Open Thread
By Barry Ritholtz - June 3rd, 2009, 7:30PM
The crowd has spoken — its open thread time — play nice!
What say ye?
Macro Notes
We don’t want your help because maybe we don’t need itPeter Boockvar
While yesterday's US stock market close was poor, Asia and Europe didn't follow today as debt in Greece, Spain, Portugal, etc... rallied, their CDS narrowed and stocks bounced. The Greek finance minister said January tax revenues came in above expectations and that spending was below target for the month and said "that means the deficit reduction for January is well within what we have promised." The euro is rising in turn. Also helping is the story that Trichet is headed to the European Union leaders summit a day early in order to address Greece's problems even as the Greek finance...
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June 2nd, 2009 at 8:31 pm
Ritholtz, why isn’t Dylan Ratigan in your conference as previously advertised?
June 2nd, 2009 at 8:41 pm
So a Chinese firm is purchasing Hummer; does that mean they will be sold through Walmart locations now?
June 2nd, 2009 at 8:45 pm
probably not. unless waly world is getting dealership licenses. seems like they (waly world) tried selling cars before.it was a big bust. states seem to be really protective of dealers (when they can. but not consumers as a rule).
2 questions.,
what do we really get from ‘high’ finance? and is it worth it to the majority of people?
and
what do we really get from globalization? and is it worth it to the majority of people? and i don’t mean
low prices for stuff
June 2nd, 2009 at 8:46 pm
and should the banksters who got tarp fund be allowed to pay it back and still have access to any special fed funds?
June 2nd, 2009 at 8:48 pm
Barry,
This is definitely one of the most confusing investing environments I’ve ever encountered, to say the least. The rapid reversal from fear to greed has been absolutely astounding. Although the fundamentals clearly seem to indicate the market is overvalued based on expected earnings, etc. the technicals are pointing to continued strength. It appears the market has more than fully priced in a robust second half recovery, which I feel is a weak underpinning for such a sharp rally.
June 2nd, 2009 at 8:50 pm
Are we at the end of the rope yet?!
Fundamentally, all the stimulants are already injected (tax returns, SSI +$250 benefits, tax reduction),
but so are gas prices, disappearing unemployment, and frozen and reduced income (unless you are getting a hand out from USG or its arms:-).
Is the consumer hitting the wall ( a marathon runner’s term for having to burn fat for energy instead of sugar)?
Marketwise, the EM thesis appears to be float in mid air, if this is true, the developed markets can’t be too far behind (mind you, the leaders are BRICs, and you better take note of that).
Although they would love to replay COMMODITIES 2.0 this summer, they must be kidding, the oil is not even dry.
June 2nd, 2009 at 9:03 pm
Dollar, Yen strengthening ahead of jobs report, this means market will correct tomorrow, might test 9dma in my opinion.
http://www.bloomberg.com/apps/news?pid=20601110&sid=aV1wgnxAQo8U
June 2nd, 2009 at 9:09 pm
@ moconn-
agreed- good post
BR-
so- will it be bubble on- or-
will we have a whiff of reality- and deflate as necessary
June 2nd, 2009 at 9:09 pm
Barry: I bought your book and signed up for the autographed plate insert.
Any ideas on when those will plates start getting mailed out so that I can complete the masterpiece?
June 2nd, 2009 at 9:12 pm
“The crowd has spoken.”
I didn’t hear anything. Are you referencing a particular newsbite?
Green shoots will grow up to be a Venus-Bull-Trap (TM).
The 10 year caught a bid today after starting out very ugly. Spreads across the board have really slammed shut over the past couple of months. Does anyone know what the implications are that 30 year swap spreads are negative? It seems very bizarre and confusing to me. Could mortgage yields decline while treasury yields rise?
This is a new era. The big banks are trading at 30x earnings, TTM. The analysts think that earnings will triple over the next 12 months. That’s organic growth you can’t buy (Bwarney Fwank and the other crony politicians might disagree). There’s no reason financials can’t trade at 1000x.
June 2nd, 2009 at 9:22 pm
Doesn’t make sense … that green shoots theory. If it was basically the US consumer holding up the world economy, and US savings is something like >5%, then China’s “recovery” must be due to the Chinese government’s stimulus package and it’s demand that Chinese banks lend more. Commodities are obviously sparked by China’s stocking up due to lower prices. What happens when they either feel they can’t stockpile any more or they feel they’ve spent too much of their foreign reserves ? This market doesn’t make sense … of course, the cliche goes, the market can stay irrational longer than you can stay solvent.
June 2nd, 2009 at 9:27 pm
If this rally is a new bull market with legs, it is newsworthy in that:
1) It started at a P/E of over 100, considering in 4Q, the S&P had negative earnings…throw out that quarter and the P/E is about 30…historically disaster occurs when the P/E is that high.
2) It quickly hit very bullish sentiment levels.
3) It shows you can solve a debt problem with more debt.
June 2nd, 2009 at 9:34 pm
Ernst S Says:
June 2nd, 2009 at 8:41 pm
So a Chinese firm is purchasing Hummer; does that mean they will be sold through Walmart locations now?
…no, but you will get a fortune cookie with every oil change…
June 2nd, 2009 at 9:37 pm
Inflation, deflation, reflation, schreflation. Overvalued or undervalued, blah blah blah. Bank bailout, auto bailout, federal deficit, trade deficit, money supply, whoooooo cares? Climate change, peak oil, water shortages…yawn.
Ritholtz, tell us what the youth of America really wants to know:
ARE YOU EMO OR INDIE?
June 2nd, 2009 at 9:42 pm
so far gold is refusing to back down this spring
June 2nd, 2009 at 9:43 pm
Guys, I agree with moconn and fully diluted. If you helicopter temporary money in this environment, sure there will be some evidence. No one expected an “l” shapted recession…there has to be an “L” or bottoming process…but, logic would say that there is too much wrong in the world for the stimulus to overcome our deleveraging. Look at the facts. Housing won’t recover this year, and it is the biggest purchase for most of us. Unemployment is going to get worse, with the problems with automobiles. There is no way U3 won’t be over 10 by the end of the year. Rates since Bernanke announced QE have done nothing but rise, and are now close to fall 2008 rates on the 10 year. We hit the low on refi’s and many missed it.
Green shoots can spring in most any soil, but without proper nutrients to sustain them, they may not last long…that is what I see for those expecting a turnaround this year.
June 2nd, 2009 at 9:50 pm
Break a leg tomorrow, Barry. Aside from its being my wife’s birthday, and my being 2,921 miles from where it’s taking place, I would have loved to attend.
June 2nd, 2009 at 9:52 pm
Wait til gas hits 4 bux again from basic commodity reflation/speculation and nobody can afford to pay for anything because they either lost their job, still have their job but can’t get the credit they used to get to pay for stupid shit, or are trying to afford the rising cost of inelastically priced commodities such as gas and consumer staples and are still deathly afraid of the next round. The green shoots will wilt in the dog days of summer with continued credit deflation and job losses creating dismal 3rd quarter earnings, causing a second flipping of the crowd back to TEOTWAWKI for final low, S&P474, beginning October. Who really knows in this environment, however? I just put my asinine predictions out there for fun (hence the ridiculous 3 sig fig target). But hey, I was right about the GM Bankruptcy a year ago. I’m also predicting a repeat of the Florida Gators winning the National Championship in College Football with Tim Tebow’s 2nd Heisman Award Winning and 1st Ever Gator Undefeated Season, LOL. Hopefully I will still be able to afford to watch it on the Idiotbox!
June 2nd, 2009 at 9:55 pm
Things I’ve been thinking about:
If you had enough money to double down forever in blackjack, you could never lose. Maybe that’s what the government also realizes.
Why are there ground troops in Afghanistan, when we have unmanned aircraft that can take out any target, anywhere, when directed to by a guy sitting in a command centre just outside Las Vegas?
Will the new and improved GM and Chrysler continue to try and persuade customers that you are in fact getting a $30,000 vehicle for $21,500 after rebates, after they restructure?
When will Jack Welchs’ reputation reach equilibrium with that of Chainsaw Al Dunlap?
How long after the WWDC next week, will it take Scott Moritz of The Street.Com., to write a negative Apple column, and will that column have the blessing of Cramer?
As you can see, my brain’s a mess.
June 2nd, 2009 at 10:03 pm
Slideshow: Leanest Firms of the S&P 500
Dow at 14,000 in Two Years: Strategist
Pros Say: S&P 1,200 Still Possible This Year
Rally Can Carry on Another 10-15%: Strategist
Cramer: This Is a Bull Market
Art Cashin: Stock Market is “In a Big Major Move”
….these are the headlines from CNBC tonight….feel better now?
June 2nd, 2009 at 10:03 pm
I can personally attest from experience that not nearly as many mortgage re-fi’s are going to get done during this period, which means much more pain for the housing market ahead. My wife and I are going through this byzantine, labrynthe-like process right now. I’m more convinced now than ever that making things utterly indecipherable and as complicated as possible is the new economy in the U.S. It allows people to nickel & dime and skim as much off the top while the gravy train rolls by unsuspecting dupes and marks as we glibly sip our overpriced lattes from Starbuck’s and text message, Twitter and update Facebook. Even though our credit scores are around 800, we carry no credit card balances, and are never late with any payments (have one car payment that will be paid off in 8 months), they’re running us through the ringer to get this re-fi. My loan person said that she and her husband were also sucked dry on a recent re-fi and they’re credit scores are 825+. How in the world are folks with a 600-700 credit score going to fare in this process? Not well, I’m guessing.
June 2nd, 2009 at 10:04 pm
Google’s Android Software to Run Laptops, Taking on Microsoft (Bloomberg) – Steve Balmer seen throwing more chairs and expressing a desire to kill Google. BTW, these things are not running on Intels. You might want to look at who is making the ARMs.
Australia’s Economy Unexpectedly Expanded 0.4% (Bloomberg) – Could it have something to do with 1) China being Australia’s largest trading partner and 2) China stocking up on a ton of commodities? Yeah, green shoots (turn Venus-Bear-Trap(TM)).
June 2nd, 2009 at 10:09 pm
CNBC@9:37 –
you are killin’ me
since I am Austrian, deflation is really inflation, just phased lagged….whatev
emo or indie, comon’, too funny
June 2nd, 2009 at 10:17 pm
Green shoots can happen but you have to have a controlled burn first. Unfortunately our government keeps planting the same crop over and over again.
The spread between the 2 yr and 10 yr will increase exponentially as China concentrates on shorter term bonds. I’m worried that if they’re not satisfied with how the government is reducing the deficit that they will reduce the shorter term bond holdings also.
June 2nd, 2009 at 10:23 pm
How about a website that aggregates all the bullshit bottom calls and cheerleading? Or is there one?
June 2nd, 2009 at 10:24 pm
Google Wave has blown my socks off. I can’t see how this is not going to wreak havoc with – well, just about every hi tech company except for Cisco. Android really impressed me (imho Android is to iPhone what VHS was to Betamax), but Wave is just insane.
The best overview I have seen so far has been Tim O’Reilly’s: http://radar.oreilly.com/2009/05/google-wave-what-might-email-l.html
June 2nd, 2009 at 10:26 pm
@manhattanguy
Exactly how would they back a new world currency? There’s not enough gold to make it happen. Do they have another commodity to use in the place of gold?
June 2nd, 2009 at 10:27 pm
Green shoot?
http://www.nytimes.com/2009/06/03/business/03mortgage.html?_r=1&hp
More evidence that the homeowner assistance program is merely window dressing. Big shocker there.
June 2nd, 2009 at 10:28 pm
..from Axel Merk –
“There’s a saying that when you owe the bank a dollar, it is your problem. But if you owe the bank a million dollars, it’s the bank’s problem. Well, the U.S. owes China $767.9 billion worth of U.S. Treasury securities (Chinese holdings as of March 2009; see table) in addition to agency and other securities; in total, China owns about $1.4 trillion in U.S. assets. This is definitely China’s problem. If this is a case of “The Emperor Wears No Clothes” then the Chinese and the U.S. are in the same boat in trying to convince the world to buy U.S. Treasuries.
….as is the case with California’s finances. In California, with its dysfunctional state government, the governor is at least trying to rein in spending. Contrast that with New York where the solution to every financial crisis seems to be tax increases. The federal level, however, beats them all: the Federal Reserve’s (Fed’s) printing press attempts to keep up the illusion of prosperity. Printing money, however, only works when there are takers. That’s where Treasury Secretary Geithner comes in. However, Geithner is no bodybuilder but has a lot of heavy lifting to do if he is to make U.S. debt appear attractive.”
http://www.merkfund.com/merk-perspective/insights/2009-06-02.html
June 2nd, 2009 at 10:31 pm
“Strategists Say 1200 still possible for this year” on CNBC.com
Byron Wien of Pequot Capital said he is bullish on the markets and expects the S&P to go over 1,100. “The beginning of the year forecast was 1,200 and that’s not entirely out of sight either,” he said. On the consumer front, he expects retailers to have one of the best years this Christmas.
For some reason these guys are starting to sound like the folks calling for 400-500 when we were at 670 in a deeply oversold market….
June 2nd, 2009 at 10:33 pm
…its been a squeeze so for Andy
June 2nd, 2009 at 10:34 pm
I noticed Dylan Ratigan is off the program for tomorrow’s event. Has he been reassigned to security detail to make sure a certain someone doesn’t interrupt Dougie Kass’ oratory?
Anyways…
If Friday Night Jazz is interested, a company called Alexander Street Press markets an African-American Song database to libraries. Check to see whether your local branch subscribes. Supposedly they’ll one day have 50,000 tracks one can listen over the net, inclusive of jazz.
June 2nd, 2009 at 10:37 pm
Chief – …no, the change in agenda is for that Macke guy – to try to prevent meltdowns on Barry’s stage…
June 2nd, 2009 at 10:37 pm
P.S. What are “Bailout Nation”’s odds the feds do the deed with “Caleefornya”? Methinks precious metals are moving in anticipation thereof.
June 2nd, 2009 at 10:39 pm
Is anyone else problemed with the concept that the only way stocks can catch a bid is when the dollar is weak? Anyone have an issue with that….? Just wondering….
June 2nd, 2009 at 10:39 pm
…Caleefornya…seems to be the next node in the decision tree…
June 2nd, 2009 at 10:41 pm
HEY!
Anyone who has to put up with Dennis Kneale’s questioning deserves a trip or two. Dennis & Michele Caruso Cabrerra extoled the virutes of “buying and holding for the long run” over and over and over throughout last year. In fact, Kneale even acknowledged as much once upon interviewing BR.
CNBC ought to bring back Herb Greenberg to balance that lunchtime set. Too many cheerleaders.
June 2nd, 2009 at 10:42 pm
@AT: Does it really matter if any of us have any issue with it or anything else? We’re all just along for the ride. Read that NYTimes article I linked above. That about says it all.
June 2nd, 2009 at 10:43 pm
AT @ 10:39
Commodity stocks are certainly strong. Maybe they’re pulling everthing else along.
June 2nd, 2009 at 10:43 pm
Andy, I believe stocks are catching a bid because the money is flowing out of treasuries at the moment.
June 2nd, 2009 at 10:44 pm
…AT…
flow of T’s to equities…next, flow is reversed..
dollar down, dollar up = equities up, equities down
peeps fleeced – it is coming….
June 2nd, 2009 at 10:44 pm
Wes, I think you’re right.
June 2nd, 2009 at 10:46 pm
we are on the same page Chief…however, a wise man is prepared for multiple outcomes…
June 2nd, 2009 at 10:49 pm
Wes, I read on MISH’s site the Chinese students our esteemed Treasury secretary spoke to yesterday laughed at him when he talked up the dollar (or something akin to that topic.)
June 2nd, 2009 at 10:54 pm
Seeing as this is an Open Thread and we can write whatever comes to mind…..
I don’t listen to much “new music” because I don’t listen to the radio (as BR has pointed out before it was ruinated by Clear Channel), but today I worked out to “Let it Rock” by some fellow named Kevin Rudolf and pressed more weight than ever before….So, a big kudos to Mr. Rudolf for coming up with a catchy tune that one can lift to….recommended for any “Working Out” playlist on those ubiquitous MP3 players….
Should be an interesting day tomorrow…..will the dollar be able to catch a bid?….that’s the Trillion dollar reflation question…. Good night. AT.
June 2nd, 2009 at 10:55 pm
@Mannwich 10:27pm
It is a huge mistake to think that the loan modifications aren’t massively changing the market dynamics currently. The banks are doing everything they can in as many instance as possible to keep people in the homes.
If you have access to the foreclosure rolls, look at how many are getting cancelled & postponed instead of going to sale (Cancellation are currently running ahead of sales in my area). All across California there is actually very low supply on the low end.. when you hear of 5 months supply on the market it is all high end homes with homeowners unable or unwilling to cut prices. On the low end in many places there is less than a months supply of homes. This is because all the weak owners are getting bailed out instead of foreclosed on and the fiscally responsible who waited get to sit on the sideline and wonder exactly just why they are being responsible.
Go to loansafe.org and look at their forums and look at how they have getting a modification down to a science.
June 2nd, 2009 at 10:58 pm
I think Denninger makes a very interesting point in his post: http://market-ticker.denninger.net/archives/1078-Short-End-Debt-Offerings.html
The Fed won’t be able to control this when it hits.
June 2nd, 2009 at 10:59 pm
Effective Demand…
Sorry to bud in, but I just thought I’d try to be helpful with regard to your “access to foreclosure rolls” comment. Many libraries with internet access for their residents subscribe to “public records” web services. Being your local library, it would probably be free. Just a money-saving thought.
June 2nd, 2009 at 11:00 pm
I have a friend, who is someone you could think of as the average person, who went out and in his words “bought a car to celebrate the end of the recession.” I find talking current economics with virtually anyone extremely painful and futile. This world of economics really is lonely–as in the way things are headed is usually the way that no one expects them to go. To express your differing views only sparks disagreement and hostility. I’ve learned over the years to keep my mouth shut. Ignorance is Bliss.
I do worry about the people that are buying stocks right now. I wonder what’s going through their heads. Do they think we’re going straight back to the 2006 economy? Even if the recession did magically end right here, oil, now at $70, would be up to $500 by Summer 2010. That would send us straight back into another recession. Good economy=hyper inflation=recession. Bad economy=deflation=recession. No matter how you look at it, we’re stuck here. I just hope all the people piling in right now are bank execs and media personalities.
June 2nd, 2009 at 11:19 pm
The US dollar index has taken a 10% beating over the last six weeks, at that clip:
$1.00 will have about $.40 buying power in a year.
But cheer up, it only takes about a 140% annualized stock gain to offset the loss.
140% stock gains are awesome for consumer confidence (Dow 20,000!!!!)
What could possibly go wrong?
June 2nd, 2009 at 11:24 pm
Green shoot BS in the markets and commodities can go on another couple of months.
Bad news is ignored as “part of the bottomng process.” My guess is that the panic will start with some thing(s) that can’t be ignored, like a Bear Stearns or a Lehmann. The catalyst likely will be a major institution betting heavily in commodities to make up losses and not getting out in time, leading to a cash crunch, et cetera, et cetera.
June 3rd, 2009 at 7:47 pm
So China is going to be making Humvee’s and selling them to the US Army for use in Iraq and Afghanistan?
And Fiat is handling Chrysler’s military products?
Wow — the One World Gummint must have arrived, for such cooperation to be everywhere.
June 3rd, 2009 at 7:53 pm
Something very weird is going on with the date/time stamp for these posts. Up til constantnormal’s post they are showing as June 2 and the time’s are all off. I thought for a bit I was seeing an old thread. Very strange.
Mannwich re: refi
And yet the home ATM business isn’t completely gone yet. There are still some of the same companies out there hawking debt consolidation and equity loans.
American Home Equity
Homestead Financial
To name a couple whose commercials I see here in the midwest. Where are they getting their money for these loans? I thought the shadow banking system had collapsed. And haven’t they learned anything? How can they still be doing this business when house prices are still falling? Who is taking on that risk?
I’m really trying to figure this out. Can anybody shed light on this?
June 3rd, 2009 at 8:01 pm
onlooker-
this is an old thread
June 3rd, 2009 at 8:03 pm
Yeah, this thread is the equivalent of getting to eat leftover wraps and bottled water from the conference today.
June 3rd, 2009 at 8:09 pm
Mannwich
That lady in the NYT article is a kind of microcosm of what’s been going on in America, eh? Pulling equity out of her home over the years to live off of, and now living off of credit cards since out of work with no prospects for being able to pay off all her debt. Based on some rough calculations she’s pulled about 70-80 thousand dollars of equity out of her condo over the years. And there’s little doubt that she has saved exactly zero. She’s a big giant default just waiting to happen. The stories like this abound.
And yet there are those who are delusional enough to think we’re coming out of this recession in a V shaped recovery just because of it’s depth, because that’s how it’s worked since WWII. Unbelievable lack of critical thinking and shallow analysis by people making big money managing huge piles of assets.
June 3rd, 2009 at 8:10 pm
ahab
But it’s on the front page and the date/time stamp for Barry’s post is June 3, 7:30 p.m Am I in the twilight zone?!
June 3rd, 2009 at 8:22 pm
onlooker-
all I know- is I have a post on here from yesterday- so maybe-
it is the twilight zone
June 3rd, 2009 at 8:33 pm
@ Steve Barry
you mentioned that the rally is suspect because: “It started at a P/E of over 100, considering in 4Q, the S&P had negative earnings…throw out that quarter and the P/E is about 30…historically disaster occurs when the P/E is that high.”
this is disingenuous for two reasons:
a) these are certainly not normalized earnings, even throwing out the 4th q…they are closer to trough earnings. You never buy cyclicals when the PE’s are low, because thats how you know they are peaking, you buy the cyclicals when they are at trough earnings. Even if earnings disappoint for remainder of 09, we’re closer to trough than peak, so a 30 PE does not portend a coming “disaster” from here.
b) you’d be amazed at how little the “earnings ratios” matter to the vast majority of market-moving pools of money. the money that makes things happen these days is unconcerned with traditional valuation measures, it is more concerned with velocity, hence the overshoots both ways. We’re talking robots trading with robots and daytrading speculators. they’ve enever heard of PE ratios, hence, this measure is irrelevant as an indicator in our current environment.
June 3rd, 2009 at 8:34 pm
RE: constantnormal
AM General (owned by Ron Perelman) builds the H1 Hummers that the Army uses. GM only built the H2 and H3 civilian models that are now Chinese.
There is a rumor that dealers are now offering free egg-rolls if customers buy two Hummers at a time.
June 3rd, 2009 at 8:35 pm
@YY 8:50
What about PPIP?
June 3rd, 2009 at 8:40 pm
This is the famous missing Open Thread where I first introduced my most recent mtheme, “emo or indie”. I don’t know why Ritholtz pulled it for 20 hours.
You worry-warts concern yourselves too much with equity valuations and dollar indices. Chillax, peeps. Bad times are politically unacceptable for US politicians and they have the money printing machines to make everything seem all better. Combined with the rest of the world RELYING ON US to be our old profligate, credit-maxing, money-printing, consume-beyond-our-means-times-six selves, there just isn’t anything (OK, maybe a corrective blip here or there) to worry about…until of course that out-of-control, precipitous, die-off collapse bit at the end.
In other words, take a deep breath, think about the #1 most pressing issue on the minds of America’s youth, and ask yourselves, AM I EMO OR INDIE?
June 3rd, 2009 at 8:40 pm
Yesterday’s open bar, er, open thread has been reanimated….
BR, you just got a nice plug from Agora Financial for their 7/21-7/24 conference:
“Barry Ritholtz, author of the just released book Bailout Nation, publisher and editor of The Big Picture blog and CEO and director of equity research at FusionIQ, will provide his unique take on the markets, the economy and anything else that comes to his fantastic mind. You will love this guy.”
June 3rd, 2009 at 8:43 pm
Any truth to the rumour that when buying a Hummer now, you will order by number. I’ll have the #5 please.
June 3rd, 2009 at 8:46 pm
I heard the funny thing about the Hummer is you fill up the tank and a half hour later it’s hungry again.
June 3rd, 2009 at 8:53 pm
Onlooker from Troy…BR does this occasionally with his open thread. He starts them, and then like Kayser Sose, poof, they’re gone. Some say they never really existed, that they are just urban legend. I think what happens is, the posts start, BR pulls them, submits the thread to Congress, where they are doomed to big to fail, he gets some TARP money, and puts them back up on his site the next day.
June 3rd, 2009 at 8:56 pm
“Transor Z Says:
June 3rd, 2009 at 8:03 pm
Yeah, this thread is the equivalent of getting to eat leftover wraps and bottled water from the conference today.”
Strangely enough, that is exactly what Ritholtz is doing this very moment.
June 3rd, 2009 at 9:04 pm
@ *
I prefer the nick “MaoMart” to “WallyWorld”.
Wish it would catch on…
June 3rd, 2009 at 9:05 pm
Responding to the comments about Gold being too scarce to use, my view would be “Exactly”. Our Politicians and Bankers have amply demonstrated an inability to be reponsible. A return to the Gold standard is probably the only way that we the people can force responsibility upon our leaders. Upside down isn’t it? Perhaps next we the people should have our police force to enforce responsible behaviour on our leaders!!
June 3rd, 2009 at 9:10 pm
http://www.youtube.com/watch?v=rAqPMJFaEdY
The 2012 Pelosi GTxi SS/RT Sport Edition
Hummer smchummer…I’m getting me one of these…2012…
June 3rd, 2009 at 9:13 pm
This is, of course, just last night’s thread continued….Leftback got sleepy and asked to stay up tonight, since the twins go to be early on Tuesdays….
June 3rd, 2009 at 9:15 pm
Operation Obama Storm will shock and awe.
June 3rd, 2009 at 9:16 pm
Joke Time:
What do you get if you have too many green shoots?
Green shits.
Sometimes, I even amuse myself.
June 3rd, 2009 at 9:19 pm
3:30-4:00pm Rally Time for the Market Magicians
Yet again, per usual, the market magicians engineer another run into the close. This seemingly daily action is probably starting to …
June 3rd, 2009 at 9:29 pm
Colleague of mine at work (CFA) asked me if I picked up Bailout Nation, I said I would, and today I did! Looking forward to it and will bring to work to show off.
Two days ago I unwound all my financial short positions, yes, great timing, but remain short treasuries (since November 2008), long gold (since spring 2005), and long biotech (recent). I’d prefer low-beta, but these derivatives and biotech are sufficiently low-correlated enough for me.
Keep up the great work!
June 3rd, 2009 at 9:32 pm
apparently i should have re pasted the whole article below from the blog
3:30-4:00 Rally Time for the Market Magicians
Yet again, per usual, the market magicians engineer another run into the close. This seemingly daily action is probably starting to build on itself as whomever is doing it, is doing it, so traders are jumping on board this “trend” at the end of the day which amplifies the action into the close – just what the market magicians want I suppose. Plus, today we ripped commodities lower, dollar higher and limited equity damage with that last 15 minute jig. Well played. Funny thing is if we continuously sold off huge into the close (in the last 15 minutes) CNBC and the media army would be talking about hedge fund manipulation and the need for the SEC to investigate, etc. But, since it is an up move – no reason to question the irregularity. CNBC is a puppet show (for the most part at least).
Who is this cloaked figure continually providing the late day bid?
June 3rd, 2009 at 9:43 pm
honesttrader-
no shit- I have been throwing this question out their myself- unwritten rule to not short and pump the market by TARP recipients is my guess
June 3rd, 2009 at 9:44 pm
Hey Barry,
Any discussions about how to get pass the gatekeeper?
June 3rd, 2009 at 9:56 pm
Ahab-
I try not to let myself get too deep into conspiracy theories, because one can drive himself nuts….
but, I’ve been thinking about this a lot lately….It would not surprise me if there was some “unwritten” understanding there that goes something like this:
“Look, we’ll support you guys and bail you out…toss you a lifeline, but we better not ever find you pressing short positions or pounding down markets….capiche?”
There’s probably a tacit understanding that firms receiving “assistance” should not be involved in unAmerican activities like shorting stocks or buying puts.
If that is what’s going on here, then the next move down could indeed be violent…similar to what happened when that AssHat Chris Cox, et al, instituted the ban on short selling….one of the stupider things they did last year as the last shreds of capitalism were destroyed.
June 3rd, 2009 at 10:06 pm
It seems like every news story i read these days, no matter what the topic, includes the following statement:
“…..according to an official with knowledge of the [situation], who spoke on condition of anonymity because he was not authorized to discuss the [situation].”
June 3rd, 2009 at 10:15 pm
AT-
then the question is- where does the short move come from then- all the various disparate traders trading in unison-
I would think that some big players- the market makers- would have to be in the mix-
no?
June 3rd, 2009 at 10:21 pm
@Andy T
Ban on short selling = no one to stop the move down by buying back their shares to take a profit. Brilliant move Cox.
June 3rd, 2009 at 10:25 pm
How can Bernanke complain about budget deficits when the Fed is the primary culprit by saving insolvent financial institutions?
http://www.bloomberg.com/apps/news?pid=20601087&sid=aLGYMr_g7PSg
“Bernanke Warns Deficits Threaten Financial Stability “
June 3rd, 2009 at 10:32 pm
@Franklin
This one is dedicated to you pal…
Ballmer Says Tax Would Move Microsoft Jobs Offshore
Microsoft Corp. Chief Executive Officer Steven Ballmer said the world’s largest software company would move some employees offshore if Congress enacts President Barack Obama’s plans to impose higher taxes on U.S. companies’ foreign profits.
“It makes U.S. jobs more expensive,” Ballmer said in an interview. “We’re better off taking lots of people and moving them out of the U.S. as opposed to keeping them inside the U.S.”
Obama on May 4 proposed outlawing or restricting about $190 billion in tax breaks for offshore companies over the next decade. Such business groups as the National Foreign Trade Council, the U.S. Chamber of Commerce and the Business Roundtable have denounced the proposed overhaul.
U.S. tax rules let companies defer paying corporate rates as high as 35 percent on most types of foreign profits as long as that money remains invested overseas. Obama says he wants to end such incentives to keep foreign profits tax-deferred so that companies would invest them in the U.S.
snip
June 3rd, 2009 at 10:35 pm
@Franklin
So much for Mark Zandi’s 5% unemployment math (and your belief in the tooth fairy)…
Maybe we’ll declare war on Bermuda, annex it as a country, and then we’ll be back to preserving the unemployment rate…
June 3rd, 2009 at 10:36 pm
AmenRa-
the Fed is just talking -as if there was even a possibility deficits could be curtailed at this point- it is all a big show-
nothing can be done that I can see- well into the future
June 3rd, 2009 at 10:36 pm
Ahab-
The move off the lows was one of the sharpest, more severe moves I’ve seen in ANY market. The very first part of the move was mostly short covering…it had all the hallmarks….no pullpacks…just bids….after some amount of time though you actually got some real money piling in because now the “coast is clearer”….and if nobody is able to short…then it can sort of just keep going up and up and up….till the last marginal dollar jumps on board. It can explain the lack of any selling pressure at all the last few moments of everyday….
I can guarantee you there are some big traders with some big books that would normally happily sell into those kinds of rushes and then cover the next day on the inevitable morning pullbacks….and yet no resistance? The role of the large speculator is to meet demand when it’s excessive and mop up supply when it becomes excessive, hoping to create a return somewhere in between…..this has been acting like a market void of large speculators….
June 3rd, 2009 at 10:39 pm
To add on to the previous post…there’s nothing necessarily wrong with a market void of large speculators, but it means, by definition, A LOT more volatility.
June 3rd, 2009 at 10:42 pm
@AmenRa: It’s all one big show. That’s how he can prattle on about the dangers of the deficit even though he’s a primary contributor. It’s just one big show not to be taken seriously. Grab some popcorn and pull up a chair. The country’s on a road to ruin. It’s just going to play out in many, many months, probably years even, with many twists and turns.
June 3rd, 2009 at 10:46 pm
@Reformed Broker:
IMO, you can’t normalize earnings now, because when we emerge from this debt “issue” we are having, there will be a new normal. Since Greenspan issued in the bubble era, stocks have tended to get to insane levels at times…but I doubt P/E is “irrelevant” as you say. I could spend every waking hour doing a DCF on every S&P company…making many assumptions…and getting a “fair value”. It’s like measuring an atom with a ruler. I like a simple P/E to guage where we stand.
I do retract saying a P/E over 30 leads to disaster…it only really happened one time (tech bubble)…not enough of a sample.
PLEASE READ THIS CLOSELY…I am going to link to a chart on Comstock Fund’s website…I will just state the facts first…then we can debate it. This link shows the current P/E of the S&P in comparison to the last 83 years (bottom chart). . The top chart shows what happens if you put an average multiple to the S&P’s earnings at any given time vs. where the S&P actually traded.
http://www.comstockfunds.com/newsletterdownload.aspx?newsletterpictureid=26
June 3rd, 2009 at 10:47 pm
I agree with you Andy the conviction is definitely missing. To compare to older bear markets there was always a severe capitulation/washout followed by huge volume to the upside. This rally has nothing of the sort. In fact the volume has been severely lacking in comparison to the downward moves which preceeded.
June 3rd, 2009 at 10:56 pm
The first two conclusions I can draw…never in the last 83 years, including the GD, has the market so decoupled from earnings. Also, the current P/E is so off the charts, it is incumbent upon the bulls to logically expalin why this is not a major warning sign. It looks like the housing chart of the last 100 years before it popped.
June 3rd, 2009 at 10:56 pm
it’s a bizarre market and impossible to trade- if you put your money in long- great- but you would need much conviction at this point- I don’t trust it- because my impression is that the economy has nowhere to go on the upside anytime soon
June 3rd, 2009 at 10:57 pm
let’s say i have 100 million shares of financial garbage to dump ASAP. all day long I distribute say 3 million to the weaker hands on the way down. then, at 3:30 i start to buy back 1 miilion shares -sloppy- driving it back up. next day – do it all over again.
June 3rd, 2009 at 11:00 pm
@Steve Barry
It looks like the Earnings that are used in the report you had a link to are “as reported” earnings … which i don’t have a problem with … in fact I think that these numbers should be shown on major media streams, but I just wanted to note the difference for everyone and I have an analysis that I did that you might find interesting showing the difference in terms of P/E in some charts etc:
http://www.nakedhedgefund.com/wp-content/uploads/2009/05/earnings%20q12009.pdf
June 3rd, 2009 at 11:00 pm
Yes Barry,
that was the intermediate top… no reason to check the sentiment of your EchoChamber.
June 3rd, 2009 at 11:31 pm
@NHF
Thanks…we both drew a similar conclusion – we are in unchartered territory which means anything could happen. In my opinion, the preponderance of things that could happen are bad to catastrophic. Yet we get posts earlier saying P/E is irrelevant and forget companies with negative earnings. The whole freakin index had negative OPERATING earnings in 4Q.
June 3rd, 2009 at 11:34 pm
P/E for the S&P 500…
While all those charts are nice, they don’t really make sense as combined earnings approach zero.
If I own AAPL and GM stocks can their combined value really be less than the value of AAPL?
Using a negative P/E of one company to devalue another doesn’t make sense.
Will someone with a sharper pencil and better software than me please compute a similar chart of S&P P/E where zero is substituted for all negative earnings (thus effectively valuing those companies as worthless)?
June 3rd, 2009 at 11:35 pm
By the way… First time homebuyers will be able to use the tax credit for the 3.5% downpayment for FHA as long as the tax credit loan comes through a government agency. 100% financing will effectively be back for homes under $228,000 and homes above that point will have a significantly lowered barrier to entry.
http://effectivedemand.blogspot.com/2009/06/more-on-fha-monetizing-tax-credit.html
June 3rd, 2009 at 11:35 pm
Operating earnings are, as John Maulden puts it, are earnings before all the s**t. As reported earnings are the real earnings and should be used in all P/E calculations. Of course, when things are bad, Wall street feeds the media the P/E’s based on operating earnings.
June 3rd, 2009 at 11:43 pm
The P/E charts showing the current spike are making me think of the Fed balance sheet going extreme vertical.
Is this circumstantial evidence of a big printed money dump being funneled into the equity markets through the Fed’s OMO?
If not, what are other alternative explanations — herd sentiment best characterized as “crack-head desperate”?
June 3rd, 2009 at 11:48 pm
“. . . big printed money dump being funneled into the equity markets through the Fed’s OMO?
_______
Bingo.
June 3rd, 2009 at 11:49 pm
@Ezrasfund:
You aren’t Merkin are you? or Jeremy Siegel?
Negative P/E doesn’t make sense, but negative earnings do. The S&P accurately described the index as a conglomerate with many divisions…some lose money and that affects the bottom line of the whole.
June 4th, 2009 at 12:03 am
@ Ezrasfund
So your proposing that every rule (that has been in place since the market began) pertaining to calculating the P/E ratio should be dropped because we had a negative earnings quarter? I think thats great… Yes why don’t we just say every company with negative earnings actually had zero earnings instead.. that would make me feel so much better… are you by chance on CNBC regularly?
and maybe some day when we have extremely good earnings we should taper those down too right?
June 4th, 2009 at 12:12 am
@Steve Barry
But they are not a conglomerate…GM’s losses will not be paid back out of AAPL’s profits.
I am not a big fan of Mr. Siegel et al, but I can’t say that INTC is worth less because of AMD’s losses.
June 4th, 2009 at 12:29 am
Tweets from Barry’s conference:
http://zerohedge.blogspot.com/2009/06/big-picture-conference-media-panel.html
June 4th, 2009 at 12:33 am
@ezrasfund
your giving me a headache.. INTC is not worth less because of AMDs losses… there are individual P/Es for companies…
we are talking about an index P/E which is the index’s price divided by the index’s total earnings… GMs losses are included and AAPLs profits are included thats it… always has been… changing that would lose the point of an index P/E
June 4th, 2009 at 12:34 am
What you’re missing here ezrasfund is market risk. So even if you own a great stock at a really good valuation (P/E or otherwise), if the rest of the market is overvalued as a group when the other stocks are repriced to reflect better valuation your stock will be dragged down too. It may not suffer as much, but it will get revalued, with extremely few exceptions. Market P/E matters to your individual stock.
So you have to ask yourself if owning that stock is worth the market risk if the overall market is overvalued by historical measures in very a tenous economic environment. You could hedge that risk by shorting the index against your long position, and accept the differential performance, but that takes more capital and reduces your return, unless you lever up. You could also use some more sophisticated option techniques, but there is no free lunch here, and it’s difficult to do for the small investor.
June 4th, 2009 at 12:36 am
@NakedHedge
“… Yes why don’t we just say every company with negative earnings actually had zero earnings instead.. ”
Why don’t we just say that every company that had negative earnings is worth zero, a much different proposition, and a more severe one than most would take.
June 4th, 2009 at 12:49 am
@Onlooker
My point is really about the charts that began this discussion…
As combined P/E’s approach zero and the chart goes parabolic the implied value of all of the companies in the S&P approaches zero. Even as a market bear I see this as clearly incorrect.
I agree that we have a signal that the market is overvalued. I do not agree that we can look to that parabolic chart for a measure of just how much the market is overvalued.
June 4th, 2009 at 12:52 am
@ezrasfund
Thats pretty funny… talk about chaos… as every bank known to man would have been long gone
June 4th, 2009 at 12:59 am
@NakedHedge
Worth zero for the purpose of calculating a P/E ratio that is.
…though I wouldn’t want to have to figure out how to pay off Ford’s $145B, even though some are willing to pay $18B for a shot at it.
June 4th, 2009 at 4:01 am
Maybe it’s generational, but I am amazed at how many people care what CNBC says! Or any of the other infotainment outlets, for that matter.
Who gets their news from CNN/FoxNews/etc. anymore?
Old timers, that’s who!
How smart is it to take free financial advice?
June 4th, 2009 at 6:41 am
@Ezra:
As Naked said earlier…why don’t we also cap the P/E’s of stocks like Google and Amazon if they have good earnings? Surely Amazon is not worth 85. Let’s keep it apples to apples. The current situation has never happened in 83 years and probably never in history…and it is not one that bodes well.
June 4th, 2009 at 6:45 am
http://www.nytimes.com/2009/06/04/business/economy/04rates.html?_r=2&ref=business
Rising Interest on Nations’ Debts May Sap World Growth
Under President Obama’s 2010 budget, total interest payments by the federal government could rise to $806 billion in 2019, from $170 billion this year, according to the Congressional Budget Office. Much of that projected increase is a result of higher government borrowing, but the forecast also assumes that the average 10-year note yield will increase to 4.7 percent.
Way too conservative….2019?
June 4th, 2009 at 7:16 am
@Bruce:
It’s called “no free lunch”…or “you can’t print your way to prosperity.”
June 4th, 2009 at 7:38 am
Plans need to be made for the upcoming change in leadership in North Korea.
After ‘Great Leader’ and “Dear Leader’ a moniker needs to get dropped on to the youngest son of Kim Jung Il that connotes respect and is right for the times. That’s why I’m offering them the idea of name the next in line for the communist dynasty should be ‘Lil’ Leader.’ Y’all down with that? Yo. Hit it.
June 4th, 2009 at 8:18 am
Bruce @9:10-
that’s funny- I hope i’m the first one on my block to order one
June 4th, 2009 at 8:43 am
Debt payments this year (see above) 170 billion? 6 :45 am
…Debt clock says we have >10 billion debt now…if we paid just 2%…that would be, er, 200 billion..
June 4th, 2009 at 8:45 am
>10 trilllllion, er.
June 4th, 2009 at 9:21 am
Is anyone else surprised that GS raised their target price for oil the next day after the sell off!? July futures have retraced almost the entire move down in light of 2.9m build-up in inventory.
June 4 (Bloomberg) — Goldman Sachs Group Inc. raised its forecast for U.S. benchmark oil by 31 percent to $85 a barrel for the end of 2009 and predicted further gains next year as demand recovers and supplies shrink.
Apparently we should listen to GS, their track record is impeccable , yea right! anyone else remember that $200 oil call?
“Goldman closed its trading recommendation to sell WTI July crude futures on Nymex, which was put in place on April 17 when the contract cost $54.66. The trade had a loss of $11.56 a barrel, according to the report. ”
http://www.bloomberg.com/apps/news?pid=20601110&sid=a1Ev4HxCKXRI
I’m about to to take my ball and go home….
June 4th, 2009 at 9:33 am
CapitalistCanuck, you read my mind! It’s also what seems to be keeping the Cdn dollar high, which is wrecking things up here.
I wish more people would hold Obama’s feet to the fire over his campaign promise to close the “Enron Loophole”. http://www.msnbc.msn.com/id/25318274/
There’s nothing to justify this current run-up in oil other than speculative stupidity and it’s going to cripple any hopes of real and sustained economic recovery if it stays this high or higher.
http://www.stopoilspeculators.com/
http://closeloophole.org/
June 4th, 2009 at 9:43 am
Last week had a holiday and yet Jobless Claims came in around expectations. Where’s the green shoot in that?
June 4th, 2009 at 9:51 am
@AmenRa
Claims dropped from 625,000 week prior to 621,000 – that’s a decline and we’re bottoming out – green shot! You couldn’t see the forest from a tree (sarcasm).
Eventually there will be no more jobs to lose and weekly claims will dip to zero, now that’s a recovery…
June 4th, 2009 at 9:56 am
@CapitalistCanuck
It seems I recall GS making a call for $25 oil back in the January ‘09 timeframe…
It seems the game is to take their position and ADD 40% to it to suck $$ in…
So when it was $140, they put a target of $200, when it was $40, they slap on a $25…I suppose it’s a good way of getting out of your position…I wish I were them…
June 4th, 2009 at 10:04 am
Dude… I got “Sachs’ed” on my DTO this morning on their revised upward oil forecast… stop at 80… filled at 77…
Good thing I kept that shit small… trading oil sucks.
June 4th, 2009 at 10:08 am
Steve,
After the Asian currency crises, LTCM, Y2K, dotcom bust, housing collapse, banking blowout, and now the government finance bubble that is forming, you think we can’t print our way to prosperity? We sure as hell can if its only for a couple of years at a time. Why do you think the strong presidential cycles exist? Money is falling from the sky, it in the mail, and gushing into anything not nailed down. We are dumping money into the hands of the most rabid spendthrifts on the planet. Despite massive oversupply, building in my area is booming, Hummers are once rumbling through traffic, and subprime car loans are back. It won’t stop until they stop it. By then those who will eventually be right, end up insolvent, pissed off and bitter, while the market craters without them.
June 4th, 2009 at 10:24 am
I-Man, I thot of you this morning… anyway, the darn dollar looks to be tiring already… but gold also looks to getting weaker.. the euro, on the other hand.. which is only natural as i contemplate a trip to venice with a friend.. all i need to do is purchase my ticket and the euro will zip back to 1.60…
June 4th, 2009 at 10:31 am
from my blog
FDIC delays program for banks to sell bad loans
http://www.bloomberg.com/apps/news?pid=20601087&sid=aNlGAME9mwqo
I am not surprised by this as I never thought the program would work as banks would not price their assets at a point where investors would buy them (low bid / high ask – no trade!). Additionally, if banks sold into this Legacy Loan Program it would not have provided capital (contrary to what the media puppet heads would tell you) unless they sold their assets for more than they were on there books at (which is unlikely). The program would have freed up some liquidity, but not increased capital. In fact, it would have more likely decreased capital as they would have had to sell at a price below the booked value and take a loss. That’s why this program was DOA although the financial media got giddy about it. It’s interesting though as this was one of the catalysts for the monster bank rally and now that the banks have been able to raise capital there is no need. Was this all in the script?
June 4th, 2009 at 10:39 am
@ Karen:
One of these days I am going to learn to take a few points when I get them… gotta break my intermediate swing trading mentality and learn to adopt more of the day trading mentality.
Trouble is… when trading small, my points look weak, but to bulk up position size would kill me with the volatility. I’m beginning to think you can only make money trading this tape intraday.
June 4th, 2009 at 10:50 am
On second thot.. looking at this weekly chart of the euro… i wouldn’t be a buyer of euros of weakness.
http://stockcharts.com/h-sc/ui?s=$XEU&p=W&yr=3&mn=0&dy=0&id=p45236901427
June 4th, 2009 at 10:51 am
I-Man,
On approx. 30 trades this year, 26 have been profitable and the losses I took wiped out majority of my gains. I upped the position size and used the volatility to earn nice gains on intra-day swings. I’ve been mostly vindicated had a I waited a little bit longer, but exiting a position is a skill in it’s own right.
To borrow a quote from Roger Lowenstein” ‘it’s like picking up nickles in front of a bulldozer’. LTCM did this and got squashed happens to most traders. My friend is up 90% buying the junkiest stocks but lost 50% of his portfolio last year again buy-n-hold. It’s more luck than skill IMO – unless you have an ‘edge’.
June 4th, 2009 at 10:53 am
and the $usd could quite potentially be done going down.. at least for now.
http://stockcharts.com/h-sc/ui?s=$usd&p=W&yr=3&mn=0&dy=0&id=p45236901427
June 4th, 2009 at 10:55 am
GS’s rational for upping their expectation on oil-
“Goldman said it was raising its end-of-year oil price forecast to $85/bbl from $72/bbl, with significant risks of a spike above $90/bbl.
In July, Goldman Sachs argued that a significant increase in Saudi Arabian, Kuwaiti and UAE production by the end of the summer was critical to avoid prices spiking above $90/bbl this autumn, as this summer’s rise in oil prices was nothing like last summer’s rise. Crude oil production during these summer months was nearly 1.0 million b/d below the level a year ago, while demand was averaging more than 1.0 million b/d higher than the level a year ago.
According to Goldman Sachs, “This sharp imbalance prevented the normal seasonal build in inventories and has even set the stage for a third quarter draw on stocks, which is a rare event typically associated with significant winter price spikes.”
June 4th, 2009 at 10:56 am
Tremendously good news on the employment front! Continuing claims actually decreased by 15k in today’s employment figures — the first time that’s happened in four months.
Let’s take a moment to analyze this development.
With total continuing claims at 6.735 million, 15k represents a mere .22% (not a typo) margin of error.
Now, this is unconfirmed (completely made up, actually), but word has it that US DoL is accounting for all 15k of those mystery individuals and apparently every one of them will be working for one of the 30 “buy and hold” companies identified by Morgan Stanley.
June 4th, 2009 at 11:03 am
karen,
I think so too, but the reflation trade is alive and well and that is trouble for the dollar. Bernake is at least paying attention with lip-service yesterday.
I think the BRIC believes they are disciplining the US by diversifying out of dollars and into commodities and other foreign currency. In the short run it’s great for them, lots of USD flooding these markets and they all feel richer. Until they go out into the open market and see that everything costs more, and demand for thier products fall as US imports drop. They must have forgot what happened in October when capital flight from EM moved straight back to the USD – they probably feel this move is vindication, but they haven’t earned our trust yet.
June 4th, 2009 at 11:17 am
Costo sales disappoints today. Where’s franklin411? Costco again?
June 4th, 2009 at 11:29 am
@ahab
I guess we don’t need to point out GS is full of BS. They took the long side of the oil trade and hoping to make back the $11.56 on their July call.
OPEC has reduced output for the year and kept it flat for the last month. Unless I’m reading into this wrong, where is this increase in production? Secondly, what has prevented the season build in inventories??? They are up at 19yr highs! Third, where the heck is the demand going to come from in the 3Q to soak up supply and drive up prices? GM and Chrysler fallout has not even been measured yet, and Bernake is wising-up to the bond/dollar/deficit issue.
June 4th, 2009 at 11:32 am
So the market has already discounted this??? This is the question.
MasterCard: Unemployment, Credit-Card Losses Yet To Peak
11:24 AM ET 6/4/09 | Dow Jones
By Aparajita Saha-Bubna
Of DOW JONES NEWSWIRES
BOSTON (Dow Jones)–The worst isn’t over for credit-card companies, said Chris McWilton, president of U.S. markets at MasterCard Inc. (MA).
“Our customers are under a significant amount of stress [with] very high levels of credit charge-offs,” said McWilton, speaking Thursday at a Keefe, Bruyette & Woods Diversified Financial Services Conference in New York. His comments were monitored via the Internet. “Unemployment hasn’t peaked. It still has ways to go. Credit losses aren’t all behind our customers.”
The U.S. unemployment rate was 8.9% in April, its highest level since September 1983. Economists predict the joblessness rate will hit 10% or higher.
Unlike credit card-issuers, such as JPMorgan Chase & Co. (JPM), American Express Co. (AXP), Citigroup Inc. (C) and Bank of America Corp. (BAC), MasterCard and larger rival Visa Inc. (V) don’t lend to consumers. This makes the two companies less vulnerable to credit woes stemming from delinquencies and souring credit-card loans. MasterCard and Visa make money from the fees they charge banks to process card payments.
To cope with rising delinquencies on credit-card loans, issuers of plastic are scaling back marketing and are reducing efforts to acquire new users, said McWilton. Instead, companies are intensifying efforts to work through credit losses and to better manage their card-loan portfolios, he said.
McWilton also addressed the impact of the sweeping credit-card legislation passed last month that restricts the ability of companies to raise borrowers’ interest rates and charge many of the card fees.
“Like any legislation passed under anger or popular sentiment, it went too far,” said McWilton.
The impact of this legislation on the U.S. card-payments business “cannot be underestimated,” he said. “It will radically impact profit pools [of credit-card issuers] at a time when they are dealing with staggering credit losses.”
But issuers of plastic will find ways to recoup lost revenue, he added. For instance, companies could start charging a fee for paper statements, McWilton said.
On the upside, McWilton said signs of an economic recovery were emerging. Retail-spending trends, while still sluggish, indicate that the sharp declines seen in January and February are abating.
“The U.S. is coming out of difficult times,” said McWilton.
-By Aparajita Saha-Bubna, Dow Jones Newswires; 617-654-6729; aparajita.saha-bubna@dowjones.com
June 4th, 2009 at 11:37 am
Good to see someone in the finance industry speaking honestly for a change…
June 4th, 2009 at 11:46 am
Canuck-
no doubt- I posted GS’s rational- doesn’t mean I don’t think they aren’t trying to pump up the price of oil-
worked once- why not again?- next gig NAZ 5000
June 4th, 2009 at 12:28 pm
Nice discussion, and Nice chart on the USD (@Karen), I have come close to buying the UUP the last few days but keep sitting on my hands thinking there is one more up/down sequence before a rally.
Might initiate 1/3 position in it today.
June 4th, 2009 at 1:07 pm
More green shoots…FREE ADMISSION (as a “thank you”)?…More like, we can’t find anyone to pay for a ticket…
—
MINNEAPOLIS — The Champions Tour will offer free admission for the first time at the 3M Championship tournament in Minnesota.
The 3M Championship announced the plan for the general public on Thursday. The TPC Twin Cities course in the Minneapolis suburb of Blaine is the annual site of the event, held July 10-12 this year.
Tournament director Hollis Cavner says the offer of free admission and parking is a thank-you to fans for the strong support during the past two decades.
Players on the 50-and-over tour voted the 3M Championship as their favorite event last year.
Minnesota also will host the PGA Championship this summer.
June 4th, 2009 at 1:11 pm
If the Saudis want a higher oil price, it’s going to happen. From the looks of things, the House of Saud wants the market to go up. They have absolute control over the price at this point.
June 4th, 2009 at 1:32 pm
karen
Is that you talking fundamentals?
I don’t know how to react!
But there will be a day when the fundamentals do matter again, and since they don’t right now that day will be jarring, eh?
June 4th, 2009 at 1:36 pm
Onlooker, here’s another… you gotta wonder if the market has priced this in.. buying some faz today just in case someone looks under the rug…
Purchase Acctg Rule Leaves Bank Investors In Dark On Loans
1:23 PM ET 6/4/09 | Dow Jones
By Marshall Eckblad
Of DOW JONES NEWSWIRES
NEW YORK–(Dow Jones)–Wells Fargo & Co. (WFC) won’t say whether $94 billion in troubled loans it purchased from Wachovia Corp. is faring better or worse than expected.
According to prevailing accounting rules, the San Francisco bank doesn’t have to.
Using a once-obscure “purchase accounting” rule, four of the nation’s largest banks bought $291 billion in delinquent loans from failing financial firms over the last year. They assumed some additional risk in the process.
But investors who’d like to know how those purchases are faring have no choice but to rely on management to tell them. Current accounting rules, it turns out, don’t require banks to disclose such information.
Well Fargo confirmed it hasn’t disclosed whether the loans are performing in line with expectations, and didn’t comment further.
At the heart of the issue is a bank accounting rule known as Statement of Position 03-3, which describes how banks must handle troubled loans they purchase from other lenders. The rule was enacted in 2003, when troubled loans were a rarity.
Now, the rule sits at the center of the banking industry’s evolution. One-time titans of lending, including Countrywide Financial Corp., Wachovia Corp. and Washington Mutual Corp., were crushed last year under soaring loan losses tied to the housing market’s depression.
Those firms fell into stronger competitors’ arms, like those of Bank of America Corp. (BAC), Wells Fargo, JPMorgan Chase & Co. (JPM) and PNC Financial Services Group Inc. (PNC).
The rule, and its lack of disclosure requirements, has become a flammable topic for bankers and consultants.
The provision could significantly boost profits at banks that received government support. And yet, most of the loans are also still vulnerable to further sharp real-estate declines.
Some consultants said the so-called Big Four accounting firms, which audit large banks, do not yet agree entirely on how this purchase accounting rule works. “This rule,” said one consultant, “is the bane of everyone’s existence.”
Moreover, banks may report the condition of these loans far differently than traditional loans they issue and hold.
Under the rule, firms purchased bad debt not at face value, but at values that account for the losses the buying firms expected the troubled loans to eventually generate.
Banks must also forecast future cash flows they expect from the loans, which could add billions to banks’ bottom lines in the coming years, depending on how the loans fare.
JPMorgan added $1.2 billion to first-quarter earnings from about $118 billion in bad WaMu loans it purchased in September. It expects to gross another $29 billion over many quarters.
PNC expects $2.9 billion in future income from $19 billion in souring National City Corp. loans.
Firms must analyze the loans regularly to verify that their forecasts of “probable credit losses” are holding up, says Frank Gaetano, a director in PricewaterhouseCoopers’ financial instruments group.
The rub for investors: How banks must report those findings is far from clear. If the loans worsen beyond expectations, banks would likely have to set aside cash reserves, but wouldn’t have to disclose the reserves are for the impaired loans.
“There is limited guidance on how one should treat subsequent re-evaluations of these portfolios,” said Jerry Arcy, managing director at Duff & Phelps Corp.
Bank of America’s disclosures are perhaps the most detailed. The Charlotte bank voluntarily said it has set aside $1.6 billion to offset extra future losses from $54.4 billion in failing Countrywide loans.
The bank’s disclosure also illustrates the slippery nature of purchase accounting: Bank of America earned $911 million in accretable yield from the Countrywide loans in the first quarter, but set aside $850 million to offset future expected losses from the same loan pool.
Wells Fargo’s disclosures, by contrast, are less transparent.
Of the $94 billion in troubled Wachovia loans, Wells Fargo said $20 billion are so-called Pick-A-Pay mortgages that are nonperforming – or in contractual default – but classified as current because of SOP 03-3.
Pick-A-Pays, which can balloon a borrower’s balance, are relics of the bygone credit boom. The loans contributed to the demise of Wachovia, Countrywide, Washington Mutual and IndyMac, which marked two of the largest bank failures in U.S. history.
Rule makers are expected to review the disclosure requirements later this year.
- By Marshall Eckblad, Dow Jones Newswires; 201-938-4306; marshall.eckblad@dowjones.com
June 4th, 2009 at 1:47 pm
@IMan
I got stopped out of oil for a 5% loss. I got “Sachs’ed”
@karen
The market doesn’t have to price it in, it’s right in there in the article black&white
“According to prevailing accounting rules, the San Francisco bank doesn’t have to. “
June 4th, 2009 at 1:51 pm
Since when did Kass become a pusher?
Bigger Is Better: Bank Stocks Could “Double or Triple” from Here, Says Doug Kass
http://finance.yahoo.com/tech-ticker/article/258950/Bigger-Is-Better-Bank-Stocks-Could-%22Double-or-Triple%22-from-Here-Says-Doug-Kass
Karen you still sure about that bet? If they don’t have to report losses and the Gov will not allow them to fail, why not triple? Geez, I should have saw that months ago, but I was too busy looking at fundamentals. :p
June 4th, 2009 at 2:35 pm
So XLF is down half a buck from it’s May 8 high when Kass said, “Party’s over for Financials”
http://www.thestreet.com/story/10498431/1/kass-partys-over-for-financials.html
Now they’re a “double or triple” just 4 weeks later. Must have change his mind.
June 4th, 2009 at 2:36 pm
Friggen REITs just keep levitating. Short squeeze still? Surely these things didn’t get beaten down so far that they’re a buy right here with the devastation to CRE still to come.
June 4th, 2009 at 3:17 pm
guys, i think crude is just in squeeze mode… look at $gaso chart … will check this evening to see if it continued down… this was one overdone run… jmo, of course.
next week could bring a sea change for the dollar.. attempting to look ahead and not get blindsided…
June 4th, 2009 at 3:39 pm
It’s quiet ’round here today….
June 4th, 2009 at 3:48 pm
Karen,
I think the move may happens as the 10yr hits the magical 4%. Last week when the 10yr jumped up around 3.7% the market sold off – this week it hardly shrugged. Given the size of the rally, drop in the dollar, plus all the Treasury issuance, it’s possible that rates just need to go higher and the market anticipates this which supports the reflation thesis. I’m thinking the dollar could actually go lower if the “market’ improves / remains stable as investors diversify. BRIC thinks they have the US by the balls – we’ll see who holds the cards in the next crises.
June 4th, 2009 at 3:50 pm
I’m still in the deflation camp, long dollar short everything. It’s been said many times that you cannot print yourself to prosperity. Hyper-inflation eventually lends itself to collapse.
June 4th, 2009 at 3:56 pm
Well, as you know I’m firmly in the reflation camp.. that’s not to say i won’t play it either way, because the markets don’t run in a straight line. today looked very inflationary to me… south american style.. with the exceptions being RE, CRE, and Wages.. tomorrow and monday will provide a two more pieces to the puzzle.
June 4th, 2009 at 4:13 pm
I buy the reflation argument but not in the short term. I think we deal with the inflation scenario 3-5 years out when the market does start to improve and the money runs back into speculative things err commodities – but then again, we are seeing it now! I just happen to believe we are too early to the party and there is lots of unwinding left to do.
June 4th, 2009 at 4:27 pm
Remembering that this is still an “Open Thread.” Don’t read this if you have hang-ups about flying. It’s a really interesting armchair reconstruction of what might have happened to AF447 over the Atlantic.
http://wattsupwiththat.com/2009/06/03/air-france-flight-447-a-detailed-meteorological-analysis/
And for those of you with physics degrees, remember that there’s still time to use your skillz for good instead of evil.
June 5th, 2009 at 12:21 am
Tranzor, I do have hang ups about flying which is why that reconstruction was of particular interest and fascination. Thank you very much for posting the link…
June 26th, 2009 at 5:50 am
To exploit on herding created by technical traders (especially trend followers) in the markets, it would be great to know estimations of the fractions of technical vs. fundamental trading in the markets. Based on this, one would apply technical trend following methods only, when herding creates a self-fullfilling prophecy of the trend following approach – as indicated by an strongly increasing amount of technical trend followers in the markets. I’ve published some recent research results that were presented at the Conference on Computing in Economics and Finance 2008 on this issue.
The site estimates and publishes daily fractions of technical traders vs. fundamentalists in various capital markets. This fits very nicely in the bigpicture of the markets. I’m eagerly looking forward to your comments on some further application scenarios..