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Drobezisi

Drobezisi
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  • A bank-by-bank breakdown of exposure to mortgage risk under different scenarios indeed shows Bank of America (BAC +1.7%) at the top of the list, with estimated putback losses of roughly $17B-$35B. While industry losses could total some $65B, Credit Suisse's Moshe Orenbuch says the financial system can weather this storm.  [View news story]
    In the retail banking business, a loan portfolio would have something like 5% non-performing loans under very poor circumstances. So if BOA has a 933bn loan portfolio with 46bn in LLR, it is probably pretty well reserved under the circumstances. Of course, these are extraordinary times and one never knows, but I'm skeptical that the potential losses would be as bad as what's been priced in lately. But in any case, looks like it's going to be a fairly long slog before much price recovery, just because of the psychology out there right now - not really because of the fundamentals.
    Oct 26 11:07 AM | 2 Likes Like |Link to Comment
  • Weakness in Bank of America (BAC -3.1%) is trying to tell us that the market is "frothy" and can't sustain a meaningful rally as long as banks are a ball-and-chain, Guy Adami says. For those who argue that BofA weakness is all about the put-backs, the stock was weak before the issue moved to the headlines.  [View news story]
    Bbro, you're right about that, but the same factors were present in the run-up to April's high of almost $20. Only two things have changed since then - sentiment about the direction and pace of the economic recovery (i.e. fears of a double-dip), and the foreclosure scandal. There's a fairly good chance that both are overblown and temporary issues. Regarding the latter, that's not to say that it's not terrible people are losing their homes; but at the end of the day it will be a relatively small number of extreme cases that get put back to the banks (including BAC). And markets have notoriously short memories.
    Oct 21 03:24 PM | Likes Like |Link to Comment
  • Why the Eurozone Is Doomed [View article]
    As someone living in Greece and seeing the "debt crisis" here unfold first hand, I largely agree with Mr. Smith's assessment. Perhaps my only qualifying remark would be to edit one particular, but significant, sentence. He wrote:
    <<And it leaves Germany faced with the unenviable task of bailing out its "customer nations" -- the same ones that exploited the euro's strength to overborrow and overconsume.>>
    To which I would reply, yes, to overborrow and overconsume...German goods! In other words, Germany "owns" this debt crisis as much as Greece, Ireland, Spain and Portugal - and not for simple utilitarian reasons. The fact is, Germany has benefited hugely from having a more or less captive export market in its southern Eurozone neighbors. So rather than getting so bent out of shape over having to "bail out" their neighbor, perhaps our good Euro-colleagues to the north should start realizing that the so-called bailout is pretty well nigh unto being the "cost of goods sold".
    May 11 02:54 PM | 2 Likes Like |Link to Comment
  • Cramer's Mad Money - Citigroup Is the Next Chrysler (8/19/09) [View article]
    As much as I hate to admit defeat (being a former and badly burned Citi investor), I'm more with Al S on this one than I am against Cramer. Citi's traditional brand strength and size (though both are diminished) could help it survive this (i.e. the general economic and its own specific) crisis, but I think it will be a long, hard and slow recovery for the franchise for a lot of reasons. Let's not forget that a significant part of Citi's revenues/profits have traditionally come from higher risk capital markets and investment banking businesses, which are either being sold off or are not going to contribute as much for the foreseeable future. As Al S says, they are burdened with a huge quantity of poor quality assets and the common stock is extremely diluted. Also, let's not forget that Citi periodically has gone through severe liquidity crises over the past twenty years that I can remember, and has had to rely on rescues by preferred investors many times, long before this current crisis. The problem this time: the only preferred investor that seems willing to step up to the plate this time is the US government, and only because it had to in order to help dampen the broader market crisis. Overall, I was more bullish on Citi than many in the market up through the first quarter, and got my rear roundly whipped for it; even now, I'm still tempted to believe there is a comeback story there, but I find it very hard to truly justify. As I said, I believe they will survive the crisis, but I think it will be a long time before the risk is compensated for by an interesting return. So why bother? Go for something with lower risk, a cleaner balance sheet and still paying a dividend, which can actually grow market share during the upcoming recovery, rather than shrinking to survive. By the way, where is Cramer's sustainable dividend mantra on this one???
    Aug 20 09:23 AM | Likes Like |Link to Comment
  • The Bubble of Uncertainty Is About to Burst [View article]
    Jason, I haven't read all of your posts, but I'm gradually becoming a fan of yours. I think your analysis is spot-on, and articulates very clearly many of the things I have been thinking and saying to others. Concerning what you called the "decade of the bubble", personally I believe it is a phenomenon that has been going on for much longer than a decade - but some important developments in economic globalization as well as technology, telecommunications, and ultimately culture, have pushed it to its present-day extremities. I agree with you that it is not a phenomenon that is likely to disappear anytime soon - but unfortunately I have probably been too late in adapting my own investment style, which tends towards a rather old-fashioned "buy and hold" mentality (perhaps still valid to a certain extent over the long run, but potentially quite painful in the shorter term as the past several weeks have shown). Needless to say, I will be checking out your new booklet. Thanks for your insights. I'll keep looking for more of them.
    Mar 6 05:05 AM | 10 Likes Like |Link to Comment
  • Cramer's Stop Trading! Not a Whisper from Tim (2/23/09) [View article]
    China, an engine? Ah, let's get real here. China is as much an engine of US or world economic growth as the cart is before the horse. China can barely keep its domestic economy out of the 19th century, and the only thing that enables it to sustain a modern living standard is its booming export economy - which responds to consumer demand elsewhere. I do agree that the Chinese government's deep pockets and ability to create command-performance economic activity is impressive, but to expect the same kind of instant policy implementation in a pluralistic democratic economy is shockingly naive. There are things I agree with Cramer on. This is not one of them. The stimulus package that was signed into law (while too small and not focused enough) and the measures being taken on the housing front will help, given some time to work their way into the economy. They will create jobs and keep people in their homes, so that they can worry about engaging in producting economic activity. Will it happen overnight? No. We didn't get into this crisis overnight either, did we?
    Feb 24 08:44 AM | Likes Like |Link to Comment
  • Eight Reasons Bank of America Is Going to $20 [View article]
    Good man, Jason. I'm glad to see there's someone else out there who has some perspective on this mess we're in. This whole "nationalization" issue is in my opinion the equivalent to someone (and they know who they are, those short-sellers out there) shouting fire in a crowded theatre. It's a macabre and ill-informed bunch. The point you made about Obama's reaction to the question is spot on...but it's more than just a question of the government knowing it's a poor manager of bad assets or ailing institutions or whatever. The real point is, with nearly 10,000 banks/S&Ls/etc. in our banking system, and many more if you start factoring in credit unions and the like - THERE IS JUST NOT ENOUGH MONEY to nationalize the US banking system. And if you start with a few big banks, where do you stop? What are the liquidity and other implications for those smaller institutions that are inextricably tied to the larger ones through all kinds of interbank activity? The current Administration understands this and IMO is trying its best to walk a tightrope and avoid anything that looks like outright nationalization and wipes out existing shareholders. Let's face it - the government doesn't want to do it with smaller institutions that are "bite sized" - which is why the FDIC is busy brokering deals to have local and regional banks take over the assets of failing institutions on a daily basis. What makes anyone believe they really want to try to swallow something that will give them serious agida?
    Having said all that, between now and your $20 bet on BAC, a lot can happen. I have no doubt you're right and it will get there (and even beyond). But in the mean time, there are a lot of folks out there shouting fire and running for the exits, and some of us have already had our toast burned in the panic. Hopefully some logic will ultimately prevail.
    Feb 23 06:15 AM | 2 Likes Like |Link to Comment
  • Three Urban Legends on Wall Street Today [View article]
    Hallelujah, brother! Can I get an 'Amen!' Thank you for putting some perspective on the travesty that is going on in the markets right now. Yes, things are bad, and as you said, they may even get worse, but it is not the end of the Free World as we know it. In fact, I suspect that some good may even come out of it when the historians look back (after checking their iPhones and taking a sip from a Starbuck's double-caramel-mocha no-foam latte) on it a few years from now. Yes, there will be winners and losers, but right now the market's biggest enemy is the market itself. Kind of like the guy that rips a plank out of the lifeboat to make sure he can float if the boat sinks. Well, duh.

    Funny thing is, a lot of the people that are running for the fallout shelters right now probably aren't old enough to remember the 1970s - which is one of the reason panic is running rampant and urban legends abound.
    Feb 19 08:36 AM | 4 Likes Like |Link to Comment
  • Proposed Solution for Toxic Assets Plaguing Banks [View article]
    Rob, it sounds like a reasonable concept (although the last line about the banks being on the hook for a share of the losses if the asset values drop seems to me that it would go down like a lead sinker in the banking community - i.e. when is a sale not really a sale?). But to be honest, if I have understood things correctly, it sounds to me like the plan the Obama administration via Treasury Sec'y Geithner is pretty much about the same thing. The only difference being the bidding would be open to a wider "public-private partnership" (whatever that means). In other words, private investors willing to take on the assets at a discounted (probably marked to market) value would share in some upside with the government that is also putting equity into the conceptual "fund". In your scenario, it's the banks that are getting some of the upside - but they could do so just as well in the Geithner proposal by investing in such a public-private fund. It's a little murky, of course. What? The banks buying their own assets (or perhaps not those that are on their own balance sheets, but those that are on another bank's balance sheet)? But it's probably not so different from the idea of the bank still being on the hook for losses if the "sold" assets deteriorate in value.

    The whole thing is a complicated mess - but probably not one that is insoluble. The key thing is to get the jobs market and the housing market stabilized so that there is some kind of floor under these assets that will enable investors - whether it's the banks as in your scenario, or some other investors - to have confidence they have some possibility of a real upside.
    Feb 16 06:36 AM | 2 Likes Like |Link to Comment
  • Nationalizing the U.S. Banking Sector: There's No Choice [View article]
    This is kind of "the sky is falling!" First off, out of the nearly 10,000 banking institutions in the US, including national, regional, state and community banks, credit unions, etc., etc., I'm sure there are a handful or two of institutions that are not on the verge of imploding. The kind of wholesale "nationalization" you are talking about would sabotage any and all remaining institutions that still have something of a fighting chance.

    Second, there ain't enough money in the piggy bank to nationalize the entire US banking system.

    So let's stop doing the typical tunnel-vision trader thing, and try to find and support pragmatic and creative ways out of this mess. Personally, I think that if you cut through the lousy packaging, the lousy timing, and the lousy delivery, some of the core concepts (and that's all they were - concepts, not market-ready products) that Geithner talked about the other day are not the worst possible solutions. Some of you may be old enough to remember the Latin American debt crisis in the mid-1980s and the robust debt-for-equity swap industry and other distressed debt trading opportunities that came out of that. When life gives you lemons...

    Don't get me wrong - in theory, you and the whole host of people talking about nationalization are probably right in terms of the most efficient way to deal with the problem. The problem is, it's kind of a surgery that would kill the patient - and by the patient, I don't mean the banks. I mean the whole US economy (which is barely managing on life support as it is).
    Feb 13 08:53 AM | 15 Likes Like |Link to Comment
  • Two Plus Two Equals a Long, Painful Recession [View article]
    Craig, for what it's worth, I think you're basically right. I think there is another important factor in this whole situation, however, that I haven't really seen any comments about: the excesses and leveraging up of the economy over the last decades that everyone recognizes by now has, in my view, a structural grounding in the globalization that has taken place since the late 1970s. The shift in the US's economic base over the last 30+ years from a majority manufacturing economy to a majority services economy - a significant share of which is financial services - means that we have an awful lot of people out there whose economic well-being and creative energies are linked to the growth of the financial sector. It's not just a question of having gotten regulation/deregulatio... wrong, or of shoddy rating practices, or what have you. It's a fundamental imbalance in our economic structure that is going to take a long time and a very different fiscal and tax policy approach to sort out. One of the reasons I tend to like Obama's approach - aside from the points you mentioned regarding his economic stimulus proposal - is that I think (or at least hope) it may help restore some of the missing balance to the overall economy longer term.
    Jan 5 08:03 AM | Likes Like |Link to Comment
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