ItsJustMe's Comments RSS Syndication from SeekingAlpha.com http://seekingalpha.comuser/164498/comments http://seekingalpha.com/article/87571-is-there-predictive-power-in-the-option-implied-volatility-smirk?source=feed#comment-217167 217167 Tue, 29 Jul 2008 07:18:39 -0400 http://seekingalpha.com/article/84744-what-kind-of-government-support-will-fannie-and-freddie-get?source=feed#comment-204797 204797
I'm sure most of you own financial puts (as do I) and the GSE's have certainly been foolish, but as the author points out, it is the government's job to prevent the American economy from collapsing and costing millions of innocent people their jobs.

It is unfortunate when a side-effect of that action benefits incompetent managers but don't let your greed overwhelm your common sense. The GSE's will likely be penny stocks in time but letting them collapse is NOT in your best interest as an American even if you think it would be good for your short-term portfolio...]]> Sun, 13 Jul 2008 23:25:42 -0400
I'm sure most of you own financial puts (as do I) and the GSE's have certainly been foolish, but as the author points out, it is the government's job to prevent the American economy from collapsing and costing millions of innocent people their jobs.

It is unfortunate when a side-effect of that action benefits incompetent managers but don't let your greed overwhelm your common sense. The GSE's will likely be penny stocks in time but letting them collapse is NOT in your best interest as an American even if you think it would be good for your short-term portfolio...]]> http://seekingalpha.com/article/82515-more-on-technical-analysis?source=feed#comment-192008 192008
I would never put my 401k with a short-term trader. Give me Buffett. However, I have a smaller percentage of my investments that I trade short-term because unlike Buffett and Lynch, I like playing the market a lot more than "buy and forget." It's just my personality.

For years, I knew nothing about technical analysis and thought it was bullshit too. And to answer your question on who are the "under-performing traders," I was for about 4 years. I lost a LOT of money following the crowd.

But then I discovered that there were technical analysts who were reasonably good at predicting which way the crowd was about to go before they went there. Not precisely, mind you and they're occasionally wrong, but they're right enough that I now make a LOT of money investing in ETFs and index funds for a couple of months following my own "crowd indicators" as well as theirs.

Most of the technical analysts I follow advised their clients to go short between the middle of May and the first week of June (I went short May 15th) and they're still advising short but a potential turn is coming this week or next.

That was awesome advice Felix and it flies in the face of yours. How did they do that? How did they know to advise me to go long the day after Bear Stearns? I asked myself that same question 5 years ago and it's been a very profitable revelation...]]> Tue, 24 Jun 2008 15:22:42 -0400
I would never put my 401k with a short-term trader. Give me Buffett. However, I have a smaller percentage of my investments that I trade short-term because unlike Buffett and Lynch, I like playing the market a lot more than "buy and forget." It's just my personality.

For years, I knew nothing about technical analysis and thought it was bullshit too. And to answer your question on who are the "under-performing traders," I was for about 4 years. I lost a LOT of money following the crowd.

But then I discovered that there were technical analysts who were reasonably good at predicting which way the crowd was about to go before they went there. Not precisely, mind you and they're occasionally wrong, but they're right enough that I now make a LOT of money investing in ETFs and index funds for a couple of months following my own "crowd indicators" as well as theirs.

Most of the technical analysts I follow advised their clients to go short between the middle of May and the first week of June (I went short May 15th) and they're still advising short but a potential turn is coming this week or next.

That was awesome advice Felix and it flies in the face of yours. How did they do that? How did they know to advise me to go long the day after Bear Stearns? I asked myself that same question 5 years ago and it's been a very profitable revelation...]]> http://seekingalpha.com/article/82434-dont-worry-about-a-return-to-70s-stagflation?source=feed#comment-191665 191665
The author does make one point that is pertinent: today's economy is not like 1975's economy. That means tomorrow's problems will be totally unlike yesterday's problems. We're about to find out if that is a good thing...]]> Tue, 24 Jun 2008 09:22:46 -0400
The author does make one point that is pertinent: today's economy is not like 1975's economy. That means tomorrow's problems will be totally unlike yesterday's problems. We're about to find out if that is a good thing...]]> http://seekingalpha.com/article/82372-adventures-in-technical-analysis-jim-cramer-edition?source=feed#comment-191468 191468
Since technical analysis is based on the study of human crowd behavior, I suppose that it's good for writers to tell the crowd it's nonsense so that it will continue to work. Technical analysis is also based on probabilities and approximations which is where Cramer - a fundamental investor by nature and not a technical trader - screwed up. You NEVER, NEVER, NEVER rely on just one technical indicator no matter how reliable it has been in the past.

I've been short this market since May 15th and neither I nor any of the technicians I follow were expecting a huge market bounce last week so I don't know where Cramer got this mysterious "slam-dunk oscillator" he was using.

And congrats on the video - that was funny!

]]> Mon, 23 Jun 2008 23:07:16 -0400
Since technical analysis is based on the study of human crowd behavior, I suppose that it's good for writers to tell the crowd it's nonsense so that it will continue to work. Technical analysis is also based on probabilities and approximations which is where Cramer - a fundamental investor by nature and not a technical trader - screwed up. You NEVER, NEVER, NEVER rely on just one technical indicator no matter how reliable it has been in the past.

I've been short this market since May 15th and neither I nor any of the technicians I follow were expecting a huge market bounce last week so I don't know where Cramer got this mysterious "slam-dunk oscillator" he was using.

And congrats on the video - that was funny!

]]> http://seekingalpha.com/article/79163-consumer-confidence-plunges-a-buy-signal?source=feed#comment-175427 175427
Now consumer confidence is reaching the same lows after a 6 year bull market that is only down 9.7% from its all-time high. I think I'll pass on rushing into the market on this "great news"...]]> Wed, 28 May 2008 15:01:42 -0400
Now consumer confidence is reaching the same lows after a 6 year bull market that is only down 9.7% from its all-time high. I think I'll pass on rushing into the market on this "great news"...]]> http://seekingalpha.com/article/76780-why-is-insider-trading-illegal?source=feed#comment-166100 166100
You can't find a "compelling reason?" Holy cow. I wouldn't know where to start. And I don't think many industrialized nations are tripping over themselves to emulate the vast level of corruption that is Brazil.

Yes, their stock market may be a good investment because with vast resources in an emerging market country, how could it not be? However, when their market has reached maturity and double-digit growth becomes a struggle for companies rather than an expectation, the corruption and inside dealing will intensify and their market will collapse (assuming no regulatory changes).

The WSJ likely removed that article from its database due to the ridicule it was receiving...]]> Mon, 12 May 2008 07:28:58 -0400
You can't find a "compelling reason?" Holy cow. I wouldn't know where to start. And I don't think many industrialized nations are tripping over themselves to emulate the vast level of corruption that is Brazil.

Yes, their stock market may be a good investment because with vast resources in an emerging market country, how could it not be? However, when their market has reached maturity and double-digit growth becomes a struggle for companies rather than an expectation, the corruption and inside dealing will intensify and their market will collapse (assuming no regulatory changes).

The WSJ likely removed that article from its database due to the ridicule it was receiving...]]> http://seekingalpha.com/article/74920-sell-in-may-and-go-away?source=feed#comment-159586 159586
Don't know if that's worked the last 5 years or not but over the long-term I'm pretty certain it has....]]> Wed, 30 Apr 2008 15:24:49 -0400
Don't know if that's worked the last 5 years or not but over the long-term I'm pretty certain it has....]]> http://seekingalpha.com/article/73275-wells-fargo-downgraded-oppenheimer-s-whitney-goes-too-far?source=feed#comment-154577 154577
What she's doing isn't rocket science. It's simply looking at the plummeting home values and skyrocketing default rates on first sub-prime, then alt-A and now HELOC's and projecting the coming writedowns.

I have no short position in WFC and don't intend to take one because these banks can hide their problems for months. And I'll offer a warning for bank investors - that's exactly what they're doing. Ignore Ms. Whitney at your peril...]]> Tue, 22 Apr 2008 08:24:46 -0400
What she's doing isn't rocket science. It's simply looking at the plummeting home values and skyrocketing default rates on first sub-prime, then alt-A and now HELOC's and projecting the coming writedowns.

I have no short position in WFC and don't intend to take one because these banks can hide their problems for months. And I'll offer a warning for bank investors - that's exactly what they're doing. Ignore Ms. Whitney at your peril...]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149955 149955
However, the Fed IS taking steps to prevent GS and the other banks it's lending to from going under. drmalaka is correct that the Fed is buying time for these banks to write down the loans gradually against future profits and also to raise new capital.

That is why I have long-term puts against them. The Fed will keep them from collapsing which could send the financial markets into a tailspin, but the Fed CANNOT keep their stock from gradually dropping to a price more reflective of their true market value in a changed world...]]> Sun, 13 Apr 2008 16:24:16 -0400
However, the Fed IS taking steps to prevent GS and the other banks it's lending to from going under. drmalaka is correct that the Fed is buying time for these banks to write down the loans gradually against future profits and also to raise new capital.

That is why I have long-term puts against them. The Fed will keep them from collapsing which could send the financial markets into a tailspin, but the Fed CANNOT keep their stock from gradually dropping to a price more reflective of their true market value in a changed world...]]> http://seekingalpha.com/article/72056-how-much-are-goldman-s-level-3-assets-worth?source=feed#comment-149765 149765
There is not a ready market for mortgages right now because none of the banks trust each other's valuation. In other words, Goldman's mortgage valuations could be just fine, but the market is "frozen" from mistrust. That doesn't happen in real estate markets.

Goldman also is not "giving" level 3 assets to the Fed. The Fed is allowing financial firms to use them as collateral in order to help "unfreeze" the market and rebuild trust. The level 3 assets are still on Goldman's books and any ultimate writedown will have to be absorbed by Goldman's capital.

In the interest of full disclosure, I have long-term puts on Goldman and the other investment banks, but it is not a big part of my portfolio. The Fed is buying time for the banks to raise capital and get their affairs in order so I think you'll see a gradual deterioration in their stock prices as they slowly come to grips with the real value of their level 3 assets and with the reality that they'll no longer be allowed to operate at a very profitable - but exceedingly risky - 30 and 40 to 1 leverage ratio going forward.

Combine those 2 factors with a recession their risky loan behavior has helped to create and you have a recipe for future stock declines...]]> Sun, 13 Apr 2008 10:58:39 -0400
There is not a ready market for mortgages right now because none of the banks trust each other's valuation. In other words, Goldman's mortgage valuations could be just fine, but the market is "frozen" from mistrust. That doesn't happen in real estate markets.

Goldman also is not "giving" level 3 assets to the Fed. The Fed is allowing financial firms to use them as collateral in order to help "unfreeze" the market and rebuild trust. The level 3 assets are still on Goldman's books and any ultimate writedown will have to be absorbed by Goldman's capital.

In the interest of full disclosure, I have long-term puts on Goldman and the other investment banks, but it is not a big part of my portfolio. The Fed is buying time for the banks to raise capital and get their affairs in order so I think you'll see a gradual deterioration in their stock prices as they slowly come to grips with the real value of their level 3 assets and with the reality that they'll no longer be allowed to operate at a very profitable - but exceedingly risky - 30 and 40 to 1 leverage ratio going forward.

Combine those 2 factors with a recession their risky loan behavior has helped to create and you have a recipe for future stock declines...]]> http://seekingalpha.com/article/71984-regional-bank-failures-the-next-shoe-to-drop?source=feed#comment-149350 149350
Bear Stearns was a bank failure. Having Chase take over their accounts doesn't mean it wasn't a failure and yes, there will be more including some of the top 15. The Fed has gotten a LOT of criticism over the fact that BSC likely has negative equity yet BSC's shareholders are walking away with $10 per share (to try and prevent lawsuits) so it's unlikely that shareholders of the next failure will get anything other than condolences.

When you have banks operating at 35 to 1 leverage, all it takes is a couple of percentage points loss on their total assets and they're insolvent. Guess what? Most of the banks that dealt in sub-prime mortgages (like Bear) are experiencing default rates of up to 30% and are now insolvent.

The Fed has ordered them to either raise capital to replace their lost capital or die. Those that can (GS, UBS, Citi) are scrambling to raise capital. Those that can't (NCC, SOV, and many others) are already in the process of dying.

Meredith Whitney has been the true voice of reason. Loaning billions of dollars to people with sub-700 credit scores and no equity at a 35 to 1 leverage ratio was an exercise in gross negligence that is about to bring down a LOT of banks over the next 24 months...]]> Fri, 11 Apr 2008 23:55:42 -0400
Bear Stearns was a bank failure. Having Chase take over their accounts doesn't mean it wasn't a failure and yes, there will be more including some of the top 15. The Fed has gotten a LOT of criticism over the fact that BSC likely has negative equity yet BSC's shareholders are walking away with $10 per share (to try and prevent lawsuits) so it's unlikely that shareholders of the next failure will get anything other than condolences.

When you have banks operating at 35 to 1 leverage, all it takes is a couple of percentage points loss on their total assets and they're insolvent. Guess what? Most of the banks that dealt in sub-prime mortgages (like Bear) are experiencing default rates of up to 30% and are now insolvent.

The Fed has ordered them to either raise capital to replace their lost capital or die. Those that can (GS, UBS, Citi) are scrambling to raise capital. Those that can't (NCC, SOV, and many others) are already in the process of dying.

Meredith Whitney has been the true voice of reason. Loaning billions of dollars to people with sub-700 credit scores and no equity at a 35 to 1 leverage ratio was an exercise in gross negligence that is about to bring down a LOT of banks over the next 24 months...]]> http://seekingalpha.com/article/71757-could-citi-s-deal-signal-a-turnaround?source=feed#comment-147885 147885
Yes, it increases their liquidity but at what cost? Not many borrowers will have the resources of those equity firms to buy back their debt at a discount so I see this as more a move of quiet desperation than a meaningful turnaround model for other banks...]]> Wed, 09 Apr 2008 17:13:08 -0400
Yes, it increases their liquidity but at what cost? Not many borrowers will have the resources of those equity firms to buy back their debt at a discount so I see this as more a move of quiet desperation than a meaningful turnaround model for other banks...]]> http://seekingalpha.com/article/71304-ubs-plan-could-be-the-road-map-for-financials?source=feed#comment-146298 146298
If my $150 million of mortgage loans have a probable write-down of $50 million, then my IPO is only going to bring in $100 million unless you're assuming the public is a bunch of uninformed fools. In 2007, they (we) probably were. In 2008, we're not.

With all the horrible publicity they're getting, their IPO would probably be a disaster and bring in even less than the mortgages are really worth which is why the government will end up buying these bad mortgages.

Then at some point down the road, when workouts have been determined and the bad publicity has settled down, I agree that Newco could go public as a long-term mortgage company...]]> Mon, 07 Apr 2008 09:00:27 -0400
If my $150 million of mortgage loans have a probable write-down of $50 million, then my IPO is only going to bring in $100 million unless you're assuming the public is a bunch of uninformed fools. In 2007, they (we) probably were. In 2008, we're not.

With all the horrible publicity they're getting, their IPO would probably be a disaster and bring in even less than the mortgages are really worth which is why the government will end up buying these bad mortgages.

Then at some point down the road, when workouts have been determined and the bad publicity has settled down, I agree that Newco could go public as a long-term mortgage company...]]> http://seekingalpha.com/article/71304-ubs-plan-could-be-the-road-map-for-financials?source=feed#comment-146212 146212
The total estimated writedown of sub-prime loans is $460 billion. That number comes from Goldman Sachs which one would think would have no incentive to drive down their own stock price.

The total estimated writedown of ALL consumer and commercial debt assuming a recession (which is no longer an assumption) is around $1 trillion. The banks are NOT writing down perfectly good paper to zero. They use sophisticated mathematical models based on the current default rate of a group of mortgages to project the future default rate and their writedown is based on that.

I agree with you that the Fed acted to avoid a panic. It was a good move on their part. I disagree that "Joe" is playing into anyone's hands by selling his stock. Joe NEEDS to sell his investment bank stock. The banks and hedge funds have been shorting their own stock (along with homebuilders) for a year now because they knew the housing bubble was collapsing.

That is why you're seeing investment bank and homebuilders surging now because the banks and hedge funds are having to buy that stock back to close out their positions and raise cash. As soon as their positions are closed and their buying has ended, it won't be pretty...]]> Mon, 07 Apr 2008 01:44:58 -0400
The total estimated writedown of sub-prime loans is $460 billion. That number comes from Goldman Sachs which one would think would have no incentive to drive down their own stock price.

The total estimated writedown of ALL consumer and commercial debt assuming a recession (which is no longer an assumption) is around $1 trillion. The banks are NOT writing down perfectly good paper to zero. They use sophisticated mathematical models based on the current default rate of a group of mortgages to project the future default rate and their writedown is based on that.

I agree with you that the Fed acted to avoid a panic. It was a good move on their part. I disagree that "Joe" is playing into anyone's hands by selling his stock. Joe NEEDS to sell his investment bank stock. The banks and hedge funds have been shorting their own stock (along with homebuilders) for a year now because they knew the housing bubble was collapsing.

That is why you're seeing investment bank and homebuilders surging now because the banks and hedge funds are having to buy that stock back to close out their positions and raise cash. As soon as their positions are closed and their buying has ended, it won't be pretty...]]> http://seekingalpha.com/article/71304-ubs-plan-could-be-the-road-map-for-financials?source=feed#comment-146164 146164 Sun, 06 Apr 2008 22:53:35 -0400 http://seekingalpha.com/article/71304-ubs-plan-could-be-the-road-map-for-financials?source=feed#comment-146160 146160
He's going to pay me $100 million for them and I'll have to recognize the $50 million loss. I just exchanged a $150 million loan receivable asset for $100 million in cash. The $50 million difference will be a loss on my income statement which then flows through to reduce my owners equity (capital) to zero.

The exact same thing happens if I spin off the $150 million loan receivable to a subsidiary. Instead of a $150 million loan receivable on my balance sheet, I now have a $150 million "Investment in Subsidiary." At the conclusion of that spinoff, nothing has happened to my total assets or equity.

However, since I own 100% of that subsidiary, the accounting rules state that whatever happens to the subsidiary also happens to me. If the subsidiary sells those loans to Wilbur Ross for $100 million, it will take a $50 million loss to its capital and the accounting rules force me to show the $50 million loss on my own books as a writedown of my "Investment in Subsidiary" from $150 million to $100 million.

There is no way for the banks to get rid of these bad loans without recognizing the losses. The accounting rules do not allow you to play smoke and mirrors with your financial statements by setting up subsidiaries. A bad loan is a bad loan and the only way you can get out of swallowing the loss is to either a) pretend it's not a bad loan and leave it on your books at full value which the banks have been doing, or b) sell it to a sucker who doesn't realize it's a bad loan.

Unfortunately, there aren't any suckers left which is why the large banks have reached desperation status. Quite frankly - and most people are stunned by this - if the projections of $1 trillion of write-offs by the end of the recession are accurate, the entire US banking system is insolvent.

That means that the losses will ultimately be more than the capital of ALL our banks combined. That doesn't mean that every single US bank is insolvent, but it does mean that the ones who are holding all of these NINJA and liar loans have significant negative equity.

That is why they are racing to raise capital. That is why Bernanke is making Fed moves unprecedented since the Great Depression. It's also why Bernanke looks scared to death and the politicians are asking what they can do to help rather than grilling him for risking billions of dollars of taxpayer money.

This is a VERY serious crisis and if the US banks start setting up subsidiaries, it is probably the prelude to a government takeover of those subsidiaries (at pennies on the dollar) rather than a means to get out of swallowing the losses...]]> Sun, 06 Apr 2008 22:45:58 -0400
He's going to pay me $100 million for them and I'll have to recognize the $50 million loss. I just exchanged a $150 million loan receivable asset for $100 million in cash. The $50 million difference will be a loss on my income statement which then flows through to reduce my owners equity (capital) to zero.

The exact same thing happens if I spin off the $150 million loan receivable to a subsidiary. Instead of a $150 million loan receivable on my balance sheet, I now have a $150 million "Investment in Subsidiary." At the conclusion of that spinoff, nothing has happened to my total assets or equity.

However, since I own 100% of that subsidiary, the accounting rules state that whatever happens to the subsidiary also happens to me. If the subsidiary sells those loans to Wilbur Ross for $100 million, it will take a $50 million loss to its capital and the accounting rules force me to show the $50 million loss on my own books as a writedown of my "Investment in Subsidiary" from $150 million to $100 million.

There is no way for the banks to get rid of these bad loans without recognizing the losses. The accounting rules do not allow you to play smoke and mirrors with your financial statements by setting up subsidiaries. A bad loan is a bad loan and the only way you can get out of swallowing the loss is to either a) pretend it's not a bad loan and leave it on your books at full value which the banks have been doing, or b) sell it to a sucker who doesn't realize it's a bad loan.

Unfortunately, there aren't any suckers left which is why the large banks have reached desperation status. Quite frankly - and most people are stunned by this - if the projections of $1 trillion of write-offs by the end of the recession are accurate, the entire US banking system is insolvent.

That means that the losses will ultimately be more than the capital of ALL our banks combined. That doesn't mean that every single US bank is insolvent, but it does mean that the ones who are holding all of these NINJA and liar loans have significant negative equity.

That is why they are racing to raise capital. That is why Bernanke is making Fed moves unprecedented since the Great Depression. It's also why Bernanke looks scared to death and the politicians are asking what they can do to help rather than grilling him for risking billions of dollars of taxpayer money.

This is a VERY serious crisis and if the US banks start setting up subsidiaries, it is probably the prelude to a government takeover of those subsidiaries (at pennies on the dollar) rather than a means to get out of swallowing the losses...]]> http://seekingalpha.com/article/71304-ubs-plan-could-be-the-road-map-for-financials?source=feed#comment-146103 146103
Let's say I manage a bank which has $50 million in capital (owners equity) and $150 million in bad loans of which I think $50 million will eventually be totally noncollectable. If I admit to all the bad loans and write them all off, I'll have ZERO left in capital and a LOT of angry shareholders - and worse, frightened depositors.

However, let's say I take UBS' approach. I try to hedge and say that only $25 million is noncollectable so I write that off and spin the remaining $125 million of debt into a separate company. I'll now have $25 million in remaining capital and an asset on my balance sheet called "Investment in Garbage Subsidiary." (Okay, I'll probably name it something less honest to fool investors).

That investment asset will be on my books for $125 million, but guess what? When the auditors come in at year-end, they're going to audit the books of that subsidiary just as they audit my own books and they'll force the $25 million writedown in my subsidiary investment. I'm now left with ZERO capital and angry shareholders.

That is why UBS is out raising capital. The subsidiary idea is just window-dressing to get the garbage loans out of sight. No one is going to buy their new subsidiary for the same reason no one is lining up to buy their garbage loans now.

Don't be fooled by accounting tricks. The UBS spinoff is pretty meaningless...

]]> Sun, 06 Apr 2008 19:23:00 -0400
Let's say I manage a bank which has $50 million in capital (owners equity) and $150 million in bad loans of which I think $50 million will eventually be totally noncollectable. If I admit to all the bad loans and write them all off, I'll have ZERO left in capital and a LOT of angry shareholders - and worse, frightened depositors.

However, let's say I take UBS' approach. I try to hedge and say that only $25 million is noncollectable so I write that off and spin the remaining $125 million of debt into a separate company. I'll now have $25 million in remaining capital and an asset on my balance sheet called "Investment in Garbage Subsidiary." (Okay, I'll probably name it something less honest to fool investors).

That investment asset will be on my books for $125 million, but guess what? When the auditors come in at year-end, they're going to audit the books of that subsidiary just as they audit my own books and they'll force the $25 million writedown in my subsidiary investment. I'm now left with ZERO capital and angry shareholders.

That is why UBS is out raising capital. The subsidiary idea is just window-dressing to get the garbage loans out of sight. No one is going to buy their new subsidiary for the same reason no one is lining up to buy their garbage loans now.

Don't be fooled by accounting tricks. The UBS spinoff is pretty meaningless...

]]> http://seekingalpha.com/article/71304-ubs-plan-could-be-the-road-map-for-financials?source=feed#comment-146061 146061
ALL of the investment banks will have to raise additional capital this year in order to stay solvent. It doesn't matter if they spin their bad loans into a separate company, sell them off one by one or build a pretty wrought iron fence around them on their balance sheet.

A bad loan is a direct charge against a bank's capital no matter what type of accounting wrapping you put on it...]]> Sun, 06 Apr 2008 16:35:11 -0400
ALL of the investment banks will have to raise additional capital this year in order to stay solvent. It doesn't matter if they spin their bad loans into a separate company, sell them off one by one or build a pretty wrought iron fence around them on their balance sheet.

A bad loan is a direct charge against a bank's capital no matter what type of accounting wrapping you put on it...]]> http://seekingalpha.com/article/71324-accounting-antics-lift-i-bank-earnings-barron-s?source=feed#comment-146053 146053
Also, the likelihood of the IB's staying solvent (at least now with help from the Fed) is much greater than all the underwater homeowners eventually paying everything off. As a CPA and former auditor, I can tell you that writing down your own debt would not pass the smell test with me unless it came with a going-concern opinion.

I suspect their own CPAs will tell them the same thing come year-end unless they want to go the way of Arthur Andersen...]]> Sun, 06 Apr 2008 16:16:29 -0400
Also, the likelihood of the IB's staying solvent (at least now with help from the Fed) is much greater than all the underwater homeowners eventually paying everything off. As a CPA and former auditor, I can tell you that writing down your own debt would not pass the smell test with me unless it came with a going-concern opinion.

I suspect their own CPAs will tell them the same thing come year-end unless they want to go the way of Arthur Andersen...]]> http://seekingalpha.com/article/71214-chance-this-is-the-bottom-zero?source=feed#comment-136454 136454
Today they budged. Big time.

And discount rate spreads are blowing out again like they did last summer and a couple of months ago. Check out the chart at the Federal Reserve site:

www.federalreserve.gov.../

Now I know why Bernanke seemed especially nervous on Wednesday and the congressmen seemed concerned. They know Bernanke is running low on ammo. This isn't good...]]> Fri, 04 Apr 2008 09:33:37 -0400
Today they budged. Big time.

And discount rate spreads are blowing out again like they did last summer and a couple of months ago. Check out the chart at the Federal Reserve site:

www.federalreserve.gov.../

Now I know why Bernanke seemed especially nervous on Wednesday and the congressmen seemed concerned. They know Bernanke is running low on ammo. This isn't good...]]> http://seekingalpha.com/article/70937-stock-valuations-on-the-rise?source=feed#comment-135592 135592
It doesn't surprise me however. When you watch a company take a $19 billion loss and its stock skyrockets, you begin to wonder about people's embrace of reality.

Yes, investors are more concerned with PE's going forward than they are current PE's, but anyone who thinks the financials are going to have future earnings that will support a 19.07 PE ratio are in for a rude (and very costly) awakening.

Not only have the banks taken billions in losses already, but they have billions in losses yet to come with the country slipping into recession and even after the recession, their VERY profitable days of no-money-down and "liar loans" are over.

I hate to agree with Cramer, but...looking at those PE ratios tells me that when investors wake up, it's going to get ugly...]]> Wed, 02 Apr 2008 19:31:55 -0400
It doesn't surprise me however. When you watch a company take a $19 billion loss and its stock skyrockets, you begin to wonder about people's embrace of reality.

Yes, investors are more concerned with PE's going forward than they are current PE's, but anyone who thinks the financials are going to have future earnings that will support a 19.07 PE ratio are in for a rude (and very costly) awakening.

Not only have the banks taken billions in losses already, but they have billions in losses yet to come with the country slipping into recession and even after the recession, their VERY profitable days of no-money-down and "liar loans" are over.

I hate to agree with Cramer, but...looking at those PE ratios tells me that when investors wake up, it's going to get ugly...]]> http://seekingalpha.com/article/70866-stocks-rally-on-financial-writedowns-overly-optimistic?source=feed#comment-135106 135106
If the worldwide economy continues to sink into recession as it appears, the writedowns will continue each quarter. Many reputable economists (and the banks themselves) are predicting that $1 trillion will be the eventual worldwide writedown of mortgage, business and credit card debt so as you can imagine, $19 billion is just another baby step on the way down.

There are so many investors that know this and are shorting the banks that as soon as any positive development hits (I guess $19 billion is better than $20 billion), they get caught in a short squeeze and the banks skyrocket as they scramble to get out.

What they should do, is simply buy some 9 to 12 month puts and wait patiently as the banks replace their current profit equity with billions of new shares until their book value per share is finally diluted down to a fraction of what they're showing now.

Bear Stearns value of between $2 and $10 per share is about right for most of the banks but the Fed is keeping the other banks liquid long enough that they can reach that value in an orderly systematic manner which could take a year or two...]]> Wed, 02 Apr 2008 08:48:42 -0400
If the worldwide economy continues to sink into recession as it appears, the writedowns will continue each quarter. Many reputable economists (and the banks themselves) are predicting that $1 trillion will be the eventual worldwide writedown of mortgage, business and credit card debt so as you can imagine, $19 billion is just another baby step on the way down.

There are so many investors that know this and are shorting the banks that as soon as any positive development hits (I guess $19 billion is better than $20 billion), they get caught in a short squeeze and the banks skyrocket as they scramble to get out.

What they should do, is simply buy some 9 to 12 month puts and wait patiently as the banks replace their current profit equity with billions of new shares until their book value per share is finally diluted down to a fraction of what they're showing now.

Bear Stearns value of between $2 and $10 per share is about right for most of the banks but the Fed is keeping the other banks liquid long enough that they can reach that value in an orderly systematic manner which could take a year or two...]]> http://seekingalpha.com/article/70508-spy-the-case-for-a-bottom-being-in-place?source=feed#comment-134076 134076
However, Fed engineered bottoms are usually short-term in nature so I wouldn't gamble my life savings on it being a good technical indicator. The Fed can't stop the market from going down. Their goal is to only try to control sudden plunges which can produce economic chaos.

And as for all of these "bearish signs" that the bottom is in, you had better remember that bearish news articles are pretty common all through every bear market and the market continues to fall.

Usually, the bottom of a bear market is in when it's gone on so long that EVERYONE including the strongest bulls have given up. The fact that you haven't given up is actually a "counter-sign to your counter-sign."

If this bear market turns now, it would mark one of the shortest bear markets in history at a time when the declining housing market is going to produce one of the longest economic downturns in history. Somehow I'm doubtful.

I notice from your bio that you want to be a CPA. I've been one for 25 years so I wish you luck and I'll give you some sage advice. When you've lost a bundle on every stock you've purchased and you've sold them all and you're scared to death to buy another one...that's when you'll see "the death of equities" cover story you're looking for...]]> Mon, 31 Mar 2008 11:33:48 -0400
However, Fed engineered bottoms are usually short-term in nature so I wouldn't gamble my life savings on it being a good technical indicator. The Fed can't stop the market from going down. Their goal is to only try to control sudden plunges which can produce economic chaos.

And as for all of these "bearish signs" that the bottom is in, you had better remember that bearish news articles are pretty common all through every bear market and the market continues to fall.

Usually, the bottom of a bear market is in when it's gone on so long that EVERYONE including the strongest bulls have given up. The fact that you haven't given up is actually a "counter-sign to your counter-sign."

If this bear market turns now, it would mark one of the shortest bear markets in history at a time when the declining housing market is going to produce one of the longest economic downturns in history. Somehow I'm doubtful.

I notice from your bio that you want to be a CPA. I've been one for 25 years so I wish you luck and I'll give you some sage advice. When you've lost a bundle on every stock you've purchased and you've sold them all and you're scared to death to buy another one...that's when you'll see "the death of equities" cover story you're looking for...]]> http://seekingalpha.com/article/70368-meredith-whitney-threatens-severe-deflation-for-your-portfolio?source=feed#comment-133416 133416
I used the last 5 years for comparison purposes to show you the income pain that is about to occur for the NEXT 5 years. The losses began coming off last year and they will come off this year, next year and the years after.

Also, dividends are paid out of equity and have no part in calculating income or loss. And yes, when they report their losses for the next few years, they'll get tax refunds from their previously reported profits. However, tax refunds are usually an irritating consolation for the investors who weren't expecting the depth of the losses...]]> Sat, 29 Mar 2008 12:25:07 -0400
I used the last 5 years for comparison purposes to show you the income pain that is about to occur for the NEXT 5 years. The losses began coming off last year and they will come off this year, next year and the years after.

Also, dividends are paid out of equity and have no part in calculating income or loss. And yes, when they report their losses for the next few years, they'll get tax refunds from their previously reported profits. However, tax refunds are usually an irritating consolation for the investors who weren't expecting the depth of the losses...]]> http://seekingalpha.com/article/70368-meredith-whitney-threatens-severe-deflation-for-your-portfolio?source=feed#comment-133412 133412
If we subtract $80 billion in bad debts off their $2.1 trillion of assets, that leaves them with equity of $33 billion against 5 billion shares. In other words, a book value of $6.60 per share versus the current market value of $20.83.

Ignore total assets Philip. Banks love to measure themselves by total assets but the only things that really matter to a bank are equity, income and consumer trust. Citi is vastly over-valued on the first two and is desperately trying to salvage the third. And if they lose that battle, the first two numbers become irrelevant as Bear Stearns learned...]]> Sat, 29 Mar 2008 12:04:40 -0400
If we subtract $80 billion in bad debts off their $2.1 trillion of assets, that leaves them with equity of $33 billion against 5 billion shares. In other words, a book value of $6.60 per share versus the current market value of $20.83.

Ignore total assets Philip. Banks love to measure themselves by total assets but the only things that really matter to a bank are equity, income and consumer trust. Citi is vastly over-valued on the first two and is desperately trying to salvage the third. And if they lose that battle, the first two numbers become irrelevant as Bear Stearns learned...]]> http://seekingalpha.com/article/70368-meredith-whitney-threatens-severe-deflation-for-your-portfolio?source=feed#comment-133397 133397
That is correct. However, it is a HUGE percentage of their bottom line profits for many years to come. Did i mention the word HUGE? Over the last 5 years (2003 to 2007), Citi has reported net income of $83 billion dollars.

Now take your $46 billion in mortgage writedowns and add in an additional $20 to $30 billion in commercial and consumer writedowns due to the resulting recession and you have a bank that realistically hasn't made a profit in 5 years and is trying desperately to delay confessing that catastrophe to investors.

I happen to agree with you that our country isn't in a doomsday scenario because the overall banking system will survive a trillion dollar writedown. However, certain institutions like Citi and the investment banks own a much bigger share of that problem than other banks like Wells Fargo.

Quite frankly, I happen to disagree with Meredith Whitney that the troubled banks should just confess their losses all at once. I agree with both them and the Fed that it could spark a worldwide panic that would do much greater harm than good.

I see what Citi and the investment banks are doing with their long, drawn-out "disparage and then beat" income strategy and I would do the same thing in their shoes. Playing for time while they swallow their medicine is their only chance at survival and I'm sure the "Plunge Protection Team" is blessing it.

Ms Whitney is a thorn in their sides and heeding her advice could be catastrophic. But that doesn't mean her analysis is incorrect. Ignore her at your peril...]]> Sat, 29 Mar 2008 11:25:08 -0400
That is correct. However, it is a HUGE percentage of their bottom line profits for many years to come. Did i mention the word HUGE? Over the last 5 years (2003 to 2007), Citi has reported net income of $83 billion dollars.

Now take your $46 billion in mortgage writedowns and add in an additional $20 to $30 billion in commercial and consumer writedowns due to the resulting recession and you have a bank that realistically hasn't made a profit in 5 years and is trying desperately to delay confessing that catastrophe to investors.

I happen to agree with you that our country isn't in a doomsday scenario because the overall banking system will survive a trillion dollar writedown. However, certain institutions like Citi and the investment banks own a much bigger share of that problem than other banks like Wells Fargo.

Quite frankly, I happen to disagree with Meredith Whitney that the troubled banks should just confess their losses all at once. I agree with both them and the Fed that it could spark a worldwide panic that would do much greater harm than good.

I see what Citi and the investment banks are doing with their long, drawn-out "disparage and then beat" income strategy and I would do the same thing in their shoes. Playing for time while they swallow their medicine is their only chance at survival and I'm sure the "Plunge Protection Team" is blessing it.

Ms Whitney is a thorn in their sides and heeding her advice could be catastrophic. But that doesn't mean her analysis is incorrect. Ignore her at your peril...]]> http://seekingalpha.com/article/70368-meredith-whitney-threatens-severe-deflation-for-your-portfolio?source=feed#comment-133304 133304
The reason? All of the rating agencies - not just Oppenheimer - are giving earnings warnings on Citi and with mark to market, Citi can pick a few more of their assets to write down and still easily beat expectations.

However, it's all a game. Long term, Citi is struggling for survival. I'm not sure where you're getting your worst-case debt scenarios, but GS just estimated home mortgage write-offs alone to be $460 billion (only a quarter of that has been written down so far) and other analysts I respect because they've proven right so far have projected that commercial debt writeoffs and credit card writeoffs will gradually push the total credit catastrophe to well over $1 trillion over the next 2 years.

Citi has a very unhealthy chunk of that slow-grinding catastrophe and advising your clients to go long on Citi because you think they've hit bottom only 8 months into a real estate collapse which will take years to unfold is a real good way to lose your clients...]]> Sat, 29 Mar 2008 00:22:39 -0400
The reason? All of the rating agencies - not just Oppenheimer - are giving earnings warnings on Citi and with mark to market, Citi can pick a few more of their assets to write down and still easily beat expectations.

However, it's all a game. Long term, Citi is struggling for survival. I'm not sure where you're getting your worst-case debt scenarios, but GS just estimated home mortgage write-offs alone to be $460 billion (only a quarter of that has been written down so far) and other analysts I respect because they've proven right so far have projected that commercial debt writeoffs and credit card writeoffs will gradually push the total credit catastrophe to well over $1 trillion over the next 2 years.

Citi has a very unhealthy chunk of that slow-grinding catastrophe and advising your clients to go long on Citi because you think they've hit bottom only 8 months into a real estate collapse which will take years to unfold is a real good way to lose your clients...]]> http://seekingalpha.com/article/70368-meredith-whitney-threatens-severe-deflation-for-your-portfolio?source=feed#comment-132927 132927
Warren Buffet warned years ago to be wary of investing in banks because they can easily hide huge problems. As a CPA who is somewhat familiar with bank accounting, I can tell you that he was accurate (as he usually is).

Right now, the financial industry is playing a game with their income statements in order to make their price collapse occur in slow motion over a couple of years rather than in a single panic-inducing drop which Ms Whitney is suggesting.

They are sending out earnings warnings on each other to slowly drive their price down and then producing income statements which "beat" those reduced expectations in order to prevent a total collapse.

All companies play this "lower the expectations and then beat them" game, but with mark-to-market accounting where "market" is a guessing game, the banks can pretty much name their bottom line to be whatever they need it to be. If their stock price is falling too rapidly, the banks will reduce their write-offs and beat the expectations.

That is why the Fed - and the banks - were desperate to prevent Bear Stearns from going bankrupt and having to sell their assets on the open market. Everyone in the industry knew they were worth significantly less than what Bear was showing (see Chase's market valuation of BSC) and a sale would have produced a KNOWN market value for mortgage backed securities rather than the INFLATED value all of the banks are carrying them on their balance sheets...]]> Fri, 28 Mar 2008 09:49:30 -0400
Warren Buffet warned years ago to be wary of investing in banks because they can easily hide huge problems. As a CPA who is somewhat familiar with bank accounting, I can tell you that he was accurate (as he usually is).

Right now, the financial industry is playing a game with their income statements in order to make their price collapse occur in slow motion over a couple of years rather than in a single panic-inducing drop which Ms Whitney is suggesting.

They are sending out earnings warnings on each other to slowly drive their price down and then producing income statements which "beat" those reduced expectations in order to prevent a total collapse.

All companies play this "lower the expectations and then beat them" game, but with mark-to-market accounting where "market" is a guessing game, the banks can pretty much name their bottom line to be whatever they need it to be. If their stock price is falling too rapidly, the banks will reduce their write-offs and beat the expectations.

That is why the Fed - and the banks - were desperate to prevent Bear Stearns from going bankrupt and having to sell their assets on the open market. Everyone in the industry knew they were worth significantly less than what Bear was showing (see Chase's market valuation of BSC) and a sale would have produced a KNOWN market value for mortgage backed securities rather than the INFLATED value all of the banks are carrying them on their balance sheets...]]> http://seekingalpha.com/article/69979-the-fed-is-deflating-10-reasons-why?source=feed#comment-131731 131731
Jim, you're losing me here. Just off the top of my head, I believe that China's GDP was roughly 3 trillion last year and growing at 11% annually compared to the US's 12 trillion which is growing at 3% annually.

Yet, you're saying China's GDP will catch the US in 3 years? Based on my math, even if the US economy stops growing completely, it would still take China 13 years to catch our economy at their present rate of growth.

Most economists are predicting 30 to 40 years for China to catch up because the US isn't going to stop growing and like Japan and Korea learned, 11% growth isn't sustainable over long periods of time - especially when you're dealing with several hundred million uneducated peasants that China in particular will have to feed.

I still remember the 1980's when everyone (including the Japanese) were predicting that Japan's economy would overtake the US by the turn of the century. Japan doesn't have near the intrinsic problems the Chinese have and we're still waiting on that prediction... ]]> Wed, 26 Mar 2008 09:35:45 -0400
Jim, you're losing me here. Just off the top of my head, I believe that China's GDP was roughly 3 trillion last year and growing at 11% annually compared to the US's 12 trillion which is growing at 3% annually.

Yet, you're saying China's GDP will catch the US in 3 years? Based on my math, even if the US economy stops growing completely, it would still take China 13 years to catch our economy at their present rate of growth.

Most economists are predicting 30 to 40 years for China to catch up because the US isn't going to stop growing and like Japan and Korea learned, 11% growth isn't sustainable over long periods of time - especially when you're dealing with several hundred million uneducated peasants that China in particular will have to feed.

I still remember the 1980's when everyone (including the Japanese) were predicting that Japan's economy would overtake the US by the turn of the century. Japan doesn't have near the intrinsic problems the Chinese have and we're still waiting on that prediction... ]]>