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October 24, 2008

Doo Doo 32 in the News, Again
by Reggie Middleton

In the news today...

The Doo Doo 32 pops back up:

Paulson Planning to Buy Stakes in Regional U.S. Banks to Unfreeze Credit

"The decision to buy stakes in more lenders comes after some of the mid-sized American financial institutions report mounting losses. National City Corp., Ohio's largest lender, Oct. 21 posted a wider loss, put aside more money for unpaid loans and announced plans to eliminate 4,000 jobs. Its third-quarter net loss widened to $729 million, from $19 million a year earlier.

SunTrust Seeks Funds

SunTrust Banks Inc., Georgia's largest lender, posted a 26 percent decline in third-quarter profit yesterday. The bank's board authorized the sale of $1.6 billion to $4.9 billion in preferred shares to the U.S. Treasury, Chief Executive Officer James Wells said in a conference call."

HSBC shares down after Morgan Stanley cuts price

Shares of HSBC fell more than 5 per cent to a five-year low on Friday after Morgan Stanley cut its target price amid a negative outlook for emerging markets growth....

If you remember, after the rally last week, I went shopping in the UK and EU - See "Do you who's going to screw who next week?": I spent the majority of my Wednesday of last week spreading my bearish positions further around the European banks. The balance was catering to my beautiful, yet demanding 2 year old daughter, the only 2 year old I know who forces her dad to go clothes shopping - seriously! She is also one of the main reasons I decided not to open up the hedge fund after spending SOOOOOO much money getting it set up. I was putting her down for her afternoon nap (a perk - and bain - of working from home) about a month ago and she looked me in the eyes and said "I wuv yoo too, Daddy!" Now, here I am cuddling my little girl to sleep, while half of Wall Street and Park Avenue was yelling at traders and kissing client ass trying to beg them not to withdraw funds during a time when EVERYONE was losing money. I thought to myself, "Hey,they can keep the extra cash and the headaches that go along with it. My girl needs a hug". For the record, I have two boys (7 and 16, both work on the blog) as well, both raised the same way with Dad slaving from home on a 24 hour work day. When I was younger, I was actually ashamed of not having the Wall Street office, with many service providers looking down upon the home office entrepeneur - not to mention a stay-at-home dad! Enter a little wisdom, age and common sense and I was able to confidently say F@#$%' em, it's the results that matter, and results are what I produce.

For those international blog members, notice how it seems as if I am always awake? Well, I am... as I type this post at the usual 3 am time slot in an effort to get 2 hours of sleep before I see my kids off to school.

Let this post be not only about the degradation of the UK/EU banking system, but about having balance in your life as well. This is starting to truly become a blog about my personal thoughts and opinions. Alas, I digress. Let me give you a glimpse into some of the additional reasons why I went shopping.

Bloomberg's take :

U.K. stocks dropped, led by financial and energy companies, as the government reported Britain's economy shrank more than forecast in the third quarter, diminishing the outlook for earnings. HSBC Holdings Plc, Europe's biggest bank, declined the most since Sept. 11, 2001, after Morgan Stanley cut its share- price estimate for the company by 25 percent. Barclays Plc fell after it was lowered to "neutral" from "buy" at UBS AG, which said earnings and dividends at the U.K.'s second-biggest bank may be hurt as it raises capital...

"Corporate earnings aren't looking good," said Andreas Nigg, a Zurich-based fund manager at Vontobel Asset Management which oversees $39 billion. "In previous recessions, analysts' estimates have usually been too optimistic. It looks like this is also the case now."

Britain's economy shrank in the third quarter, the government said today, as the global financial crisis ravaged industries from banking to construction, evidence that the country is in the grips of its first recession since 1991...

HSBC slid 8.4 percent to 737.25. Morgan Stanley lowered its earnings estimates for HSBC by 3 percent to $1.11 a share for this year and 10 percent to $1.05 for 2009.

"We question how long HSBC shares can continue to tread water in the face of falling earnings and increased pressure on capital," Morgan Stanley analysts led by Anil Agarwal wrote in a report today.

'More Difficult'

Barclays fell 4.1 percent to 209.25. "A more difficult outlook for the U.K. economy has contributed to lower than previously expected top-line growth and higher impairment losses," London-based UBS analyst John-Paul Crutchley wrote in a note today. "3.6 billion pounds of new equity prior to the end of March 2009 will lead to further dilution to earnings per share."

Barclays is likely to cut its dividend next year as profit declines, Crutchley said, predicting a 2009 dividend of 12 pence and earnings of 24.36 pence a share, reduced from a previous estimate of 43.59 pence.

HBOS Plc, the U.K. bank that agreed to be bought by Lloyds TSB Group Plc, slid 9.3 percent to 66 pence. Aviva Plc, the U.K.'s biggest insurer, declined 8 percent to 253 pence.

The Riskiest Bank on the Street is a little late to the HSBC party (professional subscribers can download the full HSBC analysis from the Downloads section). This coincides with the third installment of my "Name Brand" buster series of posts (see the preview) that actually mark the name brand's performance to market. I have decided to include James Cramer's thestreet.com calls in the analysis as well (actually, it is being contributed by a reader). I also have a lot of macro commentary and research coming online very soon. Should be an interesting weekend.

I just got a newsflash (7 am) that the DOW futures dropped 500 points. The Dow is actually a meaningless marketing moniker, but the broad market is probably priming itself for a similar drop, thus I will continue blogging throughout the day. Next up, an insurance sector update (HIG) for subscribers and a macro report on why the global recession is here already - no need to guess. I may also have those blog vs bank vs newsletter comparisons for you as well. You guys and gals will be getting your money's worth today.

Reggie Middleton
Reggie Middleton, LLC
Perpetual Interests, LLCTM
http://boombustblog.com/

Who am I?

Well, I fancy myself the personification of the free thinking maverick, the ultimate non-conformist as it applies to investment and analysis. I am definitively outside the box - not your typical or stereotypical Wall Street investor. I work out of my home, not a Manhattan office. I build my own technology and perform my own research - in lieu of buying it or following the crowd. I create and follow my own macro strategies and am by definition, a contrarian to the nth degree.

Since I use my research as a tool for my own investing to actually put food on my table, I can stand behind it as doing what it is supposed too - educate, illustrate and elucidate. I do not sell advice, I am not a reporter hence do not sell stories, and I do not sell research. I am an entrepreneur who exists just outside of mainstream corporate America and Wall Street. This allows me freedom to do things that many can not. For instance, I pride myself on developing some of the highest quality research available, regardless of price. No conflicts of interest, no corporate politics, no special favors. Just the hard truth as I have found it - and believe me, my team and I do find it! I welcome any and all to peruse my blog, use my custom hacked collaborative social tools, read the articles, download the files, and make a critical comparison of the opinion referencing the situation at hand and the time stamp on the blog post to the reality both at the time of the post and the present. Hopefully, you will be as impressed with the Boom Bust as I am and our constituency.

I pay for significant information and data, and am well aware of the value of quality research. I find most currently available research lacking, in both quality and quantity. The reason why I had to create my own research staff was due to my dissatisfaction with what was currently available - to both individuals and institutions.

So here I am, creating my own research for my own investment activity. What really sets my actions apart is that I offer much of what I produce to the public without charge - free to distribute and redistribute, as long as it is left unaltered and full attribution is given to the author and owner. Why would I do such a thing when others easily charge 5 and 6 digits annually for what some may consider a lesser product? It is akin to open source analysis! My ideas and implementations are actually improved and fine tuned when bounced off of the collective intellect of the many, in lieu of that of the few - no matter how smart those few may believe themselves to be.

Very recently, I have started charging for the forensics portion of my work, which has freed up the resources to develop the site to deliver even more research for free, particularly on the global macro and opinion front. This move has allowed me to serve an more diverse constituency, which now includes the institutional consumer (ie., investment turned consumer banks, hedge funds, pensions, etc,) as well as the newbie individual investor who is just getting started - basically the two polar opposites of the investing spectrum. I am proud to announce major banks as paying clients, and brand new investors who take my book recommendations and opinions on true wealth and success to heart.

So, this is how I use my background and knowledge in new media, distributed computing, risk management, insurance, financial engineering, real estate, corporate valuation and financial analysis to pursue, analyze and capitalize on global macroeconomic opportunities. I have included a more in depth bio at the bottom of the page for those who really, really need to know more about me.

Visit his blog Boom Bust Blog.