Archive - Feb 2010 - Blog entry

Just another good news story. The Feds are doing the right thing on loan mods. They will be accelerating the process. The unintended consequence will be that defaults and foreclosures will have to rise. When? About 5 months from now.

Just when all seemed hopeless, the good people at the Financial Services Roundtable are here to educate one and all. Members of the ZeroHedge community should all attend. Who Should Attend? All new congressional staffers and Capitol Hill staffers who have recently added financial service issues to their portfolio, as well as, the seasoned staffer and who wants to learn more about the major areas of importance impacting our nation and economy. Hurrah! RSVP for one or the entire FSU educational series contact Vince Randulov vince@fsround.org or 202.589.2421. Questions may be directed to Brenda Bowen brenda@fsround.org or 202.589.2420.

As mentioned in my previous posts, I have been engaged in a discussion of the valuation of Goldman Sachs and investment banks in general. Here is how it has played out.

Global pension assets hit the $23 trillion mark and now amount to 70% of the average global gross domestic product, down from 76% a decade earlier. While the increase in pension assets in 2009 is encouraging, the same structural issues that plagued the pension industry before the crisis are still present, leaving them exposed to further downside risk when the tide shifts back.

Is “Trader Mark” the harbinger of a pioneering, disruptive, guerilla type of manager who may set the traditional mutual fund industry back on its ear? Welcome to the “homemade” mutual fund business. An exclusive interview with the founder of www.fundmymutualfind.com . Where sheer grit, imagination, and a reasonable fluency in html will get you. (ATHR), (ASIA), (DRWI), (BRF), (RSX), (IDX), (EWA), (VNM),

The new guy at FHFA Edward DeMarco has some moxie. I think he has dished up a tough question to the 'deciders'. His question begs an answer from Weak Tim. Silence.....

Senator Corker challenged Mr. Volcker's stance in today's congressional hearings on the Volker Rule by saying that no financial holding company that had a commercial bank failed while performing proprietary trading. It appears as if Mr. Corker may have received his information from the banking lobby, and did not do his own homework.
Let's reference the largest commercial bank/thrift failure of all...

In recent days, a spate of announcements on infrastructure deals have hit the wires. Cash strapped governments are increasingly looking to pensions to fund long-term infrastructure projects...and many are heeding the call.

Interest rates have to soar to unimaginable levels to attract recalcitrant investors, or the plunge in spending sends us into a postponed Great Depression II.
There will be no Prince Charming riding in on a white horse this time. Back out the Fed as the buyer of last resort, and where are we? The $3.8 trillion budget Obama budget isn’t encouraging me to back off from this ledge. Be a peach and bring me some MRE’s, a five gallon bottle of water, and a case of 9 mm ammo, will you?

Volcker is correct in that banks conflicts of interests need to be
stemmed. One would not have to worry about over regulation if one does
not attempt to regulate every single act or attempt to guess what might
go wrong. What needs to be done is to use regulation to dis-incentivize
banks from engaging in activities that engender systemic risks and/or
harm clients. By putting everybody on the same side of the table, you
don't have to worry about outsmarting the private sector.

A knowledgeable reader, who is currently a sell side analyst, questioned
me about using book value to value Goldman and investment banks in
general. He proposed using a formula that entails revenues as well due
to the fact that the main concern during the crisis was breakup value
while revenue visibility is clearer now that the crisis is over. While the crisis may be over, the root causes of the crisis have went nowhere, and the counter party risk concentration is actually much worse than before. In addition, not only is it political suicide to attempt to bailout another bank, I think it is poor economic policy as well. Combining these two assertions, it is not clear that we will not see anymore bank failures. The probability of such has dropped considerably though.

(1) ESH10 1-minute at 9:05, (2) ESH10 377-minute, (3) ESH10 1-minute at 9:25 am, into 1st rez at 1078, (4) Market Internals (VOLD, ADD, TICK & VIX) ~ 9:48 am, (5) Market Internals (VOLD, ADD, TICK & VIX) ~ 9:57

The carry trade has run wild. Watching the dollar train wreck. Get ready for chop inside a range. Copper has had it. Buy gold against the euro. The Ags look great, long term. The current federal fund rate is asking for trouble. A Hedge Fund Radio exclusive interview

Before I get started, I want all to realize that this is not Goldman bashing piece. I think it is a [relatively] well run company, but its PR machine appears to be from Kindergarten land, and the aura of invincibility that it enjoys(ed?) is highly undeserved, as a consequence its historical "aura-based" premium is absolutely unjustified. Case in point...

The financial crisis of 2007–2010 has been called the worst since the Great Depression of the 1930s. Many causes have been proposed, including one suggested by MIT economist Ricardo Caballero that foreign investment demand was a major contributor to America's monetary mess. So, are foreigners responsible for America's financial crisis?