SeeTheLight

If Asset Prices Are Dropping, Why Are Bank Stocks Rising?

There are really only two possible scenarios, another repeat run at the housing bubble (and you can all imagine how that will work out), or the stark reality that housing prices were highly over priced and are not going back there any time soon.

I agree, big government has likely saved the big banks, and if his loan modifications actually work the banks will be able to survive by just kicking the can down the road and letting the huge profits they are making off the credit spread keep them above water as they write off the bad assets over time.

But what does that do for the consumer? They are ones that own these underwater houses and lost their jobs which are not coming back due to offshoring? Some one has to pay for all the bailouts, even if they get a smaller mortgage payment, they are not going to have a positive home equity for a long time. The consumer is tapped out and no one is bailing them out, in fact they are being asked to take on more debt via cash for clunkers, the housing rebate and soon cash for appliances. Of course that will be the only way to spur demand because without a government subsidy who will want to take on more debt? Oh then add in the triple specters of increased taxation, inflation and devaluation of the dollar and where does that leave the 90%? INSOLVENT.

But I expect to continue rallying so long as the government is supplying copious amounts of monetary lubricant to an economic engine that has a major oil leak.

Good Luck all

Credit Card Defaults Down in July

Tack,

I agree to you, to a point. The true concern is the psyche of the consumer that has a job. Now I put this as a question to you, has the psyche changed? Are the consumers participating in this recovery?

Many companies are instituting sweeping pay cuts across the board (rather than just laying people off), a direct blow to the discretionary incomes of the 90%. Worse, many are using the recession as an excuse to offshore work. Those are jobs that are never coming back. I don't see that the consumer is going to believe any time soon that they are safe to go back to the heydays before this crisis. Will they spend? Yes. Will they spend at the levels they did previously (buying Hummers and McMansions?) No. (they won't be able to even if they wanted to since they won't have access to easy cheap credit).

I see that companies are still doing aggressive cost cutting to make their numbers (has there been a company that has missed Wall Street expectations in the past 6 months? and yet revenue numbers fall steadily), and if anything many will be going into fourth quarter freezes right about now.

Other than the richest 10% of the people, most people have not participated in the stock market recovery (or if they have its in their 401Ks), nor has their house values increased, and further unemployment looks likely since companies are still aggressively cutting to beat Wall Streets lowered expectations.

I don't see the consumer leading the way out of this recession. The were lied to and now have to fear higher taxes, a smaller job pool, and higher interest rates and inflation when the so-called recovery arrives. When this recovery finally trickles down to the consumer, I suspect they will remain cautious since for a large percentage of them (the baby boomers) retirement is just around the corner, albeit a little farther off now than 2 years ago.

Good Luck all

U.S. Banks Putting 'Lipstick on a Pig'

Good article. Closely follows what I believe which this is just an uptick in a downward spiral that has yet to reach bottom. What do people think that the recession can't ease slightly before resuming its downward trend?

Anyhow, I just thought I'd mention the fact that many of the major banks profits were generated from a number of very interesting facts. First they can borrow money from the government for basically nothing since the overnight rate is targeted at 0-0.25 pts (AKA 0) and then turn around and invest that in short term investments like treasuries and pocket the difference (even if the treasury prices drop because hey we don't have to realize the loss any more until we sell).

Second and more telling, a large chunk of these so called profits came from AIG unwinding its massive derivative portfolio (courtesy of Uncle Sam's bailout machine). Direct from the taxpayer to AIG to the banks. But those are one time gains, unsustainable.

Third, with Obama's moratorium on foreclosures and mark to fantasy asset valuation there is a huge back log on foreclosures which are now cranking up again (note there's your housing recovery, unfortunately the sales uptick is all on distressed sales and housing prices continued to fall unabated). Once these assets sell, they have to realize the loss, even in mark to fantasy accounting. And do you think any of these banks are going to hold off on selling to the suckers buying on the green shoots propaganda right now when they know the next downturn is around the corner and those foreclosures will be worth even less? Nope.

As is expected the world is not coming to an end, so it is not surprising that the rate of decline could not keep up with its torrid pace, but I would say that a long period of moderate declines is worse than a sharp drop, in fact it is worse because it prolongs the pain. It make take a while for reality to set in for all these people forecasting a V-shaped recovery, but if these people take off their rose colored glasses they would see that you are right, that Uncle Sam has been pretty liberal with its lipstick, and not just with the financial pig.

Good Luck all.

Banks Won Concessions on Stress Test

What is that old saying about the cure being worse than the sickness?
How do we fix the house of cards that fell apart last year? Why of course, with a new house of cards. And then we all sit back enjoy the ride until the next blowout and then fall off the cliff once more. Wash, rinse, repeat. Get your trailing stops in now fellas, if you haven't already done so. Buy some puts, and perhaps even gold is looking a little more shiny these days. Just remember the bigger (of a fantasy) they are, the harder they fall.

A Summary of Q1 Bank Earnings: World, You Just Got Hustled

Excellent article. One of the best I've read on Seeking Alpha. I don't see anyone refuting your facts of how the banks managed record profits one quarter after posting record losses. Clearly accounting shenanigans as you so eloquently described. So, the world was hustled again. Surprise surprise. Nothing new there, GS has been doing that since the 20s. With the inevitable Watergate like investigations still years in the offing, the question is how to respond now to protect and capitalize off this situation. The reality is I think we are faced with a great depression scenario. If you look at some of the charts of the 30s and 70s it is amazing how closely they align, and yes there was a massive extended bear rally right about this time in both of those before the final slow multi-year descent. I bought in a bit over the past 6 months and now I'm getting some stops in. I'm happy to miss the first few days of the pendulum switch because who knows how high and far this thing can go. I suspect the next downward swing will be slower and more drawn out, unlike the quick shocks in Oct., Nov., and January. The repercussions from those wounds are only now beginning to set in and that is the next challenge for the global economy. Yes, the patient was rushed to the hospital and was saved, but while the world hurrahs that disaster was averted, the truly insidious effects of those strikes is only now beginning to show up in the body. The hangover will occur, the only question is when will the patient notice.