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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Crimson Ghost who wrote (5909)	5/9/2004 10:54:48 AM
From: mishedlo	Read Replies (2) \| Respond to of 116555

Russ on the Fool asks about Banks. If anyone on this board thinks some banks are in trouble, show us so that we can short them. So far I don't see or hear about any banks having problems. Is this gossip or is there an opportunity to make money? Russ of the Frogfarm Reply from Mish I will offer some thoughts on banks and financials 1) The generals are the last to fall and the first to bounce. 2) No one really understands for sure what is going on at JPM or FNM with derivatives 3) Greenspan will do whatever it takes to prevent a banking collapse 4) Better bets might be against sub-prime lenders, but bears have been crucified betting against these dogs. Perhaps now is finally the time. NCEN, ACF, HTB (household - recently bought out by someone overseas if I recall correctly). I am sure there are a lot more of these. 5) Most banks offloaded mortgage risk to FNM. FNM is hedged god knows how. 6) Of course FNM and banks and everyone else needs to offload risk to someone else so.... that takes us to MBI finance.yahoo.com Financial guarantee insurance provides an unconditional and irrevocable guarantee of the payment of the principal of, and interest or other amounts owing on, insured obligations when due. Of course who is guaranteeing that MBI will not fail? As best as I know, no one. If MBI were to collapse the govt would have to step in. MBI insures crap like California bonds and god knows what else. Anything for a price I suppose. 7) Then again we have credit card debt. COF etc. How much of that debt is any good? Of course the worst debt they have is securitized sanitized and that risk is offloaded to banks and other investors chasing higher yields. More than likley if you are in a pension plan, your pension plan probably has a ton of high yeild crap in it like this. Perhaps the pension plan insured it thru MBI, perhaps they se no risk of default and it just sits there. 8) Then again we have the debt of GM and F. These are subprime lenders in reality parading as car companies. Over 400B in debt that can never be paid back. They make nothing on cars, but thru the wizzard of zero percent financing somehow they make money on financing. This is a giant ponzi scheme but who knows when it collapses. I remain convinced that the debt of GM and Ford is worthless. That debt is no doubt owned by banks and securitized and sanitized and the risk offloaded to pension plans and some of it is probably insured against collaspe by MBI. 9) Of course there are some credit companies parading as coglomerates. In this group we see the likes of CIT and GE. CIT is nothing more than a spinoff of debt of Tyco. This is interesting to me because TYCO was about to go under under the burden of this debt so they spun it off. Now if it was so bad that it was going to take TYCO down (when TYCO had other assets), why is this POS worth anything by itself. Oh well who cares, CIT soared to the moon and bears got crushed. Here is the profile of this POS: CIT Group Inc. is a global commercial and consumer finance company that provides financing and leasing capital for various companies. CIT offers vendor, equipment, commercial, factoring, consumer and structured financing products. finance.yahoo.com $34B in debt. How much of this debt is any good? finance.yahoo.com Personally I doubt the debt of GE is worth much either. Watch Buffett pick some of this up for pennies on the dollar in say 3 years. 10) Other debt: This includes trash like S. This is another company that is ultimately headed to zero. No way can they compete against Walmart, TGT, and all the other stores out there over the long haul. Like TYCO they were headed for total collapse some time ago but managed to sell their debt to C. I suspect C carefully went thru all of that debt, kept anything that was any good and securitized, sanitized and offloaded the rest of that crap to pension plans, GM, F, individual investor and or attempted to insure it with MBI. S escaped collapse and is sitting in a big pile of cash. But they still have debt on stores etc. Higher interest rates combined with lessening sales could easily chew up Sears over the next few years. My General Thoughts: Everything I have stated here is pretty well known. Obviously the market did not care about any of it for over a year. Will the market care now? If so, how fast. It would be nice to find some debt story that is not widely known. Still there is a lot of meat on some of those charts with plenty of room to fall. Comments Russ, anyone, and everyone else? Mish