And the beat just keeps going. Months ago I had written about how
all these financial companies which were saying "this is the kitchen
sink quarter" and once they wrote off the bad losses, the bottom was in
blah blah.... that indeed we were just getting started...
Two
weeks ago we had kitchen sink quarters in financials - it was ignored
(again I ask what will we say in 3 months if we see another slew of
terrible earnings from financials? that it was a bathroom sink
quarter?).
If you search for the term "sink" on this
blog you will see me mention, well we started with the kitchen sink
writeoffs in August, then we went to the bathroom, then the bedroom,
and now where are we going? Living room I suppose. Wherever, we go we
have a full house of write offs. This is why this issue will be with us
for a while. The underlying assets (mortgage based assets) continue to
deteriorate in an "unknowable" way.
It is impossible to gauge where things are going and how big the write offs will be in future quarters because it is based on a living, breathing organism - all the mortgages in this country, of which those of vintage 2006 and 2005 are degrading at a very accelerated rate. So we will continue to see write offs, and continue to see investments by Asians and Middle Easterners to prop up those poor colonizing countries like USA.
In fact I saw this term coined and I am going to steal it, "reverse colonization" - essentially those countries that Western powers 'colonized' (or attempted to), are now the ones who actually have the power. It is funny how it comes full circle. But as I have been stating, watch this trend only exaggerate as decision after decision and a system of CEO compensation that encourages short term extreme risk taking (if you make stupid decisions for the long run it does not matter as long as you have a great 3-4 year run, run off with huge compensation and stock options, and then get 'fired' and get $160M pay out the door), weakens our financial corporations (and others) to the point that outside ownership is necessary to prop them up.
Risk is rewarded with implicit bailouts (ABC company
is 'too big to fail') so do whatever stupid actions you want, because
in 5 years you will be long gone, with the type of wealth the other
99.9% of Americans only dream of, and "we" the collective will be left
to fix the mess - and in this increasingly flat world, if not us, other
countries will come in and slowly take over our entities with their
conservative and forward looking policies.
A case in point is Morgan Stanley (MS)and China.
Other days we have Singapore, Abu Dhabi, UAE - pick a country 85% of
Americans could never find on a map (don't make me go off on our
failing education system), and find a country who is slowly "reverse
colonizing" the great empire. What's amazing is the terms these
countries are getting to prop up our most prestigious financial
institutions. 11% at Citi (C)? 9% at Morgan? People, those are junk bond
rates. Meaning the risk is extremely high, so to be compensated you
need to pay out extreme rates just to get investment. Citi is lending
money out at 5-6% and paying out 11%. Thats how desperate it is for
capital.
- Morgan Stanley, the No. 2 U.S. investment bank, on Wednesday reported a larger-than-expected fiscal fourth-quarter loss due to a $9.4 billion writedown from its exposure to subprime and other mortgage-related investments.
- The company also said China's government-controlled investment vehicle has invested $5 billion to help replenish its capital.
- China Investment Corp., which also owns a stake in private-equity firm Blackstone Group LP, will control no more than 9.9 percent of Morgan Stanley once its investment converts to common shares in 2010.
- "The writedown Morgan Stanley took this quarter is deeply disappointing -- to me, to our colleagues, to our board and to our shareholders," said Chairman and Chief Executive John Mack. "Ultimately, accountability for our results rests with me, and I believe in pay for performance, so I've told our compensation committee that I will not accept a bonus for 2007."
- The equity units the Chinese fund purchased from Morgan Stanley will yield 9 percent per year before they are converted into common shares on Aug. 17, 2010.
- The investment bank disclosed in November that it would be taking a charge of $3.7 billion because of losses in credit market investments. But the total for the quarter grew by an additional $5.7 billion, Wednesday's report showed. (look how much it is accelerating, and how little visibility these companies have - they cannot even guide out 4 weeks anymore)
Now again all day you will hear on CNBC how "this is the bottom". "the worst is in" and "this was the kitchen sink quarter". Just like they told you in August. And in October. And in November. Eventually a blind squirrel will find the nut and the financial press will be right. But not before being wrong time after time and costing people lots of money which are chasing into financials...
