pebblewriter

Tag: banks

  • XLF Update – June 5, 2012

    Financials play a pivotal role in the markets.  They led the way as they enabled the previous run-ups and bubbles, and they led the way down when the house of cards was revealed for what it was.  The survival of nearly all markets is hanging by a QE thread, so we’ll take a fresh look at XLF to see what the charts are saying.

    We’ll start with the weekly chart going back to inception in December 1998 — lot of water under the bridge with this ETF.

    Fortunately, for us analyst types, it’s been very amenable to chart patterns and Fibonacci analysis.  Consider this chart, that helped me call a top in banking stocks in late March [see: End of the Line and Lots More Where That Came From.]  Note the well-defined channel and the Gartley Pattern reaction at the .786 Fibonacci level.

    I’ve put together a series of charts that, I think tell a pretty compelling story regarding XLF’s future.

    continued…

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  • City of Dreams

    I’ve been harping on the incredible threat represented by the $250 trillion in almost entirely off-the-books, unregulated derivatives market — 95% of which is should be but isn’t on the books of the top five US banks [see: The Wipeout Ratio.]

    It’s an astonishing 550 times the tier 1 capital on the books of these same banks — all of which are considered too big to fail.  Looking at it another way, a two-tenths of 1% decline in the value of those derivatives could completely wipe out all tier 1 capital altogether.  If that weren’t bad enough, it’s dwarfed by the global derivatives market of $707 trillion.

    It’s hard to appreciate just how much money we’re talking about.  But, demonocracy.com does an outstanding job of putting it into perspective, focusing on the 9 largest banks’ $228.72 trillion in exposure.

    Take the time to read this, and please pass it along. Click anywhere on the nice pretty picture below.

  • The Wipeout Ratio

    A simple calculation comparing major banks’ derivatives positions to their assets and capital shows how little it would take to wipe out either.  The first ratio is the multiple that derivatives represent of Tier 1 capital.  The second shows the miniscule percentage decline in the value of derivatives portfolio it would take to completely wipe out Tier 1 capital.


    Goldman Sachs, for instance, has $47 trillion in derivatives exposure — 2,480 times its Tier 1 capital.  A 0.04% decline in the value of the derivatives portfolio would wipe out Tier 1 capital altogether.

    Overall, a 0.18% decline would do the entire bunch in.    Something to think about, especially as the vast majority of derivatives are OTC, are not priced in public markets, and are obscured/netted out in balance sheets.  Remember, “too big to fail” really means “subject to taxpayer bailout.”

    A little over a week ago in a Zerohedge article we learned that Italy’s previously hidden derivatives exposure amounted to 11% of the country’s GDP.    A recent $3.4 billion payment to Morgan Stanley to settle a 1994 contract wiped out half the value of the tax hikes recently imposed on an already crumbling economy.

    If this doesn’t seem terribly important, consider that the derivatives exposure of the five banks above alone, at $240 trillion, is four times the combined GDP of every country on earth.  JPM, by itself, has notional derivatives exposure that exceeds the combined global GDP.

    I fear this is the story of the year, folks.  And, it’s just now starting to get some press.  As we learned with AIG, if one segment of the financial markets suffers unanticipated losses, the entire house of cards can come crashing down.  Banks know how bad the situation is; how else to explain the lack of interbank lending — particularly in the euro zone?

    Stay tuned.

  • What Do Bankers Dream Of?

    When Wells Fargo CEO John Stumpf sleeps, he dreams — like all good bankers — about numbers.  He probably doesn’t dream about the number 600 — the number of foreclosure packages signed each day by his robosigners.  He probably doesn’t dream about 14,420 — the number of conveyance claims fraudulently submitted to HUD in exchange for $1.7 billion from the FHA [Inspector General report.]

    And, he almost certainly doesn’t dream about his share of the laughably small $25 billion penalty he and his fellow bankers might have to pay to slough off legal liability for the millions of Americans they’ve helped make homeless (don’t know why they’re bellyaching…they’re all getting $2,000!)

    No, I imagine the number he fixates on is 35 — the third rail around which his stock seems to go into spasms every time it gets close.   I’m exaggerating, of course; it’s only happened three of the last four times since November 2007.  The other time, in September ’08, the stock soared right through 35 to nearly 45.  That would be great — except it plunged to 7.80 six months later.

    See that yellow resistance line?  At least that’s what we call it.  To Stumpf, it’s a 625-volt reminder of all the ugliness of the past five years: bailouts, Occupy Wall Street protests, and that humiliating testimony before Congress (what’s a fella gotta do to buy off a few Congressmen?)

    Stumpf might be dreaming about 35 a lot this week, as the stock’s edging toward that buzzing rail yet again.  It’s really crummy timing for the stock to have completed a bearish Crab Pattern.

    And, darn it, did the SEC have to pick this week to file that subpoena to compel him to hand over the documents he promised in regards to a $60 billion fraud investigation?  Now, with earnings coming up in a couple of weeks?

    That reminds me of another number, 13 — as in the number of times WFC got zapped after reporting earnings in the last 17 quarters.  Earnings reports that came in the vicinity of that third rail have been particularly eventful.

    Let’s not forget 6,867,990 — the number of shares of Stumpf’s WFC stock and options that’ll be worth considerably more if the 35 price point is breached.  A 22 cent bump will make up for the horrendous pay cut he’s suffered over the past two years (from $21.3 million to $19.8 million, and we all know how tough it is to live on a lousy $54,000 a day!)

    Hey, how about $85 million — the amount the Federal Reserve Bank fined Wells Fargo last year?

    And, $25 billion — the low-interest loan the Fed slipped Wells Fargo a few years back when its survival seemed iffy.

    Which brings to mind $29.4 million, the amount the money-center banks spent on lobbying in 2010 (not including the ABA.)

    Then there’s $19.8 billion — the amount of hyper-hypothecation exposure on Wells Fargo’s books,  17% of Tier 1 capital?

    Which reminds me — $1,274,000,000 in pre-tax trading losses for 2011.

    And, lest we forget — $2.8 trillion notional in derivatives on the books.

    I could go on all night, but I think you see where I’m going with this.  We should all keep John Stumpf in our thoughts and prayers; with all those numbers to think about, the poor guy might have trouble getting a good night’s sleep.   Somehow, I think he’ll manage as long as he sees $35 in the rear-view mirror…and soon.