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| 2010-03-04 09:42 |
VOLCKER RULE GETS ROUGHER (FINAL EDITION)
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The basic premise behind the Volcker Rule is that banks benefiting from public support by means of access to the Federal
Reserve and FDIC insurance shouldn't engage in speculative activity unrelated to bank services. Banks pay big money for "insurance" from the FDIC, so
it's not an altruistic program. Is this the same government that thinks healthcare insurers are evil but somehow if they are the ones peddling
insurance than the recipients should be beholden beyond the basic service? It reminds me of the welfare program until recent years when people would
come to the home of recipients to make sure they didn't have nice stuff, like a moderately-priced lamp, or that single women didn't have a man in the
house. I guess banks must be humiliated and restrained for the right to buy insurance.
It is a good thing that a so-called public option on
healthcare isn't officially in the cards. By the way, banks were made to pay three years worth of premiums upfront to the FDIC, so who is saving whom
in this relationship? Then there is the notion of the Federal Reserve providing funds to banks to operate. Again, this isn't charity. The Federal
Reserve is making money hand over fist! In 2009, that evil company Exxon Mobil (XOM) earned $19.2 billion, down from $45.2 billion and in 2008, while
the sinister Goldman Sachs (GS) scratched out $12.2 of net income during 2009. The Federal Reserve rang up $52.1 billion. Just think about this for a
moment. The year that saw three million more Americans lose their jobs and 140 banks go out of business, the Fed made more money than any corporation
in the world. Out of that tally, $46.1 billion went to the U.S. Treasury Department.
Smoked!
It looks like that not only is the Volcker Rule going to try to limit revenue
streams at banks but also other financial entities. This new wrinkle is the latest in a series of chess moves between the Obama Administration and
Goldman Sachs. Right now, Goldman is a commercial bank, although you'd probably trip over a dodo bird and bump into Evil before finding a physical
bank branch. If Goldman sheds that distinction it would still have to play by the (new) rules. The Volcker Rule is looking to burn Wall Street fat
cats for sure. Some of the rules make sense and others seem to follow the notion that these guys are simply making too much money so let's take away
the punch bowl.
The Volcker Rule has elements that make
sense, but mostly it's a plan to bring the banks to their knees. Class envy is at the heart of this plan, which goes too far, and could make banks
less competitive, but then again maybe that is the desired outcome. When the AFL-CIO actually launches a campaign to tax stock trades we know the
populism of it all has gone too far. Nixon said we'd miss not having him to kick around but as it turns out Washington, DC never runs out of piņatas.
These banks are important because of their ability to compete, so if they lose that the net result is we will all be a little poorer. We should have
let them go under rather than rigging the system so banks avoid making tough loans. Fees are going higher and less money will circulate in the economy
as a result.
But, then again, maybe that is the desired outcome.
The Economy
The Fed's Beige Book was
relatively upbeat, albeit with a tinge of caution. Nonetheless, regions reported signs of improvement, more new orders, and modest growth. Retail was
hurt by the weather, but I'm not sure it will have a detrimental impact on jobs. In the Cleveland region, there are reports of workers being recalled.
The glaring sore spots continue to be commercial real estate and construction. Lending and credit are still tight.
Additional Economic Observations
It has been a tough ride
for the airline industry (pun not intended), and it isn't a new phenomenon. Things have been tough for a long time. But recent data suggests, perhaps,
a bottom has been put in as trends for both passenger and cargo traffic has turned higher. According to the International Air Transport Association,
global traffic on passenger traffic was +6.5% while capacity use edged to 76.0% from 72.2% year over year. Cargo demand soared 28.3%. Despite all of
this revenue per mile is down 15% from the peak and the IATA says airlines will lose $5.6 billion around the world. There is no doubt this is an
industry that needs to raise prices, but it's also an example of what happens when profits are stripped from an industry...in this case mostly through
mindless price wars and huge labor legacy costs.
Retail Sector Out-duels Mother
Nature
By: Brian Sozzi, Research Analyst
The common thread in all the February same-store sales previews was that the pure
nastiness of Mother Nature towards those living on the East Coast would detract from the generally positive story emanating from the retail sector
entering 1Q10. Even we reasoned that there was downside risk to raised sell-side comp estimates for those companies having outsized exposure to the
East Coast; our estimated impact on comps was 2.0% to 5.0%. Alas, in the numbers received this morning most retailers from different walks of the
sector posted above consensus February comps, with underlying demand trends seemingly diminishing the storm impact. Among those companies in our
coverage universe, we estimate that storms negatively impacted February comps by 1.0% to 2.0%; people found their way to the malls and discount
centers and once there, bought merchandise.
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Disclaimer: Securities Operations Forum is providing this research to assist investors in determining when to buy and when to sell. All investment decisions are yours and as a result you could make or lose money. Securities Operations Forum, its employees and/or its affiliates and family members may from time to time take positions in the open market or otherwise with respect to the securities discussed, but not have stock ownership equal to or greater than 1% of the outstanding stock of the covered company nor does any employee of Securities Operations Forum sit on the Board of Directors of any covered company. The statements made herein include information obtained from sources believed to be reliable, but no independent verification has been made and we do not guarantee its accuracy or completeness. The statements made herein contain general information and do not constitute an offer to buy or sell any security. |
