5/19/2010 - A Greece-y Bear Stew

What a Stew is Brewing…..Busted Banks, Bailouts, throw in some PIIGS and a useless Euro, stir it all up in a kettle full of geo-political unrest, a dash of wrenching regulatory reform and the Bears say its all set up for a ripe gluttonous cassoulet of overvalued opportunities.

To spice the stew, add a heaping dose of novice leadership in US, Germany and UK, and the Sous Chefs are tending to cauldron of catastrophe waiting to boil over. The Bears are circling the banquet table awaiting the party to end to feast on the spoils. Soon humanity will realize that the near Ponzi Scheme promises of bankrupt countries bailing out other bankrupt countries is as empty as the Greek Treasury Kettle, and let the Bear barrage begin.

The “Flash-Crash” will prove to have been no flash in the pan, and the recent dip should serve as a warning, as to how fragile and thin our markets truly are. The recent 1000 point dip is like when the sea starts to pull back before the tsunami. The warnings are there, in fact they are everywhere, but pundits keep coating it in sugar by categorizing the worst of news as the new normal. A bankrupt Globe is not normal, a US Government owning banks, auto companies and mortgage companies, and the health care system among others is not normal borrowing from the pillar of communism to spend like a drunken sailor is not normal. Last year many of the Euro nations were taking pot shots at the US questioning our banking system, our regulatory policy bla bla bla, and while I was then and remain now opposed to bailouts I suggested we get to the inevitable pass the Recovery Act, and then lets see what the Eurozone has hidden under their kimono. I talked about this in detail with Neil Cavuto in 2008, http://www.youtube.com/watch?v=Z7VGvJkhzBs Now their kimonos are open and it aint pretty.

Prudent Bears look at our markets recent upward behavior and think it is nothing short of ab-normal. Somehow when the shit hits the fan the evil short sellers will be the ones who did it,
Yet they are seeing things the most clearly. This market is Chock Full O’ Overvalued situations. Big names that short sellers are seeking are in Financials and Solars… C-BAC-HBAN-MS-GS, MBI There are some good banks out there, problem is they are mostly Canadian.
I pointed this out yesterday on Fast Money http://www.cnbc.com/id/37196097/ , and then sure enough Cramer comes on right after me on Mad Money and clips my call http://www.cnbc.com/id/37191470?__source=yahoo%7Cheadline%7Cquote%7Ctext%7C&par=yahoo

What caused the crisis? SIMPLE Bad Banks, Excessive Leverage, and the same type of Free Money stew that they are now serving to Greece. The U.S. is $1 Trillion, into the bailout and still U.S. banks are spoiled. U.S. Banks got govt bailouts, they diluted shareholders to raise more cash and yet the U.S Banking system all still teeters on the brink of insolvency. Even with a Rich Uncle Sam lending at 0 and paying 3% on Treasury carry trade the U.S. banks still can’t muster any organic profits. The bulk of the banks profits the last couple of quarters are from underwritings, (no not IPO’s there’s none of them, these underwritings are US Treasury underwritings) The U.S. Treasury needs to issue paper to lend the money to the banks at 0, so they pay the banks an Investment banking fee to issue the above mentioned notes so they can lend money to them at 0. The banks then get fees, which look like profits to issue the paper they need us to lend to them. WOW, Craziness.

Just to recap
• Taxpayers bail out the banks, with TARP.
• 1Trillion $ bailout created $3000 of debt for ever man woman and child in America.
• Just to put things into prospective, my 4 year old son Johnny has a negative net worth thanks to a Public Policy of Nationalizing Risk, and Privatizing profits. I didn’t achieve that goal til my teens.
• U.S. Citizens still owe the 3k, but the banks are giving out bonuses?? [ASIDE:] T-A-R-P Troubled Asset Rescue Plan, now there’s a misnomer.
• The Troubled Asset Rescue Plan never rescued a single bank or financial institution.
• The Cash that was supposed to take Troubled Assets off banks balance sheets never rescued few toxic assets. Less than 0.03% of the $750 billion authorized by Congress to buy toxic assets actually bought Mortgage backed securities from banks. Instead the banks take the cash 99.97% and pick up a 3% vig ($22.5 billion) on taxpayer cash while our kids will foot the bill one way or another.

So banks still sit with massively toxic balance sheets, profiting mainly from govt securities issuance, and prop trading. And oh yes prop trading, that’s right the Thursday vote on FIN REG may bounce the banks out of the prop trading business too. Another crushing blow to banks that could derail the bailout express. And Hmmm didn’t the treasury do some Stress Tests last year, to determine how much capital banks needed to stay solvent?And wasn’t a key metric unemployment? The Administration promised the TARP would stem unemployment at 8%, and the banks wouldn’t need more cash unless, (a) the mortgage defaults did not stabilize, and (b) the worst case scenario where banks would need to be re tested for stress was a 10% unemployment. Well folks welcome to the new normal. The new home tax credit is gone, housing will dip again, forclosures are on the rise, new buyers are scarce, and Unemployment is a hair from 10%.

Our banks are in a slow quiet burn, yet we are footing 17% of the IMF bailout to Greece.
Wait we are borrowing from China to lend to the banks at 0 so they can lend back to the Treasury at 3, and then borrowing some more to give to IMF to give to Greece? And the Greeks are rioting? We should be rioting! Greeks are pissed? The US will contribute $51Billion U$D to the IMF Bailout of Greece, that’s a per capita handout of $5000 for Greeces 11million citizens. And they are lighting things on fire? They lit themselves on fire years ago by hiring Goldman to create an off balance sheet product to trick the EU into believing their debt to GDP ratio was lower than it was. And now they are blaming US banks? This too is the new normal.

Our kids are 3 grand in hock already, we are borrowing from China to hand every Greek a $5000 handout and this is the new normal? Perhaps in Harvard, but not the America were I was raised. Selling the market is the only sensible move if you just embrace the fundamentals. Many Greek workers only need to work til they are 50 years old, (beauticians-steam bath workers and wind instrument musicians all qualify for early retirement) Bull Fighters in Greece must work til 55, but the flutist in the Athens Symphony gets to retire at 50? NORMAL? Workers they get 6 weeks vacation, cannot be fired and get paid 14 months pay for 12 months work and we are bailing them out. My Grandfather may he rest in peace Angelo Archipoli would say you get in debt you don’t borrow from somebody else to pay it off, you work. IF only Good Old Angelos parents had rendezvoused one island over in Mykonos instead of Sicily, maybe I could qualify for one of those cushy Greek citizen employment packages. How can we seriously believe in the new normal if a key tenet is pay Soviergn Debts of nations who are unwilling to work past 50, while here on the shorefront US Policy wonks try to raise our retirement age to save Social Security?
Thanks to an unsustainable monetary policy we are all in more debt today than when Obama and Single Party Rule took over, and now we are facing an extended retirement age to insure that a bunch of Greeks can live a comfortable life and retire at 50, on our Dime. Something about that just aint normal.

Other Shorts Surprises today --- NBG – IRE—
THE HIGH FIVE (top shorts) FSLR- SPWRA-CSIQ-VALE
Take a Gamble – Shorts are betting against Vegas as WYNN and LVS are hitting the Short Radar.

If you’re long IFLG you should be getting paid a nice price from your PRIME its Hard to Borrow

BMO – RBC, look like the strength in the banking Sector. DO NOT SHORT!!!!

M&A Could one of these Canadian Heavyweights enter the Prime Space with a Mini Prime Acquisition? Stay Tuned.

JT