Today is Thursday, May 17, 2012

Bank Stocks

Chris Dodd’s financial reform bill would limit credit, kill jobs, promote corruption

Senator Chris Dodd (D-CT) is being forced to retire because he allegedly took mini bribes from a mortgage bank. Yet President Barack Obama is working with Dodd to “reform” financial and credit market laws and regulations. 

It’s no surprise, then, that the Dodd bill is as intellectually corrupt as its creator. And it’s no surprise that the bill would add bureaucracies that would force large banks and manufacturers to hire more lobbyists who would pour more money into the campaign fundraisers held by presidential candidates and members of Congress. Big government is corrupt government, and the financial reform bill would make the Federal government even more corrupt than it already is. By “corrupt,” I mean that politicians work for lobbyists and special interests who contribute to their campaigns, not for their constituents and country.

Here are links to some articles that discuss the weaknesses in the financial reform legislation being pushed by Obama and Dodd:

CBO cost estimate, S. 3217, Restoring American Financial Stability Act of 2010. CBO. 26 pp.

CBO confirms you’re on the hook for Wall Street bailout bill. The Heritage Foundation.

Democrats reach deal on tough derivative law. By Ronald D. Orol.

Financial reform’s big unknowns. By Robert J. Samuelson.

Senator Dodd’s Regulation Plan: 14 fatal flaws. By James Gattuso, The Heritage Foundation.

Dodd’s job-killer. By Mark A. Calabria, Cato Institute.

Back to basics on financial reform. By Niall Ferguson & Ted Forstmann. April 23, http://www.Opinionjournal.com.

The new master of Wall Street. Obama surveys the financial kingdom that may soon be his. Editorial. http://www.opinionjournal.com. April 23, 2010.

Crisis and ideology: The Administration’s financial reform legislation. By Peter J. Wallison, American Enterprise Institute for Public Policy Research.

Yes, it’s a bailout bill. By Phillip Swagel. The American, the journal of the American Enterprise Institute.

Do you have any reforms in size XL? Gretchen Morgenson, NYT.

Ali Hasan calls bankers crooks and supports their anti-mark-to market accounting games

Ali Hasan, a film maker who is running for Colorado Treasurer, is charging that Treasurer Cary Kennedy, a Democrat, has invested in what he calls bailout banks. And he frequently wonders why the bankers who took Troubled Asset Relief Program (TARP) funds under pressure from the government aren’t in jail. He thinks that bankers who make bad decisions are crooks, which makes no sense. Under that logic, anybody who makes a mistake is a crook.

Yet, in a speech this morning to 

How will GM bankruptcy, Citigroup’s problems change the Dow Industrials?

Barron’s Bob O’Brien notes that GM’s pending bankruptcy, which is expected to be filed early next week, will force the company out of the Dow Jones Industrials index.

He reports on several companies that are being mentioned as possible replacements for GM and Citigroup (C). They include Wells Fargo (WFC), Goldman Sachs (GS), Google (GS), Visa (V) and Ross Stores (ROST), among others.

I posted this comment on O’Brien’s blog:

GM is a large employer, makes consumer goods and is multinational. Heavily unionized.

Apple (AAPL) seems the most comparable in terms of consumer goods even though its products are made in Asia. It’s also multinational, and it’s a software producer and retailer. Problem is its products are a bit faddish.

Goldman would be ok as a bank, but it’s really an investment banker controlled by the feds until it gets out from under TARP and the FDIC. U.S. Bancorp (USB) would be a better choice.

Nucor (NUE) is a leading steel producer and reflects the infrastructure, housing and industrial goods markets.

Google (GOOG) is a media company, if that’s appropriate. It’s still a speculator’s toy.

Amazon (AMZN) is the leading e-commerce company and a major retailer.

AutoNation (AN) is an auto industry survivor and would be a good indicator of how that industry is doing and is expected to do.

Monsanto (MON) is a good commodity play, and it’s high tech. Very sensitive to international markets, weather, government policies. Competes with DuPont, which is in the index.

I own Monsanto and U.S. Bancorp.

 

Time to sell Bank of America, American Express and other banks

A prominent portfolio manager, John Dorfman, writes on Bloomberg.com that it’s time to sell the overbought American Express and Bank of America. It looks like speculators feel that way about most other banks, too, this morning.

Link: American Express, Bank of America rose too fast.

Click on these charts for galleries of charts.

Do you believe the Treasury secretary?

Do you believe Secretary of Treasury Tim Geithner’s explanation of what the Obama administration is trying to do with its stress tests of the nation’s 19 largest banks?

He explains his attempts to save the financial system in this NY Times op-ed.

Questions:

1. Is it a good assumption that businesses and consumers will want to borrow if the recession worsens?

2. Is it a good assumption that if the recession worsens, businesses and consumers will be credit worthy and the kind of borrowers banks would want to lend to under any economic conditions?

3. Why should we believe that Obama is trying to ensure the ability of banks to lend rather than that he is trying to ensure that he will have the power to tell banks how and when to lend and to which of his political favorites they should lend to?

4. How can the dozens of supervisors who analyzed the banks’ stress tests be expected to uniformly evaluate the banks?

5. Why should investors, bankers or anyone else think that the stress test results haven’t been skewed to punish bankers who have been outspoken about the problems they have with TARP, Paulson, Geithner and Obama?

6. Given Obama’s glee in demonizing bankers and Wall Street, why should we think that the administration is being fair and objective in evaluating banks and their stress tests?

7. How good are the economic assumptions, scenarios and forecasts that the regulators are using, given that most economists and market analysts say they have little idea about how the economy or markets will perform over the next three, six and 24 months?

Call me disbelieving. I don’t have much confidence in either the bankers or regulators, and I’m very concerned about Obama’s assumption of the role of banking CEO.

Commercial real estate loans weigh on several large and many small community banks

The nation’s largest banks that have more than $100 billion in assets and will have their stress tests disclosed Thursday have seen their stock prices soar since March 9. Indeed, some of the 18 stress tested banks’ stocks were up as much as 20% yesterday, apparently in anticipation of better than expected test results from the Federal Reserve Board and other regulators.

So called “glimmers of hope” about the housing market and the economy also appear to be causing speculators to pile into banks’ stocks. And short covering in response the the rally in financials also appears to be involved.

But the somewhat irrational buying, driven in part by the stock touts on CNBC and Fox Business Network, may soon end for two important reasons:

Obama seeks to bully Chrysler’s creditors into accepting drastic changes in bankruptcy laws

When will the stock and bond markets begin to reflect the huge changes in bankrutpcy and contract laws that President Obama has demanded and is demanding from Chrysler’s bondholders?

After reading numerous comments on Chrysler’s filing for Chapter 11 bankruptcy, it’s clear that lawyers, investors and bond buyers are very worried about how the president is blaming and bullying Chrysler’s creditors for the company’s bankruptcy.

The consensus of all but the pro-union and pro-Obama types is that the president’s disrespect for 200 years of bankruptcy law precedent will make it very difficult for companies to sell bonds and borrow money in the private markets. The president is in the process of destroying the credibility of borrowers and the trust that has

How the 19 largest banks’ stress tests results look to speculators

Bank regulators are trying to make the 19 largest banks keep the results of their stress tests secret until the government releases the findings on May 4. The banks were told the results of their notorious stress tests Friday.

But there are no secrets on Wall Street, except where

 

Because nobody knows value of banks’ stocks, trading them is very risky

Trading banks’ stocks has been very risky because nobody knows how to value them, and the mixed first-quarter earnings reports issued by banks haven’t changed that, according to Zacks.

What makes banks stocks volatile and risky?

First, politicians are messing with the money and banking markets as never before, and

US Bancorp (USB) soars 21%

US Bancorp (USB) had a big day after it announced its first quarter earnings, and many strong banks rose on Secretary of Treasury Tim Geithner’s seeming easing on his willingness to let USB and other strong TARP banks pay their TARP billions back to the government.

USB closed at $19.27, up $3.33 per share, or 20.9%. In after hours trading Tuesday, it gave a little back, sinking 17 cents to $19.10.

As previously disclosed, I bought USB back in

Obama has totalitarian control of TARP banks

From day one, I’ve believed and said TARP would give the White House totalitarian control of banks. This is why Geithner will not allow major banks to return TARP funds. He’s saying he won’t allow them to return TARP money if he thinks that will reduce their lending capacity. That’s what he will always think.

Fox Business News’ Stuart Varney writes in The Wall Street Journal:

How bankers misled Treasury Secretary Geithner and blew their credibility

While he was president of the Federal Reserve Bank of New York, a leading regulator of the nation’s largest banks, Treasury Secretary Tim Geithner was misled by bankers because neither they nor he fully understood the risks the banks were taking in the mortgage backed securities markets, according to this in depth report by the Washington Post.

To me, it seems that the Post misses the most important implications of the banks’ over optimism and Geithner’s failure to bring them up short.

That is, the banks blew their credibility.

As a result,

Why are bank stocks surging on more liberal accounting rules?

Bank stocks continued to surge today on news that the politicians had successfully forced the once highly credible Financial Accounting Standards Board (FASB) to change its mark to market accounting rules so that banks can go back to over-valuing the toxic assets on their books.

Why are investors so happy that banks will return to their old ways of lying to investors?

Why are institutional portfolio managers willing to

 

Geithner’s bailout scheme may make things much worse by increasing debt

Secretary of Treasury Geithner’s bailout scheme may weaken the economy by increasing government debt in an effort to take toxic assets off banks’ balance sheets.

That’s the message that Nassim Taleb, author of the famous book, The Black Swan, is sending to bankers and policy makers.

He says we all have to

Why is everyone so certain that Geithner’s regulatory scheme for financial institutions would work?

Why should we trust the politicians appointed by Obama or any other president to fairly and smartly regulate all financial institutions?

If the SEC couldn’t stop Madoff and obviously couldn’t hire competent and experienced financial market veterans to