Thought about reviewing some leading indicators to see if a bearish thesis is still correct -The biggest of all should be housing. Is housing coming back? I try not to listen to most of the 'green shoots' in housing, because the S&P is up huge, this makes people extremely biased especially if they are long the market, they will hand pick anything that is jumping around to make their case. The biggest sub leading indicator of foreclosures is Notices of Default and they are surging in CA, other states as well, resets in AltA are set to increase over the course of the next year. Banks are said to have 800K in shadow inventory of homes(And if you consider the fact that in CA 90% of the foreclosed homes don't sell, thats very likely to be true). Rogoff research suggests housing bottoming in real terms in 2011/2012, I cant see many green shoots here -Credit markets are improving quite a lot in terms of lower interest rates in corporate bonds, CDS spreads, libor, so this is a big green shoot. The problem is that net bank lending is going down every month, loan originations at TARP banks are also going down, securitization(50% of past US lending) is very also anemic with TALF. The Senior Loan Survey is showing less banks are tightening credit but you ought know how to read this survey, thats additional tightening on top of the tight credit from the last survery so there is a second derivative here but not much else
Buffett said no signs or rebound in housing or retail. That research enough for me. Of course the market will do whatever it wants. In 1929 it bounced 48% before resuming its decline. in 2009 the bounce is 36%
Bernanke said âTo the extent that there are banks that need capital, our hope is that many of them will be able to raise that capital through either private equity offers, or through conversions and exchanges of existing liabilities,â Looks like they are considering debt to equity swaps, however that idea of 'haircut' authority like roubini or hussman wants is flat out insanity. Imagine if obama had haircutted Chyrstler secured debt citing 'systemic concerns' in order to help out the unions, you are talking about a massive uncertanty in the credit markets as the market realizes the government has an axe which they will use for political and other reasons, credit market would likely sell off huge. Market would be spooked thinking there is no rule of law
This rally has cost me 20% of my networth. If I backout the beginning of the year profit it gets down to about 12-14%. One mistake here was not taking more profits at the low, I only covered WFC, I should have done it on COF(because I own a LEAP), C($1 attracts gamblers), JPM(financials too oversold), GS(relative strength). But the bulk of the losses werent even the shorts, they were typical positions where I was just trying to capture 1-2% gains plus I had some longs, the problem was buying sizable puts in other names(MET, ACC, JPM, CAL, others) in April as the rally went on, when the VIX fell that hurt me The way I will get my own bailout is if one of my puts get significantly ITM in the case one of these companies fail or plunge. The trouble is some of the puts are for Sep, its possible that is not enough, specially in this delusional market
Cdn, Yup, this market seems so overbought its like SPY has turned into XLE last year http://bespokeinvest.typepad.com/bespoke/2009/05/breadth-by-the-50day.html This indicator tends to run in cycles JPM at $37?lol, the most optimistic earnings estimate for 2010 is $3.85 a share, so if the best case scenario plays out, then JPM is... fairly valued, in the worst case the stock has a 37x earnings multiple
The market is in such happy mood that it could take Al-Qaeda nuking several US cities to get it to go down a lot, even then we might have a "turn around" day after as the market recovers 80% of its losses on the bloomberg headline "US stocks rally lead by banks on speculation the extermination of the US population will be smaller than expected"
next on tap: Geithner said the PPIP should be âup and running in the next four to six weeks.â Geithner said expects some banks will repay TARP. Geithner expects banks will have no problem raising capital.
The stress test results of $600b in losses is almost certainly not priced in the bank stocks in terms of EARNINGS estimates. The stock market seems to be pricing in 2% gdp growth in 2010, plus some growth this year. The stress test is showing to the market "if you are wrong heres what will happen", when the market realizes the stress test is a likely outcome instead of its own rosy forecast bank shares are headed straight down, we are talking little or no earnings for a lot of these banks, the market wont stay paying premiums for risky shares forever
Well I shorted some FITB today. Maybe other banks monday. Must be time for Meredith Witney to take them down soon.