Posted on 10/23/2009 12:40:41 PM PDT by FromLori
Thank you.
Good explanation except the part of jp morgan
http://www.scribd.com/doc/21185939/JPM-Miracle-or-Mirage
Is he serious? I don’t think the Citicorp credit card letters have gone out to all customers, for starters. Capital One seems upbeat in its outlook. So, maybe this is not as bad as Karl thinks. (Fingers crossed)
PING for later reading.
Isn’t that where the problem lies? We are told banks are siting on Billions of dollars cash, just not lending it.
So what happened to all those Billions?
And a lot that should have been foreclosed on, haven’t been. Simply living in them free, for now.
I called this week - we have a stellar rating and the rate is still going up - the operator blamed it on the govt...though couldnt cite anything specific. Fortunately, we pay off our balance each month in full.... but will be cancelling soon
Holy Smokes!
This is magnitudes worse than anything else.
Got FRNs under the mattress?
I understand what the author of the article is stating about J.P. Morgan, I just think he doesn’t fully comprehend the banking industry.
Repurchasing agreements were a major source of liquidity for the markets (which he acknowledges) and the fact that it has been largely runoff has caused the M-multipliers to drop (which is why the Federal Reserve is printing so much money but it hasn’t yet led to inflation - the printing has yet to exceed the amount of money created through the debt markets and activities such as repurchase agreements).
When Lehman Brothers failed, counterparty risk became the prime concern of most investors and institutions. When trust fails, the repurchase market is going to fail even most cases when the collateral covers the full 100% of the “loan” because a receivership would still cause issues and most people, rationally, don’t want to deal with those problems. As a result of the credit market freeze, I currently utilize ZERO repurchase agreements, maintain cash in 30-day T-Bills only or FDIC insured bank accounts at regional banks with excessive tangible equity ratios, and we don’t even lend out our securities, as we did in the past, to short sellers because we want fully custody, paid for in cash, in a third-party custodian in the off-chance that another brokerage fails. This is a rational response for me and those who have an investment in my companies.
Ten years from now, history will show that J.P. Morgan Chase used this time, and very cheap government money, to put together a collection of businesses that will make it one of the most profitable firms in history. The analysis of the cash problem isn’t indicative of a problem in its cash flow, it merely represents the reality that the auction rate securities business, repurchase agreements, and a host of other commonly used financial instruments and securities, have yet to return to the level they were before the crisis (and it’s not certain that they ever will). JPM is still solvent. It’s a non-issue.
The only banks I liked better were Wells Fargo at any price below $15 per share and USB at the same valuation. In the interest of full discloure: We own a lot of these two banks and some JPM but it is a much, much smaller position.
Feel free to disagree with me. If you do, there’s nothing more American than shorting the stock or selling put options on it =) I’m happy to take people’s money.
If they had to liquidate today, you are absolutely correct, they would be bankrupt regardless of what the government says.
The paradox here is that by pretending, for the sake of the country, that they are solvent, in as little as 12-36 months, the profits generated every day that passes will be enough to plug the capital hole on the balance sheets, making up for the losses.
In other words, it’s like a teenager who has trashed his parent’s house. If the parents show up and lay down the law, there will be consequences. If, instead, they go spend the night at a hotel, show up the next morning like nothing happened and the house is put back together, the problem is solved (well ... the house problem is solved - you still won’t trust the teenager, or bank, because you know they’re prone to misbehaving).
Every day, more dollars are getting pored back into the balance sheets. It is merely a matter of time before the capital has been replaced and all is well with the world. Except for the dollar, which I maintain cannot stand the assault of $9+ trillion in deficits over the coming decade.
Clarification:
USB = US Bancorp
Not UBS = Union Bank of Switzerland, which is lucky it’s still functioning because it is a MESS. I’ve never seen such horrific capital losses.
Banks are getting back more than they can handle.
Now “holding on to” often means, the houses are vacant, but the lender has not transfered title. This defers associated costs, insurance, HOA dues, and taxes are still the responsibility of the debtor.
Thanks for catching that!
I personally think that five to ten years from now, cash is trash. The combination of $9,000,000,000,000 in projected deficits combined with the fact that the United States cannot maintain its reserve currency status with China and the European Union offering more attractive terms for many nations as we ruin our balance sheet is an assault the USD simply cannot take.
This isn’t a tragedy for individual investors. There are dozens of ways you can make obscene amounts of money off a declining dollar - from foreign real estate investments to holding stocks in other countries in the native currency with no hedging to issuing 30-year fixed-rate bonds (if you own a business that is large enough, which isn’t feasible for most people), to buying equity to multi-nationals such as KO, GE, JNJ, etc., which I mentioned earlier, a falling dollar can make you very, very rich if you are positioned to take advantage of it.
My philosophy is, and has been, there are always intelligent things to do. Whether you believe the dollar will increase, the dollar will decrease, or we’ll trade in the greenback for seashells, it doesn’t matter. You can structure your life and finances in a way that you are flexible, with resources to take advantage of whatever comes our way. It’s why capitalism works and why I love it.
If I were retired, I’d buy a Best Western or some other real estate holding in Canada, keep the money invested in Canadian currency in their banks (their debt as a percentage of GDP has drastically declined over the past 10 years), and then if and when the dollar fell, ship the money back to the states to live on as needed, enjoying extreme gains in real purchasing power. If the dollar appreciated, I could take more of my dollars and pour them into additional real estate holdings in Canada, using the power of the dollar as a “discount” on my acquisition price. Either way, I’d be protected.
Note: I’m not actually advocating someone do this, I’m merely pointing out that it is a practical application of my philosophy.
I have a friend who manages his family money. Very very wealth, multi jet family, yachts, in the financial papers. Anyways I asked him what he has been doing this last year with his part of the money and he said buying farms, mineral rights in western Canada.
canned beans...lots of ‘em.
I would interpret this differently. This looks like the banks are desparate for cash NOW, rather than a moneymaking stream of cash flows (as they may not be in business to benefit from a long-term mortgage).....
If Bank A holds a property and gets multiple full-priced offers that are to be financed by Banks B or C, then it should not care about future income stream. At closing, Bank A would be paid in full. This is telling me that Bank A is not even confident that the buyer will be able to close. This is about taking cash today vs taking a promise of cash in 30 days or so.
I got my letter raising my rate from 5.99% to 29%. I couldn't close the account quickly enough. I seldom used the account and I have sterling credit.
Their loss.
The only question in my mind was, "What was all that consumer credit card legislation Congress passed?"
Don't bother asking me to open a new account when things are better, Citi. I no longer trust your judgment.
They did just announce a new stress test again today so that could very well be part of it too maybe they are worried they will not have adequate funds to cover? Though we all know what a joke that test was but maybe some who aren’t in on obamas payoff will get taken out otherwise.
http://rawstory.com/news/afp/Fed_to_widen_stress_tests_for_banks_10232009.html
That was the joke of it all fooling the masses they gave them plenty of time in that legislation so they could get their rates up the jokes on the people once again. The responsible are being made to pay for the irresponsible the legislators do not expect their meal tickets the banks who gave them so much campaign cash to foot the bill.
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