Archive through March 13, 2008
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     rdumas
Member
Username: rdumas
Post Number: 1206
Registered: 11-2006
Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 07:57 am: | 
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Hilarius,
Hopefully you will have read the posts either side of Colin's post mentioned in my previous post to you. If so you will see that banks are highly leveraged. Also if you listened to the Ian Macfarlane talk regarding recessions you will know that a number of lending institutions (including banks) did go down the gurgler during the recession of early 1990s. Hence you will know that banks are just as prone to disappearing as any other company.
Why didn't they make higher provisions in line with their relaxed lending policies.
I would suggest that they, like the rest of the world, got caught up in the 'good times' where people believe that things will always remain that way and lose track of the fact that there is always risk associated with financial transactions. There were a number of financial commentators that mentioned that people were not pricing in risk appropriately.
This would have (1) provided more of a cushion for future shocks and (2) stated the boom benefits more conservatively
Hindsight is such a wonderful thing. 
Why lend to bad risks anyway? Aren't these highly paid bank executives supposed to be too intelligent to take bad risks without adequate provisions for defaults?
I would suggest that they, like the large majority of financial experts did not understand what the real risks were with all of these financially engineered products. Even the so called ratings agencies didn't understand them.
By the way one of the problems of being a public company is that you have to keep share holders happy. Can you imagine if you were a bank and you said either of the following:
1) we are not going to lend to large companies running high debt/equity ratios knowing that if we didn't then they would just go to our competitors who would willingly lend them the money
2) we are going to make provisions for bad debts against companies running high debt/equity ratios knowing that by doing so we are greatly reducing the money available to produce profits for us through the lending process
Once you did that and the share holders noticed that all of the big customers were leaving the bank that they had shares in with the resultant down turn in earnings, etc, what do you think would happen to the share price???
This is unfortunately the way that the real world operates which forces company directors and boards to do things that they would not do as a private company.
The unfortunate thing about bubbles is that legitimate companies get caught up in the updraft because if they don't take part they go out of business. There were a few big name Warren Buffet style businesses that went bust during the tech boom because they refused to take part in it. They were eventually proven correct but they went bust in the mean time because customers deserted them and went with the companies that were buying into the tech stocks and making them lots of money.
So too during periods like that which we have just seen the tail end of. Relaxed lending practices raised their heads and the 'good times rolled' for those that took part (which was the majority of them). Those that didn't would lose their customers and go out of business or at the very least be left behind.
Such is the human condition of the world we live in.
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rdumas
Member
Username: rdumas
Post Number: 1207
Registered: 11-2006
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Votes: 0
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| | Monday, March 10, 2008 - 08:13 am: |
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LIFE AFTER SUBPRIME
Here's an interesting article from Business Spectator site.
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5:44 AM Mar 10, 2008 Stephen Bartholomeusz
Never say never again
It may be too early to consider what life might be like after the sub-prime crisis is over, whenever that may be. Clearly though, it will be different. Things certainly won’t be the same for banks, investment banks, credit insurers and ratings agencies. That isn’t necessarily a bad thing.
For nearly 30 years the processes of disintermediation and securitisation have fuelled the development of increasingly sophisticated markets for credit. In the past 20 years in particular, the roles played by ratings agencies and credit insurers and market-developed credit-enhancement techniques have been vital in providing access to those markets for sub-prime borrowers and in the sheer growth of debt markets.
While they initially resented and resisted disintermediation, the banks have increasingly seen it as an opportunity to recycle their capital and generate higher returns while passing credit risk to third parties. They have, to a degree, reinvented themselves as originators and sometimes distributors of credit.
For the ratings agencies and credit insurers, the explosion in the securitised debt markets was an opportunity to greatly expand their businesses from the boring and relatively low-rent business of rating sovereign and prime corporate debt. Not only did they expand their market and fee streams but also their role within that market – the agencies consulted on and even helped design some of the structures they rated.
The flaw in the global capital markets that has developed is that the interests of those who originated credit – the banks and investment banks – increasingly diverged from those of the investors.
The originators were mainly concerned with volume and risk-transference and, given that they weren’t going to be holding the assets on their balance sheets, less concerned with properly assessing and pricing the credit risk.
The investors, reassured by the ratings agencies and credit insurance, didn’t (with the benefit of hindsight) demand appropriate risk premia for increasingly complex and difficult-to-assess securities.
For the securitised debt markets to grow to the size and depth that they did, it was essential that investors were convinced that the sub-prime collateral underlying the securities they were investing in wasn’t sub-prime at all – whether through the maths of portfolio theory, credit enhancement or by the ratings assigned to the securities by the ratings agencies.
Without the willingness of the credit insurers to wrap their own AAA ratings (and expose their capital bases) to sub-prime debt, and without the readiness of the ratings agencies to award AAA ratings to securities ultimately supported by sub-prime assets, the global capital markets would be a fraction of their size, confined largely to sovereign debt and investment grade corporates, and the asset-backed securities markets would be a sliver of the size they grew to.
The ratings agencies have been discredited and the credit insurers gutted. Neither group will be trusted as blindly as they were by investors. AAA in future should mean AAA, not junk sliced, diced and wrapped to look vaguely like AAA.
That probably means the securitised debt markets will never again be what they were. To the extent that investors will be prepared to invest in sub-prime credit they will demand not insurance, but an appropriate risk premium. One suspects structured credit will be a lot less structured – investors will want to be able to understand the nature of the risks themselves, rather than rely on the assurances of third parties.
Exotic debt investments aren’t going to be terribly popular anytime soon and the investment banks that made fortunes from originating, structuring and distributing them will need to look for more conventional sources of income.
Funding strategies that relied on financial arbitrages – using short-term funding for long-term assets to create a positive yield differential – will have to be rethought now that investors have seen what can happen to structured investment vehicles caught in a liquidity trap.
Banks will have to hold more of their assets on-balance-sheet and charge borrowers more to reflect the cost of the capital that will be needed to support them.
Regulators will regain some of the control of the quality and quantity of the credit in their systems that global markets had taken from them.
Credit will cost more and be less available – particularly for the less credit-worthy borrowers – at least while the memories of the sub-prime crisis and the credit crunch it triggered remain reasonably fresh. But then as JK Galbraith pointed out in the wake of the 1987 crash, the collective memory of financial markets is only about a decade.
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easymoney
Member
Username: easymoney
Post Number: 137
Registered: 03-2005Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 08:58 am: |
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rdumas,
an interesting read demonstrating how the financial herd mentality works.
Who would bet against a recession (or even a depression) now that the orthodoxy appears likely to go back to the good old days of only loaning money to those who can prove they don't need a loan?
Two of them say they're Jesus.
One of them must be wrong.
Industrial Disease
Dire Straits
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colin_twiggs
Member
Username: colin_twiggs
Post Number: 3127
Registered: 09-2002Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 09:09 am: |
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Charles,
Calling anyone on this forum a Nazi is unacceptable.
Dug,
I thought you had agreed to leave Charles alone.
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dug
Member
Username: dug
Post Number: 2965
Registered: 07-2005
Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 09:45 am: |
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Colin-
I have left him alone.I can't be held to account for him seeing himself as top of the category-
Old Goat,we are the Experts,Adore me Brigade
Of course,if the "cap" fits he'll wear it!!
As for all this Nazi piffle? All nazis are Fascists BUT all fascists aren't nazi's.Do you follow?
I know he has a Religious Intolerance of Nazi's but over all he's just..,well he's off and over the deep end.
I'd just like to add that somewhere in his rant he stated that he'd "checked up " on me and KNEW my father was German.
Obviously his research is as poor as his dictatorial attitude.My father was Scottish,a few times removed like he was 2/3 generation oz but there is family talk that we may have some Indian in us.British Raj and all that.
Anyway,Colin why don't you just edit out his Muttering Piffle? Over at Warm Pig they have moderation based on Low Content,you should implement that here.
Cut out the one line Fanciers as well as the Long Winded Tales of Yore that have been reprinted here about ten times all ready.
Geez Colin,we're due for the "Opening Chapter" of the Vanity Book next.Remember that one? It's about some Rice Trader who was "Adored" as a God.
anyway,leave you to it.
regards,
John
Even 'til Jaded.
Dig for the sake of it.
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resillent1
Member
Username: resillent1
Post Number: 384
Registered: 10-2006Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 09:52 am: |
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Just back from a break – one of the more interesting things that seem to have happened while I was away is the ABC (ABS) collapse.
I’m not sure if these issues have already been addressed, but:
How did the Groves get themselves margined? Was it cash withdrawal?
If it was cash withdrawal, when did they do it?
Did they initial margin strait to the max loan ratio.
Did their margin lender recover all losses through the share sale? Margin loans are no-recourse beyond the shares held.
Director interest notices are a joke when capital withdrawal through margin lending doesn’t have to be declared.
ASIC rules on share sales windows are a joke when they don’t apply to margin selling.
Who bought the Groves forced sale parcels? There has been no substantial share holding notifications.
Was it the short sellers covering?
Why aren’t substantial shorts required to be reported?
Why aren’t shorts via “loans then short” required to be disclosed at all?
A share’s available float is increased or decreased by lending. A major driver of supply and demand, but no appendix 3B required here!!
Do directors have to declare short sales? CFD positions etc?
Do margin lenders have adequate Chinese walls between loans to customers and loans of securities?
Is Eddie a genius or an idiot?
I may just be a conspiracy theorist, but inadequate market regulations provide plenty of possibilities to those so inclined.
America had an accounting standards and corporate governance shakeout after the 2003 market. I reckon we will have (and need) a financial market regulation shakeout during the post mortem on this market.
I can’t believe how much counterparty risk CFD providers pose to many who don’t even understand what counterparty risk is. Yet they remain totally unregulated in what is meant to be a sophisticated financial system. Just one example of many area's that need addressing.
Cheers
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colin_twiggs
Member
Username: colin_twiggs
Post Number: 3129
Registered: 09-2002Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 10:01 am: |
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dug wrote on Monday, March 10, 2008 - 10:45 am:I have left him alone.I can't be held to account for him seeing himself as top of the category-
Old Goat,we are the Experts,Adore me Brigade
Of course,if the "cap" fits he'll wear it!!
Yeah right!
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rdumas
Member
Username: rdumas
Post Number: 1208
Registered: 11-2006
Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 10:26 am: |
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Hi Resillent1,
There wasn't much discussion about ABS during your absence so the points you raise are new. I certainly don't know the answer to most (if any) of the questions you raise but I never personally liked the stock because it always did have a high debt/equity ratio as well as always coming back to the market for more money to help finance his expansions. It's ROA has trended down from a high of around 20% in 2001 to 1.53% in its December 2007 interim report. Not a company that I was ever tempted put my money into.
As for the American accounting standards and corporate governance shakeout after the 2003 market I can't see any evidence that it was very successful, have you?
I do definitely agree with you though about the need for greater transparency in a lot more market activities so that we are not 'flying blind'.
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resillent1
Member
Username: resillent1
Post Number: 385
Registered: 10-2006Rating: 
Votes: 1
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| | Monday, March 10, 2008 - 10:52 am: |
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Captain Chaza
I was wondering about the capital you allocate to your ship design.
How much skin do you have on the line? Have you got the wife and kids on board with no lifeboat or is it more like Kerry Packer going to the casino for a night of fun?
This is a really important point for punters that may be influenced by you to know and consider. Especially if their circumstances don't match yours.
My assumption due to the small scale of the ship designs relative to your age is that there is an undisclosed mother ship sitting somewhere.
Why don’t you tell us about the mother ship? Do you sail her the same way as your fun ship or are you a closet long termer? Is that why you are down here?
Perhaps you have got a pilot on board shunting her around some safe harbour.
Or maybe you are a pirate who burries his treasure after each voyage– Is property rather than sailing your real game?
What’s the big picture Capt, what's your main game? or is there sadly not one?
p.s
Life is long term – Only the good die young.
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dug
Member
Username: dug
Post Number: 2966
Registered: 07-2005
Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 11:40 am: |
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resillent 1,
It's not much use trying to get the Captain to contribute to this thread.
He HATES,or at least,Completely Dismisses Fundamental Analysts.He'll only start up with they have sweet FA,in the rude sense.
From my "investigations" Charles-
Has another ship called the Bear Hunter.This is his Superannuation Vessel.He buys Blue Chips for it from time to time but I don't think he has a Real Job that qualifies this "vessel" for proper Superannuation Contributions.However he MAY have a Structure to his activities that qualifies him as an "employee".Family Trust/Company set up.Usually around the end of the year he starts bemoaning Professional Fees.He also from time to time preens on looking after his Family's Money,brothers/sister's that sort of thing.
Charles also often declares that He is a Long Termer but he means it in a "twisted" sense as in he wants to be and Has Been in the Market for a Long Time/Term so he says that's done by short term trading.
His Short Term Trading seems to be based on $100-200 grands Start.
He buys 20/30 shares at one time with this chiefly,in fact most always,NOT Blue Chips.
He has chart signals he follows in the Hot,most Volatile Sectors currently exclusively Materials but in the past IT and Bio Techs.These are usually under $1 shares.
These 20/30 shares are churned.He says that he doesn't use stops and in fact is an advocate of Doubling Down.I think he clears the decks of non performers based on chart signals but mostly,I reckon when some other Share comes on d'Radar.
His Example is a bit flawed because of the Large Capital dedicated into Penny/Non FA shares that has a system working sheerly on Volume/In and Out Transactions ie No Novice/Sea Cadet/Brave and Loyal Crew member is trying/following his method unless they have that much money to play with[100 + grand$ in Volatiles]
Anyhow,hope that makes you get d'Picture at least dimly.
cheers.
Even 'til Jaded.
Dig for the sake of it.
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captain_chaza
Member
Username: captain_chaza
Post Number: 3069
Registered: 02-2003Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 02:20 pm: |
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Ahoy Resilient One
I wouldn't put much weight on anything JR says
He even suggested once that I live with my sister LOL!
With regard to ship design
Yes I Captain many ships and no I don't treat them any differentlty by way of Long term/Short term
To me they are all the same
Short Term + Short Term + Short term = Long term =
One financial year
One step at a time as they say on Land
Some shares allow you to Sail for a whole year and others don't!
"The Wind Calls the Tune!"
Who am I to judge what the wind will do in one weeks time or one months time?
Surely that would be like playing G-D?
Salute and Gods' speed
"While we stop and think, we often miss our opportunity." Publilius Syrus, 1st century B.C.
"I believe the future is only the past again, entered through another gate."
Sir Arthur Wing Pinero 1893
"There are two times in a man's life when he should not speculate: When he can't afford it, and when he can." Mark Twain, 1897
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colin_twiggs
Member
Username: colin_twiggs
Post Number: 3130
Registered: 09-2002Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 03:09 pm: |
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Charles,
If you want Dug to leave you alone, I suggest that you give him a break as well.
(Message edited by colin_twiggs on March 10, 2008)
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captain_chaza
Member
Username: captain_chaza
Post Number: 3071
Registered: 02-2003Rating: N/A
Votes: 0
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| | Monday, March 10, 2008 - 04:16 pm: |
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