Big Surprise: Citi and BoA Fail Stress Test

Tuesday, April 28, 2009

From the Wall Street Journal.

Ken Lewis on life support. Pandit, too (though it really wasn’t his fault).

The real problem here is one, to repeat an oft used explanation, of confidence. No one believes the banks or the government. Any reasonably informed person sees what Geithner and Bernanke are doing and breaks out in a cold sweat. Borrowing and printing money to reinflate a bubble (our economy) is either genius or suicide. To me, it is most assuredly the latter.

We are in for years of topsy-turvy hard times with the outcome far from assured. Forget ripping the band-aid off quickly, they’re wrapping it up in bandages made of dollars. It’s going to hurt a lot more when it finally comes off.


Fishing Oafs Play Banker; Destroy Iceland

Thursday, April 23, 2009

An amusing, and (too late) cautionary, look by Michael Lewis at the utter destruction wrought by the men of Iceland on that tiny island nation.


Public Private Investment Partnership: The Fix is In

Friday, April 3, 2009

So the Financial Times reports that:

US banks that have received government aid, including Citigroup, Goldman Sachs, Morgan Stanley and JPMorgan Chase, are considering buying toxic assets to be sold by rivals under the Treasury’s $1,000bn (£680bn) plan to revive the financial system.

Which means that, (as Joe Wiesenthal at Clusterstock points out):

Banks buying assets from each other to inflate their books has nothing to do with “price discovery” or any such nonsense. It’s all about using taxpayer money to create bids that are higher than what the market currently prices those assets at. And if it turns out those bids were too high and the cash flows never materialize then, oh well, it’s the taxpayer left holding the bag.

Which prompted this from Rep. Spencer Bachus:

Spencer Bachus, the top Republican on the House financial services committee, vowed after being told of the plans by the FT to introduce legislation to stop financial institutions ”gaming the system to reap taxpayer-subsidised windfalls”.

Mr Bachus added it would mark ”a new level of absurdity” if financial institutions were ”colluding to swap assets at inflated prices using taxpayers’ dollars.”

You will never stop Wall Street greed and gall unless you legislate it (and even then…). People keep saying that it is the end of an era on Wall Street. My feeling is that it might be, but the end will only be temporary, of course. After all, they repealed Glass-Steagall, and that, in part, led to where we are today. But, if, for some reason, Congress and the international community doesn’t act to firmly regulate the financial industry, we are doomed.


Sell Now

Thursday, April 2, 2009

If you took my advice back on Feb 22 to begin buying stocks, you’ve probably done pretty well. I have. Particularly on bank stocks. If you are actively trading, I am recommending that you sell now and take your profits. The Dow is at 8,000 and, in my opinion, it’s not going much higher before it begins to fall again.

After the next dip I expect even bigger gains in the second half of the year, but right now I think we’re headed for a swoon.

Of course, I could be wrong, but that’s what I’m doing.

If you have a genuine long-term strategy of buying strong dividend paying stocks and holding for 20 or 30 years, you’re golden. I wouldn’t buy any more right now, but wait for that next dip. I would suggest 6800 and downward as a long-term buying opportunity. Stock up (no pun).

And remember, I have no idea what’s going to happen. I am simply gambling on intuition and contraindication.


Manhattan Co-op Prices Down 22% in Q1

Thursday, April 2, 2009

From Bloomberg:

Manhattan co-op prices dropped the most since 1995 and transactions for all apartments plummeted 48 percent in the first quarter from a year earlier as the recession and Wall Street unemployment cut demand.

The median price for co-operative apartments fell 22 percent to $587,500, according to a report today by New York appraiser Miller Samuel Inc. and broker Prudential Douglas Elliman Real Estate.


Dodd’s Downfall

Wednesday, March 18, 2009

Jonathan Karl of ABC News reports:

Last month, the Senate unanimously approved an amendment to the stimulus bill aimed at restricting bonuses over $100,000 at any company receiving federal bailout funds. The measure, which was drafted by Sen. Olympia Snowe, R-Maine, and Sen. Ron Wyden, D-Ore., applied these restrictions retroactively to bonuses received or promised in 2008 and onward.

But then…

The provision was stripped out during the closed-door conference negotiations involving House and Senate leaders and the White House. A measure by Sen. Chris Dodd, D-Conn., to limit executive compensation replaced it. But Dodd’s measure explicitly exempted bonuses agreed to prior to the passage of the stimulus bill.

Here’s the exact language from Dodd’s measure in the stimulus: “The prohibition required under clause (i) shall not be construed to prohibit any bonus payment required to be paid pursuant to a written employment contract executed on or before February 11, 2009…”

How can he possibly explain this?

I have not been impressed with Dodd’s false populist outrage, nor with his disclosure of his role in the unfolding of this crisis. If New York (and London) is the epicenter of this financial earthquake, Connecticut with its hedge funds and insurance industry, represents a second locus of major instability. Dodd, like Schumer, along with the entire GOP, bears serious responsibility for the lack of oversight and regulation preceding these events.

I can’t wait to hear why this language was inserted into the bill.


The Contemporary Art Bubble

Friday, March 13, 2009

Nice article from Prospect Magazine (from December) on the massive bubble in contemporary art.

A choice morsel:

Economist and historian of financial crashes, Edward Chancellor, observed recently: “Most contemporary art is inherently worthless. It is not like Titian and other old masters of which there are few and whose value will not fall away. It’s like subprime CDOs.”

And another:

But the suspicion is that dealers and collectors with interests in particular artists may have been “bidding up” prices at auction and acquiring works. If so, they may be holding large inventories of overvalued work, financed by increasingly expensive debt. At the Damien Hirst auction at Sotheby’s, his London dealer, Jay Jopling, bid on an astonishing 44 per cent of the lots in the evening sale, and both he and Hirst’s US dealer, Larry Gagosian, bid on two lots after long pauses in the bidding.

I’ve said it before but its always worth saying again: Koons, Hirst, etc., etc., are hustlers. I feel no pity for those who will never recoup their “investment” in this worthless tripe.