March 27, 2008

more on the fiscal crisis .. what 'insiders" are reading

Here's a little more eavesdropping on those who still have ca$h as the fi$cal cri$i$ continues.

Too bad they can't figure out that the US war debt is what is really killing them all.

Market regulation was the last thing the NEOCONS wanted, and was the last thing that was going to be seen . . and so it is. The entire world gets to suffer from the Neocons greed and lack of "ethics". And it just AMAZES me that they think Hank Paulson and Michael Mukasey are going to lift one little finger to get the Big Crook$ any kind of punishment.

That task, dear reader, falls to us - and it's called IMPEACHMENT.

The arms trading, the defense industry, the influence peddling - all has made for a very bad business enviroment.

Notice how you never hear of an armaments manufactuter with defense contracts having a Very Bad Time?

Well, have you?

The below is from a blog called urban digs, put out by Noah Rosenblatt.


When Meredith Talks, We Must Listen; Regulation Strangles

Posted by Noah Rosenblatt on March 26, 2008 at 11.00 AM

A: Why? Because she was dead on BEFORE any other analysts were! Meredith Whitney had the courage to say what others wouldn't and put out a research note warning of the writedowns and dividend cuts months before they occurred. Today, Whitney quadruples the loss estimates for Citigroup which comes one day after Goldman Sachs puts the total global subprime loss projection at 1.2 Trillion before all is set and done.

meredith-whitney-oppenheimer.jpgBack in late October, Whitney put out a research note on Citigroup; story via

Citigroup (NYSE: C) dropped 7.5%, or $3.11, to $38.25 on Thursday morning after CIBC World Markets downgraded the stock on fears of an impending dividend cut.

In a research note, CIBC World Markets analyst Meredith Whitney downgraded Citigroup to "sector underperformer" from "sector performer," saying that a dividend cut may be on the horizon in order for the company to raise capital.

Hmm, Citigroup falling 7.5% to $38; seems like ancient history these days. So where is Whitney NOW after the entire financial sector has gotten beaten down? Well for Citigroup, she is revising her loss estimates up four fold!

According to Bloomberg's article, "Citigroup Estimates Cut by Oppenheimer's Whitney":

Citigroup fell 3.3 percent in Frankfurt trading to $22.65 after Whitney predicted the bank will lose $1.15 a share in the quarter because of potential markdowns of $13.1 billion on assets including leveraged loans and collateralized debt obligations. That compares with her earlier loss estimate of 28 cents, Whitney wrote in a note yesterday to investors.
This comes one day after teflon IB Goldman Sachs sees total credit losses around the globe reaching as high as $1.2 trillion; and $460 billion for US levered institutions.

According to the story via Reuters:

Goldman Sachs forecasts global credit losses stemming from the current market turmoil will reach $1.2 trillion, with Wall Street accounting for nearly 40 percent of the losses.

U.S. leveraged institutions, which include banks, brokers-dealers, hedge funds and government-sponsored enterprises, will suffer roughly $460 billion in credit losses after loan loss provisions, Goldman Sachs economists wrote in a research note released late on Monday.

Losses from this group of players are crucial because they have led to a dramatic pullback in credit availability as they have pared lending to shore up their capital and preserve their capital requirements, they said.

Goldman estimated $120 billion in write-offs have been reported by these leveraged institutions since the credit crunch began last summer. "U.S. leveraged institutions have written off less than half of the losses associated with the bursting of the credit bubble," they said. "There is light at the end of the tunnel, but it is still rather dim."

We had our one week drug induced rally after the fed cut FFR & discount window and helped avoid a systemic financial meltdown by backing up a JPM buyout of Bear Stearns. The drugs are starting to wear off, and as usual, talk is now starting about the NEXT round of rate cuts. Oh when will the story end!

If there is one thing to take from what Whitney & Goldman is saying, its that we STILL don't know how deep this writedown abyss goes! I certainly have no clue how deep the hole goes, all I know is that it continues to be deeper than most like to admit. We are about to enter a period where more writedowns will come at the same time economic data shows the effects of the credit storm; after all the fed admitted that unemployment & inflation will rise as the economy slows. We saw today's weaker durable goods number and now we must brace for unemployment data and Q4 final GDP and Q1 advanced GDP that could very well mark the official recession call.

Profit potential at investment banks need to get adjusted as the game is over for many revenue generating models:

The derivatives trade of securitizing loans and selling them off in pieces on the secondary mortgage markets generated billions in revenue for these banks & brokerages. Now that the housing bubble popped nationally, risk has been re-priced, secondary mortgage markets are not functioning properly, liquidity dried up for mortgage backed securities, and the announcement of billions in losses and potential insolvencies, THE GAME IS OVER! How will these banks and brokerages generate the kind of revenue that they got used to generating the past few years?
When the fed does what they are doing, you know regulation isn't far behind! While that is good for longer term sustainable growth without allowing for the same mistakes that were made in past few years, it will strangle profit potential.

In my view, future rate cuts will tell us how severe the recession will be. I would expect at least another 50-75 bps of cuts to the FFR over the near term, further weakening our dollar and boosting commodity prices. I hope that additional stimulus measures will limit the aggressiveness of future rate cuts. Should the fed cut more than this, or take the FFR below 1.5% or so, that is an indication that the recession is proving to be worse than original thought. How low will we go?

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