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  • Don't Rush To Sell Stocks At These Levels [View article]
    Everything looks fine as long as growth in profits continue. However, a slow down in economic growth is occurring globally. Revenues and profits are therefore vulnerable and changes to the growth forecast are dependent on political decisions, not exactly comforting.

    I read some very interesting work on secular bear and bull markets based on long term valuation measurements (P/Es and P/Bs). The secular trends tend to last seventeen years with cyclical bull and bear moves in that time frame. Currently, a secular bear market is still in force and the potential for a cyclical bear is growing heading into next year (the current cyclical bull is over three years old and long in the tooth as compared to all other cyclical bulls)

    The good news is that a secular bull market will likely come again in the next few years (net inflows into equities will be one major catalyst), but we may see one more cyclical bear before the all clear signal is made. I hope I am wrong, but hope isn't a investment discipline to be used.

    We may see new highs soon in this market, but it makes sense to be cautious at these levels, especially given the light volumes and the margin debt mentioned in this article, since a turn in sentiment could result in a sharp reversal.
    Aug 21, 2012. 09:10 AM | 1 Like Like |Link to Comment
  • Banks haven't over-fired, says Meredith Whitney, arguing the big lenders are only about halfway through their expense-cutting cycle. "I hope I'm around when the over-hiring phase returns." Washington can stay out of the "break 'em up" debate, she says as shareholders are taking care of it, not investing until the banks show they can "earn their cost of capital."  [View news story]
    gjg49, Thank you, you are right, I missed keying an input on my HP12C (you run out of space in the window with these astronomical sums). The corrected number only furthers the pace that the bailout has achieved in providing capital to the sector.
    Aug 2, 2012. 11:08 AM | Likes Like |Link to Comment
  • Nokia Enters The Car Industry [View article]

    I have read your articles on Nokia and agree this company is not a bankruptcy and recent insider buying likely supports this view.

    I bought the lumia 900 back in April and really like the phone. I used to have a Nokia phone many years ago and had forgotten they do make a very high quality phone. The fact that this phone won't be upgradeable to WP8 doesn't bother me at all since it does everything I need it to do, it does well.

    However, the rep at the AT&T store told me how they all were given phones to use and went to training to better understand the features and operation. Therefore, the sales rep you encountered was likely expressing personal preference rather than any company mandate. Still, it isn't good for AT&T if they want to get more of WP out there (given the higher fees from Apple) and their sales reps aren't onboard.
    Aug 1, 2012. 05:47 PM | 2 Likes Like |Link to Comment
  • Banks haven't over-fired, says Meredith Whitney, arguing the big lenders are only about halfway through their expense-cutting cycle. "I hope I'm around when the over-hiring phase returns." Washington can stay out of the "break 'em up" debate, she says as shareholders are taking care of it, not investing until the banks show they can "earn their cost of capital."  [View news story]
    Do the math, .25% on the $1.5 trillion excess reserves is ~$375mil risk free to the banks, although the spread will vary for each bank given how they fund (money center banks paying 0% for deposits are capturing almost all of it). I believe this is part of the continuing bailout against the real estate/mortgage collapse and one way the banks are rebuilding capital to write off the bad debts. By the end of the this year it adds up to $1.5bil and continues to accrue to the sector.

    The U.S. is working through the burst debt bubble (I have read that private sector U.S. debt levels relative to GDP have been reduced/written off since 2009 when the recession ended, although much of it has been transferred to the public sector which is well known /link below), but Europe is only getting started.

    Europe remains the focus since their banking system is globally linked to all large banks via derivatives. The European banking system needs to guaranteed by the ECB/EBA and will need euro bonds to do it as they move toward fiscal integration. The only alternative would be a break up of the euro and that potentially could cause a major bank there to become insolvent. If that bank was a major player in the derivatives market it could blow holes in many global banks balance sheets and cause further insolvencies. This is why the large banks are being required to have the extra capital requirement, in my opinion.

    Until global debt levels fall back to more normal levels, growth will remain slow or worse with another recession. Given this scenario, banks have no choice but to continue to cut costs.
    Aug 1, 2012. 03:57 PM | Likes Like |Link to Comment
  • Bank Of America's Future Depends On This [View article]
    The U.S. needs a healthy financial/banking sector for sustained economic recovery. The banks are under pressure from regulators to increase reserves/reduce risk assets. Until this changes recovery and growth will be elusive.

    BAC made two aquisitions in the crisis one good, Merrill Lynch (provided bulk of BAC's cash earnings in 2010 and 2011) and one very bad, Countrywide. BAC most likely should have put Countrywide in Bankruptcy two years ago, if they could legally without impacting their other businesses (this has been debated). Also, it is questionable if the current government would have allowed this, since they effectively control the big banks through regulation and the Fed/Treasury cartel.

    A change of leadership this fall in the U.S. is needed for a variety of reasons, but in particular for the financial sector and the health of the economy. If this occurs, the banks will do well and BAC will be in double digits next year.
    Jul 20, 2012. 10:49 AM | 11 Likes Like |Link to Comment
  • BAC: New Signs Of Life? [View article]

    Totally agree, if a TBTF bank has to dissolve, they would not be alone given the derivative exposure they all have to each other. Also, hard to imagine one bank assuming assets from another bank without help from the government for the liabilities that caused the reason for dissolving the problem bank.

    This is another political move by the government to quell any residual anger over the so called bailout of the big banks (remember banks that did not request help were forced to take TARP funds anyway).

    Finally, I think it was also done to see how this procedure could proceed if needed and if it is all possible. Bottomline, the government really doesn't know how to implement this (short of nationalization of banks) and is demanding from the senior management of the TBTF banks to see how they view a disaster scenario.
    Jul 13, 2012. 10:16 AM | 1 Like Like |Link to Comment
  • The Consequences Of Prospect Capital's Secondary Offering [View article]
    The deep discount on the offering is where the demand was from institutional buyers (Barclays did the deal not a large wire house like Merrill or Morgan Smith Barney with bigger retail distribution). That is how the process works, unfortunately the small investor has no real say. Also, 21.0 mil shares (24.15 with shoe) is over 20 % of free float and ~20% of outstanding shares.

    What is interesting was as of June the short position was listed over 10% (~11.0mil shares), which is a lot especially given the monthly dividend. Hopefully, the deep discount wasn't done to help a large hedge short position, although the short position seems to be the difference between the shares outstanding and free float so maybe something structural is related to this deal and is legal.

    Finally, given how quiet the market is (seasonal summer lull) and the amount of uncertainty about Europe, Fiscal cliff/tax cuts extension in U.S., presidential election looming, Q2 earnings beginning, LIBOR scandal etc... the company may have wanted to get this done before sentiment turns bearish (if it does) and the opportunity to raise capital closes. Therefore in their view, the deep discount seems more tolerable and worth it rather than missing a chance to issue additional equity.
    Jul 12, 2012. 04:36 PM | 2 Likes Like |Link to Comment
  • The Consequences Of Prospect Capital's Secondary Offering [View article]
    All very good comments. In my opinon, the secondary was likely done because they see more opportunities to invest/lend in the still tight credit environment to their target base. Therefore, growth and cash flow should be fine.
    Jul 12, 2012. 02:58 PM | 1 Like Like |Link to Comment
  • Earnings Preview: Bank Of America [View article]

    I would check the $3.0 trillion figure for delinquent mortgages. As of last year BAC had a total of ~$2.2 trillion in assets.
    Jul 12, 2012. 01:28 PM | Likes Like |Link to Comment
  • LIBOR Related Lawsuits: How Do They Affect The Banks? [View article]
    LIBOR explained:

    The calculation of Libor is coordinated by just two people, who work in an unremarkable open-plan office in London’s Docklands. I watched the process, which seemed utterly routine, a couple of years ago. Just after 11 a.m. on every weekday that’s not a bank holiday, traders at leading banks send in their estimates of the interest rates at which their banks could borrow money. They do this electronically, but sometimes the co-ordinators make a phone call to a bank that hasn’t sent in its estimates, and if the latter seem implausible – typos, for example, are fairly common – they’re checked, also with a quick call: ‘Hi there, is the Kiwi chap [provider of the estimates for borrowing New Zealand dollars] about? … Bit of a spread on the two month. Everyone else is coming in a good bit under that.’

    A simple computer program discards the lowest quarter and highest quarter of the estimates, and calculates the average of the remainder. The result is that day’s Libor. The calculation is repeated for each of ten currencies and 15 loan durations (from overnight to 12 months), so 150 Libors are published daily: overnight sterling Libor, one-week euro Libor, one-month yen Libor, three-month US dollar Libor and so on.
    Jul 5, 2012. 02:28 PM | 2 Likes Like |Link to Comment
  • LIBOR Related Lawsuits: How Do They Affect The Banks? [View article]
    LIBOR is traded (similar to fed fuds in U.S. but with no central bank involvement) and the published rate is a compilation/average of the inter-bank trade or where willing to trade.

    It will be interesting to see if responsibility only lies with trading desks as Barclay's CEO claims and if this claimed behavior exists at other banks. The more damaging theory for manipulation would be senior management acknowledges views from government/treasury officials and then has that explicitly interpreted by trading desks in daily trade.

    Another interesting fact is again a major trading scandal is based in London. Recently, JPM's loss in derivatives occurred in London as did the UBS loss and the SocGen loss a couple of years ago to name a few. So maybe it isolated to Barclay's and not a trend/conspiracy amongst the major players, which is the best case scenario for this scandal not to gain traction and hurt already fragile sentiment in financials.
    Jul 5, 2012. 02:25 PM | 1 Like Like |Link to Comment
  • LIBOR Related Lawsuits: How Do They Affect The Banks? [View article]
    Proving the collusion between the banks will be hard, unless there are "smoking gun" e-mails. As one post stated, banks set interest rates as a part of their business, so they have a right to determine various rate levels independently.

    What is a worry, is that the current DOJ (a national joke given their record) is likely looking at how to use this as an issue going into the presidential election this fall, which will not help sentiment for the banks.

    Finally, this seems like another step (or in this case an opportunity)by government/regulators to continue to move large banks toward a model more like utilities. Unfortunately, this model limits profits and ultimately overall economic activity by restraining credit to the real economy.

    To change this, we need to change the president/Senate majority this November and hope that new leadership will remove some of the shackles of regulation/mandates on businesses and individuals and put the country on a more fiscally prudent path. This is "hope and change we can believe in" (to use the now hollow phrase) that would benefit many rather than the few who are benefiting from the current regime's view of reducing American influence internationally, anti-business attitude, and absurd class warfare.
    Jul 5, 2012. 12:27 PM | Likes Like |Link to Comment
  • Mid-June Conference Reveals New Life For Bank Of America [View article]
    BAC has moved to more conservative liquid investments and reduced level 2 and 3 assets. This impacts returns, ask JPM how the more illiquid investments are working out since they increased their exposure over the last few years. BAC is still a play on the U.S. economic recovery and in particular housing.
    Jun 29, 2012. 10:45 AM | 1 Like Like |Link to Comment
  • Peabody Energy Analyst Day: 110 Slides Of Coal Market Joy [View article]
    Interesting, that likely means when the turn comes, that group should provide some leadership. Until then, the sector will probably go through the dead money stage for a period of time (if we haven't already entered it).

    They are also the names the big buyside long onlys institutions focus on in the sector. I traded the small/midcap coal names at a major investment bank for a while before retiring, but sat next to the guy that traded the large cap names. I also traded the European industrial, energy/utlity and materials sector for many years and remember when RWE (large German utliity/energy firm) owned a large percentage of CNX (~73% /original investment was joint venture with DD). They eventually sold their stake (below these levels as well) which allowed the stock to finally perform better.

    It will be interesting to see if any other large foreign company begins to look at the coal companies at these levels, although it would likely come from Asia given the well known problems in Europe and the continuing divestures from the large German utlilities (EON and RWE) who go on acquiring binges from time to time.
    Jun 27, 2012. 01:10 PM | 2 Likes Like |Link to Comment
  • Peabody Energy Analyst Day: 110 Slides Of Coal Market Joy [View article]
    Peter, I agree the coal sector is a better long term story and not yet on the radar screen for many institutional investors (unless of course it starts working), at least as buys given their main focus on quarterly performance.

    That is why I believe some are dumping BTU into quarter end since it hasn't worked this quarter and they don't want to show anything resembling market weights, let alone overweights to the stock/sector. That would result in unpleasant conversations/reports that would be hard to justify given current conditions and the myopic view of certain investors/institutions.
    Jun 27, 2012. 12:12 PM | 3 Likes Like |Link to Comment