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Title: Mr. Market Has Spoken
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Mr. Market Has Spoken 9 comments (Excellent)
URL Source: http://seekingalpha.com/article/122088-mr-market-has-spoken
Published: Feb 23, 2009
Author: http://seekingalpha.com/article/122088-m
Post Date: 2009-02-23 21:03:59 by tom007
Keywords: None
Views: 74
Comments: 2
Mr. Market Has Spoken 9 comments by: Bill Cara February 23, 2009 | about stocks: AXP / BAC / C / FNM / FRE / GE / Mr. Market has spoken. The results are patently clear when you separate the six best and six worst performers in the latest five-session performance of the 30 DJIA index components. It was a very bearish week, but no more so than in every stock that has a significant financial component: Citigroup (C down -46.0%); Bank of America (BAC down -35.4%); General Motors (GM down -33.2%); JP Morgan (JPM down -24.0%); American Express (AXP down -19.9%); and General Electric (GE down -19.7%). The best performing six, on the other hand, despite the fact only a single one of 30 was a gainer, were the most defensive six in the DJIA index: Walmart (WMT +3.9%); Procter & Gamble (PG -2.0%); AT&T (T -2.9%); Coca-Cola (KO -3.5%); Verizon (VZ -3.5%); and McDonald’s (MCD -4.2%). Talk about black and white! The banks are pulling this market under, and traders must now decide whether the rest of the portfolio is going to be allowed to drown too. Now, as far as my analysis goes, some might argue that American Express is actually a computer data processing company, and they wouldn’t be far wrong; however traders make decisions on the basis of market perception as well as reality, so American Express is considered to be a banker. Others too might argue that Kraft Foods (KFT -7.7%) is a defensive issue, but traders know better. Kraft was a Philip Morris spin-off that needs several more years of market seasoning to stand on its own. Right now KFT is in no-man’s-land, so, unless you are an insider or industry specialist, you might want to avoid it. This week, Value Line analysts reviewed AXP, as well as the major banks (C, BAC and JPM), and Microsoft (MSFT), which is really so much a royalty company, aka a cash cow, that I jokingly refer to it as a bank. I make my comments with respect to the Value Line analysis in that section of this report, but you ought to know I won’t be kind. If there was a single takeaway from the equity market this week, it was that the banks were crushed. This is not a credit market problem. The credit crisis affects the customer, not the banks. The banks, however, are in a state of free-fall – a bit like Niagara Falls – because they don’t have the capital reserves necessary to get through the period of their having to meet obligations under their previous credit default swap contracts. As they inject capital via taxpayer TARP programs and the occasional investment from Sovereign Wealth Funds, and they de-leverage their balance sheets by selling assets and writing down dubious assets, the three major banks are in a race to avoid bankruptcy. The question of bank insolvency, ie, whether or not they can make good on their obligations to other banks, which is the much discussed counter-party risk issue, is at the forefront of Mr. Market’s concerns. As I say, Mr. Market has spoken; but what is the real message? Clearly, what happened on Tuesday and Thursday and on Friday morning this week, and the subsequent bounce after Bank of America’s Ken Lewis and a White house spokesman stated mid-day Friday that ‘nationalization’ was not in the cards, told the whole story. Slam dunk. America is fed up to the teeth with taxpayer funds being used to prop these banks. As big as they are, the market is saying, let them fail and some other organization will pick up the pieces. Moreover, as long as these banks are still being aided by government under the guise of a ‘global financial system rescue plan’, traders know that new capital will not be put to risk. They know that other banks – the strongest – fearing counter-party risk, will not lend the capital they do have to the industrial companies and consumers that need that liquidity. So, there is a stale-mate. Without action from this Administration and this Congress, America is a crash scene, and everybody is standing by, on-lookers to the major banks that are presently in death throes. Next there will be a funeral, followed by a wake, and then life, as we used to know it anyway, will go on, except for the fact many of us will not be as wealthy as in the recent past. But it is what it is. The market is us. What’s happening today is merely another slice of life, as painful as it is. It’s shocking to watch, but there is nothing unique here. Politics and the markets as usual are being played out in DC. We have seen it, as I have pointed out for months, with Fannie Mae (FNM $0.54) and Freddie Mac (FRE $0.52) being allowed to trade on the NYSE under the Barney Frank Rule, not available to any other company that trades under $1.00, and not in bed with Mr. Frank, chairman of the House of Representatives Financial Services Committee. Many otherwise unremarkable people among us have been elected to high office where power has gone to their heads, and, regrettably, some of them have taken that a step further by accepting benefits from lobbyists, including the biggest lobby of them all, the money center banks of the US. It is remarkable that previously brilliant people can be blind to truth when they are paid to keep their eyes closed. There is a huge cost too, and, as I say, the taxpayer is fed to the teeth in bearing that cost. Taxation without representation sucks in a Republic that was built on that basis. The people are not happy, and the truth is that through mutual funds, pension funds and direct investments, most of the people today are now investors and traders, and they are steamed. It really is terrible to lose 50% of all the wealth you and your families have built over generations of hard work and watch the culprits get off scot free, living in mansions, a little bit concerned for their future, but still pampered beyond the imagination of most of us, nonetheless. Their numbers include a billionaire banker and former stock exchange chairman who stole $50 billion, aided and abetted by the government regulator whose mandate it is to serve and protect the public, now burdened only by an ankle bracelet, while home in his Manhattan gazillion dollar condo. Btw, isn't that enjoying the proceeds of crime? It’s all too much politics for the average person. People in high places, I think, will pay for this mess. When I started this blog on Easter weekend 2004, asking people to join me in a discussion of capital markets and social equity, I was frequently asked ‘What’s that social equity stuff all about?’ I think you all now get the point. I am not a socialist; never been one. I am a fiscally prudent individual who rose among my peers in the financial services industry to sit in the corner office of the penthouse of the stock exchange tower in a G-7 country, offices that I designed, built, recruited and managed. Yet I never once kowtowed to my peers in the industry. I had my principles – mostly along the lines of Henry George – where society must take care of itself, individually and within communities -- otherwise organized gangs, including bankers, politicians and land barons would take unfair advantage. You know, much of our present crisis is rooted in land values, and it is the land barons and their bankers who are most unhappy. The rest of us are saying, “Hey, we’re not the ones who created and syndicated those liar loans… We are still paying the mortgage down – unless those bankers take unfair advantage and squeeze the life out of our employers, and we get terminated.” Yessiree, most of the problems we face today are based squarely on bank credit and land. More people need to revisit the work of Henry George to see the reason why, and what he advocated to control this situation. Yes, most of you now see what I saw starting to happen 30 years ago when bankers decided they also wanted to be investment bankers, stockbrokers, mortgage brokers, insurance brokers, insurers, mutual fund dealers, capital managers, financial advisors, salesmen to the clients they were advising, and on and on. Just like land barons they serve, who own the best locations in every urban and suburban market, the bankers demanded control so they could set their price. In their path, these monopolists stomped on the independent and objective advisors and brokers – the workers, the value creation facilitators, people who were not their slaves. They beat them to death. Now look where we are. All of us need to stand back and see the process that has been going on here. The death of independence and objectivity – it’s at the base of all of our problems, and it happens whenever there is absolute power. That power was there for Enron, then the seventh largest corporation and the most powerful energy trading company in America, when auditors were bought-and-paid for by the company and their bankers. The public auditing profession was then put to shame. Now the same thing is happening as the banking and securities regulators have been put to shame after being similarly controlled. Without checks and balances, conflict of interest won the day again, and ended up killing us, again. Nobody can deny my words: if you even try then you clearly did not read my opening paragraph. The people are rejecting their controllers. You cannot deny that in the past five trading days, the biggest three banks in the world [Citigroup (C down -46.0%); Bank of America (BAC down -35.4%); and JP Morgan (JPM down -24.0%)] were crushed. The biggest and most powerful automobile manufacturer in the world, at least until this quarter, General Motors (GM down -33.2%) crushed. The biggest travel related credit card services company, American Express (AXP down -19.9%) crushed. The world’s biggest industrial conglomerate, General Electric (GE down -19.7%) crushed. The shareholder equity of all of them destroyed because of bad banking practices; all of them now hands-out to the US taxpayer, begging foregiveness. All of them totally arrogant. “We are Americans first, bankers second’ said one of them, laughing in the taxpayer’s face. The people are now speaking up. The deceit of these banking executives knows no end. This week, they fired hard-working vice-presidents who had helped build their companies, replacing them with vice-presidents they recruited from other banks, using TARP funds to pay triple signing bonuses for the recruit to bring their book of business from the competitor bank and yet, at the same time, issuing lawsuits to the employees they had terminated, trying to prevent them from taking their book of business elsewhere, something they need to do to keep paying the bills and avoid foreclosure. This is not about being American, serving the customer right. These bankers have destroyed the customer and they have systematically and purposefully destroyed the independent advisor of the customer. This is about power, absolute power, and corruption. This is not my story. This is our story. None of us can deny what’s happened here. The question is do we stand back and allow the new US Administration and Congress to continue to kowtow to these bankers or do we demand a new financial services industry structure, a free capital market, and an independent regulatory system that truly serves the public right. In the midst of the purge, as a professional trader, I see opportunity. There are alternatives to the major banks, you know. There are many financially strong companies, some of them financial, some industrial, and some utilities. The market crash has created value laden opportunities. But, as an individual, I really hope we don’t capitulate to the spousal arrangement between bankers and politicians and land barons, no matter how painful the selling gets in the market. That’s a marriage we must break up before the rest of us can move on to a better life. President Obama was elected on his platform of change. The problems I have identified are the ones that need to be fixed. If it is going to be status quo, politics as usual, I am afraid he will be the longest serving lame-duck President in history. His bully pulpit will be of interest only to free-loading socialists and his Treasury Secretary will be ignored. Congress will fight and filibuster for the next four years, and the country will move from crisis to crisis. Thankfully, it doesn’t have to be that way. But, it’s not our call. The person whom Americans elected now has to stop talking about change, and start acting. America and the rest of the world are waiting. Equity markets are going nowhere unless and until he takes charge, and we see change. One of the definite changes coming up in early April will be the reconstruction of the British Overseas Territories like Cayman Islands, Bermuda, Turks and Caicos and the British Virgin Islands as well as Jersey, Guernsey and Alderney in the Channel Islands, and the Isle of Man. You can count on that. Obama is leading the charge, having said while campaigning, “There is a building in the Cayman Islands that houses supposedly 12,000 US-based corporations. That’s either the biggest building in the world, or the biggest tax scam in the world – and we know which one it is.” Now British Prime Minister Brown has picked up that torch and will announce his intentions at a London summit of world leaders on April 2. Meanwhile, the US is on the full offensive against Swiss bank secrecy, which is the great facilitator of these tax havens. Should a US judge rule that UBS must give up the bank records of 54,000 Americans holding offshore accounts with UBS, the next step will be to demand all offshore banking records of Americans. Other G-7 countries will follow suit. Ergo, the end of offshore banking is close at hand. Thankfully, I just live offshore, in full compliance with US laws that require full disclosure. It will be my pleasure to actually provide legitimate services to offshore accounts, which will be allowed to continue, just with full disclosure and tax compliance. How that affects the capital markets, I haven’t yet thought through. My first thinking is that US bonds will be sold, probably in the trillions, but many accounts will stay offshore for wealth protection reasons since it is very difficult to sue registered trusts and international corporations. Those legal structures will remain legal and useful, and I will be available to trade for them. But, let’s not get ahead of ourselves. Most people have zero interest in offshore accounts. Everybody is keen to discuss the market. So, let’s survey the extensive damage that occurred this week, and maybe spot some short-term trading opportunities. As traders, we can’t stand by. We’re just the workers and there is a job to do.
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 | "Of all tyrannies, a tyranny exercised for the good of its victims may be the most oppressive. It may be better to live under robber barons than under omnipotent moral busybodies. The robber baron's cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end, for they do so with the approval of their own conscience. -- C. S. Lewis |
#2. To: sourcery (#1)
It is the Bush Republican catastrophe. OB may make it worse or better.
"Satan / Cheney in "08" 
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