Welcome

  • Investorwalk is a boutique online journal for sophisticated investors and traders who demand unique insight allowing them to make better, smarter, more-profitable investment decisions.

Sponsored Links

  • Sponsored Links

Thomas Tan

Sunday, June 07, 2009

What's to Be Done About Citigroup?

FDIC Chairwoman Sheila Bair has indicated last week that she is pushing to purge Citi’s top management, especially its CEO Vikram Pandit. It shows that the regulators in the government are losing patience with the snail's pace of “reform” at Citi.  In many of my previous posts at SeekingAlpha, and from day one of his appointment as CEO, I voiced strong disagreement and still think it is the single worst decision ever made by the Citi’s board.

Continue reading "What's to Be Done About Citigroup?" »

Sunday, May 03, 2009

How Much of Banks' Earnings Are Real?

Last month, many banks reported strong earnings. Market sentiment has changed substantially. Only a few months ago, the collapse of the whole US banking industry threatened to bring the whole global economy down. Now, suddenly, the picture looks rosier than ever and this financial crisis seems to be over. Or is it?

 

With very limited transparency of bank earnings, there are several so-called earnings areas investors should question whether they are sustainable, and a few other areas investors should ask whether they are even real. They are as follows:

 

Continue reading "How Much of Banks' Earnings Are Real?" »

Wednesday, April 08, 2009

How did Derivatives Get Cities & Counties into Trouble?

There are two articles at NYT on municipal financial situation yesterday. You can read them here and here. The first one is that Moody’s Investors Service assigned a negative outlook to the creditworthiness of all local governments in the United States, the agency said Tuesday, the first time it had ever issued such a blanket report on municipalities. This kind of message will usually lead to many downgrades of municipal bonds in the near future.

The second article is more interesting. In Tennessee, a single investment bank, Morgan Keegan, sold $2 billion worth of municipal bond derivatives to 38 cities and counties since 2001, dominating and monopolizing this market there. What is more interesting is that Morgan Keegan wears several hats at the same time and engages in all phases of selling the derivatives. 

Continue reading "How did Derivatives Get Cities & Counties into Trouble?" »

Tuesday, April 07, 2009

Historical Spread between Mortgage & Fed-Fund Rates

Courtesy of Lugwig von Mises Institute

There are two interesting charts shown above produced by the Mises Institute. They were produced by Mises Institute to respond to the bogus defense of Greenspan who has been trying very hard to exonerate himself from the housing boom and bust.

Continue reading "Historical Spread between Mortgage & Fed-Fund Rates" »

Wednesday, March 25, 2009

Bernanke's Dismal Prediction Record

Bernanke has a long history and record of predicting the market wrong. Whatever he says, in less than half year, everything seems to go very wrong in the other direction. Now he says the recession will be over by end of this year, this alone should get all of us worried.

In March 2007, he said the subprime crisis was contained when it was barely starting. Then about half later when the problem of delinquencies and foreclosures started to surface, he said, “Given the fundamental factors in place that should support the demand for housing, we believe the effect of the troubles in the subprime sector on the broader housing market will likely be limited.” We all know what happened next.

Continue reading "Bernanke's Dismal Prediction Record" »

Thursday, March 12, 2009

Don't Just Blame on Bernie

Saupload_cartoon_four

Courtesy of Garyvarvel.com

My colleague Aidis Zunde’s post on Madoff is very funny. I thought I might just add one picture and a more serious and sober note here.

Continue reading "Don't Just Blame on Bernie" »

Thursday, February 26, 2009

A Very Long and Painful Restructuring Process

If you haven’t read this Barron’s interview with Ray Dalio, Chief Investment Officer, Bridgewater Associates, titled “Recession? No, It's a D-process, and It Will Be Long”, I would highly recommend it. I happen to hold many similar views to his.

Here are some excerpts from what Ray said, with my comments.

“The D-process is a disease of sorts that is going to run its course……This was the dynamic that occurred in Japan in the '90s, that occurred in Latin America in the '80s, and that occurred in the Great Depression in the '30s.”

Continue reading "A Very Long and Painful Restructuring Process" »

Friday, February 20, 2009

The Real Estate Apocalypse

Graphic: A History of Home Values
Courtesy of The New York Times

What has caused a great industrial conglomerate of GE trading at single digit today? It is because of their stupid decision to get into financial services by establishing and using GE Capital to manipulate their earnings. So much for beating Wall St. consensus by one cent for consecutive 30 quarters since 2000, while their stock has been dropping from $60 to <$10. I guess everyone playing this game of financial manipulation and distortion has to pay the price sooner or later.

 

Then what has caused the financial apocalypse? It is the real estate. The New York Times put out a great chart in 2006 (2 and 1/2 years ago with little attention from readers until now) during the peak of the real estate market as shown above. It gives a very long history (116 years) of American home values (inflation adjusted). Currently the Shiller real estate index is around 160, down from the 200 peak when the chart was published.

 

I indicated here in late January that the banking index can drop another 50% (which is BTW getting close today, a month later, as BTW acting as a leading and leveraged indicator to the continuously falling real estate market) and remain flat for the next 20 years (still yet to be seen). This real estate chart shows the same story. The Schiller index is likely not getting any support until around 110 level, falling another 30% from today’s level, and 50% from the 2006 peak. And it can remain flat for the next……(I don’t even want to say it).

 

Just remember the historical home value index with inflation adjusted had stayed flat from mid-1940s to mid-1990s. So much for the myth of home value always going up. And who said we never had a down year in the national housing market since the great depression?

 

As everything else happening in the world, like a pendulum, the higher it goes, the harder it falls.

Tuesday, January 27, 2009

Risk Management or Risk Manipulation

This article of mine, as part of the Advisor Perspectives weekly newsletter for this week, is sent to their over 70,000 clients this morning. I am posting it here simultaneously.

 

Value at risk (VaR) financial models are the latest game being played by those on Wall Street who profess to manage risk, a troubling trend detailed superbly by Joe Nocera in a January 2nd New York Times Magazine article, They give bankers a false sense of confidence in their risk control while, in reality, they increase the level of risk for society as a whole.

 

But Nocera understates the problem. The risk management groups on Wall Street are actually engaging in risk manipulation, risk distortion, and risk amplification — anything but risk management.

Continue reading "Risk Management or Risk Manipulation" »

Saturday, January 24, 2009

Another Picture is Worth a Thousand Words

Image1
Courtesy of Birinyi Associates, Inc.

Birinyi Associates produced this great chart by comparing the magnitude of current banking crisis with the one in the 1930s. If history repeats exactly which usually doesn’t happen, but just in case it does this time, there are two key takeaways for bottom pickers:
1) The banking index has another 50% downside.
2) The most scary part is: banking industry remains flat for the next 20 years.