Ilargi at the Automatic Earth has a great big picture post on the real state of financial institutions and why we may be headed back to 2008 and bank bailouts again: Using his mock portfolio, he offers a very different picture than the one you'll get in the news:
As you can see, there are a number of stocks in there that not everyone would have in a finance portfolio, and some others that may be missing. But I like it this way. I still left Lehman and Fannie and Freddie in (though none are exchange traded anymore), and included GE and Société Générale, among others.
This portfolio shows a completely different picture than the complete Dow and S&P numbers. The financial world is not doing all that well.
My portfolio is down 15.46% from August 4 2010 to August 3 2011, not up 10% or 11%. What's more, from its peak on February 8, 2011, it's down over 30%. That is in less than 6 months. Here are a few examples from my list:
US banks:
Bank of America's stock is down 34.1% over the past 12 months, 34.51% over the past 6 months, 14.2% over the past month alone.
Citigroup is down 9.78% YoY, 22.64% over 6 months, 13.22% over the past month.
Morgan Stanley: down 24.23% YoY, 30.12% over 6 months, 12.33% over one month.
Goldman Sachs: down 13.95% YoY, 19.93% over 6 months, 3.53% over one month.
JPMorgan: down 3.21% YoY, 12.54% over 6 months, 4.38% over one month.
Foreign banks:
Société Générale: down 34.82% YoY, 36.39% over 6 months, 30.28% over one month.
Crédit Agricole: down 30.9% YoY, 31.66% over 6 months, 30.8% over one month.
Deutsche Bank: down 31% YoY, 17.61% over 6 months, 16.48% over one month
RBS: down 35.61% YoY, 25.12% over 6 months, 17.73% over one month
I guess it should be obvious that we're watching an unfolding bloodbath here (even Goldman lost almost 20% in 6 months). But then again, when JPMorgan CEO Jamie Dimon said recently that banks are so flush with cash they're going to issue nice and juicy dividends, I think he meant, and believed in, what he said. It's just that they're flush with your cash, not their own.
But there's nothing, nothing at all, on the economic horizon that carries even the least bit of hope that these banks will be able to make good on their lost stock values. No jobs increases, no increases in home sales, none of that. They'll just be gutter dwellers, if they stay alive at all, though, granted, your money may provide for plush gutters.
One major issue with all this is that all of the banks above, except for Crédit Agricole, are primary dealers.
Ilargi's mock portfolio gives a wider perspective than the Dow - and an important one. Another bank crisis is looming over us - and that's not good news.
Sharon
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QUESTION: What, if any, effect has Move Your Money had?
My tentative answer is almost nothing in terms of dollars moved, so has the educational component of Move Your Money had any effect on the stock prices of the big banks? Is possible continued growth of Move Your Money a threat to big bank stock prices?
Ilargi is conflating two different issues: stock price and cashflow.
Stock price is hugely affected by irrational factors (especially right now) and so it's not a good indicator.
However, if you look at cashflow - banks are doing quite OK. Their profits are up and they indeed might even issue nice dividends.
And once again, if they were allowed to fail, it would hurt - a lot - for a little, then it would get better. We NEED that reset.
Iceland did it.
Susan:
The US is not Iceland and the consequences of widespread bank failure would be immeasurably worse. "Luckily" banks won't really need new bailouts soon - they're doing just fine.
Besides, Iceland (and Ireland) banks owed too much to non-residents and defaulting on their debts was easy for Iceland. The foreign investors got screwed, but who cares about them?
Situation is completely different in the US. The problem there is caused by the public owing too much (in form of mortgages), and bank defaults won't help even a bit here.
So frustrating to know that if the banks go down, the people who ran them into the ground will be fine but the people who depend on them and did nothing wrong will be screwed.
Capitalism is such a crapheap.
Sharon,
Well, isn't it fortuitous that President Obama just got the debt ceiling raised, so he can bail out all those banks and dealers that would be required to sell the securities that represent the national debt?
I wonder if the AIG folks will holler if the bailout goes quietly this time. (I think I might holler anyway.)
On the other hand, blocking a bailout may be just as effective as refusing to raise the debt ceiling (or is it "dungeon depth"?). Myself, I still want to see cuts in Federal staffing this year, doing away with Federal bureaucracies this year, and cuts in spending this year. But then, I am a romantic.
@ Susan,
Um, I think under the surface much of the Greek, Irish, Spanish, etc. European debts actually did end up counted against the US, the Treasury -- and the Primary Dealers that Ilargi presents. These institutions are required by law to be servicing our national debt. If they were going broke (losing 15-30% of the business value in a year) at the previous debt ceiling, how can they make money enough to cover their losses next year with a deeper debt?
Brad K.:
Cuts in spending and Federal staffing is just the wrong answer right now.
I guess I don't understand economics. How can rich people be truly rich if everyone else is an impoverished peasant? I suppose they can buy sexual favors and build a small personal army, but what else? The financial elite have been playing and losing the Prisoner's Dilemma for a long time, and the chickens are now coming home to roost. That is, they have made decisions that seem to maximize their personal profit compared to the others, but at a cost to their overall potential wealth. Perhaps this is a result of a zero-sum understanding of wealth.
When the economy is doing well, a rich person can make a million bucks by costing society at large a billion, and he will come out ahead (for sufficiently superficial values for "ahead"). But when society at large starts running our of true wealth (houses, crops, manufacturing capacity, energy, educated people - as opposed to paper bills or bits in a computer file), how can he take control of another chunk of it?