Stock Preacher

Since the World’s credit markets seized up on September 8, 2009 many corporations are either cutting costs, waiting for government bailout money, or preparing for bankruptcy, as banks are reluctant to lend to all but the most credit worthy and then at unconventionally high interest rates.

In the center of the storm lies the US, UK and EU financial industry where it all started.
The US Federal Deposit Insurance Corporation said last week that the nation’s banks and thrifts lost US$32.1B in the Q-4 Y 2008, the first quarterly deficit in 18 yrs, compared with the US$575MM profit in Q-4 Y 2007. The industry’s net income for Y 2008 plunged from US$16.1B to US$10.2 B for the period.

In the US eighteen federally insured banks have failed so far this year. Last year the number was 25, more than the total number of the previous five years, and up from only three in 2007.
Shares of Citigroup Inc., once the most powerful U.S. bank, have fallen below 1 dollar this month. Pummeled by the financial crisis, the group has lost more than 98 % of its value from its peak in October 2007, and is down more than 95 % from a year ago.

The American International Group (AIG), covered almost daily in www.stockpreacher.com’s Stock Talk, reported this month that it lost US$ 61.7B in Q-4 Y 2009, the largest corporate loss in history. AIG has benefited since from more than US$170B in federal rescue funds with more likely needed and to come.

HSBC Holdings PLC, the largest bank in Europe, early this month reported a 70% drop in its Y 2008 profit and said it would cut 6,100 jobs as it closes its consumer loan business in the United States. It also announced that it would cut its dividend and not pay bonuses to top executives.

In the US, the DJIA sank below 6,800 on March 3, its lowest close since May 1997, losing more than 50% from its highest level in October 2007. Since then the S&P 500 has staged a 19.8% rally off of its lows in the same frame.

On March 23 when the markets were surprised by the US government’s latest plan on clearing bad bank assets and a larger-than-expected rise in existing home sales, the three main indexes all surged more than 6.5% on the day.

Some Economists suggest that financial crisis has yet to bottom out, and the real economy continues to slip as the global economic situation deteriorates.

Therefore, stimulus spending, market confidence, financial regulation and free trade will be key issues at the G20 summit of the World’s leading developing and developed economies next week in London.

Popularity: 6% [?]

The US Treasury Department is expected in the coming week to roll out its long-delayed plan to buy as much as $1 trillion in troubled mortgages and related assets from financial institutions, according to people close to the talks. The plan is likely to offer generous subsidies, in the form of low-interest loans, to coax investors to form partnerships with the government to buy toxic assets from banks, and to help protect taxpayers, who would pay for the bulk of the purchases, the plan calls for auctioning assets to the highest bidders. The plan is not expected to impose restrictions on the executive pay of private investors or fund managers who participate. The three-pronged approach is perhaps the central component of Mr. Obama’s plan to rescue the U.S. banking system from the unprofitable assets weighing down bank balance sheets, crippling their ability to make new loans and deepening the recession

Popularity: 4% [?]

USA regulators charged a money manager with fabricating several large client accounts in order to lure legitimate investors, the Securities and Exchange Commission said last week. The SEC alleged that Leila Jenkins and her firm, Locke Capital Management, invented large advisory client accounts purportedly based in Switzerland and repeatedly claimed the accounts contained more than US$1B in assets that she managed. Jenkins lied about the accounts’ existence to investors and SEC staff and provided the SEC with “bogus” documents in 2008 such as fake account statements that she created, the SEC said.
From at least 2003 though 2009, Jenkins and her firm, with offices in New York and Rhode Island, communicated falsehoods about the accounts in brochures, meetings and SEC filings, the SEC alleged. Locke’s assets under management of its real clients never amounted to more than a very small portion of the billion-plus- US$s Jenkins claimed to manage, the SEC said. A lawyer representing Jenkins and Locke said we have not been served yet with the complaint.

Popularity: 5% [?]

Toxic assets are non-performing assets that are not only not paying interest but depreciating (losing principal) rapidly, with no likelihood of stabilizing in the current environment. The most common toxic debt talked about or referenced is subprime mortgage debt.

According to some estimates there was about US$1.2T of subprime mortgages written. The reason there is so much toxic debt out in the market on banks and others’ balance sheets is because derivatives actually multiplied the exposure to this toxic asset class.

Popularity: 8% [?]

Citigroup stake The U.S. government agreed to become the biggest single shareholder in Citigroup on Friday, in the latest attempt to save the ailing financial group and to shore up the country’s banking system. The partial “nationalization” will give the government a stake of up to 36 % in the troubled lender, capping a spectacular fall from grace for what was one of the world’s largest financial institutions. At last Friday’s share price, the market value of Citigroup, which has some US$1,600B in assets and operations in 130 countries, was less than US$9B.

Popularity: 9% [?]

Last Friday Gold surged US$37.50, crossing the US$857 oz. resistance, touching US$903.50 oz., and settled back to US$895.30 oz. on the close. That move suggests that there is huge buying power in the Gold market, and shorts are covering. Frequently after a breakout a market will back and fill, but the Gold players now are calling last week’s action with the breakout they have been expecting since last November/December. If that be the case, the price of Gold should rise to challenge the next resistance level at US$ 920, confirming a firm up-trend.

The Gold Bugs say this: Always invest with the primary trend. Gold’s primary trend is up, targeting at least $3,130.00; silver’s primary is up, targeting 16:1 gold/silver ratio or $195 .66; stocks’ primary trend is down, targeting the DJIA at under 2,900 and worth only one ounce of Gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down.

Popularity: 7% [?]