I would not get to excited. Remember that CEOs of Wall Street firms like James Dimon of JP Morgan and Richard S. Fuld, Jr. of Lehman Brothers, sit on various FED boards and that Treasury Sectary Paulson is still the Goldman Sachs CEO and the Godfather of the Plungers. It turns out the the owners of the the FED own the IMF and World Bank and Bank of England as well. So, this won't go far, but it is significant that they feel compelled to do the song and dance anyway.If this was to happen in Australia the International Monetary Fund would be hammering at the door of the Reserve Bank. But Australia does not have a President's Working Group on Financial Markets, commonly known as the Plunge Protection Team, that allows the US Government to prop up the markets by buying shares. But to imagine the IMF investigating the US financial system is unthinkable, or was. But, at the weekend, Der Spiegel reported that the IMF would conduct a full investigation into virtually every aspect of it.
Der Spiegel wrote that the IMF had "informed" Federal Reserve chairman Ben Bernanke of plans that would have been unheard of in the past: a general examination of the US financial system. The IMF's board of directors has ruled that a so-called Financial Sector Assessment Program is to be carried out in the US.
That Giant Sucking Sound
Monday, June 30, 2008
Third World USA
Plunger Alert
Sunday, June 29, 2008
Golden Moment
There is one last stand support which is a simple Gann 50% of a market’s all time high (check where the SP 500 ended its 2000-2002 bear market, yep, precisely at 50%) the BKX is there now, which is only slightly below the 100% last bull market leg retracement. If this level goes, complete decimation can easily take place. Lee Adler has commented he thinks it could go to ehhhh, well, zero. The ramifications of such an event for our nation are very frightening but I now must acknowledge that technically we ARE on the edge of the ABYSS.True to form the bloggers are ahead of the general public as the VIX index finished the week resting complacently at 23. Yea, I'm shocked too, the put/call ratio is below its 200 day moving average as well. What Up with all this complacency. One explanation may be something we've been doing here with the inverse ETFs. On our positions page you can see that we are long are long DIG and long DUG. The significance is this, instead of buying a put as a hedge and thus increasing the put/call ratio the hedge uses the DUG which adds nothing to the ratio. This is probably what the big hedge funds are using. So the complacency may be higher than the traditional indicators are reading i.e. skewed.
For me the problem with being short the finicals this week is the same as it was last week only worse. By that I mean that the group is much closer to their ultimate support than to their all time highs. However the doveish FED result showed us a clear path to a sector which is just beginning that being the metals. It is now time to be long the gold, silver, oil and mining ETFs as well as individual mining stocks such as AUY and GOLD. We opened a 1/2 position on HL Friday and will add this week as well as open a position in AUY. This is as clear as it gets as the FED revages the economy and the country, but provides us with our Golden Moment of Clarity.
Saturday, June 28, 2008
Financial Firms are Cracking
The credit crunch is like spidering cracks in a windshield, its fissures letting out a snapping sound as they deepen, threatening to bring the entire glass work to shards in the drivers lap.
Goldman Sachs can WOW Wall Street with buffed-up earnings on overlooked level III muck while the rest of the world’s big banks do their best to follow suit with any other off-balance-sheet bullsh!t they can imagine. But when the smoke clears, the credit crunch is coming into sharp focus.
As profits turn to huge losses, revenues dwindle and banks must cut real costs. Future revenues cannot be booked today, so the loss of revenue cannot be hidden or misconstrued; it is a precursor to losing money despite what and how you report your current earnings. The main money making crack on the Street is now going dry as the M&A hype dies down:
Goldman has so far suffered the least damage in the global credit crunch and remains the leading M&A adviser. But in an environment where mega buy-outs have disappeared and M&A activity has fallen sharply, even Goldman has felt the squeeze.
Goldman, in common with the rest of the industry, has been gradually shedding staff this year, or sending bankers previously based in the US and Europe to the Middle East and Asia, where business remains buoyant. Group headcount fell by about 400 between the first and second quarter.
Employees, unlike ugly unwanted assets, can’t simply be removed by an accounting entry. They must be accounted for in the real world and that means let go, i.e. laid off or fired. When you are losing money you cut staff and most times conversely, which is exactly what the big banks are doing in such volume it can’t be kept out of sight.
The world’s biggest financial firms may lose as many as 175,000 jobs by this time next year as Citigroup Inc. and other banks shed workers amid slowing revenue and billions in writedowns, executive recruiters say.
Financial companies have announced plans to trim more than 83,000 jobs since last July, according to figures compiled by Bloomberg.
And the new money-making machine of late is already sputtering as the bank tries to find a money maker of their own for a change.
In the past several weeks, bank executives have encountered unexpected resistance from investors, who have expressed reluctance to participate in the capital-raising transactions sweeping through the industry, according to people familiar with the situation. Already bruised by big losses and fearing that bank shares haven’t yet hit bottom, some of these investors are choosing to tighten their purse strings.
It’s not what they say, but what they do that counts. So, Goldman Sachs defies the credit crunch in earnings reports quarter after quarter, but deeply cuts into staff along the way. This is extremely telling and lets one know “the worst is yet to come.”
Friday, June 27, 2008
Alert: DUG LEH
We bought 50 shares DUG at 27.32, sell them now.
Sell 50 shares DUG at Market
Buy to cover 100 shares LEH buy stop at 23.75
Bailout or Buyout?
Word on the Street is that JP Morgan is on the prowl again this time with its its sights is set on Wachovia. An analysis of how does this fit either company is not forthcoming here. The only question which beggs the answer is whether JP Morgan is in trouble again or is become the FEDs elimination machine of choice? This will get very little play in the mainstream media until land unless the scam comes apart like watergate, then they will all show up late to the party, but with lots of favors. To begin with it has been established,
that the take down of Bear Stearns was really the bail out of JP Morgan by the FED and its CEO Jamie Dimon, who sits on the board of directors for the New York Federal Reserve Bank. Bear Stearns CEO Schwartz was not on the NY FED Board. In fact no one from Bear Stearns is on the Board
If this is a straight forward buyout as they would have you believe, one might like to ask where is Morgan going to the cash from. Supposedly they still have to wrestle with a bit of indigestion from dinning on Bears carcass. That dinner surely included the carrion of some CDOs that certainly couldn’t not have gone down all that smoothly with all those dirty derivatives already cloging Morgans arteries.
J.P. Morgan’s derivatives book is 2-3 times bigger than Citibank’s – and it was derivatives that caused losses of more than 30 billion at Citibank . . . . So, it only made common sense that J.P. Morgan had to be a little more than ‘knee deep’ in the same stuff that Citibank was – but how do you tell the market that a bank – any bank – needs to be recapitalized to the tune of 50 - 80 billion?”
Well you don’t tell them that, not when you CEO sits on the New York FED board. You tell them they are going to buy another bank with problems of its own and the FED electronically funds an off shore account with which Morgan can magically come up with for the buy out. That spells ripoff of Wachovia, and another bailout of JP Morgan. Can you spell inflation for the rest of us?
Of course on the Street where “competition is sin” there is always the option to simply chew what you can when you can, which when you CEO squats on the FED board is whenever the excuse is there. Right now Wachovia is cheap and your money’s for free.
Thursday, June 26, 2008
CIBC’s Billion Dollar Big Hit
The fallout from last week’s mono-line downgrades just hit CIBC right between the eyes. The bank is now poised to take a $1B loss on its third quarter earnings.
Canadian Imperial Bank of Commerce (TSX:CM) is likely to book another $1-billion pretax writedown after Moody’s downgraded monoline insurer XL Capital Assurance to junk, a bank industry watcher said Monday.
“We expect CIBC will write off its remaining fair value exposure to XLCA in its third-quarter 2008 results,” Blackmont Capital analyst Brad Smith wrote in a note.
This comes in addition to the second quarter credit-related hit of $2.5B.
CIBC took a big loss in the second quarter, after taking additional charges of C$2.5 billion for U.S. structured credit securities and other positions hurt by the credit crunch.
If it doesn’t end here, the bank will be next in in the bread line.
…,although the bank could withstand further losses in its subprime portfolio, further losses on higher-rated investments could force CIBC to raise more capital.
But they had better hurry if they choose that route, the over-travelled capital-raising highway is soon to be the road not traveled.
As banks rack up billions of dollars in losses from bad loans and blundered investments, large investors are becoming skittish about pumping more money into them.
<>
Wednesday, June 25, 2008
Alert:SLV
Buy 25 shares SLV @ 165.30
Trade Alert: C MER LEH
On the daily chart for Citigroup you can see that it has come off its March lows and has made a weak W pattern under 20, so we will go long Citi to hedge LEH.
Tuesday, June 24, 2008
Trade Update: MER C LEH
Citi Spinners
Citigroup is jumping in front of their second-quarter 2008 earnings report with the slick ‘n silky smoothness of Bill Clinton getting caught with his pants down. In the pre-announcement, CFO Gary Crittenden said this:
Citigroup Inc could take substantial write-downs for subprime mortgages, leveraged buyout loans and other assets in the second quarter, the company’s chief financial officer said on a call with investors Thursday.
Gee whiz Gary, you mean Citi COULD take substantial write-downs this quarter? No Duh! Well, I bet you DO take substantial write-downs for the quarter, which are still substantially understated or off-loaded off your balance sheet. Gary, please.
The analysts are regurgitating the estimated write-down numbers provided by the bank so they can conveniently “beat the street” when they finally do report. UBS AG analyst Glenn Schorr gives them an 8.7 degree of difficulty:
Schorr estimated the New York-based company will write down $8.7 billion of assets in the quarter, he said in a note today. Schorr reduced his second-quarter estimate to a loss of 40 cents a share from a previous prediction of 37 cents in profit.
“There’s nothing really new here, just worse than what we and investors had been thinking,”
Nope, theres nothing different and nothing new; the game just goes on.
The company is always willing to look at acquisitions, and will make them where it makes sense, but is focusing more on improving its performance.
Citigroup? Performance? What performance, Gary?
With Citi shutting down Old Lane, the hedge fund co-founded by your own CEO, and your current hedge fund chief Steve Bowman selling you out , you couldn’t acquire anything but the plague. But lets see how much you acquire, Gary.
We do understand you Gary. The scent of Blood is in the air, short interest is at an all time high and the bears have changed from keeping pace to stalking a bank. You just gotta do something to keep the share price up. Do you think this little dutch boy routine will work?
Good luck. Gary!
Alert: MER
Sell short 50 shares MER @ 33.53. Stop @ 34.70
Monday, June 23, 2008
Morgan Stanley Pulling Rabbits
Morgan Stanley came in with results that in some places should make Lehman Brothers feel better about themselves:
The second-largest US investment bank reported income from continuing operations of US$1.03 billion, or 95 cents a share, for its fiscal second quarter, ended May 31, down from US$2.36 billion, or US$2.45 a share, a year earlier.
Net revenue fell 38 per cent to US$6.5 billion from the same quarter last year, dragged lower in part by a contrarian bet on energy that didn’t pan out and actions by a London trader that violated company policy.
- Investment banking fees fell by half
- Fixed income trading net revenue sank by 85 per cent
- Equity sales and trading revenue fell 11 per cent to US$2.1 billion
- Real estate investment losses led to a pretax loss of US$277 million in Morgan Stanley’s asset management division.
In addition to the usual sundry of write-downs on bad loans, losses to bad trades and run of the mill incompetence, Morgan took a page from Societe Generale and blamed outright criminality on a rogue trader.
Morgan Stanley suspended a credit trader and disclosed a $120 million “negative adjustment” related to erroneous valuations of his positions, Chief Financial Officer Colm Kelleher said.
For $120M, you wonder why they mention it; in light of the $1.7B in losses and write-downs (including the aforementioned $120M) in the three months ending in May, you know they would gladly go double or nothing for a paltry $120M all day long:
As for other losses and write-downs in the quarter, in addition to that $120 million mark reversal, Morgan Stanley wrote down $390 million of exposure to bond insurers, $496 million in leveraged loans, $100 million in commercial mortgage-backed securities, $300 million in residential mortgages, $200 million in merchant banking mark-downs and $86 million in losses from structured investment vehicles.
“This has been an unusually stressed quarter,” Kelleher told Reuters. “We were very troubled by what was happening … We decided we would stay very conservative, strengthening our liquidity and capital positions.”
That statement made by Kelleher is a lie. Profits are unusual and, as the credit crunch hardens in the arteries of the world economy, these will be seen as good times. The fact of the matter is that Morgan’s profit was made from two one-time items.
Meanwhile, most of the profits came from two one-time pretax gains: $698 million from the sale of its Spanish wealth management business, and $732 million from the sale of part of its stake in MSCI Inc. The gains contributed 88 cents a share to earnings.
Morgan Stanley’s earnings report was just a Madison Avenue spin and bullshi+ side show. They are just pulling smaller and smaller rabbits from smaller and smaller hats.
“If you have to go all the way to Spain to make numbers, it’s not good. How many more rabbits do they have in their hat?” said Matt McCormick, a stock analyst at Bahl & Gaynor Investment Counsel in Cincinnati. “What’s going to be the driver of earnings growth going forward?”
Well we have no witty retort for that one Mr. McCormick, but we hazard the guess that Mack and Cabal aren’t forward looking. Rather they are looking backward to the time of the swelling credit bubble when they decided to get theirs before selling out the banks for all time. All this is a big distraction to keep the public from realizing what’s going on.
<>
Alert: MER
Sell short 50 shares MER @ 34.36
Alert: C
Sell short 50 shares Citigroup (C) stopp @ 19.75
Sunday, June 22, 2008
Fifth Third Down For $2B
Assuming that he had nothing to do with creating the credit crunch problems at Fifth Third Bancorp, new CEO Kevin Kabat is certainly dealing with them. A young face that looks nothing like Mozzillo at the helm since April 2007, the media makes sure to include his picture in every piece:
“I’ve been in banking for 28 years … and in all that time I’ve never seen a more challenging operating environment than what we’re seeing today,” Kabat told donors Tuesday during a speech for Junior Achievement of the Michigan Great Lakes.
“My wife tells me every day, ‘You could have picked a better time to become CEO,’ ” he said.
Well of course thats the point - he is the perfect patsy, if you can even call him that. Kabat is at least straight forward about not knowing where the bottom of the housing market is.
It’s one of the questions Kevin Kabat hears most often: When’s the housing market going to turn around?
His standard reply: He doesn’t know.
“No banker can answer that,” said Kabat, CEO of Cincinnati, Ohio-based Fifth Third Bancorp who’s just as eager as others for a turnaround.
The housing downturn has left a large stock of inventory on the market that will elongate the problem, Kabat said.
The elongated problem Kabat refers to includes, among other things, being completely dumped by Macquarie Group and slashing the interest rate it gives depositors:
Fifth Third, Ohio’s second-largest lender, was the most aggressive at passing on interest rate cuts to its deposit base, dropping rates across nearly every market and product. The bank offered the second-lowest yield on interest-bearing deposits in the second quarter, down from the second-highest just five quarters ago.
However, Mr Horowitz said the benefits for the bank of cutting such rates could be short-lived, as sharply lowering rates could reduce Fifth Third’s ability to attract new deposits.
Being cut by Fitch before life support,
Fitch Ratings has downgraded ratings for Cincinnati, Ohio-based Fifth Third Bancorp (FITB) and its principal bank subsidiaries. The long-term Issuer Default Rating (IDR) and the short-term IDR have been lowered to ‘A+’ and ‘F1′ from ‘AA-’ and ‘F1+’, respectively. Following these rating actions, the Rating Outlook is Stable. A complete list of ratings is provided at the end of this release.
While slashing its own dividend and raising $2B in fresh cash,
Regional bank Fifth Third Bancorp, trying to shore up its capital base, said Wednesday it will slash its dividend by nearly two-thirds, raise $1 billion through a preferred stock offering and another $1 billion through the sale of noncore businesses.
So after that litany of disasters, the bank still has to report Q2 earnings with all the write-downs it will bring. At least they fessed up to raising $2B in cash. Even that will get harder as banks go back to the well again and again. Nothing’s easy in the credit crunch.
For Kabat, the young man with the nice wife and his picture all over the business sections, well, he “has been named chairman of the board of directors.” How nice. CEO and chairman of the board, all coming into the teeth of the credit crunch. That’s a lot of power at a very critical juncture in the bank’s struggle to survive. That nice wife of his was absolutely right!
<>Saturday, June 21, 2008
HBOS’s My Turn
Since this is the season for raising cash and repairing balance sheets, HBOS has a lot to fix:
HBOS is expected to have to address rising concerns about whether it is over-exposed to Britain’s embattled housebuilding sector when it publishes its £4 billion rights issue prospectus later this week.
However, the Halifax/Bank of Scotland banking group received a boost yesterday when the UK Shareholders’ Association said it did not expect the bank to publish any writedowns on individual property assets it holds.
No “writedowns on individual property assets it holds?” Haven’t you been listening? HBOS has been hiding the write-downs on the balance sheet of all places. It is a matter of concern to some investors:
Roger Lawson, a director of UKSA, many of whose members are believed to be among HBOS’s two million private investors, said: “I think the concern is people are asked to subscribe in new shares and there is a risk of further (housebuilding] liabilities being disclosed.
A good point, Mr. Lawson, that the bank just can’t seem to get its head around.
“But there is another factor, I think, why you cannot necessarily read too much into HBOS’s rights issue from what is being said has happened at RBS.
“RBS has made a stronger case for the cash call. They were under-capitalised post the ABN Amro acquisition, they said sorry, and now they are trying to rectify it.
“But the HBOS cash call has never really been that wellexplained. They were not desperately short of capital and had not done a big takeover deal.
“The risk is that the reason for its rights was that they were simply terrified by a UK bad debt cycle developing.”
The risk is again that the losses and write-downs have been hidden and the certainty is that they will stand up to bite the hand that feeds them - the rights issue. Dilution is not the risk; a zero share price is. And when you compare apples to donuts, zero evens everything out.
Friday, June 20, 2008
UBS Unravels
UBS had barely finished announcing that it was seeking $15.5B in cash to cushion current write-downs when they said they will probably lose more. Of course, the bank got its $15.5B, but UBS took a slap in the face for it. It was the bank’s second capital increase in less than a year. Witness:
Late last year, UBS announced it had raise billions through share sales to sovereign wealth funds in Singapore and the Middle East. Government of Singapore Investment Corp. injected $9.75 billion, while an undisclosed investor in the Middle East purchased a $1.77 billion stake.
Included in the current rights offer is the warning of more losses.
UBS, in the prospectus for its 16 billion-franc rights offer, said the bank’s losses on non-U.S. residential and commercial real-estate securities “could increase in the future.” UBS is also evaluating whether to limit or discontinue one or more U.S. reference-linked note programs, which “could result in a charge to income,” the bank said in the document, released after markets closed on May 23.
And as the great unraveling continued, UBS pulled apart the very mechanism of unregulated greed and corruption that spawned its $45B write-down. Tangled in the weave of its depraved fabric, the criminality of LIBOR was exposed:
Few companies have suffered from the subprime mortgage collapse more than UBS AG, which has taken $38 billion of writedowns and losses, replaced its chief executive officer and chairman and saw its stock tumble 60 percent. Yet on 85 percent of the days between July and mid-April, the Zurich-based bank told the British Bankers’ Association that it could borrow in the money markets at lower interest rates than its rivals.
The rate setting scam, just as any other, is enabled by the ability of a criminal cabal of insiders to exercise complete power over money:
Every morning the BBA, an unregulated trade group, asks member banks how much it would cost them to borrow from each other for 15 different periods, from overnight to one year, in currencies from dollars to euros and yen. It then calculates averages, throwing out the four highest and lowest quotes, and publishes them at about 11:30 a.m. in London. Three-month dollar Libor was set at 2.64 percent today.
Even with the special advantage to borrow money at a lower rate than its competition, UBS could not compete. The cheap money was no advantage, only a temporary high that caused a permanent addiction, with or without which the bank cannot live.
Short Financials Don't Lose Your Shirt
The short interest on financials right now is intense as Citigroup has pre announced what we all knew anyway, that there will be massive second quarter write downs. We will short Citi on a break below 19 with a 1/4 to 1/2 position to start. Before you call me crazy while you load your boat answer me this Riddler, If we all know they're broke why is Citi at 20 anyway? Answer Batman, PLUNGERS.
But I see more Armageddon in this than other blogs I look at. This is a tectonic battle between the shorts and the plungers. Remember the FED is one of the plungers and they can electronically transfer as much into Citi shares as they want enough to buy them all, and do it for every stock on every exchange. This is extraordinarily inflationary and becomes like pushing a string, but they can squeeze a lot of shorts out in the process. So don't get caught, if the plungers win this round keep you cash for the next. Meanwhile if they lose I see the total stock market implosion right here right now, so there will be a lot to catch.
So the call is short Citigroup at 18.5, Stop at 20.25.
Thursday, June 19, 2008
Barclays Keeps Its Cake and Eats It Too
It seems too easy. Lose billions on the value of corroded assets, but instead of suffering the anguish, you issue rights. That is the tract that one of Britain’s largest banks has taken. In an Enron-esque type of rights issue, Barclays seems to believe it can have its cake and eat it too:
The intention is to ensure that the value of shares owned by existing investors in Barclays is not diluted. It is likely they will be offered the chance to buy the same percentage of shares in the placing, but it will be underwritten by the sovereign funds.
The method used to achieve this will be a pre-emptive offer to sovereign wealth funds at a premium:
In this scenario, the bank would line up buyers to take the shares at an agreed price before then offering the new shares to all its existing shareholders to have first right of refusal.
“Under the pre-emptive structure, we believe the placement would initially be made with, say, a number of Sovereign Wealth funds, following which existing shareholders would be able to claw back stock on equal terms,” said Keefe, Bruyette & Woods in a note.
Analysts believe the new shares would not be offered at a discount to the existing share price to avoid diluting the value of its shares, a tactic that may be unattractive to some shareholders but it will still have the advantage of being underwritten by big financial institutions.
“This is clearly less dilutionary than a rights issue and also solves the capital shortfall perception and gives the company greater room to absorb further write-downs,” said Collins Stewart analyst Alex Potter.
Barclays reported writedowns of £2.6 billion - $5.1 billion - through the first quarter of this year related to the subprime lending crisis in the United States.
Its credit writedowns have been less than those at peers including Royal Bank of Scotland Group, which raised £12.3 billion - $23.4 billion - in Europe’s biggest rights issue, and HBOS, which is seeking 4 billion pounds (US$ in a rights offering.
Well that’s all there is to it. If you can’t cover your losses due to write-downs on credit-crumpled investments, then have your cake and eat it too. But eat it slowly and make it last just in case. The credit crisis is just beginning, and all the banks are lining up cap in hand to sovereign wealth funds worldwide. That spells competition and the common sense that selling out to wealth is not profits made and sooner or later even the funds will grow impatient. Oops sooner it seems.
Barclays plans to issue billions of pounds worth of equity to new and existing shareholders to strengthen its frayed balance sheet. Market commentators had expected that China Development Bank (CDB) would take up the offer to avoid having its holding diluted.
But political and financial concerns make CDB reluctant to invest more money in Barclays than the 2.2 billion euros it paid for its initial stake last July, the sources said. They added that the Chinese bank had not yet made a final decision.
“The losses on that so far, the scandal surrounding the bank’s (CDB’s) vice president and the bank’s ongoing structural reform make it very unlikely that CDB will make any immediate major purchase,” an official in the banking sector told Reuters.
CDB has seen the value of its investment in Barclays, made just before the credit crisis rocked financial markets, fall by more than 50 percent over the past 10 months.
“CDB is now very cautious about risks in overseas investments,” said a separate banking source close to the Chinese bank. “Even though the price is much lower than last year, who knows whether it might not dip further?”
Who but the banks can blame them?
Wednesday, June 18, 2008
Royal Bank Scotland Fixes Rights
Royal Bank of Scotland (RBS) claimed victory on Monday, June 7, in its historic rights issue. By Wednesday the bank said it had placed 95% of the new shares issued:
Royal Bank of Scotland said all but 5 percent of its shareholders subscribed for its record 12 billion pound ($23.5 billion) rights issue, offering some relief to a bank and sector hit hard by capital worries.
But three members of the 5% not partaking of the issue included high placed insiders.
Royal Bank of Scotland Group Plc’s insurance head was among three executives to take up less than their full entitlement of new stock in the bank’s 12.3 billion- pound ($24.1 billion) rights offer.
Wonder what they know that the rest of us don’t. With the other European banks ready to launch their own issues, first is best before the shares begin to compete with one another.
European banks have a $400bn hole on their balance sheets in spite of a record-breaking week in fundraising from rights issues.
This is a 20 per cent increase from the end of last year, raising a big question mark over the health of the banks and suggesting the credit crisis is deepening, according to Citigroup.
On another front, the Royal Bank of Scotland went back in time last week and issued a relic called the fixed rate mortgage.
In an announcement earlier today, RBS intermediary Partners announced the launch of three new fixed rate mortgage deals. RBS IP is the part of the RBS Group which provides the portal through which mortgage brokers submit applications to all RBS brands, which include First Active, the specialist remortgage lender, and Nat West for buy to let.
What could be next, due diligence?
Goldmans Second Verse, Same As The First
For Goldman Sachs reporting fiscal second quarter 2008 results it was the same old refrain they beat expectations, their own.
Goldman Sachs low-balled its earnings estimate, …
But while expectations are subjective lay offs and comparisons to prior quarters are not.
But this morning’s earnings, while better than expectation, are down 34% from its record fourth quarter of 2007 results, while the stock is down not quite 25% from its December peak. So to me, a lot of GS’s relative success is already priced into the stock.
For the stock to trade this morning as if it is coming off of an oversold decline, like many of the other brokerage firms and banks (which truly were oversold), seems a little silly. Further, given that what is ahead looks more like a marathon than the 50 yard dash, I would be careful to assume that even the best can and will remain perfect forever.
For the stock to trade this morning as if it is coming off of an oversold decline, was not a bit silly it was a con job as Goldman Sachs, cashed in on their own hype and obviously sold the news. As an added measure Goldman waited until the stock price was at the highest before dropping this bomb.
U.S. stocks fell for the first time in four days as Goldman Sachs Group Inc. predicted banks will have to raise $65 billion in new capital to cover losses and housing starts and industrial production trailed forecasts.
That’s a nice ancillary little benefit for the world’s largest investment bank, which shows that size does matter. In case you still don’t believe that an fine up standing Wall Street firm such as Sachs would pump and dump its own shares see how they screwed their own clients last year.
The magazine said that much of the focus was on Goldman’s trading revenue, which totaled a spectacular $8.23 billion, up 70% on the year-earlier quarter. Part of that increase was due to a bold bet that made money if mortgage-backed bonds and financial instruments tied to mortgage values fell in price. Because of the credit crunch, they did plunge in value, netting gains for Goldman that the banks said “more than offset” the losses it saw on the mortgages it was holding.
The long and short on that Mildred is this –Goldman went long on your house in your account, then they shorted it huge in their account with the inside knowledge that it would tank. So it’s no wonder that Goldmann seems Immune. But the fact that they had to fess up to $775 million of write-downs from credit market losses says total immunity was not granted.
And lets not forget all the movement of mark to market to mark to mickey mouse back in Q1.
…commercial real estate loans that were moved from Level 2, where assets are valued in part using market prices, to Level 3.” Goldman has $873 billion in assets. That means Goldman moved $8.73 billion in commercial real estate loans from Level 2 “Mark To Model” to Level 3 “Mark To Fantasy”.
That level 3 Ebola may still catch Goldman, there is a lot that can still catch up to the golden gangster. The fact that nothing has yet is proof positive that the Golden one’s greatest asset is all the political connections it dangles in it’s deep blue pockets.
Lying Lehman and the Lies They Tell
There is no longer a shred of doubt that Lehman Brothers is headed down toward single digits, possibly all the way to the the pink sheets. The kiss of death came yesterday when the stock gaped up at the open and closed up by $3.12 on the news that BlackRock would buy it:
The usual nonsensical rumor — that Buffett was going to be the buyer — has become so discredited that a new patsy needed to be named. Blackrock did participate in the now upside secondary, so perhaps they want some more pain.
Whatever possible kickback to BlackRock manager Hank Greenberg, the deal itself can be no better for the participants than the ones of the shotgun wedding of Bank of America to CountryWide. The certainty on Wall Street is rumors are lies and we will eventually see who’s purpose this rumor serves.
In April, CEO Richard Fuld lied to investors at the company’s annual shareholder meeting, saying that the worst of the credit crisis is behind Wall Street although the environment “will remain challenging.” Now he obviously hoped investors would mistakenly conclude that the worst for Lehman Brothers was behind them, aware that the worst was yet to come. We say obviously because the plans announced on June 9 to raise $6B in new cash must have been considered by at least April 15.
With the SEC so deep in their pocket you have to pump daylight to them. Lehman explained the decimation of share price in the time honored Street tradition of blaming it on short sellers:
To begin with, you have no business buying stock if you need to hit the capital markets - for any reason. The SEC was willing to look into short sellers conspiring to drive Lehman’s stock price down - well I insist they look into Lehman for conspiring to drive stock prices up! They stated that they only bought small amounts, but since they failed to mention what those amounts were, it is called into question.
But the company was buying stock as fast as they were selling it, which brings us to the four-year-long lie the company has been telling:
Its policy on share buybacks was to avoid the dilution caused by grants of restricted shares and options issued to employees, and that meant it bought back about as many shares as it issued.
It succeeded. The number of shares outstanding at the end of the first quarter was virtually the same as it was at the end of the 2004 fiscal year, after adjusting for a stock split. But with the stock rising for much of that time, those purchases cost a lot of money. In the 13 quarters from the end of that year through this year’s first quarter — that is, before the new $2.8 billion loss — Lehman reported net income of $11.9 billion, and spent $11.8 billion on share repurchases.
We have seen this movie before, when Warren Buffet was going to buy Bear Stearns and Countrywide, and we know how it ends. Both companies claimed fiscal health, boasted liquidity, and with smoke and mirror accounting said there was nothing to worry about. So what do you do with an insolvent company running for its life on fuzzy accounting and an ad blitz based on lies? You stay short.
Tuesday, June 17, 2008
Alert: LEH
Sell short 50 shares LEH @ 26.73 Stop @ 28.90
Trade Alert: LEH
Stocks I learned typically move in three waves. In LEH we saw the break of 40 in May led down to 30 and a retracement to 35 for wave 1. Wave 2 was the fall from 35 to 22.81 and that has now retraced to 27.20 which coincides with the 8 day EMA. I want to mention that the volume on this last retracement has been extremely light.
The first two waves defined lower highs at 35 and 27.81. Now we will look for wave three, is it coming? I dunno, can only wait for Godot, we can't make him show.
Execution at Lehman
It’s wearing Lehman down. The steady friction generated by rubbing lies against the truth and constantly being called on to explain the difference is causing the bank’s execs to fray around the edges. Even if the shares double today, all it will cost Einhorn and the bears is money; the cost to a certain pair of executives cannot be measured on a balance sheet because it’s personal.
Lehman Brothers sacrificed two lambs today - one at the alter of public appearance, the other because she had served her purpose. The replaced President Joseph Gregory and the feisty and flamboyant Chief Financial Officer Erin Callan:
Lehman Brothers Holdings Inc. replaced Chief Financial Officer Erin Callan and President Joseph Gregory three days after the firm raised $6 billion to help survive the collapse of the mortgage market and reported the first quarterly loss since the company went public in 1994.
Callan, 42, who has been a prominent spokeswoman for the bank since she was promoted to CFO six months ago, will return to Lehman’s investment banking unit and will be succeeded by co-chief accounting officer Ian Lowitt, the New York-based firm said today in a statement.
After firing Gregory, the company lauded him:
Gregory “has been my partner for over 30 years and has been a driving force behind who we are today and what we have achieved as a firm,” Chief Executive Officer Richard Fuld said in the statement. “This has been one of the most difficult decisions
either of us has ever had to make.”
What you have achieved is the ruination and impending bankruptcy of your company at the decimation of shareholders’ investments.
Lehman shares have been pummeled this year, sinking more than 60 percent as the company’s efforts to shore up capital and reduce reliance on borrowed money have failed to dispel concerns that it faces more mortgage-related losses and diminished earnings prospects. Even after raising $6 billion on June 9, the stock has continued to drop.
Erin Callahan was let go just after rebutting the notion that Lehman is in deeper trouble than they let on.
Callan in particular has been criticized lately for the company’s performance and for not grasping the depth of Lehman’s problems.
In a conference call Monday, she rebutted rumors of deeper troubles at the firm and said ithe results of its efforts to raise capital would be a stronger bank going forward.
The reality is that anyone with a three-digit IQ would have a firm grasp of the depth of Lehman’s problems. The purpose and tenure of her new position is what she may or may not have grasped, but we go for the former. The kids on Wall Street have three-digit IQs:
Unlike Lehman’s two previous CFOs, Ms. Callan isn’t an accountant and had never worked in the finance department.
She embraces television, appearing frequently. She receives a slimmer daily financial summary than her predecessors, relying more on data from the trading-floor contacts built during her 13-year Lehman career.
Why?
To quash fears that Lehman could face the same kind of liquidity squeeze as Bear now being acquired by J.P. Morgan Chase & Co., Ms. Callan has had hundreds of face-to-face meetings and phone calls with investors and trading partners.
Or perhaps to do battle with the loathsome, hated and feared King of Bears, short seller David Einhorn. Whatever the tactics, the overall strategy is clearly to situate the high heel-wearing, high five-slappin’ madam of finance at front and center stage to keep Lehman Brothers alive for a few more weeks. It’s a high-exposure high-risk position, but it payed off through Q1 of 2008:
Lehman Brothers Holdings Inc. had a lot riding on Erin Callan, its chief financial officer, during an earnings conference call in March. Speculation was swirling that the Wall Street firm might become the next Bear Stearns Cos.
After sifting through the numbers for nearly an hour, Ms. Callan coolly answered more than 20 analyst questions. Then she strode down to Lehman’s bond-trading desk and high-fived trading executive Peter Hornick. Later that day, bond traders gave her a standing ovation, a Wall Street rite typically reserved for CEOs. Profit had plunged, yet Lehman shares surged 46%.
So Callan, through bold statements and short slandering, staved off a financial and stock collapse through the first quarter. By doing so she gained a bit of stardom. Despite all this, the finical media (WSJ here) breaks its back to promote Callan as a straight shooter:
“Ms. Callan’s rise also shows that the formula for fending off a repeat of the crisis of confidence that sank Bear, threatened Lehman and still hovers over Wall Street includes both salesmanship and smarts.”
Ms. Callan had been lauded by some for pushing back against Mr. Einhorn,…
Even Oppenheimer analyst Meredith Whitney, a credit crunch star herself, comes to pay homage. Whether it’s because of the good ole gal club or Oppenheimer’s contribution to Lehman’s cause, here’s what she said:
“She is going out on a limb to provide more transparency in Lehman’s earnings, business and strategy,” Ms. Whitney says. “As long as things play out according to her guidance, she will solidify her reputation among investors.”
Really? Let’s ask Einhorn. Actually, it was easy to see she’s a hired gun as the attacks on short sellers began and the facts came in.
Lehman Brothers reaction to shortseller David Einhorn’s argument that the firm hadn’t written down the value of its debt portfolio enough was to try to destroy Einhorn’s credibility:
Mr. Einhorn cherry-picks certain specific items from our quarterly filing and takes them out of context and distorts them to relay a false impression of the firm’s financial condition which suits him because of his short position in our stock…
We are all entitled to our own opinion, but not our own facts. Einhorn’s facts show a $2.8B loss, $6B in fresh capital raised, and that credit-default swaps have also widened out, reflecting a higher cost of insurance against default. Protecting $10M in bonds against default for five years now costs anywhere from $300,000 to $330,000, according to Phoenix Partners Group, compared with $265,000 before the news.
Straight shooter, huh? So, Einhorn was right and Lehman was lying and the credibility of the latter has been largely destroyed. The credibility of the finical media who put such a straight face on Callahan was also thrown to an all-time low as they bowed to their corporate owners and advertisers to smear Einhorn. To be certain:
Blaming shortsellers is a convenient excuse, of course, because it points the finger at someone other than those who actually deserve criticism–weakening companies, wrong (or gullible) investors, company managers who refuse to acknowledge reality. This isn’t to say that some shortsellers don’t spread false rumors or lies or just “talk their books.” Of course they do. But the latter is no different than stock owners who breathlessly talk up their books all day long on CNBC or make false claims to drive stocks higher.
But Einhorn was right at every turn and it would take a lot more than some financial media sharp shooters and an ad lady’s smear campaign to keep Lehman Brothers from coming apart at the seams.
Monday, June 16, 2008
Trade Alert: LEH JPM
Keep in mind there is no way the plungers will let the FED raise rates. That puts our ACE in play, namely gold (GLD) silver (SLV) and oil (USO) or DIG. Keep your powder dry.
Trade Alert: LEH JPM XLF
Individually J P Morgan was a great buy coming off of 36. The stock has double bottomed at 36 and it woo has a stochastic is rising and separating. It has raised above its 8