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Jim Cramer's Mad Money In-Depth: 1/30/08: Mr. Guillotine

Copy that part JIM??? LOL

According to the Federal Reserve Board website, U.S. non-borrowed bank reserves have gone from $37B to $199M (nope, that’s not a typo) in the last month. We have been discussing this with Sitka Pacific Capital’s Mike ‘Mish’ Shedlock for the last two weeks. He concludes:

Banks in aggregate have now burnt through all of their capital and are forced to borrow reserves from the Fed in order to keep lending.

Simply put, the U.S. banking system has no reserves. In addition, the FDIC has recently begun modernizing large-bank insurance rules. We hope this is a wake-up call to everyone as to the extent of the credit crisis. Bank account balances should be used only for transactions. Instead cash should be held in the form of U.S. Treasury Bills at a conservative brokerage or trust. Under the mattress is also perfectly acceptable (your parents or grandparents had to do it!). For investors, we advised last year to sell the banks. Banks will be soon forced to sell assets (yes, even 10 year Treasury Bonds) at deeply discounted prices to pay depositors.

Jim Cramer's Mad Money In-Depth: 1/30/08: Mr. Guillotine

Two Billionaires Concur: Sell the Banks
posted on: January 31, 2008 | about stocks: IEF / SHY / TLT Print Email Financial speculator and billionaire, George Soros states in his FT.com commentary: “the current crisis is the culmination of a super-boom that has lasted for more than 60 years.” In June’s Higher Rates Reflect Default Risk we described the end of the last credit boom:

In 1928, the U.S. Treasury Bond similarly broke out of the channel and rose to a higher yield. This coincided with the end of ‘easy’ money which forced the deleveraging of the economy and concluded with the financial crisis of 1929-1932.

Compare the two Treasury Bond Yield charts below. In 2005-2006 higher bond rates “broke out of the channel” and inflicted damage on the housing market. This marked “the end of ‘easy’ money.” Similarly since 2006, there has also been a flight to quality.



(Chart above from Longwaveanalyst.com)



George Soros explains what happens next:

If federal funds were lowered beyond a certain point, the dollar would come under renewed pressure and long-term bonds would actually go up in yield. Where that point is, is impossible to determine. When it is reached, the ability of the Fed to stimulate the economy comes to an end.

As we described last June, we expect 10 year Treasury Bonds to be sold for cash in the panic, just as occurred at the end of the last credit cycle. Billionaire investor Julian Robertson agrees. As he revealed to Fortune, the biggest bet that Robertson has in his own portfolio at the moment” is “long the price of two-year Treasury and short the price of the ten-year Treasury."

Printing Money to Avoid Immediate Banking Collapse

According to the Federal Reserve Board website, U.S. non-borrowed bank reserves have gone from $37B to $199M (nope, that’s not a typo) in the last month. We have been discussing this with Sitka Pacific Capital’s Mike ‘Mish’ Shedlock for the last two weeks. He concludes:

Banks in aggregate have now burnt through all of their capital and are forced to borrow reserves from the Fed in order to keep lending.

Simply put, the U.S. banking system has no reserves. In addition, the FDIC has recently begun modernizing large-bank insurance rules. We hope this is a wake-up call to everyone as to the extent of the credit crisis. Bank account balances should be used only for transactions. Instead cash should be held in the form of U.S. Treasury Bills at a conservative brokerage or trust. Under the mattress is also perfectly acceptable (your parents or grandparents had to do it!). For investors, we advised last year to sell the banks. Banks will be soon forced to sell assets (yes, even 10 year Treasury Bonds) at deeply discounted prices to pay depositors.

Jim Cramer's Mad Money In-Depth, 1/23/08: Back from the Abyss?

Meredith Whitney fears $70bn carnage on monoliners
By James Quinn, Wall Street Correspondent
Last Updated: 11:55pm GMT 30/01/2008

www.telegraph.co.uk/mo......



The high-profile banking analyst who triggered the resignation of Citigroup chairman Charles "Chuck" Prince is predicting investment banks will need to take further write-downs of $40bn (£20bn) to $70bn as a result of the current crisis in the bond insurance market.

The latest news and analysis on the credit crisis
Whitney raised fears about write-downs last year
Meredith Whitney, whose research note on Citigroup in late October triggered a $369bn sell-off in global equities after she warned of the bank's need to raise fresh capital, warns Citigroup will be one of the banks to be hardest hit by a collapse in the monoline sector, along with Merrill Lynch and UBS.

Ms Whitney, who now works for Oppenheimer following the boutique investment house's recent purchase of CIBC World Markets, warns: "Among the myriad of negatives that surround financial stocks today, we see no issue more critical than the fate of the monoline insurers."

Major monolines - such as MBIA and Ambac - risk losing their triple-A credit ratings as a result of having to pay out on guarantees connected to bonds that contain defaulting sub-prime mortgages.

She estimates that Merrill, Citigroup and UBS hold more than 45pc of the entire market risk associated with the monolines.

However Speaking at a banking conference in New York, Merill's new chairman and chief executive John Thain pointed out that the bank's net exposure to collateralised debt obligations (CDO's) hedged by monolines is around $3.5bn. However, he said that if monolines "disappeared from the face of the earth", which he doesn't expect to happen, Merrill will owe around $6bn.