Thursday, June 4, 2009

Increased demand for non-FDIC backed debt offering

Banks have offered billions of $ of debt that is not guaranteed by FDIC. Yet, there is high demand for the debt. That is a good indication that the investors are believing in the capital markets; especially, the banks. Return of confidence is good for capitalism.

Rising commodities - true demand vs. speculative trading

Rising price of commodities bode well for economic growth. At the same time, it brings inflation alive. Regulators must be vigilant to ensure the rising price is due to demand instead of speculative trading.

Taming 2 Trillion Dollar Budget Deficit

Stimulus spending was required to jump-start the economy. GDP has fallen. so has export. Tax base can not be raised to cover for the whopping budget short-fall. Now, the government must look into ways to reduce budget so that money printing press does not overwork.

Wednesday, June 3, 2009

Housing sector - pending home sales vs. housing start

Pending home sales data indicates that the tax incentive issued by the administration is aiding home sales. However, the housing start is falling which is indicating the reverse trend. But, in the days of uncertainly like this, putting deposit down for a new house is risky while good value is found in existing houses.

Chrysler and GM Chapter 11 - important to economic recovery

Fairness of the treatment of secured bond holders in case of Chrysler and unsecured bond holders in case of GM is questionable. However, the threat of bankruptcy has enabled these companies to close competitive gap in labor contract. The speed at which Chrysler is emerging from bankruptcy is remarkable. I hope GM speeds through Chapter 11 the same way.

Banks repaying TARP money - boost of investor confidence while diluting shares

JP Morgan was a reluctant borrower of TARP money, while others borrowed out of necessity. Now, JP Morgan, Goldman and Morgan Stanley as well as few others are lining up to repay TARP money. Government has announced rules on repayment - that the bank must be able to raise capital without Fed Guarantee.

1. Issuing of common stock
2. Converting preferred to common stock
3. Issuing non-FDIC guaranteed debt

All these have helped banks to raise capital, but have significantly diluted bank shares. However, it reinforces investor confidence.

Banks need to operate without the strings attached to hire and retain employees. This is certainly key to capitalism to return to normalcy.

Banks Raising Capital identified in Stress Test - Investor confidence regained

Many of the banks have raised money through selling common shares, converting preferred to common and selling debt to raise capital cushion identified by stress test. The speed at which the banks were able to raise capital is remarkable. Although that is not particularly helpful to the stock price due to dilution, it demonstrates the fact that the investors are confident in the capital markets. It is the most important part of the recovery.