Deja Vu

Does this sound familiar?  According to the story, Bank of America CEO Ken Lewis says “that he sees no need for the largest U.S. bank to raise capital or cut its dividend.”

I don’t know why, but it sounds like I’ve heard that before….  Oh yea, now I remember.  Citi Group said that on November 4th last year – then on January 16th they announced a 41% cut.

I’m too lazy to look up the details right now, but if my memory serves correctly, MBIA, AMBAC, Lehmann – and several other financial institutions have said the same thing over the past 6 to 8 months. 

Here’s a fun trip down memory lane.  Read this excerpt from Bloomberg dated August 28, 2007Moszkowskicut his estimate for Lehman’s earnings in 2008 by 22 percent to $6.80 a share. That compares with an average estimateof $8.14 in a Bloomberg survey of 19 analysts. He expects the firm to earn $7.07 this year.

Bear Stearns will earn $12.07 a share in 2008, Moszkowski predicts, more than $2 below the average estimateof $14.53. Earnings this year will drop to $11.86 a share from the record $14.27 that Bear Stearns reported in 2006, he said.

Lehman shares declined $3.47, or 6 percent, to $54.28 in composite trading on the New York Stock Exchange. Bear Stearns fell $3.78, or 3.4 percent, to $108.42.

“Merrill’s downgrade is a very good sign that these stocks will bounce from here,” said James Barrow, president of Dallas- based Barrow Hanley Mewhinney & Strauss, the sixth-largest Bear Stearns shareholder. “They’ve made many market-bottoms by putting stocks on sell lists.”

Obviously, Bear Stearns is now out of business (having been bought by JP Morgan for $10/share) – yet James Barrow said that the downgrade was “a very good sign that these stocks will bounce from here” when the stock was at $108.  I sincerely hope that no one listened to him.

How about Lehmann stock?  It was at $54 when this pronouncement was made, today it closed at $19.74.

Don’t you just love the way the market pros can call the bottoms?  (Umm, that’s sarcasm – no need to tell me I’m agreeing with someone who’s wrong.)

I’ve said it before, but it needs to be repeated because I’m tired of people acting like they’re surprised when the market – particularly financials – keep going down.  If you learn nothing else from these rants, please remember this:  Until the financials “come clean” and write off the majority of the toxic “level 3” assets, they will continue to lose value.

These financial geniuses have leveraged sub prime and “alt-a” loans 20 and 30 times.  When even one defaults, the whole house of cards comes down.  I’m guessing – strictly a guess because none of them are providing accurate numbers right now – that the major banks have written down maybe 30% of the losses they’ll ultimately take.

In other words, this show ain’t no where near over – it ain’t even halftime.  I don’t care how many times Ben Stein says buy and hold, I don’t care how many times Doug Kass says we’re at the bottom, I don’t care if MBIA and AMBAC say they don’t need capital, I don’t care if Lehmann downgrades (or upgrades!) Merrill or Goldman – or vice versa.

Someone needs to say it – These companies are too highly leveraged.  Some will not be in business a year from now.  It’s true that one or two will emerge stronger, but I’m not picking that horse yet.  Better to sit on the sidelines (in cash or gold or silver) and wait to see who’s left when the dust settles.

Right now, I’m long Novagold (NG) strictly as a speculative bet on gold.  I’m also long on FXE – which is a “long-term-no-way-I-can-lose-on-this” type of bet.  That’s it.  Everything else is in cash and silver – real silver coins that I physically have in my possession.

I don’t have the balls to short financials right now – although everything I know tells me to.  Someone (don’t remember who right now) said something like “the market can remain irrational longer than you can remain solvent.”  Good advice, and I rarely bet short – or wager much on hunches.  The dollar going down long term is NOT a hunch.  In my book that’s as close to a sure thing as there is today.

If I had the guts, I’d short XLF from here – it closed at $19.36 today – and take my profits at $17.  But I don’t have the guts to do it, so I prefer to sit on the sidelines until there’s something I can go long on.

Maybe someday the buy and hold crowd – who have cost so many people so much money in the past 8 years – will shut up and go away.  I hope the same goes for those who keep calling bottoms in this bear market.  Buy when the market trends (when the 75 and 200 day EMA cross going up) are on your side – not before. 

Unless you’re a trader or speculator, in which case you don’t care what I say anyway.  Even then, I know traders who use technical indicators – but much faster than 75 and 200 day MA! 

Anyway, I don’t think anyone will get rich bottom fishing at these levels – and you could lose it all. Be patient, wait, buy when the market trend is in your favor, and you’ll be just fine.

gk

 

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