Cumberland Advisors Question and Answer Interview
Posted By thestatedtruth.com on December 2, 2009
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Comments from Cumberland Advisors, a major institutional investor (full report attached below)……………This is worth the time to read.The number of FDIC-insured bank units rated “F” rose from 2,256 at the end of June to 2,337 as of Q3 2009. Even with the heavily subsidized money center banks added back into the equation, the Stress Index results suggest that the US financial services sector is still sinking bow down under the weight of the highest loss rate experience in the post-WW II period. Whereas 2008 was about fear, 2009 has been about buying time. But now dwindling cash positions inside some of the largest financial institutions and investors seem to suggest that 2010 will be about resolution, whether we like it or not. This suggests that the economy will muddle along through next year and that the 2010 US mid-term elections could be problematic for all incumbents.
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Kotok: You know, in a strange way the Dubai Islamic bonds may become a test case for this cockamamie CoCo proposal of distinguishing between debt and equity. Under English law the interest payment from Dubai World is due and it will be a item of default if they fail to pay. Under Islamic law these are equity interests so the technical form is a distribution of a profit which is not there; hence, no payment is required. The bond indenture says this debt instrument is under English law. But the adjudication of any dispute will be under Islamic law. The market is assuming that the Abu Dhabi Investment fund will bail out the bond. I am not so sure. If they do, they open up an Islamic version of a moral hazard expansion. That is why I think there is a possible contagion risk and that this problem potentially is much larger than a single payment on a $3.5 billion item. Markets are only looking a the outstanding Islamic bonds that have been issued. The amount of bank loans in this form is unknown and transparency will not be available until reporting bank have to disclose their exposure. I digressed a little from the US situation.
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It turns out that Brookings Institution has been working night and day on a study that will be the road map for implementing a VAT (Value Added Tax). This is to be a nation-wide sales tax on the American people to pay for the bank bailout. Apparently Bob Rubin and Larry Summers are the proponents of the VAT and they are planning to use the apparent pressure from our foreign creditors as the justification for a large, permanent increase in taxes. And David, you just described the failure of an auction of agency debt that could provide the pretext for just such a move.
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Almost 2,400 plus banks are now rated “F” in your system, which is a quarter of the whole industry. Something like half of the “F” banks will likely fail. So over the next five years or so, I see the US muddling along with more and more interventionist, cockamamie scheming power which, sadly in my view, is not just coming from the Treasury.
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Click here for full interview:Â Â 2009-12-02 Cumberland Advisors Interview
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