bricki

Chasing the Diminished Marginal Buyer

Some other institutions that would have been normally covered by Morgan Stanley Research have already failed or have been taken over in such a way as to destroy all shareholder value in the past year..

The banksters are not afraid to eat their own when times are bad.

Think of it as feeding the wolves chasing the sled.

A truly disingenuous research report. Not sure that even marginal investors pay much attention to research originating at brokerages any more so it probably isn't going to have the desired effect. We need a 6 month rally that starts to get on the evening news before the marginal investor gets sucked or is that suckered back in.

On May 22 07:54 PM mdmrjsds wrote:

> I just want to give some counter argument for why this might be true,
> even though I think we are in deep doo doo.
>
> Remember the Fed is a private institution.
> These financial institutions are the owners of the Fed.
> They are integral to the way our financial system creates money,
> no matter how bass-ackwards that may seem.
> The Fed (and treasury) will *not* let them fail, no matter what.
> You yourself have documented the evidence over the last several months
> in articles here. *Whatever* it takes, they will make these suckers
> float. Legal, not legal, above board, under handed, whatever it
> takes.
>
> Stat! Stat! More voltage!
>
> Sir! Sir! There are burn marks on their skin!
>
> Never mind! You just keep holding those paddles. Stat! Stat!
> Did you see that jerk! They are alive.
>
> Sir! Sir! Their eye balls are smoking!
>
> Never mind! Just keep applying those paddles! More voltage. They'll
> walk if we have to fry them! Stat! Stat!
>
> Sir! Sir! Sparks are flying from their finger tips and their hair
> is standing on end.
>
> Shut up and apply the paddles! Quick, you and you, hold them up.
> Apply the voltage! Stat! Stat! Did you see that twitch! They're
> alive! I say so and I'm the senior doctor here!
>
> :-) :-^
>
> Don't forget, there are trillions of dollars floating around out
> there. The stocks could easily meet these new targets in inflated
> dollars by not going anywhere in current dollars. We are in a brave
> new world here, the old rules don't apply. ;-)
>

Monday's Closing Update: Housing, Financials Rally Broader Market

The key thing I think is to not get wrapped up in a particular point of view or dogma - be it positive or negative, but rather make hay when the sun is shining and have a good umbrella for when it is raining.

On May 18 05:47 PM archman82011 wrote:

> Cetin:
>
> Just to be clear, I am just presenting information for informations
> sake. I do not mind the market going up. No, not at all.
>
> You are right. The gains are there (though not "locked in") until
> the sellers drop the prices below where people bought them. Unfortunately
> for the average mom and pop investor, and as per a very good WSJ
> article this morning, most people let gains turn into losses and
> sell out AFTER they have lost a lot of money or sell out right at
> the bottom.
>
> Unless someone bought near the bottom, or like me, lost only about
> 15% last year and does not "need" stocks to shoot back to DOW 14K
> tomorrow, I do not need to chase any rally, and I can afford to look
> for more than just one or two bits of positively spun news before
> I commit more money to this market.

Credit Cards: Do the Banks Own the Senate?

The Banks got tired of paying for the Senate so they opened up their own branch of government, the Fed. Yes we have the Executive, the Legislative, the Judiciary and the Fed. Like the Judiciary the President gets to appoint people to the Fed, but not remove them.

Since the Fed is not mentioned in the Constitution its powers are not limited by the vision of the founders. The men who sat in Independence Hall in July 1776 would be horrified by this development.

Now to make it perfectly clear which is the most important branch, just look at the printing on your money, right at the top on the front. It says "Federal Reserve Note".

As somebody noted the power to tax is the power to destroy. Now hold that thought a bit.. Inflation is a form of taxation for sure. A flat tax that affects everyone. Now who has the power of this taxation? Why the Fed of course.

Unelected, and yet with the power to tax at the highest level we have the Fed. Surely this is taxation without representation taken to a new level.

The Banks have no need to own Congress. They already own something much better.

Bank Stress Tests: How Credible Are They?

Any test like this is artificial because there are arbitrary parameters determining the result.

However it is useful in that you can compare those parameters to the current economic conditions and from that gain some idea of how bad things for a given bank is.

What should have been done is instead of releasing a single set of numbers for a single set of conditions is to release a sensitivity analysis that shows the capital needs of these banks as a function of the economic conditions.

Unfortunately the Government is spoon feeding us.

Ken Lewis: Halfway Out

A shot of pitocin is needed to speed up the process. I suspect the way this is going somebody will supply this very soon.

Bank of America Needs $70 Billion - FBR

Mr. Lewis will be served well done on a spit tomorrow. If he does not resign beforehand. Calpers has announced that they are voting no confidence.

Banking Reform: Value for Value

The key phrase here is "The high returns of the past, which thrived on the opacity of financial products, are history."

In many jurisdictions this would be classified as "theft by deception", i.e. fraud.

It is high time these games became illegal.

On Apr 28 02:10 PM Mad Hedge Fund Trader wrote:

> This is a sector best avoided. IBM has made public an excellent report
> on the long term future of the financial industry, one of its largest
> customers. The survey of 2,750 firms concludes that the age of extreme
> risk taking and huge bonuses is over. The high returns of the past,
> which thrived on the opacity of financial products, are history.
> Their guess is that profit margins will drop from an average 26%
> to 14%. Lower margins will be more sustainable. Long term compensation
> will be linked to long term gains, not short term profits. The government
> is going to mandate capital and liquidity cushions. Product sophistication
> outstripped investors’ ability to manage, or even understand inherent
> risks. Up to 88% of past profits came from off exchange, over the
> counter trades that never saw the light of day. The easy money will
> be commoditized as the business is moved on to listed exchanges.
> Large hedge funds with easily replicated strategies will be under
> extreme pressure. It’s an insightful report with more than a ring
> of truth which you should get your hands on.

'Ownership But Not Control' Is More Like Control Without Accountability

John's comment is very insightful. What we have now is an ad-hoc crazy quilt of poorly coordinated and incompletely thought out programs that could easily come apart at the seams.

If this seat of the pants governing of history's largest, most dynamic and at least up to now most productive economy does not get some careful reassessment and unwinding the quilt will turn into a multi-trillion dollar pile of lint. The affects of this may devastate the US for a generation or more.

The amount of money and radical changes that are in play right now is frightening. And do we have the correct people making the decisions needed? Hard to say who exactly has the seat of power right now. I hope it is Volker as he is probably one of the few people capable of sorting this out. I certainly don't like the idea of Bernanke and Geithner making policy here.

Massive Bank Shareholder Dilution Ahead

This is a surprise how? We already knew the US banking system was insolvent. The numbers reported actually sound better than I would have expected given the level of leverage the banks were known to be taking on.

The only puzzle is the recent irrational exuberance in the stock market. Which will probably not last much longer.

> Five large U.S. banks have credit exposure related to their
> derivatives trading that exceeds their capital, with four in particular -
> JPMorgan Chase, Goldman Sachs, HSBC Bank America and
> Citibank - taking especially large risks.

Credit Card Crunch: Creating a New Generation of Subprime

What the author is missing is the behavior of the consumer in the current recession. The fact is that credit defaults are actually decreasing, credit card debt is being paid off at record rates and savings rates are shooting up. This makes the decreases in lines of credit a moot point because most people aren't using them.

Preview from Europe: The Horror Show's Alive and Well

The fact that the German Finance Minister feels he needs to rebut stories on the break up of the Euro Zone is a warning that it might be more likely than anyone thinks.

The Financial Supermarket Is Dead

I don't think this is news to anyone.

However I am not optimistic that this sector will ever recover to its former glory. Risk aversion and regulation will limit return on capital. Size through merger will limit profitability and keeps expenses up.

Bank of America: A Risky Bet That May Be Worth It - Barron's

Dropping M2M is decreasing transparency, never a good idea. Nobody will be fooled, the emperor still is naked. I don't think anything will pop on such news. I think M2M was a great idea, it cuts out the bovine manure. Who cares about something that might or might pay back in the long run. In the long run we are all dead anyway.

As far as betting on BAC, I don't think this is the time. We have another year of uncertainty in financials, and once we are done with this year there is still the unwinding of TARP money which will drag down capital generation for more years. And of course be ready for lots of new regulations on the financial industry which will decrease return on capital.

All in all I think it will be 5 years +/- before BAC or this industry overall offers good returns for investors. There MIGHT be some picks out there that can be made, but I would disqualify from buying anything that hasn't paid back all of its TARP money or anything that isn't 100% pristine.

A few months ago I did some bottom fishing and got pulled off the boat by XLF. I can see maybe doing some very short term trading because of the volatility, but that is IT. I am done doing any investing in this sector for at least a year.

The Road to Economic Hell

The question is do you want to keep all the damage concentrated in one place (AIG) or let it blow up in many places? It isn't going to be pretty no matter what your choice. I don't see that letting AIG fail, and then have the counter parties fail too is going to be a better answer. It may not be worse, but I don't see how it is better.

The other aspect of the issue is that it is not really bottomless. AIG has reduced its CDS exposure from 500 billion to 300 billion in about 4 months. Hopefully they will be able to get rid of the rest in another 6 months or so.

It would be really really bad if we were still in this same position a year from now.

On Mar 05 09:31 AM prudentinvestor wrote:

> Simon, as ususal, you bring up many excellent points. Although the
> party in control has changed, it is the same policy of using public
> funds in opaque ways to subsidise the financial industry's gambling
> titans.
>
> The AIG situation is astonishing, as they seem to have a bottomless
> cesspool of CDS's, and it now appears that the government wants to
> pass endless, meaningless casino-gambling liabilities to the taxpayers.
> Is it not better to let AIG's counter parties swallow the loss of
> having placed their bets with a hollow counter party?

Social Banking: How to Make Bank Shares Worthless

Bank shares are already worthless. All the major banks are insolvent. The government bailouts are like using a defibrillator on a 3 day old corpse.