OFFICIAL STOCK MARKET & ECONOMY THREAD VOL. SCHOOL'S OUT

[keiththekid1]

Originally Posted by da703trailblaza

Whats SA?


ETFs are the work of the devil, lost 40% in FXP held on and walked out with 25% gain (averaged). But UYG is killing me though,

at not wanting to take the short loss (did it as a bounce play).

DYK, yo I read your article on SA, current market change any of your commentary?

 

[cruthik3]

I'm sitting on cash, I'm going to wait until Thursday before I get in. I'm not even sure anymore that the stress tests will have a negative effecton the market. The FED said that Citi and BofA need to raise $10 billion. They both have disputed this. Therefore, it will come out that they only need $5billion. Likewise, the dow surges 500 pts

 

[da703trailblaza]

SA = seeking alpha the wikipedia of financial journalism.

 

[lazybonejone]

good read

 

[cruthik3]

[h4]Stress Tests: What's ThatLight?[/h4]
It's a train.

The "rumor" floated over the weekend and this morning was that some of the banks might need $10 billion under the "stress" scenarios.

That they might be able to raise, and it has been part and parcel of fueling the rally.

Not so fast, grasshopper.

S&P yesterday afternoon stuck virtually the entire sector on Credit Watch Negative and that was just the start.

There are now some independent analysts out there with their own numbers on "required capital", and they're ugly.

Friedman Billing Ramsey came out and said they believed that Bank of America needs $60 billion all on its own, while Egan-Jones piped up and said the number was $100 billion!

SNL Financial, a research firm, thinks the number is $50 billion each for Citi and Bank of America - minimum - and might be closer to $70 billion for Bank of America.

Nor does it end there. Wells is projected to need $66 billion and JP Morgan needs $33b, according to these folks.

But if you think those numbers are a horror show, the real ugliness isn't found there. It is in fact found in all the foreclosed-but-unsold and not-yet-foreclosed "but will be" housing stock. Through the nation I am getting reports, some hard and some anecdotal, that lenders are sending out NODs (default notices) and then sitting on the process intentionally.

Why would they be doing that?

Simple: Most lenders who have these notes either in a security or as "whole loans" they were unable to pawn off on someone when the securitization market collapsed are holding them at "par" - the total amount outstanding.

If they sell they are forced to realize the loss; so long as they have a "reasonable belief" it will perform or be bought out (e.g. a government-sponsored and funded refinance) they can carry it this way if it is held to maturity. This of course makes their books look much better than they really are when you've got $500,000 in cash out against collateral that the market values at $150,000!

Then there is the Option ARM inventory and, most troublesome, the HELOC's (mostly seconds used for purchase and cash-out transactions) behind them.

There have been opinions floated that the "ARM" decimation is mostly a nothing, since short-term rates are so low and will remain that way for a reasonable amount of time.

This is true but misleading - with Option ARMs the nuclear destruction does not come from a reset of the interest rate but rather the recast when the loan ages or reaches (typically) 110% of the original principal value.

At that point what was either an interest-only (or even not a full interest) payment is forced to a fully-amortizing payment on the balance of the original time. For many of these loans this is set to happen at either three or five years post-issue, which means we're just starting to see the loans written in 2006 turn into many-headed hydra about now.

The importance of this event is that the increase in payment is absolutely insane - it is not at all unusual for payments to double, and there are few if any of these loans where the jump will not be at least 50%.

The IMF says there's roughly double the embedded loss in the system compared to what has been recognized and written down. I think they're conservative - my original estimate for housing market losses was somewhere around $2.5-3 trillion for residential alone.

So far the tally is up in the high hundreds of billions, meaning that there are a lot more cockroaches still to be found in the banking system - and they're doing their best to hide from the light.

Can that succeed? Not a prayer in Hell.

Those Option ARMs and any seconds behind them are doomed. There is no possible way to refinance them as most are over $100,000 underwater. The seconds written on top to get around conforming limits or avoid PMI are in fact worth nothing as the first has priority in a foreclosure action and there's not enough there to even satisfy the first!

To put this in perspective there are condos out in Las Vegas that sold for $500,000 that now can be had for $50k or so. You'd think that's a great deal. You'd be wrong, because half the complex is foreclosed, the association is on the verge of bankruptcy and as a consequence the special assessments will be rolling in soon - and they won't be small!

Now add to this the basic business model in the consumer credit sector - jack up everyone's credit card interest rates. This is effectively an attempt to cost-shift those who cannot pay and are defaulting onto those who (still) can. It is doomed to fail because those who can pay off the card will immediately do so and close the line, while those who can't default under the increased burden. This looks good for a little while but the math is never wrong, and this sort of path forward either collapses under its own weight or eventually will draw a strong government regulatory response.

Either way what the banks are doing can't work; 36% interest charged against someone who is paying zero because they defaulted is still zero, but all your customers who can pay it off and leave will do so to avoid being bent over the table.

The continued refusal by our government to put these financial institutions where they belong - in front of a bankruptcy judge where priority is honored, the capital structure is crammed down and the assets sold off for whatever the market will bear - is leading us inexorably toward economic Depression. Both President Bush and now Obama are proceeding under the (false) hope that if they can hold things together for a little while the economy will turn and it will all be ok.

The "green shoot" people are all predicting positive GDP in the 3rd and 4th quarter. What they're not talking about is what the real number was for the 1st Quarter - there was a trade balance shift credit in there worth nearly 3%; take that back out and we weren't -6% annualized, we were -9%!

The bad news is that the trade balance shift is actually bad for the economy and signifies extreme weakness yet it shows up as a positive contributor to GDP due to how the math works. Nice eh?

But that was likely a one-time change, which means the second quarter could get real interesting.

Here is the reality folks:

1. Until continuing claims start to come back into a reasonable range and the U-6 "frustrated" employees find work, the consumer credit picture cannot materially improve in terms of default rates on all sorts of credit. The consumer is 70% of the economy.
2. When that happens we will still be left with an economy that is missing the "pulled forward" demand represented by home equity extraction and rabid, unsustainable granting of all forms of credit. This is likely in the 3-4% of GDP range, and that adjustment will be permanent!
3. The excess debt in the system not only hasn't been flushed it has to a large degree been hidden and/or shifted to The Federal Government! Defaulting it there doesn't do anyone a damn bit of good - in fact, it spreads the damage to everyone instead of keeping with the people who made the bad bets on both sides (borrower and lender.) This is pure insanity, but it is what our government has done because we "the sheeple" keep believing we can have something for nothing.
4. There is no way to "fix" the bank balance sheets without massive dilution. Either you convert preferred to common, you issue new common, or you sell performing (cash-flowing) assets. The first two dramatically dilute everyone holding the common stock and the latter takes a pole-axe to the earnings side of the balance sheet, having the same effect on shareholders as the first two. The recent runup in bank stock prices, doubles in many cases or more, is not only unsustainable it is something right out of The Three Stooges.

To those who think that the banks will "all be ok" and "we will muddle through and have economic recovery in 2010" I politely suggest that you're smoking something legal only in California.

Bluntly, the excessive debt must be flushed from the system, and since we can't pay it down the only option is to default it through bankruptcy, as I've said since this mess began.

Until that happens any "recovery" will be fleeting at best - and a false hope.

Disclosure: No position in any stock named; considering several shorts.

 

[optimusadl]

at people losing money following this guy.

I knew this was going to eventually happen.

 

[wallyhopp]

I think itll only get worse. some people dont know their limits.. nice warning, but noones going to abide by it

 

[59 piffy]

you arent gonna make any money buying the crap suggested in here

at people losing money following this guy.

I knew this was going to eventually happen.

eventually ? its happened the whole time

 

[curiousgeorg3]

Originally Posted by 59 Piffy

you arent gonna make any money buying the crap suggested in here

at people losing money following this guy.

I knew this was going to eventually happen.

eventually ? its happened the whole time

ya pretty much. i remember he was bullish on the way down and then bearish on the way up. nobody ever called him out on it

 

[cruthik3]

You can't fight the government.

 

[optimusadl]

Originally Posted by 59 Piffy

you arent gonna make any money buying the crap suggested in here

at people losing money following this guy.

I knew this was going to eventually happen.

eventually ? its happened the whole time


I didn't really read all of them I would just

and close. The goldones were by far the funniest.

Sucks for those who lost money though.

 

[jimmybeanz]

Originally Posted by CuriousGeorg3

Originally Posted by 59 Piffy

you arent gonna make any money buying the crap suggested in here

at people losing money following this guy.

I knew this was going to eventually happen.

eventually ? its happened the whole time

ya pretty much. i remember he was bullish on the way down and then bearish on the way up. nobody ever called him out on it

lol

 

[lazyj10]

I want to know how shorting GS went?

 

[jc08]

I have no idea what tomorrow will bring, I might just skip class and watch the market action.

 

[cruthik3]

yeah its going to be fun. Based off no fundamentals I'm going to say rally till Monday.

 

[jc08]

Those stress test "scenarios" are a joke! The baseline scenario is already happening, and the more adverse scenario is almost a given within a fewmonths. It seems like this game of musical chairs has to stop somehow, but the question is when. I don't want to be fighting against the trend because Idon't have the capital to persevere through the dips. All I know is when the market reverses, it's going to reverse hard.

 

[nine to five]

 

[jimmybeanz]

anybody that was shorting bac, jpm, hig and wfc per DKY's advice is getting screwed right now, as all of them are up (although the rally might not last). idecided to liquidate my position in bac and take some profit - i went in at 9.13 last week and sold for 14.50 just now.

 

[north dade represent]

I feel like an idiot for not getting in on BAC. I told my dude I was going to cop at $4.60, but punked out.


Anyway, I bought OIL at $17.52 a couple weeks ago. It's at $21 right now and I can walk away up $350. My initial strategy was to wait until a majorhurricane hit the gulf before I sell, but I'm getting impulses just to take my profit now.

 

[throwedindagame]

These banks are chicago basketball status right now.

I feel bad for the sheep who either stayed away per some strangers advice or shorted per some strangers advice.

 

[north dade represent]

What do you mean by Chicago basketball status?

I stayed away because of my own fear, at the same time what's the point of giving advice if you're going to clown somebody for taking it.

 

[lesfamilia]

Originally Posted by lurkin2long

Originally Posted by Gordon Gekko 979

DYK you're a cool dude, i like you.

but

at people losing a huge chunk of their money based on ideas of a guy they don't know on the internet. although you are very informative, these people were foolish and deserved to lose all that money

people are wild

Good looks on the gold, though. I was going to invest in a bulk of it soon, but because of your analysis I'm going to wait until later onthis summer.

 

[jimmybeanz]

Originally Posted by North Dade Represent

What do you mean by Chicago basketball status?

I stayed away because of my own fear, at the same time what's the point of giving advice if you're going to clown somebody for taking it.

DKY is obviously VERY smart, but if you're buying PURELY on somebody's advice, you're setting yourself up for epic fail - i listen/read, and thendo my own research.

 

[prmj23]

Originally Posted by CuriousGeorg3

Originally Posted by 59 Piffy

you arent gonna make any money buying the crap suggested in here

at people losing money following this guy.

I knew this was going to eventually happen.

eventually ? its happened the whole time

ya pretty much. i remember he was bullish on the way down and then bearish on the way up. nobody ever called him out on it

yah all fools if yah just react on what he posts, thats not the way to make money in the market. you have to take everyones comments and then doyour own hw on the stock. Hes giving you his free opinions, they should act as starting points. hes not going to tell you what price he got in or when to getout, hes just giving you some of his thoughts. Its a shae that people take his ideas and just buy or short stocks without really knowing why they are doing it,or not knowing what price point to get in. he also said use tight stops, seriously why do you think he wrote that, there are tools in place to make it a littleeasier to trade but you have to use them. if you cant decide on a stop point you shouldnt get into the market! Also no one can be 100% use common sense, if itwere that easy wouldnt everyone make a billion dollars?

 

[prmj23]

he was dead wrong on gs and so was I, i bought in at 62 and got rid of it at 84 which sucked missed out on a killer profit