Monday, April 21, 2008

You Know The Worst is Behind us When...

Still good weather up here. Going to be close to 80 degrees on Wednesday. Figures that I leave for Jamaica next Monday!

Bank of America Reports They are Screwed
The BAC earnings report was a surprise to me in that they posted a profit at all. Nice job guys!
AP
Bank of America's 1Q profit shrinks amid economic worries
Monday April 21, 4:24 pm ET By Ieva M. Augstums, AP Business Writer
Bank of America's profit falls 77 percent in first quarter, economic worries loom
CHARLOTTE, N.C. (AP) -- If the 77 percent drop in Bank of America's first-quarter earnings is any indication, the economy may have a long way to go before it works out the problems that began with the subprime mortgage crisis.
--So, an admission that subprime is not contained?
The nation's largest retail bank on Monday quintupled the money it set aside for loans that go sour, and hinted that consumer weakness and the housing slump means that things will not get better for it, or for the economy, for some time.
"I think first it would be too early to strike up the band and sing happy days are here again," Chief Executive Ken Lewis said on a conference call with analysts during which he said the situation in the capital markets was particularly tough in March.

--Ken Lewis? That name sounds alot like Ken Lay!
"It still remains unclear what ramifications the housing downturn, higher energy costs and subprime crisis will ultimately have and how long the downturn will persist," Chief Financial Officer Joe Price said on a conference call with analysts.
--Hey Joe price, I can answer your open question; the housing bust, higher energy costs,and continuing PRIME mortgage crisis is going to be bad for Bank of America. Your Welcome.

Going over the conference call, I give full credit to the BAC team. They were pretty blunt about future prospects. They were very clear about their precarious situation should the credit issues continue. There was no attempt to sugar coat or play the "its the bottom of the ninth inning" game like Mozillo used to play.

If the market chooses to ignore a clear and stark presentation of the troubles big banks are facing, that is their problem. I mean it is our problem as the taxpayer when we will have to make such fools whole again after they lose their butts!

You Know The Worst is Behind us When...
I thought as a change of pace I might try and play the whole "worst is over" game and try and set up a list of reasons or markers that would confirm the worst is over. Like a David Letterman Top Ten Reasons List, here is a collection of things one has to think is either happening right this second, or very soon for the worst to be over:
  • Home Price declines over
  • Unemployment going back down
  • Consumers get access to some store of free and easy cash
  • Foreclosure numbers going down
  • Lenders loosen qualification guidelines for mortgages
  • Commercial real estate will not crack
  • Consumer debt defaults creep into credit card space

There is no proof at all any of the above is occurring right this minute. As for the possibility that any of the list items will occur anytime soon, it does not seem likely.

To be in the "Hope" camp right now takes pure self delusion and a bit of pure effort to ignore the current data. Take a look again at the list above and compare it with the headlines. Using the BAC, WB, WFC and C earnings results and conference calls, can any of the listed items be seriously considered as happening soon?

Now I know the market is a forward looking magical carpet ride that is never wrong, but if we are talking six months to a year out the market is still wrong at this point. A 5 year (minimum) bubble build-up will not be done and over with in 8-10 months. Something has to give, and soon.

Have a good night.

4 comments:

Anonymous said...

I don't know about equities but it looks like the bond market may finally be pricing in a little inflation, which is going to lead to higher interest rates and and even bigger drag on housing and corporate profits except large multinational and ones which will benefit from a falling dollar. Interesting today in that bond yields were rising with the dollar falling, it usually doesn't work that way although it may just be a temporary event.

Kevin

watchtower said...

My family and I drove to the mall to eat at the Italian restaurant Saturday night and I noticed that there were a lot vacancies in there. What is interesting is that someone is building another shopping plaza across the street from the current one. I'm not sure if I understand the logic of building another plaza when you can't even keep the current one close to capacity but I guess they know what they are doing.

About the banks...I wouldn't worry too much about it, after all it's like the Monkees say,

"Another pleasant valley Sunday
Charcoal burning everywhere
Rows of houses that are all the same
And no one seems to care"

More bread! More circuses!

watchtower said...

If I could add one more thing, I'm trying not to be a "fearmonger" but I have seen a change at the mall. Saturday night it looked like a ghost town in there. Keep in mind that where I live there is practically nothing to do except eat and go to the mall. What I'm saying is that I am seeing a change here at the local level. I did not see this change earlier in the year so much.
With our gasoline prices rising at a considerable rate here lately, maybe that is what is waking people up (not to mention food prices).
I am old enough to remember what a recession is and it is not fun.
I was in high school and if you didn't know someone, you had a HARD time finding a job in even the fast food industry.
I don't know what else to say, except it looks like even here in the heartland it is starting to slow down.

DANGER WILL ROBINSON, DANGER

Anonymous said...

WT,

You're not he only one that is taking notice to the decline. Gas prices are surging here in FL. Look like $4/gal or more by summers end.

G