Tuesday, January 20, 2009

Roubini: U.S. Financial System Technically Insolvent/AEB & Preferred stocks/STT

The economist Roubini is reported to have opined that the banking system in the U.S. is insolvent. Bloomberg.com: Worldwide He now predicts losses of up to 3.6 trillion for U.S. institutions.  A few months ago, such an opinion would have just reeked of someone trying to gain attention with dire forecasts.  Now, it seems like a reasonable description of a worse case scenario. 

The Goldman forecast of just over 2 trillion is positive in comparison to Mr. Roubini.

I have mentioned several times in these posts the risk characteristics of preferred stocks. When fears gain the upper hand, these junior securities will lose a bid and the price will decline.  One that I own, the floater AEB issued by Aegon, traded down to a low of 8.09 this morning. AEB: Summary for AEGON NV FLTG PERP - Yahoo! FinanceThere is a natural and understandable tendency to move up the priority ladder during periods of economic crisis.  Any preferred issue from a company that has already eliminated its common stock dividend is in an enhanced state of danger, since a continuation of a common stock dividend is usually the only real protection for payment of a preferred stock dividend.  Nonetheless, I will probably look at AEB closely for an add below 7 even though Aegon eliminated, for now, payment of its common stock dividend.  My last buy was at $5.5.  

Downward pressure on both Citigroup's regular and trust preferred issues continues with gusto. C-PS: Summary for CITIGROUP CAP IX 6.0 - Yahoo! Finance

The most disturbing earnings report this morning came from State Street (STT) which is down almost 50% this morning.STT: Summary for STATE STREET CP - Yahoo! Finance  I do not own it.  Prior to today, I would have viewed one of the custodian banks to be safer than a lending institution.   But, apparently everyone is just screwing up in a big way.  WSJ.com
State Street had a mark-to-market losses in off balance sheet conduits of an additional 1.4 billion plus another 6.3 billion in losses in its investment portfolio.  MarketWatch  One analyst predicted that the off  balance sheets "assets" may need to be put on the balance sheet at a cost of 4.8 billion in new equity capital. MarketWatch  The picture of State Street's headquarters in Boston does however show a nice large building.   Reading these financial earnings releases explain the market's continuation of the decline today.

Except for the Japanese Yen which continues to rise against the dollar, FXY, the Euro and other major currencies continue in a bear market versus the dollar with FXE falling close to 3% in early trading today. FXE: Summary for CURRENCYSHARES EURO - Yahoo! Finance  The aussie dollar is likewise getting crushed. FXA: Summary for CRRNCYSHR AUS DLR TR - Yahoo! Finance   Eventually, not now in my opinion, this will set up for a good trade in the Aussie and Canadian currency ETFs.  The brazilian reel is down less but way off its August high of around 27.   BZF: Summary for WISDOMTREE DREYFUS - Yahoo! Finance The perceived safety of the U.S. dollar is still a sacrosanct belief even it means parking money in treasuries with negative real rate of returns. My earlier discussion explained some of the reasons why  I have not bought the foreign currencies yet. 

I did listen to Obama's speech.  I thought that it was good, but pedestrian and lacking memorial one liners.   I will not be compared in the same breath as the one given by Lincoln in 1865Lincoln's second inaugural address - Wikipedia, the free encyclopedia; or FDR's First Inaugural address or Kennedy's. Times Archive Blog: Lincoln, FDR, JFK? The most memorable inaugural speeches

Today's action indicates a possible retest of the November lows.  I am being rewarded by simply waiting with that deer in the headlight look at my large IMAC computer screen.  Sometimes it is probably best to do nothing although I may still do something before the close.  

I prefer Apple's IMACs to the window's operating system.  I did add a new window's computer recently and it works fine with Vista since it has a lot of processing speed and 4 gbs of ram.  It was just horrible running on an older system.  

I look forward to more declines like today in Isis. ISIS: Summary for Isis Pharmaceuticals, Inc. - Yahoo! Finance  I would really like to buy that 50 shares back near 10.  I would not mind at all if DKR returned to 7 either.  

I just heard from the wild and crazy guy who is claiming he doesn't want 50 shares of Citigroup at less than 3.  But, if he took up drink, and drank a keg in thirty minutes while standing on his head, he might change his mind.   Chuck paid almost 18 billion for that Japanese broker, Nikko Cordial Securities, and that was not even his worst mistake.  BAC may soon catch a bid north of 5, but not from me.  I will wait until the summer of 2010, and assess the situation then before deciding to average down or take my medicine.   

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