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?





Speak your mind

4 Comments so far

  1. Mark Isbic on August 18, 2008 4:50 am

    I believe that the large banks are terrific opportunities for large upside potential and a small downside.
    I back this belief and opinion as I plowed 30% of my entire net worth into Citigroup at 3 junctures between 15.99 and 17.43. I'm a professional Handicapper by trade and forced to make decisions good or bad daily and weekly.
    A bank like Citi, A world class company has been knocked down so far and so bad that from my standpoint the downside potential is small and the upside is extraordinary if your willing to sit for a year or so.
    New President coming into office, friends of Citi will be appointed to lofty positions and there will be excitement in general in the future of the United States.

    As far as Meredith Whitney. Does anyone with real serious money actually trade off of her non sense? I know the day traders will get a push or too but i mean really.
    Not to go off on a tangent but with all due respect it is my humble opinion that most analysts (not all) could not find there way out of a shopping center.
    Seems like they are always chasing there own tails, afraid to take a solid position for fear of being too wrong? These well educated folks are getting paid big money to make a decision.
    Instead just recently a gaming analyst comes out with a report on Wynn Resorts something like this: We are suspending our 115 price target on Wynn while noting that the long term macro economic outlook is very bright while short term we remain cautious due to the economy and the slowing of traffic to Las Vegas. HUH are you kidding me. 1 year from now they can claim victory if the stock price is 200 or victory if it is 20.
    This is the same as saying "Well we Like Chicago minus 3.5 today based on there overall team strength and home field advantage while noting that Miami at plus 3.5 bodes well for this up and coming team who can put in strong performances on the road with no prior indication of same"
    With analysis like that our company would have zero clients and righftully so.

  2. steve leslie on September 7, 2008 4:55 pm

    For the record, Reuters is now reporting that the US government has taken over Freddie Mac and Fannie Mae. Silver State Bank has also failed, bringing the number to eleven. Not the one hundred sixty J.T. is looking for – but baby steps in that direction.

  3. Melissa Moody on September 11, 2008 9:27 pm

    Deathwatch: Lehman, Wamu… JT Thoughts? The mistress gets around… *cough* slut *cough*

  4. Mr K. on September 14, 2008 10:38 pm



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