As the title indicates (FDIC regulators shut down Freedom Bank in Florida (Fifth Third Bank Takes Acquires Deposits), FDIC announces that the Fifth Third Bank has Acquired All the Deposits of Freedom Bank, Bradenton, Florida.

Some Excerpts from FDIC:

Freedom Bank, Bradenton, Florida, was closed today by the Commissioner of the Florida Office of Financial Regulation, and the Federal Deposit Insurance Corporation (FDIC) was named receiver. To protect the depositors, the FDIC entered into a purchase and assumption agreement with Fifth Third Bank, Grand Rapids, Michigan, to assume all of the deposits of Freedom Bank.

....


As of October 17, 2008, Freedom Bank had total assets of $287 million and total deposits of $254 million. Fifth Third agreed to assume all the deposits for a premium of 1.16 percent. In addition to assuming the failed bank's deposits, Fifth Third will purchase approximately $36 million of assets. The FDIC will retain the remaining assets for later disposition.

...

The FDIC estimates that the cost to the Deposit Insurance Fund will be between $80 million and $104 million. Fifth Third's acquisition of all deposits was the "least costly" resolution for the FDIC's Deposit Insurance Fund compared to alternatives. The last failure in Florida was First Priority Bank, Bradenton, which was closed on August 1, 2008. Freedom Bank is the seventeenth FDIC-insured institution to be closed this year.

It is now about 11:40AM. DOW is at 9300 area, SP500 at 966, and Nasdaq 100 index (NDX) at 1340. We believe it is now time to take the profits on the long trades of last Friday and Monday as per our post of last Friday on market timing, and to consider shorting the market with a size half the normal trade size. The exit time for this trade would most likely be the close of market on this coming Monday.

Do not forget to enroll to the insider's list of this blog. Enrollment is free of charge. So, send your request now to marketwarnings (at) gmail (dot) com.

11:55AM: The market is back to the highs visited 15 minutes ago. So you have a second chance.

Layoffs at AMEX - Is AMX Stock Real Reason

American Express became the latest major American firm to announce major layoffs.

Are these layoffs needed? The customers of AMEX are wealthy americans. Therefore either the wealthy are not paying bills because they cannot or do not want, or that AMEX is taking the current economic gloom as a cover to throw some average joes to the street.

They would tell you it is triggered by the worst economic crisis in seven decades!

Plans is to slash 7,000 employees.

The name of the game is to use the economic storms as a cover to cut all undesirable Joes and to hail the master of the world: the AMX stock price! The latter should always rise, even if thousands were to be sacrificed.

There is a report at The Associated Press stating that the government is considering a plan that would help around 3 million homeowners avoid foreclosure.

Final deal had not been reached as of yet (Wednesday afternoon) and negotiations could still fall apart. Government agencies have been contemplating using around $50 billion from the recently passed bailout of the financial industry to guarantee approximately $500 billion in mortgages.

The plan could include loan modifications that would lower interest rates for a five-year period.

The plan aims to limit damages from the U.S. housing recession, which has had deep effects on global credit markets.

Would the rest of the world follow?

In particular England.

What do you think of this plan? Should Europe and England adopt a similar plan?

There has been a fast rise in Yen due to the unwinding of the carry trade. The EUR/JPY and GBP/JPY pairs have seen an unbelievable fall in value from the peak in such a short amount of time.

Now they want to stop the Yen from rising, probably because some major players have sold options at the level of 0.90 for Jpy/USD.

Could it also be that some financial entity or hegde fund is in trouble because of the carry trade that such funds have been doing for sometime to collect the carry interest cost?

Future will tell us who is on the wrong side of the Yen trade.

This can be just talk to scare the buyers of Yen, but it can also be for real if the central bank of japan decides that it is important for its export to stop the rise.

We will see whether this is just smoke or whether it is real.

Any any case, REUTERS is reporting that if intervention takes place, it is most likely that Japan will have to do it alone!

"TOKYO (Reuters) - The Group of Seven (G7) financial heads warned against excessive volatility in the yen's exchange rates and said in a statement on Monday they would cooperate as appropriate."

"Many market players suspect Japan may step into markets if the yen rises above 90 yen per U.S. dollar, but they doubt Tokyo's intervention alone would stop the yen's gain."

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One can be outraged at the behavior of the corporate world, and the labor laws. The worker has lost many things, and now is even losing his dignity.

CNBC ran a poll asking whether you are worried about the potential loss of your job.

The stats are devastating. What is even more devasting are the unsolicited comments made by readers. Some such comments follow below.

Things need to change. Why would the worker be always in a losing position? Should not labor laws be worked so that the corporate world share the downside time, as the corporate world take the upside during the booms.

If nothing is done, society as a whole will lose. Cutting jobs fuels the economic decline (I know about the argument that they reduced costs for corporations, but in a downturn mainting jobs limits the decline and workers time could be used to prepare for the next boom rather than just layoffs which just leads to losses to society).

In any case folks, you need to look after your self. Work on building multiple streams on income that YOU control (not your boss or company that controls it). There are multiple ways to do it.

Send us an email so that we can provide you with reports on how to build income that you control, and that no one except you can turn off! Email marketwarnings (at) gmail (dot) com.

Excerpts from readers comments on CNBC poll!

"

My position was eliminated 3 weeks ago. I have sent out over 50 resumes in that time, with no response whatsoever. — Tom

My husband lost his job in April. He had worked for the company for 30 years and never been out of work. We could lose our home in the future as savings will only hold us for another 6 months. — Ann

I am a Sales Manager for a Car Dealership. We are off 50% and have laid off A significant portion of our support staff and have cut expenses to the bare minimum. I am afraid it may not be enough. — Tim

I was laid off last Friday! — Fred

I work in consulting enginering and am terrified that I will lose my job. — Elizabeth

I hope I get laid off soon. I could use the break and my wife can't nag me about getting out to find a job since there aren't any right now — Scott

I voted no because I am currently out of work. — Jon

We supply industrial products, and our customers generally need more skilled employees. Those out of work should consider retraining...the jobs are out there. — David

I am a general contractor. The number of governmental and commerical projects to bid has been reduced significantly and the number of bidders has increased. Contractors who formerly were building in the residential market are now competing with the commercial market. — Patsy

I am a retired engineer, neither of my 30 year old twins have a job that is worth a damn. One has a masters degree. — Robert

My company is in the semicon industry. The axe is already coming down and manufacturing managers are getting laid off on a weekly basis. — Singaporean in Shanghai

I voted that I am not worried about losing my job... because it already happened to me two weeks ago.— Doug

I'm just going to sit back and wait until the new Democratic President and congress extends un-employment Insurance, decreases my taxes, increases my tax credit and gives me free healthcare. — Nick

I've been in the Real Estate business for 16 years now ... Where do you turn when the industry that you have spent your life learning and working disappears? I've started working retail part time just in case we close down. I've never been this scared in my life over the future of my career. — Paul

I switched careers from finance to water and waste water. Fortunately no matter how bad the economy gets people are still going to need to drink and poop. — Mark

I am a first year high school teacher with 2 Master's Degrees. 1 MBA in Accounting and Finance and the other in Organizational Psychology. Trying to find a career in a weak economy has been difficult to say the least. My biggest fear is that, due to budgetary cuts, I may be released before I am hired into a career position. — Chris

I work for a large IT company who is laying off skilled US tech workers by the hundreds. — Mark

In January 2008 I lost my job as a Credit Analyst when my employer eliminated my division. I've been looking for work ever since ... — Lynn

I have been told I will be laid-off - company closing mid November. — Sheryl

My house is paid for and it wasn't used as a giant ATM machine. I have no pity for you fools. — John

Hey John--I don't use my house as a "giant ATM machine," either--but I'm still worried about my job. The root cause of foreclosures (arguably, bad choices by homebuyers) has nothing to do with that of job layoffs (they are generally beyond our control). You 'have no pity for us fools.' But perhaps you need to learn compassion. — Jeremy

I'm with 'John'. House paid for and not used as an ATM. I do have pity, but those who played are now going to have to pay. — Todd

I worked for a Wall Street firm and am part of the bloodbath currently going on. I am currently out of work. — Juan

I'm a realtor, need I say more? — Tony

I'm a pharmacist at a hospital...sick people are abundant and we are short staffed. We need pharmacists...please go back to school and work for us. — John

My husband lost his job last year and since then we have sent out hundreds of applications via internet, fax, or brought over personally, but we haven't gotten a single response. Now, our savings are running out... — Johanna

I went as far as starting my own company to ensure my job security and attempt to protect my family. — Brad

It looks like this grad student will be working at the golden arches. — Todd

John - glad you have your house paid off. but, is it really necessary to put people down at a time like this? — Wade

People thought I was a fool when I left my job at a big Wall Street bank for a small trading company in June. The status now, my company is still hiring (and one of my biggest surprises is the difficulty I have at finding people), the company that I left, is laying people off. — John D.

"


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As per the previous posts, US attack in Syria, independent of how the US and Syria would explain it later, would be viewed by markets as potential first bullets of a war on Syria and Iran.

What would be the consequences:

1. Oil price should go up this week.
2. Market should also go up because the attack would create leadership in stock sectors, and also it would indicate that the credit crisis is contained as otherwise an attack would have not taken place. Leadership in stocks should appear in defense stocks which would go up because of potential future defense business, and in oil stocks to reflect a rise in oil price.

Provide you views and comments in the comments section. Thank you.

News just broke out (Associated Press and Syrian TV) that the US has attacked a village in Syria. There are deads on the syria side. Is this the beginning of a war on Syria and Iran before the end of the term of the current administration?

There are two sides on Wall Street: the right vs. wrong side, spring vs. fall, red vs. green. We are at a turning point.

On the (now) wrong side, it is fall, markets are showing red which a sure sign of blood on (the wrong side) of wall street.

On the other side of wall street, it is the beginning of spring time.

The spring is as a coiled spring that will go up, or spring as in Spring the Season.

The stuff you see now see falling or laying on wall street is regarded as dead leafs by those on the wrong side, but green stuff for those on the right side of the street.

The wall street tree is about to turn green. It is time to take the right side of wall street. Spring has come to the right of wall street.

Here is some idea on how you can play it safely (if you are in fear). and plan to build a retirement nest on the wall street tree. Buy an ETF stock (QQQQ, IWM, DIA, XLF, or SPY). Sell a deep ITM call at a strike equal to 40% of the 52 week high of each of these stocks.

You should make a 15% return on your investment before the next 10 months. Projeted yearly, and including dividends, you could well make more than 25% return, using a safe strategy.

There is another way to increase those returns (double them!). But it works only in brokerage account (none retirement account).

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The stock market is in the area of the bottom. We are getting ready to buy for our retirement account. The call is at follows:

2:22PM: with sp500 at 859, Dow at 8244, and Nasdaq 100 at 1178, according to our analysis, the market is at the bottom area.

To your profits!

PS: Do not forget to send us an email to enroll to the insiders list of this blog. Send email to marketwarnings (at) gmail (dot) com. Subject line: "Enroll Me to Your Insiders List".

NYT is reporting that Credit Default Swaps Is Subject to a Joint Inquiry by Federal Prosecutors and New York State.

We have explained on this site aspects of CDS which really do not make them qualify as insurance (read previous post on the topic). The main focus on the federal and NYS prosecutors is on whether traders manipulated credit-default swap prices with the aim to drive down financial stocks.


The market of CDS has been largely unregulated, and there are current plans to make this market operates in an exchange which should make CDS prices transparent.

ECB Tricket (ECB President) reportedly said that banks are on "path to recovery".

Note that being on the path of recovery does not mean, that banks have recovered, and does not mean that they will recover soon. The journey may contain bumps.

However stock markets are forward looking. It is this type of news that smart money would use to mark up stock markets as explained in the posts in which we predicted with laser precision the bottoms of October 16 and October 10.

You must read the market calls of October 16 and October 10 on this blog.

Also enrollment to this blog is complimentary and allows you to recent market calls.
Send that email below you leave to add your name to our list of insiders.

Bloomberg that ING (ING Groep NV), which is the biggest Dutch financial-services firm, will get 10 billion euros from the Netherlands. Last week, the company said it expects to post its first quarterly loss.

Is ING in trouble? If any reader knows more about this, please email editors at marketwarnings (at) gmail (DOT) com, and/or make a post on the comments section on this post. Thanks.

DOW SP500 Bottom October 2008 Market alert (signal, call, etc): we interrupt regular blogging to announce that the market has just given a second chance bottom signal for those who missed the bottomed last Friday:

11:14AM, October 16, 2008, we are at a stock market bottom.

A rally is around the corner. We do not know what justification they will give for it, but they usually do give explanations. Markets have nothing to do with those justifications!

UPdates:

1. DOW is now in the green at 8717.
2. This blog call was the bottom, the dow was at 8200.
3. Profits of this blog's call are more than 500 points in just a little over an hour. (Nailing the bottom: priceless :-))

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Culprits of the Collapse is a CNN series focused on the people who contributed most to the 2008 stock market, and the 2008 financial and credit crisis.

Our list contains: Greenspan (real-estate bubble), Bernake (inability to manage the crisis, and overuse of his cash helicopter), Bush white house (for not being forcefull), Bankers (looking for their personal intests first), AIG (wrote insurance with little to support liabilities), Trichet (lack of independence and imagination), hedge funds putting money in carry trades.

Provide your top ten in the comments section!

Your opinion is wanted!

You have have heard from multiple people (McCain, Pelosi, Paulson,Bernanke) in support and justification of the bailout plan (during the recent stock market october 2008 fall) that under the plan CEO salaries will be capped. Well it does not look that way.

We read a related report on Bloomberg (An Excerpt follows). The CEO of Golman can still bring home a fat check (roughly SIX million dollars per MONTH!).

"Goldman Sachs Group Inc.'s Lloyd Blankfein, whose $70.3 million paycheck made him Wall Street's most highly compensated chief executive officer last year, could still earn tens of millions annually under the bank-rescue plan run by his former boss, Treasury Secretary Henry Paulson."

An article by Fed chairman Bernanke is published on WSJ. It gives a window on his mind with regard to financial crisis. Some comments:

1. His aim is to FIRST (ONLY?) to repair and reform financial system
2. Economy is only a consequence of point 1. No direct work on economy.
3. Bernanke has many doubts and uncertainties about the whole situation and the future. One would have expected more clarity and certainty from him (at least in the article). If the Fed chairman is not clear about the future and does not address the economy directly, how could business owners and CEOs feel confident to put money in business expansions?

PS: What did Bernanke mean by "we will not stand down"? Does he mean himself or the Fed as an institution. If he is referring to himself, that would be an insult to those who appointed him. Is he suggesting/signaling that he cannot he be removed? Should he have been more specific about the use of words "we will not stand down".

Few excerpts from WSJ Bernanke article follow:

As Americans well know, the challenges we now face in the financial markets and in the economy are both extraordinarily complex and historic in scope. I firmly believe, however, that with the actions policy makers are announcing today, we will be able to meet those challenges.

Our strategy will continue to evolve and be refined, and we will adapt to new developments and the inevitable setbacks. But we will not stand down until we have achieved our goals of repairing and reforming our financial system, and thereby restoring prosperity to our economy.

........


I am not suggesting the way forward will be easy. But the tools are in place to respond effectively and with force. These tools will bolster the capital of our financial institutions, restore confidence in their debt, and offer increased access to funding for businesses. Their application, together with the underlying power and resilience of the American economy, will help to restore confidence to our financial system and place our economy back on a path to vigorous growth.

NY Times is reporting that the US is to inject $250 billion in banks. The title could have been more precise and explicitely state that it is to seven banks.

Only big, rich banks who are in the club are receiving money. The other banks are too small (and not in the club) to reserve the cash. Seven major banks will take the big share. Could you guess who they are before reading the list below?

The other interesting part is that it is stated that they have been "forced" to receive money! What do you think guys?

List of banks:

Citigroup,
JPMorgan Chase,
Bank of America,
Wells Fargo,
Goldman Sachs
Morgan Stanley
Bank of New York Mellon and State Street

We called the bottom on Friday (before open), and suggested entering a retirement account long position. We think that it is now time to take profits. The time is now 11:45AM, and SP500 is at 955. The date is October 13, 2008.

Bloomberg is reporting that the U.S. Federal Reserve said the world's largest central banks will offer financial institutions unlimited dollar funds in an effort to ease tensions in money markets.

This appears to be a coordinated attack on the credit and financial crisis.

Futures are up big time, but that was predicted (by this blog back on the night of Thursday to Friday (see previous posts)).

Laughter in middle of stock market madness

A blogger from http://www.thelogicgirl.com, sent me a link to one of her posts containing funny passages about the market crisis.

Make sure you visit her blog (she writes very well, good insight, she seems to have had a professional journalist training, and I gather that she is from a top school.

Excerpt from ( Take on Recent Market Changes Taking Stock of Market Terms):

Take on Recent Market Changes Taking Stock of Market Terms

Stock Analyst: The idiot who just downgraded your stock.

Broker: The person who leaves others broke.

Bear Market: A 6 to 18 month period when the kids get no allowance, the wife gets no jewellery, and the husband gets no sex.

Bull Market: When falling IQ levels can lead to rising levels.

Cash Flow: How your money moves as it disappears down the toilet.

Standard & Poor: Your life in a nutshell.

CFO: Corporate Fraud Officer.

Value Investing: The art of buying low and selling lower.

Financial Planner: A guy whose phone has been disconnected.

Profit: An archaic word no longer in use.

According to reuters, U.S., Mideast buyout bosses gather in Dubai. We ask the question of whether they plan to takeover some banks. As we wrote in earlier articles on this blog, the stock market has reaarched a bottom, and it is surely a good time to buy.

Their only problem this time is that they have to come with their own cash (unless they plan to short!). Leverage buyouts (LBO) will not make it this time--the trick that fooled the banks is still young in memory and has to get a bit old and forgotten before it is played again in front of banks.

Sovereign funds of Arabs, as we wrote in a previous post, got taken in this market.
The sheiks' money that was invested in the stock market has been on the side of the bagholders in the recent market action.

Private investors are however sharks and there are certainly some arab sharks, who go along with the US private buyout bankers. After all arabs and jews are semite cousins-- although they fight it in palestine, they seem to be very friend when it comes to making money in stock markets.

Few excerpts from reuters article follow:

Private equity executives from the United States and across the Middle East descend on Dubai this week to seek out investment partners and deals during one of the most tumultuous periods in the industry's history.

....

From the Middle East, the focus will be on private equity and sovereign wealth funds, with speakers including some from Dubai government investment agency Istithmar World Capital, which owns fashion retailer Barneys New York; and Saudi-based private equity firm Swicorp, which recently bought a stake in leasing company Jordan Aviation.

Behind closed doors, a flurry of meetings are expected as U.S. private equity executives test for any appetite for further ventures, fund raising and deals from a region that has been burned by investing in the United States.


....

According to a REUTER report, AIG management knew of possible problems with CDS (credit derivative swaps), and excluded one key person from discussions because there was concern that that person might polute the process of writing some CDS contracts that were to topic of the discussion.

Few excerpts from reuters article follow:

American International Group Inc (AIG.N: Quote, Profile, Research, Stock Buzz) knew of potential problems in valuing derivatives contracts, known as credit default swaps, long before questions about the risky transactions caused its stock to plummet, the Wall Street Journal said, citing documents released by congressional investigators.

....

A federal criminal probe is investigating how candid AIG executives were with investors at a December 2007 investor conference and whether executives at AIG's financial-products unit, which sold derivatives contracts, misled AIG's outside auditor last fall, the [WSJ] Journal said.

Now that average joe may have sold or will sell early this coming week after reading the gloom news such as what we reported in the previous post, we are now starting to see some subtle news that smart money will use to mark up the market and/or to compelete accumulation of stock, before the market up.

Excepts of EUR European Union to Guarantee Interbank Lending follows.

From New York Times:

Financial and political leaders were holding meetings across the globe Sunday, urgently seeking agreement on measures to restore confidence to the teetering financial system before markets open Monday in Asia.
...
Nicolas Sarkozy, the French president, said after a meeting at the Élysée Palace with Prime Minister Gordon Brown of Britain that he expected European countries to present an “ambitious and coordinated plan” that goes beyond measures announced by the Group of 7 industrialized countries in Washington on Friday.


From Bloomberg (

The 15 euro countries may agree to guarantee interbank loans of as long as five years to break the credit-market freeze, according to a draft statement cited by Agence France- Presse.

In a first page article, marketwatch writes "On the brink of a meltdown".
It further states (fear and hope organization is ours!):

1. The fear part: "The global financial system is on the brink of a meltdown and additional steps must be taken immediately by the richest nations to calm jittery bankers and investors, the IMF warns.

2. The hope part: "IMF confident governments will act in time to avert crisis"

But what is the real truth?

According to this modest blog, our previoous post announced that the stock market has bottomed, and all the actions are really not needed. It is too late. All what is needed is a new legislation to make sure that crooks will not come back in the future and do what they have done: writing insurances, and providing credit with nothing or little to back these obligations. It is not average subprime Joe who caused this (I want to make sure that you understand that average Joe subprime borrower is JUST the scape goat).

If you want to receive a report on the real reasons (with causes and effects in chain reaction) for this mess, email us at marketwarnings (at) gmail (dot) com ,
and we will send it to you. You will then understand the whole "scam" better than 99% of the people on the planet, and use this information to take care of your financial situation.

The question that might be on many people's mind: where is a bottom for this market? Let us try to answer that question.

We know that a bear market eliminates any prices that are not build on real-strength.
A bear market essentially cleans a system from its wrongs, and determines the rock bottom.

The last bear ended in March 03. The prices to remember from that bear market are:

1. The price at which the bears were defeated by the bulls was at the level of 8500 for the DOW (you can go back and find the numbers for the SP500, and Nasdaq).

2. The bottoming area was between DOW 7500 and DOW 8500.

3. The hardest layer among the rocks of that bottom were in the area DOW 700 to DOW 7500.

Now some remarks in relation to today's prices:

1. Dow is JUST 70 points from the area where bears were defeated by the bulls at the start of the lastest bull market.

2. The market today closed at 8570. We are, at worst, just 10% away from the hardest layer among the hard rocks of the previous bear market.


Conclusion:

1. From the above we are concluding that for a long term investor, this is the time to start getting in.

2. I would focus only on buying segments of the market (not individual stocks).

3. I would also focus on dividends to allow for compounding, and/or collect income by selling calls.

4. I would consider selling calls on my holdings as stated above. This should be lucrative as volatility is at historical highs.

5. If I were too scared, I would start by selling leaps at strikes 700 (for DOW). You would have a great rate of return on these leaps, and if market were to fall, you lower your buying point significantly.

Our conclusion is: from the level at which DOW closed today, we have a historic buying opportunity, at levels that have been tested by the previous bear market.

If the levels of the previous bear market do not hold, then we are heading for more serious trouble that any reasonable analysis can predict. But there is always risk, we believe that the probs, the risk/reward ratios, the dividends, the call premiums are on the side of the investor.

In any case, one should scale in. My worries now at the market may run away from me tomorrow, and as my retirement account allows me only to buy at close, this opportunity may slip from my hand.

To your profits,

[We urge you to take a bit of your time to read this note carefully. There are certain terms that may not be familiar to all readers such as selling leaps options, etc. We send (from time to time, and if and as, time permits us, to members of this blog, notes related to trading and investing ideas with actual examples. We would be delighted to have you as a member. Email a note to: marketwarnings (AT) gmail (DOT) com to enroll]

It is now 3:05PM. We are going long the stock market with SP500 at 1018. Our proprietary analysis indicate that we are in the area of a short term bottom. The bottom area if between current price and 1015.


PS: Do not forget to sign up. Look at menu in top to send email, or send it to marketwarnings (at) gmail (dot) com.

WSJ is reporting that the FED is Looking to Ease Strains in Commercial-Paper Market.

Our view is that this is loudable. The commercial paper market is a critical market to the economy. It is a bridge linking everyday the real economy and the financial markets (particularly during the current credit crisis).

We believe that commercial paper is where the FED should have started its work, not in bailing out wall street stock equity.


Excerpts from WSJ:

" U.S. officials are examining ways to ease deepening strains in the commercial paper market, which have been hit by an unwillingness among money market investors to hold risky assets.

The move could involve the Federal Reserve making an unusual foray into unsecured lending. The Fed has been flooding financial markets with loans in recent months, but those loans are secured by collateral.

In mid-September, the Fed unveiled a new lending program aimed at helping U.S. banks finance purchases of a kind of commercial paper called asset backed commercial paper, which is secured by collateral ...

"

The freeze started back in September (see image attached).

Bank of America (BAC) announced earnings, dividend, outlook, warnings.

EPS=0.15, dividend=0.32. Weakening outlook. Economy and consumer under pressure.

Note: with above EPS and dividend, real EPS is negative (MINUS $0.17)


Highlights:

From Bank of America:

Bank of America Corporation today reported third quarter 2008 net income of $1.18 billion, or $0.15 per share, down from $3.70 billion, or $0.82 per share, a year earlier.
...
The company intends to sell common stock with a target of raising $10 billion. In addition, the Board of Directors has declared a quarterly dividend on common stock of $0.32 to be paid on December 26, 2008 to shareholders of record on December 5, 2008. Assuming the current number of issued and outstanding shares, the reduction from $0.64 paid in recent quarters would add more than $1.4 billion to capital each quarter.

"These are the most difficult times for financial institutions that I have experienced in my 39 years in banking," said Kenneth D. Lewis, chairman and chief executive officer. "We believe it is prudent to raise capital to very substantial levels in this uncertain environment. Both economic and financial market conditions have changed significantly in the last two months. We were willing to operate at capital levels over the short-term that were good, but not at our targeted levels, given projections two months ago. We now believe it is important to be at or near our 8 percent Tier 1 capital ratio target given the recessionary conditions and outlook for still weaker economic performance which we expect to drive higher credit losses and depress earnings. We believe that achieving higher capital levels today will position our company to provide credit to those consumers and businesses that are attracted to our strength and stability.

Some key statements:
1.
Reflecting deteriorating economic conditions, the consumer credit card business experienced a decrease in purchase volumes, slowing repayments and increased delinquencies during the quarter.

2. Increased loss and delinquency trends first experienced in the home equity and homebuilder portfolios have now spread into the first mortgage, unsecured consumer lending and credit card portfolios. Deterioration has been more pronounced in California and Florida, which have been hit harder by home price depreciation and rising unemployment than in other markets. Commercial losses in sectors other than real estate and small business also increased, but remain below normalized ranges.

We just read a scary report on the rgemonitor. We hope that such reports are not true. If anyone knows more about this, please let us know.


Excerpts from a longer article on rgemonitor:

"Situation Report: So far as I can tell by working the telephones this morning:

LIBOR bid only, no offer.
Commercial paper market shut down, little trading and no issuance.
Corporations have no access to long or short term credit markets -- hence they face massive rollover problems.
Brokers are increasingly not dealing with each other.
Even the inter-bank market is ceasing up."




Follow chart showed how things were some 30 days ago. Regulators had time to work on the problem. Why not fix this problem first instead of working on stock equity? This has immediate impact on the economy.

If you are a sovereign wealth fund manager, a government decision maker, or simply an investor (or speculator) you way want to pay attention to commodity exporter mistakes that may not be apparent now, but that will be apparent in the future.

What those people in sovereign wealth countries did not understand was not only what was written in a prophetic article various places (such as the financialtraders blog, read excerpt below), but they also made other rookie classical mistakes that they will remember for the rest of their lives (hopefully it will not take them more than a generation to correct them).

They could have learned a lot if they dreamed like the pharaoh, and learned from the way Yusuf(for Muslims)/Yosef (for Jews)/Joseph (for Christians) prepared Egypt for the lean years, during the fat years.

What these countries did look good, and is wrong because it was done not at the right time, and was compounded by an imitation and idolation of Wall Street.

They should have stashed their cash, delayed their projects, and started the work after the lean years (we are in lean year number 2, and leans years last at least 3 years).

Here is what they did and comments related to it:

1. Their well paid investment managers, bought stocks of now bankrupt companies at the high of the market (when the high was already known!). What were they thinking? Any trader with minimum experience would tell you to never catch a falling knife until it is on the ground and does not move (for sometime). I would even say to never touch it until you see a happy person picking it and not cut after the picking.

2. They started expensive grandiose projects. If they even finish them, they would get old and noone would show up (like the case of the olympics projects).

The only projects that I think would last are those spent on developing human capacity.

A man should never put money in things that do not rise, and compound over time!

3. They tried to imitate wallstreet (at the wrong time). Their private banking took loans from western banks, which are now calling the loans, and going for their jugulars. Their central bankers have no choice, but to come to the rescue (to at least save the facade).

These bankers are putting petrodollars in finance crisis, like a man putting cash in a fire to extinquish it. Yes, cash is liquid in finance, but is NOT water.

If you are a central banker, read what a mere mortal non-paid blogger is giving for free, and compare it to the pin stripped expensive empty suites that you have hired, and loved to hear talking to you.

Have a peek at their portfolios (I can share with you mine, as well as my prophetic predictions published for all to read but probably would not heed), and you will see that what you once viewed as grand manager are nothing but smoke builders, and that if you do not act soon, what you have may become a heap of ash.

4. The part that gave them assurance in their decision is the oil purse. Well Oil is crashing, and if it falls too low (even below $100) the commitments are now higher than the income.

Time then take care of putting these men back on their knees.

5. Most of the money poured from sovereign funds in wallstreet finance stocks is now NOT sovereign anymore. It is gone. What is sovereign is what is now in the sovereign hand which is a worthless piece of paper called stock, or preferred bond. (By the word prefereed is meant for the guy who issued it not for the guy who holds it, even if you think otherwise).

6. If you are a hot shot manager in, or a decision maker in relation, to the sovereign funds, have you ever thought why the old men from oil states always sent the money to USA bonds?. Those old men are wiser then you think, even if they did not go to the Ivy league schools.

Winds and time remove all superficial things except the solid rock on the ground, and line of age in a man's face. (Listen to the old man, younger shot--He knows more than you do.)

Leverage has killed you, or is about to kill you, O yo young sheik of the arabian desert!

I am not as arrogant as this post would suggest. So please email you humble blogger.
When people were dancing in lean years, this blogger was sitting in a library reading all books that were written on the topic of finance over more than 2000 years! History has tuaght him a lot.

Excepts from the financialtraders blog (will follow once I retrieve them soon. May sure you come back and/or enroll to the blog by sending an email (email address is at top right of this page):

A number of readers asked the question of why did the stock market sell off even if the bailout plan was signed. To understand why, the reader should understand that the stock market is subject to laws of supply and demand of stock. The market follows technicals, and the point at which it was when the deal was signed was in the area of sellers. That is why it went down. It had to go search for buyers who were down in the low level.

It has been doing this since the monday bottom. We have been using this observation to time this market since Monday end of day.

We read in numerous publications a misconception about CDS (credit-default-swaps). Typically, they are viewed as insurance, but there is subtle aspect of insurance that makes the insurance industry protect itself from abuse and fraud. Let us explain the point a bit further.

Insurers only insure insurable interests. CDS insure bonds, which would mean in this case the buyer of the CDS needs to have an interest in the bond. Insurers who pay a claim are subrogated to the interests of the insured, which would mean they have a right to collect if the loss does not turn out as badly as the original claim.

In the case of CDS, the person who actually bought the swap as "insurance" ends up with a payout determined by a market process that assumes the CDS holders were just speculators who suffered no actual loss. Speculators are then asked how small of a windfall they are willing to take in settlement.

The second problem is that when there are defaults, the defaults are correlated in the sense any one insurer and all insurers are exposed to the same risk, and the risk rises because two different CDS are in fact not two independent trials from a random distribution.

To understand this, consider the auto insurance industry:

1. An insurance company will insure your car only if your have an interest in the car.

2. In addition, the business model of a car insurance, assumes that any two cars they insure are not statistically dependent in the sense of the probability of car accident involving these cars.

The CDS industry violate condition 1, because it allows speculators who do not have bonds in the first place to own CDS, and second when there is a financial credit crisis like what is happening now, the fundamental idea of risk reduction via diversification does not hold. Essentially a large number of claims happen all at the same time, and this will make insurance companies swallowed by the claims.
Insurance companies can not hedge this risk.

The business model is flawed.

The only way for the issuers of CDS to cover their obligations is to use cash. It is the reason why they are hoarding it, as they know that claims will start coming in due to mortgage defaults, and/or prices of mortgage portfolios which fell even if there is no actual default in payments.

After nailing the top earlier today at 11:38AM when SP500 was at 1147, we are now calling for the bottom of the day.

We are going long the stock market with SP500 at 1114. The bottom is 1 to 2 points from this level.

This market is heading higher folks. It has been foretold yesterday, and we are re-iterating. The train will leave the station soon. Last call to board it.

PS: Do not forget to sign up. Look at top right of this page to send signup email.

Dear stock traders, investors:

After nailing the market bottom in yesterday's call (read previous post), if you want to take profits today (which we are doing), it is now time to take profits.

10:39AM: with SP500 at 1147, yesterday's call banks 31 points in the sp500. A big upmove for the sp500.

PS: Do not forget to sign up. Look at top right of this page to send signup email.

Dear Stock Market Blog Readers,

The time is now 3:20PM, Thursday October 2, 2008. The SP500 index is at 1116. Our proprietary analysis indicates that the market is at (or near) a short term stock market bottom.

We are starting to build a long position in the stock market.

Also a reminder of one of the key rules of investing: "be fearful when the majority is confident, and be confident when the majority is fearful".

The stock market is testing the lows of Monday, and is forcing the house to pass the bailout bill. A rally is in the offing starting tomorrow Friday.

To your profits!

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