Aug

17

J T Sometimes I think that all these banks with brokerages attached are issuing 8%-9% preferred while simultaneously driving down their own common to be able to buy back their own stock later on the cheap and ride it back up gaining momentum until the 2013 call dates on all these preferred where they'll do secondary offerings pay off the preferred and the beat goes on! I know it ain't that simple but it sure looks like that is what is going on to me. I mean the real probability of a bank run has what been elevated from what, 2%, to 2.5% probability? Similar to foreclosure rate going up and everyone already assigning in their heads a permanent straight line to 100% foreclosure, heck the White House might have to be foreclosed on in that picture accordin' to many.

Y'all think Ms. Whitney seems to have all the answers [22 minute video dated May 27 2008, Transcript]?

Value investor Tim Melvin replies:

Read the FDIC website, it is worse than you think.

Read the various statistical reports… loan loss reserves and net chargeoffs continue to grow and credit is getting tighter by the day.

J. T. Holley replies:

There are over 8000 banks under the FDIC umbrealla; if 2% failed that would be 160 or more banks. Right now on the list it’s only 11 with close to 20 shutting down in the ’00-’03 recession. So we could be possibly over halfway done for all you know?

Tim Melvin is not amused:

Fine, buy 'em all… especially if the NPA's are over 2% and climbing. It will be fine.

Ignore the rising charge offs, foreclosures and loan loss reserves. Derivative exposure means nothing. Just buy 'em all.

Equity to assets failing? No worries it's bullish. Consent letter signed? Buy it up.

Halfway done implies another 40% drop in valuation so, yeah, maybe we are halfway done.

J. T. Holley answers:

I certainly understand your feelings and am not ambivalent to the situation at hand but a very good analogy is my experience in the Navy with crabs and most venereal diseases. When a sailor ports his mind is on usually two things that being booze and the opposite sex. This led this middle class white boy from Virginia to experience things that had never been a part of the spectrum of my life. When a sailor contracted something and was revealed once we set sail he was avoided and condemned. Kwell was passed out and penicillin was on hand. Everyone had a sense of cleanliness that wasn’t felt ever in my life. Toilet lids were swiped four to five times. Contact was avoided at all costs. Mattresses were burned and/or thrown overboard into the ocean (this was 1990). After a while the exiled was allowed back amongst the population and normalcy came.

The banking sector has crabs/vd. Not all banks are bad. Not all of them are going to go under. Yes, they all are playing defense right now to dress up the pig with lipstick. I never said no worries, just not fear of economic nuclear winter that seems ever so present. I didn’t even say buy ‘em, buy ‘em all? I just simply wanted to say that it ain’t as bad as it seems. Feelings seem to be dominating way too much. I know before you get to 160 you have to pass through 10, 11, 12, 13, 14 and such but geez I’d rather see negative PE’s across the board (no such thing) and 80 banks gone under or merged before I’d feel the fear that most feel right now?


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