Monday, October 13, 2008
Friday, October 10, 2008
I'm watching Hank Paulson talk about the global economy and the downturn that we have been facing. Here is one issue that I have with Hank...I am seeing the top of his head more than his face. He is reading a script. Now, I know that not everyone is the best public speaker...but come on. Look us in the eye when you are giving it to us.
Is he saying anything worth while...uh, no. It is just a change in plans. They are now going to take an equity stake in banks and not buy up the troubled assets. So this isn't new but it is just a change of plans. But what about the bad debts on the books? Guess that goes into the dark matter world and hopefully everyone forgets about it right???
We need a real leader step forward and state, "This is what we are doing...This is how were going to do it...The banks need to get on board now or they are on their own. This is going to be painful, we can see that it already is. We are a great country. We have past every test that history has thrown before us and this time will be no different."
People are not that stupid. We can handle bad news. For real. Someone, anyone, come up with a path and stick with it. We must come up with a plan that is clear and understandable to the people at home. I know this is difficult. This is some pretty complicated stuff. But it can be done. And if you can explain it and you can tell the people that times are going to get rough (the well duh element) and SET A COURSE, then we can move forward. That is what the markets want, it is what the global economy wants, and it is what we need. The United States of America is still the light of the world. The world looks to us to set a course. We need to set one and soon. And NOBODY, Bush, McCain, Obama, Paulson, and Bernanke have not done it.
Give me a leader! Where are our Lincolns and our Volckers in today's world? That is all that we really need...a true leader. The world is not rainbows and unicorns, we're adults, we understand this. We don't want more spin and spin and spin. I guess that I basically want to say "GROW A PAIR!!!"
Wednesday, October 8, 2008
Okay, so I was early on the global rate cut, by a day. Notice that it did not help? The Fed is firing bullets into the darkness now. This won't be the last domestic cut...I can see them easing again at the end of this month.
Almost every call I take at some point winds around to..."So are you guys going to be around?"
I work for a credit union. Realize that the business model of a credit union is different than that of a bank. Most banks, have to make a profit for their stockholders. They make big bets to make more money (traditionally) so that they can maintain a reasonable level of profitability. Asset classes are falling and if a bank have to raise capital in a market where capital is not available(see yesterdays post)...well we've seen how that ends (think IndyMac, WaMu, and Wachovia). Credit Unions are there for the shareholders, those who actually have their money on deposit with the credit union. It is much more simple business. Credit Unions do not take the same risks for banks. The very nature of the credit union and who it serves, makes the relatively safer bet than some banks.
So, do I think my credit union will make it through this. Absolutely. The only thing that I can see tripping up where I work is large job losses in our area. I don't think it is too big of an issue as my credit union services teachers and medical professionals for the most part. It is a pretty safe bet those jobs aren't going anywhere. But you never know.
As for banks, if you're not at Bank of America (BAC) by the way...no one can be surprised by their price dive. They BOUGHT COUNTRYWIDE and MERRILL LYNCH, Wells Fargo (WFC) which is the only one of these names that I would consider adding (which I'm not)and THEY BOUGHT WACHOVIA (but I bet you they end up with the GOOD part of Wachovia). Or JPMORGAN Chase (JPM), which has purchased BEAR STERNS and WAMU. And maybe Citi...but they have their own problems. I think they fought so hard to get their piece of Wachovia to be in the "too big to fail" category.
Outside that fantastic four, I can't see who will still be around. You are going to have smaller players that will remain because they were much smaller players and didn't go whole hog on the mortgage orgy at the turn of the century.
Tuesday, October 7, 2008
I'm here with my fire hose....Point me to the flood.
I know, yesterday I told you that the World would cut interest rates. Well, only the Aussies came through today with a full point cut. And the market tanked another 500 plus points. Should you be upset with the Bullet? Well, any cut would be a short lived pop, that's it.
Should we really be surprised that the world did not come through with the cut? Probably not. Considering with the Fed moves Monday paying interest to banks on required reserves it was a stealth cut. And the Fed also is pouring money into the system through Lending Facilities of all types and kinds.
So if the world is awash in cash, which it is, why is it not working? Would you bring a fire hose to a flood? The issue is not the money, it is trust between banks is non existant and debt destruction.
Put it this way...I come to your house and give you $500 dollars and ask you to please lend this money to Dave, charge his interest. Then you can give me back the money later.
You don't trust Dave. He has a gambling problem. But even if you trust Dave, His brother Freddie and his sister Fannie, well they suck and who knows who Fannie and Freddie do their business with.
See the problem? If you can't trust your lending partner, or who else your lending partner is working with too...then you can't trust you're going to get paid. Blame Lehman and AIG. Since their failures, the wheels have really come off.
It will not matter what the Fed does with rates, until banks can trust each other we are stuck in this mess. I'll talk about what really has to happen either tomorrow or whenever I feel like it.
Monday, October 6, 2008
The biggest thing to remember is that Wall Street is not the economy. The bad news is that the economy might be worse than Wall Street. It is coming painfully clear that the wheels are coming off, all over the world. The US is actually doing okay. We are further along in this cycle of debt destruction than the EU. That is why you are seeing our dollar strengthen against the the Euro. If terms of suckiness, we are just a little less sucky. Now that is saying something.
Tomorrow, you will wake up have your morning coffee and see that the major economies of the world have all collectively decided to lower rates in a major move. I would expect .50 to .75% before the markets open up here at home. If not by open, no later than ten o'clock.
Tuesday is for bounces. We have seen this over the last few weeks. It started to happen because of all the Sunday investing news, Fannie & Freddie, and Lehman Brothers Bankruptcy all happened on Sunday. Monday has been freakishly bad over the last few weeks.
I know that I have been lack posting. Even you followed you knew that I was high on EWZ, the Brazilian EFT. If you hadn't gotten out before now...I'm sorry. I sold out at $64 taking my medicine back on 9/9/08. I was hoping for a bounce, saw it and took advantage. The bottom has really fallen out now...it closed just north of $42 today. It dipped all the way down under $38 earlier. The EFT is made up of financials and commodities...two big no nos in this market.
Want to know what I am looking for right now? Nat City to fail in the coming days. Fifth Third and Key to follow. It doesn't take a rocket scientist to figure that one out. I would go highly defensive at this time. Gold, I'm not sold on right now. I see too many gold hawks screaming for our fiat currency to fail. If I were looking at equities it would be highly defensive...Pepsi, McDonalds, Wal-Mart, Colgate, and PG. None of these names have fallen too much, pay dividends, are not financials, and will be around when all of this finally calms down.
This may be bad, but this is not a depression. Nor do I think it will get to that level. God, I hope it doesn't get to that level. Good luck.
Posted by Mike Carpenter at 3:46 PM