Chris, do you have any sense of how long this rally might last? Are there any clues from the previous instances of government-induced rallies that you refer to?
Thanks for all your work; I would appreciate your thoughts to the question very much –
BK
From the Karl Deninger’s http://market-ticker.denninger.net/
He apparently does post logical stuff without atomic bomb films afterwards (ocassionally). This lines right up with CM.
According to The Fed’s "More Adverse" scenario prime delinquencies will reach 3-4%.
Well, how about this?
(Click for a larger image)
Note that the PRESENT serious delinquency rate on Fannie’s credit book for single family homes is at 3.15%, up from 2.42% last quarter.
What’s worse is that a lot of the paper Fannie holds was written before the bubble. If you look at only the "bubble-era" paper (e.g. ALT-A) or even prime paper written in 05, 06 and 07 the numbers are going to be far worse.
We have the largest lender in the United States reporting current "prime" serious delinquencies, almost all of which will end up as foreclosures, equal to the most serious stress tested level right now and twice the so-called "baseline" scenario.
Furthermore, Fannie’s credit-related expenses nearly doubled quarter/over/quarter and was 2/3rds of the full year 2008 expense in one quarter alone!
Folks, there is absolutely nothing to support any claim that these "stress tests" were or are realistic when market performance in the nation’s largest lender and one that allegedly has written all "prime" mortgages states (not "suggests") that their credit book delinquency rate has reached the "more adverse" stress level already.
Nowhere in the "mainstream media" (e.g. CNBC, etc) has this been mentioned but it is literally right in your face while reading the Fannie quarterly report.
Everyone is entitled to be optimistic.
But nobody, especially not anyone in the government, has the right to intentionally mislead the markets and investors as to the validity of what they’re allegedly doing.
Given the Fannie report, which was known to the government (since it is under conservatorship) for a significant amount of time prior to being filed, there is absolutely no excuse whatsoever for The Fed’s "Stress Test" report to be published without a footnote indicating that the "most adverse" metrics had been proved met by the largest prime mortgage lender and guarantor in the United States already.
Investors deserve a government that does not intentionally mislead them.
If you are buying into this rally and the recovery of the banks based on the so-called "Stress Tests", you have been lied to and must consider the "severe" stress scenario as the "baseline", which implies that should the economy deteriorate further the banks will not make it with their alleged "capital cushions."
Period.
This is an outrage; we are no longer just talking about my estimates, Roubini’s estimates or even the IMF’s estimates.
We are now talking about actual reported financial results.
In short, we have all been had.
Again.
Disclosure: Short Ben Bernanke, The Fed and Treasury
Thanks to all of you who responded to my quote - and I am ever so thankful for all the wonderful things this site has to offer - for me, for free. At this point in time, that is the only way I can view this site, and we’ll leave it at that. My point is not to complain about advertising as a means of income - I wholeheartedly support that! That is free market economy at its best. I was making a specific reference to those weird ads that show dancing ladies or other looped videos that have nothing to do with what is being advertised. For some reason they bug me to know end. That is just a personal opinion. However, I also believe that they do degrade somewhat the professional "look" of the site and even detract from the message that is being offered. It is in that vein that I wondered if they were even worth the revenue that they may generate.
I have put in my two cents - I promise I will never complain about this topic again. I truly love the Crash Course and I cannot overemphasize how much Chris’ work has contributed to my worldview. When I am able, I will be the first in line to subscribe, but at this point in time, it is not in our (thankfully) debt-free budget. Thanks to Chris and everyone else who so generously contributes to the free section. Your effort is truly appreciated!
Another piece of information today below to consider from "The Big Picture" w/r/t Stress Tests Data?
Nichoman
In particular, the 25-to-1 leverage is absurd, as is the worst case scenario of 9.5% unemployment — a number that is mere pissing distance from the current 8.9%.
Far be it from me to call the Stress tests a charade, a dupe, a con game or an exercise in manipulation. For that, I’ll leave it to others.
Like the Wall Street Journal, who noted this morning that the banks managed to browbeat the Fed into accepting much lower Capital needs than the tests should have required:
“The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining.Just how much were the actual required amounts haggled down? According to the WSJ, alot:In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits. . .
The Fed ultimately accepted some of the banks’ pleas, but rejected others. Shortly before the test results were unveiled Thursday, the capital shortfalls at some banks shrank, in some cases dramatically, according to people familiar with the matter.”
>
| Bank | Original Stress Test Capital Requirement | “Re-Negotiated” Amount |
| Bank of America’s | $50 billion | $33.9 billion |
| Wells Fargo | $17.3 billion | $13.7 billion |
| Fifth Third Bancorp | $2.6 billion | $1.1 billion |
| Citigroup | $35 billion | $5.5 billion |
That is a decrease in require capital of about half (48.33%). The Journal implied these four negotiated test results were typical of the 19 banks.
One last note: The Stress Tests were done using “Tier 1 common capital” as a yardstick. We can assume that was also pushed by the banks, rather than the expected metric “tangible common equity.” That measure would have required another $68 billion in capital.
The entire exercise is turning out to be one giant joke — and the laugh is on the taxpayers . . .
Farstriker,
I was making a specific reference to those weird ads that show dancing ladies or other looped videos that have nothing to do with what is being advertised. For some reason they bug me to know end.
I know the feeling. For what it’s worth, I’ve gotten largely free of such things by using the facilities the Firefox browser provides. Among other things, you can set the animated images to not animate, only run through the loop once, or "let 'er rip!". Also, you can tame the Flash ads in a few different ways. (Newer versions of Internet Explorer may have something similar.)
Hope this will scratch your itch until you can scratch together enough scratch to subscribe… (sorry 
)