Donald Johnson

Stress Test Leaks: Endgame Emerging

I agree that the leaks probably are intended to test the market's reactions. But today's surge in bank stocks' prices seems irrational and may be giving a false positive. How much of the rally is due to short covering? What kind of black box trading is distorting the markets?

And why the leaks against Wells? Is it being punished because its CEO has been politically incorrect about TARP and his desire to return TARP funds to the government?

And Geithner has said that the stress test is designed to identify banks that couldn't lend under the worse scenarios. Is that an honest stress test?

If a bank could survive the worse scenario by reducing lending, why should the government dilute shareholders. After all, under the worse scenario, who would want to lend, and what harm would be done if there were less lending?

Stress Test Results: Markets Know and Show the Strong, Weak Banks

Yep. Good catch, TCarberry. Short calls in a covered call trade.

Nobody Knows What Bank Stocks Are Really Worth

What makes banks stocks volatile and risky?
First, politicians are messing with the money and banking markets as never before, and predicting what they will do to and demand from banks is like reading Barney Frank’s mind. Impossible.
Second, it’s almost impossible to predict spending trends for consumers or businesses. As a result, only 23% of the companies that have reported earnings for the first quarter have provided guidance on the sales and earnings for the rest of the year. If banks’ customers can’t predict their futures, how can banks?
Third, the critical housing market remains in decline and probably will for a long time. We just don’t know how bad the toxic assets on the big banks’ balance sheets are and we probably won’t even after the government gives a peek at its stress tests. Results of the stress tests, or at least some of them, are due on May 4.
Fourth, the world continues to have the ability to cause turmoil, and we don’t know when some dictator will decide to turn on the heat on the U.S. and the West in an effort to take his people’s eyes off their domestic problems. I own USB, and I have sold covered calls against the stock.

TARP: Bailout or Money Pit?

I think propublica.org has little credibility as an objective source of information. It's apparently backed by lefties.

When you make big moves you risk big mistakes. Paulson took big risks and made some big mistakes. Whether his efforts have been beneficials will be discussed by academics for years. I don't see easy answers to the Paulson question or to the crisis that still is evolving.

I wonder if there are smaller, less risky things that can be tried? I have no confidence in the Obama team and little confidence in the wisdom of those leading our major institutions.

Obama and Bush: Different Objectives, Same Results

Both presidents have treated the financial crisis as a political problem rather than an economic problem. In fact, they've pretended to treat the crisis as an economic problem but their actions have been all about politics.

Neither understands or appreciates markets. Not even Bush, who ran businesses and has a Harvard MBA. Both have had flawed economic and financial advisers who bowed to political realities rather than dealing with the market's problems.

Would Gore, Kerry or McCain have done better? No.

Only Romney might have been more successful in dealing with the crisis, but who really knows.

So now we're stuck with a president who is more intent on changing America into a state dominated by government rather than on providing the leadership that might shorten our depression/recession. He might get his cherished left wing legislation passed, but he'll also get his lunch handed to him, and we'll all pay.

Cramer's Mad Money - Obama's Revenge (3/5/09)

Cramer's fat cat skit was a classic, and everyone should watch it and recommend it.

The White House took on Cramer, and he extended his comments on the Obama Bear Market big time. Good for him.

Rating the Top 12 U.S. Banks - From Hidden Gems to Zombies

Very useful. Thanks.

Thain's Undoing: Thinking He's Worth It

Trying to understand Thain's thinking.

By paying the Merrill bonuses before the BofA takeover, was he trying to hold the place together because he knew Ken Lewis and his board wouldn't have to good sense to retain valuable brokers?

Did he really cover up MER's fourth quarter results, or is Lewis just shifting the blame for a dumb deal to Thain?

Didn't he deserve a vacation after saving billions for MER shareholders, possibly saving the firm for its employees and sucking Lewis into a bad deal? Will people complain if Lewis or Obama take vacations before the financial crisis resolves itself?

Do people waste a week in Davos for the sunshine? Aren't there important clients and prospects who need to be reassured and wooed in Davos?

Sure is a lot of small thinking wealth envy out there, I'm thinking.

Thain's Undoing: Thinking He's Worth It

I'm guessing Thain had his office decorated to impress investment banking prospects and clients as well as the executives of potential acquisitions.

People who don't sell big ticket services won't get it or appreciate how such a show of wealth might attract business or intimidate a director or someone else who dare challenge the CEO of Merrill.

What Thain didn't anticipate a year ago was having to sell Merrill to somebody from North Carolina. He didn't anticipate close public scrutiny nor being the target of socialists like Barney Frank and Barack Obama who are as greedy for power as Thain is for wealth.

After all, Obama spent $150 million on his inauguration. Now that's unconscionable. And Barney Frank spent $12 million of taxpayers' money to bailout a MA bank, which was just typical.

Market Headed to Retest Lows?

Point and figure charts for $indu have a bearish price objective of 7200 for the DJI, which is 12.2% below Wednesday's close.

What's the BofA / Merrill Synergy?

With BAC down to 28.59, the deal is valuing MER at about $24.+.

Meanwhile, 15k MER wealth advisers (brokers) are telling clients, "Buy BAC."

Expect BofA's Dividend To Be Cut

I recently bought BAC July covered calls because of it's high yield and Morningstar.com's five star rating, which is based on an estimated fair value of $56. My position would yield close to 18% annualized, if I could roll it over at comparable cc returns and the dividend weren't cut. M* says there is a 52% chance the dividend will be cut. That's pretty well baked into the current price, imo, and even with a 50% dividend cut, selling out of the money calls yields a nice return until the stock recovers.

I blogged on my site on this trade about a week ago.

What's wrong with this strategy?

Bank of America: Smarter Than We Think?

Buy BAC for an 8.5% yield, sell July calls and get an annualized yield of about 18%. The dividend's at risk, but would eliminated it, cut in half or what? I'm figuring BAC could cut the dividend in half, but that's just a guess. I blogged my strategy yesterday.

Doug Kass's Killer Shorts - Barron's

People buy BRK.B because of Buffett even though, as Kass notes, his investment style is changing. The company is a huge ETF with all of the problems of ETFs and mutual funds and without their ability to trade in and out of the wholly-owned investments. I suspect most people who are taking time to read SA and related sites would rather run their own portfolios instead of buying into Buffett's.