Worst-Case Scenario for Geithner Is Here 28 comments
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The widely discussed stress tests were published yesterday evening and showed that capital shortfalls of some of the largest banks were significant. Bank of America (NYSE: BAC), Citigroup (NYSE: C), Wells Fargo (NYSE: WFC), and 7 others were being asked to raise roughly $75 billion in order to shore up their balance sheets.
This “test” was meant to see how the top 19 banks would hold up in a worsening economy; using both an opitimistic and pessimistic set of assumptions. I want to focus primarily on the pessimistic assumptions for now; specifically the assumption that the unemployment rate for 2009 would be at 8.9%. Well, Mr. Geithner, just this morning there were 539,000 layoffs in April, which brought the total unemployment rate for 2009 (thus far) to 8.9%.
Uh-oh.
We are now facing the most stressful situation the stress test assumed 7 months before the end of 2009, with layoffs occurring at blistering speed each month (though they have slowed). It’s my estimation that an unemployment rate of 10% is far more likely in 2009, which represents a 12% increase over the worst case assumptions of the stress test.
Now I’m not entirely sure what this would do to the capital requirements for the largest banks, but I am sure that it’s worse than we are being told. Obviously I don’t mean to insinuate we’re being lied to, rather the set of assumptions were overly optimistic. I am making sure my clients are well protected against the real worst-case scenario and highly suggest you do the same.
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This article has 28 comments:
On the plus side, anyone with a modicum of intelligence can see through the spin and balderdash.
Don't get me wrong -- I'm not a permabear -- but I would like to see the market going up because of increased value, earnings, profitability ... any of the good past historical reasons for owning stocks. Because if it is going up based on spin, manipulation and some deep pocket banks or hedge funds who are day trading, it can go down MUCH faster than it has gone up. And I don't want to get caught in that downdraft if it happens.
Now they may all get left in the cold at some time but golden slacks seems to have slowed down on playing in the market.
But, you're right about his hair. Impressive. He spares no expense when it comes to hair gel.
On May 08 11:05 AM altaman wrote:
> I disagree. Geithner's worst-case senario is finding out that he
> is out of hair gel just before his appearance on an weekend talk
> show. That has yet to happen as far as I can tell.
You're joking. A lot of people on SA have come around the view that we are going to have a temporary improvement (due to the massive fiscal and monetary stimulus) followed by very long-term, very major problems, problems ranging from high inflation due to the massive fiscal/monetary stimulus, exploding energy costs (peak oil), exploding health care costs, the retirement of the baby boom generation (Social Security problems), the continuing exodus of manufacturing overseas...And while I don't know how successful the US could be in battling these problems if it tried; it is very clear there is a strong bipartisan consensus to kick the can down the road (although naturally both parties know how to do PR stating they are devoting major efforts to solving them).
So if Geitner wants to avoid the worse-case he needs to resign in the next couple years--before the problems really start hitting.
PS. The author's last line: "I am making sure my clients are well protected against the real worst-case scenario and highly suggest you do the same"
How do you do that?
I really was itching to see what was in those off balance sheet, weird derivative divisions of companies like Citibank, but darn, I was foiled again. If these banks can't pass a stress test with such a low threshold not considering their worst accounting atrocities, I really wonder why they aren't being carved up and sold as rotten meat already. I suppose it's because they already stink to high heaven and no one wants them.
Anyway, I can't wait for Stress Test #2. Don't all bad movies have a sequel?
Hard to believe that banks such as GS (who have the NY Fed Chairman in their back pocket, see...www.upi.com/Business_N.../) were interested in anything but a pre-approved result.
Keep looking...
On May 08 02:31 PM Jasper M wrote:
> Swiss annuities, a bit of gold, and cash, cash, cash.
1. Shelter (preferably a bunker)
2. Water
3. Lots of canned food
4. Guns and ammunition
This is probably why the stock prices of so many of the gun companies have absolutely exploded over the last six months, their sales in some cases have tripled and quadrupled. If I'd only been thinking that would have been where to make the money most recently.
On May 08 01:21 PM PastTense wrote:
> "Worst-Case Scenario for Geithner?"
>
> You're joking. A lot of people on SA have come around the view that
> we are going to have a temporary improvement (due to the massive
> fiscal and monetary stimulus) followed by very long-term, very major
> problems, problems ranging from high inflation due to the massive
> fiscal/monetary stimulus, exploding energy costs (peak oil), exploding
> health care costs, the retirement of the baby boom generation (Social
> Security problems), the continuing exodus of manufacturing overseas...And
> while I don't know how successful the US could be in battling these
> problems if it tried; it is very clear there is a strong bipartisan
> consensus to kick the can down the road (although naturally both
> parties know how to do PR stating they are devoting major efforts
> to solving them).
>
> So if Geitner wants to avoid the worse-case he needs to resign in
> the next couple years--before the problems really start hitting.
>
>
> PS. The author's last line: "I am making sure my clients are well
> protected against the real worst-case scenario and highly suggest
> you do the same"
>
> How do you do that?
On May 08 11:32 AM doubleguns wrote:
> Geithner beta tested the stress test until they found the test that
> looked bad for some, let the plunge protection team members look
> good, and no one was left in the cold.
>
> Now they may all get left in the cold at some time but golden slacks
> seems to have slowed down on playing in the market.
" Lets face it, folks, the much maligned bank bailouts & amp; stimulus are working. Geithner isn't perfect, but imagine how much worse things would be had nothing been done at all?"
Dear Cetin, are you sure your name is not cretin?
Forgive me, but I believe you proceed from false assumptions.
1) MANY Swiss banks and insurers are in Terrible trouble, certainly. I believe I have my money in one that is not, as they have about the highest discounted liquidity ratio in the world.
Time will tell.
2) The "cash" the feds are creating is actually credit. Just like the destroyed credit they are hoping to replace.
But once a credit inflation has saturated (and ours clearly has, as recent events demonstrate), and the attendant psychology turns, all the leverage in the system starts working backwards, and market forces can then destroy credit way, Way faster than the Feds can create it.
It's already happening. For example, schemes intended to reinflate credit that are based on enforced debt forgiveness (Chrysler, mortgages) make clear to all that returns on loans now face not just market risk, but political risk - which will inevitably depress lending, destroying credit. Schemes based on government $ holding up markets when others will not buy only underscore the rising illiquidity of those assets (yes, including Treasuries), depressing demand, destroying credit.
Have a look at a long bond chart. The Fed is LOSING.
Don't get me wrong, I believe inflation will come. And gold's day with it. But it cannot come until after these idiots' policies have destroyed nearly all the credit in the system (at which point actual physical Reserve Notes represent a noticeable part of the money supply).
Please, Ryan, don't insinuate it -- just come out and say it. We are being lied to.
On the plus side, anyone with a modicum of intelligence can see through the spin and balderdash.
Don't get me wrong -- I'm not a permabear -- but I would like to
see the market going up because of increased value, earnings, profitability ... any of the good past historical reasons for owning stocks. Because if it is going up based on spin, manipulation and some deep pocket banks or hedge funds who are day trading, it can go down MUCH faster than it has gone up. And I don't want to get caught in that downdraft if it happens.
REPLY: I agree. I can't say it better myself!
It's still early (coming out of the test), but how the market responds to such events is more meaningful than what we think of the event, no? I wouldn't suggest positioning clients recklessly, but the market is all too often a better indicator than our personal viewpoints. If the market continues to rally and consolidate constructively, instead of reverting to bear-mkt behavior, then professionals who over-protect client assets are in danger of losing accounts. I manage trading accounts and I know it is hard for allocating longer-term portfolios in such a climate (no envy here), but I would think waiting for the market to break-down is more prudent for professional managers here - even if you you avoid the banking sector.
Clients who lose money in a down market are disappointed. Clients who don't make money in an up market fire their portfolio manager (one of the more interesting dynamics of the profession, since institutions have to buy an up-trend regardless of how stupid it may be appear).
"Yes-test"
I am Totally stealing that one!
On May 09 03:09 PM bbowen7 wrote:
> Here in California the published unemployment rate is 11.2%. What
> do we need to do to get back to 10%?????
On May 08 05:43 PM anarchist wrote:
> History Buff 24//7, You sound like your reading from a subscription
> to one of Dr. Gary North's newsletters - in 1976 that is. Ancient
> history that never happened. All those survival kits wasted unless
> your one of those that got tired of waiting for the apocalypse plus
> your dried foods were expiring so you ate that tasteless stuff. Is
> there any out-date on ammo?
> Here in California the published unemployment rate is 11.2%. What
> do we need to do to get back to 10%?????
Legalize marijuana and tax it to the hilt. Then all those growers and sellers currently in the underground economy can come in from the cold, boosting state employment numbers and eliminating the budget deficit, especially after the state monopolizes the market by opening thousands of state-run head shops, charging twice the illicit market rate...
On second thought, never mind.
On May 08 12:21 PM Cetin Hakimoglu wrote:
> Geithner is impervious from blame at this point. The markets are
> surging, and economy is turning around, stress tests were a success,
> and bad news is being ignored. Lets face it, folks, the much maligned
> bank bailouts & stimulus are working. Geithner isn't perfect,
> but imagine how much worse things would be had nothing been done
> at all?