Cesar Valencia

Big Losses Are Hidden on China's Bank Balance Sheets

Isn't this the answer to every financial crisis? Spin the bad assets into a new institution, pay par for the assets to recapitalize the banks and forget about the past? Wasn't it the original plan for TARP? In my opinion this is just using money from one pocket to pay the other pocket.

If the severe inventory slashing at Brunswick (BC) is any indication, the coming inventory bounce could be spectacular indeed.

Let's do some basic analysis on BC to see if this makes any sense. Revenue dropped from 1.485 Billion to 718 million YoY, and from 737 sequentially. Q2 is BC's strongest quarter for revenue, so lower sales should be expected for the next couple of quarters. At the same time, inventories have fallen from 922 million in Q2 08 to 580 million in Q2 09 and AR have gone from 604 in Q2 08 to 405 in Q2 09.
So a year ago AR + I was 103% of sales, while today they stand at 137% of sales. Q2 of 08 was the second biggest quarter ever for BC, trailing only Q2 of 07. What I would take from this is that BC is adjusting inventories to new demand levels. They still don't know where demand is going to be at but it will be lower. If demand comes back, they will need to ramp up production. These are two very different arguments (if demand comes back to previous levels we will have to ramp up production vs. demand WILL come back to previous level and we WILL HAVE to ramp up production). You can't forecast a V shaped recession based on the argument contingent on a V shaped recession.

When Journalism Misses the Big Picture

Only people who truly understand an issue are able to talk and write clearly about these issues.

Citi's Continuing Woes

And how about all those toxic loans C and BofA were overpaying for with the intention to sell them back either in the PPIP or whatever legacy asset cleanup program the government engineered? Is their balance sheet even more toxic now???

Why Do Chinese Save?

Michael,
Very nice article, but I believe you've read too much into the situation. The real reason Chinese people save that much money is because they want to be insured. This is not only true of the Chinese, but true about the emerging wealthy population from developing countries. People will want a safety net in case of sickness, in case they want to send their kids to study abroad, in case they want to buy a home or in case they want to retire. Since in many parts of the world low inflation, low interest rates, a functioning public health sector, free good public education system, and social security are either non existent or inefficient, individuals will protect themselves by saving.
This is a basic financial decision, they postpone consumption in the present to guarantee the satisfaction of their needs in the future. I know this because I have the same background. The only reason I could come to get my postgraduate degree in the states was because my parents saved enough.

Three lunchtime reads: 1) Light cars are dangerous cars 2) Bill Gross: Do you trust him? 3) Credit card reform: good for your wallet?

Gotta love how the guy from the Carlyle Group, that owns 15 companies in the auto industry, is against auto industry changes.

Taxing the $5 Million-a-Year Brigade

Well, you could start a company and have it be profitable. You can take your money there if you sell it or via board seats or however you want to. But asking a profitable company to pay you that amount of money, that's another thing. The American Dream is not supposed to be to suck the blood out of companies.

First Industrial Realty Trust (FR): Q4 FFO of $0.52 vs. consensus of -$0.17. Revenue of $145.4M (+44.3%) vs. $83.8M. Sees 2009 FFO of $1.34-1.44 vs. $1.20. Shares +2.9% AH. (PR) (-from Mon. evening)

$.52 in FFO. "Great" reporting

Fourth quarter and full year results under both FFO measures included charges of $27 million ($17 million cash, $10 million non-cash), or $0.55 per share/unit, related to the Company's cost reduction and restructuring plan and non-cash impairment charges of $43 million, or $0.86 per share/unit, related to the Company's investments in joint ventures.

Excluding the impairment charges and restructuring charge, FFO per share/unit under the prior definition was $0.52 and $3.46 for the fourth quarter and full year, respectively, and $0.45 and $1.84, respectively, under the NAREIT definition.

Untangling the Citi Speculation

I don't want to sound mean, but who's going to untangle the mess??? What will be the cost? Who will make the money? No one understands what a CDO is made of. The tranches have been sold everywhere around the world. While in theory, there's no difference between practice and theory, in practice there is a difference. If banks could do this, they would. Problem is they purposely made these instruments as complex as they possibly could so that they could screw investors. By the way, if 68% of the loans are current, that means that every tranche except the unsubordinated AAA part of the CDO's is worthless. Not only that, but if i'm not mistaken, the banks already booked profits on all these loans as if they had been paid off. How do you deal with that. One easy way I can think of is to liquidate the banks and have the bond holders bid for the assets. This way you have price discovery and you kill the dead animals. And we will finally kill all the crap about "fire sale prices" and not having a market. There is a market, and the market is pricing all these products at what their value is, which is almost 0. If you think they are worth more, go ahead and use your money and buy them.

On Feb 23 11:08 AM The Mad Hedge Fund Trader wrote:

> There is a new proposal making the rounds for solving the financial
> crisis known as “desecuritization.” There are $1.4 trillion in CDO’s
> outstanding backed by Alt-A and subprime loans in the form of 3,700
> individual securitizations. Over 68% of the loans backing these bonds
> are current. Mark to market rules are forcing the banks to carry
> this paper on their balance sheets at 50% discount. This is where
> the $700 billion figure for the first TARP comes from. The problem
> is that mark to market is a meaningless accounting fiction when there
> is no market. If you break up these securities and place the underlying
> loans back on the banks’ balance sheets, the good mortgages can be
> valued at 100% of face, and those behind in their payments can be
> discounted to maybe 70% because they are still secured by the value
> of the underlying homes. This would boost the value of the entire
> asset class assets from 50 cents to 90 cents on the dollar. Restored
> balance sheets would enable banks to resume lending. It sounds like
> a workable plan, and therefore is unlikely to ever see the light
> of day.

10 Standout Growth and Value Stocks

CF and Agrium might be worth digging into. But the drillers and oil companies are a thing of the past. If the world slows down or doesn't grow significantly, oil demand won't grow, putting downward pressure on oil prices. Low oil prices leads to oil companies shutting down projects. No projects = no drilling, no drilling = no business for drillers. This is a list of the past.

The Peaknik Diaspora

No run on the banks??? How about Wachovia? Ask around.

Goldman Starts Getting Smaller

The Ibanks accrue bonuses all year. Once they decided to cut bonuses they had a credit rather than an expense. That's why the number is negative.

Citi's Underwhelming Bailout

After the initial pop in the stock price, the right move will be to reshort C. You can always bet against government intervention and its effects on the long run. I'm not short C or will be but this is just ridiculous. If you are an investor you are in the business of making money, not cheering. If you believe in capitalism, you take capital away from bad institutions and give it to the good ones. All these banks had "great" paper earnings and now are suffering REAL losses. They took a shot at something and they failed, just like every effort to try and keep their stock price above 0.

Citi's Desperate Straits

How about Citi getting out of its trouble by ceasing to exist. Their mortgage back security portfolio hasn't even been written down. They have a couple trillion in CDS exposure. And the real problem with C is that its leadership has no idea what to do to right the ship. In better times that might have been an opportunity to buy low with the hopes that everything would be better in the future. But if you've ever read anything about financial history and you truly understand what's going on right now, you know that not all the banks are going to be around when all is said and done.

Defining a Depression

Read the Di Lorenzo article and it just seems like political posturing. The fact of the matter is that America's infrastructure is inadequate. We are not talking about making holes in the ground just to cover them up, we are talking about building the basis of America's future competitive edge. Price fixing is not the answer, so home prices should be allowed to fall. Banks should be allowed to fail, so should GM and other poorly managed businesses. Taxes should be lowered for the middle and lower classes. The whole "the rich create jobs" myth needs to be revalued. Good ideas create jobs. A strong consumer base creates jobs. The convenience store owner down the road is not going to move his convenience store to another country because he can get better tax treatment. What America needs to do is put money in the hands of the people that will actually buy goods and services that will lubricate the economy. Not to people that will buy a 100K + European car, a $1000000 + condo, and stash the rest in some sort of financial instrument that will do nothing for GDP.