Kinabalu

Meredith Whitney vs. John Paulson on BofA: They're Both Wrong

When I read mbkelly75 I had the same thought: One of the worst pieces of fundamental analysis I had ever seen. I'd like to say "At least he's trying, so many people don't do anything before they buy a stock", but in this case I wouldn't even say that.

That was very generous of you to take the time to point out some of the problems.


On Nov 27 06:12 AM Ash1983 wrote:

> mbkelly,
>
> I have to say that is one of the worst peices of analysis of a stock
> I have ever seen. Your analysis of only using ratio's to analyse
> a company completely disregards the market backdrop and you have
> made no effort to look at the breakdown of their earnings. There
> are too many things in your analysis that needs correcting to mention
> but a few basic points:
>
> + The reason why BAC PE is so high is because of the continuing writedowns
> of their debt book. These writedowns are masking the very healthy
> operating earnings (i.e. profits before loan impairments) which are
> actually improving since the Merril Lynch takeover. Paulson's bullish
> call on BAC is based on the premise that we are at the bottom of
> the writedown cycle. I don't know if you agree with paulson or not
> but the point is that PE is irrelevant.
>
> + You also mention the PEG, another backward looking indicator. Again
> this is down to the writedowns bringing down their earnings. Unless
> you believe that writedowns will continue at their current rate,
> then the PEG has the potential to change directions very abruptly.
>
>
> In short you need to realise that stock markets are discounting mechanisms
> (i.e. they look to the future) and everything you mentioned is backward
> looking. In fact if you had done the same analysis on BAC in 2007,
> your PEs and PEGs would have looked fantastic and you would have
> been buying the stock like theres no tomorrow - exactly at the top
> of the market.

Against Liquidity

No discussion of this amendment is complete without Millers most important point: "The FDIC could allow secured creditors who had taken collateral when the firm was solvent their full security interest, and just impose the haircut on creditors who had grabbed collateral from a firm that should already have been in receivorship."

I don't know the technical details of how Miller accomplishes this distinction and I hate the idea of creating the opportunity for political pressure in the liquidation process. (Implied by Millers use of the word 'could'.) But if Millers proposed amendment did not have this feature, the impact on the repo market would be substantial and the impact on the socially responsible business models of companies like Agency Mortgage REITs, i.e. NLY, HTS, AGNC, CMO, etc., would be very material.

The Single Most Important Thing to Understand About the Fed

There is a big difference between the Fed fumbling the housing bubble and the SEC fumbling the Madoff ponzi scheme. The FED had a lot of help including Congress, FNMA, FHLMC, the FDIC, the OCC, the rating agencies and a lot of banks and mortgage companies. You have to spread the blame to all of them. The SEC did it all by themselves. It's much easier to know who to blame.

Bair's Chutzpah

"I don’t think the WaMu failure had a disruptive impact at all.....we would have tried to tried to dissuade Treasury from making the TARP capital investments"

Typical bureacratic response. It wasn't what I did, it was what they did.

The Goldman Sachs Foundation's Torrid 2008

But LLoyd Blankfein says they're "doing God's work".

Airlines: Some Costs They Can't - And Shouldn't - Cut

When you say Pan Am had bad management I have to comment. They had some real world regulatory problems and made some terrible mistakes. However, the Pan Am Finance department kept that Company running for years after they should have been dead. I watched Pan Am from a competitor and was amazed how they could continue to raise money for years with such terrible financial results.

I couldn't give the whole Company high management grades but the Treasurers department gets the highest marks.


On Nov 01 12:16 PM User 105447 wrote:

> Sorry, but there is no way a "cyber-enviroment" can duplicate all
> sensory inputs. Most importantly the will to stay alive. When aircraft
> become drones controled from a central location, I will stop flying
> or get my own plane.
> Pan Am was the prime example of bad management, now replaced by GM.
> GM still has one of the most isolated management structures in corporate
> America. Therefore GM is kaput, and still digging its own grave.
>

CIT's Bankruptcy and the Trading Sardine

Over the last 40 years I've probably heard 50 versions of the trading sardines story, from Cannery Row to the Alaskan gold rush. This was one of the worst. Here's another version if any one's interested:

The story goes that sometime in the early years of the Twentieth Century there was a lull on the trading floor of the New York Stock Exchange, a lull that extended from hours to days - and the boys were getting bored and restless. One afternoon, for want of any better entertainment, a trader pulled out an elderly sardine tin and announced his willingness to sell this unique item for no more than a nickel. In a moment two jobbers from the Railroads pitch had bid and counter-bid for the tin, pushing the price up to a dime. Not to be outdone, the cowboys who trade Texas oil stocks jump in, doubling the price of the sardines, then doubling it again. The tin passes from professional hand to professional hand, with the ticket sometimes a cent or two higher, sometimes up a quarter. At last the hubbub attracts the attention of the baby of the floor, a wet behind the ears college kid. He spots the unusual label and can't miss the excitement in the open outcry yelling of the traders. The kid, determined to show he can play with the big boys and genuinely intrigued by the apparent rarity of the item, firmly calls out 'Ten bucks' and is delighted when the bidding comes to an abrupt end. Hefting out his pocket-knife, he punctures the tin, only to be met with the unmistakeable stink of rotting fish. Bewildered and heavily out of pocket, the new boy turns to one of his elders, who had taken a half dollar turn out of the tin an hour previously. 'I don't get it' says the kid, 'these sardines are terrible.' 'Son', says the old jobber, 'those weren't eating sardines, those were trading sardines.'

Ultimately, Who Benefits from Too-Big-To-Fail

A review of FRB staff studies reveals a 1994 review of Merger Performance Studies in Banking, 1980-93, and an Assessment of whether bank mergers actually yielded any effeciency gains.

www.federalreserve.gov...

Conclusions? "findings indicate consistently that bank mergers do not generally result in gains in efficiency or general operating performance."

Galleon's Defense: Insightful vs. Insider Information

The defense will be the Mosaic Theory. You put together an investment theme from a lot of separate pieces of information, none of them material on their own. Rajaratnam has already been quoted as saying he gets thousands of calls from people with investment ideas.

Ultimately, Who Benefits from Too-Big-To-Fail

"Given the technological advances that were occurring in the 1990s, it is very possible that much of the productivity experienced across all industries had more to do with a secular movement in technology as opposed to efficiencies realized by managerial acumen."

We have a winner!! Give the man a Kewpie Doll. The FDIC promoted bank mergers for 2 decades because they thought that larger banks had lower loss ratios. They never tried to claim that larger banks were more efficient because all of American industry was experiencing productivity improvement.

TooBigToFail has refuted the loss ratio concept but now someone is trying to ascribe broad productivity gains to merger activity? Except for monopolistic situations, mergers have traditionally been shown to have ineffective results across industries. Banking is no exception.

Hedge Fund Due Diligence Reports: Akin to the Sports Illustrated Cover Jinx?

"The quartet found that 21% of fund DD reports studied contained “misrepresentations” about past legal or regulatory problems and over a quarter contained 'incorrect or unverifiable representations about other topics.' "

It's important to note that these percentages are not mutually exclusive. The 21% could be a completely different group than the quarter (25%). I personally find it very hard to believe that less than 50% of hedge fund promoters are not misrepresenting current or past performance or other important issues. It's interesting that the study also notes that over 40% had past regulatory infractions, many of which were not reported in the few required filings.

The incentives for hedge fund managers to cheat are so great and the regulatory oversight so small, as a result of the so-called "sophisticated investor" exemption, that anyone who pursues this form of investment is just asking for trouble.

Three Asset Classes that Can Actually Outpace Coming Inflationary Price Increases

"But then you think about the the first time the Dow hit 10,000 -- about a decade ago -- and you look at the relative prices of gold (about $250 per ounce in 1999, as opposed to almost $1100 an ounce today)"

Pick the right periods and you can make some pretty misleading points. What about gold hitting $800 about 3 decades ago?

I can see good arguments for oil and agriculture but gold confounds me.

Global Markets in Review: Risky Assets Disconnect from Fundamentals

A picture is worth a thousand words. What an array of great pictures. Thanks!

How U.S. Financial Sector Could Be Downsized

The information on bank CDS contracts is readily available at the website of the Office of the Comptroller of the Currency, the federal regulator of national banks. The OCC’s quarterly report on bank derivatives activities and trading revenues is based on Call Report information provided by all insured U.S. commercial banks and trust companies. See the link:

www.occ.treas.gov/deri...


On Oct 18 12:59 PM markfl wrote:

> Harrison wrote:
> "The FDIC will be directed to examine the books of the largest 25
> insured banks to uncover all CDS contracts held."
>
> Still $600 trillion in the derivatives market, and we don't know
> which banks may have a potential AIG-breaking $3 trillion in exposure.

How Washington's Policymakers Are Damaging the U.S. Economy

"Krugman has written on his blog that the “bottom of the class” guys in economics go to Wall Street and the top of the class guys get good academic positions."

James Kwak had a great article here on Seeking Alpha, that repeats a Calvin Trillin opinion piece in the New York Times, on Friday, that puts some actual numbers to this concept. In fact he shows that, since 1990, it's just the opposite. The smart guys around then started going to Wall Street and developing products that their bosses, the dumb guys from an earlier generation, didn't really understand. See the link:

seekingalpha.com/artic...