This Shipping Stock Rides the Ag Boom
Credit the souring mood this time to Credit Suisse (CS), one of the bluest of the blue-chip European banking stocks, which reported a massive loss due to what it called "mismarking and pricing errors" by its bond traders. They may call it fraud or a boo-boo, but figure it's just their pained way of saying that they have been snared in the subprime debt-related liquidity mess, just like all of their more plebian rivals. Meanwhile, Lehman Brothers (LEH) this week also put one foot outside of the closet today, as The Wall Street Journal reported that it is likely to reverse its prior tactic of denial and soon report a rocky quarter due to mismanaged bets on commercial real estate loans and residential mortgages.
I seem to remember that back around 10 months ago, Lehman, Bear Stearns (BSC) and Merrill Lynch (MER) all said that while they had done a little business in mortgages, they were unlikely to even record much of a slowdown, much less losses. What a difference a year makes. It just goes to show that it's really hard to believe corporate leaders sometimes. It's not that they lie, which they do, it's that they are eternal optimists who never think anything bad will happen to them.
I'm all for optimism, but there must be more to it than just a hope and a wink. Much of the business model that brokers relied upon for profit growth over the past five years has gone away, and it is not coming back.
All those fancy debt instruments that were created -- the collateralized debt obligations, structured investment vehicles, variable-rate debt obligations, credit default swaps, etc. -- generated fees that were very high-margin and went virtually straight to the bottom line. To the extent that there are no more suckers to whom these things can be sold, the financial services industry will have to retrench, cut expenses, fire people and go back to their basic business.While there is nothing wrong with straightforward commercial lending and trading, they're slow-growth businesses now under the cloud of impending recession. Moreover, as the brokers scramble to fill the holes in their capital requirements left by multibillion-dollar losses, they are going to have to hoard as much money as possible -- and that means fewer high-margin loans to hedge funds and other customers. As a result, I don't expect a lasting recovery in the brokers anytime soon, as their real fundamentals are deteriorating just as briskly as their valuations.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV