The board is as good as it's ever been in the last 5 years. Great analysis and banter has been fairly civilized. That being said, I'd like to hear a discussion about the forecast on the economy. I think we are ready for one more capitulation of stock prices before the end of the year. Europe is still not priced fully into stock prices. Greece is cooked like a forgotten turkey on Thanksgiving. Other Italy, Spain are not far behind. These collapses will weaken US. banks and like dominos, they will pull down the entire market. Remember, most people are cows. They react as a herd and will regret selling. This will drive the Dow to 9500 by 12/31. That's when I want to get back in. The huge swings in volume, prices, and bad news is what I base this on. Second point I'd like to hear someone to comment on if you want to is the Twist move by the Fed. Won't that expose the Gov. to higher rates quicker by swapping long term debt for short term. Considering inflation waits like a lion in the tall grass, just biding its time to devour our economy. (Yes, I'm sober)
Nice purply prose. TWIST is designed to flatten the yeild curve, lower longer dated treasury yields, and make borrowers less risk averse when making long term capital bets. TWIST however wont change anything with respect to the credit markets and how bank stocks respond. Rates are already too low. And it does not matter if 30 year mortgages go to 3%, borrowers will not be able to meet lenders' standards for credit. The CEO of Fifth Third was on Bloomberg yesterday..."We have a lot of capital and are willing and ready to lend it to CREDITWORTHY BORROWERS." That is the issue...no matter how low the rates (and I think absolute borrowing rates will not come down, just the UST benchmarks...spreads will widen) there is still a strucutral problem in the economy. Banks need to be induced to lend. The best thing right now is to end the practice of paying 25bps to reserves held on deposit with the Fed. In fact, the Fed should behave the EXACT same way the commercial banks do with their depositors' money, instead of paying interest on deposits, the feds should charge a fee to warehouse the banks' reserves. This would induce a small amount of the capital to be put to work in new loans. And the banks have $1.5 trillion on deposit with the fed. There are two entities holding back an economic recovery: (1) our elected officals who are unwilling to face the reality that our spending is unsustainable and (2) our financial system that was made fully solvent by future taxpayers' largesse but is now unwilling to lend out the money we gave them except on terms that guarantee large profits for the lender. When we fix these two things the unemployment rate will drop and things will get better. The banks share prices may fall as their risk adjsuted returns go down, but frankly, too many banks are still in existence right now that shodl have failed in 2008...and the phony economy we now live in has simply propped them up.
Doubt that we'll see djia 9500. Even with the fiasco between the donkey and the elephant, do not think we're going into recession. Today's rail data was ok. Last week's bank fed data was encouraging. We're going into earnings season and the history has been over the last couple of years that the market ramps up. I think s&p 500 earnings this quarter will continue to ramp up.
Quite interesting how media spins company releases. For example, on Wednesday, rio tinto said a few customers had delayed shipments - none in China. Nevertheless, the press slammed the miners. I think rio is now trading at $45/share even though they'll make $9/$10 share in 12.. Today Fedex lowered earnings guidance by a whole dime to $6.75. Headline was Fedex cuts guidance - and got slammed by 10% at the low point. Never mind that Fedex also announced in their cc that they raised prices worldwide by 5% in early September without customer resistance.
Morgan Stanley has been absolutely killed over the last month. Zero hedged printed a story today saying that ms owned $39 billion of french bank debt equivalent to 60% of their book value. Totally untrue - morgan stanley owns no french debt or securities. Rumor mill has also circulated story that ms is long a bunch of piigs debt. Their latest q statement only shows $2 billion which is roughly 2% of their tangible net worth. Nevertheless, ms is seliing for about 50% of their tbv. This is getting to be par for the course as gs, jpm, bac, c are all selling below their tbv. Many of the community and regional banks are also selling below their tangible book. At some point, there will be a big shakeout but I suppose there is no urgency. Profit metrics at rf, snv, are lousy and maybe bbt will be able to pick up some of these banks real cheap.