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Minyan Mailbag: Level 3 Assets In The Financials


If and when the dollar rallies, it will likely signal that a sea change is afoot.


Thanks for the mention of SFAS 157. I recently read an article claiming that Goldman Sachs' (GS) Level 3 assets under SFAS 157 are 2x their capital base. If true, this is the kinda thing where the best case isn't all that swell. And the worse case defines bad. As you say – it doesn't matter 'til it matters… something to definitely watch… GS equals a Canary in Coal Mine.

Also, I wonder what General Electric's (GE) exposure is, given that so much of its top-line is finance. It's almost impossible to read anything negative on GE as they control the airwaves, but as the issue flirts with $40 it's another possible tell. It is so owned and loved that I doubt anything imminent lurks, but even a little weakness (or strength) at GE might be a god signal.

All the best,
-Minyan Andreas


Yes, these are the issues, as they have been, albeit something that is seemingly coming to light. I am not referring to Goldman, per se, as much as financial institutions as a whole. Indeed, CIBC analyst Meredith Whitney, whose downgrade of Citigroup (C) last week sparked the most recent leg lower, told the Daily Telegraph that the only way for Citi to survive is to carve up the bank and sell it off. She offered that "they don't have the capital to manage it as an ongoing entity."

Now, old timers (such as Charlie Mangano) will offer that Citi was effectively insolvent in the early '90's and the stock--along with the market--shrugged it off and rebounded nicely. And he's right. The difference now is that 1) in a finance based economy, the ripples could be more profound, 2) the market is a stone's throw from an all-time high and 3) now, more than ever, people are invested lock, stock and barrel in the stock market.

Now, the relative traction in the tape can be viewed as a bullish sign---the muted top-line reaction to the news is more important than the news itself--but I would offer that equities... and crude... and metals... are benefiting from the rising tide of the sliding dollar. And it's why I continue to watch the greenback very closely. If and when it rallies, it will likely signal that a sea change is afoot.

As far as General Electric, I have no position but would agree that it's vulnerable as a "bearded financial." That company--along with General Motors (GM), Ford (F) and a litany of others---derives a ton of its earnings from finance-based operations. It won't matter until it does, as we both have said, but when it does, GE will likely bring good things to Boo's life. Let's circle this discussion for review at a later date and see how it pans out.

Thanks for writing,
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