The Eye of Sauros : the Guru Effect

The first two days of this week saw once again what is potentially the beginning of the end of the end of the crisis. To make it more simple : the markets went down and the DJIA closed under 7800 on Tuesday. Actually, the economic calendar this week shorten by the Easter break, is light and uneventful. Today's main event was Obama's surprise trip in Iraq and a lot of us were waiting for Alcoa's results which came as I was writing those lines ($497 Mio net loss in Q1, loss of 59c per share vs 56 est.).

So now the question is what triggered yesterday the reversal? A few reasons have been evoked in the news including profit taking (a good one this one when you have no idea : when it goes up, it's short covering, down it's profit taking, and a few variants), the breakdown of the purchase of Sun Microsystems by IBM, the extension of the deadline for participation in Geithner's plan and a report on US banks. A report on US banks! You meant a guy somewhere wrote a 15-page report on banks with a few pals, makes a conf call and the Dow future dropped almost 300 points in a couple of hour ??? Yes, I was here, the 2 eyes fully on my 4 screens, (that's 2 screens per eye) and that's precisely what happened. While the market in Asia and in Europe on the opening showed a bit of strength, Mike Mayo, a star-analyst formerly with Deutsche Bank and now with Calyon Securities, revealed a downbeat report on banks and the market reversed.

Waw, that's what I call the Guru Effect ! Should be so cool to be a market Guru, you give your opinion on the market and it goes in your direction and I don't mention that the guy is likely not having his lunches at Mac Donald's , driving a Mini and meeting granny male analysts from the companies he covers . I now have my eyes wide open : I want to be a Guru, I want to be a GURU, I WANT TO BE A GURU.

So the first step for me was to get THE report "Seven deadly sins of Banking", I couldn't miss a report with such a market cap! (just drop me an e-mail if you can't get it and want a copy, Sauros@TheLordOfTrading.com). Mayo initiated his coverage at Calyon Securities on "US banks with an Underweight sector rating given the ongoing consequences of increased risk taking by banks in seven different area. A key implication is that loan losses (to total loans) should increase to levels that exceed the Great Depression. [from 2% of loans to a peak of 3.5% by late 2010] While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class. New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average" . He argued that the banks tried to compensate for lower rates of growth by taking more risks and falling into the seven deadly sins of banking he details in the report, which include "greedy loan growth, gluttony of real estate, lust for high-yields, sloth-like risk management, pride of low capital, envy of exotic fees and angers of regulators".

More about gurus, George Soros (the real one, the palindrome one) said in an interview with bloomberg tv that the recent rebound in stock price was a "bear-market rally because we have not yet turned the economy around." He added "This isn't a financial crisis like all the other financial crises that we have experienced in our lifetime". Another quote I like,regarding the banking system "seriously under water" with banks on "life support", he said "This is part of the muddling-through scenario where we are going to keep zombie banks alive, it's going to sap the energies of the economies". Nothing really new in His view here, the thing is he wants to market the paperback release of his latest book on the 2008 Crisis (book I recommend, in addition to the usual stuffs on his theory of Reflexivity, it gives a good summary on the reasons why we got here and why, even 1 year after, it's far from over!)

Before I start my looooong journey to become a Guru myself (with the sole purpose to be able to frontrun my own views), I have another idea to make money in the short term : I will write a biography of Mike Mayo !