The Next Lehman: Why 71% of the Big Money Fears the Black Swan
Five years have passed since the financial crisis brought the world to its knees.
Gone are likes of Lehman Brothers and Bear Stearns among others who were driven into ruin by the epic collapse of the housing bubble.
In the aftermath, life appears– on the surface at least– to be returning to some form of normal. Normal, that is, if you happen to have a job.
It may be anemic, but there is real growth. And the truth is even housing may have bottomed.
Admittedly, it's not exactly sunny, but it's no where near as dark as it was in 2008 either.
Or is it?….
According to a recent survey by State Street Global Advisors, there's still plenty to worry about-especially in the sordid world of finance.
In fact, the world's 3rd biggest money manager said 71% of investors worldwide are afraid the next Lehman could strike within the next twelve months.
Keep in mind, we're not talking about small retail investors here. Not at all.
We're talking about some of the largest and best-informed, most sophisticated pension funds, private banks, and asset managers in the world and the wide majority of them think a " black-swan" type event could strike before this time next year.
A Black Swan Rerun
What do they think could be the trigger for this event?
Their biggest fears revolve around the next global recession, a potential euro break-up, or another episode of bank insolvency.
Other concerns cited were a slowing Chinese economy, an oil price shock, or the risks of asset bubbles from unending stimulus. Thanks to ongoing debasement wars, the asset class they feel holds the biggest risk at the moment is the currency markets.
These elite asset managers are not alone their fears either .
Here's What Really Happened to Citigroup's (NYSE:C) Vikram Pandit
The only big deal about Vikram Pandit "stepping down" as Citigroup Inc. (NYSE:C) CEO and his removal from the board is that it didn't happen sooner.
The truth is he didn't leave voluntarily. He was given an ultimatum by the "new" board of directors: resign or be fired.
Poor old Vikram. This was a setup from the start.
He ended up at Citigroup when the mega-bank bought his Old Lane hedge fund for more than $800 million.
Poor old Vik pocketed about $165 million in the sale and continued to run the fund, some say into the ground, until Citi shut it down.
In 2007, my favorite Goldman Sachs Group Inc. (NYSE:GS) ex-CEO Robert Rubin (who after pandering to all the big banks in the country as Secretary of the Treasury in Bill Clinton's administration, then pimped himself to Citigroup after allowing Citibank to merge with Sandy Weill's Travelers insurance conglomerate (that owned Salomon Smith Barney) in an illegal deal that required Congress to kill prudent banking laws (Glass-Steagall) to make it legal actually handpicked Vikram to run the bank.
Super rich-boy Bob Rubin, of course, had nothing to do with running Citibank after making it the mega-bank it became as a result of the merger; he was merely a special consultant to the board, or some B.S. like that.
But here's what really happened…
Why Citigroup CEO Vikram Pandit Was Forced Out (NYSE: C)
Citigroup CEO Vikram Pandit announced today (Tuesday) he has made an abrupt departure from the troubled bank, the day after it reported third-quarter earnings that beat estimates.
The story became more interesting as the day wore on after it was announced he was forced out by the board.
The theories as to why Pandit would be asked to leave got juicier as the Citigroup Inc. (NYSE: C) CEO's exit was paired with the co-resignation of Citi COO John Havens, a long-time associate of Pandit.
Mike Holland, chairman of New York-based Holland & Co, which oversees more than $4 billion of assets told Reuters, "It's not a shock that [Pandit] is no longer there, but the surprise is this is all happening very quickly. Why is he leaving so quickly? I'm not a Citi shareholder, but if I were I'd be disappointed that Havens is gone, in some ways more than Pandit."
The timing hinted the two exits were not simply a natural transition, but instead related to some skeletons lurking in the bank's boardroom.
Just as quick and startling was the immediate removal of Pandit's name and photo from Citigroup's Website.
The swift announcement that Michael Corbat, previously chief executive for Europe, Middle East and Africa, would replace Pandit as Citi's CEO and board member also raised some eyebrows.
So what could've caused this sudden changing of the guard?
JPMorgan Chase (NYSE: JPM) Earnings: 34% Profit Gain Thanks to this Business
JPM, the largest U.S. bank by assets, earned a record $5.7 billion in the quarter, 34% higher than the $4.3 billion or $1.02 reported for the same period a year ago. The strong revenue results also easily topped forecasts.
The impressive numbers were thanks to the bank's robust and growing mortgage and credit business. Mortgage volume was up 29%, and core loan growth grew 10%.
The notable uptick in both segments bodes well for the housing market and U.S. economy, suggesting the real estate market is staging a recovery and consumers are getting more comfortable spending.
"Importantly, we believe the housing market has turned the corner," CEO Jamie Dimon said in a statement.
As a result of improved mortgage and credit conditions, JPM reduced its reserves (cushion) for loan losses by $900 million.
"All in, we think it's a good quarter for JP Morgan Chase, and other banks should see some of the same benefits," Glenn Schoor, an analyst at Nomura Securities told the Financial Times.
Here's a closer look into the third quarter.
JPM Earnings: London Whale Trade Still a Big Deal
Still under scrutiny from the dicey derivative bets made in the bank's London Chief Investment Office, the bank's losses from the failed hedge strategy grew in the third quarter by $449 million.
Since the trade, dubbed the London Whale, was uncovered in the second quarter, losses have cost JPM some $6 billion. Under the worst case scenario, the bank said the losses could widen by $1.7 billion.
CEO Dimon said in a conference call that the bank doesn't anticipate further losses of that enormity and added that the bank has appreciatively reduced the scope of risks in the underlying portfolio.
Anxious to put the matter to rest and behind him, Dimon called renewed focus on the losses a "sideshow" in an otherwise stellar quarter.
"Hopefully we're not going to be talking about it anymore," he said in a statement.
To continue reading, please click here…
Stock Market Today: Banks Net Record Profits, But Stocks Slip
The stock market today is trying to end what has been a negative week on a positive note.
Markets have traded down all week on global economic concerns and today are being held back by JPMorgan Chase & Co. (NYSE: JPM) and Wells Fargo & Co. (NYSE: WFC) even though the two financial giants posted record earnings.
Here's what's bringing those stocks down and why consumer sentiment is at a five-year high:
- Banks slide amid record earnings- JPMorgan and Wells Fargo each reported record quarterly profits but neither stock is surging on the results. Wells reported third-quarter net income of $4.94 billion, or 88 cents per share, up from $4.06 billion, or 72 cents a year ago and JPMorgan announced third-quarter earnings of 5.71 billion, or $1.40 a share, up from $4.26 billion, or $1.02 a share a year earlier. The record results were spurred by homeowners taking advantage of lower interest rates in order to refinance their mortgages. "The one big positive is clearly mortgage origination revenues," Richard Staite, an analyst at Atlantic Equities LLP in London, told Bloomberg News in an interview before results were announced. "Rates will remain at this level or potentially drop further and ultimately that will drive a recovery in the housing market."
JPMorgan (NYSE: JPM) Earnings Preview: Five Things to Watch
The JPMorgan Chase (NYSE: JPM) earnings report due tomorrow (Friday) gives CEO Jamie Dimon a chance to put the huge trading losses from the "London Whale" behind him.
The "London Whale" trades are the are hedged strategy that went bad and cost the bank nearly $6 billion. JPM took the majority of the hit in the second quarter.
JPM stock tumbled in the weeks that followed after details were uncovered and trading losses swelled. Since then, shares have staged a notable recovery rising from $34.59 on July 11 to the recent price of $42.25.
Now JPM earnings have a chance to shake off the scandal and impress investors.
Expectations have grown for Friday's numbers, with the consensus estimate raised from $1.16 per share to projections of $1.21 per share. Estimates have increased in the last three months from $1.04.
Analysts are predicting earnings of $4.74 per share for the fiscal year, with revenue for the year to come in at $97.76 billion.
The fresh forecasts are 18.6% better from the same quarter a year ago when JPM posted earnings of $1.02 per share.
To continue reading, please click here…
Who Says Money Can't Buy You Love? Not the Banksters
Remember Tim Pawlenty, the former two-time Governor of Minnesota?
Remember when he made a bid for the Presidency this go-round, but bowed out after a poor showing in Iowa?
Remember that during his brief run he acted like he was a Wall Street critic, admonishing the Street to "get its snout out of the trough?" Remember that?
Remember that T.P. became national co-chair of Republican presidential candidate Mitt Romney's run for the roses?
Do you remember that T.P. was a top contender for the V.P. slot that eventually went to Paul Ryan?
Don't worry if you don't remember any of that stuff about T.P. because none of his past politics matter (he's a Republican don't you know?) now that he has a new job.
Oh yeah, with less than 45 days before his buddy Mitt faces off against a resurgent incumbent named Obama – you probably don't remember because it just happened a few days ago – T.P. quit the campaign for a new gig.
You can't blame him. Everybody loves money, and the lure of a reportedly near $2 million salary is mighty enticing. So he took the job.
Guess what he's up to now?
Banks Are Setting Us Up Again, This Time The Fall Could Be $2.6 Trillion or More
Just five years after they played a primary role in engineering the worst financial crisis since the Great Depression, America's big banks are quietly setting the world up to do it all over again.
Only this go-round the costs will be far higher and the damage much worse. This time the fall could be $2.6 trillion or more.
Let me explain.
It started back in the mid-2000s. Wall Street was busy packaging low-rated subprime loans into securitized offerings that were somehow worth more than the sum of their parts.
In reality, what they were doing was little more than laundering toxic debt while raking in obscene profits along the way.
You know the rest of the story as well as I do. Not long after, the stuff hit the proverbial fan and it was not evenly distributed.
Well here we go again…
Both JPMorgan and Bank of America are quietly marketing a new scheme designed to "transform" sub-par assets into quality holdings that will serve as treasury-quality collateral needed to meet the new capital requirements that come into effect in 2013 as part of the Dodd-Frank Act.
Wall Street Is Up to Its Old Tricks
This may sound complicated but it's not. It works like this.
When you trade on margin like these mega-institutions do, you are required to post collateral to offset counterparty risk. That way, if the trade busts and you are unable to deliver on your side of the trade, there is recourse.
If you have a mortgage or a car loan, you know what I'm talking about. Your lender can seize both if you default or otherwise fail to meet your payment obligations.
Trading collateral works the same way. In years past, trading collateral has most commonly taken the form of U.S. treasuries (or other securities) that meet stringent requirements with regard to ratings, liquidity, value and pricing.
However, since the financial crisis began, treasuries are in increasingly short supply. Investors and traders who have preferred safety over return are hoarding them.
Consequently, traders like JPMorgan's London-based "whale," Bruno Iksil, who want to write increasingly bigger, more sophisticated trades are in bind. They find themselves unable to trade because many times the clients they represent can't post the collateral needed to "gun" the trades.
As you might imagine, Wall Street doesn't like that because it means billions in profits and bonuses get lost as trading volumes drop.
So they've gone to the unregulated woodshed again and come up with yet more financial hocus pocus designed to circumvent rules in the name of profits.
At the same time, they're once again hiding the true extent of the risks they are taking – and that's the outrageous part.
These same banks that have already driven the world to the brink of financial oblivion and been bailed out once may need another $2.6 trillion dollars or more to backstop the unregulated $648 trillion derivatives playground they've created for themselves.
And don't think for a minute that your money isn't at risk either…
Rising Bank Fees Pinching Customers to Fatten Bottom Lines
Stricter rules governing how much banks can charge for overdraft and credit card swipe fees have eaten into the profits of big banks, but they have an answer: raise the bank fees their customers pay.
Banks blame increased regulations that limit fees and other charges for wiping out an estimated $12 billion in yearly income. Now it costs banks between $200 and $300 a year to maintain a retail checking account, but they only take in about $85 to $115 in fees per account per year.
In fact, more than half of all checking accounts are unprofitable for banks, according to a study released in 2010 by consulting group Marsh & McLennan Cos. Inc. (NYSE: MMC).
Banks also have lost money on cash they're holding due to few investing or lending options, depriving them of as much as $8 billion in income.
Banks have had to become more creative in finding ways to compensate for their lost income. Free checking is increasingly more difficult to find, and a slew of other bank fees have been added.
"Banks are closely examining what costs they can eliminate and where they might be able to charge, and what the market will bear and not drive customers away," Beth Robertson, director of payments research for Javelin Strategy & Research in California told Consumer Reports.
Avoiding these myriad new bank fees is difficult, if not impossible, for most consumers.
Fees are "rising across the board," Richard Barrington of MoneyRates.com told Marketplace Economy. "And the least you'll need to keep in your account to get free checking has jumped, on average, by more than 800 bucks."
Barrington said that in addition to the growing bank fees, the average balance requirement has jumped to $4,400 — far more than most people keep in their checking accounts.
Five Ways to Consistently Bank Gains and Manage Winning Trades
Most investors become so focused on their losers that they have no idea how their winners are performing…until they become losers and start paying attention to them.
As far as I am concerned, that's bass-ackward.
What they should be doing is figuring out how to harvest their winners, especially now that the six-week rally we've enjoyed appears to be losing steam.
If you've been raised under the old axiom of "cut your losses and let your winners run," this may seem counterintuitive.
But, if you really want to succeed in today's markets, you have to consistently sell your winners. That way, you continually cycle your capital into brand new opportunities.
It's not much different than what regularly happens in the produce department at the grocery store. Places like Safeway Inc. (NYSE: SWY) always replenish the tomatoes and the like to keep them fresh.
You should do the same with the "inventory" in your portfolio because if you let your stocks sit on the shelf too long, they'll eventually go bad – just like fruit that's past its expiration date.
Here are some of my favorite tactics to help you lock in profits instead of letting irrational behavior and emotion take over when the markets suddenly have a mind of their own.
1.) Recognize every day is a new day
This one is very simple. If the original reasons why you bought something are no longer true, ditch it – win, lose or draw.
You can't risk falling in love with your assets any more than you can let them rust – yet that's exactly what most investors do. They buy something then assume that it will somehow plod along on autopilot.
This is a variation of what I call the "greater fool theory" as in some greater fool is going to come along at a yet-to-be-determined point in the future and pay you more for a given investment than you paid to buy it.
I can't imagine what these folks are thinking.
Today, more than ever, you've got to continually re-evaluate your investments to ensure that they stand on their own merits and are worth the risk of continued ownership.