Until there is more visibility on future loan losses I think this is a very risky investment for the people making it.
It's a lot like Warburg Pincus and MBIA. They could lose everything.
National City is probably too big to fail. But it's not too big for all the equity to get wiped out.
Until the details emerge, we don't know if there are kickers, resets or warrants. You would assume so, given the high risk and today's market.
If so, the "regular" common shareholders could get severely diluted by these new investors, more so in the future than today. So, their risk dould be even higher yet.
That's why NCC didn't take off like a rocket today. It's down 18%. And it will go lower.
Yeh, I keep cracking up at these supposedly smart people who want to call the bottom for financials. Even John Mauldin (who up until now had some reasonable things to say about the unwinding debacle) totally whiffed the other day. He tried to make an analogy about how he was so scared about Y2k, and that it would be a problem that companies couldnt cope with, and then yet, due to American ingenuity (or some other horse manure) they managed to fix it! Woot! And now that he got that call wrong, he thinks oh, American businesses can fix problems that seem unfixable, therefore, we'll muddle through. Good grief. All he has done is set himself up to be wrong again. His entire paragraph on why housing wont be a big problem didnt even mention house prices or the coming option arm chaos wave about to break on shore. Ridiculous.
All he managed to do with that last newsletter of his was totally turn me off and make me think he isnt very objective at all and hasnt got a clue about housing.
geeze, lay off my nose, it's allergy season and I'm suffering here. All I'm trying to do with play with the big kids and pretend anything with a t followed by illions is chump change, easily found under the sofa cushions and already priced in. Forget it, I'm going back to the kiddie pool and dog-paddle a bit. Pick nickles up off the sidewalk 'n' stuff.
Smaller Banks Begin to Pay Price For Their Boomtime Expansion
I predict that half the small/regional banks within a 150-mile radius of Toledo, Ohio, will eventually be consolidated or go bust. Even if they were prudent in lending, they are in a dying area where there is no real hope of improvement.
A penny dividend. What are they thinking? I think processing, calculating and distributing those pennies will cost more than the shareholders get. Does someone on the board own stock in the postal service?
Bill writes:
A penny dividend. What are they thinking? I think processing, calculating and distributing those pennies will cost more than the shareholders get. Does someone on the board own stock in the postal service?
Bill | 04.21.08 - 11:21 am | #
We've covered that already weeks ago - some funds can only buy stock that pays a 'dividend'... so make it a penny qualifies technically.
And now that he got that call wrong, he thinks oh, American businesses can fix problems that seem unfixable, therefore, we'll muddle through. Good grief. All he has done is set himself up to be wrong again. His entire paragraph on why housing wont be a big problem didnt even mention house prices or the coming option arm chaos wave about to break on shore. Ridiculous.
How do you "muddle through" with oil at $117 and increasing $2/day?
a coupla pts for the bear case. its not uncommon for the major indices to "poke" their head above major resistance levels like 12750 on the Dow. remmember back Aug when we "poked" our heads above 14000 to 14198 before heading down. also short interest was at an all time high back then. this latest rally may have cleared out a significant amt of short support.
also the VIX dropped below 20 and represents complacency towards stocks. this has resulted in significant stock mkt drops subsequently.
Geoff, gotta agree with on Mauldin....have read him for several years but he seems to be going deeper & deeper into the woods....but I guess as a MM he has to keep a "happy face" on most things, otherwise he'd have to be in cash & why would anyone pay him to do that....
I think you have it there, he needs to beat the drum for sort shallow recession for business. I thought last weeks letter was a stump speech from Obama, with hope, and change, and the American dream of can do. Not much help there. I just read him for another opinion. I wonder how he does managing money?
All I can say right now is that there are ginormous vats of KoolAid being produced and chugged down right now, and the hangover is going to be nasty. A few stomachs will have to be pumped.
It's a little off-topic, but does anyone know if there is any data showing the historic trends for the percent of home-owners with negative equity?
CR had a post back in early December showing negative equity trends since 2006, but this doesn't give much to go on when trying to get perspective with past down-turns (e.g. 80-83, 90-94). If it turns out that there is a lower percentage of home-owners with negative equity than during past rough spots, then maybe things won't get significantly worse this time round.
it is a difficult time to be in the mkts b/c Bernanke and Paulson insist on giving the IB's our money (via Treasuries) to keep the stock mkt pumped up to prevent an economic collapse. add to that an never ending supply of pump monkey traders who are willing to climb on board for the momo trade and it makes for these whipsaw mkts. it looks tho like we've reached the top of this countertrend rally.
you have to get small in your overall portfolio esp. if you are short to prevent getting pushed into a margin call. never easy.
Do these farmers sell futures for some of the crop, then keep some to sell at the spot price?
Bob,
I sent a couple of emails out to get an idea of how much over 50-80k my uncle is sitting on.
A lot of what he does is sell 25% of last years crops as futures for this fall. Then he will sell 25% on the spot market. The other 50% goes into storage. Remember,you can take the crop off and toss it in a bin and you do not pay income tax at that time. Only when you sell. So you have a couple of good years you fill the bins/build more storage. Not so good...Sell the stored grain.
Not to mention at todays prices if a planter or grain drill will go in the ground it's getting planted. A lot of very marginal ground that makes zero economic sense at 4.00/bu wheat is very economical at 14.00, with the current cost of fertilizer. Most farmers do not use a lot of fertilizer but at 14.00/bu ?? They are gonna apply this stuff like its going outta style...
Chris - if the farmers are heavily leveraged the banks can 'force' them to sell a lot more as a 'price forward' position to lock in profit as a condition of giving them operating loans at the beginning of the year (say for chems & seed).
I was at brunch w/ a farmer friend over the weekend (he produces hybrids for northern conditions - MN, MI, Ontario primarily)... he said a lot of his customers were pressured into locking in $3/bu last spring and missed the whole run up.
The pigmen won here too it appears. Buy futures for $3 and sell cash grain for $5.
This year will be interesting - will the pigmen lock in at $5? If so does that mean $6 plus is a lock? We all know it is against the law for pigmen to lose.
Dry tinder undergrowth, beetle killed lodgepole stands far as eye can see, high winds all head no tail, no firewalls or firebreaks. CBs and IBs with a backpack full of matches tossing them lit on their little walkabout. Also, we're almost through fire season, 8th inning really, we have great fire crews, and its a 1/million chance something might lead to conflagration.
Most of the farmers I know now survived the whole fallout from the farm crisis. Most have NO leverage. All the land is paid for or almost paid for. Most of these guys are smart enough to realise that 10k per acre is to much for the current selling price of land and refuse to expand. I am 99% sure my uncle has been stocking a small amout of grain every fall and not selling. I also know he hasn't ever bought a new piece of equipment and he custom harvests(no planting) for a few neighbors...
Its like RE,some people are fucked,others,not so much.
Most of the farmers I know now survived the whole fallout from the farm crisis. Most have NO leverage. All the land is paid for or almost paid for.
That is what I thought too - my buddy who sells to farmers, seller-finances them on occasion so sees their books, said... "No, no... they've been loading up on equity withdrawal too - especially the thirty somethings who inherited daddy's farm. They don't remember the 80s. Land values only go up. Commodity prices only go up." Hearing that was a bummer for a veteran of the 80s bust like me.
I think it is more common out here (Iowa, Illinois, S Minnesota, N Missouri, E Nebraska & E Kansas) where the land is generally better than Ohio - there are a lot of young MBA farmers coming up. They'll need to learn a lesson about the cyclical nature of agriculture & commodities in general. A hard lesson.
I don't think all of them fit that description - in fact I'd say most don't - but they are the ones making the big money right now & getting the ink. They are becoming the 'fence row to fence row' role models that others will copy setting up farming for the next ag crisis.
A penny dividend. What are they thinking? I think processing, calculating and distributing those pennies will cost more than the shareholders get.
Bill, certain institutional investors have guidelines stipping that they can only buy a stock that pays a dividend, among other things. Hence, the 1 cent dividends.
Most of the guys I know are about ready to call it quits in the next 10-15 years. They suffered through the bad years and are doing good now. It will be very interesting long term...
"So what if an industry over-expands and thousands (or tens of thousands) lose their jobs in the contraction? This is what happens in a free market, resources flow from one place to another, one person's loss becomes another's gain as the "assets" (employment, money, whatever) are put to better use somewhere else in the economy.
Sebastian | 04.21.08 - 11:35 am | #
i'll tell you so what sebastian...
the "so what" translates into, "can you say command economy?!!!...
i knew you could.
if the greed and misallocation of resources goes far enough the masses panic and in the political upheaval that follows...all bets are off.
ask yourself one question.
which economic system is capable of the greatest efficiency towards a desired goal...like winning a war.. a ideal free market system, an ideal communistic system, or a command economy.
National Citys HELOC team all came from Chase. They were big competitiors of each other in the Home Equity/2nds market. The point being, that NCC today, Chase tomorrow. - Id expect that Jamie is trying like crazy to bury the problems, as hes now seen as the smartest banker on Wall Street. Lets see how long until the Street changes that tune
it's all good news, right?
That reminds me, I need to get a haircut.
still burpin'.
Three vie for first. Scav by a nose!
No worries, it's all good, when's my tee time?
Smaller Banks Begin to Pay Price For Their Boomtime Expansion
Smaller Banks Begin to Pay Price For Their Boomtime Expansion - WSJ.com
Only 40% off? How about a pony with every block of 10000 shares purchased.
Help raise capital....get a pony!
A mere flesh wound for the market that wouldn't die...
Until there is more visibility on future loan losses I think this is a very risky investment for the people making it.
It's a lot like Warburg Pincus and MBIA. They could lose everything.
National City is probably too big to fail. But it's not too big for all the equity to get wiped out.
Until the details emerge, we don't know if there are kickers, resets or warrants. You would assume so, given the high risk and today's market.
If so, the "regular" common shareholders could get severely diluted by these new investors, more so in the future than today. So, their risk dould be even higher yet.
That's why NCC didn't take off like a rocket today. It's down 18%. And it will go lower.
Yeh, I keep cracking up at these supposedly smart people who want to call the bottom for financials. Even John Mauldin (who up until now had some reasonable things to say about the unwinding debacle) totally whiffed the other day. He tried to make an analogy about how he was so scared about Y2k, and that it would be a problem that companies couldnt cope with, and then yet, due to American ingenuity (or some other horse manure) they managed to fix it! Woot! And now that he got that call wrong, he thinks oh, American businesses can fix problems that seem unfixable, therefore, we'll muddle through. Good grief. All he has done is set himself up to be wrong again. His entire paragraph on why housing wont be a big problem didnt even mention house prices or the coming option arm chaos wave about to break on shore. Ridiculous.
All he managed to do with that last newsletter of his was totally turn me off and make me think he isnt very objective at all and hasnt got a clue about housing.
Thoughts From The Frontline - InvestorsInsight.com | Financial Intelligence, Advice & Research / Investment Strategies & Planning for Individual Investors.
geeze, lay off my nose, it's allergy season and I'm suffering here. All I'm trying to do with play with the big kids and pretend anything with a t followed by illions is chump change, easily found under the sofa cushions and already priced in. Forget it, I'm going back to the kiddie pool and dog-paddle a bit. Pick nickles up off the sidewalk 'n' stuff.
If the losses are in a toilet paper currency are they really losses?
Thank goodness this is all contained. It would be a worry if it was not.
Seems like $7 B is a popular number for capital raising, what is it now the 3rd or 4th at exactly that level?
The Federal government prints more money. The Banks print more stock. Learn from the best.
I predict that half the small/regional banks within a 150-mile radius of Toledo, Ohio, will eventually be consolidated or go bust. Even if they were prudent in lending, they are in a dying area where there is no real hope of improvement.
Banks that take corn as collateral will survive.
"Banks that take corn as collateral will survive."
My what an optimist you are.
A penny dividend. What are they thinking? I think processing, calculating and distributing those pennies will cost more than the shareholders get. Does someone on the board own stock in the postal service?
Yes dont you hate it. Bad news is good news now.
I doubt they can hold the market up much longer. This will be long and dragged out now.
You either tell the lies really well or dont lie at all. These guys are not really doing either.
Geez...
Those investors who got to buy for $5 might be underwater by the end of the day.
The drama continues.
Bill writes:
A penny dividend. What are they thinking? I think processing, calculating and distributing those pennies will cost more than the shareholders get. Does someone on the board own stock in the postal service?
Bill | 04.21.08 - 11:21 am | #
We've covered that already weeks ago - some funds can only buy stock that pays a 'dividend'... so make it a penny qualifies technically.
And now that he got that call wrong, he thinks oh, American businesses can fix problems that seem unfixable, therefore, we'll muddle through. Good grief. All he has done is set himself up to be wrong again. His entire paragraph on why housing wont be a big problem didnt even mention house prices or the coming option arm chaos wave about to break on shore. Ridiculous.
How do you "muddle through" with oil at $117 and increasing $2/day?
a coupla pts for the bear case. its not uncommon for the major indices to "poke" their head above major resistance levels like 12750 on the Dow. remmember back Aug when we "poked" our heads above 14000 to 14198 before heading down. also short interest was at an all time high back then. this latest rally may have cleared out a significant amt of short support.
also the VIX dropped below 20 and represents complacency towards stocks. this has resulted in significant stock mkt drops subsequently.
Geoff, gotta agree with on Mauldin....have read him for several years but he seems to be going deeper & deeper into the woods....but I guess as a MM he has to keep a "happy face" on most things, otherwise he'd have to be in cash & why would anyone pay him to do that....
Notable Calls: Wells Fargo (NYSE:WFC): Downgraded to Underperform at Oppenheimer
oh that Whitney's a beautiful woman!
Wile E. Coyote surveys the Chicago condo glut from high above the city ...
Credit getting even tighter for condominium buyers - Chicago Tribune
I think you have it there, he needs to beat the drum for sort shallow recession for business. I thought last weeks letter was a stump speech from Obama, with hope, and change, and the American dream of can do. Not much help there. I just read him for another opinion. I wonder how he does managing money?
How do you "muddle through" with oil at $117 and increasing $2/day?
ac | 04.21.08 - 11:27 am | #
There is a lot of spec in that price. Spec & fear. Nasty blend. It is as explosive a market as I have ever seen in anything.
All I can say right now is that there are ginormous vats of KoolAid being produced and chugged down right now, and the hangover is going to be nasty. A few stomachs will have to be pumped.
It's a little off-topic, but does anyone know if there is any data showing the historic trends for the percent of home-owners with negative equity?
CR had a post back in early December showing negative equity trends since 2006, but this doesn't give much to go on when trying to get perspective with past down-turns (e.g. 80-83, 90-94). If it turns out that there is a lower percentage of home-owners with negative equity than during past rough spots, then maybe things won't get significantly worse this time round.
discussed by CR in this post
it is a difficult time to be in the mkts b/c Bernanke and Paulson insist on giving the IB's our money (via Treasuries) to keep the stock mkt pumped up to prevent an economic collapse. add to that an never ending supply of pump monkey traders who are willing to climb on board for the momo trade and it makes for these whipsaw mkts. it looks tho like we've reached the top of this countertrend rally.
you have to get small in your overall portfolio esp. if you are short to prevent getting pushed into a margin call. never easy.
From the thread below...
Bob_in_MA writes:
Cobradriver,
Do these farmers sell futures for some of the crop, then keep some to sell at the spot price?
Bob,
I sent a couple of emails out to get an idea of how much over 50-80k my uncle is sitting on.
A lot of what he does is sell 25% of last years crops as futures for this fall. Then he will sell 25% on the spot market. The other 50% goes into storage. Remember,you can take the crop off and toss it in a bin and you do not pay income tax at that time. Only when you sell. So you have a couple of good years you fill the bins/build more storage. Not so good...Sell the stored grain.
Not to mention at todays prices if a planter or grain drill will go in the ground it's getting planted. A lot of very marginal ground that makes zero economic sense at 4.00/bu wheat is very economical at 14.00, with the current cost of fertilizer. Most farmers do not use a lot of fertilizer but at 14.00/bu ?? They are gonna apply this stuff like its going outta style...
Chris
CAPITOL PIGOUT - NYPOST.com
what a great picture! scoot over, i want my share too!
Chris - if the farmers are heavily leveraged the banks can 'force' them to sell a lot more as a 'price forward' position to lock in profit as a condition of giving them operating loans at the beginning of the year (say for chems & seed).
I was at brunch w/ a farmer friend over the weekend (he produces hybrids for northern conditions - MN, MI, Ontario primarily)... he said a lot of his customers were pressured into locking in $3/bu last spring and missed the whole run up.
The pigmen won here too it appears. Buy futures for $3 and sell cash grain for $5.
This year will be interesting - will the pigmen lock in at $5? If so does that mean $6 plus is a lock? We all know it is against the law for pigmen to lose.
$7b for 1.4b units of stock that is trading today for $6 plus for a quick $1.4 billion instant profit for the lender. And the stockholders?
(Cut back to shop, the robber walks in and points gun at the assistant.)
Robber: Good morning, I am a bank robber. Er, please don't panic, just hand over all your money.
Assistant: (politely) This is a lingerie shop, sir.
Robber: Fine, fine, fine. (slightly nonplussed) Adopt, adapt and improve. Motto of the round table. Well, um ... what have you got?
Assistant: (still politely) Er, we've got corsets, stockings, suspender belts, tights, bras, slips, petticoats, knickers, socks and garters, sir.
Robber: Fine, fine, fine, fine. No large piles of money in sales?
Assistant: No, sir.
Robber: No deposit accounts?
Assistant: No sir.
Robber: No piles of cash in easy to carry bags?
Assistant: None at all sir.
Robber: No luncheon vouchers?
Assistant: No, sir.
Robber: Fine, fine. Well, um... adopt, adapt and improve. Just a pair of knickers then please.
Dry tinder undergrowth, beetle killed lodgepole stands far as eye can see, high winds all head no tail, no firewalls or firebreaks. CBs and IBs with a backpack full of matches tossing them lit on their little walkabout. Also, we're almost through fire season, 8th inning really, we have great fire crews, and its a 1/million chance something might lead to conflagration.
dryfly | 04.21.08 - 11:56 am |
Most of the farmers I know now survived the whole fallout from the farm crisis. Most have NO leverage. All the land is paid for or almost paid for. Most of these guys are smart enough to realise that 10k per acre is to much for the current selling price of land and refuse to expand. I am 99% sure my uncle has been stocking a small amout of grain every fall and not selling. I also know he hasn't ever bought a new piece of equipment and he custom harvests(no planting) for a few neighbors...
Its like RE,some people are fucked,others,not so much.
Chris
Most of the farmers I know now survived the whole fallout from the farm crisis. Most have NO leverage. All the land is paid for or almost paid for.
That is what I thought too - my buddy who sells to farmers, seller-finances them on occasion so sees their books, said... "No, no... they've been loading up on equity withdrawal too - especially the thirty somethings who inherited daddy's farm. They don't remember the 80s. Land values only go up. Commodity prices only go up." Hearing that was a bummer for a veteran of the 80s bust like me.
I think it is more common out here (Iowa, Illinois, S Minnesota, N Missouri, E Nebraska & E Kansas) where the land is generally better than Ohio - there are a lot of young MBA farmers coming up. They'll need to learn a lesson about the cyclical nature of agriculture & commodities in general. A hard lesson.
I don't think all of them fit that description - in fact I'd say most don't - but they are the ones making the big money right now & getting the ink. They are becoming the 'fence row to fence row' role models that others will copy setting up farming for the next ag crisis.
A penny dividend. What are they thinking? I think processing, calculating and distributing those pennies will cost more than the shareholders get.
Bill, certain institutional investors have guidelines stipping that they can only buy a stock that pays a dividend, among other things. Hence, the 1 cent dividends.
dryfly | 04.21.08 - 12:55 pm |
AHHHHHH,Me understands now.
Most of the guys I know are about ready to call it quits in the next 10-15 years. They suffered through the bad years and are doing good now. It will be very interesting long term...
Chris
sebastian said below in the "roubini" thread
"So what if an industry over-expands and thousands (or tens of thousands) lose their jobs in the contraction? This is what happens in a free market, resources flow from one place to another, one person's loss becomes another's gain as the "assets" (employment, money, whatever) are put to better use somewhere else in the economy.
Sebastian | 04.21.08 - 11:35 am | #
i'll tell you so what sebastian...
the "so what" translates into, "can you say command economy?!!!...
i knew you could.
if the greed and misallocation of resources goes far enough the masses panic and in the political upheaval that follows...all bets are off.
ask yourself one question.
which economic system is capable of the greatest efficiency towards a desired goal...like winning a war.. a ideal free market system, an ideal communistic system, or a command economy.
so what...indeed.
So what?
Just a flesh wound.
National Citys HELOC team all came from Chase. They were big competitiors of each other in the Home Equity/2nds market. The point being, that NCC today, Chase tomorrow. - Id expect that Jamie is trying like crazy to bury the problems, as hes now seen as the smartest banker on Wall Street. Lets see how long until the Street changes that tune