Tuesday, March 24, 2009

The Last Hurrah

Stocks pulled back a tad today after a magical two week run. As I watch this latest leg up in the stock market I can't help but ask myself: Is this the last hurrah?

I think we will have our answer within a couple months. There are multiple triggers that could bring us back down to the lows. The biggest potential threat that I see is when Turbo Timmy's bank auctions begin. According to the wires, the auctions for these worthless assets could begin as soon as May.

There are many reasons to think that these auctions could very well fail. Tyler from Zerohedge posted a great piece of research from Goldman Sachs today around the marks that banks have taken on their toxic assets:



My Take:

My eyes almost fell out of my head after reading this. Many banks still have commercial loans marked at 100%! Anyone been to a mall lately? These marks are shocking.

You gotta wonder: What planet do these clowns live on?

There obviously is going to be a huge gap between the price at which private equity is willing to pay on these assets versus what the bank is willing to sell them for. Many private equity guys think the values on these assets are worth anywhere from .20-.40 on the dollar. That's a far cry from the full market price that these banks have marked on their balance sheet.

Good luck bridging that gap Timmy. Oh and Turbo by the way: If you plan on raping the taxpayer by massively overpaying for these assets in order bridge this gap I have some advice for you: Build a moat around your McMansion and go out and hire yourself a small army. You are going to need it in order to keep J6P and their torches out of your living room!

Let The Fed's Financing of America Begin!

Its Official! The Fed plans on purchasing treasuries tomorrow. Lets see how long this circle j**k lasts:


Operation Date
Settlement Date
Operation Type1
Maturity/Call Date Range

March 25, 2009
March 26, 2009
Outright Treasury Coupon Purchase
02/29/16 – 02/15/19

March 27, 2009
March 30, 2009
Outright Treasury Coupon Purchase
03/31/11 – 04/30/12

March 30, 2009
March 31, 2009
Outright Treasury Coupon Purchase
08/15/26 – 02/15/39

April 1, 2009
April 2, 2009
Outright Treasury Coupon Purchase
05/31/12 – 08/31/13

April 2, 2009
April 3, 2009
Outright Treasury Coupon Purchase
09/30/13 – 02/15/

Quick Take:

It sure didn't take the Fed long to pull this trigger did it? Whats wrong Ben? Are you buying now because you are finding demand to be a little soft? Has China decided to SELL to you instead of buying more?

What are you going to do if the FCB's decide to bail and you find yourself bidding against yourself at these treasury auctions?

You gotta wonder:

Which group of auctions will be a bigger failure? Turbo Timmy's bank auctions or Ben's treasury auction escapades? This one is too close to call in my view. I expect a photo finish. One thing is for sure: Both will fail!

Bottom Line:

The dam is springing multiple leaks and Ben and Timmy are running out of fingers. I really can't see us holding this debt bubble together much longer.

The $300 billion that the Fed is using to buy treasuries will be gone in a matter of weeks. Expect them to expand this program until they either blow themselves up or the bond vigilantes come out of hibernation and put a stop to all of this nonsense.

No matter what happens one thing is clear: We are running out of money and Washington's Game Plan looks to be a colossal failure.

Wall St and Washington pumped this plan up with more air then the housing bubble. Short term the market has bought it.

However, now its time to execute and it appears that many pieces of the puzzle are missing. This is where the elites are in deep trouble. America and Wall St are getting restless and looking for answers. This plan does nothing but further muddy the waters with opaque transactions combined with massive government interventions.

Transparency is nowhere to found in this plan because the elites of Wall St and Washington need this puppet show to continue so that they can continue to steal billions from the taxpayers.

I don't think we get through the spring before this plan totally disintegrates.

I wish that old lady from the Wendy's commercials was still around to ask: Where's the Beef?

11 comments:

Anonymous said...

I caught the best part of Geithner talking to Congress today. When the representative asked him about a backup plan he said: This plan will work. In other words there is no back up plan. This is the last bullet in the gun.

Jeff said...

Anon

Yup

"all in"!

Anonymous said...

Has anybody heard whether the Pigmen will be excluded from purchasing any of these toxic assets. Wouldn't it be ironic if they get to unload these shit pies from their balance sheets only to re-buy them at a leveraged rate of 6 to 1 with the very taxpayers dollars that they recieved to bail them out of them.......

Now that would be the most elegant Ponsi scheme ever.

Alex

Jeff said...

Anon

The way I read it they can't do it.

You need a minimum purchase of $500 million to buy in which means only the big boys can play.

I can't wait to see how much capital they are really willing to risk. PIMCO said they are in but thats easy to say when you have $1 trillion in assets.

I wanna to see exactly how much they are willing to bet. this will tell you how comittited they are.

If this is run crooked it does run the risk of being another Ponzi scheme.

I think the bigger problem will be getting the banks to sell their assets.

There are plenty of buyers at the right price. The problem is that price puts most of the banks out of business.

Anonymous said...

Here we go...
"China Takes Aim at Dollar"
http://online.wsj.com/article/SB123780272456212885.html#articleTabs%3Darticle

regard,
mat

Jeff said...

Mat

Thanks

I saw that on bubblevision this morning.

Very interesting developement. This is a serious currency threat with deep implications if it ever happens.

Peter said...

That chart is about the scariest thing I have seen in a while. If those figures are accurate then there is no potential argument against the banks being completely insolvent.

This is public information, how can the idiots running this country even have the audacity to claim that mark to market would mean anything.

More importantly, mark to market is the current law. Clearly these banks are in violation of this law. Where are the authorities? The government is making an enormous power grab, creating more regulations and it has nothing to do with protecting us, it is solely for them to take more power and steal more money. One would think that if we need more regulation then we are already enforcing all the regulations on the book.

We are doomed.

Jeff said...

Peter

I can't help but think the same thing.

Our current debt vs. GDP dwarfs the numbers seen during The Great Depression.

My guess here is Obama's sitdown on Friday with the banks is going to be ugly.

He is going to force them to sell these assets at firesale prices.

In return, he will change some accounting methods on M2M that will allow them to take the hits without going under.

This is nothing but a giant puppet show. The government has falling revenues and trillions of debt. They are basically broke.

I think this is why China is out there grumbling about a world currency. they are not stupid. They see whats going down.


The math doesn't work here and the market will figure it out eventually.

I plan on buying some long term SPY puts in the very near future.

EDC said...

question,
anyone read the footnote about carrying value estimated as par - LTM net charge-offs - reserves (estimated at 1X 4Q08 annualized NCOs) - any deal marks?

Explain that please!
could it be not as bad as we think if they are already subtracting and coming up with that value?

I am no bull, just want to understand the footnote on the graph.

Jeff said...

EDC

I saw that as well and thats a good question.

I think some banks have been more aggresive than others in marking some of this down.

I don't think anyone can answer that question because the transparency isn't there.

If the true marks were not that bad I think the banks would open up their balance sheets. Since they aren't, you have to assume that the marks are not aggresive enough.

Jeff said...

Post should be up around 7-7:30