Doom-And-Gloom Returns Front And Center

I apologize for being radio silent for the past few days. Guests in from out of town, busy at work, letting people come back to reality - the usual excuses. So if you are reading this you obviously read a lot about this stuff, so I will skip the obvious. No need to talk about how Obama took GM and Chrysler over the coals a bit. No doubt to scare a bit of God into the bondholders, stockholders, workers, pensioners, and the like. In any event, I continue to believe that a government backed bankruptcy is the way to go. A new twist I heard - on the government guaranteeing warranties - came as very welcome. After all, what is the difference between an airline going into Chapter 11 and GM doing so. Airlines have bankruptcies all the time. We are used to it and it saves thousands of jobs. So why would an auto Chapter 11 be any different? The warranty, that's the difference. Most flyers have at most the fear of losing frequent flyer miles in an airline bankruptcy, but someone spending, 20, 30, 40 or more thousand on a car wants to know that the warranty will be honored. Looks like the government is willing to cover that base. Nice move.

Banks Profitable in January and February

I know this is old news but I have spoken to other people who scratched their collective heads when they heard this. After all, were they banking on another planet. The U.S. economy continued to suck during that time period, perhaps much worse than before. There was no big objective reason anyone could point to on why these massively money losing companies suddenly became quite profitable for a couple of months in the midst of a once-in-50 (if not 100) year- recession. Thus the head scratching. Nonetheless, the news supplied a nice market bounce.

Before I get to one possible explanation, let me note that most these banks have more recently reported that things turned south in March, so their first quarter results overall may not be as good as expected. Let's dwell on that for a moment. During January, February and the first week or so in March, the S&P went down say 25-26%, which is the time period when the banks reported a profit. Then in March the market had one of its greatest one month bounces ever. Yet the banks reported a turn for the worse in March. Hmmm. Seems counter-intuitive. Markets down drastically, banks up. Markets up drastically, banks down. That works for me - not.

So here is the possible explanation that I found. At least someone is saying that the major banks profited nicely from AIG giving them taxpayer dollars earlier this year. You see, AIG is the provider of many billions of dollars in CDS protection. These are toxic assets on AIG's books so they seem hell-bent on taking them off the books while the taxpayers are willing to pay for it to do so. So AIG is buying this "insurance" protection back from those that bought it - known in insurance parlance as a commutation - regardless of cost. After all, the taxpayers are paying so what the heck. The beneficiaries of this largess has been in part some banks that could book profits. That is one time profits at the detriment of taxpayers, but profits nonetheless. Go figure.

http://www.nakedcapitalism.com/2009/03/guest-post-banks-were-profitable-in.html

So if you think I am down on banks, look at what traditional doom-and-glommer Wolfgang Munchau, has to say. A good bit worse than his usual predictions. It is not pretty:

http://www.nakedcapitalism.com/2009/03/guest-post-banks-were-profitable-in.html

Did I mention that the 23rd bank went under for this year last Friday. The only surprise here is that it was only one bank.

And let me end with the end of the Hummer. Not for certain yet, but there seem to be no buyers and Hummer seems destined for a bitter end. Nothing like the head of GM getting axed to get its least liked gas-guzzling brand getting axed. There is symetry in the world after all.

http://www.calculatedriskblog.com/2009/03/end-of-gm-hummer-on-tuesday.html

Disclosures: As I noted last week I did some put options. Just a few thousand dollars worth at what I thought was the peak of what I perceived as a dead cat bounce. None of the stocks I have noted here today. I just think you should know that some of my investments right now do better when the market is down. I did, however, lose money today as I also have equity investments. The options are a hedge.