Rinse. Lather. Repeat.
A brief review of recent Merrill CEO statements:
1. We don't need capital;
2. We could use some capital, but we won't sell shares, we'll just sell some assets;
3. We need to sell shares and raise capital right away;
Where is Ken* when you need him?
The financial firms obviously think investors are utter fools. And for a while, they were correct. They suckered people into buying into this mess the whole way down. Bottom calls each and every level -- all of which failed. Some analysts even called iBanks a "Generational Buys" -- 30% higher.
Only not so much.
Release earnings. Issue guidance. A few weeks later, lower earnings. A few weeks after that, take more write-downs. Raise more capital. Start it all over again next quarter.
Rinse. Lather. Repeat.
The banks have adopted a Chinese water torture approach -- dribbling
out the bad news in small doses over time. Its been working up until now, but I doubt it will keep working much longer. Can they keep fooling people much longer? Merrill issued quarterly
earnings on July 17th, and then dropped this bomb shell on July 28th? They must really think we are idiots, and that the SEC is in their backpockets to even attempt getting away with this crap.
Bill King writes that "Eventually a critical mass of investors and traders will become cognizant of the obvious scheme and distrust of financial firms’ results, guidance and motives will increase substantially. John Thain’s credibility is now an issue."
I agree.
>
Merrill CEO John Thain's Public Statements
via Bespoke Investment Group
>
But its not just Thain's rep that is on the line. Look at how much intervention into the formerly free markets is being done under a guise of "Systemic Protection." That catchall rationalizes a lot of really bad decision making by Politburo Central planners senior government officials.
I don't think this process will be fully resolved for quite a while, perhaps as long as 10 quarters. And I would expect that despite the best efforts of the American Communist Party Central Planning Committee SEC, the Treasury Department, and the Federal Reserve, these stocks ultimately end up going lower, and perhaps much lower.
$15 is a very realistic target. But how a bout single digits? It certainly is a possibility . . .
>
A History of Merrill's Writedowns
Chart courtesy of Jake
>
________
* SEC Chairman Cox, a/k/a Ken
Tuesday, July 29, 2008 | 08:00 AM | Permalink
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morons
Posted by: g | Jul 29, 2008 8:09:22 AM
Question: The WSJ said Mer was selling over 30 billion at 22 cents on the dollar. That would be a loss of 23.4 billion dollars. Why is the writedown only 5.7?????
Posted by: Greg | Jul 29, 2008 8:13:16 AM
Stupid investors need to be punished - only an idiot could have believed these idiots. Why they (corporate excutives) are not mandatorily put on that new "voice lie-detecting device" is beyond me? We have the technology, use it!
Yes, they are trying to save us all from further grief. Bull shit, THEY ARE TRYING TO MINIMIZE THEIR LOSSES. End of discussion.
Posted by: JustinTheSkeptic | Jul 29, 2008 8:24:11 AM
Right again, Barry. I suppose Dennis Kneale has invited you to co-host today to express your opinions?
Posted by: Mike in NOLa | Jul 29, 2008 8:26:40 AM
Single digits is where they will go-cmplete agreement but for the fact that someone else out there will not be able to resist thinking they can buy the "venerable" Merrill franchise on the cheap-before the stock has a chance to get there...By the way, Mish did a really good piece on the Merrill announcement illuminating the death spiral ratcheting down provisions of the equity offering: http://globaleconomicanalysis.blogspot.com/2008/07/ratchet-provisions-soak-merrill-lynch.html
Posted by: dugafish | Jul 29, 2008 8:34:40 AM
As they say...Death from a thousand cuts. In this case about 40+ billion paper cuts!!
Posted by: Formerly known as... | Jul 29, 2008 8:35:49 AM
Politburo Central Planners. Ha! I love it!
Massive Dilution - super! Time to buy the banks! Sell Gold!
The arse is out of 'er; we'll sleep tomorrow.
Posted by: Adam Butler | Jul 29, 2008 8:37:55 AM
Strangely enough, MER is up in pre market trading as some of you mentioned that it would probably close higher today.
I can only wonder how many Wall Street insiders knew about the bombshell and were able to profit from it. The financials definitely do not offer a level playing field. Anyone who believes the CEO's of these companies is way too gullible or hasn't been burnt yet.
Stay away from them. Short all rallies.
Posted by: blin | Jul 29, 2008 8:39:37 AM
Greg:
I think they'd already written them down to around $11billion at the end of June, according to the WSJ they're selling them for $6.7 billion. Presumably the 22c on the dollar reflects the original value of $30billion that was on the books.
Posted by: John | Jul 29, 2008 8:40:06 AM
Greg,
They had already written down the value of the original 30.6 to 11.1. So writing down to 6.7, produced an additional 4.4, and there are additional writedowns on their protection from monoline insurers which arent worth as much as the contracts were written for, all adding up to 5.7. I'm surprised there's not more play in the media on the additional $5b of expenses from the resetting features of the investors from the last capital raise. Nor the fact that Merrill is financing 3/4 of the purchase price of this CDO position, with no recourse to Lone Star beyong taking the CDOs back! And all the other banks will now have to mark down at 22 cents on the dollar for similar securities; Deutsche is saying an additional $8b for Citi, for example. Not to mention that Merill is actually only laying off 5.5 cents on the dollar due to the financing. And these were super seniors, so less senior tranches are what, 0 on the dollar right?
Frankly, I'm quite surprised at the generally positive futures this morning. Clearly the news was already out to some degree given the action in Merrill all day yesterday (new lows on "no news"), and there is some short covering on the news. However, for the near to medium term, is it:
a. another false bottom generated by a supposed kitchen sink announcement and Meredith Whitney's positive view?
b. a real bottom?
Keeping an open mind, but there really hasnt been enough panic for my money. Put call ratios and other indicators seem somewhat complacent. But we had an awful June and July, and historically that means some decent performance by the end of September (mebane faber's analysis of performance in months 2 & 3 after major sell off as in June). Sidelines for now, I guess.
Posted by: OpenMind | Jul 29, 2008 8:48:39 AM
This last episode points out the need for shareholder derivative suits. Stockholders for Merrill, et al have lost many tens of billions because of the dishonest financial reports issued by these companies.
Yet, the ability to sue has been weakened during the past decade because of the propaganda about rich lawyers bringing frivolous actions. I suppose the corporate shills were looking forward to times like this. One of the big functions of the civil tort system is to allow private citizens to seek redress when the government is too lazy or corrupt to do so; it looks like we have both in the current administration.
Posted by: Mike in NOLa | Jul 29, 2008 8:51:04 AM
OpenMind:
Meredith had a positive view? Bloomberg TV spun it as her saying Merrill was still expensive.
Also, your statement about "faber's analysis" is a little cryptic, at least for this early in the morning for me. Please explain.
Posted by: Mike in NOLa | Jul 29, 2008 8:55:47 AM
As the assets continue to deteriorate in value, the banks are being forced to mark down to market. The market value of the assets is a downward moving target. This spiral down is going to continue until the housing market reaches equilibrium. I am sure that the banks have already done their own analysis and they realize that the best way to approach this is to mark down each quarter. Not good.
Posted by: mike e. | Jul 29, 2008 9:07:12 AM
Here's the reason for jump in Merrill. They got Meredith to be halfway positive and the shills thought the news was wonderful:
Merrill Lynch (NYSE:MER): Positive Feedback from Analysts
With oils and U.S. Steel beating estimates (duh - old news), looks like the full court press will be on today on CNBC. How many times will they mention "bottom" today. Maybe Barry should start a pool.
Posted by: Mike in NOLa | Jul 29, 2008 9:10:26 AM
Great job with the website. Thank you! One question....is it possible that the government comes into the futures market on mornings like this and pumps up the market, plunge protection team type stuff?
Thanks again
Posted by: Billy Bob | Jul 29, 2008 9:13:21 AM
Mredith Whitney said "Merril is getting closer". But she didn't say to buy OR that it's anywhere close to time to buy.
Posted by: Chief Tomahawk | Jul 29, 2008 9:15:42 AM
The font used in the chart title "Merril Lynch Write-Downs" is a dead ringer for "The A-Team" TV show title. That works on many levels. The financials are "a dangerous group of mercenaries who've gone underground" ... Who's B.A.? Who's Face??? Who plays the Keystone Cops trying to catch the A-Team, but never succeeding? The Washington Generals live!
Posted by: Chief Tomahawk | Jul 29, 2008 9:20:55 AM
Mike,
Here's what I read on Bloomberg, with similar slightly positive spins from CNBC:
"
Oppenheimer & Co. analyst Meredith Whitney said Merrill's shares are trading closer to ``fair value.''
``We applaud this purging of assets as an attempt to cut its losses and focus on stabilizing its platform and righting the franchise toward growth,'' Whitney wrote in a note to clients today.
"
By "faber's analysis", I was referring to Mebane Faber who writes the World Beta blog. He did a historical analysis which demonstrated that a particularly bad month led to bad returns in month 1 after the sell off, but months 2 and 3 after produced pretty good returns, with the 6 and 12 month performance pretty tepid. He posted this towards the end of horrible Jan I believe, and it worked pretty well by buying at the beginning of Mar and selling at the end of April (3.8% by holding SPY). He's tracking how this works for the June sell off.
Posted by: OpenMind | Jul 29, 2008 9:20:57 AM
buying financials now is like buying a repossessed house in Flint. Sure is cheap, get in on the ground floor and wait for the last fool to walk in. We are suddenly supposed to feel that the incompetents who got us here are now our salvation? What the hell is the new model they are selling?
Posted by: wiseup | Jul 29, 2008 9:21:40 AM
Re: The A Team
Difference from the A-Team is that no one ever got seriously hurt on the TV show :)
Posted by: Mike in NOLa | Jul 29, 2008 9:26:06 AM
Barry -
I love how this page is labeled as "how-fucked-are.html"
That really put a smile on my face =)
HCF
Posted by: HCF | Jul 29, 2008 9:31:41 AM
interesting trading early on in MER!!!
Posted by: SINGER | Jul 29, 2008 9:42:54 AM
...Imagine if some of these PE & Hedge Funds guys, Wall Street CEOs and some similar maniacs were born in some third world countries like Pakistan, N Korea, Iraq, Iran.
Thanks god they are dropping bombs on people's balance-sheet here and these crazy maniacs don't have access to nuclear arsenal.
Phew!
Btw,
Posted by: Nihilism | Jul 29, 2008 9:43:23 AM
We are now America in name only. Our Constitutional Republic no longer exists.
Posted by: Marcus Aurelius | Jul 29, 2008 9:50:18 AM
With leaders like this, who needs enemies.
Posted by: Mark | Jul 29, 2008 9:51:48 AM
