Good afternoon all!
Its going to be a little quiet here until Sunday night. I am at a family gathering over the weekend. After reading the excellent comments section on here from yesterday, I felt compelled to put up a quick post about the denial of Wall St.
The Lehman problem is still unresolved, and some on Wall S.t are warning that this problem needs to be resolved or they risk endangering themselves. There was an interesting piece in the New York Times today regarding this:
"As Lehman Brothers teetered Friday evening, Federal Reserve officials summoned the heads of major Wall Street firms to a meeting in Lower Manhattan and insisted they rescue the stricken investment bank and develop plans to stabilize the financial markets.
Timothy F. Geithner, the president of the New York Federal Reserve, called a 6 p.m. meeting so that bank officials could review their financial exposures to Lehman Brothers and work out contingency plans over the possibility that the government would need to orchestrate an orderly liquidation of the firm on Monday, according to people briefed on the meeting.
Flanked by Treasury Secretary Henry M. Paulson Jr. and Christopher Cox, the chairman of the Securities and Exchange Commission, he gathered the executives in person to impress on them the need to work together to resolve the current crisis.
Mr. Geithner told the participants that an industry solution was needed, no matter what, and that it was not about any individual bank, according to two people briefed on the meeting but who did not attend. They said he told them that if the industry failed to solve the problem their individual banks might be next."
My Take:
The arrogance and denial of the pigmen is unbelievable to me. It seems like they feel no sense of urgency right now. Wall St. needs a big fat wake up call. This is SERIOUS. Maybe the bailouts have empowered them to the point where they feel like they are all too big to fail.
It seems investors are also buying into this notion. The fact that the DOW didn't react to all of the explosions on Friday was unbelievable to me. I think they are in as much denial as the pigmen!
It looks to me like the government is sending a message to them regarding Lehman. I am starting to believe the Fed and the Treasury may help orchestrate a Lehman deal, but that's about it.
Dick Fuld's handling of the Lehman situation is the epitome of what I am talking about. He is trying to negotiate as if he is sitting on a goldmine. In reality, he is trying to sell a worthless insolvent company that has a good trading desk.
Its over Dickie, and you are the only guy that hasn't realized it. Wake up and let the pigmen break you apart so we can temporarily save the financial system.
Bottom Line:
The pigmen need to wake the hell up and start accepting responsibility for their colossal mistakes. They also need to start open up their books and become fully transparent so we can start the recovery process. The smoke and mirror games must stop right now.
We are about to lose our second major investment bank, and one of our largest insurance companies(AIG) lost more of than a third of its value on Friday. We also are on the brink of losing Washington Mutual which is our 6th largest bank.
Mighty Merrill now sits in the teens and is showing signs that its about to crack.
WAKE UP WALL STREET.
You are running out of time.
Saturday, September 13, 2008
Friday, September 12, 2008
Tapped Consumer/Lehman
Good Morning Everyone!
Stocks are mixed this morning. They should be plunging based on the news that came out today!
The Lehman story is big, but the bigger news to me this morning was the data on the consumer. Retail sales for August were out today and they were awful. Here is the news from Market Watch:
"WASHINGTON (MarketWatch) -- U.S. retail sales unexpectedly fell in August, pushed lower by plunging gasoline prices, according to Commerce Department data released Friday.
Stocks are mixed this morning. They should be plunging based on the news that came out today!
The Lehman story is big, but the bigger news to me this morning was the data on the consumer. Retail sales for August were out today and they were awful. Here is the news from Market Watch:
"WASHINGTON (MarketWatch) -- U.S. retail sales unexpectedly fell in August, pushed lower by plunging gasoline prices, according to Commerce Department data released Friday.
Seasonally adjusted retail sales dropped 0.3%, much worse than the 0.4% increase that economists surveyed by MarketWatch had been looking for. See Economic Calendar.
Sales in June and July were also revised lower by a total of 0.6 of a percentage point, making consumer spending significantly weaker this summer than earlier believed despite the infusion of about $100 billion into consumers' pocketbooks from Washington.
Consumer spending will probably shrink in the third quarter for the first time since the 1991 recession, RDQ Economics wrote. "The only bright spot for the consumer is the recent decline in energy prices," said RDQ economists John Ryding and Conrad DeQuadros.
Sales are up 1.6% in the past year. The figures are not adjusted for price changes. Read the full report.
Sales in August were boosted by a rebound in automotive sales, which rose 1.9%, the biggest increase in a year. Excluding autos, retail sales fell 0.7% -- the worst performance this year.
Sales at gas stations dropped 2.5%, a reflection of lower prices. Excluding gas, retail sales were unchanged in August and are down 0.7% in the past year.
In a separate report Friday, the Labor Department said producer prices fell 0.9% in August as energy prices fell 4.6%. See full story.
Excluding gas and cars, retail sales fell 0.4% in August, the biggest drop since December.
The drop in gasoline prices over the past two months has boosted consumers' confidence, but anecdotal reports from retailers show they aren't spending the freed-up cash at the malls. After eight months of declining employment and more than a year of falling house prices, consumers remain anxious about their finances."
My Take:
Gee do you think J6P's credit cards might be tapped out? This is a huge miss folks. -.4 versus the +.3 that was expected. The consumer contracted despite the combination of lower gas prices and $100 billion of government stimulus!
This number should have jumped up based on the relief they received in August. The consumer is 70% of GDP folks and it appears they are running on fumes! Consider this to be an ominous sign of whats to come.
Lehman
The Lehman story is slowly turning into a giant cluster f*ck. Paulson is adamant that no government funds will be used to bailout Lehman. Could our government finally be coming to their senses? Here is the news from Reuters:
The drop in gasoline prices over the past two months has boosted consumers' confidence, but anecdotal reports from retailers show they aren't spending the freed-up cash at the malls. After eight months of declining employment and more than a year of falling house prices, consumers remain anxious about their finances."
My Take:
Gee do you think J6P's credit cards might be tapped out? This is a huge miss folks. -.4 versus the +.3 that was expected. The consumer contracted despite the combination of lower gas prices and $100 billion of government stimulus!
This number should have jumped up based on the relief they received in August. The consumer is 70% of GDP folks and it appears they are running on fumes! Consider this to be an ominous sign of whats to come.
Lehman
The Lehman story is slowly turning into a giant cluster f*ck. Paulson is adamant that no government funds will be used to bailout Lehman. Could our government finally be coming to their senses? Here is the news from Reuters:
"WASHINGTON (Reuters) - Treasury Secretary Henry Paulson is "adamant" that no government money be used in any deal that resolves the crisis at Wall Street investment bank Lehman Brothers, a source familiar with his thinking said on Friday.
The source said Lehman (LEH.N: Quote, Profile, Research, Stock Buzz) already has substantial support from the Federal Reserve as it races to negotiate with potential buyers.
"There are two things that make this different from Bear Stearns. The market's been aware of the situation for a long time and has had time to prepare. Second, the Primary Dealer Credit Facility was created by the Fed to allow time for an orderly process," the source told Reuters.
"Given these things, (Paulson) is adamant that there will not be government money used in the resolution of the situation," the source added.
WASHINGTON (Reuters) - Treasury Secretary Henry Paulson is "adamant" that no government money be used in any deal that resolves the crisis at Wall Street investment bank Lehman Brothers, a source familiar with his thinking said on Friday.
The source said Lehman (LEH.N: Quote, Profile, Research, Stock Buzz) already has substantial support from the Federal Reserve as it races to negotiate with potential buyers.
"There are two things that make this different from Bear Stearns. The market's been aware of the situation for a long time and has had time to prepare. Second, the Primary Dealer Credit Facility was created by the Fed to allow time for an orderly process," the source told Reuters.
"Given these things, (Paulson) is adamant that there will not be government money used in the resolution of the situation," the source added."
My Take:
I'll believe it when I see it. My guess is this is a signal to Wall St. telling them to get together and fix this problems themselves. My guess is some sort of consortium will be setup. If the Fed does let them fail I see it as a good sign.
Maybe they took a look at the Fed's balance sheet and finally realized they can't keep bailing everyone out. I am also wondering if Washington Mutual is affecting Lehman. They look dead as a doornail, and its going to take a lot of money to make the depositors whole here.
A WAMU failure will pretty much wipeout the FDIC which will force them to go to the Treasury for more cash. As I said last night, this economic ship has leaks everywhere and the Fed and Treasury need to start picking their battles.
Bottom Line:
Keep an eye on the news. I think a decision on Lehman is immanent. The banks could decide to not help Lehman via consortium and let them die. I am sure they are looking at their exposures to Lehman and trying to decide which option is better for them: Letting them die or taking the hits on their counterparty risk.
If Lehman dies, it will be a devastating blow to Wall St. It appears the street has already written them off and is trying to conduct business in usual. I don't know how they can do this. We lose two of our big investment banks and its no big deal? Denial is a powerful emotion!
WAMU and Lehman will be the catalysts for the market short term. Lets see how this all plays out.
Long term, expect the financial explosions to continue. Next up in my view? Mighty Merrill.
Thursday, September 11, 2008
Psst..I heard Lehman found a buyer: its Santa Clause!
Hello Everyone!
Did everyone hear the news in the last five minutes of trading? Lehman found a buyer! Yeah right, and I just got $5 under my pillow from the tooth fairy .
How many"buyers" has Lehman gone through in the last 3 days? If Lehman had a dollar for every buyer it found they wouldn't have to go bankrupt! The fact that Goldman Sachs wants nothing to do with Lehman tells you everything you need to know. They have strongly denied any interest in Lehman. Goldman are the smartest guys on the street. If doesn't tell you Lehman is a big pile of dog doo than nothing will.
Folks, mark my words, the market is going to get tired of these rumors. How many times have we gone down this road? How many buyers of stocks have been burned by rumors of false hope? How many times do the pigmen expect investors to keep coming back and buy based on rumors that are total BS?
Let the Fed just announce the Lehman bailout already. You know its coming. Its the new American Way. The government says the counterparty risk is just too great for them to fail. I say let them burn, but god forbid a broker on Wall St. is allowed to fail.
This whole house of cards is going to eventually cave and I say the sooner the better. The government is in total denial over having to deal with it. Take a look at their latest proposal:
My Take:
Joshua nails it in that last paragraph. This does nothing but delay the inevitable. This mentality in DC is only making things worse.
Our financial crisis is on the verge of imploding if we don't stop the bailouts. The Fed is running out of money fast and this ship we call the economy is popping leaks right and left. They cannot plug every leak! The banks are really starting to look vulnerable.
WAMU looks like its about toast. The credit spreads on Washington Mutual are now at 40%. This basically means the credit markets now view WAMU as roadkill. The spreads are up sharply from just last week. To put this in perspective, spreads on a healthy company are under 1%. This is why the stock now sits at two dollars. Is Merrill next? They sure traded like it today.
Bottom Line:
I expect more intervention by the Fed if Lehman can't find a buyer. This could take the market higher. It makes no sense but that's been the pattern.
Keep an eye on financials. One big problem they have right now is the preferred shares that they use to raise capital. One of the unintended consequences by the Fed bailout was the negative effect of bank preferred stock. When Paulson basically wiped out the preferred of the GSE's, the market lost confidence in all preferred shares.
Why?
Because Wall St. says to themselves: If the Fed can come in and wipe out the GSE's preferred with an audit, who is to say they won't do it to other banks that are viewed to be insolvent?
As a result, the preferred stocks of many banks have taken a beating. This makes it more difficult for banks to raise capital which further tightens the knoose.
Things seem to be worsening folks! We could see a bounce on more Fed intervention.
Ignore the lunacy of it. I see no way out of this financial mess.
Did everyone hear the news in the last five minutes of trading? Lehman found a buyer! Yeah right, and I just got $5 under my pillow from the tooth fairy .
How many"buyers" has Lehman gone through in the last 3 days? If Lehman had a dollar for every buyer it found they wouldn't have to go bankrupt! The fact that Goldman Sachs wants nothing to do with Lehman tells you everything you need to know. They have strongly denied any interest in Lehman. Goldman are the smartest guys on the street. If doesn't tell you Lehman is a big pile of dog doo than nothing will.
Folks, mark my words, the market is going to get tired of these rumors. How many times have we gone down this road? How many buyers of stocks have been burned by rumors of false hope? How many times do the pigmen expect investors to keep coming back and buy based on rumors that are total BS?
Let the Fed just announce the Lehman bailout already. You know its coming. Its the new American Way. The government says the counterparty risk is just too great for them to fail. I say let them burn, but god forbid a broker on Wall St. is allowed to fail.
This whole house of cards is going to eventually cave and I say the sooner the better. The government is in total denial over having to deal with it. Take a look at their latest proposal:
"Sept. 11 (Bloomberg) -- U.S. Senate Banking Committee members urged Fannie Mae and Freddie Mac, the mortgage companies placed under federal control this week, to freeze foreclosures on loans in their portfolios for at least 90 days.
``This action would provide immediate relief to many homeowners'' and let the companies ``turn these non-performing loans into performing assets to minimize losses,'' Senators Charles Schumer, Robert Menendez and other panel Democrats said today in a letter to the companies and the Federal Housing Finance Agency, which is overseeing them under the government conservatorship. The companies also should ease their policies on modifying mortgages, the senators wrote.
My Take:
Joshua nails it in that last paragraph. This does nothing but delay the inevitable. This mentality in DC is only making things worse.
Our financial crisis is on the verge of imploding if we don't stop the bailouts. The Fed is running out of money fast and this ship we call the economy is popping leaks right and left. They cannot plug every leak! The banks are really starting to look vulnerable.
WAMU looks like its about toast. The credit spreads on Washington Mutual are now at 40%. This basically means the credit markets now view WAMU as roadkill. The spreads are up sharply from just last week. To put this in perspective, spreads on a healthy company are under 1%. This is why the stock now sits at two dollars. Is Merrill next? They sure traded like it today.
Bottom Line:
I expect more intervention by the Fed if Lehman can't find a buyer. This could take the market higher. It makes no sense but that's been the pattern.
Keep an eye on financials. One big problem they have right now is the preferred shares that they use to raise capital. One of the unintended consequences by the Fed bailout was the negative effect of bank preferred stock. When Paulson basically wiped out the preferred of the GSE's, the market lost confidence in all preferred shares.
Why?
Because Wall St. says to themselves: If the Fed can come in and wipe out the GSE's preferred with an audit, who is to say they won't do it to other banks that are viewed to be insolvent?
As a result, the preferred stocks of many banks have taken a beating. This makes it more difficult for banks to raise capital which further tightens the knoose.
Things seem to be worsening folks! We could see a bounce on more Fed intervention.
Ignore the lunacy of it. I see no way out of this financial mess.
Peter Schiff Speaks Post Bailout
Let me start this morning by recognizing any family that lost a loved one on 9/11. I hope everyone always remembers what happened to us 7 years ago today, and that we catch Bin Laden and anyone else thats responsible for it. Never Forget!
Its always interesting to listen to EuroPac's Peter Schiff. I don't believe in the "decoupling" of the world that Peter talks about because I think we are in a global meltdown.
He is pretty spot on with everything else. Enjoy!:
Its always interesting to listen to EuroPac's Peter Schiff. I don't believe in the "decoupling" of the world that Peter talks about because I think we are in a global meltdown.
He is pretty spot on with everything else. Enjoy!:
Wednesday, September 10, 2008
Dollar Rally Fueled by Speculators
Just a little commentary tonight!
Is anyone as tired of speculators as I am? I can't wait until I see the day where these specs run out of cash. Its inevitable! Why? How many casinos can you walk into where you can beat "the house" by speculating? Uhh 0?
Gamblers in the markets eventually take too much risk and get caught in a bad trade. How many trading accounts have been blown out by the reversal in commodities? You can bet(no pun intended) that number is very high.
This gets me to my point tonight. Gold dropped another $30 today as the currency continues to strengthen. This is the big trade in the commodity markets: Long the dollar/short gold. This trade has been a homerun the last few weeks. As a result, its success caught the eye of the speculators who are now all piling into the same trade. If you can't beat em join em right? Its about the only thing thats working in the markets right now. This is what makes this a dangerous trade. You have seen what the speculators can do when something gets hot in the markets.
The combination of greed and risk taking by the speculators makes any sandbox they decide to play in a dangerous place to play. If they get into your box, get out before you end up with sand in your pants.
Remember what happened to home prices when the house flippers came calling? How about watching oil double in a few weeks from$70-$140 before reversing back to $100 in a matter of weeks. Stay away from these thieves. Your trades will end up in tears just like the homebuyers who bought in 2005/06.
Like any other Ponzi scheme, if your in early its profitable, but if your late or don't know when to get out you end up with empty pockets.
Its pretty obvious the specs are sitting in the US dollar and shorting gold. My advice is to stay away from both because its already late in the game. When these trades reverse its frightening how violent they are!
Think about it. Why would the dollar be going up after the government just intervened with the mother of all bailouts. I can't think of anything that could be more inflationary. We also have historically low interest rates to boot. It makes no sense when you look at the fundementals, but who said the fundamentals mean anything in this filthy snake pit we call the stock market.
Now these long dollar boys will tell you they are buying the dollar because we were the first ones into the recession which means we will be the first ones out on the other end.
Ummmm..Yeah...OK...NOT! IMO this is a pretty weak arguement for going long the dollar. This trade may continue to work for a little while longer but watchout! When this trade stops working, and the specs find another sand box to play in, I expect to see a nasty cratering in the dollar and a surge in gold.
Please note that the long dollar trade could still have legs. We all know how good the specs are at keeping the game going. I wouldn't go near it here because they are still playing in the sand. However, if I see a trend going the other way, I'm a buyer of Euro's and/or gold.
Is anyone as tired of speculators as I am? I can't wait until I see the day where these specs run out of cash. Its inevitable! Why? How many casinos can you walk into where you can beat "the house" by speculating? Uhh 0?
Gamblers in the markets eventually take too much risk and get caught in a bad trade. How many trading accounts have been blown out by the reversal in commodities? You can bet(no pun intended) that number is very high.
This gets me to my point tonight. Gold dropped another $30 today as the currency continues to strengthen. This is the big trade in the commodity markets: Long the dollar/short gold. This trade has been a homerun the last few weeks. As a result, its success caught the eye of the speculators who are now all piling into the same trade. If you can't beat em join em right? Its about the only thing thats working in the markets right now. This is what makes this a dangerous trade. You have seen what the speculators can do when something gets hot in the markets.
The combination of greed and risk taking by the speculators makes any sandbox they decide to play in a dangerous place to play. If they get into your box, get out before you end up with sand in your pants.
Remember what happened to home prices when the house flippers came calling? How about watching oil double in a few weeks from$70-$140 before reversing back to $100 in a matter of weeks. Stay away from these thieves. Your trades will end up in tears just like the homebuyers who bought in 2005/06.
Like any other Ponzi scheme, if your in early its profitable, but if your late or don't know when to get out you end up with empty pockets.
Its pretty obvious the specs are sitting in the US dollar and shorting gold. My advice is to stay away from both because its already late in the game. When these trades reverse its frightening how violent they are!
Think about it. Why would the dollar be going up after the government just intervened with the mother of all bailouts. I can't think of anything that could be more inflationary. We also have historically low interest rates to boot. It makes no sense when you look at the fundementals, but who said the fundamentals mean anything in this filthy snake pit we call the stock market.
Now these long dollar boys will tell you they are buying the dollar because we were the first ones into the recession which means we will be the first ones out on the other end.
Ummmm..Yeah...OK...NOT! IMO this is a pretty weak arguement for going long the dollar. This trade may continue to work for a little while longer but watchout! When this trade stops working, and the specs find another sand box to play in, I expect to see a nasty cratering in the dollar and a surge in gold.
Please note that the long dollar trade could still have legs. We all know how good the specs are at keeping the game going. I wouldn't go near it here because they are still playing in the sand. However, if I see a trend going the other way, I'm a buyer of Euro's and/or gold.
Buffet Runs for Cover
Good Morning Everyone!
Stocks are mildly higher this morning after two brutal trading days.
The Lehman news today was there is no news. Here is the link:
"Sept. 10 (Bloomberg) -- Lehman Brothers Holdings Inc., reporting the biggest loss in its 158-year history, said it will sell a majority stake in its asset-management unit, spin off commercial real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence.
Lehman rose in New York trading after posting a $3.9 billion third-quarter loss on $5.6 billion of writedowns, worse than the $2.2 billion loss analysts had predicted. The company said it's auctioning off about 55 percent of the asset- management group, including fund-manager Neuberger Berman, and didn't name potential bidders. The real-estate spinoff is expected to be completed in the first fiscal quarter of 2009, according to a statement today.
``They are saying `we are fine now,' and that's buying them time to negotiate for that additional capital,'' Brad Hintz, an analyst at Sanford C. Bernstein in New York and former Lehman finance chief, said in a Bloomberg Television interview. ``They will need capital as part of the spinoff."
My Take:
Is anyone else as annoyed by this story as I am. How many times are they going to say the same damn thing? We know what you PLAN to do. WHERE are the buyers? I keep reading the same story week after week. If they keep stringing this out, they risk having zero options. The lower the stock price goes, the less leverage they possess in selling assets.
Berkshire's Blow to the banks
Well it looks like Warren Buffet's lost all confidence in the banking system. The Wall St. Journal is reporting that Buffet's no longer wants a part of insuring bank deposits:
"Berkshire, in Blow to Banks,
Reins In Its Deposit Insurer
By DAMIAN PALETTA
September 10, 2008
Warren Buffett's Berkshire Hathaway Inc. has told one of its subsidiaries to stop insuring bank deposits above the amount guaranteed by the federal government, dealing a fresh blow to the financial-services industry as it tries to assuage anxious customers.
The subsidiary, Kansas Bankers Surety Co., is notifying about 1,500 banks in more than 30 states that it will no longer offer a program called "bank deposit guaranty bonds." KBS is an 18-employee subsidiary of Berkshire Hathaway, according to the parent firm's 2007 annual report. It is one of a handful of firms that offer such insurance, a big selling point for banks trying to attract wealthy customers.
Two people briefed on the matter said the order was made Monday by Mr. Buffett, Berkshire Hathaway's chief executive. Chuck Towle, a senior vice president at KBS, declined to comment on why his firm was leaving the business. "We have decided to do so," he said. "We'll work with each individual bank and work it out with them."
Mr. Towle wouldn't confirm or deny Mr. Buffett's involvement, calling it "strictly rumor." Mr. Buffett declined to comment."
My Take:
When the financial system is healthy and banks are thriving, Buffet's more than happy to insure your money at a nice profit.
Now that all hell is breaking loose in the financial system, Buffet wants out. When one of the best investors in the world wants out take notice! He sees the string of bank failures that are coming after the bursting of the debt bubble.
Bottom Line:
Stocks are all over the place this morning. There is very little confidence in this market. Its virtually impossible to invest right now because there are so many unknowns. Wall St. is slowly turning into the wild wild west where rumors and intervention determine price action vs. earnings.
Its going to take a long time for me to ever have confidence in the stock market again.
Stocks are mildly higher this morning after two brutal trading days.
The Lehman news today was there is no news. Here is the link:
"Sept. 10 (Bloomberg) -- Lehman Brothers Holdings Inc., reporting the biggest loss in its 158-year history, said it will sell a majority stake in its asset-management unit, spin off commercial real-estate holdings and cut the dividend in an effort to shore up capital and regain investor confidence.
Lehman rose in New York trading after posting a $3.9 billion third-quarter loss on $5.6 billion of writedowns, worse than the $2.2 billion loss analysts had predicted. The company said it's auctioning off about 55 percent of the asset- management group, including fund-manager Neuberger Berman, and didn't name potential bidders. The real-estate spinoff is expected to be completed in the first fiscal quarter of 2009, according to a statement today.
``They are saying `we are fine now,' and that's buying them time to negotiate for that additional capital,'' Brad Hintz, an analyst at Sanford C. Bernstein in New York and former Lehman finance chief, said in a Bloomberg Television interview. ``They will need capital as part of the spinoff."
My Take:
Is anyone else as annoyed by this story as I am. How many times are they going to say the same damn thing? We know what you PLAN to do. WHERE are the buyers? I keep reading the same story week after week. If they keep stringing this out, they risk having zero options. The lower the stock price goes, the less leverage they possess in selling assets.
Berkshire's Blow to the banks
Well it looks like Warren Buffet's lost all confidence in the banking system. The Wall St. Journal is reporting that Buffet's no longer wants a part of insuring bank deposits:
"Berkshire, in Blow to Banks,
Reins In Its Deposit Insurer
By DAMIAN PALETTA
September 10, 2008
Warren Buffett's Berkshire Hathaway Inc. has told one of its subsidiaries to stop insuring bank deposits above the amount guaranteed by the federal government, dealing a fresh blow to the financial-services industry as it tries to assuage anxious customers.
The subsidiary, Kansas Bankers Surety Co., is notifying about 1,500 banks in more than 30 states that it will no longer offer a program called "bank deposit guaranty bonds." KBS is an 18-employee subsidiary of Berkshire Hathaway, according to the parent firm's 2007 annual report. It is one of a handful of firms that offer such insurance, a big selling point for banks trying to attract wealthy customers.
Two people briefed on the matter said the order was made Monday by Mr. Buffett, Berkshire Hathaway's chief executive. Chuck Towle, a senior vice president at KBS, declined to comment on why his firm was leaving the business. "We have decided to do so," he said. "We'll work with each individual bank and work it out with them."
Mr. Towle wouldn't confirm or deny Mr. Buffett's involvement, calling it "strictly rumor." Mr. Buffett declined to comment."
My Take:
When the financial system is healthy and banks are thriving, Buffet's more than happy to insure your money at a nice profit.
Now that all hell is breaking loose in the financial system, Buffet wants out. When one of the best investors in the world wants out take notice! He sees the string of bank failures that are coming after the bursting of the debt bubble.
Bottom Line:
Stocks are all over the place this morning. There is very little confidence in this market. Its virtually impossible to invest right now because there are so many unknowns. Wall St. is slowly turning into the wild wild west where rumors and intervention determine price action vs. earnings.
Its going to take a long time for me to ever have confidence in the stock market again.
Tuesday, September 9, 2008
Paulson's Bailout Blunder
Ooooppppssss! That wasn't supposed to happen. Anyone want a bowl? Its going to be here for awhile:
I hope everyone sold into the rally yesterday! What a pathetic follow thru after such a big bounce. Well, here we are two days after the biggest bailout in history and what do we have to show for it? Uhhh nothing?
The bulls must be thinking: What else can the Fed and Treasury do? I say: You should have expected this!
Folks, when the math doesn't make sense you gotta be a seller not a buyer. When home buyers borrow at 10 times their annual income to buy a house, you need to expect massive delinquencies followed by foreclosures.
When unemployment rises and inflation soars, you need to assume that the economy will contract not grow.
The Fed and Treasury need to realize that providing liquidity to a consumer who cannot afford their debt payments doesn't work! People don't want to borrow more money when they can't afford to pay off what they already borrowed! This is what the Fed and Treasury has continued to try and do. Bubbles do not blow back up!
People don't want lower mortgage rates. They need affordable housing. The reality is this bailout essentially does nothing but provide more liquidity through the end of 2009. When will they realize that housing can't be maintained at these ridiculous prices! Providing liquidity at a pricing level where buyers can't afford to qualify gets the housing market nowhere. Why is this so hard for them to understand?
The stupidity of both the bailout and the bulls is beyond belief. Those bottom callers that were cheering yesterday acted like a bunch of crickets on the trading floor today. They buy like pump monkeys on the "Fed saved the day" news and then look like deer in a headlight when they get stuck holding the bag.
Wall St. needs to realize that these bailouts are not good news. They do nothing but delay the pain. We also increase the likely hood with each bailout that the pain will be worse when it occurs than it needed to be if we had just allowed capitalism to run its course.
The government needs to start focusing on where the problem is. That would be the taxpayer. We need to start spending money on creating jobs instead of bailing out a bunch of people that committed fraud! Its time to forget about the big guy and concentrate on the little guy!
Enough of the ranting. Lets get to the news:
Lehman
Here is the Lehman horror show from today. There were over 400 million shares of this traded today. The stock plummeted over 45%.
"Sept. 9 (Bloomberg) -- Lehman Brothers Holdings Inc. fell a record 45 percent in New York trading after talks about a capital infusion from Korea Development Bank ended. The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said."
Quick Take:
Need I say more? Many on the street are already calling them roadkill. IMO if they survive, it will be via a takeover from a larger bank. There are some nice assets like their trading desk that some banks would covet. The problem is the bid for Lehman will probably be $1-2/share.
Are you falling in love with the new interest rates?
You better hurry up and buy because they won't be here long. The reason rates have dropped is not so much because of what happened with Fannie/Freddie. It has to do with portfolio shuffling by bond funds according to Rick Santelli in the pits. This means demand for treasuries could have been artificially increased because funds were forced to pile into them as they reshuffle which would artificially lower yields which then takes rates lower.
Once this reshuffling is finished, the bond market will start trading at a more traditional levels. Interpretation: Take advantage of this now because you might not ever see rates this low again. Don't interpret this as me saying go buy a house before rates go up! You know I think now is the worst time to buy a house! I just mean if you are forced to borrow, you might not see rates like this for quite awhile.
Also keep in mind that if you buy a house at a low rate and want to sell, you will be selling into an environment of higher rates which will lower the value of your house. If you are moving somewhere for just a few years, it would be financially suicidal for you to buy and not rent.
Bottom Line:
The next few days should be interesting. The Lehman story is about to wrap up. Anything could happen here, but I doubt any of the options bode well for LEH. Don't be surprised if a purchase of Lehman similar to Bear Stearns is announced tomorrow. I am hearing Washington Mutual is also hanging by a thread but I can't confirm anything.
I have a feeling the bulls are head cases psychologically right now. Today's drop took all of the steam out of the bailout rally. The news is bad and getting worse.
The next stop for the market will likely be a very dark place. I expect to see a big flush on equities down to the lows over the next week as the negative sentiment grows.
That would put the S&P around 1200. If the bulls can't defend that level or we see a big shoe drop than look out below!
I hope everyone sold into the rally yesterday! What a pathetic follow thru after such a big bounce. Well, here we are two days after the biggest bailout in history and what do we have to show for it? Uhhh nothing?
The bulls must be thinking: What else can the Fed and Treasury do? I say: You should have expected this!
Folks, when the math doesn't make sense you gotta be a seller not a buyer. When home buyers borrow at 10 times their annual income to buy a house, you need to expect massive delinquencies followed by foreclosures.
When unemployment rises and inflation soars, you need to assume that the economy will contract not grow.
The Fed and Treasury need to realize that providing liquidity to a consumer who cannot afford their debt payments doesn't work! People don't want to borrow more money when they can't afford to pay off what they already borrowed! This is what the Fed and Treasury has continued to try and do. Bubbles do not blow back up!
People don't want lower mortgage rates. They need affordable housing. The reality is this bailout essentially does nothing but provide more liquidity through the end of 2009. When will they realize that housing can't be maintained at these ridiculous prices! Providing liquidity at a pricing level where buyers can't afford to qualify gets the housing market nowhere. Why is this so hard for them to understand?
The stupidity of both the bailout and the bulls is beyond belief. Those bottom callers that were cheering yesterday acted like a bunch of crickets on the trading floor today. They buy like pump monkeys on the "Fed saved the day" news and then look like deer in a headlight when they get stuck holding the bag.
Wall St. needs to realize that these bailouts are not good news. They do nothing but delay the pain. We also increase the likely hood with each bailout that the pain will be worse when it occurs than it needed to be if we had just allowed capitalism to run its course.
The government needs to start focusing on where the problem is. That would be the taxpayer. We need to start spending money on creating jobs instead of bailing out a bunch of people that committed fraud! Its time to forget about the big guy and concentrate on the little guy!
Enough of the ranting. Lets get to the news:
Lehman
Here is the Lehman horror show from today. There were over 400 million shares of this traded today. The stock plummeted over 45%.
"Sept. 9 (Bloomberg) -- Lehman Brothers Holdings Inc. fell a record 45 percent in New York trading after talks about a capital infusion from Korea Development Bank ended. The Wall Street firm is continuing to negotiate with other potential investors, a person briefed on the matter said."
Quick Take:
Need I say more? Many on the street are already calling them roadkill. IMO if they survive, it will be via a takeover from a larger bank. There are some nice assets like their trading desk that some banks would covet. The problem is the bid for Lehman will probably be $1-2/share.
Are you falling in love with the new interest rates?
You better hurry up and buy because they won't be here long. The reason rates have dropped is not so much because of what happened with Fannie/Freddie. It has to do with portfolio shuffling by bond funds according to Rick Santelli in the pits. This means demand for treasuries could have been artificially increased because funds were forced to pile into them as they reshuffle which would artificially lower yields which then takes rates lower.
Once this reshuffling is finished, the bond market will start trading at a more traditional levels. Interpretation: Take advantage of this now because you might not ever see rates this low again. Don't interpret this as me saying go buy a house before rates go up! You know I think now is the worst time to buy a house! I just mean if you are forced to borrow, you might not see rates like this for quite awhile.
Also keep in mind that if you buy a house at a low rate and want to sell, you will be selling into an environment of higher rates which will lower the value of your house. If you are moving somewhere for just a few years, it would be financially suicidal for you to buy and not rent.
Bottom Line:
The next few days should be interesting. The Lehman story is about to wrap up. Anything could happen here, but I doubt any of the options bode well for LEH. Don't be surprised if a purchase of Lehman similar to Bear Stearns is announced tomorrow. I am hearing Washington Mutual is also hanging by a thread but I can't confirm anything.
I have a feeling the bulls are head cases psychologically right now. Today's drop took all of the steam out of the bailout rally. The news is bad and getting worse.
The next stop for the market will likely be a very dark place. I expect to see a big flush on equities down to the lows over the next week as the negative sentiment grows.
That would put the S&P around 1200. If the bulls can't defend that level or we see a big shoe drop than look out below!
Monday, September 8, 2008
Jim Rogers: Socialism for the Rich
Is the USA the new China? Jim Rogers thinks so and so do I! As the GSE's lever down, getting a mortgage will become extremely difficult.
This will only force home prices to drop furthur. Enjoy the current rally. As this crisis deepens you will be seeing less and less of them. I hope this bailout of the rich disgusts you as much as it disgusts me.
We the taxpayer are the ones that pay for this. Jim Rogers is right: Paulson basically threw this together and is bailing out(no pun intended) before the crap hits the fan and the crisis needs to be dealt with.
Just Pass the buck right Paulson? Wall St. has gotten very good at this as they continue to hide their losses.
This will only force home prices to drop furthur. Enjoy the current rally. As this crisis deepens you will be seeing less and less of them. I hope this bailout of the rich disgusts you as much as it disgusts me.
We the taxpayer are the ones that pay for this. Jim Rogers is right: Paulson basically threw this together and is bailing out(no pun intended) before the crap hits the fan and the crisis needs to be dealt with.
Just Pass the buck right Paulson? Wall St. has gotten very good at this as they continue to hide their losses.
GSE Bailout: The Morning After
Well Paulson has fired his bazooka and the market is selling on the pop. We started off up 350 points on the DOW as the market initially cheered the news. We have since pulled back to as low as up 211 points.
I have started to notice some dislocations in the market. Gold surged up $16 and oil also rose on a day when the dollar was up. This breaks a recent trend of stronger dollar=weaker commodities. Gold is a great fear indicator folks!
So why should we be afraid? The government saved the day with the bailout right?
Wrong! You see there are repercussions when you cross the line of moral hazard. Here is the first one folks. Pay very close attention to this news:
"Sept. 8 (Bloomberg) -- Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.
Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.
``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.''
A settlement likely would be the largest in the market's decade-long history. Credit-default swaps on Fannie and Freddie have been among the most actively traded the past few months, according to reports from broker GFI Group Inc. Both companies also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets, which investors use to speculate on corporate creditworthiness or to hedge against losses."
My take on todays action:
If we close flat or in the red today be afraid, be very afraid. I expect the "bubble boys" will most likely take us much higher today in the end.
The CDS(credit default swaps) story above is one to watch. The Fannie/Freddie CDS unwind involves $1.4 trillion dollars. These contracts are settled with cash not debts folks. We have never unwound something so large so there is some risk here.
An unwind of the derivatives market is something that would be catastrophic for the financial system. I believe(don't quote me on this) that the derivatives market involves around $60 trillion dollars.
Hank Paulson better pray that this unwind goes smoothly. Lets see how we end the day. I am seeing much less enthusiasm in the markets today than I expected.
Maybe investors are realizing that this solves none of the problems that currently face our economy. The bailout doesn't make houses more affordable nor does it put more money into the consumers wallet.
What it does do is take us one step closer towards the socialization of the financial markets, Of course it also again saves the pigmen.
I have a question for Paulson and the Treasury:
When do WE the people get our bailout?
I have started to notice some dislocations in the market. Gold surged up $16 and oil also rose on a day when the dollar was up. This breaks a recent trend of stronger dollar=weaker commodities. Gold is a great fear indicator folks!
So why should we be afraid? The government saved the day with the bailout right?
Wrong! You see there are repercussions when you cross the line of moral hazard. Here is the first one folks. Pay very close attention to this news:
"Sept. 8 (Bloomberg) -- Investors may be forced to settle contracts protecting more than $1.4 trillion of Fannie Mae and Freddie Mac bonds against default after the U.S. seized control of the companies in a bid to bolster the housing market.
Thirteen ``major'' dealers of credit-default swaps agreed ``unanimously'' that the rescue constitutes a credit event triggering payment or delivery of the companies' bonds, the International Swaps and Derivatives Association said in a memo obtained by Bloomberg News today. Market makers for the privately traded contracts will discuss how to settle them in a conference call at 11 a.m. in New York, the document said.
``This is a big deal,'' said Sarah Percy-Dove, head of credit research at Colonial First State Global Asset Management in Sydney. ``The market is not experienced at settling a credit event for a name of this size, so it is a bit of an unknown.''
A settlement likely would be the largest in the market's decade-long history. Credit-default swaps on Fannie and Freddie have been among the most actively traded the past few months, according to reports from broker GFI Group Inc. Both companies also are among 125 companies in the benchmark Markit CDX North America Investment Grade Index, the most actively traded contract in credit markets, which investors use to speculate on corporate creditworthiness or to hedge against losses."
My take on todays action:
If we close flat or in the red today be afraid, be very afraid. I expect the "bubble boys" will most likely take us much higher today in the end.
The CDS(credit default swaps) story above is one to watch. The Fannie/Freddie CDS unwind involves $1.4 trillion dollars. These contracts are settled with cash not debts folks. We have never unwound something so large so there is some risk here.
An unwind of the derivatives market is something that would be catastrophic for the financial system. I believe(don't quote me on this) that the derivatives market involves around $60 trillion dollars.
Hank Paulson better pray that this unwind goes smoothly. Lets see how we end the day. I am seeing much less enthusiasm in the markets today than I expected.
Maybe investors are realizing that this solves none of the problems that currently face our economy. The bailout doesn't make houses more affordable nor does it put more money into the consumers wallet.
What it does do is take us one step closer towards the socialization of the financial markets, Of course it also again saves the pigmen.
I have a question for Paulson and the Treasury:
When do WE the people get our bailout?
Sunday, September 7, 2008
Treasury takes over Fannie and Freddie
Good afternoon everyone!
Whoa! Sorry this is taking so long. There is a lot to digest here. This is very complicated! Here are a series of links that summarizes what happened today:
Paulsons statement this morning from his press conference
Treasury fact sheet on GSE agreement
S&P slashes Fannie/Freddie preferred to junk status
Fannie/Freddie taken over by U.S. government to prevent collapse
My Take:
There is too much to highlight from above so I will just try to summarize my thoughts here. This is basically a giant cluster f*ck. Paulson took no Q&A after his statement and there are many questions that need to be answered.
Highlights to note:
- The preferred and common stock are now pretty much worthless. The Treasury has issued themselves their own preferred stock which is first in line ahead of the old preferred and common. This means the common and preferred take the losses before the Treasury preferred does. We all know more losses are coming since these companies were bleeding red so you can kiss both of these stocks goodbye.
The dividend on the preferred was also eliminated. I expect this stuff to be trading at $1 a share or so Monday. Its essentially worthless.
- Establishment of a new secured lending credit facility for GSEs incl. FHLB, intended to serve as an ultimate liquidity backstop (temporary authority expires in December 2009)
- The Treasury basically guaranteed the $5 trillion in debt. It did not specifically say so, however they did say that both GSE's are fully backed whole by the US government. They basically "passed the buck" here to the next administration when it comes to the details. Paulson explained that a decision needs to be decided on this before the end of 2009 when the balance sheets of the GSE's start to get leveraged down(see next paragraph).
- They established stock purchasing agreements to protect the American taxpayer. So if they make money down the road, some of its coming back to us after we pay for this disaster now.
The new GSE structuring is detailed below. This is from the Bloomberg piece from above:
"The FHFA will take over Fannie and Freddie under a so-called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.
The takeover of Fannie and Freddie is the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns. The government is taking an increasing role in financial markets, after the Federal Reserve six months ago provided $29 billion of financing to prevent Bear Stearns & Cos.'s collapse.
Treasury Gets Stock
Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on the initial investments.
As a condition for the assistance, Fannie and Freddie will have to reduce their holdings of mortgages and securities backed by home loans. The portfolios ``shall not exceed $850 billion as of December 31, 2009, and shall decline by 10 percent per year until it reaches $250 billion,'' the Treasury said.
What does it all mean?
That's a good question. Essentially the US Treasury's balance sheet will be used via the FHLB through 2009 to suck up all of the MBS crap that is out there. At the end of 2009 due to systemic risk, they will slowly start shrinking the balance sheets of the GSE's at the rate of 10% a year.
There are lots of questions here folks. The $5 trillion dollar question was answered only indirectly through the governments promise to guarantee the GSE's. Congress will have to figure out exactly how they plan to do this before the temporary FHLB authority ends in 2009.
Who immediately wins here? The FCB's and funds like Gross's PIMCO who were made whole on the GSE debt that they own by the guarantee from the US government on all of these MBS's.
Who loses? Regional banks. Many held large amounts of Fannie/Freddie preferred. This will be yet another loss they must take.
Who could potentially get creamed here? Anyone with level 3 assets. This includes the large banks and especially the IB's. Essentially, what happened over the last few weeks was Morgan Stanley was hired to dig into the financials of the GSE's and clean up the books. Once they saw the numbers, the Treasury realized they were "insolvent" and were forced to take action this weekend.
Who is to say the government won't do the same thing with the rest of the financial institutions out there? It sounds like they want to clean this mess up, and if I were up to my neck in level 3 assets, I would be pooping in my pants right now.
Bottom Line:
Equities might pop, but it won't last. The financials took a big punch in the face this weekend. They were lobbying hard for the preferred to not be touched. For once the government said "take your medicine". The Treasury hopes that loosening up the lending through the FHLB will lower rates and get the housing market going again.
As I have said before this probably won't happen. The bond market might decide to take things into their own hands and take rates higher. Mortgage rates are set through the bond market folks!
I have no idea how this is absorbed tomorrow. I will be watching Asia tonight as well as the currency markets. The dollar could get crushed based upon the Treasury backing of all of this debt. We could see a crash or a big rally tomorrow. One thing is for sure, we still have the same issues of unaffordability in housing and a bad economy.
Any pop on equities will not be sustained.
Whoa! Sorry this is taking so long. There is a lot to digest here. This is very complicated! Here are a series of links that summarizes what happened today:
Paulsons statement this morning from his press conference
Treasury fact sheet on GSE agreement
S&P slashes Fannie/Freddie preferred to junk status
Fannie/Freddie taken over by U.S. government to prevent collapse
My Take:
There is too much to highlight from above so I will just try to summarize my thoughts here. This is basically a giant cluster f*ck. Paulson took no Q&A after his statement and there are many questions that need to be answered.
Highlights to note:
- The preferred and common stock are now pretty much worthless. The Treasury has issued themselves their own preferred stock which is first in line ahead of the old preferred and common. This means the common and preferred take the losses before the Treasury preferred does. We all know more losses are coming since these companies were bleeding red so you can kiss both of these stocks goodbye.
The dividend on the preferred was also eliminated. I expect this stuff to be trading at $1 a share or so Monday. Its essentially worthless.
- Establishment of a new secured lending credit facility for GSEs incl. FHLB, intended to serve as an ultimate liquidity backstop (temporary authority expires in December 2009)
- The Treasury basically guaranteed the $5 trillion in debt. It did not specifically say so, however they did say that both GSE's are fully backed whole by the US government. They basically "passed the buck" here to the next administration when it comes to the details. Paulson explained that a decision needs to be decided on this before the end of 2009 when the balance sheets of the GSE's start to get leveraged down(see next paragraph).
- They established stock purchasing agreements to protect the American taxpayer. So if they make money down the road, some of its coming back to us after we pay for this disaster now.
The new GSE structuring is detailed below. This is from the Bloomberg piece from above:
"The FHFA will take over Fannie and Freddie under a so-called conservatorship, replacing their chief executives and eliminating their dividends. The Treasury will purchase up to $100 billion of senior-preferred stock in each company as needed to maintain a positive net worth. It will also provide secured short-term funding to Fannie, Freddie and 12 federal home-loan banks, and purchase mortgage-backed debt in the open market.
The takeover of Fannie and Freddie is the biggest step yet in officials' efforts to grapple with a yearlong credit crisis that has caused more than $500 billion of losses and writedowns. The government is taking an increasing role in financial markets, after the Federal Reserve six months ago provided $29 billion of financing to prevent Bear Stearns & Cos.'s collapse.
Treasury Gets Stock
Under the plan, the Treasury will receive $1 billion of senior preferred stock in coming days, with warrants representing ownership stakes of 79.9 percent of Fannie and Freddie. The government will receive annual interest of 10 percent on the initial investments.
As a condition for the assistance, Fannie and Freddie will have to reduce their holdings of mortgages and securities backed by home loans. The portfolios ``shall not exceed $850 billion as of December 31, 2009, and shall decline by 10 percent per year until it reaches $250 billion,'' the Treasury said.
What does it all mean?
That's a good question. Essentially the US Treasury's balance sheet will be used via the FHLB through 2009 to suck up all of the MBS crap that is out there. At the end of 2009 due to systemic risk, they will slowly start shrinking the balance sheets of the GSE's at the rate of 10% a year.
There are lots of questions here folks. The $5 trillion dollar question was answered only indirectly through the governments promise to guarantee the GSE's. Congress will have to figure out exactly how they plan to do this before the temporary FHLB authority ends in 2009.
Who immediately wins here? The FCB's and funds like Gross's PIMCO who were made whole on the GSE debt that they own by the guarantee from the US government on all of these MBS's.
Who loses? Regional banks. Many held large amounts of Fannie/Freddie preferred. This will be yet another loss they must take.
Who could potentially get creamed here? Anyone with level 3 assets. This includes the large banks and especially the IB's. Essentially, what happened over the last few weeks was Morgan Stanley was hired to dig into the financials of the GSE's and clean up the books. Once they saw the numbers, the Treasury realized they were "insolvent" and were forced to take action this weekend.
Who is to say the government won't do the same thing with the rest of the financial institutions out there? It sounds like they want to clean this mess up, and if I were up to my neck in level 3 assets, I would be pooping in my pants right now.
Bottom Line:
Equities might pop, but it won't last. The financials took a big punch in the face this weekend. They were lobbying hard for the preferred to not be touched. For once the government said "take your medicine". The Treasury hopes that loosening up the lending through the FHLB will lower rates and get the housing market going again.
As I have said before this probably won't happen. The bond market might decide to take things into their own hands and take rates higher. Mortgage rates are set through the bond market folks!
I have no idea how this is absorbed tomorrow. I will be watching Asia tonight as well as the currency markets. The dollar could get crushed based upon the Treasury backing of all of this debt. We could see a crash or a big rally tomorrow. One thing is for sure, we still have the same issues of unaffordability in housing and a bad economy.
Any pop on equities will not be sustained.
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