When Roach says it, you can be sure whatever the idea is–is now well entrenched, and is the consensus.

http://www.morganstanley.com/views/perspectives/files/roach_presentation.pdf

Share prices of banks are still delusional imho, and I am curious why Roach thinks otherwise.

Stock repurchase/buybacks have a way of actually diluting common shareholders, i.e, shareholders use treasury stocks to buy overvalued common shares and then this new capital suddenly ends up as compensation in the form of option grant dilution, versus increased dividends. If you do your DD, I think you will find that dividends are very unwelcome nuisances to option holders! Furthermore, as yields are going down and dividends being cut, it is ironic that compensation is alive and well for the insiders.

http://www.rgemonitor.com/redir.php?sid=1&tgid=&cid=278866

What he missed and Doug Noland got right was the nature of the leveraged credit bubble and the perverse role of the Fed, GSEs and Wall Street securitization.

What no one is really focusing on however is the role of Wall Street executives and their compensation, the privatization of profits and socialization of losses and the accounting shenanigans that allowed these executives to be paid billions in bonuses. From the Clinton era onwards the “too big to fail” notion was in place. However, the regulators in cahoots with the Wall Street elites allowed even more concentration and enabled rapid growth in questionable assets on balance sheets and earnings on income statements that now will be restated. But…. no one is calling for the bonuses paid on fraudulent financial performance to be returned and executives charged with misleading investors as they were cheerleading and promoting gains in their stock options.

Where is the grand jury investigating Wall Street CEOs and the Chairmen of the Fed, SEC and other regulators? What did they know and when? What did they disclose and not disclose? What regulatory filings were knowingly incorrect? Were public investors knowingly defrauded by insiders? What is extent of criminality?

Eleventh, the worsening credit crunch that is affecting most credit markets and credit derivative markets will lead to a dry-up of liquidity in a variety of financial markets, including otherwise very liquid derivatives markets. Another round of credit crunch in interbank markets will ensue triggered by counterparty risk, lack of trust, liquidity premia and credit risk. A variety of interbank rates – TED spreads, BOR-OIS spreads, BOT – Tbill spreads, interbank-policy rate spreads, swap spreads, VIX and other gauges ofinvestors’ risk aversion – will massively widen again. Even the easing of the liquidity crunch after massive central banks’ actions in December and January will reverse as credit concerns keep interbank spread wide in spite of further injections of liquidity by central banks. Twelfth, a vicious circle of losses, capital reduction, credit contraction, forced liquidation and fire sales of assets at below fundamental prices will ensue leading to a cascading and mounting cycle of losses and further credit contraction. In illiquid market actual market prices are now even lower than the lower fundamental value that they now have given the credit problems in the economy.

In your search for villains — which I fully endorse, as I’m furious too — I think Roach is as unlikely a choice as Shiller or Baker.

I have no clue which direction the chaotic capital flows will go next. I do know that they will go there without me, as I keep hiding in what I consider safe assets even after this latest set of exploding trades(defensive conglomerates, PM’s, short-term treasuries, industrial metals, and energy) for the foreseeable future. The monetary and fiscal intervention domestic and international of the last 25 years, which has grown ever more intense, is poisonous to rational asset allocation and a well-functioning economy. It could go on much longer, but I’m not going to be playing in the game.