Investor Sentiment Is Awful: Time to Buy? [View article]
Stock prices may seem "reasonable" only to those who believe the recent 15-year bubble was "normal".
By all historic norms, stocks are quite expensive. Realistic consideration of current demographic, economic, and political trends, leads to the conclusion that stocks should be even below historic norms. Thus, the reality is that stocks have a long decade of slowly grinding down ahead of them, and individual investors are simply displaying wisdom by staying cautious, rather than hurl their life's savings into the abyss. This caution does not suit the large banks' trading desks, who desperately need suckers to reward them for the giant pump up they heroically performed since March, 2009.
Deere & Company: Canary in the Austerity Coal Mine [View article]
Markos, your statement "... Yes, our entitlement programs are out of control, and yes our democratic demigods have reached the limit of sane spending. But no, now is not the time to implement austerity...." is incomplete without telling us when is the time to implement fiscal and monetary sanity and return to a semblance of sound money, budget balance, and bearable deficits? Next year ? 2012 ? 2013? The excuse that "now is not the time" will be always with us.
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
I am constantly bemused by those who accept, without any further logical analysis, the notion of "too big to fail" or TBTF.
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
Why I'm Negative on Equities Despite Good Earnings Season [View article]
David, You make many valid points in clearly written terms. You did not mention one factor, perhaps because you don't see it as a negative This is excessive govt control of the economy.
In the US, the govt has basically taken over the housing and financial sectors, and may yet take over the health care sector. It has also largely taken over the domestic automotive sector. If these were truly socialist takeovers, they would be bad enough, but in reality, these takeover are much worse than purely socialist as the losses, costs, and subsidies are being socialised, whilst the profits, lavish pay, and bonuses, remain privatised; especially for finance. This makes these quasi-socialised sectors far more costly than they would have been, had they been truly nationalised. To subsidise them, govt needs to egregiously tax the dwindling number of truly productive members of the economy, in addition to monetise debt, create inflation, and fleece savers.
In the long-term, the risk of misguided policy that decimates productivity and prudence, to subsidise bloated, inefficient and unproductive sectors is the greatest negative of all.
Less Obvious Consequences of the Massachusetts Election [View article]
The bailout strategy is "working", but only if you disregard its future costs and implications.
The patronising tone of many liberal pundits during last nights election results is similar to yours: "... ah, the poor slobs don't understand ... they're just upset about losing their jobs ... they've lost their minds because their neghbor was laid off .. etc"
The public in Massachusetts are smarter than you think, because even without economic degrees, they can see and sense the poison they're being fed about bailouts and can see the wholesale looting of future generations. This does not make them simplistic!
Insiders Continue to Sell, Sell, Sell [View article]
This is an unusual and unpredictable economic environment, with market dynamics driven by HF computer trades and by forces beyond my own experience and comprehension, despite my 30+ years of investment experience.
This rally may falter next week, or add another 20% before it inevitably runs out of steam. When it does run out of steam, the range of outcomes is very broad, from a full retracement to the March lows in a few weeks to a brief drop followed by yet another moonshot.
I've found it prudent to cash in a portion of this rally's gains, but am doing it slowly and steadily as the tradeoff between missing a significant part of the rally or getting caught in a rapid plunge is a moving target.
I hope that all "Mom & Pop" individual investors are exercising due caution and not being suckered in by the enormous forces beyond their comprehension.
" ....under which Lichtenstein should by rights be on the hook for $100 million now the company has declared bankruptcy. If the senior creditors get their way and manage to take over the company, however, it seems that they’ve promised to cover all such expenses — rendering the clause largely moot as far as Lichtenstein’s net worth is concerned"
It seems that the senior creditors are more concerned about Mr. Lichtenstein's net worth than about what they can recover on behalf of their own companies and their investors.
This implies that the old boys club trumps fiduciary responsibilities (and legal obligations to investors) at the senior creditor banks. Hmm.... I wonder why?
All the talk about "systemic collapse" is utter nonsense. Banks have failed before, and after a Friday night change in ownership have continued to function on the following Monday, with the same employees in the same positions doing the same things as on the previous Friday.
Taking over any failed bank, no matter how large, would have been better for taxpayers, as the public subsidy would have been limited to cover that bank's actual losses. Instead, with the current bailouts, the public subsidy is extended to cover the bank's investors as well as its actual losses. Additionally, the moral hazard of bailing out the bank's investors will distort investment decisions and the economy for the forseeable future.
If "systemic failure" were real, GM and Chrysler factories would have been piles of rubble by now. Instead, we have ads about "the new GM". Likewise, we could have been seeing ads about "the new xxxxbank".
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
"On the latter, the aggregate sum looks easily within the bounds of the deep pockets of Uncle Sam, and thankfully so ...". Apparently, the uncle has very deep pockets for banks and pork, but not for honoring obligations to creditors.
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
Preview from Europe: Pigs Scare the Market Bulls [View article]
"..... there does appear to be some underlying resilience to the recent rally, presumably helped by the positive earnings surprises ...."
et tu Mole ? I cannot fathom the notion that when revenues are down 20-40%, and earnings down by 40-80%, we should rejoice because of the "positive surprise" that they are "higher than expected". I imagine that those who did the "expecting" were being clever, hoping all will celebrate and drink the kool-aid.
I also think that GE is a great value below $10, even though risks remain.
However, I think one should not assume any slashed dividend will being reinstated, as historically, when companies have slashed dividends, it has taken decades for them to slowly raise them back to their former level, even in nominal terms. In real, inflation adjusted terms, it could take a generation, if ever. The historic trend has been slashing by 50%-80% in bad times, then increasing by a paltry few % in good times.
On Apr 21 10:58 AM sthpawil wrote:
> I consider buying GE back when it was below $7 an incredibly smart > move on my part. In a few years when the dividend returns to its > normal level, the ROI will be huge since my cost basis is so low. > Between that and my capital gains, I don't see how anyone with an > ounce of common sense can make the argument that one should avoid > these stocks. Articles like this are very short sited and proof that > so called "experts" are people too and they make mistakes just like > the rest of us.
Is Bank of America Poised for a Major Move Up? [View article]
My guess is that the shares of BAC, as well as of all large US banks, will eventually recover; perhaps not to the dizzying heights of 2007 for several years, but to well above current levels.
The risk/reward paradigm of the new and improved capitalism is that the banking system's risk is to be borne by taxpayers, whilst the rewards are to go mostly to the banks. This ensures that banks cannot lose, but can only profit. I strongly disapprove of this distortion of free markets, but it now appears to be reality, especially as details of PPIP emerge; so I have long positions in several major US banks which I would have avoided in a traditional, capitalist free-market environment.
Why It's Better to Bail Out Borrowers than Banks [View article]
mathgeek,
I am not sure what makes you think the world would have ended if other mismanaged banks had failed and been taken over by the government, just like the successful resolution of failed banks in the 1980's. It would have ended up costing the public treasury less than the cost of all the tortured programs now underway, and would have kept the system fundamentally fair and transparent.
WaMu and Wachovia went under, their investors lost out (myself included). Yet the world did not end, and would not have ended had Citi, or others, also gone under. I made a bad choice when I bought WB stock and WaMu bonds, and took my losses as the natural consequence of making poor investment decisions. I blame no one but myself, and will be more judicious about speculative investments in mismanaged, over-leveraged banks that engage in irresponsible lending within a clearly unsustainable bubble.
This is how capitalism and free markets foster the wise allocation of capital: You make a good decision, you win, you make a bad one, you lose. Unfortunately, when government distorts the free market in non-transparent and unpredictable ways, the problem of capital misallocation grows, instead of diminishing.
On Apr 11 04:57 PM mathgeek wrote:
> Felix, while I prefer to keep the details private, I was living fairly > close to the fire in this chain of events... and it was all about > psychology. Everyone, from market participants to the media was playing > the game of "whose next?" > > While Leman was alive, the focus was there. The moment Leman fell, > the focus shifted to WaMu and Wachovia... and please remember... > WaMu was wiped out in less than two weeks not by losses... but by > panic deposit withdrawls. As soon as WaMu went under, the pressure > shifted almost instantly to Wachovia and Morgan Stanley. > > What the regulators realized they needed to do was to draw a line > underneath the financial system and say, this far, and no further. > That is why TARP funds were crammed down all of the largest banks... > the government needed to make it clear that the government would > not allow either speculative attacks nor a deposit runs to close > any more major institutions.... Period. > > And, for better or worse, it worked. Almost overnight, speculation > about who would be the next to go ended and that phase of the crisis > ended. Now, its not at all clear that WaMu or Lehman share or bondholders > were treated fairly... why let them hang while protecting Citigroup, > for example? But the decisions were not made on principle, they were > made in response to a chain of events, and by the time WaMu and Wachovia > were gone, the Fed realized that they had to stop what had basically > become a rolling bank run, and consistancy of policy was far less > important than changing the psychology... and at the point, the train > had already left the station on bailing out borrowers. The Fed needed > to credibly back the remaining financial institutions, and they did. > > > > >
Investor Sentiment Is Awful: Time to Buy? [View article]
By all historic norms, stocks are quite expensive. Realistic consideration of current demographic, economic, and political trends, leads to the conclusion that stocks should be even below historic norms. Thus, the reality is that stocks have a long decade of slowly grinding down ahead of them, and individual investors are simply displaying wisdom by staying cautious, rather than hurl their life's savings into the abyss. This caution does not suit the large banks' trading desks, who desperately need suckers to reward them for the giant pump up they heroically performed since March, 2009.
Deere & Company: Canary in the Austerity Coal Mine [View article]
IMHO, the time was several years ago, and we have procrastinated ever since, and the longer we procrastinate, the deeper we dig ourselves into the hole. This vicious spiral must end, and the sooner the better, because this is how great nations have bankrupted themselves into oblivion throughout history.
The Europeans have shown wisdom and courage to take the bulls by the horn before it is too late, we need to do the same.
Johnson and Kwak's '13 Bankers' Makes an Important Contribution to the Free Market Debate [View article]
If "fail" means that all the employees lose their jobs, and all customers and counter parties are left holding the bag, then failure of a large institution would indeed wreak havoc, and TBTF is certainly a valid notion.
On the other hand, if "fail" means that a court receiver is appointed, top management replaced, shareholders lose their equity, and bond holders take a haircut, then failure would have no broad economic consequences beyond the banks' investors. This is economically and socially desirable in a capitalist free market system.
It is absurd and illogical that the taxpayers would bear the burden of making whole the bond-holders of any failed bank. These bond-holders failed to exercise due dilligence regarding how their capital was being misused for unpayable loans in the pursuit of fraudulent profits. As such, they are the ones who should bear the loss, not the taxpayers. It is even more absurd that the taxpayers should bear the cost of compensating the banks' equity holders, which is an affront to the principles of a free market and a free society.
Why I'm Negative on Equities Despite Good Earnings Season [View article]
In the US, the govt has basically taken over the housing and financial sectors, and may yet take over the health care sector. It has also largely taken over the domestic automotive sector. If these were truly socialist takeovers, they would be bad enough, but in reality, these takeover are much worse than purely socialist as the losses, costs, and subsidies are being socialised, whilst the profits, lavish pay, and bonuses, remain privatised; especially for finance. This makes these quasi-socialised sectors far more costly than they would have been, had they been truly nationalised. To subsidise them, govt needs to egregiously tax the dwindling number of truly productive members of the economy, in addition to monetise debt, create inflation, and fleece savers.
In the long-term, the risk of misguided policy that decimates productivity and prudence, to subsidise bloated, inefficient and unproductive sectors is the greatest negative of all.
Less Obvious Consequences of the Massachusetts Election [View article]
The patronising tone of many liberal pundits during last nights election results is similar to yours: "... ah, the poor slobs don't understand ... they're just upset about losing their jobs ... they've lost their minds because their neghbor was laid off .. etc"
The public in Massachusetts are smarter than you think, because even without economic degrees, they can see and sense the poison they're being fed about bailouts and can see the wholesale looting of future generations. This does not make them simplistic!
Insiders Continue to Sell, Sell, Sell [View article]
This rally may falter next week, or add another 20% before it inevitably runs out of steam. When it does run out of steam, the range of outcomes is very broad, from a full retracement to the March lows in a few weeks to a brief drop followed by yet another moonshot.
I've found it prudent to cash in a portion of this rally's gains, but am doing it slowly and steadily as the tradeoff between missing a significant part of the rally or getting caught in a rapid plunge is a moving target.
I hope that all "Mom & Pop" individual investors are exercising due caution and not being suckered in by the enormous forces beyond their comprehension.
The Mess at Extended Stay [View article]
It seems that the senior creditors are more concerned about Mr. Lichtenstein's net worth than about what they can recover on behalf of their own companies and their investors.
This implies that the old boys club trumps fiduciary responsibilities (and legal obligations to investors) at the senior creditor banks. Hmm.... I wonder why?
'Preventing Systemic Collapse': Bernanke's Ace-in-the-Hole [View article]
Taking over any failed bank, no matter how large, would have been better for taxpayers, as the public subsidy would have been limited to cover that bank's actual losses. Instead, with the current bailouts, the public subsidy is extended to cover the bank's investors as well as its actual losses. Additionally, the moral hazard of bailing out the bank's investors will distort investment decisions and the economy for the forseeable future.
If "systemic failure" were real, GM and Chrysler factories would have been piles of rubble by now. Instead, we have ads about "the new GM". Likewise, we could have been seeing ads about "the new xxxxbank".
Preview from Europe: Markets Dismiss Stress Tests and Crack 900 [View article]
When socialist countries nationalise companies, they usually assume their debt, and in some cases even compensate their equity holders (to some extent). Venezuela just did that with their national phone company. Egypt did that when they nationalised their canal in 1956 (but was attacked anyway). And the list goes on.
Here, on the other hand, Uncle Sam is in the process of nationalising the auto companies for the benefit of the UAW, and without assuming their debt, let alone compensating their equity holders.
I can already hear dissenters saying "... but the auto companies are only being nationalised because they're bankrupt ...". So, how come the banks are not being nationalised? Indeed, if Uncle Sam were to "invest" in the auto companies one quarter of what he has poured down AIG's conduit to the "sound banks", the auto industry would survive until the next upturn.
However, it appears that rather than "wasting a good crisis", the auto industry is being nationalised for political reasons, and without honoring its creditors. This is an ominous precedent for the bond markets.
Preview from Europe: Pigs Scare the Market Bulls [View article]
et tu Mole ? I cannot fathom the notion that when revenues are down 20-40%, and earnings down by 40-80%, we should rejoice because of the "positive surprise" that they are "higher than expected". I imagine that those who did the "expecting" were being clever, hoping all will celebrate and drink the kool-aid.
Wall Street Breakfast: Must-Know News [View article]
I thought they already did.
Dividend Stocks to Avoid [View article]
However, I think one should not assume any slashed dividend will being reinstated, as historically, when companies have slashed dividends, it has taken decades for them to slowly raise them back to their former level, even in nominal terms. In real, inflation adjusted terms, it could take a generation, if ever. The historic trend has been slashing by 50%-80% in bad times, then increasing by a paltry few % in good times.
On Apr 21 10:58 AM sthpawil wrote:
> I consider buying GE back when it was below $7 an incredibly smart
> move on my part. In a few years when the dividend returns to its
> normal level, the ROI will be huge since my cost basis is so low.
> Between that and my capital gains, I don't see how anyone with an
> ounce of common sense can make the argument that one should avoid
> these stocks. Articles like this are very short sited and proof that
> so called "experts" are people too and they make mistakes just like
> the rest of us.
Is Bank of America Poised for a Major Move Up? [View article]
The risk/reward paradigm of the new and improved capitalism is that the banking system's risk is to be borne by taxpayers, whilst the rewards are to go mostly to the banks. This ensures that banks cannot lose, but can only profit. I strongly disapprove of this distortion of free markets, but it now appears to be reality, especially as details of PPIP emerge; so I have long positions in several major US banks which I would have avoided in a traditional, capitalist free-market environment.
Why It's Better to Bail Out Borrowers than Banks [View article]
I am not sure what makes you think the world would have ended if other mismanaged banks had failed and been taken over by the government, just like the successful resolution of failed banks in the 1980's. It would have ended up costing the public treasury less than the cost of all the tortured programs now underway, and would have kept the system fundamentally fair and transparent.
WaMu and Wachovia went under, their investors lost out (myself included). Yet the world did not end, and would not have ended had Citi, or others, also gone under. I made a bad choice when I bought WB stock and WaMu bonds, and took my losses as the natural consequence of making poor investment decisions. I blame no one but myself, and will be more judicious about speculative investments in mismanaged, over-leveraged banks that engage in irresponsible lending within a clearly unsustainable bubble.
This is how capitalism and free markets foster the wise allocation of capital: You make a good decision, you win, you make a bad one, you lose. Unfortunately, when government distorts the free market in non-transparent and unpredictable ways, the problem of capital misallocation grows, instead of diminishing.
On Apr 11 04:57 PM mathgeek wrote:
> Felix, while I prefer to keep the details private, I was living fairly
> close to the fire in this chain of events... and it was all about
> psychology. Everyone, from market participants to the media was playing
> the game of "whose next?"
>
> While Leman was alive, the focus was there. The moment Leman fell,
> the focus shifted to WaMu and Wachovia... and please remember...
> WaMu was wiped out in less than two weeks not by losses... but by
> panic deposit withdrawls. As soon as WaMu went under, the pressure
> shifted almost instantly to Wachovia and Morgan Stanley.
>
> What the regulators realized they needed to do was to draw a line
> underneath the financial system and say, this far, and no further.
> That is why TARP funds were crammed down all of the largest banks...
> the government needed to make it clear that the government would
> not allow either speculative attacks nor a deposit runs to close
> any more major institutions.... Period.
>
> And, for better or worse, it worked. Almost overnight, speculation
> about who would be the next to go ended and that phase of the crisis
> ended. Now, its not at all clear that WaMu or Lehman share or bondholders
> were treated fairly... why let them hang while protecting Citigroup,
> for example? But the decisions were not made on principle, they were
> made in response to a chain of events, and by the time WaMu and Wachovia
> were gone, the Fed realized that they had to stop what had basically
> become a rolling bank run, and consistancy of policy was far less
> important than changing the psychology... and at the point, the train
> had already left the station on bailing out borrowers. The Fed needed
> to credibly back the remaining financial institutions, and they did.
>
>
>
>
>
Preview from Europe: Market Back on the Defensive [View article]
I'd suggest that this sort of operation will continue on a massive scale in various ways, some transparent and others concealed.