A new and experimental feature, spawned out of the sudden, early-morning realization that I think Daniel Mark Harrison's optimism is the daft raving of naivete, and he thinks my pessimism the product of that burnt out, hollow shell of an organ I call a heart. Who prevails? We collide, you decide.
As Ms. Private lost the coin toss, she begins....
Equity Private: The Abyss Yet Approaches:
I find it extremely hard to even empathize with, much less support the bull case in this environment. Owning to the lag between the onset and the reportage of disaster, we simply haven't yet seen the impact of the credit crunch on earnings yet. Add to this the fact that, I hope short of outright accounting fraud, firms have been doing everything they possibly can to avoid bleeding out. I was amused to watch several banks push out the definition of some of their loan "defaults" to 120 days or beyond on to buy another 30 days (and therefore another quarterly report) on the write downs. This isn't all. Anyone who believes LIBOR is anything but a convenient fiction to ignore how desperate European banks (who ironically tended to be even more levered in some cases than their American cousins) have become is permitting hope to prevail over reason. Pouring money in may prevent total meltdown, but not a painful downturn.
I haven't even begin to talk about the consumer shock that must eventually follow, again lagged, from this major lending contraction. Even a small spike in unemployment will push foreclosures (and therefore write-offs) up. Even if we offer foreclosure assistance, delay it for years if you like, someone eventually has to pay the mortgage for that capital to end up on the income statements of financial institutions. Then there is commercial real-estate, commercial real-estate loans, and LBO debt which hasn't burst its rivets quite yet.
Finally, I don't think many people have appreciated the importance (and wonderful timing) of a sudden drop in oil prices. Crude futures are less than half what they were just three months ago. Certainly, that's more than the Fed could ever do to buoy things, but it is also dangerously out of the immediate influence of the likes of OPEC. They are at the budget breaking $70 (far below the $90 line for Russia) right now. As drastic measures are sure to follow, I wouldn't want to rely much on this cushion being around much longer.
Daniel Mark Harrison: The End Of The Abyss:
I'm going to be the first to call it: we're at the bottom. The Dow is unlikely to fall below the 8,500 mark, and will most probably not close below 8,852.22 points again this year. Oil prices are in a natural free-fall, and no amount of equity gains is likely to propel the price anywhere near $100, above which it had a destabilizing inflationary impact.
Much of the dramatic sell-off we have seen in the past few weeks has been because central banks have been ill-prepared to fight illiquidity: in short, U.S. policymakers dithered. Now that the economy has become a political issue, transcending partisan debate, action will swiftly correct valuations in the event of further freezing of credit. We're already seeing signs of this in action, with LIBOR spreads lowering even as additional Asian and European bailouts are being granted. The Dow rose 4% Monday, even with additional abysmal news in the mortgage market.
China's spiraling GDP and inflationary numbers will ultimately end up putting it back in the position of exporting deflation rather than inflation, as it did before 2003. Emerging markets are the great casualty in this crisis, while the U.S., with its ample arsenal of funds, markets, and insatiable consumption demand, will stay afloat while stocks surge at year-end.
Collisions, after the jump.
EP: Well, we can at least agree that the drop in energy has lifted things. So I take it that since we agree on the devastating effect oil can have, you must, by extension, be predicting a sustained depression in energy prices, particularly oil. What exactly is your price target for crude, and how long can it be sustained?
DMH: I have predicted since June that oil would reach a "fair value" of $45 a barrel, and slowly rebound to $60 a barrel. Given the current valuations of stocks and oil, either equity prices have to increase or oil prices have to decrease to constitute fair value in both markets. Most likely both will do so at once- before rebounding to fair value.
EP: Ok, Goldman boy. But you agree that another rise would be disastrous?
DMH: In the current market climate, a rise above $100 a barrel for oil would be economic HIV, pure and simple. Then again, that's about as likely to happen as me sleeping with Kate Moss.
EP: Ok, Mr. Doherty. So the Ketamine has obviously kicked in, I'm going to guess that's a "yes?"
DMH: Yes. And I have to say I still don't understand the pessimism when it comes to the financial institutions. Hasn't mark to market accounting already served its purpose in socking the punch to balance sheets? You're from private equity or something, right? How is it you don't know this?
EP: I don't think the purpose was, as you so tactfully put, to sock the punch to balance sheets. In the first place, mark to market accounting shouldn't hit balance sheets that hard if the balance sheets aren't filled with illiquid assets and lots of leverage. This is something that seems to escape even the cleverer on the Street and I still don't understand why. An asset that no one will buy or lend against is worth... nothing. You can play all sorts of games and talk about prices "not reflecting long-term value," but that requires a very subjective take on "long-term value." That's just another way to say "mark-to-myth." Or maybe, mark-to-hope. Blaming mark-to-market accounting for some kind of market "punch," presupposes that it's inaccurate to say that something that cannot be sold is worth nothing.
DMH: But hasn't the damage to liquidity already been done, given the never ending round of stimulus packages and the final decline in lending rates?
EP: "Final decline in lending rates," now your a fixed income expert too?
DMH: I work for Dealbreaker. There is no such thing as fixed income in my world.
EP: Ok, so to summarize, at some point last night, you slipped into a K-hole and came out with a deep understanding of the energy markets, you are now certain that oil is going to stay cheap indefinitely, and that next week Tears for Fears is going announce that they are getting back together again to tour. Just like old times. '80s revival. Does that about cover it? That's your economic acumen?
DMH:You're a decade out. I think Simple Minds is going to announce their reunion tour. Yes. Just like the old times. The '90s revival. Guns 'n Roses too. Why not?
Posted by guest , Oct 21, 2008 9:03AM
1st and where the fuck is global warming now al fucking gore !!
Posted by guest , Oct 21, 2008 9:03AM
1st and where the fuck is global warming now al fucking gore !!
Posted by guest , Oct 21, 2008 9:03AM
1st and where the fuck is global warming now al fucking gore !!
Posted by guest , Oct 21, 2008 9:06AM
Now. I (think I) have seen a picture of Bess, but not of Equity Private. And yet, given the above, I think I'm more attracted to EP. She's *nasty*.
Posted by guest , Oct 21, 2008 9:11AM
Sorry DH (don't start this Andrew-Ross-Sorkin-use-my-middle-name-BS), but EP crushed you.
Posted by guest , Oct 21, 2008 9:13AM
international herald tribune today said russia's budget is done factoring in $70bbl oil, not 90$. consensus?
Posted by prgy , Oct 21, 2008 9:13AM
@ 4 I'm sure you look like Brad Pitt you moron. Stick to financial posts!
Posted by guest , Oct 21, 2008 9:17AM
I have a short attention span. Is this a good summary? Could go higher, could go lower, time will tell
Posted by MarshallStack , Oct 21, 2008 9:18AM
I am Brad Pitt and what is reality?
PS - they are both wrong.
Posted by guest , Oct 21, 2008 9:19AM
Interesting. But I'd rather watch Julie and Lindsay eating cake again.
Posted by guest , Oct 21, 2008 9:51AM
EP, did you miss the earnings reports on financial companies, I would say they were impacted by the credit crunch. I would also say that at some point they will start having positive earnings which should offset the losses in other sectors.
Posted by guest , Oct 21, 2008 9:57AM
I don't know if DMH or EP won, but every person who read this post lost badly.
Please don't do this shit again
Posted by guest , Oct 21, 2008 9:57AM
DH - mark-to-market "served it's purpose"? Check FAS 115 & 91 ("held-to-maturity", "available-for-sale" accounting). banks have held-to-maturity loan portfolios (doesn't use FAS 157). AFS flows through equity (ever seen the term "unrealized losses", like Fannie Mae).
Read less headlines (especially your own) - you may make a fine financial analyst (you sound like everyone on CNBC), but find a balance sheet and a P&L before you start pretending you know how to report financial news better than EP.
EP - Skepticism good. I'm with you, if it's hard to understand, they are probably lying about it!
Posted by guest , Oct 21, 2008 9:58AM
http://blogs.knoxnews.com/knx/granju/2008/10/id-love-to-see-the-actuarial-t.html
Sometimes I think we are all in an alternate universe.
Posted by guest , Oct 21, 2008 10:00AM
the financials are the ONLY area where the analysts have lowered earnings expectations, thus, they are sometimes (although not always) meeting them.
IT, heavy machinery, transportation, consumer goods, discretionary spending (other than cheap alcohol), not so pretty.
Posted by redpandot , Oct 21, 2008 10:13AM
"transcending partisan debate, action will swiftly correct valuations in the event of further freezing of credit"
I'm not sure we are even on the same planet.
Posted by guest , Oct 21, 2008 10:16AM
@15 long malt liquor in 40s, short fine burgundies.
Posted by guest , Oct 21, 2008 10:23AM
Please kill the feature immediately. One of the things I like about DB is that you ARE NOT CNBC. If I want vague statements about the markets from people with limited experience and no more predictive power than a magic 8-ball, I'll watch CNBC.
Dan: now go get your shine box.
Posted by Jesse , Oct 21, 2008 10:28AM
what works for Dealbreaker is the short hard hitting comments on 'breaking news.'
The thought pieces should be tight on specific topics.
Taking cues from television with bulls and bears and sound bites from talking heads doesn't really work in print.
Posted by guest , Oct 21, 2008 10:31AM
@18
Agree. We want rumors & facts, not smart-assed analysis.
Like the great Mofo always say, shaft your analysis up your ass and leave only the data with me.
Posted by Jesse , Oct 21, 2008 10:31AM
And of course the best aspect of Dealbreaker, what sets it apart, is the color on the Street, the gossip, the tips, the 'inside story.'
But those are hard to find. And different.
Posted by guest , Oct 21, 2008 10:33AM
LOLHarrison
Posted by guest , Oct 21, 2008 10:39AM
Since when did EP and Danny Boy have time to ruminate over such shite? Shouldn't you guys be digging up dirt on layoffs, subpoenas, fraud, hedge fund collapses. You guys are reporters, not analysts. And "your money now" type of financial analysts are the lowest form of new/information professional anyway.
Posted by guest , Oct 21, 2008 10:40AM
Since when did EP and Danny Boy have time to ruminate over such shite? Shouldn't you guys be digging up dirt on layoffs, subpoenas, fraud, hedge fund collapses. You guys are reporters, not analysts. And "your money now" type of financial analysts are the lowest form of news/information professional anyway.
Posted by guest , Oct 21, 2008 10:45AM
@17, one of the best commentaries I've heard in a while - I'm adopting as my new montra
Posted by guest , Oct 21, 2008 11:17AM
Daniel, why do you miss the obvious?
We still have a real economy that is backsliding after years of easy credit. Where do you think corporate earnings are going for the next 12 months (see @15's comment)?
Posted by ep , Oct 21, 2008 11:34AM
"Posted by guest, Oct 21, 2008 10:39AM
Since when did EP and Danny Boy have time to ruminate over such shite? Shouldn't you guys be digging up dirt on layoffs, subpoenas, fraud, hedge fund collapses. You guys are reporters, not analysts. And "your money now" type of financial analysts are the lowest form of new/information professional anyway."
I think our satire is too subtle.
Posted by guest , Oct 21, 2008 11:50AM
Where is Bess to referee this? And can we have her color commentary - best thing going on DB.
EP - won. DH - you just died out there man - your m2m argument was weak and limp. Like your pecker.
Posted by guest , Oct 21, 2008 12:04PM
i wonder how long will it take DH to look like an asshole for calling the bottom? i say 1 week max.
Posted by StupidEquityGuy , Oct 21, 2008 12:21PM
At the current rate the market is dropping... DH might have to eat his words before the close of business today...
Every team needs a good "Wrong Way" on board to sound out false bottoms and stuffed tops...
I have a friend named Bmr... if he says he is buying calls, I hit the ask on the puts... statistically speaking its a give me trade...
DH might be our guiding light here... The bottom caller in a bear market... Someone has to do it...
~SEG
Posted by guest , Oct 21, 2008 12:23PM
@29
I say last week.
Posted by shalimar , Oct 21, 2008 12:25PM
Irrelevant "debate".
The rational mind vs an i-banker.
Question is: why is Danny boy allowed to distract EP and Bess from their more important roles in taking the world to task?
Posted by guest , Oct 21, 2008 1:11PM
say what you want about ep. she had htis one *cold*.
Worry About Profits Hits Stocks
Stocks fell after some corporate heavyweights issued grim earnings outlooks. The Dow industrials shed roughly 200 points.
WSJ1:05pm et
Posted by guest , Oct 21, 2008 1:18PM
Once again with oil, the focus is on the price, not the reason for the price, which is supply and demand. Simply put, there is an increase in supply (good) and a decrease in demand (bad). Does this lead to more demand (good) or lower supply (bad)?
Next time, do a tickle fight with pics.
Posted by guest , Oct 21, 2008 6:21PM
I'm so hot for EP right now.
Posted by guest , Oct 21, 2008 9:23PM
Agree w/ 18, but only re: DMH.
Posted by guest , Oct 22, 2008 12:20AM
@27: The satire is lame.
This place would be better if you copied the old fuckedcompany thing & morphed it to financials.
A cheesy idea, I admit, but better than jejeune market jibber-jabber.
Posted by guest , Oct 22, 2008 12:34AM
And speaking of fuckedcompany, I think you should track down TechStockTony and add him to the team. You need somebody who's been through a cycle before & has Tony's kind of credibility, if you want to do market commentary.
http://web.archive.org/web/20031122080142/http://www.techstocktony.com/
Posted by guest , Oct 22, 2008 10:07AM
Way to call the bottom. Dow 8652 at the moment...
Posted by guest , Oct 22, 2008 4:41PM
"The Dow is unlikely to fall below the 8,500 mark, and will most probably not close below 8,852.22 points again this year."
10/22/08: DJIA 8,519.21 -514.45 -5.69%
In your face, Bull-Boy.
Incidentally, why do you mystical types always make such *precise* predictions? "8852.22?" What the fuck is that? Is that supposed to make us think you've got some kind of actual science beyond a curve-matching program that a bright ten-year-old could write on his home computer?
The difference between quants and the fortune-tellers at the county fair is basically nicer clothes and much more elaborate crystal balls.
Posted by guest , Oct 22, 2008 4:44PM
Oh, and before you say it, assuming anybody ever reads this again:
Day's Range: 8335.30 - 9027.84
Went below 8500, closed below 8852.22. If you try to claim that at least it didn't close below 8500, next time you and EP play the "special" game you get no lube, not even your own tears.