Thank you for this excellent article. When wealth is created from thin air, I cannot imagine that it will end well. Kondratieff would say this is a sign of the end game for Capitalism, where profits are generated by speculation, completely disconnected from productivity. While the market pops the champagne corks, adding leverage to an already over-leveraged scenario, I can only feel one thing: sadness that the markets are broken. Those of us who are outraged by this are assuming that the moral laws that govern outright manipulation of markets (as in Ponzi schemes, manipulation of LIBOR and futures markets, etc...) apply to everyone, in a free market that prices risk according to fundamentals. That assumption has proven to be naive. This move by the Fed smacks of desperation, and any benefit will eventually be unwound.
Market Warning Signs, Trading Momentum, And You [View article]
I think the author very aptly describes the current state of the markets and the push-me-pull-you atmosphere that permeates. Sometimes looking at the macro currents is more important than drilling down into specific balance sheets & earnings analysis (by analysts that-- and forgive me for being cynical-- simply postulate based on the present trend) as stocks trade basically as a commodity class, driven by these market participants (which the author points out have very different motivations and time frames). Understanding these market dynamics might have helped me avoid heavy losses when the bottom fell out a few years ago, and consensus price target on Citigroup was over $50, not under $2! At any rate, I find the information very valuable and take it as another piece of the puzzle. We are in a maddening environment where endless intervention wreaks havoc with price discovery.
Facebook Needs A Clear Business Plan [View article]
PS: Oh, and a note to the author- the entire equity market is a "gamble," and all the supposed "analysis" in the world won't help you. It is hard to account for the various moving parts, including currency moves, inflation, and earnings outlook, when central banks are able to mask big problems with both open and clandestine manipulation of market forces, and stimulus measures that have diminishing returns. Indicators become useless under this scenario. You simply hold your breath and pray the whole thing doesn't collapse. Show me an analyst in 2007 (when Citigroup was north of $50) that had a "price target" of $2 on the stock. Analysts are sheep (I don't wish to denigrate your chosen profession or you personally- just make an observation from my own experience). And they say that millionaires don't use astrology to make investment decisions; billionaires do. I have a crystal ball I can sell you, but to see it you have to go to my Facebook page.
Facebook Needs A Clear Business Plan [View article]
It has been documented that Zuckerberg, when asked why so many people trust him with so much personal information, said it was because they were "dumb f___'s." Facebook is a company fundamentally founded on contempt for its customers, and by extension, contempt for shareholders. Facebook doesn't need a "business plan;" it needs a new CEO. And Americans need to stop wasting so much time sitting in front of screens, feeding virtual animals (FarmVille? give me a break) and posting pictures of themselves drunk. Go fishing. Do something. Before it's too late.
Bank Of America: Don't Wait For The Robins (Update) [View article]
By "fallout" from LIBOR manipulation I meant liability regarding 1) litigation from counterparties harmed by any manipulation 2) any fines, 3) confidence in the accuracy of other aspects of balance sheet reporting 4) managerial fallout ( a la Diamond) and 5) reactive regulatory implications...that is if BAC is ever implicated. Not that these things will ever come to pass, but this is really quite a big deal and I am just surprised that this "unknown" has not entered into the analysis given that BAC has been named in the investigations. Yes, The suppression of LIBOR has had a net positive effect on bank shares, but not completely without consequence. Not a "positive" for confidence in general knowing that impropriety is the reason for creating false confidence, even if that is behind us now.
Bank Of America: Don't Wait For The Robins (Update) [View article]
There has been no mention of the fallout from the recent Libor allegations, that have yet to be crystallized in the media. I suspect a lot of crisis management is going on behind the scenes at the moment in the political arena, and we will see the face of this pig soon (perhaps with a good deal of lipstick). Given the macro issues with this excruciating (and frustrating) global "recovery," and overall issues with the business models of these banks who have not been making money from the "real" economy, but cost-cutting, trading and accounting maneuvers, there is just no urgency to buy the stock absent a new catalyst despite the value that you have rightly noted ( with good supporting numbers). The problem in general with these metrics is that they cannot take into account global sentiment in the face of problems that loom as large as the ones we are facing in Europe, that are structural and fairly deep. If BAC existed in it's own bubble, it would be hard not to rush out and buy it. As a proxy for the recovery in the US, it is probably a good long term hold, as we hope eventually a real recovery will take root. I just think it will be MUCH longer than present analysis projects, based on previous garden-variety recessions. For me, I can't even consider company-specific analysis until I have the macro sorted out.
The exposure to risk via derivatives and speculative positions (prop trading) in US banks has declined since the peak of the crisis, but only marginally so, from what I can glean from my vantage point outside the black box of these banks balance sheets. What this tells me is that little progress has been made in modifying the business model in response to the crisis, and that the same underlying risk factors remain, with the only exception being official policy response to insolvency. The market is relying on this policy response to essentially keep it afloat. It is very hard to quantify this additional risk factor (political risk as I see it) given the high incentive to continue this incestuos relationship between gov't and banks, where the entire financial industry is being managed like profligate children by indulgent parents. I agree with the sentiments here in the article and am glad to see these issues brought out into the light. Seeing any light, however, at the end of the tunnel on these matters is beyond my abilities. We are not a nation where public outrage can gather enough momentum to create any real change, as the average citizen (voter) doesn't pay attention to the Jamie Dimons of the world and has no idea as to how intimately entwined his own fortune is with same. Perhaps inversely, as the actions being taken in these banks will trickle down to Main Street one way or the other. We all pay the price for scandals such as MF Global, rogue traders who make bad bets, and the rigging of Libor, in our loss of confidence in the industry as a whole. Meanwhile, Warren Buffet says JPM is doing the right things! You go, Warren!!!
Friday Follies: What Percentage Of 12M Will Be Hired? [View article]
Would it not be reasonable to propose a tax based on consumption, specifically luxury goods and things that are non-essential? Flat screen TVs, luxury cars, country club memberships, scotch, cigarettes and Louis Vuiton handbags. As much as I would be loathe to pay it, suppose you taxed me 100 percent on a new Mercedes? And give me a tax break on my Real Estate tax for example. A tax on productivity only discourages productivity. This may sound absurd and naive, but our country reminds me of an old friend if mine who was a top surgeon but he could't manage his money; he had an addiction to very expensive wines (that cost thousands of dollars per bottle) and he spent his entire paycheck on wines and was always broke. So we give money to the prop trading desks of insolvent institutions so they, too, can piss it away!
JPMorgan's (JPM) trading loss could reach $9B, say people briefed on the situation, with red ink piling up as JPM moves faster than expected to exit its money-losing positions. Jamie Dimon was way off when he warned in May that the initial $2B loss could double in coming quarters. JPM will disclose more details in its July 13 earnings report. [View news story]
JP Morgan has been hoodwinking the US government since the Civil War and probably before. Called the "Hall Carbine Affair," JPM bought at that time defective Carbine rifles from the government @ 3.50 each and later resold to the government as "new" rifles for $22 each. It takes a certain personality and ethos to do this, and apparently this core principle has survived intact over the decades at JPM. Bankers will be Bankers. Jamie Dimon could have managed (with his ability to manipulate a situation) to feign at least some faux-humility at those Congressional hearings. The hubris, I guess, just could not be fully contained. Read the "OCC's Quarterly Report On Bank Trading and Derivatives Activities" to get a feel for the overall derivative exposure in US banks and see why there is so much anxiety at the moment. They don't tell you this stuff on CNBC!
The Start Of The 2012 End Game Is Upon Us [View article]
James, I have been looking for your articles and follow-up to your earlier work as I have often chuckled to myself when events in Europe have been turning out in very close agreement with your analysis of the situation. The suspension of disbelief that you note is not unlike the stages of the kubler-ross model for grief, transposed to a societal level (which can apply to any event of trauma): denial, anger, bargaining, depression, acceptance. We are now in the bargaining phase.
But stock prices do not always do what we expect based on fundamentals. We should not underestimate the ability of political will to keep markets afloat in times of crisis (for fear of complete meltdown). It should also be noted that technical analysis is not what it used to be; since the model is well-known, it can be used as a tool to strategically manipulate indexes by political entities. For example- it is known that once key support is broken there will be a triggering of stops and an increase in short positions; in an environment of extremely light volume, what perfect time to ignite a short-covering rally with some little policy announcement, or a bit of liquidity (creating a bear trap), pushing markets higher. Policy is getting to be blatant in terms of attempting to manipulate market outcome (a la Operation Twist), such as the purchasing of sovereign bonds in the open market. These competing interests within the market environment are just more moving parts in the equation, and very difficult to quantify. In time, however, I believe your thesis will be borne out.
European Debt Crisis Escalates Before Greek Election [View article]
The truth is not something traders like to hear, as rumor and innuendo seem to be the main drivers of these markets, along with that elusive "hope." I hate to be pessimistic, and I always look to the glass half-full, but the glaring reality here is that the troika has only transient abilities to impact the economy, and once stimulus is removed, the benefit ceases. It seems that central bankers think they can somehow "jumpstart" the dead battery, by creating artificial wealth, but they can't create "demand." But expect entirely irrational market response to any news that crosses the wire, because nothing in the market ever works out as expected, and we can only position based on our over-arching investment strategies and assessment of probabilities.
Jesus, Bob Dylan And Expected Returns: 8 Indicators Of Long-Term Equity Returns [View article]
Excellent analysis. This concurs with my own thoughts and I have been waiting patiently for a "next leg down," to deploy capital. Meanwhile, the market has been mocking me in its usual fashion!
Jobless Claims Rise Last Week - A Warning Sign Of Things To Come? [View article]
Frankly, I think Merkel is one of the few clear-headed players in this crisis, and this probably won't be appreciated except in retrospect. I have no strong opinion about her one way or the other, but I think she is painted in a negative light in various emotional arguments that bring up Germany's past, and want to portray her as an obstacle to cooperation, but she has at least stood by her convictions. She refuses to imagine that the naked emperor is wearing clothes, and to mix a metaphor!- that we can have our cake and eat it, too. That's what the market wants. The cake. No pain. We've been eating cake for 40 years and now we have a little indigestion. Perhaps now we will be eating crow. The sad thing is the recipients of pain will be the middle/working class people in Southern Europe, and here at home, too.
There's No Longer A Bernanke Put [View article]
Market Warning Signs, Trading Momentum, And You [View article]
Facebook Needs A Clear Business Plan [View article]
Facebook Needs A Clear Business Plan [View article]
Bank Of America: Don't Wait For The Robins (Update) [View article]
Bank Of America: Don't Wait For The Robins (Update) [View article]
The Traders Did It! [View article]
Friday Follies: What Percentage Of 12M Will Be Hired? [View article]
Friday Follies: What Percentage Of 12M Will Be Hired? [View article]
Friday Follies: What Percentage Of 12M Will Be Hired? [View article]
JPMorgan's (JPM) trading loss could reach $9B, say people briefed on the situation, with red ink piling up as JPM moves faster than expected to exit its money-losing positions. Jamie Dimon was way off when he warned in May that the initial $2B loss could double in coming quarters. JPM will disclose more details in its July 13 earnings report. [View news story]
The Start Of The 2012 End Game Is Upon Us [View article]
But stock prices do not always do what we expect based on fundamentals. We should not underestimate the ability of political will to keep markets afloat in times of crisis (for fear of complete meltdown). It should also be noted that technical analysis is not what it used to be; since the model is well-known, it can be used as a tool to strategically manipulate indexes by political entities. For example- it is known that once key support is broken there will be a triggering of stops and an increase in short positions; in an environment of extremely light volume, what perfect time to ignite a short-covering rally with some little policy announcement, or a bit of liquidity (creating a bear trap), pushing markets higher. Policy is getting to be blatant in terms of attempting to manipulate market outcome (a la Operation Twist), such as the purchasing of sovereign bonds in the open market. These competing interests within the market environment are just more moving parts in the equation, and very difficult to quantify. In time, however, I believe your thesis will be borne out.
European Debt Crisis Escalates Before Greek Election [View article]
Jesus, Bob Dylan And Expected Returns: 8 Indicators Of Long-Term Equity Returns [View article]
Jobless Claims Rise Last Week - A Warning Sign Of Things To Come? [View article]
The sad thing is the recipients of pain will be the middle/working class people in Southern Europe, and here at home, too.