This will be a bit longer of a preamble. Despite my bearish calls, I am feeling a bit tense about all of this market turmoil. Almost all of my calls are going the right way: oil, bank stocks, the general market, gold, Treasuries. Currencies are the place where I am looking less than smart. Nevertheless, I do not take any joy in this because it looks like another implosion is fast developing in the financial sector.
I happen to think JPM (JPMorgan Chase) had a rather nice earnings report but it was marred by the fact that their profit in Q4 was entirely due to acquisition finance from their deal with WaMu. Moreover, Jamie Dimon indicated that their Bear Stearns acquisition is costing them a lot of money, several billion dollars. Who’s to say that the same will not be true with WaMu? I reckon all of the losses we saw in Q4 were unrelated to WaMu, but if house prices fall further in the U.S., we could see WaMu-related losses down the line. And that’s coming from a well-managed bank. Very ugly.
The BofA and Citi situations have me most worried here. They are bringing down all of the financials and the entire market. Take a look at these stocks — it’s a sea of red. I am very concerned we could see another nationalization or bankruptcy here in short order. You should be under no illusions about the seriousness of things. Let’s just see how the new Bank of America bailout proceeds and how Citi gets on regarding its writedowns this quarter.
Keep a lookout for a post from me on the credit crisis timeline. I will be updating you with a list of writedowns in due course. For now, here are the links – mostly from Bloomberg. Good luck.
Marshall & Ilsley Plunges After Posting Loss, Cutting Dividend – Bloomberg.com (This bank is the largest in Wisconsin. They reported some dismal earnings. Is this what we have to look forward to from the regionals? I think so.)
Mitsubishi UFJ to Book 288 Billion Yen Loss on Stocks – Bloomberg.com
N.Z. Dollar Falls to 7-Year Low to Yen; Australian Bonds Rally – Bloomberg.com (The Yen is the only currency to stay strong regardless of what it the government does.
Ricardo Montalban, TV Star and Chrysler Pitchman, Dies at 88 – Bloomberg.com (I used to watch Fantasy Island every week.)
Sovereign default in the eurozone and the breakup of the eurozone: Sloppy Thinking 101 – FT.com – Willem Buiter’s Maverecon (passionately argued, but, for me, unconvincing)
The Price of JPMorgan’s Deal-Making – Deal Book
Cash Crunch Halts Work on Dubai Skyscraper – Deal Book
Diamonds to plunge 30% – fin24.co.za