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  • Believe it or not, traders hit the buy button as another round of these borderline absurd stress tests (full report) apparently don't say the world is ending. The S&P narrows its loss to 0.3%, The euro climbs 50 pips to $1.2889. Oliver Wyman - the audit firm which carried out the exams - proclaimed Anglo Irish Bank the "best bank in the world" in 2006.  [View news story]
    "Absurd stress tests" - exactly.

    Had the same criteria used in the current "stress tests" been applied to banks in Q2-2008, BAC and C would have been among the "best banks in the world".
    Sep 28, 2012. 12:31 PM | Likes Like |Link to Comment
  • Discover's Accounting Leaves Room For Discovery  [View article]
    Kudos to DFS management - for successfully kicking the consumer lending default bomb down the road for another quarter.

    This article provides substantive insight into the superficial and disingenuous financial reporting of DFS, which can also be generally applied to other lenders in the financial services industry.

    "By making the financial data look worse during the economic downturn, Discover's managers now benefit this year from profits that appear better."

    The "loan-loss reserve release" phenomenon, leading to overstated banking profits throughout the financial services industry for the last 3 years or so, has materially distorted the industry's reported earnings results and earnings capacity going forward.

    While most market observers are focused on the effects of "quantitative" easing, unprecedented "qualitative" easing will have a much more severe near-term market impact, once banks are no longer in a position to release loan-loss reserves.

    "Qualitative" easing is essentially regulatory forbearance; which has never been more prevalent in the history of the modern financial services industry and will likely trigger (or at a minimum, greatly exacerbate) the coming financial crisis.

    Professional and "willfully ignorant" fund managers who place other peoples' money into financial industry stocks, based on earnings with a material "loan-loss reserve release" component are betraying the trust of their clients - and they know it. But, that's "okay" because everyone's doing it - right?
    Sep 28, 2012. 12:12 PM | Likes Like |Link to Comment
  • More on Discover (DFS): Q3 net income fell 3.4% Y/Y. Card sales volume +4%. Total loans +9%. Net interest margin +18 bps, thanks to lower funding costs (credit card yield fell 19 bps). Delinquencies and charge-offs hit historic lows of 1.81% and 2.43% respectively. About 10M shares repurchased for total of $350M; float fell 1.9% Y/Y. Shares +3.3% premarket. (PR[View news story]
    "Delinquencies and charge-offs hit historic lows..."

    Believe it or not, there was a time when investors in financial sevices industry stocks actually repudiated companies that grossly understate delinquencies and charge-offs; but, now, investors have come to expect it. Congrats DFS, you kicked it down the road for another quarter...
    Sep 27, 2012. 11:04 AM | Likes Like |Link to Comment
  • Emperor Bernanke, 3 Castles, And An Inevitable Unwind  [View article]
    “But surely you're not suggesting that's a good thing.”

    No, I do not, and I did not intend to imply that I did. Thanks for giving me the opportunity to clarify that point.

    It is absolutely not good – political (and ultimately regulatory) capture by the systemically important financial institutions has obviously been highly destructive to our economy, and it’s going to get much worse.

    Financial regulatory negligence is the key culprit in the financial crisis and the ongoing regulatory forbearance is going to make it much worse. (Regulatory forbearance is a form of qualitative - not quantitative - easing.)

    There is a way to avoid having the financial crisis lead to an epic economic disaster; but, the banking committees in Congress will only listen to the money center banks and the academics. Neither the banks nor the economists can figure out a politically viable solution and both groups are far too arrogant to consider an innovative solution from outside their respective elitist circles.

    I have devised a solution that will result in sustainable economic growth relatively quickly and will not require any further federal spending or net asset purchases by the Fed.

    Although my plan is entirely compatible with the existing financial infrastructure, it is innovative and does not conform with traditional economic theory. As such, it is summarily dismissed by the academics, although none can provide any reason why it will not work as designed.

    My plan towards sustainable real economic growth utilizes qualitative modeling and employs systems thinking solutions. It is remarkably self-balancing at several levels, which enhances its effectiveness and sustainability.

    On the other hand, economic theory is confined to quantitative, linear thinking. Such thinking is incapable of yielding broad-based solutions given the level of complexities involved. As such, our economy is destined to endure substantial broad-based destruction as long as economic policy continues to be guided by the economic sophistry of the academics.

    To compound this tragedy, it does not have to be this way…

    Sep 16, 2012. 11:45 PM | Likes Like |Link to Comment
  • Emperor Bernanke, 3 Castles, And An Inevitable Unwind  [View article]

    It's either what I have laid out or war - so, I'm being optimistic.

    To add to your "not the slightest chance in the world" list:

    Concurrent with the cancellation of UST's by the Fed and the creation of a US dual currency scheme, the commercial banking system will be nationalized.

    This is absolutely inevitable and will happen soon. While most market participants are focused on quantitative-based monetary policy, the more consequential policies currently in force are qualitative. That is, gross bank regulatory forbearance has been extended beyond the point of no return, and will absolutely result in the nationalization of the US banking system.

    Remember, we are no longer governed by the rule of law (upholding contracts, regulations and such); we are now governed by the rule of politics.

    The "new normal" is still evolving...

    Sep 16, 2012. 02:29 PM | 3 Likes Like |Link to Comment
  • Emperor Bernanke, 3 Castles, And An Inevitable Unwind  [View article]

    I don’t watch much CNBC, so I missed Edelman’s comments and therefore don’t know the context within which they were made.

    I am not being facetious when I say that the Fed will eventually forgive/cancel the payment obligations of its Treasury holdings.

    Timing? This will occur around the time when the lack of confidence is manifest by the capitulation of (primarily foreign) UST holders.

    Concurrent with the Fed’s cancellation of UST debt will be the establishment of a dual US currency: a domestic, note-based currency and a foreign, mostly gold-backed currency.

    Thanks for letting me know about Edelman’s comments; however, I doubt he’s figured out what follows. So, for the record, you heard a more complete (and actionable) explanation here first.

    Sep 16, 2012. 01:56 PM | 3 Likes Like |Link to Comment
  • Emperor Bernanke, 3 Castles, And An Inevitable Unwind  [View article]
    So, what if the Fed later forgives all of the debt it purchases from Treasury?
    Voila! Everybody's happy!

    (You heard it here first.)
    Sep 15, 2012. 12:53 PM | 4 Likes Like |Link to Comment
  • A Recession Signal Flashes Red  [View article]
    R-j- :

    The smart money is MOSTLY in cash. “Mostly” means 50+%; which reflects the prioritization of protecting investment principal rather than taking the “risk-on” bait being promoted by the Fed.

    At a minimum, the author makes a very compelling case that the risks associated with common stock investing at this time are not commensurate with projected returns when applying rational, objective standards.

    Plenty of smart money is invested in corporates; however, the most favorable entry points have passed for now.

    Also please name the particular "corporate bonds, flush with cash ... paying upwards of 8%" (and the current pricing) so that we may share in your prosperity.
    Jul 21, 2012. 11:19 AM | 2 Likes Like |Link to Comment
  • A Recession Signal Flashes Red  [View article]
    The smart money is mostly in cash, waiting for the inevitable, if not imminent, shake-out in equities.

    The pros are trading - like always, win some - lose some.

    The greater fools are investing in common equities, which allows the smart money to cash out on rallies and the pros to win more than they lose.

    For the record: Dow closed today @ 12,823 / S&P @ 1,363

    You're welcome.
    Jul 20, 2012. 10:59 PM | 6 Likes Like |Link to Comment
  • Peregrine Financial Group: Another Futures Firm Implodes (And What Regulators Should Do)  [View article]
    "The auditor was obviously in on it as well..." True - they were paid with stolen money for 20 years.

    "... or grossly incompetent." Actually, willfully ignorant - for the right price, of course.

    "I just wonder how many other criminal operations like this are out there." Many - especially if you include the auditors/accounting firms.

    "This can't be all there is." True and correct.
    Jul 15, 2012. 09:41 PM | 2 Likes Like |Link to Comment
  • JPMorgan Chase And The Banking Industry  [View article]
    “I bought JPM yesterday at slightly over tangible book…”

    You don’t know what JPM’s tangible book is - so why would you predicate an investment on an unknown assumption? I guess because it’s your money – fair enough.

    The author is exactly right in that, “We still don’t know what is the real value of assets in the banking system.”

    This fact has just been proven true for JPM. Jamie doesn’t know, JPM’s board doesn’t know, JPM’s regulators don’t know, and neither you nor I know the value of JPM’s “tangible book”; so, making an investment in JPM common stock based on “tangible book” is foolish; that is, if you’re seeking alpha.

    Your blind purchase of JPM common may prove to be a lucky trade, but it won’t be a decent investment – with one possible exception: that is if JPM can, and does, profitably execute a massive divestiture of business lines to the point where its operations become manageable. I wouldn’t bet on it though.

    Also, regarding the dividend payout growth angle – don’t bank on it. JPM’s regulators will not allow further common stock buybacks for the foreseeable future and will severely restrict dividend raises going forward.

    Good luck with your JPM purchase – it may turn out to be an ok trade, but stay alert for the next whale!
    Jun 29, 2012. 12:13 PM | Likes Like |Link to Comment
  • The Supreme Court healthcare opinion "is a classic example of why Prediction markets have minimal value," writes Barry Ritholtz as Intrade gets it wrong again by predicting that the court would invalidate the act. "Futures markets are really a focus group unto themselves: When the group is something less representative of the target market, they get it wrong with alarming frequency."   [View news story]
    More importantly, the Supreme Court healthcare opinion is a classic example - that the rule of POLITICS now trumps the rule of LAW in this country.

    If this doesn't change, alpha eventually won't be worth seeking.
    Jun 28, 2012. 01:13 PM | 5 Likes Like |Link to Comment
  • Senators MIA At JPMorgan 'Roast'? Regulation Is DOA  [View article]
    Apparently, neither you nor the senators get it - it's not about the $??Billion trading loss - it's about the incompetent and irresponsible risk management processes at JPM and other systemically important financial institutions that could bring about the collapse of our financial system.

    Because this is "not that important" to you, you might want to stick with the "hobby-farm" business.
    Jun 15, 2012. 04:26 PM | Likes Like |Link to Comment
  • Senators MIA At JPMorgan 'Roast'? Regulation Is DOA  [View article]
    The senate hearing was a pathetic attempt at political theatre; which is about all that the citizen subjects can expect in view of the financial industry's absolute "political capture" of the Senate Banking Committee members.

    It is the "rule of politics" than governs this nation, and not the "rule of law" - as the financial crisis has made abundantly clear.
    Jun 14, 2012. 12:03 PM | 1 Like Like |Link to Comment
  • Risk On Or Risk Off?  [View article]
    The suggestion to "lighten up" is a prudent response to the author's realistic perspective, which is succinctly presented. I look forward to future articles by this author. Thanks for publishing.
    Jun 7, 2012. 08:10 PM | Likes Like |Link to Comment