Monday, May 5, 2008

Oil Prices Are Approaching Critical Psychological Levels

Cyclones blast tiny Myanmar, and a volcano erupts spreading ash over a large part of a Chile town. Natural disasters really show us surface dwellers who is the boss. Scary stuff.

Countrywide Deteriorating Rapidly
Even though the "worst is behind us" in all things financial, CFC's mortgage portfolio has still undergone substantial degradation since January? Now who would have guessed that one? From Yahoo Finance:
Countrywide shares fall as analysts question deal price
Monday May 5, 6:00 pm ET
Countrywide shares fall as analysts predict say Bank of America may renegotiate buyout price
NEW YORK (AP) -- Shares of Countrywide Financial Corp. tumbled Monday as two analysts said Bank of America Corp.'s planned acquisition for the mortgage lender could be renegotiated to a lower price.
Countrywide shares fell 62 cents, or 10.4 percent, to $5.36 Monday. During the past year, shares have traded between $3.95 and $42.24.

Friedman, Billings, Ramsey & Co. analyst Paul Miller said in a research note Bank of America should walk away from its acquisition of Countrywide, or at very least reduce the purchase price, because of continued deterioration in the mortgage market. Miller pegged a new sale price at between $0 and $2 per share. He set his price target for Countrywide at $2.

CFC was a dirty company that will come to be seen as everything that was wrong with aggressive mortgage lending. I have always contended that BAC was not going to be happy with being strong armed by the FED into this deal. Now things are looking weak. I imagine the deal will indeed go through, but there is going to have to be some layoff of portfolio risk. Where is that going to come from? You guessed it! The FED and by extension, the taxpayers.

I am going to offer some advice to banking CEO's that they may want to write down:
BEWARE the FED. The FED's only interest in deal assisting is to provide a smoke and mirror show for wall street. The FED game is one of confidence. The FED does not have either the time or the ability to review in detail whether CFC has value for BAC, nor if Bear Stearns can be reasonably absorbed by JP Morgan. The FED just wants a headline. You, the buyer will be stuck with the residual nightmare. Now maybe the FED will help you out of the mess they got you into, but that balance sheet of the FED is looking ragged right about now. You have been warned!

More Hypocrisy From Washington and their Ilk
Presidential hopeful Hilary Clinton would like a gas tax holiday to help the "struggling consumer" ie potential voter get by the next few months. What a big heart. To pay for the tax break she has proposed big Oil companies pay the tax break from their record "windfall profits". Well there you go. At the same time that plenty of congress fools are trying to get tax breaks for home building companies so they can get the tax they did pay during housing's windfall run back, now we are supposed to grab oil revenues from Exxon and the like? Hypocrisy anyone? High home prices, record builder profits=GOOD, High oil prices, record refiner profits=BAD. You need both housing and energy, yes? So why the different treatment?

Capitalism is dying before our very eyes folks. And as the saying goes, it is dying to thunderous applause. Wall Street, especially the financials, have screwed up so badly that they are cheering on increased FED oversight and loss of independence. The mainstream media wants a recovery story so bad they are willing to allow poor decision making to go unchallenged. The elected official are so hungry for angry voters to vote for them, they are promising the world through money creation and bailouts to buy votes. Truly a sad state of affairs.

Oil Prices Are Approaching Critical Psychological Levels
Oil closed up again, going over $120 a barrel. This is starting to get pretty scary. My psychological test was at $90 a barrel. When crude went over that I remember thinking "oh man, this is going to cause a panic". Of course nothing happened. $100 came and went, and now $120 is staring at us. What would cause a panic? $200? $150?

If oil continues to be at the head of all the news casts and headlines, eventually confidence MUST be influenced. This is a strange time. Most economic indicators are solidly in areas where past panics and recessions have ensued, yet there is a visible attitude of "all is well" out there in financial land. Maybe it is just whistling past the graveyard. Maybe I have no idea what I am talking about. Both possibilities are about equally likely, but both cannot be right.

I am struck by how strong the desire is out there to be optimistic about various things. Oil is becoming a major threat to that mindset. With all the FED bailout plans and emergency lending tricks have created a new bubble, a bubble in sentiment? If oil at $120 means nothing bad in a macro sense, then you know folks are pretending hard. It is shaping up to be a LONG summer.

Have a good night.


watchtower said...

I was telling my wife this morning that I didn't know how people making minimum wage were handling these gasoline prices (not to mention escalating food cost).
There are plenty of good hard working folks around here making just that.
At what point does the straw break the camel's back? I think if gas crossed the $5 a gallon range then all bets would be off.
Just my opinion though.

Russ DoGG said...

CFC is like a (company)hooker with crabs the clap and genital warts.

Don't touch that at any price. Condoms can't protect you from all STD's.

Anonymous said...

Politicians always blame the greedy oil companies but our governments policies, assisted by the FED and a fiat based currency is the biggest cause of high oil prices. All roads lead to DC and the FED.