Whitney On Wall Street's Future

[Helena]

CNBC video

Video- CNBC.com

 

[dex]

What's the skinny on it. Who is Whitney.

 

[boont]

Trillions Disappear

Whitney is Executive Director of Equity Research for Oppenheimer & Co.

Her take on the collapse of Lehman Bros...

Lehman will unload 600 billion dollars from their balance sheet. This is a liquidation that will happen over weeks not months. This means the prices of many asset classes held by others will go lower under this forced sale as they will have to mark their book lower. This will put strains on their own capital ratios.

With unemployment already up 50% from July last year this new round of layoffs will add to the numbers nation wide.

With 2 Trillion dollars of liquidity having disappeared from the stock market it could take government intervention to jump start the financial system which must have capital to function.

In an unusual twist Wall Street is affecting the country. Next, the country will affect Wall Street, which is more normal.

b.

 

[dex]

Thanks for the summary.
I'm guessing that like the S&L situation the people buying the fire sale assets will be making some big money in a year or so.

It would be interesting to know how the Gov't could jump start the financial system. With Fed funds at 2%, what could they do - buy the depressed assets? Maybe the US taxpayer will actually make some money when they rebound.

 

[cute fuzzy bunny]

With unemployment already up 50% from July last year this new round of layoffs will add to the numbers nation wide.

Yep, that unemployment is just off the charts....I seem to be missing this '50%' increase...can you find me another chart from someone more reputable than this half baked outfit called "BLS" that shows the correct figures?

With 2 Trillion dollars of liquidity having disappeared from the stock market it could take government intervention to jump start the financial system which must have capital to function.

What action had to be taken when 2 trillion dollars appeared in the stock market a couple of years ago? I forget...

 

[harley]

According to the NortheastMidwest Institute, unemployment last July was 4.7%.

This July it is 5.7%.

So I guess according to Wall Street analysts, 1 is 50% of 4.7.

Hmmm...Maybe I'm beginning to understand why we're having so many investment related issues.

 

[Helena]

CNBC video

Video- CNBC.com

One really needs to watch the video to get the full effect
of what she says... in the first minute she says that the
loss of Lehman, etc...

" really exacerbates the credit crunch because it pulls so much liquidity
out of the market - out of an already strapped market. "

 

[harley]

One really needs to watch the video to get the full effect
of what she says... in the first minute she says that the
loss of Lehman, etc...

" really exacerbates the credit crunch because it pulls so much liquidity
out of the market - out of an already strapped market. "

I watched the whole thing, and I don't really disagree with what she's saying in general. I just get really annoyed with people who make up their statistics. I got in trouble for that in 7th grade debate club, and the lesson has stuck with me. As my teacher said, "lying to make your point is not a good debate tactic."

Still, I agree about how much impact this will have. I forecast, however, that many people will see this as a huge buying opportunity and the market will start moving up over the next few days. But I do think that over the next number of months we're looking at a decline. THEN there will be a big buying opportunity.

I'm not a market timer, I'm just going to wait until it's a good time to buy.

 

[boont]

The Core Problem

"What action had to be taken when 2 trillion dollars appeared in the stock market a couple of years ago? I forget..." bunny


"The core problem that we have is the economy," he said."There are two things here that are very disturbing and not addressed. One, there is no major infusion of new capital into the system. We are doing more financial engineering to solve problems. Second of all, and much more important, is the fundamental economy is in very bad shape and the problems are growing."

New Jersey Gov. Jon Corzine, a former chief executive of Goldman Sachs.

 

[cute fuzzy bunny]

Oh, so some guy who used to be something but decided to be a politician is very concerned at this time. Got it.

Come on folks, about 8 years ago the nasdaq lost 80% of its value and the s&p500 lost half. Major market players in many market segments smashed into the ground and their management went to jail. That horrifying experience lasted about 2 years until the next bull market leg kicked in and ran us up over prior levels on most major indexes. Seventy years ago we ran into one of the greatest depressions in history, coupled with mass deflation... and a few years later we kicked the ass of one of the most powerful armies that the world has ever seen and then ran off six decades of unparalleled economic growth.

Sorry if I cant quite cough up the "hold me mommy!" moment right now.

Right now we're down about 20%. A bunch of idiots in ONE market segment screwed up all at the same time and its a mess, but its going to get cleaned up. Whats worse to the average american and the average economy...the worlds largest energy company, the worlds largest phone company and the worlds largest manufacturing conglomerate going belly up due to massive fraud or some guys on wall street who hosed themselves on leverage primarily around bad mortgages? Oh please.

If you actually look at the charts of almost any economic statistic, we're well within the range of numbers for the last ten years when there weren't any sheep yelling about wolves.

Bottom line is this will all be straightened out by Christmas. Santas gong to bring us all a new market. Taxpayers will be paying off the screw ups of a bunch of white guys in ties for the next couple of years. Like thats anything new.

But how about we quit the "sky is falling" stuff unless you have an actual stat that is meaningful? Because I'll be here to call you on it...

 

[cute fuzzy bunny]

This July it is 5.7%.

Pretty much my point. So in 1993-1996 and from 2004-2006 when unemployment was higher than that, did you feel that unemployment was a major factor in our economy and our economic future? Does anyone even remember unemployment as an issue during those time periods?

I sure dont.

As a side note, the employees of the companies who are prospectively rolling over represent roughly .15% of the united states' total population. Is that really significant?

 

[boont]

Protesting Too Much

The great thing about innocence is that it is self fulfilling. The subject receives harm in direct proportion to his own deficiencies.

b.

 

[Helena]

As a side note, the employees of the companies who are prospectively rolling over represent roughly .15% of the united states' total population. Is that really significant?

Apparently only to those who are in the .15%.

 

[ladelfina]

What action had to be taken when 2 trillion dollars appeared in the stock market a couple of years ago? I forget...

party hearty? buy overpriced houses? retire early?


Maybe the worst won't come to pass, but saying the capital markets of the entire world are "just one market segment" seems to be denial. (Were it just technology, or just tulip bulbs, you'd be right, of course.) Unemployment was less of an issue in '93/'96 or '04/'06, IMO, in the first case because housing prices only dropped something like 5% I believe, and in the second because the housing bubble was creating the "wealth" that is now being destroyed.

August unemployment is reported as 6.1%.
It's the link between unemployment and ability to pay off the housing and other loans that underpin the system that makes this different. When Worldcom went bust only a contained circle were involved in that investment. Everyone is now invested in over-priced housing thanks to the gov. takeover of FNM/FRE and the bailouts of MBS-sustained investment banks. Every tiny percentage of increased unemployment means that much less capacity to pay, which might seem trivial UNLESS you look at the giant inverted debt pyramid of leverage that was constructed on those tiny percentages. It's as if the entire country bought Enron and Worldcom on margin, is what it is, at least as far as I can see...

There are other aspects, too, like what this does to foreign investment and treasury yields and the weakness of the dollar, and reduced tax revenue.. things that affect everyone, not solely sector investors.


--
neither during the Enron debacle did the gov. allow banks to put regular customer deposits at the service of imploding entities:

Breaking Walls
The Fed also granted an exemption on a rule that limits banks' transactions with their brokerage subsidiaries, a move that provides securities dealers with another source of funding if they need it for market making this week.

http://www.bloomberg.com/apps/news?pid=20601068&sid=aQD6.DKvN3yQ&refer=home

Among the most important tools that U.S. bank regulators have to protect the safety and soundness of U.S. banks are the legal restrictions that limit the ability of a bank to lend to affiliates. Section 23A of the Federal Reserve Act provides that a bank may not lend more than 10 percent of its capital to any one affiliate or more than 20 percent of its capital to all affiliates combined. Of equal importance, any loan to an affiliate must be either fully collateralized by cash or U.S. Treasury securities or overcollateralized by other assets in an amount of 10 to 30 percent, depending on the type of asset or instrument used to secure the loan. Section 23A also prohibits the purchase of low-quality assets by a U.S. bank from its affiliates. Section 23B of the Federal Reserve Act requires that all transactions between a bank and its affiliates be conducted only on an arms-length basis. These restrictions are designed to limit the ability of an owner of a bank to exploit the bank for the benefit of the rest of the organization.

http://www.federalreserve.gov/newsevents/testimony/alvarez20080424a.htm

culled from:
http://www.nakedcapitalism.com

just like with the "temporary" TAF.. how long will this exemption/suspension last? Everything we have seen up to now seems to indicate that any loosening of the rules just encourages additional misbehavior and a worsening of the problem.

 

[Sarah in SC]

Come on folks, about 8 years ago the nasdaq lost 80% of its value and the s&p500 lost half. Major market players in many market segments smashed into the ground and their management went to jail. That horrifying experience lasted about 2 years until the next bull market leg kicked in and ran us up over prior levels on most major indexes. Seventy years ago we ran into one of the greatest depressions in history, coupled with mass deflation... and a few years later we kicked the ass of one of the most powerful armies that the world has ever seen and then ran off six decades of unparalleled economic growth.

Sorry if I cant quite cough up the "hold me mommy!" moment right now.

Right now we're down about 20%. A bunch of idiots in ONE market segment screwed up all at the same time and its a mess, but its going to get cleaned up. Whats worse to the average american and the average economy...the worlds largest energy company, the worlds largest phone company and the worlds largest manufacturing conglomerate going belly up due to massive fraud or some guys on wall street who hosed themselves on leverage primarily around bad mortgages? Oh please.

Bunny, right on.
These pundits on TV are like weathermen, they can say whatever they want and be dead wrong, yet still keep their jobs. The short term outlook and thought process in this country is so disheartening.

 

[guest]

I'm not a market timer, I'm just going to wait until it's a good time to buy.

Well said!

 

[2B]

Bunny,

Can you tell us what you really think?

 

[cute fuzzy bunny]

The great thing about innocence is that it is self fulfilling. The subject receives harm in direct proportion to his own deficiencies.

I love you too, buttercup!

My dang innocence had me sleep in until 9:30 this morning. I feel very deficient.

 

[2B]

My dang innocence had me sleep in until 9:30 this morning. I feel very deficient.

You missed "Opening Bell" on CNBC. How do you make it through the day?

 

[Michael Dirubio]

Last post

All- I believe this will be my last post to this forum. There just doesn't seem to be an atmosphere here to allow honest discussion of idea's and thoughts. It appears to me that any one trying to sound some warning bells gets attacked. I'm not saying we are going into a depression, but anyone who believes that we are not in a recession is delueding themselves. Yes- I am aware that the current economy doesn't meet the technical definition of a recession. That is part of the problem: I honestly believe the government has changed the statistical formulas so that we can't have GDP contraction. Same with unemployement. Every time the government changes the formula, the unemployement rate goes down. I think that makes any comparison of unemployement rates meaningless. The incompetance of this administation cannot be overstated. The incompetance runs to every aspect: The CIA claims WMD are a slam dunk. Oops. None there. Lets give Tenet the Medal of Freedom rather than admit the mistake. And it just goes on: How did the CIA not see 30,000 Russin troops massing on the Georgian border? That was a complete surprise to the President? If it wasn't a surprise, why was he in Bejing instead of the situation room? What did we learn in Katrina and Ike? The government cannot respond to help citizens in a crises. As a californian, I have no illusions about the response for an earthquake: I am on my own. I'm ready for it. How can I not be aware of the problems with the economy and the governments total lack of response.

This was a posted point on this thread:

"Pretty much my point. So in 1993-1996 and from 2004-2006 when unemployment was higher than that, did you feel that unemployment was a major factor in our economy and our economic future? Does anyone even remember unemployment as an issue during those time periods?"

Yes I do. I remember article after article on the "Jobless Recovery", and how that was going to hurt us in the long run. Jobs going overseas doesn't mean good news for us. People didn't have good paying jobs and used thier houses as ATM's. Now the HELOC's are gone and 401K's are being depleted. The 25% drop in the market means that the 401K's are now almost gone. Where do we turn next? A drastic drop in the standard of living in this country. Do I want this to happen? No. Am I preparing for it? Yes.

Statistics are tough things. Someone on this thread said this: the employees that lost thier pensions are only .15% of the population and thats not significant.

That is a statistically fallacious argument. Yes .15% of the total population, but how much of the working population? And more important: what percentage of the PBGC's remaining assets? What I mean is this: The Leman Brothers employees will take a significant portion of the remaining PBGC assets. The PBGC is broke. I know because DW gets a statement cataloging 15 years worth of hard work for UAL for pennies on the dollar. Where is the PBGC going to get more money? Taxpayers. Maybe.

We can make the same argument on the FDIC. The total number of banks failing is small. It only takes afew to deplete the FDIC. Once the FDIC is gone, there will be a run on banks. I saw an artical on the web to that effect. People need to keep an eye on deposited money. Is that panic? Is that likely? Each person needs to decide. I am arming myself both literally and figuratively. I like the Warren Zevon insurance policy: Lawyers, guns and money. Since I will not be around to reply to all the "conspiracy nut" posts: I'm really not. I don't believe in black helicopters and bugged phones, the NSA eavesdropping program aside. I just believe that the foxes are running the henhouse and we need to hold them to account and be ready for the consequences of our laxness. Here's hoping the market recovers. While I'm at it: here's hoping that the government balances the budget, people start saving more money, someone invents a better solar cell (or cold fusion), and honest people start running the government. Oh well, a man can dream.

 

[REWahoo]

As long as you are dreaming you might as well see if you can find an internet forum where everyone agrees with you.

 

[cute fuzzy bunny]

You missed "Opening Bell" on CNBC. How do you make it through the day?

No problem. I have a tivo.

Anywho, i'm not watching it today. I had my fill yesterday.

I think I'll spend the rest of the day not worrying myself needlessly and go out to lunch with some friends.

This crap too, shall pass...you've spent years planning, now let your plan continue to work. If you have some excess cash, might be a good idea to cut it up into 3-4 pieces and throw a piece into the markets every month or so.

I'm betting you'll be a pretty happy camper about that by the middle of next year.

 

[cute fuzzy bunny]

As long as you are dreaming you might as well see if you can find an internet forum where everyone agrees with you.

Shhhh...theres been a 25% drop in our 401k's, which means they're almost gone.

No wonder I'm way happier than I should be. All this time I thought there was a lot of ground between 25% and 100%.

 

[eridanus]

Pretty much my point. So in 1993-1996 and from 2004-2006 when unemployment was higher than that, did you feel that unemployment was a major factor in our economy and our economic future? Does anyone even remember unemployment as an issue during those time periods?

Yes.

 

[laurence]

Mike,

The less than enthusiastic reception for doomsayers mostly is a result of fatigue. Some people on the board have been investing for decades, and have been told the sky is falling hundreds of times. It sells magazines to make dramatic predictions.

Is it possible that things are going to be very bad this time? Absolutely. But the preponderance of evidence suggest it's more likely you will regret converting your stocks to guns and freeze dried food than holding your position. We've been accused before of not having an open mind and it's a valid point to discuss. Sometimes the accuser is saying, "Why aren't you open to the possibility of Newtonian physics being completely invalid and that gravity isn't real? We'll be flying as soon as we do!"

Often the doomsayers are saying, very eloquently and at great length, "Buy high, sell low". When things look dark, they may get darker, but most times in the past it's been the time to buy. Of course, it could be different this time....