Stress Test: Not Very Stressful
I am reviewing the White Paper the Fed just released:
“All U.S. bank holding companies with year-end 2008 assets exceeding $100 billion were required to participate in the assessment, which began February 25. These institutions collectively hold two-thirds of the assets and more than half the loans in the U.S. banking system.”
One thing struck me right away — unless I am misunderstanding something, this stress test does not appear to be very stressful.
Consider the following baseline and “Stressed” components:
Further, let me point out that the Consensus estimates, professional forecasters and blue chip surveys have all been awful — terribly wrong — during this entire fiasco. Using their wildly optimistic estimates impugns this entire process. When your marriage is on the rocks, you don’t ask the same jamoke who introduced you to your spouse for marital advice. (Let me hasten to add that I am happily married and this is just a visceral example).
Using the Q4 as the starting point, have a look at the charts:>
>
The baseline GDP scenario starts from Q4, then adds an additional modest contraction for the baseline, and a less modest deeper contraction for the “more adverse” test, i.e., a modest worsening of the economy.
None of these reflect another deep set of contractions — and they certianly do not reflect the sort of panic economy we saw from September 2008 til January of this year.
The bottom line is that for a stress test, these weren’t very stressful . . .
>
Source:
The Supervisory Capital Assessment Program: Design Summary (287 KB PDF)
Board of Governors of the Federal Reserve System, April 24, 2009
http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20090424a1.pdf
April 24th, 2009 at 2:22 pm
the “stress test” will prove what – exactly? If it is an honest assessment- great- if not- then they better lay out all the data so the market can make up its own mind
April 24th, 2009 at 2:26 pm
The alternative more adverse assumptions look more realistic for 2010 than the others, by far. What’s going to happen between now and the end of the year that will make 2010 look so good?
April 24th, 2009 at 2:28 pm
@hobo:
The Economic Recovery and Reinvestment Act?
The Federal Reserve announced that it would print another $1 trillion in cash?
April 24th, 2009 at 2:32 pm
While there is a lot of wording on the Fed’s test assumptions, here are the plain #’s that has been used to determine two scenarios, a ‘baseline’ scenario and an ‘alternative more adverse.’ For ‘09, the average baseline GDP estimate is -2% and for ‘10 its +2.1%. The adverse case is -3.3% for ‘09 and +.05% for ‘10. The baseline assumption for ‘09 unemployment is 8.4% and 8.8% in ‘10 and the adverse scenario is 8.9% for ‘09 and 10.3% for ‘10. For house prices, the baseline case is a 14% drop for ‘09 and 4% for ‘10 and the more adverse case is a decline of 22% for ‘09 and 7% for ‘10. I quibble with their estimate that 10.3% unemployment is adverse as I believe a higher rate is more likely than just ‘adverse.’ The drop in home prices in the adverse scenario, if looking at Case Shiller, would imply a 43% peak to trough fall thru ‘09, which is definitely adverse. With this out, bank analysts can figure out who needs what.
April 24th, 2009 at 2:35 pm
@Franklin: The $1T isn’t going to go anywhere except inside Mr Dimon and Mr Lewis’ vaults….
For unemployment to decline there would have to be job creation and that is just not going to happen.
Stay in school. For another 4-5 years. Trust me, I did in the 1980s. You get to like Ramen after a while.
April 24th, 2009 at 2:40 pm
So what does it say if we end up with major institutions that can’t even pass a watered-down “adverse” scenario? Will anyone be surprised?
If you stop to think about it, they failed the real-life stress of RE prices actually dropping for any length of time.
April 24th, 2009 at 2:44 pm
what’s a trillion- trillion here, trillion there- big f*cking deal- it’s only paper
April 24th, 2009 at 2:45 pm
There is some stress but I would argue how much and the types are not necessarily accurate. Nor are they reflective of a reality that we are going to see muted growth for a long time given many policy decisions. ie, The stress test should be over the next five years at a minimum. This looks like a modern-day stroll in Central Park. ie, Not reflective of reality because the police started cracking down on homeless people and mentally-challenged and have run them out of the park. So, all looks comparatively normal. ie, Push the undesirables to the side and all looks marvelous.
April 24th, 2009 at 2:56 pm
ahab @ 2:44
Seems to be the prevailing attitude.
April 24th, 2009 at 2:57 pm
@Leftback:
That’s the brilliance of it…All of those kids hiding in college are going to need faculty to teach them!
@Ahab:
And gold is just a yellow rock, and the difference between a person considered “ugly” and one considered “hot” is the strategic placement of body tissues.
@Peter:
The more I think about it, the more brilliant the stress test becomes. Geithner really hit one out of the park here. Think about it:
TARP was a program that was created when the government had a gun to its head. The banks came to the government and said “give us cash today or we’ll explode by tomorrow morning.” Treasury and the Congress had to give them the money on trust alone. That isn’t going to happen again.
Armed with the stress test, you can go to Congress and say “Bank XYZ is in dire straits and needs $$. We know because we looked at the books and determined that if unemployment got to A and housing dropped B%, they would be in trouble. Therefore, give us money.” Politically, it’s a lot easier for Congress to approve funding a known quantity based on *some* research.
April 24th, 2009 at 2:57 pm
I say we start with waterboarding, Let’s see how long the banks can survive when they’re under water.
Also, let’s infest their main offices with cockroaches. We could deprive them of sleep for long periods of time, and remove all their clothes and blankets. (suicide hazard) Let’s see where’s that other memo?
April 24th, 2009 at 3:03 pm
I can almost feel the tension out there between bulls and bears as we near 875. 871 is big number for me. I’m short and will be one of many traders stopping out above 876. Nervous….
April 24th, 2009 at 3:06 pm
Andy Tabbo Says:
April 24th, 2009 at 3:03 pm
I can almost feel the tension out there between bulls and bears as we near 875. 871 is big number for me. I’m short and will be one of many traders stopping out above 876.
question:
—————-
If longs try to catch a falling knife, what do shorts do? Nothing personal, as you appear to be doing it.
April 24th, 2009 at 3:09 pm
“If longs try to catch a falling knife, what do shorts do?”
Climb over a barbed wire fence using your balls as support.
April 24th, 2009 at 3:10 pm
TGIF. That’s all I’m going to say. Thank God this circus is closed on the weekends.
April 24th, 2009 at 3:16 pm
“I can almost feel the tension out there between bulls and bears as we near 875″
That’s why you play the game, Andy.
April 24th, 2009 at 3:20 pm
franklin-
I’m no gold bug by any means- also
I am starting to think you have an “inferiority comlex”- you constantly bring up comments that relate to a person’s outward appearance- and when you say a “strategic placement of body tissues” well- what can I say to that- people are attracted to what they are attracted to- I mean really if I had to chose between Mother Teresa and Jessica Biel . . . well you get my drift
April 24th, 2009 at 3:20 pm
What EVERYONE has missed in commenting on the Fed’s white paper is that the stress tests are based on a survey of data that was completed BY THE BANKS THEMSELVES. (do you see the data sheets at the back of the white paper?)
THERE WAS NOT INDEPENDENT AUDIT OF THE INFORMATION!@!!!!!!!@!@!!@@! “Supervisors” of the process looked at the submissions! They looked at them and then overlooked them!
Page 6:
“The BHCs were asked to estimate their potential losses on loans, securities, and trading positions, as well as pre‐provision net revenue (PPNR) and the resources available from the allowance for loan and lease losses (ALLL) under two alternative macroeconomic scenarios.”
Doesn’t anyone actually READ anymore?
April 24th, 2009 at 3:21 pm
dead hobo. As technician, if a market violates one’s target resistance or support, one simply stops himself out with a small loss and lives to fight another day. Some other trader adages….
“It’s OK to catch a falling knife, as long as you catch it by the handle.”
Of course the #1 rule of trading is and always will be: “Cut your losses your short. Ride your winners.”
April 24th, 2009 at 3:26 pm
Shouldn’t the stress test use really terrible growth numbers to test stress… as there shouldn’t be any problems with GDP increasing… but negative growth… and really bad unemployment… that’s stress.
April 24th, 2009 at 3:28 pm
Me-thinks I need to give myself a stress test…….
April 24th, 2009 at 3:31 pm
well . . . upside down on my QID- haven’t sold though- 1300 shares stabbing me in the heart- I will live to fight another day
April 24th, 2009 at 3:32 pm
List of 19 Banks Undergoing Stress Tests
Posted by WSJ Staff
The government confirmed the following list of the 19 banks undergoing stress tests:
JP Morgan Chase & Co.
Citigroup
Bank of America Corp.
Wells Fargo & Co.
Goldman Sachs Group
Morgan Stanley
MetLife
PNC Financial Services Group
US Bancorp
Bank of NY Mellon Corp.
SunTrust Banks Inc.
State Street Corp.
Capital One Financial Corp.
BB&T Corp.
Regions Financial Corp.
American Express Co.
Fifth Third Bancorp
Keycorp
GMAC LLC
April 24th, 2009 at 3:35 pm
@Mannwich:
> Me-thinks I need to give myself a stress test…….
My stress test tonight? How many bottles of wine to open with dinner…
=)
HCF
April 24th, 2009 at 3:36 pm
This is all bs. Most of the banks are insolvent and we know it. This was a smokescreen for the public.
Sooner or later someone is going to issue common or come back to Congress with cap in hand.
In our alternative universe, the XLF zooms to 1000, President Blankfein leads the Unity Party to power.
Franklin becomes the new President of Harvard and Tiny Tim wins the Nobel Prize for Economics.
To celebrate they go to PF Chang’s and then Chipotle Mexican Grill to pick up chicks.
Nothing makes sense any more.
April 24th, 2009 at 3:37 pm
@HCF: I’m out of all booze in my house. My wife doesn’t generally drink, so I usually don’t keep much around the house (no fun drinking alone). Might want to stock up tonight on a little wine and something a bit “harder”…….drinking alone might be fun tonight out on the deck!
April 24th, 2009 at 3:38 pm
HCF — bet the over
April 24th, 2009 at 3:39 pm
@leftback, the Chipotle comment has me LOL.
April 24th, 2009 at 3:41 pm
Leftback @ 3:36
“Franklin becomes the new President of Harvard and …”
Franklin411…?
An excellent choice.
April 24th, 2009 at 3:42 pm
The new U.S. economy = propped up banks and the feds.
Everyone else is on their own. All is well though. People don’t need jobs on Main Street when they can just buy PF Changs & Steak & Shake stock from each other. That’s the new bubble.
April 24th, 2009 at 3:44 pm
FAZ @ $8.
Anyone tempted?
April 24th, 2009 at 3:45 pm
Mannwich
When I drink alone, I like to be by myself.
April 24th, 2009 at 3:45 pm
@ Mannwich:
Might I suggest a twenty year port from any major producer: Sandeman’s, Dow’s, Graham’s or other. The beauty of it is that port was designed specifically to withstand traveling by sea in open casks. So you can pop a bottle open and drink it over the course of weeks or months (or minutes if your trading has gone horribly wrong!). At least in these parts, it’ll run you maybe $30 a bottle and last awhile as long as you aren’t a lush. Happy Friday!
HCF
April 24th, 2009 at 3:45 pm
Yes. Probably snagging some (gulp) at the close and going to the bathroom to throw up.
April 24th, 2009 at 3:45 pm
There once was a test named Stress
In which bankers were urged to guess
Just how large is this mess
It was all done in jest
In order to rape Joe 6 the best.
April 24th, 2009 at 3:45 pm
leftback-
what about the “old maxim”- never add to a losing postion
April 24th, 2009 at 3:47 pm
Gotta love the nature of markets…..rallying into the weekend with a G-7 meetings….analysis of “stress tests” coming and the market is heading into an intraday “double” top type look. The weekly S&p500 now looks like a wicked “hanging man” doji. I’m pulling all the stop losses I have. I’m going to have to be short over the weekend. Good Luck everyone.
Love those banks….yeah….they’re real strong now that they’ve had a stress test….
April 24th, 2009 at 3:48 pm
Wait for FAZ sub 4… Foghorn, you outdid yourself; a standing ovation for you.
April 24th, 2009 at 3:49 pm
Well, Manny, it appears you can’t keep a good bond down…
http://finance.yahoo.com/echarts?s=%5ETNX#chart1:symbol=^tnx;range=6m;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined
So, if you’ve bought 7 billion of this with our money this week, and rates, cuss them, just won’t go down, I suppose we’ve just bought the gift that keeps on giving…
April 24th, 2009 at 3:49 pm
@karen: Thanks. I think I’ll wait a bit and continue to accumulate more powder for that “all-in” moment. It seems we’re not there yet. Now I’m off to Steak & Shake to keep their earnings up. Have a good weekend all.
April 24th, 2009 at 3:51 pm
Andy, the top isn’t high enough.. maybe if we can hit spx 875-877. But seriously, this is 7 weeks in a row up… i think i’ll go back to 2007 and see if we had any 8 week ups…
April 24th, 2009 at 3:51 pm
Anyone know the weekly consecutive market gains record? Are we even close to it at 7 weeks in a row now? Anyone?
April 24th, 2009 at 3:52 pm
@DL:
> Anyone tempted?
Yes, bought some at $8.13 and already wishing I had held out for better… At this point, I’m thinking “I fought the law and the law won”
@Whammer:
ALWAYS take the over when it comes to alcohol…
HCF
April 24th, 2009 at 3:52 pm
When fundies and technicals combine to give the same message, you have to go with your gut.
It’s kitchen sink time. Nothing ventured, nothing gained.
CJ: Are you listening. KITCHEN SINK on the short side. Is that clear enough???
April 24th, 2009 at 3:53 pm
Please ’splain to me how this is any different than the former USSR or communist China reporting of economic data? This is exactly why private investors are loosing faith in the capital markets and going private with investing. Ridiculous! This republic was nice while it lasted…
April 24th, 2009 at 3:54 pm
Trading volume on FAZ is 4.4 times normal; volume on FAS only 1.6 times normal. Someone’s getting shaken out.
April 24th, 2009 at 3:54 pm
Fading a bit here. Harbinger of things to come next week?
April 24th, 2009 at 3:55 pm
Picked up some SDS and QID.
April 24th, 2009 at 3:55 pm
Thanx Karen
Blind squirrel
Nut
April 24th, 2009 at 3:56 pm
To a large part, I think technical levels are substantially ritualized superstition. However, since so many others believe in Zeus, it doesn’t hurt to buy into it.
DL, if you have a reasonable holding period, FAZ at 8 is a sure thing. Since you are dealing with 1/2 a parabola, the closer you get to the axis, the more inelastic your downside becomes and the more elastic your upside becomes. At the top, it is dangerous to hold since you can lose really fast. That being said, the fools and their masters are in control now and you might have to hold a while. At this level, tight stops will work. At higher levels, they won’t.
April 24th, 2009 at 3:56 pm
Mannwich @ 3:51
I don’t know. But you’ve got to distinguish between bear market rallies and “bull” ones. (No pun intended). We’re already on the 2nd longest bear one since 1933.
April 24th, 2009 at 3:57 pm
Let the dumping commence!
April 24th, 2009 at 3:57 pm
DH @ 3:56
Hey, you said it was a sure thing at $9. I want my money back.
April 24th, 2009 at 3:59 pm
Wow, what a ride today! TGIF.
April 24th, 2009 at 4:00 pm
Nice pump at the end. Where are my BP pills? Might need two today.
April 24th, 2009 at 4:01 pm
Today’s weekly spx candle is now red… so that’s 6 up weeks, 1 down, and a possible set up for an 8th up. Basically, i think we are strung out till Monday : ) Gotta luv this market. LOL.
April 24th, 2009 at 4:01 pm
DL,
when reality returns, the S&P falls 100+ points and FAZ rises 100%+, can I have 1/2?
April 24th, 2009 at 4:02 pm
if this market goes up one more week- I am going to have to kill someone- serious rage issue at the moment
April 24th, 2009 at 4:03 pm
A slight balding figure at the back of the theatre gave a hand signal, and one by one, the smart money began to leave the building. “Evening, Mr Blankfein” said one taller man, as he passed. “Don’t forget to yell FIRE when you get outside, Mr Mack” said Blankfein, and he smiled.
April 24th, 2009 at 4:04 pm
@ahab: LOL. I’m only laughing because I know how it feels. Just have to laugh at the absurdity of it all. Hang in there.
April 24th, 2009 at 4:05 pm
ahab @ 4:02
Actually, the S&P closed lower today than last Friday’s close.
April 24th, 2009 at 4:05 pm
@DL: Oh, so that means we can see gains next week and this market will be deemed “totally natural”.
April 24th, 2009 at 4:09 pm
DL-
a scant 3 points
April 24th, 2009 at 4:09 pm
Kind of wish I had some grabbed some FAZ in the high 7’s. I’ll probably change my mind on that one and feel good about holding off by Monday morning though.
April 24th, 2009 at 4:11 pm
My recommendation for dinner this evening is a bountiful, organic arugula* salad and at least one bottle of wine per person. Try Educated Guess from the Roots Run Deep Winery. http://www.rootsrundeep.com/
*an aphrodisiac, also loaded with potassium
April 24th, 2009 at 4:14 pm
everyone-
what about the old maxim- “never add to a losing postion”
do you think it matters when dealing with ETF’s? Or only applicable to a particular stock?
April 24th, 2009 at 4:15 pm
I won’t touch the leveraged ETFs. I’m not a short term trader and won’t hop in and out. If you hold these things they’ll eat you alive. That said I have some SPY puts (Jun and Sep), SH, and short IYR (tried to add today and there are no shares to borrow, what a surprise).
April 24th, 2009 at 4:16 pm
Karen-
I can get a 12 pack of PBR for $6- that’s 50 cents a can- I’m feeling poor right now
April 24th, 2009 at 4:21 pm
Wouldn’t it be a lot easier to just look at prices of the banks’ bonds and credit default swaps? Assign an arbitrary number (like the banks do with when using our FICO scores!) and be done with it. That way there’s no finagling of the numbers, no idiotic interpretations of the rules.
It’s a lot easier to grade a true/false test than an essay.
April 24th, 2009 at 4:22 pm
call me ahab @ 4:14
Depends.
You into S&M…?
April 24th, 2009 at 4:23 pm
Ahab
At least go for Pearl.
April 24th, 2009 at 4:24 pm
onlooker-
I know- I try to get in and out with the 2x ETF’s and try to hold for no more than a day- have had the QID since Wednesday unfortunately – haven’t braved the 3x
April 24th, 2009 at 4:27 pm
Foghorn- not a bad idea- however, don’t live in Texas
April 24th, 2009 at 4:32 pm
For the market to drop, it looks like we’re going to need a surprise. Any thoughts?
April 24th, 2009 at 4:33 pm
So is today’s news effectively the death knell for SKF?
I did well last time with SKF, selling near the top at 260. Bought back in at 90 and now it’s under 60.
Even if the banks are insolvent does today’s news, “Fed says gov’t ready to save stress-tested banks” mean it’s time to cut my losses with SKF?
April 24th, 2009 at 4:41 pm
http://www.youtube.com/watch?v=MpQlB3f9Al4
No, I didn’t vote for him. What in the hell was wrong with me?
April 24th, 2009 at 4:41 pm
danm
Patience is a virtue, think top of second, o outs
Ahab
Didn’t realize Pearl was a regional
Only tried it ONCE
If anybody has any real cash at risk in THIS market,
you better have brass ones.
April 24th, 2009 at 4:43 pm
DL Says:
April 24th, 2009 at 3:56 pm
Mannwich @ 3:51
I don’t know. But you’ve got to distinguish between bear market rallies and “bull” ones. (No pun intended). We’re already on the 2nd longest bear one since 1933.
//======
We’ve had so much “innovative” financing that I wouldn’t be surprised if this is turns out to be the longest bear market rally ever.
April 24th, 2009 at 4:44 pm
Then again, both daily and weekly SPX look like we’re going to start heading down.
April 24th, 2009 at 4:48 pm
danm: “For the market to drop, it looks like we’re going to need a surprise. Any thoughts?”
The market might well BE the surprise. Insider selling is sending a message.
I don’t hold the ETFs for long. I look for a good set-up and have an entry and exit level.
Right now if the market breaks decisively above SPX 875 I would cut my losses and wait for another entry.
April 24th, 2009 at 4:49 pm
Watching Says:
“We’ve had so much “innovative” financing that I wouldn’t be surprised if this is turns out to be the longest bear market rally ever.”
undoubtedly- the market seems to shrug off accounting manipulation and outright bullshit coming from the banks and administration
April 24th, 2009 at 4:50 pm
Headline on CNN money:
“Georgia bank failure marks the 26th of 2009. First four months of the year have seen more failures than all of 2008″.
Maybe that explains the rally today. Bad new is apparently good news.
April 24th, 2009 at 4:51 pm
leftback @ 4:48
Yeah, a decisive close above 875 would cause me to push the panic button.
April 24th, 2009 at 4:52 pm
I am getting worried this fantasyland b.s. can go on far longer than I have the stomach for, but I have a feeling that once things quiet down a bit (after the bullshit stress test announcement and earnings season) will be precisely when it all falls apart again. Absence of garbage manipulation and happy talk and unease (possibly leading to panic) will set in again when people realize things are still getting worse, albeit more slowly.
April 24th, 2009 at 4:54 pm
leftback:
got it.
late, but got it.
maybe I add on monday.
gotta get the baby….. literally.
cjc
April 24th, 2009 at 4:55 pm
Picked up more FAZ at 8.06 – holding through the weekend. I’m pretty sure that we’ll gap down on monday, even if the MMs manage to rally later.
April 24th, 2009 at 4:56 pm
It is an attempt to manage expectations by people who now realize they cannot manage reality. This whole show has made one thing pretty clear: Geithner, Summers and Obama do not have deep political skills. The old pros try to avoid getting into situations where people laugh at them.
April 24th, 2009 at 5:05 pm
Wally
The old pros try to avoid getting into situations where people laugh at them.
Think about this folks.
April 24th, 2009 at 5:08 pm
It’s worth taking another look at the (chart of the) rally of 7/23/08 – 8/29/08. The market went absolutely nowhere for a month. May be happening again.
April 24th, 2009 at 5:10 pm
цитируем…
bank holding companies with year-end 2008 assets exceeding $100 billion were required to[...]…
April 24th, 2009 at 5:11 pm
This rally reminds me of 2 things. . . 1. the slide at the fair i used to careen down on a burlap sack when i was a little kid that had a hump in the middle that caused people to bounce up and bruise their ass when they landed in the middle of the last drop to the end. 2. the scene in Braveheart when they are all lined up with giant pikes hidden ready to take out the cavalry “steady, hold, Hold, Hold, HOLD! . . . NOOOOOWWWW! http://www.youtube.com/watch?v=30XsH-tZtBY&feature=related Now just don’t wait too long!
April 24th, 2009 at 5:12 pm
7/23/08 – 8/29/08. I remember, I should have just played golf.
April 24th, 2009 at 5:13 pm
This stress test is a kabuki show – all 19 banks have been guaranteed perpetual life today – just so we don’t get stressed awaiting the results. I guess Congressional approval is foregone since TARPI is almost gone and nobody knows how much all this will cost.
April 24th, 2009 at 5:14 pm
>>Wally says:
The old pros try to avoid getting into situations where people laugh at them.<<<
You mean like this:
http://www.youtube.com/watch?v=uoFs8080i14
LOL!
April 24th, 2009 at 5:16 pm
@ DL-
I think that is a huge possibilty- however when you have AT talking about an upside Doji star (I don’t even know what that is) and leftback saying load up- then you have to wonder- I see the big picture- much harder for me to see the nuances of short term trades
April 24th, 2009 at 5:24 pm
rktbrkr Says:
“This stress test is a kabuki show – all 19 banks have been guaranteed perpetual life today”
the only hitch with that- as much as Geithner would like to think that he can continue to provide capital indefinitely- is that I really do think there would be a firestorm over the Treasury asking for any more money from congress for the banks- and I think they realize that- that is why they are talking about converting preferred to common, etc.- I just can’t see another request getting through congress
April 24th, 2009 at 5:28 pm
ahab – -
What happened after 8/28/08 was pure nirvana for the bears. (I can dream, right?)
April 24th, 2009 at 5:32 pm
I’d love to hear anybody’s 2cents on SKF…
April 24th, 2009 at 5:33 pm
kittyboy
What doesn’t kill you, makes you stronger.
April 24th, 2009 at 5:34 pm
100th!
Oy. Glad we don’t do that silly shit here.
I hate when I’m late to the Friday night party, ’cause everybody’s already burnt out and the bong water is dirty.
________
Anyone who doesn’t think we’ll pay for these lies, is fooling themselves. The truth will out, as it always does, and when it does, there will be exponentially increased hell to pay. I’m ready, and I’ll stay ready. Hope y’all are, too.
April 24th, 2009 at 5:35 pm
There is a pretty decent chance that if you strip out all market manipulation that we just went through a month long sideways market….
April 24th, 2009 at 5:42 pm
Ahab, agreed, they’ll do as much as possible moving the gummint up in risk position and guaranteeing trillions with zero budgeted for losses on the guarantees, then he’ll go back to Congress witha “this was totally unexpected” mea culpa…and we’ll all be in debt another generation saving these zombie banks
April 24th, 2009 at 5:44 pm
DL-
sage advice- unless it breaks you and smacks you down and leaves you lying in helpless heap- never to regain your former health and vigor
Marcus-
give me you 100 day report card- if your so inclined
April 24th, 2009 at 5:44 pm
karen Says:
April 24th, 2009 at 4:11 pm
My recommendation for dinner this evening is a bountiful, organic arugula* salad and at least one bottle of wine per person. Try Educated Guess from the Roots Run Deep Winery. http://www.rootsrundeep.com/
*an aphrodisiac, also loaded with potassium
________
You forgot the wading pool and the Wesson oil.
April 24th, 2009 at 5:45 pm
DL–I’d much appreciate a more explicit answer.
Marcus–I’ll clean the bong and pack you a fresh bowl
April 24th, 2009 at 5:46 pm
rktbrkr-
the treasury may go to congress- but I do not think it will fly- I really do think the congree would be under tremedoud pressure by their constituents to reject any more $ for banks- and I think this crosses party lines
April 24th, 2009 at 5:49 pm
last post- think I was typing fast?- please disregard the miltiple errors- duh
April 24th, 2009 at 5:56 pm
Ahab,
I’m not Marcus
but i would give a generous C+
There was a steaming pile of turd there.
It is still there and still steaming
so what would you give?
April 24th, 2009 at 6:07 pm
marcus, how uncouth and unappealing. you should imagine, wesson oil, like PBR, has never touched my lips. there are far more desirable substances in either category.
April 24th, 2009 at 6:07 pm
ahab:
With all of the fuckery, timing is hard. Then again, timing is everything.
100 days out – that puts at the end of July. Here’s my guess (I must add a caveat that there are unseen, unacknowledged forces at work, and there’s plenty of under-the-table dealing, so they could stretch things out, but the trend will be down)
At the end of July, the market will be sub-7000, closer to 6000. Unemployment will stand – by the “official” reckoning at 11% – in reality, it’ll be closer to 20%. The hoi polloi will be getting wise to the chicanery and the government and the hoity toity will be getting nervous. Congress will extend unemployment benefits to 104 weeks and expand coverage to the formerly self-employed. GM and Chrysler will no longer exist as we knew them. No one except the Fed will buy our treasuries, and they will print dollars to cover the purchases. the dollar index will be at 74 and descending. Corporate profits will be replaced by continuing losses. The major wave of corporate RE defaults will be in full swing. Retail space will sit empty, but no one will be able to lease it at any price.
And that’s optimistic.
On the other hand, who the F knows – I thought we’d have crashed by now. Who’d have thought an airplane with no wings could still fly?
My point is that the government/banking cartel is lying through their teeth, and someday we will all pay dearly for it.
April 24th, 2009 at 6:10 pm
karen:
who said anything about lips or PBR or couth? ; )
April 24th, 2009 at 6:10 pm
Oh I’m sure they’ll be just fine……
Aren’t these the same guys who said, “The New Orleans levees are adequate, unless it rains a lot”?
April 24th, 2009 at 6:11 pm
Obama got 32 out a possible 100, but it was a sadistic test. Curves up to a B+. Extra credit for the SEAL headshots.
April 24th, 2009 at 6:12 pm
It’s contained.
April 24th, 2009 at 6:19 pm
Marcus, PBR is ahab’s drink of choice from 4:16 pm… sorry my remark is now out of context…
April 24th, 2009 at 6:29 pm
from the blog entry : “Further, let me point out that the Consensus estimates, professional forecasters and blue chip surveys have all been awful — terribly wrong — during this entire fiasco.”
This is a very important point. On my website I have detailed quite a bit of estimates and forecasts during this crisis, and as one can see the record seems to (strongly) support the above claim:
http://www.prosperitybypen.com/art-predictions.html
April 24th, 2009 at 6:31 pm
Just as a general off topic question that has nothing to do with this thread. I’ve been thinking alot about the implications of holding a leveraged etf long term and the great disadvantages that entails, while at the same time contemplating beginning a medium to long term short position overall. SB has stated time and again about a long term commitment to QID, yet judging from previous knowledge i have absorbed about leveraged etf’s, they supposedly eat away at the actual results over the long term.
Now here is the meat of it, if planning a long-medium term strategy for holding period of a leveraged etf, is it possible to do the opposite of what you wish, i.e. instead of hold QID long term, sell short QLD long term?
Just thinking out loud as that would capture both the short position and the lost noise at the same time. (I tend to think of things in terms of science, systems, thermodynamics, efficiency etc. so this is like a system in which you would capture the mechanical energy of sliding down the slope as well as the heat energy dissipated due to friction thus resulting in a greater amount captured).
Does this make sense, and is it possible? I was thinking if it is, to wait for a confirmed turn back downward and short UWM or SSO until i think the ultimate bottom is reached, which in my opinion will be around S&P 474 beginning October (however to me it seems that the writing is still on the wall we are going lower, but the shenanigans they keep playing makes pinpointing timeframes much, much harder than eventual low levels).
Whatcha think?
April 24th, 2009 at 6:47 pm
http://www.bloomberg.com/apps/news?pid=20601009&sid=avXFbvHXV4F0&refer=bond
Treasury 10-Year Yields 3% for First Time Since Before Buybacks
..the problem is that Bernanke, when given the keys by Greenspan, was not given permission to print bills out of thin air bigger than a 10….would somebody call the Maestro and tell him to take the governor off the printing presses….
…Sheeesh…
April 24th, 2009 at 6:50 pm
…or maybe there is a parking brake that Ben forget to release…
April 24th, 2009 at 6:51 pm
or maybe due to the recession, they are having trouble getting ink or paper…
April 24th, 2009 at 6:52 pm
or maybe they forgot to gas up the helicopter….
April 24th, 2009 at 6:52 pm
CR reports that 2 banks and one credit union failed today . Hey wait minute , I had accounts in one of them .
April 24th, 2009 at 6:53 pm
CR reports that 2 banks and one credit union failed today . Hey wait a minute , I had accounts in one of them .
April 24th, 2009 at 6:53 pm
…or maybe because the recession isn’t over yet, maybe Ben is pouting…
April 24th, 2009 at 6:53 pm
…maybe Volcker called him a sissy…
April 24th, 2009 at 6:58 pm
mmm . . . PBR
Transor Z- I like your grading system- head shots are a big +
Foghorn- assuming we are talking about the O man- a generous C- this bank thing has me in a tizzy- Obama came in with a clean slate- he would have won my devotion and admiration if he would have taken C out back and shot it
Marcus- I think you’re dead on w/ your projection- I was however talking about the 100th milestone for the O man- again only if you’re so inclined
Karen- there is no way on this planet you have never partaken of a PBR- like- college maybe- I’m sure you can’t remember all the beer they put in those beer bongs
April 24th, 2009 at 7:26 pm
Friday
April 24th, 2009 at 7:31 pm
@ahab, I can actually imagine Karen has never had a PBR — PBR was fairly hard to find there for a while, even during my cheap beer drinking years. Nevertheless, I had my share, but that was in the Midwest. On the west coast I rarely saw it.
And Karen, I think the point of the Wesson oil was not for you to be drinking it………
April 24th, 2009 at 7:33 pm
Barry, stop saying that; you are really stressing them, and they are quite fragile right now.
April 24th, 2009 at 7:38 pm
I keep posting a stress test comment that I think is a real riot. But it won’t show.
Happen to anyone else before? It’s pretty long. I’d hate to have to save it ’til May 5 when they release the “results.”
One more thing, should I be embarrassed about asking this question?
April 24th, 2009 at 7:42 pm
I feel that someone should really defend Karen’s honor against these approaches with PBR and oil.
Shocking behavior. Cease and desist, at once….
Bruce, my strong instinct is that every time we see 3.00% on the 10-year we will see an equity sell-off and we will have a safety trade into Tsys and the US$ and Yen. When we get down to 2.50% again, then there will be another modest equity rally. Eventually we will get to what physicists call a “naked singularity” when the 10-yr escapes from the Fed’s gravitational forces and then all hell will break loose, and I have no idea what that looks like.
Marcus, I do enjoy an occasional apocalyptic forecast. It’s hard to see how the center will hold this summer.
April 24th, 2009 at 7:44 pm
EAR-
hmmm- never ran into that problem- how long? I’ve seen some pretty long comments posted- can you just post the link and maybe a highlight from the comment
April 24th, 2009 at 7:45 pm
Wesson oil just does not get it done. It dries and becomes sticky too quickly. At least for me anyway.
Still tugging on my fingers though.
April 24th, 2009 at 7:47 pm
Whammer-
Olympia? – still around? we use to drink that when I lived in California- pretty cheap if I remember correctly
April 24th, 2009 at 7:53 pm
@!@**@!
Bought the SDS last Fri as soon as we approached 875. It looked great as of monday-tues, shaky now.
From a wave perspective, my bet was that an “ending diagonal” was taking shape (lots tagged it a rising wedge also) I entered the short side ahead of confirmation (a break lower), simply because regardless 875 was stiff resistance. I really felt right, esp. when the SP500 broke down on Monday, and then failed wed @861. I got out of half the sds today into the close, but I want it back…………..badly.
Would not mind AT’s take on the ending diagonal, no worries if you are tired of talking technicals this eve. No pressure. The ending diagonal take looked perfect until today’s break of this Wed’s highs. (SP500). 875 still looms overhead.
I still think the SP500 is heading back to somewhere between 780-815, I just need to clear my head and jump fully back into the fray.
April 24th, 2009 at 7:58 pm
@DiggidyDan, have similar questions but I never quite grokked why these ETFs eat away at long term profits. I understand that they are designed to track the daily changes, not weekly, monthly or longer. But that just means you lose the overnight shifts but that can be both positive or detrimental. In theory at least the risk from that should be even. Beyond that it’s murky, not much written about these very new financial instruments. Suspect there are risks not yet know associated with them as well, including perhaps that they are now potentially driving parts of the market…
April 24th, 2009 at 8:03 pm
Does today’s fed announcement spell doom for SKF?
All I’ve got so far is DL’s Nietzsche quote, but Nietzsche was basically insane and never had sex in his life, so it’s hard to take anything he said seriously…
April 24th, 2009 at 8:08 pm
@kittyboy: As someone who has the FAZ and am not liking the ride at all, I don’t think anyone has any clue about SKF or anything else right now, for that matter. We’re living in an alternative universe right now where all appears well in the “market” but sucks to holy hell everywhere else. I know this isn’t helpful, but for what it’s worth, I’m hanging in there right now with the FAZ.
April 24th, 2009 at 8:09 pm
kittyboy-
it’s pretty much your decision- you’re upside down- gut check time- do you think the market will decline precipitously or do you think the market will beat SKF down? I think the market will go down- substantially- but when? Or take half off the tale and put the remainder at risk- your choice.
April 24th, 2009 at 8:17 pm
On another note – the banks are dropping like flies this evening. Four already, I think. Many more to come.
April 24th, 2009 at 8:28 pm
Hmmm, in retrospect the fact that the data was going out on a Friday afternoon should have been a dead giveaway…
April 24th, 2009 at 8:29 pm
“The bottom line is that for a stress test, these weren’t very stressful . . .”
You weren’t actually expecting any thing more were you?
A 150 economists involved was enough to indicate to me how much the measurements were going to be massaged to begin with. Once the banks “answer”, the government’s accountants will get an opportunity to massage them some more before the results of this whole charade are announced to the world.
April 24th, 2009 at 8:31 pm
kittyboy @ 8:03
I’ll ditto Mannwich’s remark (@ 8:08).
April 24th, 2009 at 8:35 pm
DiggidyDan @ 6:31
Sure, shorting QLD or SSO is fine. Just watch out for the large dividend payouts. (It seems that they don’t always announce them in advance).
April 24th, 2009 at 9:02 pm
Thanks, ahab
I wrote it myself and, as you can tell, I’m very proud of myself.
(sigh) I guess it’s not meant to be.
It was about the idea that the stress tests are justification to partially or fully nationalize some of the banks. They stayed with the recapitalization plan because they were stuck with it and hoped that, maybe, it would work if the economy somehow rebounded or something else black swanish of a positive nature happened.
If they would have came in and immediately changed the plan to bank nationalization the screams from the crowd that labeled Obama a socialist would have gotten louder and more people would have listened to them. Add the progressive policies that they have put forth and you would have had a much more uneasy political environment. It would have been an even greater clash of ideologies, if that’s possible. By initiating a nationalization program so quickly the administration would risk losing approval for what they really want to accomplish.
Rather than the risk of having the perception that their approach to fixing the financial system is the same as their approach to fixing society, they maintained the TARP concept using the funds available until said funds run out. When the test results are released they’ll say they tried to keep this one or that one afloat but can’t continue because so and so is insolvent.
We already know this but the act of announcing it looks honest and transparent and conveys to everyone the need to change course.
April 24th, 2009 at 9:08 pm
Karen HAS had a PBR…why do you think it was so hard to find for awhile??
April 24th, 2009 at 9:38 pm
today BR “”……When your marriage is on the rocks, you don’t ask the same jamoke who introduced you to your spouse for marital advice.(Let me hasten to add that I am happily married and this is just a visceral example)……………………..”" ?????????????
Wow, what a drag to have your wife reading this blog.
April 24th, 2009 at 10:48 pm
Thanks for the tip Karen. Mrs Skippy will love some Educated Guess. Tall Skippy loves Blantons and Woodford, however. Either way, I agree with lb, bruce, AT and others that we are in for a move down here shortly. Holding some metals, miners and shorts into the weekend. Hedged with JPM. Karen, any music suggestions tonight?
April 24th, 2009 at 11:20 pm
What exactly is a “professional forecaster”? A Weatherman? Or is it one of those ladies in the turbans with the crystal balls and Tarot cards?
April 25th, 2009 at 12:59 am
@ahab,
I haven’t seen any Olympia for a while, now that you mention it. Did used to drink that, however. Thinking back on “legacy beers” now in addition to PBR — Old Milwaukee, Schlitz, Stroh’s, Iron City Light, Rolling Rock, Old Style………. We got a batch of Coors to the Midwest in 1976, when it was extremely exotic at that time……….
Saw some Henry Weinhard’s at the store the other day — hadn’t had that in a long time, had no nostalgia for it.
Who remembers Lucky Lager? With the concentration puzzles inside the bottle caps? 11 oz. bottles. Used to buy that for $2.29 a 12-pack in the late ’70s. Not good at all. But it served its purpose.
April 25th, 2009 at 3:57 am
Why are banks like GS so eager to return TARP funds? They are giving up funds because the FDIC is backing their bonds. GS has borrowed over $20bln using the FDIC wrap program.
Borrowing at libor + 75 which is really borrowing at artifically low FDIC guaranteed rates
Banks and other financial institutions have primarily sold debt under the FDIC guarantee program, which lets them raise funds cheaply.
They have sold $238 billion in FDIC-backed bonds, and just $33 billion in non-guaranteed debt, according to data firm Dealogic
JP Morgan has sold $40 billion of FDIC-backed bonds, the second-largest amount among eligible financial firms
Anyway you look at it things are not getting better anytime soon.
1890 to 2009 historical average for the S&P 500 PE multiple has been 16.37 times the trough earnings. 16 times $38 puts it at 608 for the S&P 500. Using Standard & Poor’s estimate of $39.59 for reported earnings produces an S&P 500 of 633 in 2010. Using the $50 in earnings gives us an S&P 500 value of 800. Recently S&P 500 closed at 868.60.
In today’s environment of some of the worst capacity utilization numbers, high unemployment, a worldwide credit freeze, and certainly a slow economic engine, it would be reflective of having a typical trough PE ratio in the range of 8 to 10. So ten times $38, ouch, puts S&P 500 at 380. If you use $50 in earnings, you get an S&P 500 predicted value of 500.
It is clear that valuing S&P 500 at the loftier levels is ludicrous as the valuations are out of the realm of reality.
April 25th, 2009 at 7:30 am
http://www.financial-planning.com/news/private-wealth-staggering-plunge-2661630-1.html
Report: U.S. Household Wealth to Continue Its Trillion-Dollar Plunge
“But, he added, providing a glimmer of hope: “I don’t expect losses of the magnitude of $2 trillion to continue every quarter.”
April 25th, 2009 at 7:34 am
http://www.bloomberg.com/apps/news?pid=20601009&sid=a72P7NsC8ma0&refer=bond
April 24 (Bloomberg) — U.S. speculative-grade corporate defaults will reach a record 14.3 percent by March 2010, even after the economy shows signs of recovery in this year’s third quarter, according to Standard & Poor’s.
April 25th, 2009 at 8:06 am
http://marketplace.publicradio.org/display/web/2009/04/24/pm_business_owners/
“A recent national survey says 30% of small business owners have stopped paying themselves a salary. John Dimsdale reports.”
Barry, you still drawing a salary?
April 25th, 2009 at 8:19 am
http://www.foxnews.com/politics/2009/04/24/gm-shed-pontiac-close-plants/
GM to Shed Pontiac, Close More Plants
Hiking all day today…these things seemed interesting this morning…and the 2 week retooling shutdown this year will last almost 3 months….whocouldanode?
Franklin…it will be an interesting summer…
April 25th, 2009 at 8:24 am
Whammer-
Old Syle and Old Milwaukee can be found in the Chicago area- they use to serve Old Style at Wrigley Field and Soldiers Field- haven’t been to Chicago in about 20 years so not sure if it is still the beer of choice. I live out in DC Metro area currently and Schlitz and Strohs can be found in cans- 12 packs. Henry Weinhard’s was an Oregon beer that I use to be able to find out this way- I always thought it was pretty good-
here’s a golden oldie Carling Black Label- haven’t seen that around in about forever
April 25th, 2009 at 8:46 am
NYT article on regional banks, 4 small banks got the Friday flush today, the announcements follow the timezones across the country
http://www.nytimes.com/2009/04/25/business/economy/25bank.html?emc=eta1
April 25th, 2009 at 8:51 am
ahab, Whammer, y’all,
http://www.ambrew.com/
http://www.breweryage.com/
LSS: the History of Beer in the US–across the World, really–is a good storyline to understand the S&P500-ization of the ‘Economy’, especially over the last 30 years..
April 25th, 2009 at 8:56 am
A glance at the NYT numbers shows that the major banks are in worse shape than the regionals but the plan is to roll the regionals into the Zombies – that will provide TG and BB the cover to provide more taxpayer funds to the Zombie banks with immortal life.It will, of course, be a “very complicated plan” like Tiny Tim’s Toxic Plan designed to deceive taxpayers about the extent of the largess shown these favorites.
April 25th, 2009 at 9:01 am
With the small banks failing at a quickening pace and regionals being rolled up the percentage of economic activity controlled by the Big Four commercial banks and MS &GS will be mind boggling, they will be in complete control. As we sink into the biggest depression in US history O’B will be forced politically to bust up these banks to have a shot at reelection
April 25th, 2009 at 9:09 am
MEH- if you’re saying that the beer brands have all been consolidated into a few behemoths so that there are no longer local breweries- you’re right. There are a few out there- such as Anchor that are think are local controlled- fewer and fewer outside of some micro breweries serving up craft beers- which are pretty good I guess- but on a hot summer day after being out on the Bay (Chesapeake) fishing- I’ll take good ol’ PBR.
April 25th, 2009 at 9:18 am
rktbrkr-
Obama has been quite the disappointment- at the very least he should have taken C out back and shot it- now with talk of investigating interrogation techniques (torture?) and rehashing the Bush Admin- where is the forward looking agenda? -
Not to be found. I really think that there is something that is not being said regarding the banks- possibly that we are holding up the financial system of the whole Western World- to hell with what the US public wants- although- I do not think there is any way that the Treasury can get one more dime from Congress without an outright revolt from the general public- I think that the bank issue crosses party lines
April 25th, 2009 at 9:30 am
Ahab,
I voted for O’B and I am extremely disappointed he selected TG to continue the status quo cronyism of the Bush admin.
Regarding the torture investigation, if we are (still) a nation of law we can’t ignore everything that happened prior to 1/20/09 – whether it was Cheney and Rice torturing prisoners in Gitmo or Paulson torturing US taxpayers all across the country.
April 25th, 2009 at 9:31 am
rktbrkr–
w/this: “… but the plan is to roll the regionals into the Zombies – that will provide TG and BB the cover to provide more taxpayer funds to the Zombie banks with immortal life.It will, of course, be a “very complicated plan” like Tiny Tim’s Toxic Plan designed to deceive taxpayers about the extent of the largess shown these favorites.”
and: “…the percentage of economic activity controlled by the Big Four commercial banks and MS &GS will be mind boggling, they will be in complete control. ”
you’ve got the Endgame. As Whalen, so succinctly, put it “Tough Tootsies~ Little Banks!”
‘012 won’t matter if this Trend is allowed to continue..
ahab,
on one hand, that’s a lot of it, on the other, it barely scratches the surface–though, no matter..
PBR @~33 degrees is decent going down, it’ll only hurt you later..
welcome to Anytown, U.S.A.~ The Factory has been turned into a ‘Tourist’ destination, ‘Tourism’ is the local Industry, and Everyone buys the same cheap Imported s*** from the same 5 Stores.
Good thing ~Nostalgia is such a powerful Drug, otherwise we might wonder a bit more..
the above, of course, acknowledges that ~90% is not = to 100%
April 25th, 2009 at 9:40 am
rktbrkr–
I just find it to be a huge distraction- because nothing will be accomplished- but maybe I’m with you on Paulson torturing taxpayers
April 25th, 2009 at 9:47 am
MEH- you have hit it on the head- I was visiting Northern California a few years back and decided to go to Monterey- the town of Steinbeck/Cannery Row- what a disappointment- the whole area had been turned into a big 3 level shopping mall- with a fishing village motif- with the obligatory Cannery Row/Steinbeck t-shirts- it was such a letdown-
and that is what we have become of a nation lookin for a place to eat and shop and be entertained- bring back the Coliseum I say
April 25th, 2009 at 10:25 am
ahab,
yes, it’s truly unreal..I saw that Monterey-scene, awhile back, as well.
words begin to seem feeble in the attempt to describe it..
‘Caines should really ask themselves: “What, really, have we built in this Country over the last 30 years?”
then, see: http://www.trilateral.org/about.htm and their fellow travelers at the CFR.
and 2x-check that 2 2s do get 4..
April 25th, 2009 at 11:10 am
I was at a dinner party last night jotting down the name of this blog for my seatmate; but after catching up on last night’s discussion, I am hoping my writing will prove to be illegible and he doesn’t find his way here : )
April 25th, 2009 at 11:28 am
@ahab: The Coliseum is already here. Have you ever been to Ultimate Fighting? What about the spectacle that many of our other sports/athletic events have turned into?
April 27th, 2009 at 8:39 am
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May 8th, 2009 at 9:29 am
[...] rely on the banks data and just rubber stamp the results the banks required. As pointed out by Barry Ritholz the Consensus estimates, professional forecasters and blue chip surveys have all been awful — [...]