Financial collapse through my eyes
Prelude
It’s been a year since the official start of the recession. Many have suffered and we have all earned a few strands of white hair. But one year is just a convenient number for the media. After reviewing my trade journal, I realized that the reality of the recession is a multifaceted domino effect. Soon, the official body of finances will declare the end of the recession and we can all move on to our merry old ways.
Can we? The length of this recession is second only to the Great depression. Something of this length will always have ripples. I hope that you are all prepared to face that eventual outcome. In any case, here is my trade journal since 2006 that tracks the major events in the financial market. It’s quite long and captures what I feel at each steps of the way. I had some reserves about publishing this since it somewhat reveals the state of my financial situation, but I think my current position is sufficient different from the period this tracks that I don’t mind revealing it. You can also see me progress and evolve in my thinking as a investor and trader.
Note: There are some graphs lost during the copy and paste from my personal wiki. I will add these on as time progresses.
The Logs
September 2006, The subprime mess started where default rate started to rise and reports of illiquidity started appearing. These subprime mortgage companies have a valuation of several hundreds of millions in market value. Amongst those, the biggest of them is CFC (Countrywide Financial). We see the first dip in the market as the smart people sold and got out of everything. However, the overall stock market continued to climb
The climb continued till summer 2007, the subprime sector has been completely wiped out and reports of defaults started appearing in Alt-A loans (the next tier).
Note: The major subprime players are: New Century Financial (NEW), Fremont General (FMT), HSBC (HBC), Citigroup (C), Countrywide (CFC), Washington Mutual (WM)
February 2007, Asian market crashed for 15%, S&P followed. In hindsight, this is also where the 100 SMA crossed 200 SMA and the net cash flow is out
March 2007, Estimated 1.3 Trillion subprime mortgage outstanding, with 600 billion made in 2006 which represents 40% of mortgage loans. In the years 2004 and 2005, it account for only 20%. The year 2007 sees the peak delinquency of loans originated in 2003 and 2004.
March 12 2007, New Century Financial shares suspended trading.
April 7, 2007, New Century Financial files for Chapter 11
July 2007, Bear Sterns seizes 3 of its hedge funds that trades subprime securities
August 6, 2007, American home mortgage files for Chapter 11
October 2007, we see the first report of the mess spreading into the traditional banking sector in the form of CDO (Collateralized Debt Obligation) and ABS (Asset backed securities). These are fancy names invented to cut up and mix different types of assets together (Mixing AAA with Alt-A) so that the rating agencies will rate it AAA+. It turns out that the ratings agency were working with companies like CFC so that they can both make money. False valuation houses and assessments of people’s financial were blurred to give as many people a mortgage as possible. The first major dip in the market occurred. CFC agreed to be bought out by BAC with a pure stock offering at approximately $4Bil.
Dec 2007, rate freeze for subprime mortgages in effect. Small market rally
Note: CDO volume: US$ 157 billion in 2004, US$ 272 billion in 2005, US$ 552 billion in 2006 and US$ 503 billion in 2007
April 2008, Bear sterns, the first reputable financial firm to fall. A case of too much exposure to subprime and overleverage. $40Bil wiped out within a week. The development was too fast due to the management hiding information from everyone. Prompting the fed to move in and force a sell while guaranteeing $25Bil in assets. The firm started by saying that it has no exposure to subprime at all. A technically valid term except that it has full exposure to the subprime from CDO and ABS due to the firesale and devaluation of houses.
July 2008, Crash in full effect. IndyMac, a deposit bank spun off from CFC recklessly loaned to home owners to get mortgage payments. Senator Schumer’s call to investigate its books brought about the first official physical bank run for a long time in the US. The failure costed 8.9Bil for FDIC. At this moment, I estimated that the FDIC can take approximately another 5 big failures like this as its fund has only $50.8 Bil
July 21~August 12 2008, SEC enacted naked short selling rule. Requiring naked short sellers to prove that they have the stock on hand before naked short selling. 19 Financial firms were protected
- BNP Paribas Securities Corp (BNPQF, BNPNY)
- Bank of America Corporation (BAC)
- Barclays PLC (BCS)
- Citigroup Inc (C
- Credit Suisse Group (CS)
- Daiwa Securities Group Inc (DSECY)
- Deutsche Bank Group AG (DB)
- Allianz SE (AZ)
- Goldman Sachs Group Inc (GS)
- Royal Bank ADS (RBS)
- HSBC Holdings PLC ADS (HBC, HSI)
- J.P. Morgan Chase & Co. (JPM)
- Lehman Brothers Holdings Inc (LEH)
- Merrill Lynch & Co Inc (MER)
- Mizuho Financial Group Inc (MFG)
- Morgan Stanley (MS)
- UBS AG (UBS)
- Freddie Mac (FRE)
- Fannie Mae (FNM)
August 2008, Warren buffet declares Fannie Mae and Freddie Mac “DEAD”
September 6 2008, Government bailed out Fannie Mae and Freddie Mac, the largest mortgage originator. They have over leveraged over the years by abusing the status of GSE (Government Sponsored Entity). Which allowed them to have leverage ratios unseen in any other financial institution. The bailout wiped out any preferred shares and normal shares, eliminating dividends. But senior debts are still paid. This move saves foreign investors asses. Otherwise, the US’s reputation will forever be tainted. FNM and FRE were seen as the equivalent of US treasuries, due to their status which is the only reason why foreign investors are interested.
September 15, 2008, Chapter 11 bankruptcy filing by LEH (Lehman brothers) and $50 bil buyout of Merrill Lynch by Bank of America (0.8575 BAC shares for each MER). Stock market plunged by 4%. LEH is a big player in credit default swaps so there are a lot of counter party claims that needed to unwind. The largest exposure to LEH are surprisingly foreign banks in Taiwan. LEH shopped for buyers for a week and couldn’t find many. By now, foreign wealth funds (dumb money according to Warren Buffett) has already overtaxed themselves and are weary of any acqusitions in the US.
September 16, 2008, the street turned to AIG (American Internationals Group), the insurer for credit default swaps as speculations about its liquidity arises. Add hurrican Ike’s 8 billion dollars in insurance claim, shorters are converging on this stock as the next one to fall. The speculation that a firesale of assets will make everyone’s book value decline. The fact that each financial system buys some pieces of the other financial systems ensures that a cascade effect will occur. Banks are increasing the interbank interest rate in order to hoard cash and sail through this storm, making it difficult for firms without a steady income stream to survive. Although the Fed said it has opened its discount window to investment banks or “anything too big to fail” AIG’s request for 40 Bil in funds was refused. Resulting in the plummet of its stock price. The fed realized its error and later lend 20Bil while allowing AIG holdings group to borrow from subsidiaries.
Summary of tresury, So far, the tresury spent 35Bil on Bear Sterns, 20 Bil on FNM and FRE (with promise of 300Bil total) and 20Bil on AIG. It seems as though the tresury has ran out of cash at 75Bil.
September 17, 2008, FED bailout of AIG for 85Bil. SEC reenacted short selling rule. Making it fraud for failure to deliver stocks on short selling. Treasury raises cash for the FED for 40Bil. Looks like the fed is running out of money.
Tally of government, The Federal Reserve has backstopped the purchase of Bear Stearns to the tune of $29 billion. It will loan $85 billion to insurer AIG. It’s letting banks borrow up to $150 billion using risky mortgage-backed securities as collateral. And it’s letting investment banks, which it doesn’t regulate, get short-term loans using the central bank’s discount window.
The Treasury, meanwhile, has pledged to backstop Fannie and Freddie up to $200 billion. Lawmakers passed legislation allowing the Federal Housing Administration to insure up to $300 billion in loans for troubled borrowers. They’re likely to loan $25 billion to the auto industry.
September 18, 2008, Gold, oil up, but other commodities down. New rules on naked short selling considers it a fraud for failure to deliver the stocks that you shorted. Making it mandatory for the transaction to settle (5 days) before you can short. Financials recovered a bit.
Note, Visa down to $60 from $75. I do not understand why since it has not assets affected. Could be because the failure of financial firms means less cards used. Also, firms with large chunks of assets are really feeling it as we are expecting a 30% decline in house prices, which directly affect the value of these assets.
September 19, 2008, SEC bans short selling. European exchange bans short selling
September 25, 2008, Warren Buffet buys 5 billion Goldman Sach’s shares. With a preferred dividend of 10%, more than anyone can get.
September 26, 2008, Congress failed to reach an agreement on the bailout due to Republican John McCain’s proposal of an insurance type of bailout by the government. Washington mutual failed and sold to JPMorgan Chase for 1.7 Billion. JPM immediately marked down 30 Bil in assets and raises 10 Bil in capital.
Note: Thoughts on the insurance method instead of the 700 billion bailout
- AAA+ rating on banks’s debt
- Banks still have to declare loss = stop lending
- Can sell assets = people willing to buy
- Default = taking the loss
- Banks pay for insuring = less capital
- Costs for banks to do business goes up = illiquid
- WHO BENEFITS???
- Banks?? Small timers with little assets
- Small with full subprime assets
- Normal assets will not default, but marked down in value. So banks with “REAL” assets will suffer
- Population? No dilution immediately, but rising cost as time goes on.
September 29, 2008, Wachovia bank failed and was taken over by Citigroup. US congress vote on the 700B bailout did not pass. Stock market in free fall.
September 30, 2008, Redemption deadline for hedge funds that require 3 months notice before years end. We will see a 20% drop from now to the new bottom. Systematic failure of each sectors of the finance industry.
Ocrober 1, 2008, SEC introduces new mark to market rule which allows banks to use internal estimates to value their assets instead of marking it down at fire sale prices.
NOTE: THIS IS HUGE and banks are allowed to include this in their next earnings’ release. Meaning the rebound should be in the 4th quarter.
Ocrober 8, 2008, Fed, with the coordination of other central banks, cut .50% from the interest rate to 1.50
October 15, 2008, Warren Buffet wrote an article on newspaper saying: Buy American
October 23, 2008, Wachovia bank reported 25Bil loss
October 24, 2008, Report of hedge fun selling assets to meet redemption starts. Expect a lot of hedge funds to fail.
October 27, 2008, Data shows that September shows the first increase of home sales. So far, no sector is recession proof. Everything went down. Even gaming and Pharma are down.
November 05, 2008, The market rallied by a lot the day before the election results, but started really low after Obama, the Democratic nominee got into power. Because of his policy, I predict that pharma and renewable sectors are going to pick up while military contractors and others are going to go down. It’s perplexing why the market started with -1% though. I thought the financial sector wanted Obama so fixes can be done. Perhaps it is because the financial sectors has been pro Republican for so long.
Another thing to note. This election, it is because of woman and college freshmen who got registered by the Obama campaign that made him win with such a wide margin. Otherwise, I think it will be a 50/50 like last time.
NOTE: This guy rose to fame by predicting the election result to within 1% http://www.fivethirtyeight.com/
November 13, 2008, The treasury officially abandoned the previous plan after spending 280 billion buying up troubled assets. They are instead buying up bank shares as well as setting in place a new lendinig facility to buy up loans and bonds of consumer credit lending facility. The problem has now spread into the general economy where jobless claims and consumer spendings have declined sharply in one month. The DOW dropped to 8000, BAC, my biggest stock owned dropped below my purchase price of 20 to 15. I have lost so much. Not sure if I can handle this.
November 14, 2008, Another redemption deadline for hedge funds. When will this end? What other sectors are there which presents a flood gate?
November 18, 2008, One of the best video game software producers Activision is dragged down and tracking the market with -40% (Tracking NASDAQ performance). Current standing at Gamestop with three of its titles on the top 10. It recognized merger cost in the previous quarter, which is probably why its stock has been dragged down. It also initiated a 1 billion stock buy back plan. Current EPS is at 26.92. Revenue keep on increasing and the only thing dragging it down right now is the restructuring cost. I really don’t get how the market can devalue it 45%. On a bubble economy, the EPS is around 18 on average for everyone.
November 19, 2008, List of companies that participate in the bailout. From MoneyNing
Ever wonder how many companies announced plans to participate in the US’s government TARP (Troubled Asset Relief Program)?
I did a little digging and as of November 18th, there were at least 25 companies either approved or planning to participate. Here’s an unordered list.
- First Midwest Bancorp Inc. (FMBI) – Received preliminary approval for about $193 million worth of investment
- South Financial Group Inc. (TSFG) – Applied
- CoBiz Financial Inc. (COBZ) – Plans to apply
- E*Trade Financial Corp. (ETFC) – Applied for $800 million
- Associated Banc-Corp. (ASBC) – Preliminary approved for $530 million
- Capital Pacific Bancorp (CPBO) – Preliminary approved for $4 million
- Fulton Financial Corp. (FULT) – Filed an application for about $375 million.
- Trustmark Corp. (TRMK) – Preliminary approved and will issue $215 million in senior preferred shares and $32.3 million in common shares.
- Pacific Capital Bancorp (PCBC) – Preliminary approved for about $188 million
- Heritage Commerce Corp. (HTBK) – About $40 million was preliminary approved
- Banner Corp. (BANR) – $124 million was approved in senior preferred, $18 in common shares
- Columbia Banking System Inc. (COLB) – $76.9 million was preliminary approved
- Heritage Financial Corp. (HFWA) – $24 million in senior preferred, $3.6 in common stock.
- Bridge Bancorp (BDGE) – Considering participation
- Cascade Financial Corp. (CASB) – About $39 million
- Midwest Banc Holdings Inc. (MBHI) – About $85.5 million in preferred, $12.8 million of common stock.
- Goldman Sachs – part of the initial 9 banks that the government bought equity stakes into, along with the 8 below
- Morgan Stanley
- J. P. Morgan Chase & Co
- Bank of America
- Merrill Lynch
- Citigroup Inc.
- Wells Fargo & Co.
- Bank of New York Mellon
- State Street Corp
As I know, the TARP is a 5 year program that allows banks to borrow at 5%, an amazingly attractive rate given the circumstances. Do you have any relationships with these banks? Are you scared that so many already announced their desire to participate (and many more assumed to have applied but without any announcements yet)? Does it really matter to you?
November 20, 2008, Crude oil price falling below $52. DJIA falls below 8000 points, erasing 10 years of advancement. Canadian oil sands profitability noted as around $30. $52 is estimated based on sales and labor cost.
November 24, 2008, US government guarantees $306 billion of home loans, commercial mortgages, subprime bonds and corporate loans in citigroup. Add on to that, a $20 billion infusion of investment in preferred stocks. Getting 27billion shares that pays 8% dividend. Citigroup shares dropped 60% in value last week and jumped back 40% this Monday after the news. The deal is arranged in such a way that Citi takes the first $29 billion loss and the US citizen takes the next $250Billion
November 25, 2008, US congress promises to draft a $600 billion bailout to buy up mortgages for Obama to sign when he gets into office.
November 26, 2008, BCE buyout by Ontario teacher’s pension plan gets delayed again. The buyout prices BCE at C$34.8 billion with $42 per share. The arbitrage was at $38 so represents a 10% premium. I was actually contemplating this yesterday as the deal is supposed to close on Dec 11. I wasn’t sure of the deal so I did some digging on the financial health of all the involved player. The first warning sign was Citigroup and the second is the fact that the Teacher’s pension plan is losing $ 12 billion per year with total assets of $108 billion. The original plan was for Citigroup to sell bonds of this deal to hedge funds with a 10% interest. Which, if I am correct means that they are paying out 5 billion per year to bond holders. It’s operating income is about $2.2 Billion per year with last year being the best at $4.4 billion ($2billion of which from a suspiscious “Other income” category). I am glad that I decided NOT to join in the arbitrage.
Under terms of the deal announced on June 30, 2007, Teachers Private Capital will hold a 52 percent stake in BCE, Providence 32 percent, Madison Dearborn 9 percent, and other Canadian investors 7 percent.
Decenber 04, 2008, Central banks all around the globe cut lending rates in huge chunks. Euro reduced 0.75% and New Zealand by 1%. Major banks started to cut the mortgate rate in 5 year and longer term mortgages.
Decenber 15, 2008 Bernard Madoff managed hedge fund giant 50 Billion Ponzi scheme discovered. Victims include funds of funds, rich people, charities and old rich retirees. Using current depositor’s money to pay out the 1% payout each month. Former chairman of NASDAQ stock market. 10 years +Â of investing experience.
He is as close a figure to “Warren Buffett” as possible. Confidence in hedge fund is going to collapse and full liquidation is going to happen. After this, who can trust any fund manager?
December 31, 2008 More on the Bernard Madoff scheme unraveled. He basically paid the old depositor’s interest with new depositor’s deposit. FBI agents were tipped off by Madoff’s own son. The fund’s equities are insured with the SIPC. SIPC has $1.5 billion in assets. The scheme is said to be 50 billion.
People that caught Madoff’s scam: Aksia LLC, Harry Markopolos, Joe Aaron
People who might have conspired with Madoff: Avellino & Bienes, from 1983 to 1993, Fairfield and Union Bancaire Privee, Frank DiPascali, David G. Friehling, Jacob Ezra Merkin (Ascot Partners LP)
Investors who lost the most:
- Fairfield Greenwich Advisors, $7.50 billion
- Tremont Capital Management, $3.30 billion
- Banco Santander, $2.87 billion
- Bank Medici, $2.10 billion
- Ascot Partners, $1.80 billion
- Access International Advisors, $1.40 billion
- Fortis, $1.35 billion
- Union Bancaire Privée, $1.00 billion
- HSBC, $1.00 billion
| Fairfield Sentry (Fairfield Greenwich Group) (Madoff feeder fund) | alternatives firm | $7.5 billion | firm statement |
| FIM Ltd. (Kingate funds manager) | money manager | $3.5 billion | media reports |
| Grupo Santander | bank | $3.5 billion | El Pais |
| Rye Investment Management (Tremont Group) (Madoff feeder fund) | hedge fund | $3.1 billion | Bloomerg News |
| Kingate Management (Madoff feeder fund) | alternatives firm | $2.8 billion | Bloomerg |
| Bank Medici of Austria | bank | $2.1 billion | Bloomberg |
| Ascot Partners (Madoff feeder fund) | hedge fund | $1.8 billion | Wall Street Journal |
| Access International Advisors | hedge fund | $1.4 billion | Bloomberg |
| Fortis Bank Nederland | bank | $1.35 billion | firm statement |
| HSBC | bank | $1 billion | firm statement |
| J.P. Jeanneret Associates | investment adviser | $946 million | Syracuse Post-Standard |
| Benbassat & Cie | bank | $935 million | Le Temps |
| Union Bancaire Privee | bank | $846 million | Le Temps |
| Natixis | bank | $600 million | Bloomberg |
| Royal Bank of Scotland | bank | $600 million | published reports |
| Sterling Equities | investment firm | $500 million | New York Post |
| BNP Paribas | bank | $475.3 million | Bloomberg |
| BBVA | bank | $404 million | Reuters |
| Fix Asset Management | alternatives firm | $400 million | firm statement |
| Carl and Ruth Shapiro | individuals | $400 million | WSJ |
| RMF (Man Group) | alternatives firm | $360 million | firm statement |
| Reichmuth Matterhorn | bank | $330 million | Bloomberg |
| Normal Holdings | . | $302 million | StreetInsider.com |
| Pioneer Alternative Investments | alternatives firm | $280 million | Bloomberg |
| Maxam Capital Management (Madoff feeder fund) | fund of hedge funds | $280 million | WSJ |
| EIM Group | bank | $230 million | Le Temps |
| Ira Rennert | individual | $200 million | FINalternatives |
| Bank Austria | bank | $192.1 million | Der Standard |
| Tremont Capital Management (Tremont Group) | fund of hedge funds | $190 million | firm statement |
| M&B Capital Partners | money manager | $187.9 million | El Mundo |
| Jerome Fisher (Nine West founder) | individual | $150 million | media reports |
| Carl and Ruth Shapiro Family Foundation | charity | $145 million | Boston Globe |
| Yeshiva University | university endowment | $140 million | Bloomberg |
| Aozora Bank | bank | $137 million | firm statement |
| AXA | insurer | less than $135 million | Reuters |
| Credit Mutuel | bank | $124 million | Bloomberg |
| Dexia | bank | $106.9 million | firm statement |
| UniCredit | financial firm | $100 million | Bloomberg |
| Hadassah | charity | $90 million | JTA |
| Unione di Banche Italiane | bank | $84.9 million | Bloomberg |
| Nordea | bank | $65 million | Reuters |
| Hyposwiss | bank | $50 million | Reuters |
| Korea Life Insurance Co. | insurer | $50 million | Yonhap News |
| Banque Benedict Hentsch | bank | $47.5 million | firm statement |
| Royal Dutch Shell | pension | $45 million | Reuters |
| Great Eastern Holdings | bank | $43.9 million | Reuters |
| Town of Fairfield, Conn. | pension fund | $42 million | Associated Press |
| Royal Bank of Canada | bank | $40.4 million | Globe and Mail |
| Wolosoff Foundation | charity | $38 million | FINalternatives |
| Bramdean Asset Management | alternatives firm | $31 million | WSJ |
| family of Sarah Chew | family office | $30 million | Time |
| Mortimer B. Zuckerman Charitable Remainder Trust (New York Daily News owner’s charity) | charity | $30 million | CNBC |
| Arthur I. and Sydelle F. Meyer Charitable Foundation | charity | $29.2 million | Palm Beach Post |
| Sumitomo Life Insurance Co. | insurer | $22 million | Bloomberg |
| Madoff Family Foundation | charity | $19 million | WSJ |
| Los Angeles Jewish Community Foundation | charity | $18 million | Jewish Journal |
| KSM Capital Advisors | investment firm | $15 million | Indianapolis Business Journal |
| The Phoenix Holdings | insurer | $15 million | firm statement |
| Harel Insurance Investments and Financial Services | insurer | $14.2 million | firm statement |
| Alicia Koplowitz | individual | $13.7 million | Europa Press |
| Groupama | insurer | $13.6 million | firm statement |
| Societe General | financial institution | less than $13.5 million | Reuters |
| Baloise | insurer | $13 million | Reuters |
| Lautenberg Family Foundation | charity | $12.8 million | media reports |
| Kas Bank | bank | $12.3 million | firm statement |
| Massachusetts Pension Reserves Investment Management | pension | $12 million | Reuters |
| Mitsubishi UFJ FInancial Group | financial institution | $11 million | Bloomberg |
| Richard Spring | individual | $11 million | WSJ |
| Hampshire County Council | pension | $10.7 million | IPE |
| RAB Capital | hedge fund | $10 million | Reuters |
| Richard Roth | individual | $10 million | FINalternatives |
| United Jewish Endowment Fund | cahrity | less than $10 million | JTA |
| Korea Teachers Pension | pension | $9.1 million | statement |
| Robert I. Lappin Charitable Foundation | charity | $8 million | Washington Post |
| Michael Roth | individual | $7.5 million | FINalternatives |
| Chais Family Foundation | charity | $7 million | WSJ |
| Jewish Federation of Greater Los Angeles | charity | $6.4 million | media reports |
| Technion-Israel Institute of Technology | university | $6.4 million | Globes |
| Vincent Tchenguiz | individual | $6.3 million | FINalternatives |
| The Ramaz School | school | $6 million | FINalternatives |
| Irwin Kellner (named plaintiff on first lawsuit against Madoff) | individual | $6 million | lawsuit |
| Julian J. Levitt Foundation | charity | $6 million | WSJ |
| Stony Brook University Foundation | university endowment | $5.4 million | Bloomberg |
| David Berger | individual | $5 million | FINalternatives |
| Maimonides School (Boston) | school | $5 million | Bloomberg |
| Neue Privat Bank | bank | $5 million | Bloomberg |
| North Shore-Long Island Jewish Health System | pension fund | $5 million | statement |
| Congregation Kehilath Jeshurun (New York) | synagogue | $3.5 million | Bloomberg |
| Dorset County Pension Fund | pension | $3.5 million | LocalGov.co.uk |
| Caja Madrid | bank | $3.1 million | Cinco DÃas |
| Merseyside Pension Fund | pension | $3 million | media reports |
| New York Law School | law school | $3 million | lawsuit |
| Roger Peskin | individual | $3 million | AP |
| Swiss Reinsurance Co. | reinsurer | less than $3 million | firm statement |
| Global Specialised Opportunities 1 | Bermuda-listed fund | $2.8 million | fund statement |
| Banca March | bank | $2.7 million | Cinco DÃas |
| American Friends of Yad Sarah | charity | $1.5 million | JTA |
| Caisse des dépôts et consignations | government-owned bank | $1.38 million | Bloomberg |
| Robert and Sarah Chew | individual | $1.2 million | Time |
| SAR Academy (New York) | school | $1.2 million | Bloomberg News |
| Harold Roitenberg | individual | $1 million | Minneapolis Star-Tribune |
| Ira Roth | individual | $1 million | WSJ |
| Arnold and Joan Sinkin | individuals | $1 million | The Guardian |
| Steven Abbott | individual | less than $1 million | WSJ |
| Allegretto Fund | hedge fund | $790,000 | firm statement |
| Clal Insurance | insurer | $778,800 | firm statement |
| Mediobanca | bank | $671,000 | firm statement |
| Allianz Global Investors | bank | n/a | Citywire |
| Austin Capital Management | fund of hedge funds | n/a | Reuters |
| AWD | financial services provider | n/a | Citywire |
| Banco Popolare | bank | n/a | MarketWatch |
| Banesto | bank | n/a | Reuters |
| Ed Blumenfeld (Long Island real estate developer) | individual | n/a | Long Island Business News |
| Norman Braman (former Philadelphia Eagles owner) | individual | n/a | WSJ |
| Chair Family Foundation | charity | n/a | FINalternatives |
| Engelbardt family | family office | n/a | Variety |
| Erste Bank | bank | n/a | Der Standard |
| Fair Food Foundation | charity | n/a | Crain’s Detroit Business |
| Leonard Feinstein (Bed Bath & Beyond co-founder) | individual | n/a | Newark Star-Ledger |
| Stephen Fine | individual | n/a | Reuters |
| Barbara Flood | individual | n/a | National Public Radio |
| Foundation for Humanity (Elie Wiesel’s charity) | charity | n/a | WSJ |
| Avram and Carol Goldberg (Stop n Shop founders) | individuals | n/a | Reuters |
| Joyce Z. Greenberg | individuals | n/a | Houston Chronicle |
| Gutmann | bank | n/a | Citywire |
| members of the Hillcrest Country Club (St. Paul, Minn.) | individuals | n/a | Star-Tribune |
| JEHT Foundation | charity | n/a | statement |
| KBC | bank | n/a | firm statement |
| Knowsley MBC | pension | n/a | LocalGov.co.uk |
| Kenneth and Jeanne Levy-Church (donors to Fair Food and JEHT foundations) | individuals | n/a | Jewish Journal |
| Leonard Litwin | individual | n/a | Bloomberg |
| Liverpool City Council | pension | n/a | LocalGov.co.uk |
| LLBW | bank | n/a | Citywire |
| Loeb family | family office | n/a | CNBC |
| Mirabaud & Cie | bank | n/a | Le Temps |
| MorseLife | charity | n/a | Palm Beach Post |
| Nomura | bank | n/a | WSJ |
| Notz, Stucki & Cie | bank | n/a | Le Temps |
| members of the Oak Ridge Country Club (Hopkins, Minn.) | individuals | n/a | Star-Tribune |
| Optimal Investment Services (Grupo Santander) | alternatives firm | n/a | Bloomerg |
| Palm Beach Country Club | country club | n/a | CNBC |
| Eric Roth (screenwriter) | individual | n/a | Los Angeles Times |
| St. Helens MBC | pension | n/a | LocalGov.co.uk |
| Sefton MBC | pension | n/a | LocalGov.co.uk |
| SNL Reaal Groep | financial services firm | n/a | Bloomberg |
| family of former New York Gov. Eliot Spitzer | individuals | n/a | Clusterstock.com |
| Thema (Madoff feeder fund) | hedge fund | n/a | media reports |
| Jeff Tucker (Stone Bridge horse farm owner, Fairfield Greenwich Group founding partner) | individual | n/a | WNYT television |
| Thyssen family | family office | n/a | Clusterstock.com |
| UBS | bank | n/a | Reuters |
| Lawrence Velvel (dean, Massachusetts Law School) | individual | n/a | WSJ |
| Wilpon family (New York Mets owner) | family office | n/a | WSJ |
| Wunderkinder Foundation (Steven Spielberg’s charity) | charity | n/a | WSJ |
January 1, 2009 Semiconductor chip slaes drop 10% year over year in Q4 of 2008. Morgan Stanley predicted that each point decline of GDP will cause a 3% decline of the ad market. Another predicted a 9% by basing the number on the rest of the world’s real data (instead of focusing only in US). So there’s a possibility of a 27% to 40% decline in online ad spending in 2009.
Luxury goods declined 35% year over year and electronics declined 27% year over year.
January 9, 2009 In 2008 the US lost 2.8 million jobs. Jobless rate increased by 2.3% translating to 113 million people working. December Intel’s chip sale figure started to show really bad signs. Walmart same store sales declined. However, Gamestop sales figure increased by 10.2%.
Jobless rate by month
- 4.9
- 4.8
- 5.1
- 5.0
- 5.5
- 5.6
- 5.8
- 6.2
- 6.2
- 6.6
- 6.8
- 7.2
At this moment, I still think that the video gaming sector is the one place where it is recession proof.
January 15, 2009 Rumours abound that says BAC requires further government fund to get through the Merill Lynch acquisition. Stock price dropped by 20%. The previous day, analyst downgrade from Citigroup saying that it is exactly like another Citi and have to cut dividends made its stock price drop 10%. From $14 to $8 all within the week.
Details says that BAC actually told the treasury that it will not complete the Acquisition with MER due to a higher loss in the last quarter. I believe a deal is struck between the treasury much like JPM’s deal with Bear Sterns where the government backs the extra losses. Most of the drop seems to be from the possibilities that they’d have to cut their dividends.
I am really scared at this moment. Guess we’ll see on Monday.
January 20, 2009 Shorters assaulted BAC’s share with everything they got. Spreading rumours of nationalization everywhere. I must’ve saw about 20 blog posts and 100 forum posts that says BAC will be nationalized. The stock price has been dropping by 15%+ for the past 3 days. Incurring damages to everyone. I sawy 15k of my portfolio dissappear within the past 3 trading days. I don’t believe I will get through this unscathed now.
January 21, 2009 Banking stocks jumped by 30%. Followed by JPM and BAC executive Kenneth Lewis and Jamie Damon buying their own shares. Kenneth spent 1.2 million while Jamie spent 3 million.
January 22, 2009 John Thain, CEO of the former Merrill Lynch got axed. Chiefs who also left and should never trust: John Thain, Tom Montag, Robert McCann, who was to lead the combined brokerage, and investment banking chief Greg Fleming.
January 26, 2009 Treasury position confirmed as Timothy Geitner. Examination paper says that nationalization of the two major banks C and BAC will not happen. Bank stocks rally very hard, but still low compared to last year. A “Bad” bank proposal is in the pipeline. Not sure if it’s a good idea right now.
On a side note, head hunter calls for job applications halved since October. The three sectors that seems to be hiring are mobile devices, gaming and Linux. Work is also getting harder with more and more problems. I am not sure if it is because of a widespread low morale in the department or if it is the economy affecting everyone. If anything, I expect to have less work because of everyone going bankrupt.
Note: In January, major companies have slashed jobs. 100,000 from them alone and the pain will be felt. It’s strange that they were not able to forecast the domino effect like I did. I was able to predictably say that the bad results should show up around September. It’s like they have to wait to confirm with the actualy financial data officially released before they take their action. I will have to take that into account in the future. My predictions are about 3~6months to early. Making me act on the wrong ripple.
January 26, 2009 Some nice numbers on the impacts in tech. Global write down of US security reached 2.2 Trillion.
February 02, 2009, Consumer savings rate rose to 3.6% amounting to $400 billion of money saved.
February 08, 2009, Finally found the mortgage reset graph. Been looking for this for a while.
February 10, 2009, The new treasury of state unveiled plans of action. There has been a build up in the stock market until now and the plan is too uncertain which led to a huge sell off afterwards. Basically leverage the rest of the TARP $350 Billion by using that as guarantee to raise Private+Public capital to the range of 1.5 Trillion. In the same date, congress approved the bailout of mainstreet that is 800Billion or so.
February 11, 2009, Reports saying that in September there were 5.5 Trillion dollars withdrawn from the money market (Same thing happened in Euro during October). Which prompted FDIC to raise the insurance to $250,000 per account. There are 4 things that started to proliferate once this crisis began. Bank robberies, Suicides, lawsuits and psychologist counselling. the society is getting more and more extreme.
Here’s more info on the bank run. Thursday September 15 on 11 o clock in the morning, there was a $550 billion bank run in the money market within an hour. http://www.youtube.com/watch?v=-xKPcyvlfnc&feature=related. By 2PM, it would’ve been 5.5Trillion and in 24 hours the total collapse.
February 18, 2009, Stimulus plan passed and signed. The stock market tanks to the lowest level saw in November. Banks are reworking mortgages so it is based on the current home value. People who are a bit under water (Mortgage not 105% more than home equity gets help to refinance to lower rates). People who are responsible, paid down payments but saw their equity wiped out are left to fend for themselves. Looks like selective rescuing is happening to those who made the best decisions.
A second big fraud to the tone of 8 Billion is discovered. This time by Allen Stanford with Certified Deposits sold through Financial Advisers. Again, this is a guy with good standings amongst people and the return tracked the market pretty well. He actually manages to fake a 1.5% decline. He was promising to invest the fund to Antigua with lots of regulators and 3rd party auditors looking at it. Turns out that the funds are invested in housing and that the regulators are fake. It is getting harder and harder to detect who’s a fraud. Maybe the whole financial system.
February 21, 2009, The nationalization fear got spread around again. This time started with Chris Dodd (Comittee of Banking head) and Allan Greenspan (Former Fed reserve chairman). BAC saw their stock drop 50% in a week with Friday dropping 20%. Bought $2000 on Friday after selling BSX. The odds of rebound is too high. I am tyhpically not a day trader, but this is too good of an odd to pass up. It also forces me to look at investing as asset allocation instead of holding on to hopes of rebounds. I am looking at investing more as an allocation of capital to something that will most likely to rebound.
February 21, 2009,
This is a picture of comparison between crisis. We are heading into unknown territory.
Found the case-shiller graph which tracks housing prices. It tells us what is going on with housing. Taken from TIME online. Can’t find the crisis anymore
February 27, 2009, stocks have been going up since the FED the government both confirmed that there will be no nationalization. However, today treasury announced that they will be converting their preferred shares in citi into common stock. At the same time, a revised number of GDP shows that it is down 6.2% in the last quarter of 2008. Citi stock drop by 30% bringing the rest of the market with it.
Also, Obama has unveiled its 140 pages long budget. It doesn’t look good for health care providers and it increases generic drug competition. I compared it with Warren Buffet’s purchases and it seems that Warren had a preview of that last quarter.
NOTE: Another lesson to not try to catch a falling knife. If you continue to observe the market or the sector of your choice, you will start to see who is strong and who is weak. At the moment I am writing this, Ford is definately going to prevail while GM and Chrysler are both going to fall. Their stocks all dropped because investors stopped looking at it objectively. In sum, there is still time to pick the winners once it gets to a point where people are going to declare bankruptcies. Wait till the bankruptcies.
March 01, 2009, Movie theaters saw big increase in movie ticket sales to the extend of 17.5% with attendance up about 16%. People are escaping reality and paying for lower cost entertainment.
March 03, 2009, AIG announced 61.9 Billion loss in last quarter and promptly got another 30 billion loan from the government. Citigroup trade volume surpassed 1.04 Billion when government converted preferred to common stock. Netting the government 34% control. Introduced government officials at the board of directors.
Rumors of the reinstatement of the uptick rule and suspension of Mark to market is growing. Government set in motion the Troubled Asset Loan Program to help buy up credit card and auto loans. Current estimate of the total spending is around 3.4 Trillion. Some democrats started to worry about that number. China’s promise to increase stimulus send the market rising. There seems to be a shift in power here. As China’s stimuls increases the market more than the US stimulus.
The Swiss banks were forced by the US to turn over 250 names of clients that uses them as tax heaven.
For my life, I have started accumulating food and water. Canada is relatively unhurt by this. I am sort of glad that I am not living in the US right now.
March 05, 2009, Here’s a nice chart about country vulnerabilities on their investment in eastern europe
And net foreign liability
So far Iceland’s government collapsed on Jan 26, 2009Â after long riots and Latvia’s government collapsed on Feb 20, 2009.
March 06, 2009, Just some interesting notes and snapshot at this time of the crisis. Banks are held at gunpoint by what we call tangible equity ratio. Which is basically Equity minus goodwill as a percentage of tangible assets. It measures how much loss a bank can absorb before it collapses. 3% is adequate and 4% is preferred as safe in a crisis environment.
Also, there has been 17 bank failures since this begin. At a rate of about 2 per weekend in year 2009. Short term US treasury is near 0% and longterm near 3%.
The FDIC which overseas bank bankruptcy is close to insolvent right now. At 16 billion of capital it is asking congress for approval of 500 billion loan. If it didn’t get passed, rest assured, chaos will come.
March 11, 2009, There was a 2 day rally of about 20% each for BAC which also led to a broad market rally of 6%. When everyone came out and said positive things. Bernanke further confirmed that banks will not be nationalized and BAC managed to increase its cash by selling FDIC backed debt. I called bullshit and day traded the rally for 1k.
Canadian Jobless rate at 7.4% and US at 6.4%
March 12, 2009, BAC rallied another 20% today after CEO of all 3 major banks: C, JPM, BAC all came out and made a statement. Things like they don’t need the money and explained a bit about how limiting exec pay is hurting them. They also explained in detail how Mark to Market works and why it is hurting them. We are also seeing large mergers and buyouts happening in the pharma area. So far, Genentech with Roch, Pfizer with Wyeth and Merck with Schering-Plough. Meredith Whitney was also on an interview saying that there is still the credit card crisis to come. Normally, the default rate is about 1% above unemployment rate. Currently it is at 8%. I just doubled it and use 15% as my calculation. BAC stands to lose 15B, but even so, it will not get wiped out.
Borrowed 5K today and plan on investing that tomorrow. Heard a fund manager say in passing that you can’t have Oil at 48$ and the DOW at 6000 something has to give. I believe it is the DOW that’s going to give by going up. Intrinsic value of BAC calculated at 60B. Book value at 80B. Currently at 37B. This is one of those WTF moments that I think I should catch. Also seeing a lot of synergy between the government, the banks and the regulatory officials.
March 13, 2009, Learned today that the US is a 14 trillion dollar economy.
Data gathered by Nielsen Co says that in a recession condoms and canned food sells more. As people stay home and have too much time, but don’t want the expenses of having a kid. They also eat out less.
Thawing salt, body warmers and gift packages with candy rised by 32% due to the cold winter. Jars bags and container up 15% (canning/freezing supplies). Fresh-meat sales rose 7.3%, vegetables and dry grains were up 5.5%, dry pasta 4.4% and cheese 3.1%. Wine and liquor were also up. People aren’t heading out for alcohol, but they still want to drink at home. In these bleak days, self-medication is certainly in style.
Cookie and ice cream cone sales dropped 9.7%; people can do without dessert, and further, the boom in baking supplies shows that more people are making treats at home. Bottled water was down 11%, but that makes sense. “What’s the economical substitute for that?” asks DeMott. “It’s called a tap.”
The jams, jellies and spreads category was also down, by a sharp 12.1%. That includes peanut butter; while you might expect people to eat more peanut butter and jelly sandwiches instead of steak during a typical recession, the salmonella outbreak likely dragged down the numbers. Canned seafood, down 13.3%, is a little harder to explain. In general, seafood costs more than other products, but if consumers are trading down to canned goods, one might think they’d be buying more of it in cans. (Read “Why We Buy the Products We Buy.”)
Film and cameras, whose unit sales dropped 31.5%, was the worst of the bunch. “A camera is not something you need right now,” says DeMott. Plus, who really wants to remember these tough times? And if couples are using contraception, they won’t need a camera to snap precious baby pictures.
Sports and novelty cards were down 26.5%. “You really don’t need that,” says DeMott. Magazines slipped 17.1% (sigh — don’t we know it). Products that spruce up your home — kitchen gadgets, lawn and garden items, buckets, bins and bath accessories — were slumping. Sales of air fresheners and deodorizers also dropped. “If you’re lucky enough to have a couple of extra dollars, do you really need your bathroom to smell minty fresh?” asks Shea. Both insect repellants and cough and cold remedies were struggling. We’ll suffer mosquito bites and sniffles for a few extra bucks. (Read “America’s Shrinking Groceries.”)
Business that are booming are: Micro cosmetic surgeries. Botox and the like. Herbal meds. Microbreweries from home made alcohool (imported beer down). Candies sale are up Hersheys and Cadbury (low end chocolat) performed well in recession, but badly in good times. Higher end chocoloat did not see improvements. The side effect is a possible increase in cocoa prices. We might see margins tighten. Lottery tickets are also on the up. Google also reported several days of top search terms with the lottery. Casinos however slipped by 9%. Travels to exotic and cheap places are on the rise. Africa 11% and Middle east 5% while Busines type travels are down 3% Europe and Asia.
March 15, 2009
The G20 finance ministers laid out a broad framework for regulatory reform and repairing the financial system at meetings this weekend.
Following is a summary of recommendations in their communique for G20 leaders to consider at their financial summit in London on April 2:
– Hedge funds or their managers should be registered and disclose information needed to assess risks they pose to the financial system. Any financial institution or instrument that could pose a risk should have regulatory oversight.
– Pay and bonuses should adhere to the Financial Stability Forum’s principles of sound practice.
– Capital reserves should be built up during good times and leverage limited in order to buffer financial firms during downturns. But in the current recession, capital should remain unchanged until recovery is assured.
– Credit ratings agencies should be registered, comply with the International Organization of Securities Commissions code and have regulatory oversight.
– Off-balance sheet vehicles should be fully transparent; accounting standards improved notably on treatment of assets of uncertain value; there should be greater standardization for credit derivative markets.
– Financial Stability Forum should be beefed up as part of strengthened international cooperation and it should conduct early warning exercises with the IMF.
U.S. Treasury Secretary Timothy Geithner also said the FSF should be elevated as lead body for overseeing the global financial system, taking its place alongside the IMF, World Bank and World Trade Organization.
Until now it has been an informal gathering of financial supervisors.
– On impaired assets, G20 leaders said a top priority for governments is to tackle toxic assets on bank balance sheets, now they have taken a range of steps such as injected bank capital, set up insurance schemes and are providing liquidity to money markets. In an attachment to the G20 communique, they released a set of principles to guide how each country handles assets of uncertain value.
The United States said it plans to release its toxic asset plan before the April 2 summit.
AIG Releases document on counter parties that demand collateral: 2lkwkr4e1ytsjjcdrbla
March 19, 2009
Fed releases information that they’ve printed $1150 billion dollars. $750 of which will be used to buy bank assets. Stock rock rose for the most part in March 18. Down in March 19.
Some observations. Citigroup is going to do a reverse stock split. HSBC just had a 12.9 billion rights issue. Meredith Whiteney, ever since she started her own firm feels like losing her touch. She’s still appearing on tv to tout her doom and gloom views. Mostly about credit card write downs. She is right of course, however, the way the show is made it seems like they are claiming for about 2~3 trillion losses. I have the feeling that Meredith Whitney is being used to spread that idea but in fact she’s just a geek who’s real intention is to get the truth out. Good intention, badly used by others. The worst is, she doesn’t realize it herself.
The average pawnshop people used to be around 39 and have incomes of around $29,000 now we are seeing it spill over to a larger socioeconomic. Big LCD TV and gold get used as pawn a lot. While power tools gets bought more as homeowners gets more handy at repairing. These tools are from professional home builders who lost their jobs. There’s also an increase in demand for music instruments from pawn shops. Especially guitars and amplifiers. Firearm sells is also up, but this more due to the fear that the new president will enact gun control. Wii and xbox are also getting pawned a lot. Indicating that people are getting more strapped for food and are foregoing even the simplest of entertainment.
March 23, 2009 There has been a lot of mergers going on recently. Or rather, news of mergers. Starting with the Pharmaceutical sector and moving on to The tech sector now. Cisco to buy sun and ATVI announced plans for buying. I think most of the companies are projecting a bottom. From my personal point of view, this is a milestone. Sunocor merged with Petro Canada and Daimler had a 2.7 Billion dollar investment from Abu Dhabi.
The “Bad Bank” Plan was unveiled and the stock market soared by 6% DJIA soared by 500 points. BAC up 30%.
March 25, 2009 Signs of recovery are showing up. Durable goods orders are up. Mortgage origination increased. Forecast 800 billion more for the year. Housing inventory decreases as more houses are sold, even though the prices are still dropping.
March 26, 2009 Obama announced the rejection of GM and Chrysler’s restructuring plan. GM drops by 20%. Surprisingly, BAC dropped 15% along with it. Pretty stupid from my point of view, but we’ll see if my point of view is correct. Found out that BAC extended 800 million in total to GM.
April 1, 2009
March 31 (Bloomberg) — The U.S. government and the Federal Reserve have spent, lent or committed $12.8 trillion, an amount that approaches the value of everything produced in the country last year, to stem the longest recession since the 1930s.
New pledges from the Fed, the Treasury Department and the Federal Deposit Insurance Corp. include $1 trillion for the Public-Private Investment Program, designed to help investors buy distressed loans and other assets from U.S. banks. The money works out to $42,105 for every man, woman and child in the U.S. and 14 times the $899.8 billion of currency in circulation. The nation’s gross domestic product was $14.2 trillion in 2008.
April 3, 2009 There were a flurry of good news yesterday, but the stock market failed to rally much. Well DJIA did rise by 200 points or so but in terms of Banks, not much happened. The G20 meeting promised 1 Trillion dollars of aid, the Mark to Market rule is relaxed for banks (securities not actively traded can be marked to a cash model), Ken Lewis went on TV and said a bunch of things. All these gave a 7% rise at the beginning of the market, but tapered off because the initial jobless claim was 700,000. Today we confirmed that unemployment rate is 8.5% and that IBM is going to buy Sun microsystems at a reduced price. From $11 to $9.5. RIMM did release a great earning which brought the stock up 20%. So, we are in mixed signal territory and consolidation. People are saying “Show me the money.” Probably no major moves until the earnings are release, with the exception of Uptick rule on April 8.
April 9, 2009 Analysts have came out and made their stand.
Bears
- Michael Mayo is bearish
- Frederick Cannon of KBW
- George Soros,
- Chris Kotowski is bearish,
- Nouriel Roubini is bearish,
- Betsy Graseck of Morgan Stanley
- Paul Miller of FBR Capital Markets
- Wachovia’s Matthew Burnell $7 or $8
Bulls
- Dick Bove is bullish and
- Marc Faber is bullish.
- Keith Horowitz of Citigroup
- Jack De Gan, CIO of Harbor Advisory
April 10, 2009 Huge bank rally today after WFC pre released some earnings information BAC up 35%.
April 13, 2009 GS reported earnings beating estimated and initiated a stock sale to raise $5 billion in order to pay back TARP. Whitney mentioned that things might be turning around if banks are able to raise equity. I think this is it. Other smaller and more traditional banks also recorded good earnings. Like bank of Ozarks beating estimates by $0.03 per share. Tech factory workers are called back to fill orders, news of programmers finding new jobs. My work reported $40 million in earnings instead of $30 million for the quarter. My most major stock BAC jumped to $11. I blew some money away this weekend with friends.
April 14, 2009 The White House auto industry task force and negotiators for Chrysler are asking banks holding some $6.9 billion in secured debt to take just $1 billion as the automaker tries to avert bankruptcy by the end of this month.
But the banks—JP Morgan Chase, Citibanak, Goldman Sachs and Morgan Stanley, which hold 75% of the debt—are remaining steadfast in refusing the deal. Their recourse, since their debt is secured by Chrysler assets such as the Jeep brand and factories, is to take their chances in a bankruptcy filing and hope they get a better deal when the assets are sold. Other lien holders include hedge funds—Elliott Management, Stairway Capital Management and Perella Weinberg Partners.
April 15, 2009 A good site for unemployment rate http://edition.cnn.com/SPECIALS/2009/map.economy/index.html
BAC with $182 billion in card loans as of Dec. 31, according to data from American Express Co. The bank wrote off $11.4 billion of uncollectible card balances last year. Citigroup Inc., ranked first by loans in the American Express data, and No. 2-ranked JPMorgan Chase & Co. still charge 3 percent on balance transfers, according to spokesman Sam Wang of Citigroup and Stephanie Jacobson at JPMorgan. Both banks are based in New York.
April 20, 2009 The week of bank earnings is over, finished with BAC release 44 cents per share earnings. However, the market sold off and BAC is down 25%. It started with WFC pre releasing earnings to bring the market to euphoria. After that, every bank who reported earnings see their stocks sold off by 10% or more. What worries people is that the ripple is now getting into the traditional “loan and lease” part of earnings. Where traditional banks hold the biggest assets. BAC’s Merril Lynch and Country Wide acquisition actually performed spectacularly. Mortgage origination and trading are doing well while loan and leases are defaulting.
On another news, GSX is buyinig up someone and Oracle bought Sun after IBM dropped the offer to buy SUN. We are at the final phase of the down turn. The ripple is going into the most traditional part of banks and mergers are happening.
April 28, 2009 The WSJ released a report saying that C and BAC “MAY” need to raise more capital. Bringing their stocks down 10% pre market. I am starting to see a pattern here where WSJ will release something along the line of dilution before a major event. They did the same before earnings. Which suggested the US will convert preferred to common. The housing prices is still declining but at a slower rate of 18.6% in Feb. While consumer confidence jumped to 39. Some are spreading the fear of the swine flu from Mexico in order to bring the stocks down more. Of course, the timing of the WSJ against BAC’s earnings release as well as its share holder’s meeting is too much of a coincidence to overlook. If you want to orchestrate the downfall of the US financial system. This is how you do it. We’ll see what the conspiracy is soon.
April 30, 2009 China’s stimulus comes in the form of coupons for Washer/Dryer, TV etc. I think it’s the best way to stimulate the economy since people won’t be motivated to hoard the cash. Credit Suisse give out bonuses in the forms of the SIV that was the root of the problem. If all bank executives are forced to take these by the government, there will be a very big incentive to get it working again.
May 2, 2009 US to China trade relationship
Who’s buying what
May 15, 2009 Chrysler has declared chapter 11 bankruptcy restructuring protection. 800 of the dealers are dismissed. I think this will give consumer confidence and start buying cars again after the uncertainty of whether or not the guarantee will be upheld is cleared up.
The banks stress test result was also released a while back. BAC needs $34 Billion, WFC $11 Billion, JPM none, Citi $5 Billion. The result also showed that Goldman Sachs was not properly audited. In any case, BAC shares rallied from $9 to $15 because of this and settled back to $11 at the moment because WSJ originally leaked that they need $70 billion.
June 16, 2009 The world is in a recovery. Not much to say. Most banks who received TARP has started the process of paying it back. BAC required to $raise 33.9B and raised it within a month. Eurozone’s unemployment rate finally started to skyrocket. A socialist society can only hold out for 3 months more than the US.
The 16-country euro zone lost a record 1.22 million jobs in the first quarter, official data showed. Employment during the first quarter fell 1.2 percent year-on-year, the deepest annual drop since measurements started in 1995.
June 27, 2009 I’ve taken some measures to increase my cash flow in order to increase my leverage. One of them is to rent out my second room for $400 a month as well as selling a bunch of stuff. Credit servicing should come out to about $1000 per year.
That aside, the market has basically been flat and going sideways for a while. The only thing worth noting were GM and Chrysler bankruptcies and unemployment rate potentially going above 10%. As predicted before, they still got until August to fix the unemployment rate, or we’d see some very unhappy people getting cut off from the benefit roll and eventually lead to riots.
Five more banks got shutdown this weekend the most in a weekend, totaling $1.04 Billion in assets: Community Bank of West Georgia, in Villa Rica, Georgia; Neighborhood Community Bank of Newnan, Georgia; Horizon Bank of Pine City, Minnesota; MetroPacific Bank of Irvine, California; and Mirae Bank of Los Angeles. I expect this trend to keep up now that the administration don’t have to worry about the big 20 banks failing anymore. They can move on to closing the smaller ones.
PBS frontline: Breaking the bank is a good tv documentary showing how the US government was invovled with the banking crisis.
June 27, 2009 7 banks closed today. Founders Bank, of Worth, Illinois. City Bank. First National Bank of Danville. Elizabeth State Bank in Elizabet. Rock River Bank in Oregon, Illinois. John Warner Bank of Clinton. First State Bank of Winchester. Millennium State Bank of Texas in Dallas.
July 20, 2009 A look at past declines
|
(months)
|
Decline (peak to trough) in:
|
Recession Type
|
||||
|
Real GDP
|
Stock Market
(Dow) |
Industrial
Production |
Corporate
Profits |
|||
|
1929-32
|
43
|
-23.5%
|
-89.5%
|
-53.6%
|
-102.0%
|
Consumer & Business
|
|
1937-38
|
13
|
-3.4%
|
-50.2%
|
-32.5%
|
-29.6%
|
Mostly Business
|
|
1945
|
8
|
-12.0%
|
-24.8%
|
-35.5%
|
-28.5%
|
End of War
|
|
1948-49
|
11
|
-6.5%
|
-10.1%
|
-15.5%
|
Business
|
|
|
1953-54
|
10
|
-9.9%
|
-13.8%
|
-9.5%
|
-20.7%
|
Business
|
|
1957-58
|
8
|
-14.2%
|
-20.6%
|
-13.6%
|
-21.6%
|
Business
|
|
1960-61
|
10
|
-6.4%
|
-18.0%
|
-8.6%
|
-14.7%
|
Business
|
|
1969-70
|
11
|
-2.6%
|
-36.9%
|
-7.0%
|
-19.7%
|
Business
|
|
1973-75
|
16
|
-11.8%
|
-46.6%
|
-13.0%
|
-13.2%
|
Consumer first, then Business
|
|
1980
|
6
|
-8.4%
|
-20.5%
|
-6.6%
|
-17.3%
|
Consumer & Business
|
|
1981-82
|
16
|
-11.0%
|
-25.3%
|
-9.3%
|
-10.1%
|
Business
|
|
1990-91
|
8
|
-4.9%
|
-22.5%
|
-4.2%
|
-6.2%
|
Consumer & Business
|
|
2001
|
8
|
-1.4%
|
-39.7%
|
-6.1%
|
-17.8%
|
Business
|
|
2007-09
|
18 ?
|
-11.9%
|
-54.9%
|
-15.1%
|
-23.4%
|
Consumer first, then Business
|
|
Sources:
|
NBER
|
BEA
|
Yahoo
|
US Fed
|
US Fed
|
|
July 31, 2009
Products created for this depression targeting consumers:
Cash for clunkers: $4500 for people to trade in their gas guzzling old vehicle. (Has to be extended from 1 B to 3 B)
Home owner rebate: $8000 for first time home buyers
Mortgage companies to buy up and service the bad loan portfolio from the crash for 40 cents on the dollar.
In Canada 5% cash back credit cards. And huge one time point coupons that give rebates based on Grocery and Gas purchases.
50% off most travel (rail/plane) and hotel prices.
China force feeding loans through banks.
September 23, 2009
Fed declared the recession over today. S&P crossed 1070. 92 total banks failed so far.
I haven’t logged much lately because recovery is well underway. A few things to note.
The FDIC’s fund has about $10 billion left. The PPIP didn’t get underway as the recovery is very strong. Unemployment is around 9.7% now and should continue to recover. SEC banned naked short selling (excpet market makers) and flash trading.
From my observation, the order of recovery from a crisis of this magnitude seems to be as follows: Rebound of banks that continued to show profit and are federally guaranteed. (JPM, GS, MS, BAC etc.) alongside the commodity (back to 50% of the peak value). Then, a tech rebound back to 20% off peak followed by a rebound in medium sized banks. Transportations, REIT then casinos. To finally end with insurance companies that insures financials and mortgages. (AIG, FNM, FRE, MBIA). Currently, the banks that are in the devastating regions with 14%+ unemployment are still seeing a lot of pain and are under valued. I am constantly scanning for sectors that are still undervalued for whatever weird reason there are. I bought CRBC for $0.65. This will probably be my best purchase of my life if it ever happens.
The loan loss sequence is as follows:
Subprime, alt-A, Prime mortgage, industrial, consumer, commercial.
Underwhelmingly, Tech and healthcare didn’t perform as well as I thought and aren’t the knight in shining armor that would lead us out of the recession. They didn’t fall as much, but they didn’t rebound as hard either. The GDP for Q2 shows that we are not out of the recession yet (While most of Europe already is and China soaring). I have a lot of doubt about Chinese GDP and their loans, but time will tell. If I am right. September GDP should show a positive number and officially ending the recession. But we won’t see that until October or November.
The cash for clunkers programs all over the world were huge successes, pushing next year’s automobile demand to this year. My only regret is that I scrapped my clunker last year and thus am not eligible for the program that’s coming out in Canada. Still, $10,000 for my Hyundai Accent that only needs $25 per week to fill up is great.
With the recession over, I have begun thinking about exit strategies. At the moment, I am 200% invested, meaning I have borrowed money to invest as things goes to hell starting last October. The move paid off and I am now sitting on a huge profit. Taking the profit will net a large tax charge, so I am planning this carefully and defining the sell conditions. Preferably, I’d like to lock in my profits into secure bonds and CDs as interest rates goes up. The initial idea is to decrease my equities by 25% with each 1% increase in the Federal interest rate. Of course, I will wait for the actual confirmation to finalize my decision. Some of my recent move are less about pure equity gains and more about a continuous stream of income. You can see that from the purchases of REIT and banks that pays dividends.
The most puzzling stock for me are ATVI and NRG. Both of which has perfect score on my fundamental analysis. ATVI has zero debt and NRG’s derivitave hedging and low P/E (5) is a mutant compared to the financial health of some of the more problematic companies (ahem AIG ahem).
In any case, hopefully I can stop updating this entry soon as the GDP confirms we are out of the wood next time.
Current holdings: AMD, ATVI, CRBC, BAC, C, NRG, CRR.UN, BMO, TD, V
October 01, 2009
The market has been stuck in the same place for the past 3 months now, waiting for the earnings to confirm the trend. FDIC is running out of cash and are exploring the possibility to get early advance on fees from the banking industries for the years between now and 2012 for $30billion. I think it is crazy and am confused on why it isn’t using the 100 billion credit line from the treasury. Maybe Sheila Bair fears losing power?
Ken Lewis announced resignation amidsts all the criticism. I feel sad. I should really start writing that letter to him.
October 16, 2009
GE, IBM, AMD, BAC, C all posted a loss followed by spectacular results from JPM and GS. Huge drops right after earnings report. The financial crisis is now fully in consumer credit card losses and spilling into the commercial real estate market. It looks like the commercial real estate market will be the final hurdle to overcome.
November 05, 2009
We’ve broken the record and reached 100 bank failures last week. GDP for october is a positive 3.5% which unofficially marked the end of the recession. Fannie Mae started renting out the houses that they possess which are underwater back to their owners to avoid foreclosure. Punishment of Ponzi schemes has mostly completed with Madoff in jail. The officials are moving on to punishing hedge funds who did insider trading. The whipping boy right now is Galleon group.
November 27, 2009
Dubai world, a state fund for Dubai, is in technical default after asking creditors for a delay in payment. Estimated world financial exposure to Dubai world is $40 Billion. Including off balance sheet vehicles, it amounts to $80 billion. This changes things and will probably ripple through the world if not taken cared of correctly. Oil fell in expectation that they will have to sell oil to make up for the debt and the USD + YEN rose as a safety heaven against emerging market defaults. The unwind of the carry trade might have been triggered by this.
I was hoping for peace and quiet going into thanksgiving and Christmas, but that doesn’t seem to be what the market wants. I am tired.
December 04, 2009
The dubai world problem seems to be less than anticipated (at about 26 billion) and has minimal impact on US banks. With the biggest creditor being HSBC in Europe.
Obama held a job summit with top CEOs in the country to find a way to jump start small business hiring. Today the November nonfarm payroll data got release and is a meager -11,000. Surprisingly, the market did not rally. I find that this should be a big deal. We are almost at the point where we are gaining jobs. Then again, it could just be Christmas hiring. Another thing worth mention is that BAC is paying back 45 Billion in full by issuing 1 billion in alternative securities that has a strike price of $15 if shareholders approve. Which could be the reason why 1 billion shares of BAC traded hands today. A historical volume with a stock at this price.
January 25, 2010
Obama opened his mouth and, in a speech mandate the breaking up of traditional banks from trading. He wants to reintroduce Glass-Stegall. At the same time, Ben Bernanke’s re-election as FED chairman was questioned. The financial stocks promptly dropp by a good 15% while the overall market dropped by 4% in the period of a week. These are all due to the fact that the democrats lost a seat in a very iconic state Massachusettes. The loss spanned 2 days, just as I was on a business trip. I can’t believe how bad the timing was and I thought that I can leave the market for 2 days.
This is an example of government getting too involved in the economy. They represent populist rage of the uneducated people who probably represent only a small amount of the nation’s wealth. What Obama and the administration probably don’t realize is that the well educated “better off” people are seeing their wealth vaporizing and no jobs returning to the market while the administration is hell bent on passing their pet health care reform. The message is very clear, I believe. Fix the economy first.
Please, don’t screw up the rest. The government is at a fine point where it might over legislate and bring the whole market to a halt again.
January 26, 2010
CDS have started trading again since its market was frozen in 2007. In 2008, junk bonds were the high yield trade netting 10%+ in interest. Now that this yield is gone, investors are pushed to make riskier trades.
Treasury secretary Tim Geitner is seen being put behind Paul Volcker, showing that Obama has lost faith in the easy money policy of keynesian policy. However, he is going to announce a government spending freeze. Apparently the same old same old political bullet dodging as ever. People know that it is politics as usual, but coming from Obama, it is bad.
February 16, 2010
Rumours of Greece default began 2 weeks ago and have now settled down a bit. Last week the EU announced that they will back a solution to “bailout” Greece, but did not give any details since they are considering several plans. Today, they demanded the Greece CDS that is used to hide the % of debt to their GDP. EU requires members to have that ratio below 5%. Of course, the CDS was constructed by Goldman Sachs. The firm that’s been bankrupting countries since the beginning of US history.
March 23, 2010
Healthcare reform passed. Stocks up. Greek problem persists after Germany backs out of bailout.
February 13, 2012
It has been two years since I last wrote. In the mean time, the market went through a great recovery. However, we bumped into a snag around August of 2011 when the culmination of Obama’s war on banks in addition to the expiration of QE2 made the market back paddle. The passing of Dodd Frank act. A surprise legislation that wants to limit Debit card fees to 12 cents (later revised to 22 cents). The card legislation forced banks to re-enact paid accounts (no more free accounts) and basically nickle and dime clients to death.
We saw the Arab spring where Tunisia, Egpyt and Libya entered into general civil war. Tunisia was successful, Egypt civilians + Military overthrew its dictators and paved way for military dictatorship. European airstrikes + civilians managed to kill Mubarak and freed Libya. The countries that did the airstrike get to install their oil industry to extract petrol. And finally, Syria is still in civil war and pending resolution since it has no oil.
All major financial revisited 2008 lows. BAC went to $12 initially for all the legislation then down more to $5 after Greek/European bailout went wrong as European banks need to write down Greek government debt if it defaults. What was arranged is that the Greek bond will be a voluntary haircut (so as not to trigger CDS) and a temporary short ban is enacted on bank stocks. Can’t believe this Greek mess is still being discussed as they beg for a second bailout. Athen burns again. On top of this the tension between the western world and Iran got really bad again as Iran is nearing completion of its nuclear missile. 3 US carriers are converging on strait of Hormuiz with the US organizing an oil embargo on Iran (with all the other sanction that’s already in place). Iran has no escape but to turn to Russia and China for both military buying and trades.
We now enter into the election year and stocks are rising. European central bank has done a shadow QE in the tune of ~700 billion while the bank of Japan just announced a ~300 billion nominal terms currency intervention. Kim Jon Il, Korea’s leader died.
Canada was punch drunk on debt the whole time. With debt to GDP level now at 150%. We have a 0% interest rate environment with CHMC guaranteeing house purchases. Vancouver average houses at $1 million. CHMC just recently breached the $600 billion guarantee limit and is asking congress for more while banks had to snap back a low interest mortgage war (2.99% for 5 years) that began with CIBC after F blasted them. Housing inventory is at the highest level since 2008 and China has recently suffered a huge real estate crash (Guided by the central bank). Oh yeah, the 5% down 35 year mortgage is really helping. At least we don’t have 0% down 40 years ammortization anymore.
CIBC just announced the sale of Firstline, its independent broker mortgage portfolio (aka subprime Canada since indies caters to risky borrowers). My estimated number for its mortgage portfolio is about $54 billion.
I am starting to write this again, because I feel that we are on the cusp of something big.
References
- Banking Brand price
- Euro bank exposure: EZ_BNKMP0811_SB
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