M-P

Cramer's Mad Money - Obama's Revenge (3/5/09)

Cramer is like anyone who talks a lot (forecasts, asserts, etc.) - he will be right some of the time and wrong on others. The hit rate and materiality are important. My big issue w/ the administration is that they are trying to do too much at the same time ... health care, taxes, capital injections, etc. When the world is unpredictable and in a state of change, capital sits on the sidelines. In this environment, predictability is often more important that the perfect policy, which doesn't exist anyway. Today's problems were yesterday's solutions.

Nationalizing the U.S. Banking Sector: There's No Choice

The real issue here, as others have pointed out, is that we really don't want to feel the pain if market forces prevail. The banks made some highly risky decisions and are now paying the price. With reward comes risk - look at the bonuses the executives made from 2004-2007. Tens of millions for making risky, correlated bets on opaque debt instruments and "insurance" products.

Look at the GDP with and without Mortgage Equity Withdrawls from 2004-2007. If we didn't have MEW's, we were growing at 1%. We were living an inflated lie that was a concoction of low rates, negative savings, and materialism. There's only so much you can do about a bad hangover.

Compensation Caps Will Drive Away Talent? To Where?

For those who think the "talent" will go elsewhere, please define talent for me - if "talent" can't perform, what is it ... good luck going to other parts of the world - managing the cross-region regs, the legal diffs, the work councils - they'll be back to the States. Easy to think there are no friction costs - that's a fallacy. Again, I'm all for paying for "Alpha" performance vis-a-vis the industry/market.

Banking Is Tanking Worse Than Ever

There a some similiarities to the Great D, at least in the peak to trough. However, as others have pointed out, there are some significant differences as well. We have quite a few more stabilizers now than before. The banking issue is basic financial analysis - how will they re-create their revenue streams from their previous model - high leverage, risky bets, equity lines, derivatives, etc. The top lines will be challenged and they will need to cut more people. They need to get their cost structures in line with their revenue, which will be challenged for a while. The question for bank stocks - as for any stock - is where is the catalyst, competitive advantage, and cash flow? I just don't see it in the near to medium term.

Obama May Have No Choice but to Mimic Bush's Bank Bailouts

Hard to disagree w/ this anlysis on the face. Everyone seems to be making it up as they go along. The major problem is the lack of transparency so it's hard to know what's "worked" and what hasn't. It's like driving with your eyes closed - you'll never really know the best route - can't replicate it. The banks took undue risk, a lot of people made poor choices, and the taxpayers are picking up the pieces. There is no sidestepping the fact that risk works on both sides of the coin - more risk = higher upside, but also higher downside. It's the classic - private gains, public losses scenario, which is hard to swallow.

Mortgage Cramdowns: A Disaster in the Making

I can see a loan mod (vs. forgiveness) if it's a good investment (there is a business case) and the homeowner has some skin in the game - a plan, a stake, a path. I was not in favor of the auto companies getting money, but at least there were some convenants and responsibilities on their part before the money was loaned (cf. to some of the financial firms). This legislation needs to be monitored very closely and it needs to be tight and specific. There will be some legal challenges - no doubt - with the final verdict taking years to come to fruition.

The Danger in Financial Stocks in 2009

This is a good summary. It's hard to disagree with points made. Many of the banks will have challenges in maintaining their revenue streams - more charge offs on CC's, less mortgages/loans being done, and overall margin-rich fee revenue down - along with asset write-downs/offs. All of us have to question to ability of the banks to understand their own risk (e.g., level 2 and 3 assets). I'm not sure they do understand their book - their underwriting standards across assets are in question. Time will tell if the big banks can exploit the synergies with recent acquisitions. The next year is likely to be bumpy and who knows how the government intervention will turn out. Lots of uncertainty - more cash sitting on the sidelines.

Year-End Buyouts: Big Challenges for the Big Banks

It's interesting how Lewis has often blamed his failings on anything but himself and his actions, which I've written about in previous posts. I'd like to see a more "mature" management style and personal ownership. I'm still amazed at how many emails and letters I get from BAC that demonstrate how siloed their customer database is and how fractured their marketing efforts are. I'll be very interested to see if Lewis can exploit his assets and up-sell and cross-sell the BAC customer base, which has grown significantly. We all own BAC at this point and I would like to see them be successful, but I don't want to see the taxpayer throw good money after bad. The too big to fail model is a little scary and puts all of us at some risk.

What Do We Need In 2009? More Failure

This piece is on-target. The mark of a psychologically healthy person or company is their ability and willingness to take responsibility for their actions and choices. The playing field is not always clear-cut, but the themes are usually clear - do you have an internal locus (personal responsibility) vs. an external locus on control (something outside your control). There are many things outside of our control, but our attitude and language around them is pretty telling. We all know people or companies that typically blame something or someone outside of themselves for their problems without taking-on some responsibility. The real issue is doing a clawback on those who knowingly and willfully planted (and cultivated) the seeds of failure and walked away with millions.

Tough Times for Card Companies - Barron's

If I recollect from another SA piece, BAC and JPM had over 20% of their revenue come from the CC business, which is definitely material. The revenue streams of many of the banks is in jeopardy in the near to medium term. CC fees are almost pure margin and the charge-offs have been manageable ... I don't see job growth increasing at a fast rate even with a job works program, which will take some time to spool up. Also, the wage delta between the jobs lost and new jobs is likely to be significant - add-in the a higher savings rate and deleveraging and consumer spending should be down by $500B to $1T, if not more. All said, without strong jobs and wage growth, I see the CC issue only becoming worse and bank earnings under serious pressure.

Why Can't Bank Executives See in the Mirror?

This piece is spot-on ... it's not like Todd is bashing all banks or financial services. Wells and JPM did not take the risks that BAC and C did ... not taking responsibility for poor DD or risk management is a classic external locus of control - thinking of BAC and C, who are confusing cause and effect ... the reason they are short seller magnets is because of their lack of transparency, risk exposure, and poor acquisitions. They caused the attraction, not the other way around. Mature executives take responsibility for their actions - they don't blame others.

The Biggest Money Grab in History

This is a good piece. I think John hits some of major issues - too much of X and too little buyers ... will take some time to find the equilibrium. With unemployement likely to go up (finserve alone), I don't see a happy picture for the next 9-12 months. The other point that hit home was the '03 to '05 "bull" market, which was built on unsustainable risk and, at times, malfeasance. The real tradgedy is that the US comes off as a big hypocrit. Our bailout plan is not what we tell other countries to do when they have a financial crisis, etc. I always struggle with people who can't take their own advice. Add-in that Paulson and Co. have been spinning a fairy tale over the last year - it's all contained and getting better - and the credibility of the key players is dubious at best.