Thursday, December 8, 2016

Bait and switch is one of the oldest games in existence. Keep this in mind when you start hearing about regulatory relief in the financial industry during the coming months. Everyone engaged in any business that is regulated by a State or a Federal Agency will agree that there are a lot of nit-picking rules that are counter productive, rules that were promulgated in earlier times that are no longer applicable to today's world and should be discarded. These facts give air cover to Wall Street. Whenever Congress opens the dance to give regulatory relief to the banks they completely ignore the outdated and burdensome regs and at the bidding of the industry focus on planting the seed of the next big meltdown. History has given us two glaring examples of how this works.

The Garn-St. Germain Depository Institutions Act of 1982 allow the Saving and Loan Industry to make speculative investments with CD money, and led to the S & L failure and bailout in 1989 which cost the taxpayers 124 billion (low estimate). The original impetus for this was Ronald Reagan's efforts to ease regulation on private enterprise. The act passed Congress with widespread bipartisan support. This was the blueprint for bigger things to come.

In 1999 Congress passed the Gramm-Leach-Bliley Act also known as the Financial Services Modernization Act of 1999 to repeal Glass Stegall. Eight days later Bill Clinton signed it into law. With the lines between investment banks and Commercial banks erased Wall Street convinced regulators that they should be allowed to increase their leverage from 16:1 to 33:1 which led to the speculative frenzy that ended in the 2008 financial meltdown.

Please don't ignore the man behind the curtain. When Congress announces they are going to "fix" the Dodd-Frank bill, passed in response to the last crises, be afraid, be very afraid. .

Monday, November 28, 2016

Sometimes when I read the papers there is a disconnect between the reported stories and what seems to me to be obvious. Recently there is a lot of ink spilled about OPEC reaching an agreement about cutting production to raise the price. Every major oil producer is strapped for cash and the chance of these countries reaching a agreement to cut their cash flow voluntarily is non existent. The US-Iran deal allows Iran to sell their oil on the world markets putting pressure on Russia and Saudi Arabia who are  pumping oil with both hands because they need the money. If I was betting on a sustainable oil price increase I would be very nervous.

The Financial Times has an article this morning about the Italian banking system. Ever since the financial crisis in 2008 the worry about the banking system in Italy has been bubbling below the surface. I don't believe anyone has done anything about it and it seems ready to finally surface depending on the referendum next week. Throw an Italian banking crisis on top of Brexit and it might be time to turn on the fasten seat belt sign and strap in for a bumpy ride.

Why bank stocks in the US markets are up big since the election is a mystery to me. Traditionally a Republican administration is favorable to the industry, but the incoming President ran anything but a traditional campaign. There was a large component of populism in his victory and this will create a conflict between the financial industry and the voters who supported his election. Some direction about dealing with this dilemma will be indicated by whoever is appointed Secretary of the Treasury. Stay tuned.

Monday, April 25, 2016

Random thoughts coming into spring 2016

The world is awash with oil and will remain so for the foreseeable future. Major producers like Saudi Arabia and Russia will keep pumping as much as possible for one very simple reason, They need the money. Putin is trying to distract the Russian consumer from the disastrous domestic economy with his military based foreign policy, but invading countries is expensive. The Saudi's have been living fat dumb and happy on oil but now they are caught with no plan B for their economy. Look for the oil rally to fade soon.

Bob Dudley the CEO of BP received a raise last year from 16 million to 19 million. According to Bloomberg News "The bumper payout came despite an annual loss of $5.2 billion, a collapse in the group's share price, and plans to shed 7,000 jobs by the end of 2017." Since making 16 million per year should see you through the winter, an additional 3 million can't matter all that much. Isn't there one person at the company or on the board who might have suggested to Bob maybe a raise is a bad look this year since business sucks? If this CEO accepts a raise of this magnitude during a time the company is struggling, is he the kind of leader that puts himself or the company first?

Goldman Sachs is now offering saving accounts on line to individuals for as little as $1.00. What is wrong with this picture? Goldman who became a bank during the financial crises of 2008 is now trying to get funding directly from small investors. A year ago I doubt Goldman even knew there were people in the world with less than a million in ready cash is now reaching out for the "little guy". Do you think this is to help the "little guy" or Goldman? Let the buyer (depositor) beware!

Friday, January 29, 2016

Just in case anyone thinks Wall Street has any self perception, I was reading the Wall Street Journal this weekend during the NYC blizzard and came across an interesting article. The article stated that head of Goldman Sachs Lloyd Blankfein and head of Morgan Stanley James Gorman had taken a pay cut this year. It seems that poor Lloyd and James will have to struggle through the winter with only 23 and 21.5 million respectively, which was one million less than last year. In what parallel universe can this be described as a pay cut? Are we supposed to think that these men are being punished by their companies? "Yes that will teach them" "If you don't get better next year you will only get 20 million"

Additional random snow bound thoughts:

With the drop in commodities world wide it will be extremely hard for the Fed to raise interest rates according to the schedule everyone expected this year.

The rating agencies (Moody's and S&P) still don't get it. Case in point, Moody's finally figured out that oil was dropping like a rock so just last week they announced they were going to review oil credits. Where have they been for the last year?