Monday, October 17, 2011

Zombies are on the move, check your brains

The stock market fell more than 2% today, killing last week’s rally. This happened despite generally good corporate earnings reports but bank stocks dropped sharply, and this dragged the markets down. The clever saying in the news today is that stock pickers “may forced to join the protesters on Wall Street“ , the implication is that it’s becoming impossible to identify a predictable stock (going up or down).

The stock market is currently at a level that negates the last ten years of investing, and the market shows no sign of doing anything but preparing for the big plunge. Of course, if you are a Wall Street bank executive or a hedge fund manager, you made billions without producing a single thing of value. Isn’t capitalism grand? When I say billions, I don’t mean as a group, many made billions as individuals and paid a maximum 15% tax. Herman Cain, Mitt Romney and the rest of Republicans would take the tax on that type of income down not to just 9% but to zero.

The number of home mortgages classified as delinquent rose last month for the first time in nearly two years. Re-defaults on modified mortgages are starting to happen in significant numbers according to the banks, but they give no numbers and are probably trying to justify their failure to refinance mortgages at the record low interest rates now available. Banks say that the loans currently going bad are prime mortgages and not the so called sub-prime loans. The layoff of 500,000 government workers by Republican governors might have something to do with the surge in defaults, but shrinking government was supposed to be a good thing, right?

US Treasury Bonds and the German Bund are again gaining favor as a safe haven with yields on ten year notes again falling to barely 2% as investors bid the selling price up. It is supposedly the uncertainty about the bailout of euro bond holders that is making the US zombie banks a dodgy investment, as conventional wisdom states that the US banks have a heavy exposure to the European banks. A more accurate way of looking at it is that Wall Street caused the problem in Europe by looting an pillaging their way across the continent. In fact they are still doing so, and they are causing the crisis.

Credit insurance markets are getting increasing jumpy with the cost of insuring bank debt through Credit Default Swaps rising sharply.  The CDS on Citigroup debt is being particularly hard hit rising 16 basis points to 261 and you see similar rates for the other big zombie banks. It was a credit freeze up that made obvious the banking collapse of 2008, but it had been coming for years. Nothing about these banks has been fixed, they instead have been allowed to siphon funds from the stock market and to gouge consumers. This is coming to an end however and it will be ugly. It could happen anytime but more than likely it will be sometime next year. It depends on what happens in the Eurozone, as this will likely determine how quickly it all comes to a head. Hide your brains where the zombies can’t find them.


Anonymous said...

Apple share price $422. Zero dividend has $81.6B cash,over $87 a share outstanding, 5% dividend= $21.10 per share. Time to pay shareholders money. .. no stupid stock buybacks, no stupid acquisitions ... this is crazy .. Apple has more cash than the total market cap of 470 of the 500 S&P 500 stocks.