OK, I got a couple of emails demanding I explain the notion of these banks being insolvent.
Let's first briefly define insolvent; unable to meet debt obligations.
It's very simple, if you owe $10 but you can't pay it, you are insolvent. Now, you may have $500,000 worth of inventory, so you can sell $10 worth (or more) and you are now solvent, but until you do, hey dude, you are insolvent.
OK, there ya go.
Most of the big banks are insolvent and the only way they could repay all their debts is;
1)Get us taxpayers to foot the bill and suck us all dry as they are doing (did you see after the close that Fannie Mae is asking for ANOTHER $31 BILLION!)
2)Get rid of mark to market, thus they can price the toxic/illiquid "assets" at a high enough price to be "solvent", which is why these knuckleheads are pushing it so hard. It's the dumbest thing ever, but hey, why not rip everyone off even more!
3)Fool depositors into thinking that their money is safe so they don't withdraw it.
4)Make enough money to overcome all the bad/toxic assets they have (this is highly unlikely)
OK, so that doesn't "prove" the notion, I know, so let me go into a few logical equations and you can draw your own conclusions -
1)Citibank (C) is owned roughly 40% (its actually a lot more, but I don't have time to explain this right now) by the US Taxpayers, which I'll assume you all pay your taxpayers, so congratulations, you just made about 75% on your money the last two days as C nearly doubled! Ka-chingo = NOT!
Why do you own C? Well, because the govt had to a) give them at least $45 BIL to cover debt (insolvent, capesh?), and even better, you are guaranteeing roughly $350 BIL in bad debt they have that is worth very little, if anything! Yeah, you lucky folks! I wish I were you! OH, I am! Shoot!
2)JPM, GS, WFC, NTRS, USB, STI, STT,MS and a bunch of others took Tarp money for same reasons and the govt/us mostly got preferred shares that pay 8 to 10% interest, with the rights to convert now to common equity, which is obviously dilutive. THe only banks I am aware of that have offered to repay the Tarp money are; NTRS and USB. And, even that is suspect to me.
Also, GS and GE had to take on similar type deals with Warren Buffet to raise capital.
The last two days you had CNBC pom pom out in full force because C and JPM both said they were profitable the first two months of the year. This is meaningless, but it sounds good so why not fool the public again!
The bullish arguement is that these banks have good earnings power, I FIRMLY disagree. Yes, they have very low cost money to loan, which is very good for banks, but they are doing DRASTICALLY less business. For those of you who don't live in a city like New York, or Los Angeles, or Chicago and a few others, go Google these cities and BANKS and see how many listings you get. Part of the problem was, and still is, there is a HUGE bubble in banks. Meaning that there are so many that in New York I feel as though they must have a bank per customer. I mean, its worse then Starbucks! I can walk 3 or 4 blocks to a different Chase (sometimes its 1 block away or LESS!) in the city! How many damn banks do we need? Certainly not that many, same as the way Starbucks is contracting, thats what happens when businesses expand and need to contract and thats normal, thats a free market capitalistic system. The govt is artificially keeping these INSOLVENT banks in business. They have no real earnings power unless they contract. Then, yes, the survivors would, but thats the same issue with many businesses now. Automobiles, banks, mortgage brokers, brokers, etc, etc, etc.
OK, and my next post some of you will be really happy with me for, hehe. In my opinion Bernie Madoff is NOTHING compared to the biggest Ponzi scheme in the history of the world.
You want to know what it is? THE BANKING SYSTEM.
Now obviously I hope I never have to prove this out, but if everyone decided tomorrow that they wanted to withdraw all their money from every bank in the world, I am quite certain you would have a shortfall of so much money it would blow your mind. And, in this day and age that would be a lot. What's after Trillions? I don't even know, but take that and times it by 1000 or more and my guess is thats your shortfall. Remember, these "assets" many were at 50 or 100 or more to 1, so your money was/is being used to leverage that much X's its worth.
What does that mean? Well, much of this mess was created by simple math, even though they like to make it seem like its so complex. It's not, my 7 year old could figure it out.
If you have 1 apple tree that usually yields 100 apples, but you tell someone you are selling them 5000 apples then you have a 4900 apple shortfall. BUT, if the apple crop this year is really really good, perhaps you can cover substancially more than the 100, certainly enough to keep them sated so they don't ask you to collect all 5000. And, if they do, its ok, because you can borrow it from the other guy who has a bumper crop of apples this year.
Its probably a poor analogy, but think of those apples as the housing market, or the stock market. If you deposit $5000 into a bank account and the bank then lends it out at 50 to 1, hence $250,000, its ok as long as the underlying assets continue to expand. The problem occurs when these assets contract, or are stagnant, then a) someone may ask you to pay them back because they need the money to repay their bills, or they simply are nervous and want to cash out. This is why Bernie Madoff and other schemers finally got caught, as long as they had more inflows then redemptions, they could keep their Ponzi scheme going and going and going. When the market dropped and people had to redeem in order to pay other obligations, or because they were nervous and wanted to put their money under their pillows, the gig was up, baby, cause Bernie didn't have the cashola, it was all FICTION.
Which, in my opinion, is EXACTLY what C and JPM and BAC and WFC and most of them are doing now. Sure, they "made" a profit the last two months, but what about the BILLIONS, if not TRILLIONS that they need to still write down?
Still not convinced.
OK, fine, fair enough. Perhaps I can remind you of a few FACTS that are indesputable -
etc, etc, etc.
I called them all to ZERO. They all are basically there (yeah, C is $1.50, sorry, whoops!). In fact, they are or were all worth LESS THAN ZERO. How can I prove that? Well, all the buyouts had to happen with the blessing of the Fed, who backstopped each of the deals to the tune of BILLIONS to get someone to take them over. That, my friends, is indesputable.
And, even more? How about the fact that the CEO's of BSC, LEH, AIG, FNM, FRE and many others were all on CNBC and CNN and wherever saying that they were FINE< that they were MAKING MONEY and that they didn't need any help, they could all GO IT ALONE!
I'm sorry, but you can stick your head in the sand or you can deal in reality. Reality is, these companies, most of them, are INSOLVENT. And, the right thing to do is the one thing they refuse to do, which is to make them so. Close down 50% of the banks in the country, sell off the assets for whatever they are really worth, and merge, combine and nationalize everyone who can't really stand on their own.
You want to argue, ok, but I will give you an ironclad guarantee my friends. In 5 years (it'll be a lot less) this will mostly if not all come to pass anyway. All they are doing is giving out false hope, and delaying the inevitable.
One more tidbit to chomp on. HBC is doing an offering today of their stock at 40% off. I've never even heard of such absurdity. HBC was supposedly one of the strongest banks out there. Do you think that HBC would sell their stock at 40% off if they weren't completely desperate to stay alive?
Think about it, get back to me. The US (and world) banking system is the biggest PONZI SCHEME known to mankind. That's my opinion, and I'm sticking to it.
If I got wind that everyone was thinking about withdrawing their money at the same time soon, trust me, I would beat you all to the bank and get my money out immediately and hide it under my bed, in my closet, in shoes, in socks, in the toilet, in the glove compartment, in used Chinese take out boxes. I would stuff some in my kids school lunch. I'd do anything just to get it out of a US Bank.
Look at this "rally" that I called. Wowsa! Nice, huh? Ah huh. AXP is under $12 and got a SELL rating today! PNC is under $25 and downgraded. Who is upgrading MS? Shocking as it is - GS! You really don't want me to go off on the evil empire that is GS, do you? No, its late and that's enough for a night.
Hey, this is all my opinion, what do I know? Clearly I have been wrong all along, market probably goes to new highs soon!
Get ready to short BRK.B again, we got Mr.Buffet LARGE already, I'm hoping it gets to $3000 here so I can do it all over again! Ka-chingo!
You think I'm bearish? Tiny thinks we go right back down here VERY soon! I'll buy that, I certainly am not willing to stay long here for more than a trade again. A couple days was enough, I'm back to trade the longside, hold the short side again.
YES, the govt can do things to artificially TRY to create the perception of value on these stocks, but its all smoke and mirrors, and anyone who buys into it is going to lose their shirts, and more. This is not a drill, this is the real deal.