Edited just Now:An excerpt for my favorite optimist:)
This is a slice from The Spear Report Professional Traders commentary today.
They are NOT optimistic in the long run, to say the least.
Note: i LOVE the term "financial entropy" and is one the prime reasons i am extremely bearish WAY INTO the future. i have been writing about my theory of financial entropy for several years, and see this as just the beginning.Max
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<<Few besides the bankers like the idea of a “bad bank.” It is an
alternative to outright nationalization and protects management and equity holders
from the consequences of running and/or owning an insolvent company. During the
S&L crisis, over 1600 banks were nationalized, stripped of bad
management and bad loans, and many were resold to private
investors. A 'bad bank' sidesteps that process.
It would be almost unprecedented for the government to put
Citigroup and other insolvent mega banks through such a humiliating
process. Lehman Brothers did have to suffer this ignominious
fate, however. In our view, the possibility that some banks
are “too big to save” is going to become ever more real as the year
progresses. Like Citigroup, such banks may not get nationalized, but
rather will simply disaggregate on their own as the centrifugal forces of financial entropy take over.
Banks will have a tough time over the next few years as other
dominoes fall, and they know it. That’s why they are hoarding
capital. We know from comments made at Davos that they all
anticipate a huge wave of commercial real estate defaults that will
begin later this year and stretch into 2011. According to Moody’s
commercial real estate in the U.K. could fall 25% this year alone.
That would mark a 45% decline from peak in just two years. To
raise capital, commercial real estate companies will have to sell
assets and that creates downward pressure on prices. Nothing like
this has yet occurred in the U.S., but it will.
It is difficult to wrap one’s mind around just how screwed up our
financial system has become. It is a real problem when leverage is
applied to the illusion of the golden goose. The Fed noted the risk of
deflation in its policy statement yesterday and vowed to fight it tooth
and nail. But when an illusion absolutely needs to be brought out into
the light of day and dispelled, there is no way that one can “fight it.”
One has to take one’s medicine. Denial or stalling is not going to be
an adequate response.
Chairman Bernanke and the FOMC have
consistently understated current conditions throughout this crisis in
order not to foster panic and make them worse. That is
understandable, however, with so many things selling at 50% off,
this is clearly a deflationary environment already. The bubble has to
deflate, there is no way around it. It is not a question of whether there
is deflation or not, it is a question of managing deflation. It would be
nice to hear an honest, reality-based statement about that from our
fiscal and monetary leaders.
If that were to happen, perhaps Chinese Premier Wen Jaibao would
not need to literally shake his finger at the U.S. and castigate us for
our profligacy. China does have some responsibility in the matter,
however. The country’s sovereign wealth fund invested early in
Morgan Stanley and the debt of mortgage giants Fannie and Freddie.
They did not see the bubble until it was too late. It was China’s
refusal to continue walking through that poppy field that forced the
Fed to step in last fall and purchase $600 billion of GSE loans.>> |
