 2% off the top... stealing from the company who generated the sale... then it becomes immediately apparent that the seller does all the work & VISA gets paid for running a stupid server while their employees watch the screens "making them money" everytime an American goes shopping.
Makes me sick. If we could just discourage giving 2% to VISA & let the businessman keep what he well deserved & earned, we could change the face of this county. Two percent on TRILLIONS is not something to ignore.
But then again, that would be a re-distribution of wealth from the loan shark back to the businessman, no?
Wow... those toxic assets! (we should call them 'legacy' now?).
Hello to the silly new investors! Those toxic assets, which are currently 'surmised to be toxic', are about to actually
BE toxic and thus prove their worth... or lack thereof. Those invested in the banks holding them will surely feel the pain.
A double hit will be when the bank holds the loan plus has a stake in the derivative of that loan & ... opppps... the loan goes bad.
Hmmmmm. Not for a merry night of drink, no?
I've had the same credit card since 1987 (boring.... no??). I called them to stop all the 'checks in the mail' & guess what? That service is outsourced from India & takes 6 weeks to implement. Anything sent in the interim can still be used.
Some fun, huh? At least I got it stopped! They all look like junk mail & can easily be tossed unopened by me... but can be opened by someone else!
Don't let them send them anymore! I doubt you use them, but thieves cruise mailboxes....
I share your concern about the aptitude of bank managers & have stated (more than once) that the fate of free enterprise, along with who will ultimately survive, is in the hands of the jokers at the banks.
More important, the graphs on the links were current & updated. Many pieces of the puzzle started coming together for me when I studied them.
My concluding impression was that the worst is yet to come. The stress tests are a hocus-pocus when viewed as "prudent, comforting tests" because the results are more than a "gee-whiz"--> a mandate resulted to get more capital. Why would the administration pet & whisper sweet nothings to the public while financial stock prices rise & then throw down the gavel to increase capital when the stock prices are at their highest? And, to boot, dictate the increase in capital based on a "what if"?
Fools rushed in & capitalized just before the train is about to hit them. It doesn't appear to be a slow moving train based on the graphs.
So... stock markets rise... bank shares rise... the world will get better and therefore money in safe places should be taken out & invested in banks who... uhmmmmmm... will waste that money within the next 24 months. But, in so doing, will not lean so heavily on the governement. Alas, the better-than-poor investor bought the bait. JMHO.
The bandaids for backing off foreclosures have expired. The full force of our economic situation is coming down with a heavy hand (as evidences by foreclosures in April... most of which were those which were stalled by bandaids).
If the wave of Alt-A plays out without some sort of cushion, then something wicked this way comes.
Sorry that I was so short with you (in length, not in temperament). My 36 year old son-in-law had a stroke on May 1. Life has been very hectic from that day until sometime in the afternoon yesterday.
We might not get 100% of him (physically) back, but things turned around whereby we might get 95% of him back. His double vision is nearly gone; the right side leg, arm, and hand are responding almost normal, but he still has numbness on the right side. Little by little, the numbness should improve.
Whewwwwww! This has been very, very hard on everyone (especially him!). But it looks like blue sky is ahead.
So, I apologize for the short question, but I had very little time to ask.
Elroy,
Would you read these two links & give me the general 'vision' they might project?
TIA
Elena
Http://www.calculatedriskblog.com/2008/08/reset-vs-recast-or-why-charts-dont.html
Http://www.calculatedriskblog.com/2009/05/loan-reset-recast-schedule.html
Gaaaaaads... I just l-o-v-e the interim 'gut' feelings! Tea leaves & gut... How odd that, somehow in that 'mix', we got game...
This run just MIGHT do it! But even the Bradley dates have June & July smacked all over them. The Jun 3? The Jun 26? The July 14th (strong)? And Gann... stuck in the middle of all that sittin' on Jun 25 (+/- one week)?
What to do?!! I just want a good 3wk short term in/out phenomena...
Looking at LVS, LGF, and wondering just how high Macy's will go...
Good post (quite comprehensive... I want to add some discussion, okay?).
the FED saw "green shoots" over a month ago. GDP was predicted at around -4.75 it came in at -6.1.
Possibly these were green 'stubbles' rather than shoots? There are 2 more revisions (this is the 1st of 3). Which way do you think they'll go? Look at this pattern and HOW MUCH will be necessary to change the course (remember that the there are two more revisions coming).
The rush to refi will disappear as quickly as it appeared, interest rates will have to rise as those "green shoots" grow Don't the Alt-A loans start resetting next? Won't there be a problem akin to the sub-prime problem?
Having said all that the market could add another 20%. That's what WS insiders want. They probably also want the 30-40% correction because they'll be the first out at the top Yes, WS wants an advance of 20-30%. That's the ONLY place that they can make money by just flappin' their lips & hyping folks into letting cash out of their wallets. And, yes, they want the 30-40% decline thereafter because they will have shorted the market & made (stole) money on the way up AND the way down. I just don't want to get in the way of that!
The good news; 4th quarter earnings comps will be a cake walk. If the Bull market hasn't resumed by then I'll be surprised. In my opinion that will be the real start.
Great point on the qtr-to-qtr comparisons. That puts us in an happier mood in Q1'10, no? And, if consumers were tapped-out last year (remember, Q4 had nearly 1/2 of the job losses from the period Oct'07 thru Dec'08), then what will it be like Q4'09 when 6,000,000 of this years current 'drawing' unemployed have months & months of financial wreckage coming into Q4'09? ... much less buy the Christmas season? I really think alot about this... it takes a family over a year to bounce back from 3 months without employment income. Yes, unemployment can put food on the table, but employment income pays for every other family obligation. This puts the family in a 'raise cash' mode. How can we possibly have a good Q4 for the consumer? Do you think the improved Q4 would be service industry... or manufacturing?
You are right! There are major & minors in Bradley. The same holds true for GANN angles....
First, Bradley Indicator. Second: Gann Chart
~~~~~~~~~~~~~~~~~~~~~~~~
Bradley Indicator
..."The Bradley Siderograph is a popular indicator many traders rely on, to get an overview of possible larger turning points in an upcoming trading year. It is known for it's inversions, so it's not so good in showing whether highs or lows are coming but more so ... when major highs and lows can be expected. So using other indicators in combination with the Bradley, could give useful clues about future larger tops and bottoms."...
Bradley dates indicating market turning points in 2009, dates in bold marks more important turning points... notes after the date are mine:
June 03
June 26 ( <-note: GANN chart below marks this date)
July 14
September 14
October 22
November 11
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Now, the GANN chart (love those lines in the sand...):
Having said this, I should explain myself a bit better...
If all I had to do 65 hours a week was "charts & charting interpretation", my guess is that I'd be the best dang chartist around. So, I don't envy a good chartist but rather give well-deserved respect to him (or her).
This is to say that I've reviewed 3 of my best chartists & read their interpretations. The best assessment I got was the attraction of prices (in this upturn) to be pulled by a Dow level of 9000-9655 and an S&P level at 1000. Prices should NOT exceed those levels, but rather are "attracted" to those levels. Of course, an upturn can stop shy of those levels.
Once that push upward finds its exhaustion, a pretty doggone tough downturn will commence. This is probably why every studious reader of the market knows that the bear trap is in play. Precisely said in the previous post, the High Risk Takers are propelling the upturn and will, as they normally do, cause low-risk folks to move assets from safe havens & put it back to work in the market.
What happens, IMHO, is that those who step back into the market have zero comprehension that this is not a buy & hold market, but rather that they must (by all reason) be nimble and... more importantly... give a great deal of attention to their money. That folks have moved from brokerage firms & are attempting to manage their money is wonderful, but only if they have the wherewithal to be successful at it. We are in a market that does not have sophistication levels and the clout that goes with those levels. Many of those novices will get caught in this bear trap.
I think I wrote Mike about some strong Gann Angles clustering at June 26th (plus or minus one week) and a Bradley turn at at nearly the same date. There is another Bradley (strong) turn signal at July 14th. It really doesn't matter if anyone other than me follows this or not, but what you should get from me is that the propensity of the market to turn in the early summer months is extremely high. Both the Gann & the Bradley turns were set in place in early March & remain (by the manner of the theories) absolutely unmoveable.
Granted, a "turn" means that if the market is going lower into the "turn" timeframe, it will turn & move higher. If it is rallying into the timeframe, it will turn and move lower.
It's hard to believe that the market will go down through June 26th & then turn into rally mode. It's more logical to think it will rally up to June 26th (+/- one week) timeframe & then head south.
So, that's the vicious bear trap being set up.... and I really think they have it right. Would love to hear from anyone who has better tea leaves! At least they have provided the Dow & S&P "levels of attaction" in an upward advance, signaled that prices should not exceed those levels, the prices should turn down strongly when they exhaust the "pull" toward those levels. Then, the theorist, irrespective of the chartist, gave the dates. How good can it get?????
LOL! This has been going on for years, no? But, heh, it makes life a bit easier when tea leaves are right 70+ percent of the time. Now that I've laid out what respectable chartist say, we can all see how it plays out.
This perfectly explains our markets, our (former) big brokerage firms, and our banks!
~~~~~~~~~~~~~~~~~~~~~
Five Fundamental Laws of High Risk Takers, as distorted from Carlo Cipolla.
1.) A person is a High Risk Taker if they cause damage to another person or group of people without experiencing personal gain, or even worse, if they also cause damage to themselves in the process;
2.) The probability that a given person is a High Risk Taker is independent of any other characteristic of that person;
3.) A Low Risk Taker always underestimates the number of High Risk Takers in circulation;
4.) Low Risk Takers always underestimate the harmful potential of High Risk Takers; they constantly forget that regardless of the circumstance, dealing with or associating themselves with High Risk Taking individuals is a costly error;
5.) A High Risk Taker is the most dangerous type of person there is.
~~~~~~~~~~~~~~~~~~~~~~~~~
This completely explains why we are in the quagmire we are in, why our banks have failed the depositors, and why the market is currently rallying.
This current rally is but a prelude to a very vicious bear trap.
Oooooooooops... what does that do to the stress test levels in GDP??? They are a farce, no?
Did they mark down their bonds to 'trade value'? Pennies on the dollar? Is that baked into the present capital?
Actually, he was being facitious... and humorous at the same time! There was a grin written all over that statement!!!
If you re-read it, he was havin' fun with the board! Dannnnnng... I laughed out loud when I read it!
I'm having trouble doing a visual on 'pimp slapping by the market' ....
ROFL !!!
Since I can't provide a link; here's an article I think we all need to read regardless of its length:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
The Rude Awakening
April 24, 2009
The Recovery That Isn’t
By Eric J. Fry
“We do not want a disclosable event.”
Thus spoke former Treasury Secretary Hank Paulson to Bank of America CEO, Ken Lewis, last December. Paulson’s remark came in response to Lewis' request for a letter from Fed Chairman Ben Bernanke, acknowledging the government’s insistence that Bank of America acquire Merrill Lynch, despite the brokerage firm's mounting mega- billion-dollar losses.
This one little phrase probably tells you everything you need to know about Henry Paulson, the man who put the “secret” in Secretary. And this one little phrase certainly tells you everything you need to know about the structure and actual objectives of the bailout campaigns Paulson orchestrated.
Specifically, the Paulson bailouts sought to divert hundreds of billions of taxpayer dollars toward Wall Street finance companies, and to do so as secretly as possible. In the name of "systemic risk," the former Treasury Secretary dispensed hundreds of billions of dollars to the likes of AIG, Citigroup, and his former employer, Goldman Sachs, without ever seeking or receiving a single vote from an elected official. Thus, as it turns out, the only system genuinely at risk during Paulson’s tenure was the American system of honest and transparent financial markets.
The initial bailout facilities were created and implemented by Paulson and Bernanke, two unelected officials. And none of the initial bailout schemes ever faced scrutiny from elected officials, much less a formal vote. Even though some of the subsequent bailout programs, like the TARP, did face a vote in Congress, the Treasury Secretary continued to champion numerous ex-legislative activities, like the backdoor bailout of Goldman Sachs through the $170 billion bailout of AIG, and the shotgun takeover of Merrill Lynch by Bank of America.
According to the February 26th testimony of Bank of America CEO, Ken Lewis, before New York State Attorney General, Andrew Cuomo, Paulson strong-armed Lewis into completing the Merrill takeover, without disclosing to B of A shareholders that Merrill’s losses were much larger than publicly disclosed.
"Lewis testified that he asked Federal Reserve Chairman Ben S. Bernanke to ‘put something in writing’ regarding the US government's plan to support pack of America's acquisition in view of Merrill's mounting losses," Bloomberg news reported yesterday. “After Bernanke said he would consider the idea, Paulson called Lewis and said, according to Lewis, ‘First, it would be so watered down, it wouldn't be as strong as what we were going to say to you verbally, and secondly, this would be a disclosable event and we do not want a disclosable event."
Inconveniently, non-disclosable events are also illegal events. "Paulson kept the Securities and Exchange Commission, which is responsible for making sure companies disclose material information to their investors, in the dark, according to Cuomo," Bloomberg news continued. "The allegations [by Cuomo] suggest Paulson and other policymakers may have resorted to breaking securities laws in order to protect a fragile financial system…”
Do the ends justify the means? Yes, if you're a muckety-muck at Merrill Lynch or Goldman Sachs. No, if you’re anybody else. Paulson's groundbreaking lawbreaking facilitated the survival of institutions that deserved death, in the process amassing trillions of dollars of fresh liabilities for American taxpayers who deserved to be left alone.
The adverse effects of these criminal acts extend far beyond annoying your California editor. For one thing, bailing out incompetent executives enables the incompetent executives to continue their incompetent behavior. For another thing, lavishing hundreds of billions of dollars upon ailing, functionally bankrupt companies, promotes a web of deception and illusion that impedes the healing process that would lead to a bona fide recovery.
If you hand $10 billion to any bankrupt company in America, that company will seem healthy for a while. The truth of the matter is that the Paulson bailouts, along with subsequent multi-trillion initiatives, have injected various finance companies with short-term stimulants that produce an image of health, while leaving the underlying disease untreated.
The resulting fraud is that diseased corporate entities appear to be recovering. They can pretend they are A-OK once again, while the top brass at these companies can pretend they no longer require government assistance - certainly not any of that dreaded TARP money that imposes limits on obscene executive compensation.
Eventually, as a result of all these falsehoods, investors begin to imagine that they actually see what the finance companies’ CEOs pretend to see. And before you know it, you’ve got a great big rally in bank stocks, fueled by nothing more than deception, hype and hope.
Is your California editor being too hard on the Wall Street boys and girls? He thinks not…and neither does his colleague at the Australia Daily Reckoning, Dan Denning:
“So the banks have returned to profitability have they? If that were true, bank balance sheets would also be recovering. But that’s not true.
“The big three banks reporting recently – Citibank, Goldman Sachs, and JP Morgan – all reported huge revenues from their trading desks. As we reported last week, Goldman's $6.6 billion in trading revenues was not only 70% of total revenues, but it was also a ten billion dollar improvement on a $4 billion loss in the fourth quarter.
“JP Morgan reported nearly $5 billion in revenues from trading fixed-income securities. And Citigroup reported $4.69 billion in fixed-income trading. In fact, all of Citigroup's other major operating segments reported declining revenues for the quarter. Its global credit card revenues fell by 10%. Consumer banking revenues were down 18%. And Citi's Global Wealth Management revenues were down 20%.
“But something magical happened in the fixed-income trading group for Citi. If you dig into the quarterly report, you'll learn that fixed-income trading revenues were boosted by a net $2.5 billion positive CVA on derivative positions, excluding monoclines, mainly due to the widening of Citi's CDS spread.
“That takes some sorting out. A CVA is a ‘credit value adjustment.’ As you can learn here, it's the credit risk premium of a derivative contract. Once you sort it out, you learn that Citi ‘made’ $2.5 billion on a derivatives position designed to profit when the companies own credit default swaps spreads widen.
“Or, in plain English, Citi profited because it made a bet that the cost of insuring itself against a default would go up. The credit default swap market is the place where you can bet on the credit worthiness of a firm, or, essentially, the chance that a firm might default on its bonds. Citi appears to have reported a $2.5 billion trading gain in the fourth quarter precisely because the market thought the company stood a good chance of failing (hence the widening CDS spread).
“As far as we can tell, if you use this kind of perverted logic, the closer Citi gets to bankruptcy, the more money it would ‘make’ on its derivatives. That shows you how bogus the quarterly number was. The company reported declining revenues in its core banking and lending activities. But thanks to fixed income and this handy $2.5 billion CVA, the company was able to report $1.5 billion in net income.
“Also, don't forget that all of the banks benefitted from what financial sector analyst Meredith Whitney called back door financing." Whitney described what amounts to Fed-sanctioned front- running of the fixed income market by the banks. The Fed publicly telegraphed its intention to buy $750 billion mortgage-backed securities from Fannie Mae and Freddie Mac and $300 billion in U.S. Treasury bonds. And that was AFTER it announced in late November of last year it would be wading in as a buyer for all agency bonds to support the U.S. mortgage market. In other words, the big banks were able to take positions in the exact securities that they knew the Fed would be buying. Huge profits were not guaranteed, just highly likely.
“Since the financial statements of the banks don't break trading revenues out a line item basis, it's hard to say how much money each bank may have made by frontrunning the Fed's actions in the bond market.
“But from the looks of it, what we have here is a kind of back door subsidy to bank profitability provided by the Fed. First quarter earnings were strongly boosted by an increase in the valuations of mortgage-backed securities that went up with Fed buying. Before you get all excited about the recovery in financial stocks, you may want to keep that in mind.”
And let’s also bear in mind, dear investor, that the AIG bailout may have contributed mightily to Wall Street’s enormous trading profits in the first quarter. According to a widely circulated theory to which we alluded in the March 19, 2009 edition of the Rude Awakening, Paulson bailed out AIG so that AIG could bail out Goldman Sachs and other ailing Wall Street firms.
Whether directly or indirectly, intentionally or unintentionally, the federal government enabled the big Wall Street banks to produce billion-dollar profits in the first quarter. Certainly, the federal government will attempt to repeat the performance in the second quarter. But we suspect the jig is up. We suspect the trading profits of the first quarter were one-off events that will not become two-off events.
As a result, we suspect that finance company earnings will resume their downward trajectory throughout the rest of the year, as adverse real-world trends swamp government-subsidized trading profits.
The truth is that banking profitability is not actually recovering, and neither is the economy. And that means that every stock market rally rests on shaky ground. The nearby chart tells the tale…or at least most of the tale.
Foreclosures have become nearly as numerous as home sales. Unless and until the two lines on the chart above begin to diverge, rather than converge, a recovery in the finance sector will remain a deception, a recovery in the economy will remain a false hope and a recovery in the stock market will remain a dangerous illusion.
And one final thought: Would America be any worse off if Paulson had simply told the truth?
The acronym for Homesave Advance is "Ha" ?!! A laugh in the face of reality?
Yes... shivers... the worse is yet to come...
Time does not heal all wounds the way we 'think' it will. Having expended $453mm to catch up-to-current 71,000 mortgages, the only thing the disclosure showed was that the $453m was 'spent & non-recoverable' even at 1.7 cents on the dollar.
What it DID do, however, was keep $2.4 billion worth of loans lookin' like Ms. Lilly's BEST DAY! This is like the best red-headed tom-foolery in the saloon!
Buying time has done nothing. They had better worry about the upcome 8 months....
Okay... I have time to read the article. I am anticipating the 'shivers' down my spine.
On another note, the acronym for the Build America Bonds will be "BAB"? And those who buy them will be "babbling" after they experience the losses??? Can you read the comic strips in advance? (ie: The devil in sheepskin clothing blurting "baaaaaaaaaaaab" or 'He was the boob who bought the bab?) Who knows!
Okay... I'll be good. I'm headin' for your spinetinkling article...
Weiss research is bombarding readers with preparation on the bank stress tests. Here's their points:
"....bank “stress tests” now being conducted by Washington are little more than a shameless hoax: Based on the irrational assumption that the economy won’t get as bad as it already is!
The regulators’ notion of “stress” is a 3.3 percent economic contraction and 8.9 percent unemployment in 2009 ...
But the economy is already shrinking at the annual rate of 5 percent and unemployment is already at 8.4 percent with the Obama administration itself warning that it could hit 10 percent this year..."
They go on to explain that banks have written down their liabilities to market. Basically, if they owed $10mm and it was trading at fifty cents on the dollar, then they would write down the debt to $5mm and instantly show bottom line profit. Additionally, they contend that Q408 write downs on assets far exceeded what was necessary. By adjusting the assets upward Q1'09, they instantly show a Q1 paper profit. Here is what they wrote regarding Citigroup Q1 report... (and, is this why the market went down that day? Does it explain why all commentators discussed 'quality' of the profits?):
"First, Citigroup deployed the Toxic Asset Cover-Up. By inflating the value of the bad assets on its books, it was able to beef up its after-tax profits by $413 million.
Second, Citigroup used the Reserve Flim-Flam gimmick: By (a) shoving most of its bad-debt losses into last year's fourth quarter and (b) greatly understating its likely losses in the first quarter, the bank legally rigged its books to look like it had made major improvements. Even assuming no further deterioration in its loan portfolio, I estimate this gimmick alone bloated profits by at least another $1 billion.
Third, Citigroup went all out with the Great Debt Sham, marking down its own debt and creating an additional $2.7 billion in purely bogus profits from this maneuver alone.
So here's Citigroup's true math for the first quarter:
So-called "profit" $1.6 billion
Gimmick #1 $0.4 billion
Gimmick #2 $1.0 billion
Gimmick #3 $2.7 billion
Total gimmicks $4.1 billion
Actual result: $2.5 billion LOSS! "
And, on the 'stress test', they go on to say:
"..... They’re reportedly asking, “Will this bank survive if the U.S. economy shrinks 2% in 2009?”
But in the first quarter, the U.S. economy contracted two and one-half times more than that — at an annual rate of 5%!
They’re asking “Will this bank fail if unemployment rises to 8.4% in 2009?”
But unemployment is already higher than that — at 8.5% and more than 600,000 more jobs are being lost each and every week!
Even the regulators’ “worst case scenario” of a 3.3% economic contraction and 8.9% unemployment is a joke:
Not only is the economy already shrinking much faster than 3.3% ... the Obama administration itself has warned that unemployment will be much higher than 8.9% this year!
Nevertheless, on May 4, our leaders will — with great fanfare, I am sure — release the results of this jury-rigged stress test. And you can be assured that it will likely say that, given these mindlessly optimistic criteria, many of our 19 largest banks are “safe.”
Actually, everything you wrote in the two posts is, like I said before, 'dead on'.
On the pessimistic statement, I should have written that I am not pessimistic but rather I am 'numb'. That would have told you that the normally optimistic 'me' has suffered some heavy blows but can still get up. In market trades, I'm delighted. On the home front, no debt. In the business, stuck in the doldroms of severely declining steel demand. This is not to say that it is 'gone', but the conveyor is barely moving.
On copper, things are turning around. I told you earlier that the export stepped up... now it is flying. The news about China demand is real. On the homefront buyers, demand is good, but not as healthy as it will be when the electrical grid stimulus kicks in. To that effect, I have hope that it is soon.
With regard to the news flow between you and your customers, I now understand your pessimistic stance. To view an ever-worsening business environment & refuse to take off rose colored glasses is NOT the businessman I know you to be. In fact, I've NEVER known you to even 'wear' rose colored glasses!
The news flow between us and our customers is still laden with small pockets of hope. But... that 'hope' makes them hang on and... well.... 'exhaust' cash reserves. What happens when cash reserves are exhausted and a turnaround happens? I'll tell you what happens --> the banks chose their winners & change the business environment EVERYWHERE. This is to say that a cash-strapped supplier goes to the bank (with orders in hand) & could be refused the capital necessary for the orders. When that happens, it's 'over' for that supplier but... well... the orders move to a different supplier who the bank WILL help... and we end up with the banks chosing who will survive.
To put those jokers in a seat with THAT much power is sickening.
"Yes I'm pessimistic, and I think for a very good reason. I have never seen a business environment like this in the 33 years I've been running my company"
I'm not pessimistic.. but ditto on the 25 years here... nothing like it.
I can NOT emphasize enough that business is moving at a SNAILS pace in a period which it should be hopping. Industrial output has now (in April) moved to a lower level than I have ever seen. May looks the same. Normally, even in slow years, it's "boom" until Jul/Aug (the soft months), then a lighter boom thereafter. What is happening is that the Jan-Apr period is all very, very SOFT... and that will move into the Jul/Aug 'normally soft' time period only to... uhmmmmmm... experience and even 'softer' Jul/Aug????? That would be back-to-back 'soft'. Can we extrapolate what that will evently cause economically?
I'm telling you-> industrial output is grinding down like a worn out battery on its last charge. It is more than 'concerning', it's getting critical. It's almost like a situation where industry makes 'hay when the sun shines' but there doesn't seem to be any sun.
No joke. No sun.
You are 'dead on' with regard to companies trying to stretch the last of their cash reserves... they've held out waiting for a turn & the turn didn't happen. If your vendors are slowing down their payments, then we are in a 'vendor financing' arena & nothing (nothing!) is good about that... the risks mount. It's never a win-win across the board.
Being in the trenches and living through it is a LOT different than reading about it. This is to say that what we are discussing today is NOT in the news yet. No matter how you look at it, 'news' is a historical record as to what has already happened.
True. But the heirarchy of creditors (secured) lines up after debts to IRS, State, & local governments. Tax burdens come first.
The government debt owed is not a tax burden and, therefore, we tend to put the government alongside everyone else in this quagmire.
I truly wonder what changes we might see in the bankruptcy handling of a corporation infused with Federal government money seeking 'safe haven' in a Federal court headed by a Federal judge... and the outcome of protecting senior secured creditors at the expense of the United States of America.
This should be interesting. I don't think it will follow the path we have seen in the past. It will be very difficult to decree that the United States of America should take its losses, lick its wounds, and act like a good sport. A subsidized (as it turns out) corporation IMHO has a duty to protect the interests of the government. Likewise, the bankruptcy court has that same duty. This is why I think the outcome might be a tad different than we imagine.
Maybe, maybe not. But at least be open that it might not be "textbook".
I'm not so sure that it is a sign of taking responsibility for actions.
It could be, given that the entire Freddie Mac situation is under the microscope, the dirt (or truth of it all) is unbearable to shoulder. There are only two things, IMHO, that would cause a man in his position to take his life:
1) A profound depression caused by guilt... an unbearable personal consequence should the source of the depression be revealed, or
2) A profound trap that causes an honest person to succumb to "keep silent" pressures. The devastation caused by forced silence chisels away at core values and escape (in itself) both relieves the pressures and clues outside focus ONTO the hidden sludge which caused the trap.
JMHO. Either way, it's 'profound'. Either way, it's 'bad, bad, bad'.
Okay... I catch up this weekend! In the meantime, here are my stats from the 7 sales of today (4 in one account, 3 in another acct):
GE... two sales... 13.42% and 14.30%
AA... two sales... 15.24% and 15.08%
M.... two sales... 32.84% and 35.07%
TRN.. one sale.... 24.68%
I'm really happy guys... r-e-a-l-l-y happy! This does NOT include the dividends popped into my account by AA & M during the holding period.
I had a feeling that Macy's would get a good run, but I would NOT have bet that it would be the BEST run. Hmmmmm. Surprises happen!
Hi! It's been awhile since I got to post (and yes... I am VERY behind on the board) but that should all change after the 15th. Cannnnnnn't wait!
Market is up... life is good!
Just wanted to chime in & give you a clever take by Eric Fry today. It should bring a smile to you all!
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Whiskey & Gunpowder
By Eric Fry
April 9, 2009
Kept Women Cope with Financial Crisis
Rumor has it that times are tough for Manhattan’s “girlfriend elite.”
Now that investment banking, proprietary trading and various other seven-figure Wall Street professions are losing a digit or two, funding is drying up for high-maintenance, extra-marital relationships.
During the go-go days (and nights) of the late nineties and early aughts, Manhattan’s “kept women” enjoyed 5-star lifestyles. But the disappearance of over-the-top pay packages has crimped the economics of under-the-covers liaisons. As Wall Street’s pampered professionals lose their perks, so do their girlfriends. Many of these privileged ladies must now adjust their lifestyles “down island,” so to speak. The posh, Upper East Side digs of 2007 are yielding to Lower East Side lofts and studios.
Some of these gals are suffering such a severe drop in income and lifestyle that they are starting to resemble, dare I say, prostitutes. It’s humiliating. Sadly, these voiceless victims of the financial crisis possess almost no recourse. Either they accept a cut in pay or choose a new line of work, just like their boyfriends must do. But the transition away from high-priced prostitution to less lucrative lines of work can be very stressful. And it’s not easy for the girls to change their professions either.
Even the fortunate members of the girlfriend elite who have survived this initial wave of layoffs face new stresses. They must now carefully consider the security of their revenue stream, and contemplate a vast new range of potential risks.
They must ask themselves, “Does my boyfriend work for one of the big banks or does he work for a hedge fund? If he works for a bank, is the bank receiving TARP funding? If yes, is my boyfriend’s bonus ‘contractually obligated’ or discretionary? If no, can my boyfriend’s bank survive without bailout monies? If my boyfriend works for a hedge fund, is the fund suffering from poor performance in 2008? Or, if the fund’s numbers were good in 2008, were they also real? Who’s auditing this thing anyway? Is the auditing firm reputable or does it operate out of a small, dingy office in Florida?”
Younger members of the girlfriend elite will also want to contemplate long-term economic trends, like the prospective path of the U.S. dollar relative to foreign currencies or gold. There’s almost nothing more tragic than devoting a lifetime to backbreaking labor, only to accumulate savings in a fatally flawed currency. Sure, you get to keep all the memories from a career of faithful service, but what happens to your golden years?
So every highly compensated girlfriend owes it to herself to ask, “Would it be best to save money in dollars or euros or yen…or perhaps something more exotic like Brazilian reals?” After all, this is business.
“According to a survey by Prince & Associates, a Connecticut-based wealth-research firm, the average ‘price’ that men and women demand to marry for money these days is $1.5 million,” reports Robert Frank in a fascinating column for the Wall Street Journal entitled, “Marrying for Love…of Money.”
“The survey polled 1,134 people nationwide with incomes ranging between $30,000 to $60,000 (squarely in the median range for nationwide incomes),” Frank continues. “The survey asked: ‘How willing are you to marry an average-looking person that you liked, if they had money?’
“Fully two-thirds of women and half of the men said they were ‘very’ or ‘extremely’ willing to marry for money. The answers varied by age: Women in their 30s were the most likely to say they would marry for money (74%) while men in their 20s were the least likely (41%). The matrimonial price tag varies by gender and age. Asked how much a potential spouse would need to have to be money-marriage material, women in their 20s said $2.5 million.”
Let’s think about this; $2.5 million seems like a lot of money. But it seems like a lot less money if you’re a 20-year old facing a new cycle of hyper-inflation. Therefore, given the crisis of the last 24 months, and the Fed’s inflationary response to that crisis, every forward-looking gold-digger has reason to wonder if $2.5 million is really enough…and whether the dollar is really the best store of value.
And one final note gals; PLEASE know your counterparty! Contracts — both actual and implied — are only as good as your counterparty. Specifically, examine the size of prospective “senior claims,” like the divorce settlement that might ensue from your first chance encounter with Mrs. Investment Banker. Additionally, be certain that your counterparty has not issued multiple, redundant claims on the identical underlying asset.
The “Risk Factors” section of the prospectus may not include all the relevant disclosures.
Regards,
Eric Fry
Opened GE, AA, M, & TRN today. In the green so far!
Life is Good.
Is all of this window dressing???
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From WSJ today: (Emphasis is mine)
By RICHARD BARLEY
If there is really a financial recovery on the way, someone forgot to tell the corporate bond market. U.S. Treasury Secretary Timothy Geithner's plan to rescue the financial system sent the S&P 500 soaring 7% on Tuesday alone, bringing its gains from its lowest point on March 6 to an impressive 21%. But credit markets have hardly budged.
Corporate debt is still priced for disaster. Investment-grade nonfinancial U.S. corporate bonds rallied in January but have now stalled, with spreads around four percentage points over Treasurys, Markit iBoxx indices show. More worryingly, even as bank stocks have climbed, with the KBW index gaining 54% from its lows, U.S. senior bank bond spreads remain at their widest levels since Lehman Brothers collapsed.
Bonds are pricing in unheard of and devastating levels of default. Deutsche Bank recently calculated dollar investment-grade corporate bonds were pricing in a five-year default rate of 40% assuming average recovery rates. Even if one makes the unlikely assumption that bondholders recover nothing after default, prices suggest a 25% default rate over five years. The worst five-year investment-grade default rate since 1970 is just 2.4%. The average is 0.9%.
On that basis corporate debt is almost absurdly cheap -- and so a lot of investors are pumping money into the market. That this has failed to fuel a rally in the credit markets similar to that in equities should ring warning bells for stock market investors. What is holding back the credit markets is a lack of demand for financial debt -- a sure sign that all is still not well in the banking system.
Demand in the credit markets is mostly for nonfinancial debt, but this is being met by huge supply as borrowers look to bypass the banking system, thereby preventing spreads from tightening. The vast majority of financial debt finding buyers is that guaranteed by governments -- hardly a vote of confidence. Asset-backed securities and leveraged loans remain unloved.
Until investors recover confidence in financial assets, credit spreads are unlikely to tighten significantly. And without a sustained improvement in the credit market -- the seat of the crisis -- it seems irrational to expect a durable move higher in equities.
Write to Richard Barley at richard.barley@dowjones.com
I thought this was cut & dry so I thought I'd share it with you. It leaves the imagination open...
Question:
The Federal Reserve said on March 18 they will now start buying long-term Treasury bonds and mortgage securities as a way of getting more dollars into the economy. How would they do that -- by using up currency reserves? How big of an impact can that potentially have on the U.S. bond market?
Answer:
No foreign reserves are required for the Fed to buy its own debt. They can buy U.S. Treasuries and agency bonds (Fannie and Freddie) through crediting the seller with cash and adding those securities to the Fed's ever-expanding balance sheet. Such purchases can have a dampening effect on interest rates (especially mortgages), but long-term effects are illusory as these new debts will likely diminish investor confidence in the value of the U.S. dollar and dollar-denominated assets.