THE DOT - if this turns orange or red be alert

Wednesday, April 29, 2009

GS technical update - market outlook

GS long trade is coming to an end as we are in week 8 and counting a Seq 12 today. It could bounce briefly above 130 as the XBD is also short of one spike above 93 to complete. At current levels GS has made a 50% retracement.
The DOW makes today the 13 count in the Combo by reaching the TDST line. The Seq 12 count of the DOW will confirm a top at hand by tomorrow.

NDX tech update

The NDX has reached the 200 day MA and about to test the bigger trend resistance. That will be the final spike as the DOW heads for completion of the count by rising above the trend resistance briefly. The final target of the NDX remains at 1470 but that we will see rather by Aug and now should start to turnaround the next days with almost no upside margin left. The 200 day MA is also the daily Bollinger and will slow down upside attempts. Confirming factor is that we are in week 8 as has the VIX.

Economy will bounce back next quarter - but that's only a straw fire

Next quarters GDP will be much better as a sharp decline in inventories will not be repeated in the same scale and as much important is that government spending will pick up sharply and not decline. Plus the latest consumer confidence proves that consumers are not scaling back rather increase their spending which is not good medium to long term as inevitably bolstering the savings and decreasing the consumption is the way to go. This upbeat temporary phase is not to stay as we can see easily by astrology and statistics who say that house prices have to drop to affordability averages which is always done with a exaggeration. Hence we can expect them to drop another 25% worst case even 40% from current levels none of the stress test does model that kind of realistic statistical evidence. Banks will be in huge trouble as will be the government which has almost shot all bullets indiscriminately. People feel better with rising stock markets but just remind yourself of Japan from 1989 to now and they had a few 'bull runs' but still are 20 years later 70 % below the highs of stocks.
I know I sound like a broken record and we all wish that the bad things go away over night but facing the truth is the only way to handle things with the mantra 'be prepared for the worst and hope for the best'. The IMF has drawn the picture that quite some losses are still to be taken by financial institutions up to 4.1 trillion and according to them we are at 25% of that - I rather have even a more dramatic version but the IMF's version is severe enough to be alert.

Below a link with excellent research on the house price situation take the time to read it

http://www.scribd.com/doc/14166113/T2-Partners-Presentation-on-the-Mortgage-Crisis4309-3

GDP Down 6.1%, Reflecting Continuing Economic Woes

The U.S. economy contracted at a surprisingly sharp 6.1 percent rate in the first quarter as exports and business inventories plummeted.
...
GDP, which measures total goods and services output within U.S. borders, has now dropped for three straight quarters for the first time since 1974-1975.
....
The advance report from the Commerce Department showed business inventories plunged by a record $103.7 billion in the first quarter, as firms worked to reduce stocks of unsold goods in their warehouses.

That sliced 2.79 percentage points from the overall GDP figure. Excluding inventories, GDP contracted 3.4 percent.

Exports collapsed 30 percent, the biggest decline since 1969, after dropping 23.6 percent in the fourth quarter. The decline in exports knocked off a record 4.06 percentage points from GDP.

Investment by businesses tumbled a record 37.9 percent in the first quarter, while residential investment dived 38 percent, the biggest decline since the second quarter of 1980.

Consumer spending, which accounts for over two-thirds of economic activity, rose 2.2 percent, after collapsing in the second half of last year.

Consumer spending was boosted by a 9.4 percent jump in purchases of durable goods, the first advance after four quarters of decline.

Part of the stimulus package is designed to bolster state and local and government spending, which fell at a 3.9 percent rate in the first quarter, the largest decline since the second quarter of 1981.


Tuesday, April 28, 2009

Fed Pushes Citi, BofA to Increase Capital - first they need to fire the management

The Obama administration makes the smart thing and leaks information in bits and pieces before the scheduled time hence the market does not overreact. Nevertheless the big picture is disturbing to me as they create a phony atmosphere as if the worst was over and that is dangerous as regular people may make wrong decisions based on that as the consumer sentiment indicates as of today. The economist had a great cover on that calling it at glimmer of hope (actually its owned by Rothschild's literally).

http://www.economist.com/printedition/displayStory.cfm?Story_ID=13527685

Several actions which need to be investigated happening during the Merrill takeover which was disastrous for BAC (and taxpayers) and was initiated by Paulson and Bernanke. All should be hold responsible but first off all Lewis and Bernanke need to be released from their duties as they did not live up to their duties and obligations.
What is the point in pushing a week company to buy an even weaker one when hundreds of billions of taxpayers money will need to be pumped in - that was an insane call and only made money for some insiders who new about this deal as the second part of the insanity was the premium BAC was forced to pay. I would like to see if Goldman was running any trades on this or any other out of the range option activity.
City bank on the other hand had the insane idea to take over Wachovia and was even considered for that as they can not even run their own shop properly - weird stuff to begin with. They have pumped over 50 bil into Citi including AIG and guaranteed for 100 bil of toxic assets. Citi is selling all outside assets it seems it can get rid of and have collected around 20 bil for the German unit, Smith Barney and Nikko as of today covering some of the losses. Citi's money machine was the credit card business which runs into big problems going forward especially when Obama goes ahead in regulating the criminal interest they do charge whenever they can. Cit has still a few hundred billion toxic portfolio at hand which part of has been taken care off by US taxpayers and they were able to mark them up to new accounting rules or as Pandit calls it they moved them into til maturity evaluation. That does not increase the underlying quality of those assets and a deteriorating economy will do more harm going forward not only to them but to the whole business which again will create situation like we had with AIG.

Excerpt from WSJ

The capital shortfall amounts to billions of dollars at Bank of America, based in Charlotte, N.C., people familiar with the bank said.
..
Industry analysts and investors predict that some regional banks, especially those with big portfolios of commercial real-estate loans, likely fared poorly on the stress tests. Analysts consider Regions Financial Corp., Fifth Third Bancorp and Wells Fargo & Co. to be among the leading contenders for more capital. Wells Fargo declined to comment.
[Capital Crunch]

While the Fed initially planned to release the results of the stress tests on May 4, the government says the results will be released sometime that week.

Banks that are deemed to need more capital will have six months to find it, either from private investors, other financial institutions or the U.S. government.

Bank of America and Citigroup have required a total of $95 billion in taxpayer infusions, and the government has agreed to protect the banks against most losses on hundreds of billions of dollars worth of assets.

VIX technical outlook

The weekly VIX chart shows clearly that a bottom is reached and we are about to rise toward the 50/55 area soon. Markets have been in quite a strong pullback from almost 90 down to 35 and we are in wave 5 of bigger 3. Wave 4 up is imminent actually might have already started. NDX is in a similar count as it also has entered week 8 and since the Tech is the leading force on the upside. The stress test results and the Swine Flu might be the trigger points as a correction is due still worst case the start might be delayed til next week and we have a sideways week of distribution.

Citigroups outrageous Anti-heroe's Pandit and Rubin not to forget Prince

Just by this deal Citigroup will have lost roughly 10 billion within 1 year. Two people in charge of those deals were Robert Rubin who earned 126 mil in eight years at Citi and Pandit who got a total of 200 mil. from Citi ( including the sale of his worthless Hedge fund to Citi). Both made a fortune from Citi while participating in steps which helped to put Citigroup in bankruptcy. The 800 mil for the Hedge Fund have been written off completely as the Fund is closed and the completion of the Japanese entity will cost around 10 bil.

Under the Rubin / Prince times Citi acquired toxic assets which have lost around 50 bil officially but according to my calculations the real amount is rather 300-400 bil. The US government has guaranteed for around 100 bil. after pumping in aprox. 60 bil (including AIG payments) and that's not the end of the story. In my book that's reckless and even criminal as they have exposed the stock owners capital to an insane leverage and the managers of Enron have been prosecuted for he same kind of thing but that does not seem to happen to buddies of President Clinton.

Excerpt 1

It wasn't clear how much Sumitomo Mitsui has agreed to pay for the Citigroup operations, but the amount is likely to be a fraction of the ¥1.6 trillion Citigroup paid for Nikko Cordial in a series of deals completed in 2008. The Nikkei business daily reported Tuesday the price tag for the deal was over ¥500 billion. The sale doesn't include Nikko Asset Management, which is being offered in a separate deal.

In a move interpreted as a preparation for a possible high-priced acquisition, Sumitomo Mitsui has announced plans to raise as much as ¥800 billion by issuing new shares.

Excerpt 2

On December 11, 2007, Pandit was named the new CEO of Citigroup, replacing interim-CEO Sir Winfried Bischoff, who became chairman of the board as well as remaining CEO of Citigroup Europe. Interim chairman Robert Rubin strongly supported Pandit[6], who is the effective successor to Chuck Prince. Prince resigned in November 2007 due to unexpectedly poor 3rd-quarter performance, mainly due to CDO- and MBS-related losses. While CEO of Citigroup in 2007, Vikram S. Pandit earned an annualized compensation of $3,164,320, which included a base salary of $250,000, stocks granted of $2,914,320, and options granted of $0.[7] In 2008, he earned a total compensation of $38,237,437, which included a base salary of $958,333, stocks granted of $28,830,000, and options granted of $8,432,911.[8]

Citigroup subsequently purchased the poorly performing fund in 2007 for $800 million. Pandit received approximately $165.2 million for this transaction.

Excerpt 3

Robert Edward Rubin (born August 29, 1938) served as the 70th United States Secretary of the Treasury during both the first and second Clinton administrations. Before his government service, he spent 26 years at Goldman Sachs. His most prominent post-government role was as Director and Senior Counselor of Citigroup, where he performed ongoing advisory and representational roles for the firm[1]. From November to December 2007, he served temporarily as Chairman of Citigroup.[2][3] On January 9, 2009 Citigroup announced his resignation, after having been criticized for his performance.[4] He received more than $126 million in cash and stock during his eight years at Citigroup.

Excerpt 4

On Sunday, 4 November 2007, Prince resigned from his post as CEO of Citigroup due to the failing mortgage industry. He was replaced by Vikram Pandit as the current CEO of Citigroup [10], and by Robert Rubin as its Chairman.

Prince left with vested stock holdings valued at USD$94 million and the roughly $53.1 million salary he received over the four years in the position. He also received a pension of $1.74 million and another one million stock options.[citation needed] He is still a consultant with Citigroup.

In 2008, Fortune named Charles Prince as one of eight economic leaders "who didn't [see] the crisis coming", noting his overly optimistic statements in July 2007.[11] In January 2009 Guardian City editor Julia Finch identified him as one of twenty five people who were at the heart of the financial meltdown.

Astrological perspective -Pandemic fear will be around for 2 more weeks

From an astrological perspective I was wondering what the New Moon in square to the North Node may bring as a challenge and it seems the Swine Flu makes sense as Neptun and Chiron are in conjunction ( that latter ones make what can create epidemic diseases). The Full Mooon which follows 2 weeks after the New Moon will be in square to the Neptun/Chiron conjunction. By mid May Jupiter will reach the Neptun / Chiron conjunction and that rather is a healing pattern hence in 2-3 weeks this specific issue will come to an end.
Lets put it into perspective as only last year 30000 Americans died by some sort of Flu which is unfortunately a standard event by statistics. On the other hand we had incidents like the Spanish Flu in the early 1918-20 which killed many millions. It is basically the same virus type H1N1 and also killed the most people between 20-40 as it does now

Excerpt from Wikpedia

The 1918 flu pandemic (commonly referred to as the Spanish flu) was an influenza pandemic that spread to nearly every part of the world. It was caused by an unusually virulent and deadly Influenza A virus strain of subtype H1N1. Historical and epidemiological data are inadequate to identify the geographic origin of the virus.[1] Most of its victims were healthy young adults, in contrast to most influenza outbreaks which predominantly affect juvenile, elderly, or otherwise weakened patients. The pandemic lasted from March 1918 to June 1920,[2] spreading even to the Arctic and remote Pacific islands. It is estimated that anywhere from 20 to 100 million people were killed worldwide,[3] or the approximate equivalent of one third of the population of Europe,[4][5][6] more than double the number killed in World War I.[7] This extraordinary toll resulted from the extremely high illness rate of up to 50% and the extreme severity of the symptoms, suspected to be caused by cytokine storms. The pandemic is estimated to have affected up to one billion people: half the world's population at the time.[8]

Some scholars have theorized that the flu probably originated in the Far East.[9] While historian Alfred Crosby observed that the flu seems to have originated in Kansas, the political scientist Andrew Price-Smith has published data from the Austrian archives suggesting that the influenza had earlier origins, beginning in Austria during the Spring of 1917.[10] Popular writer John Barry echoed Crosby in proposing that Haskell County, Kansas was the location of the first outbreak of flu.[11] In the United States the disease was first observed at Fort Riley, Kansas, United States, on March 4, 1918,[12] and Queens, New York, on March 11, 1918. In August 1918, a more virulent strain appeared simultaneously in Brest, France, in Freetown, Sierra Leone, and in the U.S. at Boston, Massachusetts. The Allies of World War I came to call it the Spanish flu, primarily because the pandemic received greater press attention after it moved from France to Spain in November 1918.

As the Flus seems to have started in Kansas USA I looked into the astro chart of the USA and we have some significant indications for a desease. First of all we have a basic Chiron Pluto square (thereby Pluto is on the Venus / Jupiter conjunction of the USA which was the harbinger fo the victory of WWI) and Saturn and Neptun are in a close conjunction on the US North Node.

By the way as an astrologer you may have seen the economic trouble ahead as Pluto back then was at 3.30 degree and 11 degree's away from making a square to the US Saturn which was part of the depression which followed 10 years later ( that's the time it took Pluto to advance to the square and was accompanied by other planets in a so called T-square. We will get a similar constellation within a few years.

Right now the situation is different or not as severe as it was back in 1918 from an astrological point of view but also by pragmatic means as the communication and awareness nowadays does help to prevent the worst. The only potential danger are the plenty illegal Mexicans who have entered America and may not show up with their problems on a time sensitive basis. Lets hope the administration is aware of that risk and offers uncomplicated help.

Excerpt 2 from WSJ

The number of confirmed cases of a deadly new strain of the flu continued to rise Monday, as the World Health Organization moved one step closer to declaring a pandemic.

The United Nations public-health agency raised its global alert to phase 4 from phase 3. The change recognizes that the new A/H1N1 virus spreads from person to person, and signals that governments should prepare for outbreaks. Phase 6 is a pandemic.

..

Health officials said they were stumped over why the strain has been so deadly in Mexico, where the number of suspected cases has surpassed 2,000 people. Only one person in the U.S. has been hospitalized so far. CDC and WHO officials say the disease may turn out be more similar in both countries than it looks now. As the investigation intensifies, more mild cases may be uncovered in Mexico and more severe ones may be found in the U.S.

The flu outbreak comes as the Obama administration seeks a new head of its Department of Health and Human Services, which oversees the CDC. The Senate on Tuesday is expected to begin debating the nomination of Kansas Gov. Kathleen Sebelius as HHS secretary. Democratic and Republican aides in the Senate said they expected Senate approval.

The U.S. government is far better prepared for an outbreak than it was when SARS awakened politicians and the public to the notion that infectious diseases continue to be deadly, even with modern vaccines.

Prodded by SARS and the avian flu scare that followed, President George W. Bush in 2005 issued a pandemic flu preparedness plan. Since 2006, $6.2 billion has been appropriated to stockpile antivirals, step up surveillance and improve vaccine-making and technology.

But state and local health departments -- which are often the first to detect new infectious threats -- haven't received federal funds for pandemic flu preparedness since 2006. Many of the agencies have cut staff and services in the recession.

Monday, April 27, 2009

Dow tech outlook

The DOW is the only main index short of completing the 13 count (status 12) which is not mandatory for the markets in order to turn. We can see that the trendline resistance is working quite well so far but at the end we will brake above it in a time frame til summer. Its a bit weird for me sometimes to argue for the bull case as fundamentally its a bit weird but markets are not rational. I still believe that a B correction is overdue but we started again with a weaker lap opening into the Monday and I rather would have preferred a stronger opening fading off Monday. The least correction would be down to 7500 but 7250 is also likely before the 'suckerbulls' can take over again.New Moon days tend to be positive but we have some negative days ahead as Mars and Pluto will square Pluto these days. The outbreak of the Swine Flu about to be raised to level 4 ( first time if done) might be the sad trigger point for the correction. The phony stress test for banks will not bring big relief as the worst case scenario is far from being worst case. The danger in this Flu is the fact that millions of illegal Mexicans might hesitate to claim their sickness therefor DC needs to give them a perk in order for them to act responsible.

The next biggest risk for global markets is inflation not deflation

China has expressed big interest in this SDR (special drawing rights) as they want to swap out of US bonds and have 2 strategies in place of which one I consider as smart, that is to add to their Gold reserves. To buy an artificial currency bond of an entity (IMF) which has no fundamental backing like tax income. Bonds of the IMF ( which is set up to become the global central bank over time - New World Order) will also be competitive by the interest it may have to pay over US bonds. As soon as the IMF brings volume to global bond markets the Chinese will try to swap into them which is a dangerous idea because the IMF depends totally on the economic outcome of its sponsor countries hence if they suffer IMF does. The real problem remains though that all this quantitative easing by the central banks and even more so the stimulus packages of the nations will dilute soon the global inflation. For now most of that money just disappears into the black hole balance 'cheats' of banks as they have to cover up the immense looses as they carry forward worthless assets on their books marking them with values far above reality. They biggest chunk of those trillions does not circulate in the real economy but as long as credit is shrinking the economy will shrink and hence the losses widen. The ultimate target can only be in this strategy to flood the banks with so much free money that they start lending to get the economies kick start ( the real thing would be to ride out the storm and let the contraction run its course to heal the system). This process has to turn to inflation at some point inevitably rather in a year from here as now people are let into the deception that things are turning to the positive side again. As of Friday earnings decreased by 35% in America and that is overstated on the plus side due to some phony reporting by financial institutions overstating their earnings ( e.g. Goldman just left out one month with the highest losses - that would have halved their quarter). Never the less due to that earnings picture

( Goldman puts it at 45-50$) the SPX should trade at 400 and is by far overvalued at more than double that level. I know by cycle factors and astro patterns that we will stay in this illusion til end of Aug. Unfortunately reality will kick back in with a rude attitude and the worst is still to come thereafter. We will see asset implosion (which some call deflation) and inflation happening at the same time in 2010. As Britain is about to loose its AAA (triple A rating) others will follow over time actually even America does not deserve a AAA anymore but for political reason's rating agencies will not be honest about this kind of issues so do not wait for them to make good calls - they will and can not. The EU tries to stay within some of its lending rules but that will not work out as they already entered the path of printing money for banks hence they will have to expand it for Mainstreet at some point and Germany with big elections ahead they might not admit that fact until after those elections. Money will be unloaded from Helicopters as Bernanke has so famously claimed once. Mainstreet will loose again as they earn today negative interest rates after earning too low interest for 2 decades - they will be srewed by hyperinflation with no money left to save as they will need it all to survive with melting 401 accounts.

Excerpt

Brazil, China and Russia Consider IMF's First Bond Offering

WASHINGTON -- The International Monetary Fund is finalizing plans for its first bond offering and lining up Russia, China and Brazil as potential purchasers, said officials gathered for an IMF meeting.

Brazil, China, Russia and India -- the so-called BRIC countries -- met Friday, in part, to hash out a common position on terms they want to see in such a bond, said Brazilian Finance Minister Guido Mantega. Brazil plans to buy the bonds, he said, to contribute to the quadrupling of IMF resources to $1 trillion.

A new bond "is an important instrument" to help the IMF "meet the capital needs of emerging countries," said Mr. Mantega, who would not estimate how much Brazil planned to buy. .

Russian Finance Minister Alexei Kudrin said Moscow would be a purchaser as well, although he also didn't name an amount. "We'd like to buy IMF bonds," he said after a speech at the Peterson Institute for International Economics. "We're interested." China is expected to buy $40 billion of the bonds, British Prime Minister Gordon Brown said at the Group of 20 summit of industrialized and developing countries early this month. It isn't clear whether India would buy, too.

The IMF has been working on a bond offering since at least January as a way to increase the amount of money it has to lend struggling nations. Japan has made the IMF a $100 billion loan. Brazil and others prefer a bond because they consider it more flexible than making a loan and easier to reverse. "We want ways to get the money back if conditions change," Mr. Mantega said.

The bond would be sold to central banks, not to individual investors. Even so, some IMF critics at development institutions worry that IMF bonds could become competition for developing-nation sovereign debt and increase the interest rates those nations would need to pay. BRIC countries want to make sure the bonds are tradable on the secondary market.

Mr. Mantega said the IMF and the BRIC countries are discussing terms for the bonds, whether they could be counted as part of a nation's reserves, and the interest rate the IMF would pay, among other issues. The yield "can't be very much different from U.S. Treasury bonds," he said. "Maybe just a little more." Negotiations could wrap up by next week, he said.

The IMF didn't comment on its plans to issue a bond. At the London G-20 summit, IMF Managing Director Dominique Strauss-Kahn said the IMF has the authority to issue bonds. "China has said that it could be interesting to use ... this vehicle [rather] than another one," he said at the time.

The bond would probably be denominated in an IMF quasi-currency called special drawing rights. Russian and Chinese officials have suggested that SDRs could eventually replace the dollar as a global reserve currency; having an SDR bond could bring them a step closer to that goal.

Separately, Mr. Mantega said he believed Brazil will avoid a recession this year, with gross domestic product growing 2%, followed by 4.5% growth next year. His estimates are far more optimistic than the IMF's, which this week forecast that Brazil's economy would contract by 1.3% this year and grow 2.2% in 2010.

The FED made a huge mess -Commercial loans are the new hot spot for bank trouble ahead

Commercial loans who are 22% of all loans on books although with a higher concentration on smaller banks balance sheets are the nuke exploding now. After the bankruptcy of GGP (second biggest mall owner). That's the huge systematic problem for banks that every part of their balance sheets are imploding. The zero financing of the FED can not stop that and unfortunately things will get worse as the jobless rate will rise and that will have an impact on all area's of the economy. The mantra which was implemented into all western countries economies was to borrow money and consume or buyback your own stocks - both is insane and any kid can figure out that such a behaviour is doomed to fail. The FED plays a severe role in this misconcept as it came up with its pathetic and weird Fed -model declaring stocks at expensive levels as cheap because of corresponding low interest rates. Those rates were relatively low because the FED created a phony new calculation equation for inflation under Greenspan and taught that to other countries ( the introduction of the EURO is probably one of the biggest crimes in history as they created a new inflation basket at the same time and lied to the people who were outraged about sudden rises in costs). Inflation and growth of economies are 2 parts of the same equation the moment you underestimate the inflation part you automatically overestimate the growth (GDP). That's one of the evil things which president Clinton with Greenspan ( that happens when you make a lobbyist to a FED chairman) did besides deregulating the banks. Greenspan was a big cheerleader of the FED model and was taken up by all investment banks to promote the bull campaign and to develop strategies like getting all CEO' to buy back their own stocks at the highs. Those CEO's were very fond of those idea's since they owned big chunks of stock options ( which they also loved to backdate to coincidentally the lowest prices available). The whole system got to a huge bonanza for executives and too a very expensive for regular stock owners now. Outrages is that all this irresponsible CEO's are still sitting in their chairs and in cases they do not they got away with fat undeserved perks.

Excerpt

Commercial break

Apr 23rd 2009
From The Economist print edition

Disaster looms in yet another asset class

GENERAL GROWTH PROPERTIES (GGP) and the Great Basin Bank do not have a lot in common. One is America’s second-largest mall owner, the other a small bank in Elko, Nevada. But both shut their doors within a day of each other this month because of their exposure to commercial property, the most threatening in a line-up of suspect asset classes.

GGP filed for Chapter 11 bankruptcy protection on April 16th. Its assets, which include the Fashion Show Mall in Las Vegas (pictured) and South Street Seaport in New York, are high-quality and continue to generate decent income. Its financing structure is what got it into trouble. GGP found that it simply could not roll over its debts because of a lack of liquidity.

The second shock wave is that GGP’s bankruptcy underlines a pervasive refinancing risk for the industry. Foresight Analytics, a research firm, reckons that $594 billion of commercial mortgages will mature in America alone between 2009 and 2011. Many of these borrowers will have a big problem when their loans mature. Just as in residential property, the financing terms that were available to property and construction firms got ever laxer as the bubble inflated. Loan-to-value ratios of 85-95% were common in 2006 and 2007. These have now tightened to 60-65% and below for new lending.

That would be bad enough if prices were static. They are not. Commercial-property prices have fallen by 35% or so in America. Richard Parkus, of Deutsche Bank, thinks that 70% of all CMBS issued recently in America will not be able to refinance without a big increase in the capital that borrowers stump up. It is likely to be a similar story with bank lending. Many banks are extending loan terms, hoping that the problem will go away. It will not. A growing overhang of debt will only make it harder for the market to recover. And the full effects of the bust are only just beginning to be felt. Losses on commercial property tend to lag behind rises in the unemployment rate by a year or so, largely because lease terms protect landlords from immediate falls in rental income. (An exception is the hotel industry, where leases are, in effect, renewed daily). The pain is now arriving. Office vacancies in America’s city centres increased to 12.5% in the first quarter, up from 9.9% a year earlier. Delinquencies are spiralling. Write-offs on bank-held commercial-property loans rose sevenfold in 2008.

The potential for further damage to the banks is especially worrying. Morgan Stanley’s first-quarter results on April 22nd included a $1 billion loss on its real-estate investments. But the loan books are where the real concerns lie. Commercial-property loans, including construction and development, account for 22% of American bank loans, up from an average of 14% in the 1980s and 1990s.

Sunday, April 26, 2009

Once in a while a real banker is born - although he lacks 2 qualities no Harvard MBA and not Jewish

That's one way how banking can be done and imagine the regulators probed him because he did not make the same mistakes. That's how insane the whole system has become. I have no idea what all this Ph.D's and MBA get trained for it seems not for using their brains but rather to screw other people for their own benefit which does not work after all as well.

Goldman does not make because of the brains but because they have plenty of the inside information. You may call that clever but actually its not legal and a felony but that's the same way Rothschild's did it but they did not have the legal frame work of today.

Two US Presidents were assassinated because they were outspokenly against a FED and now we are on the brink to create a global version as the IMF will reintroduce an artificial currency the SDR to create bonds as the first step- the Bilderberger are getting closer to their targets.

Excerpt

The Banker Who Said No

Bernard Condon and Nathan Vardi, 04.03.09, 05:00 PM EDT

While the nation's lenders ran amok during the boom, Andy Beal hoarded his money. Now he's cleaning up--with scant help from Uncle Sam.

image

Standing outside the glass-domed headquarters of his Plano, Texas, bank in March, D. Andrew Beal presses a cellphone to his ear. He's discussing a deal to buy mortgage securities. In just a few minutes, the deal's done: His Beal Bank will buy $15 million of face value for $5 million. A few hours earlier he reviewed details on a $500 million loan his bank is making to a company heading into bankruptcy--the biggest he's ever done. A few floors above, workers are bent over computer screens preparing bids for chunks of $600 million in assets dumped by two imploded financial firms. In the last 15 months, Beal has purchased $800 million of loans from failed banks, probably more than anyone else.

Andy Beal, a 56-year-old, poker-playing college dropout, is a one-man toxic-asset eater--without a shred of government assistance. Beal plays his cards patiently. For three long years, from 2004 to 2007, he virtually stopped making or buying loans. While the credit markets were roaring and lenders were raking in billions, Beal shrank his bank's assets because he thought the loans were going to blow up. He cut his staff in half and killed time playing backgammon or racing cars. He took long lunches with friends, carping to them about "stupid loans." His odd behavior puzzled regulators, credit agencies and even his own board. They wondered why he was seemingly shutting the bank down, resisting the huge profits the nation's big banks were making. One director asked him: "Are we a dinosaur?"

Now, while many of those banks struggle to dig out from under a mountain of bad debt, Beal is acquiring assets. He is buying bonds backed by commercial planes, IOUs to power plants in the South, a mortgage on an office building in Ohio, debt backed by a Houston refinery and home loans from Alaska to Florida. In the last 15 months Beal has put $5 billion to work, tripling Beal Bank's assets to $7 billion, while such banks as Citigroup ( C - news - people ) and Morgan Stanley ( MS - news - people ) shrink and gobble up billions in taxpayer bailouts.

Beal has barely got a dime from the feds. A self-described "libertarian kind of guy," Beal believes the government helped create the credit crisis. Now he finds it "crazy" that bankers who acted irresponsibly are getting money and he's not. But he wants to exploit their recklessness to amass his own fortune. "This is the opportunity of my lifetime," says Beal. "We are going to be a $30 billion bank without any help from the government." (A slight overstatement: He is quick to say he relies on federal deposit insurance.) Not much next to the trillion-dollar balance sheets of the nation's troubled banks, but the lesson here might be revealed in the fact that this billionaire is not playing with other people's money--he owns 100% of the bank and is acting accordingly.

It's hard to imagine Beal fitting in at a bankers' convention. He walked into the Las Vegas Bellagio in 2001 and challenged the world's best poker players to games with $2 million pots--the highest stakes ever. Donning large sunglasses and earphones, Beal held his own against the poker stars, once winning $11 million in a single day, although he shrugs that he lost more than he won. At the track he'll drive one of his nine race cars (costing as much as $100,000 each) at 150 mph. On city streets he cruises in a huge Ford Excursion, the vehicle that has made him feel safe since a drunk driver punctured his lungs in 2000. When Ford Motor ( F - news - people ) discontinued the Excursion a few years ago, Beal bought an extra one for storage.

A math whiz who left Michigan State to dabble in real estate, Beal has offered a $100,000 prize to anyone who can solve a number-theory puzzle. Beal launched a rocket company that built the largest liquid-fuel engine since the Apollo missions. After spending $200 million over four years he shut the venture down, saying it was impossible to compete with NASA's subsidies.

In the last 15 years Beal says he has bought only one stock. If he ever thinks of investing in hedge funds or private equity, he says, "Just shoot me." The blunt-spoken Beal shuns publicity and is uncomfortable in the public eye. He concedes he can seem "unprofessional." After 20 years in the business he attended his first bankers' conference last year.

The son of a mechanical engineer, Beal grew up in Lansing, Mich. He ended up in Texas after buying an apartment complex in Waco. He founded Beal Bank in Texas in 1988, opening the first branch next to a Wendy's ( WEN - news - people ), and started purchasing distressed real estate loans from failing banks. Years later he also opened a bank in Las Vegas. Beal Bank has long been a unique animal, mostly buying loans in the secondary market instead of originating them. It was a successful model: In 2000 American Banker declared Beal Bank the most profitable bank in the nation as measured by its five-year return on equity of 50%.

By September 2004 Beal Bank's assets had climbed to $7.7 billion. Then Beal stopped buying, letting his loans run off. By September 2007 assets had shriveled to $2.9 billion, one-fifth of which was cold cash. He was worried that consumers had taken on too much debt and money was being lent to companies for next to nothing. "Every deal done since 2004 is just stupid," Beal says.

He began by pulling back from home loans--even those guaranteed by Fannie Mae ( FNM - news - people ) and Freddie Mac ( FRE - news - people ). Beal thought the two quasi-government agencies were over-leveraged. When staffers mentioned their guarantees in deal presentations he would fire back that these guarantees were "worthless."

Outsiders thought it was Beal who didn't get it. Despite its aversion to credit then, the bank occasionally had to buy mortgages to meet federal low-income-lending requirements. Jonathan Goodman, then head of loan purchases, recalls salesmen from Countrywide laughing at him on the phone when he refused to buy iffy condo paper backed by the two agencies. "Countrywide, Bank of America ( BAC - news - people ), Washington Mutual ... every single [mortgage seller] thought we were insane," Goodman says. "They didn't know why we cared. They thought Fannie and Freddie guarantees were as good as Treasuries."

Beal also stopped making commercial loans. "If I see another office condo in Las Vegas or Phoenix, I'm going to throw up," he said at the time. He started selling, too. At a price of 115 cents on the dollar he unloaded a $75 million pool of loans that had been extended to Kmart, exercise chain 24 Hour Fitness and Regal Cinemas. That translated into a yield for the buyer of a mere 1.35 percentage points over Treasuries. "They were great loans at 85 cents," says Beal, referring to the price he had paid for them years earlier. "They're stupid at 115."

With fewer assets, he began laying off staff, cutting down to 200 people from a peak of 400. "Escorting all those people out the door was awful, the worst moments of my life," says Jacob Cherner, who oversees Beal's lending and debt purchases. Half of the 270,000-square-foot polished wood and Brazilian granite headquarters went dark. (Beal hastens to add he bought the building from an oil company desperate to move only because it was selling at a discount.) He hired agents to rent out the space.

Beal started coming to work at 10:30 and leaving at 2:30. He challenged colleagues to backgammon games and took hour-long lunches, complaining of being "bored stiff," recalls one frequent meal companion, real estate investor Steven Houghton. Then Beal would head home to walk a nearby creek with the youngest of his six children. He took up car racing, too. "I thought it would end in six months, and sanity would return," he says. "If I knew it would last nearly four years I would have thought of something else to do."

In late 2006 he sold $74 million of preferred stock although he had no immediate use for the proceeds. He says he couldn't resist the "stupidly mispriced" terms--as low as Libor plus 1.7 percentage points for 30 years. He wanted as much money available when the boom turned to bust. With the extra money the bank could pay off nearly all its depositors with capital on hand--nearly unheard of in the history of banking.

Then came a shocker: Amid one of the most reckless lending sprees in history, regulators focused on the one bank that refused to play along. Beal's moves confused and worried them, and so they began to probe him with questions. "What are you doing?" he recalls them asking. "You're shrinking yet you're raising capital?"

Says Beal about the scrutiny, "I just didn't fit into any box." One regulator, the former head of the Texas Savings & Loan Department, Charles Danny Payne, says, "I was skeptical at first, but I've gained a lot of confidence over the years," adding that Beal has an "uncanny ability to sniff out deals."

Next, the credit rating agencies started pestering him about his dwindling loan portfolio. They never downgraded him but scolded him for seeming not to have a "sustainable" business model. This while their colleagues were signing off on $32 billion of bum collateralized debt obligations issued by Merrill Lynch.

Then came the summer of 2007, and Wall Street's securitization machine began to break down. Prices on pools of mortgages were falling. Beal was tempted but insisted on inspecting individual loan files. Wall Street refused. Still, he knew his time was coming. To prepare bids he locked himself in his office to write a computer program with 50 variables (now 250), ranging from home price changes by neighborhood to interest rates to origination dates.

By 2008, Wall Street started letting Beal peel off individual loans. He bought a bit, then in earnest when Bear Stearns collapsed. He concentrated first on whole single family residential loans, buying $1.8 billion of those. He has hired 160 people to service residential mortgages, arranging the employees in rows of cubicles one floor below his office. His payroll has more than doubled to 450.

Lately he's been spending on a broad range of assets. Beal just bought a $465 million loan to bankrupt chemical maker Lyondell. He's extended tens of millions to utilities, manufacturers, convenience stores, hotels, casinos--"everything you can imagine, in every state," he says. Many of those assets have come from 15 failed banks, including First Integrity in Minnesota, Arkansas National and First Priority in Florida. Since November he's bought $2 billion (face value) of home loans bundled into securities, too. But he says he's still just picking off loans with a "rifle" not a "shotgun," buying only 3% of what lands on his desk while waiting for the financial system to further "unravel."

To fund his purchases Beal has relied on brokered deposits, known as hot money in the banking business. A year ago Beal Bank had $49 million, but by dangling relatively generous rates on certificates of deposit (0.88% for a six-month CD) brokers have since funneled $1.2 billion into the bank. To replace the brokered funds Beal is building 28 branches from Miami to Seattle, up from 7 at the end of last year.

He's getting scant help from the government. The Troubled Asset Relief Program does not accommodate a guy like Beal because the maximum amount available is 3% of 2008 assets. Had Beal leveraged up his capital to $25 billion and made toxic loans in the last few years, he would now qualify for $750 million. As things stand he can get only $150 million, hardly worth the trouble given the strings attached.

Beal is amply using the Federal Deposit Insurance Corp. to attract small deposits; he isn't approved for the wholesale version of deposit insurance, which goes by the name of Temporary Liquidity Guarantee Program. Launched in October, this federal giveaway has the government backing senior unsecured bank debt. Banks that got too big, like Citigroup, have flocked to the cheap funding, issuing $200 billion. The FDIC's stated purpose is to "encourage liquidity in the banking system," and Beal would love the extra capital, but FDIC staffers have told him, without providing details, that the program was not designed for him. "We must be the only bank that has tripled in size in the last eight months, but we aren't eligible for nothing," says Beal. "The crazy thing is guys who weren't real responsible are eligible."

He thinks the government is going to be "disappointed" by its various programs to revive lending. He says Treasury Secretary Timothy Geithner's new plan to guarantee loans to buyers of toxic assets won't lead to many sales because the problem isn't liquidity but price. They are not low enough. Half the country's banks--4,000 in all--would be bust, he says, if they marked their loans to what the loans would fetch in an auction. He says banks are fooling themselves by refusing to mark busted assets down.

"Banks are on a prayer mission that somehow prices will come back and they won't have to face reality," Beal says. And that reality, according to Beal, is going to get a lot worse. "Unemployment is going over 10%, commercial real estate hasn't even begun collapsing and corporate credit defaults are just getting started," he says. His prediction: depression, without bread lines this time, thanks to the government safety net, but with equal cost to society.

As for the cause of this mess, Beal points a finger at the government for giving its imprimatur to just a handful of credit rating agencies, then insisting that money market and pension funds buy only paper with top grades. He also blames government for luring people into debt by backing everything from bank deposits to Fannie and Freddie to student loans.

A sign in Beal's office reads: "Often wrong, but seldom in doubt." His tenacity led him on a six-year seemingly quixotic quest suing his own regulator, the FDIC, over thousands of terrible subprime loans Beal bought after it seized a failed Pritzker-family-owned bank in 2001. Beal claimed the FDIC made loans to unqualified buyers that did not meet the representations the agency made to him. In December the FDIC settled by agreeing to cough up $90 million.

Now Beal is taking on the IRS. Earlier this year he concluded a trial over big loss deductions he took on nonperforming Chinese loans. He sold them for $9 million less than he paid but used a loophole later closed by Congress to shelter 90% of the $1.2 billion of income he personally earned from the bank between 2002 and 2004. The government disallowed the deductions and was not amused when Beal sued to recover them and tens of millions in penalties imposed. Beal says he was deferring taxable income that he recognized in 2007 and was merely following the tax code. "I am a good guy made to look like a bad guy for doing what every taxpayer does--appropriately use the law to minimize my taxes," he says.

A decision is expected this summer, but don't expect a chastened Beal if he loses. After New York state's highest court ruled against him in a contract dispute in 2007, Beal took out a full-page ad in The Wall Street Journal asking: "When is a contract NOT enforceable according to its clear terms? When it is in the state of New York."

Beal is putting in full days now, much of it spent reviewing loans in his office, which overlooks a construction pit for a new garage to accommodate his expanding staff. One March afternoon a credit officer walks in with a report on a possible $224 million loan at a fat 12% interest rate that an airline needs to buy eight Boeing 737s. Beal peppers him with questions: How much are other airlines ordering? How many similar planes are parked in storage? The staffer mentions that the airline was balking at paying the bank a 1% fee just to get it to formally review the loan. Beal sends the staffer away with these instructions: no fee, no loan.

Next, a guy in charge of bidding for failed bank assets pops his head in the door to update Beal on loans he's recently bought for as low as four cents on the dollar. "[FDIC Chairman] Sheila Bair doesn't like the prices," says Beal, but "you need a margin of error." Then an analyst walks in with details on a $130 million loan to a battery maker for sale in the secondary market. Beal fires off a half-dozen questions probing some vague language in the original loan contract about collateral in case of default, and his face curls in disgust. "This had to be originated in the stupid times," he says, before ruling against making an offer. Then there's something worth a bite. A loan to a power producer was selling at par a year ago. Today a $25 million piece of it is offered at 72 cents, and Beal is buying.

"All these guys were stumbling over each other 18 months ago to pay over par," he says. "Now they can't sell fast enough at a discount. Why do people not do the great deals and do all the stupid ones? It's crazy."

Friday, April 24, 2009

Things keep getting worse although the media tries to paint a rosier picture - even Porsche has to give up

SOUP KITCHENS AND TENT CITIES

Crisis Plunges US Middle Class into Poverty

By Gregor Peter Schmitz and Gabor Steingart

The financial crisis in the US has triggered a social crisis of historic dimensions. Soup kitchens are suddenly in great demand and tent cities are popping up in the shadow of glistening office towers. Even drug dealers are feeling the pinch.

Business is poor in the New York banking district around Wall Street these days, even for drug dealers. In the good old days, they used to supply America's moneyed elite with cocaine and crack. But now, with the good times gone, they spend their days in the Bowery Mission, a homeless shelter with a dining hall and a chapel.

Alvin, 47, is one of them. His customers are gone, as is the money he earned during better times. And when another dealer higher up the food chain decided he was entitled to a bigger cut of the profits, things became too dicey for Alvin. "I'm afraid," he says.

WORST DEPRESSION' SINCE 1930S

Optimism Dips As Economic Downward Spiral Continues

The German economy is sinking precipitously as a result of the global economic crisis, creating the worst downturn since the Great Depression. Politicians and labor leaders are concerned about social unrest, but the government remains firm in its conviction that its not time yet for a third stimulus package.

It's been a bad week for German Chancellor Angela Merkel. At the start of the week, she tried to cheer up her compatriots, saying the economy showed signs it may be bottoming out. Since then, though, it's been one negative economic development after the next.

The German economy is in a nose dive and is already in its worst slump in almost 80 years. Indeed Hans-Werner Sinn, the head of the respected Munich-based Ifo Institute economic think tank, is describing the current crisis as the "worst depression" since the global economic downturn of the 1930s.

Volkswagen Mulls Porsche Takeover

Volkswagen is reported to be pondering a takeover of the Porsche sports car business. Parent company Porsche Automobil Holding is struggling to service its debts and CEO Wendelin Wiedeking is reported to be losing the backing of the Piƫch and Porsche families.

The Porsche-Volkswagen corporate saga continues with reports that Volkwagen is considering a bid for Porsche's automotive business, something that could completely change the balance of power between the two companies. Parent company Porsche Automobil Holding SE launched an audacious takeover of the much larger VW over three years ago, and it now owns just over 50 percent of the company. However, financial difficulties at Porsche, including massive debt, seem to have forced a rethink of the relationship between the two German carmakers.

Will Taxpayers Have to Bail Out EU Parliament Pension Fund?

The economic crisis has hit countless retirement funds, including that of members of the European parliament. They may take the controversial step this week to use taxpayers' money to top up the pension fund.

Despite denials from Brussels, EU taxpayers are to foot the bill for hefty and legally controversial pension supplements for many members of the European parliament. Their pension fund has run up a loss of €120 million ($156 million) as a result of risky share investments, according to an internal memo of the secretary-general of the European Parliament.

The stress test is again a charade and a PR event which will fire back

Most Banks Have Enough Capital After Stress Tests? Who are they trying to fool? US banks do their own projections is bluntly irresponsible. They had their pathetic risk models which never worked and they do not have intentions to speak the truth. If AIG would not have been used to bail out the various banks even Goldman would be broke in what kind scenario that might have showed up I do wonder.

Thats the most pathetic criteria for a stress test I could imagine and as Ms Whitney said absolutely correctly letting the banks give projections on insane positive worst case scenario's is completely outrageous ( she said it more diplomatic though). Now we ask the same guys who said 1 and 2 years ago everything was fine to repeat the same lies. Jobless figures of 10 % and only a growth of 0.5% even contradicts the IMF projections what will be ( not that they were specifically good as they do revise them on a monthly basis) but that is even not worst case scenario. A prudent stress test would try to see how a depression scenario plays out or a continued contraction til 2012 and the assessment of the balance sheets had to be done by outsiders its not that complicated bank analysts do that all the time and Ms Whitney was quite right with her projections ( except onetime on Lehman).

The 100 days for Obama to prove himself are over and reality bits - I do not see any change just some opportunistic stuff like closing Guantanamo which has been replaced by other facilities. He apparently approved of almost anything what Bush did the only difference is his attempt in foreign policy as he meets CUBA,Venezuela and Iran half way but that are random events as at some point soon we will have him challenged by reality. When it comes to the way he deals within the crisis and especially the ones who caused it directly the financial institutions. He gets a 'D' by me as he cannot be very serious about it with the advisors he appointed is very obvious. The latest move to let Emmanuel say that he stands 100% behind Bernanke disqualifies all his speeches of 'change' - how could he as one of his biggest sponsor's were Goldman and friends.

Excerpt

By: Albert Bozzo, Senior Features Editor | 24 Apr 2009 | 02:17 PM ET

The US government, releasing details of how it conducted "stress tests" on the nation's 19 largest financial institutions, said “most banks currently have capital levels well in excess of the amounts needed to be well capitalized."


The report said the tests are a “forward-looking exercise designed to estimate losses, revenues and reserve needs” under two different macroeconomic scenarios, including an adverse one.

According to the report, the "banks were asked to project their credit losses and revenues for two years."

The process "involves the projection of losses on loans, assets held in investment potfolios and trading-related exposures, as well as the firm's capacity to absorb losses in order to determine a sufficient capital level to support lending."

The stress tests included two economic scenarios. In terms of the unemployment rate, the worse case was assumed to be 10 percent, housing prices are assumed to be 10 percent lower at the end of 2010 than the more likely baseline scenario. The baseline jobless rate averages 9.8 percent.

In terms of GDP scenarios, the stress tests assume baseline levels of minus 2 percent in 2009 and plus 2.1 percent in 2010.

The adverse scenario levels are negative 3.3 percent this year and growth of just 0.5 percent next year The tests also ask banks to provide projections of "resources available to absorb losses under two scenarios" over a two-year period.

The tests also ask banks to provide projections of "resources available to absorb losses under two scenarios" over a two-year period.


Reaction to the criteria and methodology of the tests was muted.

The government last week announced a two-stage disclosure process, wherein the test criteria would be outlined today and the actual test results on May 4.


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