Monday, April 27, 2009

Is it more like 1930 or 1974?

As you can see from the chart above, there were many rallies after the 1929 stock market crash. If you compare today's stock market to the stock market in 1929 and 1974, I'd say the market after 1929 would be a better comparison. After 1974 the market has never hit a new low. Not yet, but I think we'll go lower in the future. President Nixon got the United States off gold reserve redemptions for foriegn holders of US dollars. After 1971 the United States money supply increased at a very unhealthy upward trend. It's tough to see the stock market going down 90% and the panic and destruction it will cause. Anything is possible.

Wednesday, April 22, 2009

Financial company stock prices have been on a tear these days, undoubtedly based on glowing, solid results. After all didn't Wells just have a blow ou

Posted by Tyler Durden
Financial company stock prices have been on a tear these days, undoubtedly based on glowing, solid results. After all didn't Wells just have a blow out quarter? What is that you say, $5 billion in "earnings" were based on FAS 157-4 reversal and accounting gimmicks? Why should that matter to investors who are happy to buy N/M forward PE stocks any time Cramer top ticks the market, or the Power Lunch brigade glowers in the self proclaimed next American Golden Age.Well, the financial ripfest, while benefiting bank prop desks (or at least the one that is left) may end up having some unfortunate side effects for none other than the banks themselves, and especially their accounting voodoo: the basis for the recently announced stellar financial results.The issue at hand is the "Fair Value Option", which under US GAAP essentially allows the booking of a pre-tax profit when a bank's debt trades lower in the open market. This benefits banks that opt-in for FVO instead of other accounting approaches such as amortized cost, or historic cost.And so readers can get a perspective of just how large an accounting "benefit" the FV Option is to financials, observe the table below which compares 2008 bank Net Income with the Pre-Tax Gain from Fair-Valuing of Own Debt.For a somewhat rough proxy of how the five selected banks' debt securities have traded in recent times, please see the chart below.Of the 2015 bonds, recent appreciation has been seen in Goldman Sachs and Credit Suisse bonds, while the remainder have remained relatively flat or have even declined. Of course, these are merely proxies and many more securities are calculated for FVO per GAAP.Regardless, if the equity run up persists, its is inevitable that bond spreads will tighten (see this post for comparisons for credit and equity levels in financials), thereby eroding the FVO pre-tax accounting benefit for companies with appreciating securities, and in fact will result in a negative pre-tax treatment. How much of a negative contributor to EPS it is will ultimately depend on i) how high equity security prices go and ii) how much of a catch up role comparable credit securities play in their price. It is likely that the respective CFOs are too aware of this phenomenon, and could be one explanation for the divergence between equity values and bond prices. If bonds had experienced the same run up as stock prices, the recently announced EPS for the major banks would have been much more adversely impacted

Thursday, April 9, 2009

New Asswrangler Award and Patriot Award which I'll be giving out monthly

Top 5 Qualifiers for the Month of April 2009

Asswrangler Award for Excellence

1) Dick Bove
2) Barney Frank
3) Phil Gramm
4) Dick Fuld
5.) Jim Cramer

Patriot Award for Common Sense

1) Elizabeth Warren
2) Paul Krugman
3) Don Harrold
4) Dr. William Black
5) Dr. Nouriel Roubini

1. asswrangler

one who spends their time wrangling ass (in other words, wasting time doing nothing).
Timmy, aren't you ever going to do any productive with your life? You're nothing but an asswrangler.

Friday, April 3, 2009

The Taxpayer has been Robbed! Where's the Justice

The government and media is trying to push the blatent theivery under the rug. The new focus is North Korea. The economy is now on the road to recovery. Yeah right, just take a visit to John Williams website and look at the real unemployment number of 20%. This is unemployment as measured during the depression. I think we'll see unemployment reach well above 25%.
During the savings and loan crisis in the early 1980's 700 people went to jail. Where's today's justice, all we hear is tough talk. We people need to hold our elected government accountable. I'll be a the teaparty on April 15th, we'll you?

Below is a great article by Barry Ritholtz regarding the current misguided policies by Geithner and Summers.