Don't Be A Hero Until C and GM Are Zero

Discussion in 'Stocks' started by Pa(b)st Prime, Jan 22, 2009.

  1. "Shedding shareholders" will be a lexicon of Bailout Nation.

    There's a lot of stocks headed to zero. Until the massive fallout from a few major symbols heading to Tape Cemetery is fully digested - there's no sense in looking for anything beyond short lived rallies. As I said two days ago this Geithner appointment is an albatross on the market.

    Apparently there's no other Jew Banker de jour who can liquefy America's banks with Dollar-Bolivars. It's almost as if the Obama economic team is thinking, "only Geithner will do. We need an institutionalized, expert inflater to cure asset depression."
    Bad shit.
  2. Shorted some of GM's GTZ puts and went long unsecured debt. There was a nice pop in the latter, flipped out of it, and can ride out the short-put position to expiration without any worries.

    Banks - that is tough. Estimating the "no nationalization" premium in XLF at ~100% and took a short gamma position accordingly. But that is a finger in the air estimate at best - position also sized so I can sleep at night.

    On a fully-assigned basis, currently 2/3 cash. If a company with as pristine a balance sheet as AAPL only gets an ex-cash PE in the single digits, people really need to start thinking about how overvalued the rest of the market might be.

    Last SPX earnings estimate I saw for '09 said $53, which is completely inconsistent with the an economy supposedly needing trillion dollar bailouts and negative interest rates. Somebody is going to be very very wrong in '09.
  3. Daal


    True, Paulson still had some hopes of private capital so he spared C from being wiped out, maybe the Obama administration will be less shy about nationalization
  4. m22au


    Although this thread:

    and this site

    suggest that nationalisation for some insolvent banks (eg. BAC and C) may be announced this weekend, I am not so sure.

    There are a few good reasons why C and BAC may not be nationalised:

    I find it more likely that the US govt will continue to throw good money after bad.

    Having said that, the USD amount of preference shares injected into C and BAC is higher than the current market caps of these companies. Furthermore the dividends are now 1 cent per share.

    So even though they have not been formally nationalised, they are taking on that appearance in any case. ie, the stocks could drift towards zero by themselves, even without additional capital injections / nationalisation. This was discussed in this article:

  5. m22au


    Another thought about the potential for nationalisation of BAC and C and others:

    Although my view is that BAC and C won't be formally nationalised, I could be wrong if it becomes a self-fulfilling prophecy.

    Eg. in the UK, part of the reason for the decline in RBS, Lloyds and Barclays is that there is good reason nationalisation will happen, because the UK govt has not given shareholders generous terms for the RBS and Lloyds capital injections.

    (This contrasts to the US where capital injections to C / BAC and GM have been on generous terms, especially C in November 2008.)

    So even if you think that Barclays (the best of the three) is a good investment at 50p, you need to consider the possibility that the UK govt could nationalise the bank as soon as this weekend.

    Likewise in the US, if the share prices of C and BAC and others continue to decline, then it becomes harder for a IS government capital injection to happen without taking control of the banks. The downward spiral in the share prices can then become self-fulfilling.

    This is somewhat similar to what happened to FRE and FNM between July and September 2008.
  6. Daal


    Another important point is that all the loud Paulson critics were saying the Treasury needed a 'buffett' type deal for injecting money into banks are all flip flopping and saying common equity is needed instead of preferred, that includes Soros and a bunch of 'bash first think later types' like bloggers and also reasearch firms. I woulnd't be surprised if geithner followed that path

  7. m22au


    Another thought #2:

    That the shorting ban might be reintroduced:

    However, since the ban was lifted last week, banking shares have taken a pounding but the FSA’s chairman, Lord Adair Turner, defended the return of short-selling and told the BBC there was no evidence that this practice had led to this week’s falls in banking shares.

    Lord Turner added that there has been no indication that short-selling or abusive short selling is a major role, and if there is, he is prepared to reinstate the ban if necessary. selling of financial securities?opendocument

    Wednesday 21 January 2009

    ASIC today said it would keep the ban on covered short selling of financial securities in place until Friday, 6 March 2009.