Does anybody here see any major bank and/or S&L insolvencies on the horizon? I'm far from being an expert on banks, but it looks to me like Washington Mutual is in a world of hurt. Am I wrong to think that Wa Mu could face insolvency? If they do fail, it would be a very bad omen for the entire banking sector.
The trade is certainly less optimistic now, but we still haven't seen a strong and persistently bearish shift like the COT's from June or July 2000. (Again, I believe that represented massive institutional hedging against long positions too large to be sold at acceptable prices.)
The idea is relatively new to me, so I'm uncertainty about its reliability as an indicator on the major trend.
SPX index security as compared to two long term internals measures of NYSE breadth, bullish percent and cumulative a/d:
Similar weakness can be seen in the intermediate term measures like %NYSE stocks above their 30wk moving averages. Bullish immediate factors, like selling climaxes, persist--with an astonishing 433 recorded this week.
What you see here in the broad trends of both price and internals is consistent with an important top, possibly a cycle top. (The latter idea is reinforced by the unequivocal Dow Theory sell signal in force on the major trend.)
Unfortunately, SPX is over-influenced by financial stocks and now looks worse than it would if the primary bear trend of that sector were to change. That seems unlikely to me, but nothing is ever impossible in markets so influenced by Central Banks.
Again, given this context, I'd watch the quality of any Santa rally very carefully to see whether it's supported by volume and a better trend of market internals. If not, odds are that more heavy selling will be done into whatever enthusiasm for stocks exists and that the top now in apparent progress will complete itself by a decline through the Summer lows. (This has already taken place in the Dow Transports and Industrials on a daily closing basis, as per Dow Theory.)
Depending on how one's positioned, this combination of short term bullish and long term factors is opportunity knocking; so it pays to watch carefully this holiday season.
I think that little ray of sunshine will shine differently on different banks now engaged in moving assets onto their balance sheets. We should know more from the UBPRs compiled for Q4. Captial adequacy will depend upon the ratios of assets and risk weighted assets to liabilites (funding) for the asset growth. (More specifically, the cost, term structure, and "volatility" of that funding.) In certain cases, I think we will then see why these assets were "off-balance sheet" in the first place.
A chart follows that says something about how all this economic malaise is affecting the broad, tidal movements of our equity markets:
Here's a little ray of sunshine to counter some of my gloomier comments: I find the fact that banks and SIVs are engaged in orderly sales and/or returns to the balance sheet of Tier 3 assets, and that it is now clear the M-LEC SuperSIV will not be needed, a heartening development. Again gives credence to Paul Volcker notion of the robustness of today's banks.
Thanks again. Didn't need that particular reassurance either. You may yet surpass me as the Neo-Scrooge of the Neo-Bubble. (I'm haunted nightly by the ghosts of financial debacles past, weighed down by the chains of their ambition. If we get through this mess in one piece, I'll buy everybody a fat goose next Christmas.)
Looking on the bright side, a decent rally here might be a good chance to do some more realizations on bull market positions. I think one has to watch the advance for distributive characteristics.
As mentioned earlier in the thread, one place we'll be looking to move the net of gains is our managed equity hedge on the theory that the technique will pay better, with lower volatility, under present market conditions
Thanks, I didn't need that.
BTW, forget my previous reply about recoveries, in which I was obviously thinking about real world bank or insurance company procedures as opposed to accounting conventions.
(Mrs. Phage did maritime insurance recovery for many years with occasional experience in financial sureties.) A measure of how worn out I am.
Anyway, my general point concerning the banks is that they've obviously gone through a period of rather bad risk management. The accounting specifics of their net position on written down assets are probably less signficant than the fact that they've undoubtedly made similar mistakes in other consumer lending which have yet to make their appearance.
Inasmuch as cash is the pivotal position for any investor--a strategic and tactical necessity--persistent bank mismanagement and the probable outcomes of same have got to be a concern.
For instance, this would not be a bad time to sell some of our long term position trade in the RBOCs, now down to T and VZ; but I don't have enough similar trades to redeploy the net and am not sure that our banks are much safer than the T or VZ common.
From our point of view, this is intolerable which is why we're trying to improve our banking practice.
Your post confirms one of my worst fears. You seem to be implying that central bankers are the financial equivalent of the Wizard of Oz. Let's hope that a Toto doesn't blunder along and spoil everything.
It's not hard to argue, for example, that there is no such thing as growth, it being simply reprocessed inflation.
That has to be one of the clearest and most truthful statements I have read.
Boy has the average American received a good dose of inflation for life's necessities called growth over the past 7 years.