I'm getting so sick of this sh*t from these guys.

Trickle....trickle...trickle out the bad news.

It'll probably end up being a TRILLION DOLLARS!

How everybody just 'fess up so we don't end up like Japan.

Ah, thats only 2 months of our bill for the Iraq War.

A mere nothingburger.

Although it also is 600,000,000 cases of really good beer. which is a bit depressing.

I have this hazy recollection of reading that during the Japanese property crash, most of the country's banks became insolvent and ended up as wards of the state.

If these kind of losses keep mounting I don't see the US government staying on the sidelines either.

I hope going to the bank doesn't get to be like getting your driver's license renewed.

Somebody totaled up the declared losses a couple of weeks ago and came up with a figure of around $75 billion. If these rumored figures are true, declared losses will be up around $125 billion quite soon. At this rate, we could be within site of the half trillion mark by ... well, this year, anyway.

Dr. Evil has got nothing on these guys. Virtucon's writedown was only one MILLION dollars.

So its official?

Bank of America to buy Countrywide for $4B

Page expired - MSN Money

That would buy a lot of bongs.

LET'S BE CLEAR, SHALL WE?

$24 BILLION ISN'T ALL OF IT.

THERE'S MORE.

Up to now, all of the IBs have been playing the LIMITED HANGOUT game, just like Watergate.

There's more, a lot more.

12 in Q4

This was already priced in, so bad news is good news.
Zigurrat | 01.11.08 - 6:01 pm |

I hope that's sarcasm. Otherwise I call bullshit. Nobody - except maybe a couple of commentors on this blog - expected those kind of numbers. Certainly not the average analyst on Wall Street.

Alec- "I want it to get close to 1990 lows before I look for an entry point to go long;"

That seems well within the realm of possibility.

Gasparino's reliability is low. I'm surprised that CNBC doesn't rein him in.

I agree about the reliability, but not about the surprise.

I buy Citi in single-digits, just like '90.

The Chinese have a lot of upside to funding RTC junior and slowing the descent of our fall in GDP.

Seems to me that our banking system is becoming nationalized. Everyone I spoke to today thinks that BofA got backstopped by the Fed/Treasury/FDIC/OCC to take out Countrywide, and think the same about JPMorgan taking out WAMU.

But after WellsFargo gets their pick of the litter, who is left to fund the rest of the walking dead? Could it be Sovereign wealth funds? Notice I did not say nationalized by whom above...

I don't know if anyone other than me keeps a close watch on such things, but Standard and Poor's has raised its estimate for Q4 SP500 as-reported EPS since the last update on 12/31/07.

http://www2.standardandpoors.com/spf/xls/index/SP500EPSEST.XLS

And again, note that it was GM that contributed to the whopping $4.37 drop in Q3 EPS.

Things are not as bad as they seem from the scare headlines, and I would encourage everyone not to get mentally irregular because of them.

Sebastia

How everybody just 'fess up so we don't end up like Japan.
Because they don't know.

Yeah, I know someone who's involved in Wachovia's attempts to figure out their exposure. I have no inside info, other than that they really don't know...

Sebastian,

Would that be the same S&P that has a problem with rating mbs, cdo, and other assorted sundries?

Best,

man, that ivory tower never looked so good as it does right now

When stocks go up on bad news, what can you say other then that particular information was 'priced in'?

If C goes up when(if) it cuts its dividend, then I would think you would have to say that it was priced in.
Zigurrat

ah yes, but is it the real price? or one based on hope. i wouldn't base any valuation decisions on the price action for sure. the lack of transparency with these guys is still a major problem.

Rob,
Um, whatever securities they sell will, I assure you, have a price.

I really don't understand. They owe investors money they can't pay back. Then they borrow money from investors supposedly backed by the value of the company. It is still debt to cover debt that looks zero sum to me.

Zig,

But doesn't that beg the question rather than answer it when the stock goes up on bad news?

One alternative is 'next bagholder, please!', no?

Also, the incompetence vs. malice call I in 100% agreement with you, though we may be dealing with that heady brew which is a mixture of both...

OT for the Greenspan fans around here.

Greenspan's Reputation at Risk as Recession Odds Grow (Update1) - Bloomberg.com

"The next bubble to deflate may be Alan Greenspan's reputation. "

We need to go back to a barter economy.

ac,

prices are a b!tch (basically a matrix of all goods x all goods) plus the double coincidence of wants...money has its problems but why do peeps always come back to it even in the absence of banks?

now that might be an avenue...

David,
...but hillary and the Prez people are preparing a 'stimulus' package. At least 30B will be used to avoid foreclosures. Why worry about credit when you have free money?

It pays to read history:

Citigroup's $134.8 billion in Level 3 Assets:
Calculated Risk: Citigroup: $134.8 billion in 'level 3' assets

Now, this is where CR and I differ. CR says there's no way of knowing how much dirt will be left in the corners after the "new broom sweeps clean," and this is where he and I disagree.

Recall that Citadel paid 27 cents on the dollar for E-Trade's junk. That's mark-to-market. If you apply the same parameter here, Citi's junk needs a $98.4 billion writedown.

So, let's be charitable Let's say Citi's junk is worth 50 cents on the dollar. That means a $49.2 billion writedown.

So, be the judge. Are the writedowns over?

Mike,
You have to be 'middle class'. Whatever that means.

Clinton Announces $70 Billion Plan to Bolster Economy (Update3) - Bloomberg.com

This is one of the reasons, it seems to me, that Citi could be vaporized before this is over.

It depends on who the 'savior du jour' is. Will it be a Saudi prince, a sovereign fund, the Fed, or all of the above. My guess: all of the above, plus some.

Citi, and all the other IBs are doing a limited hangout. They dumping the junk onto the books in dribs and drabs, hoping they'll be able to offload it before someone like Conjure Bag gets out an adding machine.

It won't work. Eventually, Mr. Market will figure it out, and when they do, the IBs will be trashed.

Mike,
You have to be 'middle class'. Whatever that means.

But read the fine print of what Hillary actually said. If you live in New York State, you don't have to be middle-class. You can be high-class or low-class. Or no-class.

Citi is not going under. As long as there is some cash in their ATMs, they are worth something.

Misean, Conjure is absolutely deadly with an adding machine.

By the way, Angelo gets $150 million, use of the BofA jet, and his country club fees paid for three years.

Do you think its spray-on?

hummm.....

No I was more thinking three to five hours a day at "the lights"... I think its fitting that SoCal has the most tanning salons per capita....

(No link just blind speculation:))

Thanks to the Gods that everything is wonderful. Time for pie.
jo6pac

So, let's be charitable Let's say Citi's junk is worth 50 cents on the dollar. That means a $49.2 billion writedown.

So, be the judge. Are the writedowns over?
mp

I still think Level 3 is overblown.

Now capital requirements, that's a whole different kettle of fish.

From the most recent 10Q:
Sept. 30, June 30, Dec. 31,
2007(3) 2007(3) 2006
--------- -------- --------
Tier 1 Capital 7.32 % 7.91 % 8.59 %
Total Capital (Tier 1 and Tier 2) 10.61 % 11.23 11.65
Leverage 4.13 % 4.37 5.16
--------- -------- --------

Let's look @ Tier 1, shall we?

Line 1 is the one to focus on:

Components of Capital Under Regulatory Guidelines

Total Tier 1 Capital $ 92,370 $ 92,435 $ 90,899

Now if
The common shareholder equity dropped $241mm was on a 4 point drop in the price, then on an 18 pt drop the equity outstanding should drop another $1 billion+.

All other things being equal, their tier 1 ratio would go down to 7.25%

HOWEVER,

If the write downs go to line 5 (securities for sale) and the whisper number is right, then their Tier 1 ratio goes to 5.35%.

OH-OH!

But their Knight in billowing robes, Prince Alwaleed is gonna give em up to $15b to get them above 6%(if they get it all, it'd be 6.5% if the share price doesn't drop anymore).

Hard times ain't over yet.

Transient, I'm not saying that their Level 3 assets are only worth 50 cents/dollar. It was an example.

Citadel's purchase of E-Trade's junk shows, at 27 cents/dollar, just how serious it can get.

Do the arithmetic. Also look at what Alec just posted.

At the end of the day, no matter how you deal the cards on this thing, it doesn't work. There are going to be more writedowns and more equity infusions.

If Citi is looking for more funding beyond Prince Alaweed(his $15b would mean his stake would go over 10% threshold unless there's further dilution) that can mean only one thing: more writedowns. They are just tapdancing too close to 6% for anybody to be comfortable.

I may have to start looking at some C puts.

According to an article I read today, there's a big problem with the MBIA surplus notes (14%). The New York State Insurance Commissioner would have veto power over whether those notes could pay out interest. If it would undermine MBIA's capital structure, they might not pay out. Maybe 28%?

ScoProLaw, just joking. Good Luck to you.

"Isn't it possible that some of these assets are really worth 90+ cents on the dollar?"

Some, maybe. Most, no.

"Or, to put it another way, aren't there a wide range of potential values for level 3 assets?"

Absolutely.

"Just because they aren't traded often, doesn't necessarily mean they are junk does it?"

It makes it more likely.

"Or is there a reason to assume they are all junk..."

Simply put, if they weren't junk, if their value could be readily established, they'd trade.

Does that help?

tj- Given that there is such an active diamond market, even for larger stones, you could reasonably extrapolate (i.e., "model") a value for the Hope. IOW, it would be a level 2 at most.

I'm inclined to agree with tj here.

But, again, don't ask me how to value a diamond. You're asking the wrong guy, and Conjure Bag is unavailable at the moment.

tj, Conjure Bag does not shed and is hypoallergenic.

mp,

Yeah, I have puts on the IBs too, but did you notice the celebration throught the IBs and financials? Pathetic. If that's not proof of the moral hazard at work today, what is? I mean, what good basis is there for all those IBs and financials going up while the market went down today?

ShortCourage, yes I did notice and commented about it earlier today. That's why Conjure and I think a "double whammy" is coming to visit Mr. Market.

The market is conceding that there will be a recession, albeit a "mild" one, but still doesn't understand how the financials are going to play out.

When this realization hits, along with the realization that the recession isn't going to be as mild as they thought it would be, then double whammy.

I'm not going to comment on any particular stock, but use your imagination and look at my comments. Basically, Conjure and I think most of the IBs are still good shorts.

Let me throw out two examples of stocks that went up today for no good reason whatsoever, other than what I suspect is the moral hazard effect.

What good reason was there for Fannie and Freddie to jump today?

Only answer I can come up with: Oh look, if they won't let Countrywide go under, the GSE's have NOTHING to worry about!

I'm out for the night...

Yal, what you say makes sense in a rational world, but this one isn't. If this world was rational, we wouldn't have the current problem.

We're going to get lower rates and ponies.

Ponies are nice.

Thanks mp,

I've got enough IBs. I'm looking at the bubble stocks next. And I think the Vegas casino stocks (of which I own some puts) have further to fall too, what with the catastrophe in Vegas and SoCal housing, which represents a large part of their customer base.

Do you have any other suggestions, besides retail and casual dining, IBs and financials and homebuilders?

Thanks and good night. I'll check for an answer in the AM.

Even Poole now join MIshkin in encouraging "consumer spending".

How can such two intelegent people fail to see the real problem in US economy:

The trade deficit is not going to come down until the US starts to save more and spend less. In 1992, consumer spending was a little over 65% of GDP. It is now closer to 72%.

Savings are down from 8% in that time, to barely above zero.

If US consumers simply saved 5%, as we did 10 years ago, the trade deficit would come down by a lot.

The solution is to raise rates, let home prices come down and the economy will move again while saving will increase.
Yal | 01.12.08 - 1:59 am | #

So right, yet so simple.

tj- "My personal trading resources are rather small, so I'm mostly into index LEAP puts long-term with some VIX calls short term."

Jesus, tj, you like to live dangerously. You remind me of me many years ago. I hope you've got a Bloomberg.

tj,

I started with index puts, and they have been my best performers so far. That being said, I expect my puts on HBs, IBs and financials and retailers to be big winners going forward.

Now I am really going to bed!

ShortCourage, don't choke on this, but Conjure and I have been arguing about the virtues of going long on health care and energy.

We're starting to worry about the whole financial thing. There's still room to make money, but we're concerned that it's starting to get a little old and maybe it's time to move on to the next battleground.

Can you eat ponies?

Yes.

Pony fondue is great!

Seriously. Many years ago in Zurich, a female friend invited me out for fondue. I thought it was beef, but it turned out to be pony. When I learned what it was I thought I'd throw up, but then realized that it was actually pretty good.

Pony is good eating.

Sorry. I didn't mean to make anyone throw up.

I don't often spend this much time on CR, but enjoyed it and learned a lot as well.

I hope all of you have a good evening, night, morning, etc.

Can you eat ponies?

dryfly

I've had it in Slovenia & Belgium & France and each time the filly filet has been truly sublime; the cheval tartare I had in Pau, notsomuch.

Re: Level 3 assets

The pier loans are held @ level 3 due to risk; not because they don't like the price of the better paper they put out on the market but because the toxic crap has a much better chance of default.

FASB Rule 157 footnote 15:
A measurement (for example, a “mark-to-model” measurement) that does not include an adjustment for
risk would not represent a fair value measurement if market participants would include one in pricing the
related asset or liability.

When they disclose Level 3 assets/liabilities, they will also break it down between observable and unobservable inputs, allowing folks to see how much is kinda BS and how much is total BS.

In a related note, I was perusing Rule 157-B where implementation of 157 would be delayed for non-financial assets to figure out what would happen if you had to determine the fair value of, say, I dunno, a couple of hundred billion of REO property.

They're looking for comments until the 16th.

RE: Hope Diamond

The valuation of the diamond has a minimum and we have no idea of the maximum.
Do I need to say that the level three stuff is valued at the max and not the min?

Misean (or anyone else in So Cal)

I read somewhere that Countrywide has upwards of 30000 employees in So Cal. How is the BAC takeover playing out there? If there panic over massive jobs losses?

OT: Economic Stimulus
smurf, See my post 11:59 pm. I think your point is generally correct. With $5B going to alternative energy.

• Young Lurker Sometimes Poster

sdtfs:
if you want you can get the report here:
the report from March 2007. (I think credit suisse has updates after Ivy left).

page 47

I'm bad at links but here goes

Yearning to Learn

Thanks, I'll study it more in the morning, I'm off to bed, my daughter had a rough night (nightmares). I take back everything I ever said about sending doctors out to count houses

I don't know why these politicians are worried. After a 100bps cut,
dec payroll numbers will be revised way up.

"Analysts expect Merrill's fourth-quarter mortgage losses to top $10 billion. As a result, bonuses for 2007 performance have been disappointing, some employees told Reuters."

This shows the perversity of the pay-for-performance myth right there.

WHAT DO YOU MEAN I DON"T GET A BONUS?????? WE ONLY LOST $10 BILLION!

Concerning the Hope Diamond, rarity and history has established a value base.
On the other extreme, the Level
assets has done neither to establish or confirm a recent value base.
And, yes, I am a diamond expert, having spent approx. 20 years in the "business" as a gemologist.
Level 3 assets could be called the
"Wish Diamond", and as the saying goes, "if wishes were diamonds, beggars would sparkle?".....

BillD asked: "...I wonder if Sebastian is still optimistic about his small cap portfolio?"

Actually, I am, and a little surprised myself at the results.

Trading my small-cap portfolio acccording to my market-timing rules, from August to yesterday's close I'm down 4%. If I'd been trading SPY (SP500 ETF) by the same rules I'd be down 11%. If I'd been trading the QQQQ (Nasdaq 100 ETF) by those rules I'd be down 7.75%. If I'd been trading IJS (SP600 Small Cap ETF, my benchmark) I'd be down 19%.

I'm not a great stock-picker, but I don't capitalization-weight my portfolio, either. I buy equal dollar amounts of each issue.

For anyone motivated enough and thoughtful enough to suss it out, there's some valuable information in those results.

Sebastia