Jorge Piedrahita

Is a Deficit-Neutral Stimulus Possible?

At the end of the day it all depends on a) the multiplying effect of the activity receiving funds and the one providing the funds, or b) the propensity to spend of the ones being taxed and the ones receiving the money.

Bank of America: Repayment Plan Doesn't Signal an Improved Economy

The so called "Stress Test" from the government was not strong enough on its assumptions. In other words, it did not put forward a stress scenario but rather a very likely scenario. This makes the stress test of little use to asses bank's capital.

Credit card deliquencies, severity, etc. generally follow a set of rules that are mean-reverting type, so the accounting system is always behind market action for these. The story is different when we look at ABS that are marked-to-market.

Most banks prefer not to use mark-to-market except for trading books. Lately regulators seem to agree with them, so we ended up creating balance sheets that are not consistent between institutions and that are almost impossible to understand.

The intention of the article was not to make a discussion about reserves, accounting, etc. but to signal the motivation for the deal which it seems at 3:20 PM the market seems to agree with (to my surprise) given the sell off in financials.

D.R. Horton: Did Anyone Actually Listen to the Call?

This company faces several headwinds:

1) The only souce of cash are tax refunds which end next years (a similar position could be found in automotive companies back in 2002...)
2) Inventory is high and will need to be marked down.
3) Even more important they are in a market segment that is facing a tectonic shift in terms of buyers preferences.
4) House price deflation is not over. After all the subsidies, the breathing space the sector got is just temporary.
5) The sector is very sensitive to credit availability which as we now is still going down.

Suggest that you stay out of the sector and this particular stock

Nomi Prins pores through banks' SEC filings - and the accounting games therein - and, with taxpayers on the hook for hundreds of billions, wonders: worse than Enron? With details on how BofA (BAC), Wells Fargo (WFC) and Citigroup (C) do it.

As long as collateral value (primarily houses) and borrower's cash flows keep deteriorating, then banks and others will suffer losses.

Banks should have been nationalized instead of using the head-in-the-sand approach.

At Ford, Bulls Are Taking the Wheel

It does not make any sense to buy this company at a market cap close to $30 billion. Do not forget they have been issuing shares an will continue to do so, so that the per share price is almost meaningless. Yes it is low compare to the all time high in the 30s, but they have issued so much since then.

Present valuation implies that the company should make $4 to $5 billion per year on a normalized basis. This is highly unlikely in an industry with overcapacity of about 15 million cars on a worldwide basis.

They will need government help if there is a double dip.

Bernanke's $50 Billion Hidden Stimulus

The calculation is not right. The premium is irrelevant.

You know what he paid and you can estimate the market price of the securities without his intervention. The difference is the subsidy paid.

There is another subsidy which is the one between low artificial short term rates as set by the Fed and the theoretical market rates without the Fed printing money.

There is more. Think about the funding programs established since the crisis started, the FHA programs, the SBA lending, etc...

And the economy is not yet picking up which tells you that we are getting closer to a Japan-type of situation than we think...

Hedge Fund Unwinding Is Still Driving This Train

Big numbers that are not put into context.
a) Given the size of the hedge fund industry losses are significantly smaller than long-only mutual funds,.
b) In addition, hedge funds have been reducing leverage for at least a year
c) Most of them have planned on withdrawals to the point that they are rumored to about $500 billion in cash.

Everybody is expecting a meltdown from hedge funds, it may fail to materialize. If you did not sell already, then you are late to the party and it is stupid to recommend people to sell here.

Dow Jones in Perspective

Good chart if you can live more than 100 years -- The perspective does not make much sense. It is similar to Dow 36,000

CPFF, TAF, TARP, Bailouts and All That Jazz

The incremental approach is not working - They really need to come in with force and in a coordinated manner.

There is ineptitude in both sides of the Atlantic.

It is interesting to notice how the super-bullish Levkovich is not bmost bearish according to an article in Bloomberg. I guess ineptitude is not a public servant-only attribute.

Monday Outlook: Ascendant Fear

The Fed need to act as a credit clearing house at least in the short term. In addition, lowering rates and buying corporate cash bonds would send a strong message.

The problems seem to be going over their head here.

Hank Paulson, Buy-Sider

This is very simple. Banks and IB will pump up the assets to sell Uncle Sam an then they will dump them. This will be another classic fraud but on US.

The Economist On the 'Limitations' of Central Bankers

Tim,

The value of money is the inverse of the prices of everything that can be bought with that money -- under this definition, we have had a huge inflation over the last decade. That is a fact. My money buys now, fewer shares, less of an appartment, etc.

Central bankers are at the end of the day political animals and they want to be praised for growth regardless of the fact that it may be growth that leads to a crises that sets you back. The tipical behaviour of an Emerging Markets banker would fit that description easily -- but now, the description of the Fed fits it as well.

Government and corporations want the average Joe to feel good and believe there is no inflation, so we have the six-headed monster of "core" inflation as we do not need to eat or drive our cars. One conclusion is that starvation leads to lower inflation! It has the added benefit that it lowers social security liabilities, so the government would be happy as well...

The Fed is happy to encourage another bubble in order to keep the unsustinalbe situation of an overextended consumer going. Whether now or in the enxt event, the music will stop. I believe the sooner we correct the imbalances, the better. I find the Fed utterly irresponsible.

Regards

The Next Bear Market is Anybody's Guess

What happens in the credit markets... ...does not stay in the credit markets. You now have spreads widening by more than 100 bps in high yield, subprime and so on.

Talk to people in banks and you will hear stories of risk managers taking over positions and people starting to panick. The easy credit window is shutting down. That is why the Chrysler deal put additional covenants and increased spreads very quickly... ...smart guys, so that it would happen before the lights go off.

I understand that equities are so far ignoring the credit markets, but they can do it for so long only. Unless credit markets turn arround soon, equities are set to at least stay flat.

One site with a lot of info that I like is markit.com -- Just look at the ABX indexes or the high yield index. The BBB ABX 2007-02 has a 500 bps coupon or slightly more than double the coupon of a year ago. And the AA has a 192 bps coupon. Good luck with a long position here.

John Hussman: Unfinished Cycle or New Economy?

Saying that nobody has ever been succesuful is like saying that nobody outperforms the market -- We all know that is not true. At the core here is whether you believe that markets are efficient -- no markets are not efficient. Otherwise a Warren Buffet or Peter Lycnh would not have existed.

John does not twist the facts, actually I think he just lays them there and you can take your own conclusion. Which in my mind are very clear.

It seems to me that like in the late 90s many want to believe in Santa and a new era... ...do it at your own peril. The fact that some stupid continues to be stupid, does not make it smart. Gravity force does not dissapear when you see a rocket going up...

How Much Lower Can the ABX Go?

A few additional thoughts are:
-- Rating agencies are always slow to recognize the deterioration of any credit (I bet this is one of those cases)
-- Market levels are an unbiased predictor of a paper's rating. In this case, it is basically saying that the AAA paper is in reality a single A.
-- Mark-to-market losses are just starting to hit, when they do then risk managers and others take control of the situation with a liquidation at any level following. We are far from that yet.