Wednesday, July 16, 2008

Does Run Rhyme with Fun?

One picture is worth a thousand words... This a picture of a "run"on the IndyMac Bank which led to its collapse over the weekend. Federal Regulators shut the whole bank chain down, and re-opened them on Monday. The term run means that depositors grew increasingly uncomfortable with IndyMac's liquidity, and thus ran to the bank to withdraw their funds. The problem was that IndyMac did not have the funds to cover all withdraws. Ut what happens? Great question...F.D.I.C. takes over to cover any deposit up to 100K. What if you are a depositor with 150 K in the bank? That's a great question... FDIC only covers up to 100 K. Speaking of FDIC, the estimate is that this run alone used 1o% of the F.D.I.C.'s funds!!! Now that is scary!!! (1) IndyMac opened up Monday morning with government regulators running it. More to follow on this story!

Another story showed that beleaguered consumers are actually withdrawing monies from retirement accounts at an alarming rate. According to an article in Yahoo Finance, sources suggest that the people who are responsible for 2/3rds of U.S. economic growth are in a choke hold and trying to tap themselves out of it until things get better. (2) Another article went a far as suggesting that the U.S. economy may be the worst shape since the Great Depression. (3)

When interviewed this morning on Bloomberg TV George Soros' former right-hand-man Jim Rogers criticized the long arm of the Fed citing that the one two combination of Paulson and Bernanke are over-extending its role. Rogers was acutely concerned about the additional leverage Treasury and the Fed have taken in this crisis. In particular, Rogers went as far as saying the new bailout and stock buy back for Freddie Mae and Freddie Mae accounts for nothing less than a criminal act. Whoever invested in those worthless institutions should be left with the consequences found in the capitalist system. (4)

We are reminded that a leading analyst from RBS has already warned his top clients and the bank that there is great risk of an impending credit calamity. (5) Interestingly enough, Fed Chairman Bernanke espoused nothing but smiles and good news to the Congressional Finance Committee. I wish Steve LaTourette would have read my letter aloud to Big B. But nothing would have changed. After all, the tag team of Paulson and Bernanke have been telling us all along that everything is o.k.. The U.S. economy is on solid footing... that the housing market will be taken care of with new regulations. This is the same song and dance the American public has been fed for the past 16 months. Today the persuasive words and phrases of Bernanke coupled with Wells Fargo's surprise insurance division's earnings was enough to let the bulls win the day on Wall Street. However, more earnings are on the way. And after a while, the pep rallies that have been held by the Treasury and Fed will lose their punch.

Note the particular caution the business wiseguys are applying on the naked-short selling by the likes of Ackman on Freddie and Fannie... (6) Like Rockefeller said " The way to make money is to buy when blood is running in the streets."

I am looking to increase my positions in STI and considering a new position in PNC. I am also interested in regional banks that have heavy exposure in the Detroit, East Tennessee, Texas and Florida areas. I will also be looking into any consumer discretionary that is low on cash. One would have to question Wynn Resorts notion to increase dividends in a period of a busted consumer. Also consider IGT.

P.S. WFC goes from 120 to 180 days for delinquency reporting...
That is just crazy... Talk about changing the rules of the game during the game...
Why is it that mainstream media does not cover the manipulation in reporting???
That should be the story of the day... pure acts of desperation.

Sources Cited








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