Tuesday, August 19, 2008

Mistake On The Lake

It hurts me to reference the joke that was once and now might be again my hometown of Cleveland. Infamous in the 70s and 80s for such memorable events as a pollution infested Lake Erie catching fire and 5 cent beer night at old Municipal stadium leading to a forfeit by the Indians due to drunken idiots storming the field in the 8th inning, now 3 major Cleveland banks are leading candidates to go under, Nat. City, Key Corp., and Fifth Third. "Cleveland-based National City's bonds have plummeted as much as 17 cents on the dollar since June and yield more than 10 percentage points above Treasuries, similar to Ford Motor Co. debt. KeyCorp, Comerica Inc. and Fifth Third Bancorp have also tumbled, falling as much as 14 cents." "Such bonds default within one year 22 percent of the time, compared with 1 percent for non-distressed junk bonds, according to Martin Fridson, chief executive officer of New York-based research and investment firm Fridson Investment Advisors." Huntington, another regional Cleveland bank, continues to lose money as well.

Getting back to bashing Lehman, they failed to secure $5 billion from S. Korea in an effort to secure more capital without selling Neuberger. Not going to happen. Even CNBC is poking Fuld and lists Lehman as the next major to possibly go under.

A little honesty goes a long way. Former IMF chief economist Kenneth Rogoff had some brutal comments for the financials yesterday. ``The worst is yet to come in the U.S.,'' and "Freddie Mac and Fannie Mae ``should have been closed down 10 years ago,'' he said. ``They need to be nationalized, the equity holders should lose all their money." Speaking of which, how low do the GSEs need to go before they say uncle....down another 20% each earlier this morning. It's a slow and painful death watching these 2, who continually resist the need for a bailout. Meanwhile, "Fannie, based in Washington, has about $120 billion of debt maturing through Sept. 30, while McLean, Virginia-based Freddie has $103 billion, according to figures provided by the government-chartered companies and data compiled by Bloomberg." How in the world are they going to raise that kind of money in the next few weeks?

A lot of dishonesty goes a long way as well. A recent survey by Schwab shows that independent analysts are expecting a rise in the S&P. "Fifty-eight percent of independent investment advisers surveyed said they expect the Standard & Poor's 500 index to rise, an increase from 46 percent over the prior poll in January. One-third of advisers who said the S&P will rebound said it will rise more than 10 percent by the end of the year." Nice call. So, 46% of you were 15% wrong in January, and now let's make it more than half. In the meantime, GS, MS, and Sanford Bernstein continue to slash estimates on banks, and GS upped it's loss estimate on Lehman to almost $10/share for the upcoming quarter.

I'm laughing on the inside as I write this for crude inventories "unexpectedly" rose last week and this one piece of news buoys the markets while FNM and FRE fail right before our eyes. How can this be unexpected when the economy is dead?

I know I haven't listed new picks in awhile, but I'm playing my bets out for now. Financials have resumed their beating and I have no idea in the world how car dealers can make money right now. I will continue to look for CRE opportunities to short, as well as retail.





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