Stocks Soar on Bank Rally

Reuters ^

[sanchmo]

Woo-hoo, we’ve risen to only being down 54% from its peak 73 weeks ago! This is so much bettern than the 1929-1931 crash, when the market was down a whopping 54% in only 73 weeks. And so much better than 1990’s Japan when the market took 110 weeks to drop 54%.

[JasonC]

CDS trades are meaningless, a short speculator's plaything and nothing more.

Citi's operating cash flow for 2008 was positive $96.5 billion. They repaid over $43 billion in long term debt, $14 billion in short term debt, and redeemed $38 billion in deposits. They added nearly $10 billion to loan loss reserves and wrote down assets (beyond loan charge offs) by over $40 billion.

They ended the year with an average loan earning 5.8% while their cost of funds was 2.8%. A year prior their interest margin was 2.5% so that moved up 20%. Their total interest earned for the year was $107 billion against interest costs of $53 billion. It is entirely normal for them to be able to take $50 billion real hits, not even non-cash ones, without getting their hair mussed. Their derivatives trading operations alone, far from being a liability, also netted them plus $45 billion.

Here are there remaining loan exposures to the supposedly deadly types that started it - subprimes $14 billion, mortgage insurers 0, leveraged loans $10 billion, alt-As $12.6 billion, auction rates $8.8 billion, SIVs $16.6 billion. All being carried at huge write downs to face (the first about 25 cents e.g.), and collectively carried at $62 billion, or about 3% of assets. They could write them to zero in a year.

Citi raised $32 billion privately and $45 billion from TARP, equity forms to replace their $95 billion reduction in debts and deposits. It got loss guarantees on $300 billion of its assets from the Feds and can issue Fed insured debt (have to the tune of $20 billion so far this year). With their subordinated debt and loan loss reserves counted (tier II capital), they are levered only 6.1 to 1 on senior debts and deposits.

How do they go bankrupt again? I mean, besides doom mongers and idiots demanding they be seized at gunpoint...

[gathersnomoss]

Just a dab of reality, please. Don’t forget the lemon. Thanks.

[Mad Dawgg]

U.S. stocks rose about 5 percent on Tuesday after Citigroup said it was profitable in the first two months of 2009 and a key lawmaker said he expects the restoration of the uptick rule."

How does a company get bailed out AND make a profit at the same time?

[JasonC]

Every category of loan except the original epicenter of subprimes, has been and is profitable, in the sense that the interest margin on them covers all actual charge-offs.

Credit cards will experience higher loan losses, oh terror! The funding cost is 2.8% and the interest rates charged at 13-18%. The loan losses at spike levels are around 5-6%.

[semantic]

In all fairness to the Kenyan, what we're seeing in the markets isn't really his fault. Sure, he's not inspiring any confidence, but the markets are going to reach their natural bottoms regardless of who happens to be POTUS. It's just a matter of style; the rest is noice.

In essence, this all gets back to the dot.com crash and 9/11. Bush/America really, really needed an economic recovery in order to pursue the WoT. What he got was an artificial housing asset-inflation spiral (with a convenient boost of 20m illegal aliens adding increased pressure on demand), but beggars can't be choosers, so we went with what we had.

But here we are at the end of the credit expansion cycle, and we cannot go any higher until debt/asset values are reset back to a sustainable income service level. That's why any entity, whether it is a government agency, financial institution, etc, holding CDO/mortgages and relying upon projected cash flows is in peril. They are not taking into account continued contraction because so far, nothing else has emerged to drive another expansionary cycle.

The bottom won't be reached until we figure out a new production/consumption model. The FIRE economy is dead, and with it, any government relying upon tax receipt levels generated by that model.

[marshmallow]

That's a nice list of figures but in a declining economy it's like giving me today's weather forecast and telling me that this means it's going to be the same in a week or two. Nobody really knows where this is going. That's why the government, as we speak, is preparing another contingency bailout of Citi. If the economy picks up, they may well recover. If it doesn't or AIG finally stops defying gravity, they'll crater.

[JasonC]

You aren't getting it. They wrote off $50 billion that they haven't actually lost in cash terms, because they were being conservative about where it is actually going. The losses have to materialize on an epic scale just for the write-offs they took since July of 2007 to be justified. Meanwhile their carry is up to $57 billion a year.

The government will go on with bailout after bailout seeking investor confidence until they get some. If that takes 3 months and another trillion or two, that's what it takes. If if take 2 years and another $10 trillion or two, that's what it takes. But the value of monetary claims isn't going to go to infinity against real assets. The government will not let it. And a matched book financial institution earning twice on assets what it pays on liabilities isn't going to go broke. No matter how many doom mongers scream that it must, for as long as they please.

[JasonC]

I'd say the entire right is on a mission to destroy capitalism and try to pin the blame for its collapse on Obama. But it is hopeless - capitalism doesn't collapse. It doesn't collapse when Marxists predict revolution or when conservatives predict it, one hopeful and the other in full Jeremiah as the prophet scorned. It plain doesn't collapse. It rebounds, always has, always will. Obama doesn't deserve any credit for that, but he'll take it anyway, thank you very much. And the doom screeching right is going to look awfully silly when that happens.

[AUH2O Repub]

So when the market goes back up (as it will) are you willing to give Bam Bam the credit? I’m not.

[Boanarges]

“So when the market goes back up (as it will) are you willing to give Bam Bam the credit?”

Oh hell NO!

But I’m not convinced the market will begin this notable ascent under Obama’s watch. This shakeout could take years unraveling and the turnabout may indeed happen under a new administration in 4 years.

[agere_contra]

It plain doesn't collapse. It rebounds, always has, always will.

Cool! I'm going to buy Zimbabwean dollars right now :0)

You are completely correct, capitalism always rebounds. When enough people believe a bottom has been reached capital will flood back in. But only if the laws of property are preserved - hence my throwaway line about Zimbabwe.

We don't trust Obama to preserve those laws. Even now, Obama's fellow travellers are trying to seize Catholic Church assets in Connecticut. And Obama plans confiscatory inflation, but nobody really knows what he's planning. I doubt he does.

For this reason I bet a lot of capital is going stay in a safe-deposit box on Tristan da Cuna - at least until Obama's wings are clipped in 2010.

[PSYCHO-FREEP]

Ummmm....

With the passing of the $410 Billion Ominous bill, we shall see how robust this “recovery” will be.

It will be touted as the miracle that Obama claimed would happen, so they will roll out the Crap and Trade scam and it will pass in record speed, like this and several other drunken spending binges recently have.

Long term, I highly doubt the balloon will fly.

[JasonC]

He's not planning anything, he is an idiot glory-hound pol who only understands focus groups and rhetoric. He will drift and appease those who voted for him. Which won't help, but won't shipwreck the greatest engine of growth in world history, either. It is a normal recession and that is all. All of the "its different this type" spiel is utter tripe.