“Resilience" or “Delusion”

Punk Ziegler, the boutique finance and banking research and broker, lowered their ratings on four of the largest U.S. investment banks to “SELL”. Dick Bove, Punk’s banking and finance analyst, said "I do not view this as a Bear Stearns problem but a systemic one." Following Bove’s research over the years, he’s worth listening to. More interesting was their own proprietary estimates on the growth of U.S. M3 (broad money supply). As you might know, Ben Bernanke and the U.S. Federal Reserve decided for us in March 2006 that publishing M3 data was no longer relevant and too costly. Punk & Ziegler estimate that M3 is currently expanding at apace of over 13-percent!!!! Perhaps Ben and his friends at the Fed had realized that being on the cusp of a housing crash in the U.S., they would soon have to start printing money like never before? Fairchild Semi (FCS), was the latest major semiconductor to report no growth and little prospects for the immediate future. Revenues, year-over-year, were essentially flat; margins dropped and Net Earnings dropped a lot. They also gave weaker forward guidance of 2-percent sequential revenue growth from an expected 4-percent. Cash and short-term investments have dropped by nearly $139-million since the beginning of the year—a nearly 24-percent drop in cash equivs. But of course, according to the “Delusionists Guide to the Galaxy: Bad news is always isolated, and good news can be extrapolated as also being good for the entire universe.….Motorola (MOT), which had already warned was a horror show!!!. Revenues dropped from $10.8-billion to $8.73-billion year-over-year!! IBM, of course reported positive numbers, and all else was forgotten. Within the first minute of trading, the Dow was again busting thru the 14,000 level. Yesterday’s news, which looked a little disconcerting along the subprime/CDO/structured credit-front, was essentially wiped clean within minutes of this mornings opening of trading in the U.S. If the bubble apologists hadn’t been so wrong as it concerned housing, and later subprime, as it migrated from froth, to peak, to “leveling-out”, to “correction”, to “difficult”, to “Get me the hell out!!!”, I would be far more open to accepting their current thesis that the structured credit problems will be isolated. It won’t be, and sometime over the next 6 to 12-months, a large number of folks’ net-worth’s are going to wiped-clean. The “canaries in the coal mine,” the large Wall Street investment banks weakened as the day wore-on. Goldman Sachs (GS) and Lehman Bros. (LEH) even broke thru some minor resistance back to levels last seen in early April…American Home Mortgage Investment (AHM) crumbled into the close on a rumor that a Wall Street investment firm had withdrawn a credit facility. It’s a small company, less than $1-billion market-cap. But nonetheless, it looks like another portfolio of mortgage-backed securities may be getting singed. A mere fly on the windshield as the Dow closed at a new record high, and exactly on 14,000. What a coincidence? Ya know, if it took a million or so thrown at the Dow futures in the last few seconds of trading today, the Wall Street cartel, I’m sure, believes its money well spent for reaching a new century mark and the soon-to-follow arm-waving that it will elicit on the night's news cycle.