Does Mike Mayo Read Populus Vox?

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHfaPGTTOH5Q

Bloomberg article, highlighting his bearish comments for banks.

Tough Times For Sports Too

http://sports.espn.go.com/mlb/news/story?id=4041596

Parent of Texas Rangers fails to make payment as renegotiating tactic.

Banks With Commercial Exposure

The above table lists banks with $20 billion or more of earning assets and commercial loan ratios of at least 20%. In addition, I have included the amount of junior lien residential loans that these banks are exposed to. This is because this is a particularly weak class: if defaults keep chugging along, how much can these loans possibly be worth (regardless of credit score)?

I went back to the list of banks that held large amounts of goodwill on their balance sheet (post of 2/27/09) and discovered that the following banks appear on both lists:

Bank Name	Holding Company
Associated Bank, National Association	Associated Banc-Corp
Bank of America, National Association	Bank of America Corp.
Bank of the West	BNP Paribas
Branch Banking and Trust Company	BB & T Corp.
Capital One, National Association	Capital One Financial Corp.
Citizens Bank of Pennsylvania	Royal Bank of Scotland Group
Compass Bank	Banco Bilbao Vizcaya Argentaria, S.A.
Fifth Third Bank	Fifth Third Bancorp
Manufacturers and Traders Trust Company	M&T Bank Corp.
Merrill Lynch Bank & Trust Co., FSB	Bank of America Corp.
PNC Bank, National Association	PNC Financial Services
RBC Bank (USA)	Royal Bank Of Canada
RBS Citizens, National Association	Royal Bank of Scotland Group
Regions Bank	Regions Financial Corp.
Sovereign Bank	Banco Santander, S.A.
SunTrust Bank	SunTrust Banks, Inc.
TD Bank, National Association	The Toronto Dominion Bank
The Huntington National Bank	Huntington Bancshares Inc.
U.S. Bank National Association	U.S. Bancorp
Union Bank, National Association	Mitsubishi UFJ Financial Group

This is a great place to start your research if you think that financial stocks have rallied too much.

How Weak is Commercial Real Estate?

http://www.boston.com/business/ticker/2009/03/hancock_tower_s.html?p1=Well_MostPop_Emailed2

The John Hancock Tower traded at $1.3 billion in 2006, sold at auction for $660 million.

Wow.

Wall Street Profit Rebound: Where Will It Come From?

At some point, the write-down of bad assets will end and operating revenue will again be the foremost objective of management. The stock market is perhaps pricing this in as financial stocks have lead the charge in the last month. However, where do these buyers think that profits will come from?




The above graph charts mutual fund assets. Using this as a proxy for the current state of portfolios, managed money revenue will face some significant headwinds.






The two graphs above detail underwriting activity. The bulk of this segment is debt issuance. The credit collapse has obliterated this revenue stream and most experts believe that it will NEVER return to past form.






The two graphs above provide details of equity trading. Volume is up, a good sign for the trading firms. However, some commissions are based on dollar volume trading.

Still bullish?

Enjoy the Weekend

Well, today's payroll data was not a barnburner. Consensus forecast was for a loss of 660,000 jobs for March, the number came in a a loss of 663,000. I was a bit surprised by the headline print, I was expecting a number of about -700,000 jobs. Please note that the January number was revised from a loss of 651,000 jobs to a loss of 741,000 jobs.

That brings the unemployment rate to 8.5%, the highest since the Fall of 1983. The ADP data states that 4,813,000 jobs have been lost since the start of the current recession, the BLS data states that 5,133,000 jobs have been lost since the start of the current recession. The average is -4,973,000.

What are the prospects for the job market? The weekly data in the graphs below is pretty clear, there is no turnaround on the horizon.




This leads to the following news item:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a2t62x0yDW84


The story refers to a report by bank regulators that mortgages restructured in 2008 are not performing very well. The default rates are over 40%. Ostensibly, the mortgages were restructured so that homeowners would face lower payments. The problem is, when people have NO JOBS, it doesn't matter if the payment is a few bucks lower. LOOK AT THE ABOVE DATA WASHINGTON, D.C. !!!!!!

Back to the table below. It tracks homeowners equity versus debt. On average, the entire country continues to have the economic incentive to default on their mortgages. Why pay the bank when the bank owns more of your house than you do? This is catastrophic data as far as I am concerned and has been the major reason for my continued bearish stance. I know that I was a few days early in suggesting the end of the rally was upon us (the last few sessions were a bit of a surprise to me), but I can't understand how market "experts" use words and phrases like "not since the Great Depression", "hasn't happened in 30 years" and "never happened before" when describing the economy and somehow expect that normal equity trading patterns will prevail.

Financial Accounting Standards Board (FASB)

FASB is an industry based policy board that sets accounting protocol for corporations. The Securities and Exchange Commission (SEC) officially recognizes FASB as the private sector authority in setting these rules. Although the SEC has the authority to set the rules itself, it has decided that the private sector alternative allows for a more responsive and informed process.

FASB is in the news today because they have decided to modify SFAS 157. This statement contains the guidelines for fair value measurements of assets. The changes facilitate the relabeling of certain assets and facilitate the prorating of potential losses on holdings.

This is important to financial companies in particular because the trend up until this point has been to promote balance sheet transparency. So, bank stocks are moving higher today because there is less fear about recording large losses than there was yesterday.

Has the landscape truly changed though? Home price are still sliding, hundreds of thousands of Americans are still losing their jobs each month and federal government crowding out is doing as much harm to the private sector as the tightfisted banks are doing.

Please, buy with extreme caution.

GMAC Goes Back to the SubPrime Well

http://news.yahoo.com/s/nm/20090401/bs_nm/us_gmac


Why not? If the plan works, the company makes some money and perhaps stays alive. If the plan fails, who cares? They are playing with taxpayer money. All of the government's fixes have raised moral hazard to (perhaps) an all time high for this country. The taxpayer backstop will mitigate losses, so the smart thing to do is take more risk.

Dark Clouds in the Fiscal Sky

http://www.treas.gov/offices/domestic-finance/debt-management/auctions/auctions.pdf

http://www.gao.gov/cghome/d08446cg.pdf


The first link is to the tentative Treasury auction calendar. Every month looks like the quarterly refunding nowadays.

The second link is to a 2008 GAO report about the financial prospects of the U.S. Government. It highlights the Social Security problem in the not so distant future. Obviously, the situation has gotten worse since the publication of the report....

As of 10/3/08, the limit on the public debt was raised to $11.315 trillion. Most estimates place the current level at about $11.1 trillion today. Get ready for some horse trading in about six weeks.

Gearing Up for Friday: Employment Data

ADP released their employment data today: 742,000 jobs lost in the month of March alone. January's and February's were revised downward to losses of 655,000 and 706,000 respectively. Total job losses since the start of the recession now tally 4,813,000. A simple regression points to a loss of 725,000 jobs in the BLS report.

Home Prices

According to the financial press, a large part of today's equity rally was due to the pending home sales data. The index is a measure of contract signings and today's reading came in at 82.1 versus a street forecast of 82. The previous reading was 80.4, so the uptick was the reason for celebration. I guess the message is, nobody cares if these are the two lowest readings in the last thirteen months.

The graph below tracks the Case/Shiller Home Price Indices. Annualized price drops have yet to let up and the index now stands where it was back in the Fall of 2003. The equity market can continue to pick and choose the data it reacts to, but until equilibrium is attained in the housing market, the economy will cease to rebound.

Bankruptcy Update

Click on the table to expand.

The CDS auction for Charter Communications will take place on April 21.

Interactive Link: Bank Market Cap Over Time

http://www.ft.com/cms/s/0/ea450788-1573-11de-b9a9-0000779fd2ac.html?nclick_check=1


Interactive graph allows for viewing market cap over a 10 year timeline.

Bail Out Totals & Limits

http://www.bloomberg.com/apps/news?pid=20601087&sid=armOzfkwtCA4&refer=home


Useful table at end or article.

Spain Joins the Party

USA, UK, Ireland, Iceland, Germany and now Spain

http://news.bbc.co.uk/2/hi/business/7971582.stm


Spain sports an unemployment rate of around 14%.


On a side note, I mentioned to a loyal reader on Friday that I believed a major U.S. bank (either Citi or BoA) would be nationalized within 45 days. It would be a major policy shift, but there is no choice. Target date: May 7, 2009.