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Back to the Future

Posted by Larry Doyle on March 24th, 2009 4:02 PM |

back-to-the-futureAre 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. Read the rest »


Clowns to the Left of Me…

Posted by Larry Doyle on March 24th, 2009 12:52 PM |

I wrote earlier today about the ongoing pressure being applied on our senior financial representatives in Washington by their counterparts in China. In Congressional testimony this morning, both Secretary Geithner and Fed chair Bernanke have discounted China’s call for a new international reserve currency. 

The Obama administration is not only being pressured by China prior to the upcoming G-20. Our European allies also have a decidedly different tact on the appropriate financial maneuvers for global governments at this time. While the United States is currently promoting the need for massive fiscal stimulus on a global basis, the WSJ reports from Europe, ECB Chief Says Stimulus Not Needed. 

Read the rest »


Would You Like to See Our Specials?

Posted by Larry Doyle on March 24th, 2009 12:03 PM |

From The Washington Post:

toxic-assets-cartoon1


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. Read the rest »


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 00:06 

China’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. Read the rest »


Will Banks Truly Sell These Toxic Assets?

Posted by Larry Doyle on March 23rd, 2009 5:25 PM |

A quick summary of the plans proposed by Tim Geithner. Everything looks great on the surface and markets rally in anticipation, but VERY FEW transactions have occurred.

Let’s go over a few points:

1. Government provides cheap loans for investors to buy toxic assets . . . DONE.

2. Government provides backstop for investors to be somewhat protected against losses . . . DONE.

3. Investors express desire to purchase assets . . . DONE.

4. Banks express desire to sell assets to unclog balance sheets . . . DONE. Read the rest »


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. Read the rest »


Public-Private Partnership? or “Won’t You Be My Neighbor?”

Posted by Larry Doyle on March 23rd, 2009 9:22 AM |

An oversimplified view of the proposed private-public partnership for investors to purchase toxic assets from banks is as follows:

A couple (private investor) looking for a home finds a piece of property (toxic asset) that seems very appealing. A mortgage broker (the government) is indicating that he can preapprove some very attractive financing terms. The mortgage broker also indicates that he can fortuitously provide a large cushion against potential losses on the property. The buyers inquire how that cushion may work. The broker informs them that he has access to funds from all the other homeowners (taxpayers) in town to offer as incentive to sell this property and others like it. 

The couple’s interest increases, but they start to wonder what’s the catch as the property has been on the market for a while.

Upon further review, the prospective buyer discovers that the property may have structural issues. In hearing that, they think about scaling back a potential bid on the property. The broker pressures them to the point where the couple starts personally disliking the broker. Read the rest »


We Need a Bigger Boat

Posted by Larry Doyle on March 23rd, 2009 6:05 AM |

"We need a BIGGER boat!"

"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. Read the rest »


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” 

                                    


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Larry Doyle

Larry Doyle A Wall Street veteran's views and instincts on the markets, economy, and all things financial.







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