Market Currents
The conventional wisdom says risk markets rally Monday in Pavlovian response to the latest...
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Saturday, June 9, 2012, 2:57 PM ETThe conventional wisdom says risk markets rally Monday in Pavlovian response to the latest bailout, but the news may be baked in: Spain (EWP) was 10% higher last week, the S&P 500 +4%. Is the rescue even good news? "Spain is the Rubicon that should have never been crossed," says Nicholas Spiro. "A limited bailout for Spain (will) fail to restore confidence in the markets, (and) could fuel fears that more aid will be needed at a later stage (with Italy waiting in the wings)."
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Europe will be open for 6.5 hours before the US markets open so if an early rally in Europe dissipates by the time the US opens it may mean the bailout will be discounted.
agenda....
make sense?
The situation is Europe is almost precisely, like the financial meltdown in the U.S. and TARP, which followed. Europe will follow a similar path. Whatever support is required will be provided, one way or the other, and over time, the situation there will improve, old debts will be absorbed and life will go on. Those betting against this scenario, constantly expecting calamity and aligning their financial bets along the same line are going to find themsleves in a world of disappointment.
There will be a day of reckoning - postponing the banks' demise by saddling it on the tax-payers only makes it worse. We think we've re-engineered capitalism and outsmarted the laws of nature. I hope I am wrong but I suspect nature will win in the long run.
The situation is Europe is almost precisely, like the financial meltdown in the U.S. and TARP, which followed. Europe will follow a similar path.
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There will be no similar path just because similar path does not exist in non similar circumstances.
They have no similar to USA industries, no similar to USA corporations, no similar to USA talent
No similar Army to protect their assets and interest abroad
No similar status to print money which World can suffer
They cannot stop, they will not stop ever..
5000 GOLD
7000 GOLD
10,000 GOLD
THEN COMES ITALY BABY.....................
XLF -34%
BAC - 80%
C -87%
MS -50%
JPM -28%
GS -27%
WFC -21%
SPY +10%
TLT +33%
GLD +79%
This may be somewhat misleading because, even after TARP was signed in October 2008, there was a building crescendo that the troubled banks might be nationalized, not bailed out, thereby wiping out shareholders. It wasn't until Geithner announced the Public-Private Investment Program (P-PIP) on March 23, 2009 that the coast was clear for investment in the common shares of various banks and other distressed financials institutions. http://bit.ly/prq9Yn
Since that date, the performance of the above-listed issues has been:
XLF +49%
BAC -03%
C -11%
MS -43%
JPM +17%
GS -16%
WFC +81%
SPY +62%
TLT +22%
GLD +68%
It depends on the type of financial firm. Unlike the banks (BAC, WFC), brokers GS and MS bottomed shortly thereafter in November '08 at roughly $60 and $10, respectively, as ex-GS CEO Paulson and the Fed chief Bernanke saved their buddies. GS and MS are up an average of almost 50% including dividends.
Interestingly, GS is currently trading at a similar multiple of BV as it was during the scary days of March 2009, which is why I bought some at $94 last week.
Those that "howled" about TARP in fall 2008 appear to have had pretty good reason to.
Say anything you wish, but I am pointing out what reality was for potential banks investors. They're just the facts; I didn't make them up or schedule their dates. The original TARP passage date didn't indicate anything at the time about what the mechanism would be for its implementation. This is all clearly outlined in the Wikipedia link and makes it obvious why the market didn't react immediately to it, especially as regards banks.
Did it ever occur to you that the very "epic bottom" you mention was occasioned, precisely, by the decision NOT to nationalize the banks, but to invest in them via preferred stocks, instead? This was only evident when P-PIP was announced.
Human volumes are at all time lows because humans know post Internet bubble burst, post telcom bubble burst, post Worldcom, post mortgage bond bubble burst, post Bernie Made Off with your money, post AIG, post Lehman and post QE 1 and QE 2 that the game is COMPLETELY rigged against them.
Vegas is fairer.
Volatility is the friend of disciplined investors - I remember buying (via limit orders) PG and ACN on the day of the HFT flash crash. Furthermore, last August was a gift for those not blinded by fear.
Those dumb enough to buy 200 P/E dot coms in the late 90s, Enron in 2000 (no FCF) and banks overleveraged with mortgage debt in 2006-2008 deserve to lose money. There were magazine covers warning of a housing bubble and banks giving home loans without documentation! If one avoids stupid risky investments and stays away from margin, they should be fine.
Investor fear also provides great opportunities to buy quality stocks like WMT under $50/share and Visa at $80 in August. High volatility also allows selling of overpriced options.
Last week, I bought a position in GS at $94 (0.75x tangible BV) as it has been driven down by fear and uncertainty - it's not a quick trade, but I expect a 30-50% return in the next 2 years. Even with moderate leverage and stricter regulations, GS should earn close to it's cost of capital on a normalized basis, so it should trade at roughly 0.85-1.0x tBV. In a good capital markets environment, tBV could be as high as 1.25x ($180 price in 2 years).
Not a useful word in times like these.
Abnormally good profits make people overpay for shares and bad times make investors think profits will never recover, leading to depressed valuation. GS was producing ROEs of 30%+ during the good days of 2005-2007. Some investors mistakenly thought those ROEs were sustainable so they paid 2-2.5x BV. Today's current tough capital markets will likewise move towards more normalized levels at some point.
Based on GS's investment management business, trading and investment banking over the cycle with a normal 13-15x leverage (assets/total equity), GS should be able to produce10-14% ROtBV.
Using these figures, GS seems like a very good deal in the $90s and should produce a good return once investors focus on the long term profitability of Goldman's franchise.
Congress is a hungry lion in an election year and Goldman is the chief doe. The public HATES Goldman and wants to see it and others handcuffed.
Remember, the Gramm–Leach–Bliley Act (Financial Services Modernization Act of 1999) was spearheaded by three GOP House and Senate members and received near-universal GOP voting support.
This is an election year.
Party affiliation doesn't matter a lick.
It is all about "what do the people want from me so that they will vote for me?"
Remember the GOP opposition to the ultraexpensive entitlement that is Medicare Part D right before the 2004 election?
Me neither.
http://bit.ly/MZJRqE
The GOP will do whatever the People want them to do so they don't get run out of town on a rail!!
If this weren't an election year I'd agree with you.
Bank runs benefit nobody except lunatic fringe parties such as nazis, commies, and religious zealots.