This view from the City of London is interesting, given the devastation that permeates their own surrounding landscape. The Anglo-Americans seem to be throwing down the gauntlet. What now, Monsieur Trichet?
The European banking system is certainly a mess, and if there was a case to be made for pursuing the ‘Swedish option’ of nationalizing the banks in a crisis of their own making this is it.
One sentence in this was especially eye-catching.
"We are nearing the point where the IMF may have to print money for the world, using arcane powers to issue Special Drawing Rights."
Problem -> Reaction -> Solution.
There always seem to be some arcane powers ready to solve the unexpected crisis.
If mishandled by the world policy establishment, this debacle is big enough to shatter the fragile banking systems of Western Europe and set off round two of our financial Götterdämmerung.
Austria’s finance minister Josef Pröll made frantic efforts last week to put together a €150bn rescue for the ex-Soviet bloc. Well he might. His banks have lent €230bn to the region, equal to 70pc of Austria’s GDP.
"A failure rate of 10pc would lead to the collapse of the Austrian financial sector," reported Der Standard in Vienna. Unfortunately, that is about to happen.
The European Bank for Reconstruction and Development (EBRD) says bad debts will top 10pc and may reach 20pc. The Vienna press said Bank Austria and its Italian owner Unicredit face a "monetary
Bill Moyers has an interview with former IMF Chief Economist and MIT professor Simon Johnson that puts forth the notion that there is a small group of financial oligarchs essentially holding the country hostage.
Simon Johnson’s premise is that the big Wall Street banks represent an oligarchy that is exerting undue influence and control on our government and the economy. They are turning this crisis to their advantage, and circumventing the democratic process.
What we are seeing looks to Simon Johnson like a financial coup d’etat.
Now is the time to break up the big money center banks. Now is the time to reinstate Glass-Steagall. We must demand the reforms for which we elected the Obama Administration.
Watch this interview. Think about it. Let other people know. Write your congressmen.
And be prepared to act on a larger scale in a peaceful way to get the point across that we value our liberty and we will stand for justice. We are not optimistic that the government will do the right thing without more prodding and significant support from the public.
"I think I’m signaling something a little bit shocking to Americans, and to myself, actually. Which is the situation we find ourselves in at this moment, this week, is very strongly reminiscent of the situations we’ve seen many times in other places.
But they’re places we don’t like to think of ourselves as being similar to. They’re emerging markets. It’s Russia or Indonesia or a Thailand type situation, or Korea. That’s not comfortable. America is different. America is special. America is rich. And, yet, we’ve somehow find ourselves in the grip of the same sort of crisis and the same sort of oligarchs…
But, exactly what you said, it’s a small group with a lot of power. A lot of wealth. They don’t necessarily – they’re not necessarily always the names, the household names that spring to mind, in this kind of context. But they are the people who could pull the strings. Who have the influence. Who call the shots…
…the signs that I see this week, the body language, the
The financials are still 10.23% of the S&P as of Friday but they started the week at 11.25% and knocked a full point off the markets in just 5 days as they fell 10% for the week. Healthcare (XLV, 16%), which we’ve been playing for a few weeks now, actually outperformed the indexes last week as has technology (XLK, 21%), which we play through the Qs and has quietly crept up to become the new leaser of the S&P by a pretty good gap. THIS, people, is the rotation we have been playing for. I did not sugar-coat it – I said it would be painful but it is what we wanted – the end of the endless moving about of shiny bits of metal and worthless pieces of paper that siphoned money away from the many to the very, very few and left us with nothing but a bubble economy, sucking jobs and capital out of real industries that we are supposed to build an economy on.
This is not the end of capitalism – this IS capitalism. Survival of the fittest, of the companies that actually provide goods and services people want, triumphing over the middlemen who seek to tack on commissions and fees to every possible step in the transactions which they add nothing to. Of course a fee is deserved for going to the great effort of taking a company public, but should it really be 10% of the offering? Commodities aren’t supposed…
The FDIC has a report called the Failed Bank List. Here is a partial listing that shows the most recent 20 bank failures.
click on chart for sharper image
"Fish Gone Bad" sent me the following chart showing cumulative bank failures over time.
While a logarithmic chart might be better, and perhaps will be necessary in a short period of time, the chart does depict what is happening.
Looking at the period of no bank failures in the above chart reminded me of something.
$VIX: The Calm Before The Storm
click on chart for sharper image
While not calling for the $VIX to do anything in particular other than not head back below 10 for years, it is a near certainty that bank failures are going to soar. There are easily hundreds banks that are insolvent right now. The only question is how long the FDIC continues to hide that fact.
Barry Ritholtz has a post up spelling out a simple argument for fair value for the S&P 500 being at 440. There has been a little bit of chatter about this in one or two other places as well.
Fair value is not a simple concept. The math is simple; whatever number you want to use for earnings and then whatever multiple you think is correct.
Where it gets a little more complicated is that fair value doesn’t usually end coinciding with any sort of stopping point in either direction nor is their any sort of indication of how long stocks might stay above or below fair value.
If Barry is right there is nothing to say that stocks go anywhere near that low or conversely that a massive decline would somehow stop at 440. Maybe I have this wrong but I can’t recall a time where a fair value number has been a primary factor for the market. There is utility in knowing whether the market is relatively expensive or inexpensive. Generically speaking if the market is expensive the risk of a decline might be a little higher.
The current state of the market however is not generic. The market has had a massive decline and has been stumbling along the bottom for several months now. Based on the market action thus far the days of massive declines could be behind us until the next cycle. Now factor in the fundamentals and the never ending bad news and uncertainty and going down a lot more is certainly possible.
I continue to believe the low is in, give or take a few percent, that there will be more ups and downs but no violation to the downside and I also think we still have a massive bear market rally in here soon as well. I’ve been whistling this tune for a while as some may know. But since I first piped up on this idea the news has continued to get worse yet the market is churning around the same range as opposed to following the news lower. This
This post first ran on January 29th on my mortgage blog. It got some traction there and a few mentions in the press so, lazy bastard that I am, I’m reproducing it here in a slightly improved form that corrects my own math error.
Take a look at this chart that someone sent to me a couple days ago. I’m making it big so you can see as much detail as possible. Have a look and then come back, okay?
Pretty scary, eh? It’s a chart showing the deterioration of major bank market caps since 2007. Prepared by someone at JP Morgan based on data from Bloomberg, this chart flashed across Wall Street and the financial world a few days ago, filling thousands of e-mail in boxes. Putting a face on the current banking crisis it really brought home to many people on Wall Street the critical position the financial industry finds itself in.
Too bad the chart is wrong.
It’s a simple error, really. The bubbles are two-dimensional so they imply that the way to see change is by comparing AREAS of the bubbles. But if you look at the numbers themselves you can see that’s not the case…
And who was that someone? Me! A nobody. Or at least someone unimportant enough not to be asking for a Federal bailout….
"The UAW stopped negotiations with GM last night, a person familiar with the talks said. A delay in the talks could risk the automakers missing a Feb. 17 deadline to show progress in a government-ordered plan to cut labor and debt costs. It’s not clear what that would mean."
Oh I disagree – the meaning of that is crystal-clear.
I don’t know what Gettlefinger and his pals over at the UAW think they’re going to accomplish with this. Let me point out a few things that the employees and union members that Gettlefinger allegedly works for don’t seem to understand:
If the company and thus its pension fund "booms", the PBGC [Pension Benefit Guaranty Corporation] will be forced to step in and take it over. The PBGC has maximum benefits that it pays out to retirees. If you were getting more than that previously, too bad. Have a banana.
The VEBA [Voluntary Employee Beneficiary Association], if unable to be funded, is unable to be funded. Pension funding under the PBGC does not include "all expenses paid" health insurance. Welcome to Medicare my friends, when you are old enough to qualify. Until then, good luck.
The guarantees are much more limited than your Pension was, especially if you’re not already retired. The cap is based on the law, not your contributions to date, and is invoked at the time the plan goes "boom". If you’re under 45 you will get exactly nothing, with the MAXIMUM amount set by law, disregarding (for the most part) your contributions to the system.
Now I’m not at all certain that Gettlefinger’s "members" are aware of this, but they damn well ought to be. And if you think that the government won’t force conversion to a Chapter 11 with the government providing DIP financing, you’re nuts. They both can and likely will with catastrophic consequences, especially for employees with significant tenure who currently are on the job.
The problem is really quite simple – there’s not a prayer in hell that the automakers can go back to Congress
There’s no question that we’re talking big numbers — with plenty of zeros — when it comes to efforts to "rescue" the U.S. economy. But it didn’t take the latest wave of profligacy to prove that Washington has a serious spending problem. That fact was obvious to anyone who was familiar with the all-in cost of the government’s retirement safety net. In "Federal Obligations Exceed World GDP," WorldNetDaily’s Jerome R. Corsi covers the issue in frightening detail.
Does $65.5 trillion terrify anyone yet?
As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.
The total U.S. obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the U.S. government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.
The real 2008 federal budget deficit was $5.1 trillion, not the $455 billion previously reported by the Congressional Budget Office, according to the "2008 Financial Report of the United States Government" as released by the U.S. Department of Treasury.
The difference between the $455 billion "official" budget deficit numbers and the $5.1 trillion budget deficit cited by "2008 Financial Report of the United States Government" is that the official budget deficit is calculated on a cash basis, where all tax receipts, including Social Security tax receipts, are used to pay government liabilities as they occur.
But the numbers in the 2008 report are calculated on a GAAP basis ("Generally Accepted Accounting Practices") that include year-for-year changes in the net present value of unfunded liabilities in social insurance programs such as Social Security and Medicare.
Under cash accounting, the government makes no provision for future Social Security and Medicare benefits in the year in which those benefits
Staggering falls in exports across Asia have shocked economic analysts and ended all claims that the global slump may be nearing its bottom. The IMF’s growth forecast for Asia this year is just 2.7 percent—less than a third of the 9 percent growth rate of 2007. The prediction is a full percentage point less than during the 1997-98 Asian financial crisis.
IMA Asia analyst Richard Martin commented in the Australian: "It’s a bit like watching a train wreck in slow motion. North Asia is suffering the biggest collapse in demand since World War II." Westpac bank’s Richard Franulovich said that the "speed of the decline embedded in the latest Asia data is on par with the collapse in the US during the 1930s Depression."
Asia Export Economy Details
Japanese exports fell 35 percent in December from a year earlier. Industrial production plunged a record 9.6 percent, month on month, in December.
Chinese exports declined for the third consecutive month in January, falling 17.5 percent from a year earlier, after a 2.8 percent decline in December. Imports plunged even further—43.1 percent, twice as much as December’s 21.3 percent year-on-year drop.
More than 20 million Chinese migrant workers have lost their jobs so far, with some analysts warning of 50 million more job losses if the economy deteriorates further.
India exports fell 24 percent in January. According to official data, one million Indian workers in the export sector have lost their jobs since September. Another half a million workers are expected to lose their jobs by March.
New Delhi’s public debt stands at 75 percent of its GDP, compared to just 18.5 percent in China, leaving less room for large stimulus packages.
South Korea’s exports, the main driving force of the economy, plunged 32.8 percent in January. Finance minister Yoon Jeung-hyun warned on Tuesday that the fourth largest economy in Asia would shrink by about 2 percent this year. Credit Suisse has projected as much as a 7 percent contraction.
Taiwan, the sixth largest Asian economy, saw its exports fall
Personally, I expect more from Barry given how strong much of his market and economic analysis has been over the years, but there are glaring flaws in this valuation methodology. First, I don’t know very many market strategists who believe fair value on the S&P 500 should be based on the earnings produced by the index’s components in the depths of a deep recession. Most people agree that fair value should be based on an estimate of normalized earnings, not trough (or near-trough) profit levels.
Imagine you owned a Burlington Coat Factory retail store. You are ready to retire and have a business person interested in buying your store. What would your reaction be if this person took your store’s profit for the month of June, multiplied it by 12, and based his offer price on that level of projected annual profits. Clearly that figure does not give an accurate representation of how much money your store earns in a year because June is probably one of your worst months of the year for selling coats!
The same flaw exists in valuing the stock market based on current earnings. Doing so implies that earnings today represent a typical economic climate, which is clearly not the case.
The second issue with Barry’s analysis is the use of “as-reported” GAAP earnings. The reason GAAP earnings have fallen so fast is that they include non-cash charges such as asset impairments. It is common these days for companies to report cash earnings of $1 billion but a GAAP loss of $5 billion due to a $6 billion asset impairment charge. In such a case GAAP earnings (which include the non-cash charge) are understated by a whopping $6 billion. Why should asset impairments be excluded? A stock’s value is based on the present value of future…
Look at those wonderful jobs numbers. It’s like a beautiful house where, hidden from view, termites are quietly and insidiously, slowly but surely, eating away at its structural elements. Eventually the building just starts falling apart and must be condemned.
The seasonally adjusted headline number for nonfarm payroll jobs added in February was 295,000. The consensus estimate of Wall Street conomists had been for a gain of 240,000. That beat of 55,000 was enough to surprise the hell out of the market and not in a good way, as I had warned based on the weekly jobless claims and re...
This morning's release of the February employment report surprised to the upside on new nonfarm jobs, and the unemployment rate dropped from 5.7% to 5.5%. But good economic news freaked out the market, with pundits jabbering about the increased odds of a Fed rate hike. The S&P 500 dropped at the open and sold off through the day, closing with a 1.42% decline. The tally for the week was a 1.58% loss. It remains in the green year-to-date by a fractional 0.60%.
Not surprisingly, Treasuries plunged. The yield on the 10-year note closed at 2.24%, up 13 bps from yesterday's close and up 36 bps from its 2015 low at the beginning of February. That equates to a 21.4% rise in yield.
Here is a 15-minute chart of the last five sessions.
Chris Kimble shared his chart of the Utilities Select Sector SPDR ETF, XLU, with us.
The one month performance inset shows XLU’s uninspiring performance compared to every other ETF on the list. However, the rather steep bullish falling wedge pattern says that it may be time for a bounce.
[Click on chart to enlarge]
Chris likes XLU for a short-term bounce off the 200 day moving average at $44. One way to play this setup is to buy the XLU outright. Chris suggests a 3% stop loss on the shares.
Another bullish play is to use options in a strategy designed by Phil:
Options volume on Alibaba Group Holdings is poised to end at the session at approximately three times the average daily level, with volume in BABA contracts approaching 300,000 contracts versus average daily volume of 105,000 contracts and less than 30 minutes to go before the closing bell. Shares in BABA are down 3.0% as of the time of this writing to stand at $81.50, off the intraday and fresh 52-week low of $80.03 set earlier this afternoon.
Across all available expiries, the 80.0 strike put options are seeing notable activity, with cumulative volume in excess of 30,000 contracts. As for trading in BABA...
Despite low trading volume, a strong dollar, mixed economic and earnings reports, paralyzing weather conditions throughout much of the U.S., and ominous global news events, stocks continue to march ever higher. The world remains on edge about potential Black Swan events from the likes of Russia, Greece, or ISIS (or lone wolf extremists). Moreover, the economic recovery of the U.S. may be feeling the pull of the proverbial ball-and-chain from the rest of the world’s economies. Nevertheless, awash in investable cash, global investors see few choices better than U.S. equities.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast rankings of the ten U.S. business sectors, and then ...
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PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at firstname.lastname@example.org with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
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