Research, Consumer Finance, Commercial Banks, Banking	11 Nov 2008 12:00 AM
Another contrarian name brand trade bears fruit by Reggie Middleton	Comment (25)

When I first introduced my American Express research in June, I expected (and was not disappointed) many to tug the name brand line in saying that Amex was the cream of the crop, they deal only with high end consumers, large business accounts, yada yada yada. Name brand marketing, it seems, fools many investors.

If one were to peruse the reseach in the Amex link above, you will see where practically each and every admonition has come to fruitition. Hopefully, this in combination with the events of the recent past should convince readers that hard core fundamental and forensic research trumps name branding every time - all the time. As with my Goldman Sachs research, Morgan Stanley research, and many other name brands, I was (to my knowledge) the only one bearish on these companies at the beginning of this year where the share prices were still high enough to profitably short or get out of (if you have a "long only" mandate).

From Bloomberg:

American Express Co. won Federal Reserve approval to convert to a commercial bank, gaining access to funds as credit losses build and sales of asset-backed bonds plummet.

The Fed waived a 30-day waiting period on the application ``in light of the unusual and exigent circumstances affecting the financial markets,'' according to a statement released today in Washington. Chairman Ben S. Bernanke and his colleagues unanimously voted for the action.

Credit-card holders failed to repay loans in the third quarter at almost twice the rate of a year earlier, New York- based American Express said last month. With defaults rising along with the unemployment rate, October marked the first month since 1993 that card companies were unable to sell bonds backed by customer payments.

``That business has totally dried up,'' said Frederic Dickson, who helps oversee about $20 billion as chief market strategist at D.A. Davidson & Co. in Lake Oswego, Oregon. ``If I were a shareholder, it wouldn't send a very warm and fuzzy message to me,'' he said today in a phone interview.

American Express, the largest U.S. credit-card company by purchases, joins former investment banks Goldman Sachs Group Inc. and Morgan Stanley, which were allowed by the Fed in September to become commercial banks.

Global Macro, Banking, Asset Securitization Crisis	3 Nov 2008 12:00 AM
Economic contractions AND rising prices, dare Reggie utter the "I" word - Enter a global phenomenon by Reggie Middleton	Comment (16)

This is part 29 of Reggie Middleton on the Asset Securitization Crisis. If you are new to my blog there is a sidebar below with a full roadmap to the crisis. Before we go on with this installment let's get a firming of the defintion of the term "inflation" with a little help from Wikipedia:

Inflation can be considered a general rise in the level of prices. For increases in the money supply, see the description below. I, being the simpleton that I am, like to consider it the effective rise in prices. For instance, nominal prices can go up 10% but if buying power rises 15%, we actually have a drop in effective, real prices. The exact opposite is currently happening in housing right now. Nominal housing prices are dropping through the floor. Unfortunately, they are not dropping with the same intensity and velocity that credit terms are tightening, crediit availability is shrinking, and the labor force is contracting. Thus, housing prices from a simpleton's perspective (such as mine) are at the very best, remaining level and probably from a more realistic perspective, increasing. This undercuts the argument that one must "stabilize" housing prices in order to stem the ongoing financial malaise. Reggie Middleton posits that the housing market is attempting to stabilize after an unprecedented and fundamentally unjustified meteoric run up in prices. The deflationary pricing IS the markets attempt at stablization and anything that would effect it otherwise will produce de-stabilizing results. You know what grandma use to say, "What goes up (too far), must come down". If our regulators want to end the malaise (and to do so prematurely will also lead to destabilization since the system must clean itself out) they should be working on employment and real productivity - and not the artificial elevation of already inflated and glutted housing stock in an effort to save financial institutions that failed to use the risk management prudence that my 7 year old exercises in an average game of Monopoly.