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Hungary's Spat with the IMF and EU Could Signal Another Crisis to Come

The biggest financial news story out of the Europe this summer is getting very little play in the U.S. mainstream press. However, it has the potential to torpedo the European Union (EU), and has disastrous implications for borrowing costs worldwide.

Basically, a miniature banking crisis is festering in Hungary. If it isn't contained, it could grow into a genuine crisis that infects the secondary lending markets around the world.

Hungary is supposed to have about $30 billion in domestic liquidity for exchange, the equivalent of about five months of capital in its national account.  But it won't be getting additional funds from the EU machine in Brussels, or the International Monetary Fund (IMF), anytime soon.

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Money Morning Mailbag: Big Banks Under Fire for Metals-Market Manipulation

A New York Post article in May reported that the Department of Justice had launched an investigation into the supposed metals-market manipulation by JPMorgan Chase & Co. (NYSE: JPM).

The article alleged that JPMorgan, which holds a number of derivatives in precious metals, attempted to lower the price of silver for its own profit. JPMorgan was quick to issue a response, stating there was no criminal or civil investigation into the company's silver trading practices.

But as word spread around the Web, readers' comments poured in with concerns over the news:

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Firms Bail on the EU to Avoid Bank Pay Regulations

The European Union (EU) today (Wednesday) approved one of the toughest worldwide bank pay regulations to date, hoping to rein in risk-taking and prevent another widespread financial crisis. However, in doing so, it increased the likelihood that financial firms would set up shop in other countries with less stringent regulations.

The European Parliament voted overwhelmingly for the restrictions, in a 625-28 approval at the Strasbourg, France meeting.

"The banks have had two years since the 2008 financial crisis to do this and have failed to act, so now we will do the job for them," Arlene McCarthy, a member of the European Parliament and the sponsor of the bill, said in an e-mailed statement to Bloomberg. "We want banks to focus not on their own pay and perks, but more on lending and support to economic recovery."

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EU Widens Scope of Bank Stress Tests to Include More Banks, Government Debt

Under pressure from investors to provide more transparency, European Union (EU) officials are widening the scope of banking stress tests to include more national and regional banks and to assess sovereign-debt risks when calculating how lenders would perform against shocks to the banking system.

The moves come as investors have been increasing pressure on the EU to provide complete transparency while conducting stress tests on the banks.

EU leaders have already agreed to publish stress test results for 26 banks next month - mainly big, cross-border institutions - to address concerns about the Eurozone's exposure to sovereign debt.

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Buy, Sell or Hold: Citigroup Inc. (NYSE: C) Is a Turnaround Play that Investors Can't Afford to Miss

Citigroup Inc. (NYSE: C) is truly a global bank.  With operations in more than 100 countries, it leads in consumer banking, credit cards, corporate lending, investment banking and brokerage.  But its forays into the U.S. mortgage market, and its huge exposure to the U.S. retail and corporate banking markets, created huge losses from which the company is still recovering.

Citi, guided by a prudent and savvy investment banker, Vikram Pandit, has embarked in one of the most ambitious and difficult transformations ever attempted by a financial institution.  It is shedding bad assets, cutting costs, raising capital and has segregated the impaired assets and businesses that Citi would like to dispose into a so-called "bad bank," a subsidiary by the name of Citi Holdings.  The success of the restructuring will depend on both Citigroup's execution and on the underlying strength of the U.S. and global economies.

But therein lies the huge upside.  As I have written before, there are few investment opportunities more profitable than the restructuring and turnaround of a business.  And given the huge size of Citi's balance sheet and the fact that banks are pro-cyclical to the economies in which they operate, the potential gains are extremely large.

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Taipan Daily: Could Continent-Wide Bank Runs Collapse the Eurozone?

The eurozone's woes are giving us a preview of what could eventually happen in the United States (but not before Europe is engulfed first). As fears of sovereign debt crisis mount, the debt "contagion" spreads. It is not just Greece that has investors afraid, but Portugal. And Spain... and Italy... and so on.

The problem is classic, and long ago highlighted by Austrian economics. Building up a lot of debt, to make a slightly crass analogy, is like putting on a bunch of weight. It's hard work getting the debt off - the same as it is taking weight off.

The way to lose weight is to eat right and exercise. The way to get out of debt is to cut back on spending and increase productivity.

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Buy, Sell or Hold: Bank of America Corp. Could Offer Investors a "Double Play"

On October 6, 2008, I recommended readers buy shares of Bank of America Corp. (NYSE: BAC)

Bank of America at the time had just agreed to acquire Merrill Lynch and Co. The strategy I recommended called for taking a prudent position in the bank by buying increasing amounts of shares on any market pullbacks.

The strategy appeared to go as planned at the very beginning as the shares dropped in value as predicted, improving the average buying price.  But Bank of America subsequently revealed large amounts of troubled assets that had not been evident in prior releases.  The company's president and chairman lost his job as a result, and the stock continued to drop.  Today, after a very strong recovery BofA stock is still trading some 30% below our initial recommended entry price.  So, depending on how one executed the entry strategy, one would be some 10-15% down even today.

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Heavy-Handed Politics Could Boost Bank Reform, Stock Prices and the Economy

Defenders of Goldman Sachs Group Inc. (NYSE: GS) say the civil fraud charges the U.S. Securities and Exchange Commission has levied against the investment-banking giant are without foundation, and are politically timed to push President Barack Obama's bank-reform agenda.

In his Cooper Union speech to Wall Street and the American public yesterday (Thursday), President Obama took pointed aim at opponents of his bank-reform agenda by stating: "Unless your products depend on bilking people, there's little to fear from these reforms." 

Whether or not the timing of the Goldman Sachs fraud case was politically motivated, or whether or not President Obama was referring to Goldman with his "bilking" comment, one thing is for sure: The president and his administration are taking the reform fight to the Street.

At stake in this fight is the future of our capital markets, the health of the U.S. economy and the direction of the U.S. stock market.

To see how the Obama bank-reform push could perpetuate the bull market, please read on...

To see how the Obama bank-reform push could perpetuate the bull market, please read on...

Bankster Gangsters: Global Commodities Grab Causes Major Bank Profits to Soar

Major bank profits are up. Way up.

Goldman Sachs Group Inc. (NYSE: GS) just reported that its first-quarter earnings nearly doubled to $3.46 billion, the investment-banking giant's second-most-profitable quarter since going public a decade ago.

JPMorgan Chase & Co. (NYSE: JPM) recently said its first-quarter earnings came in at $3.3 billion, up 55% from a year ago.

And Bank of America Corp. (NYSE: BAC) reported that its earnings for the first three months of the year rang in at $2.83 billion.

For all three of these banking giants, the first-quarter results blew past analyst expectations. Their stock prices? Approaching levels not seen since the start of the financial crisis. In fact, JPMorgan's stock is within 10% of its five-year high.

Major bank profits are zooming - despite the fact that U.S. consumers are struggling to repay loans.

So how are these guys pulling this off? Well, if you dig, you'll find that the bulk of major bank profits are coming from stronger trading revenue and other segments that are enabling the largest banks to overcome weakness in the lending area, which decades ago was the banking sector's bread-and-butter business.

If you dig deeper still, as I've done, you unearth one of the key reasons these banking behemoths are booking such massive profits. They've been moving enormous amounts of capital into one area of the market.

I'm talking about commodities.

For an inside look at how banks can reap 15-fold returns on their physical-commodities stakes, please read on...

For an inside look at how banks can reap 15-fold returns on their physical-commodities stakes, please read on...

Goldman's First-Quarter Profit Doubles to $3.46 Billion, Even as its Fraud Probe Takes on an International Twist

Investment-banking giant Goldman Sachs Group Inc. (NYSE: GS) - the target of a civil fraud case filed by U.S. securities regulators - yesterday reported that its first-quarter earnings nearly doubled, even as the probe against it took on an international twist.

The New York-based Goldman said it earned reported first quarter earnings of $3.46 billion today (Tuesday), or $5.59 a share, an increase of 91% from earnings of $1.66 billion, or $3.39 a share, for the same period a year ago. The earnings report came just days after the U.S. Securities and Exchange Commission filed a civil fraud case against the Wall Street financial heavyweight.

Goldman's earnings beat analysts' average estimates of $4.16 a share. Its investment bank income revenue rose to $12.78 billion, and its fixed-income, currency and commodities trading generated net revenue of $7.39 billion.

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Regional Banks Are Bouncing Back – And You Can Profit

Our contrarian thesis in regional bank stocks has played out well in the past few weeks, as other investors are beginning to see that these companies are under-appreciated, under-priced, over-hated and over-shorted. 

The iShares Regional Banks (NYSE: IAT) ripped higher by more than 8% in the past week alone.  And I still think that many of these stocks have a long way to go, since fair value in some cases is 2x, 3x, and even 5x higher than current levels.

Super-regional southern bank Regions Financial Corp. (NYSE: RF), for instance, traded as high as $32.50 in 2007, then fell as low as $2.27 in 2009 - a decline of 93% in just two years. RF's recovery has gotten off to a much slower start than peers like U.S. Bancorp (NYSE: USB) because it made a lot more iffy loans along the Gulf coast. But over the past six months, it has become clear that super-low interest rates will allow RF to build enough reserve against losses. Additionally, other distressed-debt firms are stepping up to take problem mortgages off their hands. 

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How to Stop Greedy Banks From Killing U.S. Capitalism

A white paper on bank reform delivered to Congress and regulators last week by the Association of Mortgage Investors - the powerful lobbying group that represents huge institutional investors - warns that if the securitization market isn't radically reformed "it will be difficult if not impossible for capital market investors to return to funding economic activity."

What the report doesn't say is that banks - standing in the way of bank reform - don't want a simplified, standardized, and transparent securitization market, because that would revitalize free-market disciplines and undermine the control they exercise over the credit markets.

Right now, the stock market is discounting news about tight credit conditions. But analysts worry about an increasing disconnect between rallying stock prices and the hoped-for rebounds in consumer-driven growth and the U.S. housing market - both of which are struggling with a lack of access to credit. This disconnect is fostering fears of a stock-market correction.

Investors need to understand exactly what's at stake here. And they need to know how to protect themselves and - even more important - how to profit from the volatile-but-powerful capital waves that will result from this fundamental battle over our future.

To understand the escalating risk – and strategies needed to protect the free markets – please read on...

Three Ways to Profit From an Insurance-Sector Rebound

Regional banks, investment bankers and insurance companies will be key winners in the next phase of an advance that will be characterized by very lukewarm participation by the average private investor.

Most investors will be surprised by this turnabout - and especially by the insurance-sector rebound.

Let me show you three ways to profit.

To find out what companies will profit from this new trend, read on...

Lehman Execs Have No One to Blame but Themselves

The U.S. bankruptcy-court examiner investigating the collapse of Lehman Brothers Holdings Inc. issued a stinging report Friday that accused senior executives of freewheeling accounting practices that led to the largest bankruptcy in U.S. history and sparked the worst financial crisis since the Great Depression.

The 2200-page report, authored by Anton Valukas, chairman of the Chicago-based law firm Jenner & Block LLP, also excoriated Wall Street investment banks, including JPMorgan Chase & Co. (NYSE: JPM) and Citigroup Inc. (NYSE: C) for finally pushing Lehman over the edge by demanding more collateral and changing guarantee agreements, Bloomberg News reported.

But the report says ultimate responsibility for its collapse can be attributed to a wrong-headed business model that rewarded excessive risk and encouraged leverage - problems that were brought to a head by the investment banks and government agencies.

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New Banking Regulations … Same Old Story

U.S. banks, drunk with greed, drove the nation's economy to the brink of financial Armageddon.

To save U.S. banks from losing their license to dangle the nation's economy over a cliff, the U.S. Federal Reserve and the country's elected elite threw them a bailout party and gifted them with the accounting- world's version of "Transformers. "

Unfortunately, new banking regulations aimed at solving these problems are little more than the same old song and dance that forced the bailout - and stuck U.S. taxpayers with a multi-trillion-dollar tab.

To see how reformers have failed to fix the banking system,

please read on...