The humbling slide of the west has been happening for years, and now it seems to be moving so fast, that it will shift into other categories, such as doubt and fear (for too many its already there). In America, we have had a couple of stock market crashes, a couple of lost wars, lower wages, and other missteps that have led to a kind of self-loathing, which threatens to exacerbate the most irrational of urges.
I have heard about how we should junk the Constitution (or parts of it) and abandon free markets for a form of Socialism designed to assuage the guilt-mongers, while also placating the masses.
I declare that we need to make a stand and actually embrace the roots of the nation with pride and confidence.
"Our reputation is everything...being boastful, indiscreet and vulgar is not okay, it will have serious consequences for your career"
Co- Head, Investment Banking Deutsche Bank
Last week, many inside and outside of the financial world were shocked when Colin Fan laid down the law to investment bankers at Deutsche Bank. Was this a sign that Wall Street was turning the corner, or maybe a sign that humility was working its way through the corporate world, which could be a precursor toward its becoming a moral citizen where the focus on money will be much less important than other things, like taking care of the environment and providing livable wages?
All kinds of developments will come to light in the ensuing days...
“Just the right amount of wrong” - Cosmopolitan Hotel and Casino
Friday, Deutsche Bank announced that they were getting out of the casino business, by selling Cosmopolitan Hotel and Casino to Blackstone for $1.743 billion. The problem is the Germany investment bank paid $4.0 billion for this foray, outside its core competency. I guess you could say it was "just the right amount of wrong" and then some.
This Monday we learned Deutsche Bank is raising $11.0 billion, and they received their first big chunk from the royal family of Qatar. The $2.4 billion is not out of character for the Middle-East oil giant, but I have to wonder, if it came with strings of humility attached.
A few years back, I took a trip to Dubai and Abu Dhabi to meet with a potential backer for a major research project. A young kid who was a subscriber arranged the meeting, but his father was the moneyman behind the scene. There were others at the meeting, which was held during an investing conference, which saw few Americans, but other Westerners were on hand. During a big meal, the guys from Ireland via Thailand got very rowdy, and were a little inebriated.
Qatar is loaded with cash from oil, but smart enough to know that one day the spigots will run dry. Between now and then, the country plans to become a force in the financial world by taking big stakes in big players.
-£6.1 billion stake in Barclays
-6% stake in Credit Suisse
-Stake in Bank of America
-Stake in Agricultural Bank China
This would have been a typical night at a hot Las Vegas casino, but this was not such a place. During the meal, I glanced at the kid's father and I knew no one at that table, myself included (I was not drinking), would receive any kind of cash or deal from him.
Nevertheless, it was a great trip and experience, however I have often wondered if this newfound humility from Deutsche Bank came from an understanding. We must face the fact that Wall Street is not for the meek or humble, and this is one company with a long history of arrogance.
"I would be ashamed if we were to take state money during this crisis"
Throughout the financial crisis and its aftermath, Deutsche Bank CEO, Josef Ackermann, repeatedly bragged about his firm not taking a bailout. Yet the firm benefited big time from taxpayer funded bailout funds:
- $290 billion short-term loans backed by toxic assets from Term Asset-Backed Security Lending Facilities- the most of any bank in the world
- $11.8 billion via AIG being paid 100% on the dollar when assets were paid less than 50%
- $2.0 billion Federal Reserve Emergency Funds program -secret program - second most of any bank in the world
Back in 2008, DB predicted it would earn $11.7 billion for the year, but instead lost close to $6.0 billion. Fast forward to January of this year, when the Street was looking for fourth quarter earnings of $600 million, but management delivered an egg- $1.6 billion in losses. Eradicating the Wolf of Wall Street mentality isn't going to be easy, but with the kind of execution seen by management of this German bank, it is easy to see why the rhetoric has become more like a humbled ox.
Yesterday's session highlights the huge amount of uncertainty in the market, which is a reflection of general uncertainty in the nation. While it is true, stocks often climb a wall of worry, it is one thing to climb a wall, and it is another to avoid the flow of molten lava. Yesterday's headline from businessinsider.com:
JPMORGAN: We Have No Confidence That We'll Avoid A Financial Bubble
After paragraphs of doom and gloom, the piece gets back to the analyst and his feelings about the timing of a stock market crash: "We need blindness to risk, and some normalization of policy rates to induce a broad asset correction."
In other words, he does not see a crash for maybe up to three years from now, and thinks investors should be long equities. However, for good measure after acknowledging all of this, the piece finishes with this gloomy observation: Still, none of this sounds good.
These predictions have kept millions out of the market, and continue to keep millions waiting on the sidelines with the false belief that they will buy stocks after the next crash. So if they miss 12,000 points, then avoid a 3,000- point drubbing, they will feel great and will step up to the plate. Of course, they will not. Anyone in the stock market should be thinking out the next 20, 30, or 40 years, and know that from time to time there will be pullbacks, bear markets, and crashes.
We try to deal with these through allocation and positioning, but we are in the market via individual names that we think have huge upside potential. (We have not had subscribers 100% in stocks in a long time, and will continue to urge a certain amount of cash, just in case.) Beware of people that have never made you any money; never asked you to buy a stock on the way up, but are selling a book or web traffic, while making decisions for you, the investor, to wait for the right moment.
Predicting a crash is the easiest thing in the world. Put me on the list... yes, one day the stock market will get hit!
On another note, I am also predicting the Spurs, Heat, Thunder, or Pacers will win the NBA championship, and I bet it happens before the (next) stock market crash. Call me, 'Nostradamus!'
As for the phenomenon of bonds up and equities down, it is something of a head-scratcher. Perhaps bonds reflect concern about the second half of the year that is not shared by corporate America, or by most economists. One thing is for sure, the great rotation never occurred, so does that mean when the Fed hikes rates that there will not be any money in stocks to rotate back into bonds? I am not sure as I am being a little factious, and it is too early for that conversation.
Moreover, for the most part, I see a market that will struggle with direction, and that will trade in a range on light volume until the next round of economic data.