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Date Created: 12/21/15
SEPTEMBER 29 2009 INSIDE guestperspective RESEARCH DISCLOSURES PAGE 2 guestperspective By Mark 0 Lapel Bull Case httpwellingweedencocom T weedledum and T weedledee A Tea Party In lVonderland We are not Lewis Carroll devotees nor will ever assay Through the LookingGlass but we are comfort able using Tweedledum and Tweedledee TampT as apt metaphors for the leaders of our public and private financial system 0 You see TampT characteristically in Central Banking parlance sterilize one another that is as applied by Ralph Nader to the US political system in Spring 2000 Our two parties are basically one corporate party wearing two heads and different makeupquot Nader said There is a difference between Tweedledum and Tweedledee but not that much And so it goes with the banking system and as with Alice profoundly frustrating for investors You see the commercial banking system is fully engaged in a Tea Party which in this case refer ences private games played by cliques of children to the exclusion of the main stream What we are talking about precisely is that in the face of a the wholesale deflation of the collateral stock and essentially nil aggregate excess cash flows the primary beneficiary of accommodative Central Bank policy is the system itself viz through the riskless reliquefication of commercial banks and cyclically as fueled by volatile sentiment leveraged speculation in the commodity and foreign exchange markets And for the prudent analyst it gets worse For as wantonly illustrated by China as reported this week by the Wb One way to deal with a baddebt problem Sweep it under the rug one decade at a time China 5 Ministry of Finance on Tuesday extended by 10 years a 362 billion special arrangement that helped China Construction Bank unload bad assets With clients we reference a Prodigal Son type metaphor What would you do if your adult child couldn t payoff a loan to you as due Bankrupt him or extend termsquot So how much more motivated is the Federal Government and its elected bureaucrats to extend terms Ours is an asymmetrical world with only one right answer and it is up and to the right 0 So let39s consider the FDIC and what Alice sees look ing down into its cavernous rabbit hole 1 10 billion in reserves vs 60 billion last fall 2 loss rates in this cycle of plus or minus 25 versus an 11 mean from 1980 1995 3 guesstimates of another 250500 billion in losses and 4 access to an aggregate 600 billion in emergency funding from the Treasury through 2010 And as widely reported Shelia Bair says the FDIC will not ask Congress for capital nor is she inclined to utilize funding from her bureaucratic foil Mr Geithner ergo here come the banks And with that let39s consider that the Fed is currently showing plus or minus 825 billion in excess system reserves on their balance sheets which is currently earning the banks 25 bps Conjecturally then how nice would it be for the commercial banks to loan the FDIC literally all the capital they need since it is likely to be of longduration and a yield considerably higher than 25 bps when we all know that said loans are backed by the US Government anyway 0 So what is left The largest commercial banks and diversified financial institutions have an enormous and very exclusive Tea Party going on fully endorsed and protected by the Government Precisely So Alice looks down the hole and sees an awful economy and attendant weakness in the job market and still rising defaults foreclosures and liquidations And she just has no hope at all wellinqweeden SEPTEMBER 29 2009 PAGE 1 wellinggaweeden Kathryn M Welling Editor and Publisher wellingweedencocom Published exclusively for clients of lVeeolen amp C0 LP Lance Lonergan National Sales Manager 800 843 9333 or 203 861 7670 lanceweedencocom Thomas Orr Director of Research 800 843 9333 tomorrweedencocom Noreen Cadigan Director of Research Sales 203 8617644 ncadiganweedencocom Jean M Galvin Business ManagerWebmaster 203 8619814 jean galvinweedencocom KarinMarie Fitzpatrick Editorial Assistant fitzweedencocom Subscriptions Pat Quill 203 861 9317 pquillweedencocom Deirdre Sheehan 203 861 7636 dsheehanweedencocom Published biweekly on Friday mornings by wellingweeden a research division of Weeden amp Co LP 145 Mason Street Greenwich CT 06830 Telephone 203 861 9814 Fax 203 618 1752 Copyright Warning and Notice It is a violation of federal copyright law to repro duce all or part of this publica tion or its contents by any means The Copyright Act imposes liability of up to 150000 per issue for such infringement wellingweeden does not license or authorize redistribution in any form by clients or anyone else However clients may print one personal copy and limited reprint republication permis sion may be made available upon specific request Copyright 2009 KM Welling All rights reserved 0 How can it be Tweededum and Tweededee quotWell Alice it s the yield curve Government backstopping and amortization as far as the eye can seequot 0 But Alice couldn39t believe and remained underweight and she refused to buy until it was way too late Excerpted and reprinted with permission of Points September 23 2009 Mark 0 Lapolla is the principal of Sixth Man Research a wholly independent pri vately held company that provides research to institutional investors WW Contributor Research Disclosure Mark Lapolla is the principal of Sixth Man Research a wholly independent privately held company that provides research to institutional investors Sixth Man Research is neither licensed nor registered with any regulatory body and does not receive compensation for specific securities recommendations This Guest Perspective is excerpted and reprinted with permission and contains the current opinions of the interviewee which are subject to change without notice It is being distributed for informational pur poses only and should not be considered as investment advice or as a recommendation of any particular security strategy or investment product No representation or warranty expressed or implied is made nor should any reliance be placed on the fairness accuracy or com pleteness of the information forecasts or opinions contained herein Consequently Sixth Man Research assumes no liability for your moth er your brother your spouse or your kids For further info contact marksixthmanresearchcom No part of this interview may be repro duced in any form or referred to in any publication on the web or in the real world without express written permission of Welling Weeden And never forget past performance is no guarantee of future results wellingweeden SEPTEMBER 29 2009 PAGE 2 Weeden 8 Co LP39s Research Disclosures In keeping with Weeden amp Co LP39s reputation for absolute integrity in its dealings with its institutional clients ww believes that its own reputation for independence and integrity are essential to its mission Our readers must be able to assume that we have no hidden agendas that our facts are thoroughly researched and fairly pre sented and that when published our analyses reflect our best judgments not vested pocketbook interests of our sources colleagues or ourselves Neither Weeden amp Co LP nor ww engage in investment banking ww39s mission is strictly research This material is based on data from sources we consider to be accurate and reliable but it is not guaranteed as to accuracy and does not purport to be complete Opinions and projec tions found in this report reflect either our opinion or that of the named analyst interviewed as of the report date and are subject to change without notice When an unaffiliated interviewee s opinions and projec tions are reported Weeden amp Co is relying on the accuracy and com pleteness of that individualfirm s own research disclosures and assumes no liability for same beyond reprinting them in an adjacent box This report is neither intended nor should it be construed as an offer to sell or solicitation or basis for any contract for the purchase of any security or financial product Nor has any determination been made that any particular security is suitable for any client Nothing contained herein is intended to be nor should it be considered investment advice This report does not provide sufficient information upon which to base an investment decision You are advised to consult with your broker or other financial advisors or professionals as appropriate to verify pricing and other information Weeden amp Co LP its affiliates directors officers and associates do not assume any liabili ty for losses that may result from the reliance by any person upon any such information or opinions Past perfor mance of securities or any financial instruments is not indicative of future performance From time to time this firm its affiliates andor its individ ual officers andor members of their families may have a position in the subject securities which may be con sistent with or contrary to the rec ommendations contained herein and may make purchases andor sales of those securities in the open market or otherwise Weeden amp Co LP makes a market in numerous securities but none are featured herein Weeden amp Co LP is a member of FINRA Nasdaq and SIPC
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