Comments on: Large US bank failure coming http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html#comment-180 Edward Harrison Tue, 19 Aug 2008 23:09:00 +0000 http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html#comment-180 Now is the critical time to see what the global economy is made of. Can we avoid a brutal readjustment and spread the pain over a longer period? The Fed hopes so. That's why Fed Funds are 2%. However, the readjustment will still leave the S&P short of earnings. So valuations and share prices will have to fall. Certainly asset managers and banks will be in the hole as a result.<br/><br/>I haven't really tackled pensions and endowments yet. That is a topic we'll have to take a look at. Now is the critical time to see what the global economy is made of. Can we avoid a brutal readjustment and spread the pain over a longer period? The Fed hopes so. That's why Fed Funds are 2%. However, the readjustment will still leave the S&P short of earnings. So valuations and share prices will have to fall. Certainly asset managers and banks will be in the hole as a result.

I haven't really tackled pensions and endowments yet. That is a topic we'll have to take a look at.

]]> By: MAB http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html#comment-176 MAB Tue, 19 Aug 2008 11:56:00 +0000 http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html#comment-176 Ed,<br/><br/>Per the following Bloomberg article, Citi has over $1 trillion of off balance sheet assets. Financials smell like Enron to me. Absent Government & Fed intervention, it's likely we would have had a collapse of the financial system. Excessive leverage is a killer - especially on top of peak historical asset valuations - for all asset classes. <br/><br/>http://www.bloomberg.com/apps/news?pid=20601109&sid=a1liVM3tG3aI&refer=home<br/><br/>FWIW, I see both inflation AND deflation. Inflation in needs (CPI), deflation in wants (real estate, equities, non-treasury bonds, credit). As for inflation, I don't foresee numbers as high as the 1970s. But on a REAL basis, it will feel like the 1970s for the average joe. 3 to 7% CPI inflation against a backdrop of falling or stagnant income is inflationary pain. <br/><br/>The best investment gains during the last ten years have come from leverage (private equity, real estate). Even commmodity futures have huge leverage. I don't see that continuing. In fact, I see it unwinding. Lots of bagholders - pensions, endowments, homeowners. I'll be a bagholder in the end too after the government is finished with all the bailouts. GRRRRR! Ed,

Per the following Bloomberg article, Citi has over $1 trillion of off balance sheet assets. Financials smell like Enron to me. Absent Government & Fed intervention, it's likely we would have had a collapse of the financial system. Excessive leverage is a killer – especially on top of peak historical asset valuations – for all asset classes.

http://www.bloomberg.com/apps/news?pid=20601109&sid=a1liVM3tG3aI&refer=home

FWIW, I see both inflation AND deflation. Inflation in needs (CPI), deflation in wants (real estate, equities, non-treasury bonds, credit). As for inflation, I don't foresee numbers as high as the 1970s. But on a REAL basis, it will feel like the 1970s for the average joe. 3 to 7% CPI inflation against a backdrop of falling or stagnant income is inflationary pain.

The best investment gains during the last ten years have come from leverage (private equity, real estate). Even commmodity futures have huge leverage. I don't see that continuing. In fact, I see it unwinding. Lots of bagholders – pensions, endowments, homeowners. I'll be a bagholder in the end too after the government is finished with all the bailouts. GRRRRR!

]]> By: pej http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html#comment-175 pej Tue, 19 Aug 2008 10:37:00 +0000 http://www.creditwritedowns.com/2008/08/large-us-bank-failure-coming.html#comment-175 It's good to see some people with realistic views. Not later than today I saw this article on the WSJ (http://blogs.wsj.com/economics/2008/08/18/ucla-professor-says-us-is-still-far-from-recession/) where this professor claims that the US is far from recession.<br/>If you define as growth as "Growth of GDP when understating inflation by 5%" then yes, the US has been growing for the past 5 years. Otherwise, it's been in recession for a long time now and the crisis is far from over.<br/>The DJ INDU and Russell 2000 have negative EPS! When the markets finally get rational, the readjustment will definitely put many banks and asset managers in the hole... It’s good to see some people with realistic views. Not later than today I saw this article on the WSJ (http://blogs.wsj.com/economics/2008/08/18/ucla-professor-says-us-is-still-far-from-recession/) where this professor claims that the US is far from recession.
If you define as growth as “Growth of GDP when understating inflation by 5%” then yes, the US has been growing for the past 5 years. Otherwise, it’s been in recession for a long time now and the crisis is far from over.
The DJ INDU and Russell 2000 have negative EPS! When the markets finally get rational, the readjustment will definitely put many banks and asset managers in the hole…

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