Its the weekend, and you know what that means: FDIC closing another failed bank.
We are on pace to beat last year’s total by 10%.
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Chart courtesy of The Chart Store
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth." —Kurt Richebacher
Knowing that the vote over the weekend in Greece was really a referendum on Euro membership, a majority of the Greek Parliament said yes to staying. European Finance Ministers meet again on Wednesday to solidify the 2nd bailout package for Greece at the same time hopefully a deal is consummated between Greece and its creditors this week. The Greek 14.5b euro bond that matures on March 20th is up by 2 pts. The optimism that all will be completed and contained AGAIN to Greece has yields lower in Portugal, Spain and Italy. The iTraxx Financial Index is also narrower by...
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April 11th, 2010 at 8:23 pm
Uh…?
The 1 small/medium bank closed this past week can only be called a POSITIVE indictor. Since we had the good friday holiday, it will be only 1 bank closed in the first-half of April.
Total “estimated costs to FDIC” in 2010 are roughly equal to the largest SINGLE bank failure cost in 2009 (about $4.9B). Cost trends and bank sizes have moved dramatically smaller… with about 1/2 the banks closed in 2010 having “estimated costs” of less than $100M and zero closures estimated at more than $1B in costs.
But agree 100% this is interesting to watch and agree that March was a bump in the likely recovery trend. A commenter here at BP pointed me to this fantastic website:
http://www.portalseven.com
April 11th, 2010 at 8:57 pm
You gotta love those big-business, Tea Partin’, Tiger-Wood’s-lovin’, country clubbers cheering their porn-star-nailing hero on…
…While Phil Mickelson a real American sports hero, who’s wife was… well, you don’t need to know, all you need to know it Tiger baby, Tiger’s back.
Go GOP. Go Tiger. Watch those tax-cut-needing rich folks, those Augusta members cheering Tiger on. That’s your GOP America.
Hey, Chairman Steele? Get any table dances this weekend?
April 11th, 2010 at 9:18 pm
cognos,
Didn’t go so well with your expectation for March regarding the number of bank failures, did it? Let’s see how it will look like during the remainder of the year and what’s becoming of the V-shaped economic recovery and the V-shaped return of earnings and profit margins to the levels of the pre-recession bubble years, which you expect and on which all your stock market predictions are based.
http://www.consumerindexes.com/
rc
April 11th, 2010 at 9:33 pm
Cognos took the words right out of my mouth, except mine was to be sarcastic. The dawn of a new day. All that crap on all the books of the nations banks will heal itself (don’t know about the Maiden Lane asset’s, though) and we can give tax cuts to the rich again since we won’t have to worry about the FDIC needing a half trillion $’s from the Treasury.
April 11th, 2010 at 9:36 pm
Glad to see Mickelson won; he had two built in excuses to loose and I heard somewhere he’s been skimping on the practice rounds to be with his wife.
I’m a lefty and I can’t conceive of how to swing a club left handed.
April 11th, 2010 at 9:43 pm
Eh? Does it matter?
Small banks are failing and…
► Hasn’t stopped the stock market from running up 75%.
► Job market is improving.
► American productivity is through the roof.
► People are still shopping and the retail ETFs move higher nearly every day.
► The banks fail, the FDIC catches them and life goes on. Nobody is responsible, nobody is to blame and the bank managers are shuffled to other banking jobs like Catholic priests.
Jaded? Yes.
It’s the Golden Age of Irresponsibility.
/meh
April 11th, 2010 at 9:57 pm
RC –
Yep, I was surprised the FDIC “failed” a bunch of banks in mid and late March. Certainly a bump. Looking at the “total cost” numbers, 2010 still looks to be tracking enormously better than 2009. And I suspect the downtrend in failures and costs accelerates.
On the whole my read of the market and banking had a very strong Q1 — I’ve been pitching “credit cycle turns” and “take risk in financials”… even regional banks — RF, ZION, HBAN, and the big banks C, WFC, BAC. Performance is good.
Recovery remains the clear trade. (Although a pullback from 1220 to 1150 would be perfect with the recent pattern… if so, buy the dip).
April 11th, 2010 at 10:07 pm
Cognos: “Cost trends and bank sizes have moved dramatically smaller… with about 1/2 the banks closed in 2010 having “estimated costs” of less than $100M and zero closures estimated at more than $1B in costs.”
http://online.wsj.com/article/SB10001424052748703734504575125534112857858.html
MARCH 17, 2010
” NEW YORK—The Federal Deposit Insurance Corp. is seeking buyers for three banks in Puerto Rico, a small island with big banking problems.
According to two people familiar with the matter, the agency has hired an investment bank to try to find capital or outright purchasers for W Holding Co. Inc., R&G Financial Corp. and Eurobancshares Inc., which have almost $21 billion in combined assets.
The three banks hold almost 30% of Puerto Rico’s $62 billion of deposits, and their bank subsidiaries are operating under enhanced FDIC scrutiny. “
April 11th, 2010 at 10:10 pm
Jack Damn Says:
“► The banks fail, the FDIC catches them and life goes on. Nobody is responsible, nobody is to blame and the bank managers are shuffled to other banking jobs like Catholic priests.”
LOL
April 11th, 2010 at 11:58 pm
The Peurto Rico info conjures up all kinds of possibilities of the “dark markets” and how much off-shore risk could come back to haunt mainland banks.
I have suspicions that the TBTFs and big hedge funds have been going as fast as they can to move operations off-shore for various reasons. One of which would be to avoid regulation. But that’s merely reasonably sounding speculation.
Does anybody have any info or sense of how much of this is going on?
April 11th, 2010 at 11:58 pm
cognos,
I’m not talking about single banks, I am talking about the big picture you are painting here, about how things were just going to go back how they had been before the GFC as if nothing had happened, i.e., back to the historically abnormal conditions of the last decade. And why should I care about Q1 2010-earnings? The second half of the year and early 2011 will be much more interesting regarding the supposedly V-shaped recovery that you expect. I think, an economic growth close to Zero or even another economic contraction later this year or early 2011 are more likely than what you expect. And if this materializes and the higher the stock market goes from here, the larger the corrective move will be once perception and reality aren’t reconcilable anymore just by wishful thinking and rationalizations why things won’t revert back to the long term historical normal, why it was different this time.
So, don’t tell me “to buy the dips”. You continue to buy your dips, and I continue to do my thing, whatever this is.
rc
April 12th, 2010 at 12:37 am
I don’t know what the heck cognos is talking about but Vendetta took the words right out of my mouth.
April 12th, 2010 at 12:48 am
@Mike in NOLA, Yes, the whole Tax Cuts for the rich mantra seems out of phase, almost like an alternate reality sort of phase shift. The republicans keep talking about it, like if they keep saying it people will want it. It’s sort of working, but eventually that camels back has to break. If the rich were smart, which has in the last few years been cast in doubt, They would volunteer for a modest tax increase.
I think they should revive that old Sci Fi show, “Sliders.”
I think Remmy would have a few tears to shed about the state of affairs in our world.
April 12th, 2010 at 8:10 am
RC -
But those fantisizing about a “double dip” were saying the same things 9 month ago… “Oh, its not about this quarter… its 6-9 months out”. Funny how the double dip is ALWAYS 6-9 months out?
Another funny thing about most of you perma-bears, is that you think there is any “fantasy” to current prices. There is always event risk, but most of you are making 2006 arguments (housing, banking, debt) all of which have played out. There is NO fantasy in $65 earnings TTM, $80 earnings FTM, and $100/shr on SPX in earnings in 2011.
At this point in the cycle, estimates remain more likely to get beat and the simple truth is “earnings drive stocks”. It really is that simple. The time for being a bear is over… likely for 3-5-10 years.
April 12th, 2010 at 11:46 am
cognos,
“But those fantisizing about a “double dip” were saying the same things 9 month ago… “Oh, its not about this quarter… its 6-9 months out”. Funny how the double dip is ALWAYS 6-9 months out?”
Ad hominem straw man. You are talking with me, not with the alleged “those”. So unless you show that I said such a thing, what are you trying to show here? Are you trying to paint what I have to say as faulty by association? What exactly do you believe to refute here?
Besides this, I remember you claimed a few weeks ago, “those” ones predicted the “double dip” to be three month out back then. Now, it allegedly was six to nine months. You make things up as they are most convenient for you.
“There is always event risk, but most of you are making 2006 arguments (housing, banking, debt) all of which have played out.”
OK. You claim that housing problems are basically finished, banking problems are basically finished, and deleveraging of the economy has finished as well. And on what data is this assertion based, that all this has already played out, which would prove what you claim? Or is it just based on strong believe and gut feeling?
Are you claiming, e.g., the predictions about millions of foreclosures still coming are bogus? And you can prove this? Just because the banks have been allowed to hide their bad loans through marking them to fantasy, it doesn’t mean those loans aren’t there and won’t be a drag on the banking system and the economy for years to come (Japan says “Hello”).
“There is NO fantasy in $65 earnings TTM, $80 earnings FTM, and $100/shr on SPX in earnings in 2011.”
I guess just by making the opposite claim you prove it, then.
“At this point in the cycle, estimates remain more likely to get beat and the simple truth is “earnings drive stocks”.”
And what exactly makes you expect $100/shr “operating earnings” in 2011, which imply historically abnormal profit margins, even given the economic consensus forecast for GDP and sales growth?
http://www.hussmanfunds.com/rsi/valuationforwardearnings.htm
All I see, your predictions whether regarding earning growth or stock market development are based on rationalizations why historical normals don’t matter anymore nowadays, whether it’s earnings, P/E-ratios, or dividend yield, or whatever metric one takes. It’s all different now according to you. The valid normal is how it was during the last decade (with all its excesses), according to you.
“The time for being a bear is over… likely for 3-5-10 years.”
We will see who is right. Regarding the economy, leading housing data have been saying something else in recent months again. New home sales have dipped to a record low last month. Never before, since data records exist (i.e., early 60ies), new home sales had dipped below the low of a recession after the recession had ended, without the economy going into a new recession. Perhaps, this time it’s a statistical artifact, an outlier. Consumer metric data show currently another contraction of the demand side as well, though.
A disclaimer: What I say is based on the assumption that there won’t be another massive stimulus round by the government. If there is another one it will change the game significantly.
I also have question for you, since you are such an investment profi, as you claim. What is it with the “forward looking operating earnings”? A $100/shr in 2011? What information does this number contain for you with respect to the cash flow you will get from your investments?
rc
April 12th, 2010 at 1:36 pm
RC says –
“I also have question for you, since you are such an investment profi, as you claim. What is it with the “forward looking operating earnings”? A $100/shr in 2011? What information does this number contain for you with respect to the cash flow you will get from your investments?”
So the 2 main numbers that matter for SPX are TTM earnings (this IS the value-add) and FTM (this is the EXPECTED value-add over the next 12 months). The forward number is really the key… because markets discount the future. Its ALL about the future!
Its interesting to quote the 2011 number, because we are moving through 2010 right now. Very quickly… this year becomes “trailing” and 2011 becomes “forward”. If thats with 30% EPS growth, then the market tends to move up 30% AND the multiple potentially expands… moving the market up more.
Taking a step back, the business cycle operates in a broad 3-5-7 year process… whereby after a long period of prosperity, fear is low, some imbalances are built (housing)… this gets hit by a spark (Lehman/AIG) causing a swift dramatic slow-down in the economy and write down in earnings expectations.
This scenario has been played out many times — 2000-02, 1991-93, 1978-82, etc.
Once it plays out we tend to enter another 3-5-7 year strong growth cycle. There are many reasons for this including — fed policy, pent-up demand, self-reinforcing optimism, increased productivity = profits, etc. So IF we are moving through this typical phase… then forward earnings estimates are TOO CONSERVATIVE. Companies and analysts have been shaken by the recession and are wary of it happening again. Guidance is low. So we go through a few years where expectations get beat.
This was the case in 2009 (estimates were for $40-50… actual EPS were $60+) and the pattern looks set to continue. Self-reinforcing cycle (classic Soros).
April 12th, 2010 at 2:53 pm
cognos,
“If thats with 30% EPS growth, then the market tends to move up 30% AND the multiple potentially expands… moving the market up more.”
So, if I understand this correctly, you say, if we have 30% EPS growth and the market moves up 30%, the market is still fairly valued, but not really overvalued. But, remembering you argued the market was undervalued in March 2009 and should be higher because it moved down with the earnings contraction in 2008/2009. Something doesn’t add up here, because this would mean share price increases in the stock market would move ahead of earning increases in time without the market was getting overvalued, instead of that we would have to expect a reverting back to the long-term mean at some point (e.g. a reversal back to a P/E-ratio of about 14 to 16 based on reported earnings, or about 10 to 12 based on “operating earnings”). Then again, isn’t this what you have been saying all along, for instance with respect to the price to ten-year-reported earnings ratio or the dividend yield?
Anyway, you haven’t really answered my question. What information do the $100/shr “operating earnings” contain with respect to the cash flow you get out from your investment? You tell me, companies will have great “operating earnings” in 2011. What does this tell me what return I will probably get and in what time frame, if I invest my nest egg for my retirement in the stock market following your advice “to buy the dips” now?
rc
April 12th, 2010 at 6:24 pm
[...] As distressed banks nationwide seek capital investments to regain their footing, federal regulators must be wary of those who wish to take controlling interests in financial institutions only to further the same sketchy lending practices that led to the current wave of bank failures. [...]
April 12th, 2010 at 8:20 pm
RC -
I tried to explain the relevance of both past earnings (they HAVE been earned) and forward earnings (the FUTURE matters the most). What about this dont you understand?
Stock prices discount the expected future earnings stream. If you dont understand what I mean by that go read some books by main-stream good investment professionals (Buffet, Lynch, Ken Fisher, etc.) Nobody fringe please — they just usually lose people money.
April 12th, 2010 at 9:31 pm
cognos,
“I tried to explain the relevance of both past earnings (they HAVE been earned) and forward earnings (the FUTURE matters the most). What about this dont you understand?”
I didn’t ask you about the difference between past and forward earnings, I asked you about the information that I gain as individual investors from “operating earnings” (for instance in comparison to reported earnings according to GAAP – Do you even know the difference between “operating earnings” and GAAP as reported earnings?) about my future cash flow. You know, that $100/shr “operating earnings” is supposed to mean that “the future” looks GREAAAAT, is too unspecific for me. How much of these “operating earnings” would be real cash flow for me that I get from my investment then? Do you know anything about this?
rc
April 12th, 2010 at 10:16 pm
RC –
Thats easy. Operating earnings are a much BETTER proxy for cash flow. They remove non-cash charges like goodwill expense and asset writedowns, and reported taxes (most companies pay far less in cash taxes). The reason most people use Op EPS is that is relates much closer to cash flow.
Goodwill and the main asset writedowns are a 1-way item that actual OFTEN gets marked way up in every single buyout… but this positive “write-up” never gets run through the EPS line. So this is pretty consistent.
But actually… I dont think most of my EPS #s are “operating”, I think they are “net”. And as I said, these numbers are now nearly identical. The two diverge most in the crisis (largest intangible asset writedowns). i think the divergence was $10/shr in the Q4 2008 and Q1 2009 Q. In the most recent quarter, I think it was $1-2.
April 12th, 2010 at 10:47 pm
Tiger Woods, Too Big to Fail.
April 13th, 2010 at 1:40 am
cognos,
“Thats easy. Operating earnings are a much BETTER proxy for cash flow. They remove non-cash charges like goodwill expense and asset writedowns, and reported taxes (most companies pay far less in cash taxes). The reason most people use Op EPS is that is relates much closer to cash flow.”
For the investors? This is very doubtful. Logically, it doesn’t make sense. The cash flow an investor receives is composed of dividend payments and cash flow from price appreciation of the shares she/he owns, when and if this appreciation is realized. Of course, appreciation could also be negative, but if the company adds value to its capital stock it will be positive in the long run, unless the price appreciation is all diluted away by issuance of new shares. The sum of both is usually lower than as reported earnings and as reported earnings are lower than “operating earnings” on average. So how could “operating earnings” be a better approximation for the investor’s cash return?
The headline news usually report “operating earnings” and so-called “analysts” base their estimates on “operating earnings”. Alcoa’s report today is a good example how “operating earnings” vs. as reported earnings look like:
(http://money.cnn.com/2010/04/12/news/companies/alcoa_earnings/index.htm)
So Alcoa lost 19 cents a share in Q1 2010 based on GAAP, but they supposedly have made a gain of 10 cents a share “operating earnings”. The charges that are excluded from “operating earnings” are real cash the investors will never see, because it’s gone. The only charges, about which one could say they are rightfully excluded from “expenses” are tax payments, since taxes aren’t really expenses. They are a part of the whole profit the company makes, which has to be shared between the company, investors, bond holders, and the treasury.
“Operating earnings” create a deceitful illusion of higher earnings for the investors. Of course, companies love “operating earnings”, since this deceit helps to boost their market value due to naive investors who fall for it. And you, like everyone who touts those “operating earnings” take part in this scheme.
“But actually… I dont think most of my EPS #s are “operating”, I think they are “net”.”
Where do you get your numbers from? You have to get those numbers from somewhere. It’s either “operating earnings” or as reported earnings according to GAAP. What other numbers do you think you have? If you rely on Bloomberg, I think they don’t even report the GAAP earnings. At least not here (maybe somewhere else):
http://www.bloomberg.com/apps/ecal
Those are “operating earnings”, obviously.
“And as I said, these numbers are now nearly identical.”
About $15 vs. $17 for as reported vs. “operating earnings”, respectively, for Q4 2009. That is, former were almost 12% lower than latter. And for my example Alcoa, they are certainly not “almost identical”. -$0.19 vs. $0.10.
“The two diverge most in the crisis (largest intangible asset writedowns). ”
Not necessarily in absolute terms, but in relative terms, this is correct. The divergence is largest during recessions and smallest during cycle peaks.
As I already said. On average from Q4 1988 to Q4 2009, the ratio between GAAP earnings and “operating earnings” has been 0.84. This is based on 12 months trailing earnings for every quarter.
“i think the divergence was $10/shr in the Q4 2008 and Q1 2009 Q.”
Averaged over both quarters not so far away (about $13).
rc