TB’s Quote of the day: “When you get to the end of your rope, tie a knot and hang on!” -Franklin Delano Roosevelt…and he knew something about ends of ropes…forwarded by KKK.
…that is how TB started the day yesterday…well, not exactly good but at least optimistic that perhaps, just perhaps, we had come to our senses. Yet that feeling was shattered in the opening half hour as the Dow which rose 135 points right out of the chute tanked. By 11:30am it was in the red after marching down with virtually no bounce, and that was all she wrote. Shortsellers once again attacked the financials…sure some outright sellers too but professional managers do not panic that way. In fact, TB contacted several he knew who were a lot less agitated than he was at the shortsellers, Sen. Dodd, and the toothless SEC. It was eerie.
Now consider this…if the US financial system is now trash…what about that of the rest of the world? If you are madly selling your financial stocks, why are you parking the money in banks (think of the massive size of the FDIC guarantees), or in money market funds? Yet, other than the one and three month T-Bills, the bond market was in the tank much of the session and the rally was unimpressive.
Yesterday, banks stocks were destroyed with some such as Washington Mutual losing 40% of their value, Wachovia -15% even USBancorp which reports today -9%, WAMU and National City both held press conferences to say that there was no news and that deposit flows were orderly…they were crucified for it. Jim Cramer’s baby Hudson City Bank (HCBK) fell 7% (of course TB pointed out they were selling for 21x forecast earnings…now 19x). There was no safe harbor!
Overnight, the Dollar is in the tank, sinking to a new record low against the Euro and the Dollar Index is 71.23, just inches above the record low set on March 17…if it closed now it would be a new low close!
This, as Globex is in the tank with the DOW -140, SPX -15, and NDQ -21…at the session lows. Every major global bourse is down at least 2% while the Indian SENSEX is -4.9%…only bright spot is Viet Nam’s Ho Chi Minh Index which is +2.5%…doubt many of you are in that one!
Meanwhile, State Street Bank (STT) just reported for the quarter…the first bank to do so…and a net positive surprise. Record revenues of $27B in Q2, +39% from a year ago…Earnings were $1.40 ex-items…they sold a sub…vs. $1.36 consensus…Return on Equity 18.6%. Raised forecast, investment margins widened due to the Fed rate cuts…YET stock had a reversal day yesterday and lowest close since July 10, 2007! This is what shortselling has done to our financial system…destroyed it…
Later today, USBancorp reports earnings and tomorrow Wells Fargo and Northern Trust…these too could provide positive surprises. Thursday is JPMorganChase, Bank of New York, BB&T Corp, PNC Financial, and on the negative side Merrill Lynch…which may have sold it’s stake in Bloomberg by then (now saying they will hold on to Black Rock). Also, Capital One reports and like JPM and Citi mya show a huge uptick in credit card losses. Sadly, we end the week with Citigroup, but hopefully (one can always hope), we come to our senses that the entire financial system of the US is not being destroyed! Already, with FNM/FRE in question there is no mortgage market…right? How can capital strapped banks make loans if there is no place to lay them off?
Now perhaps…just perhaps you are getting the point…the SEC still appears not to and TB cannot fathom where the anger is from other investors…without the combination of NAKED SHORTS and no UPTICK RULE the stock market would not be where it is today…there is a misguided view that shorts are good for the market…wait…studies have shown that shorts remove market overvaluations…true! But those studies were based on shorting individual stocks…not entire sectors…the wheat with the chaff. When you short everything in sight and can do it without limit you convert a market to a casino!
The stupid part of this is that the investors suffering the most…pension funds…are the ones providing the shares so the shortsellers can rape them! All of this for 0.25% or so…you do the math but it is a bad bet. They could inform custodians that their stocks are not available for loan…instead they are losing their shirts and now flocking to commodities funds which are in turn further destroying the values of the rest of their portfolios. Please tell TB that he isn’t the only one who can figure this metric out? Nope, nobody and we will have to wait until studies are done on this…forensically as we did the performance of the Fed in the 1930’s and then have a revelation that this is not a market…it is power to the biggest players. You can bet that once the shortsellers have wrung everyone else out they will rally it and make money on the upside too.
Next we move to the atrocious activities of our elected leaders and their appointees to regulatory bodies. Sen. Charles Schumer (D-NY) who single handedly drove in the final nail to Indymac’s coffin, then said the letter he wrote and then made public was just stating known facts…true…but he created the panic!
Just saw the Business Section from the local rag: depositors lined up at Indymac to get their money back. If you have no confidence in the FDIC then your mattress might serve you better unless some arsonist with a foreclosed home next door burns his down and takes out yours in the process…think about it!
Sen. Chris Dodd (D-CN) for his failure to put the names of the two nominees for Fed governors up for a vote…nothing but politics here…and the Fed barely has a quorum with these two vacancies, in fact if one of the governors whose term expired left…or one had a heart attack…the Fed is out of business for emergency action…and we are truly in an emergency…one of our own making!
Furthermore, Dodd keeps reiterating that FNM/FRE are financially sound which is not and never was the case…they survive on confidence that the government will support them. The entire burden has been placed squarely on the shoulders of Ben Bernanke and Henry Paulson…and frankly they are running out of things to say that can move the markets positively.
Then of course there is Larry Kudlow…the architect of leave capitalism alone…no regulation to burden the simple manufacturing of profits…and it galls the American people to see these same companies and management that have been ripping them off for years get bailed out. Last night was a disgrace…Kudlow and others shouting at one another…only listened because James Bianco and Gary Schilling were voices of knowledge…while Kudlow decried them as Malthusians. How this man has a show is beyond TB’s simple comprehension. The same man who said the subprime mess was overblown with it comprising just 6% of the mortgage market saying that FNM/FRE’s losses are less than 1% far below their capital. This shows how ignorant the man is…if you are levered 25 times and you lose 1% you are on the ropes, and that is where they are now…yet he remains in denial. This is the same argument TB has made when he hears that only 5% of the S&P 500 is shorted…that is not the way you look at it…you have to ignore market cap and look at the average daily volume! That is the ‘leverage’ that shorting provides. Get real!
TB will close with a wish…a wish that we had real leaders…so far Obama and McCain have not been able to fill the bill, and in press conferences that only Richard Nixon (Checkers speech) could appreciate Dubya changes the subject to oil and signs a presidential order on offshore drilling (repealing one his own father implemented) and with a country that has had no energy plan for 25 years he blames it all on the Democrats…that takes chutzpah!…and the man is full of it!…chutzpah that is! Mazeltov! Yikes!
Yesterday, TB cut it short on the basis he wanted to see if the Globex gains could hold…they could not. Today, he is writing this while Globex is in the opposite direction and with even higher numbers. Perhaps that is why he feels there must be some reason out there…this is a futile attempt at it…God help us!
If you sense frustration here you are right…frustration with Congress, the President, the SEC, and the CFTC by not putting limits on banks commodities trading which is in turn be used to force commodities prices higher…even though it is at the expense of the bank customers and the banks themselves (why not pension funds are putting money into commodities index funds and lending their securities which is in turn driving down their equity portfolios! This, from the leading nation of the world…makes TB ill!
TB
