On bank stocks and writedowns
Analyst Staite of Atlantic Equities downgraded Bank of America to "underweight" from "neutral" and Wells Fargo to "neutral" from "overweight." He believes that each firm will have to raise $10 billion to $15 billion. Having to come up with that kind of money could be remarkably expensive for current shareholders. Bank of America's market cap is $77 billion with a stock price of $17. Bringing in a huge sum of capital may have to be done below market and with warrant coverage. That would drive dilution of over 20% making BAC a $12 stock.
On Unemployment:
The Conference Board Employment Trends Index notes that the U.S. economy lost 1.9 million jobs, but more importantly the data suggests that job losses could pass 3 million jobs by mid-2009. And to add insult to injury, the report also notes that "the continued deterioration in the labor market will exert significant downward pressure on wages. But this data would also put unemployment well under the 8% hurdle (HENCE IT IS OPTIMISTIC IMO).
On "what inning we're in?"
Goldman Sachs (GS) said that the issues within the credit system were far from resolved. According to the AP, these analysts believe that "Now, about 18 months into the current crisis, the industry's reserves have doubled to 2 percent, and banks have taken half of the estimated $1.8 trillion in losses related to U.S. credit, the analysts said. This implies that we are now roughly half way through the credit crisis without including the impact of a new de-leveraged financial world. Goldman Sachs also expects government intervention and government "assistance" to continue into 2009.
What is interesting here, albeit something we have expected for some time, is that the crisis will migrate away from residential mortgages. Goldman Sachs believes that the next waves of trouble spots will come from consumer loans and corporate loans.
On a "Detroit Bailout" and it's affect on thos financial WMD's known as Credit Default Swaps.
Bailout or No bailout, the CDS's will likely be triggered. Banc of America Securities analyst Glen Taksler noted that the International Swaps and Derivatives Association, the trade group that acts as a standard-setter for credit-derivatives trading, says one trigger for a bankruptcy credit event is the appointment of an administrator, trustee or similar official to oversee all or most of an entity's assets
Between GM (GM) and Ford (F) there are almost $6 billion in net swaps outstanding.
Pfft! WHO CARES ABOUT ANOTHER $6 BILLION DOLLARS? PUHHHLEASE, NOT EVEN WORTH MY TIME.
On who gets hurt by new credit card regulation (of which I am IN favor of!)
Citigroup, Bank of America and JPMorgan Chase enjoyed almost 70 percent of the credit card market at the end of 2007, according to the Card Industry Directory.
Nobel Prize Winner Paul Krugman's fears may become a reality:
"A scenario I fear is that we'll see, for the whole world, an equivalent of Japan's lost decade, the 1990s -- that we'll see a world of zero interest rates,
deflation, no sign of recovery, and it will just go on for a very extended period."
UCLA Research backs Krugman's fears
The UCLA Anderson Forecast unit expects real GDP to shrink another 3.4 percent and 0.8percent in the first and second quarters of next year, respectively, as consumer and business spending weaken and as the foreign trade that had propped up growth much of this year sags.
"Because Europe and Japan are already in recession and China and India are suffering from a significant slowdown in growth, the export boom of the past few years will wane," the report said. "Make no mistake the global economy is in its first synchronized recession since the early 1990s."
By late 2009 the U.S. unemployment rate will hit 8.5 percent, as employers shed an additional two million jobs over the next year.
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