boisterousbob

A Dow Double in 10 years? Easy

Inflation will help the dow doubling case. Stocks are commodities priced in dollars. If the value of a dollar falls (inflation) the price of a stock expressed in dollars will go up more quickly.


On Oct 07 02:13 PM Larry House wrote:

> It may sound easy enough, but don't underestimate the long-term economic
> problems we face. Other "experts" who manage billions of dollars
> are predicting growth of 1-3% for the next few years--a good-sized
> chunk of the 10 years. Beyond that, we may face high inflation.
> On top of all, we have growing budget deficits. Stocks will have
> a hard time averaging 7.2% per year with that backdrop. I hope it
> happens, but I don't expect it.

Regions Financial: Sitting on a $22.8 Billion Sink Hole?

This article seems to be an argument in favour of FAS157.

While I will follow this author hopefully forever for interesting content, I cannot take seriously the suggestion that following FAS157 results in more accurate valuations than the current system.

I have 1000 loans and 900 of them are performing. The remaining 100 non performing loans will likely result in a 50% loss. So I have to mark ALL the loans at 50% because the market is not willing to buy them off me for more?

Being able to mark assets at any value you like should be criminal. Actually it is!

But following FAS157 is so dumb that it too should be criminal. Unless of course, it automatically follows, that if 10% of my loans fail to perform then by definition so will EVERY SINGLE ONE of the others.

Regions Financial: Sitting on a $22.8 Billion Sink Hole?

Tom, would BoA not benefit from increasing faith and confidence in banks in general?

Perhaps BoA's interests are best served by raising their estimates on as many financial entities as they can get away with...


On Aug 14 08:51 AM Tom Armistead wrote:

> Seems like Bank of America missed this article too, they raised RF
> to a buy with a target of 7.

Wall Street Allowed to Grade Itself in Stress-Test Sham

"brought in this spring to rescue the U.S. financial crime syndicate from seeing their shares take another plunge below previous lows."

You mean, introduced in November 2007 and restored to the previous model in April 2009.

I take a different view. I think the temporary change to the accounting rules via FAS157, which was reversed in April, was a significant contributor to the meltdown in the financial sector.

I am not suggesting there were no other problems, of course there were. However, reminding you of context, banks had existed successfully on a fractional reserve model since the late 1600's with accounting rules more similar to those we now have.

Bank Liabilities: Why the Discussion Isn't Explicit

I did as one commenter suggested and read FASB157 on mark to market. It is indeed short and simple.

Commentators seem to agree we like the transparency mark to market provides, while recognizing that it is today having an unusually harsh negative impact.

I have a question about a modification to mark to market.

Two pertinent concepts in FAS157 seem to be:

(1) 'the exchange price is the price in an orderly transaction between market participants to sell the asset or transfer the liability in the market'

and

(2) "A fair value measurement should include an adjustment for risk if market participants would include one in pricing the related asset or liability"

Does the statement for including risk assessment allow for the "risk" that the asset will go up in value (probably not the intention when it was written) as well as down?

To illustrate, people are buying houses today and will buy more tomorrow. Most of them will be pricing in the "risk" that the house *will* eventually appreciate in value again. Which of course it will eventually (I would remind people, that prices of assets DO go UP as well as DOWN).

Should then mark to market allow banks to include explicit risk assessments that, if held for the length of period they expect to hold them, the value of an asset will rise.

Taking foreclosed houses, should banks be allowed to explicitly value a property on their books, for example, at some 5 or 10 year average rather than the market value TODAY? This could be an actuarially constructed value based upon history and "reasonable expectations".

I know that this does not deal with the issue of a bank being wound up tomorrow, but maybe if we didn't have the requirement to mark an immediate value in this way many banks would not BE wound up tomorrow. And this new risk is frankly not so different from other risks we take when investing in common stocks, such as will management screw up or will a competitors new product put them out of business.

I am no accountant, just trying to pose what seems to me a common sense question.

On Mar 06 09:40 PM citetez wrote:

> Get rid of mark to market and magically solve the problem.

Derivatives and Bank Collapse - The Scam That Went Largely Unreported

There is an important assumption not adequately dealt with in the article you reference.

The assumption is that premiums charged for CDS's adequately represent the amount of risk transferred.

Remember, these are the same banks that could not even safely extend something as simple as a retail mortgage!

If risk is not reflected in premium, then the uncollateralised risk in the system has increased every time a CDS was sold.

While agreeing that the notional value of the CDS is not all at risk, if the premium inadequately reflected the notional risk by only 10% then the figures in the article imply unrealized interconnected losses of around $1trillion. And the author only cites 4 banks!

Assuming that each CDS was "resold" 3 times, this still represents a roughly $330 billion potential loss for the 4 banks, which is enough to wipe out the remaining common equity in all of them.

I am not confident that my analysis is complete, but I think there are still big questions here. Are you REALLY confident that this market is not in at least as big of a mess as plain vanilla mortgages?

On Feb 01 09:35 PM Ronald Pires wrote:

> I don't have any problem with the general thrust of your article,
> but tossing around notional amounts of derivatives is pretty much
> useless (and potentially quite misleading) as a measure of the ultimate
> exposure (potental losses) in the market. See "Everything You Wanted
> to Know about Credit Default Swaps--but Were Never Told" by Peter
> J. Wallison for a good explanation of this.
>
> www.rgemonitor.com/glo...