Nouriel Roubini, who a year ago correctly forecast soaring unemployment and ex-stimulus a very weak economy, but who made the mistake of forgetting that stocks rise the most when the Fed is the easiest, and the Fed is the easiest when the economy is the worst, has resurfaced with some aggressively bearish comments (while avoiding guessing the course of stocks). In a pair of pieces, he lays out the economic bear case and argues for muscular stimulus: stimulus that really stimulates. A tale of two American economies is the longer piece; The worst is yet to come: Unemployed Americans should hunker down for more job losses is shorter.
They are brief enough that there is no point excerpting from them. If you read them both, please don't slit your wrists.
Meredith Whitney, who covers financial companies and was rated #1 in her category this year by the WSJ, agrees with Dr. Roubini that the official data are overly optimistic and that small business is in an under-recognized depression. She also feels that "The banks are still grossly overvalued".
Along with David Rosenberg of Gluskin Sheff, A. Gary Shilling (of his own firm), and some bloggers such as Mish, there are several people who consider themselves realists with very strong track records who dislike the "Accentuate the Positive" spin they perceive all around them in what continue to be extraordinarily difficult economic times.
While they differ on policy matters, my observations of the real world is that this weak economy is vastly worse than the 1990-1 or 2001 downturns, and is so different from the 1980-3 downturns that comparisons are difficult.
Almost every day, the consistent message of the markets is that money-printing is behind the "surge" in the economy; gold outperforms the S&P 500 almost every day lately. One day this will stop, and perhaps today was the last such day for a long time, but the Fed and the pros likely agree with these bears. If stocks were truly undervalued, there would not be much demand for 12-month paper issued by the U. S. Treasury at one-quarter of one percent interest.
Copyright (C) Long Lake LLC 2009
Showing posts with label Meredith Whitney. Show all posts
Showing posts with label Meredith Whitney. Show all posts
Tuesday, December 1, 2009
Friday, September 18, 2009
Is Wells Unwell?
One of these days, banks will begin making an increased number of bad loans again (and some good ones). Presumably the non-change agents in Washington will be continuing the game of socializing the losses when they are large enough while privatizing all gains (save taxes and campaign contributions). For the nonce, as the damage from the last crop of bad loans and fraudulent practices continues to be counted, it's not clear how severe the damage from the infections has been or will prove to be. Courtesy of Credit Writedowns, here are excerpts from a Bankimplode.com post titled Wells Fargo's Commercial Portfolio is a ticking time bomb:
In order to sort through the disaster that is Wells Fargo’s (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.
Wachovia, which Wells purchased last fall as it teetered on the brink of collapse, was so desperate to increase revenue in the last few years of its existence that it underwrote loans with extremely shoddy standards and paid traders to take them off their books.
According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large. . .
Both Whitney and Paul Miller of FBR Capital Markets both have gone on-air and written in notes to clients that Wells’ loan loss reserves are not enough to handle coming impairments to residential loans. Miller has a recommended stock price of $15 while WFC is currently trading around $29.
When as good an analyst as Mr. Miller project a stock price that is half the current one, fuggedabout owning the stock. I recall that when Citi was, say, a $20 stock and Meredith Whitney projected (say) a $9 stock price, gasps were heard (at least mentally). Citi of course was headed really toward zero and even after its monster rally this year remains at about half that $9 target.
Where would the stock indices be if Wells became a $7.50 stock?
Copyright (C) Long Lake LLC 2009
In order to sort through the disaster that is Wells Fargo’s (quote: WFC) commercial loan portfolio, the bank has hired help from outside experts to pour over the books… and they are shocked with what they are seeing. Not only do the bank’s outstanding commercial loans collectively exceed the property values to which they are attached, but derivative trades leftover from its acquisition of Wachovia are creating another set of problems for the already beleaguered San Francisco-based megabank.
Wachovia, which Wells purchased last fall as it teetered on the brink of collapse, was so desperate to increase revenue in the last few years of its existence that it underwrote loans with extremely shoddy standards and paid traders to take them off their books.
According to sources currently working out these loans at Wells Fargo, when selling tranches of commercial mortgage-backed securities below the super senior tranche, Wachovia promised to pay the buyer’s risk premium by writing credit default swap contracts against these subordinate bonds. Dan Alpert of Westwood Capital says these were practices that he saw going on in the market at large. . .
Both Whitney and Paul Miller of FBR Capital Markets both have gone on-air and written in notes to clients that Wells’ loan loss reserves are not enough to handle coming impairments to residential loans. Miller has a recommended stock price of $15 while WFC is currently trading around $29.
When as good an analyst as Mr. Miller project a stock price that is half the current one, fuggedabout owning the stock. I recall that when Citi was, say, a $20 stock and Meredith Whitney projected (say) a $9 stock price, gasps were heard (at least mentally). Citi of course was headed really toward zero and even after its monster rally this year remains at about half that $9 target.
Where would the stock indices be if Wells became a $7.50 stock?
Copyright (C) Long Lake LLC 2009
Tuesday, July 14, 2009
Analyst's Bearish View of the Economy Helps Spark Large Stock Market Rally
Please read the snippet below and then question whether the "stimulus" is primarily about enriching the Merchants of Debt, who have cooperated (conspired?) with the Fed and the Feds to eliminate most competition.
Meredith Whitney Bullish On Goldman,Sees 2Q Above Views
By Ed Welsch NEW YORK (Dow Jones)--
Goldman Sachs Group Inc. (GS) will benefit from being a key player in a "tsunami of debt issuance" by governments as they try to fill gaps in underfunded budgets, financial analyst Meredith Whitney said Monday in an upgrade of Goldman to "buy." . . .
A bullish call from Whitney is rare; she gained renown during the financial crisis for initially unpopular bearish calls on the stocks of large banks that ultimately proved to be correct.
However, Whitney said her bullish view of Goldman is rooted in her overall bearish outlook for the U.S. economy and other U.S. financial companies. While Goldman has made most of its money in the past through a focus on equity markets, Whitney said during the next two years the firm will shift focus to the government debt markets, facilitating new issuance from local, state, federal and sovereign governments as they try to raise money to fill budget gaps. (Emph. added)
So strange is the stock market that these emanations from the digital pen of Ms. Whitney helped stock prices surge upwards Monday. Go figure . . .
Copyright (C) Long Lake LLC 2009
Meredith Whitney Bullish On Goldman,Sees 2Q Above Views
By Ed Welsch NEW YORK (Dow Jones)--
Goldman Sachs Group Inc. (GS) will benefit from being a key player in a "tsunami of debt issuance" by governments as they try to fill gaps in underfunded budgets, financial analyst Meredith Whitney said Monday in an upgrade of Goldman to "buy." . . .
A bullish call from Whitney is rare; she gained renown during the financial crisis for initially unpopular bearish calls on the stocks of large banks that ultimately proved to be correct.
However, Whitney said her bullish view of Goldman is rooted in her overall bearish outlook for the U.S. economy and other U.S. financial companies. While Goldman has made most of its money in the past through a focus on equity markets, Whitney said during the next two years the firm will shift focus to the government debt markets, facilitating new issuance from local, state, federal and sovereign governments as they try to raise money to fill budget gaps. (Emph. added)
So strange is the stock market that these emanations from the digital pen of Ms. Whitney helped stock prices surge upwards Monday. Go figure . . .
Copyright (C) Long Lake LLC 2009
Monday, April 6, 2009
Unsustainability of the Decline of the Global Economy Is Not Cause for Jubilation
Here is where we have been:
April 1 - Bloomberg (Simone Meier): “German plant and machinery orders extended a record decline in February… Orders dropped 49% from a year earlier after declining an annual 42% in January…
March 31 - Bloomberg (Chris Kirkham): “Ukraine’s economy shrank between 25% and 30% in the first two months of the year, President Viktor Yushchenko said…”
Here is where we may be going:
April 6 (Bloomberg) -- About 53 percent of U.S. companies that issued high-risk, high-yield bonds will default over the next five years, according to Jim Reid at Deutsche Bank AG.
APRIL 6: Soros told Reuters Financial Television that rescuing U.S. banks could turn them into "zombies" that suck the lifeblood of the economy, prolonging the economic slowdown. . .
The recovery will look like "an inverted square root sign," Soros said: "You hit bottom and you automatically rebound some, but then you don't come out of it in a V-shape recovery or anything like that. You settle down -- step down."
Much digital and newsprint ink has been spilled over the strong stock rally and some hopeful signs of economic rebound, and the strong chance that given the enormity of the stock and economic selloffs, more upside surprises remain for both the above. However, please consider this (from RGE Monitor, subscription required):
- Overview: Stress test results are expected by the end of April. Banks then have six months to raise private capital if found to be undercapitalized. Meanwhile, Treasury plans to have the PPIP for toxic assets in place in order to facilitate the quest for private shareholder capital (application deadline extended to April 24). Critics of the stress tests say that the Treasury's stress scenario looks more like the unfolding baseline scenario. Moreover, as details about the current legacy loan valuations on banks' books emerge, doubts increase about the viability of matching buyer and seller interest without a huge subsidy--> Sifting Through Past FDIC Troubled Asset Auctions: Average 56 Cents on Dollar Value Implies Additional $1 Trillion Writedowns. The public and Congress are increasingly concerned about too many incentives to private investors, whereas Treasury has only $50bn in TARP money left after PPIP and TALF to make it work without resorting to Congress or nationalization--> see Are Banks To Buy Toxic Assets From Each Other?
- April 6, Mike Mayo (via Bloomberg): Loan losses may exceed Great Depression levels and the government may be forced to take over large lenders. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”--> FASB Eases Mark-To-Market Rules For Toxic Assets: Will Banks Prefer To Keep Them?
- cont.: Mayo said he expects loan losses to increase to 3.5 percent, and as high as 5.5 percent in a stress scenario, by the end of 2010. The highest level of loan losses in the Great Depression was 3.4 percent in 1934, according to the report. In the 3.5% loss rate scenario, Mr. Mayo said banks will lose between $600 billion and $1 trillion over the next three years, more than the roughly $400 billion in write-downs they've taken on risky investments.
- cont.: Mortgage-related losses are about halfway to their peak, while credit-card and consumer losses are only a third of the way to their expected highest levels, according to Mayo
- Among the banks Mr. Mayo rates "underperform" are: Bank of America Corp., Citigroup Inc., Comerica Inc., J.P. Morgan Chase & Co., PNC Financial Services Inc. and Wells Fargo & Co. An "underperform" rating means the stock is expected to perform up to 10% worse than the broader market over the next year.
- cont.: The U.S. government cannot provide much relief because its actions will lead to either banks having to raise new capital or toxic assets remaining on banks’ balance sheets. Solutions to the banking crisis will take time, as the increase in risk happened over a decade or more.
- cont.: "Nationalization of banks remains a possibility because government policy remains unclear."
- cont.: The "seven deadly sins" of banking include greedy loan growth, gluttony of real estate, lust for high yields, sloth-like risk management, pride of low capital, envy of exotic fees, and anger of regulators.
- April 6, Meredith Whitney: Banks will continue to write down their mortgage assets as home prices decline further than lenders expected. The unemployment rate also has exceeded banks’ projections and could lead to further loan losses
The above is cautionary. In addition, Ms. Whitney now expects a total of 50% peak to trough declines in housing prices, something which is nowhere close to expected by financial companies (CNBC interview today). She also believes that the ongoing shrinkage of credit lines is an underappreciated headwind for consumer spending.
What strikes one in the above writeup is that financial companies have 6 months to find capital if they fail a stress test. In other words, the administration is slow-walking things, hoping for better times.
No matter some hopeful signs and potentially some positive spin during the upcoming quarterly earnings reports about the future (no one is being prosecuted under Sarbox no matter how flagrantly they exaggerate), several recent forward-looking indicators continue to deteriorate, including the Conference Board's Employment Trend Index, which reported today that all 8 of its components declined in March, of which several have clear forward-looking predictive value.
Putting all the above together, a coherent story from the best of the best is that short-term market fluctuations are beyond predicting, but many headwinds remain for the economy and government policy remains weighted toward far too much favoritism toward Big Finance with far too little consideration for the Little Guy or the Medium Guy.
Governments need to stop such insanity as New York State passing a budget that increases spending 9%; they need to recognize that matters are opposite in many ways to the 1930s in that Keynes has been misused to justify overpromising and overspending for over 70 years; and they need to encourage the public to save. We cannot attain a balanced prosperity by the hair-of-the-dog strategy of money printing and piling more and more debt upon all the existing debt. The best time for an alcoholic to stop drinking is always the time: NOW.
Until the U. S. and its followers such as the U. K. cure their debt addictions and return to a culture of saving, all the jigs and jags of the economy and good months or quarters for stocks will be irrelevant, as the fundamental problem of unsound financial practices will remain and, if the Obama administration gets its way, these practices will be rewarded.
Copyright (C) Long Lake LLC 2009
Thursday, January 29, 2009
Bad Bank: Afternoon Update
Meredith Whitney, the esteemed financial analyst and a Cassandra over the past 2 years, has added her voice to the anti-"bad bank" proposal, saying, as reported on Bloomberg.com, that:
"A U.S. proposal to create a “bad bank” to buy troubled assets won’t cause banks to increase lending, Oppenheimer & Co. analyst Meredith Whitney said."
“Simply removing ‘toxic’ assets from bank balance sheets will not directly cause banks to increase lending,” Whitney wrote in a note today.
The banks likely won’t participate in selling assets if the Obama administration wants to pay fair market value for the assets “as capital hits would be too dear,” Whitney said.
The Obama administration is moving closer to setting up a so-called bad bank in its effort to break the back of the credit crisis and may use the Federal Deposit Insurance Corp. to manage it, two people familiar with the matter said yesterday.
Whitney is in favor of banks selling “crown jewel” assets to cover their own losses, she wrote.
“We believe private capital will readily invest in businesses that make money and grow,” Whitney wrote. “However, the banks do not fit this description.”
“If a bank were to sell its ‘bad’ assets into a ‘bad bank,’ it would still be left with lower earnings power from higher losses on ‘good loans’ and the requirements to build reserves, lower earnings power from lower assets and a higher legacy expense structure, or both,” Whitney wrote."
I have authorized entree to view Ms. Whitney's comments on-line via the Oppenheimer website. She has been so right for so long, it's almost scary. Roubini level of prescience, almost.
In addition, I heard an anecdote from someone who knows her. Because she has told the truth about Wall Street, she actually is physically attacked with fruit thrown at her when she visits the Stock Exchange. Really. A man accompanying her returned to his office with his suit bearing the proof. Lovely people, those Wall Streeters. Masters of the Universe? Hardly. Not even masters of their own domain.
In any case, opposition to the bad bank includes from Mr. Soros, Nassim Taleb, Nouriel Roubini, Meredith Whitney . . . all people who called for a financial crack-up before it happened. Against this are Robert Rubin and Tim Geithner, amongst others. Might this opposition give the Obama Administration pause?
We can hope for a course change, can't we?
Copyright (C) Long Lake LLC 2009
"A U.S. proposal to create a “bad bank” to buy troubled assets won’t cause banks to increase lending, Oppenheimer & Co. analyst Meredith Whitney said."
“Simply removing ‘toxic’ assets from bank balance sheets will not directly cause banks to increase lending,” Whitney wrote in a note today.
The banks likely won’t participate in selling assets if the Obama administration wants to pay fair market value for the assets “as capital hits would be too dear,” Whitney said.
The Obama administration is moving closer to setting up a so-called bad bank in its effort to break the back of the credit crisis and may use the Federal Deposit Insurance Corp. to manage it, two people familiar with the matter said yesterday.
Whitney is in favor of banks selling “crown jewel” assets to cover their own losses, she wrote.
“We believe private capital will readily invest in businesses that make money and grow,” Whitney wrote. “However, the banks do not fit this description.”
“If a bank were to sell its ‘bad’ assets into a ‘bad bank,’ it would still be left with lower earnings power from higher losses on ‘good loans’ and the requirements to build reserves, lower earnings power from lower assets and a higher legacy expense structure, or both,” Whitney wrote."
I have authorized entree to view Ms. Whitney's comments on-line via the Oppenheimer website. She has been so right for so long, it's almost scary. Roubini level of prescience, almost.
In addition, I heard an anecdote from someone who knows her. Because she has told the truth about Wall Street, she actually is physically attacked with fruit thrown at her when she visits the Stock Exchange. Really. A man accompanying her returned to his office with his suit bearing the proof. Lovely people, those Wall Streeters. Masters of the Universe? Hardly. Not even masters of their own domain.
In any case, opposition to the bad bank includes from Mr. Soros, Nassim Taleb, Nouriel Roubini, Meredith Whitney . . . all people who called for a financial crack-up before it happened. Against this are Robert Rubin and Tim Geithner, amongst others. Might this opposition give the Obama Administration pause?
We can hope for a course change, can't we?
Copyright (C) Long Lake LLC 2009
Saturday, January 10, 2009
Hex and the Citi
The "hex" is both Robert Rubin and Citigroup's importance to the markets and the economy.
Mr. Rubin is stepping away from his consultancy to Citi and will leave the board when his term expires. He is not stepping away from his 9-figure total compensation over the years. This despite the unrefuted reports that he was the person who pushed Citi to up its risk profile in mid-decade. Citi is a failed company primarily for two reasons: it never integrated its acquisitions, and it went wild on its risk profile. Everywhere Meredith Whitney, financial analyst extraordinare at Oppenheimer and Company, reviews riskiness of a financial company's strategy, loans, capital base, etc., Citi is there.
Mr. Rubin reportedly did a fine job as co-chief of Goldman Sachs. As Clinton's Treasury Secretary, he was, along with Greenspan, the face of the good times that enabled the stock-buying bubble in the late 1990's. However, the reason I knew to broadly get out of the stockmarket in 2000 is that it was reported that the 1990s economic expansion was the only one in U.S. history in which the financial strength of companies declined. Given how much equity was raised in IPOs, and how many deals were done for stock rather than debt, this (now old) news sounds surprising. Many want to think that financial irresponsibility began in the Bush years, but this is a seamless matter. Rubin and Greenspan: what a reassuring pair.
Very near the end of the Clinton Presidency, I had lunch with a man who was a third-generation Washington political insider. He said that he and his family had never seen Washington so "for sale" as then. He said the corruption was bi-partisan.
In that context, let us put the repeal of Glass-Steagall. The company that pushed hardest for this was Citi. Is it a surprise that Mr. Rubin ended up co-Chiar of Citi, after having pushed for the legislation that removed the Depression-era safeguards embodied in the Act?
Now we are faced with the possibility of another depression, and the reality of a significant recession. Citi is effectively already in receivership. Smith Barney appears to be headed to another zombie, Morgan Stanley, which may know how to run a brokerage. (I was a Smith Barney client for years and know whereof I speak re Smith Barney.)
Given how badly Lehman's failure roiled the markets, what will the reality of an actual rather than virtual bankruptcy or receivership of Citigroup do? And could BofA be next? (Their stock charts are similar.) Though "C" is below $7/share, it still has a $36 B market value. I say it's worthless absent political decisions. If, with this history, Mr. Obama wants to make Mr. Rubin an advisor to him or wants to offer him an actual position, I would both be surprised and disappointed.
For a more pointed and trenchant commentary on Mr. Rubin, please see the following: "Jesse's Cafe Americain" and yesterday's post, Citi Unloads Robert Rubin and Salomon Smith Barney. (As someone who has had a professional relationship with some members of Mr. Rubin's family, I cannot endorse Jesse's quote from Pliny the Elder, but I'm always impressed by erudition. I checked the validity of the Latin and its attribution, and they are accurate, so far as I can tell.)
With this backdrop, consider that the recent stock rally, which was widely taken to be an Obama rally, stalled as soon as the following occurred:
Diane Feinstein complained publicly both about Leon Panetta's nomination to head CIA and (perhaps more important) that she was not "consulted" about it;
Rahm Emanuel has reportedly been "knifing" rivals;
Leading Democratic Senators have criticized the Obama "stimulus" plan as "trickle-down";
Criticism of Obama in the press has surfaced, such as by decrying the use of poll-tested words such as "recovery" rather than "recession";
In short, while all observers expect him to give a marvelous speech on Inauguration Day, reality is setting in. From a markets perspective, a great speech is already "in" the market. Bill Clinton had been a Governor for many years but still had a steep learning curve as President. Mr. Obama has had virtually no executive experience and is from the Senate but not of it. Imagine if FDR came into office not 8 or 9 months after the stock market bottomed, but instead was elected in 1930 and took office when all the financial and economic action was to the downside. Now imagine that he had never been a Governor, that his uncle had not been President, that he had not had a senior role in the Navy. Would he be more FDR or Hoover in our collective memory?
One final point. Last year, Barry Ritholtz at published a marvelous cartoon at his blog, now reachable at www.ritholtz.com/blog. It showed firemen putting out the fire at the bank while they ignored the fires blazing in retail, manufacturing, and other sectors of the economy. The follow-up now, with Citi on life-support and others perhaps teetering, is that the firemen used up a lot of water but did NOT put out the bank fire. And the other sectors, medical excepted, are still on fire. Not good.
Thus, the point of view here is that while Mr. Obama is on the right track with his calls for better regulation, and Paul Volcker is a superb choice as an adviser, the focus is excessively on multi-year construction projects and a tax cut, neither of which will work any magic immediately. Meanwhile, the banks are still burning. And tent cities have been springing up in Reno, Seattle and many other cities. These people need help now. And since the states by and large are maxed-out financially, there is lots of traditional help-the-poor work for the Feds to do.
(I would much prefer to help those so disastrously hurt by this economy rather than try to resurrect the previous high level of construction activity that helped lay us so low.)
It's therefore looking more likely that the stock market has made another lower high. Louise Yamada has a 6000 target for the Dow Industrials. Could Citi going into formal receivership put it there, and perhaps more rapidly than one would like to think possible?
Copyright (C) Long Lake LLC
Mr. Rubin is stepping away from his consultancy to Citi and will leave the board when his term expires. He is not stepping away from his 9-figure total compensation over the years. This despite the unrefuted reports that he was the person who pushed Citi to up its risk profile in mid-decade. Citi is a failed company primarily for two reasons: it never integrated its acquisitions, and it went wild on its risk profile. Everywhere Meredith Whitney, financial analyst extraordinare at Oppenheimer and Company, reviews riskiness of a financial company's strategy, loans, capital base, etc., Citi is there.
Mr. Rubin reportedly did a fine job as co-chief of Goldman Sachs. As Clinton's Treasury Secretary, he was, along with Greenspan, the face of the good times that enabled the stock-buying bubble in the late 1990's. However, the reason I knew to broadly get out of the stockmarket in 2000 is that it was reported that the 1990s economic expansion was the only one in U.S. history in which the financial strength of companies declined. Given how much equity was raised in IPOs, and how many deals were done for stock rather than debt, this (now old) news sounds surprising. Many want to think that financial irresponsibility began in the Bush years, but this is a seamless matter. Rubin and Greenspan: what a reassuring pair.
Very near the end of the Clinton Presidency, I had lunch with a man who was a third-generation Washington political insider. He said that he and his family had never seen Washington so "for sale" as then. He said the corruption was bi-partisan.
In that context, let us put the repeal of Glass-Steagall. The company that pushed hardest for this was Citi. Is it a surprise that Mr. Rubin ended up co-Chiar of Citi, after having pushed for the legislation that removed the Depression-era safeguards embodied in the Act?
Now we are faced with the possibility of another depression, and the reality of a significant recession. Citi is effectively already in receivership. Smith Barney appears to be headed to another zombie, Morgan Stanley, which may know how to run a brokerage. (I was a Smith Barney client for years and know whereof I speak re Smith Barney.)
Given how badly Lehman's failure roiled the markets, what will the reality of an actual rather than virtual bankruptcy or receivership of Citigroup do? And could BofA be next? (Their stock charts are similar.) Though "C" is below $7/share, it still has a $36 B market value. I say it's worthless absent political decisions. If, with this history, Mr. Obama wants to make Mr. Rubin an advisor to him or wants to offer him an actual position, I would both be surprised and disappointed.
For a more pointed and trenchant commentary on Mr. Rubin, please see the following: "Jesse's Cafe Americain" and yesterday's post, Citi Unloads Robert Rubin and Salomon Smith Barney. (As someone who has had a professional relationship with some members of Mr. Rubin's family, I cannot endorse Jesse's quote from Pliny the Elder, but I'm always impressed by erudition. I checked the validity of the Latin and its attribution, and they are accurate, so far as I can tell.)
With this backdrop, consider that the recent stock rally, which was widely taken to be an Obama rally, stalled as soon as the following occurred:
Diane Feinstein complained publicly both about Leon Panetta's nomination to head CIA and (perhaps more important) that she was not "consulted" about it;
Rahm Emanuel has reportedly been "knifing" rivals;
Leading Democratic Senators have criticized the Obama "stimulus" plan as "trickle-down";
Criticism of Obama in the press has surfaced, such as by decrying the use of poll-tested words such as "recovery" rather than "recession";
In short, while all observers expect him to give a marvelous speech on Inauguration Day, reality is setting in. From a markets perspective, a great speech is already "in" the market. Bill Clinton had been a Governor for many years but still had a steep learning curve as President. Mr. Obama has had virtually no executive experience and is from the Senate but not of it. Imagine if FDR came into office not 8 or 9 months after the stock market bottomed, but instead was elected in 1930 and took office when all the financial and economic action was to the downside. Now imagine that he had never been a Governor, that his uncle had not been President, that he had not had a senior role in the Navy. Would he be more FDR or Hoover in our collective memory?
One final point. Last year, Barry Ritholtz at published a marvelous cartoon at his blog, now reachable at www.ritholtz.com/blog. It showed firemen putting out the fire at the bank while they ignored the fires blazing in retail, manufacturing, and other sectors of the economy. The follow-up now, with Citi on life-support and others perhaps teetering, is that the firemen used up a lot of water but did NOT put out the bank fire. And the other sectors, medical excepted, are still on fire. Not good.
Thus, the point of view here is that while Mr. Obama is on the right track with his calls for better regulation, and Paul Volcker is a superb choice as an adviser, the focus is excessively on multi-year construction projects and a tax cut, neither of which will work any magic immediately. Meanwhile, the banks are still burning. And tent cities have been springing up in Reno, Seattle and many other cities. These people need help now. And since the states by and large are maxed-out financially, there is lots of traditional help-the-poor work for the Feds to do.
(I would much prefer to help those so disastrously hurt by this economy rather than try to resurrect the previous high level of construction activity that helped lay us so low.)
It's therefore looking more likely that the stock market has made another lower high. Louise Yamada has a 6000 target for the Dow Industrials. Could Citi going into formal receivership put it there, and perhaps more rapidly than one would like to think possible?
Copyright (C) Long Lake LLC
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