Citigroup CFO Gary Crittenden told CNBC that the bank has a "very strong capital base" even though the US government had to prop up the troubled banking giant on Friday, the third rescue attempt in five months.
Crittenden also said it was too early to tell if Citigroup [C 1.55 -0.91 (-36.99%) ] would need additional capital from the government beyond the $45 billion it's already received.
Here are the highlights of the wide-ranging interview with Crittenden shortly after the government rescue effort was announced Friday:
Stress Test, Additional Capital
“We ran a stress test that is more difficult and more conservative than what the government’s stress test appears to be. And when you go through that process, we would still categorize as [having a] very strong capital base.”
“The government stress test has just come out and we don’t know how those economic factors are going to translate into the financial impact that those economic factors are going to have. No one would know that because those discussions haven’t happened with the government. And secondly, we don’t know what kind of eventual level of capital the government is going to require…”
On Government Involvement with Citigroup
“The day to day operating decisions that are made in the company are made by the management of the business and those decisions always part of what we review with the board of directors and the regulators we work with all the time…”
“We are appreciative of the investment that the government has made in us. They’ve made a significant commitment to the company. As you know, $45 billion dollars. And we believe we have a stewardship related to that $45 billion dollars and we’re going to do our best to do a good job.”
On Domestic vs. International Risk
“I think we continue to think that there is more risk domestically than internationally. But the primary point is that we’ve substantially cut the risk that we’ve had on the balance sheet from a year ago. As you know, we inherited some very significant risk positions which we have cut substantially. But today, I would say that risk is still more tilted a little more domestically.”
Citi Corp. vs. Citi Holdings
“We think that the future of Citi Corp. is very bright and we think there’s substantial opportunity to realize value out of Citi Holdings over time. The company is properly capitalized, we’ve done an excellent job of managing our expenses over the last year, we’ve done an excellent job of managing down the unproductive assets that we have. Our job is to continue to execute on this strategy that we’ve articulated and our view is that that view is going to get the right response in the market over time.”
Friday, February 27, 2009
Wednesday, February 25, 2009
Bernanke...Nationalization....No thanks!!! But who believes that guy right?
Are Any Bank Stocks Safe For Investors to Buy Yet?
Topics:Banking | Stock Market
Companies:JPMorgan Chase and Co | Hudson City Bancorp, Inc. | Bank of America Corp | Citigroup IncBy: Jeff Cox, CNBC.com | 25 Feb 2009 | 02:58 PM ET Text Size Investors looking to pile back into bank stocks Wednesday drew a warning from investment pros: Watch your step.
Taking a cue from Federal Reserve Chairman Ben Bernanke, investors turned around massive losses in bank shares after the central bank chief told Congress that the government has no desire to nationalize the financial institutions and said small banks for the most part were on solid ground.
But the move was greeted with skepticism toward an industry that is operating with little clarity regarding its future.
"At this moment all the signals we've been getting are basically telling us that common stock of banks is incredibly vulnerable," says Emily Sanders, CEO of Sanders Financial Management in Atlanta. "Until the government actions are determined, and I'm not even talking about nationalization, just really solvency issues and the result of the stress tests...I wouldn't touch them with a 10-foot pole." (Mikey says thank God)
To be sure, there's division within the investment community about just how far away the banks should be kept.
Cherry-picking certain financials, such as those that have shown they have the staying power both to avoid government help in the short term and to prosper in the long term, is advocated by some as a sound strategy.
"There are a couple of banks you could own," says Michael Cohn, chief investment strategist at Atlantis Asset Management in New York. "You're playing a little bit of a dice game."
JPMorgan Chase [ Loading... () ] has emerged as one bank that could rise above the others. The firm on Monday slashed its dividend but said it was doing well so far this year.
"They've actually said they're profitable this quarter, and they've done the right thing by cutting the dividend," Cohn says.
Another bank stock Cohn likes is Hudson City Bancorp [HCBK 10.62 -0.14 (-1.25%) ], which though near its 52-week low has low exposure to the subprime loans that have done in other banks. The savings and loan also has refused government bailout money.
Of course, there are more ways to invest in banks than through common shares.
Preferred shares are one option. Though they limit investor opportunities to catch sharp moves to the upside, preferreds offer dividends and something resembling a safe haven in difficult times.
While few would advocate buying Citigroup [C 2.75 0.15 (+5.77%) ] shares at this point, the company's preferreds are paying in excess of 8 percent. While the risk that Citi could default on its debt somewhere is ever-present, the rewards to investors otherwise are great.
Similarly, senior debt of other too-big-to-fail banks, such as Bank of America [BAC 5.25 0.52 (+10.99%) ], are attracting investors looking for an alternative play.
"Shake hands with the government," Paul McCulley, managing director of the Pimco bond fund, said on CNBC. "Capitalism is in the intensive care ward and the government is there as the attending physician, and we're seeing asset class after asset class be supported by the government and we want to be a co-investor with the government." (Mikey says right on)
Bank stocks seesawed through Wednesday trading, turning mostly higher later in the day.
Still, many remain unconvinced.
The news is turning slowly in the banks favor. As long as they remain uncovenced I buy...Mikey
Topics:Banking | Stock Market
Companies:JPMorgan Chase and Co | Hudson City Bancorp, Inc. | Bank of America Corp | Citigroup IncBy: Jeff Cox, CNBC.com | 25 Feb 2009 | 02:58 PM ET Text Size Investors looking to pile back into bank stocks Wednesday drew a warning from investment pros: Watch your step.
Taking a cue from Federal Reserve Chairman Ben Bernanke, investors turned around massive losses in bank shares after the central bank chief told Congress that the government has no desire to nationalize the financial institutions and said small banks for the most part were on solid ground.
But the move was greeted with skepticism toward an industry that is operating with little clarity regarding its future.
"At this moment all the signals we've been getting are basically telling us that common stock of banks is incredibly vulnerable," says Emily Sanders, CEO of Sanders Financial Management in Atlanta. "Until the government actions are determined, and I'm not even talking about nationalization, just really solvency issues and the result of the stress tests...I wouldn't touch them with a 10-foot pole." (Mikey says thank God)
To be sure, there's division within the investment community about just how far away the banks should be kept.
Cherry-picking certain financials, such as those that have shown they have the staying power both to avoid government help in the short term and to prosper in the long term, is advocated by some as a sound strategy.
"There are a couple of banks you could own," says Michael Cohn, chief investment strategist at Atlantis Asset Management in New York. "You're playing a little bit of a dice game."
JPMorgan Chase [ Loading... () ] has emerged as one bank that could rise above the others. The firm on Monday slashed its dividend but said it was doing well so far this year.
"They've actually said they're profitable this quarter, and they've done the right thing by cutting the dividend," Cohn says.
Another bank stock Cohn likes is Hudson City Bancorp [HCBK 10.62 -0.14 (-1.25%) ], which though near its 52-week low has low exposure to the subprime loans that have done in other banks. The savings and loan also has refused government bailout money.
Of course, there are more ways to invest in banks than through common shares.
Preferred shares are one option. Though they limit investor opportunities to catch sharp moves to the upside, preferreds offer dividends and something resembling a safe haven in difficult times.
While few would advocate buying Citigroup [C 2.75 0.15 (+5.77%) ] shares at this point, the company's preferreds are paying in excess of 8 percent. While the risk that Citi could default on its debt somewhere is ever-present, the rewards to investors otherwise are great.
Similarly, senior debt of other too-big-to-fail banks, such as Bank of America [BAC 5.25 0.52 (+10.99%) ], are attracting investors looking for an alternative play.
"Shake hands with the government," Paul McCulley, managing director of the Pimco bond fund, said on CNBC. "Capitalism is in the intensive care ward and the government is there as the attending physician, and we're seeing asset class after asset class be supported by the government and we want to be a co-investor with the government." (Mikey says right on)
Bank stocks seesawed through Wednesday trading, turning mostly higher later in the day.
Still, many remain unconvinced.
The news is turning slowly in the banks favor. As long as they remain uncovenced I buy...Mikey
Tuesday, February 24, 2009
Debt to equity swaps;stress tests, and a NYSE trader holding his head on the front page
The banks will be allowed to pay off TARP money with common stock. This will take the billions of TARP money of the liability side and put it into common equity. The net result is a balance sheet that is cleaner for the banks and allows them to make loans. The other side is that the banks equity will be deluded. Citi it is say could be deluded to between 25 and 40%.
The government will begin stress tests to determine how much more capital is needed by the banks. The "Stress Test" of course will be between the banks and the government. Now all we need is for Geithner through an intermediary to start buying banks stocks and cause a stampede into them.
My home town newspaper shows a picture of a trader holding his head and below that in big old numbers 7,117.78. This is good stuff the kind of thing that you see at lows. The beat goes on ....Mikey
The government will begin stress tests to determine how much more capital is needed by the banks. The "Stress Test" of course will be between the banks and the government. Now all we need is for Geithner through an intermediary to start buying banks stocks and cause a stampede into them.
My home town newspaper shows a picture of a trader holding his head and below that in big old numbers 7,117.78. This is good stuff the kind of thing that you see at lows. The beat goes on ....Mikey
Pros say Gold to 3000 and Short the banks...Mikey says Gold to 400 buy the banks
Major U.S. Indexes.DJIA7280.21165.43+2.33%1,306,375,000.
NCOMP1422.8935.17+2.53%524,363,900.
SPX765.0121.68+2.92%3,623,952,300
Gold 969.10 -25.90
Oil 39.41 +.97
Dollar Index 87.05 -.37
Stocks ticked higher Tuesday, bouncing off a 12-year low on Monday, as investors scooped up bargains and bank stocks bounced back.
This came after stocks dropped more than 3 percent on Monday, ending at levels not seen since May 1997.
Federal Reserve Chairman Ben Bernanke said the economy is suffering through a "severe contraction" and pledged to use all available tools to lift the country out of the recession, in testimony before the Senate Banking Committee.
Later, President Obama will address a joint session of Congress to outline his budget plan.
In economic news, home prices continued to post record declines. Prices of single-family homes dropped 18.5 percent in December from a year earlier, according to an S&P/Case-Shiller home-price index.
And consumer confidence plunged to a record low in February. The Conference Board's confidence index dropped to 25 from a downwardly revised 37.4 in January. Economists had expected a more mild drop to 35.5.
Citigroup [C 2.45 0.31 (+14.49%) ], the subject of intense speculation on whether the government will take a major interest in the troubled bank, saw its shares gain more than 5 percent, adding to Monday's 10-percent gain. This came after Citi ended last week at its lowest level since January 1991.
>> Would 40% in Citigroup Be Enough?
Citi CEO Richard Parsons met Monday night with Valerie Jarrett, a top aide to President Obama, intensifying speculation of the government's interest in helping Citi, Politico reported on its Web site.
Shares of Bank of America [BAC 4.55 0.64 (+16.37%) ] and JPMorgan [JPM 20.64 1.13 (+5.8%) ] also advanced.
For Investors:
Pros Say: Gold to Spike to $3,000
Shorting Prospects in Western Banks
Rising-Star Stock: Energy
Mikey Says: I threw that for investors as an added bonus. 3000 Gold? Shorting banks?
I love it. The beat goeson...Mikey
NCOMP1422.8935.17+2.53%524,363,900.
SPX765.0121.68+2.92%3,623,952,300
Gold 969.10 -25.90
Oil 39.41 +.97
Dollar Index 87.05 -.37
Stocks ticked higher Tuesday, bouncing off a 12-year low on Monday, as investors scooped up bargains and bank stocks bounced back.
This came after stocks dropped more than 3 percent on Monday, ending at levels not seen since May 1997.
Federal Reserve Chairman Ben Bernanke said the economy is suffering through a "severe contraction" and pledged to use all available tools to lift the country out of the recession, in testimony before the Senate Banking Committee.
Later, President Obama will address a joint session of Congress to outline his budget plan.
In economic news, home prices continued to post record declines. Prices of single-family homes dropped 18.5 percent in December from a year earlier, according to an S&P/Case-Shiller home-price index.
And consumer confidence plunged to a record low in February. The Conference Board's confidence index dropped to 25 from a downwardly revised 37.4 in January. Economists had expected a more mild drop to 35.5.
Citigroup [C 2.45 0.31 (+14.49%) ], the subject of intense speculation on whether the government will take a major interest in the troubled bank, saw its shares gain more than 5 percent, adding to Monday's 10-percent gain. This came after Citi ended last week at its lowest level since January 1991.
>> Would 40% in Citigroup Be Enough?
Citi CEO Richard Parsons met Monday night with Valerie Jarrett, a top aide to President Obama, intensifying speculation of the government's interest in helping Citi, Politico reported on its Web site.
Shares of Bank of America [BAC 4.55 0.64 (+16.37%) ] and JPMorgan [JPM 20.64 1.13 (+5.8%) ] also advanced.
For Investors:
Pros Say: Gold to Spike to $3,000
Shorting Prospects in Western Banks
Rising-Star Stock: Energy
Mikey Says: I threw that for investors as an added bonus. 3000 Gold? Shorting banks?
I love it. The beat goeson...Mikey
Monday, February 23, 2009
Treasury Statement on Banks
DJIA 7290 -75.50 Gold 989.20 -13 Oil 40.06 +.03 Dollar Index 87.016 +.528
Below is the text of the statement issued on Monday on the U.S. banking system by the U.S. Treasury, Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve:
''A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.
''We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment.
Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares.
The conversion feature will enable institutions to maintain or enhance the quality of their capital.
''Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.''
Mikey says:
That pretty much says it all. I choose to invest with the government in the banks. That is private equity at the grass roots level. I believe strongly that it will work
3 years from today people will look back at this I knew it was a buy what was I thinking? But today the in thing is to sell and buy gold. The Gold Bugs crack me up because if the world does come to an end the new government will steal their gold or make it illegal to own. By rooting for bad news you are ignoring a once in a lifetime opportunity and cheering for your own death.
I choose to value the opportunity that I see and not hide in the corner and value the fear that is being sold now. The beat goes on ....Mikey
Below is the text of the statement issued on Monday on the U.S. banking system by the U.S. Treasury, Federal Deposit Insurance Corp, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Reserve:
''A strong, resilient financial system is necessary to facilitate a broad and sustainable economic recovery. The U.S. government stands firmly behind the banking system during this period of financial strain to ensure it will be able to perform its key function of providing credit to households and businesses. The government will ensure that banks have the capital and liquidity they need to provide the credit necessary to restore economic growth. Moreover, we reiterate our determination to preserve the viability of systemically important financial institutions so that they are able to meet their commitments.
''We announced on February 10, 2009, a Capital Assistance Program to ensure that our banking institutions are appropriately capitalized, with high-quality capital. Under this program, which will be initiated on February 25, the capital needs of the major U.S. banking institutions will be evaluated under a more challenging economic environment.
Should that assessment indicate that an additional capital buffer is warranted, institutions will have an opportunity to turn first to private sources of capital. Otherwise, the temporary capital buffer will be made available from the government. This additional capital does not imply a new capital standard and it is not expected to be maintained on an ongoing basis. Instead, it is available to provide a cushion against larger than expected future losses, should they occur due to a more severe economic environment, and to support lending to creditworthy borrowers. Any government capital will be in the form of mandatory convertible preferred shares, which would be converted into common equity shares only as needed over time to keep banks in a well-capitalized position and can be retired under improved financial conditions before the conversion becomes mandatory. Previous capital injections under the Troubled Asset Relief Program will also be eligible to be exchanged for the mandatory convertible preferred shares.
The conversion feature will enable institutions to maintain or enhance the quality of their capital.
''Currently, the major U.S. banking institutions have capital in excess of the amounts required to be considered well capitalized. This program is designed to ensure that these major banking institutions have sufficient capital to perform their critical role in our financial system on an ongoing basis and can support economic recovery, even under an economic environment that is more challenging than is currently anticipated. The customers and the providers of capital and funding can be assured that as a result of this program participating banks will be able to move forward to provide the credit necessary for the stabilization and recovery of the U.S. economy. Because our economy functions better when financial institutions are well managed in the private sector, the strong presumption of the Capital Assistance Program is that banks should remain in private hands.''
Mikey says:
That pretty much says it all. I choose to invest with the government in the banks. That is private equity at the grass roots level. I believe strongly that it will work
3 years from today people will look back at this I knew it was a buy what was I thinking? But today the in thing is to sell and buy gold. The Gold Bugs crack me up because if the world does come to an end the new government will steal their gold or make it illegal to own. By rooting for bad news you are ignoring a once in a lifetime opportunity and cheering for your own death.
I choose to value the opportunity that I see and not hide in the corner and value the fear that is being sold now. The beat goes on ....Mikey
Friday, February 20, 2009
Remember today...
DJIA 7355 -110 VIX 49.88 Gold 995 +19.40 Oil 38.94 -.54
Document today's news and keep it. It is the same story I have heard for 5 months.It will serve you well in the future. Bottom line the insiders want stock and they want it NOW!!!!!
I REMAIN EXTREMELY BULLISH...Mikey
Document today's news and keep it. It is the same story I have heard for 5 months.It will serve you well in the future. Bottom line the insiders want stock and they want it NOW!!!!!
I REMAIN EXTREMELY BULLISH...Mikey
Today's News Nationalization Talk new multi year low for the DJIA
Bank nationalization may not be the policy preference of Democrats and Republicans alike, but it may well be the last resort of both parties, as more and more analysts say nationalization is no longer a matter of "if" but "when."
With the banking sector in a quagmire of bad assets, poor demand and weak cash flow, and government policy initiatives to date showing meagerly results, the concept of nationalization—long considered anathema—is now a real policy option in a growing number of quarters.
“I think nationalization makes an awful lot of sense,” says Walker Todd, a former Federal Reserve official now with American Institute for Economic Research. “Not only is it a viable alternative to keep going with TARP or bad bank solutions, eventually you reach the point where the money needed surpasses the capacity of the taxpayer.”
Nationalization has always had its share of high-profile supporters, such as Nobel Prize-winning economist Joseph Stiglitz, but when free-market champions such as former Fed boss Allen Greenspan mention the possibility, the concept has clearly moved to another level of policy debate.
Sen. Lindsey Graham (R-SC) is among those who admit nationalization may soon be on the table.
“The tolerance for throwing good money after bad has ended,” says Kevin Bishop, a spokesman for Graham. “We're talking about certain banks … temporary surgical stabilization.”
Nationalization Meaning What?
Phrases like that illustrate how the current debate over nationalization may be as much about semantics as it is about political ideology.
Nationalization means different things to different people. By one definition the U.S. government has been doing it for decades, and mostly quite successfully.
Slideshow: Bank Failures Of 2008
Typically, the FDIC shuts down what it’s determined to be an insolvent bank and briefly assumes control while finding a buyer. The government supplies the necessary capital to satisfy the needs of the buyer as well as regulatory requirements. Insured deposits are protected and the bank reopens under new management.
“We did 1,000 savings and loans and 1,000 commercial banks, 20-years ago,” says Lawrence White, a savings and loan regulator at the time, who’s also served as a White House economist. “If you want (you can) call it nationalization. That's not how I thought of it.”
And that’s exactly what a growing number of people would have the government do with a limited number of banks—big ones—if the current rescue measures fail to pay off.
“Short term, given the alternatives, it’s not such a dreadful thing,” says White, adding the government needs to “make it clear it would be sold back into the market.”
White and others make it clear they are not talking about the primary alternative—outright industry nationalization, best illustrated by the socialist French government of Francois Mitterand in the early 1980s. That was direct government control of the banks' operations. Later, the banks were privatized.
The growing talk of nationalization also reflects a standard progression of crisis management, say experts.
“It’s common that when countries go into a financial crisis, they follow a piece meal approach, partly because of constraints in the political arena," says Luc Laeven, a senior economist at the International Monetary Fund, who co-authored a 2008 study of systemic banking crises and government policy responses in the past four decades.
“Considering nationalization as an option is the right thing to do. It is better to save a bank after you write down the shareholders and take control and have direct control over how the money spent.”
The Bush administration struggled over those issues from the moment the financial crisis began causing direct and collateral damage on a major level—the Bear Stearns collapse-shotgun marriage to JPMorgan Chase [JPM 19.35 -1.25 (-6.07%) ] in early March—while they also appear to have influenced the Obama administration's significant revisions to the original TARP program
Thus far the effort has centered on injecting capital for government equity and protecting shareholder value, while also protecting taxpayer exposure. Neither, however, has succeeded.
The market capitalizations of Citigroup [C 1.87 -0.64 (-25.5%) ] and Bank of America [C 1.87 -0.64 (-25.5%) ],two of the big financial firms struggling the most under the weight of bad assets, are now well below the amount of government assistance.
“Pay out the shareholders and move on,” says Gerald O’Driscoll, a former official at the Dallas Federal Reserve Bank and former vice president at Citigroup. “You could do it that way—the Bear Stearns model. Give them something nominal, so they don't resist.”
O’Driscoll, who's now with the Cato Institute, is among those who support the nationalization model on a case-by-case basis as part of the solution. “I think they're going to end up with a certain number of cases, even though they procrastinated, hoping the situation would work itself out.”
Dow Hits 10-Yr Low; Citi Drops Below $2
Topics:Banking | Taxes | Laws and Legislation | Earnings | Stock Market
Sectors:Banks
Companies:Barrick Gold Corporation | Lowe's Companies Inc | UBS AG | Bank of America Corp | JC Penney Company IncBy: Cindy Perman, CNBC.com | 20 Feb 2009 | 01:57 PM ET Text Size Stocks declined Friday as banks took another pounding amid fears of nationalization and the Dow dropped to its lowest point in more than 10 years.
The Dow Jones Industrial Average lost more than 2 percent, reaching its lowest level since October 1997.
The S&P 500 shed nearly 3 percent, and the Nasdaq dropped more than 1 percent.
Major U.S. Indexes.DJIA7310.16-155.79-2.09%1,589,376,000.NCOMP1423.87-18.95-1.31%593,945,000.SPX761.35-17.59-2.26%4,092,958,100
What's the Next Dow Level to Break Through?
Dow Theory Says SELL SELL SELL
Both Citigroup [C Loading... () ] and Bank of America [BAC 3.15 -0.78 (-19.85%) ] plunged more than 30 percent, leaving Citigroup below $2 and Bank of America below $3.
Wall Street was rattled by several comments alluding to nationalization out of Washington.
Sen. Chris Dodd said today that banks may have to be nationalized for some period of time, which sent stocks spiraling further. This comes a day after Fed Chairman Ben Bernanke alluded to nationalization in a speech, which got traders buzzing.
This comes after as selloff Thursday that saw the Dow crash through its November low to settle at a six-year low.
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Crucial Time to Build Your Portfolio
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Several big caps hit multiyear lows today: Boeing [BA 35.84 -1.73 (-4.6%) ] and Berkshire Hathaway [BRK Unavailable () ] both fell to their lowest in five years, General Electric [GE 9.10 -0.96 (-9.54%) ] hit its lowest in more than 10 years and Alcoa [AA 6.09 -0.25 (-4.02%) ] hit a 20-year low.
Traders have been clamoring for details of the Obama administration's stimulus plans, which were expected to assuage market jitters. But when specific plans for the mortgage-rescue plan emerged, stocks sold off.
"This market sold off quite frankly because it did not like the plan period," Jack Bouroudjian, a principal at Brewer Investment Group, told CNBC this morning.
And, while tech stocks had a harder selloff than financials yesterday, Bouroudjian said it all comes down to the banks.
"The banking sector is the heart blood of capitalism. Unless it gets healthy, the rest of the sectors are going to spin their wheels," he said.
In the day's only economic data point, consumer prices rose 0.3 percent last month, the first gain since July; core CPI, which excludes volatile food and energy costs, rose 0.2 percent.
>> CPI Breakdown: Where Costs are Rising
Switzerland’s tax and banking laws came under sharp scrutiny as US authorities widened a probe into UBS [UBS 9.25 -1.33 (-12.57%) ], suing for information on 52,000 clients. The Swiss bank agreed to large fines earlier in the week in an attempt to settle criminal charges.
American depositary shares of UBS tumbled more than 10 percent, pushing the stock under $10 on the New York Stock Exchange.
Bank of America is also under legal scrutiny, as chairman and chief executive Kenneth Lewis was subpoenaed by New York Attorney General Andrew Cuomo last week. Cuomo is investigating whether the bank violated state law by withholding information from investors, a source familiar with the case told CNBC.
"Would I be buying the equity in Citi and Bank of America here? I mean, it's very cheap, but I think the banks survive; I don't think the equity survives," Steve Auth, CIO of global equities at Federated Investors, told CNBC.
(Click on the video at left to watch the interview.)
More and more analysts are saying that nationalization isn't a matter of i
Crude oil pulled back a few dollars, trading between $37 and $38 a barrel, while gold popped above $1,000 a troy ounce.
"The time of stock and bond investing only, is over. And we have to realize that," said Heath Bray, a VP at Wealth Trust Arizona, told CNBC.
Tough times continued for the auto sector as General Motors' [GM 1.70 -0.30 (-15%) ] loss-making unit Saab said it would seek legal protection from creditors as it scrambles to restructure and gather new funding.
And missing Texas billionaire Allen Stanford has been found in Fredericksburg, Virginia and served with a complaint accusing him of an $8 billion fraud.
In earnings, Lowe's [LOW 15.62 -1.36 (-8.01%) ] reported a sharp drop in quarterly profit as the home-improvement retailer slashed prices to try to lure penny-pinching shoppers. Earnings fell to 11 cent a share, just below analyst estimates. Lowe's outlook fell short of expectations.
Also, Barrick Gold [ABX 37.25 0.81 (+2.22%) ] shares gained after the company beat analyst estimates with a profit of 32 cents per share.
And JCPenney [JCP 15.03 0.11 (+0.74%) ] beat forecasts but issued a disappoi
I will buy the UYG on the close today. The beat goes on Mikey\\\
Correction ....market rallied holding off buying the close
With the banking sector in a quagmire of bad assets, poor demand and weak cash flow, and government policy initiatives to date showing meagerly results, the concept of nationalization—long considered anathema—is now a real policy option in a growing number of quarters.
“I think nationalization makes an awful lot of sense,” says Walker Todd, a former Federal Reserve official now with American Institute for Economic Research. “Not only is it a viable alternative to keep going with TARP or bad bank solutions, eventually you reach the point where the money needed surpasses the capacity of the taxpayer.”
Nationalization has always had its share of high-profile supporters, such as Nobel Prize-winning economist Joseph Stiglitz, but when free-market champions such as former Fed boss Allen Greenspan mention the possibility, the concept has clearly moved to another level of policy debate.
Sen. Lindsey Graham (R-SC) is among those who admit nationalization may soon be on the table.
“The tolerance for throwing good money after bad has ended,” says Kevin Bishop, a spokesman for Graham. “We're talking about certain banks … temporary surgical stabilization.”
Nationalization Meaning What?
Phrases like that illustrate how the current debate over nationalization may be as much about semantics as it is about political ideology.
Nationalization means different things to different people. By one definition the U.S. government has been doing it for decades, and mostly quite successfully.
Slideshow: Bank Failures Of 2008
Typically, the FDIC shuts down what it’s determined to be an insolvent bank and briefly assumes control while finding a buyer. The government supplies the necessary capital to satisfy the needs of the buyer as well as regulatory requirements. Insured deposits are protected and the bank reopens under new management.
“We did 1,000 savings and loans and 1,000 commercial banks, 20-years ago,” says Lawrence White, a savings and loan regulator at the time, who’s also served as a White House economist. “If you want (you can) call it nationalization. That's not how I thought of it.”
And that’s exactly what a growing number of people would have the government do with a limited number of banks—big ones—if the current rescue measures fail to pay off.
“Short term, given the alternatives, it’s not such a dreadful thing,” says White, adding the government needs to “make it clear it would be sold back into the market.”
White and others make it clear they are not talking about the primary alternative—outright industry nationalization, best illustrated by the socialist French government of Francois Mitterand in the early 1980s. That was direct government control of the banks' operations. Later, the banks were privatized.
The growing talk of nationalization also reflects a standard progression of crisis management, say experts.
“It’s common that when countries go into a financial crisis, they follow a piece meal approach, partly because of constraints in the political arena," says Luc Laeven, a senior economist at the International Monetary Fund, who co-authored a 2008 study of systemic banking crises and government policy responses in the past four decades.
“Considering nationalization as an option is the right thing to do. It is better to save a bank after you write down the shareholders and take control and have direct control over how the money spent.”
The Bush administration struggled over those issues from the moment the financial crisis began causing direct and collateral damage on a major level—the Bear Stearns collapse-shotgun marriage to JPMorgan Chase [JPM 19.35 -1.25 (-6.07%) ] in early March—while they also appear to have influenced the Obama administration's significant revisions to the original TARP program
Thus far the effort has centered on injecting capital for government equity and protecting shareholder value, while also protecting taxpayer exposure. Neither, however, has succeeded.
The market capitalizations of Citigroup [C 1.87 -0.64 (-25.5%) ] and Bank of America [C 1.87 -0.64 (-25.5%) ],two of the big financial firms struggling the most under the weight of bad assets, are now well below the amount of government assistance.
“Pay out the shareholders and move on,” says Gerald O’Driscoll, a former official at the Dallas Federal Reserve Bank and former vice president at Citigroup. “You could do it that way—the Bear Stearns model. Give them something nominal, so they don't resist.”
O’Driscoll, who's now with the Cato Institute, is among those who support the nationalization model on a case-by-case basis as part of the solution. “I think they're going to end up with a certain number of cases, even though they procrastinated, hoping the situation would work itself out.”
Dow Hits 10-Yr Low; Citi Drops Below $2
Topics:Banking | Taxes | Laws and Legislation | Earnings | Stock Market
Sectors:Banks
Companies:Barrick Gold Corporation | Lowe's Companies Inc | UBS AG | Bank of America Corp | JC Penney Company IncBy: Cindy Perman, CNBC.com | 20 Feb 2009 | 01:57 PM ET Text Size Stocks declined Friday as banks took another pounding amid fears of nationalization and the Dow dropped to its lowest point in more than 10 years.
The Dow Jones Industrial Average lost more than 2 percent, reaching its lowest level since October 1997.
The S&P 500 shed nearly 3 percent, and the Nasdaq dropped more than 1 percent.
Major U.S. Indexes.DJIA7310.16-155.79-2.09%1,589,376,000.NCOMP1423.87-18.95-1.31%593,945,000.SPX761.35-17.59-2.26%4,092,958,100
What's the Next Dow Level to Break Through?
Dow Theory Says SELL SELL SELL
Both Citigroup [C Loading... () ] and Bank of America [BAC 3.15 -0.78 (-19.85%) ] plunged more than 30 percent, leaving Citigroup below $2 and Bank of America below $3.
Wall Street was rattled by several comments alluding to nationalization out of Washington.
Sen. Chris Dodd said today that banks may have to be nationalized for some period of time, which sent stocks spiraling further. This comes a day after Fed Chairman Ben Bernanke alluded to nationalization in a speech, which got traders buzzing.
This comes after as selloff Thursday that saw the Dow crash through its November low to settle at a six-year low.
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Several big caps hit multiyear lows today: Boeing [BA 35.84 -1.73 (-4.6%) ] and Berkshire Hathaway [BRK Unavailable () ] both fell to their lowest in five years, General Electric [GE 9.10 -0.96 (-9.54%) ] hit its lowest in more than 10 years and Alcoa [AA 6.09 -0.25 (-4.02%) ] hit a 20-year low.
Traders have been clamoring for details of the Obama administration's stimulus plans, which were expected to assuage market jitters. But when specific plans for the mortgage-rescue plan emerged, stocks sold off.
"This market sold off quite frankly because it did not like the plan period," Jack Bouroudjian, a principal at Brewer Investment Group, told CNBC this morning.
And, while tech stocks had a harder selloff than financials yesterday, Bouroudjian said it all comes down to the banks.
"The banking sector is the heart blood of capitalism. Unless it gets healthy, the rest of the sectors are going to spin their wheels," he said.
In the day's only economic data point, consumer prices rose 0.3 percent last month, the first gain since July; core CPI, which excludes volatile food and energy costs, rose 0.2 percent.
>> CPI Breakdown: Where Costs are Rising
Switzerland’s tax and banking laws came under sharp scrutiny as US authorities widened a probe into UBS [UBS 9.25 -1.33 (-12.57%) ], suing for information on 52,000 clients. The Swiss bank agreed to large fines earlier in the week in an attempt to settle criminal charges.
American depositary shares of UBS tumbled more than 10 percent, pushing the stock under $10 on the New York Stock Exchange.
Bank of America is also under legal scrutiny, as chairman and chief executive Kenneth Lewis was subpoenaed by New York Attorney General Andrew Cuomo last week. Cuomo is investigating whether the bank violated state law by withholding information from investors, a source familiar with the case told CNBC.
"Would I be buying the equity in Citi and Bank of America here? I mean, it's very cheap, but I think the banks survive; I don't think the equity survives," Steve Auth, CIO of global equities at Federated Investors, told CNBC.
(Click on the video at left to watch the interview.)
More and more analysts are saying that nationalization isn't a matter of i
Crude oil pulled back a few dollars, trading between $37 and $38 a barrel, while gold popped above $1,000 a troy ounce.
"The time of stock and bond investing only, is over. And we have to realize that," said Heath Bray, a VP at Wealth Trust Arizona, told CNBC.
Tough times continued for the auto sector as General Motors' [GM 1.70 -0.30 (-15%) ] loss-making unit Saab said it would seek legal protection from creditors as it scrambles to restructure and gather new funding.
And missing Texas billionaire Allen Stanford has been found in Fredericksburg, Virginia and served with a complaint accusing him of an $8 billion fraud.
In earnings, Lowe's [LOW 15.62 -1.36 (-8.01%) ] reported a sharp drop in quarterly profit as the home-improvement retailer slashed prices to try to lure penny-pinching shoppers. Earnings fell to 11 cent a share, just below analyst estimates. Lowe's outlook fell short of expectations.
Also, Barrick Gold [ABX 37.25 0.81 (+2.22%) ] shares gained after the company beat analyst estimates with a profit of 32 cents per share.
And JCPenney [JCP 15.03 0.11 (+0.74%) ] beat forecasts but issued a disappoi
I will buy the UYG on the close today. The beat goes on Mikey\\\
Correction ....market rallied holding off buying the close
Thursday, February 19, 2009
Will the Banks be nationalized? Did Israel attack Iran? PS tomorrow is Options expiratons day
DJIA 7472 -83 Gold 975.80 9240 Oil 39.74 +2.33 Dollar Index 87.82 -.51
Yields 3 mth bill .30 6 mth bill .65 2 yr note .95 5 yr 1.80 10 yr 2.76 30 yr 3.55
Greenspan says nationalize the banks, Senators are saying nationalize the banks. Mikey is betting they won't. The last bet I made like this one was that Israel wont not attack Iran. Orders to buy more UYG at 2.25 and 2.
Tomorrow is Opt Exp day. I have seen some amazing things done by the Fed on those days. Maybe they will maybe they won't but it looks like a great setup here
The beat goes on ....Mikey
Yields 3 mth bill .30 6 mth bill .65 2 yr note .95 5 yr 1.80 10 yr 2.76 30 yr 3.55
Greenspan says nationalize the banks, Senators are saying nationalize the banks. Mikey is betting they won't. The last bet I made like this one was that Israel wont not attack Iran. Orders to buy more UYG at 2.25 and 2.
Tomorrow is Opt Exp day. I have seen some amazing things done by the Fed on those days. Maybe they will maybe they won't but it looks like a great setup here
The beat goes on ....Mikey
Tuesday, February 17, 2009
The stimulus package passes the TARP passes and.......
DJIA 7579 -270 Gold 969.10 +26.90 Oil 34.85 -2.66 Dollar Index 88.06 +1.10
The market heads for the low, Gold heads for the high, the dollar breaks out, bonds take off and the 30 year falls to 3.45%. There is talk of nationalition of the banks, the real estate market is being painted as hopeless, another finacial scandal is coming to light with Sanford Financial being closed.
That is the news background for today. It appears to be hopeless. Where is the money going from the public? Into cash, bonds and gold. The public has never been right. My bet stays with the Market and the financials and short gold. ...Mikey
The market heads for the low, Gold heads for the high, the dollar breaks out, bonds take off and the 30 year falls to 3.45%. There is talk of nationalition of the banks, the real estate market is being painted as hopeless, another finacial scandal is coming to light with Sanford Financial being closed.
That is the news background for today. It appears to be hopeless. Where is the money going from the public? Into cash, bonds and gold. The public has never been right. My bet stays with the Market and the financials and short gold. ...Mikey
Friday, February 13, 2009
Investors are flocking to Gold...Last year it was Oil...How did that work???
Investors Are Flocking to Gold-Backed Securities
Investors expecting years of inflation and global economic instability are pouring money into securities backed by gold bullion, helping turn a simple safe haven into a mainstream asset class.
SPDR Gold Trust, popularly known as GLD, said the gold bullion it owned rose by more than 100 tons to 970.57 tons as of Thursday, which marked the biggest weekly gain in the history of the gold-backed exchange-traded fund.
However, fund managers say that setbacks in the price of gold are possible following a sharp rally when investors small and large are piling into the yellow metal.
GLD [GLD 92.45 --- UNCH (0) ] is now the second biggest U.S. ETF, with market value of $27.5 billion, which ranks it behind only the popular SPDR S&P 500. GLD currently owns more gold bullion than the government of Japan, according to the World Gold Council.
Holdings of COMEX Gold Trust, another U.S. gold ETF, also climbed to a record high 70 tonnes on Friday.
Diversification into gold out of traditional asset classes, such as stocks, bonds and currencies, by many sizable non-gold investment funds has fueled GLD's rally. Some pension funds and advisors to wealthy investors are now recommending 5 to 7 percent allocation toward gold and gold stocks.
"More and more generalist money managers are looking at gold. A lot of money mangers find comfort with the idea of owning gold via GLD. It's quite convenient to own the GLD, versus having to pay warehouse costs on your own," said Brian Hicks, co-manager of the $500 million Global Resources Fund at Texas-based U.S. Global Investors.
Gold ETFs are listed on stock exchanges and offer investors exposure in bullion without taking physical delivery. Sponsors of the funds buy a matching amount of physical gold and keep it in bank vaults.
Hicks' fund currently owns more than 4 percent of GLD, which is the largest single position of his fund.
U.S. gold futures for April delivery climbed Thursday above $950 an ounce, the loftiest level since July.
They traded at $940 Friday, but have still risen almost 20 percent from their low in January.
The furious rally in bullion stems from the inflationary expectation arising from the U.S. government's need to borrow more than $2 trillion to finance a bank rescue plan and to enact an aggressive package to stimulate the world's biggest economy and help reverse a global slowdown.
"The government does not know what it is doing, but it's doing a lot to it. It's just a matter of time for the Federal Reserve to come in to inflate the system," said Axel Merk, portfolio manager of California-based Merk Mutual Funds, which have more than $310 million of assets.
"It (gold) is moving more toward the mainstream. There are retail investors, but it is also becoming part of the asset allocation of larger fund managers having a portion in gold.
That also shows me that we are far away from the top of the gold market," Merk said.
There was recent market talk about a shortage of physical gold bullion as more investors turned to gold as a safe haven.
However, George Milling-Stanley, manager of investment and market intelligence of WGC, which helped launch GLD in 2004, said there was "not any problem whatsoever" for GLD's authorized dealers to acquire gold bars to create new shares.
Dennis Gartman, independent investor and author of the daily Gartman Letter, said that the low yield of currencies and U.S. Treasury bonds because of stimulus plans by central banks made gold -- which produces no interest -- more attractive.
However, Gartman also said the price of gold could easily retrace back to the $920 level because of over-extended buying in too short a period of time.
"It's a little worrisome that so many people are piling in," Gartman said.
Mikey says:
I remember in August of 2000 that "investors" were being told that Gold was no longer a store of value and it paid no interest. How times change. Now investors are being told that everyone should have 10% in gold. Even Suzzie Orman is recommending gold. When gold gets to 400 I will copy this blog so that you can see for yourself how the media drives the herd. In 2005 it was housing, in 2006 it was retail and the consumer, in 2007 was the global economy, and now the world is coming to an end and gold it the media darling. I don't know how much longer or further gold goes but it will end just like oil. Guess who is selling gold? The central banks and guess who is being told to buy?...the "investors". It all makes so much sense but then tops always do. It never changes and the beat goes on..... Mikey
Investors expecting years of inflation and global economic instability are pouring money into securities backed by gold bullion, helping turn a simple safe haven into a mainstream asset class.
SPDR Gold Trust, popularly known as GLD, said the gold bullion it owned rose by more than 100 tons to 970.57 tons as of Thursday, which marked the biggest weekly gain in the history of the gold-backed exchange-traded fund.
However, fund managers say that setbacks in the price of gold are possible following a sharp rally when investors small and large are piling into the yellow metal.
GLD [GLD 92.45 --- UNCH (0) ] is now the second biggest U.S. ETF, with market value of $27.5 billion, which ranks it behind only the popular SPDR S&P 500. GLD currently owns more gold bullion than the government of Japan, according to the World Gold Council.
Holdings of COMEX Gold Trust, another U.S. gold ETF, also climbed to a record high 70 tonnes on Friday.
Diversification into gold out of traditional asset classes, such as stocks, bonds and currencies, by many sizable non-gold investment funds has fueled GLD's rally. Some pension funds and advisors to wealthy investors are now recommending 5 to 7 percent allocation toward gold and gold stocks.
"More and more generalist money managers are looking at gold. A lot of money mangers find comfort with the idea of owning gold via GLD. It's quite convenient to own the GLD, versus having to pay warehouse costs on your own," said Brian Hicks, co-manager of the $500 million Global Resources Fund at Texas-based U.S. Global Investors.
Gold ETFs are listed on stock exchanges and offer investors exposure in bullion without taking physical delivery. Sponsors of the funds buy a matching amount of physical gold and keep it in bank vaults.
Hicks' fund currently owns more than 4 percent of GLD, which is the largest single position of his fund.
U.S. gold futures for April delivery climbed Thursday above $950 an ounce, the loftiest level since July.
They traded at $940 Friday, but have still risen almost 20 percent from their low in January.
The furious rally in bullion stems from the inflationary expectation arising from the U.S. government's need to borrow more than $2 trillion to finance a bank rescue plan and to enact an aggressive package to stimulate the world's biggest economy and help reverse a global slowdown.
"The government does not know what it is doing, but it's doing a lot to it. It's just a matter of time for the Federal Reserve to come in to inflate the system," said Axel Merk, portfolio manager of California-based Merk Mutual Funds, which have more than $310 million of assets.
"It (gold) is moving more toward the mainstream. There are retail investors, but it is also becoming part of the asset allocation of larger fund managers having a portion in gold.
That also shows me that we are far away from the top of the gold market," Merk said.
There was recent market talk about a shortage of physical gold bullion as more investors turned to gold as a safe haven.
However, George Milling-Stanley, manager of investment and market intelligence of WGC, which helped launch GLD in 2004, said there was "not any problem whatsoever" for GLD's authorized dealers to acquire gold bars to create new shares.
Dennis Gartman, independent investor and author of the daily Gartman Letter, said that the low yield of currencies and U.S. Treasury bonds because of stimulus plans by central banks made gold -- which produces no interest -- more attractive.
However, Gartman also said the price of gold could easily retrace back to the $920 level because of over-extended buying in too short a period of time.
"It's a little worrisome that so many people are piling in," Gartman said.
Mikey says:
I remember in August of 2000 that "investors" were being told that Gold was no longer a store of value and it paid no interest. How times change. Now investors are being told that everyone should have 10% in gold. Even Suzzie Orman is recommending gold. When gold gets to 400 I will copy this blog so that you can see for yourself how the media drives the herd. In 2005 it was housing, in 2006 it was retail and the consumer, in 2007 was the global economy, and now the world is coming to an end and gold it the media darling. I don't know how much longer or further gold goes but it will end just like oil. Guess who is selling gold? The central banks and guess who is being told to buy?...the "investors". It all makes so much sense but then tops always do. It never changes and the beat goes on..... Mikey
Thursday, February 12, 2009
The Blue Moon Cafe...or Mikey the Fool and Maximum Uncertainty
DJIA 7736 -203 Gold 948.10 +3.60 Oil 33.75 -2.19 Dollar Index 86.79 +66
Lions and Bears and tigers Oh MY!!!!!
Remember the scene from the first Naked Gun Movie where Lt Drebbin was sitting in the blue moon cafe and on the walls were pictures of the Hindenberg exploding and the the Titanic sinking? This is the picture being painted by the media now. The Hope of the new administration is being replaced by the new reality that the world is coming to an end.
The stimulus package is needed because the world is coming to an end so say the Democrats. The Republicans say the plan is bad. The President is talking about economic collapse. I HEAR THE STIMULUS PACKAGE IS DOA EVEN BEFORE THEY SPENT THE MONEY.
Everyone is slamming the stimulus package...what does that mean? It means that the stimulus package is going to work. Everyone is an idiot. The president, the congress, the treasury secretary. and even MIKEY!!
There is Maximum Uncertainty (YOU KNOW HOW MIKEY LIKES UNCERTAINTY WELL THERE IS FRICKING MAXIMUM UNCERTAINTY NOW). You know we have never been here before and anyone who says he knows what is going to happen is lying or a fool. Obama is in trouble now with respect to the financial package. I know he has been in office for two weeks and he hasn't solved the problem. My God it has not been even passed or spent and the media says it won't work.
The beat goes on....Mikey
Lions and Bears and tigers Oh MY!!!!!
Remember the scene from the first Naked Gun Movie where Lt Drebbin was sitting in the blue moon cafe and on the walls were pictures of the Hindenberg exploding and the the Titanic sinking? This is the picture being painted by the media now. The Hope of the new administration is being replaced by the new reality that the world is coming to an end.
The stimulus package is needed because the world is coming to an end so say the Democrats. The Republicans say the plan is bad. The President is talking about economic collapse. I HEAR THE STIMULUS PACKAGE IS DOA EVEN BEFORE THEY SPENT THE MONEY.
Everyone is slamming the stimulus package...what does that mean? It means that the stimulus package is going to work. Everyone is an idiot. The president, the congress, the treasury secretary. and even MIKEY!!
There is Maximum Uncertainty (YOU KNOW HOW MIKEY LIKES UNCERTAINTY WELL THERE IS FRICKING MAXIMUM UNCERTAINTY NOW). You know we have never been here before and anyone who says he knows what is going to happen is lying or a fool. Obama is in trouble now with respect to the financial package. I know he has been in office for two weeks and he hasn't solved the problem. My God it has not been even passed or spent and the media says it won't work.
The term fool and liar I think would apply more to the Media now than those who say they know what is going to happen.Time will tell us who the fools and liars are. Everyone is in cash and Gold Gold Gold. I have one thing to say: The Stimulus Package and the rescue plan IS GOING TO WORK. Before it is over that is a big mistake TO BE IN CASH OR FRICKING GOLD.
The beat goes on....Mikey
Wednesday, February 11, 2009
There is that word again, Uncertainty
Five Reasons the Markets Don't Like the Bank Bailout
Wall Street's message to the Obama administration was clear Tuesday, even if the plan to save the banking industry wasn't.
Unhappy with a lack of clarity in Treasury Secretary Timothy Geithner's new financial rescue plan, investors launched a massive stock selloff, raising further questions about when confidence would be restored to the market.
Oliver P. Quilla for CNBC.com
NYSE trader
From the squishy rhetoric about how complex the problem is to the lack of a clear time-frame for when specific weaknesses in the financial sector would be addressed, Geithner's speech did nothing to assuage the market's concerns about the nation's future.
For Investors, Geithner Bombed in Debut
Broadly speaking, reaction to the speech broke down into five areas:
1. There Really is No 'Change'
"I'm really underwhelmed by the plan," says David Twibell, president of wealth management for Colorado Capital Bank in Denver. "Maybe there's not much that can be done right now other than let this work itself out."
For someone who ran last year as an agent of change, President Obama's plan for banks seemed to represent more of the same. While investors were looking for some concrete moves on how distressed assets would be taken off banks' books, they instead walked away from Geithner's speech with no indication of how the assets would be priced or who would be buying them.
And as one of Wall Street's oldest maxims goes, the market hates uncertaintyI think we need to see exactly how this program is going to work," Twibell says. "Maybe that will give the markets a little more comfort level."
But for many, the plan offered little real guidance for how to invest going forward, save for a promise to help buoy small business.
"Zero has changed," said Michael Cohn, chief market strategist at Atlantis Asset Management in New York. "Everyone knew everything except the issue with doing something positive for small business. There's no clarity on whether they can repeal the mark-to-market (accounting rules). I don't know how they're going to do it."
2. A Far Cry From Finished
If the administration was purposely setting out a general plan with the specifics to be crafted by Wall Street, then it may have accomplished something.
With so many details left unsolved, much more work will have to be done, again creating uncertainty for investors.
"It's going to be fine-tuned many times over," predicts Quincy Krosby, chief market strategist at The Hartford. "Given the enormity of the problem it's clear that certain parts will work and certain parts won't work, but it's a start."
The market is clamoring to know how the government will be able to help banks with their toxic assets while also protecting investors and taxpayers from getting blindsided if the fixes don't work.
"The devil's going to be in the details with this stuff," Twibell says. "We're still back to the old problem of how you price that, how you structure that."
3. Treasury Bubble Still Popping
While Treasurys rallied Tuesday on a further flight to safety, government debt prices are likely to fall as more and more supply comes on line while the government finances the bank rescue.
"The idea that you can just borrow and spend, borrow and spend, run ever-larger deficits and essentially print money with no consequences is economically naive," says Mike Larson, analyst for Weiss Research's Money & Markets newsletter. "Yet no one seems to be talking about the unintended consequences until now."'
Larson called the popping of the bond bubble months ago and sees the trend continuing as the government accumulates more and more debt.
Moreover, he said the pressure on Treasurys will cause interest rates to rise and thwart hopes of mortgage rates falling to 4.5 percent or even lower, a prediction made Monday by Bill Gross, co-CEO of Pimco, the world's largest bond fund.
"The longer-term trend is clearly for lower prices and higher rates as a result of this supply issue," Larson says.
4. Money Will Stay on the Sidelines
With the government unable to stem the tide of uncertainty bedeviling stocks, convincing people to buy will prove all the more difficult.
"The poor reception afforded to Mr. Geithner's speech in which little was revealed reminded investors that more turbulent times may be ahead without some sense of resolution to the health of the banks' balance sheets," Andrew Wilkinson, senior strategist at Interactive Brokers, wrote in a research note to clients.
The result is likely a stock market that will continue to be range-bound, and perhaps even retest its November lows.
"Is there a reason to deploy a lot of capital in this market? My view is we still don't know when we can get some stability in this economy, and until we do it's awfully tough to put a lot of money to work," Twibell says. "To actually go in from an investment standpoint at this juncture is tough."
"You must have a functioning, normal financial system, including the securitization market," Krosby adds. "In the market economy, the financial infrastructure is the lifeline."
5. One Hope: 'Buying Begets Buying'
The one bit of solace from the post-Geithner selloff Tuesday was that you could have set your watch by it.
As news spread last week that a rescue plan was in the making, the markets jumped. When the actual plan was unveiled, the market jumped back. Buy-the-rumor and sell-the-news has been one of the few constants in a stunningly volatile market, and the continuing of the trend raised hopes that the selloff Tuesday would be a one-off event.
"This is a trader's selloff, 100 percent pure and simple," Cohn says. "When (the Dow) gets back to 7,900, 7,850, buyers come back. It's nothing."
So when selling begets selling, the one hope is that the corollary can be true and will be one catalyst helping the market get past its banks-induced doldrums. That trend is likelier to come once Wall Street has a better picture of what the White House is going to do to help.
"Buying begets buying, and that's a takeaway that has served me in good stead," Krosby says. "What gives you, the retail investors, hope is when you start to see the hedge funds go back into equities, institutional buying into equities, that pushes the market up for two or three days."
A change in the news cycle away from the negativity of the White House's fumbling of the bank rescue announcement would help make that happen.
"Professional investors would much rather see an organic move in the market, meaning it's not induced by any move from Washington but rather by a company saying revenue looks better than expected, that orders have picked up," Krosby says. "Or they begin to see the news, the macroeconomic data are stabilizing, that's what moves the market ultimately."
"Slowly but surely this thing is going to get better," Cohn adds. "It's just really slow. Until the bad news stops, you're not going to change the world's perception."
Mikey says that the closer we get to solving the problem the more negative the news gets. You can see by this article that "The result is likely a stock market that will continue to be range-bound, and perhaps even retest its November lows.
Is there a reason to deploy a lot of capital in this market? My view is we still don't know when we can get some stability in this economy, and until we do it's awfully tough to put a lot of money to work," Twibell says. "To actually go in from an investment standpoint at this juncture is tough."
It is all part of the process the prices will move higher at some point but the "professionals" want to see the nail marks before they move. The details of this plan will be revealed in stages they know what they are going to do. After the stimulus package is passed the details will start comming out and the Fed will start pushing interest rates on 30 mortages to 4%. That combined with a kick ass move in the market will push the 4 trillion in money funds making nothing now into the market. Then the "professionals will buy.. The beat goes on Mikey
Wall Street's message to the Obama administration was clear Tuesday, even if the plan to save the banking industry wasn't.
Unhappy with a lack of clarity in Treasury Secretary Timothy Geithner's new financial rescue plan, investors launched a massive stock selloff, raising further questions about when confidence would be restored to the market.
Oliver P. Quilla for CNBC.com
NYSE trader
From the squishy rhetoric about how complex the problem is to the lack of a clear time-frame for when specific weaknesses in the financial sector would be addressed, Geithner's speech did nothing to assuage the market's concerns about the nation's future.
For Investors, Geithner Bombed in Debut
Broadly speaking, reaction to the speech broke down into five areas:
1. There Really is No 'Change'
"I'm really underwhelmed by the plan," says David Twibell, president of wealth management for Colorado Capital Bank in Denver. "Maybe there's not much that can be done right now other than let this work itself out."
For someone who ran last year as an agent of change, President Obama's plan for banks seemed to represent more of the same. While investors were looking for some concrete moves on how distressed assets would be taken off banks' books, they instead walked away from Geithner's speech with no indication of how the assets would be priced or who would be buying them.
And as one of Wall Street's oldest maxims goes, the market hates uncertaintyI think we need to see exactly how this program is going to work," Twibell says. "Maybe that will give the markets a little more comfort level."
But for many, the plan offered little real guidance for how to invest going forward, save for a promise to help buoy small business.
"Zero has changed," said Michael Cohn, chief market strategist at Atlantis Asset Management in New York. "Everyone knew everything except the issue with doing something positive for small business. There's no clarity on whether they can repeal the mark-to-market (accounting rules). I don't know how they're going to do it."
2. A Far Cry From Finished
If the administration was purposely setting out a general plan with the specifics to be crafted by Wall Street, then it may have accomplished something.
With so many details left unsolved, much more work will have to be done, again creating uncertainty for investors.
"It's going to be fine-tuned many times over," predicts Quincy Krosby, chief market strategist at The Hartford. "Given the enormity of the problem it's clear that certain parts will work and certain parts won't work, but it's a start."
The market is clamoring to know how the government will be able to help banks with their toxic assets while also protecting investors and taxpayers from getting blindsided if the fixes don't work.
"The devil's going to be in the details with this stuff," Twibell says. "We're still back to the old problem of how you price that, how you structure that."
3. Treasury Bubble Still Popping
While Treasurys rallied Tuesday on a further flight to safety, government debt prices are likely to fall as more and more supply comes on line while the government finances the bank rescue.
"The idea that you can just borrow and spend, borrow and spend, run ever-larger deficits and essentially print money with no consequences is economically naive," says Mike Larson, analyst for Weiss Research's Money & Markets newsletter. "Yet no one seems to be talking about the unintended consequences until now."'
Larson called the popping of the bond bubble months ago and sees the trend continuing as the government accumulates more and more debt.
Moreover, he said the pressure on Treasurys will cause interest rates to rise and thwart hopes of mortgage rates falling to 4.5 percent or even lower, a prediction made Monday by Bill Gross, co-CEO of Pimco, the world's largest bond fund.
"The longer-term trend is clearly for lower prices and higher rates as a result of this supply issue," Larson says.
4. Money Will Stay on the Sidelines
With the government unable to stem the tide of uncertainty bedeviling stocks, convincing people to buy will prove all the more difficult.
"The poor reception afforded to Mr. Geithner's speech in which little was revealed reminded investors that more turbulent times may be ahead without some sense of resolution to the health of the banks' balance sheets," Andrew Wilkinson, senior strategist at Interactive Brokers, wrote in a research note to clients.
The result is likely a stock market that will continue to be range-bound, and perhaps even retest its November lows.
"Is there a reason to deploy a lot of capital in this market? My view is we still don't know when we can get some stability in this economy, and until we do it's awfully tough to put a lot of money to work," Twibell says. "To actually go in from an investment standpoint at this juncture is tough."
"You must have a functioning, normal financial system, including the securitization market," Krosby adds. "In the market economy, the financial infrastructure is the lifeline."
5. One Hope: 'Buying Begets Buying'
The one bit of solace from the post-Geithner selloff Tuesday was that you could have set your watch by it.
As news spread last week that a rescue plan was in the making, the markets jumped. When the actual plan was unveiled, the market jumped back. Buy-the-rumor and sell-the-news has been one of the few constants in a stunningly volatile market, and the continuing of the trend raised hopes that the selloff Tuesday would be a one-off event.
"This is a trader's selloff, 100 percent pure and simple," Cohn says. "When (the Dow) gets back to 7,900, 7,850, buyers come back. It's nothing."
So when selling begets selling, the one hope is that the corollary can be true and will be one catalyst helping the market get past its banks-induced doldrums. That trend is likelier to come once Wall Street has a better picture of what the White House is going to do to help.
"Buying begets buying, and that's a takeaway that has served me in good stead," Krosby says. "What gives you, the retail investors, hope is when you start to see the hedge funds go back into equities, institutional buying into equities, that pushes the market up for two or three days."
A change in the news cycle away from the negativity of the White House's fumbling of the bank rescue announcement would help make that happen.
"Professional investors would much rather see an organic move in the market, meaning it's not induced by any move from Washington but rather by a company saying revenue looks better than expected, that orders have picked up," Krosby says. "Or they begin to see the news, the macroeconomic data are stabilizing, that's what moves the market ultimately."
"Slowly but surely this thing is going to get better," Cohn adds. "It's just really slow. Until the bad news stops, you're not going to change the world's perception."
Mikey says that the closer we get to solving the problem the more negative the news gets. You can see by this article that "The result is likely a stock market that will continue to be range-bound, and perhaps even retest its November lows.
Is there a reason to deploy a lot of capital in this market? My view is we still don't know when we can get some stability in this economy, and until we do it's awfully tough to put a lot of money to work," Twibell says. "To actually go in from an investment standpoint at this juncture is tough."
It is all part of the process the prices will move higher at some point but the "professionals" want to see the nail marks before they move. The details of this plan will be revealed in stages they know what they are going to do. After the stimulus package is passed the details will start comming out and the Fed will start pushing interest rates on 30 mortages to 4%. That combined with a kick ass move in the market will push the 4 trillion in money funds making nothing now into the market. Then the "professionals will buy.. The beat goes on Mikey
Tuesday, February 10, 2009
Treasury Secretary Timothy Geithner Speech ...Market Tanks... Mikey loves it
DJIA 7972 -297 VIX 46.96 Gold 915.10 +22.30 OIL 39.06 -.47 DOLLAR INDEX 85.70
The US Treasury Department unveiled a revamped financial rescue plan to cleanse up to $500 billion in spoiled assets from banks' books and support $1 trillion in new lending through an expanded Federal Reserve program.
The renamed "Financial Stability Plan," rolled out by Treasury Secretary Timothy Geithner at the Treasury, will also devote $50 billion in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.
Stocks Tank In Reaction
The Treasury said a public-private investment fund will be established, seeded with government money, to leverage private capital so that so-called toxic assets can be sponged out of the faltering banking system.
The hope is that that will enable banks to resume lending.
Geithner acknowledged that deep skepticism has developed over the fairness and efficiency of a $700 billion bank bailout program approved by Congress in October.
He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said.
"I want to be candid: this comprehensive strategy will cost money, involve risk, and take time," Geithner said in a widely anticipated speech. "We will have to adapt it as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted."
After Geithner's announcement, stock prices fell further and the dollar extended losses while prices for U.S. Treasury debt securities extended gains.
James Ellman, President of Seacliff Capital in San Francisco, said: "Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating, and clouded."
Geithner acknowledged deep skepticism has developed over the fairness and efficiency of a $700-billion bank bailout program approved by Congress in October. He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said.
The revamped approach to the government's financial rescue war chest would use $100 billion to cover risks the Fed would take in expanding a $200 billion program supporting consumer and small business lending to a $1 trillion program that also supports an array of mortgage-related assets.
Markets appeared caught off balance by some of the measures that Geithner offered.
"Just a day ago, they were talking about good bank and bad bank. Now they come up with something completely new," said Robert Brusca, chief economist for Fact and Opinion Economics in New York. "I'm not sure how this public/private thing will work."
President Obama told a news conference on Monday that cleaning up banks' balance sheets was a priority and didn't rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job.
"We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace," Obama said.
The financial-rescue plan contains a number of measures meant to ease the credit crunch, including a public-private initiative to take bad assets off of banks' balance sheets, mortgage loan and foreclosure relief and a new consumer lending initiative.
Other components include the creation of a new consumer-oriented initiative "to kick start the secondary lending market," funds for loan modification and foreclosure prevention and a "capital buffer" for banks so they can continue lending to consumers and business."
Here's a breakdown on the costs:
The consumer lending facility will "leverage up to $1 trillion dollars" and is intended to "bring down borrowing costs for responsible borrowers and help get credit flowing again."
The housing measures will provide as much as $50 billion in funding, which follows through on an earlier pledge of the Obama administration.
The summary does not provide a sum for the toxic asset fund or so-called buffer capital for banks.
The bank capital provision also calls for a "stress test" among "uniform standards to help clean up and strengthen banks."
Thus far, the TARP has provided aid to firms through capital injections, for which the government received preferred stock and warrants in return. The government also recently started using insurance and guarantees to back certain toxic assets held by firms. Known as a ring fence concept, the model has been used on Citigroup [C 3.56 -0.39 (-9.87%) ] and Bank of America [BAC 5.8299 -1.0601 (-15.39%) ]. It is unclear where the ring fence figures into the new plan.
The Treasury plan also includes measures to "increase transparency and accountability to protect taxpayers."
Chief among them are restrictions on stock dividends and repurchases as well as acquisitions "to provide assurance that all taxpayer money will go to promote lending until that money is paid back."
Also included are previously-announced restrictions on executive pay, and new tighter reporting requirements for banks receiving government aid.
Mikey says:
Here is the view of CNBC viewers on the plan..
CNBC Poll: Tell Us What You Think
Will Geithner's financial rescue plan work? * 9688 responses
Yes
20%
No
65%
Undecided
15%
Not a Scientific Survey. Results may not total 100% due to rounding.
Mikey votes Yes
I know the market tanks 300 points after the speech. Rememeber I like uncertainty They will keep doing the same thing until the problem is solved and the market is 3000 points higher. Until then I look for buying opportunities and let others worry about it. They will give the naysayers enough rope and time to hang themselves. The voices of the critics will be so loud that it will drown out the solitary voice of reason and solution. The solution will be succesful and the naysayers will find something else wrong with the world.
This is all part of the game. I promise you none of us will figure out which one of these rallies will be the one that goes. I will say that when it does go everyone will be selling into it. That is why trading is so non productive. That is why margin and options will kill you. I know they have killed me in the past. You just have to make what you can make and not try to get rich.
Patience and the understanding that what needs to happen, will happen, and that is all you can do. Every rally we have I think is going to be the one and up until now it has failed but I know one of those rallies will go. Then question that everyone wants to know is when. I have learned that when I try to figure out the when I am always wrong. Time is the biggest killer in achieving you goals. If something does not happen in a certain time period people give up. Then it happens. Knowing that it will happen is enough for me. Until then I will watch the show as it is quite entertaining. The beat goes on...... Mikey
The US Treasury Department unveiled a revamped financial rescue plan to cleanse up to $500 billion in spoiled assets from banks' books and support $1 trillion in new lending through an expanded Federal Reserve program.
The renamed "Financial Stability Plan," rolled out by Treasury Secretary Timothy Geithner at the Treasury, will also devote $50 billion in federal rescue funds to try to stem home foreclosures and soften the crushing impact of the deep housing crisis now afflicting the entire economy.
Stocks Tank In Reaction
The Treasury said a public-private investment fund will be established, seeded with government money, to leverage private capital so that so-called toxic assets can be sponged out of the faltering banking system.
The hope is that that will enable banks to resume lending.
Geithner acknowledged that deep skepticism has developed over the fairness and efficiency of a $700 billion bank bailout program approved by Congress in October.
He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said.
"I want to be candid: this comprehensive strategy will cost money, involve risk, and take time," Geithner said in a widely anticipated speech. "We will have to adapt it as conditions change. We will have to try things we've never tried before. We will make mistakes. We will go through periods in which things get worse and progress is uneven or interrupted."
After Geithner's announcement, stock prices fell further and the dollar extended losses while prices for U.S. Treasury debt securities extended gains.
James Ellman, President of Seacliff Capital in San Francisco, said: "Investors want clarity, simplicity, and resolution. This plan is seen as convoluted, obfuscating, and clouded."
Geithner acknowledged deep skepticism has developed over the fairness and efficiency of a $700-billion bank bailout program approved by Congress in October. He said leaders of some financial institutions that have received money had squandered the good faith that is needed to make the bank rescue effective.
"The spectacle of huge amounts of taxpayer money being provided to the same institutions that helped cause the crisis, with limited transparency and oversight, added to public distrust," Geithner said.
The revamped approach to the government's financial rescue war chest would use $100 billion to cover risks the Fed would take in expanding a $200 billion program supporting consumer and small business lending to a $1 trillion program that also supports an array of mortgage-related assets.
Markets appeared caught off balance by some of the measures that Geithner offered.
"Just a day ago, they were talking about good bank and bad bank. Now they come up with something completely new," said Robert Brusca, chief economist for Fact and Opinion Economics in New York. "I'm not sure how this public/private thing will work."
President Obama told a news conference on Monday that cleaning up banks' balance sheets was a priority and didn't rule out the possibility that it will take more money than the $700 billion Congress already has approved to complete the job.
"We don't know yet whether we're going to need additional money or how much additional money we'll need until we see how successful we are at restoring a level of confidence in the marketplace," Obama said.
The financial-rescue plan contains a number of measures meant to ease the credit crunch, including a public-private initiative to take bad assets off of banks' balance sheets, mortgage loan and foreclosure relief and a new consumer lending initiative.
Other components include the creation of a new consumer-oriented initiative "to kick start the secondary lending market," funds for loan modification and foreclosure prevention and a "capital buffer" for banks so they can continue lending to consumers and business."
Here's a breakdown on the costs:
The consumer lending facility will "leverage up to $1 trillion dollars" and is intended to "bring down borrowing costs for responsible borrowers and help get credit flowing again."
The housing measures will provide as much as $50 billion in funding, which follows through on an earlier pledge of the Obama administration.
The summary does not provide a sum for the toxic asset fund or so-called buffer capital for banks.
The bank capital provision also calls for a "stress test" among "uniform standards to help clean up and strengthen banks."
Thus far, the TARP has provided aid to firms through capital injections, for which the government received preferred stock and warrants in return. The government also recently started using insurance and guarantees to back certain toxic assets held by firms. Known as a ring fence concept, the model has been used on Citigroup [C 3.56 -0.39 (-9.87%) ] and Bank of America [BAC 5.8299 -1.0601 (-15.39%) ]. It is unclear where the ring fence figures into the new plan.
The Treasury plan also includes measures to "increase transparency and accountability to protect taxpayers."
Chief among them are restrictions on stock dividends and repurchases as well as acquisitions "to provide assurance that all taxpayer money will go to promote lending until that money is paid back."
Also included are previously-announced restrictions on executive pay, and new tighter reporting requirements for banks receiving government aid.
Mikey says:
Here is the view of CNBC viewers on the plan..
CNBC Poll: Tell Us What You Think
Will Geithner's financial rescue plan work? * 9688 responses
Yes
20%
No
65%
Undecided
15%
Not a Scientific Survey. Results may not total 100% due to rounding.
Mikey votes Yes
I know the market tanks 300 points after the speech. Rememeber I like uncertainty They will keep doing the same thing until the problem is solved and the market is 3000 points higher. Until then I look for buying opportunities and let others worry about it. They will give the naysayers enough rope and time to hang themselves. The voices of the critics will be so loud that it will drown out the solitary voice of reason and solution. The solution will be succesful and the naysayers will find something else wrong with the world.
This is all part of the game. I promise you none of us will figure out which one of these rallies will be the one that goes. I will say that when it does go everyone will be selling into it. That is why trading is so non productive. That is why margin and options will kill you. I know they have killed me in the past. You just have to make what you can make and not try to get rich.
Patience and the understanding that what needs to happen, will happen, and that is all you can do. Every rally we have I think is going to be the one and up until now it has failed but I know one of those rallies will go. Then question that everyone wants to know is when. I have learned that when I try to figure out the when I am always wrong. Time is the biggest killer in achieving you goals. If something does not happen in a certain time period people give up. Then it happens. Knowing that it will happen is enough for me. Until then I will watch the show as it is quite entertaining. The beat goes on...... Mikey
Monday, February 9, 2009
Stocks sneaking higher on "Uncertainty"
DJIA 8297 VIX 43.21 GOLD 894 -19.70 Oil 40.56 +.39 Dollar Index 84.90-.74
All I can say is I love uncertainty and rising markets. It also appears that Gold is losing some steam here as it falls below 900. The hype has been buy Gold and the world is coming to an end. That is a bad bet. I am going out on a limb here and saying the world is not coming to an end and Gold gets its ass kicked. It would be a big negative if Gold traded below 850. I still think it is going to 400.
Bought GM 2.84 and IP 8.19 Friday. I think there are three areas they want pumped. The Banks, the Autos and Housing. I suspect that major tax incentives will give to those who buy cars or houses and the banks well you know about the banks I write about them almsot daily.
All I can say is I love uncertainty and rising markets. It also appears that Gold is losing some steam here as it falls below 900. The hype has been buy Gold and the world is coming to an end. That is a bad bet. I am going out on a limb here and saying the world is not coming to an end and Gold gets its ass kicked. It would be a big negative if Gold traded below 850. I still think it is going to 400.
Bought GM 2.84 and IP 8.19 Friday. I think there are three areas they want pumped. The Banks, the Autos and Housing. I suspect that major tax incentives will give to those who buy cars or houses and the banks well you know about the banks I write about them almsot daily.
Busch: Financial Stability And Recovery Plan
Posted By: Andrew B. Busc
US Treasury Secretary Tim Geithner has delayed the release of his Financial Stability and Recovery Plan (FSRP) until Tuesday at 11 AM ET.
Of course, the plan's details are leaking out faster than A-Rods steroid test. The over-arching goal of the program is to stabilize the financial system through a combination of government intervention and private investment. It will involve the US Treasury, the FDIC, and the Federal Reserve with some of the plan a retreads of ideas from former US Treasury Secretary Paulson.
So far, the plan has four components and lots of questions:
First, there will be an injection of TARP funds with all their strings into banks/financial institutions that are so desperate they will agree to the onerous terms. There will be limitations on executive pay along with directives of new lending practices. What will be interesting is if the FSRP tries to force the same conditions on companies that already took TARP injections. The terms will be tougher and will include preferred shares that convert into the common equity within seven years.
In this vein, the FDIC will be given broad, new powers over large financial firms in trouble beyond it's current responsibilities of depository institutions. (This will likely require Congress to act.) In turn, this will likely lead to bank closures/mergers into healthier companies. Last week, the FDIC acted ahead of Geithner's announcement by closing 3 banks. I would expect more to come.
Next, there will likely be a "bad" or "aggregator" bank to buy "toxic" assets from banks. The goal is to provide an avenue for banks to dump these assets and get out of the death spiral of mark-to-market induced capital raising with no lending. According to the leaks, the funding for this entity will come from both the remaining TARP funds and private investors. Geithner will be forced to guarantee the private investment and will be forced to provide a high rate of return to entice investors. Apparently, the US Treasury hasn't worked out all the details on this and may need another month to nail it down. This gets us right back to the original questions from the original TARP program: which assets from what companies at what price?
Then, there will be a foreclosure plank that will attempt to help homeowners who are either in foreclosure or close to going into it. This will initially involve Fannie Mae and Freddie Mac with the hope that other lenders will follow. CNBC reported that officials from the Treasury Department and Department of Housing and Urban Development worked with the GSE companies' regulator to agree on standards for who could get relief and how they might coax other finance companies to follow their lead. Remember, Fannie Mae was created during the Great Depression and helped create a secondary market for mortgages that ignited home ownership. How ironic is it that they are now being asked to help keep those owners in their homes?
Lastly, the Federal Reserve is going to greatly expand their Term Asset-Backed Securities Loan Facility. As many of you know, I think this will be one of the better programs the Fed is going to run to help restart the ABS (asset backed security) market. This was originally established to buy/swap student-loan, auto-loan, and credit-card debt. According to the CBO, Through the Term Asset-Backed Securities Loan Facility (TALF), the Federal Reserve Bank of New York will lend up to $200 billion to holders of certain AAA-rated asset backed securities (consumer and small business loans), and the Troubled Asset Relief Program will provide $20 billion of credit protection (protection against debtors that do not pay because of insolvency or protracted default) for those loans. The TALF is expected to begin lending this month and its authority expires on December 31, 2009. The key component: both banks and hedge funds are allowed to participate.
Overall, this plan has a lot of moving parts that may or may not work.
I think the aggregator bank could be a way to re-capitalize banks in a stealth way as the Treasury overpays for the assets. They almost have to overpay to get companies to agree to give up the assets. I still think a Brady bond scenario makes more sense for these assets, as it would provide a secondary market to provide pricing and liquidity. The point is that the FSRP is a fresh start with old ideas. Let's see how well Geithner answers all the pricing and structure questions during his press conference tomorrow. Remember, Paulson had a disastrous appearance in front of Congress when they asked him about the original intent of the TARP program.
Let's hope Geithner has learned from it.
Mikey says: I love the part about limiting executive pay. What these guys are doing is buying their stock at ridiculous prices and will make a ton out of it. I guess you can't call that pay can you? Why because we all have the same opportunity!
Posted By: Andrew B. Busc
US Treasury Secretary Tim Geithner has delayed the release of his Financial Stability and Recovery Plan (FSRP) until Tuesday at 11 AM ET.
Of course, the plan's details are leaking out faster than A-Rods steroid test. The over-arching goal of the program is to stabilize the financial system through a combination of government intervention and private investment. It will involve the US Treasury, the FDIC, and the Federal Reserve with some of the plan a retreads of ideas from former US Treasury Secretary Paulson.
So far, the plan has four components and lots of questions:
First, there will be an injection of TARP funds with all their strings into banks/financial institutions that are so desperate they will agree to the onerous terms. There will be limitations on executive pay along with directives of new lending practices. What will be interesting is if the FSRP tries to force the same conditions on companies that already took TARP injections. The terms will be tougher and will include preferred shares that convert into the common equity within seven years.
In this vein, the FDIC will be given broad, new powers over large financial firms in trouble beyond it's current responsibilities of depository institutions. (This will likely require Congress to act.) In turn, this will likely lead to bank closures/mergers into healthier companies. Last week, the FDIC acted ahead of Geithner's announcement by closing 3 banks. I would expect more to come.
Next, there will likely be a "bad" or "aggregator" bank to buy "toxic" assets from banks. The goal is to provide an avenue for banks to dump these assets and get out of the death spiral of mark-to-market induced capital raising with no lending. According to the leaks, the funding for this entity will come from both the remaining TARP funds and private investors. Geithner will be forced to guarantee the private investment and will be forced to provide a high rate of return to entice investors. Apparently, the US Treasury hasn't worked out all the details on this and may need another month to nail it down. This gets us right back to the original questions from the original TARP program: which assets from what companies at what price?
Then, there will be a foreclosure plank that will attempt to help homeowners who are either in foreclosure or close to going into it. This will initially involve Fannie Mae and Freddie Mac with the hope that other lenders will follow. CNBC reported that officials from the Treasury Department and Department of Housing and Urban Development worked with the GSE companies' regulator to agree on standards for who could get relief and how they might coax other finance companies to follow their lead. Remember, Fannie Mae was created during the Great Depression and helped create a secondary market for mortgages that ignited home ownership. How ironic is it that they are now being asked to help keep those owners in their homes?
Lastly, the Federal Reserve is going to greatly expand their Term Asset-Backed Securities Loan Facility. As many of you know, I think this will be one of the better programs the Fed is going to run to help restart the ABS (asset backed security) market. This was originally established to buy/swap student-loan, auto-loan, and credit-card debt. According to the CBO, Through the Term Asset-Backed Securities Loan Facility (TALF), the Federal Reserve Bank of New York will lend up to $200 billion to holders of certain AAA-rated asset backed securities (consumer and small business loans), and the Troubled Asset Relief Program will provide $20 billion of credit protection (protection against debtors that do not pay because of insolvency or protracted default) for those loans. The TALF is expected to begin lending this month and its authority expires on December 31, 2009. The key component: both banks and hedge funds are allowed to participate.
Overall, this plan has a lot of moving parts that may or may not work.
I think the aggregator bank could be a way to re-capitalize banks in a stealth way as the Treasury overpays for the assets. They almost have to overpay to get companies to agree to give up the assets. I still think a Brady bond scenario makes more sense for these assets, as it would provide a secondary market to provide pricing and liquidity. The point is that the FSRP is a fresh start with old ideas. Let's see how well Geithner answers all the pricing and structure questions during his press conference tomorrow. Remember, Paulson had a disastrous appearance in front of Congress when they asked him about the original intent of the TARP program.
Let's hope Geithner has learned from it.
Mikey says: I love the part about limiting executive pay. What these guys are doing is buying their stock at ridiculous prices and will make a ton out of it. I guess you can't call that pay can you? Why because we all have the same opportunity!
Friday, February 6, 2009
Banks rally ...another failure?????
Large Banks Soar On Hopes For Stimulus
By Marshall Eckblad
Off DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of the largest U.S. banks soared in morning trading, led by Bank of America Corp. (BAC), on hopes that the U.S. Congress will soon pass a large economic stimulus package.
Bank of America led the rally, with its shares up 23.5% to $5.99 after a U.S. senator and some prominent bank analysts Thursday strongly dismissed fears that the hobbled Charlotte bank could soon be nationalized.
Ken Lewis, the bank's chief executive, also dismissed those concerns in an interview Friday with cable news channel CNBC.
"I have talked to government officials ... and no one has ever said nationalization was the way to go, or was likely to happen," Lewis said.
He called the rumors "absurd" and said: "I've never had anybody hint at it."
Shares in Wells Fargo & Co. (WFC) also surged in morning trading and were recently up 15% to $18.67. Citigroup Inc. (C) stock was recently up 9% to $3.85, while shares in JPMorgan Chase & Co. (JPM) were up 8% to $26.50.
The KBW Bank Index (BKX) soared 10 to $29.95 and the KBW Regional Banking Index (KRX) rose 6% to $44.83.
Investors and analysts alike have struggled in recent days to discern exactly what the Obama administration's pending plans for the economy will mean for the banking system. Accordingly, bank stocks - and especially Bank of America's - have traded in volatile fashion in recent days.
But one analyst said the rally could be as temporary as last year's rally in bank stocks that followed the U.S. Treasury's first announcement of a rescue plan for banks.
"Fundamentals will likely be forgotten for a while, just like what occurred when the initial version of the TARP was announced," said Lana Chan, an analyst at BMO Capital Markets, in a note to investors on Friday. "There are still many questions and issues to be resolved."
Fitch Ratings lent credence to Chan's concerns Friday when it downgraded the preferred stock of Bank of America Corp. (BAC) and Citigroup Inc. (C) to junk territory while affirming other key ratings, citing the support given the banking giants by the federal government.
Mikey says:
Note in this article that the analyst said that the rally could be temporary as last years rally in the bank stocks. Lana Chan even says "there are still many questions to be resolved. I love this kind of thing being inserted when there is a rally going on. It plants doubt in the traders mind and makes him recall the past failed rallies. Will this be the one that goes? I don't know but one of these will go because the traders have been set up to sell the rallies. By the way when the questions are resolved and Lana is buying I sell.
By Marshall Eckblad
Off DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Shares of the largest U.S. banks soared in morning trading, led by Bank of America Corp. (BAC), on hopes that the U.S. Congress will soon pass a large economic stimulus package.
Bank of America led the rally, with its shares up 23.5% to $5.99 after a U.S. senator and some prominent bank analysts Thursday strongly dismissed fears that the hobbled Charlotte bank could soon be nationalized.
Ken Lewis, the bank's chief executive, also dismissed those concerns in an interview Friday with cable news channel CNBC.
"I have talked to government officials ... and no one has ever said nationalization was the way to go, or was likely to happen," Lewis said.
He called the rumors "absurd" and said: "I've never had anybody hint at it."
Shares in Wells Fargo & Co. (WFC) also surged in morning trading and were recently up 15% to $18.67. Citigroup Inc. (C) stock was recently up 9% to $3.85, while shares in JPMorgan Chase & Co. (JPM) were up 8% to $26.50.
The KBW Bank Index (BKX) soared 10 to $29.95 and the KBW Regional Banking Index (KRX) rose 6% to $44.83.
Investors and analysts alike have struggled in recent days to discern exactly what the Obama administration's pending plans for the economy will mean for the banking system. Accordingly, bank stocks - and especially Bank of America's - have traded in volatile fashion in recent days.
But one analyst said the rally could be as temporary as last year's rally in bank stocks that followed the U.S. Treasury's first announcement of a rescue plan for banks.
"Fundamentals will likely be forgotten for a while, just like what occurred when the initial version of the TARP was announced," said Lana Chan, an analyst at BMO Capital Markets, in a note to investors on Friday. "There are still many questions and issues to be resolved."
Fitch Ratings lent credence to Chan's concerns Friday when it downgraded the preferred stock of Bank of America Corp. (BAC) and Citigroup Inc. (C) to junk territory while affirming other key ratings, citing the support given the banking giants by the federal government.
Mikey says:
Note in this article that the analyst said that the rally could be temporary as last years rally in the bank stocks. Lana Chan even says "there are still many questions to be resolved. I love this kind of thing being inserted when there is a rally going on. It plants doubt in the traders mind and makes him recall the past failed rallies. Will this be the one that goes? I don't know but one of these will go because the traders have been set up to sell the rallies. By the way when the questions are resolved and Lana is buying I sell.
GE 11.60 is a stinking buy...They always do this at the lows
GE Facing Dividend Cut, Lowered Price: Analyst
If General Electric loses its coveted triple-A credit rating, which many on Wall Street regard as likely, its $1.24-per-share annual dividend may be next to go, a J.P. Morgan analyst suggested Friday.
In a note to clients, Stephen Tusa said he regarded the loss of the U.S. conglomerate's AAA debt ratings from Standard & Poor's and Moody's Investors Service to be "nearly a foregone conclusion."
Moody's last month joined S&P in putting GE's credit ratings on review. A downgrade could make it more difficult and costly for its GE Capital finance unit to borrow money.
Fairfield, Connecticut-based GE [GE 11.32 0.47 (+4.31%) ] has repeatedly stated its commitment to keeping both, and Chief Executive Jeff Immelt said in New York on Thursday that the world's largest maker of jet engines and electricity-producing turbines had ample cash flow to pay the dividend. He declined to comment on whether he has considered the benefits of cutting that payout.
GE is the parent of CNBC and CNBC.com.
But Tusa said it may be time for GE to reconsider.
"We think that this is another losing battle for GE in 2009, and quite frankly, one that is just not worth fighting," he wrote, saying the company might earn better long-term returns by using that cash to make acquisitions at a time when share prices around the world have been battered down.
Fundamental Pressure
Fundamental pressure continues to mount on GE'S earnings stream, both at GE Capital and at its industrial businesses, said Tusa, who cut his price target on the stock to $9 from $13.
Tusa said the rating loss and dividend cut could be a catalyst for change, possibly including a portfolio restructuring. He kept his "neutral" rating on the stock.
Mikey says: The rating agencies are always a day late and a dollar short. They should have cut the damn rating a year ago. This is yesterdays news. As far as the dividend goes so what the assets are marked down to reflect all of that. I hope they do and am sure they will cut the dividend hell I'll buy more.
If General Electric loses its coveted triple-A credit rating, which many on Wall Street regard as likely, its $1.24-per-share annual dividend may be next to go, a J.P. Morgan analyst suggested Friday.
In a note to clients, Stephen Tusa said he regarded the loss of the U.S. conglomerate's AAA debt ratings from Standard & Poor's and Moody's Investors Service to be "nearly a foregone conclusion."
Moody's last month joined S&P in putting GE's credit ratings on review. A downgrade could make it more difficult and costly for its GE Capital finance unit to borrow money.
Fairfield, Connecticut-based GE [GE 11.32 0.47 (+4.31%) ] has repeatedly stated its commitment to keeping both, and Chief Executive Jeff Immelt said in New York on Thursday that the world's largest maker of jet engines and electricity-producing turbines had ample cash flow to pay the dividend. He declined to comment on whether he has considered the benefits of cutting that payout.
GE is the parent of CNBC and CNBC.com.
But Tusa said it may be time for GE to reconsider.
"We think that this is another losing battle for GE in 2009, and quite frankly, one that is just not worth fighting," he wrote, saying the company might earn better long-term returns by using that cash to make acquisitions at a time when share prices around the world have been battered down.
Fundamental Pressure
Fundamental pressure continues to mount on GE'S earnings stream, both at GE Capital and at its industrial businesses, said Tusa, who cut his price target on the stock to $9 from $13.
Tusa said the rating loss and dividend cut could be a catalyst for change, possibly including a portfolio restructuring. He kept his "neutral" rating on the stock.
Mikey says: The rating agencies are always a day late and a dollar short. They should have cut the damn rating a year ago. This is yesterdays news. As far as the dividend goes so what the assets are marked down to reflect all of that. I hope they do and am sure they will cut the dividend hell I'll buy more.
Thursday, February 5, 2009
New Details on Banking Aid Package
White House Now Plans Limited Bank Aid Package
The Obama administration has decided on a new package of aid measures for the financial services industry, including a bad bank component, and is expected to announce them next Monday, according to a source familiar with the planning
The plan will be "smaller" than originally expected, said the industry source, and centered around government guarantees and insurance of troubled assets, what's called a "ring fence" concept.
"Everybody seems to like that," said the source. "There's a lot of internal conflict about whether this [the bad bank] makes sense ... they realize they have to do something with the bad bank."
Progress On Pricing Issue
The latest round of discussions also appear to have addressed the most controversial aspect of the big bank concept: Pricing.
Under the emerging plan, the government will buy toxic assets below the banks "carrying value," which is basically market value, but not at fire sale levels, the source said.
That approach will likely placate both taxpayer and Congressional concerns about the government over-paying for the assets. But, the source noted, it could "trigger an accounting problem for the banks," presumably because the institutions will have to report a loss on the transactions.
The Obama administration is now working on ideas to address that, which might entail a temporary suspension of certain accounting rules.
The current plan is expected to be smaller in that it will be paid for out of the remaining money in the original TARP plan, which is about $350 billion. Some of that money, however, will remain earmarked for home foreclosure relief.
Experts estimate there are some $1.5-$2.0 trillion in such bad assets, either of the non-performing or illiquid variety.
The ring fence concept has already been used with Citigroup [C 3.47 -0.02 (-0.5%) ] and Bank of America [BAC 4.33 -0.37 (-7.87%) ]. It involves government guarantees and insurance provisions for groups of bad assets, but they remain on the balance sheet of the institution. The bad bank concept literally removes them. Both approaches are meant to spur new lending by banks.
Thus far, the bulk of the government's aid under the TARP program has been through a capital-for-equity swap. The so-called capital injection method was adopted at the urging of Congress late last September and then wound up replacing Paulson's original, primary tool of a government auction to buy the troubled assets.
The capital injection program, however, is not expected to be a major part of the new aid package, according to the source. It will also be tweaked, apparently, so that the government receives convertible preferred stock, instead of the current preferred stock. The former can be converted into common stock, which is how some would now like to see the government take its equity stake.
Regardless of the merits of one measure or another, there's growing consensus in both government and banking that a one-size-fits-all approach is inappropriate. JPMorgan Chase [JPM 23.81 -0.23 (-0.96%) ] CEO Jamie Dimon, for one, has made that point recently.
Potitical Factors
The latest developments come as Congressional support for the bad bank concept and additional financial support for the financial sector is fading.
In a news conference Wednesday afternoon, House Speaker Nancy Pelosi (D.-Calif.) said she was "not so sure" that another bailout request from the Obama administration is inevitable, reversing an a previously-held assumption.
Sen. Charles Schumer (D-NY), a senior member of the Senate Banking Committee, Tuesday joined the bad-bank skeptics, telling CNBC the approach would be "hugely expensive" and added he prefers government guarantees of such assets.
Congressional Democrats, led by House Financial Services Committee Chairman Barney Frank (D.-Mass.) have shared with the new administration their anger and disappointment over former Treasury Secretary Henry Paulson’s administration of the TARP program, which was seen as too generous to and too lenient on Wall Street firms.
They've also made it clear that they want significant government funding to aid consumer borrowers, small business and the housing industry, as well as tighter rules on executive pay for firms participating in the TARP. President Obama unveiled those rules Wednesday.
Frank Wednesday announced that the committee will hold a hearing on firms' use of TARP money to date and will call on eight big-name CEOs to testify. They include Ken Lewis (BofA), Vikram Pandit (Citigroup), Dimon, (JPMorgan Chase), John Mack (Morgan Stanley [MS 24.38 2.37 (+10.77%) ]) and Lloyd Blankfein (Goldman Sachs [G 8.44 0.20 (+2.43%) ]).
The source said the Obama administration is keenly aware of all the political dynamic and is thus proceeding at a cautious pace.
Details are expected to be announced Monday. Treasury Secretary Tim Geithner next week will brief the respective houses of Congress on a variety of new measures meant to ease the credit crunch.
Mikey says: the most important thing to note here is The Government is taking an equity position in the banks. That means that when you own a bank the goverment is your partner. They have deeeeeep pockets. That is a very good thing. If you are in a bank CD that is also guaranteed by the Government. Same thing in my mind. The bet here is that the govenment does not blown up. I will make that bet every time. At some point they are going to get it right.
The Obama administration has decided on a new package of aid measures for the financial services industry, including a bad bank component, and is expected to announce them next Monday, according to a source familiar with the planning
The plan will be "smaller" than originally expected, said the industry source, and centered around government guarantees and insurance of troubled assets, what's called a "ring fence" concept.
"Everybody seems to like that," said the source. "There's a lot of internal conflict about whether this [the bad bank] makes sense ... they realize they have to do something with the bad bank."
Progress On Pricing Issue
The latest round of discussions also appear to have addressed the most controversial aspect of the big bank concept: Pricing.
Under the emerging plan, the government will buy toxic assets below the banks "carrying value," which is basically market value, but not at fire sale levels, the source said.
That approach will likely placate both taxpayer and Congressional concerns about the government over-paying for the assets. But, the source noted, it could "trigger an accounting problem for the banks," presumably because the institutions will have to report a loss on the transactions.
The Obama administration is now working on ideas to address that, which might entail a temporary suspension of certain accounting rules.
The current plan is expected to be smaller in that it will be paid for out of the remaining money in the original TARP plan, which is about $350 billion. Some of that money, however, will remain earmarked for home foreclosure relief.
Experts estimate there are some $1.5-$2.0 trillion in such bad assets, either of the non-performing or illiquid variety.
The ring fence concept has already been used with Citigroup [C 3.47 -0.02 (-0.5%) ] and Bank of America [BAC 4.33 -0.37 (-7.87%) ]. It involves government guarantees and insurance provisions for groups of bad assets, but they remain on the balance sheet of the institution. The bad bank concept literally removes them. Both approaches are meant to spur new lending by banks.
Thus far, the bulk of the government's aid under the TARP program has been through a capital-for-equity swap. The so-called capital injection method was adopted at the urging of Congress late last September and then wound up replacing Paulson's original, primary tool of a government auction to buy the troubled assets.
The capital injection program, however, is not expected to be a major part of the new aid package, according to the source. It will also be tweaked, apparently, so that the government receives convertible preferred stock, instead of the current preferred stock. The former can be converted into common stock, which is how some would now like to see the government take its equity stake.
Regardless of the merits of one measure or another, there's growing consensus in both government and banking that a one-size-fits-all approach is inappropriate. JPMorgan Chase [JPM 23.81 -0.23 (-0.96%) ] CEO Jamie Dimon, for one, has made that point recently.
Potitical Factors
The latest developments come as Congressional support for the bad bank concept and additional financial support for the financial sector is fading.
In a news conference Wednesday afternoon, House Speaker Nancy Pelosi (D.-Calif.) said she was "not so sure" that another bailout request from the Obama administration is inevitable, reversing an a previously-held assumption.
Sen. Charles Schumer (D-NY), a senior member of the Senate Banking Committee, Tuesday joined the bad-bank skeptics, telling CNBC the approach would be "hugely expensive" and added he prefers government guarantees of such assets.
Congressional Democrats, led by House Financial Services Committee Chairman Barney Frank (D.-Mass.) have shared with the new administration their anger and disappointment over former Treasury Secretary Henry Paulson’s administration of the TARP program, which was seen as too generous to and too lenient on Wall Street firms.
They've also made it clear that they want significant government funding to aid consumer borrowers, small business and the housing industry, as well as tighter rules on executive pay for firms participating in the TARP. President Obama unveiled those rules Wednesday.
Frank Wednesday announced that the committee will hold a hearing on firms' use of TARP money to date and will call on eight big-name CEOs to testify. They include Ken Lewis (BofA), Vikram Pandit (Citigroup), Dimon, (JPMorgan Chase), John Mack (Morgan Stanley [MS 24.38 2.37 (+10.77%) ]) and Lloyd Blankfein (Goldman Sachs [G 8.44 0.20 (+2.43%) ]).
The source said the Obama administration is keenly aware of all the political dynamic and is thus proceeding at a cautious pace.
Details are expected to be announced Monday. Treasury Secretary Tim Geithner next week will brief the respective houses of Congress on a variety of new measures meant to ease the credit crunch.
Mikey says: the most important thing to note here is The Government is taking an equity position in the banks. That means that when you own a bank the goverment is your partner. They have deeeeeep pockets. That is a very good thing. If you are in a bank CD that is also guaranteed by the Government. Same thing in my mind. The bet here is that the govenment does not blown up. I will make that bet every time. At some point they are going to get it right.
Wednesday, February 4, 2009
"PROS" looking for a restest...Can You say Head and shoulders bottom??
Stocks May Retest Bottom: So Let the Buying Begin
Whether it comes from this Friday's jobs report or some other dose of bad news, the stock market is likely to retest the November bottom—and probably sooner than later, many market pros think.
"Despite me thinking that we've already seen the belly of the beast, I still would not be surprised to see the lows breached and some more fear coming into the market," says Jordan Kimmel, fund manager at Magnet Investing in Randolph, N.J.
But even with the short-term bearishness, many financial advisers are telling clients to look past the bottom and start picking up small- and mid-cap stocks that traditionally lead the market out of recessions. Others see technology and commodities playing leadership roles.
"People think traditional leadership is large-cap growth and it's really not," says Charles Massimo, president of CJM Fiscal Management in Melville, N.Y. "Small-cap stocks always have and always will (lead out of recessions) and they will continue to do so."
Since the Dow Jones Industrial Average tumbled to 7,552 and the S&P 500 dropped to 752 on Nov. 20, the market has meandered in a fairly tight trading range while it wallows in the negativity of swelling unemployment along with poor earnings and pessimistic outlooks.
The jobs number due at the end of the week is already expected to be dismal—a 7.5 percent unemployment rate and a 525,000-worker drop in nonfarm payrolls, according to Briefing.com—and a surprise to the downside could be just the ingredient to send investors into a tizzy that tests the previous lows.
While Kimmel says it also could be another event outside the jobs number that provides a market bottom, he thinks the Dow before long could be trading below 7,000.
"This is the most extreme period I've ever seen for people intent on missing the bottom," he says. "People are hoarding cash. All the ingredients for another bottom are already in place. The reality is the new lows are just one bad news story away."
Opportunity Awaits
Those looking inside the numbers think the outlook for the rest of the year, beyond the immediate damage, could be what provides a retest.
"Everyone has come to the conclusion that this quarter and next quarter are a wash," says Dave Rovelli, managing director of US equity trading for Canaccord Adams. "The next quarter is when you could retest the lows. If companies come out and there's no light at the end of the tunnel and guidance is bad, maybe April is when you retest."
But that's going to provide opportunity, and Kimmel says he is buying a raft of small- and mid-caps, while at least in the near term Rovelli likes technology, energy and commodities.
For sectors on the smaller-company end, Kimmel likes shipping and biotech, emphasizing that he continues to see a stock-picker's environment rather than one where plays on indexes and exchange-traded funds will thrive.
While that mentality isn't universally shared, there is growing enthusiasm for companies with less than $1 billion in market capitalization.
"What will lead us out of this is a change in psychology," Massimo of CJM Fiscal Management adds. "You'll want to start to see some of the negative news be minimized and more of the positive stuff will start to come out. That will be the first kind of change in the market. It's all about sentiment. Bear markets reverse much quicker and with much more of an upside than most people realize."
Finding Safe Harbor
As a proponent of passive management, Massimo is counseling clients to hold tight to their positions and not miss gains from when the market recovers. He urges diversification and discourages clients from using "that sense of a crystal ball" to determine which sectors will lead.
Mikey says: If we can hold in this area we have a real chance of a head and shoulders bottom. The Left shoulder is 10-9 to 10-28, the Head is November 21 and 22, and the Right shoulder is 1-20 to present. That would leave the restest people waiting to buy the lows and in cash when the bottom kicked in. .....Could happen!!!
Whether it comes from this Friday's jobs report or some other dose of bad news, the stock market is likely to retest the November bottom—and probably sooner than later, many market pros think.
"Despite me thinking that we've already seen the belly of the beast, I still would not be surprised to see the lows breached and some more fear coming into the market," says Jordan Kimmel, fund manager at Magnet Investing in Randolph, N.J.
But even with the short-term bearishness, many financial advisers are telling clients to look past the bottom and start picking up small- and mid-cap stocks that traditionally lead the market out of recessions. Others see technology and commodities playing leadership roles.
"People think traditional leadership is large-cap growth and it's really not," says Charles Massimo, president of CJM Fiscal Management in Melville, N.Y. "Small-cap stocks always have and always will (lead out of recessions) and they will continue to do so."
Since the Dow Jones Industrial Average tumbled to 7,552 and the S&P 500 dropped to 752 on Nov. 20, the market has meandered in a fairly tight trading range while it wallows in the negativity of swelling unemployment along with poor earnings and pessimistic outlooks.
The jobs number due at the end of the week is already expected to be dismal—a 7.5 percent unemployment rate and a 525,000-worker drop in nonfarm payrolls, according to Briefing.com—and a surprise to the downside could be just the ingredient to send investors into a tizzy that tests the previous lows.
While Kimmel says it also could be another event outside the jobs number that provides a market bottom, he thinks the Dow before long could be trading below 7,000.
"This is the most extreme period I've ever seen for people intent on missing the bottom," he says. "People are hoarding cash. All the ingredients for another bottom are already in place. The reality is the new lows are just one bad news story away."
Opportunity Awaits
Those looking inside the numbers think the outlook for the rest of the year, beyond the immediate damage, could be what provides a retest.
"Everyone has come to the conclusion that this quarter and next quarter are a wash," says Dave Rovelli, managing director of US equity trading for Canaccord Adams. "The next quarter is when you could retest the lows. If companies come out and there's no light at the end of the tunnel and guidance is bad, maybe April is when you retest."
But that's going to provide opportunity, and Kimmel says he is buying a raft of small- and mid-caps, while at least in the near term Rovelli likes technology, energy and commodities.
For sectors on the smaller-company end, Kimmel likes shipping and biotech, emphasizing that he continues to see a stock-picker's environment rather than one where plays on indexes and exchange-traded funds will thrive.
While that mentality isn't universally shared, there is growing enthusiasm for companies with less than $1 billion in market capitalization.
"What will lead us out of this is a change in psychology," Massimo of CJM Fiscal Management adds. "You'll want to start to see some of the negative news be minimized and more of the positive stuff will start to come out. That will be the first kind of change in the market. It's all about sentiment. Bear markets reverse much quicker and with much more of an upside than most people realize."
Finding Safe Harbor
As a proponent of passive management, Massimo is counseling clients to hold tight to their positions and not miss gains from when the market recovers. He urges diversification and discourages clients from using "that sense of a crystal ball" to determine which sectors will lead.
Mikey says: If we can hold in this area we have a real chance of a head and shoulders bottom. The Left shoulder is 10-9 to 10-28, the Head is November 21 and 22, and the Right shoulder is 1-20 to present. That would leave the restest people waiting to buy the lows and in cash when the bottom kicked in. .....Could happen!!!
Monday, February 2, 2009
So you thought January was going to be good?...They are looking for a retest now
New Month, But Same Depressing Markets
While investors hoped that a new year would bring better results, a plethora of downbeat earnings reports, poor corporate outlooks, gloomy economic data, and heightened concerns over the health of many large financial firms plagued the markets in January.
For the fifth month in a row, the Dow [.DJIA 7936.83 -64.03 (-0.8%) ] ended up in negative territory – matching its five-month losing streak back in November 2007-March 2008. In fact, the Dow has only posted a gain in three of the last fifteen months.
While January is typically one of the better months for the markets overall, the Dow’s decline of 8.84% last month was its worst January ever. Weighing down the Dow the most last month were Caterpillar [CAT 30.29 -0.56 (-1.82%) ], Wal-Mart [WMT 46.57 -0.55 (-1.17%) ], Bank of America [BAC 6.00 -0.58 (-8.81%) ], and Procter & Gamble [PG 53.05 -1.45 (-2.66%) ]– each of which is at or very near a new 52-week low. Broader indices are faring no better to start out the year, as both the S&P 500 and the Russell 2000 had their worst January ever.
Financials Fall Apart…Again
Although the Dow’s weak performance last month didn’t come close to its huge 14% plunge back in October, financials fared much worse. Don’t let last week’s gains (See Financials Big Gains) fool you – financial stocks performed terribly in January ahead of their earnings reports, with expectations that many of them would post huge losses and need even more capital. Plunging 26.6% last month, the S&P 500 Financials sector had its worst month ever – even exceeding the sector’s 22.7% decline from October, which followed the collapse of the likes of Fannie Mae, Freddie Mac, Lehman Brothers, and AIG. Here are some of the worst-performing stocks in the S&P 500 Financials sector last month:
Fifth Third (FITB) -71%
Huntington Bancorp (HBAN) -62%
SunTrust Banks (STI) -58%
Marshall & Ilsley (MI) -58%
Regions Financial (RF) -57%
Bank of America (BAC) -53%
Capital One Financial (COF) -50%
Aflac (AFL) -49%
Citigroup (C) -47%
State Street (STT) -41%
Over the past few days, the markets have been weighed down by weak economic data, downbeat corporate earnings forecasts, and concerns that many financial firms may post large quarterly losses in the upcoming weeks. Now at its lowest level since December 1, the Dow is down for its sixth straight session – its longest losing streak since the beginning of October. Despite this weakness, the Dow still sits about 10% above its November 21 intraday low (7,449.38) – a level that could be retested in the coming weeks. As we start a new month, February does not look like it will be the start of a turn around.
Mikey says:
The tone of this article suggests that we are going to be waiting a long time for things to improve. It even suggests that we will retest the lows at 7449.
This is standard stuff for these guys because when they really want to buy stock they paint a picture that is hopeless. They will drag this out until their argument is very believable. Maybe February will retest and maybe we sell off until June but the next big payday is to the upside.
While investors hoped that a new year would bring better results, a plethora of downbeat earnings reports, poor corporate outlooks, gloomy economic data, and heightened concerns over the health of many large financial firms plagued the markets in January.
For the fifth month in a row, the Dow [.DJIA 7936.83 -64.03 (-0.8%) ] ended up in negative territory – matching its five-month losing streak back in November 2007-March 2008. In fact, the Dow has only posted a gain in three of the last fifteen months.
While January is typically one of the better months for the markets overall, the Dow’s decline of 8.84% last month was its worst January ever. Weighing down the Dow the most last month were Caterpillar [CAT 30.29 -0.56 (-1.82%) ], Wal-Mart [WMT 46.57 -0.55 (-1.17%) ], Bank of America [BAC 6.00 -0.58 (-8.81%) ], and Procter & Gamble [PG 53.05 -1.45 (-2.66%) ]– each of which is at or very near a new 52-week low. Broader indices are faring no better to start out the year, as both the S&P 500 and the Russell 2000 had their worst January ever.
Financials Fall Apart…Again
Although the Dow’s weak performance last month didn’t come close to its huge 14% plunge back in October, financials fared much worse. Don’t let last week’s gains (See Financials Big Gains) fool you – financial stocks performed terribly in January ahead of their earnings reports, with expectations that many of them would post huge losses and need even more capital. Plunging 26.6% last month, the S&P 500 Financials sector had its worst month ever – even exceeding the sector’s 22.7% decline from October, which followed the collapse of the likes of Fannie Mae, Freddie Mac, Lehman Brothers, and AIG. Here are some of the worst-performing stocks in the S&P 500 Financials sector last month:
Fifth Third (FITB) -71%
Huntington Bancorp (HBAN) -62%
SunTrust Banks (STI) -58%
Marshall & Ilsley (MI) -58%
Regions Financial (RF) -57%
Bank of America (BAC) -53%
Capital One Financial (COF) -50%
Aflac (AFL) -49%
Citigroup (C) -47%
State Street (STT) -41%
Over the past few days, the markets have been weighed down by weak economic data, downbeat corporate earnings forecasts, and concerns that many financial firms may post large quarterly losses in the upcoming weeks. Now at its lowest level since December 1, the Dow is down for its sixth straight session – its longest losing streak since the beginning of October. Despite this weakness, the Dow still sits about 10% above its November 21 intraday low (7,449.38) – a level that could be retested in the coming weeks. As we start a new month, February does not look like it will be the start of a turn around.
Mikey says:
The tone of this article suggests that we are going to be waiting a long time for things to improve. It even suggests that we will retest the lows at 7449.
This is standard stuff for these guys because when they really want to buy stock they paint a picture that is hopeless. They will drag this out until their argument is very believable. Maybe February will retest and maybe we sell off until June but the next big payday is to the upside.
Bad Bank idea delay...Maybe now we can rally
The Obama administration indicated Monday that it will not unveil new measures to aid the financial services industry this week, but will instead move on the issue of Wall Street bonuses and executive compensation.
In an interview aired on NBC Monday, Obama said, "I don't want to pre-empt an announcement next week," when asked if the administration was committed to the bad bank idea.
The President added that "we're going to have see some of this debt written down."'
The bad bank concept and other measures to aid the banking were at the center of a weekend's worth of discussions between government officials and representatives of the financial services industry. Those talks also included new rules on executive pay and lending transparency for institutions receiving funding under the TARP program.
The bad bank concept is "part of an overall plan," the president told NBC in the interview.
The president confirmed in the interview that his administration would be addressing the compensation issue, saying he had asked Treasury Secretary Tim Geithner to "put together a clear set of guidelines. If a bank or financial institution is getting relief, then they've got to abide by certain conditions."
The interview confirmed earlier reports on CNBC.com that the Obama administration was moving ahead on executive compensation rules and delaying an announcement of "bad bank" measures.
Though details of the intended Obama administration announcement on Wall Street compensation are unknown at this time, it looks set to be part of a revised TARP plan, which both Congressional Democrats and senior White House advisors have laid out in recent weeks.
Last week President Obama chastised Wall Street firms for handing our large executive bonuses, while petitioning for government assistance and in some cases struggling to survive, calling the situation “shameful” and "outrageous." Congress is also considering legislation capping executive compensation.
In his weekly radio address Saturday, the President said new initiatives would make sure chief executives "are not draining funds" from their firms that might otherwise be spent on fueling an economic recovery, through loans and other instruments.
In seeking Congressional authorization of the final $350 billion of the TARP plan, the Obama administration said it wanted to have "potential ammunition" for the financial sector but also made it clear it would seek tougher conditions on participating firms, mirroring legislation crafted by Rep. Barney Frank (D.-Mass.), the chairman of the powerful House Financial Services Committee.
New terms on executive compensation as well as lending transparency for firms participating in the government bailout were part of the talks with industry members Sunday.
Those talks also centered on a group of options that the Obama administration is considering to provide aid to the financial sector. They include a "bad bank" concept to buy toxic assets from firms, as well as more capital injections and a so-called "ring fence" concept, in which the government uses a combination of guarantees and insurance to cover bad assets within an institution without technically removing them from the balance sheet.
The President also told NBC "some banks won't make it," an assessment shared by top bank executives.
JPMorgan Chase [JPM 25.38 -0.13 (-0.51%) ] CEO Jamie Dimon last Friday told CNBC the same thing, adding that the government should let them fail rather than allow them to survive through "permanent life support."
Bank failures have been surprisingly few this far, but that is expected to increase as the economy worsens and the credit crunch drags on. Obama may have been acknowledging as much, as well as sending a signal to the financial community that government support won't be limitless, even as has repeatedly said that supporting the financial system is a priority.
Though the massive stimulus package has clearly been the White House’s chief focus in the early days of the new administration, President Obama has been pressed to consider additional ways to support the still-struggling financial system.
At the same time, negative publicity about large bonuses for Wall Street executives amid the financial sector meltdown and massive amounts of federal aid has ignited government and taxpayer indignation. That issue first came to a boil last fall when executives first came under pressure to voluntarily forego such bonuses.
In addition, Congressional Democrats have been crying foul over former Treasury Secretary Henry Paulson’s administration of the TARP, saying it was both too generous and lenient on Wall Street firms receiving aid.
In mid-January, Rep. Frank introduced legislation revising the TARP, which included tougher terms on both executive pay and lending practices.
Sen. Claire McCaskill (D.-Mo.) Friday proposed a cap on total compensation of $400,000 a year on executives, until their companies no longer rely on government aid.
Mikey Says If we rally this week ...believe it.
In an interview aired on NBC Monday, Obama said, "I don't want to pre-empt an announcement next week," when asked if the administration was committed to the bad bank idea.
The President added that "we're going to have see some of this debt written down."'
The bad bank concept and other measures to aid the banking were at the center of a weekend's worth of discussions between government officials and representatives of the financial services industry. Those talks also included new rules on executive pay and lending transparency for institutions receiving funding under the TARP program.
The bad bank concept is "part of an overall plan," the president told NBC in the interview.
The president confirmed in the interview that his administration would be addressing the compensation issue, saying he had asked Treasury Secretary Tim Geithner to "put together a clear set of guidelines. If a bank or financial institution is getting relief, then they've got to abide by certain conditions."
The interview confirmed earlier reports on CNBC.com that the Obama administration was moving ahead on executive compensation rules and delaying an announcement of "bad bank" measures.
Though details of the intended Obama administration announcement on Wall Street compensation are unknown at this time, it looks set to be part of a revised TARP plan, which both Congressional Democrats and senior White House advisors have laid out in recent weeks.
Last week President Obama chastised Wall Street firms for handing our large executive bonuses, while petitioning for government assistance and in some cases struggling to survive, calling the situation “shameful” and "outrageous." Congress is also considering legislation capping executive compensation.
In his weekly radio address Saturday, the President said new initiatives would make sure chief executives "are not draining funds" from their firms that might otherwise be spent on fueling an economic recovery, through loans and other instruments.
In seeking Congressional authorization of the final $350 billion of the TARP plan, the Obama administration said it wanted to have "potential ammunition" for the financial sector but also made it clear it would seek tougher conditions on participating firms, mirroring legislation crafted by Rep. Barney Frank (D.-Mass.), the chairman of the powerful House Financial Services Committee.
New terms on executive compensation as well as lending transparency for firms participating in the government bailout were part of the talks with industry members Sunday.
Those talks also centered on a group of options that the Obama administration is considering to provide aid to the financial sector. They include a "bad bank" concept to buy toxic assets from firms, as well as more capital injections and a so-called "ring fence" concept, in which the government uses a combination of guarantees and insurance to cover bad assets within an institution without technically removing them from the balance sheet.
The President also told NBC "some banks won't make it," an assessment shared by top bank executives.
JPMorgan Chase [JPM 25.38 -0.13 (-0.51%) ] CEO Jamie Dimon last Friday told CNBC the same thing, adding that the government should let them fail rather than allow them to survive through "permanent life support."
Bank failures have been surprisingly few this far, but that is expected to increase as the economy worsens and the credit crunch drags on. Obama may have been acknowledging as much, as well as sending a signal to the financial community that government support won't be limitless, even as has repeatedly said that supporting the financial system is a priority.
Though the massive stimulus package has clearly been the White House’s chief focus in the early days of the new administration, President Obama has been pressed to consider additional ways to support the still-struggling financial system.
At the same time, negative publicity about large bonuses for Wall Street executives amid the financial sector meltdown and massive amounts of federal aid has ignited government and taxpayer indignation. That issue first came to a boil last fall when executives first came under pressure to voluntarily forego such bonuses.
In addition, Congressional Democrats have been crying foul over former Treasury Secretary Henry Paulson’s administration of the TARP, saying it was both too generous and lenient on Wall Street firms receiving aid.
In mid-January, Rep. Frank introduced legislation revising the TARP, which included tougher terms on both executive pay and lending practices.
Sen. Claire McCaskill (D.-Mo.) Friday proposed a cap on total compensation of $400,000 a year on executives, until their companies no longer rely on government aid.
Mikey Says If we rally this week ...believe it.
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