flashrob

Waiting for the Government to Act on Banks

why BIG MONEY is not in this daytrader spin driven bear-rally!

why they are not itching to buy...they know it's going DOWN...

this is a daytrader spin-based rally...

listen carefully: WHEN "MARK TO MKT" IS RESCINDED OR MODIFIED...THE BIG BANKS "LOSE ALL POTENTIAL" TO RELEVERAGE HUGE PROFITS ON THE DERIVATIVES MKTS...

no world traders will touch them WITH UNCERTAIN ASSET VALUATIONS...

their stock prices WERE INITIALLY BOOSED TO THE HEIGHTS OVER THE YEARS because of "highly leveraged trading" in the derivatives mkts. Kill that, and you kill them.

They can't recover AS WHEN THEIR ASSETS are revalued to "higher fantasy numbers" so the fed don't have to bankroll them...

THEY CAN ONLY WATCH THERE "NOW REAL WORLD ASSET VALUES" DECLINE WITH REAL WORLD REAL ESTATE PRICES.

couple that with "lower interest rates" (they are only showing profits with cheap gov money loaned out to "the few" who want to borrow and will pay the high rates.

as soon as govs loosen credit...those interest rates go down as banks worldwide have tons of money, few who want to borrow, and they are all scrabbling for the crumbs...

however those OTHER INTL BANKS with "mark to mkt" can watch
their "highly leveraged derivatives" soar back up, in the event of a recovery...and we all expect a recovery somewhere down the road.

flashrob

Waiting for the Government to Act on Banks

...a shorter version of my previous post on the prospects for banks....

here's the REALITY:

1. bank assets CONTINUE TO DECLINE in a world economy continuing to SPIRAL DOWNWARD...continued high-paid job losses, more foreclosures, etc. NO HELP FOR BANKS HERE!

2. RECENT PROFIT ANNOUNCEMENTS by some of the BIG INVESTMENT TYPE BANKS...

a. mostly due to BORROWING CHEAP GOV MONEY and LOANING OUT at "high interest rates" due to WORLDWIDE CREDIT ILLIQUIDITY.

b. as soon as Obama and G20 (around the world) take various measures to PUMP LIQUIDITY into the banks...GUESS WHAT...

spread interest rates ON WHICH THESE BIG INVESTMENT BANKS are stating PROFITS will DRY UP!

...LOWER SPREAD RATES = LESS PROFIT FOR BANKS ON THEIR LOANS.

...COUPLE THAT WITH "real world WEAK DEMAND," because in a severely declining economy...FAR FEWER BUSINESSES "NEED LOANS!"

So, the banks MAKE LESS MONEY on the loans they are writing because of the gov etc. getting money pumped into many banks for competition to provide lower "interest rate loans" ...

and THERE ARE LESS LOANS NEEDED and demanded...

so lower profit rate loans for banks

and far less loans will be made

plus less leveraged recovery speculation by banks when "mark to mkt" is modified...meaning: they can't use as much leverage to recover.

IS THERE SOMETHING YOU "FANTASY LONGS" CAN'T SEE IN THIS EXPLANATION...

IT'S BAD NEWS FOR ESPECIALLY "BIG INVESTMENT BANKS" GOING FORWARD...and there position is getting worse....

flashrob

Waiting for the Government to Act on Banks

big problems for banks... BIGGER PROBLEMS FOR BIG INVESTMENT BANKS!

FIRST: regional and local banks!
the problem headed their way: though they have little exposure to "real estate based derivatives," etc., like most of the "big investment banks and financials,"
and their "assets" are already NOT "mark to market," but based on more realistic valuations, they HAVE A BIG PROBLEM in the future... as the economy continues spiraling downward (with more high-paid job losses to the payers of their more standard type mortgages). Their WILL BE MORE FORECLOSURES as unemployment continues to increase....

bottom line for regional and local banks in the future:
continued ASSET deterioration of NOW "non subprime" type mortgages. (also raising of reserve requirements)

note: these stocks and etfs are losing ground and going down, but more slowly since their assets are priced to the "more realistic" local type valuations (like real estate values in a region, might only be down 30-40%). So, their assets might be .60 cents on a dollar as opposed to "big investment bank" asset valuations (real estate derivative type) which some are "marked to mkt" at like .10 cents on a dollar, because that's all that the "global derivatives players" are willing to "bid" for them.

SECOND: most of "the big investment banks"

this group has "lots of problems:"

1. continued ASSET DECLINE - the overall decline in the economy and continued increasing job loss WILL CAUSE FURTHER DECLINES TO THEIR ASSETS, "mark to mkt," or not.

2. increased government regulation of and intervention in their activities and oversight of their assets.
(plus what else might the gov might find in there.)

3. modification of "mark to market" WILL HAMPER their speculation in the "global derivatives mkts" ...something these banks "DON'T WANT," and were probably counting on TO LEVERAGE UP THEIR PROFITS (based on asset vals... "mark to mkt" works great in an UPWARD mkt... works against you in a down mkt...IN A HIGHLY LEVERAGED WAY).
It's somewhat like trading options as opposed to trading stock. The banks think we're near bottom in the stock market, and want to be able to run their "stock prices" up quickly by using LEVERAGE. Take away or limit "mark to mkt" and THEY HAVE A PROBLEM ...not in recovering, BUT IN RECOVERING QUICKLY when the economy improves somewhere in the future. (probably a much farther future than they think!)

BUT THE BIGGEST PROBLEM "large investment banks" will face:

*Much is made of the "credit liquidity crisis" ...and groups like the G20 and the Obama administration are feverishly working on "freeing up liquidity."
Now, no doubt WE NEED more WORLDWIDE AND AMERICAN CREDIT LIQUIDITY in the financial system.

With governments around the world working on "increasing liquidity" (by various methods ...moving "bad assets" off banks books, suspending or modifying "mark to mkt," etc....

bottom line: LIQUIDITY WILL INCREASE, but Banks are borrowing cheap from gov right now, and lending at high-spread rates, thereby showing profits, like those announced by some BIG INVESTMENT BANKS recently, but increase liquidity and rates COME DOWN...banks MAKE LESS ON LOANS...do they want that? I don't think so, and that leads us to...

And an equally BIG ISSUE ...in a declining economy with biz slowdowns, company downsizings, WHO NEEDS ALL THIS MONEY provided by making HUGE AMOUNTS OF LIQUIDITY AVAILABLE.

BIZ borrows to EXPAND ...seldom to CONTRACT...and their are less potential borrowers going forward as the world economy continues to decline...

bottom line: In my opinion BANKS LOSE MORE (in this recessionary time, only) WHEN LIQUIDITY IS INCREASED!!!

And HERE comes "INCREASED LIQUIDITY" complements of like... O'bama and the G20....

SO, I WOULDN'T BE GOING "LONG" BANK STOCKS! local, regional, or BIG INVESTMENT BANKS!

Until, the economy REALLY STARTS TO RECOVER - and that looks LIKE YEARS OUT, it DOESN'T LOOK GOOD for the banking sector, AND IT LOOKS PRETTY BAD FOR THE "BIG INVESTMENT BANKS"
in particular.

flashrob