DSB

Coming Bull Market in Financials: A Few Items Portending the Turn

Tom, I'm not going to make any more pro-Tom-Brown posts on message boards until you pay me. Consider this my resignation.

Financials: Bottoms Happen When Everyone's Convinced They Won't

Tom,

Your thesis hinges upon the theory that the market is a "Discounting Machine". This writeup questions the validity of that theory:
seekingalpha.com/artic...

Next: www.marketwatch.com/ne...

Financials: Bottoms Happen When Everyone's Convinced They Won't

You owned 5% of Indymac bank going into Sept of last year, using something like 20% of your funds ($86MM out of ?), ouch.

www.reuters.com/articl...

"IndyMac is in a stronger position now because so many of its competitors have left the business, said Tom Brown, a former top-ranked bank-stock analyst who now runs hedge fund Second Curve Capital LLC. The New York-based fund has raised its passive stake in IndyMac to 5 percent from 2 percent, representing a total of 3.7 million shares"

Financials: Bottoms Happen When Everyone's Convinced They Won't

Tom, the more I learn about you Tom, the more I am shocked at your audacity. You took BIG bets on subprime, and lost your ass. How could you NOT see this coming, and expect us to hold you credible? What are you down on the year, 30%?

hf-implode.com/ailing/...

www.businessweek.com/b...

"I think we're really close, if not at the bottom, for the financial services industry," - Great call Tom, way back in November of 2007!
www.reuters.com/articl...

Way to read the tea leaves Tom:
“ Mr. Brown, whose hedge fund had owned 5 percent of IndyMac late last year, described Mr. Perry as an “eternal optimist.”
www.nytimes.com/2008/0...

And my favorite: Your recommendation to buy FMD on 11/30/07 when it was at $30.01/share. It is now at $2.90/share.
vinvesting.com/vic-nyc...

Please explain yourself.

What Can Go Right for the Financials? Quite a Bit, Actually

Great post Tom; I really like you, and I think that your opinions are revolutionary. You have really opened my eyes to the way of things. Keep on posting solid gold baby.

News Flash: Major Market Turns Aren't Announced In Advance

www.bloomberg.com/apps...

Poof, there goes your theory about defaults not rising. I'll see your Sean O'Toole quote, and raise you a Rick Sharga:

"Falling home values, led by states such as Nevada and California that have the biggest default rate, have prompted RealtyTrac to almost double the projected number of foreclosures this year to about 2.5 million, said Rick Sharga, executive vice president for marketing. "

----------
"Even so, there’s been no shortage of signs lately that the worst of the credit crunch is past, or soon will be. As we’ve talked about here for awhile, new delinquencies among the loans that make up the ABX subprime mortgage index have been declining for months, while delinquency roll rates have been improving. Lower delinquencies now mean fewer defaults down the road. Bingo! End of problem in sight."

News Flash: Major Market Turns Aren't Announced In Advance

Tom/Najdorf,

I agree 100% that you can't simply wait for an "all clear" to call a bottom. At the same time, when there are so many atypical risks to the system, you would need a time machine to make the call you did on Tuesday. I only know one guy with a time machine. Najdorf, "Trying to get ahead of them exposes you to huge market risk and prediction risk" is right on the money.

Tom, in my opinion - the real risk in our markets is unknown. We will know more when we have more data, however, things like WFC extending it's window for delinquent debt before it has to report the loss suggests (to me) that there is a lot that we still don't know about the current rates of defaulting debt. In the last 5 weeks, 4 major financial institutions have warned that the US Banking system is in severe distress (and to take cover). In the last 2 weeks, there has been a ban on short selling certain financial stocks, BAC has decided to allocate $3.6B (of taxpayer money?) to support their share price, and Jamie Dimon has said that prime losses could triple from here. (ap.google.com/article/...)

Your logic is sound in a vacuum, however I feel that you are ignoring several inputs to the equitation that affect your thesis, and that the risks associated with these inputs must be taken into account.

Is the risk/reward tradeoff "worth it" at this point, even if valuations are great & the rate of defaults has slowed down? What about commercial defaults as small/medium businesses leave their spaces?

Have the banks written down enough? That is the Trillion dollar question.

Financials Have Bottomed? Readers Say We're Nuts

Nevermind Tom, I didn't see your new article. Processing...

Financials Have Bottomed? Readers Say We're Nuts

Tom, why don't you respond to some of the comments made under your Seeking Alpha article? You seem to like playing softball.

Financials: How - And When - We Reached the Bottom

That's right, just keep watching your TV's people. America must have its next top model.

Financials: How - And When - We Reached the Bottom

Buyitcheap, agreed. Financials have the potential to apply "claw of death" to anyone betting against them, until the next round of bad news.

Go to ibankcoin.com for some reality. Do not let children near the computer.

Financials: How - And When - We Reached the Bottom

Tom, are you around to defend your thesis?

Financials: How - And When - We Reached the Bottom

edit: until the end of the first week in March. I'm trying to work in between writing, and I'm rushing. ;-P

Financials: How - And When - We Reached the Bottom

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!

www.nationalpriorities...

en.wikipedia.org/wiki/...

www.truthandpolitics.o...

www.salem-news.com/art...

Financials: How - And When - We Reached the Bottom

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.