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HomeThe Case for Sense on Cents
Posted by Larry Doyle on February 27th, 2009 10:24 PM |
Welcome to Sense on Cents!!
Why am I so enthused about the potential for this site? I could write at length in answering that question, but in short I firmly believe the “product” delivered here is in very strong demand and very short supply. Collectively as we navigate the economic landscape we will learn, share, and become more comfortable with the economy, the markets, and global finance. While the economy dominates our news currently, where can one go to make sense of it? Welcome to Sense on Cents!
Sense on Cents is truly a reflection of my professional instincts and personal interests. I sincerely believe this site can elevate the level of financial literacy, economic knowledge, and market insights for those who come here. Additionally, I am pleased to provide a wealth of information on career planning, global perspectives, financial primers, and meaningful literature. The sharing of opinions and active dialogue are strongly encouraged. I hope you feel comfortable coming here, find it to be of great value, will offer your perspectives, and will spread the word! While making “sense on cents,” I feel strongly we will find the relationships and returns to be very rewarding, especially relative to the risks!
I thank Larry Johnson for his tremendous support from my very first day at No Quarter and look forward to a continuing, close working relationship with him, Susan, and all involved at NQ. I sincerely hope and believe our efforts can and will promote our mutual interests.
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Upon Further Review
Posted by Larry Doyle on February 26th, 2009 3:02 PM |
The FDIC just released its 4th quarter 2008 report. Read it and weep . . .
1. FDIC had a $26bln loss in the 4th quarter and now has only $18bln in reserves. (Little doubt that FDIC premiums — insurance premiums that banks must pay — will be increasing to rebuild reserves. All costs ultimately flow through to customers). In fact in today’s WSJ, FDIC Poised to Double Fees Charged to Lenders.
2. banking industry had first loss in 4th quarter 2008 since 1990
3. troubled institutions rose to 252 from 171 in 3rd quarter
4. banks have taken a total of $750 billion in writedowns on problem assets!!
5. banks have increased loan loss reserves to $69 billion from $32 billion
These numbers in conjunction with the Bank Stress Test lead me to make the relatively easy projections that:
— Government will have significant stakes in certain major institutions while continuing to take over and shut down many smaller institutions.
— Banks will continue to look to build reserves against future losses. This development along with a limited if not nearly non-existent “shadow banking system” (securitized consumer loan market) will mean that credit will be tight.
— As banks need to preserve capital, their ability to recruit and pay people will be severely restricted. I know employees are looking to leave these organizations to work at smaller shops without these problems.
— Although bank stocks are currently getting a bounce given government indications of support, these are not companies that have attractive growth prospects under these conditions.
LD
Ceteris Paribus
Posted by Larry Doyle on February 26th, 2009 2:01 PM |
Economic and budgetary analysis by their very nature often employ a “ceteris paribus” approach or similarly base line assumptions. Ceteris paribus, translated as “all other things being equal,” or base line assumptions are necessary given the fact that economic analysis has so many variables. Well, let me share with you that ceteris are NEVER paribus and base line assumptions are almost always skewed to bias the results in a desired direction.
***UPDATE: I was not aware at the time of my writing but it is reported that the Obama administration is projecting the economy will grow at a 3.2% GDP in 2010. That assumption is wildly optimistic. No respected economist would project that figure. Consensus has it in the 1.5-2% range. What does this mean? Well, lower growth means lower revenues, means higher deficits, means greater funding needs, means more borrowing, means higher government interest rates, means more “crowding out”, means slower growth for the economy going forward!!
There was little doubt about President Obama’s social agenda and economic platform during his campaign. While markets will somewhat discount campaign rhetoric, they do not discount economic reality. The markets are sending a strong signal that Obama’s economic proposals and proposed budget are anything but pro-growth. Obama Delivers $3.6 Trillion Budget Blueprint runs the risk of raising taxes at a time of economic distress. Raising taxes was a prime factor that increased the economic malaise in the 1930s. Obama is willing to take that risk as he sticks to his campaign plan and is pressured by the liberal wing of the Democratic Party. (more…)
Put Your Brokers and Bankers in Competition
Posted by Larry Doyle on February 25th, 2009 12:00 PM |
Every global financial enterprise has been hard pressed to maintain, let alone grow, revenues given the economic turmoil. With assets held in portfolio experiencing increasing levels of delinquencies and defaults, these institutions are all forced to set aside more reserves. How do businesses respond? Cut expenses and increase fees wherever and however possible. Who pays? You!!
I regularly see a sleight of hand at work on behalf of banks, insurance companies, money managers and other financial intermediaries to generate greater fees. While you will regularly be solicited with new and improved product offerings, how often are you getting the call that a fee is being increased and you may want to shop around for a better rate.
In an attempt to help you navigate this landscape, I strongly encourage you to approach your brokers and bankers and request a grid-like structure highlighting the basic products on one axis and the fee structure on the other axis. While more structured products and specialized services can be worthy of higher fees, a whole host of basic products fall into the plain vanilla category. (more…)
Leading Wall Street Analyst Speaks
Posted by Larry Doyle on February 22nd, 2009 4:29 PM |
I worked in the mortgage business on Wall Street for 23 years. During that time period I had the good fortune of developing relationships with some of the finest minds in this sector. While I do not know Laurie Goodman personally, I can tell you that there is no one individual in the market today whom investors follow more closely when it comes to developments in this space. While Ms. Goodman does work in a business that is actively engaged with investors, I have always appreciated her perspectives as being untainted by bias and merely reflecting an extremely professional and honest outlook.
What does Ms. Goodman think about President Obama’s plans for housing? It would appear that there may be all sorts of unintended consequences and misaligned incentives in this proposal. Regrettably plans that are well intended often do not necessarily achieve their desired results. I strongly recommend you read Mortgage Plan Aids Liars About Income to gain a fuller appreciation of this proposal.
LD
More Legalized Bribery!!!
Posted by Larry Doyle on February 21st, 2009 6:43 PM |
Why do I believe we will see a wave of material on this topic? Well, whenever I see it I plan on updating my post Legalized Bribery so that Former Senator Chuck Hagel (R-NE) and current CIA head Leon Panetta are continually vindicated.
Who lived rent free for 5 years in the Washington townhouse of a CT Congressman, directed hundreds of thousands of dollars to that Congressman’s husband’s lobbying effort, served on the board of Freddie Mac when it stifled Republican overtures, and now serves one door away from the Oval office?
Did Rahm Emanuel declare that rent-free arrangement as income? Did he pay taxes on it? Did he share that arrangement with the Congressional ethics committee? Rahm’s ‘Rent’ Is Just the Tip of Ethics Iceberg.
Change? No, this Legalized Bribery has been going on for a while.
LD
Let’s Get a First Down
Posted by Larry Doyle on February 21st, 2009 9:10 AM |
Football fans know that ball control and time management are two very critical factors in determining outcome. While a coach may at times “go deep” in order to catch the opponent off guard, victory is determined by the hard work in the trenches and grinding out first downs. I know of no team that has ever established a winning discipline by “throwing Hail Mary’s.” The same can be said of investing. In the midst of these challenging markets, do not lose sight of your long range goals and the disciplines necessary to achieve them. Leave the “Hail Mary’s” for the gridiron entertainment.
The Wall Street Journal provides us with an excellent piece on this topic:
Desperate investors do desperate things.
A few months ago, most people were too terrified to do much more than wring their hands while sitting on them. But now, as the stock market takes another bullet every day and the yields on cash dwindle away, some investors seem to be flinging caution to the winds.
You can read the rest of the article at your leisure. Enjoy your weekend. – LD –
As Stock Losses Loom, Don’t Throw a ‘Hail Mary’
by Jason Zweig
illustration by Heath Hinegardner
The Wall Street Journal; February 20, 2009
The Securitization Model
Posted by Larry Doyle on February 20th, 2009 8:49 AM |
In today’s NY Times, there is a front page article, U.S. Tries a Trillion-Dollar Key for Locked Lending, enlightening readers on the breakdown of the Wall Street securitization model.
Or you could review my piece from November 12th, “The Wall Street Model is Broken….and Won’t Soon Be Fixed,” for an even more in depth review of the development of the securitization model and resulting breakdown.
Trying to stay ahead of the curve for you here at Sense on Cents!!
