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Big Banks Hit: Dave's Daily

There are some really odd things occurring -- the eurozone naturally leads the list. Italy and Spain will contribute funds they don't have to the IMF, which then in turn will lend it back to them. That's something sillier than a Ponzi scheme. From the Telegraph: " Ministers confirmed today that, as part of a broader international effort to improve the adequacy of IMF resources, euro area Member States will provide EUR 150 billion of additional resources through bilateral loans to the Fund's General Resources Account. Burden-sharing among euro area Member States will be based on quota shares resulting from the 2010 quota reform. Germany will be responsible for ¿41.5 billion, France at ¿31.4 billion, and Italy will need to provide ¿23.5 billion and Spain another ¿15 billion ."

Meanwhile back in the U.S. Warren Buffett's foray into buying $5 billion of Bank of America (BAC) shares leaves him down $1.5 billion. To quote Jackie Gleason: "A mere bag of shells." As BAC broke $5 a share Monday one must wonder, what's the next shoe to drop here? Bernanke and Geithner know, but they're not saying, but no doubt their burning up the phone lines getting more financial data from another TBTF organization. The action in BAC dragged the rest of the stock market sharply lower. Investors seeking safety have taken 2 year Treasury Bonds to .24%, 5 year to .50% and 10 year to 1.80%. These are all negative yields for investors.

When we're in cash, we always get asked what to do with it? Some have found generous insured returns at credit unions and some local banks for short-term deposits. Unless you're an institution, it seems silly to lock in negative returns. You could do as well shooting craps.

Everyone with a keyboard in the business is busy making forecasts for 2012 because this is what they're paid to do. As I've stated frequently via a ripped-off quote from economist Edgar Fiedler: "If you must forecast, forecast often". That said, my own take on things is to hope for the best but prepare for the worst. The eurozone instability will be with us for some time and will see many debt funding dilemmas in the first quarter. Many large companies are cutting earnings forecasts which aren't positive.

Markets received positive housing data today, but it was modest. The problem remains an estimated 3 million people are squatting rent-free and not paying their mortgages. This inventory needs to be cleared away perhaps via some creative bulk sales. The longer it's postponed, and this is an election year, the longer the housing mess will remain. Maybe we have to do with it like farmers do with crops -- destroy the excess supply.

Stocks fell and the selloff gathered steam with BAC selling off and breaking $5 to close at $4.985. Some late tape painters have pushed the stock up to $5 in late-trading but the psychological damage has been done. Bonds rose as noted, the dollar was modestly stronger and commodities continued to decline as future economic prospects globally weaken.

Volume was light and barring anything unforeseen it should continue this was throughout the holidays. Breadth per the WSJ was negative.

You can follow our pithy comments on twitter and join the banter with me on facebook.

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