John Mauldin « The Novice Bear

What is this mess and why are we here?

20 09 2008

Thanks to excellent newsletters (John Mauldin), financial blogs (The Big Picture), and Tom O’Brien, I have been reading and talking about credit default swaps, the housing implosion, a general disregard of risk, and the impending financial crisis for at least 2 years. The great thing is that the information has been out there for some time and it allowed me to be ready for a 20% drop in the markets by being in cash and shorting some of the most vulnerable and over leveraged stocks. The bad thing is that, with a few exceptions, the main stream media has totally dropped the ball on alerting the public to the obvious problems as well as doing a horrible job of educating them once the crisis began last year.

For those of you who still don’t know what the hell is happening and why, go listen to a couple of interviews Terry Gross of NPR’s Fresh Air did with Michael Greenberger, a former director of the US Commodity Futures Trading Commission. The first estimates have each and every American paying $7,000 for this bailout. I think you might want to learn a little about what is going on.

Michael Greenberger: Sept. 17, 2008

Michael Greenberger: April 3, 2008

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Tags : NPR, John Mauldin, Credit Crunch, credit default swap, Barry Ritholtz, Fresh Air, Michael Greenberger, market crash
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100 banks to fail between now and July of 2009

23 08 2008

If I hear about another person talking about buying Freddie or Fannie because they are “too big to fail” I think I’m going to pull my hair out. Wake up people! Go read “It’s More Than Freddie and Fannie” by John Mauldin and think a little before you open your mouth, much less put in a buy order.

In his newsletter, Mauldin also talks about the huge problems at Washington Mutual. The chart for WM has been screaming “BANK FAILURE” for months but still there are people who want to buy this garbage without even the slightest understanding of what a credit crunch is and why we are in this mess. If you read anything, read this excerpt from Mauldin’s article.

Take Washington Mutual as an example. There are problems there. Their debt now trades at 20%, which is worse than junk. There is no way they could issue preferred stock to recapitalize their business. And they are going to need more capital, as they have writedowns in their future due to the slowing of the economy. Any common issue would have to seriously dilute existing shareholders almost to the point of nothing. There are circumstances in which they can survive, but it would take a remarkable recovery for the US economy, which is not likely. Maybe management can pull a rabbit out of the hat, but it will need some strong magic to get the capital they need at a cost they can live with.

Wait for the dust to settle. It is going to get a whole lot worse before it gets better. I kind of feel like we are in the hurricane’s eye right now.