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I do think we're in store for a down, but even more so I think financials are going to retrace significantly due to:
1. They've moved up unbelievably from the lows.
2. Lots of the bad news hasn't even hit yet. When people get scared, especially what has already happened to 401Ks etc., they'll undoubtedly do panic selling and things always tend to drop faster than they go up.
BTW, did this on another BB and not sure it's worth anything, but I did some figuring and thought I'd shares for whatever value it might have .LOL
It surely is hard to figure due to it being 3 Xs.
2.32 to 13.25 = 5.71
115.5 to 4.61 = 25.05
Math isn't my major, but using whatever skill I have <g> I did this:
I took the high and low of FAS and FAZ. Then I divided the smaller into the higher and found this:
FAS came out to be 5.71 which would be almost a six-bagger.
FAZ was 25.05 which means in the time FAS went up almost six times its low.
FAZ went down 25 times from its high.
For arguments sake, let's say FAZ at the low did the same as FAS, I'd take the 4.64 X 5.71 = 26.49.
I've heard much of the discussion that says the financials would have to lose this unbelievable amount for FAZ to move up to that degree and I'm not saying it is heading to $26+; however, since the 3 Xs is figured daily, you can't really logically figure it except day by day and personally, I think FAZ can and will work its way up into the double digits but it will take some time to do so with the adjustments day by day. For there's no way you can say FAS has to be a certain price when FAZ is a certain price. It just doesn't work that way.
Lexi
Dave,
It surely is hard to figure due to it being 3 Xs.
2.32 to 13.25 = 5.71
115.5 to 4.61 = 25.05
Math isn't my major, but using whatever skill I have <g> I did this:
I took the high and low of FAS and FAZ. Then I divided the smaller into the higher and found this:
FAS came out to be 5.71 which would be almost a six-bagger.
FAZ was 25.05 which means in the time FAS went up almost six times its low.
FAZ went down 25 times from its high.
For arguments sake, let's say FAZ at the low did the same as FAS, I'd take the 4.64 X 5.71 = 26.49.
I've heard much of the discussion that says the financials would have to lose this unbelievable amount for FAZ to move up to that degree and I'm not saying it is heading to $26+; however, since the 3 Xs is figured daily, you can't really logically figure it except day by day and personally, I think FAZ can and will work its way up into the double digits but it will take some time to do so with the adjustments day by day. For there's no way you can say FAS has to be a certain price when FAZ is a certain price. It just doesn't work that way.
Beware Crisis' Next Wave: Option ARM Foreclosures, More Debt Defaults
Posted May 08, 2009 01:15pm EDT by Aaron Task
Related: XLF, FAS, C, ^GSPC, JPM, BAC, ^DJI
Along with the reaction to the stress tests, the upbeat response to Friday's jobs report is evidence of our collective "disaster fatigue," says William Black, an Associate Professor of Economics and Law at the University of Missouri - Kansas City. "Every day is bringing a disaster. [539,000] jobs lost is a catastrophe but now we think ‘that's not so bad.'"
An optimist would say Black is missing the improving trend in the labor market: Although the unemployment rate rose to 8.9%, its highest level since 1983, April's 539,000 job loss was the smallest since October and compares favorably to March's decline of 699,000, February's 681,000 (both revised) and January's 741,000.
But Black's point is the improvements are, if not illusory, then certainly transitory. He foresees bad loan "shoes yet to drop" that will be like "Imelda Marcos' closet in an earthquake":
Commercial Real Estate: This is already on Wall Street's radar screen but future losses could account for a big chunk of the government's stress test estimate of $599 billion of future bank losses.
Option ARMs: These "pick-a-payment" mortgages will lead to "waves of foreclosures" starting next year in the "hundreds of billions of dollars," he predicts.
Credit Card Debt: With unemployment rising and home equity loans unavailable to most Americans, this is a "major problem that's going to take down major lenders," he says.
The Big Lie: Stress Test Optimism Just Wall St. Propaganda, Former Bank Regulator Says
Posted May 08, 2009 12:12pm EDT by Aaron Task in Newsmakers, Recession, Banking
Related: BAC, C, JPM, WFS, MS, GS, XLF
Results of the stress test brought a collective sigh of relief from Washington D.C. to Wall Street Friday, and stocks were rallying again on a growing sense the financial crisis has past.
Don't you believe it, says William Black, an Associate Professor of Economics and Law at the University of Missouri - Kansas City.
"It's in the interest of the financial community to send this propaganda out," Black says. "It's remarkable not that they do it but that it still works."
In other words, this isn't the first time we've been told "the crisis is over" and that "banks are well capitalized" - and probably won't be the last.
The professor and former financial regulator foresees another wave of foreclosures and future bank losses of more than $2.5 trillion vs. the government's $599 billion estimate.
Simply put, the stress tests weren't strong enough to be considered "wimpy," Black says. Furthermore, Fannie Mae, Freddie Mac, AIG and IndyMac were deemed to have "passed" much more stringent government stress tests before their respective failures, he notes, recalling the grim history:
Fannie and Freddie: In July 2008, Treasury Secretary Paulson testified that Fannie and Freddie were "adequately capitalized" under the test. In August 2008: "even in [Freddie's] most severe stress tests, [show] losses ... less than $5 billion." Actual losses: 20 to 40 times greater.
AIG: "It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those [CDS] transactions." AIG claimed in 2008 "Using a severe stress test ... losses could go as high as $900 million."
Actual losses: 200 times greater.
IndyMac: Sold over $200 billion of "liar's loans." Actual losses: 160 times greater than its tests.
Rating Agencies: Their stress tests gave AAA ratings to toxic waste. Actual losses: more than an order of magnitude greater.
"The examinations and stress tests are shams -- always precise, always farblondget," Black claims.
So while others are celebrating the end of the crisis, ask yourself this: If the government sees up to $599 billion in additional bank losses, why are they requiring banks "only" raise $75 billion? That suggests the government thinks the banking sector is overcapitalized by $525 billion.
"Once people learn they're being lied to, they react very badly," Black says. "And of course this is not the first lie."
Maybe you really can fool some of the people all of the time.
In FAZ too. I agree with you.
The Big Lie: Stress Test Optimism Just Wall St. Propaganda, Former Bank Regulator Says
Posted May 08, 2009 12:12pm EDT by Aaron Task in Newsmakers, Recession, Banking
Related: BAC, C, JPM, WFS, MS, GS, XLF
Results of the stress test brought a collective sigh of relief from Washington D.C. to Wall Street Friday, and stocks were rallying again on a growing sense the financial crisis has past.
Don't you believe it, says William Black, an Associate Professor of Economics and Law at the University of Missouri - Kansas City.
"It's in the interest of the financial community to send this propaganda out," Black says. "It's remarkable not that they do it but that it still works."
In other words, this isn't the first time we've been told "the crisis is over" and that "banks are well capitalized" - and probably won't be the last.
The professor and former financial regulator foresees another wave of foreclosures and future bank losses of more than $2.5 trillion vs. the government's $599 billion estimate.
Simply put, the stress tests weren't strong enough to be considered "wimpy," Black says. Furthermore, Fannie Mae, Freddie Mac, AIG and IndyMac were deemed to have "passed" much more stringent government stress tests before their respective failures, he notes, recalling the grim history:
Fannie and Freddie: In July 2008, Treasury Secretary Paulson testified that Fannie and Freddie were "adequately capitalized" under the test. In August 2008: "even in [Freddie's] most severe stress tests, [show] losses ... less than $5 billion." Actual losses: 20 to 40 times greater.
AIG: "It is hard for us, without being flippant, to even see a scenario within any kind of realm of reason that would see us losing one dollar in any of those [CDS] transactions." AIG claimed in 2008 "Using a severe stress test ... losses could go as high as $900 million."
Actual losses: 200 times greater.
IndyMac: Sold over $200 billion of "liar's loans." Actual losses: 160 times greater than its tests.
Rating Agencies: Their stress tests gave AAA ratings to toxic waste. Actual losses: more than an order of magnitude greater.
"The examinations and stress tests are shams -- always precise, always farblondget," Black claims.
So while others are celebrating the end of the crisis, ask yourself this: If the government sees up to $599 billion in additional bank losses, why are they requiring banks "only" raise $75 billion? That suggests the government thinks the banking sector is overcapitalized by $525 billion.
"Once people learn they're being lied to, they react very badly," Black says. "And of course this is not the first lie."
Maybe you really can fool some of the people all of the time.
The problem with them is that they have good, well paying jobs and have no sense in the reality of the average working person and what he is going through.
He harps on the same things over and over. Remember when he kept saying, "Drill, baby, drill"? No matter what anyone said that was his response.
6.18 was yesterday's HOD, so we need to pass that to have a potential reversal. Currently trading @ 5.41.
Good one! I've often wondered how we should give any credibility to a bank that is failing itself, yet analyzing other stocks and giving upgrades and downgrades.:)
...and here's more:
Bank Stress Tests: 'This Whole Process Has Been a Fiasco'
Albert Bozzo
Wednesday, May 6, 2009.
The bank stress tests may not only be misguided policy, critics say, but may actually conflict with two other key government initiatives to stabilize the financial system.
With the government set to release the official results Thursday afternoon following a steady stream of leaks to the news media, criticism of the stress tests is growing.
“This whole process has been a fiasco,” says banking analyst Bert Ely. "There are strongly different opinions on the conditions of these banks. This has aggravated it without necessarily settling anything. The majority of the sentiment in the market is that the stress tests results [will be] too optimistic."
The stress tests, which are aimed at determining a bank's vulnerability to a severe downturn, also appear to conflict with the government’s plan to sell toxic assets and new regulation over so-called too-big-to-fail institutions.
“I think the government’s policies have all run against each other,” says Paul J. Miller, banking analyst at FBR Capital Markets. “They keep throwing things out there to see what sticks.”
Opponents view the stress tests as nothing more than a band aid on the wound of a body with massive internal bleeding—that’s where the other programs come into play—creating a false sense of security about the industry.
The stress tests may be intended to shore up banks capital, but a bigger problem for the industry and the economy is the estimated $1.5 to $2 trillion in toxic assets clogging up their books. More capital will not solve that, these critics say, especially if it is done through some of the preferred measures, such as converting preferred stock into common shares.
Ely calls that window dressing. “That does not put a single additional dollar into the bank,” he says.
It does help banks increase their tangible common equity, which has become something of an unofficial metric for the Obama administration. But critics consider it more of an accounting move that has no real impact on bank’s balance sheets.
“It doesn't change anything fundamentally,” adds Miller. “You cannot continue to have non-performing assets grow at 50 percent a quarter. Losses will swamp earnings.”
Miller’s firm subscribes to the theory that there’s another wave of home foreclosures that will put further pressure on balance sheets.
Miller says banks’ hold-to-maturity assets are also troublesome. ”They bleed over time and will get worse quarter to quarter.”
“Our argument is that because we are not addressing the real problem in getting these toxic assets off their balance sheets we're just going to jump from crisis to crisis.
A seal of government approval—before or after need capital injections—will make it even less likely banks will participate in the government’s Public-Private Investment Partnership to move toxic assets.
Banks indicated an unwillingness to participate from the outset. The government then lessened the incentive by making a subtle yet powerful change in the mark-to-market accounting rule.
“The only way to sell them is to get them to write them down,” says Robert Glauber, who supervised the Treasury Department’s efforts in the savings-and-loan rescue two decades ago. “The regulators have let the banks hold them.”
Some have suggested the stress tests—and the contingent government aid being offered—are a chance to get the banks to participate in the PPIP, even if doing so would create losses and increase the amount of capital they need.
“My theory is the stress tests will be government leverage to get firms to participate in the PPIP,” says Zach Pandl, an economist at Nomura Securities. “There’s not a lot of incentive to be the first bank to participate in the program. Most would prefer to wait and ride it out as prices go higher.”
Though the PPIP has already attracted dozens of would-be buyers, observers say don’t expect the government to strong arm sellers into the program.
“They don’t have the stomach to do it,” says Glauber.
The stress tests also have the capacity to create another obstacle for Washington’s crisis management efforts—emerging legislation meant to give the federal government new powers to take over and, if necessary, shut down so-called “too-big-to-fail” institutions.
Government efforts dating back to the Bush administration have added to the group of big banks through shutgun marriages, creating rivals to Citigroup, which was once in a league of its own.
Wells Fargo, Bank of America and JPMorgan Chase have all grown enormously through acquisitions.
Many expect the stress tests to yield even further consolidation, as the smallest of the 19 banks struggle to raise capital.
“I find it kind of ironic when everybody talks about breaking up these big guys that the consolidation process is going to continue,” said Ely.
Ely says two to four of the smaller banks in the group—which all have assets over $100 billion—could be consumed by the end of the year.
“The ones that are good are going to buy their way out,” says Gerald O’Driscoll, a former Fed official who also worked at Citigroup.
JPMorgan Chase boss Jamie Dimon recently raised the possibility of additional acquisitions, having already absorbed Bear Stearns and Washington Mutual earlier in the crisis.
The too-big-too-fail legislation, which will be folded into a broader regulatory overhaul package, has broad support, from Congress to the White House and has grown more urgent, as the government has been in the embarrassing position of repeatedly providing capita to big firms such as Bank of America, Citigroup and AIG.
“Some institutions are too big to exist because they are too interconnected,” Sen. Richard Shelby (R-Ga.) told CNBC. “The regulators can't regulate them.”
Some say the resolution authority will go so far as to empower the regular in charge to judge a banking industry merger’s potential threat to the system.
“Does this regulator have the ability veto mergers that would create a bank that is too big to fail,” asks Lawrence White, a former regulator and White Hose economist now at NYU’s Stern School of Business. “A lot of this has to be for the future so we never go through this again.”
The trend toward bigger banks is even more worrisome to some analysts because authorities have typically allowed the biggest banks to operate with the smallest capital cushions, which hardly jibes with the purpose of the stress tests.
“We don't need more concentration in banking and ever larger firms,” says former FDIC Chairman William Isaac.
White, Glauber and others say its very likely their government will be forced to intervene and help again, regardless of the stress test results, whether its more bailout capital or regulatory forbearance.
“I think they do have to go back to the well, “says Robert Glauber.
Okay, according to a chartist on TV the S&P has to close below 866 to confirm they top has been set. 913 is where we are now.
LOLLLLLLLLL Lively, descriptive board here.:)
I just cannot believe all the hype and the run up on these financial stocks. Common sense tells you that anything that goes up fast generally retraces just as fast. Plus,WHAT have they run up based on? That things aren't as bad as they could be??? For quite awhile things were so dire that people were fearful of banks going under. Then government stepped in, but of course with that they obtained shares and there has been talk of potential conversion of those shares into common shares. It doesn't take a brain surgeon to know that with more common shares there is dilution of value for those already holding the shares. Plus, let's not forget what IMHO will be INCREASED inability to pay on credit cards. All this talk of things improving - well, I live in SW Florida and things are BAD. Lots of people out of work, unable to pay their mortgages, businesses going out of business - and I could go on and on. Now for the interesting stuff. Talked to a businessman yesterday who told me banks are no longer requiring an up to date survey when a piece of property is bought and financing is obtained. They are copying the old survey and/or the seller is giving his survey to the buyer. NOT A SMART MOVE. Recent buyer built a structure on her land based on old survey only to find out it wasn't on her land!! She tired to sue to the surveyor; however, she wasn't a client, hadn't paid for the survey, so he owed her nothing! Cut corners and that's what you get. I teach on the college level and have loads of students in their 40s, 50s, etc. going back to school to try and make themselves more qualified for another vocation. THINGS ARE NOT GOOD! So, this run in financial institutions just is too much, too soon IMHO.
End of soapbox.:)
Lexi
LOLLLLLLLLLLL Amen to that!
Good post. We think alike.
COF Capital One upgraded to Buy from Neutral at Goldman
Morgan Stanley upgrades Bank of America (BAC 12.69) to Overweight from Underweight...
Baird upgrades Bank of America (BAC 12.69) to Outperform from Neutral and raises their tgt to $18 from $9.
Think we're getting a wee bit too rosy. We've just been to the pit of despair with financials and now all is rosy???? I think not! Frankly, I think we're topping out with these financials at least in the short-term.
Lexi
Okay, for anyone that still wants to play FAZ....:)
I used the high with the gap up @ 25 and what I hope is the FINAL low..:) - 4.56. Here are the fibs:
24% - 9.38
38% - 12.37
50% - 14.78
COF Capital One upgraded to Buy from Neutral at Goldman
Morgan Stanley upgrades Bank of America (BAC 12.69) to Overweight from Underweight...
Baird upgrades Bank of America (BAC 12.69) to Outperform from Neutral and raises their tgt to $18 from $9.
Think we're getting a wee bit too rosy. We've just been to the pit of despair with financials and now all is rosy???? I think not! Frankly, I think we're topping out with these financials at least in the short-term.
Lexi
Okay, for anyone that still wants to play FAZ....:)
I used the high with the gap up @ 25 and what I hope is the FINAL low..:) - 4.56. Here are the fibs:
24% - 9.38
38% - 12.37
50% - 14.78
Yes, I see a significant correction coming. I live in SW Florida and all you have to do is talk with people who have lost jobs, lost homes, and had to greatly reduce their standard of living. Business has dropped off significantly. Malls have lots of empty stores. I have many older college students that are there for they've lost their jobs and want to get certified for another profession. I don't think the worst is already over. Many are running up credit cards because they have no choice regarding paying monthly bills and taxes. Eventually many of these people will get to the point where they have no more borrowing power.
Lexi
Hi Kevin,
Been busy with other things, so haven't been posting much. Yes, I play FAS/FAZ. Right now just in FAZ. I remember when FAS was in the 2s and I hesitated to add because I worried it would continue going down. In retrospect, should have added.:) Things are always worst before a turn. Kicking myself for not buying ABK when it was in the .30s.
Lexi
XLF had to pass 11.74 in order to b/out and while it did pass it briefly it dipped back. So no conviction there on moving higher.
Heard on TV that if the S&P closes the day below 866, then that confirms the top is in. We closed at 903.8 after having been as high as 907.85 yesterday. High today was not quite as high as the high yesterday. Today's candle formation looks like it could be a reversal to me. We'll see.:)
Lexi
Notice how even though FAZ has had a horrible downward move the MACD is improving and getting closer to the 0 line....
Zigzagman,
Thanks so much for the charts and even more importantly your excellent analysis in reading the indicators.
Lexi
I have the NYSE Financial Index on my streamer and it was 120 and within minutes dropped to 66, then there was a bounce to 88 at EOD.
Congrats to you on your shrewd trading.:)
Good that you have the money to add. I have to sit pat.:)
Okay, here's an observation for you and everyone on the BB.
I watch FAS and FAZ day after day and have noticed that for the most part FAS usually trades up to four times as many shares as FAZ. Today they're pretty much trading very close to each other as far as volume. What do you think regarding that?
Lexi
Good for you. I added the last of my funds at 8.81.
CNBC saying insiders selling. Why doesn't that surprise me?:)
I'd think by now the "help" is getting to be less and less available. I don't think congress is going to be favorable to anymore bailout money, and the existing money that we have to "help" is narrowing down.
I believe the S&P hit resistance last Friday when it hit 875.48. That might have been the high of this recent move. 870.16 is the high now, so we'll have to watch and see if it'll go over Friday's high.
I truly don't know that I know anymore now than I did before the report.
If you go by the Logical Trader method, FAZ has hit the buy criteria and FAS hasn't..
http://www.dacharts.com/templates/descr/ACDmethod.htm
LOLLLLLL So true! I'm just trying to see if I can analyze to get a better feel for it. Not sure that it is doable though.:)
To me it's hard to figure out rhyme and reason on these two. Keep in mind that when FAS hit 2.32, FAZ was 115.50. Just recently, the two were trading close to the same price, then FAS dropped and FAZ is ahead. Now FAS is under 6 and FAZ is close to 13.
Me too.:) I have a nice sized position (for me) in FAZ.
FAZ up in AHs I believe due to this:
Bank Of America Files Automatic Mixed Securities ShelfLast update: 4/20/2009 5:36:29 PM
DOW JONES NEWSWIRES
Bank of America Corp. (BAC) on Monday filed with the Securities and Exchange Commission to sell an undisclosed amount of mixed securities from time to time. The mixed securities include common and preferred stock, debt securities, warrants, purchase contracts, units, depositary shares, junior subordinated notes, trust securities of Trusts 16 through 20, and Bank of America guarantees with respect to trust securities. Bank of America said it will use net proceeds from the sale for general corporate purposes, which may include possible acquisitions of other financial institutions or their assets. Other uses may include working capital needs; investments in, or extensions of credit to its banking and nonbanking subsidiaries; the possible reduction of outstanding indebtedness; possible acquisitions of, or investments in, other businesses; and the possible repurchase of its outstanding equity securities. The bank said it may temporarily invest the proceeds before use. Bank of America shares closed Monday at $8.02, down 24%. -Brian Kalish; Dow Jones Newswires; 202-862-1350; brian.kalish@dowjones.com (END) Dow Jones Newswires
You're welcome. Think it's bullish for ABK that it didn't do the 50% intraday retrace. Most stocks do at least that or more. It's not doing much right now other than basing; however, at least it hasn't sold off from the good news that came out yesterday. I'd like to see some good volume come in.
Intraday fibs for using the LOD for ABK yesterday and the HOD so far are:
50% retrace is .94
62% retrace is .92
79% retrace is .89
So far it retraced to .95 and has moved up.
Intraday fibs for using the LOD for ABK yesterday and the HOD so far are:
50% retrace is .94
62% retrace is .92
79% retrace is .89
I'd been watching the chart for it had formed a triangle formation, then broke out of it. Think the chart looks good.
Lexi
If I'm not mistaken, by my calculations over one million shares were traded in AHs. Seeing that total volume for day and AHs was 5.8M, I'd say that amount in AHs was pretty good.
Appears that people like the news.
ABK...Using low (.35)and high of last move (1.20), fibs are:
1.27 = 1.43
1.618 = 1.73
Lexi
ABK..Move tomorrow will be determined by how good people think the news is. Personally, it looks good to me. Lots of shares are going through in AHs, plus it is above the current consolidation level. So, we'll see.:)
This was probably already posted; however, here's the link for a good amount of shares being bought by a fund:
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=25544636&srchtxt=abk