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HomeCreative Accounting!!
Posted by Larry Doyle on March 27th, 2009 5:23 PM |
I will readily admit that my preferred source for market news is Bloomberg. Having seen enough media outlets covering market activity, in my opinion, there really is no alternative to Bloomberg. Why? Literally every day I am learning and being introduced to new and useful information. The information emanates not only from those they interview, but often from their own in-house research and analysts.
To wit, I just caught a segment with Jonathan Weil, a Bloomberg reporter focused on corporate accounting. With 1st quarter earnings a few weeks away, Weil’s insights are the stuff that stops you in your tracks.
In short, Weil highlights how companies effectively massage their earnings and income statements. Massage? Where’s Sarbanes-Oxley when you really need it to check the numbers? (more…)
How Long Can You Tread Water?
Posted by Larry Doyle on March 26th, 2009 11:10 AM |
The other day, I provided a cursory overview of the details embedded in the recently proposed Public-Private Investment Partnership, Will Banks Truly Sell these Toxic Assets?
The main point I tried to highlight in that piece was the need for true price discovery for these toxic assets. A loyal reader provided tremendous insight in highlighting that the PPIP needs to assure that sellers are truly at arm’s length from buyers to insure that the price discovery process is real and fair.
There are potential concerns with this price discovery process highlighted in my piece Send in the Clown. Are the bank portfolios, located within the largest banks needing to sell toxic assets, attempting to prop the market higher? (more…)
Dr. Edwin Vieira’s Amazing Crystal Ball, 2006
Posted by Larry Doyle on March 24th, 2009 9:52 PM |
I will admit that I am not a student of the Great Depression, but I have started reviewing that period. Obviously I, like every American, hope our economy stabilizes and we regain our footing and return to prosperity. While the pragmatic optimist in me believes that can happen, the trader and risk manager in me tells me to review the Depression, understand the dynamics, assess the risks of our current period, and prepare accordingly.
I hope and believe people who have been reading my work for a while appreciate that I am not an alarmist. Whether working on Wall Street as a trader and salesman or now writing for Sense on Cents, a measured, analytical approach has always generated the best results. In that vein, I discount speculators and salesmen who attempt to make a buck from heightened levels of anxiety. That said, the elevated levels of risk in our economy, markets, and global finance require an equally elevated sense of risk analysis and historical analysis.
Given some of the economic saber rattling emanating from China and the lessened fiscal support emanating from Europe, the threats of global protectionism are clearly growing. That scenario also occurred during the Depression. (more…)
Back to the Future
Posted by Larry Doyle on March 24th, 2009 4:02 PM |
Are we returning to the days of white picket fences, hot dogs, Mom, baseball, and apple pie? Perhaps some people never got away from those endeavors so there is no need to return. However, given forces within the banking industry far outside our control, perhaps we will be returning to the days of community and regional banking.
Our nation experienced the development of a handful of mega-banks given the economies of scale with that model. The leverage created by combining systems, cross-selling products, and outsourcing labor allowed these institutions to redeploy capital into higher risk securities and situations often housed in off-balance sheet vehicles. Pardon my cynicism, but that model does not put a lot of emphasis on customer or employee loyalty, despite what management at many of those institutions may say. That model promotes the concept of volume and efficiency over individual and relationship. Regrettably, that model never fully developed the risk management and risk managers to control those behemoths. (more…)
Treasury Seeks Unprecedented Power
Posted by Larry Doyle on March 24th, 2009 8:47 AM |
I have written at length about the problems within the banking, insurance, hedge fund, and consumer finance industries over the last 6 months. While the bulk of the media focus has been on the banking industry – and primarily the large money center banks – the erosion in asset values at these other financial companies has been accelerating.
This past Sunday evening on my weekly radio show, NQR’s Sense on Cents with Larry Doyle, I spoke extensively about the massive financial shortfall within the insurance industry. In addition, relatively early on I warned that the hedge fund industry had likely been severely mismarking many investments. From a piece I wrote on November 12, 2008:
Give it time, because hedge funds do not have to report to anybody as to what their positions are and where they have them marked. There is no doubt they have positions that are grossly mismarked and have many positions that are totally illiquid. For many investors in these funds, these are truly “roach motels.” Hedge funds will sell what is most liquid when they can to meet redemption requests. We should expect a significant number of hedge fund liquidations, consolidations, and out and out disasters.
The same can be said for a number of private equity shops. Consumer finance companies with large holdings of a variety of consumer assets are fighting for their lives as delinquencies and defaults on these assets ratchet higher. (more…)
China Ups the Ante
Posted by Larry Doyle on March 23rd, 2009 11:12 PM |
In ten days, the leaders of the G-20 will meet for the most highly anticipated financial conference since Bretton Woods in 1944. In a bold and aggressive move prior to this conference, China’s central bank called today for the replacement of the U.S. dollar as the international reserve currency.
I have written about the tension in U.S.-Chinese relations over the last few months. The essence of this tension is captured in the Prisoner’s Dilemma and A Question of Honor.
Make no mistake: the timing, tone, and substance of this message so close to the start of the G-20 is another major shot across our bow. The ramifications for a change in this international reserve currency are enormous, both politically and economically. Check out current, worthwhile discussions on this topic collected from a variety of sources at Memeorandum.com. In addition, I recommend reading the following article from the Financial Times:
China calls for new reserve currency
By Jamil Anderlini in Beijing
Published: March 23 2009 12:16 | Last updated: March 24 2009 00:06China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund. (more…)
Bank Stocks Soar!! Bank Bonds Plummet!!
Posted by Larry Doyle on March 23rd, 2009 1:27 PM |
The major market stock averages overall and bank stocks specifically are respondingly positively to the Public-Private Investment Partnership laid out by Secretary Geithner. In the bond market, however, prices for bank debt are responding in a dramatically different fashion.
Why the inconsistency? My sense is that long term shorts in financial stocks are being forced to cover. Investors in the bond market are reacting as if this PPIP will create losses for certain assets as it simultaneously brings liquidity for other assets.
In its totality, the conflicting signals in the stock and bond markets for banks tell me that the jury remains out on the overall effectiveness of this plan for the financial industry specifically and the economy in general. (more…)
We Need a Bigger Boat
Posted by Larry Doyle on March 23rd, 2009 6:05 AM |
"We need a BIGGER boat!"
The movie Jaws struck fear into the souls of beachgoers in the mid-70s. If our current economy were only a scary movie. A classic scene in Jaws occurred when the salty mariner Quint eyed the shark and informed his sidekicks, “we need a bigger boat.”
In similar fashion, the size of the losses embedded in our banking, insurance, automotive, and states and municipalities will similarly require “a bigger boat!!”
Capital needs in the banking industry are projected from at least $500 billion to $1.5 trillion. Bloomberg reports former Fed chair Greenspan Says Banks Need $750 Billion More Capital. Nouriel Roubini puts the needs at upwards of $1.5 trillion. (more…)
Audio Recording: NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on March 22nd, 2009 9:36 PM |
In case you missed LD’s Sunday night radio show, just click on the Play button below for the audio recording. Once the playback has started, you can fast forward or rewind to any portion of the show by clicking at any point along the play bar.
The first portion of the show included a review of the markets and an in-depth analysis of the very critical challenges facing the insurance industry.
The second half of the show included an interview with Chuck Doyle of Business Capital in San Francisco. Chuck is one of the leading professionals in the field of debt restructuring and recapitalization.
Sunday night, March 22nd, 2009
NoQuarter Radio’s “Sense on Cents with Larry Doyle”
