Juggling Dynamite

As the U.S. airstrikes begin, FRONTLINE reports on the renewed crisis in the Middle East. Here is a direct video link.

Humans are woefully ill-equipped to navigate capital markets. The carnage is repeatedly predictable and grisly.

Our nature is hardwired for mental errors when it comes to markets and money. To over-ride innate presets and succeed through secular cycles, we have to train ourselves to think and approach the task opposite to the masses. And still, knowing, or saying this, is not nearly the same as developing a rule set and exercising the tenacity to stick it. A challenge made harder in modern times, by the relentless psychological barrage of the media commanding financial sales force.

“Stand for something or you will fall for anything,” was a timeless quote from my high school biology teacher. In financial management, I have found these words to be bedrock.

The next savage bear market decline for stocks is indelibly inked on today’s euphoric, reckless valuations. But participants either don’t see the writing or are thinking they will get out before losses hit once more. Most won’t. Like frogs boiling in pots of water, losses move slowly and then all at once.

The charts below of the S&P movements during the bears of 2000 to 2003 and 2007 to 2009 are instructive and outline the seductive demise that imploded trillions the last 2 down cycles. Words for the wise: “do something today, that your future self will thank you for.” See: The slow and perilous death of bear markets, for more.

Yes, price gains in stocks and high yield debt have gone on longer than average this cycle. But as in tax, deferral is not the same thing as avoidance. Define what you stand for…

Those with any ability to assess facts and figures objectively and honestly over the past 7 years have repeatedly noted that “too big to fail” banks have only grown bigger and more concentrated in their economic risk since the government bailouts rescued them from much deserved bankruptcy in 2008.

Elizabeth Warren has been patiently and relentlessly advancing the obvious case that they need to be broken up and forced into Glass-Steagall-like divisions once more. She explained the case well in this clip with Al Hunt last January. She also put the facts to Fed Chair Yellen in the latest Senate hearing (see video clip here) where Warren pointed out that the Fed is mandated, not given discretion but mandated, to reorganize the banks where the banks themselves are unable to show that their demise would not require a government bailout to protect the economy.

The banks have failed to advance such a viable plan as required every year since 2008 and the Fed has done nothing but extend, pretend, condone and continue piling trillions of government backed funds into the bottomless well of bank coffers as executives extract garish compensation courtesy of the public purse. Finally amid increasing political embarrassment, yesterday the FED and FDIC issued long-overdue failing grades to the banks and directed them to take immediate action to make their holding companies easier to dismantle before their next round of annual filings in 2015.

What happens next is anyone’s guess. What we know for sure is that the banks are only focused on getting bigger since that is how their executives are directed through financial incentives. And they are already far to big to manage or resolve without catastrophe. The only reasonable solution is to break them up. The question is how much longer can they stall.

The Federal Reserve and Federal Deposit Insurance Corp. told 11 of the largest U.S. and foreign banks, including JPMorgan and Goldman Sachs, that they botched their so-called living wills. Here is a direct video link.

Paul Miller, a banking analyst at FBR Capital Markets, discusses the Fed and FDIC telling 11 of the largest U.S. and foreign banks that they botched their so-called living wills. Here is a direct video link.