Thursday, June 4, 2009

The Great Mooch Continues.

Pass the buck...Offload liabilities...Spread or even eliminate risk.

Where have we heard this before?

That is exactly what is happening at the moment in the banking sector.

Many banks were told coming off the bogus Stress Tests that they needed to raise cash to offset any additional credit problems they might face in the future. So far BOFA, JP, GS, MS, AMEX, FITB, and others have done just that. They have peddled and placed over valued shares totaling over $50 Billion into the ever waiting arms of Wall Streets morons. This on top of them taking TARP money to finance their trading positions, as well as using FASB accounting to pad their quarterly bottom line, so that share prices rally, so they can re-screw the general public once again.

Whats even more ludicrous are all of the upgrades in the banks after the secondary offering were priced. Don't buy GS at 45, or 65, or even 120 after their it at 145. Don't recommend JP at 17...20...25...30...but after the company prices their secondary offering, is the time to pile in. God forbid...Institutions ever lose money at the velocity at which retail investors lose money. Pray tell...that can never happen.
There is great honor amongst thieves.

From reading various articles, the Treasury, Fed, and Government have done a decent job of unfreezing the credit markets, and stopping the slide sort of speak, but we are still in the midst of a very bad recession. Things are still not at equilibrium from looking at long rates and CDS Swap prices.

This entire rally is based off of asset allocation from risk less assets back to risk assets. Too many people were in the Treasury Trade...To crowded an elevator. They are all trying to get on the equity floor. Pure and simple.

Also...Crude Oil, like I have been predicting has lifted energy and related shares to year highs. Technology companies which have little debt and no need to tap credit markets have also ignited the markets like I predicted.

But...I also know when to admit when I am also wrong, I was truly caught off guard by the depth of this rally, as well as the bank rally that ensued. I gave the banks to much credit, it was silly of me not to realize the utter thief like nature of today's banking institutions. I should have realized the FASB implications. Mia Culpe...

Random Thoughts-

Citigroup filed a proxy statement today in which it disclosed it was seeking to increase its authorized common shares outstanding from 15 billion to 60 billion. While the preferred to common conversion was expected to increase the total common from 5.4 billion to 22.8 billion, the 60 billion number, which obviously was not picked out of a hat, implies that the bank will likely proceed with its creeping equity plan and potentially dilute the Citi common stock by more than another incremental 100%.

Washington Grapevine...Watching CSPAN over the weekend...interesting back and forth with whats truly happening in those circles.

The big message that I got out of watching CSPAN (Shoot Me) for 3 hours was that Washington DC simply cannot make all the bank bondholders good and whole, despite its pretenses it can. Citigroup is going to become a test case (Like Chrysler) sooner than most realize.

The charade that the banks have a liquidity problem not a solvency problem, is wearing thin even on those who have good reason to play along. Almost anyone who knows or has a rudimentary understanding of accounting and finance who is not a thief (Wall Street), can surmise that liquidity was once the issue, but solvency is the breathtaking issue at the heart of the banking crisis.

The preferred conversion, remark up up toxic securities, and subsequent equity offerings only take the deck chairs from the front of the Titanic and push them to the back of the ship...

....And as far as I can tell, there is absolutely no Plan B when the world wakes up and realizes what a crock Plan A was.

1 comment: