10/26/10…the NEW, new normal!

TB saiz: “There is one and only one reason to buy a bank stock: for the dividend! With the dividend near zero, earnings lifted only by reducing loan loss reserves (with more losses to come in 2011), how can they possibly generate the capital they need to be in compliance and STILL raise the dividend? They cannot…so if you must, judiciously buy bank preferred’s, paying close attention to credit quality, the premium, and call dates! ”

…the above quote has been uttered here before but never so detailed and never before has it been so important. During the roaring first half of this decade, financial stocks rose from their normal 20% of total earnings to near 40%...all thanks to derivatives and financial engineering…not by adding one iota of value to the economy and in fact sinking it!

Pimco’s Mohammed El-Erian gets credit for the phrase “the new normal,” a situation in which economic growth and yields are both substandard. Michael Lewis, during the dot com binge, wrote a book titled The New New Thing. Combining the two, TB has the NEW, new normal…a situation where greed by business and individuals, most notably those who created the financial crisis but got away unscathed without a prison sentence or a fine…largely by having benefactors who they enriched pulling the strings in Washington. Such as Mitch McConnell, and of course Chris Dodd…even Joe Biden was beholding to…of course he didn’t know he was getting a preferential rate, although they lent to him three times. There is a lot TB could write about today but he will let Bloomberg (the company not the mayor), do the heavy lifting through three top stories today…read and learn:

*Shrinking U.S. Bank Revenue Signals Beginning of ‘Worst’ Decade of Growth (!)

This should not come as news following first, Citi had a tidy profit of $2.1 billion of which $2 billion came from a reduction in the loan loss reserve; JPMorgan’s revenue miss, BofA’s $7.1B loss of which $7.4B came from added reserves to cover ‘put-back’s of mortgages. Not surprisingly, BoA said that they had reviewed their loan procedures and could find no problem areas…very well… now that we know your internal auditors are as dumb as your loan officers we are on the right track…so they are back in the foreclosure business and showing no mercy…wanna bet? They are going to get nailed and by more than $7.4 billion…much more! Two questions? Can these three ‘too big to fail behemoth’s continue to show bottom line growth thru reducing loan loss reserves and cutting expenses alone (read on the backs of the rank and file), and can they soon increase the dividend? Please!!! They are paying out 8.2% (not tax deductible) on one class of $25 preferred alone totaling $2.925 billion on one issue alone…that issue which traded as high as $26.40 in October and closed yesterday at $24.81…note it is callable on 5/1/13 at par…if there is any way for them to do so they will buy them back…they have to! …and if they don’t it is a signal they are in deep doo-doo! Very deep and voodoo! Who do?...they do…do what? Remind me of a …oh nevermind, old joke. So whether they do or not there is no way in hell they are going to increase the dividend on the common. According to the article their revenue is off 17.3% since 3/31, Gip ‘Em (JPM) is off 13.9% and even holier-than-thou Wells Fargo is down 2.7%...reverse growth? Goldman an Citi meanwhile are off 30% and 18% respectively while Morgan Stanley rounds off the top ‘too big to fail’ six at minus 25% (by the way regardless of what the Fed says…Goldie and MS are NOT banks…have no desire to be either…except for those sweet guarantees!).

In the first nine months while the S&P 500 climbed 6.9%, S&P Financials are up just 1%, with BofA and Morgan Stanley (MS???) each off 17% plus…and Citi the only winner +27%...why, when the government is a seller defies logic…perhaps Rubin is hyping it?

Non-interest expense for the banks climbed to more than 60% for the first time since 2008…you do recall earnings plunged then don’t you? So the cost cutting and reduced loan loss reserves couldn’t even hold pace! Yet we are told the banking system is sound. It is…it is the best that money can buy and it will be backed by the Fed…until it can’t!

MS and Gip ‘Em alone are expected to shed 80,000 jobs in the next 18 months…on the backs of the workers…while the execs get fat bonuses thanks to the cuts being classified as one-time charges…so tell TB…please…how is consumption going to expand???

*Bernanke Asset Purchases Risk Unleashing 1970’s Inflation Genie (or weak dollar?)

It is fears like this that scare me…it is doubtful the a new round of quantative easing (QE2…should it instead be called Titanic?), will solve the problem…$500 billion is expected soon after the FOMC meeting and estimates range from $1-2 trillion total.

Will it work? Well, the alternative of not trying is called DE-flation and that would be an even worse fate…frankly, without pay raises…and the prior story on the banks…it is doubtful their will be a significant pick-up in consumption!...or will there be?

*OTC Derivatives May Face Curves as FSB Seeks Central Clearing (about time!)

Yes, the infamous Dodd-Frank Bill may indeed have some consequences for the big six…had CDO’s/CMO’s/CDS been regulated when Brooksley Born tried and was chastised by Rubin, Summers, Levitt, and Greenspan…and Bernanke by the way, we would not be…could not be in this mess! Let’s wee what happens…meanwhile we lost the required momentum when Obama foolishly ignored Volcker and relied on the gang of thieves….by the way…since his much heralded return…he has not uttered a peep? Why? Disgust? …probably!

*Brokers Flee Brokerages as Declining Assets Show Broken Wall Street Model (Yes!)

The winners here are Schwab and Ameritrade…mainly the former….and that means you rather than pay absurd commissions for a broker to push a button for you and to parrot what he is told by management.

Enough for today…read and decide. If you want the full stories, just ask and they will be forwarded to you by carrier pigeon…and/or email, your choice.

. . . - - - . . . . . . - - - . . . (S.O.S.)

Here is a link to an excerpt from a must-read book (at least read the excerpt!), especially to those of you who feel like CNBC’s loud mouth (no not Cramer this time) Rick Santelli who famously shouted on the floor of the CBOT “who here wants to pay someone else’s mortgage?’ This from an area that benefitted greatly from the mortgage boom…until it went bust! That statement kicked off the Tea Party which was then ably financed by the infamous Koch Brothers. Thanks to John Mauldin for supplying it...just don’t read it on an empty stomach! It will sicken you.

A friend and former colleague who worked for Lehman Brothers took the same stance, despite TB repeatedly telling him he was not seeing who the villains were. TB sincerely hopes he sees that Lehman not only was the biggest offender but destroyed themselves by doing so…richly deserved…not by the honest employees who paid the price.

It is time for us to realize that not only was Wall Street, along with mortgage companies like Ameriquest, Liberty (bought by Merrill), BNC Mortgage (bought by Lehman), was the true culprit…and all in the name of greed. It profiteth a man nothing if he gains the whole world but loses his soul (Matthew 16:26) …but for money and wealth??? Sir Thomas More said this to Richard who betrayed him to become attorney general for Wales adding…”but for Wales, Richard?”

Essentially these mortgage companies were like the boiler room brokerages but the difference is anyone who fell for those companies including First Jersey Securities (“come grow with us”), deserved what they got for buying penny stocks and thinking they will enrich themselves…no…they enriched the brokers. In both cases however, how many paid a fine?...or even scarcer went to jail? No that was reserved for Martha Stewart!

Just like the government going after Elliott Spitzer who spent his own money on hookers while turning their backs on Wall Street who bought them and cocaine and deducted the expense but nobody knows of a single instance where charges were filed. It is obvious in Spitzer’s case (while not justifying his actions), that this was payback…by Wall Street!

The book is The Monster, by Michael W. Hudson (a writer at the Center for Public Integrity, an non-profit journalism organization. $26 ($17.16 hardcover, at Amazon), also Merchants of Misery: How Wall Street Profits from Poverty ($16.95 paperback).

Stop blaming the poor for their poverty…most do not wish to be so…start blaming those who caused it and continue to run our government! Can we say the same of many of the wealthiest Americans? Think about it!

Have a good one!


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. Copyright TBD Capital LLC, October 26, 2010.


1 Comment »

  1. Gene Perez said

    interesting post and perspective

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