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Dennis Kneale: An Idiot?


Foot in Mouth Disease Strikes Again

Thursday, July 2nd, 2009 - By Ian Cooper

 

You've got to feel for Dennis Kneale... foot in mouth disease is horrible.

Could it be that bearish views from the likes of Nouriel Roubini are too spot on, too scary for CNBC to report to the naïve believers in Cramer's, Kneale's or Kudlow's abysmal "bottom" theories?

Could be.

If you listen to Kneale, who awkwardly took on bloggers last night, our recession is over. Yep, the same guy that once asked "What's a VIX?" is telling this to a national audience.







 

Even a strategist at Barclays Capital, for example, recently said that the economy appears "to be in the sweet spot of a recovery" and that the recession may have ended [in April]"

Huh?

According to Roubini, "recent data from the U.S. and other advanced economies suggest that the recession may last through the end of the year. Worse, the recovery is likely to be anemic and sub-par. . . The recession is not going to be over today. It's going to last another 6 to 9 months."

Unemployment is worsening. Housing woes are far from over. And banking troubles are far from being solved. "I see the risk of a double-dip, W-shaped recession. . . towards the end of next year," added Roubini.


Even Christina Romer, a senior White House official, is "more optimistic" that the economy is stabilizing. Others believe we'll stop contracting by Q3 or Q4 2009.

But how?

I could go on, but there's another blog out there called The Market Ticker, which just published a brilliant piece called To Dennis Kneale: You're an Idiot that you should check out. Enjoy.

Since Dennis saw fit this evening on CNBC to "go after" bloggers who in turn had gone after him, yet he omitted The Market Ticker, I'll go ahead and put a full-on dredge out behind my stern and slow to 3kts.

And Dennis, if you would like me on your show, I'll be happy to appear.  Phone is fine.  And I'm not anonymous, nor do I want to be - CNBC already has has my full bio, my full name, and my CNBC-standard disclosure document back with a digital signature affixed.  You can also "whois" this domain and get my full name and address.  Good enough?  Several employees of NBC Universal are on my forum and a CNBC producer has my direct email address - just ask around and I'm sure you can obtain it, and if you do email me I'll be happy to call you at your convenience.

OK, now on to the facts - your idiotic and utterly unsupportable "the recession is over" call.

There are two types of recessions, if you happen to know more about economics than you knew about options a year ago, when you were caught asking on the air "what's the VIX?"

The types of recessions are inventory driven recessions, the most common, and credit driven recessions.

The last material credit driven recession was in the 1930s.  We called it the "The Great Depression."

Inventory-driven recessions are primarily about excessive industrial capacity for demand.  That is, manufacturers and suppliers of services get too bullish about prospects, build too much capacity and inventory, and wind up engaging in a destructive price war in an attempt to "win".  This drives down profits and ultimately forces the weaker firms out of business, ergo, recession - GDP and employment decline.  Having cleansed itself of the excess, the economy recovers.   The trigger for these recessions is often (but not always) an external shock such as the oil embargo in the 1970s or the collapse of the Internet fraud-and-circuses games in 2000.

You can read more here.

Great stuff. I think I just found my next favorite blog... well, in addition to mine.

And to those of you that celebrate, have a very happy and healthy July 4th weekend... except you Kneale (kidding).


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Must See CNBC


Laffer Finally Got It Right

Monday, June 29th, 2009 - By Ian Cooper

From Zero Hedge blog:

"Art Laffer of Laffer Associates has some very good perspectives on why he sees 20 year of hell coming up for the US economy. With thoughts like "never heard of anyone spending themselves into prosperity" he is, of course, correct. One of the best non-partisan critiques of our economic collapse. Must watch video."

Enjoy.










 

 


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The 1,200-Page Climate Change Bill is a "Pile of..."


We don't think Boehner's a Fan

Monday, June 29th, 2009 - By Ian Cooper

Just in case you didn't finish reading all 1,200 pages of the climate change bill, as Washington did, here are some key points:

But while Democrats are partying like its 1999 over the Friday passage through the House, don't expect immediate action. It now goes to the Senate where it could get tied up with the health care bill.

Here's more from The Business Insider:

"John Boehner tells the Hill that he spent over an hour reading excerpts of the massive climate bill during Friday's debate because "people deserve to know what's in this pile of s...."

Now it goes to the Senate, but don't expect immediate action.

Speaking on "This Week" Obama adviser David Axelrod told George Stephanopoulos that the Senate will focus on healthcare, not the climate bill. He says the climate bill will be shelved until the fall.

That means the fate of the climate bill is tied to the healthcare bill. Any gains Democrats make on the healthcare legislation will come at the expense of the climate bill.

We imagine this pisses Boehner off even more. If the Senate isn't waiting for the bill, why did the House push it through so quickly?

Don't expect the House GOP to stop fighting. Republicans think they have a major issue to seize upon:

The Hill: Even though Sen. Majorty Leader Harry Reid (D-Nev.) holds the bill's fate in his hands, House Republicans intend to hammer Speaker Pelosi's signature climate-change measure over recess.

And GOP Conference Chairman Rep. Mike Pence (Ind.) said "we have only just begun to fight" as he left the Capitol Friday night.

Pence encouraged GOP rank-and-file lawmakers to hold energy summits in their districts over the Independence Day recess. In the recess packets sent home with members, he even included directions on how to organize energy summits.

The goal of holding an energy forum is to "educate your constituents about the Democrats' national energy tax legislation and let them know what 'all of the above' solution you support.""


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The Next Big Financial Crisis Upon Us


Why Smart Traders are Short

Monday, June 29th, 2009 - By Ian Cooper

U.S. consumers are knee-deep in nearly $1 trillion in outstanding credit card debt... and it'll be the next major crisis to rip through the economy.

Revolving credit is about $1 trillion, up close to 60% since 2000. The charge-off rate - which measures card loans the banks don't expect to be repaid - hit 10.62% in May from April's 9.97%, according to Moody's. 10%!!!

And some expect that rate to surpass 12%, as Americans battle job losses, home losses, 401K lost value, and heavy debt load.

Yep, it's bad. And bank charge-offs could near $100 billion... this year alone, cutting into loan-loss reserves, and sending the financial community into a whirlpool of hardship. And it'd leave little room for losses on housing and commercial loans.

Check this out. If unemployment rates hit 10%, defaults could explode. At American Express and Capital One, for example, about 20% of the credit card balances are expected "to go bad this year and next."

As for Bank of America, Citigroup, and JP Morgan Chase, we're talking about 23%.

And the last thing the financial sector needs to feel is further squeeze, as Americans have accumulated some $970 billion in revolving consumer debt since the end of September 2008, up 3.4% from the close of 2007.

Sure, the credit card industry is typically resilient during our economic slowdowns, thanks to pricing flexibility. And the traditional thinking is that as the economy sours and consumers become late on payments, credit companies can boost earnings through late fees and higher interest rates. But that's no longer the case.

The jig is up.

Defaults are growing. Charge-offs have been pushed well beyond expectations. And losses are far out-pacing what companies were hoping to account for with extra card fees and higher interest rates.

And as a consumer-driven economy that has trouble saving money, coupled with no available credit, the economy can do nothing but collapse.


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Oil Super Spike, Part II?


How to Prepare your Portfolio

Thursday, May 28th, 2009 - By Ian Cooper

Just the other day, we reported that If you're noticing gas prices moving north again, brace yourself because oil could be headed to $70... maybe even $80 near-term.

But we may have been off just a tad.

Here's what an editor at BarChart.com had to say:

"'Super Spike Two' coming to a screen or terminal near you. Is $150 barrel oil going to be cheap in the coming years? Well the kingpin oil minister of the OPEC cartel sure seems to think so.

Saudi Arabia's oil minister and the most influential member of the OPEC cartel says that he thinks that oil prices could exceed the previous record above $147 a barrel in the next two or three years. The reason is that the current "low" oil price has caused a lack of exploration and capacity expansion. And because of that al Naimi said we will see new record high oil prices within the next two or three years.

In a speech in Italy Naimi said that Saudi Arabia is maintaining its long-term focus rather than being swayed by the volatility of short term conditions. However, if others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar or worse than what we witnessed in 2008.

Of course as smart as Al-Naimi is he has not been the best predictor of long term price moves. Still when the man talks it is obvious that the market listens. And because of the wide contango in futures, a phenomena that means that long term futures are priced higher the shorter term delivery dates, the market may have been expecting this future potential price supply squeeze all along. The market has been paying the market place to store oil for that rainy day. And according to some hard rain is soon to fall.

It is not just al-Naimi that is saying it. In fact he is echoing the same concerns that the International Energy Agency raised last week. The IEA warned in a report that falling energy investment was paving the way for a huge oil price surge within three years. They estimate this that because of the recession oil companies and investors have canceled or postponed about $170 billion of investment, equivalent to roughly two million barrels a day in future oil supply. Add to that an additional 4.2 million barrels a day in future oil-supply capacity that has been delayed by at least 18 months. If you put that together, it is over 6 million barrels of daily oil production that we thought we would see come on line that more than likely will come on when it might be too little, too late.

In the short term the oil market is moving on a delicate balance of concerns over inflation mixed in with a rising tide of economic optimism. Oil seemed to forget all about the geo-political risks brought on by North Korea and instead focused on that surging consumer confidence. The oil market continues to react to any semblance of good economic news partly because of the fears of inflation expectations in the back drop of a recovery but also because an economic recovery and a surge in global oil demand will be hard pressed to be met by supply because of the dramatic and continuing drop in oil investment. Oh sure, I know that supply is ample right now and I am not talking about shortages but the market is doing things for a reason. We may need high oil prices to get the type of investment that will be critical to meet the demand needs of the future. If we don't. it might not just be the high price of oil that hurts the economic recovery but the inability to secure future supply. 

Now the big question is whether or not all that consumer confidence will show up in the gasoline demand numbers. I am betting that it will.The Energy Information Agency reported that national average retail price of regular gasoline rose 12.6 cents a gallon to $2.435 a gallon in the week ended Monday. Some of that increase was the switch over to the summer time blends of gasoline and of course the higher demand over the holiday. My guess is that the surge reflects a surge in demand as well that may keep prices not far from this Memorial Day peak."

But there's a very easy way to profit from this possible rise.

The Crude Oil Market: The Easiest-Paying Bottleneck of a Lifetime

Most Americans' economic woes are only going to get worse.

We know the spike's just around the corner. But here's what you might not know. . .

We've uncovered a rare investment that could pay you gains just as astonishing as any jackpot oil resource company out there - but without the risk!

Here's how it works.

You see, this investment (which most investors know absolutely nothing about) doesn't even follow oil producers or risky exploration companies. It strictly follows the physical oil market.

And thanks to the unique nature of this investment, not only can you bask in the riches of the oil futures market - you actually get paid double the gains that oil makes!

In other words, a 10% gain pays you 20%. . . a 20% gain pays you 40%. . . a 100% rise in oil prices pays you 200%.

So, if oil shoots 50% this year, which is our gross-underestimate, you'll double your money!

If oil shoots up to the $70 range, every $5,000 invested will suddenly turn into a $10,000 payday!

With oil trading in the $60 range, this unique opportunity just doesn't get any easier.

You can get more information on it right here.


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Foreclosures Were Bad Last Year?


It's Going to Get Worse

Tuesday, May 26th, 2009 - By Ian Cooper

It's not just subprime and Alt-A that we have to worry about any more. It's prime, too.

And Morris A. Davis, a real estate expert at the University of Wisconsin may have just hit the nail on the head with his comment, "Foreclosures were bad last year? It's going to get worse."

Yep, just as we've been warning about - the next phase of the real estate disaster is upon us. It's only shifted from subprime to Alt-A to prime. And with many economists predicting that unemployment will rise into the double digits from 8.9%, foreclosures will only accelerate, says the NY Times, which will add to bank losses, which will add pressures to the financial system and broader economy.

 

Prime Borrower Chart

 

Here's more from the article.

"We're right in the middle of this third wave, and it's intensifying," said Mark Zandi, chief economist at Moody's Economy.com, according to the article. "That loss of jobs and loss of overtime hours and being forced from a full-time to part-time job is resulting in defaults. They're coast to coast."

From November to February, the number of prime mortgages that were delinquent at least 90 days, were in foreclosure or had deteriorated to the point that the lender took possession of the home increased more than 473,000, exceeding 1.5 million, according to a New York Times analysis of data provided by First American CoreLogic, a real estate research group. Those loans totaled more than $224 billion.

During the same period, subprime mortgages in those three categories increased by fewer than 14,000, reaching 1.65 million. The number of similarly troubled Alt-A loans - those given to people with slightly tainted credit - rose 159,000, to 836,000.

Over all, more than four million loans worth $717 billion were in the three distressed categories in February, a jump of more than 60 percent in dollar terms compared with a year earlier."



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Why We Agree with Whitney... Again.


She Doesn't Drink the Banker Kool-Aid

Tuesday, May 12th, 2009 - By Ian Cooper

We've always been a big fan of Meredith Whitney... and not just because she's agreed with everything we've said... but because she tells it the way it is.

And we're happy to see that Meredith Whitney isn't drink from the same Kool-Aid the banks are. Nope. She tells is the way it is, destroying the idea that the financials rally is real.

"They were overdone all the way into this rally. What happened was the government - I call this the great government momentum trade - the government enabled the banks to have better than expected, better than even the banks could organically deliver, first-quarter earnings. That looks like it could continue into the second-quarter and the third-quarter. The banks rallied from well below tangible book multiples to almost two times tangible book multiples... the underlying core earnings power of these banks is negligible," she says.

Here she is with more.

 

Worse...This will not be the last time banks will need to raise capital. And she believes that bank earnings in 2010-2011 will be below consensus estimates.

As for us, we believe the second half of the financial disaster has already begun with weakening commercial real estate, and the start of Option ARM resets.

Stay tuned for more downside in financials... and if you're interested in playing it, check out Options Trading Pit for more.


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Stress Tests Worse than Reported


Banks Need a Lot more Money

Monday, May 11th, 2009 - By Ian Cooper

There's a reason we always listen to Nouriel Roubini... it's because he's usually right.

It was May 5 when he said:

"Stess tests on banks, to be released in a few days, will not mark the beginning of the end of the financial crisis. If we are to believe the leaks, the results will show that there might be a few problems at some of the regional banks and Citigroup and Bank of America may need some more capital if things get worse. But the overall message is that the sector is in pretty good shape.

This would be good news if it were credible. But the International Monetary Fund has just released a study of estimated losses on U.S. loans and securities. It was very bleak - $2.7 trillion, double the estimated losses of six months ago.

The stress tests' conclusions are too optimistic about the banks' absolute health, although their relative assessment is more precise, because consistent valuation methods were used. Still, with Thursday's announcement of the results, it shouldn't be a surprise when the usual suspects emerge. We fear that we are back to bailout purgatory, for lack of a better term."

And surprise, surprise... he was dead on.

According to the Wall Street Journal, the Fed reduced the size of capital deficits facing several banks before releasing the stress test results. The changes came after days of negotiations with the banks, said the story. "The Federal Reserve used different method than analysts and investors had expected to calculate capital levels."

Sounds like Geithner has got to go.

"Citigroup's capital shortfall was initially pegged at roughly $35 billion, according to people familiar with the matter. The ultimate number was $5.5 billion. Executives persuaded the Fed to include the future capital-boosting impacts of pending transactions."

Here's more from the Wall Street Journal.


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