bricki

Overbought Stocks (7/21/09)

Last July 25 the S&P 500 index was 1257. Now it is 979.

That is pretty much a 30% difference depending on how you cast the numbers.

The thing is though that both of these numbers are hard to justify.

While I've done pretty well the last fews months I am very skittish right now. I saved myself a lot of pain last year by being skittish so...

On Jul 21 09:29 AM FitBusinessman.com wrote:

> Aren't most S&P stocks overbought if you compare them to their
> earnings?
>
> I mean, these companies are earning 15-30% less than they were y/o/y,
> yet the adjustment has not shown in their stock price.
>
>
> I agree with Herbert:
> "Why not just put the S&P 500 up there?
>
> I wouldn't touch any stocks at these prices if I was playing with
> someone else's money! I'd rather sit in cash forever."
>
>
> There is a reason that banks still are not lending to these companies...IT'S
> STILL TOO RISKY. And the lending has greater probabilities of resulting
> in a loss.
>
> Are we not "lending" money as a shareholder? Are we not "lending"
> money as a bondholder?
>
> Just watch what the banks do;)

Citigroup's Doomed IT Strategy

The real problem is that previous rounds of cost cutting have resulted in the departure of the people who built the legacy systems, so nobody knows how they actually work.

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.

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.

Are CDS a Good Thing?

Well clearly the AIG scheme (or was that scam) of selling insurance backed by no capital at all should have been illegal. And in fact there probably some laws violated, at least on the disclosure side. And how Sarbanes-Oxley doesn't get caught up in this I am not sure...

And then of course there is the little-mentioned reason these swaps came into existence - they were bought by banks as insurance on loans to reduce their own reserve requirements. So the net effect of CDS was to increase leverage to totally insane levels. The banks were complicit in this fraud - they knew AIG had no reserves, and the banks were using the CDS to avoid having reserves themselves. Clearly the banks should have some responsibility to determine the quality of the insurance they bought. Any bank that is in trouble due to this scam should have all senior executives and its board kicked to the curb immediately.

We are lucky the crash last year wasn't MUCH worse. It also explains why the government is so intent on keeping AIG afloat.

'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.

Wall Street Breakfast: Must-Know News

Even worse that so much of the US taxpayer funding of AIG went to rescue European banks that bought AIG CDS rather than maintain reasonable capital levels on their owm.

We certainly got suckered on that one.

I hope whatever regulatory mechanisms get put in place recognize that there has to be per-country liquidity firewall that prevent the sort of interlocking leverage structures that the CDS mess enabled.

What a house of cards.

Citigroup Questions

I was in Korea once about 10 years ago and found my Amex card useless. Not a happy camper about that.

Yesterday's rally was a nice relief to the constant bad news but a true turn in the market and economy will only be recognizable after something a bit broader (and probably on in retrospect) than an internal memo from a bankster with scant credibility. This hardly even qualifies as a bear market rally.

Calling bottoms is a fool's game. If you believe in America maybe now is the time to start accumulating. If not buy something else like silver bullion. Or you could diversify and buy some of both.

Daily Rundown: Citi Sets a Positive Tone

Let's wait for the quarterly results before deciding if this is a good looking babe or a pig with lipstick.

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.

Glass-Steagall: If Not the Cause, Maybe the Cure?

There is a term I learned in college. It is "external diseconomy". What it refers to is a economic situation where a company is benefiting but the effects external to the company are harmful to the overall economy. Self-interest is serving the company, but not anyone else. One of the classical examples is pollution - a company just dumps its wastes to the environment because that is the cheapest thing to do. But of course sometimes these wastes can cause problems. Like Chisso-Minamata Disease.

When you have that sort of thing the situation needs to be restructured, be it regulation, taxation, etc.

What we have happening today is the result of an external diseconomy. Somebody writes loans, packages them up and sells the securities derived from the loans. Ooops loans go bad. Originator couldn't care less. Rating agency not liable for incorrect rating. Banking system goes tits up. BIG market crash.

There needs to be clawback to originator and rater for this stuff.

On Mar 09 04:19 PM ian807 wrote:

> Any system designed to depend on self-regulation has already failed.
>
>
> In a system driven by self-interest, gaming the system for one's
> own self-interest is the most rational thing to do.

Glass-Steagall: If Not the Cause, Maybe the Cure?

Well I think you can find some things, like some municipally owned utilities that fit that description. However they only work if there there is no competition at all, and only seem like a competitive idea in comparison to heavily regulated monopolies.

I used to work for a company that was owned by the French government. What a nightmare. It was managed not for profitability but rather to maximize employment. FRENCH employment, so every time there was a layoff they would fire US workers and bring over expatriots to fill positions. The people that used to come over didn't want to be here. They smelled bad too. It is a fact that the French use less soap per capita than any other nation in Europe. And yes it was a soap company,

Notice I say USED to work for.

They eventually de-nationalized, and then the shit hit the fan. They sold off the good parts to the Germans, and the bad parts - well they sort of limp along. If it gets too bad I am sure they will get forced to merge with some other French company.

Nationalization, Been there, done that. Wouldn't advise it unless to somebody I didn't like. Economically it will crush any sort of efficiency or progress.

On Mar 09 04:29 PM Mashuri wrote:

> akapital:
>
> List some government controlled enterprises that turned a profit
> -- meaning, they were self-sufficient and did not have to rely on
> capital forcefully taken from the productive sector to operate.