Good Afternoon Folks
The news on Geithner's recovery plan is fast and furious today. There are three articles I want to share with you. The last article around the TALF will basically result in another huge payday for the pigmen and its going to make you sick.
Lets start with Bloomberg's and the Times updates around some of the details on the Treasury plan:
"Feb. 7 (Bloomberg) -- The Obama administration is considering subjecting banks to a new test to determine whether they require fresh capital injections as part of the rescue plan to be unveiled by Treasury Secretary Timothy Geithner next week, people familiar with the matter said.
The Treasury may increase its stake in lenders that are judged short of capital, the people said on condition of anonymity. Should extra taxpayer funds result in majority ownership by the government, officials would then decide whether to liquidate the institutions, place them into receivership or retire the companies’ assets over time, they said.
Officials are preparing to deploy billions of dollars more to help recapitalize the banks, after already investing in excess of $200 billion. In a second key feature of the plan, the Federal Reserve will likely expand what is now a $200 billion program to revive consumer loans, according to two people briefed on the talks. Details are still being discussed and could change."
New York Times Update:
"The banking plan will involve a close review of financial institutions, possibly including a so-called stress test to measure whether they have enough resources to weather a continued economic decline. It will also enable the government, when it provides a new round of investment, to convert the warrants for preferred stock it has already received from many institutions into common stock. The move, which essentially would swap debt for equity, would help relieve the balance sheets of those institutions, although it would also hurt other existing shareholders by diluting their common stock."
My Take:
At first glance a lot of this looks pretty good although the devil is in the details. The key thing that the government is doing here is it appears that each bank will have to go through what they are calling a "stress test". This test will be used to determine which banks should fail because they are beyond repair and which ones are worth saving. The banks that are healthy shouldn't be effected once they pass the test.
This is not nearly as Wall St friendly as I would have guessed. It sounds to me like the banks that are too big to fail run the risk of being placed into "receivership". This is a nice way of saying nationalization. The Fed is never going to use this word so we need to start reading between the lines.
Based on the Times article, it appears that if certain banks fail the test, they plan on taking the preferred shares of capital that they put into the banks via the TARP and converting them to common stock before adding additional capital. This will be highly dilutive to the banks share price. Some bank stock will plummet as a result of this move based on the dilution. Perhaps this is a way of punishing the banks for their fraudulent acts?
Bottom line here is there a lot of punishment thats going to be doled out by the government. Lets hope they back it up and these reports turn out to be true.
OK now its TALF time
Let me warn you now. This article is going to make you sick. This is from the Wall St. Journal.
"Hoping to jump-start the financial system, the Obama administration is considering turning to a new program run by the Federal Reserve that has been a challenge to launch and depends heavily on hedge funds.
The Term Asset-backed Securities Loan Facility, or TALF, was announced in November after investors stopped buying securities backed by consumer debt. Under the $200 billion program, the Fed will make loans to almost any U.S. firm that is willing to use the government financing to buy securities tied to credit-card, small-business, student and auto loans.
In essence, the government, which doesn't want to buy these securities itself, is lending money to professional investors so they can buy them. In some cases, the government itself is guaranteeing payment on the loans that back these securities.
To get this program going, the Fed has had to consider questions it hasn't dealt with before, such as whether it should do business with offshore accounts of a U.S. hedge fund, which it has found a way to do.
Because the Fed is so eager to attract participants, it has limited restrictions on which firms can participate.
Broader philosophical issues could arise if the program is expanded. The White House has promised more transparency in how its funds are used. But lending to hedge funds may be problematic because their operations are opaque. Moreover, the program depends on many of the practices that helped to fell Wall Street firms in the first place, such as leverage, structured-debt investments and a dependence on credit ratings.
Depending on the different types of collateral, investors will get roughly $100 of lending for every $5 to $16 of cash they put up to invest. The rate investors will have to pay will be set at one percentage point over interest rates based on London interbank offered rates.
The loans the Fed makes to investors are nonrecourse, meaning investors can't lose any more than the money they put upfront on the security. If a hedge fund defaults to the Fed, its collateral is the securities themselves. There also are no margin calls, meaning the Fed can't demand additional payments of cash from borrowers if the underlying securities fall in value."
Final Take:
Alrighty folks, this is pretty damn disgusting. In a nutshell, The Fed is going to allow hedge funds to leverage up at 20-1 and buy various securities with low interest rate loans. If you are a hedge fund this is a no brainer.
Here is how this game would work: A Hedge fund puts up $50 million and he gets $1 billion in troubled securities back in return. The only skin the hedge fund has in the game is his original investment. The Fed is backing everything except the original investment. These securities pay double digit returns but are dropping in value because consumers are defaulting.
However, the price doesn't really matter because you are all but guaranteed to make back your money plus a huge profit because of the double digit returns are paid back to you will be huge because you own so many assets with 20-1 leverage.
The Fed is guaranteeing the loans on anything above your original investment which in this example is $50 million. So if you make $100 million on the double digit returns based on the leverage before the securities drop enough in value to wipe out your original investment then who cares? You just made a 100% return on your capital!
Leave it to the pigmen to find a way to make money off of this debacle.
The bottom line here is the pigmen get rich, the banks get bad assets off of their books, and the Fed gets stuck guaranteeing the loans and is forced to take almost all of the losses at the taxpayer's expense.
WHEN ARE WE GOING TO GET OUT OWN TALF FOLKS? Why does the taxpayer constantly get shit on over and over and over. Why aren't they thinking of government programs that give the taxpayer an opportunity to make money?
This article made me sick! It will be interesting to see how the stock market digests all of the news on Monday.
Lets see what happens.
Saturday, February 7, 2009
Friday, February 6, 2009
Bull Orgy!
Good Afternoon Folks
Man, what a rally. I guess the bond market has it right. Rick Santelli said the new saying in the trading pits is "Trade the Tarp!".
I held short into the weekend. I guess I am a glutton for punishment!
Turbo Timmy is up on Monday. There were no real leaks on his speech today which I found very interesting. Real estate stocks soared on the hopes that further intervention will help shore up their sagging industry. This was the only rumor that I read about Geithner's plan. It's reported that up to half of the remaining Tarp funds may be used for mortgages:
"NY Post reports A cornerstone of the economic recovery plan that President Barack Obama is expected to unveil Monday will be modifying problem mortgages, The Post has learned. In a nod to Main Street over Wall Street, sources familiar with the plan say Treasury Secretary Tim Geithner plans to allocate almost half of the remaining $350 billion in funds from the Trouble Asset Relief Program to the so-called "Mo Mod," or mortgage modification, platform. "Mo Mod" is an algorithmic mortgage processing program that can rewrite up to 500,000 loans a month, and will be a major part of Treasury's plan to help repair tattered bank balance sheets."
Quick Take:
All of this intervention will one day come home to roost. I'll let Marc Faber explain why this is such a bad idea. Here is a great interview with Marc from Bloomberg this morning that focused on our government interventions and why they will ultimately fail. I couldn't agree with him more:
Thank god its Friday. What a wild ride!
Man, what a rally. I guess the bond market has it right. Rick Santelli said the new saying in the trading pits is "Trade the Tarp!".
I held short into the weekend. I guess I am a glutton for punishment!
Turbo Timmy is up on Monday. There were no real leaks on his speech today which I found very interesting. Real estate stocks soared on the hopes that further intervention will help shore up their sagging industry. This was the only rumor that I read about Geithner's plan. It's reported that up to half of the remaining Tarp funds may be used for mortgages:
"NY Post reports A cornerstone of the economic recovery plan that President Barack Obama is expected to unveil Monday will be modifying problem mortgages, The Post has learned. In a nod to Main Street over Wall Street, sources familiar with the plan say Treasury Secretary Tim Geithner plans to allocate almost half of the remaining $350 billion in funds from the Trouble Asset Relief Program to the so-called "Mo Mod," or mortgage modification, platform. "Mo Mod" is an algorithmic mortgage processing program that can rewrite up to 500,000 loans a month, and will be a major part of Treasury's plan to help repair tattered bank balance sheets."
Quick Take:
All of this intervention will one day come home to roost. I'll let Marc Faber explain why this is such a bad idea. Here is a great interview with Marc from Bloomberg this morning that focused on our government interventions and why they will ultimately fail. I couldn't agree with him more:
Thank god its Friday. What a wild ride!
Thursday, February 5, 2009
Here We Go! Geithner Recovery Plan Rollout: Feb. 9th!
Whoo Boy!
Well its official:
"WASHINGTON (MarketWatch) - Treasury Secretary Timothy Geithner on Monday will release his "comprehensive plan" to revitalize the financial markets, a Treasury spokesman said Thursday. Geithner is expected to explain how Treasury will employ the second half of a $700 billion bank bailout package as well as other program to shock the financial markets out of the recession. The plan is expected to include a variation of a mortgage mitigation proposal introduced by Federal Deposit Insurance Corp. Chairwoman Sheila Bair, according to Senate Banking Committee Chairman Christopher Dodd, D-Conn. Treasury officials are considering a variety of options for use of the funds, including capital injections and the creation of a bad bank that could be used to buy illiquid mortgage securities from struggling financial institutions."
My Take:
Fasten your seatbelts folks! LLLLLLLLLLLLeeetttss get ready to rumble!!!!
God, if this isn't a "sell the news" situation then I don't know what is. In fact, this is worse then a "buy the rumor sell the news" situation. Its actually a "sell the rumor AND sell the news" .
The price action I saw today was really pathetic. Confidence appears to be completely shot. Stocks were pumped incessantly today on CNBC. There was wild speculation on Bubblevision that the "mark to market" accounting rule was going to be lifted. The market barely blinked on the news. Some of the financials were able to crawl into positive territory.
Word then got out that the the Democrats were going to attempt to jam the stimulus through the Senate despite strong objections from across the aisle. This rumor actually turned out to be true. What a shocker! They are voting as I type. I don't know about you guys but I saw panic in DC today. Especially from the Democratic side. Obama's comments today say it all:
"RTTNews) - President Barack Obama warned Thursday that the nation is facing a recession so deep that, without action, it could turn into one that "we may not be able to reverse." The threat of an irreversible recession that could "linger for years" is very real, Obama said, urging Congress to pass his economic recovery act.
"By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression," Obama wrote. "What Americans expect from Washington is action that matches the urgency they feel in their daily lives -- action that's swift, bold and wise enough for us to climb out of this crisis," he added.He painted a bleak picture of the future of the economy without stimulus, predicting an additional 5 million jobs lost, and unemployment approaching 10 percent."
Quick Take:
Geeezzz...Obama makes me look like a "raging bull" when it comes to the economy. Does he actually believe that we may be facing a recession that we can never get out of? It sounds like our Prez needs to pop some Prozac! Please note that I realize that Obama is merely throwing a temper tantrum in order to get his pork filled stimulus package passed.
Folks, Monday is going to be a joke. I can see it now. The whole world will be watching as little "Turbo Timmy" steps up to the podium on Monday and begins selling our "miraculous" recovery plan that will save planet earth. I am sure the world will rejoice once he is finished!..Yeah right.
Its not gonna happen guys and gals. I gotta be blunt here so please cover your children's eyes. This is a fucking fiasco and everybody knows it. There is no recovery plan that can cure this.. WE DO NOT HAVE THE MONEY to fix what the banks have done. This is why Wall St cannot rally for more than a few hours each day. Stocks failed to regain yesterday's losses today despite all of the positive news/rumors that came out of Washington.
Can you imagine what the financials would have done 1-2 years ago if CNBC reported that the "mark to market" accounting rule was possibly going to be lifted? We would have seen a 10% bounce if not more over the next couple days. Not Anymore, in today's "digital casino" as one of my readers puts it, stocks could only manage a 100 point rally on the news even after learning that an economic stimulus could be approved on Friday.
If this isn't a lack of confidence then I don't know what is. By the way, if they attempt to suspend "mark to market" accounting and create less transparency the market is not going to rally. All of the traders know that this is exactly what Japan did. This change will do nothing but create more uncertainty. This is the last thing that the street needs.
Bottom Line:
Alrighty folks. I have been thinking about how I am going to play this. I added a short on the bounce late today. I leveraged up and bought some SDS calls. This is risky play but I think the jobs number is going to be awful tomorrow. On top of that, the sentiment on the street is terrible. I was really shocked that we didn't see a rocket ride based on the mark to market accounting rumor today. The market appears to be unable to rally.
I feel a change in sentiment in the air. The bulls have held 8000 by staying in denial and ignoring bad news. The bulls have historically rallied on "huge" rumors/interventions. The Feds have now handed them the two largest possible sticksaves out there with rumors of a "bad bank" and "changes in mark to market accounting" and stocks haven't budged. You need to start asking yourself: If all of these rumors/interventions can't take stocks higher than what will? We must take notice when the bulls fail to rally after getting two gifts like this.
Of course there are other reasons to be short.
Check out the jobless claims today:
"Feb. 5 (Bloomberg) -- The number of Americans filing first- time claims for jobless benefits unexpectedly jumped last week to a 26-year high, signaling a deepening deterioration in the labor market.
Initial jobless claims increased by 35,000 to 626,000 in the week ended Jan. 31, the highest level since October 1982, the Labor Department said today in Washington. The total number of people collecting benefits jumped to a record 4.788 million a week earlier.
Companies ranging from Macy's Inc. to PNC Financial Services Group Inc. are announcing job cuts as consumers and businesses rein in spending and that is likely to prompt even further pullbacks in coming weeks. The government is forecast to report tomorrow that the U.S. lost 540,000 jobs in January"
This was the worst jobless claims print since 1982. The economy is shredding jobs at an absolutely frightening pace as we continue to deleverage off of "bubble money". Without jobs this economy is dead with a capital D.
I kept on my SPG short and QQQQ long calls. Tech is working nicely right now so I will continue to use it as a hedge. I am not sure what I will do heading into Geithner's speech.
I am strongly leaning towards keeping on some shorts and Selling my long Q's which are up nicely. This is a risky play because Geithner's going to come out with some type of shock and awe move in an attempt to kickstart the markets.
I am leaning towards heading into this short because I simply think there are no more bullets left in the gun. I don't think the market is going to believe that Geithner's recovery plan will work. Its that simple. I have told you why it won't work in my previous posts.
When I think of the Fed/Treasury now I can't help but thinking of that story about "The little boy who cried wolf". The Fed continues to obloviate and flex their financial muscles as they fill our economy with promises of guarantees and unlimited liquidity. Yet despite their efforts, the market continues to drop like a rock. One of these days, the Treasury's going to cry "wolf" and the markets are going to ignore them and sell. I mean how many times can you believe someone's policies that have failed try after try after try?
Could Monday be the day this finally happens? It depends on what he says. His plan better get it right on the 9th. If its more garbage from the same playbook the market is going to punish him severely. If he plans on attempting to spend multiple trillions, the bond market is going to call him on it.
Lets all hope Timmy comes up with some new solutions. If its more of the same, we may see our first Black Monday of the new millennium.
Well its official:
"WASHINGTON (MarketWatch) - Treasury Secretary Timothy Geithner on Monday will release his "comprehensive plan" to revitalize the financial markets, a Treasury spokesman said Thursday. Geithner is expected to explain how Treasury will employ the second half of a $700 billion bank bailout package as well as other program to shock the financial markets out of the recession. The plan is expected to include a variation of a mortgage mitigation proposal introduced by Federal Deposit Insurance Corp. Chairwoman Sheila Bair, according to Senate Banking Committee Chairman Christopher Dodd, D-Conn. Treasury officials are considering a variety of options for use of the funds, including capital injections and the creation of a bad bank that could be used to buy illiquid mortgage securities from struggling financial institutions."
My Take:
Fasten your seatbelts folks! LLLLLLLLLLLLeeetttss get ready to rumble!!!!
God, if this isn't a "sell the news" situation then I don't know what is. In fact, this is worse then a "buy the rumor sell the news" situation. Its actually a "sell the rumor AND sell the news" .
The price action I saw today was really pathetic. Confidence appears to be completely shot. Stocks were pumped incessantly today on CNBC. There was wild speculation on Bubblevision that the "mark to market" accounting rule was going to be lifted. The market barely blinked on the news. Some of the financials were able to crawl into positive territory.
Word then got out that the the Democrats were going to attempt to jam the stimulus through the Senate despite strong objections from across the aisle. This rumor actually turned out to be true. What a shocker! They are voting as I type. I don't know about you guys but I saw panic in DC today. Especially from the Democratic side. Obama's comments today say it all:
"RTTNews) - President Barack Obama warned Thursday that the nation is facing a recession so deep that, without action, it could turn into one that "we may not be able to reverse." The threat of an irreversible recession that could "linger for years" is very real, Obama said, urging Congress to pass his economic recovery act.
"By now, it's clear to everyone that we have inherited an economic crisis as deep and dire as any since the days of the Great Depression," Obama wrote. "What Americans expect from Washington is action that matches the urgency they feel in their daily lives -- action that's swift, bold and wise enough for us to climb out of this crisis," he added.He painted a bleak picture of the future of the economy without stimulus, predicting an additional 5 million jobs lost, and unemployment approaching 10 percent."
Quick Take:
Geeezzz...Obama makes me look like a "raging bull" when it comes to the economy. Does he actually believe that we may be facing a recession that we can never get out of? It sounds like our Prez needs to pop some Prozac! Please note that I realize that Obama is merely throwing a temper tantrum in order to get his pork filled stimulus package passed.
Folks, Monday is going to be a joke. I can see it now. The whole world will be watching as little "Turbo Timmy" steps up to the podium on Monday and begins selling our "miraculous" recovery plan that will save planet earth. I am sure the world will rejoice once he is finished!..Yeah right.
Its not gonna happen guys and gals. I gotta be blunt here so please cover your children's eyes. This is a fucking fiasco and everybody knows it. There is no recovery plan that can cure this.. WE DO NOT HAVE THE MONEY to fix what the banks have done. This is why Wall St cannot rally for more than a few hours each day. Stocks failed to regain yesterday's losses today despite all of the positive news/rumors that came out of Washington.
Can you imagine what the financials would have done 1-2 years ago if CNBC reported that the "mark to market" accounting rule was possibly going to be lifted? We would have seen a 10% bounce if not more over the next couple days. Not Anymore, in today's "digital casino" as one of my readers puts it, stocks could only manage a 100 point rally on the news even after learning that an economic stimulus could be approved on Friday.
If this isn't a lack of confidence then I don't know what is. By the way, if they attempt to suspend "mark to market" accounting and create less transparency the market is not going to rally. All of the traders know that this is exactly what Japan did. This change will do nothing but create more uncertainty. This is the last thing that the street needs.
Bottom Line:
Alrighty folks. I have been thinking about how I am going to play this. I added a short on the bounce late today. I leveraged up and bought some SDS calls. This is risky play but I think the jobs number is going to be awful tomorrow. On top of that, the sentiment on the street is terrible. I was really shocked that we didn't see a rocket ride based on the mark to market accounting rumor today. The market appears to be unable to rally.
I feel a change in sentiment in the air. The bulls have held 8000 by staying in denial and ignoring bad news. The bulls have historically rallied on "huge" rumors/interventions. The Feds have now handed them the two largest possible sticksaves out there with rumors of a "bad bank" and "changes in mark to market accounting" and stocks haven't budged. You need to start asking yourself: If all of these rumors/interventions can't take stocks higher than what will? We must take notice when the bulls fail to rally after getting two gifts like this.
Of course there are other reasons to be short.
Check out the jobless claims today:
"Feb. 5 (Bloomberg) -- The number of Americans filing first- time claims for jobless benefits unexpectedly jumped last week to a 26-year high, signaling a deepening deterioration in the labor market.
Initial jobless claims increased by 35,000 to 626,000 in the week ended Jan. 31, the highest level since October 1982, the Labor Department said today in Washington. The total number of people collecting benefits jumped to a record 4.788 million a week earlier.
Companies ranging from Macy's Inc. to PNC Financial Services Group Inc. are announcing job cuts as consumers and businesses rein in spending and that is likely to prompt even further pullbacks in coming weeks. The government is forecast to report tomorrow that the U.S. lost 540,000 jobs in January"
This was the worst jobless claims print since 1982. The economy is shredding jobs at an absolutely frightening pace as we continue to deleverage off of "bubble money". Without jobs this economy is dead with a capital D.
I kept on my SPG short and QQQQ long calls. Tech is working nicely right now so I will continue to use it as a hedge. I am not sure what I will do heading into Geithner's speech.
I am strongly leaning towards keeping on some shorts and Selling my long Q's which are up nicely. This is a risky play because Geithner's going to come out with some type of shock and awe move in an attempt to kickstart the markets.
I am leaning towards heading into this short because I simply think there are no more bullets left in the gun. I don't think the market is going to believe that Geithner's recovery plan will work. Its that simple. I have told you why it won't work in my previous posts.
When I think of the Fed/Treasury now I can't help but thinking of that story about "The little boy who cried wolf". The Fed continues to obloviate and flex their financial muscles as they fill our economy with promises of guarantees and unlimited liquidity. Yet despite their efforts, the market continues to drop like a rock. One of these days, the Treasury's going to cry "wolf" and the markets are going to ignore them and sell. I mean how many times can you believe someone's policies that have failed try after try after try?
Could Monday be the day this finally happens? It depends on what he says. His plan better get it right on the 9th. If its more garbage from the same playbook the market is going to punish him severely. If he plans on attempting to spend multiple trillions, the bond market is going to call him on it.
Lets all hope Timmy comes up with some new solutions. If its more of the same, we may see our first Black Monday of the new millennium.
Wednesday, February 4, 2009
Brother, Can You Spare a Loan?
Good Evening Folks
Sorry I am a little late tonight. I am feeling a little under the weather.
I have come to a conclusion when it comes to my short term view on the market: I have none!
The market appears to be nothing more than a trading casino right now. I closed out most of my positions today. I held onto my SPG short and my long Q's. We continue to churn in a very tight range around the 8000 area. So far, every time we drop below 8000 on the DOW or near the 800 area on the S&P, the bulls have held serve and successfully defended.
The question now becomes is are we forming a bottoming pattern here as we continue to hold at this 7900-8000/800 area on the DOW and the S&P and begin to move higher, or do we finally break through this choppy area convincingly and prepare to head down to the November lows?
I gotta admit folks, I am on the fence here. I see valid arguments for moving in either direction once we break out of this "holding pattern". I think a lot of it comes down to the economic recovery plan. If Obama pulls a rabbit out of his hat and finds a way to sell his plan to the American people then we could see a nice bounce. If the recovery plan looks very painful for the pigmen on Wall St then we could go visit Lucifer and head straight down to new lows.
One thing here is for sure. If you try and front run this you could end up blowing up your trading account because the market has given no clear signal as to which way it wants to go. When it does, I expect a violent move in either direction. If you like to roll the dice then go ahead and front this. As for me, no thanks, I'll pass.
I refuse to get in front of this until I get a convincing signal in either direction. Maybe tomorrow will be the day that I finally get one.
Something to note from after hours: Cisco shocked the street during their earnings conference call. They announced that they expect a 20% drop in sales this quarter. Folks, this is one of the companies that the street uses as a measuring stick in terms of gauging the health of the economy. After this checkup it looks like the economy has just gotten a bad case of pneumonia! A 20% drop in sales in a blue chip company like Cisco just isn't supposed to happen! What was extremely concerning here was that they are seeing dropping demand in virtually all areas of their business. This should rattle a few tech investors tomorrow.
Anyone Seen a Bank Loan Lately?
I have been anecdotally hearing from friends that getting a loan right now is about as easy finding a liver for a liver transplant. Hmmm...Zombie banks that don't lend..Haven't we seen this before? Lets take a look at lending in Japan after their debt bubble burst:
Sorry I am a little late tonight. I am feeling a little under the weather.
I have come to a conclusion when it comes to my short term view on the market: I have none!
The market appears to be nothing more than a trading casino right now. I closed out most of my positions today. I held onto my SPG short and my long Q's. We continue to churn in a very tight range around the 8000 area. So far, every time we drop below 8000 on the DOW or near the 800 area on the S&P, the bulls have held serve and successfully defended.
The question now becomes is are we forming a bottoming pattern here as we continue to hold at this 7900-8000/800 area on the DOW and the S&P and begin to move higher, or do we finally break through this choppy area convincingly and prepare to head down to the November lows?
I gotta admit folks, I am on the fence here. I see valid arguments for moving in either direction once we break out of this "holding pattern". I think a lot of it comes down to the economic recovery plan. If Obama pulls a rabbit out of his hat and finds a way to sell his plan to the American people then we could see a nice bounce. If the recovery plan looks very painful for the pigmen on Wall St then we could go visit Lucifer and head straight down to new lows.
One thing here is for sure. If you try and front run this you could end up blowing up your trading account because the market has given no clear signal as to which way it wants to go. When it does, I expect a violent move in either direction. If you like to roll the dice then go ahead and front this. As for me, no thanks, I'll pass.
I refuse to get in front of this until I get a convincing signal in either direction. Maybe tomorrow will be the day that I finally get one.
Something to note from after hours: Cisco shocked the street during their earnings conference call. They announced that they expect a 20% drop in sales this quarter. Folks, this is one of the companies that the street uses as a measuring stick in terms of gauging the health of the economy. After this checkup it looks like the economy has just gotten a bad case of pneumonia! A 20% drop in sales in a blue chip company like Cisco just isn't supposed to happen! What was extremely concerning here was that they are seeing dropping demand in virtually all areas of their business. This should rattle a few tech investors tomorrow.
Anyone Seen a Bank Loan Lately?
I have been anecdotally hearing from friends that getting a loan right now is about as easy finding a liver for a liver transplant. Hmmm...Zombie banks that don't lend..Haven't we seen this before? Lets take a look at lending in Japan after their debt bubble burst:
Final Take:
As you can see, bank lending has fallen of a cliff in Japan for the last 15 years. Its been in decline for nearly 20 straight years. This is what happens when your balance sheet resembles a garbage dump. Sound familiar? This is why we must clean up our banks and write off all of our bad debts!
If we don't force them to open up their books and admit their losses, we risk a 20 year period of declining lending. Thats a whole generation of lending folks. This is why the word "deflation" scares the crap out of the Fed. When banks don't lend assets like housing free fall in price. I mean think about it, without lending how many people have the money to pay cash for a house at these bloated levels? I can answer that Alex: Pretty much no one unless you are Warren Buffet of Bill Gates.
If we don't take the pain and write off the bad debts we are going to see the EXACT same scenario here folks.
Bottom Line:
I may be on the fence as to where the markets head in the short term. However, my long term deflationary collapse seems inevitable at this point. The question now becomes: Is this a 10 year problem ala the 1970's and early 80's or is it a 20+ year problem ala Japan?
If we continue down the current "lack of transparency" path, we are headed for a generation of pain in my opinion.
Obama its basically up to you at this point:
Are you going to force the banks to take their medicine and throw out the criminals on Wall St who created this mess and then begin the recovery process?
Or
Are you going to cave in to the financial "elite" who just finished robbing our country blind and create a "bad bank" for them where they can dump all of their worthless assets onto the taxpayer ?
You better think really hard about this Obama. The taxpayer is very very tired of funding this "lack of transparency".
If you create a multi trillion dollar "bad bank" with money that we do not have, and the bond market throws a temper tantrum, you are in deep trouble and so is our way of life.
Lets all hope you do the right thing. For once: Please say NO to Wall St's greed.
Tuesday, February 3, 2009
The Bumbling "Bad Bank" Blunder
Good Evening Folks!
Hold on tight tomorrow folks! We have the makings of a bloody day in the markets given the news that hit afterhours.
The market was somehow able to shrug off all of the bad news today and close up around 1.5%. this was despite the horrific news that came out of the auto industry. Car sales among the big three dropped 40-50% in December versus the previous year. If this isn't a depression like print I don't know what is.
Another thing I noticed the last couple days is we are starting to see some serious divergences in price action regarding the different sectors of the market. More on this later.
Lets get to the after hours news. It appears the "Bad bank" idea is once again beginning to fall apart:
"The Obama administration is still struggling with the details of a bad bank concept that is expected to be part of a package of industry and consumer measures to be unveiled next week, according to a source familiar with the situation.
What’s more, new rules on executive pay and loan transparency for firms participating in the government bailout that will be announced this week may not be as tough as originally thought, the source said.
“They’re still trying to solve the bad bank [pricing] thing,” the industry source said. “It’s not ready for prime time.”
When asked if that could lead to a delay in next week’s announcement, the source said, “Anything they roll out would seem hollow without a bad bank concept.”
Representatives of the Obama administration and the financial services industry capped three days of talks on the bad bank idea and other measures to ease the credit crunch Sunday, following speculation Friday that the pricing issue had become a major hurdle.
Another source—this one on Capitol Hill—didn’t believe a decision had been made as of Tuesday.
The bad bank concept—namely a government entity to buy, hold and eventually sell bad, or toxic assets, from financial firms to help clean up their balances sheets and spur new lending—has attracted growing support since Federal Reserve Chairman Ben Bernanke proposed it in a major speech three weeks ago.
Nevertheless, it has been dogged by debate and doubt over how to price the assets, which some estimate could total $1.5 trillion to $2 trillion and which fall into two broad categories—non-performing and illiquid.
Sen. Charles Schumer (D-NY), a senior member of the Senate Banking Committee, Tuesday joined the skeptics, telling CNBC the bad bank approach would be "hugely expensive" and added he prefers government guarantees of such assets.
Rep. Brad Sherman (D.Calif.), a ranking member of the House Financial Services Committee who opposed the original TARP plan, is adamantly opposed to anything but capital injections, which he says give the government its best potential return on investment through preferred stock and warrants.
“I’m trying to get people to say we don’t buy toxic assets, we buy preferred stock," said Sherman. “With the ring fence or bad bank you know what you’re paying but would anyone know the value of what you are receiving?” Sherman has made his position known to Treasury Secretary Timothy Geithner."
My Take:
I find it so convenient that this news was released at 4:01 pm. Crooks! Can you say nightmare? The plunging price action in Bank of America said it all today as this bad bank concept appears to have come to a standstill.
The bottom line here folks is the government is out of options. If Obama attempts to pull off the bad bank, the bond market is going to send yields through the roof. We don't have $1-2 trillion dollars thats needed to repair their balance sheets. Hell, we don't have the $1 trillion for the stimulus thats about to be approved! Come to think of it: We haven't had the money to pay for any of these bailouts! There is a point at which this all has to stop folks. If it doesn't, the bond market will stop it for us. The 10 year soared once again today by the way. Higher yields will destroy whats left of the housing market and our economy as the cost of money dramatically increases.
If the government can't afford to do the bad bank, these pathetic zombies are all going to go bankrupt because they are all insolvent. The only other options we have in preventing this is to:
A) Continue to throw taxpayer money into these black holes and get no return on our money.
Or:
B) Nationalize them for a few years by grabbing shares of preferred stock which then wipes out the common shareholders.
Talk about being between a rock and a hard place! There are no good options here ladies and gentleman. I think the "black hole" option is off the table IMO. The taxpayers are getting restless and are tired of bailing out a bunch of criminals. Washington senses this. Obama is no dummy and he realizes he needs the nations support in order to be successful. The common shareholders are all in trouble as a result in my view.
I say this because when its all said and done, the government will realize that the only way to restore confidence in our capital markets is by throwing out the banking criminals that got us into this mess. Once they are cleaned up via nationalization, we can then sell them back to private equity in a couple years. Only then will we be able to begin the healing process.
The government must understand that the credibility of the current Wall St regime has been completely shot. No one wants to lend or do business with these crooks. Too many Americans have suffered as a result of their actions. The ONLY answer to curing this crisis is to remove the heads of these banks who created and executed the greatest economic fraud on the history of the world.
My Mortgage
I recommend that everyone takes a few minutes to watch this clip from Mr Mortgage on CNBC today. The financial bearish bloggers are finally starting to get their props after being right when it comes to this meltdown.
The take home message from this clip is foreclosures(REO's) are way under reported by the banks. The pigmen are sitting on most them versus putting the REO's on the MLS for sale at a huge loss. This is a clever way by the banks of hiding the reality of how bad this nightmare really is. The real inventory of unsold homes could be 20-21 months versus the 12.9 months thats currently being reported according to Mr. Mortgage.
Whats even more frightening here is that these foreclosures are mainly Alt-A and prime loans. Suprime is actually finally "contained". How ironic is that! Prime borrowers aren't supposed to foreclosed on folks! This is how "loose" the lending standards got at the peak of the bubble. Stay the hell away from housing. Prices will be free falling for years.
Bottom Line:
Disney and Electronic Arts both had big misses after hours which further damaged confidence following the "bad bank" news. The ADP jobs number tomorrow could be a huge market mover. If the ADP is really bad we could see a real ugly market tomorrow.
I made some trades today. I picked up some FAZ and also added some more SGP March PUTS. I also picked up a little more SRS for a short term hold. The reason I picked these up was because I hated the price action on the big banks as the market soared today. BofA and Citi were both down. BofA was down almost 12%. I also grabbed some Q's calls as a hedge. Tech has been acting well and it had another good day today.
My hunch here on shorting the financials was that the "bad bank" had hit a snag. I grabbed some commercial names because if the banks don't get bailed out, then commercial has no chance whatsever of getting a handout.
We will have many answers to our questions over the next few weeks as the Treasury rolls out their recovery plan. If I see some nice profits tomorrow I might take some of the shorts down.
One thing to take note of here in terms of divergences. The market is moving higher but the financials are not participating. Is this a trend or just a anomaly? Time will tell but its on my radar screen.
Stay Tuned!
Hold on tight tomorrow folks! We have the makings of a bloody day in the markets given the news that hit afterhours.
The market was somehow able to shrug off all of the bad news today and close up around 1.5%. this was despite the horrific news that came out of the auto industry. Car sales among the big three dropped 40-50% in December versus the previous year. If this isn't a depression like print I don't know what is.
Another thing I noticed the last couple days is we are starting to see some serious divergences in price action regarding the different sectors of the market. More on this later.
Lets get to the after hours news. It appears the "Bad bank" idea is once again beginning to fall apart:
"The Obama administration is still struggling with the details of a bad bank concept that is expected to be part of a package of industry and consumer measures to be unveiled next week, according to a source familiar with the situation.
What’s more, new rules on executive pay and loan transparency for firms participating in the government bailout that will be announced this week may not be as tough as originally thought, the source said.
“They’re still trying to solve the bad bank [pricing] thing,” the industry source said. “It’s not ready for prime time.”
When asked if that could lead to a delay in next week’s announcement, the source said, “Anything they roll out would seem hollow without a bad bank concept.”
Representatives of the Obama administration and the financial services industry capped three days of talks on the bad bank idea and other measures to ease the credit crunch Sunday, following speculation Friday that the pricing issue had become a major hurdle.
Another source—this one on Capitol Hill—didn’t believe a decision had been made as of Tuesday.
The bad bank concept—namely a government entity to buy, hold and eventually sell bad, or toxic assets, from financial firms to help clean up their balances sheets and spur new lending—has attracted growing support since Federal Reserve Chairman Ben Bernanke proposed it in a major speech three weeks ago.
Nevertheless, it has been dogged by debate and doubt over how to price the assets, which some estimate could total $1.5 trillion to $2 trillion and which fall into two broad categories—non-performing and illiquid.
Sen. Charles Schumer (D-NY), a senior member of the Senate Banking Committee, Tuesday joined the skeptics, telling CNBC the bad bank approach would be "hugely expensive" and added he prefers government guarantees of such assets.
Rep. Brad Sherman (D.Calif.), a ranking member of the House Financial Services Committee who opposed the original TARP plan, is adamantly opposed to anything but capital injections, which he says give the government its best potential return on investment through preferred stock and warrants.
“I’m trying to get people to say we don’t buy toxic assets, we buy preferred stock," said Sherman. “With the ring fence or bad bank you know what you’re paying but would anyone know the value of what you are receiving?” Sherman has made his position known to Treasury Secretary Timothy Geithner."
My Take:
I find it so convenient that this news was released at 4:01 pm. Crooks! Can you say nightmare? The plunging price action in Bank of America said it all today as this bad bank concept appears to have come to a standstill.
The bottom line here folks is the government is out of options. If Obama attempts to pull off the bad bank, the bond market is going to send yields through the roof. We don't have $1-2 trillion dollars thats needed to repair their balance sheets. Hell, we don't have the $1 trillion for the stimulus thats about to be approved! Come to think of it: We haven't had the money to pay for any of these bailouts! There is a point at which this all has to stop folks. If it doesn't, the bond market will stop it for us. The 10 year soared once again today by the way. Higher yields will destroy whats left of the housing market and our economy as the cost of money dramatically increases.
If the government can't afford to do the bad bank, these pathetic zombies are all going to go bankrupt because they are all insolvent. The only other options we have in preventing this is to:
A) Continue to throw taxpayer money into these black holes and get no return on our money.
Or:
B) Nationalize them for a few years by grabbing shares of preferred stock which then wipes out the common shareholders.
Talk about being between a rock and a hard place! There are no good options here ladies and gentleman. I think the "black hole" option is off the table IMO. The taxpayers are getting restless and are tired of bailing out a bunch of criminals. Washington senses this. Obama is no dummy and he realizes he needs the nations support in order to be successful. The common shareholders are all in trouble as a result in my view.
I say this because when its all said and done, the government will realize that the only way to restore confidence in our capital markets is by throwing out the banking criminals that got us into this mess. Once they are cleaned up via nationalization, we can then sell them back to private equity in a couple years. Only then will we be able to begin the healing process.
The government must understand that the credibility of the current Wall St regime has been completely shot. No one wants to lend or do business with these crooks. Too many Americans have suffered as a result of their actions. The ONLY answer to curing this crisis is to remove the heads of these banks who created and executed the greatest economic fraud on the history of the world.
My Mortgage
I recommend that everyone takes a few minutes to watch this clip from Mr Mortgage on CNBC today. The financial bearish bloggers are finally starting to get their props after being right when it comes to this meltdown.
The take home message from this clip is foreclosures(REO's) are way under reported by the banks. The pigmen are sitting on most them versus putting the REO's on the MLS for sale at a huge loss. This is a clever way by the banks of hiding the reality of how bad this nightmare really is. The real inventory of unsold homes could be 20-21 months versus the 12.9 months thats currently being reported according to Mr. Mortgage.
Whats even more frightening here is that these foreclosures are mainly Alt-A and prime loans. Suprime is actually finally "contained". How ironic is that! Prime borrowers aren't supposed to foreclosed on folks! This is how "loose" the lending standards got at the peak of the bubble. Stay the hell away from housing. Prices will be free falling for years.
Bottom Line:
Disney and Electronic Arts both had big misses after hours which further damaged confidence following the "bad bank" news. The ADP jobs number tomorrow could be a huge market mover. If the ADP is really bad we could see a real ugly market tomorrow.
I made some trades today. I picked up some FAZ and also added some more SGP March PUTS. I also picked up a little more SRS for a short term hold. The reason I picked these up was because I hated the price action on the big banks as the market soared today. BofA and Citi were both down. BofA was down almost 12%. I also grabbed some Q's calls as a hedge. Tech has been acting well and it had another good day today.
My hunch here on shorting the financials was that the "bad bank" had hit a snag. I grabbed some commercial names because if the banks don't get bailed out, then commercial has no chance whatsever of getting a handout.
We will have many answers to our questions over the next few weeks as the Treasury rolls out their recovery plan. If I see some nice profits tomorrow I might take some of the shorts down.
One thing to take note of here in terms of divergences. The market is moving higher but the financials are not participating. Is this a trend or just a anomaly? Time will tell but its on my radar screen.
Stay Tuned!
Monday, February 2, 2009
Wall St Anxiously Awaits Word From Washington
Good Evening Everybody!
I hope everyone had a great weekend. The market was pretty blah today. The way I see it, the whole investment world is awaiting word on how the government plans on "saving" our economy. We all know how well this is going to work. Remember, when the government sticks their hand out and says"Hello! We're here to help you" you should immediately run as fast as you can in the opposite direction.
I mean think about it: How many government sticksave "fixes" have failed to date? At first we were told that subprime was "contained". This was followed by the famed Bear Stearns fix. The list goes on and on folks: Bush's "stimulus plan", AIG, Merill shotgun marriage, Citi/Bank of America bailout, and of course we can't forget the marvelous TARP.
These sticksaves appear to me to look more like plugs that are being used to clog the leaks on our sinking economic ship that is rapidly taking on water versus being permanent fixes. It seems the more the government "fixes" the economy the further stocks drop. Take a look at the stock market from September-October when all of these programs were rolled out and you'll see what I mean.
So here we are: The whole world is watching as we wait for the grandest sticksave of them all. Uhhhh...Does this make anyone else nervous? I know it scares the hell out of me. This outta be good for for a 3000 point drop on the DOW based on how well all the other sticksaves worked.
The problem here is the Fed and Treasury can't "fix" this. They cannot force a broke consumer to borrow and spend. Consuming represents 70% of our economy and as you can see below we aren't consuming anymore!:
I hope everyone had a great weekend. The market was pretty blah today. The way I see it, the whole investment world is awaiting word on how the government plans on "saving" our economy. We all know how well this is going to work. Remember, when the government sticks their hand out and says"Hello! We're here to help you" you should immediately run as fast as you can in the opposite direction.
I mean think about it: How many government sticksave "fixes" have failed to date? At first we were told that subprime was "contained". This was followed by the famed Bear Stearns fix. The list goes on and on folks: Bush's "stimulus plan", AIG, Merill shotgun marriage, Citi/Bank of America bailout, and of course we can't forget the marvelous TARP.
These sticksaves appear to me to look more like plugs that are being used to clog the leaks on our sinking economic ship that is rapidly taking on water versus being permanent fixes. It seems the more the government "fixes" the economy the further stocks drop. Take a look at the stock market from September-October when all of these programs were rolled out and you'll see what I mean.
So here we are: The whole world is watching as we wait for the grandest sticksave of them all. Uhhhh...Does this make anyone else nervous? I know it scares the hell out of me. This outta be good for for a 3000 point drop on the DOW based on how well all the other sticksaves worked.
The problem here is the Fed and Treasury can't "fix" this. They cannot force a broke consumer to borrow and spend. Consuming represents 70% of our economy and as you can see below we aren't consuming anymore!:
A you can above, not only are people not spending they are finally starting to save! In fact the way I read this chart, it appears they are hoarding cash. Its about time! Of course the government hates seeing this because they can't turn this ship around without us spending like drunken sailors. The velocity of money is trickling to a standstill and this will not bode well for equities.
The Fed can't "fix" this recession like they did in 2002 because this current nightmare is a consumer led recession. Greenspan "fixed" our economy after the tech crash by dropping the FF rate to 1% which created the largest housing bubble in history. Thanks Alan!
This turned out to be the biggest blunder in economic history. Greenspan's legacy is now tarnished forever. He has gone from hero to goat in a matter of months. The only way this ever gets fixed is when the consumer pays or defaults on all of its debts. The consumer also must be able to go out and actually find a job. Lending can then resume and our economy will begin to recover.
The problem here folks is this process is going to take 10 years or possibly longer. A decade like the 1970's is probably the best case scenario here. A 20 year+ defaltionary scenario ala Japan is most likely. This will be a huge reality check for our "i need it now" society.
The way I see it the Fed's options are pretty limited here. The only way we ever get out of this crisis is by grinding through it and begin to start paying off our bills versus selling treasuries and continuing to dig ourselves deeper into debt.
One thing is clear here: We don't have enough money to bailout the banks. If they had the money the Treasury would have already rolled out the "bad bank" plan and RTC II would already be in progress.
The bond market sent a strong message to Obama and took yields significantly higher the day it was announced that this mess could cost $4 trillion on top of the $1 trillion economic stimulus that is currently about to be voted on in the senate.
The nationalization of our banks is key part in solving this crisis and the idea is starting to gain momentum. Paul Krugman is now on board:
"Feb. 2 (Bloomberg) -- President Barack Obama shouldn’t hesitate to nationalize the banks that need to be bailed out, Nobel Prize-winning economist Paul Krugman said.
“If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found?” Krugman wrote in a column in the New York Times published today. “But the Obama administration appears to be tying itself in knots to avoid this outcome.”
Lets hope Obama is strong enough to do this. We need to get the gangsters that created this mess out of Wall St so that confidence and trust can be restored.
Lets all pray that the Fed doesn't attempt to print out of this mess. We will be doomed by hyperinflation if he does. If we go that route, I suggest you go out and by a gun so that you can protect yourself because chaos will then ensue.
Bottom Line:
I am laying low on the trading side until I learn more about our latest and greatest economic recovery plan. I am hoping for a large bounce on the news. In fact, I hope they try the bad bank plan because it will probably result in an even larger bounce. This will create an even sweeter shorting opportunity.
This plan will fail and stocks will reflect it. I say this because the Fed will fail to realize the "unintended consequences" of their actions just like they always do. This in my view has been their biggest flaw. The Fed has been extremely short sighted and they continue to ignore the obvious and continue to kick the can down the road. The sad thing here is they all know what needs to be done. They are just afraid to pull the trigger and let the economy reset. Not allowing us to take the pain that is neccesary just delays beginnings of a real economic recovery.
One day the Fed's going to try and kick that can down the road and painfully realize thet its filled with cement.
I think that day is rapidly approaching.
Subscribe to:
Posts (Atom)