Fabien Hug

The Secret to the Banking Sector's Success

OK, the FED lends money at 0% to the banks. The banks buy Treasuries yielding 3 % from the FED. So far, so good, let's face it.
Those who didn't sell the market in a panic have almost been made whole. Others can refi on their mortgage at a great rate and, slowly but surely, banks' losses on assets are reduced by the profits made thanks to this little trick described above.
Now, why and how will this miracle end? Because it will end like the Chinese seller / lender virtuous circle ended. That's the questions we should ask ourselves.

Real Cause of This Financial Crisis? Global Hunger for Savings Instruments

The point is well mentioned; we have a demographic problem. Few people stand behind the baby boomers in our Western societies.
That's the cause of the crisis, nothing else. If interest rates would be kept high, we would face a growth problem and there would be no savings to be fed with these high interest rates anyway. What should we do? Less growth, higher interest rates? That would profit the retired generation. Do they need it? Certainly, but they have the baby boomers to back them up for the moment (Soc Sec). Low interest rates, higher growth? That profits the workforce and the biggest demographic mass (it worked so far but the machine seems to be rusted). Is there a way to balance this out? Certainly, but that will involve a lot of politics and government interference so forget about for the moment. The solution for baby boomers? Profit from growth when you can and save. In Switzerland, the actuarial pension rate is 6.5% down from 7.5% earlier in the decade. This rate is an official rate that includes life expectancy and return on investment. It is used to compute the reserve level of pension funds. Many say that it's still too high (pension funds have real a problem to get returns that allow to reach this technical rate). What it means, is that if you have $ 1 mil in savings at retirement, you get $ 65,000/year in pension money. $ 1 mil is still a lot of money but $ 65,000 doesn't bring you far in a big US or European city. As far as I can see, baby boomers have nobody to cover their backs.

Two Prominent Economists Admit Leverage Kills

Counter cyclical measures are great in theory but they are never implemented. The pressure of the crowd is too strong.

Citigroup: Priced to Succeed

Go C, Go. I'm long too.

Hedging Your Way to Healthy Dividends: Part 2

good ideas and interesting too

Juicing Your Income with Select Bonds

I don't have that one. 4 stars with MS, manager in place since 1996, good yield for the duration of 3.36 year, no short position and reasonable expense ration of 0.76%. Just one thing to study, a position of 6.59% of assets in a T Rowe Price Reserve (maybe their the cash on hand 8.4%).
It seems all clear, I'll check it further.


On May 18 02:34 PM briantigers2009 wrote:

> what about T Rowe Prices High Yield Bond fund. PRHYX. Priced at
>
> 5.32 as of May 18 with a dividend yield of 8.32 % and a 3 month return
> of nearly 9%.
> Any comments on this one.

Stress Tests Were Never a Serious Exercise

They "Washington DC" were always clear about that; "we will do whatever necessary to avoid a collapse of the financial system".
That's what they are doing, invest accordingly. Is it fair? Is it globally good for us the outsiders? I frankly don't know.
Nobody complained when they guaranteed $ 100k/deposit (only in America), nobody complained when they were lending money like if there was no tomorrow. We are still in the same logic and have to live with it.

5 Perverse Bailout Consequences

And it all starts again; GS is the hero, big, strong, the pricks are back.
Before they show off can they pay back AIG? What if C or UBS would have gone down three months ago? Would they still be here?
They can only show off because they and this industry was heavily supported by the government. One should not forget this.

Stock Rally Built on Fundamental Sand

Thank you for this article that effectively helps to keep a clear head.
Regarding banks, new FASB rules will effectively help them. They won't have to post losses on "not anymore" toxic assets whilst they can quietly pile up cash. Now, how can they pile up cash;
1) they borrow at near 0% and they lend at ...
2) they push you into commission business; the bottom is here don't miss the new bull. It will work since the market hasn't reach the capitulation state thanks to government interventions.

Popular New Year's Resolution: 'Stop Paying My Credit Card Bills'

Don' forget that they charge 20% + interest rate and they refi at close to 0%. If I get 20% cash flow on an investment, I can survive with an 8% loss on the capital. The question is, are we at the peak or near the peak regarding delinquencies or is the trend in full swing? I think we are near the peak.
The second question is why the increase with C is more than 50% where the other banks are all below 10%? Is C particularly unlucky with its clients or did it become conservative in its accounting?

Time to Bury the Rotting Carcasses of Dead U.S. Banks

As a matter of fact they have opposing thumbs. Even their feet work this way. That's how they can eat a banana whilst they type.


On Mar 15 05:46 PM InnocentsAbroad wrote:

> Monkeys have a hard time typing, because they don't have opposing
> thumbs.

Bailoutspotting: Zombie Bank System Needs to Detox from Federal Rescues

Good post but you unfortunately bring more fuel to the crowds that simply shout "just have to" (let the banks fail, nationalize, fire the Senate, etc.). Now, what is the law of unintended consequences if "zombie banks" are given a silver bullet?
If everything goes down the drain we can always move to Switzerland; they prescribe heroin there. Heroin is not so much a problem when you have some; look at Keith Richards. He certainly doesn't spend his days watching Wall Street and DC, shitting in his pants.

Accounting Rule Changes Creating False Rally in Financials

Change of rules in the middle of the game is never good and I can understand the frustration of some people. However, when I read a lot of posts lately that were promoting sort of a final solution; nationalize the banks, wipe out bondholders and so on, I didn't think this was the best solution. This market will take time to heal and it is in the best interest of almost everybody that it heals well. If a change of rules helps, why not.

Opportunities in Bank Bonds

About systemic risk; if the US government can't back up C, BofA or AIG anymore after all the money that was already poured in, we are in deep trouble.
Who will be next? Furthermore, PIMCO, pension funds and Sovereign Funds can't do with FDIC insured CDs.
I think, it's too late to back up and receivership was never a viable option.

Thoughts on the Worthless Equity Value of Some Banks

Risk for preferred equity and bond holders is real but I still think that this bond and CDS trading has more to do with opportunity than fundamentals. I hope that C's first quarter results will confirm Mr. Pendit declarations from early this week and that it was not another manipulation. If Q1 results don't confirm, brace yourself.