Surfing the second wave (including 2 must see videos and 2 must read essays)

In this post dear reader you will find information about

-second wave of write-downs which lies ahead of us
- from the author of the book “The Best Way to Rob a Bank Is to Own One” a MUST SEE Video
- "The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention, another MUST SEE video.
- Mark Patterson: "It's A Sham. The Banks Are Insolvent"
-Citi will need a lot more
-Fannie and Freddie need more money
-The $33,000,000,000,000 Question, an excellent essay and a must read in my opinion
-FED, who is running the FED, an interesting article written by Eliot Spitzer
-economy, more red ink needed
-manipulation, Richard Russell
-equity: a suckers rally
-gold, decade of central bank gold sales

Well dear reader this post will not be about surfing, although having some financial surfing capabilities could certainly be helpful. Well what second wave could be heading towards us? More write downs? Yes this is the wave I see coming. Well we certainly got wet trying to surf successfully through wave one and some even got under water. How will wave 2 be? My guess is that this second wave is a wave that is much stronger than the first one. That means that probably there will be a high number of entities going under. If you want to know a bit more about it, you can find more information below. Please see at least the 2 must see videos.

Before going into more details, as usual the overview from www.prudentbear.com
For the week, the S&P500 fell 5.0% (down 2.3% y-t-d), and the Dow lost 3.6% (down 5.8% y-t-d). Economically-sensitive stocks gave back some of their recent big gains. The Morgan Stanley Cyclicals sank 10.7% (up 8.3%), and the Transports dropped 8.9% (down 13.7%). The Morgan Stanley Consumer index declined 3.3% (down 1.5%), and the Utilities sank 5.1% (down 12.4%). The broader market was in retreat. The S&P 400 Mid-Caps (up 1.4%) and the small cap Russell 2000 (down 4.7%) each fell 7.0%. The Nasdaq100 declined 2.8% (up 11.8%), and the Morgan Stanley High Tech index lost 2.5% (up 19.9%). The Semiconductors fell 3.0% (up 14.2%), and the InteractiveWeek Internet index sank 3.6% (up 30.4%). The Biotechs fell 3.0% (down 4.9%). After last week’s melt-up, the Banks sank 16.2% (down 17.3%), and the Broker/Dealers fell 9.1% (up 18.4%). Although Bullion gained another $15, the HUI gold index slipped 0.4% (up 13.1%).




Banks and banksters

Wave 2
Well dear reader as mentioned at the beginning of this post I see the second wave of write downs coming and my guess is it will not take much time to feel the wave. In addition to the problems of the first wave we will have credit card debt, commercial real estate and others included in this second wave. IMF forecasts losses in the range of some 600 billion for the US and some 500 billion for Europe. They believe that from the total losses to be expected, we have not seen half yet and this, in my opinion, might be a very optimistic scenario. By the way the first article about the coming losses mentioned a total of 1,2 trillion losses. During the week this number got raised everyday. The last number I saw was already an estimation of 2.1 trillion losses. So get ready dear reader, if you are an experienced surfer you should do well however a try shelter might come in handy.




Well anyway, dear reader, as banks will need more capital due to this second wave and its implications, it will be interesting to see which ones will survive. It certainly will be a lot more difficult to raise new fresh capital in this coming wave.

Dear reader be careful with big financial institutions. Some already today are insolvent (listen carefully to the videos) and only kept alive artificially by cash injections.
Big is definitely not nice anymore but yes, small mostly is beautiful (look out for very conservative institutions with only local exposure in markets that are stable. Don’t wait until it is too late.



As mentioned a couple of times, new accounting rules helped the banks to show results that look much better
Following an article explaining why Citigroup, Wells Fargo, etc. reported "profits" this past quarter.
http://finance.yahoo.com/news/ALL-BUSINESS-Accounting-apf-15191774.html?sec=topStories&pos=2&asset=&ccode



Mark Patterson: "It's A Sham. The Banks Are Insolvent"
The chairman of $7 billion distressed Private Equity firm and TARP beneficiary MatlinPatterson calls a spade a spade and in the process exposes the entire Geithner plan for the complete sham that it is. His comments before the Qatar Global Investment Forum were captured by the Daily Telegraph's Evans-Pritchard earlier, and Zero Hedge republishes the piece in its entirety as it presents every nuance of our predicament with masterful simplicity.
Please read the following article
http://zerohedge.blogspot.com/2009/05/mark-patterson-its-sham-banks-are.html





Inside Citi's Stress Test: More like an F than a B+
Dig a little deeper, though, and Citi's stress test results look more like an 'F,' than the 'B+' the bank seemed to get. Among the 19 banks the government probed, Citi was found to have the lowest common capital ratio, which the government said was a key measure to protect against insolvency. What's more, Citi also got credit for a capital conversion it has yet to complete. Strip that out, and the amount of capital Citi needs balloons to nearly $63 billion, more than any of the other banks tested.
http://www.time.com/time/business/article/0,8599,1898049,00.html?xid=rss-business

NEW YORK (Reuters) - A day after saying big U.S. banks probably needed to raise only one-fourth the capital demanded by the government, Standard & Poor's said the nation's banking crisis has "merely entered a new phase" and might not end before 2013.
The credit rating agency said the industry is being propped up by hundreds of billions of dollars of government support, especially for lenders considered too important to the financial system to fail…
http://www.reuters.com/article/ousiv/idUSTRE54C6XL20090513


Fanny and Freddie
Fannie and Freddie will need at least another $100 billion
according the OMB (Office of Management and Budget):
"The OMB says that the two companies will need at least $92.2 billion more in fiscal 2010. This is on top of the $78.2 billion in aid they've received since they were taken over by the government in September."
http://www.businessinsider.com/fannie-and-freddie-
will-need-almost-100-billion-in-2010-2009-5
Both are clearly another AIG meaning that their need for more funds will not end with this funding. This is an ongoing story.


The $33,000,000,000,000 Question,

an excellent essay and a must read in my opinion
http://www.safehaven.com/article-13317.htm



The Best Way to Rob a Bank Is to Own One, a must see video

The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout
http://www.pbs.org/moyers/journal/04032009/watch.html


And another must see video
"The Worst Is Yet to Come": If You're Not Petrified, You're Not Paying Attention
http://finance.yahoo.com/tech-ticker/article/248398/%22The-Worst-Is-Yet-to-Come%22-If-You%27re-Not-Petrified-You%27re-Not-Paying-Attention?tickers=^DJI,^GSPC,DDR,XLF,GM,RWR?sec=topStories&pos=9&asset=&ccode


Life insurance
Is your insurance company still safe?
May 15 – Wall Street Journal (Andrew Dowell and Jamie Heller): “The Treasury Department will make federal bailout funds available to a number of U.S. life insurers… The Treasury is prepared to inject up to $22 billion into the insurers under the rescue plan launched last fall as the Troubled Asset Relief Program…”
Allstate, Prudential, Ameriprise, Hartford Financial, Lincoln National and Principal Financial will now all have access to TARP funding


FED
The New York Fed is the most powerful financial institution you've never heard of. Look who's running it.
http://www.slate.com/id/2217811/

FDIC
FDIC requested $500 billion in additional funds to cover bank failures. Is there a giant failure coming?


Economy



US to borrow 46 cents for every dollar spent
The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates. Budget office figures released Monday would add $89 billion to the 2009 red ink — increasing it to more than four times last year's all-time high as the government hands out billions more than expected for people who have lost jobs and takes in less tax revenue from people and companies making less money
http://news.yahoo.com/s/ap/20090511/ap_on_go_pr_wh/us_obama_budget




Manipulation
Manipulation -- As far as the Fed and the Treasury are concerned, this is an all-out WAR. They've put the viability of the United States at risk through creating trillions of dollars of debt. I believe this government will stop at nothing in their furious battle against the bear market and deflation. And if manipulation helps, they'll do it.

For decades I've heard stories and rumors about manipulation. I've always brushed those rumors aside. But this is a different world, and the nation is literally fighting for its life. People ask me, "Do you really believe the government would manipulate the markets?" My answer, "You bet I do, they're willing to do absolutely anything in their struggle to get the US economy back to 'normal' again."

Well dear reader it seems like more and more people accept that the markets are manipulated and have been manipulated for years. It seems that this blatant manipulations started mainly during the Clinton term. Now it seems that the FED and Treasury are desperately trying everything to keep things under control. Well in the new administration you can see many faces that were already during the Clinton presidency responsible for actions with the only target to keep markets under. That means they have already experience in doing so.

Well although markets are manipulated (or if you prefer to use managed) the primary trends will prevail. Not even the billions they use in order to try to reverse the trends will help.


Gold
Decade of gold sales has cost Europe's central banks $40bn
By Javier Blas
Published: May 7 2009 03:00 | Last updated: May 7 2009 03:00
Europe's central banks are $40bn (£26.4bn) poorer than they might have been after they followed a British move taken 10 years ago todayto shrink the Bank of England's gold reserves, analysis by the Financial Times has shown.
London's announcement on May 7 1999 that it would sell a large share of the Bank's gold reserves in favour of assets offering a return, such as government bonds, was the high water mark of so-called "anti-gold" sentiment among European central banks.
http://www.ft.com/cms/s/0/3c16f228-3aa0-11de-8a2d-00144feabdc0.html?nclick_check=1

Well dear reader I would not be surprised to see gold above USD 1,000 within maximum 45 days. Gold looks good from a technical point of view and a move above the 932 resistance is in the cards.



Equity
Well dear reader you might have wondered many times about, in general terms, a poor research from the financial institutions. How can it be that these highly qualified and educated people are most of time so wrong with their analysis you might have asked yourself many times. Well it might be that they are not allowed to say what they believe. At least that is my conclusion. Some have much more accurate analysis once they have left the financial institution. Following an example that confirms this statement.

Merrill's Rosenberg: Goodbye, Thank You, Yes It's Just A Sucker's Rally
Merrill's economist David Rosenberg left the firm yesterday (planned for several months). And he went out swinging. David has maintained from the beginning that the recent rocket rally off the lows is just a suckers' rally, and he reiterated that view as he walked through the doors.
Some excerpts from his swan song, which was published Thursday:
Market likely to peak the end of the week [Yesterday]. Just as the clock is winding down on my tenure at Merrill Lynch, the equity market is winding up with an impressive near-40% rally in just nine weeks. For those that were still long the equity market back at the March 9 lows, a good ‘devil’s advocate’ exercise would be to ask yourself the question whether you would have taken the opportunity, if the offer had been presented, to have sold out your position with a 40% premium at the time. What do you think you would have said back then, as fears of financial Armageddon were setting in? We haven’t conducted a poll, but we are sure at least 90% of the longs at that point would have screamed “hit the bid!”
http://www.businessinsider.com/henry-blodget-merrills-rosenberg-goes-out-swinging-just-a-suckers-rally-2009-5



Well dear reader did you know that insider selling is another indication that we possibly are approaching the end of this bear market rally. Following information about insider selling.

The following passage from a Bloomberg article dated April 24th on the subject of rapidly rising Insider Selling is another indication that markets might head down soon
"While the Standard & Poor's 500 Index climbed 28% from a 12-year low on March 9, CEOs, directors and senior officers at US companies sold $353 million of equities this month, or 8.3 times more than they bought, data compiled by Washington Service, a Bethesda Maryland based research firm, show. That is a warning sign, because insiders usually have more information about their companies' prospects than anyone else, according to William Stone at PNC Financial Services Group Inc. 'They should know more than outsiders would, so you could take it as a signal that there is something wrong if they are selling,' said Stone, chief investment strategist at PNC's wealth management unit, which oversees $110 billion in Philadelphia. 'Whether it is a sustainable rebound is still in question. I would prefer they were buying.' Insiders from New York Stock Exchange listed companies sold $8.32 worth of stock for every dollar bought in the first three weeks of April, according to Washington Service, which analyzes stock transactions of corporate insiders for more than 500 institutional clients. That is the fastest rate of selling since October 2007, when US stocks peaked and the 17-month bear market that wiped out more than half the market value of US companies began. The $42.5 million in insider purchases through April 20 would represent the smallest amount for a full month since July 1992, data going back more than 20 years show. That drop preceded a 2.4% slide in the S&P 500 in August 1992." One might expect history to repeat itself, namely a severe stock decline soon to come! A peak in stocks might be forming, just like October 2007.