Meredith Whitney on Bear Attack!

Watched Meredith Whitney on Bear attack on BNN. Here's what she had to say:

• Bank stocks : Things on a tangible book value basis could improve.The basis on which these stocks are valued could improve, for the quarter anyways. TCE will look better because of these writeups.



• Tier 1 capital ratio could get worse..


• BAC has some good businesses so should be first to enter the yard sale of assets. Citi has so many disparate businesses and small share that it’s hard to see how Citi sales work out on a long term.


• The greatest export the US has had over the last 30 years has been the financial services. That obviously is not going to happen going forward. Will go to something else than exporting leverage. We can do this from a core basis. Definitely not a death knell. But there’s some significant restructuring which could be painful in the intermediate term.


• Municipal markets and the local economies are dependant on mortgages. That’s gotta change. Painful uprooting of the entire US economy. Can get done. It’s just going to take a long time.


• I’ve never made the claim that any institution was insolvent except Bear Stearns which was clearly insolvent.


• Specific to the banks: sitting on trillions on dollars of overvalued assets. Loans written on bad math. Mortgages written with an assumption of 6% unemployment. Expecting 30% peak to trough real estate price decline.


• Banks are not going to earn that much over the next couple of years, whether they are insolvent or not.


• Homeownership rate currently 67%, trending down. It’s not justifiable to keep people as homeowners when they are not owning anything (in equity). So we are going to have a supply jam that’s going to drive foreclosures. We’ll see a sharp leg down.


• Credit cards: not really the defaults, but the contraction in liquidity is the concern. US consumers have grown dependent on credit as a cash flow management vehicle. 90% of Americans revolve credit lines at least once a year. 45% revolve every month.


• $2.7 trillion credit lines cut. 55% of all credit card lines in the US will be cut from peak. Psychologically damning effect on willingness or ability to go out and spend.


• The earlier banks sell their assets, the more they’ll get.


• Will XLF set new lows? It’ll come pretty close.


• By the time of summer I expect that to take place. There’s going to be great things to buy but it’s just not there yet. Banks will sell great things: processing vehicles etc. Distressed assets that have huge operational leverage. Their asset structures are built on declining asset values, High premiums and bad maths.


• I’m surprised that there’s a willingness to give banks so much credit. I hope investors don’t enter banks. They’ve been fooled over and over again.

On the whole it was a good interview. I haven't mentioned the guy who was with her during this as he was wayy to bearish, predicting Dow 1000..

Go watch him if you care to know why!

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Jim Rogers: interesting ideas.

Jim Rogers appeared on Bloomberg a few weeks back. I found this video through allthingsjimrogers.com. Part I, Part II and Part III can be found here. Made some notes and thought of sharing his thoughts:

Part I

• We’ve been due a rally. When you’ve had that kind of a collapse you do have rallies. This is similar to 1929-1932. We’ve seen A bottom. Is it THE bottom? I don’t think so. I think we’re going to see more bottoms in the next few years.


• I would expect to see more problems probably this fall or next year. We’re going to see currency problems. Crisis in the currency markets. More bankruptcies as a result. More problems in the financial markets. I’m not participating in the stock market rally.


• If the world economy is going to be better, commodities is going to be the place to be. If not, the commodities would be the least bad place to be.


• We’ve been in a period of forced liquidation.

Part II

• How long can this rally in the US last? This rally has been very powerful, and based on my experience of the last 40-50 years, when you get a rally like this off the bottom, it lasts longer than anyone expects it to last. There’s a lot of pent up demand.


• I’m not selling this rally short at all. Maybe in May or June, I’ll let you know. We’ll just have to see how this unfolds.


• Best way to short US bond markets and good time to short? I’m not short the US bond market. I was earlier. I covered when Bernanke said he will buy the bonds. US bond market is the last bubble left. You don’t short bubbles when they are going up. I fully expect to short the US bond market in the considerable future.


• Bonds could possibly spike up in the future. Something will happen in the future which will cause the bonds to go up a lot. In Japan bonds were yielding 0.5% when they topped. These go a long way.


• Bought some baby stocks in Japan because the birth rate has been a disaster, and the govt. is encouraging people to have kids.


• Biggest litmus test would be a currency crisis in the west and this is something not factored in yet. I would suspect these are coming next. There are many currency imbalances. US largest debtor nation in the world. Swiss Franc etc.

Part III

• If you can buy real estate in natural resource rich areas of China and Brazil you are going to make a fortune over the next decade or two. I wouldn’t buy real estate in Shanghai or Beijing where the bubble developed.
  

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Mark to market benefits on the way to bankruptcy.

Jamie Dimon on booking mark to market gains on liabilities as per FAS 157.:

"The theory is interesting, but, in practice, it is absurd. Taken to the extreme, if a company is on its way to bankruptcy, it will be booking huge profits on its own outstanding debt, right up until it actually declares bankruptcy–at which point it doesn't matter."

Hmmm..As a company is more likely to default, it's CDS spreads widen, and their liabilities lose value. The banks can actually reduce their liability and book this reduction on their income statement!

Of course if a company is to remain a going concern, it has to pay back the entire amount. So booking such gains doesn't make sense unless you're on your way to bankruptcy, when equity holders would most probably get wiped out anyways..

Curiouser and curiouser!

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Interesting videos on the current markets

Five videos for an interesting perspective on things :

1. The Dow may challenge the 2007-2008 lows from mid-May onwards, according to the charts of Ray Barros, CEO of Ray Barros Trading Group.
   
   
   

   

2. Global stocks have been experiencing a rally over the past few weeks, but this is not a bull market, according to Nick Batsford from Hobart Capital

   
   
3. Mohd. El-Erian with Jack Welch:
   


4. Jim Bianco, of Bianco Research, interesting discussion that the leaders of this nascent bull market have been of suspect quality. Also touches on quants losing a lot of money (something which Zero Hedge has spoken a great deal about).
   
   


5. Bear-Market Rally to Last into May: Chartist
   When looking at charts for the FTSE 100 index and Dow Jones Industrial Average, Sandy Jadeja from ODL Securities sees a pullback from the recent rally over the next 3 days. But he also sees the current bear-market rally extending into May.
   
   
   

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