November 25, 2020

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latest-analysis

latest-analysis (22)

JP Morgan bought Bear Stearns for $230 something million, about 7%
of its closing price Friday, and about 2% of what it was trading for 2
weeks ago. On top of it, this was an all stock deal with the government
funding more tha 100% of it (the Fed will be financing $30 billion of
non-liquid BSC securities, the back stop that I said would happen).

To
put this into perspective (I'm a NYer, so I am quite familiar with the
landscape), the BSC headquarters is worth at LEAST $1 to $2 billion.
Between the clearing infrastructure, asset management, structured
product assets and real estate, there is at least a $1.5 billion
immediate gain here. How much that will be offset by litigation risk is
an unknown. The CEO got up on CNBC and clearly told the world that BSC
had no problems. Lawyers must be getting a boners in real time.

I
will admit to a big mistake that I made. I hedged my gains at $35
Friday to lock in the profts. Those calls are literally worthless now.
I shouldn't be complaining since my gains as of this post are averaging
over 800% on this trade, it was the largest position in my portfolio,
and that was after taking profits last week. Just thought I would be
honest and let everyone know that I am far from perfect, thus as I have
said so often, no one should be taking anything I say as investment
advice.

Now, as for Monday's trading.... I am not a trader, and
I believe in medium to long term investment horizons, but there is a
LOT of opportunity to be had here. Lehman is probably going to get a
drubbing. Morgan Stanley is being overlooked by the Street. Citibank
will get no love. I already covered on WaMu, with all of the
opportunities abound, I don't believe that I should be trying to dabble
below $10 when I have ridden shares down from last year in the $30's.

I
fear Goldman will be seeing a lot of devaluation. Don't forget the
companies that we have covered earlier in the blog. There financing is
damn near gone. GGP, the builders, etc.

The Fed is working hard
to help the country. That is undeniable. They have cut rates, extended
financing directly to non-banks, cut more rates - but, and as I
thought, the markets are ignoring these actions and driving financials
down and commodities up.

Lehmans asset make up will make it a
target in US trading. I will probably attempt to expand my position and
will be willing to pay premiums. My small position is quite profitable
already. I will attempt to expand the financials on my list in
aggregate, and MS (who is my 2nd largest position in the financials)
will be expanded as well.

The BSC employess own 1/3 of the shares outstanding, and most of them
have lost at least 98% of thier company stock wealth. Would you approve
the deal if you were an employee or try and shop it around? Just a
question to ponder.

The US consumer is indebted! Truly indebted, to the point that most of the income derived from their labor goes to pay lender fees and interest, not support their families (a version of this deck is freely available at Veritaseum Research. We need to go through this exercise to dispel and debunk he malarkey I’ve heard in the financial press that once the COVID-19 infections tamp down we will be back to bubble’s as usual. That will NOT happen. We (in the US, EU and China and greater Asia) were running on borrowed time. COVID-19 was simply the pin prick that popped the bubble that no one wanted to admit central banks were blowing.

Let’s take this by the numbers, shall we?

As can be seen above, a single head of a 4 member household earning the US median wage has no chance of meeting his/her family’s needs, and often resorts to high priced debt (i.e. credit cards) to fill the deficit, which simple exacerbates the problem over time.

When considering a two-wage earner family (i.e. husband and wife), the situation is really not much better.

True inflation (that is the inflation in the prices that real people pay for the real things that they really consume – energy, food, clothing, housing, etc.) has actually been rampant. It easily outpaces earnings growth. When the cost of living life surpasses your earnings, what do you do to fill the deficit? You borrow! As should be obvious, this is not sustainable!

What does that borrowing look like?

For those of you who thought that 2007 represented the biggest bubble in the US since the Great Depression, you haven’t been paying attention.

That bubble is still being blown and is getting bigger as well.

Meanwhile, even when things looked like they were doing well and the stock market was reaching all-time highs, delinquencies were increasing – and this was during so-called good times…

Now, there’s a lot more to this debt story than meets the eye, but we have limited time and space, so let’s get straight to the point…

These numbers were put together last month, before the global economic shutdown, thus you can consider them all highly optimistic!

Yes, the Ye

Yes, the economy started slumping, debt per capita started increasing, and defaults started increasing -BEFORE the border closings, store closings and quarantines. Don’t drink the Kool-Aid!

Despite this squeeze, rates for credit card users have been increasing (putting more pressure on borrowers) despite the fact that US interest rates have been on a steady decline (more profit for lenders).

Okay, now…. Tell me if you have seen this movie before.

And it is steadily getting worse…