"Many of our fears are tissue-paper-thin, and a single courageous step would carry us clear through them" Brendan Francis

One thing that has most certainly surprised me during the Money Show in DC was the fact that there are still were so many visitors, despite the fact that the world is supposedly crumbling around us as we speak. The talk of the Great Depression and Armageddon hasn't really disappeared after the election as one might have hoped, and the only thing that seems to be changing daily is the finger pointing part- one day it's the Wall Street, the next day it is the Bush administration and the next day it's Alan Greenspan.

Despite all this I am still sticking with my October projection for the markets during the next year- US equities are likely to go nowhere and thus if one wants to earn a positive return during the next 12 months there are only two real choices out there:

• Trading like mad and taking gains as fast as you see them, or
• Generating dividend-like income by selling options and shifting more money towards asset classes that have a higher chance of sustaining their dividends-like prefs for example

My personal strategy of dealing with this slowdown is still focused on preferred stocks and buy-write closed end ETFs for now. I still believe that chances of JPM, WFC, HBC, BAC etc canceling their pref dividends are quite low and thus consider trade off quite favorable. However, to be completely objective, despite all the efforts by the government, there are continued issues with some of the fundamentals of the banks. Below are several charts summarizing most recent developments in the residential and commercial real estate related securities markets- short summary- things gotten worse again...Source for all - markit.com

AAA - residential paper- recent declines have taken out lows from earlier this year and that means more write off and potentially more failures, unless Fed steps in very quickly with another rate cut...

Same thing with BBBs- worthless...

The news are actually even worse on the commercial mortgate front:

AAA- spreads are setting all time highs- that's bad news especially for banks with large balance sheets like C, DB and UBS, as prices move in the opposite direction to spreads... That single digit price for Citi now seems like a realistic possibility...

BBB spreads are completely out of whack as well and point to complete dissaray...

However, here is positive- while common stocks of all the Top 10 banks could stay under pressure for a while, the good news is that Preferred dividends are still very likely to be paid without interruptions for most banks that have been approved for TARP money, as the preferred stock is really the only way the Big Boys can raise capital now and the government is in for a pari passu with my pref ride as well...

More on that tomorrow, stay safe,
Skepticalcapitalist@gmail.com