I am adding FINVIZ.com to the blogroll. It is a really wonderful poor man's Bloomberg terminal. Check out the "Bubbles" feature, it is really a cool view.
Tomorrow is Friday night and I would like to open it up a bit. Get creative with song requests or some other new ideas for some fun. I am open to anything at all. Let it fly!
Are People Fuming About the Wrong Perfect Banking Quarter Issue?
Kid Dynamite had an expansive post which really layed out the particulars of just where the profit in the perfect quarters for the banks came from. For those who were not sure, it was only partially the kind of trading that gets everyone all riled up:
Big Bank Perfect Trading Quarters - The Real Story
The entire piece is nice original work. Mr. Dynamite combed through the 10Q reports and found some hard data all should be aware of. The big take away point:
Still, its disappointing that the analysis to come out thus far has focused on irrelevant demonstrations of how impossible it is to have 63 consecutive winning days if your probability of winning on each day is 50%. Or on how this means that the big boys must be "cheating" "fixing the game" or "frontrunning all of their orders." See, the probability of winning when your cost of funds is near zero and you can invest at positive interest rates at assets which are already being supported by the Government is probably closer to 100% than 50%. As for the complete misunderstanding of "frontrunning" and all that crap: people have no clue that only roughly TWENTY PERCENT of these earnings that we're talking about are coming from equities businesses! By focusing the anger on the wrong "causes," we guarantee that we won't change the patterns. People have a right to be angry about these earnings - but not because of banks manipulating equity markets - it's because the Fed is feeding them with free money and asset price support.Leave it to the poker player to get the real odds right. Quite a few bigger bloggers ran with the 50% of the time thing even though the channels of revenue for the banks were not random events like a coin flip.
In the comments section I opined:
KD,Later I added:
I hear you and I do get the point you are getting across. I think the issue here is that many people are internalizing the banks "edges" mostly in the trading end of things. I think many traders and average joe personal brokerage account users read many blogs and they see the HFT angle (and others) and get very mad. They know getting one winning day can seem hard most of the time so they fail to see where most of the real money is being made. I get that. Myself, and I imagine almost everyone else on earth, cannot borrow from the FED and lend back to them (love how this makes sense) for a spread so that does not resonate quite as hard. You are correct that the offloading of crap paper into the hole of FNM, FRE, FHA is the real outrage here.
The edge the banks have due to ALL the subsidies means they have the best hand going into the river card and also have redraws with 16 outs to a better hand. This is NOT a 50% coin flip but a freeroll!If you know poker I have to say this was pretty good! I know, I am humble.
I like this analogy!
Pragmatic Capitalism adds on this issue:
Everyone is making a big fuss over the fact that four U.S. banks went 61 days in a row without any losses. Well, the better question in this environment is how did any bank manage to not make a profit on all 61 days? These big banks are borrowing from the Fed for nothing and can effectively sell low risk bonds back to the government for a 3%+ annualized gain. This is a no-brainer when it comes to making money. If you’re a big bank you’re just laddering into a massive fixed income portfolio without almost no risk. The confusion or misrepresentations made by many regarding this “phenomenal performance” is that these firms are just sitting around “trading” the Nasdaq 100 like Joe Schmo does at home. That couldn’t be farther from the truth. These firms make most of their “trading” revenues by playing market maker or “trading” in these low risk fixed income markets. They’re essentially just pairing buyers and sellers and scraping a fee off inbeteween.Add in the dreaded "Mark Ups" in Level III assets (remember those) and the illusion is now complete. Now you can get angry about all the right things! Have at it.
Dripping With Irony
Tonight's visual fun comes courtesy of Time Magazine.
From 1999, consider:
The Committee to Save the World
Three men who were wrong about almost everything at the helms of almost unlimited power posts. How did that work out?
And from 2010:
The New Sheriffs of Wall Street
Three women who are mostly right about things in positions with next to zero power to do anything.
Let me know how this works out.
On a related note, we have Ratings Agency Reform! Are you excited? You should be, if you like the old way of doing things:
Senate measure would lower boom on credit-rating agenciesNot bad! This sounds like they finally get a key part of the whole debacle. So what's the new deal?:
WASHINGTON — The Senate took strong steps Thursday to fix a key cause of the recent financial crisis, approving measures to limit the ability of Wall Street firms to shop around for favorable ratings from now-discredited credit rating agencies.
Lawmakers approved two rating-agency amendments to a sweeping overhaul of financial regulation, despite objections from Senate Banking Committee Chairman Christopher Dodd , D- Conn.
Moody's Investors Service , Standard & Poor's and Fitch Ratings were all key players in the nation's financial meltdown, giving blue-chip ratings to complex mortgage-backed bonds that turned out to be junk.
A McClatchy investigation last October revealed how Moody's and its competitors sold out investors by trading their ratings for huge fees that came from rating complex deals.
Sen. Al Franken , D- Minn. , offered an amendment aimed at putting an end to this Wall Street behavior that passed on a bipartisan 64-35 vote.
"They shop around for their ratings. They select those agencies that tend to offer them the best ratings, and threaten to stay away from rating agencies that are too tough on them," Franken said.
His amendment would instruct the Securities and Exchange Commission to create a credit-rating board, composed mostly of investors, that would assign rating agencies to rate asset-backed securities such as bonds backed by mortgages.WTF????
And this is different how? No need to answer, the stocks of ratings agencies are moving up after hours. Nothing ever changes it seems. Remember I said we get what we deserve, and we do.
Daily Reminder That There is Nothing Holding Things Up But Hope
In any closed system, any number of random events can influence the movement of the whole. The markets dropped a bit near the close, and this presser was out right before that (via CR):
Deutsche Bank CEO Expresses Doubts About Greece
"Ob Griechenland über die Zeit wirklich in der Lage ist, diese Leistungskraft aufzubringen, das wage ich zu bezweifeln"
Deutsche Bank CEO Josef Ackermann, May 13, 2010
Translation: "Whether Greece - over time – is really in a position to raise its [economic] performance [to repay its debt], I doubt it"
But everything was fixed last Monday so what gives?
Money Is All Powerful
It is said that money equals power which is attractive. I would not know, I am broke as a joke. How many 50 plus year old men have you seen drive around in red sports cars with women 20 somethings in the passenger seat living the high life? Maybe a few. Here we have the ultimate in insult:
Girls Plan To Sit In The Audience Robe-Less While Jamie Dimon Gives His Graduation Speech
Protest or not, Jamie Dimon may see some naked chicks due to his money. Here I steal from my favorite Edgar Allen Poe story (and NO it is not "Gold Bug"! Get off it!):
"The thousand injuries of Fortunato I had borne as I best could, but when he ventured upon insult...."The Cask of Amontillado
In case anyone is silly, I was just working the Poe story in here, I am not threatening anyone. That I even have to write that should say something about today's climate.
Have a good night.