Bloomberg Quote of the Day: “You cannot escape the responsibility of tomorrow by evading it today.” – Abraham Lincoln…ole Honest Abe was on to something…but try telling that to capitalists…or their government…fools that we all are. TB
…stocks rally out of the chute…the Dow up 130 and then can’t do any more than hold on…well brace yourself, Bridget…because stock futures are down nearly 100 o/n!
Before we discuss the market let’s discuss the state of banking reform…then at the endh TB reports a conversation he had with the small business group at Bank of America (sic) yesterday. It tells volumes.
Our problems are not anywhere near over. Furthermore, we selectively bailed out Citi (for a fourth time), AIG (so Goldie and Gip ‘Em could be paid off on their credit default swaps), Bear Stearns (giving it to Gim ‘em), Wachovia (by giving it to Wells (but they wanted Citi to get it!!!), Merrill by whatever you call it to BofA, but we let Lehman (Goldie’s biggest competitor), and CIT (the sole source of credit to small and medium-sized businesses, file bankruptcy. We also provided TALF, TARP and TLGF (Treasury Loan Guaranty Funding) to the banks and Goldie and Morgan Stanley on the wink that they are banks – they are most definitely NOT!!!
To show their gratitude, the banks have done the following:
*Act as underwriter on their own TGLF bonds further providing revenues for a priceless Federal guarantee
*Reduced lending in order to rebuild capital and putting more pressure on the small and medium sized banks which are now the ones failing “too small to survive”
*Ripped of state and local government issuers by selling them interest rate swaps that were misrepresented and now grossly underwater…no relief offered.
*Are going to pay bonuses larger than last year…etc. …etc. …etc.
Meanwhile, Jamie Dimon says that derivatives were NOT a cause of the credit crisis…this from the smartest man in banking…perhaps because he does NOT wish to see them regulated. The banks have stepped up lobbying efforts against banking reform and consumer protection…Citi and BofA with our money…JPM with our gift of Bear!
Oh and CIT is now safely in bankruptcy and credit will still be available. What did CIT really need? Nothing more than an extension of the guarantee on their commercial paper. When the commercial paper market dried up, they had to cut back on their factoring…that left them with lower revenues and sizeable debt. Is this what the banks wanted to they could move in on this hithertofore unwanted segment of their business?. Certainly not as exciting or profitable as writing interest rate swaps, CDS, or commodities swaps which drove energy price to the moon in early 2008 even as the global economy was beginning to crumble.
Yet you love stocks…inventory rebuilding is on the way…as is business investment…this is enough to make TB sick…the rules of finance and investing are out the window.
Now a quick summary of yesterday’s stock market: Stocks opened up for no particular reason…Dow to up 130 then the came back down and held on to a mere fraction of Friday’s losses…while putting in lower lows…and had nothing more than a dead cat bounce! Advance/declines and breadth were essentially even after that huge trouncing last week. Volume was 1.55B shares and new lows have exceeded new highs for three of the last four sessions…we have not seen this since July! Every index is trading below its 40 day and all but the Dow and NYSE Energy are trading below both the 40 and 50 day.
We just learned that Berkshire Hathaway is buying the remaining 77.5% of Burlington Northern (BNI) for $100…a 33% premium to last nights close ($76). This made TB happy because some of his accounts hold it and thanks to limits were not stopped out on it earnings miss. Now here’s the thing…thanks to the weighting, this purchase will add 130 or so points to the Dow Transports today…and will probably cause more buying of other rail stocks….but does it make sense?
The Dow Transports have been lagging miserably, were the first index to peak, the first to close below the 40 day m/a…and then the 50 day…if the economy is weak why do you want to buy transportation stocks??? Think about it…you too, Warren!
Buffett owns Kraft (KFT) that is buying Cadbury (CBY)…Buffett said it was a very full price especially when you are paying for it with weak stocks (he owns 9.4% of KFT). A few years ago (after TB bought BRK which was the only stock that rallied coming out of the dotcom bust) he made a big…emotional bet against the dollar…which cost the company $15 billion…he did it on his own…and only on a ‘gut’ feeling that was wrong. But most importantly remember that Buffett invests for the long run…and may be the only manager left…except Ken Fisher…that does that. While that is a laudable effort, it is futile when businesses are being managed by the quarter (or tenure of the CEO), and stocks turn over frequently thanks to speculative trading that leaves buy and hold investors holding the bag… welcome to Casino New York!
So ignore the Transportation index today and if you own BNI cheer…if, on the other hand you own BRK…you might not be so happy….amazing the interpretation of all this on Bloomberg…who knows what CNBC is saying as Betsy Quick idolizes Buffett.
If you think TB is being to hard on an icon…there are many such as Julian Robertson and Martin Sosnoff, who lost their touch…but Dr. Love (Mario Gabelli) someone how is idolized despite non-star performance….how about this: Buffett used to write on Christmas Cards to friends “may you live until Berkshire Hathaway does a stock split.” That stuck with TB in a company that doesn’t pay dividends either and the ‘A’ shares (of which Warren and Charlie have their holdings, 33% and 1.25% respectively) are still selling at slightly below their 40/50 day m/a’s ($98,750 vs $100,000). Well, if you own the ‘B’ shares (1/30th of ‘A” shares) which closed last night at $3,265…you have one foot in the grave: they just announced a 50-for-1 stock split! Hmmm…why would they do that? To bring in more buyers!!!! The price on the new shares would be $65!!! Warren…do we look like some kinda stupid??? Yup! Also, remember there were valiant effort somilar to this in 1929 that proved futile – at least in the short run…but in the long run we are all dead…right Lord Keynes?
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When TBD Capital LLC was started in 2002, TB opened an account with BofA. He also got a business line (and credit card.from AmEx… with no financial history). He then transferred the line when Citi offered him 0% for one year…and then to BofA when they did the same). Even though that deal is over the rate is low and to finance equipment etc. TB had build up a balance on the loan while the business was developing (read: got paying clients). He recently increased capital with the intention of paying off the loan but a lightbulb went off and he decided to pay down only half the loan to see what happened to the credit line – first! So the payment was made on the 30th and then he checked his on line statement and saw the check cleared but the balance on the business line was the same. Also, available credit was the same (during the crisis, the bank reduced the line by $7,000, just because it was unused to bolster free capital), so he called the bank.
After pushing buttons for 15 minutes he finally reached a live rep. Here is what happened (abridged as we were talking n circles for another 15 minutes):
TB: “I just made a payment on my loan and was going to pay it all off but I want to keep my line and have heard too many comments from others about having their lines slashed.”
BofA: “Well, I just checked your account history and you have no marks against you in the notes. So I see no reason they would reduce the line.”
TB: “It was the same nine months ago when you cut the line by $7,000 during the crisis.”
BofA: “Our accounts are always under review so they do that but I see no reason they would do it again.” (obviously reading from a script)
TB: “But what if I write a check for a purchase and in the meantime the bank lowers the line…and the check bounces.” Can’t you tell me if they are going to do it or what information I can provide to insure that the line remains intact.”
BofA: “Our accounts are always under review and we always send a letter to advise you that the line has been reduced.”
TB: “Yes…after the fact…you are speaking from the banks point of view with absolutely no consideration of your customer’s position. Small businesses cannot operate successfully without knowing their available credit…and if my check bounces…”
BofA: “If that happens you can request a review of your line…”
TB: (becoming irritated)….and they will tell me know because I just bounced a check!!!” Also a creditor might report me as a deadbeat…can’t you see where this is going? You are destroying the chances of a recovery because small businesses cannot operate and grow without credit….and it was the banks mismanagement that caused this to be a crisis. Furthermore, you exist only by the largesse of the American taxpayer. (TB then explained to her that he meant nothing against her but only the banks inane policies…she got it).
The discussion then became totally circular with the upshot being that no, I cannot request a review of the account…as that is being done on an ongoing basis…yadda, yadda, yadda….
Have a good day and don’t let TB or anyone else do your thinking for you – ever!
TB
Trader Bill thinks it is clear to anyone reading these missives that they are merely commentaries…as he sees it…and do not necessarily reflect the views of anyone other than his own. Information is gathered from sources he has found reliable, but no guarantees of accuracy are implied. These are merely observations of events in the marketplace offering in an attempt to offer a non-mainstream viewpoint. Hope you find it useful. Copyright TBD Capital LLC, © November 3, 2009.
