More Ranting about Banks, and Something Positive, Too.
February 15, 2009 | by Rob Booker

I promise that within a few weeks I will have calmed down about the banking sector of the American economy. But not yet.

 
The Chart of the Week

Oil looks like it has bottomed out to me. If it breaks above the blue trendline you see on the chart below, that's extremely bullish. If it can do that, I would not be surprised to see oil back at $60 a barrel within the next 30 days.

I'm still waiting, by the way, to see Citigroup do something. And I still think it's going to be the story of the year in the financial sector.

 
Insanity on the Street

Next, I cannot wrap my head around Wall Street executives. Here are two headlines, right next to each other, in today’s New York Times. The images below are not clickable (they don't go anywhere):

The gist of piece number one is that the world is in fiscal chaos, and tons of people are losing their jobs. And that no one knows what the hell to do about it.

The central point of the second article is that the new stimulus bill that passed this week will prohibit cash bonuses and other types of incentive compensation for the top 20 executives at companies that receive bailout money. These restrictions would stay in place until the bailout money is repaid. Nothing in the bill prevents a company from simply paying a higher salary to executives to make up for the reduced ability to pay bonuses.

And now for the kicker. I am not making this up. This is a direct quote from the article:

“Top economic advisers to President Obama adamantly opposed the pay restrictions, according to Congressional officials, warning lawmakers behind closed doors that they went too far and would cause a brain drain in the financial industry during an acute crisis. Another worry is the tougher restrictions may encourage executives to more quickly pay back the government’s investments.”

I have only two things to say about this:

  • Who the crap cares if we drain the “brains” from Wall Street firms? The top executives from those firms are leaving no matter what the hell Congress says or does. They are leaving the firms because the firms are insolvent, not because they don’t like their pay structure. The executives who are left are lucky to have a job. And tens of thousands of Wall Street workers don’t even have a job anymore, and millions of Americans are out of work, thanks to (or despite) the “brains” that we’re now worried about draining. Hello! Wake up, people! Do we really think that top executives at Wall Street banks cannot be replaced? Isn't that what has been happening for the past, oh, say, 100 years?
  • Am I insane because I think that these men at Wall Street firms need to get up in the morning and go to work, even if they are “only” making $200,000 a year?

We have seriously steered the world economic ship into la-la land.

Is There a Reasonable Explanation for This?

Yes. Here I’ll explain it in an uncharacteristically clear fashion:

  • The United States government is going to seriously consider nationalizing some of the big banks. Then the Treasury is going to stuff one of (or several) of these nationalized banks chock full of shitty debt. If the Fed does this, the salary restrictions aren’t going to make any difference anyway, because the top executives at these banks will be long gone.
  • The U.S. government is going to let a pile of smaller, regional banks fail. Say goodbye to at least 10 of these financial institutions in the next 6 months. There are some banks that are “too big to fail,” and there are others that are simply “too small to rescue.” Remember, Lehman Brothers was pretty big and it didn’t merit a bailout. What the hell will the Fed or Treasury care about a regional bank with 50 branches and bloody mess of a balance sheet?

Wave 6,007 of the world financial crisis: lots more banks can and probably will fail.

On that happy point, we’ll move on to the currency chart of the week.

 
What's Next in Forex?

Here's what I am looking at right now:

I’m still bearish on the Euro. Just like I was last week. We’ve started to see the pair slow down and consolidate. I’m expecting a breakout from the range you see on the very short term (15 minute) chart by Monday the 16 th or Tuesday the 17 th. And a few hundred points of movement further after that.
 
This Week's Personal Note

It's easy to complain, and I've been doing plenty of it today. But a few weeks ago I picked up a book in my friend's car, and the message stuck with me. So this week, I'm going to be re-reading the following book:

Happy Trading!