A friend living in Latvia wrote that he was “stunned by the chaos that broke out in Riga this evening.” I had heard absolutely nothing about it until he told me. Apparently, a peaceful protest outside Parliament turned bloody when the police started to crack down on protesters. 126 people were arrested. (Hat tip: Ken)
Vikram Pandit understands the seriousness of the challenge ahead, if Citi wants to remain a going concern. He must break the firm up and end Citi’s disastrous experiment with becoming a financial supermarket.
There is no way to look past the way that the U.S. TARP (Troubled Asset Relief Program) has been administered and not understand we are seeing crony capitalism at work. One only need look at the way the British are doing things to see a true banking bailout which limits moral hazard and regulates against poor behavior.
President-elect Barack Obama has signaled he intends to bring the same methods to the United States. These are issues I have mentioned in prior posts regarding using historical precedents as a guide to administering America’s TARP program and setting up a framework for a comprehensive banking crisis solution. The following steps are what are still needed in the U.S.:
Today, the Seattle Federal Home Loan Bank (FHLB) has admitted that it is on the verge of collapse and may need to avail itself of conservatorship, much as Fannie Mae and Freddie Mac did previously. One should see this announcement as a confirmation that the U.S. financial system is much weaker than generally believed.
Federal Reserve Chairman Ben Bernanke gave a speech at the London School of Economics today in which he outlined the measures the Federal Reserve was prepared to take in order to deal with the financial crisis. Of particular note, Bernanke indicated that the U.S. central bank would keep interest rates low and that it would buy mortgage-backed assets in order to increase its direct control over the interest rates borrowers actually see.
Earnings season has finally begun, with Alcoa leading the way. They produced a major loss yesterday as expected. The question going forward is whether we will see any upside surprises. If we do, that might support stocks. I am not expecting it, but it would be a pleasant surprise. On the other hand, all indications suggest that banks will have major writedowns. UBS, Deutsche Bank, and Citibank are a few of the names I have heard expected to show major losses in Q4.
One should note that sovereign debt has come under pressure with S&P putting a number of countries on watch for ratings downgrade. This should mean that yield spreads in sovereign debt should widen, particularly within the EU. But, given the weak economy and quantitative easing by central banks, excess liquidity may support continued low rates across the board.
Below are a number of links relating to these topics and more. My favourite is about traders with long ring fingers. Check out the link on Tweetbacks. I have recently added twitter and tweetbacks to my site. You can access my twitter profile here as another way to keep up-to-date with the news flow.
I think this video is an example of the most self-reflective you will see the current U.S. President George W. Bush become. In it, he talks about his mistakes, grappling in front of the camera with how historians may look back on his stint in the White House.
We are in a secular bear market. What this means for many pensioners or for many about to become pensioners is great uncertainty about the quality of their retirement. I expect this uncertainty to translate into anger regarding the move from defined benefit pensions to defined contribution pensions. Whether a policy response results depends on how stocks do over the next few years. Nevertheless, in my estimation, we are about to understand that human psychology and defined contribution plans are at loggerheads.
The earnings season starts soon and we shall see how much the latest upturn lasts. I expect stocks to decline this year. Remember, there was a huge rally in 1930 before reality set in. I do see today as similar. That’s my commentary for today. Below are the links.
By the way, I am a big Boston Red Sox and Jim Rice fan. Rice was finally elected to the Baseball Hall of Fame with Ricky Henderson. It’s about time.
Enjoy the links.
Fred Hickey is bullish. This is big news. He has sold all of his puts for the first time in years and is now playing the markets from the long side. His favorite picks are in precious metals and technology. See the attached video during his Barron’s Roundtable discussion.
I am very happy that the weekend has been a fairly news-lite affair. It does seem like the worst of last September’s panic is now over and we have moved to worrying more about the real economy than the financial system.
Areas getting hit hardest now include autos, retail, chemicals, retail and hospitality. Autos demonstrate the full measure of the dilemma before politicians regarding bailouts, subsidies, bankruptcy and recession. What I find particularly interesting about the auto sector is the divergence of fortune between Volkswagen, for example, and General Motors. See articles below highlighting the juxtaposition.
The Barron’s Roundtable issue came out yesterday. It was an interesting affair Notable, I thought, was Fred Hickey taking a bullish stand on technology, particularly stocks like Intel and Microsoft. I may have more to say about this later.
Anything other stories of substance we might have, you should find in our newsfeed.
General Motors, struggling under the weight of a mountain of debt, is finding it difficult to raise cash. For one, the U.S. automaker is finding no buyers for its Swedish Saab unit, according to Swedish Daily “Dagens Nyheter.”
Nevertheless, GM executives are putting on a brave face with the news media. In fact, I found an article in another newspaper, the Australian daily “Sydney Morning Herald” claiming the opposite under the title, “No problems in finding Saab buyers: GM.”