What Wall Street Insiders Really Think

Those who've spent enough time on Wall Street know there is often a wide gulf between what insiders admit to publicly and what they say to a limited circle of friends, colleagues, and acquaintances (some of whom may also be trusted clients or advisors).

Given that the financial industry is a gigantic selling machine that generally does best when clients are optimistic and have their buying boots on, this conflict means it is in outsiders' interest to figure out if the party line matches the unofficial scuttlebutt.

Of course, that is not always easy. However, in an age where all sorts of knowledge has value, and where the old and new media are aggressively competing with each other for readers' attentions, nonpublic insights and information -- I'm not talking about the illegal kind, by the way -- increasingly leak out, benefitting the greater good.

As an example, I refer you to a recent post at FT Alphaville, "Doomsville," which details the less-than-optimistic outlook of a senior Wall Street insider that was probably not meant for dissemination to the great unwashed.

Lest anyone was thinking of turning bullish after listing to the siren calls of Bond and Winder, we present the following counterpoint.

From an email doing the rounds in the City of London on Friday morning (The author is an MD [Managing Director] at one of the big banks):

US Housing

It lead us into this recession & it will likely lead us out. -This asset class is the collateral spine of household & bank B/S. It remains a sine qua non for the market. Unfortunately, foreclosure filings are +18% yoy (May), the mort[gage] delinquency rate (9.12%) is a record, prime defaults have just doubled (yoy) to 2.9%, new and existing home sales are still barely off their Jan lows (you’d need to see a 50% increase from here to be consistent with flat gdp), unsold inventory is still at 10.2 months (even without shadow inventory from banks & Securitised Mort Trusts), 30% of mort[gages] are in negative equity & rising, -18.1% house prices is still ugly….

US Consumer

Too much debt, not enough credit. -Declines in the housing & equity mkts have removed c$14tr from his net worth (Fed) at a time when he’s 3x the leverage of 20 yrs ago & carrying $13.5tr of debt. That process of de-leveraging is just starting. Delinquencies on Home Loans just hit 3.5% (ABI), a number that will grow in tandem with unemployment & US Personal bankruptcies (ABI) were +35% last seen. Look at the recent & salutary examples of the banks and Japan’s lost decade to remind us just how painful & prolonged the de-leveraging process can be.

Comments

[ain't no fo...:]

Thanks for the excerpt Michael. I read the entire link and can't find anything "green" about the rest either.

Of particular interest was this quote:

US Issuance

Today’s problem or tomorrow’s promise? May clocked up $64bn & June was similar. The prev record issuance was $38bn. There have only been 12 mths since ‘98 that Corp issuance has exceeded $30bn & the ave rtn of the S&P over the nxt qtr was btwn -4% to -7% (Trimtabs)"

Much of that new issuance was in the big financials. I believe we have just witnessed a major transfer of risk from the financials to the retail trade, and that it will be a painful quarter coming up. $68 Billion is a huge new issuance, yes, but when one considers just how impaired the big banks' balance sheets still are, this $68 Bn pales by comparison. And with the continuing collapse in housing prices, credit card debt, CRE, and a new surge of foreclosures building, their balance sheets aren't likely to look better anytime soon.

So, it was a case of perfect market timing by the major financials, and maybe not so much a coincidence that JPM and GS were gunning the futures markets so hard the past few months.

What's that saying about "slapping lipstick on a pig?"

Jul 12 01:29 PM

[Gregman2:]

Old news.

Jul 13 12:27 PM

[Old Trader:]

Gregman,

I dunno...granted most, if not all of the points covered in the link (yes, I read the whole thing) might fall under the heading of "old news"......the fact that this is ostensibly a high-level insider's perspective is not, and imo gives added impact to the collection of data points/observations contained within it.


On Jul 13 12:27 PM Gregman2 wrote:

> Old news.

Jul 13 07:48 PM