Coercing Confidence ~ The Risk Averse Alert

Tuesday, February 16, 2010

Coercing Confidence

As if fearless complacency had not been amply demonstrated for months on end, yet another dose of the very same sentiment toward the riskiest financial assets of all was delivered today...

SPX 5-min

Today's tight, sideways trade following this morning's lift reveals a predominant presence of hope so driven by greed the holders simply cannot fathom the looming threat to their position.

They see yet another U.S. Senator's resignation confirming the likelihood further political gridlock will subdue any effort to tighten regulation of an out-of-control financial sector. Yet no thought is given to the fact that, the party whose past support of bailout is the one whose representatives are dropping like flies. Likewise escaping perception is the fact that, any candidate for political office whose campaign platform seeks aggressive prosecution of financial crimes committed over the past decade could win election in a landslide.

Odds are, too, the call for criminal prosecution will grow deafening, as political ambition makes desire for truth and justice a new-found bedfellow. Watch.

And while we are on the subject of financial crimes ... a word is in order about today's report revealing some well-known hedge fund and private equity players are adding to their positions in hopelessly bankrupt financial institutions like BAC, C, WFC, among others.

This news, of course, can only serve to further feed hope driven by greed. Yet do not its hearers likely ignore the possibility that, buying of equity in zombie financial institutions might be the consequence of a coercion whose threat is criminal prosecution?

The case of Toyota Motors probably holds something of a key in right perception about what really is going on...

Fast Money
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Anonymous said...

Hyperbole takes away from otherwise legitimate arguments.

Something tells me that Paulson (BAC, WFC, C, COF), Buffett (WFC, AXP), Lone Pine (BAC, WFC, JPM), Maverick, et al know what they're doing...

Face it: A steep yield curve is good for financials. Even zombie financials can earn their way out of poor asset choices when the 2s-10s curve is almost +290bp. Pay <1% on your savings accts (i.e. funding base) & lend the money out at 5-6% is a good business model.

These guys didn't become billionaires making sucker bets...

TC said...

Back in early-2008 the investment managers running Peloton Partners believed they, too, knew what they were doing. Trouble is the market deigned otherwise.

It may be safe to assume those who today are pressing their bets in financials did not become billionaires making sucker bets (in the case of Paulson, however, someone most certainly was made a sucker ... with help from Goldman Sachs). Yet an even safer assumption is their billions did not come preaching the Gospel of Jesus Christ on street corners of lower Manhattan, either.

My reaction to your analysis is, if a [record] steep yield curve is good for financials, then why is the XLF still languishing? Why are financials not screaming to new, record highs?

And why did the volume of financial shares traded each step of the way higher off March '09 bottom dry up? Is this because a greater number of holders fearlessly believe the worst is over, so there is less reason to sell? And now because billionaires join this consensus this should be regarded positively?

Not in my book.