Dave Fry's Market Outlook for Wednesday

The above message and image could be applied to boardrooms from Citigroup to Merrill Lynch. We thought over the weekend that if C ousted Prince [gone] and "came clean" [not really] about its mortgage related exposure investors might be happy since all the bad news was out. But C took what could be just an incremental step in writing off another $11B of subprime mortgages out of $55B still on the books. The company basically stated that further write offs were dependent on economic conditions through the first quarter 2008. That sounds rather "iffy", or to borrow a phrase from the Fed, "data dependent". Further, it"s reported that the company has $136B of unpriced securities on its books. These are securities that don't trade "frequently" [like never] and are priced to someone's "model". So investors are left to scratch their heads.

This situation seems the downside of the Glass-Steagall Act demise which prohibited banks from, among other things, owning brokerage firms. The move to this situation began in the mid to late 1990s led by Greenspan and Treasury Secretary Robert Rubin. Taking control, for now, of C is...BING!...Robert Rubin. He'll try and put Humpty Dumpty together again. But, he and Greenspan are responsible for the current situation. With banks owning brokers and visa versa, the fox was now in the hen  house. Regulatory oversight of banks and the assets they owned with depositors' money belonged to Greenspan and the idea was promulgated by Rubin & Co. How'd they do?

Breadth? It both sucked  and blowed.

The problem children:









Other market sectors follow:



















Checking out the BRIC action:












I'm experiencing some major computer mouse problems so that will have to do for today.

The situation with the banks and brokers is a serious one. Greenspan and Rubin teamed-up to eliminate the prohibitions of Glass-Steagall and now we're seeing the negative consequences in my opinion.

Disclaimer: Among other issues the ETF Digest maintains positions in: SPY, IGM, RYT, IEF, USO, GLD, UDN, EWZ, RSX, INP, FXI and HSI.

Comments

[JoeBlow Trader:]

I see this column as a vindication of what my late mother told me once... "we have never forgotten what Stalin did in the 40's and 50's, but we are forgetting very quickly what the banks did in the 10's, 20's and 30's"... this was during the last 7 years of the GOP saviour of America in the 80s and that banking/s/l crises. I think no one would disagree that a commununist dupe isn't conducive to a great democracy... but on the other hand a rabid capitalist dupe can bring down the great place pretty quickly also.
I am from the west where there are plenty of ghost towns to testify to the places where people refused to allow any rational regulation and let exuberant hubris lead the way to no future.
I for one know why my elders put laws in place to control banks and other institutions. I neither want to be a communist dupe or capitalist dupe... some where in the middle is free enterprise system that still is not in denial about some things in human nature.
But then again... I have always been talked that a Democracy is a political system and capitalism an economic. They are both the best systems in the world... but to think neither need regulated is to pretend they exist in the imagination instead of the real world.

2007 Nov 07 08:34 PM

[JoeBlow Trader:]

I see this column as a vindication of what my late mother told me once... "we have never forgotten what Stalin did in the 40's and 50's, but we are forgetting very quickly what the banks did in the 10's, 20's and 30's"... this was during the last 7 years of the GOP saviour of America in the 80s and that banking/s/l crises. I think no one would disagree that a commununist dupe isn't conducive to a great democracy... but on the other hand a rabid capitalist dupe can bring down the great place pretty quickly also.
I am from the west where there are plenty of ghost towns to testify to the places where people refused to allow any rational regulation and let exuberant hubris lead the way to no future.
I for one know why my elders put laws in place to control banks and other institutions. I neither want to be a communist dupe or capitalist dupe... some where in the middle is free enterprise system that still is not in denial about some things in human nature.
But then again... I have always been talked that a Democracy is a political system and capitalism an economic. They are both the best systems in the world... but to think neither need regulated is to pretend they exist in the imagination instead of the real world.

2007 Nov 07 08:34 PM