It's about time. After all the "the worst is behind us" talk, some one got it right... and it's Meredith Whitney, George Soros, and Warrren Buffett.
"The credit crisis will extend well into next year," she said. Plus, she expects banks to take an additional $170 billion in write downs by the end of 2009. "The real harrowing days of the credit crisis are still in front of us and will prove more widespread in effect than anything yet seen."
Thank you Meredith Whitney... You just solidified what we've been trying to convince people of.
And according to Yahoo, "It ain't over til it's over."
"That was the message from investing legends Warren Buffett and George Soros yesterday, and the market is taking heed today.
Soros was particularly concerned about inflation, which is front and center today as crude prices surge toward $130 and core PPI was higher than expected.
While less dramatic than the uber-skeptical Soros, Buffett was certainly direct in his assessment that the credit crunch is not over, contrary to popular belief on Wall Street. "I don't think the effects of the credit crunch are far from over at all," Buffett said during a presentation in Europe, according to wire reports. "I think there will be rippling secondary, tertiary effects."
Those "second and tertiary" effects including the fallout from a Citigroup hedge fund, whose woeful performance is hurting investors such as Fifth Third Bancorp and Wachovia, The WSJ reports."
And, as I said in the May 16th Wealth Daily:
On April 8, 2008, Morgan Stanley's CEO John Mack said, "If you look at the subprime problem in the U.S., you would say we're in the eighth inning or maybe the top of the ninth. Problems stemming from commercial mortgages are about half way through, said Mack.
He was wrong.
Weeks later, the same bank advised clients to "sell the rally" in financials, adding "we think we are only in the third inning of the credit cycle and expect this cycle to be worse that that in 1990-91."
Lehman Brothers' CEO Richard Fuld told shareholders that the "worst is behind us." He was wrong.
Goldman Sachs CEO Blankfein told investors "we're closer to the end than the beginning." He was wrong.
JPMorgan CEO Jamie Dimon said, "We're more than halfway, maybe 75 percent to 80 percent through." He was wrong.
Merrill Lynch's CEO said the "worst is over" a month before writing down another $6 billion and announcing that 4,000 jobs would be cut.
"The worst of the financial sector crisis is over although the impact on the broader economy will likely drag on in coming months," said IMF Managing Director Dominique Strauss-Kahn. "There are good reasons to believe that the largest part of disclosure in financial institutions has been done, especially in the United States ... so that the worst news is behind us."
But this wasn't the first time they were embarrassingly wrong... and it won't be the last.
It's hard to take these CEOs seriously.
Seeing that these CEOs have been consistently wrong about everything regarding their losses, why should we believe their "bottom" calls?
Take a look at Citigroup. Its recent sale of an additional $4.5 billion worth of shares (its fifth attempt to raise capital in five months) came with the promise that each would be the last.
Citigroup has now raised $40 billion by diluting shares, as they tell us everything is okay.
To believe we've hit bottom you must convince yourself that banks have a grip on credit losses. They don't.
It was July 2007 when investment banks forecast losses from subprime would total $100 billion. A month later it doubled to $200 billion. By November, it stood at $400 billion. It now stands at a trillion dollars. Total write downs at the end of December 2007 came in at $97 billion. By the end of February 2008, write downs had skyrocketed to $181 billion, which brings the total write down loss since 2007 to $245 billion.
You'd also have to believe that declining home values will not create more loss.
If we really are in the ninth inning, as Morgan Stanley's Mack says, we're in a double header.