Seeking Alpha


Send Message
View as an RSS Feed
View DSB's Comments BY TICKER:
Latest  |  Highest rated
  • Financials: How - And When - We Reached the Bottom [View article]
    edit: until the end of the first week in March. I'm trying to work in between writing, and I'm rushing. ;-P
    Jul 22 01:49 PM | Likes Like |Link to Comment
  • Financials: How - And When - We Reached the Bottom [View article]
    Sorry, I was off on the 60c. It is 42c. Maybe it was higher when I heard the statistic, my apologies.

    Either way, this means that if you are in the highest tax bracket, let's say 45% of your income goes to taxes. That means that for the first 5.4 months of the year, 100% of your labor goes to the government. Of that 5.4 months, 2.26 months are spent on the military. So, 2.26 months out of the year, 100% of your work goes towards military spending and military debt obligations. For high wage earners, every hour of every day you work until the end of March goes towards war. HOOAH!



    Jul 22 01:45 PM | Likes Like |Link to Comment
  • Financials: How - And When - We Reached the Bottom [View article]
    Charlie, how much history can you rely on when the inputs to the market are vastly different than with previous credit related events?

    To rattle off a few:

    - We have never before had such a major crisis of confidence in the ratings agencies. Their job is to accurately asses the risk of loss, and assign a rating to that probability. They rated securities that were so complex that they didn't have any history on which to base their assumptions. The loss of credibility is crippling the market. Trust/Credibility is the glue that holds the world together. When someone don't know for sure whether to trust a propsective purchase, they rely on a 3rd party to recommend (a friend, an agency, references, etc). This is what the ratings agencies have done for decades, this is what makes the Ebay feedback system crucial to their business model. It is also why the world hasn't questioned the Dollar for 60 years. When trust is broken, the system will remain broken until trust is restored.

    - The government hasn't had to back a major financial institution in crisis during ANY of our lifetimes, to my knowledge. This is egregious, possibly illegal, and in theory it dilutes the dollar. It takes credibility away from the fed and our currency - however if it was/is not done, we might be in a much worse situation today. Going forward, the fed will be limited in their ability to bail out institutions.

    - Our economic strength is tied to our military strength insofar as .60c of every tax dollar goes towards the military. As the dollar weakens, and the tax base shrinks due to economic contraction, how are we going to maintain our global military campaigns. If we aren't the toughest kid on the block (aside from nukes), it becomes a lot harder to throw our weight around.

    - The derivatives market has never been this big. A 70+ Trillion system of complex IOUs between financial institutions rests on a foundation of rapidly defaulting debt. During the credit crisis of the early 90's, it was around 9 Trillion. Think of an inverted pyramid. This is why BSC failure would have been catastrophic, as they held up around 8% of this system of IOUs (from what I recall).

    - The savings rate in America is flat. This is going to get worse as prices inflate, and people (with all that 'money sloshing around on the sidelines') are going to hoard $ in anticipation of worse times ahead. When the velocity of money slows down, demand falls, companies go out of business, and people baton down the hatches. What will increase the velocity of money? Growth. How do you grow? There must be demand, prices must not choke people out of markets, and there *MUST* be liquidity in the system.

    $120/bbl oil has already done damage. Companies have already laid people off in anticipation of hard times ahead, with two quarters of high energy prices putting a thumbscrew on margins.

    Nothing goes up or down in a straight line. The fact that the Financials staged a rally 2 business days after the 3rd largest bank failure in US history tells me that people aren't educated as to the real risk in the system right now. It tells me that hopeless optimism persists, justified by "valuations," history, and a blind eye to the storm that the world is in right now.

    Don't get me started on Europe, which suffers from a housing crisis very similar to ours.

    Fix the defaults, fix the world. Save the cheerleader.
    Jul 22 01:02 PM | Likes Like |Link to Comment
  • Financials: How - And When - We Reached the Bottom [View article]
    Where is your macroeconomic analysis? What about the fact that the rate of defaulting debt obligations is increasing? J. Dimon says that PRIME loan losses could triple.

    I agree that the Financials are undervalued by traditional metrics, however I don't expect to see a bottom until a few things occur (which we probably won't be able to ascertain until after the fact):

    1) Defaulting debt returns to normalized levels

    2) We have a ratings agencies overhaul, which will allow IB's to trade paper as freely as before they lost trust.

    3) Oil falls & remains below $130

    4) We have clear indication that unemployment has stopped increasing, CPI is 'contained'

    5) We have 2 consecutive quarters without a large/mid sized bank encountering problems.

    As 10+ years of inappropriate growth, which has obligated the govt. to back more paper than they are technically able, there must be a proportionate contraction based on the true valuations of not only the foundational collateral, but every derivative link in the chain above it (leverage). We have seen some of this, however this unwinding is very complicated, and the derivative debt spawned from this foundation is in the Trillions of dollars. The level of risk inherent to the market right now is higher than I think most people realize. I have heard quite a few 7 figure heavy hitters defend the JPM/BSC deal as having avoided catastrophe. If you have time, peek behind the curtain to see the moving parts of these statements...

    Also, something to note is the velocity of money. Let's assume the above leads to a contractionary environment... As the VM slows (people & businesses unable or unwilling to spend for a variety of reasons, including difficulty in taking out loans), banks will lose out on a lot of transactional business. On the other side of the coin, they still have massive cashflow obligations that they support.

    If inflation persists, and grows, big time pressure will be (is) on the fed to raise rates. Remember, they conducted emergency rate cuts in order to keep the banks from failing. When that wasn't enough, they just gave them money. The root of WHY, is defaulting debt - which is the crux of the matter, as articulated by Hank Paulson on CNBC the other day. If they have to raise rates, they kill banks.
    Jul 22 10:58 AM | Likes Like |Link to Comment
  • Strongest June Quarter in Apple History Doesn't Satisfy the Street [View article]
    Raise your hand if you know what happens to companies during a recession? How many iPods were bought with rebate checks?
    Jul 22 10:09 AM | Likes Like |Link to Comment
  • Oil to $200? Fundamentals Don't Support It [View article]
    I stopped reading at the word "tantamount"

    so sorry.
    May 13 04:19 PM | Likes Like |Link to Comment