From a man I greatly respect>>
Government manipulation in the free markets will lead to more volatility, not less
The market has predictably rallied as a result of a massive, US government induced short squeeze. We all saw this coming. We all know this is government manipulation, and not a fundamental occurrence. Yes, that's right! Pure, unadulterated government manipulation. The government gave special relief to a very small segment of the market, the very same segment from which many of those same officials hail from (Wall Street), in an attempt to prevent the price of their shares from reaching equilibrium with their value. This is nothing but interference in the free market system. Let's not even broach the discussion of the ethics or legality of naked short selling. The government failed to ban the practice for the homebuilders whom I shorted into single digits, they failed to do it for the monolines whom I shorted into the single digits, they failed to do it for the regional banks whom I am on way to riding to the single digits, they failed to do it for the retain industry, the automotive industry. So what makes them do it for Wall Street? Let me help you ponder that query... The table below is derived from , and is a compilation of Washington lobbyist money by sector. If you had to guess who donated the most money to Washington over the past 10 years, who do you think it would be? Okay, I know that's a hard question, so I'll give you a hint. What sector just got preferential treatment in an attempt to prevent entities such as mine from shorting certain companies' share to the point where their share price matches their companies' intrinsic value (ex. Goldman Sachs is worth a tad bit less than $130 per share, yet it is trading over $180, an ideal opportunity for me)? Still can't guess. Okay, here is another hint. What industry (or even company whose shares are currently overvalued) spawned the last few treasury secretaries? Need more hints???
Sector Total
Finance, Insurance & Real Estate $3,102,713,952
Health $2,902,546,732
Misc Business $2,764,829,300
Communications/Electronics $2,561,657,697
Energy & Natural Resources $2,052,875,397
Transportation $1,626,912,330
Other $1,570,867,542
Ideological/Single-Issue $1,055,993,246
Agribusiness $960,997,755
Defense $875,340,534
Construction $339,588,492
Labor $323,749,249
Lawyers & Lobbyists $248,316,048
So the SEC participates in this cronyism cum capitalism for sale game (and I really mean that) and the shares of the financial stocks (whose macro situations, micro situations, and balance sheets are very bad and getting worse) sky rocket upwards. The CEOs of these companies such as Dimon (who just bought a $20 billion company for less than 5% of that and still had bad numbers), says outright, things are bad and they are getting worse - yet his shares jump, and jump hard (more on this later). Well, if you think that there was a lot of volatility when they fell the first time, what do you think will happen to the volatility number after they knee jerk upward with valuations still falling down. Eventually, price = valuation, then free fall. Granted, somebody may have had an opportunity to dump some stock while the prices were artificially elevated above their intrinsic value, but so be it.
So, now you all know what I think will happen when the market eventually comes to the same valuation conclusions that I do? The government (actually, the SEC) has exercised its rendition of the Bernanke put, and I have been assigned. No problem, I have plenty of cushion from reading the overvaluations in the market correctly up till this point. Thus, I will accept my assignment and move on with my synthetic short position ala the SEC, for I am confident equilibrium will be reached. So, what happens if I am right?
At the end of the day, the fundamentals will always rule. After all, we all eventually have to pay our bills
I've been offline for a day or two, come back and see many have lost faith in the fundamentals due to a government induced bear market rally! My, hence this blog's focus and forte, is extreme fundamental and forensic analysis. My strength is cutting through the bullsh1t. You know how some guys are good at basketball, some are natural poker players, well my nose is acutely attuned to bullsh1t. Do not, and I repeat, do not take the PR and marketing pitch's in press releases, financial media news blips, and people who generally either have no idea what they are talking about or have an extreme incentive to bend the facts as a proxy for actual
This should put the current banking crisis in perspective. No amount of government manipulation will make the subject matter of these postings dissipate, sans proper regulation of off balance sheet activities and mortgage lending - Oh Yeah, it's too late for that, isn't it!
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The orginal Doo Doo 32 post: As I see it, 32 commercial banks and thrifts may see the feces hit the fan blades
A sampling of the Asset Securitization series:
1.
Intro: The great housing bull run - creation of asset bubble, Declining lending standards, lax underwriting activities increased the bubble - A comparison with the same during the S&L crisis
2.
Securitization - dissimilarity between the S&L and the Subprime Mortgage crises, The bursting of housing bubble - declining home prices and rising foreclosure
3.
Counterparty risk analyses - counter-party failure will open up another Pandora's box (must read for anyone who is not a CDS specialist)
4.
The consumer finance sector risk is woefully unrecognized, and the US Federal reserve to the rescue
5.
Municipal bond market and the securitization crisis - part I
6.
Municipal bond market and the securitization crisis - part 2 (should be read by whoever is not a muni expert - this newsbyte may be worth reading as well)
7.
An overview of my personal Regional Bank short prospects Part I: PNC Bank - risky loans skating on razor thin capital, PNC addendum Posts One and Two
8.
Reggie Middleton says don't believe Paulson: S&L crisis 2.0, bank failure redux
9.
More on the banking backdrop, we've never had so many loans!
10.
As I see it, these 32 banks and thrifts are in deep doo-doo!
11.
A little more on HELOCs, 2nd lien loans and rose colored glasses
12.
Will Countywide cause the next shoe to drop?
13.
Capital, Leverage and Loss in the Banking System
14.
Doo-Doo bank drill down, part 1 - Wells Fargo
15.
Doo-Doo Bank 32 drill down: Part 2 - Popular
16.
Doo-Doo Bank 32 drill down: Part 3 - SunTrust Bank
17.
The Anatomy of a Sick Bank!
18.
Doo Doo 32 Bank Drill Down 1.5: The Forensic Analysis of Wells Fargo
performance. Look at the actual performance numbers, not the press releases, and not the "analyst's "so-called" expectations which fluctuate like the wind and are easily manipulated by management. An example of what I am referring to is when analysts expect a company to report $1 profit. The company comes out with guidance, 60 cents lower, and the sell side community drops there expectations accordingly to 40 cents (I look at its as this company is #$@#$ up). Well, when the company reports a 50% drop in profit, the "Street" applauds and the stock skyrockets because the company beat expectations by 25%. Whaaaaat!!!!??? Think about it. The company earnings stream, based on this period's earnings, is half as valuable as it was last period, yet the stock pops as if there was some good news to be had. This is a shell game, plain and simple. I understand why the Street plays it, but the readers of this blog know better. Just imagine if you received a 50% pay cut, then your boss wants to celebrate your "promotion" with a party. I already see many with that bewildered look on their face as I type this. Well, welcome to the earnings expectations vs. reality game.
Now, I will briefly go over the results that accompanied the Cox version of the Bernanke put:
JP Morgan: CEO has dire outlook for the present and even worse for the future, credit reserves increase across the board, gets a $20 billion plus company (along with a $3 billion Park Avenue office building), a fat government subsidy and plethora of guarantees, for almost less risk adjusted economic outlay than the Yankees paid for A Rod, and still reports 51% drop in net (I didn't even check to see if BSC's profit and revenue were added in to JPM's numbers). Where is the good news in this???
PNC: As I forecasted in my analysis, charge-offs skyrocket, capitalization remains thin.
MTB: More of the same
Wells Fargo: Smoke and mirrors at its best. They move the goal posts closer then say they kicked a field goal. Note the HELOC charge off modification. Note no explanation on how they profited from MBS sales when the rest of the WHOLE WORLD failed to do so. They raise their dividend during a time of global bank capital constraints. Why do such an imprudent thing, you ask? Smoke and mirrors, my friend. Smoke and mirrors.
I will go a little more in depth into PNC and WFC if I get the time later on today.
As a backdrop, for those who haven't read my background research on the banking system, please do. After reading it, I don't see how anybody can be very positive on the US banking system - at all.
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