CautiousInvestor

Everyone Fleeing Into Stocks and Bonds Not a Good Sign - IRA

Individual investors, as measured by the flow of funds into mutual funds, are ignoring the siren song of MSM, brokers and government apparatchiks and avoiding equities. They are, though, piling into Treasuries

"Equity funds had estimated outflows of $4.16 billion for the week, compared to estimated outflows of $7 million in the previous week. Domestic equity funds had estimated outflows of $3.15 billion, while estimated outflows to foreign equity funds were $1.01 billion.

Hybrid funds, which can invest in stocks and fixed income securities, had estimated inflows of $548 million for the week, compared to estimated inflows of $489 million in the previous week.

Bond funds had estimated inflows of $12.06 billion, compared to estimated inflows of $9.84 billion during the previous week. Taxable bond funds saw estimated inflows of $9.67 billion, while municipal bond funds had estimated inflows of $2.39 billion."

Amplifying what Whalen is fearing, the Fed themselves have have considerable concerns about the collapse of CRE: "In a just-revealed presentation to banking regulators last month, the Fed lamented that U.S. banks "are slow" to book losses on commercial real-estate loans being battered by slumping property values and rental payments (see below for more on commercial rentals). "Banks will be slow to recognize the severity of the loss - just as they were in residential," the Fed warned, suggesting banking regulators are girding for a rerun of the home-lending breakdown. NY Fed chief Bill Dudley echoed similar concerns in a speech this week, saying, "More pain likely lies ahead for this sector and for those banks with heavy commercial real estate exposures."

TARP: Bailout or Money Pit?

I think the problem is larger than money; I think the fundamental problem is that investors do not believe the administration has a viable plan to restore stability to the banking system and systematically deal with the core issues facing the sector.

Under both Bush and Obama, the TARP program has lacked clear goals, has been implemented in piece meal fashion and has suffered from lack of transparency. From the very beginning, the U.S. government made the mistake of addressing each major bank failure differently: aiding the takeover of Bear Sterns by JPMorgan, allowing Lehman Brothers to go bankrupt and then dumping $180 billion into AIG.

Under Geithner, there has been his underwhelming perfromance as a speaker and his inability to inspire confidence by communicating a thoughtful, comprehensive plan. Details of the stress test were slow to materialize and then there were the nagging questions of which capital ratios were to be used in guaging solvency. And there is the suggestion that purchases of preferred shares will be calibrated as losses occur.

Finally, when the government increased its stake in Citi to 36% and infused more capital into AIG, the markets took this to mean the problems are large, never ending and too big to be fixed. TARP has lost credibility with the market.

Have Banks Turned or Burned? - Barron's

I think you have to look at each bank on a case by case basis........but I would still argue there is insufficient data to make an informed decision.

In looking at banks as an investment class, there is only looming uncertainty. We can only expect downside surprises from the stress tests which are to be complete by the end of April. We are not going to simply take the word of banks that adequate loan loss reserves are in place; expect regulators to take a firm stance with the distinct possibility of further writedowns.

Then, for the banks that need addtional capital, banks have six months to raise private equity before the government buys another layer of preferred stock. I can see all kinds of things happening during this window as the the economy deteriorates further, things start to unfold in Eurpope and surprise losses spur emergency measures similar to Citi.

There is a reason Obama and Geithner has asked Congress for another $750 billion on top of the $700 billion for TARP.

Have Banks Turned or Burned? - Barron's

I think you have to look at each bank on a case by case basis........but I would still argue there is insufficient data to make an informed decision.

In looking at banks as an investment class, there is only looming uncertainty. We can only expect downside surprises from the stress tests which are to be complete by the end of April. We are not going to simply take the word of banks that adequate loan loss reserves are in place; expect regulators to take a firm stance with the distinct possibility of further writedowns.

Then, for the banks that need addtional capital, banks have six months to raise private equity before the government buys another layer of preferred stock. I can see all kinds of things happening during this window as the the economy deteriorates further, things start to unfold in Eurpope and surprise losses spur emergency measures similar to Citi.

There is a reason Obama and Geithner has asked Congress for another $750 billion on top of the $700 billion for TARP.