Rakesh Saxena

Financial Bailout Remains a Work-in-Progress, Chaos-in-Motion

Dear Proximo: In theory, and if rigid accounting standards are applied, the value of private equity in the banks is almost zero. A blanket nationalization is the only logical answer. However, it is apparent that the government will continue developing a trial-and-error policy, in the hope that the stimulus packages will cause an economic turnaround in late 2009. That is the reason why I see a good trading situation, as long as you maintain a bearish bias. Many thanks - Rakesh


On Feb 07 11:39 PM PROXIMO wrote:

> Rakesh--If you happen to see this post--a question for you---Could
> you at some point comment on your impression of the endgame for shareholder
> equity in any of the major banks , if they are nationalized? Total
> wipeout of the equity or something less? Or does it simply depend
> on multiple variables? Thanks much for your articles.

Financial Bailout Remains a Work-in-Progress, Chaos-in-Motion

Yes Fitz919: What you are speaking to is a "de-leveraged" scenario where a rational approach is taken to the real business of banking in society. I'm afraid, both of us are simply being left on the sidelines (helpless observers) as the government starts on a dangerous trial-and-error exercise. Many thanks for your comments. - Rakesh


On Feb 06 03:40 PM Fitz919 wrote:

> It's time to create new banks. I mean it...brand new banks. Banks
> that write 4% fixed rate mortgages. Banks that offer auto loans at
> 5%. Banks that have Credit Cards that are permanently capped at 7%.
> Banks that don't have toxic assets, and don't create them. Banks
> that pay interest on savings and checking accounts no matter what
> the balance.
>
> There are lots of unemployed people who have the skills and integrity
> to run these new banks, and with the old banks dropping like flies,
> there will be lots of accounts which will need a new home.

Financial Bailout Remains a Work-in-Progress, Chaos-in-Motion

Dear Seeking Truth: The problem is that since too many analysts, fund managers and traders have a vested interest in keeping the system alive, nobody is asking (demanding) for transparency. As far as "buckling your seat belt" is concerned, yes, you are entering a new era of socialism and state capitalism--you can't bail out over the side. Many thanks - Rakesh


On Feb 06 04:55 PM SeekingTruth wrote:

> This seems a lot like war, where everyone fights for what they have
> in it to fight for, whether it be great or small, and I suspect there
> were very few bankers on the beaches at Normandy.
>
> Listened to Mohammed El- Erian give a very plausible and intelligent
> appeal for massive bailouts across the board, and I couldn't help
> but be impressed by his appeal and well crafted and modulated delivery.
> But this doesn't , however, make it the right thing to do. He clearly
> has a vested interest in keeping the status quo well established
> by all possible means and has the ability and foresight to make any
> adjustments necessary along the way to preserve his and his corporations
> wealth.
>
> So where does that leave the rest of us? In the rumble seat of course,
> where we can be along for the ride but are clearly not doing the
> driving, and if the driver is an idiot and takes it
> over a cliff, we're going along with him. Buckle your seat belt,
> or maybe bail out over the side if you dare.

Financial Bailout Remains a Work-in-Progress, Chaos-in-Motion

Dear David: Yes, you make a key point---nobody appears to have actually read the complete stimulus package, bits and pieces apart; and nobody can offer any cogent analysis of the road map which the stimulus targets. A troubling scenario indeed. Many thanks - Rakesh


On Feb 06 10:59 AM David Braunstein wrote:

> How can anyone expect anything good to come out of a stimulus package
> that no one has read, not even the President. How can we imagine
> that if our lawmakers do not even read the stimulus bill that they
> could possible look at it critically? Yes, I beleive they have good
> intentions, but "the road to hell is paved with good intentions."
> Rakesh, imbedded in your comments is the real solution to our economic
> problems. Hard work, good intentions and rigorous analysis.

The Eurozone's Winter of Discontent Approaches Shakespearean Proportions

Seeking Truth: One consequence of curtailing welfare spending will be street demonstrations, and other forms of popular unrest. We are already seeing this phenomenon take shape, in traditional Europe and in the former Soviet satellites. Immigration is another very touchy issue now. Yes, a bit like late-18th century France but more like Europe in the 1920s--another very touch issue, but I guess we must deal with it, sooner rather than later. Many thanks - Rakesh


On Feb 04 01:17 PM SeekingTruth wrote:

> Rakesh, What happens when Welfare states significantly curtail welfare
> spending when the vast number of welfare recipients are already suffering
> more than at any time in memory?
> They have been conditioned for disproportionate assistance and like
> domesticated pets, have little or no ability (or opportunity) to
> fend for themselves.
>
> Are we in the early stages of a certain late 18th century type episode
> experienced by the French, at least in some of the countries?

The Eurozone's Winter of Discontent Approaches Shakespearean Proportions

Yes, numerous people have suggested that Angela Merkel's father (a pastor) must have had close communist links since the family was allowed to travel freely between East/West Germany. Ms. Merkel does not deny that she was a member of the communist-led Free German Youth movement.

On another note, I'm not sure if I agree with your view of the Marxist outlook for Europe. The works of Rosa Luxemburg and her contemporaries [pre-1920s] appear to express strong disagreements with European "socialist" parites with respect to control over the means of production. But this matter is certainly worth investigating further (particularly in today's context) and I will address this in a forthcoming article.

Finally, the failure of the German banks cannot be blamed on the poorer EU states; on the contrary, my view is that the German banks thought they saw a unique opportunity to lend at above-average rates and collect huge fees, and now they are paying the price. Many thanks - Rakesh


On Feb 04 02:29 PM R Jensen wrote:

> How is it that Deutsche Bank and Commerzbank are sinking and yet
> the blame is placed on the poorer EU states?
>
> I'm surprised Merkel was from the DDR. Since she went to school there,
> she must have been a member of the Communist party (otherwise you
> don't go to school, you go work in the factory).
>
> But Merkel is right about the idea of nations going bankrupt. <br/>
>
> I'd say that's more of an "Austrian school" philosophy than a Marxist
> one. After all, Marx would favor EU expansion and a socialist world
> government. And that is exactly what the EU is a building block for.

The Pfizer-Wyeth Deal: Experimenting with Taxpayer Dollars?

Dear juan77: At this point, from available data, it appears that PFE will need to raise about $35 billion by the 12th month after the deal is completed; this number could vary according to PFE's performance over the next six quarters. Whether PFE decides to issue new shares to refinance the S/T loans is an open question, to be influence by market conditions. But, yes, you are right in recognizing the dilution risk. Many thanks - R


On Feb 04 02:15 PM juan77 wrote:

> Other than the bridge loan, how much capital does PFE need for the
> acquisition?
> If it has to raise capital by issuing new shares, will PFE's stock
> price suffer the same fate as BAC and WFC which raised additional
> capital by issuing stock at a discount to market value?
> n which case, is PFE a viable short candidate?

Derivatives Alert: Explosive Risk Is Still Unrecognized

Dear HBWOW: The $640-700 trillion number is what the regulators are working with in their efforts to bring the OTC derivatives under a clearing house umbrella, and does not include CDS trades. On a related note, my review of the filings of the major banks shows that the number has merit. But you are correct--exact figures should be disclosed, they exist and Washington should recognize the problem. Without precision in this area, these bailouts are indeed bandages, or simply shoot-from-the-hip strategies in the hope that the economic will turn, sooner rather than later. Many thanks - Rakesh


On Feb 03 09:36 AM HBWOW wrote:

> Where did you get the estimated $640-700 trillion number? It seems
> that no one has a definitive number by bank, broker, mutual fund,
> etc. of what the "real" exposure is. I am amazed that the government,
> particularly Mr. Dodd and Mr. Frank as well as the public CPA firms
> and government regulator examiners seem to have overlooked this monster
> problem. Aren't these people accountable?? It looks like the bailout
> monies to date and being argued in Congress now, are merely a bandage
> being applied where major surgery is really needed.

The Pfizer-Wyeth Deal: Experimenting with Taxpayer Dollars?

Correct macsmart. The issue really is "what type of lending?" This deal is not a "money flowing through the system" deal, and is contrary to what we hear from Washington. But, then again, nobody in Washington is objecting to the deal!!! -Many thanks - Rakesh


On Feb 03 09:34 AM macsmart wrote:

> Isn't the idea that we want banks to start lending again to get business
> moving again?

The Pfizer-Wyeth Deal: Experimenting with Taxpayer Dollars?

Dear buyitcheap: The short or long position depends on the merger-arbitrage spread. The question of which stock will suffer if the deals fails is still an open question which I am checking with healthcare analysists. Will provide updates shortly. Many thanks - Rakesh


On Feb 03 07:32 AM buyitcheap wrote:

> Wouldn't short Wyeth be a better idea if the deal falls apart?

Derivatives Alert: Explosive Risk Is Still Unrecognized

Dear Seeking Truth. In my view, a proper and complete nationalization is perhaps the best answer. But I'm not sure that there is enough will in Washington for that. What we are likely to see is a trial-and-error process, starting with the second half of that $750 billion package (2008) and followed by the Bad Bank legislation. The problem is that the stimulus proposals so far are really predicated on hope that the economic conditions will change, i.e. the "finger-in-the-dyke" strategy. Many thanks - Rakesh


On Feb 02 11:33 PM SeekingTruth wrote:

> Rakesh, Thanks for helping us understand and better appreciate the
> threats from an exceptionally complex and murky area of finance.
> Your articles cut through some of the fog and cast some light on
> the treacherous and rocky road streching out before us.
>
> In my limited view, nationalization of the banks appears almost certain
> (the Sweden model?), but do we have the will and the skill to do
> it without chaos? Based on today's available information, what are
> your views on the probable success or failure of this process? <br/>I
> will continue to look forward to your excellent publications.

Emerging Markets: Beware of the 'Head-in-the-Sand' Strategy

Your comments are appreciated. As far as "trusted" advisors are concerned, there are none now. All the so-called experts on Wall Street removed themselves from the advisor list when I started asking them to provide written answers (brief and pointed) countering or supporting my positions as evident in the articles posted here!! More on this subject later. Many thanks - Rakesh


On Feb 02 11:56 PM SeekingTruth wrote:

> Rakesh, If you keep all of this up , you are definitely going to
> be a candidate to add to my most trusted advisors list.
>
> The kind of insights that you reveal are rare and difficult to come
> by.
>
> Which raises the question, Who are "your" most trusted advisors that
> are in the public arena , and that the ordinary reader might have
> access to?
>
> An excellent article , not only substantive, but artfully done and
> a pleasure to read.

The Pfizer-Wyeth Deal: Experimenting with Taxpayer Dollars?

Dear pfeskeptic. I was told by a long-term health care analyst that Pfizer was expecting this settlement, with or without the Wyeth deal. On the other hand, the $2.3 billion could have been used to reduce the syndication amount from the bailout candidates, so there is that TARP connection. More importantly, it is important to note that without government backup, the syndication could not have underwritten the Pfizer loan in the first place. Many thanks - Rakesh


On Feb 02 09:22 PM pfeskeptic wrote:

> Question: Does Pfizer's announced $2.3 billion settlement with the
> U.S. Attorney (to end an investigation of illegal marketing practices
> associated with Bextra) increase the company's financing needs for
> this acquisition? Does an absence of this cash due to the settlement
> require the company to borrow more and would this, in any way, consume
> capital that TARP recipient banks could be using for other purposes
> that do not kill jobs?
>
> I honestly do not know the answer to this question, but those who
> are concerned about the TARP connection to this deal (if there is,
> in fact, a connection) might also take issue with the financial impact
> of Pfizer's settlement.
>
> Anyone have anything intelligent to say about this? Thanks

Derivatives Alert: Explosive Risk Is Still Unrecognized

Sure Ishortyou. Transparency is the first requirement. And a thorough examination of counterparty credit risk is the second. Many thanks - Rakesh


On Feb 02 10:25 AM Ishortyou wrote:

> those contracts need to be transparent and traded in a transparent
> market, bets that are made on them need to be also transparent, specially
> when the financial sector is involved, the casino era is over.

The Pfizer-Wyeth Deal: Experimenting with Taxpayer Dollars?

typo correction "what is in question is the underwriting-type risks the banks are assuming when....."


On Feb 02 12:17 PM Rakesh Saxena wrote:

> Dear rd4sndk: You are missing the point completely; please re-read
> the post. What is in question is the underwriting-type risks the
> banks when it is not clear if their balance sheets support those
> risks. Particularly in the face of an impending Bad Bank package.
> Nobody is questioning Pfizer's ability to close or re-finance. Many
> thanks - Rakesh