[quote=“Fox”]I should be clear that my interest is only in Australian stocks.
However, if the US government has given a blanket guarantee supporting bank stocks like Citi Bank then as long term buys they are a must. If you have a five year horizon, they must be good buys.[/quote]
But of course you will have to weigh any potential gains against any potential fall in U.S. dollar value.
I personally feel that they’re done for long term.
Interesting and telling phenomenon in the Australian market today, all the utilities are being hammered in selling to buy turn around stocks.
Citigroup…
AIG…
They’ll go down again tonight. In two days they’ll go up again. Then they’ll go down. Then they’ll go up. After that they’ll go down but less than they went up. To summarize, they’ll go up and down then back up again. Buy low/sell high and you make a fortune watching the two yo-yo.
I’ve noticed a rather sinister change being introduced here. At one point the government was talking about actually purchasing toxic debt, presumably at a negotiated price that would not be too unappealing to the tax payer. Indeed at a price that might even show a profit if and when prices began to rebound. Now they are talking about subsidizing private investors who want to purcahse toxic paper.
Who is going to be allowed to apply for these subsidies I wonder, every day investors? I doubt it. They will likely be open to the same fund managers that created this mess in the first place.
Meanwhile they have they’ve got the public focused on 50,000,000 in bonuses. It’s an insulting issue but peanuts in real money terms.
The issue here bob is creating a market.
Initially the fed had offered to simply buy up all the so called toxic assets but the problem there is at what price. Essentially it would have resulted in the fed allocating a buy price for assets it couldn’t value or describe. The present scheme is an attempt at creating a market for the toxic assets by essentially guaranteeing 50% of their downside to potential investors in order to encourage them to buy and there by setting a price (i.e., valuing them) so that there is a relative standard. It is not a bad idea. In fact it is such a good idea that some firms are reluctant to sell. That is not such a bad thing in that it suggests innate value.
So the same people who caused this now buy up the mess at seriously reduced prices and with backing paid for by the taxpayer. This is going to have serious political implications if they don’t open up the same deal to regular investors.
Its open to regular investors through funds, but most people wouldn’t have the where-with-all to value such assets. If there value was apparent there wouldn’t be a financial crisis so even for companies with actuaries working their butts off they still can’t figure out a price hence the government cushion. It is not such an illegitimate government function, no more unsavory than standing armies, but the beneficiaries in this case are the banks whose political and economic capital has been exposed. They are the system like it or not.
Impossibly complicated derivative markets make it impossible to value assets and the same people that created those markets are now being given a chance to purchase assets at seriously discounted prices, while having their risks socialized. That is how it is going to play out because that is actually what is happening. The mantra I thought was accountability, transparency => stability, recovery. I can’t see how this fits.
Lets start with the confession - I bought Citi when they fell below $10 and chased them down a little. I spunked $10 large and its currently worth about $3.5K so I clearly do not know all I think I do. I also thought they were cheap at $19 but my better half talked me out of that buy - thank god.
Having said all of that I still believe that the “toxic” assets are artificially undervalued because no one is buying and they must be shown at fair value on the books.
Mr Obama was right in his thinking (like it was all his idea) that creating a market for the assets and freeing up capital should in theory push up the whole market. Another solution would be to sell the “toxic” assets off shore to someone who is not bound by the IFRS rules on fair value accounting.
The reason I think the assets are undervalued is that fundamentally the underlying assets are mortgages, subprime or not. Whilst bad rates rose sharply in the last 12 months loss rates are still manageable and no where near the 90% reductions we have seen in asset values. The houses themselves have on average only fallen something like 18% across the US and even selling at 30% below market for a quick sale would see no more than a 50% loss on most mortgages.
If the banks are allowed to keep these assets they will eventually be able to revalue them (which is why I bought Citi to hold) and realise massive profits - which would of course create a huge embarrassment for Bush, Obama et al. I suspect that the real reason for a forced purchase would be so that this is not allowed to happen.
Long story short I am not as bullish on AIG or Citi as I was 3 months ago but I am still hopeful Citi will come above $8.30 which is where I break even.
I don’t think the assets are undervalued at all. I think, and this is my bias, that the entire housing market on the West Coast of the US is incredibly overvalued. I think that the corrections thus far in the housing market are not done yet and that’s why some people are holding off buying homes. The overall average isn’t off by all that much, but the West Coast is hit badly. It’s hit badly because the prices were greatly overinflated. Home Prices Had Smallest Drop in 5 Months in January
[quote=“Bloomberg”]
March 24 (Bloomberg) – U.S. home prices fell 6.3 percent in January from a year earlier, the smallest decline in five months, as lower mortgage rates began to spur demand.
The decline was led by a 21 percent drop in the region that includes California, the biggest U.S. state, the Federal Housing Finance Agency in Washington said today. The monthly house price index is down 9.6 percent from its peak in April 2007. [/quote]
The primary reason I think the housing market is going to continue to decline is because of the bubble. The average home price in CA, NV and AZ rose incredibly fast. There are tons of housing tracts out in Riverside County, San Bernadino County and LA County that are currently empty. That will continue to drive prices down to a more affordable level. To give you an example, 6 months ago in Orange County you needed a yearly salary of 85,000 to afford a starter home. That was down from 120k a year before. That’s down to a level that’s about double the average salary in CA. I really wish I could say the OC was a fluke, but it’s pretty common that the rise in housing prices greatly outpaced rises in income in CA.
I know several of my friends who are in their mid 20’s are jumping for joy that the housing prices have tumbled. They are getting a chance to buy a house that they wouldn’t have had before because the prices were just so astronomically high. If you worked in one of the coastal cities you either had to pay high rents to live near by or buy a house inland and commute two hours a day.
If the banks are allowed to revalue the houses that are on their books, how are they going to make any money? They’ll have to revalue them down because they aren’t worth what the mortgage says anymore. Unless the banks can buy houses at a fire sale price and then sell them to responsible home owners with good credit (not subprime qualifiers) then I don’t understand how they’ll be able to make any kind of profits, let alone massive ones.
I agree with Edgar Allen and I wouldn’t be worried about putting 10 grand into Citi at 10 dollars. In a few years time, you’ll be looking like a genius.
The issue with the toxic assets is two fold. One is to create a market and the other is to encourage the banks to inter-lend and underwrite debt. Without those two functions, there is no money available for Joe Blow to buy a house and consequently less buyers to prop up the housing market which in turn feeds into the value of the already toxic debt. That is the essence of the crisis. This solution is the circuit breaker.
That’s what I reckon too, though I dunno exactly why I reckon it. Anyway, thanks to everybody so far. I think that in the next few years this will develop into a really interesting little thread.
Is there a way to short sell American currency? Now’d be the time but I can’t figure out if it’s possible.
Go to the bank and convert your American dollars to a currency not pegged to the US dollar in any form (highly advise the ZAR, now paying 7.5% at ICBC) and wait it out. When you think the US dollar is crappy enough convert your stake back to US dollars. Job done. Of course you could be wrong.
But I don’t have any American dollars. I am pretty sure though there is a way to short sell currencies even if you don’t yet have any. (The point about the possibility of being wrong has been “very” well noted btw. Still, no harm in being reminded on that one. Thanks.)
That’s true a proper short is to borrow, sell and return. So you could borrow USD to buy another currency e.g., the Rand and then in six months later sell convert the rand back into USD, repay your USD borrowings, and pocket the difference if you were successful. You just have to find somebody to lend you the USD for a very risky half-baked plan.
Don’t worry fox if I can’t find a short fund that works with currencies I won’t do it, and if I did do it I’d sell my other stocks at a loss to do it, which means I won’t do it.
I am just throwing ideas around essentially.
It looks like world leaders are suddenly intent on going after the untaxed USD11,500,000,000,000 sitting around in offshore bank accounts.
Won’t “they” be looking for some place else to put their money?
Won’t that eventually drive up the price of land and stocks?
SO I wrote a really long email in disgust to a journalist from the FT at the weekend - who had written yet another ill conceived piece claiming that the banks were responsible for all the mess and the governments move to rescind some of the fair value rules was essentially “handing them” them cash.
Was that completely dumb or should we hold journalists more accountable?