Martin Wolf on My Estimates of Financial Losses: $1 Trillion is the New Size 6!
In his Wednesday Financial Times’ column Martin Wolf thoughtfully discusses my recent argument that financial losses of the order of $1 trillion (7% of GDP) may be only a lower bound and that such losses may end up being as high as $1.7 trillion or even $2.7 trillion during this systemic financial crisis.
I agree with him that the highest estimates are “excessively pessimistic”. They were provided as a way to show that, at this point, losses of the order of $1 trillion are only a lower bound – not an upper bound – to financial sector losses, not to argue that $2.7 trillion is “the” most likely outcome. Indeed, the most interesting development in the last few weeks is that estimates of financial losses of the order of $1 trillion – that only a month ago were considered way too pessimistic if not borderline crazy - have now become mainstream. As Wolf put it:
“On March 7, Goldman Sachs economists published an even higher estimate of mortgage-related losses, at $500bn, along with $656bn in other losses, for a total of $1,156bn. The mainstream has caught up.”
So to paraphrase “The Devil Wears Prada” now $1 trillion “is the new size 6!”, i.e. the new mainstream benchmark for expected financial losses. The mainstream has indeed caught up very fast.
But what about the more pessimistic scenarios of even bigger losses? Let us consider next this debate in more detail…
Now Wolf fairly disputes my view that that losses may end up being as high as $1.7 to $2.7 trillion. But while about a month ago even he was arguingg that $1 trillion was unlikely and excessive he now concurs that $1 trillion is a floor, not a ceiling, for such losses. And even about the more unlikely worst case scenario of losses of the order of $1.7 to $2.7 trillion - while being skeptical about them - he leaves the door open to the argments that estimates of such staggering losses are not totally far fetched. As he puts it:
“I suspect Prof Roubini’s latest estimates are excessively pessimistic. But I am not certain this is so, given his record: just look at the vicious interaction between falling asset prices, financial stress and spending. We must pray that the Fed can clean it all up, without excessive collateral damage. Unfortunately, such prayers often go unanswered.”
Unfortunately we have gotten to the point that we need to pray that the Fed can rescue the economy and financial markets. But as argued here last summer the problems in the financial markets are not just of illiquidity that Fed policy can address; they are rather of credit and insolvency that no amount of monetary easing and liquidity injections can ease.
Indeed, the reason why the agency debt and agency MBS securities spreads have sharply widened relative to Treasury has only partly to do with illiquidity; it has much more to do with the fact that Fannie and Freddie have already experienced massive losses on their portfolios of mortgage related assets and that these losses will significantly increase in the months to come. That repricing of AAA agency debt and agency MBS is a fundamental credit repricing, not just driven by illiquidity in these markets.
And now the Fed radically shifting the compositions of its almost $900 billion of assets from safe Treasuries into up to $400 billion of mortgage related securities is dangerous and a active form of manipulation of the credit spreads on these instruments. Why to fight a repricing of these agency spread that is fundamentally driven by the expected losses that the GSEs face? The last time the Fed tried to manipulate long term interest rates was during the Operation Twist program in the 1950s. The fact that the Fed has effectively gone back to trying to actively affect the yields on longer term (agency) bonds is a sign of how desperate the markets are now and how desperate the Fed has become in trying to avoid a financial meltdown that looks more likely by the day.
Here is the full column by Martin Wolf where he discusses in quite detail my more pessimistic estimates of financial losses in a systemic financial crisis:
Going, going, gone: a rising auction of scary scenarios
By Martin Wolf
Published: March 11 2008 19:00 | Financial Times
What am I bid on financial sector losses from the US subprime mortgage crisis? Do I have advances on the $100bn suggested by Ben Bernanke, chairman of the Federal Reserve, only last July? Yes, I now have $500bn from the gentlemen from Goldman Sachs. Any advances on $500bn? Yes, I have $1,000bn-$2,000bn from Nouriel Roubini of New York University’s Stern School of Business. Any advances? Going, going, gone.
It is easy to be cynical about this ascending auction of scary prognoses. But we cannot ignore them.
In “Why Washington’s rescue cannot end the crisis story” (this page, February 27) I analysed the implications of aggregate financial sector losses of $1,000bn. That figure was in line with estimates by Prof Roubini and George Magnus of UBS.
I concluded that even this would be manageable, if painful, for an economy as big and a government as creditworthy as that of the US. Prof Roubini objects that I have taken the downside too lightly. He now argues that financial losses might amount to $3,000bn (blogs.ft.com/wolfforum).
A trillion dollars here, a trillion dollars there, and pretty soon you are talking real money, even for the US. So does this new bid make sense?
Most of the losses will fall not on the financial sector but elsewhere. As Prof Roubini notes, a 10 per cent fall in house prices (relative to the peak) knocks off $2,000bn (14 per cent of gross domestic product) from household wealth. The first 10 per cent fall has already happened. What he sees as a likely 30 per cent cumulative fall would wipe out $6,000bn, 42 per cent of GDP and 10 per cent of household wealth. Already, falling prices are showing up in declining net household wealth. Prof Roubini also talks of a $5,600bn decline in the value of stocks and the possibility of additional trillions of dollars in losses on commercial property. Total losses might even equal annual GDP.
The principal direct effect of such losses will be on spending, particularly residential investment and household consumption. In the third quarter of last year, personal savings were a mere 2.4 per cent of GDP, while the financial balance of the personal sector (the difference between its income and expenditure) was minus 2.1 per cent. These patterns do not make sense when asset prices are falling. But a sharp rise in household savings would ensure a deep and durable recession.
Worse, the bigger the damage to the financial sector, the more credit-fuelled personal spending is going to dry up. So what might such overall losses mean for financial intermediaries. In Prof Roubini’s 12 steps to meltdown, discussed here on February 20, 2008, he assumed that their losses on mortgages would be $300bn-$400bn, while losses on other assets (consumer debt, commercial real estate loans and so forth) would be another $600bn-$700bn, for a total of $1,000bn. On March 7, Goldman Sachs economists published an even higher estimate of mortgage-related losses, at $500bn, along with $656bn in other losses, for a total of $1,156bn. The mainstream has caught up. But Prof Roubini has moved on.
In reaching its conclusion, Goldman estimated a peak-to-trough house price fall of 25 per cent. In hi
s comments on the FT’s forum, Prof Roubini suggests that, after price falls of 20 per cent from the peak, losses on mortgages could be as much as $1,000bn. With a 40 per cent fall, they could be $2,000bn. He adds another $700bn for other losses, to reach total financial sector losses of close to $3,000bn, or about 20 per cent of GDP.
So how does Prof Roubini reach these much higher figures? The difference between him and Goldman is not so much in assumptions about the house price fall: 25 per cent for Goldman Sachs and 20-40 per cent for Prof Roubini. Both also estimate that lenders would lose half of the loan value after repossession. But Goldman believes that just 20 per cent of households in negative equity would default, while Prof Roubini believes 50 per cent might do so.
For people with poor credit ratings and few assets, apart from their house, walking away does seem to make disturbingly good sense (“Jingle-mail rings alarm bells for lenders”, Financial Times, March 7). Buyers with no equity had an option to walk. Now they are exercising it. This was demented finance. Yet, so long as the economy remains reasonably robust, highly indebted people with good career prospects would surely not wish to wreck their credit rating. Nevertheless, markets are pessimistic: the prices of even AAA tranches of securitised loans are collapsing.
Suppose, then, that Prof Roubini were right. Losses of $2,000bn-$3,000bn would decapitalise the financial system. The government would have to mount a rescue. The most plausible means of doing so would be via nationalisation of all losses. While the US government could afford to raise its debt by up to 20 per cent of GDP, in order to do this, that decision would have huge ramifications. We would have more than the biggest US financial crisis since the 1930s. It would be an epochal political event.
Yet, Goldman argues that, after allowing for loan-loss provisions, the proportion of loss-making loans advanced by the non-leveraged sector and the ability to write off losses against tax, its $1,156bn comes down to $298bn. If a similar magic could be worked on the Roubini numbers, the effective losses to the leverage sector would fall to less than $750bn – huge, but more manageable.
Much will depend on what happens to the economy. Unfortunately, the effectiveness of monetary policy is constrained when the worries are more about insolvency than illiquidity. Concern about credit quality is rampant, not least in the resurgent spreads on interbank lending. Monetary policy is further constrained when lower short-term interest rates fail to translate into long-term rates, partly because of worries about inflation.
Alas, worries are understandable. There are two ways of adjusting the prices of housing to incomes: allow nominal prices to fall or raise nominal incomes. The former means mass bankruptcy and a huge fiscal bail out; the latter imposes the inflation tax. In extreme circumstances inflation must be attractive. Even if it is not the Fed’s choice, it is what a reasonable outsider might fear, with obvious consequences for all asset prices.
I suspect Prof Roubini’s latest estimates are excessively pessimistic. But I am not certain this is so, given his record: just look at the vicious interaction between falling asset prices, financial stress and spending. We must pray that the Fed can clean it all up, without excessive collateral damage. Unfortunately, such prayers often go unanswered.
512 Responses to “Martin Wolf on My Estimates of Financial Losses: $1 Trillion is the New Size 6!”
I love this ongoing long-distance Roubini-Wolf “dialogue.” It’s quite illuminating, and I thank them both for it. In Wolf’s column, I didn’t quite understand Goldman’s arguments regarding the effective losses being much smaller: Yet, Goldman argues that, after allowing for loan-loss provisions, the proportion of loss-making loans advanced by the non-leveraged sector and the ability to write off losses against tax, its $1,156bn comes down to $298bn. If a similar magic could be worked on the Roubini numbers, the effective losses to the leverage sector would fall to less than $750bn – huge, but more manageable. If someone could elaborate on this a little, it would be much helpful. Thanks. -iww
Anyone familiar with Operation Twist and whether it succeeded?
How does the FED actions today change the gloomy outlook ? Is this a dead cat bounce given that the same imbalances will persist and that the liquidity offered by the FED to the banks does not trickle down to the shadow financial sectors and US consumers. Appreciate comments.
@NR “Tuesday morning update: The just announced new Fed facility – the Term Securities Lending Facility that will lend up to $200 billion of Treasury securities in exchange for debt including agency and private mortgage-backed securities – confirms that the Fed has now entered into the business of artificially propping up the agency debt market and the residential MBS market. With credit risk for GSEs recently rising for fundamental reasons the manipulation of this market just increases moral hazard and saddles the Fed with meaningful credit risk.” Professor Roubini can really nail it, can’t he? (Just now reading the professor’s previous post from an unpopulated outpost in coastal Oregon but had to express my admiration.)
My best guess here is that with even this size injection of cash, the basics of this economy still don’t / can’t last in the mid to long term. We still don’t manufacture much – 70% of the economy is still consumerism – people in trouble financially are still in trouble because good paying jobs are not plentiful, the daily cost of living keeps rising, and no one is addressing real issues, only banking problems.
When will this ever end? Oh God, please….
Professor Thank you, thank you, thank you. The insight you provide and the accompanying Mosaic from the various bloggers/posters from all corners of the globe is much appreciated. Because of this blog, I have sidesteped some trouble and even made some money. I avoided what would be (as of today) a 16 point hit on a bank stock and I have made a few quick points on oil and euros. I have even read the prospectus of my money market funds – in detail. I am patient. If history serves, RGEmonitor will identify the bottom by sector about 6 months before everyone else. And that will be like shooting fish in a barrel
Some “economists” say that the current gas prices are not so bad, historically: In 1980, the average American had to work 105 minutes to buy enough gas to drive the average car 100 miles, according to Beth Ann Bovino, a senior economist at Standard and Poor’s. Now, the average American needs to work only 53 minutes, thanks to better fuel efficiency and higher wages. http://money.cnn.com/2008/03/11/news/economy/gas_prices_inflation/index.htm Now the average American needs to work less “thanks to … higher wages”? What a piece of … baloney. The wages have really not went up since 1981, even by the governments distorted standards (read “Crash Proof” by Schiff). But I guess they could not just say that the sole reason is a better fuel economy? That would not have fit the “things are getting better” / “they are not so bad” / “it’s just as bad in country X” mantra in the U.S. media.
whats up with Chinese Index?? its red
The average American isn’t Joe cubicle, making 80-100k a year, they are the 30-40k a year guy that cant wait to get home and drink a beer to forget about the day they just lived in bondage. Middle class America is strapped, credit cards are maxed out, negative or neutral equity, and driving a couple of negative value cars, most likely American made garbage that depreciates faster than the imports. Take that guy with the demands society places on them to consume – they are dogs at that point, hoping for a bone and they got the bone today. What they dont realize is that the master got a bigger prize and is smiling, hence the trickle down. The problem isnt liquidity or insolvency on the greater stage, it is the symtomatic effect on the average guy that will be the killer. Things that keep the masses happy are costing more and subsequently they/we don’t have the money to pay for the fun stuff, it doesn’t happen overnight, nor does change in the financial state of the nation – that doesn’t include securities. The misconception is that the market reflects economic health, when in reality it is an internet based casino that is legal. CNBC was all over the market activity today and even barfiromo was back today amazingly. Fed to the rescue, of the fat cats. There are a few standards, if it seems too good to be true…. and every action has an equal and sometimes stronger reaction and we have seen both of these themes in the last 6 months and from the same governing body. The inflation measures suck, plain and simple – they aren’t shopping where I do and a 4% raise doesn’t keep me in line with what I see at the store. Inflation shouldn’t measure anything other than necessities, those are the things we have to consume and they are precisely the items that are appreciating most rapidly and cut into the “fun stuff”.
yes, so far Shanghai has shrugged off the 3.5% up move in the USA and down .5% at their lunch break… Cramer wore a caution sign on his head last night and tonight comes on, celebrates the rally and says we should rally for a few more days at least and perhaps up to a week off the extreme oversold conditions. I beg to differ with him particularly on the week part as we may not even rally one more single day. There is no way he could be wrong again can he on back to back shows ?
Here are some soothing thoughts to help the bears get to sleep tonight. The Fed’s in a desperate race with spectre of collapse Fed takes boldest action since the Depression to rescue US mortgage industry By Damian Reece Last Updated: 2:10am GMT 12/03/2008 Equity traders, being ever the optimists, decided to look on the bright side of yesterday’s central bank intervention. London and New York did a jig after the US Federal Reserve and Bank of England pulled out all the stops to avoid markets falling into a pit of despair. And who can blame them? When you’ve got state institutions as big as the Fed supporting markets then where’s the worry? The Fed, with its latest $200bn offer of cheap cash, has provided yet more state aid for errant hedge funds and another Washington-backed bail-out for Wall Street bankers. The Bank of England joined in again, further shedding any notion of being wary of moral hazard. But as the bail-outs are getting bigger, then clearly the problems causing them must be getting bigger. The Fed has saved the day again, but it will only be for a day or so. It was Friday remember when it had to pump $200bn of cash into the system. Yesterday it was offering to lend a similar amount to try and soak up some of the toxic debt out there which has left the lending markets hamstrung. How much further can the central banks go to support a system that is so obviously broken? Arguably, having come this far, Mervyn King and Ben Bernanke have breached the point of no return. There is no going back. The US certainly is now relying on its central bank to keep its most important credit markets open, its equity markets from plunging and bring a veneer of normality to financial life. Traditional supports, such as confidence in normal commercial debt repayment, have been knocked away as institutions are engaged in a desperate dash for cash. We have not seen anything like it since the decade of the Great Depression. Melodramatic as that might sound, it is a fact but a fact that markets seem unwilling to accept. While the Fed is willing to slash rates and hope, and pump liquidity into the system, markets will remain optimistic. But it is a race to the bottom. The Fed hoping it reaches the finishing line first and restores confidence returns before a bank goes bust. But the spectre of a collapse is neck and neck with Bernanke and it’s still anyone’s guess which will win. http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/03/12/ccom112.xml Pleasant dreams. Perhaps when you awaken you will find that the 417 point rally was only a nightmare.
why is Shanghai in Red? 1-2 days before FED announced the “solution” HK and China Indexes were marginally up,then followed by Nikkei Now China is Red, do they know something?? Guys..
JMA its down by 2% now
They’re having a CPI hangover. China released Feb CPI inflation number yesterday of 8.7% vs expectations sub 8% – rumours of further tightening…… 8% seems to be the “anchor number” there….much like the 3% number is in the west – the number at which inflation expectations move from being “contained” to spiraling out of control. Don’t forget, also, food price inflation – ie, the main outlay for most of the population, is, in some cases, running above 20%… Plenty of reasons to be bearish on the Chinese equity market…. Rest of Asia – generally up 1-2% – is telling us the Fed’s actions were not a solution, but a band aid which will wash off in the shower in a couple of days.
LOL! From the previous thread: >The Vatican has proposed to bless the FED’s collateral paper with a triple cross… < Written by tutterfrut on 2008-03-11 10:32:47 Yes, forgive the sinners, because they don’t know what they’re doing… It’s a bit difficult, though, as they are eating my hard earned savings away…
@Ken in previous thread ”Kindly, please provide the line item on the FRB balance sheet that displays 670bn in US dollar?” I took the $760bn number from Currency in Table 3 of H.6 at: http://www.federalreserve.gov/releases/h6/Current/ Later I found what’s probably a better figure for the amount of US dollar in existence. The ‘Federal Reserve notes, net of FR Bank holdings’ line in the liabilities section gives $780bn. From the FED balance sheet at: http://www.federalreserve.gov/releases/h41/Current/ Anybody with better knowledge please confirm.
From previous thread; ”What does this mean? It means that we have sitting on a pile of dynamite with the fuse lit but extended. At the end of the day, the revaluation of financial assets will cause Balance Sheet insolvency and that is something the Fed cannot prevent. It is not in the business of owning banks. It would require federal government action. Don’t expect it in the current adminstration though. Written by Wolf in the Wilds on 2008-03-12 00:02:05 @Wolf, What we have seen time and again with these crooks at the Fed and .gov is that nothing is what it is sold as. This TSLF is nothing different. Another shell game. I view the TSLF as exactly what it is- a covert purchase of equity in the US banking system by the Fed. The Fed is exchanging toxic bank and PD balance sheet paper with Govt Treasuries. They call it loans. As you would expect, when one considers the Fed’s primary purpose for being is to shore up the US Banking system ie, support the Banksters at all costs. Of course, this is being done with taxpayer debt. Treasury debt paper ,that is ultimately attributable to the account of the US taxpayer, is being used in the risky shell game of fending off the insolvency of greedy corrupt US Banks and PD’s. ” Never…. has so much been owed by so many to so few” @ Rich H, I don’t believe I have referred to you as “mad” so please don’t attribute that to me. Far from it , I consider you to be pretty sharp. I don’t however agree with your views on gold/money etc as I have stated. That is all and nothing more.
Just within one week, Fed pumped 400bn (200bn on 7Mar, 200bn on 11Mar) into the financial market hoping to ease the credit crisis. With the backing of the European Central Bank, the Bank of Canada and the Swiss National Bank, is Fed going to rescue the market this round? It’s better be. Because I just cannot imagine what it would be if the rescue fails…. The whole world is counting on Fed.
A Palliative, Not a Cure From the Fed Notwithstanding the stock market’s applause, the new Fed facility won’t cure the credit crunch. “Today’s action is not nearly a large enough step to make a big difference,” writes Merrill Lynch North American economist David Rosenberg. “Just compare the size of the operation, $200 billion versus the total MBS market of $6 billion, comprised [sic] of $4.1 trillion agency MBS and $1.9 billion in non-agency MBS.” Indeed, only time will cure the problem, as house prices decline to levels that are affordable. But steps that the Fed is taking helps buy some time for the credit system and the economy. http://online.barrons.com/article/SB120524767738227325.html?mod=yahoobarrons&ru=yahoo
question: What is the result of this game with unlimited supply of money. who can tell me? according to MV=PT. It will be crazy rise in general price level??
NR’S BLOG (THROUGH NO FAULT OF HIS) MAY BE INVESTING POISON Today I considered a possibility. The possibility is that those of us who have been visiting this board have become blind to the bullish case. When we read NR we need to realize that he gets paid to comment and not to invest. Basing our investment decisions on his doom and gloom may be misguided. As we saw yesterday, in just one day Bernake and the powers that be can deprive us of our profits. Could it be that this is it? That the war is over? That we are forming a bottom here? That decoupling turns out to be valid? That signals of economic weakness will be short lived and we’ll have a V-shaped recovery that is starting now? Could it be that we will get killed on our short positions and miss the profits bonanza starting in Q2? Could it be that historic central bank interventions have put in place a bottom that will not go any lower? Does anyone feel like Q2 will be such a disaster? What happens if GOOG and AAPL and RIMM make their numbers? The stock market will take off and we’ll see 2600 way before we see 2000. This is just random food for thought but I feel it’s important to get it out there. We should be well under 10,000 on the DOW by now and under 2000 on the NAZ. The Fed and govt. have really burned the shorts up to this point, especially those of us like JMA and myself who took short positions as early as summer 2006 (it’s been a hell of a rollercoaster). Going long is starting to sound really good at this point. I really wouldn’t want to miss a historic rally or be shorting into it waiting for a doomsday scenario that never arrives. Bernake has shown himself to be in charge and capable of coaxing the market to do whatever he wants it to. January was a major demonstration with the 75 bps cut. But yesterday was beyond belief. The man can keep coming up with schemes indefinitely till he accepts PEZ dispensers as collateral on T-bills. Come hell or highwater the indices have to move up. Why miss out on this? So under the rubric of “If you can’t beat them, join them” I encourage any thoughts on the heresy of possibly reducing short exposure and going long from this point forward. Any ideas? Anyone?
Money-Market Rate for Euros Climbs a Day After Fed’s Measures By Gavin Finch March 12 (Bloomberg) — The cost of borrowing euros for three months rose for a seventh day, signaling central bank measures to combat the credit squeeze aren’t succeeding. The euro interbank offered rate, or Euribor, for the loans increased 1 basis point to 4.61 percent, the highest since Jan. 7, the European Banking Federation said. The one-week rate was little changed at 4.14 percent. Policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed yesterday on a second round of emergency- loan offerings to curb rising money-market rates. The Federal Reserve said it will lend as much as $200 billion of Treasuries via a new lending tool and widen the variety of collateral it accepts to include mortgage-backed securities. “Simply alleviating liquidity pressures does not actually feedback into improving confidence,” Charles Diebel and Sean Maloney, London-based strategists at Nomura International Plc, wrote in a report today. “What it does is buy time.” http://www.bloomberg.com/apps/news?pid=20601087&sid=aI85.B46zo04&refer=home It ain’t over till it’s over…
Preview of your Comment Professor says: And now the Fed radically shifting the compositions of its almost $900 billion of assets from safe Treasuries into up to $400 billion of mortgage related securities is dangerous and a active form of manipulation of the credit spreads on these instruments. Why to fight a repricing of these agency spread that is fundamentally driven by the expected losses that the GSEs face? In the previous thread, the issue was raised about the type and quality of the collateral the FED is willing to accept at the new facility. Ken provided the answer: http://www.newyorkfed.org/markets/tslf_faq.html What collateral is eligible for pledging? Eligible collateral will be determined by the Federal Reserve and includes all collateral eligible for tri-party repurchase agreements arranged by the Open Market Trading Desk (“Schedule 1”) and AAA/Aaa-rated private-label residential MBS that are not on review for downgrade (“Schedule 2”). Schedule 2 also includes everything in Schedule 1. So the issue is, in addition to agency RMBS, are there any significant amounts of “toxic” private-label AAA RMBS that are not on review for downgrade, and, thus, that can be posted as collateral? The closest I came to the answer is the outstanding piece of research by Pittman which I posted yesterday: Moody’s, S&P Defer Cuts on AAA Subprime, Hiding Loss http://www.bloomberg.com/apps/news?pid=20601109&sid=aRLWzHsF16lY&refer=home Even though the rating agencies have not yet downgraded the toxic stuff rated AAA (ain’t this shocking?), it would appear that if they have done “bare minimum” due diligence since things imploded last summer, ALL the toxic private label AAA RMBS should be under review for downgrade; and, thus, do not qualify as collateral at the new TSLF facility. Can the “experts” out there that I know read this blog please elaborate? BTW, I have a bunch of posts from last night at the end of the previous thread. Written by Octavio Richetta
Hong Kong Fun Manager: “What is the result of this game with unlimited supply of money. who can tell me? according to MV=PT. It will be crazy rise in general price level??” Until now all actual cash injection have been sterilized. Most of the billions are roll-overs. The bond swap facility is probably an attempt to make auto-sterilized credit infusions without actually dumping all treasuries.
Wait until after the elections and the Olympics. Then we’ll see.
CPR, I have been seriously considering the scenario you have mentioned for some while now. However, even if this *was* the bottom of the banking crisis, I see two big stumblingblocks towards a true Dow recovery. Rampant inflation and ongoing USD-weakness. One would have to make A LOT of money to make up for these odds. Put these charts up in Euros and you’ll quickly see what I mean.
@Phil on Chinese inflation. It is not that bad (yet). Food CPI up 23% (pork up 63%), but non-food is up only 1.6%, and core (ex. food and energy) is up only 1%. And personal income is up 10%, and it was up by double digit numbers in each of the past five years.
Written by CPR on 2008-03-12 05:41:10 You are right. This blog has nothing to do with the specifics of investing. However, it cannot avoid dealing with financial markets in general terms as these are part of the overall economy. It is obvious from the Professor posts that financial markets, equity markets in particular, take a very distant second seat in his forecasts. For investing education, readers should go to a place like Vanguard/The Bogle Financial Markets Research Center. Translating the Macro information into investment decisions can be very dangerous to your financial health. Just take a look at all the Hedge Funds going under, and they are supposed to be the experts! As Rich H said yesterday, in this type of a market one should only bet “play money”, i.e., amounts that let you sleep well at night regardless of what the market does. Two of the most successful investors of all times, Templeton and Buffet, never: 1. Tried to time the market. 2. “Day traded” a stock. 3. Shorted a stock. What makes the average guy think he can?
I think a lot of people in equity markets and some on this board misunderstand the Fed’s actions. The Fed is not injecting bank capital into the system. It is injecting funding. In the previous incarnation of the TAF, only commercial banks could access the window. The Fed had hoped that the banks would then lend to the broker/dealers, which did not have access. That has broken down. The broker/dealers are now finding difficulty in funding their balance sheet. Today’s action was meant to forestall any force unwinding of position due to lack of financing (ie leverage), ie liquidity insolvency. It is a scary thought to think that any one of the large broker/dealers (BSC comes to mind first, ML second) is facing liquidity insolvency. The systemic ramifications are serious. What does this mean? It means that we have sitting on a pile of dynamite with the fuse lit but extended. At the end of the day, the revaluation of financial assets will cause Balance Sheet insolvency and that is something the Fed cannot prevent. It is not in the business of owning banks. It would require federal government action. Don’t expect it in the current adminstration though.
CPR: Just a couple of things here: 1. As I posted above, the basics of the economy are still that it is 70% based on consumerism. I don’t know who the hell has money left to buy, but I sure as hell don’t – and my family is in a very reasonably priced home, we don’t carry much debt, I only owe several thousand on one of two cars (the other I own) and my wife and I are both working in medicine making double the median American income. Get real. If the economy needs me to buy (and those like me and below me on the income ladder) – it is doomed. 2. The Fed has not done anything but inject cash into the lending sysytem – now who are they going to lend it to? Not me. I would not touch a loan on a bet right now. I did consider refinancing my mortgage when the Fed began to cut, but the banks increased their rates instead of dropping them. So much for putting that cash back into circulation. And with lenders tightening standards, the people they most hope to begin spending again don’t qualify for any loans. You want to tell me what makes you so sure this is going to go well from here? Let’s be serious – the upper 10% of the country owns / controls 90% of the economy – but they need the rest of those below them to contribute, and they are losing what little they had. The game won’t go on forever. Revolutions usually begin when the haves and have nots are separated by such a distance. No. This will not be a good thing………
@CPR Sigma 4 moves on Dow, Start of Bull moves ”A characteristic of Sigma 4 moves is that they rarely show up in isolation, usually they are followed by another Sigma 4 event within a week or so. Only 38 such occurances since 1970 traders-talk.com/fearless forecasters/scroll down to forum topics/Sigma 4 moves on Dow…posted by limron1
Sigma 4 events are not buying panics, they are trend changing events that typify; attempts at bottom forming, powerful moves right off the bottom, or bull market breakouts.
Medic on 2008-03-12 06:52:39: Revolutions usually begin when the haves and have nots are separated by such a distance. No. This will not be a good thing……… I was just thinking along the lines of how also many seriously bad situations needed a “reason” of one type or another. For example Hitlers anti-semitic philosophy did not pop up from thin air. It had already been present in the German culture for some hundreds of years (albeit not as strong), he just utilized it for his own aims. The other thing that he utilized was a bit newer, mainly the evolutionary ideas of Darwin which were used to bolster claims of a pure race that needed to be kept clean. Anyway it was not like he built the national-socialistic philosophy from scratch. It was built from the raw materials already present in the German society (the existing ideas, beliefs, etc). This was actually also necessary as doing otherwise would have required a rather unsurmountable amount of effort. The same thing with the physical actions he took, every one supposedly had some sort of a “reason” through which it was justified to the populace. Sort of like the Iraq war, waterboarding, and other controversial subjects are always provided some “reason”. A very bad situation can be a ‘catalyst’ that causes the masses to act in a new way, but it can also be a ‘reason’ for those in power to act in some new way. Unfortunately.
I read few statements by various blogers on the subject of the present conditions and the recommended course of action. I believe they are all important and most of us are evidently keenly interested in various possible interpretations and outcomes. I would like to put them together (in no particular order) for easier discussion. If we can arrange to keep track of the issues raised, together with more or less agreed answers we as a group may come to some conclusions. Obviously those conclusions may easily be wrong, but the process may allow going back and revising conclusion. The issues raised are just an attempt to kick start the process, if there is enough support for it. Therefore they may be modified, replaced, new ones added ….etc. Some of the statements may not require any elaborations, but simple acceptance like: “This blog has nothing to do with the specifics of investing. However, it cannot avoid dealing with financial markets in general terms as these are part of the overall economy”. 1) The basics of the economy are still that it is 70% based on consumerism. I don’t know who the hell has money left to buy.. (Medic) 2) The Fed has not done anything but inject cash into the lending system – now who are they going to lend it to? Not me. I would not touch a loan on a bet right now.. (Medic) 3) Today’s action was meant to forestall any force unwinding of position due to lack of financing (ie leverage), ie liquidity insolvency. It is a scary thought to think that any one of the large broker/dealers (BSC comes to mind first, ML second) is facing liquidity insolvency. The systemic ramifications are serious…(Wolf in the Wilds) 4) This blog has nothing to do with the specifics of investing. However, it cannot avoid dealing with financial markets in general terms as these are part of the overall economy.. (Octavio Richetta) 5) Today I considered a possibility. The possibility is that those of us who have been visiting this board have become blind to the bullish case..(CPR) 6) Could it be that this is it? That the war is over? That we are forming a bottom here? That decoupling turns out to be valid? That signals of economic weakness will be short lived and we’ll have a V-shaped recovery that is starting now? …(CPR) 7) So under the rubric of “If you can’t beat them, join them” I encourage any thoughts on the heresy of possibly reducing short exposure and going long from this point forward… (CPR) 8) I view the TSLF as exactly what it is- a covert purchase of equity in the US banking system by the Fed. The Fed is exchanging toxic bank and PD balance sheet paper with Govt Treasuries. They call it loans. As you would expect, when one considers the Fed’s primary purpose for being is to shore up the US Banking system ie, support the Banksters at all costs. Of course, this is being done with taxpayer debt….(GSM) 9) “What does this mean? It means that we have sitting on a pile of dynamite with the fuse lit but extended. At the end of the day, the revaluation of financial assets will cause Balance Sheet insolvency and that is something the Fed cannot prevent. It is not in the business of owning banks. It would require federal government action…(Wolf in the Wilds) 10) My best guess here is that with even this size injection of cash, the basics of this economy still don’t / can’t last in the mid to long term. We still don’t manufacture much – 70% of the economy is still consumerism – people in trouble financially are still in trouble because good paying jobs are not plentiful, the daily cost of living keeps rising, and no one is addressing real issues, only banking problems. …(Medic)
I shudder to think of the “new” ways our current crop of “leaders” can conjure up. Let’s hope the masses come to their senses soon. Depair en masse usually finds a voice (not always a good one) but it usually finds one.
@CPR Bernanke is buying time…ask yourself why. Answer IMO is: he’s hoping that asset values will have time to recover and go up. I.e., the housing stock. And that therefore there will not need to be a continued unwind. Dream on. He cannot buy that much time.
@Acheson I don’t think that’s it. Benny is a pretty smart guy but only has a few options to choose from, lower rates (hasn’t worked at all) inject liquidity (stalls the process) and now buys up MBS crap in the hopes of keeping the banks propped up. Who knows if this will work.
ultimately, I think someone on this blog said before, the fundamentals have not changed. GDP is going own because the consumer is not going to be spending anymore and it’s going to get worse as house prices go down more. This will take some time to filter thru the system i.e. the markets.
@Guest > Some “economists” say that the current gas prices are not so bad, historically… ___ My understanding is that there have only been two points in the last 100 years when real (discounted for inflation) gasoline prices were so high: around 1921 and around 1980. SWK
IMO, from now on, the cleverness/stupidity of each FED move will be given a worldwide grade: The grade will the USD index: http://quotes.ino.com/chart/?s=NYBOT_dx The US is just like Spitzer; with the subprime implosion last summer, the US has lost the people’s trust and so far is has done NOTHING to recover that trust. Benny, I can’t believe that is what you learnt at MIT. The weirdo stuff you picked once you left! Look at the chart; although many variables are involved, it is rather obvious that whatever the FED has done since last summer has meant nothing to WW investor actually eager to recover their trust. And look at the move today, as of this posting it is 0.75% down! The FED is going to have to start worrying about the implication of “every move it takes”: Every Breath You Take Artist:Sting & Police Every breath you take Every move you make Every bond you break Every step you take I’ll be watching you Every single day Every word you say Every game you play Every night you stay I’ll be watching you Oh, cant you see You belong to me How my poor heart aches With every step you take Every move you make Every vow you break Every smile you fake Every claim you stake I’ll be watching you Since you’ve gone I been lost without a trace I dream at night I can only see your face I look around but its you I cant replace I feel so cold and I long for your embrace I keep crying baby, baby, please… Oh, cant you see You belong to me How my poor heart aches With every breath you take Every move you make Every vow you break Every smile you fake Every claim you stake I’ll be watching you Every move you make Every step you take I’ll be watching you I’ll be watching you I’ll be watching you I’ll be watching you I’ll be watching you…
Fell free to take a walk around CalculatedRisk if you haven’t done so lately; great stuff!
OR: Da do do do. Da da da da. That’s all I want to say to you…..:)
We ara talking centipede here, another shoe just dropped! (via CR) Latest Trouble Spot for Banks: Souring Home-Equity Loans Losses May Hit Lenders That Skirted Subprime; Surprise Delinquents By ROBIN SIDEL March 12, 2008; Page C1 http://online.wsj.com/article/SB120527998662928743.html Here comes another headache for banks suffering from the mortgage downturn: Losses on home-equity loans are soaring, even at some lenders that avoided big blunders on subprime loans. When times were good, banks raked in billions of dollars in profit from home-equity loans, which allow borrowers to tap the accumulated value in their property with either a loan for a specific amount or a line of credit. As long as home prices were rising, lenders had little to worry about. But falling home values are leaving banks with little or nothing to collect on many home-equity loans in case of default. Some stretched borrowers are keeping up with their mortgage and credit cards — but not their home-equity loan. The problems are already causing trouble for J.P. Morgan Chase & Co. and Wells Fargo & Co., and are expected to hit other large banks when first-quarter earnings results are released next month. The pain is likely to deepen through the rest of 2008, sapping capital levels and resulting in tighter lending standards as banks try to reduce their risk. ”These losses are well beyond what we would have modeled…and continue to get worse,” said Charles Scharf, head of J.P. Morgan’s retail business. At a meeting with analysts and investors last month, Mr. Scharf spent more than 30 minutes dissecting the second-largest U.S. bank’s $95 billion home-equity portfolio. It wasn’t pretty. J.P. Morgan expects home-equity-related losses of about $450 million in the first quarter, up from $248 million in last year’s fourth quarter. By the end of 2008, home-equity losses could double from current levels, he said. Because J.P. Morgan largely escaped the brunt of the subprime crisis, its ominous tone on home-equity loans has fueled anxious number-crunching. David Hilder, a banking analyst at Bear Stearns, last week cut his 2008 and 2009 earnings estimates for National City Corp., SunTrust Banks Inc., Washington Mutual Inc. and Wells Fargo, citing rising home-equity losses. Each of those lenders has 12% to 19% of its total assets tied up in home-equity loans. Fitch Ratings, a unit of Fimalac SA of Paris, predicts that “banks will significantly ratchet up loan-loss provisions against home-equity loans in 2008.” Projected losses from home-equity loans aren’t anywhere close in size to the carnage caused by the declining value of mortgage-related securities. (Those losses now total more than $150 billion.) But the cascading delinquencies and charge-offs represent one more piece of the U.S. banking industry that is in big trouble after years of bumper-crop profits. Originally used to finance home-improvement projects, borrowers increasingly turned to home-equity loans to pay off other debts, such as credit cards. Home-equity loans also became a popular way to fund vacations and expensive electronics — or to buy a house with little or no money down without paying for private mortgage insurance. … And the recession is barely starting!
With one breath, with one flow. You will know….Synchronicity. Opening Bell…….Shall we dance?
From the same link: While banks can foreclose on a first-lien mortgage, lenders often have little recourse when trying to collect a delinquent home-equity loan, especially if another bank holds the primary mortgage. Banks holding home-equity loans generally can only seize the collateral — a house — after the mortgage is paid off. When another bank holds the mortgage and the mortgage payments are current, the home-equity lender is effectively powerless to collect the debt. Unfortunately for home-equity lenders, many borrowers understand that pecking order, concluding there are few repercussions if they stop making payments on their home-equity loan. “Lenders are seeing people go delinquent on home equity who by all rights wouldn’t be expected to go delinquent,” said Dan Balkin of Wholesale Access, a Maryland research and consulting firm that specializes in the mortgage industry. Leaning on outside mortgage brokers for home-equity business was “one of the biggest mistakes we’ve made,” said Mr. Scharf. Those loans have performed worse than home-equity loans generated by J.P. Morgan. J.P. Morgan, Wells Fargo and other banks are now backing away from brokers to focus on home-equity loans offered through their own retail branches, where customers already have a relationship with the bank. Citigroup Inc. has slashed the number of home-equity loans originated through brokers by 90%. Meanwhile, financial institutions are refusing to provide home-equity loans to homeowners whose residences are already weighed down by big mortgages in states like California and Florida where home values are falling fast. ”This product was meant to help people do construction on their house, [and] do debt consolidation — not to take out every last dollar of equity in their home to finance a different kind of lifestyle,” Mr. Scharf said. J.P. Morgan is “rolling our changes back to represent that kind of product.” I never imagined Bankers could be so stupid. And JPM’s are supposed to be among the better ones with the Bank One new boss running a tighter ship. One last thought. The name for the product HELOC should make an excellent candidate for posting to the oxymoron list: http://www.oxymoronlist.com/ (read a few; have some fun)
Ok. Couldn’t resist. For those busy bankers who will not click for fun. Here is the top 20 list: 20. Government Organization 19. Alone Together 18. Personal Computer 17. Silent Scream 16. Living Dead 15. Same Difference 14. Taped Live 13. Plastic Glasses 12. Tight Slacks 11. Peace Force 10. Pretty Ugly 9. Head Butt 8. Working Vacation 7. Tax Return 6. Virtual Reality 5. Dodge Ram 4. Work Party 3. Jumbo Shrimp 2. Healthy Tan 1. Microsoft Works
OR: Your fingers are flying this morning! Perhaps another cup of coffee?
@ Giraf, OR, Alessandro, etc. From Morgan Stanley this morning after a conference call with the Fed : ”(The Fed) reiterated that eligible collateral will include AAA-rated private label residential MBS not on review for downgrade. Specifically, CMBS is not eligible — nor are CMOs that are structured like CDOs. The Fed estimates that there is roughly $1 trillion of private label MBS that will be eligible for the new program.”
The $ continues to fall and libor continues to rise this a.m.. The Fed is powerless and yesterday’s stock action in response to this plan (which doesn’t even take effect for 3 more weeks!) just makes them look even more idiotic!
@Lili, Thanks for “rescuing” me.
The investment bank CEOs clamored and said Master, we have liquidity needs being demanded from all of these people. They have come to us and we can not meet their requirements. We only have illiquid investments ! How will we provide this large crowd with the liquidity they need. They may turn on us. What shall we do ? Ben took a deep sigh and told his disciples. Gather up your illiquid investments in these baskets and pass them around. Ben’s banking disciples said. Master, they are not liquid how can we pass them around and provide them the liquidity they need. One of his disciples said just do as he says. So the disciples passed around the baskets and to the amazement of the crowds and the disciples, the illiquid investments had been transformed into liquidity. The disciples and the crowds marvelled at one they had seen. For indeed, Ben had performed another financial miracle before their eyes.
More hedge fund blow-ups… ”GO Capital Halts Investor Redemptions From $881 Million Global Hedge Fund”
Thanks Lili! Giraf, perhaps I am being a bit slow here but I don’t see how lili’s remarks makes the stuff you will see below unsuitable collateral for TSLF. From a CR poster. This is awesome stuff. You need to check out the interactive stuff: Misean writes: Oh look, Someone made a pretty colloured chart on Bloomberg of AAA rated used toilet paper that the Fed can accept in it’s free lunch program. This is so cool, I’m going to have to have another double ‘tini. Hell I might have to go target practicing tomorrow as well. Gosh, could things be any better. http://www.bloomberg.com/apps/ da…id=iQUy2GaasArs Cheers, Misean | 03.11.08 – 10:44 pm | #
@Giraf That’s not that I specifically wanted to help you , but (sometimes) facts are facts, even there is still a margin of interpretation (how risky etc.). I wonder, could you help me with another of your great links, do you know the list of the depository institutions (allowed to use the TAF, whereas the primary dealers can’t) ? Thanks
@ Octavio richetta Good morning ; could you resend us the link, it doesn’t work for me. Thanks !
Link for the above: http://www.bloomberg.com/apps/data?pid=avimage&iid=iQUy2GaasArs
@OR, We can continue to go round and round in circles. Bottom line is, unbeknown to most, the U.S. bond and money markets were within days of total seizure. The dealers were losing their ability to fund their inventories. All market making in debt securities would have ceased, I suspect even for U.S. Treasury securities. (Daily debt market transactions make stock market volumes look miniscule.) Such an occurence would be devasting for the global economy. This TSLF allows the markets to continue functioning, at least temporarily. It is not an injection of cash or liquity. It is not a bail out for toxic waste. It is a much needed innovative way to allow dealers/market makers to access equisting liquidity in the market place. The alternative would be a rapid, domino effect of all banks closing their doors, worldwide. Imagine that outcome!
I read Medic’s post and agree. My situation isn’t as bad as the typical Joe Punchclock. I owe extremely little debt and am Yankee cheap when it comes to spending. If the Fed expects me to load up on loans so I can go on a spending spree…it’ll never happen. My behavior was shaped years ago by Depression Era parents and saving has always been paramount in my mind. If the top 1% wishes to see spending, they are in far better shape than I to do it. I am not a trained economist but from all the trends I see today, it’s all pointing South.
@Lili, I found the info for you yesterday by digging around the FRB of NY site. I suspect the info you need will be found on the federalreserve.gov site. Sorry I can’t be more specific as I don’t know the answer off the top of my head.
@lili I don’t think there is a list of depository institutions that can use the TAF, but I was told that the primary dealers are the ones who bid the most at TAF auctions, along with other large banks that are not PDs but are close to them. The expression used by the Fed economist who told me this was, “They have lunch together.”
Re my latest post to OR, in the second paragraph, it should read “access existing liquidity” not “equisting”, a word, I believe, that doesn’t exist. My mind works much faster than my fingers.
@ OR Very impressive link. Thanks. @ All Any clue for the exhausive list of depository institutions ?(i know basic question, but i’d like to have a clear idea of the actors involved ; i have the PD, i still miss the name of the depository institutions…) Thanks Lili
US stock market has now become on big State Fair Shill. What a joke…
Written by lenny on 2008-03-12 09:59:57 Some of the Primary Dealers are subsidiaries of banks which have access to the TAF. Some aren’t and don’t have access to the TAF, Cantor Fitzgerald being an example.
@ Giraf, lenny About the depository institutions : ok i’m going to do a bit more research ; i doubt there is no clear list, but the fact is, with the transformed and transforming banking industry, it’s quite hard to understand how this whole thing works. Anyway if you have new info, i’m there! Thanks lili
Giraf, Thanks for the response. A few couple of very relevant posts on the subject in the following CR comments. from Kicker a guy who seems to know what he is talking about (do an Edit-> find on this Page to save time) I post his first two posts here: http://www.haloscan.com/comments/calculatedrisk/7336198606337277620/?a=43852 Kicker writes: Can someone like Kicker or Misean comment on this, specifically is there any way Fed can do this without triggering hyperinflation? Even remotely possible? They can…. It would be uncharted territory for the Federal Reserve. I wouldn’t expect that they would take that path unless faced with *severe* deflation. It’s not a run-of-the-mill course of action. The Federal Reserve is a private bank, just like any other bank. What makes it special is that it’s exempt from reserve or regulatory capital requirements. Having no reserve or capital requirements means that the Federal Reserve is unconstrained on how much money it can create (a normal bank can only create a multiple of its reserves and capital). But, because the Federal Reserve has no capital it has no cushion for losses. A very small loss would technically make the Federal Reserve insolvent. So, the Federal Reserve isn’t supposed to take on direct risk. On it’s own balance sheet, it only buys risk free Treasuries. Everything else that it takes through Repo operations or the TAF is discounted and is guaranteed to be bought back at the price the Federal Reserve paid for it in the future. The loans are also short term and the collateral is supposed to be high quality. If the one of the banks were to go bankrupt and was unable to buy those securities the Federal Reserve should be able to sell the security on the market (because of the discount) and not take a loss. But, lets assume that the Federal Reserve didn’t think that the TAF, REPO, and other operations were having the intended impact. It could decide to go into the open market and buy securities directly. Essentially, the Federal Reserve would be taking on risk directly. Now, the first question becomes, at what price does the Federal Reserve buy these securities? Enough of a discount and the Federal Reserve should be protected from losses from defaults on the under-lying loans. But, how much of a discount is enough? If the Federal Reserve were to take a loss on the securities (because of defaults) it would technically be insolvent. What happens next, nobody knows. But it would shake the faith in the central bank and the Federal Reserve Note. The second question becomes, how many of these securities does the Federal Reserve buy? Anything that the Federal Reserve buys becomes part of the monetary base and “high power” money. So, if the Federal Reserve were to buy $50B dollars of MBS (and increase the monetary base by $50B dollars) it would enable banks to create an additional ~800B dollars in “new money”. A $50B dollar buy in an ~11T dollar mortgage market isn’t enough to move the needle but the ~800B dollars of “new money” that the banks could create could be highly inflationary. The Federal Reserve would have little control over where that money went. It could go into leveraged bets on commodities or into hedge fund bets on emerging markets which would futher erode the value of the dollar. And, if the market value of these securities were to go down in value after the Federal Reserve purchased them it would be unable to offload them (because it doesn’t have capital to absorb a loss) to tighten monetary policy if inflation became a problem. Kicker | 03.12.08 – 1:53 am | # Kicker writes: Sorry for the long post… A better option is to increase the ability of banks with capital (normal banks)to take risk. While the Federal Reserve can’t take an direct equity stake in banks Congress could. Congress could provide equity directly to banks buy purchasing preferred shares in banks (at a penalty rate to compensate for risk) in the same way foreign SWF’s are doing now. It could also create a brand spanking new bank (without retail branches) to buy securities on the open market directly. Since it would be capitalized, taking risks wouldn’t have the same implications as if the Federal Reserve did the same thing. A $150B dollar equity stake in the new bank would allow almost $2T dollars in new lending in the banking system. That would be enough to offset most, but not all the damage done by the collapse of the shadow banking system and provide more direct control over the amount of money created and where the new money was directed. Neither solution would bail out irresponsible banks or homeowners but would keep credit flowing to solvent households and businesses (the “real” economy). It may actually generate a profit for the US tax payer instead of ending up as increased profits to banks (which is why the banks would oppose it). Kicker | 03.12.08 – 2:20 am | #
@Giraf on 2008-03-12 10:09:47 Interesting, and do you know wich criteria legally determines if an institution is a depository insitution or not ? Ok maybe i should try to get this one myself. Just in case you know without doing research.
Benny really does have a magic wand! No private market info could ever move it like his little helicopter rides.
@Lili, What is it that you are trying to get at?
@Girag I just try to understand how the various tools the Fed is emplementing are supposed to help the system, in the current environnement of big banks but also big non-bank players. I find it strange that people don’t need to know who exactly is concerned by the measures…
More good news for the economy an dstocks: Builder Confidence In Condo Market Declines Again March 11, 2008 – The Multifamily Condo Market Index (MCMI) ended 2007 on a low note, with the component of the index tracking builder confidence in current conditions standing at 18.8, down nearly 11 points from the same time a year ago, according to the National Association of Home Builders (NAHB). “Given that the condo market became so overheated during the peak of the housing boom, it is not surprising that the market now continues to struggle, considering the difficulties in the mortgage sector and the fears about the economy in general,” said David Seiders, NAHB’s Chief Economist. “It is going to take time for the extra inventory to be absorbed.” The index is derived from a quarterly survey of multifamily builders and developers, in which responses are rated on a scale of 0 to 100, with a rating of 50 generally indicating that the number of positive responses is about the same as the number of negative responses. The component of the index that gauges current conditions in the condo market has not risen above 25 during any quarter of 2007. Builder expectations for the next six months are only slightly more optimistic: The component tracking expectations stood at 29.2 in the fourth quarter of 2007. In the fourth quarter of 2006, this component of the index stood at 49.1. Responding to a series of special questions that accompanied the MCMI survey for the fourth quarter, 28 percent of survey respondents reported higher or somewhat higher sale cancellation rates in the fourth quarter of 2007 compared to a year earlier. The average sales cancellation rate in the fourth quarter of 2007 was 19 percent; the median was 12 percent. About two-thirds of builders reported lowering prices to bolster sales. The average price reduction was 11 percent. When asked about other marketing strategies being used to shore up sales, more than 70 percent of the respondents reported including optional items at no costs, paying closing costs or fees, or absorbing financial points for their buyers.
Igor! It’s ALIVE! ”Odds are the Paulson matrix of central banks working group can keep it ALIVE alot longer than we think they can.” ~Larry T
Since the FED is a gov’t sponsored entity able to capture special monopoly privileges, and is using them for rent-seeking activities, and to economically sustain and enrich Wall Street players, they are enemies to democratic republics. As such Jim Rogers is correct, they should be completely abolished. It is their enabling of outrageous risk, and bank hubris that they are “too big to fail” that led to false prosperity and unbridled gaming of chance.
Elliot resigned leaving a blind lt. governor in his place. Certainly he can perform better than the Wall Street cronies who led us into the ditch.
Not a single dissenting voice on Bloom, cnbc, fbn. Everyone agrees this is a wonderful move. The Socialist Dream is here. Your Socialist Dreams have been fulfilled. Free govt money for private American banks. Banks run by the proverbial “stupid american”. 100 billion, 200 billion…make it a trillion. Debase the currency. “Inject” “liquidity” -terms that cannot even be defined. Credit “crunch”- can’t even be defined. The “financiers” just invent their own language to fool the public. American financiers have a worhless product and no buyers..except the stupid american taxpayer! Pay up americans! Bailout your banker slavemaster. And pay it directly to your government slavemaster!
Basically, we are not letting you get your money for the good of the many,.. the exists are blocked, and the lights have been turned off. Oh my,.. ——————————————————– http://bloomberg.com/apps/news?pid=20601208&sid=abSxJA8iOjOc&refer=finance ING New Zealand Suspends Withdrawals From Two Funds (Update1) By Tracy Withers March 12 (Bloomberg) — ING (NZ) Ltd. suspended withdrawals from two funds that own collateralized debt obligations, saying they are being affected by the global “credit crunch.” Withdrawals from the ING Diversified Yield Fund and the ING Regular Income Fund were halted to protect investors, Marc Lieberman, chief executive officer of ING (NZ) in Auckland, said in an e-mailed statement. About NZ$520 million ($417 million) was invested in the two funds at the end of February. Since August, rising defaults on U.S. subprime mortgages triggered a global sell-off of CDOs, which are fixed-income securities backed by the loans. The value of the Regular Income Fund fell 25 percent in the year ended Feb. 29 while the Diversified Yield Fund dropped 22 percent, according to the company’s Web site. Prices are falling amid nervousness in global investment markets and as more investors attempt to withdraw their money, Lieberman said. “The decision to suspend withdrawals is a prudent action that seeks to protect the interests of investors,” he said. “Continuing to allow withdrawals to satisfy a minority of investors could significantly reduce the overall quality and value of the portfolio to the detriment of all.” ING would have to consider selling better quality assets to meet further withdrawals. The suspension is effective March 13. Lieberman said the decision isn’t an indication of the quality of the funds, which have less than 10 percent of assets in the subprime sector and 6 percent of the CDO portfolios experiencing any credit impairment. To contact the reporter on this story: Tracy Withers in Wellington at email@example.com. Last Updated: March 11, 2008 20:41 EDT
Here is yet another.. “A temporary suspension of redemptions is the best defensive measure to protect the interests of the participants,” _________________________________________________________ GO Capital Halts Redemptions From Global Hedge Fund (Update2) http://bloomberg.com/apps/news?pid=20601208&sid=ajAByLCA.SDg&refer=finance By Tom Cahill and Alexis Xydias March 12 (Bloomberg) — GO Capital Asset Management BV blocked clients from pulling cash from its Global Opportunities Fund, at least the seventh hedge fund in the past month forced to take steps to protect itself from market fluctuations. Frans van Schaik, the former head of equity research at ABN Amro Holding NV who founded the Amsterdam-based fund in 2000, wrote to investors that the fund is not leveraged and not facing margin calls. The fund, which bets both on rising and falling prices, has assets of about 570 million euros ($881 million). “A temporary suspension of redemptions is the best defensive measure to protect the interests of the participants,” van Schaik and other members of GO Capital’s management said in a letter posted on their Web site and dated March 11. “Current market circumstances do not allow the fund to sell investments at a reasonable price.” Hedge funds managing more than $5.4 billion have been forced to liquidate or sell holdings since Feb. 15. As U.S. subprime contagion spread, the MSCI World Index fell 16 percent from a record on Oct. 31 through yesterday. The other funds included Peloton Partners LLP’s $1.8 billion ABS Fund, Tequesta Capital Advisor’s mortgage fund and Focus Capital Investors LLC, which invested in midsize Swiss companies. Drake Management LLC, the New York-based firm started by former BlackRock Inc. money managers, may shut its largest hedge fund after a 25 percent decline last year, according to a letter to investors today. European Focus GO focused mostly on listed European equities, although it was not restricted in investments it could make, the Web site says. The fund planned to make bets on between 10 and 30 stocks and looked for “situations of overreaction or stress,” according to the Web site. The fund held 25 percent of Hamburg-based Thielert AG, a maker of propeller engines for aircraft, and 22 percent of Devgen NV, a Belgian biotechnology company with headquarters in Ghent, according to filings from December through February,. Thielert dropped as much as 15 percent today and fell 8.9 percent to 4.43 euros as of 4:35 p.m. in Frankfurt. Devgen declined 4.4 percent to 12.45 euros. The fund also owned a 26 percent stake in Stern Groep NV, a Dutch car dealer based in Amsterdam. A total of 92 Stern shares traded today, with the stock trading 1.2 percent higher at 30.66 euros. Asset Value Drops Van Schaik didn’t respond to an e-mail or phone calls seeking comment. The note didn’t specify what investments the fund couldn’t sell. GO Capital’s managers also include ABN Amro veterans Corneille Couwenberg, Mike Kranenburg and Albert Jellema. The fund, which targeted returns of 15 percent a year, is down 7.7 percent through the end of February, according to net asset value figures on its Web site. It gained 2.1 percent last month, reversing a 9.5 percent drop in January. The fund rose 3.3 percent in 2007, 22.4 percent in 2006 and 69 percent in 2005. To contact the reporters on this story: Tom Cahill in London at firstname.lastname@example.org; Alexis Xydias in London at email@example.com. Last Updated: March 12, 2008 11:53 EDT
i wish that the fed would take my $150,000 home as collateral and give me $200,000 worth of treasuries that i would then promptly sell and speculate on commodities and the like. wow being a banker is way easy – next i plan to give them my worthless wheat futures contracts as collateral to get in on that water bubble (or maybe its gonna be consumer space travel – i’m not sure yet but i’ll know when commodites start to bust). i have an mba and i’m 25 and i just gamed the fed. suckers!
“Dollar Falls to Record Low on Concern Fed Package Won’t Succeed” It is said that we should buy US stcoks as the cost is lower in view of weak USD. Buy European stocksn as Euro money is getting stronger and stronger. I am learning how to play with such good ideas…
@Hong Kong fun manager, “It is said that we should buy US stcoks as the cost is lower in view of weak USD.” Yes! Now that all U.S. businesses now accept Euros, those P/E’s are falling through the floor! Better buy up those U.S. equities now, or you’ll be priced out forever!
@Anonymous, “GO Capital Halts Redemptions From Global Hedge Fund” I was going to make a joke about a hedge fund implode-o-meter, hf-implode.com, modelled on the mortgage-lender implode-o-meter ml-implode.com, but I see that hf-implode.com already exists!
1:10 Drake hedge funds have met all counterparty obligations 1:10 Drake may also let investors switch into newly formed funds 1:10 Drake may shut largest hedge fund after losses, letter says
The next leg down any moment or day now, will take the DOW to 10,700. This is clearly a level where the Fed should step in and work another miracle on a technical basis. All have grown accustomed to these saves and the the prowess of the GPPT – Global Plunge Protection Team with their crack technical teams painting pretty charts across the world. For all of those believers out there, be my guest in getting long there. Personally, I will be short there with every last drop of blood, sweat, tears I have left. It will be a precarious level and these technical dramatic saves will not go on into infinity. Here is a scenario for you to ponder, Shanghai is near old lows. Once those lows are taken out, a plunge occurs and replay March of 2007 times about 3 in the US. I do not track relations between Shanghai and US markets in a meaningful way but down over 2% versus US up over 3% is a bit compelling IMHO.
>Shares of Bond Insurers Fall After Another Insurer’s Financial Strength Rating Cut NEW YORK (AP) — Shares of bond insurers struggled in Wednesday trading after another insurer’s financial strength rating was downgraded by Standard & Poor’s. CIFG, an insurer privately held by two European banks, had its crucial financial strength rating cut by S&P to “A+” from “AAA.” But unlike recent ratings cuts that were triggered by fears the insurers did not have adequate reserves, S&P cut CIFG’s rating because of expected weak new volume in 2008 and the company’s lack of a strong franchise.< Now, as if a weak volume in 2008 and lack of strong franchise is not expected for MBIA and AMBAC. When comes their rate cut? Why a rate cut for a European owned insurer, not for the American ones? Why fooling everybody any longer? Why no investigations into S&P’s and Moody’s practices?
@CPR Good question. Yesterday had all of the characteristics of the sort of rally that occurs at the beginning of a bull, but we are at the end of a bull, not the beginning. This was a high sigma event which means there’s a very good probability of a major move up from here. As Ken wrote yesterday, cover your shorts now. The Fed and now other central banks are willing to gamble on inciting hyperinflation in assets in order to counteract the extremely threatening and accelerating deflationary trends in real estate. Where they know they can’t cope with growing deflationary expectations, they believe they can control hyperinflation with a Volcker style response. Whether they can or not, remains to be seen. But it is perfectly clear that the Fed is doing everything it can to incite asset inflation in the markets regardless of the long-term consequences. And the open ended commitment Bernanke implied yesterday has reignited the speculative frenzy. No telling how long it will go on or how high the markets will climb before they ultimately crash. Money can be made during this speculative frenzy, but this changes nothing about the fundamental macroeconomic environment which Prof Roubini analyzes. Given the extraordinary and unprecedented measures the Fed is now employing, market prices may become even more completely disconnected from the real economy for several more weeks, months, or quarters. But not years. The Prof never pretends to be a market timer. Timing is everything in this fantasy market, but don’t blame the Prof if your timing is off.
dramatic improvement in ABX, LCDX and CMBX indices following financial shock and awe… see for yourself http://www.markit.com/information/products/category/indices/cmbx.html http://www.markit.com/information/products/category/indices/abx.html http://www.markit.com/information/products/category/indices/lcdx.html and how is the dollar doing today ? http://tfc-charts.w2d.com/intraday/US/38
Some more news: ”US DATA: Feb budget deficit $175.6b vs $120.0b deficit in Feb 2007. Calendar quirks such as the shift of March payments in February and the presence of five Fridays (when tax refunds are sent out) boosted outlays. Excluding those factors, gap would have been $33.6b less. 2008 FYTD deficit $263.3 vs 2007 FYTD deficit $162.2b.” The Dane
this is the future. http://www.damnineedajob.com/
@JMa Have you pre-planned your wake? :)
policy peaks: nafta reviews? Section 526 of the law limits US government procurement of alternative fuels to those from which the lifecycle greenhouse gas emissions are equal to or less than those from conventional fuel from conventional petroleum sources. Canada’s oil sands are considered unconventional fuels, and producing them emits more greenhouse gas than conventional production
@ JMa , “dramatic improvement in ABX, LCDX and CMBX indices following financial shock and awe” These price upticks, though consistent, are quite smaller than the daily variance seen in the historic data, so I don’t see how this qualifies as either a “dramatic improvement,” or even necessarily anything to do with the Fed’s acceptance of AAA securities as collateral.
pollution is the new gold? how many old mines can be turned into geothermal power sources?
@ Stratonovich calculus, i was being sarcastic sorry for the misunderstanding. they barely moved and the LCDX held support at 450. somehow i have become twisted, skeptical and sarcastic – it may have something to do with the fact the equity markets are about 4 standard deviations away from reflecting reality right now and I have endured no less than 4 blows to the head with an aluminum bat from the Fed since last August… is it prudent for the Fed to sit around and wait and time throwing bullets at the credit market freeze only when the equity markets reach a certain technical level ? is it prudent to back the US dollar with illiquidity ? are equity prices relevant when the entire credit construct is frozen like NYC in the day after tomorrow ? one would guess the credit issue should hold a higher priority than sitting around and day trading equities while attempting to pull confidence in the credit markets out of the black hole in outer space where it may have been lost forever…
@ES Trader going to take the 3′o clock PPT train? Just curious.
“http://www.moneymorning.com/2008/03/11/dear-ben-to-save-the-u.s.-economy-here-are-the-moves-you-need-to-make-now/“ THERE IS NO INFLATION!!!! Ben’s wrong moves will guarantee hyper-inflation. Those deflationists are on crack.
we need a little fun on this blog in light of all the doom ahead of us. http://www.strangefacts.com/
@ JMa, “i was being sarcastic sorry for the misunderstanding” Oh good. Whatever you, please don’t resort to winking smileys or tags in future comments — misunderstandings are preferable. Re the market bounce — I’m amazed that so many posters here apparently have a day-trading mentality about their short positions. I’m short too, but in “buy and hold” positions offset by other long positions. Worrying about a 10 percent haircut on one day is as silly as giddiness last week as the markets plunged. I can’t predict the markets, and no one else can either. That said, it’s difficult to see how lending more money to insolvent parties will solve the problems facing the banks and the Fed, so sit back and enjoy the ride. Perhaps the potential market bounce after Ben’s rate cut next week will provide more attractive shorting opportunities. It’ll be interesting either way it plays out.
WOW! I just noticed the carnage in the FX (had to work away from the internet). EURUSD crossing 1,555 as I type and USDJPY really scary!
@ES Trader woops, hope you didn’t!
ES Trader wrote on 2008-03-12 07:08:06 “Sigma 4 moves on Dow, Start of Bull moves A characteristic of Sigma 4 moves is that they rarely show up in isolation, usually they are followed by another Sigma 4 event within a week or so. Only 38 such occurances since 1970” IMO, this entire economic and financial situation is a high Sigma event. Therefore, I believe, a high Sigma move in equities should be considered normal within this context. So, whatever predictive power high Sigma moves may have in “normal” times, they do not have it in an environment that is itself high Sigma. Yesterday means nothing in the long-term. The bear market is still intact – we have not seen the bottom.
Nouriel, While you and Gary Shilling make strong arguments for re-coupling, for now at least, China’s middle class seems to be spending happily lifting the domestic economy, and encouraged or subsidized by the government. Shilling argues that Chinese are inveterate savers, but now with bank interest rates negative in real terms, will the cultural commandment to save survive? Spending on stylish clothes, cell phones, appliances, cars and apartments has been booming and may continue as the Chinese consumer catches the spending/consumption “bug”. A lot of these spenders are young people who’ve come into the cities for work – they don’t necessarily have a commitment to the old ways. Teenagers in Japan, Europe and the US pretty much like the same music, games, clothes, etc. Maybe China will soon join this global homogeneity. We’ll have to wait a while to see the impact of US slowdown in consumption on China’s cities and factories. Surely, the workers will be hurt by factory cutbacks at some point. What is the US consumer share of China’s production? Around 25%? http://www.bloomberg.com/apps/news?pid=20601087&sid=aEYqjtxu1PLg&refer=worldwide
@KJ Foehr, get short here and if i am wrong, you can come to Chicago and i will let you kick my rear end… these closing charts, i can’t quite place where i have seen similar charts before, darn it it looks familiar… oops, i just tripped and pressed the 100% all in short button on my computer…
i forgot to say IMHO…
If the day traders can chat it up, then so should the gold bugs. Gold is creeping up again. Hey, Ben Bernanke call the IMF & ECB and smack that naughty boy down again.
Stratonovich calculus on 2008-03-12 11:57:50 @Hong Kong fun manager, “It is said that we should buy US stcoks as the cost is lower in view of weak USD.” Yes! Now that all U.S. businesses now accept Euros, those P/E’s are falling through the floor! Better buy up those U.S. equities now, or you’ll be priced out forever! hmmm…it’s a plus-minus-zero change on the P/E’s if the dollar falls, unless if you use the Euro value on ONLY the “P” side. But that would skew the whole calculation. Actually considering that the future “E” would be even lower against the Euro it does not look like a good idea to use Euro to buy U.S. stock.
@KJ When I posted the Dow Sigma 4 info and link, I was replying to the following post by CPR: So under the rubric of “If you can’t beat them, join them” I encourage any thoughts on the heresy of possibly reducing short exposure and going long from this point forward. Any ideas? Anyone? Written by CPR on 2008-03-12 05:41:10 We’ll find out soon enough. Either way, makes no diff to me. I can push the green button or the red button.
4:28 Mens Wearhouse profit drops 72%
4:23[CFC] Fitch downgrades Countrywide issuer default rating to ‘BBB-’
@ Guest, “it’s a plus-minus-zero change on the P/E’s if the dollar falls” Yes, that was sarcasm, but with a conscientious avoidance of using winking smileys or <sarcasm> tags. Obviously the dollar’s rise or fall shouldn’t have first order effects on U.S. stock index fundamentals.
http://news.yahoo.com/s/bloomberg/20080312/pl_bloomberg/apzut4blweek if McCain win, then move all your money to foreign land, before double the damage already caused by Bush. if J6P pick McCain, then J6P deserve everything they are getting now.
@JMa I think you are correct that the Chinese market holds the key to the great crash. When the Shangai index really begins to implode in earnest, all hell will break loose. The mythology of the great “Chinese Miracle” will be revealed to be the great “Chinese Bubble”. If there is no such thing as the Chinese Miracle there can be no rationale for stocks to go up.
USDJPY is down ~2% intra-day from peak to now! It gave away the whole mega rally from yesterday. If this is currency speculation, it means that someone if getting the chance to do the unthinkable.
Quote of the day “We have a dollar that’s adjusting, and I am for a strong dollar.” G.W.BUSH http://www.bloomberg.com/apps/news?pid=20601087&sid=a7aXfhZ1VIcE&refer=home
Maybe he meant: …and I’m for a strong downlar
As all fiat currencies it follow a long trajectory to its fundamental value.
As all fiat currencies it follow a long trajectory to its fundamental value. Written by Alessandro on 2008-03-12 18:23:42 But strong, nevertheless, no?
Quote of the Day#2 ”To be successful, keep looking tanned, live in an elegant building (even if you’re in the cellar), be seen in smart restaurants (even if you only nurse one drink), and when you borrow, borrow BIG.” ~Aristotle Onassis
It’s funny that when it comes to the “terrorist threat”, the government continually wants to remind the populace of that. But when it comes to the economical situation, which actually is a threat, the government keeps downplaying it. Of course on the former the need comes from having to make sure no one forgets why they lost their civil liberties:-) And a difference between these two is of course also that in the former case the “bad guys” would be some folks from some other country or religion, while in the latter the “bad guys” would be the current administration. So they better act like the latter case doesn’t even exist:-)
http://news.xinhuanet.com/english/2008-03/12/content_7772053.htm ”BEIJING, March 12 — With the United States bordering on recession, the global economic boom has ended. The boom was unusually long and persistent, with four years of roughly 5 percent growth – a period of sustained economic dynamism not seen since 1970. The clearest sign that the boom is ending is the International Monetary Fund’s forecast of 1.5 percent growth for the US in 2008. That may not sound like a recession, but the IMF’s marginally positive projection primarily reflects the growth overhang from 2007, with hardly any new contribution in 2008. It is compatible with three consecutive quarters of zero growth in 2008″ This is interesting because the source is thoroughly in bed with the chinese government, hence basically propaganda. The Commies are more honest with their people than Bush and Co.?
Feb budget gap balloons to record $175.56 bln http://biz.yahoo.com/rb/080312/usa_budget.html?.v=1 But they did manage to get $200 billion from somewhere to inject to the banking system.
The Fed inspired rally couldn’t hold for 48 hours, let alone until the next rate cut. The Fed has expended nearly every round with few bullets left in the belt, and none of them silver. This will rapidly spiral out of control when even extreme measures like the tslf and taf fail in short order. It is going to get much worse before it gets worse.
@ I find it strange that people don’t need to know who exactly is concerned by the measures… Written by lili on 2008-03-12 10:33:17 Since I think that you are asking about the TAF rather than the new facility, the answer was provide in an VOXEU article of 16 December 2007 by Stephen Cecchetti: Term Auction Facility (TAF): new – really new Finally, we are now ready to discuss the actions of 12 December. The Fed announced that they are going to auction off reserves for terms of up to 35 days, allowing all banks to participate and accept the same collateral that is accepted in discount lending. This is different from open market operations because it involves all 7000+ banks, not just the 20 primary dealers, and the collateral accepted is much broader than what is taken in the standard repurchase operations (‘repo’ in the jargon). The TAF is also different from discount lending in that it is for a fixed term and is through an auction. This may be a critical change as it means that Fed determines the quantity and the timing, not the private banks. Banks do not come hat in hand to the Fed asking for a loan, they simply bid at the auction – no stigma, one hopes. (emphasis added) You may wish to read the entire piece, which also contains a few internal links: http://www.voxeu.org/index.php?q=node/814 Hope that helps.
Written by Stratonovich calculus on 2008-03-12 21:03:32 The rally’s engine was short covering.
We need a False Statements Database for econ statements
It’s late – I’m tired and I will likely beg forgiveness later for this, but I need to add something to what has been stated here earlier. I know some folks here will find fault with what I have to say, but I think this blog is populated with many like me who are here to learn. Well tonight, I feel like giving the lecture. Someone insinuated earlier today that the US populace deserves what is about to happen to it. I am not an apologist for my fellow citizens, but make no mistakes here people: the Joe six pack’s of this country are not responsible for the current mess we face. Sure, they went out and spent foolishly and did not save – but they were given lines of credit few could or did resist. People who had no business borrowing $200, let alone $200,000 were played by lenders who saw nothing but profit once they securitized and sold off the debt that was given without due diligence to make sure it was likely to be paid back. Lenders told people complete lies and sold them products they did not explain. They took advantage of the less educated and the disinterested then they sold the supposed AAA debt to a market that made the mistake of believing the ratings agencies and insurers who backed it. Now, again let me say that all people bear some responsibility for their borrowing and spending habits, but clearly there have been many transgressions committed to get us to the level we are at now. To think that the citizens of this, or any country, deserve to suffer and starve and lose all they have while the greediest and most corrupt of all gain more wealth is a shame and strikes me as less than human. In addressing remedies for our current crisis, not only should regulations be sought so that such things are much less likely, but more focus should be given to educating the public on accounting / personal budgeting and basic economics. No Child Left Behind should be replaced with No Citizen Inadequately Prepared for Life. Investing more money in unrepentant lending institutions is insane – that money should be spent on education so that our citizens are better prepared for the reality of living in such a wonderful, capitalistic society where they are manipulated by media, politicians and professional hacks daily. In the short term does this help? No. But long term…..it may be what prevents our children from falling down the same hole we are in. Parents, teach you kids. Turn off the TV, the computer games and talk to them. Be honest and tell them what is happening and why. Teach them to pay attention and to be skeptical of those with authority, power, influence and money. Give them the tools to see reality instead of the crap thrown at them every day. Make sure they understand who their representatives are in local, state and the Federal government. Make sure they read. Impress upon them that they have responsibility for their own actions. Help them to be better than we are. And don’t stop. Keep it up. It’s worth it. For all of us.
Medic, from your post, it seems you were JUST recently unplugged from the Matrix some people, hey maybe most people here have known about this manipulation a long, long time ago and have expected this (implosion) to happen
Well, either my hearing is going bad or the music has stopped. If indeed the latter is true, then we are now in the epoch of our time the Great Financial Engineering Disaster. Our grandparents, for some our parents, witnessed and were shaped by the Great Depression, so too will we be shaped by the Great FED
I have a question. If we assume that this whole chirade involving sub-prime+ and the US economy is one big “pump and dump” scheme, then who are the pumpers? Lets set aside whether Roubini is right or wrong. Now that Roubini is getting noticed (again, after some years since 1997-98) in the mainstream media, he (and in a small way, we) are now part of the great game. The question thus becomes, who benefits from pushing Roubini’s and other’s ultra-bearish interpretations of the US economy? There is economic data, and then interpretations of data. As Lawrence Summer’s said last week, in every collapse in history, greed turns to fear. i.e. “real” data becomes increasingly less important as the flames of the crisis wildfire spread. *Interpretations* of information become crucial, even if they may have only the slightest of relevance to the “actual” situation. So lets look through history and figure out which actors benefits from fanning the flames of financial collapse. Lets just stick with the 1990s: 1990 Japan 1994 Mexico 1997-98 Thailand, Indonesia, Malaysia, South Korea 1998 Russia 1999-2000 Brazil, Argentina Thoughtful ideas? thanks.
I would love to know where Prof Roubini thinks the US$ and oil will trade when we reach the end of stage 12…?
Octavio, Medic, Dan, Skipper et. al… Thanks for answering my question in various ways and from different angles. This is kind of a long post but I just wanted to get the bullish case out there: My main concern stems from earnings season. Major U.S. companies now get more than 50% of their earnings from overseas. With the weak dollar as further help, it’s highly possible that the big names can beat estimates even with the U.S. economy in the doldrums. This would ensure a powerful rally up, coming from both the shorts covering positions and permabulls dying to get back on the rollercoaster. The full effects of recession may not be felt until later this year so it’s possible we get a six month pop back up which would definitely seem possible from this oversold conditions. As Jma points out, the Fed has burned us several times since August and we should be several standard deviation points lower from this level. Not even Greenspan on his most inflationary day was this accommodative. In fact, in the history of U.S. central banking, Bernake will stand out as easily the most active and interventionist. We really shouldn’t be surprised though. This is exactly why President Goober hired him and Paulson as well. Of course it’s insulting to anyone who believes in free markets but they are an investing reality. It really depends on how you look at it. Shorts see themselves as honest and rational brokers trying to get the market down to where it should be whereas the permabulls see them as gloom and doomers robbing their nest egg. Permabulls don’t care where the money comes from as long as markets go up – to the devil with the dollar, inflation or moral hazard. Bernake is on their side, not ours, and he has proven himself to be Wall Street’s bottom bitch to the hyperinflationary end. Who would we rather have on our side? NR or Bernake? With this in mind, I took out a long position on the Nasdaq yesterday, something I hadn’t done in a long time. Don’t get me wrong. I’m still short and still bearish but from a self-interested standpoint, I am considering the other side of the argument. We can endlessly discuss the state of the U.S. consumer and the U.S. economy but this may have nothing to do with earnings season for companies outside of those with direct U.S. exposure such as financial, real estate or retail. The other day McDonald’s reaffirmed earnings, Caterpillar did the same, and Jeffrey Immelt at G.E. is buying stock talking about no problems with earnings going forward. Valuations are in the teens across the board and companies are surely looking like bargains to a lot of money managers. It could be possible that the U.S. is slowly being reduced to a third world country where the currency is kept weak, the population live impoverished, except for a few white elite that own all the wealth. When I hear that BMW wants to move factories to the U.S.A. to take advantage of the weak dollar, I start to wonder if all of this is not by design from Bush and Co. If that is the case, the stock market can push Bovespa like levels. The core elite can profit while everyone else languishes – debt slaves getting by on their minimum wage jobs and few token consumer goods to keep them happy. I’ve marked April 2 on my calendar as a pivotal day as RIMM comes out with earnings. A couple of weeks ago they said their subscriber base had increased but didn’t push up earnings forecasts. Not sure how that will play out but RIMM will be important to market sentiment, of that I’m sure. There is a lot of chatter about GOOG and APPL out there. Will they or won’t they make earnings? And what about looking forward into Q3 and Q4? I can tell you that both are almost 50% off their highs. That’s a lot of bloodshed. I can’t overemphasize how important these two stocks are to overall market sentiment. They are like Wall Street rosary beads – people hold them and pray for the best. Any positive news from them and IMHO we’ll be off to the races across the board. Conversely, any negatives and we’ll be pushing lower. After all the macro and credit market analysis, it really comes down to a handful of companies that can decide sentiment either way. And from these oversold conditions sentiment is everything. Bernake has robbed the shorts of a huge profit opportunity with the timed rate cuts and interventions. Tuesday’s action showed how he can invent market prop-up schemes at will. I don’t know how much further we can drop from here against that kind of firepower. Any move back down and he’ll be accepting canned goods and food stamps in exchange for T-bills. I’m skeptical of Nasdaq 2000 at this point and Dow 10,000 seems just as far off. Anyway, keep the feedback coming. I agree with all of you on the macro trends but am very worried about upcoming earnings season. It may not move the way we would like and we should be prepared for such a contingency. Luck to all.
I am not sure the predatory lending really matters when we live in a society that forces a person to spend, what it the alternative? Economics forced those people to seek out those loans and to embrace bad credit offers via whatever means they secured them. People on this board like to talk about quantitative measures, but I think some things are unquantifiable and consequences of the whole. Economics is more than just figures and things measurable, to me it encompasses common sense and survivalist mentalities that cant be taught. You can learn micro macro whatever, but when things happen and you think to yourself, wow – that is just not right, it is an indicator as well. Look at the garbage in the business world, CNBC worships this Buffoon who invest a couple billion into wells fargo, big whoop, leveraged capital from insurance premiums, schwartzman grosses 5 BILLION, yet the company he helped take public is down > 50% or so from IPO. Kooks like this Kudlow guy are given free reign to talk their gibberish and try and convince people that the bottom is in – it flat out sucks. It is time for things to happen the way they happen and for 2+2 to equate to 4. Something stinks all over with the way things are being reported now and they have for awhile. As long as there are greedy pigs, someone with a bigger agenda will feed them, someone is always the benefactor, it is a 0 sum game as far as I am concerned, everything including greed and power have unquantifiable value and add up to 100 when looked at in sum total.
Carlyle Capital failed to come to a standstill agreement with its lenders and expects its assets to be seized. Wow.
Can there really be 4+ trillion in security related write downs with mark-to-market losses: JP Morgan Chase estimates approximately a 30% decline home prices is in order (http://www.reuters.com/article/ousiv/idUSN0832645120080308)…. If RMBS sold since year 2000 is as follows (per http://www.sifma.org/research/pdf/Overall_Issuance.pdf)- listed below: Mortgage Related Securities Issued since 2000 In Billions: 2000 684.00 2001 1,671.00 2002 2,249.00 2003 3,071.00 2004 1,779.00 2005 1,967.00 2006 1,988.00 2007 2,027.00 ———- $15,436.00 ———- $(4,630.80) In writedowns?
true CPR but, USD is still the world reserve currency oil/commodities are priced in USD USD depreciations=higher inflation level=public discontent how long would the rest of the world accept this S*** if, TROTW dumps USD what will happen?
I had no idea there was an actual connection between Carlyle Group and Carlyle Capital. Carlyle seems like one of the scariest organizations ever to me from my brief reading about them and their ties to anyone with substantial power and in the 1%/95% group.
@ J. on 2008-03-12 21:40:36 Thanks a lot, yest it helps !
CPR, I have struggled with this precise comparison you have suggested to the Bovespa for some time particularly while we were devaluing the currency while raising nominal equity prices for 5 years and asked this exact same question many time a long while ago here and never heard from anyone. This is a very, very good question you have raised. I attempted to look at long term Bovespa charts and match them with the currency blowing up, but I honestly only gave it a small effort. This would be an interesting research project to see how far the Bovespan went down in nominal terms, before, after and during their currency / debt crisis – obviously it ultimately ended up going way up. If you have a portfolio you are managing, I would consider protecting against something such as this by getting long some XAU or HUI. This is NOT appealing to do right now as gold even if it were to run to 1,000 or 1,150 IMHO estimation should correct deeply 30 to 40 %. After this happens, you can kill two birds with one stone and then SOME ! Buying an index of paper stocks whose value they seem to love to inflate (even though at the end of the day it is just paper ) that is tied to a commodity which generally moves counter to the dollar seems to be a good way to hedge some of your concern. In fact, if you are not in to playing commodities directly and want to play in stocks which Wall Street has wisely turned into paper via ETFs as they only know how to push paper, – wait for the meaningful correction in commodities and get long some of those stocks. The commodity correction will be like stocks in 1987. The argument I have for the multinationals still having more pain coming to them even with the dollar going down right or wrong is the fact that the sell-side world we live in has been beating the drum on these stocks during at least the last few year of this 5 year bull run. For that reason alone, I believe they have to endure some more pain before they are buys. that is my 2 cents worth for now – time to try and sleep now with the Nikkei down 400, the Shanghai below 4,000 and the dow and s&p futures down around 1 %.
conan o’brian, tonight, looking into the future: “pres bush will finally admit that the us is in a recession when we see americans illegally crossing the border with mexico to go and wash dishes over there”…
The Wall Street and now global economic-industrial complex is ruled through a “regime of images”. Ask yourself who benefits from establishing which image.
@CPR, I would add one more thing here. After the treatment I have received from this government, administration investing in the equity markets of the USA as a seller (markets have buyers and sellers), I would prefer nothing more to find any other country on earth to invest in after the emerging markets correct. Brazil, India, Russia and China (China-after the severe crash) Markets go up and they go down. This circus show of Federal Reserve and government has prolonged and worsened this event which is about to go down by artificially keeping nominal prices intact and artificially elevating them all the way up to the top. It is not hard to argue part of this may have been to allow a few last major (one in particular) deals / IPOs not to mention any names. Equity market wise the PPT in fact ADDED to the extent of the coming plunge through unabated complete and total corruption. I am an American and proud of it. When I sat in my local church near the 4th of July last year and listened to the congregation sing various anthems it deeply saddened me to know what was about to happen here. Here were these simple middle class folks singing, heartfelt melodies about their faith and country while its extremely wealthy, powerful, corrupt, greedy players were ruining it, raping and stealing from it. Whatever happens here, I hope the world understands there are many wonderful people here as there are in any country throughout the world.
Bear toast? http://online.wsj.com/article/SB120537606195632655.html?mod=hps_us_whats_news In Dealing With Bear Stearns, Wall Street Plays Guardedly By KATE KELLY, SERENA NG and JENNY STRASBURG March 13, 2008 Wall Street has every interest in making sure that Bear Stearns Cos. is healthy. But hedge funds and traders also are trying to protect themselves. Bear executives say that they are in no danger of a cash crunch and that the company’s capital remains more than adequate. But in a sign of how skittish Wall Street has become in recent months, the New York investment bank is facing increasingly tough trading conditions. Traders handling certain long-term transactions, such as credit-default swaps, said they are being extra cautious when Bear is the counterparty. In some cases, traders are seeking higher-ups’ permission before acting. In addition, some clients of rivals like Goldman Sachs Group Inc., Morgan Stanley, Credit Suisse Group and Deutsche Bank AG have asked those firms to be counterparties to Bear in completed transactions. Such a move frees clients from exposure in the event a firm can’t cover its obligations on a trade. Some hedge funds that use Bear as a prime broker also have been shifting portions of their business to other firms in recent weeks, according to hedge-fund managers and consultants who help pension funds and wealthy people choose where to place their money. A similar shift occurred last summer, but Bear soon recovered much of the lost business. This week, the cost of a five-year policy to protect against default on $10 million of Bear’s debt skyrocketed to a record of about $655,000 per year — two or three times as much as for rivals, and up from around $300,000 two weeks ago. That cost declined yesterday to $580,000, according to data from Phoenix Partners Group. For Lehman Brothers Holdings Inc., the same coverage costs $365,000. Tuesday, Bear shares sank to a five-year low even as the market rallied on news that the Federal Reserve would improve investment banks’ access to liquidity. In 4 p.m. New York Stock Exchange composite trading yesterday, Bear fell $1.39, or 2.2%, to $61.58; it had traded up, hitting an intraday high of $67.82. In an interview, Bear Chief Financial Officer Samuel Molinaro said there is no truth to speculation of deep trouble at the firm, which suffered the implosion of two mortgage hedge funds last summer. “We’ve been hearing rumors of all kinds of different issues surrounding our liquidity,” he said. Other securities firms, hedge funds and other investors said they are continuing to do trades with Bear. No hedge-fund clients serviced by Bear’s prime-brokerage unit, which lends capital and facilitates trades, have been unable to redeem cash, Mr. Molinaro added. Bear President and Chief Executive Alan Schwartz went on CNBC yesterday as a confidence-boosting measure. Mr. Schwartz said the effect of rocky market conditions is being exacerbated by baseless speculation. “Our balance sheet has not weakened at all,” he said. Monday, Mr. Schwartz wrote in a release that the firm’s “balance sheet, liquidity and capital remain strong.” Since last summer, Bear has replaced much short-term funding with long-term funding. According to Wall Street executives, Bear’s fundamental issue isn’t liquidity or capital as much as the erosion of its business model as a result of the credit crunch. Some traders and analysts, noting the lack of any proof that Bear actually faces a liquidity crisis, have been drawing comparisons to a similar period at Lehman in 1998. The rumor-mongering then nearly sparked a cash crunch. ”We know that firms on Wall Street, given the nature of the balance sheet and their need to constantly replace funding, can succumb to liquidity crises even if they’re fundamentally solvent,” said Merrill Lynch & Co. securities analyst Guy Moszkowski. Still, some of Bear’s counterparties are becoming increasingly cautious. At Deutsche Bank, some traders of credit-default swaps and other derivative securities are charging extra when Bear is the counterparty, according to people familiar with the situation. Increasingly, these traders also are charging hedge-fund clients a fee for novations, or situations in which the fund asks Deutsche Bank to take its position as a counterparty to Bear on a particular transaction. One group of traders worked late Tuesday to review thousands of individual transactions in which Bear was the counterparty, said one person familiar with the situation. A spokeswoman for Deutsche Bank declined to comment. Novations occur frequently and for a variety of reasons, according to traders. During calmer times in the credit markets, approval for novations usually is handled by back offices or operations departments, said Mark Beeston, president of T-Zero, an electronic platform that helps dealers and money managers confirm derivative trades. Given the market’s current volatility, it would be natural for higher-ranking risk managers to be much more involved in the consent process, he added. Another standard situation that is becoming more ticklish is margin calls, people familiar with the matter say. Like any firm, Bear is experiencing its share of margin calls, which it works with counterparties to resolve. Because of the heightened sensitivity, the mere existence of certain outstanding margin calls from Bear’s creditors is being interpreted as a potential indicator of the firm’s weakened condition, say traders and people familiar with Bear’s positions. The value of Bear’s current outstanding margin calls comes to far less than $1 billion, one of the people said. According to Bear filings, at the close of the fiscal year in late November, the company had $11.1 billion in tangible equity, an important measure of its worth. Its gross leverage ratio, a gauge of the funds it has borrowed against its equity, is about 33 to 1. Goldman, with tangible equity of $42.7 billion, has a leverage ratio of 26 to 1, according to its filings.
Crikey! S&P Futures minus 16pts and counting….Maybe Europe will help out and buy buy buy some junk junk junk…..
wasn’t Bear Sterns the only firm that declined in participating in the Long Term Capital bailout ? what comes around goes around…
asian equities continue their steady, almost linear fall today (-2.5% to -4.5%). yen very close to breaching 100 to the us$. things could become very very very ugly by friday… if the world still exists by then.
Can countries merge? Maybe the US should try and pull off a “merger or equals” with Canada or Mexico!
Correction: “merger oF equals” but then, what to do with bush???
Alternatively, maybe Bush can dispose of his “crown jewels” by selling California and Florida including “subprime challenge” to Mexico. And subsequently rename his beloved Texas to “The Sunshine State”.
JMa, Thanks for your comments. I agree with you on the issue of the Bovespa and do remember you being the one that mentioned it once or twice over the last couple of years. It’s amazing how time flies on this board, isn’t it? We have been coming to this site for so long. Personally, I’ve always felt a particular kinship to your position, being that we started to short the market at roughly the same time. I, like you, walked into the Israel Lebanon War pullback thinking that the markets had a tremendous run up and were do for a serious correction. We both turned out to be way wrong. I understand your frustrations and some of your wild posts of late. To go all the way down on our short positions and come all the way back and be denied a serious profit by this inflationist pig Bernake is like getting teeth pulled. If I have learned anything over the last two years, it’s that you can’t bend reality to your beliefs, even if you know that you will one day turn out to be right. Like 1997 bears, NR has been right for a long time but it’s only now that it’s all coming undone that one would be rewarded for going short. 2006 and early 2007 and even late 2007 was too early. A lot of people on this board (myself included) became mesmerized with NR’s bearish case and arguments. Riding APPL from 50 to 200 would have been nice. Personally, I regret not going long during that time. Missed a major ride up. Though I have profited from the ride down. And I did learn extremely valuable lessons with respect to going short. The question on my mind now is how not to get caught with such an adamant position that I’m frozen. I lost the buy and hold mentality in the 2000 tech wreck. I have lost all my outright bearishness in the last two years. It’s all about market sentiment, psychology and statistics. The trend is your friend. Why fight the crowd. Cause and effect: in general, if companies make their numbers, stocks go up; they fail to make their numbers, stocks go down. I have a million and one little stock market Hail Mary’s like these. My problems with the Gold Bugs Index you suggested are two-fold: 1. price; 2. it’s based on gold companies. I would personally prefer to invest in GLD – a simple ETF that holds gold. If you pull up a chart of HUI and compare it with GLD you will see that they track exactly the same. All investments in gold have their problems but a simple ETF like GLD seems like the easiest way to create a dollar hedge. I do agree with you that there will be a pullback at some point soon. In general, it’s safe to say that we just can’t tell at this point. But I can tell you, and anyone who was short for the last year plus can agree, that being short in an upward moving market feels really bad. By the same token being short in a downward moving market feels really good. How to stay lucid and not be rigid in our opinions is all we should care about at this point. If we do this we have a much better chance of staying on the right side of the market.
CPR, I read some of your post and it seems you have faith that bernanke can inflate out of this crisis.. But i think he really has alot of difficulty doing that right now… To inflate, he really needs to “print” money.. more accurately, he needs to create new credit faster than it is destroyed/defaulted.. Greenspan could do it, but why cant bernanke?.. i think its the credit bubble.. now we have a credit bust and that really means the banks are capital impaired and economic entities are on average leveraged to the neck to take on more credit… plus u have rising defaults… in the past the central banks has artificially created a environment where everyone wants to borrow and banks just handed out the loans like candys… but now its the opposite, on average, no one can borrrow and nobody wants to lend… the economic system will eventually correct for the excesses… so my point is, this is really a debt induced deflation scenario like japan… the TAF, TSLF are essentially just loans to banks to tide them over their cashflow problems… it does not “print” money for the system … to be fair, i think there are always good stocks out there (maybe apple, maybe GE, maybe AIG, swissre).. but to blindly long the index, u are just earning the average returns.. which i think in the next 1-2 years the average return will be negative… mrskeptical
CPR relaxs, FED is burning both Bulls n Bears timing is of the essence P.s. real economy is screwed
@CanadianKB on 2008-03-12 23:13:51 > have a question. If we assume that this whole chirade involving sub-prime+ and the US economy is one big “pump and dump” scheme, then who are the pumpers? The question thus becomes, who benefits from pushing Roubini’s and other’s ultra-bearish interpretations of the US economy? < My opinion is that Nouriel’s bearish interpretations come in the spotlight now, not because of pushing activities by those who may profit from it, rather because of a reality check. Bubble blowing can be seen as a natural human activity, it has to do with positive feedback mechanisms in human thinking, helped by a natural bias towards a positive direction. Initial small healthy profits have a tendency to be inflated towards exuberant levels that have little to do with real world added value anymore in a process whereby flashing alarm signals are increasingly ignored because they stand in the way of imaginary expected further profits. It takes a reality check like hedge fund collapses and CDO illiquidity of last year to puncture irrealistic expectations and to undo the resulting blindfolding. No pushing in the other direction IMO, just a hard landing back into the real world, after a lift off into an imaginary sphere of fake value creation. My 2 cents
Mr Skeptical, I understand your point of view and am clear on what you’re saying. Still, I’m just being the devil’s advocate here for the long case. Here are three points I’d like you to consider: 1. The issue of the Fed and what they can or can’t do is tricky. Open Market operations are complex and opaque. But I feel we should stick with the idea that in a fiat economy the central bank is all-powerful. Bernake has proven himself capable of anything. In the end, if it means “printing” money then that is exactly what he will do, inflationary consequences be damned. The TAF pumps liquidity into the system and rolling over these debts indefinitely is akin to asking that the money never be paid back. Read his 2002 speech to see just how far he’s willing to go. The second point is the most important one to what I was trying to say. 2. Earnings in Q2 may have nothing to do with how the U.S. is doing. Let’s be honest. Outside of finacials and real estate and the retailers, your average S&P company beat estimates in Q4. Earnings did come down but not by a whole lot. This is important to remember. Can companies pull a rabbit out of their hats in Q2? This is my main question. It is possible. I appreciate your comments. And understand that I’m only preaching a balanced view with respect to the market. That’s all. Like most here I remain long-term bearish on the U.S. economic fundamentals.
Mr. Skeptical, Check out this article on the Fed by the ever reliable Mark Gilbert. A step-by-step playbook of where the Fed might go next. ”March 13 (Bloomberg) — Want the inside skinny on Federal Reserve Chairman Ben Bernanke’s next moves as he battles to avert recession, bank bankruptcies and the collapse of capitalism? His detailed playbook is freely available from the Fed’s Web site. In November 2002, when Bernanke was merely a Fed governor, he gave a speech about “Deflation: Making Sure `It’ Doesn’t Happen Here.” More than five years on, the text provides a step- by-step guide to the Fed’s reaction to the current credit crisis, and hints at the tricks left up the central bank’s sleeve.” http://www.bloomberg.com/apps/news?pid=20601039&sid=a8R_nSQd9wKU&refer=home
CPR you give bernanke to much credit, Prof Roubini deflation scenario is coming soon Inventory is increasing but price is yet to dropped demand has faltered a bit DEflaation is coming.. pppooooff Gasoline inventory is up 11% YoY.6.2 Million barrels. The US is awash in oil, especially gasoline. this is what happens before commodity prices collapse. recalled seeing a chart of silver prices to inventories a while back. Near the end of the mania, fools drive the price higher even as inventories are going up. Then reality sets in. http://www.eia.doe.gov/pub/oil_gas/petroleum/data_publications/weekly_petroleum_status_report/current/txt/table12.txt
“In early morning deals, the European single currency rose as high as 1.5625 US dollars.” http://news.smh.com.au/euro-hits-record-high-against-the-dollar/20080313-1z92.html
CPR all i can say is “something has to give”… besides the only longterm solution will be the painful one of actual savings and increases real productivity… not more fiat credit or more accurately illusionary money… mrskeptical
Hong Kong Ebay sellers are starting to price in GBP.
first by inflation, then by deflation hmmm who said that?????
Written by RedCreek on 2008-03-13 00:10:28 Bear Toast? Cooking with Bear Meat http://www.bowhunts.com/recipe_bear.html “I’ll be watching you”: USD keeps falling: http://quotes.ino.com/chart/?s=NYBOT_dx (under 72, -.46% as of this post) And equity markets caught the flue again: http://finance.yahoo.com/intlindices?e=asia http://finance.yahoo.com/intlindices?e=europe http://www.bloomberg.com/markets/stocks/futures.html News: As bad as ever: http://www.bloomberg.com/index.html?Intro=intro3 (USD under 100 yen)
@CPR ”Faith In The Fed Is The Last Bubble”, Mish. I suggest you an excellent article posted by Mish a while ago. It is hard to believe, but in hard times the FED has much less real power than people think. ”Bubble Economy Endgame” http://globaleconomicanalysis.blogspot.com/2008/02/bubble-economy-endgame.html In light of the financial risk that it is willing to take in this environment, I will personally not be shocked if the Federal Reserve Bank of New York itself would go bankrupt.
Some interesting “radical” reading. I get this by email. You can sign up here: http://www.dailyreckoning.com.au:80/ And now over to Bill Bonner in London, England: Maybe we’re wrong. If yesterday illustrated the essence of this market, we are definitely wrong. Our hypothesis is that the fed’s efforts to inflate will show up more in the gold market than in the stock market. That – and an instinct for self-preservation – is why we’re long gold and short stocks. Stock prices depend, ultimately, on earnings. Gold’s price depends, ultimately, on inflation. The feds can make more cash and credit available… but they can’t wipe away all those bad debts, which are hurting earnings. That is, they can increase the rate of inflation… but not make businesses more prosperous. We’re witnessing a War of the Worlds – between inflation and deflation. We don’t know which side will win, but we’re betting that while inflation favors gold, deflation has it in for stocks. But what’s this? Yesterday, the Fed promised inflation – big time. It said it would pump in an extra $200 billion to fight deflation. Europe and Canada said they were in too – for another $45 billion. Where does all this moolah come from… savings? Don’t make us laugh, dear reader. It comes “out of thin air” as Keynes once said. And what is the effect of pulling money ‘out of thin air’ and putting it in the money supply? More dollars… more monetary inflation. According to our hypothesis, investors should see what’s coming a mile away. They should have jumped to buy gold. Instead, they bought stocks. The Dow roared up more than 400 points. Gold barely went up $4. So go figure. Still, oil hit a new high over $108. And sometimes it takes investors a little while to put 2 and 2 together. So, let’s see what happens tomorrow before we come to a conclusion. Besides, stocks may have gone up yesterday anyway; a rally was probably overdue. Commodities are at an all time high. Oil too. And more and more evidence comes to us that consumers are feeling squeezed… and forced to cut back on spending – which will further hurt business earnings. ”Surging cost of groceries hits home,” says the Boston Globe. ”Paying at the pump, in a big way,” says the New York Times. “Record fuel prices blow budgets,” adds the USA TODAY. ”401(k)s tapped to save homes,” it continues. While rising prices pinch family budgets, falling asset prices pinch everyone. Most of the economy seems to be deflating. Housing is going down. Household incomes are going down. We’ll have to wait a few days to find out what direction stocks are going. The big picture still shows the same scene: America is getting poorer. Its money buys less stuff. Its working people earn less money. Its assets are worth less than they used to be. ”This thing is not about a recession or not a recession… and it’s not about inflation or deflation. It’s about re-pricing the U.S.A., downward. Sell America… sell its money… sell its stocks… sell its property… sell its politics… sell its economy… sell its I.O.Us. Sell it all,” said a friend over the weekend. “It’s clear to me that America’s best days are behind it. The United States has had a disproportionate share of everything for too long – stock market valuations… the world’s savings… the world’s energy… the world’s calories… the world’s military power. That’s what is changing. The world is readjusting… it’s not getting out of balance; it’s getting back in balance. It will be a world where the United States plays less of a role… and takes less of the world’s resources.” He is probably right. Asia is growing much, much faster than the United States. Wages are going up 10% per year in China… 15% per year in India. Stock markets are booming. GDP growth in many foreign countries has averaged about three times the U.S. rate for the last ten years. Now, with the U.S. economy not growing at all… Asia is racing ahead. We have no particular quarrel with this. America has enjoyed an extraordinary run of luck. She had cheap energy… history’s most powerful military… and the world’s reserve currency. Now she has the world’s biggest debts… its highest deficits… and the most colossal financial problem ever. In short, it has passed its I.O.Us out all over town and now owes more money to more people than anyone ever did. It now has more financial commitments any nation has ever had (with a financing gap of $60 trillion – not including the cost of the Iraq War… which is expected to be as much as $5 trillion)… and has a competitive disadvantage against much of the rest of the globe. Asians make things cheaper. Europe makes them better. How did such nice people get themselves into such a mess? Are Americans stupider than other people? Are they lazier? More reckless… more feckless? Nah… we’re just victims of our own good fortune. We had it too good for too long. A unique set of circumstances allowed Americans to borrow and spend more than anyone ever could before… and so they did. As an aside, this turn of events for America is where we got the idea for the title of our documentary film, I.O.U.S.A. We are hoping to have an exciting update for you, dear reader, in coming days. Stay tuned. In the meantime, check out the film’s website. *** “It’s the credit bubble, stupid,” says Forbes. Yes, that is what it is… a credit bubble that is deflating. The tide is going out, as Warren Buffett puts it. Now we see who’s been swimming naked. Not a pretty sight. So ugly, in fact, that people can’t stand to look. ”Fed takes boldest action since the Depression,” says an article in the London Telegraph. Yes, dear reader, our leaders are doing something. Now, we just wait to find out how much damage they have done. The hardest thing to do is nothing. But in matters of politics and money that is usually the best thing to do. As we’ve pointed out many times, nothing gets no respect. “Do something,” come the cries from all corners. Even those who should know better implore public officials to take action: ”When a man is having a heart attack, you have to intervene… you can give lectures about his diet later,” they say. But the U.S. economy is not dying. It is merely adjusting to a new set of circumstances. The consumer is tapped out. Without more income he cannot increase his buying. And without more spending, the consumer economy stalls… and contracts. No, don’t even think of lending the consumer more money – he has too much debt already. This is an election year and the politicians want to dodge a contraction in the worst possible way. What would be the worst possible way? Easy – add more debt. That is precisely what the Bernanke Fed is doing. Yesterday, they offered another $200 billion to their friends in the banking industry – lent against the trashy collateral that no one else would accept. Now, the Peoples’ Bank of America – ultimately, the taxpayer – will be holding the bag. *** And Bryon King sends us this note: ”While Ms. H. Rodham-Clinton and Mr. B. (No Middle Name) Obama battle out over who will be the Democratic Party nominee for U.S. president, there is another Great Smackdown occurring within American politics. ”This other match – a true e
ye-gouging, ear-biting cage-match by any standards – may well determine the success or failure of the next U.S. president, no matter who is elected next November. (Presumptive Republican nominee John McCain has admitted one of his own limitations, ‘I don’t know as much about economics as I should.’ He gets points for honesty, if not candor.) And this other knock-down, drag-out competition is taking place within the marbled hallways of a certain institution located prominently on Constitution Avenue in Washington, DC, just across from the Lincoln Memorial. ”It appears that a certain Mr. Richard Fisher, of Dallas, Texas (and by occupation, president of the Dallas Federal Reserve Branch) is lobbying for the job of ‘Successor to Ben Bernanke.’ That is, Mr. Fisher wants to be the next Chairman of the U.S. Federal Reserve. ”The current course of U.S. monetary policy is not sustainable. The Bernanke monetary policy is wrecking the value of the U.S. dollar. The charts don’t lie. Inflation is rising. The prices for gold and silver are soaring, as is the price of oil. The dollar is at historic lows against the euro, as well as numerous other world currencies. U.S. import costs are exploding. And despite his academic credentials as a historian of the 1929 crash and Great Depression of the 1930s, Bernanke is simply in over his head. ”We may be witnessing some macabre and tragic drama scripted by the gods. And in this play, it may be the unpleasant role of Mr. Bernanke to lower interest rates to the point where he must take the sword. Bernanke may or may not understand that he is the star of the R-rated version of a snuff film. Bernanke’s sad destiny is – paraphrasing the words of Gen. George Patton here – to grease the treads of someone’s tank. The best that Bernanke can hope for is a relatively dignified and hasty departure from the Fed, with perhaps a final limo ride in which he is not garroted like in the chilling scene that occurs at the end of The Godfather. ”No matter what, and in the best of possible outcomes, Mr. Bernanke will not escape the Circus-Circus atmosphere of a summary dismissal from his current job. His trip to the unemployment lines will be heralded by calls from Congress for his removal, if not his head. ”This is all another way of saying that over the long term the world’s bond markets cannot afford – and will not tolerate – the current sordid state of monetary affairs. Bernanke is costing a lot of people a lot of money. He is bad for business. And so Bernanke as Fed Chairman cannot last much longer. He is going to go, sooner or later. Probably sooner. ”It is the nature of the position of ‘America’s Central Banker’ that someone will have to take Bernanke’s place. At 81 years of age, Paul Volker is probably too old to retake the job he held from 1979 to 1987. And Volker may not be ready for a replay of his previous efforts, marked by angry mobs burning his figure in effigy. (And second acts do not play well in Washington D.C. Look what happened to Donald Rumsfeld during his rerun at the Department of Defense.) So someone will have to step up to the plate, take the seat as Fed Chairman and start pulling triggers. Someone will have to call a halt to the serial interest rate reductions that have occurred on Bernanke’s watch. Someone, in fact, will have to raise interest rates and squeeze the monetary poison out of the U.S. economy – and by extension the connected world markets. ”Someone will have to administer the medicine that both the United States and the world requires. Someone will have to do the dirty work. Someone will have to take the hit – ‘for the team,’ as they say down at the football pitch. Richard Fisher appears to be volunteering for the job. Good luck, Mr. Banker-Man. You are going to need it. Really. You are going to need a lot of luck.”
Today is the day!
The Fed wants the banks to claw back as much cash and assets from the Hedgefunds as possible before being forced to take the irrevocable step of nationalizing the US banking system. Expect Hedge funds to liquidate en masse now as their margins are either severely ramped or loans called in, as Banks direct funds to the safer haven of the Fed’s TSLF. This is the Fed making the banks circle the wagons. All hell is soon going to let loose.
Today may well be the day. But they’ll do anything they can to stop it.
@CPR Good find on Bloomberg on Bernanke’s plan. http://www.bloomberg.com/apps/news?pid=20601039&sid=a8R_nSQd9wKU&refer=home Interesting quote from a Bernanke 2002 speech where he states his core belief: ”A determined government can always generate higher spending and hence positive inflation. Sufficient injections of money will ultimately always reverse a deflation.” Whether or not this is actually true, we can be certain that Bernanke will act upon this belief.
Yes. Today is the day that ships drop anchors and sever communications cables.
RETAIL SALES SINK 0.6% IN FEBRUARY, MUCH WEAKER THAN EXPECTED
Subprime induced credit crunch + increased volatility + increased leverage = financial disaster! A simple example: 1. No leverage: Investor has $100 in assets and invests it in the stock market: Balance sheet no leverage: (remember the fundamental equation of accounting Assets = Liabilities + Owner’s equity) Assets: 100 (in the S&P 500) Liabilities 0 Equity 100 Suppose the S&P 500 goes down 10%, the BS becomes: Assets: 90 Liabilities 0 Equity 90 Unlevered investor losses 10% of his capital. 2. 9:1 leverage: Investor (i.e. a hedge fund) has $10 in capital, borrows $90 and invests $100 in the S&P 500: Assets: 100 (in the S&P 500) Liabilities 90 Equity 10 S&P 500 goes down 10%: Assets: 90 Liabilities 90 Equity 0 The value of your assets goes down the same 10% but you still owe the bank the same 90 bucks, so a 10% decline in the market wipes you out (0 equity)! The up side of course, is that if the market goes up 10% you make 100%. Even though carry trade type hedge funds [in theory] were supposed to be exposed to a fraction of the volatility one sees in equity markets [this turned out to be wrong] they used leverage that was much larger than in our example. For example, if you use 20:1 leverage a 5% drop in asset values wipes you out! This is what happened to LTCM the Fall of 98.
gold 997 maybe today is the day
sorry for shouting, it came with the copy/paste…
http://www.census.gov/svsd/www/retail.html Note: no inflation adjustment yet in retail sales figures. Ouch! The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for February, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $380.2 billion, a decrease of 0.6 percent (±0.5%) from the previous month, but 2.6 percent (±0.7%) above February 2007. Total sales for the December 2007 through February 2008 period were up 3.3 percent (±0.5%) from the same period a year ago. The December 2007 to January 2008 percent change was revised from +0.3 percent (±0.5%)* to +0.4 percent (±0.2%). Was it last week? That I bashed a stupid Barrons piece saying the consumer was fine, thank you!
@OR the Carlyle Capital vehicle has a 33x leverage, if I heard well on Doomberg…
I think we’re going to have a major currency crisis, and thus rampant inflation as import prices rise. Then Venezuela will decalre war on a neighbor and crude oil will surge like 100% in twenty minutes, while the stock indices globally will crash over the same 20 minutes. I see absolutely no catalyst for the stock market rising anytime soon, rather it will continue to crash more or less daily, until a recession is declared (maybe by the end of June or Sept). Contractionary gdp reports will make the markets sink fast. I see a recession firing on all cylinders, consumption will slow from less (or no) mortgage equity withdrawl, investment will slow corporate and otherwise, government spending will be restrained, and net exports (despite the usa being an overall importer) will decrease. The greator depression is up over the crest of the hill, and around the bend. The dollar will get smashed. Stick with foreign currency denominated government fixed income.
I find it interesting that Bill Clinton was considered brilliant for his 200 to 225 billion dollar surpluses annually, and that George Bush has literally recently borrowed 170 billion in one day for some pathetic tax rebates. The foolishness of the Government, and the american public that elected those officials (that all approved of Bush’s budget) will never cease to amaze me. Borrowing roughly 5 trillion US dollars (essentially doubling the debt outstanding over just 8 years from roughly 5 trill to 10 trill) to bomb the afghan mountains and to invade iraq has been utterly ridiculous and totally stupid— the world will now suffer the enormous economic consequences of borrowing five trillion dollars, crowding out investment, crowding out borrowing, and inciting credit crunches. It will be like Japan ’89 in the USA (called the “lost decade” even though it’s been nearly 20 years now), or like 1929 all over again; somehow it also reminds me of the recessions and panic of 1819, 1837, and 1857.
arrhh andrew now you jinxed it.. im going long today
OK, Paulson is making an announcement at 10.
@Andrew: bush and co succeeded brilliantly: their friends/funders have been doing very very very well from this: exxon mob posted largest record of any us company ever, haliburton doing great, entire defense sector boosted etc. someone should look into the kick-backs those companies gave/will give to the current admin…
Not sure if anyone posted a link to this Bloomberg article before: Paulson, Bernanke Plan Tougher Scrutiny of U.S. Banks (Update1) http://www.bloomberg.com/apps/news?pid=20601087&sid=aLz7MbR8Bs54&refer=home Treasury Secretary Henry Paulson, Federal Reserve Chairman Ben Bernanke and other U.S. regulators will propose tougher scrutiny of banks’ capital in a report on lessons from the mortgage crisis, a government official said. The results of the review by the President’s Working Group on Financial Markets may be released as soon as tomorrow, two officials said on condition of anonymity. Paulson is scheduled to speak on financial markets at the National Press Club in Washington at 10 a.m.
On Paulson: what should we expect? Business as usual (the next super-duper bailout plan, that is) or BSC nationalization?
don’t worry Goldman’ earnings next week and the Fed cut will “save the day” 1.3% down is a pebble rolling down the side of a mountain… Until the lows of Monday are taken out with authority this does not mean a whole lot. Interestingly enough, the Nikkei is comparable to the Dow 12,400 versus 12,000 now. Only thing is the Nikkei actually moves down 400 points from time to time. All of the market participants there simply must have more selling conviction than here in the US. A natural cultural difference displaying itself out in market behavior and daily movement. These types of down moves rarely occur in the USA. @Andrew Come on Man !
Interesting that people are comparing the Nikkei to the DJIA… the only difference is that the Nikkei 225 was at literally 38,000 and change in 1989, and now it’s at 12,400 down just 427 in the last session.
@Alessandro The article from Bloomberg was from last night when someone seems to have leaked it to them. It basically says that old hank and co have drafted a report in which they say that lenders have been naughty (o’rly?) and that they propose to tighten bank regulation, and that they were going to talk about the report this morning at 10. Will this be enough to stop today from being the day??? Maybe they will have to say a bit more if today is the day that “ships drop anchors and sever communications cables.” Who knows.
IMO… Today will not be good! Rich H JMa. smart call yesterday. I believe you’ll be right in a big way.
On the other hand, maybe today will be the day they choose to save the dollar… Rich H, are you there? A penny for your thoughts?
Oops, posted too late as Rich already posted Apologies. Back to lurk mode.
@ Muppet on 2008-03-13 08:40:26 ”…maybe today will be the day they choose to save teh dollar…” I can’t even begin to imagine what you mean here? Who are these theys? How would they save the dollar, if they could choose? The only way to to save the dollar is to STOP BORROWING BILLIONS DAILY to bomb the afghan mountains and to invade Iraq. The way to save the dollar is for someone to find five trillion dollars under their sofa or mattress and to payoff the total government debt outstanding by this much. Also, if someone could find hundreds of trillions and if they could start buying everyone’s house and commercial property for more than it was ever pretended to be worth, that would be great. Save the dollar if you choose, just like Muppet says!
@ Muppet and how will they do that? the only way i see them pulling off a US$ rescue is by a concerted effort with the ECB, BOE, BOJ, … i actually maxed out all my US$ credit lines yesterday, converted it to GBP and wired it all to London… hope to make a nice little profit on it in a few weeks…
Paulson looks like Colonel Klink no?
@RedCreek GBP might not be the safest place in the mid term. UK economy is in as big troubles as US one mostly for the same reasons (reckless lending), but with a lag. The housing bubble has begun to deflate and they have on nationalized bank a two more possibly in muddy water.
The “Democrat Party” has come up with their own surveillance bill. This would give telecoms a sort-of-immunity but would require them to disclose to congress what they are spying on. Dear Leader is not very happy about that, says this article: Bush calls surveillance bill inadequate http://news.yahoo.com/s/ap/20080313/ap_on_go_pr_wh/terrorist_surveillance And why is he not happy? Probably because he’s spying on them Democrats!
From CNBC: Business Inventories Rose 0.8% in January, Biggest Gain in Two Years. This is NO GOOD news. (Question: is this infaltionistic or deflationistic? I have my answer)
“Colonel” Paulson definitely has a lot of beautiful, impressive flags behind him! But what the hell is he saying we don’t already know??? time waster!
Prof Roubini is flat wrong, folks. Look at what Mr. President said recently: Bush Says US Not Headed Into a Recession President Bush said Thursday the country is not recession-bound and, despite expressing concern about slowing economic growth, rejected for now any additional stimulus efforts. “We acted robustly,” he said. http://ap.google.com/article/ALeqM5j057jBReERcsF-FcZRSWe0h1gaXQD8V3ICFO5
Rich H “IMO… Today will not be good!” Forgive my ignorance…what does IMO stand for? Thanks
10:15Freddie Mac: Mortgage rates rise in latest week Got to get them down by May when the bulk of revisions arrive…
Written by Guest on 2008-03-13 08:55:18 ”Save the dollar if you choose, just like Muppet says!” Calm down mate. Take a deep breath, untwist your knickers and take a chill pill. I am sure that what Muppet occasionally posts every so often on the professor’s blog has the power to influence the masses and move the universe (sarcasm there, for the dullards). I thought Tuesday would be the day, but a lot of shorts got burnt on an announcement from the Fed and some solid media pumping. I am just thinking of things that could be announced and pumped to spank the shorts. Is that OK with you??? Jesus, the blog Nazi Guests are out in force today.
According to my work, the prop team is officially out of the way of this market. This is going ot get seriously ugly now. Just a taste of some headlines, enjoy: ”Carlyle Capital on verge of collapse” ”Foreclosures up 60%” ”$5 gas pains by Labor Day” ”Gold rallies to $1000 level” ”Thornburg shares plunge 19% on Morgan Stanly default notice” ”Retail sales plunge -.6%” ”Jobless rolls in U.S. climb to 2 1/2 year high”
#Alessandro on 2008-03-13 09:10:22 Business Inventories Rose 0.8% in January, Biggest Gain in Two Years. Is this infaltionistic or deflationistic? I have my answer. Excess inventory is deflationary by itself, but it sits in a much larger milieu of inflated dollars so it does not really seem to matter. We know M3 is running ~17% over 2007 and we know inflation is running at 11.6%. Could inflation be feeding back onto the stock market? Are those daily run-ups the result of extra cash in the system? And do inflated dollars give the banks more wiggle room in delaying paying debt based in old dollars?
I think Rich is right – but today doesn’t end it – it is just the beginning – no more dead cat bounces – no bottom in sight – I’m thinking of the old joke “It’s not the fall that kills you – It’s that sudden stop at the end”
I swear I just heard Hank Paulson say that he thinks the Government should regulate compensation! Is that the stupidest thing you’ve ever heard or what?! Why should the government tell people what they can and cannot make as income. Pathetic. The day we have wage fixing is a horrible day for the united states of america.
I heard nothing interesting in Paulson’s speech. As to the stock market, even tho it’s been pumped up for years based on hot air and B.S., reality is still reality. It cannot run on B.S. much longer.
Retail sales sink .6% in Feb 08… Much weaker than expected… Things to consider — this report is probably weaker then noted. The following retailers DO NOT report monthly sales data. 2006 net sales, in billions Stopped reporting in… CVS/Caremark $43.8 Jan ’08 Macy’s $27.0 Feb ’08 Dollar General $9.2 June ’07 Jo-Ann Stores $1.9 Feb ’07 Pier 1 Imports $1.6 March ’07 Claire’s Stores $1.5 May ’07 Dress Barn $1.3 Aug ’07 New York & CO $1.2 May ’07 Guess $1.2 Jan ’07 Gymboree $.8 May ’07 Sources: Company Reports TNS Retail Firward See story @ Wall St Journal Macy’s Joins Trend Of Retailers Ending Monthly Reports By VANESSA O’CONNELL March 6, 2008; Page B1 http://online.wsj.com/article/SB120476282188615013.html?mod=djm_HAWSJSB_Welcome
THERE IS NO INFLATION!!!!! BUY DOLLAR!!! USA SUPPORT STRONG DOLLAR!!! Wonder what those deflationists been smoking these days… http://www.stocktiming.com/Thursday-DailyMarketUpdate.htm ”The Dollar is moving down on panic selling. It broke through its lower channel’s support, so the dollar is in real trouble now. Some of the larger Wall Street Firms are telling their clients that the Dollar could fall to 62.”
“The foolishness of the Government, and the american public that elected those officials (that all approved of Bush’s budget) will never cease to amaze me. Borrowing roughly 5 trillion US dollars (essentially doubling the debt outstanding over just 8 years from roughly 5 trill to 10 trill) to bomb the afghan mountains and to invade iraq has been utterly ridiculous and totally stupid— the world will now suffer the enormous economic consequences of borrowing five trillion dollars, crowding out investment, crowding out borrowing, and inciting credit crunches.” Now, question is who putted them there? Yes, foolish J6P. Will foolish J6P be “totally stupid” and pick McCain??? We will see.
I find it amusing that the DowJonesIndustrialAverage was at 386.1 in Sept of 1929. It’s not March of 2008, so 78.5 years has elapsed and the DJIA is now at 11,888.08. So in a mere 78 and a half years it has increased like 30.79 fold, as in times 30.79. This annualizes to +4.46%, and if you inflate a dollar at the treasury website, you get +3.16% over the same interval. This means that the real return has been +1.30%. Currently 20 year TIPS (treasury inflation protected securities, aka inflation linked bonds) yield more than this whopping 1.30%, the 20 year TIPS they yield +1.58%— plus they’re backed by the full faith and credit of the united states government. So why would anyone buy index funds, when they can buy the treasury’s inflation linked bonds that based on 78.5 years of past performance will outperform the stock market!? Sell stocks people, purchase fixed income. Personally, I still like the JPM Emerging Market Bond Index rather than TIPS.
Gold hit $1000.35!! Seems the guys from the IMF didn’t pay attention for a sec …
The military conflict was to secure oil, destabilize the Middle East, train a new generation of military experts and black ops, and to line the pockets of the military-industrial complex. The problem now is they have lost their “mandate of heaven” and will find it increasingly hard to put personnel behind the greatest war machine the world has ever wrought.
Dollar plunging, oil now over $111/brl, gold at $998/oz and their is a race into treasuries-this is really bad folks-we actually could crash today or tomorrow…
Bernanke Fed: Only AAA mortgage backed securities Pau..paulson Treasury: Investors shouldn’t rely too much on credit rating agencies’ ratings Me to my son: Only act the way the law allows you to, but do not trust the lawmakers.
THERE IS NO INFLATION!!!! GOLD, OIL, COMMODITIES ARE ALL SPECULATION!!!!! BUY DOLLAR!!!! You got to give it to those delusional deflationists. gold touched $1000 and oil $110.
Stocks shooting higher.
Medic on 2008-03-12 22:21:58 IMO, one the best posts of 2008! On some level, we’ve all known it was a charade… *Home prices increasing by 20, 30, 50 even 100+% (?!?) *Standing in line (camping out!) (?) to bid (?) on a condo (?) (the former scourge of residential R/E) before a spade of dirt was turned (?!?) *”Bidding wars” (?) for our neighbor’s home (not much different from our humble abode) (?!?) *“Lifestyle Developments” promising “Desperate Housewive” homes, furniture, clothes, cars…(?!?) *”Hybrid” mortgage products (?) Interest only mortgages, 100+% financing, 40-year mortgages…(?!?) *Home equity used to pay off (down) credit cards (?!?) …but we bought into the charade none the less. Medic’s closing thoughts are words to live by “Parents, teach you kids. Turn off the TV, the computer games and talk to them. Be honest and tell them what is happening and why. Teach them to pay attention and to be skeptical of those with authority, power, influence and money. Give them the tools to see reality instead of the crap thrown at them every day. Make sure they understand who their representatives are in local, state and the Federal government. Make sure they read. Impress upon them that they have responsibility for their own actions. Help them to be better than we are. And don’t stop. Keep it up. It’s worth it. For all of us.” TA
WOW-did you see that! Dow rallies 100 points in the blink of an eye!
11:05[BSC] Bear Stearns shares fall 17.5% to $50.81
WOW!!!! PPT alive and well!
Stocks going green!!!! What is happening????
Wall st criminals, just plain criminals. That’s what is happening…
TA: Thanks for the kind words – there is something about the late hour, exhaustion and watching Asia before I turn in that makes me wax philosophic. I was having a “Jerry McGuire” moment when the hard slap of reality is just too much and you feel the need to say something to everyone in hopes of changing things. ”For a minute, I was my father’s son” – that person I hope I can be more often. But I digress…..it is daytime now and our own markets are in turmoil. They can be propped for a bit, but the exodus out of equities will be where Boomers go. I will believe in the greed of the Boomers to protect themselves first. Go with them, you will not be sorry. There is strength in numbers and those numbers will flock to solid forms of wealth preservation.
WHEN WILL THIS INSANITY END>>>>>>> Is this George Bush’s way of getting us to the rapture. Next , will he bomb Iran? I am not sleeping. I have lost a ton of money in the markets when this first hit in August. I have the dry heaves daily. Is anarchy just around the corner? There is no good news to be had anywhere. And now I have got to send my son off to college which will cost at least 200k for the possibility of getting no job at the end. I am tapped out. Student loans are hard to get. Cant sell my house. cant take equity out of my house. Credit cards went to 19% and I have perfect credit. Am I the only one feeling this pain???
Guest on 2008-03-13 10:25:23 wrote Wall st criminals, just plain criminals. That’s what is happening… Sour grapes! They just have bigger gonads than you.
Market Spikes on S&P Comments Last Update: 13-Mar-08 11:25 ET [BRIEFING.COM] The major indices have spiked off their worst levels, but are still in the red. The buying interest is being fueled by positive comments from Standard & Poor’s. Standard & Poor’s said the bulk of write-downs on subprime securities may be behind banks that have already announced their full year 2007 results. S&P said “the magnitude of some write-downs is greater than any reasonable estimate of losses.” The firm did note that write-downs could reach $285 billion, from the current level of $150 billion. Financials have had a large boost off their lows. The sector is now trading down 1.1% after being down as much as 4.0%. Meanwhile, energy (+0.2%) and materials (+0.2%) crossed into possitive territory for the first time this session. http://news.briefing.com/GeneralContent/Investor/Active/ArticlePopup/ArticlePopup.aspx?ArticleId=SI20080313112740
Patience. Don’t puke out. They know most people’s risk tolerance. Remember just a few days ago how down. No one thought we’d drop below January lows. Take a longer term view, you’ll be rewarded. Daytrading will BK you though if you haven’t a strong stomach.
S&P pump rightly being written off again.
“Dow rallies 100 points in the blink of an eye!” Leveraged properly, the $200 billion TSAF (or will it be Permanent SAF?) can exert the force of maybe a $1 trillion or more of credit looking for something to buy. Giving the extremely negative news over the last several weeks and months and the “rational” certainty that the markets MUST GO DOWN, this would be a good time for the brokerages, who have sold all of those puts, to bring on a massive short squeeze to make them worthless. Doesn’t change anything in the long run, but the brokerages can make an awful lot of money over the short term as expirations approach next Friday.
*S&P SAYS END OF WRITEDOWN `NOW IN SIGHT’ FOR LARGE INSTITUTIONS
The dollar losses can’t keep up with the equity selling for now. Maybe if they take another 5% out of the dollar they can show the 98% of Americans who believe the illusion green stocks soon and if they take another 5% from there we can go to new HIGHS in the indices. A gallon milk and a bowl of cereal will be $7 at IHOP and violent crime will shoot even higher and life in this country will turn very dark for the poor and middle, BUT hey CREW THEM ! This is so unbelievably insulting to my intelligence… Devalue the country increase nominal equity prices Maybe when combo meals at McDonald’s go to $12 the people will realize the financial illusion. My new goal is to trade any other market but the USA. At least for now, the manipulation in other markets does not appear to have caught up the ingenuity on display daily here in this GREAT COUNTRY ! God Bless America ! I would like out of my offer for KJ Foehr to come to Chicago and beat my rear end if we are up today. However, I stand behind my technical call and if they blow it up for the 500th time so be it ! I will never post any calls here ever again out of sheer paranoi which is born out of attempting to analyze that which is nothing more than pictures painted by grown children using FIAT toilet paper to fool the masses of unsuspecting sheeple ! The hedge against any short position is going long large cap, blue chip commodity stocks PERIOD especially after meaningful corrections in those stocks…
SCREW THEM not CREW THEM !
“”We may be witnessing some macabre and tragic drama scripted by the gods…” Octavio, here is a story that might cheer you up. Let me take a moment of your time to tell you a story about a story. It is about a man called Joseph, Joe for short. Joe sought me out, he wasn’t really my type, but we became close friends. He was a good sculptor, but not a very practical sort of person. He had an answer to every question I could think to ask him, and, as you might imagine, there were plenty of them. He had seen enormous human suffering in his life, which he told me about, some of it at least. He told me that God had told him to leave his former vocation but had not told him why. He is dead now and died without knowing what he was supposed to do. But lately I have had the idea that he might be back soon. When he presented me with this story, I thought it a bit twee. But I have always wondered about it. Lately it has lost it’s naive tinge. That’s why I thought I should share it with you. The following was actually told to me by Joe about fifteen years ago. He even gave me a printout of it, but I can’t find it at the moment so you will have to take my, or rather his, word for it! This is a précis of the story. We sail on to our destiny across the sea of time in space ship Terra. With our support squadron Sol, we pass through uncharted voids. We are the freighter, as it were, of the convoy. We have outriders performing various services, but we are the main ship with the precious cargo. Galileo got himself into strife when he pointed out that we were not the centre of the universe, not even of our solar system . The Terra centric idea had a spiritual reality before he came along. And he made the idea a physical nonsense. But it is not the physical dependencies that I am talking about. They, as Galileo discovered, are ordered according to physical laws. The really important ship is one that carries the Spirit of Love, that’s us. That is our precious cargo, We have been entrusted with it, We are it’s custodians, we are the amphora (the container) for the cargo. We don’t know where we are taking it, but we are told, and in our hearts we know, that it is valuable. We each carry a portion of this precious cargo and pass it on to each generation. This is our destiny. One day we will arrive at our destination and we will not be very popular if we have lost the cargo. Not that we will lose the lot, but we can lose our portion. It always lives in the hearts of some. Remember to pass it on.
Bush and Spitzer to start pig farm in Texas
Stocks going GREEN!! Bank stocks surging!
Remember they have to unwind those Carlyle positions and others under the radar. We they do the shorts better be ready to sell, this push long is going slowly, but their sell will be fast and furious. Grab it quick, because then they’ll pump again.
I keep hearing the same thing over and over in my head. It was faint at first but now it’s getting louder and louder, the voice is saying……”A characteristic of Dow Sigma 4 moves is that they rarely show up in isolation, usually they are followed by another Sigma 4 event within a week or so. They are not buying panics, they are trend changing events that typify attempts at bottom forming…powerful moves right off the bottom.”
@JMa From talking your book I know you have substantial SKF exposure. Judging by your emotionality, sell this coming rally, and stay away for good. Your temperament isn’t taking it well, and what’s a few 1-10K compared to a stroke/heart attack.
@ Andrew Bernhardt St. Louis Glad to see you return to posting, after I think long absence. Always appreciated your practical insights. But — is this a change of heart? As I recall, you were (formerly) very bullish? Now you are re-assessing long term (78 yr) return on stocks?, seeing it at about 1.8% real return? Maybe I have this wrong.
@ES TRADER You have mentioned sigma 4 events a few times. Can you provide a link for a definition. I read your posts and they are of interest to me. Thank you kindly
rate cut by 1%… 300 billion usd injection… by today??
Can countries merge? Maybe the US should try and pull off a “merger of equals” with Canada or Mexico! Written by RedCreek on 2008-03-13 00:44:17 That would be the Amero/North American Union heresy. It has been in circulation for sometime now. Many sources claim it is conspiracy BS, i.e. Snopes. HOWEVER, it fits so nicely into current events. Crash the dollar, zero out U.S. debt, bring in the NAU and the Amero. Even if such a play isn’t at the heart of it it seems that regionalization is on the march across the globe. FWIW, I came across this during the 2006 elections due to a Democratic candidate campaigning county by county against the new massive NAFTA superhighway/toll road being planned in Texas. The whole thing was quite sneaky and the plan seems to be to ship goods from China into Mexico then truck it into the U.S. I thought it had gone away, but I guess that was just wishful thinking since we seem to be allowing Mexican truck to roll right in and I just read that CINTAS has gotten their funding together to move forward.
“S&P Says End in Sight for Writedowns on Subprime Debt” S&P, Well done!! I believe in you, as I trust the AAA bonds rated by you. s of the P
12:17 Chrysler to shut down co. for 2 weeks this summer: report
@JMa: It’s making me crazy because I can’t understand what you’re trying to say – are you short or long or what’s going on?
By Min Lee Associated Press Published on: 03/13/08 Hong Kong —- Hong Kong’s government on Wednesday ordered all kindergartens and primary schools be closed for two weeks amid a flu outbreak, shutting down classes for more than a half million students. The government also asked one of its top scientists to study three child deaths over the past week. The Education Bureau said all kindergartens, primary schools and special schools would begin the Easter holiday early to prevent the spread of influenza in schools. The order affected 1,745 schools, which had 559,019 students enrolled in the 2006-07 school year.
Hong Kong flu? What’s this frenzy to copy and paste any negative news on any topic? -iww
k in tx – What is the SPP? The Security and Prosperity Partnership is the latest move toward continental economic and social integration aimed at establishing common policies between Canada, the United States and Mexico in 300 policy areas, including: environmental protection security energy food and health standards foreign affairs military immigration … In June 2006, the NDP brought together and hosted a Tri-National Forum of legislators and civil society representatives from Canada, the United States and Mexico to discuss alternatives to deep integration. In April 2007, despite Conservative opposition, NDP Trade Critic Peter Julian (Burnaby-New Westminster) fought for and secured Parliamentary hearings on the SPP. This was an important achievement but much work still needs to be done. Over a dozen NDP MPs have been working hard in their respective critic portfolios to raise the alarm about what SPP will mean in areas such as agriculture, human rights, labour, the environment, health care, energy and income security. In the coming months, the NDP is organizing town hall meetings across the country to ensure everyday Canadians get informed and have their say. The NDP will continue to show leadership, working to ensure that any further developments on the SPP are stopped until a full legislative review, public debate and parliamentary vote take place. The NDP is fighting to close the prosperity gap and is leading the fight for fairness for ordinary Canadians – and that means taking on powerful corporate interests and the SPP. “When Parliament reconvenes in the fall, the House will be debating several anti-SPP motions brought forward by the NDP. It is interesting to note the relatively seamless transition from Liberals to Conservatives on this issue.” - Jessica Johnston, THIS Magazine, July-August 2007 http://www.ndp.ca/continentalintegration
@oy vey 3-12 07:08:06 on this thread
@ES Trader we might very well getting closer to more 4-sigma events. A 4-sigma down seems still more probable than up, to me. BTW: this is already the second 4-sigma rally orchestrated by the FED in its day-trading activity, do not forget the DJIA 600 points reversal that ended the January leg down.
@Acheson I stand by my call made here last night. If they blow it up. They win again and I will live with it…
EEEE Down from here
This looks like more hedgy liquidation! Look at the volitility in the bond market today!! The 10 year is now 15 bps higher than its low JUST THIS a.m.!!!!! ALl indexes look to be ready to vault to the positive here..
@Alessandro You are correct. That Dow Sig-4 post was challenged/critiqued by several bloggers. Some of them mentioned Fed manipulation.
Hong Kong flu? What’s this frenzy to copy and paste any negative news on any topic? -iww 180 cases and three children dead in HK. Not your usual flu. Just last week a HK infectious disease specialist warned that the H5N1 (avian flu) virus had mutated and he was very concerned about further mutation to an easily transmissible form, from human avian influenza and seasonal influenza mix. No economic implications?
Would appreciate comments/opinions about safety of stock brokerages. Can SIPC be counted upon?
this is my 3rd post to this blogosphere; not noticed so far; quite normal as it is from laymen [not economist]. i have followed this blog since august 2006 ofcourse without paying a dime Not because i donot want to But i have little faith in online payment system thr’ credit card [i donot have any credit card having doubt its anti-fraud capabilities] Anyways i am very thankful that without payment of a dime this university-scale blog allows me to get glimpse of modern economy or FINANCE-ECONOMY; i just want to share my culmination of thoughts tonight : 1. real economy is of working hard in one’s field of expertise and then bartering out amongst participants according to one’s need profile; some fraud or cheating may be there but not on a mega scale cheating/ fraud is possible 2. why real economy i.e. working all with division of labor is being effected OR still worse is being stalled due to mis-behavior of circumventing Financial-economy
Looks like 1273 is as low as this is gonna go. Today was the 5th test of this level and the “buyers” continue to soak up sales at this level. That would represent a roughly 19% correction from the highs and some would argue that the street has now priced in a shallow recession. The 1320 level will ultimately solve this riddle for us. Rally attempts have failed there teh last 2 attempts-that level held for 7 touches before it was finally taken out so it would appear to now be formidable resistance. I think we get our answer today…
“Increased cooperation between the countries of North America should be about better social and environmental protections, not mandatory downward harmonization and downsizing governments,” There is no such thing as a gate or a fence when your children breathe, drink, and eat all from the same toliet. Imagining is what humans do best… create a new currency why not! The old currencies seem to have created more destruction. Call it the ENVIRO dollar.
Another miraculous 300 point turn around in the Dow.
S&P making a swing of over 3%. :s
Our own contrarian indicator, Andrew Bernhardt, signaled today’s reversal.
S&P up 7.77 this must be my lucky day !
@guest can sIPC be counted on? How much money do you think the SIPC has, or the FDIC? As we have seen since August the word trust should be taken out of the american dictionary.
we are going to a plastic only society. all cash must be exchanged for equities. when you grocery shop, your equity account will be debited in shares. that way people will not realize that the real cost of a happy meal at McDonalds has gone to $12 and a bottle of water to $5. equities are the new currency in the US. The US government has already began converting US dollars to equities.
The markets are up for one reason… Can we all say — TAX PAYER BAIL-OUT to HOME OWNERS! New Barney Franks legislation… See link below ”U.S. Representative Barney Frank will introduce legislation today proposing federal backing for hundreds of thousands of delinquent home loans.” http://www.bloomberg.com/apps/news?pid=20601009&sid=a3I66arwawT4&refer=bonds
For some reason this just does not seem believable… what a joke. http://biz.yahoo.com/ap/080313/wall_street.html AP Stocks Recoup Losses on S&P Forecast Thursday March 13, 1:51 pm ET By Tim Paradis, AP Business Writer Stocks Rebound From Steep Drop As S&P Forecasts End Is Near for Asset Write-Downs NEW YORK (AP) — Wall Street recovered from an early plunge Thursday to trade higher after Standard & Poor’s predicted financial companies are nearing the end of the massive asset write-downs that devastated the stock and credit markets for months. ADVERTISEMENT The S&P projection gave investors some optimism that the seemingly unrelenting fallout from the mortage and credit crisis might indeed come to an end. Standard & Poor’s Ratings Services estimated that writedowns of subprime asset-backed securities could reach $285 billion globally, up from a previous $265 billion projection. Still, S&P’s statement that “the end of write-downs is now in sight for large financial institutions” gave investors some hope. The statement enabled the Dow Jones industrial average to rebound. The blue chip index was trading up 31.02, or 0.26 percent, at 12,141.26 by early afternoon after being down more than 220 points earlier. ”The S&P comment was a positive for the market because investors were relieved to think that the subprime problem may be behind us,” said Al Goldman, chief market strategist at A.G. Edwards. “The question is whether investors will be relieved enough to continue to come in and buy what I think is a bear rally. I think the market has a good chance to feed on this news and go higher.” But there still was a great deal of caution in the market, which on Wednesday had abandoned its initial euphoric response to a Federal Reserve plan to auction $200 billion in Treasurys to help alleviate the financial bind that investment banks have been in since the credit crisis began last year. The weakness of the U.S. dollar and strength in commodities prices also weighed on the market. The dollar dropped to fresh lows against the euro and fell below 100 yen during Asian trading Thursday, the weakest level for the greenback against the Japanese currency in 12 years. Gold surpassed the psychological benchmark of $1,000 an ounce for the first time, and crude oil briefly passed $111 a barrel. Broader market indexes also recovered from steep early losses. The S&P 500 index rose 5.65, or 0.43 percent, to 1,314.42, while the Nasdaq composite index rose 16.45, or 0.73 percent, at 2,260.32. Talk of regulatory changes for the mortgage industry Thursday did little to placate the market. Treasury Secretary Henry Paulson outlined a plan to provide stronger oversight of mortgage lenders, whose lax standards are blamed for touching off the concerns about souring debt that have led to turmoil in the credit markets. It appeared that what investors are really looking for is proof that the market’s pain, and the economy’s, will end. The S&P forecast seemed to provide more of a balm than any regulatory changes could. The market was also concerned by more evidence of weak consumer spending. The Commerce Department reported that retail sales fell last month, after analysts predicted an increase. ”Things just aren’t good for the consumer, and thus, they’re not good for Wall Street, said Kim Caughey, equity research analyst at Fort Pitt Capital Group. Meanwhile, no one is positive which companies and which investors are going to end up losing money if more funds collapse. “It is going to be difficult to see who has the Old Maid card. And time will tell,” Caughey said. The Fed’s Open Markets Committee meets next Tuesday and is widely expected to lower interest rates, with many analysts forecasting a drop of 0.50 percentage point. However, in the past few weeks investors have been questioning whether another rate cut will help the economy. Bond prices rose as stocks fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.47 percent from 3.44 percent late Wednesday. Thursday’s stock decline follows moderate losses Wednesday and a 416-point rally Tuesday. Those sharp gains followed news of the plan by the Fed — and coordinated with other major central banks — to lubricate near-frozen credit markets with an infusion of as much as $200 billion. Analysts in the United States noted Wednesday that the U.S. housing market remains in tatters, while inflation is a growing threat to consumer spending that is already showing signs of weakness. While the Fed’s plan to make more money available to financial institutions can help, it won’t solve the many deepening economic problems in the United States. The dollar’s slide is of particular concern because it is helping to send commodities prices including oil to greater highs — in turn feeding the growth of inflation. Light, sweet crude was down 14 cents at $109.78 on the New York Mercantile Exchange, after briefly breaching $111 a barrel. In other economic findings, the Labor Department said the number of workers seeking unemployment benefits was unchanged last week. A government report released last week said employers cut payrolls by 63,000 in February — the second straight month of losses — and sent a wave of unease across Wall Street. Some economists regard back-to-back declines in monthly payrolls as a sign the economy won’t be able to avoid recession. Advancing issues outnumbered decliners by about 8 to 7 on the New York Stock Exchange, where volume came to 1.05 billion shares. The Russell 2000 index of smaller companies rose 11.76, or 1.76 percent, to 679.07. Overseas, Japan’s Nikkei 225 index tumbled 3.3 percent to its lowest level in 2 1/2 years. Britain’s FTSE 100 fell 2.11 percent, Germany’s DAX index slid 2.60 percent, and France’s CAC-40 lost 2.73 percent. New York Stock Exchange: http://www.nyse.com Nasdaq Stock Market: http://www.nasdaq.com
In the speech, Carney said the bank will try to soften blows to the “real economy” but will arrange no bailouts for losing players in the financial markets.
ooh just saw S&P up 6.66 scary who will win good or evil and yes i have nearly lost it…
This chart of the S&P was posted here a few months ago pointing out the volume spikes. I have watched this since then and have noticed the key times these spikes have occurred. Are these spikes real or are is it just the way Yahoo aggregates its data? If real, are they reflective of normal trading or PPT intervention? http://finance.yahoo.com/q/bc?s=%5EGSPC&t=1d
The markets are up for one reason… Can we all say — TAX PAYER BAIL-OUT to HOME OWNERS! Lets see the numbers now! Lets take bets, 200bn, 500bn, 750bn, 1,500bn? New Barney Franks legislation… See link below ”U.S. Representative Barney Frank will introduce legislation today proposing federal backing for hundreds of thousands of delinquent home loans.” The proposal from Frank, chairman of the U.S. Financial Services Committee and a Massachusetts Democrat, would allow the Federal Housing Administration to insure and guarantee refinanced mortgages after lenders and loan holders reduce principal to a level borrowers can repay. The plan could refinance as many as 2 million homes, according to a draft of the legislation released today by Frank’s office in Washington. `Seen Enough’ “It’s substantive,” said William O’Donnell, head of U.S. government bond strategy at UBS Securities LLC in Stamford, Connecticut. “People in Washington are trying to come up with solutions. They’ve seen enough of this recession and credit crunch to know they don’t want to see it any more.” http://www.bloomberg.com/apps/news?pid=20601009&sid=a3I66arwawT4&refer=bonds Forget all the PPT talk… This news changes the rules to the game. When all is broken, rules are rewritten by the power brokers.
Re Chart: S&P made their release at the same time Goldman came in (10:30) with 2 huge buy programs that signaled the other desks to support the bottom, thus the solid buying for the next hour-it is all rigged at key points in the market. Most overseas indexes are down well in excess of 20% this year even though the US is in the worst shape out of all of them. This is part of the Bush/Paulson control compulsion…RIGGED!
Crazy action in JPY again today.
All aboard!……Tickets please! Goin’ off the rails on a crazy PPT Train? What a joke, Chairman Cramer will love it Booyah! Booyah!
I have an honest question for the shorts. I am wondering why you persist in shorting stocks when you know that the game is rigged and manipulated? I’m not criticizing, and I agree with your fundamental views re the market and the economy. I’m an uber-bear myself. But if you want to short something, why not short the dollar? Its been a fabulous position for a while now, and the FX markets are harder for TPTB to manipulate without drastic coordination with central banks worldwide. Why not move to a market where you don’t have to contend as much with the short burning shock and awe of the PPT on a daily basis? Dollar down, dollar down, dollar down. Contrast all of the energy they devote to pumping stocks – bullish news releases/leaks coinciding with massive buy orders at key technical levels – with the reation to the tumbling dollar . . . which aside from some unconvincing strong dollar statements is almost nonexistent. Why not leverage the hell out of that trade and fight the PPT another day? IMHO the stock market has become a crooked game. If you’re a short you’re against the power of the government and most of Wall St – massive forces are aligned against you. To this bear it seems that the odds are against you in stocks, whether you are long OR short. I find it completely striking that the TPTB are doing nothing to support the dollar. Whatever they do to support the dollar could kill the economy. In my opinion they WANT it to fall, and will continue to stand back as it does so. Why not join them in those sentiments, and make some money?
The utilization rate compares actual production to estimated maximum output. It is a measure of how far the industrial economy is from its current potential. Canadian industries worked at the lowest percentage of full output in more than 10 years in 2007, Statistics Canada said Thursday.
Goose, Goose, Goose….
tomorrow, at 7 pm EST, on CNBC: Kudlow to have a 1-on-1 with Dubya – should be fun. The goldilock twins… Everything is great, the dollar is strong!
I am starting to think that Dubya might have confused the greenback with the loony when he said that the dollar was strong…??
It’s that confounded 1320 level. Damn the torpedoes! Oh well, maybe Asia and Europe can help out.
Things can snap very, very quickly. Up to now it been “Pop goes the Weasel” music, and we keep getting those moments where we’re squinting expectantly…only to hear another refrain. But we are tantalizingly close. Unwind Carlyle, unwind derivatives, unwind foolhardy long levered wall streeters. We’ll be here to catch you, just at significantly lower limit price.
Morgan Stanley Fresh off the press http://www.morganstanley.com/views/gef/index.html#anchor6091
You folks wait until April when BSC files for bankruptcy…
I wonder how many $$$’s, no wait, Euro’s S&P got paid to release that story right at the lows this a.m.?
Am I reading this right? The Hang Seng futures at -1255? What a minute…that has to be a typo. http://www.bloomberg.com/markets/stocks/futures.html Now even I am a little worried.
JLC: “I have an honest question for the shorts. I am wondering why you persist in shorting stocks when you know that the game is rigged and manipulated? … But if you want to short something, why not short the dollar?” Are currencies any less manipulated? ”Dollar’s Slump Puts Morgan, Goldman on `Intervention Watch’ By John Fraher and Simon Kennedy March 13 (Bloomberg) — The dollar’s record-breaking slide may trigger the first coordinated effort to prop up the currency in 13 years, say strategists at Morgan Stanley and Goldman Sachs Group Inc.” http://www.bloomberg.com/apps/news?pid=20601087&sid=aOg5ATtR4yto&refer=home
By TARA PERKINS AND LORI McLEOD, From Thursday’s Globe and Mail The effects of the U.S. subprime crisis are showing up on the fringe of the Canadian mortgage business, even though mainstream lending and the housing market are on solid ground. Lenders catering to riskier borrowers, most of whom took advantage of new financing techniques and a wave of liquidity to enter the market in the past few years, are struggling to fund their operations. The result is a slow retrenchment in a sector that held about 5 per cent of the Canadian mortgage market before the credit crunch spread from the United States in August. Some offices have been closed, employees have been let go, and fewer so-called alternative products are being offered to borrowers who do not qualify for regular loans. Toronto-based Xceed Mortgage Corp. yesterday suspended its line of uninsured mortgage products, effective immediately. Mississauga-based lender MoneyConnect Inc., meanwhile, told brokers last week that it’s liquidating a portfolio of mortgages. Lenders in this sector that rely on securitization can’t access financing to take on new mortgages, noted Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals. That’s creating new opportunities for the big banks and others who are moving in to fill the void. Last week, MoneyConnect posted a notice on its website informing mortgage brokers of a “warehouse clearance sale.” The company, launched early last year, was created to originate and buy “non-conforming” home mortgage products on behalf of institutional investors and securitization providers – companies that package loans to sell them as bonds. But “our warehouse is full and due to ongoing turmoil in the capital markets, traditional investors simply aren’t buying mortgages,” it said on its website. As a result, it decided to “slash penalties and liquidate our warehouse portfolio.” The company urged mortgage brokers to take its customers’ mortgages and shop them around to new lenders. It offered to waive the prepayment penalty charge for some customers who were then able to pay off their mortgages. http://ctv2.theglobeandmail.com/servlet/story/RTGAM.20080313.wrsubprime13/business/Business/businessBN/ctv-business The forecasts for Canadian economy are revised lower and lower… The forecast by the University of Toronto’s Institute for Policy Analysis is the bleakest so far for the Canadian economy. It calls for zero growth this quarter and a 0.1-per-cent decline in output in the second quarter, narrowly avoiding two consecutive quarters of shrinking output, the most commonly used criteria to define a recession. Zero growth forecast for Canadian economy in first half of 2008 http://www.newswire.ca/en/releases/archive/March2008/13/c3549.html TORONTO, March 13 /CNW/ – Surprises emerged when Maclean’s went searching for Canada’s safest, and most dangerous communities. Toronto and Montreal, obvious crime-ridden candidates with their well-publicized racial tensions and gun and gang violence, rank well down a danger list of the 100 largest cities or regions in the country – those of 50,000 people or more. Montreal ranks 19th on Maclean’s crime list and Toronto the Good (some stereotypes are true) is a sleepy 26th, gruesome headlines notwithstanding. The most notable result is the geographic distribution of Canadian crime. number one and two are the so called latest BOOM cities located in Saskatchewan.
It”s time to write new post, Nouriel. We are hungry. hang sen futures are from the morning, they are 10 hours old
Does anyone have access to the S&P report that supposedly moved the markets today? This is the closest I found and it is from 3/10: http://sandp.ecnext.com/coms2/summary_0260-208781_ITM
No more write downs… Are they serious??? S&P’s comments today are the textbook definition of BS. Do they think we are really that dumb??? We might have been born yesterday, but we weren’t born today!!!
About that S&P report that moved the market today: Some market players may have misread S&P’s report, however, said Daniel Alpert, managing director at Westwood Capital, a New York investment bank specializing in securitization. The report deals only with expected losses on subprime debt, but that is only about 8 percent of the $11 trillion of total residential mortgage debt outstanding, Alpert said in an e-mail. ”The current crisis, of course, is no longer a subprime crisis,” he said, noting that a growing percentage of home foreclosures are coming from outside the subprime sector. http://www.reuters.com/article/bondsNews/idUSWNA706920080313?pageNumber=2&virtualBrandChannel=0 -iww
I dont know how many times it has to be said, but the foreclosure problem is not really a subprime problem. It is an equity problem. People underwater on their house have incentive to walk. Octavio was saying a subprime put (with an extensive list of other equivelant names). Sure the subprime write downs could be done, I really doubt that to be the case but it could be, now it is just writing down the other 92% of the portfolio because the equity problem is definately not restricted to credit score.
Where stock ownership is rarely of much duration, with few long term wait-and-see investors, why doesn’t everyone see that RealEstate was just an extension of the daytrade mentality. Sure people had to endure more paperwork and take possession of a fixed asset but they were able to leverage so much of it (Way beyond normal stock margin requirements) that it was a wonderful addition to a speculative portfolio. Now that these asset bubbles are deflating, these same person are exercizing the “put” and dropping the RE investments like hot metal. All the incentives, neg-am certificates, buyer rebates etc. are never going to move enough people to take inventory in the absence of these speculative buyers. Add to that that rates are diverging from the FF rate and financing is much, much harder to get and all this noise about stabilizing RE prices is just rearranging deck chairs. We have barely begun the descent; but the TPTB at the front of this tobaggon see that the gentle slope everyone expects is in reality a freefall. Wiley E. Coyote moment — we are just in that gentle second where wildly spinning feet and brain understanding position come together.
Apparently the second part of the market move upwards today was due to Barney Frank announcing that “subprime” would be nationalised: http://www.house.gov/apps/list/press/financialsvcs_dem/press031308.shtml Washington, DC – House Financial Services Committee Chairman Barney Frank today announced new legislation to stem the significant rise in mortgage foreclosures by allowing the Federal Housing Administration to insure and guarantee refinanced mortgages that have been significantly written down by mortgage holders and lenders.
the hand of the atomic clock has been spinning for days and tonight it has finally stopped, many of the people watching the clock remain in a daze for its rapid movements have not been seen in decades, the spins have been tumultous, spell-binding, confusing, dizzying… only those who have studied history can see where the clock has stopped… it is March 13, 2008 and it is one minute until midnight…
Written by Guest on 2008-03-13 16:24:29 Thanks! The report deals only with expected losses on subprime debt, but that is only about 8 percent of the $11 trillion of total residential mortgage debt outstanding, Alpert said in an e-mail. ”The current crisis, of course, is no longer a subprime crisis,” he said, noting that a growing percentage of home foreclosures are coming from outside the subprime sector. $150 BLN WRITE-DOWNS TO DATE Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles, said he was surprised S&P said the end may be nearing for write-downs on subprime mortgages. “They must be seeing something I’m not,” he said. “I just don’t see it.”
From the Professor’s post, MW article: What am I bid on financial sector losses from the US subprime mortgage crisis? Do I have advances on the $100bn suggested by Ben Bernanke, chairman of the Federal Reserve, only last July? Yes, I now have $500bn from the gentlemen from Goldman Sachs. Any advances on $500bn? Yes, I have $1,000bn-$2,000bn from Nouriel Roubini of New York University’s Stern School of Business. Any advances? Going, going, gone. S&P 285 billion is about half the GS estimate and it focuses on subprime. They are missing losses in: Alt-A, prime, HELOC (see early posts above from yesterday), credit card, car loans, CRE, and last student loans which probably does not affect the big banks much.
@Octavio … and hedge funds margins, LBO, business loans.
… and muni bonds.
Only then we can start with the less revenue list: hedge funds fees, M&A fees, LBO fees, securization fees. Then the severe recession kicks in for real.
It’s early yet, so I’ll save the philosophy and preaching for later…….. I do not buy the sub-prime episode as over yet – It is perhaps getting there, but the Prime and Alt-A who hold ARM’s (35% of all loans over the last several years) are going to be looking at re-sets soon (May-July) and again in 2011 in large numbers. People who can refinance have – what’s left are people who don’t have the credit scores or history to pass muster or those who own multiple properties and were speculators who will walk away. No. This has a way to run yet. If this were a football game (American Football that is) we are early in the first half, maybe just finishing the first quarter. The bad half-time show has not even begun. But maybe this week was a commercial break……everyone to the kitchen for a snack!
LOL my view on US has changed entirely even if she managed to escaped the current situation i WILL NEVER trust her again (ok, maybe the market) http://news.bbc.co.uk/2/hi/americas/7295536.stm Britons ‘conned in US share scam’
Foreclosures among flippers/second home buyers will probably be larger than most expect. And bet you most of these are not classified as subprime. Good points by Alessadro. So the Professor’s 1 trillion losses for financial institutions sounds right.
JMa – hang in there and take a sedative because completely freaking out will not change our reality here. You need to keep your wits about you. This whole environment makes me depressed and crazy too. I have put on the sunglasses (rent the movie “They Live” for reference) and I am disgusted and ashamed at how easily our country has been ruined by simple greed. Is it really anything else? All – step away from the craps table. Leave the casino. You know its a rigged game, right? If you know that and continue to “play”, you are nothing but a gambler. You could get lucky. But then again, the odds are against it.
I recently started reading comments at CalculatedRisk. But this proved to be an impossible task. CR and Tanta post like crazy and each one of their posts gets over 100 comments. Bet you someone could get pretty decent website traffic by starting a website/blog with selected comments from CR
to NR’s “$1T is the new size 6″, I say ”Broke is the new black”
Untold foreclosure story: Flippers in trouble http://latimesblogs.latimes.com/laland/2007/09/untold-foreclos.html … Many blame sub-prime lending for our current real estate crisis, but rampant speculation, even by those with great credit, played a leading role.” said Sean O’Toole, Founder and CEO of ForeclosureRadar.com. “The subprime market took the first hit as those borrowers had the least to lose when they walked away. Now that nearly half of foreclosures represent non-owner occupied properties, it is clear that speculators are walking away too.”… Just two weeks ago, the Mortgage Bankers Assn. made news by estimating that flippers account for one in five foreclosures; today’s report indicates the rate could be more than double that in California. And this is from September 2007! September 02, 2007 Flippers Fuel Foreclosures http://cincinnatihomes.blogspot.com/search/label/house%20flipping
A contrarian view: http://www.investorsinsight.com/forecasts.aspx Stratfor: The US Economy & The Next “Big One” Disclaimer Stratfor: The US Economy & The Next “Big One” IN THIS ISSUE: 1. Revisiting Stratfor’s Previous Forecast 2. Stratfor’s Latest Economic Outlook 3. Recession, Maybe – But No Depression 4. My Analysis And Conclusions
The Fed’s worst nightmare http://money.cnn.com/2008/03/13/markets/morningbuzz/index.htm?postversion=2008031311 Ugly retail sales and a somber forecast from CFOs point to recession, but rising oil and gold prices and a weak dollar show inflation. What’s Ben Bernanke to do? I think the writer of this article mixes “inflation” with “rally”. Rising oil and gold prices are as much (if not more) due to a safe haven rally as they are due to a lower dollar. Or should I say the increases are due to the ‘law’ of supply and demand. Besides the prices of gold and oil are in any case set by investors worldwide. So it cannot be claimed that they are an indicator of inflation in U.S. The weird things is that the government themselves seems to talk as if these prove that there is inflation in U.S. And what is worse, they even attribute this type of inflation to an “improved” or “surging” economy. Truly funky, I tell you. Surging, yes…downhill:-)
Buy and Hold? You be the judge http://www.traders-talk.com/mb2/index.php?showtopic=85469 And what happens when the boomers begin to sell in earnest to protect their retirements/nest-eggs? Might want to start warning family and friends…..IF they’ll listen.
There were squeals from the shorts today re: today’s late day rally (fixed, crooks, etc.) THere were no such complaints when yesterday’s rally went south late in the day. Looking at the last two recessions, including this one, rallies typically last eight trading days… if this rally is similar it will go at least until next Friday, neatly encompassing the fed rate cut next week. I went long at the middle of monday’s rally, if things go according to form will renew my shorts late next friday. Good luck all.
ES trader on 2008-03-13 21:26:13 Might want to start warning family and friends…..IF they’ll listen. I have tried. They think I’m loony. Actually, these are complex, counter intuitive, and anti-matrix concepts. I mean how can you be taken seriously when you have to show how the government fudges the CPI? Or how can you explain that increasing oil prices are the result of inflation and not greedy oil companies with the highest (inflated) profits in history? As CPR says, we under estimate inflationist-pig Bernanke’s power to control joe6pack. I have never owned a gun in my life, but I went down to the local sports store and compared a Glock 22 to a Sig 239. The larger magazine in the Glock 22 seemed to be what I would need to keep in a panic room in the event of a home invasion, but I could not bring myself to purchase a weapon. Maybe later…
OK guys, have a good night Tomorrow, BSC is going down NExt week its LEH.. watch out folks;
@ptm on 2008-03-13 22:24:09 I mean how can you be taken seriously when you have to show how the government fudges the CPI? Well at least you are not the only one. Peter Schiff discusses this also in his book “Crash Proof”.
ptm: A pump shotgun with the plug removed is a much better home defense weapon. The downfall is going to be the middle class guy that isn’t buying a bunch of unnecessary garbage that sits in a closet – the average american isn’t a consumer, they are accumulators, none of the crap really does anything other than give them the satisfaction of buying things that represent an assumed lifestyle. Go down to a used bookstore sometime and look at the people that just buy paper to fill shelves. Equities rallied, but so did commodities – not a good sign for those who need a loaf of bread and some cheese for a bologna sandwich. These clowns aren’t doing anything to help the average guy, all of their moves help big players and leave the minions with palms up waiting for a crumb. Bernanke, take Jim Rogers advice and quit. It is funny the hypocrisies that exists among the fat cats – they want no govt programs for those that want to sit around and do nothing, but when things are bad they look for the bailout. Long live capitalism – I guess.
He might be wacky with the baby girl comments, but he has a good message…other than the professor, he is my favorite and funny that nobody really ever argues with him. Time for Roubini to pay another visit to Mr Goldilocks http://www.youtube.com/watch?v=5csyXZ4wMAA http://www.youtube.com/watch?v=gpMYcQ3ahYM
@ Alessandro “Are currencies less manipulated?” Funny how that article came out right after my post . . . are they watching us? The size of the global currency market, especially when you are talking about the international reserve currency, makes it much more difficult to manipulate. For intervention to successfully reverse the dollar’s decline, the major central banks have to agree on a coordinated action. Its a lot harder to pull off than the shenanigans we’ve been witnessing in US stocks. The article mentioned that a coordinated intervention would be the first in 13 years. Thats a long time. Individual countries can and do intervene from time to time, but the dollar is a different animal. And they don’t seem too concerned about it right now, they’re too busy pumping stocks. I’ve considered shorting US stocks myself, probably with SKF, but I keep asking myself: Why fight the PPT head-on? Why not continue to take the path of least resistance?
Professor, you must write an article on decoupling of equity markets. As it appears the US has decoupled from Asia. Nikkei down 1% and Shanghai down 1% on top of the day before’s declines. The US is on the rise while Asia is on its way down.
@JLC on 2008-03-13 14:16:36 ”IMHO the stock market has become a crooked game. If you’re a short you’re against the power of the government and most of Wall St – massive forces are aligned against you.” Ah, but these “forces” are no match for the physical/real world: ”When there is a gap between perception and reality, it is only a matter of time until the gap is reconciled. But since reality is so stubborn and tolerates no gamesmanship, it is impossible for reality to rise to meet perception. So it follows that perception must decline to meet reality. Après moi le déluge.” – From the book “Supermoney” ”Whether we and our politicians know it or not, Nature is party to all our deals and decisions, and she has more votes, a longer memory, and a sterner sense of justice than we do.” – Wendell Berry I’m short on this system… Mark (the original? one)
Asia is Red again, i dont know whats EU reaction later today if its red wonder what FED/Paulson will say ”we have confirmation from Nasa, our satellite hubble have discovered intelligent lifeform on planet krypton. We believe there are immortal beings on the planet possessing superhuman powers. Even as we speak, The Govt of US is trying to secure alliances with these so called “supermans”. The latest message we received from them is “WE WANT EURO”, we’re not sure either this is a demand or cypted code. There will be another press conference in 2 hour” ”That is all”
Just wondering… If disastrous retail numbers, reging inflation, and record unemployment can’t drag this market down, then what will? Yesterday was a real disaster from the bearish standpoint. Days like that just encourage people to hold and not sell. How can shorts get the panic selling they need when the powers that be can artificially set a bottom on the market? Q2 earnings will be make or break. The market can brush aside all the economic stats it wants but if earnings come in bad, that’s when the next downleg will really start. The question now becomes how will Q2 shape up? A lot of money will ride on which side one takes. We should be prepared in case the market trends up. @ptm ”I have never owned a gun in my life, but I went down to the local sports store and compared a Glock 22 to a Sig 239.” To quote Ordell Robbie (Samuel L. Jackson) in the movie Jackie Brown: “AK-47! When you absolutely, positively got to kill a mother#$%@*%!
@Jma ”Professor, you must write an article on decoupling of equity markets. As it appears the US has decoupled from Asia. Nikkei down 1% and Shanghai down 1% on top of the day before’s declines. The US is on the rise while Asia is on its way down.” Written by JMa on 2008-03-14 00:05:43 JMa… You are off on that point. The reason the Asian indices are down is because they track U.S. futures. If the U.S. futures are down, Asian indices head down. U.S. futures up, Asian indices up. The same is true with Europe. This happens like clockwork every day. I know because I live in Asia and follow it daily.
i read a few comments above implying that gold run-up implies (hyper) inflation… i dun really agree with that – it maybe the opposite – it implies deflation as gold is money/cash like the deposits our banks only that its safer becoz the deposits are loaned out and the securitised out … monetary value (in stocks and property) is basically evaporating now… all the wealth and value (in stocks and property) were created out of thin-air.. eventually it must go back where it came from… into thin-air… the financial system will eventually correct for all the excesses… just on systems (i also believe we wont get hotter and hotter till we boil in our pants.. the eco-system will trigger an ice-age to correct for all the heat) mrskeptical
JLC ”path of least resistance” 8 maxims of Liddel Hart, impressive 1st dislocate enemy stance/position by using power of financial/diplomatic/commercial/ethical pressure.. (Iran/Iraq) then??
CPR: “The reason the Asian indices are down is because they track U.S. futures. If the U.S. futures are down, Asian indices head down. U.S. futures up, Asian indices up. The same is true with Europe.” I can confirm with respect to Italy/Europe. The correlation with US future is staggering.
@JLC The main point about playing currencies instead of stocks is that the USD is already as propped up as it can possibly be by the PBoC (see Brad Setser blog for proofs) and there’s not really much more that CBs can do other than a few slaps in the face at the right moments. So if the USD is overvalued from the point of view of the fundamentals, it is probably safer to short it, but I don’t know if this is the case. Probably it all depends on the USD retaining or not the reserve currency status. (Search Mish’s post on the dollar for arguments for the bullish case) BTW: I think both equities and currencies will correct significantly to reflect the collapse of this debt house of cards. Neither of them will do it in a straight line, thou!
I do my best to read the NT daily commentary but CR beat me to this one: Why Did the Fed Raise Rates in October 1931? March 13, 2008 http://tinyurl.com/2xh3r6 PK closes with: After World War II, major central banks opted to peg their currencies to the U.S. dollar. The United States agreed to peg the dollar to gold at $35 an ounce. This was called the Bretton Woods Agreement. By the late 1960s, the United States was flooding the world with more dollars than were desired at the pegged exchange rates. The only way that the French and German central banks could maintain their currency pegs versus the dollar was to inflate their own economies. The demise of the Bretton Woods Agreement occurred in August 1971 when the peg between the U.S. dollar and gold was severed and an era of floating exchange rates was ushered in. Some commentators have referred to the Chinese and Saudi pegging of their currencies to the U.S. dollar as “Bretton Woods II.” We wonder if the demise of Bretton Woods II is not close at hand. If it is, the greenback could plunge, U.S. consumer inflation could spike, and the Fed would have little choice but to stop cutting its policy interest rate, and, perhaps, even have to raise it, as it did in October 1931. As Mark Twain said, “History does not repeat itself, but it does rhyme.” We are not yet predicting this outcome, but we are listening carefully for any rhyming. So watch this: FDR Ends Gold Standard in 1933 http://de.youtube.com/watch?v=3_ex0sTsb_I&NR=1 1944 Bretton Woods International Monetary Conference http://de.youtube.com/watch?v=GVytOtfPZe8&feature=related Nixon Ends Bretton Woods International Monetary System http://de.youtube.com/watch?v=iRzr1QU6K1o So what is next? It seems to me that it is highly likely that Obama will win and the US will embark in a wave of protectionism. If FDR and Nixon did it, why not him? Hint: I know you doon’t like clicking but you should at the very least watch the Nixon clip (I got it from a comment by Yoringe in CR)
IMF tells states to plan for the worst By Krishna Guha in Washington Published: March 12 2008 23:55 | Last updated: March 12 2008 23:55 Governments might have to intervene with taxpayers’ money to shore up the financial system and prevent a “downward credit spiral” from taking hold, the International Monetary Fund said on Wednesday. John Lipsky, the IMF’s first deputy managing director, said: “We must keep all options on the table, including the potential use of public funds to safeguard the financial system.” http://www.ft.com/cms/s/ee21ddbc-f08b-11dc-ba7c-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2Fee21ddbc-f08b-11dc-ba7c-0000779fd2ac.html%3Fnclick_check%3D1&_i_referer=http%3A%2F%2Fwww.housepricecrash.co.uk%2Fforum%2Findex.php%3Fshowtopic%3D70703&nclick_check=1 Aren’t we already in that stage?
@Alessandro: If you don’t mind answering – what part of Italy are you in and how is it these days? My plan is to emigrate there when I’m done working. Which isn’t for 20 more yrs!
Daily check: As of this posting, USD has bounced a little. Thank God! http://quotes.ino.com/chart/?s=NYBOT_dx But still, gold is up a little http://www.usagold.com/live.html Futures flat and not much action in Asia/Europe as they await Big Brother’s closing of an interesting week. S&P saved the day yesterday. Anything left in the bag of tricks for today? http://finance.yahoo.com/intlindices?e=asia http://finance.yahoo.com/intlindices?e=europe http://www.bloomberg.com/markets/stocks/futures.html News: http://www.bloomberg.com/index.html?Intro=intro3 Highlights: This is unfair, all the FED and others have done and things are still pretty crunchy!: Gross, SEC Fail to Break Auction-Rate Bond Paralysis (Update1) http://www.bloomberg.com/apps/news?pid=20601087&sid=a_hBd2IhbirY&refer=home Rubenstein Sees No Wall Street `Animus’ Over Bond-Fund Collapse http://www.bloomberg.com/apps/news?pid=20601087&sid=a2qP_jgsy688&refer=home (at 33x leverage why should he?)
I went out yesterday to run some errands. Groceries have gone up since last week; gas is more expensive by $0.12/ gal; Heating oil is also up. The CPI this morning may be up a miniscule amount, but too many of us living (or trying to maintain a standard of living) know better. Yesterday I bought more gold and a new multi fuel pellet stove. But my spending is now done beyond daily needs. I will hold my stimulus check the feds are sending my way. By the time it arrives in July (my slot on the schedule), it won’t be worth much anyway……..
Written by tutterfrut on 2008-03-14 05:42:17 Perfect storm! It is all about increased risk due to higher correlations. Thank Clinton. This is what the Glass-Steagall Act repeal gets you: i>He said this crisis was different from recent past crises because both the financial markets and the banking system “have faltered simultaneously”. The first priority had to be to reverse the “spreading strains” in global financial markets and restore the functioning of the financial system in advanced economies. And more*… http://news.gc.ca/web/view/en/index.jsp?articleid=385139&categoryid=16 It appears possible that the incentives provided by a series of regulations may have encouraged crowded trades. The so-called “cliff risk” created by the mandated use of ratings is one example. A paradox of the current turbulence is that a desire to shelter in the perceived safety of AAA-rated assets led to a dangerous explosion in the supply of synthetically created AAA-rated assets. Since many of these assets were financed by excessive leverage and many participants were constrained by mandates to sell on downgrades, the rush to the exits has proven extremely destabilizing. People will never stop looking for free lunches: e.g., trivializing good investing into just looking for a three letter tag given by the S&P honest rocket scientists. * Thanks to blowncue | 03.13.08 – 10:28 pm | # from CR.
Medic on 2008-03-14 06:43:34 I will hold my stimulus check the feds are sending my way. By the time it arrives in July (my slot on the schedule), it won’t be worth much anyway…….. They would need to give out a check of few hundred dollars every month to actually improve the economy. That way people would at least have a steady income supplement to look forward to, something that would also contribute toward improving the spending habits.
“…They would need to give out a check of few hundred dollars every month to actually improve the economy…” Written by Guest on 2008-03-14 07:14:14 Now that’s a revolutionary idea! Change MEW by FEW(Fed equity withdrawal)
@Acheson, I’m in Rome. After having lived abroad for some years I came to the conclusions that most of the stereotypes on Italy and Italians are mostly right. As a matter of fact I ended up acknowledging that most stereotypes gets it right at some basic level, I was shocked the first time I realized it, but that’s it. So if you like sun, food and endless talking about soccer and if you can stand the daily chaos and the utter idiocy of those in power, then Italy is for you. I came back because I love it, nevertheless. Italy, as always, is a front runner when it comes to economic and financial crises. As far as I can say the economy is already bleeding and the political vacuum doesn’t help. If we get cursed by 5 more years of Berlusconi expect the public debt to explode, Italy to be kicked out of the UE and to default. That could be a tremendous time for you to buy a property.
Let’s rally, let’s cut rates… 8:30U.S. Feb. CPI food prices up 0.4% vs 0.7% in Jan. 8:30U.S. Feb. CPI energy prices down 0.5% , lowest since Aug. 8:30U.S. CPI core up 2.3% in past 12 months vs 2.5% in Jan 8:30U.S. CPI up 4.0% in past 12 months vs 4.3% in Jan
MORE DATA FIXING BY GOVT ENTITIES!! ENERGY PRICES DOWN THE MOST SINCE LAST AUGUST??????????????????????? WTF!!!! THIS IS APPAULING!!!!
Subprime Losses for Insurers Overtake Katrina as Industry’s Worst Disaster The collapse of the subprime mortgage market will lead to record losses for insurance companies, overtaking Hurricane Katrina, the worst natural disaster in U.S. history. http://www.bloomberg.com/apps/news?pid=20601009&sid=aFgYALXxLyyg&refer=bond
Oil was up 13.89% per brl in FEB ALONE!!! Gasoline was up .5% in FEB ALONE!!!! The CRB Index was up 11.96% in FEB ALONE!!!! Gold was up 8.3% in FEB ALONE!!!! HOW THE HELL CAN THE CPI BE UNCHANGED FOR FEB???????????????
WOW-another miracle! The futures swung from being DOWN over 10 points to being UP over 10 points on the Fraud CPI number.
HOW THE HELL CAN THE CPI BE UNCHANGED FOR FEB??????????????? Please calm down and believe what your government is telling you. It’s for your own good. Big Brother
Can there be any doubt who is in charge of this game when Wall Street is willing to trade off of obviously fraudulent CPI data? Does anyone really believe that gas prices are down? It is such a joke. The price of everything is going up and the govt. releases this BS? And Wall Street is willing to trade off of it? I’m glad I started taking a long position the other day. At least that will be a winner today. To be honest with you, it feels kind of good being long. You feel warm and safe knowing a hyperinflationary Fed is on your side. No matter what happens they’ll prop things up and ensure you profit. In the long run? America is doomed like this. And Hillary, Obama or McCain are not the answer. Things will be explained to them in short order about who is in charge and what their role is and how they can profit. The only “Change we can believe in!” is that Obama will change his attitude once the national ledger, drenched in red, is opened up to him and it’s explained that hyperinflation is the only way out. Wall Street seems to have figured it out. Poor retail sales? No problem. Falling dollar? No problem. Record oil and gold? No problem. Nothing is a problem because Uncles Ben and Henry will step in and carve out a technical bottom with interventions, fraud data, and freshly printed dollars. Everyone here needs to think about all of this as we head into Q2. If companies make their numbers, we will see a major rally and there’s going to be a lot of frustration on these boards. But if enough of us start going long, who knows? A wonderful irony, really. A bear market website filled with bulls. Take care all. Let’s all have fun getting our shorts burned on fraudulent data this fine Friday morning.
S&P folks who said subprime write-downs are over should think again: Lenders Face Still More Misery (BW) http://tinyurl.com/2aa8ts Just one example of many in the article: Those aren’t the only profits that may vanish. Big banks also recorded earnings up front from mortgage-backed securities they created and sold to investors. Here’s how the accounting maneuver, known as “gain on sale,” works. Say a lender bundles together a group of mortgages valued at $2 billion. Over the life of the bond—as long as 30 years—the bank will collect an estimated $100 million in cash flows from that security. That money comes from interest, servicing rights, and other payments. The bank counts the $100 million as income once the security is sold, even though it won’t actually get those payments for years to come. It’s a perfectly legitimate, but controversial, move. Consider the fate of Conseco (CNO) . At the start of the decade, the firm, which specialized in risky mortgages on mobile homes, took a massive hit from writedowns related to profits previously reported through “gain on sale.” The company ultimately filed for bankruptcy in 2002. Reflecting Reality? In this boom, Countrywide has applied the rule more aggressively than any other major player in the industry. Such gains accounted for 48.4% of operating income at Countrywide over the past three years. The lender, which Bank of America (BAC) agreed to buy in January, has started to take writedowns connected to those profits. But some analysts figure more losses are inevitable. BofA declined to comment.
J.P. MORGAN AND N.Y. FED TO PROVIDE FUNDING FOR BEAR STEARNS More bailouts on the way.
Octavio, If the banks didn’t expect further writedowns of significant size, they wouldn’t be hoarding cash, and we wouldn’t have this worsening credit crisis. So that S&P report is as false (or fraudulent) as this morning’s CPI data. –iww
Massive short squeeze, which began on Tuesday, will continue today.
BAILOUT!!! 9:24 J.P. Morgan, Fed to provide financing to Bear Stearns
WTF?!!!! Need some help here figuring this out. The futures were pointing to a huge open but the market isn’t really trading up. What’s going on? The futures are Bloomberg were off the charts. But the Dow is only up 35 points or so. Anyone have any idea why this is? Usually they open spot on with respect to the futures.
The market is rigged. This is corporate fascism at its finest. Let’s just bail out everybody. Nobody should have to answer to even the market for corporate governence failures and outright LIES.
@CPR Not sure, but the news about BCS collapsing (and being rescue) appeared just before the bell. BTW, one more blow up in the chain reaction.
I guess many dont beleive the CPI numbers… and there is massive selling into the buying. I for one dont believe the CPI number. I dont beleive anything the gvt puts out anymore. Its sickening.
A must read! http://wallstreetexaminer.com/blogs/winter/?p=1484
@CPR The futures market is essentially controlled by TPTB to manipulate expectations. They don’t want to spook all of the shorts out of the market too early by letting the indexes rocket up. More money can be made by letting the shorts hope the last few days are a very short-term bounce.
Stocks tanking! What just happened?
For those interested in conspiracy theories: could a leaked whisper about this uber-good inflation report be the real reason for yesterday rally? (and now BCS ruins the day?)
BSC down 9 dollars in spite of the bailout news. The traders know whats going on. I would also assume many hedge funds are unwinding positions due to their own miserable self made bad highly leveraged moves the punks made. Let them all rot in hell. The problem is ther are taking all of us down with them. welcome to Rome. Where are all the fiddles?
9:44 Bear Stearns says liquidity has ‘significantly deteriorated’
Now this makes no sense. Futures were up huge on Bloomberg. Market opens flat. Now it’s down. Any ideas what the hell is going on?
May be possible creation of Bretton Woods III is at hand? We just need Y peg to Z. The problem is figuring out the Y and Z Kasriel on the Possible Demise of “Bretton Woods II” http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0803/document/us0308.pdf
BSC now down 19….. we dont have the whole picture, but others do. Rome started burning in August, the fires are moving slowly and the local firman are all drunk
Temporary confidence crunch…? Bush’s speech later will restore it, no?
Does it feel like a market crash? Medic, you said you like roller coaster, hope you enjoy the ride!
BSC DOWN 26 now. hunu? A tame CPI number? GIVE ME A BREAK. Wall street knows that cant be possible with oil at 111 and a loaf of bread at 4 dollars…. The jig is up Paulson. If this were Russia or China, Paulson , Berenanke, Greenspan and a few others would be never seen again.
That BSC news was a real game changer. Pretty wild swing. It looked like a disaster for the shorts and now it’s turning around. This is Wall Street manipulation at its finest. It’s flat out impossible to trade these markets with any real confidence at this point. If only they just let these markets be free and fair. Where is a Mellon or a Hoover when you need one? Instead we get Paulson and Goober. Curious to see how the PPT handles this one. Wonder when the turnaround will start in the day. Will it be 3 p.m. or sooner?
WOW!! Bond yields tanking, stocks tanking but have recovered 150 points in 15 seconds and consumer sent hits 16 year low!! Dollar hit parity with Swiss Frank for first time ever! PPT working feverishly!@!!!! My guess is Fed lowers 50 today on BSC collapse…. Stocks should be down over 500 points right now…
But Mr. Paulson its damn hard to get the Dow back to 12,000. Just do it. You saw what we did to Spitzer after he went after Ambac and MBI. We can do it to you. Yes sir.
Bear, Carlyle, fudged CPI. They can only fool most of the people most of the time. True reckoning of this scale can’t be hidden forever.
Dow jsut recovered 170 point in 2 minutes!!! PPT PPT PPT PPT
SAN FRANCISCO (MarketWatch) — Bear Stearns Cos. said Friday that it got short-term financing from the Federal Reserve and J.P. Morgan Chase after the brokerage firm’s liquidity “deteriorated significantly” during the past 24 hours. BSC 45.55, -11.45, -20.1%) with secured funding for up to 28 days, in conjunction with the Federal Reserve Bank of New York. J.P. Morgan also said it’s working with Bear to secure permanent financing or “other alternatives” for the brokerage firm. ”Our liquidity position in the last 24 hours had significantly deteriorated,” Alan Schwartz, chief executive at Bear, said in a statement. “We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations. ”Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” he added. “We have tried to confront and dispel these rumors and parse fact from fiction.” Despite those efforts, Schwartz said “market chatter” had undermined Bear’s liquidity. Bear has been hit hard this week by growing concerns that it’s struggling to trade with some counterparties. Some market participants have been worried about Bear’s exposure to the dwindling mortgage business and its holdings of securities backed by home loans. Trading is the lifeblood of brokerage firms, so when counterparties pull back trouble often ensues. Bear built a business focused on originating mortgages and repackaging them into mortgage-backed securities and collateralized debt obligations, reaping profits from the whole real-estate financing process. But when the subprime-fueled mortgage crisis hit last year, “Bear did not get out of the way fast enough,” Dick Bove, an analyst at Punk Ziegel & Co., wrote in a note to clients earlier this week. ”Consequently, its balance sheet, its business operations, and its reputation were all hurt badly. One key result of this is that the firm’s borrowing costs rose sharply according to reports,” he said. Because the broadening credit crunch has undermined Bear’s business model, the firm may end up being acquired, he added
Look at the volume spikes!!! http://finance.yahoo.com/q/bc?s=%5EGSPC&t=1d
10:10 Dollar sets new all-time lows against euro, Swiss franc Fed is going have to RAISE rates to stope a dollar collapse!
OK guys, have a good night Tomorrow, BSC is going down Next week its LEH.. watch out folks; Written by Martin on 2008-03-13 23:05:14 Hi Martin! With no effort, you produced a billion bucks post! You must be some kinaf a bigshot, Stick around!
Dow now working its way back to green! Down less than 70 points now!!!! THIS IS UNBELIEVABLE!!!!!
Gold at $1007.30!!! PPT saved dow 12,000 and sp 1300 again!!! When does the fraud end??
In the words of the great singer Elvis Costello. Well I used to be digusted, now I am just trying to be amused. Manipulation deluxe. what a sham, scam and defilement of our great country. George Bush, your father should be proud of you. He was in charge when the S&L’s went down the toilet. Genetic defect or something more sinsiter?
Martin, When I read your post, it immediately called my attention. I told myself, it was a feeling: I don’t think this buy is neither BSing nor bluffing!
Starting to look like another high sigma event is forming today.
Written by Guest on 2008-03-14 09:17:23 Calm down! You are going to have a hearth attach. The stock market doesn’t drive like a Ferrari. It drives more like a clumsy clunker with faulty steering. But, don’t worry, it will eventually manage to make it downhill. You don’t even need an engine for that…
@skipper It beginning to look like we no longer can trust our stock market. We used to surmise it is rigged, now a blind dog can see it. I dont know if this is a sigma 4 , 3 or eve 24. My friend is moving to Costa Rica. I am going to call him to see if he has an extra bedroom for a houseboy. Tame CPI my A**. If the big brokerage firms cant sell bad paper anymore or do lbo’s M&A’s etc then they have to let their trading desks run with the ball. Pure unadulterated manipulation between market makers IMO and the houses on wall street. down 300, up 300 all within minutes. yup, the market doesnt belong to the people anymore, it never did I suppose, but now it is just overtly blatant. SICK SICK SICK
Written by Alessandro on 2008-03-14 07:27:43 Agree 100% with your post! IMO, stereotyping gets the average right, but due to the high variance, you have no choice but to look at the fine-grain distribution! I stop by Rome every year in my way to Campobasso, usually in late June but this year it is most likely to be August. Will be glad to buy you dinner, have some wine at your favorite trattoria.
UH-OH!!! Look out VIX just busted through 30!!! Look out belowwwwwwww
10:31 Fed says watching market in wake of Bear Stearns bailout
Intensifying credit fears sink stocks| 14 Mar 2008 | 10:28 AM ET Font size: NEW YORK (AP) – Stocks plunged early Friday as investors worried that a plan to ease a liquidity crisis at Bear Stearns Cos. indicates how severe credit troubles have become. Each of the major indexes lost more than 1.5 percent; the Dow Jones industrials fell about 200 points. Investors were busy examining the plan from JPMorgan Chase & Co. and the New York Federal Reserve to provide secured funding to Bear Stearns for an initial period of 28 days. The move offers Bear Stearns relief from a sudden liquidity crunch and could help instill confidence in the stagnant credit markets. Bear Stearns shares fell sharply, dragging down other financial companies. Bear skidded $24.45, or 43 percent, to $32.55. Stocks showed moderate gains in the early going after a Labor Department report showed the Consumer Price Index remained flat for February. Wall Street has been expecting inflation would show an increase. But the gains quickly disappeared after investors learned more about how close Bear Stearns appeared to have come to financial implosion. ”The Bear Stearns news reversed the early positive sentiment from the inflation data,” said Peter Cardillo, chief market economist at Avalon Partners. ”There had been nervousness about Bear Stearns for some time and now the market’s concerns about the company have been proven true.” In the first hour of trading, the Dow Jones industrial average fell 207.60, or 1.71 percent, to 11,938.14 after having fallen as much as 300 points. Broader stock indicators also fell. The Standard & Poor’s 500 index fell 30.17, or 2.29 percent, to 1,285.31, and the Nasdaq composite index fell 45.82, or 2.02 percent, to 2,217.79.
Written by Guest on 2008-03-14 09:09:55 We havent heard from NR in a while. Maybe the Fed pulled a Spitzer on him.
Talking heads out in full force now! Trying to talk the markets back from the ledge….
10:51[LEH] Lehman Bros. shares fall 12% to $40.55
Wll, it must be working, dow now only down 100 again…
BSC 30.26, -26.74, -46.9%
10:55 Fed funds futures rocket, odds rise for 1 point rate-cut
@Octavio Richetta it would be great! How do we arrange? (I don’t feel like posting my email)
Would the PPT be able to hold this market? We have a major financial house hitting liquidity insolvency and the market remains here? What the hell is going on? Who is buying share here? I would really love to see how the market holds here. I don’t think BSC is the only house having problems. This will be the first domino to fall in the series of financial institution failure in the US. And the Dow is still over 12000… what the hell is going on……
Would the PPT be able to hold this market? We have a major financial house hitting liquidity insolvency and the market remains here? Who is buying share here? I would really love to see how the market holds here. I don’t think BSC is the only house having problems. This will be the first domino to fall in the series of financial institution failure in the US. And the Dow is still over 12000… Soon the S&P stocks will be held by the US Govt…
I had Bear Stearns PUt options two days ago. I had a sell order for it @ 7.70. I forgot to cancel the sell order in after hours (And usually options don’t get traded in the after hours). Now it’s up to $25!!!!!!
@ Wolf in the Wilds ITS CALLED A RIGGED MARKET. plain and simple.
devastating article from Mike Whitney. March 13, 2008 Meltdown Looms Larger as Credit Markets Freeze By MIKE WHITNEY ”It’s another round of the credit crisis. Some markets are getting worse than January this time. There is fear that something dramatic will happen and that fear is feeding itself,” Jesper Fischer-Nielsen, interest rate strategist at Danske Bank, Copenhagen; Reuters Yesterday’s action by the Federal Reserve proves that the banking system is insolvent. It also shows that the Fed is willing to intervene directly in the stock market if it keeps equities propped up. This is clearly a violation of its mandate and runs contrary to the basic tenets of a free market. Investors who shorted the market yesterday, got clobbered by the not so invisible hand of the Fed chief. In his prepared statement, Bernanke announced that the Fed would add $200 billion to the financial system to shore up banks that have been battered by mortgage-related losses. The news was greeted with jubilation on Wall Street where traders sent stocks skyrocketing by 416 points, their biggest one-day gain in five years. “It’s like they’re putting jumper cables onto a battery to kick-start the credit market,” said Nick Raich, a manager at National City Private Client Group in Cleveland. “They’re doing their best to try to restore confidence.” To understand the real meaning behind the Fed’s action; it’s worth considering some of the stories which popped up in the business news just days earlier. For example, last Friday, the International Herald Tribune reported: “Tight money markets, tumbling stocks and the dollar are expected to heighten worries for investors this week as pressure mounts on central banks facing what looks like the “third wave” of a global credit crisis….Money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.” The Herald Tribune said that troubles in the credit markets had pushed the stock market down more than 3 percent in a week and that the same conditions which preceded the last two crises (in August and December) were back stronger than ever. In other words, liquidity was vanishing from the system and the market was headed for a crash. A report in Reuters reiterated the same ominous prediction of a “third wave” saying: “The two-year U.S. Treasury yields hit a 4-year low below 1.5 percent as investors flocked to safe-haven government bonds….The cost of corporate bond insurance hit record highs on Friday and parts of the debt market which had previously escaped the turmoil are also getting hit.” Risk premiums were soaring and investors were fleeing stocks and bonds for the safety of government Treasuries; another sure sign that liquidity was disappearing. Reuters: “The level of financial stress is … likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,” Goldman Sachs said in a note to clients.” Indeed. When there’s a funding-freeze by lenders, investors hit the exits as fast as their feet will carry them. That’s why the lights started blinking red at the Federal Reserve and Bernanke concocted a plan to add $200 billion to the listing banking system. New York Times columnist Paul Krugman also referred to a “third wave” in his article “The Face-Slap Theory”. According to Krugman, “The Fed has been cutting the interest rate it controls – the so-called Fed funds rate – (but) the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.”…(Now) “the banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing significant collateral damage to market functioning.” What the Times’ columnist is describing is a run on the financial system and the onset of “a full-fledged financial panic.” The point is, Bernanke’s latest scheme is not a remedy for the trillion dollar unwinding of bad bets. It is merely a quick-fix to avoid a bloody stock market crash brought on by prevailing conditions in the credit markets. Bernanke coordinated the action with the other members of the global banking cartel—The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank—and cobbled together the new Term Securities Lending Facility (TSLF), which “will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.” (Fed statement) The plan, of course, is wildly inflationary and will put additional downward pressure on the anemic dollar. No matter. All of the Fed’s tools are implicitly inflationary anyway, but they’ll all be put to use before the current crisis is over. The Fed’s statement continues: “The Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.” So, why is the Fed issuing loans to foreign banks? Isn’t that a tacit admission of its guilt in the trillion dollar subprime swindle? Or is it simply a way of warding off litigation from angry foreign investors who know they were cheated with worthless toxic bonds? In any event, the Fed’s largess proves that the G-10 operates as de facto cartel determining monetary policy for much of the world. (The G-10 represents roughly 85% of global GDP) As for Bernanke’s Term Securities Lending Facility (TSLF) it is intentionally designed to circumvent the Fed’s mandate to only take top-grade collateral in exchange for loans. No one believes that these triple A mortgage-backed securities are worth more than $.70 on the dollar. In fact, according to a report in Bloomberg News yesterday: “AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group. `The fact that they’ve kept those ratings where they are is laughable,” said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. “Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.” Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.” (Bloomberg News) The Fed is accepting these garbage bonds at nearly full-value. Another gift from Santa Bernanke. Additionally, the Fed is offering 28 day repos which — if this auction works like the Fed’s other facility, the TAF — the loans can be rolled over free of charge for another 28 days. Yippee. The Fed found a way to recapitalize the banks with permanent rotating loans and the public is none the wiser. Th
e capital-starved banksters at Citi and Merrill must feel like they just won the lottery. Unfortunately, Bernanke’s move effectively nationalizes the banks and makes them entirely dependent on the Fed’s fickle generosity. The New York Times Floyd Norris sums up Bernanke’s efforts like this: “The Fed’s moves today and last Friday are a direct effort to counter a loss of liquidity in mortgage-backed securities, including those backed by Fannie Mae and Freddie Mac. Given the implied government guarantee of Freddie and Fannie, rising yields in their paper served as a warning sign that the crunch was worsening and investor confidence was waning. On Oct. 30, the day before the Fed cut the Fed funds rate from 4.75 per cent to 4.5 per cent, the yield on Fannie Mae securities was 5.75 percent. Today the Fed Funds rate is 3 per cent, and the Fannie Mae rate is 5.71 per cent, virtually the same as in October…..A sign of the Fed’s success, or lack of same, will be visible in that rate. It needs to come down sharply, in line with Treasury bond rates. Today, the rate was up for most of the day, but it did fall back at the end of the day. Watch that rate for the rest of the week to see indications of whether the Fed’s move is really working to restore confidence.” Norris is right; it all depends on whether rates go down and whether that will rev-up the moribund housing market again. Of course, that is predicated on the false assumption that consumers are too stupid to know that housing is in its biggest decline since the Great Depression. Housing will not be resuscitated anytime in the near future, no matter what the conditions; and you can bet on that. The last time Bernanke cut interest rates by 75 basis points mortgage rates on the 30-year fixed actually went up a full percentage point. This had a negative affect on refinancing as well as new home purchases. The cuts were a total bust in terms of home sales. Still, equities traders love Bernanke’s antics and, for the next 24 hours or so, he’ll be praised for acting decisively. But as more people reflect on this latest maneuver, they’ll see it for what it really is; a sign of panic. Even more worrisome is the fact that Bernanke is quickly using every arrow in his quiver. Despite the mistaken belief that the Fed can print money whenever it chooses; there are balance sheets constraints; the Fed’s largess is finite. According to MarketWatch: ”Counting the currency swaps with the foreign central banks, the Fed has now committed more than half of its combined securities and loan portfolio of $832 billion, Lou Crandall, chief economist for Wrightson ICAP noted. ‘The Fed won’t have run completely out of ammunition after these operations, but it is reaching deeper into its balance sheet than before.” Steve Waldman at interfluidity draws the same conclusion in his latest post: “After the FAF expansion, repo program, and TSLF, the Fed will have between $300B and $400B in remaining sterilization capacity, unless it issues bonds directly.” (Calculated Risk) So, Bernanke is running short of ammo and the housing bust has just begun. That’s bad. But that’s only half the story. Bernanke and Co. are already working on a new list of hyper-inflationary remedies once the credit troubles pop up again. According to the Wall Street Journal, the Fed has other economy-busting scams up its sleeve: “With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly. “As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies. ( “Rate Cuts may not be Enough”, David Wessel, Wall Street Journal) Wonderful. So now the Fed is planning to expand its mandate and bail out investment banks, hedge funds, brokerage houses and probably every other brandy-swilling Harvard grad who got caught-short in the subprime mousetrap. Ain’t the “free market” great? In fact, Bernanke is destroying the currency by trying to reflate the equity bubble. And how much damage is he inflicting on the dollar? According to Bloomberg, “the risk of losses on US Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves….Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.” America is going broke and the rest of the world knows it. Timothy Geithner, President of the New York Fed put it like this: “The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. The damage to confidence—confidence in ratings, in valuation tools, in the capacity of investors to evaluate risk—will prolong the process of adjustment in markets. This process carries with it risks to the broader economy.” Without a hint of irony, Geithner talks about the importance of building confidence on a day when the Fed has deliberately distorted the market by injecting $200 billion in the banking system and sending the flagging stock market into a steroid-induced rapture. Astonishing. The stock market was headed for a crash this week, but Bernanke managed to swerve off the road and avoid a head-on collision. But nothing has changed. Foreclosures are still soaring, the credit markets are still frozen, and capital is being destroyed at a faster pace than any time in history. The economic situation continues to deteriorate and even unrelated parts of the markets have now been infected with subprime contagion. The massive deleveraging of the banks and hedge funds is beginning to intensify and will continue to accelerate until a bottom is found. That’s a long way off and the road ahead is full of potholes. ”In the United States, a new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively.” (Statement from The Global Europe Anticipation Bulletin (GEAB) Is that too gloomy? Then take a look at these eye-popping charts which show the extent of the Fed’s lending operations via the Temporary Auction Facility. The loans have helped to make the insolvent banks look healthy, but at great cost to the country’s economic welfare. http://benbittrolff.blogspot.com/2008/03/really-scary-fed-charts-march.html The Fed established the TAF in the first place; to put a floor under mortgage-backed securities and other subprime junk so the banks wouldn’t have to try to sell them
into an illiquid market at fire-sale prices. But the plan has backfired and now the Fed feels compelled to contribute $200 billion to a losing cause. It’s a waste of time. UBS puts the banks’ total losses from the subprime fiasco at $600 billion. If that’s true, (and we expect it is) then the Fed is out of luck because, at some point, Bernanke will have to throw in the towel and let some of the bigger banks fail. And when that happens, the stock market will start lurching downward in 400 and 500 point increments. But what else can be done? Solvency can only be feigned for so long. Eventually, losses have to be accounted for and businesses have to fail. It’s that simple. So far, the Fed’s actions have had only a marginal affect. The system is grinding to a standstill. The country’s two largest GSEs, Fannie Mae and Freddie Mac, which are presently carrying $4.5 trillion of loans on their books, are teetering towards bankruptcy. Both are gravely under-capitalized and (as a recent article in Barron’s shows) Fannies equity is mostly smoke and mirrors. No wonder investors are shunning their bonds. Additionally, the cost of corporate bond insurance is now higher than anytime in history, which makes funding for business expansion or new projects nearly impossible. The wheels have come of the cart. The debt markets are upside-down, consumer confidence is drooping and, as the Financial Times states, “A palpable sense of crisis pervades global trading floors.” It’s all pretty grim. The banks are facing a “systemic margin call” which is leaving them capital-depleted and unwilling to lend. Thus, the credit markets are shutting down and there’s a stampede for the exits by the big players. Bernanke’s chances of reversing the trend are nil. The cash-strapped banks are calling in loans from the hedge funds which is causing massive deleveraging. That, in turn, is triggering a disorderly unwind of trillions of dollars of credit default swaps and other leveraged bets. Its a disaster. Economist Nouriel Roubini predicted the whole sequence of events six months before the credit markets seized and the Great Unwind began”. Here’s a sampling of his recent testimony before Congress: Roubini’s Testimony before Congress: “There is now a rising probability of a “catastrophic” financial and economic outcome; a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown….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. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit. To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.” Roubini has been right from the very beginning, and he is right again now. Bernanke can place himself at the water’s edge and lift his hands in defiance, but the tide will come in and wash him out to sea anyway. The market is correcting and nothing is going to stop it. Mike Whitney lives in Washington state. He can be reached at: firstname.lastname@example.org
Inflation truth found overseas, not in US liar-land: - Euro-zone inflation hits all-time-high rate of 3.3% - Globe’s central bankers face inflation conundrum (First Take)
March 13, 2008 Meltdown Looms Larger as Credit Markets Freeze By MIKE WHITNEY ”It’s another round of the credit crisis. Some markets are getting worse than January this time. There is fear that something dramatic will happen and that fear is feeding itself,” Jesper Fischer-Nielsen, interest rate strategist at Danske Bank, Copenhagen; Reuters Yesterday’s action by the Federal Reserve proves that the banking system is insolvent. It also shows that the Fed is willing to intervene directly in the stock market if it keeps equities propped up. This is clearly a violation of its mandate and runs contrary to the basic tenets of a free market. Investors who shorted the market yesterday, got clobbered by the not so invisible hand of the Fed chief. In his prepared statement, Bernanke announced that the Fed would add $200 billion to the financial system to shore up banks that have been battered by mortgage-related losses. The news was greeted with jubilation on Wall Street where traders sent stocks skyrocketing by 416 points, their biggest one-day gain in five years. “It’s like they’re putting jumper cables onto a battery to kick-start the credit market,” said Nick Raich, a manager at National City Private Client Group in Cleveland. “They’re doing their best to try to restore confidence.” To understand the real meaning behind the Fed’s action; it’s worth considering some of the stories which popped up in the business news just days earlier. For example, last Friday, the International Herald Tribune reported: “Tight money markets, tumbling stocks and the dollar are expected to heighten worries for investors this week as pressure mounts on central banks facing what looks like the “third wave” of a global credit crisis….Money markets tightened to levels not seen since December, when year-end funding problems pushed lending costs higher across the board.” The Herald Tribune said that troubles in the credit markets had pushed the stock market down more than 3 percent in a week and that the same conditions which preceded the last two crises (in August and December) were back stronger than ever. In other words, liquidity was vanishing from the system and the market was headed for a crash. A report in Reuters reiterated the same ominous prediction of a “third wave” saying: “The two-year U.S. Treasury yields hit a 4-year low below 1.5 percent as investors flocked to safe-haven government bonds….The cost of corporate bond insurance hit record highs on Friday and parts of the debt market which had previously escaped the turmoil are also getting hit.” Risk premiums were soaring and investors were fleeing stocks and bonds for the safety of government Treasuries; another sure sign that liquidity was disappearing. Reuters: “The level of financial stress is … likely to continue to fuel speculation of more immediate central bank action either in the form of increased liquidity injections or an early rate cut,” Goldman Sachs said in a note to clients.” Indeed. When there’s a funding-freeze by lenders, investors hit the exits as fast as their feet will carry them. That’s why the lights started blinking red at the Federal Reserve and Bernanke concocted a plan to add $200 billion to the listing banking system. New York Times columnist Paul Krugman also referred to a “third wave” in his article “The Face-Slap Theory”. According to Krugman, “The Fed has been cutting the interest rate it controls – the so-called Fed funds rate – (but) the rates that matter most directly to the economy, including rates on mortgages and corporate bonds, have been rising. And that’s sure to worsen the economic downturn.”…(Now) “the banks and other market players who took on too much risk are all trying to get out of unsafe investments at the same time, causing significant collateral damage to market functioning.” What the Times’ columnist is describing is a run on the financial system and the onset of “a full-fledged financial panic.” The point is, Bernanke’s latest scheme is not a remedy for the trillion dollar unwinding of bad bets. It is merely a quick-fix to avoid a bloody stock market crash brought on by prevailing conditions in the credit markets. Bernanke coordinated the action with the other members of the global banking cartel—The Bank of Canada, the Bank of England, the European Central Bank, the Federal Reserve, and the Swiss National Bank—and cobbled together the new Term Securities Lending Facility (TSLF), which “will lend up to $200 billion of Treasury securities to primary dealers secured for a term of 28 days (rather than overnight, as in the existing program) by a pledge of other securities, including federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The TSLF is intended to promote liquidity in the financing markets for Treasury and other collateral and thus to foster the functioning of financial markets more generally.” (Fed statement) The plan, of course, is wildly inflationary and will put additional downward pressure on the anemic dollar. No matter. All of the Fed’s tools are implicitly inflationary anyway, but they’ll all be put to use before the current crisis is over. The Fed’s statement continues: “The Federal Open Market Committee has authorized increases in its existing temporary reciprocal currency arrangements (swap lines) with the European Central Bank (ECB) and the Swiss National Bank (SNB). These arrangements will now provide dollars in amounts of up to $30 billion and $6 billion to the ECB and the SNB, respectively, representing increases of $10 billion and $2 billion. The FOMC extended the term of these swap lines through September 30, 2008.” So, why is the Fed issuing loans to foreign banks? Isn’t that a tacit admission of its guilt in the trillion dollar subprime swindle? Or is it simply a way of warding off litigation from angry foreign investors who know they were cheated with worthless toxic bonds? In any event, the Fed’s largess proves that the G-10 operates as de facto cartel determining monetary policy for much of the world. (The G-10 represents roughly 85% of global GDP) As for Bernanke’s Term Securities Lending Facility (TSLF) it is intentionally designed to circumvent the Fed’s mandate to only take top-grade collateral in exchange for loans. No one believes that these triple A mortgage-backed securities are worth more than $.70 on the dollar. In fact, according to a report in Bloomberg News yesterday: “AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group. `The fact that they’ve kept those ratings where they are is laughable,” said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that made $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. “Downgrades of AAA and AA bonds are imminent, and they’re going to be significant.” Bass estimates most of AAA subprime bonds in the ABX indexes will be cut by an average of six or seven levels within six weeks.” (Bloomberg News) The Fed is accepting these garbage bonds at nearly full-value. Another gift from Santa Bernanke. Additionally, the Fed is offering 28 day repos which — if this auction works like the Fed’s other facility, the TAF — the loans can be rolled over free of charge for another 28 days. Yippee. The Fed found a way to recapitalize the banks with permanent rotating loans and the public is none the wiser. The capital-starved banksters at Citi and Merrill must feel like
they just won the lottery. Unfortunately, Bernanke’s move effectively nationalizes the banks and makes them entirely dependent on the Fed’s fickle generosity. The New York Times Floyd Norris sums up Bernanke’s efforts like this: “The Fed’s moves today and last Friday are a direct effort to counter a loss of liquidity in mortgage-backed securities, including those backed by Fannie Mae and Freddie Mac. Given the implied government guarantee of Freddie and Fannie, rising yields in their paper served as a warning sign that the crunch was worsening and investor confidence was waning. On Oct. 30, the day before the Fed cut the Fed funds rate from 4.75 per cent to 4.5 per cent, the yield on Fannie Mae securities was 5.75 percent. Today the Fed Funds rate is 3 per cent, and the Fannie Mae rate is 5.71 per cent, virtually the same as in October…..A sign of the Fed’s success, or lack of same, will be visible in that rate. It needs to come down sharply, in line with Treasury bond rates. Today, the rate was up for most of the day, but it did fall back at the end of the day. Watch that rate for the rest of the week to see indications of whether the Fed’s move is really working to restore confidence.” Norris is right; it all depends on whether rates go down and whether that will rev-up the moribund housing market again. Of course, that is predicated on the false assumption that consumers are too stupid to know that housing is in its biggest decline since the Great Depression. Housing will not be resuscitated anytime in the near future, no matter what the conditions; and you can bet on that. The last time Bernanke cut interest rates by 75 basis points mortgage rates on the 30-year fixed actually went up a full percentage point. This had a negative affect on refinancing as well as new home purchases. The cuts were a total bust in terms of home sales. Still, equities traders love Bernanke’s antics and, for the next 24 hours or so, he’ll be praised for acting decisively. But as more people reflect on this latest maneuver, they’ll see it for what it really is; a sign of panic. Even more worrisome is the fact that Bernanke is quickly using every arrow in his quiver. Despite the mistaken belief that the Fed can print money whenever it chooses; there are balance sheets constraints; the Fed’s largess is finite. According to MarketWatch: ”Counting the currency swaps with the foreign central banks, the Fed has now committed more than half of its combined securities and loan portfolio of $832 billion, Lou Crandall, chief economist for Wrightson ICAP noted. ‘The Fed won’t have run completely out of ammunition after these operations, but it is reaching deeper into its balance sheet than before.” Steve Waldman at interfluidity draws the same conclusion in his latest post: “After the FAF expansion, repo program, and TSLF, the Fed will have between $300B and $400B in remaining sterilization capacity, unless it issues bonds directly.” (Calculated Risk) So, Bernanke is running short of ammo and the housing bust has just begun. That’s bad. But that’s only half the story. Bernanke and Co. are already working on a new list of hyper-inflationary remedies once the credit troubles pop up again. According to the Wall Street Journal, the Fed has other economy-busting scams up its sleeve: “With worsening strains in credit market threatening to deepen and prolong an incipient recession, analysts are speculating that the Federal Reserve may be forced to consider more innovative responses -– perhaps buying mortgage-backed securities directly. “As credit stresses intensify, the possibility of unconventional policy options by the Fed has gained considerable interest, said Michael Feroli of J.P. Morgan Chase. He said two options are garnering particular attention on Wall Street: Direct Fed lending to financial institutions other than banks and direct Fed purchases of debt of Fannie Mae and Freddie Mac or mortgage-backed securities guaranteed by the two shareholder-owned, government-sponsored mortgage companies. ( “Rate Cuts may not be Enough”, David Wessel, Wall Street Journal) Wonderful. So now the Fed is planning to expand its mandate and bail out investment banks, hedge funds, brokerage houses and probably every other brandy-swilling Harvard grad who got caught-short in the subprime mousetrap. Ain’t the “free market” great? In fact, Bernanke is destroying the currency by trying to reflate the equity bubble. And how much damage is he inflicting on the dollar? According to Bloomberg, “the risk of losses on US Treasury notes exceeded German bunds for the first time ever amid investor concern the subprime mortgage crisis is sapping government reserves….Support for troubled financial institutions in the U.S. will be perceived as a weakening of U.S. sovereign credit.” America is going broke and the rest of the world knows it. Timothy Geithner, President of the New York Fed put it like this: “The self-reinforcing dynamic within financial markets has intensified the downside risks to growth for an economy that is already confronting a very substantial adjustment in housing and the possibility of a significant rise in household savings. The intensity of the crisis is in part a function of the size of the preceding financial boom, but also of the speed of the deterioration in confidence about the prospects for growth and in some of the basic features of our financial markets. The damage to confidence—confidence in ratings, in valuation tools, in the capacity of investors to evaluate risk—will prolong the process of adjustment in markets. This process carries with it risks to the broader economy.” Without a hint of irony, Geithner talks about the importance of building confidence on a day when the Fed has deliberately distorted the market by injecting $200 billion in the banking system and sending the flagging stock market into a steroid-induced rapture. Astonishing. The stock market was headed for a crash this week, but Bernanke managed to swerve off the road and avoid a head-on collision. But nothing has changed. Foreclosures are still soaring, the credit markets are still frozen, and capital is being destroyed at a faster pace than any time in history. The economic situation continues to deteriorate and even unrelated parts of the markets have now been infected with subprime contagion. The massive deleveraging of the banks and hedge funds is beginning to intensify and will continue to accelerate until a bottom is found. That’s a long way off and the road ahead is full of potholes. ”In the United States, a new tipping point will translate into a collapse of the real economy, final socio-economic stage of the serial bursting of the housing and financial bubbles and of the pursuance of the US dollar fall. The collapse of US real economy means the virtual freeze of the American economic machinery: private and public bankruptcies in large numbers, companies and public services closing down massively.” (Statement from The Global Europe Anticipation Bulletin (GEAB) Is that too gloomy? Then take a look at these eye-popping charts which show the extent of the Fed’s lending operations via the Temporary Auction Facility. The loans have helped to make the insolvent banks look healthy, but at great cost to the country’s economic welfare. http://benbittrolff.blogspot.com/2008/03/really-scary-fed-charts-march.html The Fed established the TAF in the first place; to put a floor under mortgage-backed securities and other subprime junk so the banks wouldn’t have to try to sell them into an illiquid market at fire-sale prices. But the plan has
backfired and now the Fed feels compelled to contribute $200 billion to a losing cause. It’s a waste of time. UBS puts the banks’ total losses from the subprime fiasco at $600 billion. If that’s true, (and we expect it is) then the Fed is out of luck because, at some point, Bernanke will have to throw in the towel and let some of the bigger banks fail. And when that happens, the stock market will start lurching downward in 400 and 500 point increments. But what else can be done? Solvency can only be feigned for so long. Eventually, losses have to be accounted for and businesses have to fail. It’s that simple. So far, the Fed’s actions have had only a marginal affect. The system is grinding to a standstill. The country’s two largest GSEs, Fannie Mae and Freddie Mac, which are presently carrying $4.5 trillion of loans on their books, are teetering towards bankruptcy. Both are gravely under-capitalized and (as a recent article in Barron’s shows) Fannies equity is mostly smoke and mirrors. No wonder investors are shunning their bonds. Additionally, the cost of corporate bond insurance is now higher than anytime in history, which makes funding for business expansion or new projects nearly impossible. The wheels have come of the cart. The debt markets are upside-down, consumer confidence is drooping and, as the Financial Times states, “A palpable sense of crisis pervades global trading floors.” It’s all pretty grim. The banks are facing a “systemic margin call” which is leaving them capital-depleted and unwilling to lend. Thus, the credit markets are shutting down and there’s a stampede for the exits by the big players. Bernanke’s chances of reversing the trend are nil. The cash-strapped banks are calling in loans from the hedge funds which is causing massive deleveraging. That, in turn, is triggering a disorderly unwind of trillions of dollars of credit default swaps and other leveraged bets. Its a disaster. Economist Nouriel Roubini predicted the whole sequence of events six months before the credit markets seized and the Great Unwind began”. Here’s a sampling of his recent testimony before Congress: Roubini’s Testimony before Congress: “There is now a rising probability of a “catastrophic” financial and economic outcome; a vicious circle where a deep recession makes the financial losses more severe and where, in turn, large and growing financial losses and a financial meltdown make the recession even more severe. The Fed is seriously worried about this vicious circle and about the risks of a systemic financial meltdown….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. Market prices include a large illiquidity discount on top of the discount due to the credit and fundamental problems of the underlying assets that are backing the distressed financial assets. Capital losses will lead to margin calls and further reduction of risk taking by a variety of financial institutions that are now forced to mark to market their positions. Such a forced fire sale of assets in illiquid markets will lead to further losses that will further contract credit and trigger further margin calls and disintermediation of credit. To understand the risks that the financial system is facing today I present the “nightmare” or “catastrophic” scenario that the Fed and financial officials around the world are now worried about. Such a scenario – however extreme – has a rising and significant probability of occurring. Thus, it does not describe a very low probability event but rather an outcome that is quite possible.” Roubini has been right from the very beginning, and he is right again now. Bernanke can place himself at the water’s edge and lift his hands in defiance, but the tide will come in and wash him out to sea anyway. The market is correcting and nothing is going to stop it. Mike Whitney lives in Washington state. He can be reached at: email@example.com
The Fed is the NEW PIMP in town WASHINGTON – The Federal Reserve said Friday that it has voted to endorse an arrangement to bolster troubled Bear Stearns Cos. and stands ready to provide extra resources to combat a serious credit crisis. The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. ”The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system,” the board said. The statement said that the board had voted unanimously to approve the arrangment announced by JP Morgan Chase and Bear Stearns earlier on Friday. The plan will provide secured funding to Bear Stearns for an initial period of 28 days, seeking to provide short-term relief for Bear Stearns. Treasury Secretary Henry Paulson praised the Fed’s leadership and said that the country’s financial system would be able to weather the problems. ”As we have been saying for some time, there are challenges in our financial markets and we continue to address them,” Paulson said in a statement. “This is another challenge that market participants and regulators are addressing. We are working closely with the Federal Reserve” and the Securities and Exchange Commission, he said. Paulson also said that he appreciated the leadership of the Fed “in enhancing the stability and orderliness of our markets.”
Dow not being allowed to drop below 12,000. The PPT must not let stocks do what they should (collapse) becuase if they can prop this, they may be able to stop an outright panic. Lets see how long they can hold this….
Kudlow, I think you got it all wrong. Bush’s stronger dollar rhetoric is meaningLESS. Look to Fed’s word and action. Fed is going to provide the world with unlimited dollars. Yes, huge liquidity pump is comming!!! Yes, every so called deflation force will be met with huge liquidity pump force. cheers!!! http://news.yahoo.com/s/ap/20080314/ap_on_bi_ge/fed_credit_crisis Federal Reserve pledges to supply cash ”WASHINGTON – The Federal Reserve said Friday that it has voted to endorse an arrangement to bolster troubled Bear Stearns Cos. and stands ready to provide extra resources to combat a serious credit crisis. The Fed announcement came in a brief two-sentence statement that was issued as stocks were plunging on Wall Street over worries that a plan to ease a liquidity crisis at Bear Stearns Cos. might not work. ”The Federal Reserve is monitoring market developments closely and will continue to provide liquidity as necessary to promote the orderly functioning of the financial system,” the board said.”
11:15 Citigroup planning to shed billions in assets: report
I would like to contrast a normal bull market day with today. The Dow is up today in part on news that KO has raised their guidance by $.02 per share. Dow up overall 120 points. Ok that makes sense. Today’s news and stock movement. Bear Sterns appears to be having liquidity concerns and their stock is down 22. Other than this, the Dow was looking good today. Dow is down 120 points. There simply can be nobody left on this blog who doubts the PPT is holding this up. The world financial media should have a field day with this. Asia Times Financial Times etc. This is a complete farce and joke. What happens if Nick Leeson the Rogue Trader who brought down Barings bank = the 30 somethings following the marching orders of their bosses at the PPT ? We may find out. Who takes those losses ? Would it be Goldman, the US government ? I honestly do not have a problem with the PPT if they had not painted this tape all the way up the heights we are at today to begin with. We would not even be in this situation to begin with had they simply allowed the market to correct when it should have a while back.
Written by Wolf in the Wilds on 2008-03-14 10:02:21 I ask myself that. It I didn’t see it, I would say it is impossible for the market to hold up this well with the accelerated breakdown that has been going on since last summer. I guess somethings one cannot understand. Alessandro: try firstname.lastname at google mail
11:14[UK:UK:AL] S&P downgrades Alliance & Leicester rating to ‘A’ Northern Rocky III ?
“Fed is going have to RAISE rates to stope a dollar collapse!”??? did you read the new? Fed is gonna pump more dollars. What a better to pump more dollars than cutting rate by 1%??? you faith in Fed is plain amazingly stupid.
Federal Reverse pledges to supply cash By MARTIN CRUTSINGER, AP Economics Writer 5 minutes ago This news article appeared 5 minutes ago. Has the Reserve changed its name? http://news.yahoo.com/s/ap/20080314/ap_on_bi_ge/fed_credit_crisis;_ylt=AsJuKG6EBPd03qRmqiiTQDus0NUE
Bush is speaking right now…… what a stupid F**K
Where did you see the report on Citigroup shedding billions in assets?
11:25 Bush says economic foundation is solid 11:24 Bush says U.S. economy is resilient and will recover
I dont’ have too much time to write… but I want everyone to know that there are many bank shares now trading well below their book values (aka a book value of less than 1.0). It’s not just Bear Sterns (BSC), it’s even Citigroup (C), which employees over 375,000 people. If there are multiple bank failures this will not bode well for the US Economy, the stock markets, and it will not be good for bonds, notes, or bill yields. Brace yourself!!! We’re in for one hard landing.
Re: Citi: By Wallace Witkowski Last update: 11:14 a.m. EDT March 14, 2008Print RSS Disable Live Quotes SAN FRANCISCO (MarketWatch) — Citigroup Inc. (C:Citigroup, Inc News, chart, profile, more Last: 20.23-0.84-3.99% 11:13am 03/14/2008 plans to shed hundreds of billions of dollars worth of assets to reorganize the firm, The Wall Street Journal reported on its Web site Friday, citing an analyst meeting with Citi Chief Executive Vikram Pandit. The CEO also told analysts Citigroup is reviewing its leadership and plans to make changes before an investor meeting in May
The Us banking system is toast. When the Professor first came out with the “Financial Meltdown” stuff, it seemed an exaggeration….
Borrowers Find What Citigroup Says Isn’t What It Does By Bob Ivry March 14 (Bloomberg) — Real estate developer John Wimmer paid Citigroup Global Markets Realty Corp. almost $1 million last year to lock in a 5.6 percent mortgage rate on the refinancing of six commercial properties. At the November closings, Citigroup, citing plummeting demand for mortgage bonds, boosted the rate to 7.123 percent. Commercial mortgage lenders had not used the material adverse change clause, or MAC, to back out of commitments since the Sept. 11 attacks, and the case law on its invocation in mortgage lending has not been established, said Douglas Buck, a real estate attorney at Foley & Lardner LLP in Madison, Wisconsin.
11:30[WM] Moody’s cuts WaMu to ‘Baa3′, outlook negative
A good one from CR. iceman writes: Lets not pick on Ben too much. Sure, he has no spine. But lets not forget that Al Greenspan was the architect of this debacle by continually encouraging speculation via the “Greenspan Put.” Imagine if LTCM failed hard, rather than the collusional bailout. Don’t you think the Street would have implemented better risk controls than they actually did? iceman | 03.13.08 – 9:32 pm | History is based on facts, not suppositions; but I also wonder who things would have turned out if AG had acted diferently (i.e., with a focus on leng term optimization instead of using a greedy heuristic). Back in those days, I used to be anonymous Pancho Villa at SI.
The Big Whoosh: Is This the Beginning? 11:30:01 AM March 14th, 2008 The Bear Stearns liquidity crisis may very well go down as the beginning of the big whoosh that must happen before anybody can see the light of day in this financial crisis. One thing that gets lost in the noise about Bear Stearns, and why a bailout is critical, is that it’s a broker-dealer for many big hedge funds and wealthy individuals. If the hedge funds and rich folk get caught here, without a net, you imagine possible domino effect throughout the brokerage and banking industries as people start pulling out cash and heading for safer pastures, such as trust companies. And to think, just yesterday, S&P tried to suggest that the end of the subprime mess was in sight. Hate to break the news to them: The subprime slime was just the tip-o-the-rapidly melting iceberg.
John Willams @ ShadowStats.com http://www.shadowstats.com/article/285 (Subscription Required) ”This morning’s (March 14th) release of “unchanged” February CPI was as close to overt data manipulation from the Bureau of Labor Statistics (BLS) as you get.” The February CPI data are not seasonally-adjusted and it is not reported in the usual running average. Moreover, the reported CPI did not include the unusual patterns in the retail sales which remain negative for month-to-month and year-to-year comparisons. Using pre-Clinton (1990) arithmetic, annualized CPI growth did decrease, but to 7.3% in February compared to 7.6% in January. However, the SGS Consumer Inflation Measure, using the 1980 arithmetic, shows February inflation at 11.6% versus 11.8% in January.
This market prop job is making me want to vomit! What is the deal with Dow 12,000???? Bush is a farging IDIOT!
Ahhhh andrew youre gonna jinx this again
Hmm, why are investors dumping shares here. Just sell it to the PPT. The system is already dead. It is clear the more than BSC are having liquidity issues. Can JPM bail out everyone? Can JPM bail out Citi?? With a broken financial system, corporates will suffer as well. Why hold shares when all these problems are coming. Or do investors genuinely believe that all this will not impact the “real economy”? Can anyone give me some insight? I am absolutely loss for words here……
The first paragraph of the Bloomberg story says it all, ”Consumer prices in the U.S. were unchanged in February, making it easier for Federal Reserve Chairman Ben S. Bernanke to cut interest rates to shore up confidence in the economy.” They had to hold CPI so Ben could deliver a huge cut in the face of 1000 gold, 110 oil, toilet paper dollar.
A typo. I meant why investors are NOT dumping shares here….
Written by Guest on 2008-03-14 10:33:41 regarding citi. do you have a link to the Wallace Witkowski article
I’ve been doing a great deal of trading since late last summer. Made excellent money. Daytrading following dips and rips. My Bank/broker called this morning and are going to limit the trading activity that I can perform on Pershing ETFs. No rules broken, no margin issues, excellent funding and credit. They just couldn’t handle the money I took and volitility I introduced (shorting shorts, puts, calls, buy/sells within minutes sometimes) Anyone else out there? TPTB are fighting this war (and it is a WAR) with everything they’ve got. That alone is a great clue on the descension of desperation now and to come.
Well, looks like Bush confirmed that the Treasury and the Fed is supporting the stock markets… *read between the lines* watch the CNBC interview.. I give up.. there is no market in the NYSE or NASDAQ…. its all crap. So much for an open market.
Bear Stearns Cos. will hold a conference call Friday at 12:30 p.m. EDT to address “speculation in the marketplace related to its announcement this morning.”
I am late to the blog this morning and am surprised nobody has commented on the following: Two or three nights ago, Pete Narjarian on CNBC’s Fast Money show talked about huge short dated out of the money put buying on Bear Stearns. What are the odds of one of the other big investment banks (I won’t name names but I’m sure we can all guess who) being that huge buyer, with the knowledge that they were going to pull their credit lines to Bear later (i.e. yesterday or today) this week? This one smells to high heaven and I hope some investigative report goes after it.
Written by Guest on 2008-03-14 10:58:15 regarding your bank/broker stopping you from trading. why are you using a bank/broker. If you want something excellent without any problems I suggest you use the tradestation platform. http://www.tradestation.com/default_2.shtm
What did standard and poors say again about the credit crisis? and how long ago is it they said it???
Back above 12,000 again!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
Kudlow got it wrong. Read below, Bush praised Fed for pumping liquidity into the system. Bush and Paulson share same strong dollar policy. http://biz.yahoo.com/ap/080314/fed_credit_crisis.html ”WASHINGTON (AP) — The Federal Reserve invoked a rarely used Depression-era procedure Friday to bolster troubled Bear Stearns Cos. and said it will provide even more help to combat a serious credit crisis. The action won praise from the administration, with President Bush saying that Fed Chairman Ben Bernanke was “doing a good job under tough circumstances.”
Thanks for all the kudos. I had some information but I also guessed it an extend. I knew today is the day when BSC will go down. I haven’t got full info on the help its getting OK, coming to next week, LEH is really in problems too. things are happening faster than expected.
Bretton Woods II will be dead. Bretton Woods III will be created -> Pegged to stock market.
I have fair value on the S&P today at 1273 and the earnings estimates are as of Mar 7th. The street is still looking for 17% earnings growth this year! If I just lower estimates to 0. fair value drops to 960. Enjoy that thought folks…
bear stearns conference call live here http://www.cnbc.com/
When will the LEH’s problem be announced? Before or after Fed ratecut annoucement on next Tuesday? Fed’s announcement should be able to cushion off the LEH’s problem…
@Wolf in the Wilds on 2008-03-14 10:51:39 I share your frustrations! I regard myself as a pretty logical thinker and, historically, I’ve got it right much more than I’ve got it wrong. Clearly, while a lot of market participants are bearish, they seem to have no idea how bad things are in the credit markets. I commented a few days ago, on the announcement of the TSFL,that funding facilities for the market makers who are at the core of our financial system, were about to seize up. Yesterday or today it happened for Bear, and it will extend to all the other non-deposit taking institutions: i.e investment banks rather than the JPMs, Citis of the world who have direct access to the discount window and its equivalent in other countries. The stock market bounces 400 points on the announcement of a pretty desperate move. Amazing. Today, the market falls 300 points on the Bear news and then rallies back to -75 (currently -181), when it should be down 500-1000 points. The reality, from my perspective, is that equity markets can only bottom after all this mess gets washed out and all the losses are taken.
Dow down 170 points. In other news, black is now white. Up is down. A circle is a square. BSC is having liquidity problems and their chart looks like frozentwinkies.com’s chart before it went to zero. S&P is down 1.7%. How is the family doing Joe. Well, my Uncle was just diagnosed with terminal cancer. Other than that, the family is doing great.
Bear Stearns is actively being shopped to a potential acquirer, and not just to JPMorgan ChaseCNBC has learned. right now, considering that the emergency financing from the Fed is being arranged through JP Morgan. But people familiar with the situation say other banks are being approached as well. Analysts have been speculating for months about a possible acquisition of Bear Stearns, which has been hurt badly by the subprime mortgage crisis. Even so, Bear chief executive Alan Schwartz said in early January that being acquired is not a strategy for the firm. But as the credit crisis has increased, so has the possibility of more bank mergers.
the live call link on cnbc was taken down. but of course. the public should be the last to know whats going on
I am on the call…will try to post live… Right now, Alan is blabbering to his best.
Repo area screwd us with huge outflows : BS
PB and repo continues to get worse today : BS
read from bottom up 12:48P Any acceleration in requests for cash today? Answer: nothing materially different than earlier in the week on prime brokerage and repo. 12:45P Bear wasn’t having significant liquidity problems at beginning of the week. On Thursday experienced “pretty broad cash outflows.” 12:44P Will continue to persue “alternatives” trying to protect customers while enhacing shareholder value. 12:43p Bear remains comfortable with analysts’ forecasts for first quarter results. 12:42P In consultation with Lazard, decided to talk to JPMorgan to get some liquidity to buy time and get facts out into the marketplace. Will have more information when earnings released on Monday. 12:41P People scared by rumors tried to get cash out. Bear tried to respond, but problem accelerated. Realized yesterday that it might not have enough money to give to those withdrawing. Wanted more time to get facts out to the marketplace. 12:40P Bear Stearns says affected by rumors. Although cap ratios are in good shape, liquidity deteriorated due to the rumors it was having a liquidity problem. 12:40p Bear Stearns to release Q1 earnings Monday.
http://www.bloomberg.com/tvradio/radio/# bloomberg radio is live with it…
12:48P Any acceleration in requests for cash today? Answer: nothing materially different than earlier in the week on prime brokerage and repo. Isnt’ this the joke of the day ?
@Giraf I have been through many crisises and never in anyone of them can the government stop the bleeding by supporting the stock market. When the unwind comes, no one can stop the flow. And It will just trigger all the stops. The problem is that none of the equity funds actually know how deep and dangerous the problem in the financial sector is. I am very afraid to go into the office on Monday. There will be questions on every counterparty we are dealing with. This is going to be the scariest week to date in the crisis. Its time to examine counterparty risk, and see who is the survivor. My bet is LEHM is next in the list. The fear is in and if you think today was a show, Monday will be a even better one. Every bank and securities house in the WORLD will be cutting lines to Bear and reducing exposure to everyone of the broker/dealers. Subsequently, American commercial banks will also be questioned upon. The credit derivatives market will seize up on Monday. And the equity guys still think everything is fine. They really have no idea do they….. We are in the first stage of Financial Armegeddon….the first domino has fallen…. Don’t think I will be getting any sleep today……….
12:57P The conference call has concluded. 12:56P Gives us a chance to look at the alternatives, that can run the gamut, and give everyone a chance to see the facts and not the fiction. We will look at a range of alternatives. 12:55P Frankly, this is a bridge to a more permanent solution. 12:54P We will be able to convince customers and counterparties that we have the ability to fund ourselves every day and do business as usual. 12:52P No material changes in liquidity ratios. Untrue rumors caused concerns among lenders and thus we lost capacity. Going with JPMorgan will allow Bear to borrow against collateral. 12:50P One of the reasons we went to JPMorgan is that it is the clearing agent of our collateral, so easy for them to see the kind and quality of the collateral that we have
it is so hard when your own Father does not believe you when you tell him what is happening… i am so sad about that i can not even express to you how disappointing it is…
Where is London Banker….when we need him?
So the waiting begins…which way do we close…do we rally green or do we drop 400 at teh close….pull up a chair, crack a beer and enjoy…It would cost you $500 for a front row seat to a fight like this in Vegas!
Rich H, any comments on what you are seeing?
1:41 Summers: Govt. has means to force banks to raise capital 1:40 Govt. should force banks to raise capital: Havard’s Summers
I started counting how many “uh”s and “um”s he uttered in the BSC call. At the time I lost count, the “uh”s had it by a whisker. Both were a result of him trying to come up with good lies without being too blatant about it.
A rally is brewing. DOW will close only slightly lower for the day.
IMHO the Fed will not allow BSC to fail. That would undoubtedly kick off the nightmare scenario about which Bill Gross was accused of fearmongering. The unwinding of CDS contracts with a major player insolvent would be nightmarish. We know there have been writedowns of monoline counterparty exposure. There has been nothing on broker exposure thus far. Cash market completely screwed up. Repo cash over the weekend now trading north of 3.50% stateside.
@True North ”Strong and free”
Repurposing for hotel business The milk trials begin – 2003 -2008-2011- HUGE convention centre needed to rent for 2/3 years since it must hold 34,000 witnesses and 100 plus SMALL investors. After five years will the 32,000 savers be happy with possible outcomes of jail time,money back, denials or confirmations ? Can’t wait to read that book
Does any remember “Appointment in Samarra”? Where a servant meets death in the marketplace and flees, only to be reunited unhappily later that evening? So it has been in this marketplace, where we have avoided the fulness of the great reckoning. Now we cannot avoid the great and ultimate payment demanded of us. Run where we may, we are not safe in our sanctuaries, our places of respite, houses of refuge, and hiding places. All our accumulations of labor and lifetimes can be seized (nay blighted by a great destroying angel). Its access is through our means of storing value. The same values we have lost and will lose. Who now will protect and provide, or guide a warm cloak upon us or gather us in from the cold and storm? None can I see; we have an appointment in Samarra.
JPY now down to 99.30!!!
Ben “The Illusionist” Bernanke has just about exhausted his repertoire of prestidigitation. The financial system is nearing meltdown status. And Ben will be powerless to stop it. I believe we will see real capitulation soon.
Nuts and bolts of the Bear Stearns bailout By Greg Robb, MarketWatch WASHINGTON (MarketWatch) — The Federal Reserve was able to supply funds to Bear Stearns Cos. by employing a little-used power under which the U.S. central bank can lend directly to non-bank financial institutions, Fed officials and experts said Friday. Under “unusual and exigent circumstances,” the Fed can loan to broker-dealers if credit is not available from other sources and if a firm’s failure to obtain such credit would adversely affect the economy. The most important thing to realize, analysts said, is that this is a loan from the Fed to Bear Stearns backed by collateral from Bear Stearns. J.P. Morgan Chase & Co. is only serving as the operational conduit for the funds from the Fed, simply because it had all the necessary arrangements in place to conduct business with the central bank, a Fed staff member and outside experts said. ”J.P. Morgan is not liable if Bear Stearns defaults, so the Fed is looking to the collateral of Bear Stearns,” said Lou Crandall, chief economist at Wrightson ICAP. The size of the loan isn’t certain, a Fed staffer said. The amount of credit provided by the Fed will depend on Bear Stearns’ credit needs and the collateral on the company’s balance sheet. On a conference call with analysts, Bear Stearns’ executives refused to discuss the size of the loan. See related story. Nor was the length of the loan known. J.P. Morgan said the initial period of the lending would run for 28 days. A wide range of collateral can be used at the Fed’s discount window. Under law, the Fed’s board of governors was required to approve the Bear Stearns loan. The board vote was 4-0, with Fed Gov. Frederic Mishkin absent due to his travel schedule. During every period of financial strain, including immediately following the Sept. 11, 2011, terror attacks, the Fed typically reminds financial markets that it has the power to lend to other financial institutions. But the Fed hasn’t used the authority in decades
2:32 Bear Stearns goes on life support as trading crisis turns dire
What are the odds of one of the other big investment banks (I won’t name names but I’m sure we can all guess who) being that huge buyer, with the knowledge that they were going to pull their credit lines to Bear later (i.e. yesterday or today) this week? This one smells to high heaven and I hope some investigative report goes after it. Written by Giraf on 2008-03-14 11:09:23 Nuthing to worry about. Spitzy ain’t around no more.
guys Fallon resigned, we are good to go, now let the market tanks which party should be the black sheep ahhh BSC is a good candidate,its big but its non commercial other Banks will be safe whatdya think?
“Why did the Lord give us agility, If not to evade responsibility?” thought thoughtful, thoughtful, pensive Ben, as he gave his printing press another spin, under knocking knees and twisted belly long stout timbers bowed like jelly For Some primal termite knocked on wood And tasted it, and found it good! And that is why your dollar’s pay Fell through the parlor floor today.
Don’t worry, “they” won’t let this sentiment languish over the weekend, “they” will close us slightly green, just like the other day…
One possible script: Monday Asia and Europe crash, Ben cut 1% and announce one more T*F bailout scheme before the bell, the market sells on the news and the world marks the Very Black Monday as the beginning of the Very Great Depression.
Here come da “rescue party”…
As always invaluable hindsight is provided by S&P and the other rating agencies, just moments after it is completely irrelevant. ”Bear Stearns Credit Rating Cut Three Levels, by S&P (Update1) By Emma Moody and Caroline Salas March 14 (Bloomberg) — Bear Stearns Cos.’s credit rating was reduced three levels to BBB by Standard & Poor’s after the securities firm was forced to seek emergency financing from JPMorgan Chase & Co. and the New York Federal Reserve. The rating, the second-lowest investment grade, may be cut further, New York-based S&P said in a report today. Bear Stearns’ short-term rating was cut to A3 from A1.” http://www.bloomberg.com/apps/news?pid=20601087&sid=aZgjNjPwmwGQ&refer=home
Benny score card: Ouch! It started positive but it will be another down day for the USD Note the free fall since early feb.) http://quotes.ino.com/chart/?s=NYBOT_DX&v=d3
Bear Stearns and You What kind of a system is it where a private company (JPMorgan), partnering with the government bails out a competitor? Since the government has no money of its own—the burden of bailout falls to the will of the people. What will is that? Alexander Hamilton: In the general course of human nature, a power over a man’s subsistence amounts to a power over his will.
Bear Stearns Credit Rating Cut Three Levels, by S&P (Update1) By Emma Moody and Caroline Salas March 14 (Bloomberg) — Bear Stearns Cos.’s credit rating was reduced three levels to BBB by Standard & Poor’s after the securities firm was forced to seek emergency financing from JPMorgan Chase & Co. and the New York Federal Reserve. The rating, the second-lowest investment grade, may be cut further, New York-based S&P said in a report today. Bear Stearns’ short-term rating was cut to A3 from A1. “Although we view the liquidity support to Bear as positive, we consider it a short-term solution to a longer term issue,” S&P analyst Diane Hinton said. “We also remain concerned about Bear’s ability to generate sustainable revenues in an ongoing volatile market environment.” After denying earlier this week that access to capital was at risk, Bear Stearns said today that its cash position had “significantly deteriorated” in the past 24 hours. The New York Fed agreed to provide financing through JPMorgan for up to 28 days, the bank said in a statement today. Moody’s Investors Service rates Bear Stearns A2, the equivalent to S&P’s previous rating. Fitch rates the company one level higher at A+. “They can get an infusion of capital from an outside entity or they can be bought” to restore confidence, said Andrew Harding, chief investment officer for fixed income at Allegiant Asset Management. He manages $19 billion from Cleveland. Credit-Default Swaps The cost to protect Bear Stearns from default soared to new records after the ratings were cut. Five-year contracts today traded at a record 800 basis points, according to broker Phoenix Partners Group, up from 675 basis points yesterday. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company’s ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite. A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year. S&P plans to complete a review of Bear Stearns in the next few weeks “as more concrete, longer term solutions to Bear’s liquidity and confidence crisis are fleshed out,” Hinton said. “The ratings could be lowered further if there is a failure to stabilize liquidity or to achieve a satisfactory longer term funding structure,” Hinton said. Bear Stearns can’t get capital regardless of its rating, Harding said. “What their rating is now is irrelevant,” he said. “Whether it’s BB, AAA or A, I just think it’s a response to the emergency funding today.
Shorties: bunch of demoralized chickens. They won’t sleep short over the weekend:-) Indices may close barely negative (hope I am wrong)
Dow only down 240 LOL…..
It doesnt matter. These cuts by S&P. BSC has no access to any capital other than what JPM can give anyway
If this headline would have come across the tape, say, 1987, before the existance of the PPT…. 3:01 Currencies: Dollar falls to record lows vs. euro, Swiss franc after Bear news
Here comes the rally! They are going to close the Dow above 12,000!
S & P yesterday reports that the worst is over for the Big Banks and then this morning Bearr Stearns crashes. http://jtaplin.wordpress.com/2008/03/14/s-p-know-nothings/
WHAT A FRAUD MARKET THE US HAS!!!!
goddamn fucking bullshit rally! I HATE these times.
From my broker, they say that there are rumors out that Warren Buffet is interested in Bear Sterns, just like he was interested in AMBAC, and just like he will show interest in Citigroup, Countrywide, Morgan Stanley, Lehman Brothers, UBS, and maybee Barrings (you never know)!! The Dane
THIS IS THE GREATEST FRAUD EVER PURPITRATED IN PLAIN VIEW FOR THE WORLD TO SEE!!!
Dow almost down less than 100 NOW!!!
Written by Anonymous on 2008-03-14 14:20:06 I am offended by your language. dont use the word RALLY again or I will report you to NR.
Why does the U.S. even have a stock market anymore? Oh yeah thats right, to continullyr rape is citizens of their money.
We were down 310 points 30 minutes ago. CRIMINALS!!
What a sohisticated call. took an MBA to call it. Bear Cut To Underperform From Perform At Oppenheimer
Lehman Brothers Obtains $2 Billion Bank Credit Line (Update1) By Emma Moody March 14 (Bloomberg) — Lehman Brothers Holdings Inc. obtained a $2 billion, three-year credit line from 40 banks. The unsecured facility replaces an existing credit line, New York-based Lehman said today in a statement. JPMorgan Chase & Co. and Citigroup Inc., also based in New York, led the effort, the statement said. Lehman announced the financing hours after Bear Stearns Cos. said it agreed to an emergency bailout by JPMorgan Chase and the New York Federal Reserve. Bear Stearns, which fell as much as 53 percent in New York trading, said its cash position had “significantly deteriorated” in the past 24 hours, raising concern among investors that more financial companies may face a liquidity shortage. “We are extremely pleased with the success of the syndicated facility and view this as a strong signal from the market and our key bank relationships,” said Paolo Tonucci, Lehman’s global treasurer, in the statement. Lehman fell $5.29, or 11.5 percent, to $40.70 at 3:18 p.m. in New York Stock Exchange composite trading.
This is exactly why I am on the “sideline”, these markets are out of wack (is that the right word?)with fundamentals. This has become a farce, no doubt. One good quote from today: ”"The notion that stocks pop because the Feds bail out a major investment bank – the first such action since the Great Depression – is the only reaction that defies credibility more so than the CPI numbers.”" Source: http://globaleconomicanalysis.blogspot.com/2008/03/beleaguered-bear-stearns-bailed-out.html The Dane
As the Dow lies the Dollar cries.
P and P showed up but not T. must be too tired
UPDATE: Lehman’s New Credit Facility ‘Oversubscribed’ >LEHLast update: 3/14/2008 3:15:06 PM DOW JONES NEWSWIRES As private and public entities stepped in to keep Bear Stearns Co. (BSC) liquid Friday, rival investment bank Lehman Brothers Holdings Inc. (LEH) announced that its new credit facility was “substantially oversubscribed,” with some of the largest banks in the world participating. Lehman, which often dominated sales of subprime mortgage-backed securities, closed a new $2 billion committed unsecured three-year revolving credit facility, replacing its existing three-year facility. Lehman said 40 banks participated in facility, co-led by JPMorgan Chase bank and Citibank. Global Treasurer Paolo Tonucci said, “We are extremely pleased with the success of the syndicated facility and view this as a strong signal from the market and our key bank relationships.” When it reports results Tuesday, Lehman is expect to say its fiscal first-quarter net income plunged 63% to 72 cents a share from $1.96 a year earlier, according to 16 analysts surveyed by Thomson Financial. Their estimates range from a low of 45 cents a share to a high of $1.13. Analysts expect a 34% decline in revenue to $3.35 billion. Lehman’s shares recently traded at $40.35, down $5.66, or 12.3%. The Dow Jones industrial average was down 200 points as stocks sank on the Bear Stearns news. -By Kathy Shwiff and Melissa Korn, Dow Jones Newswires; 201-938-5975; Shwiff@dowjones.com (END) Dow Jones NewswiresMarch 14, 2008 15:15 ET (19:15 GMT)
Pole Dancers in Santiago Lure Clients With 2004 Dollar Rate http://www.bloomberg.com/apps/news?pid=20601109&sid=aSKU9QT1i3mA&refer=home
@Anonymous on 2008-03-14 14:20:06 ndx 1700 buy is a must,…
From Mish: screen shot of a particular Washington Mutual (WM) Alt-A mortgage pool known as WMALT 2007-0C1 Wow. ”Somehow this pool was 92.6% rated AAA in spite of the fact that full doc was provided on only 11% of the loans. This folks is another fine example of how out of whack the rating agencies are.”
Written by oy vey on 2008-03-14 14:50:13 I guess it is too late to send Spitzy the tip. He would have been legal down here:-)He tried to play politics in the wrong place. Take Mennen (Argentina), for instance, he was a big ladys guy; Everyone knew it, no-one ever bothered him. Well, at least the bears have got it DOW under 12K, S&P under 1300 but above Jan low of 1270. Tice permabear on bloomberg… ouch rudely cut off!
Prof. Altman on Bloomberg now… so far in 08 defaults at 80% level of 07. Wild card for defaults is recession. How bad it is. Fundamental forecast 4% defaults. Bad economy would increase it to 10-12% defaults. Colleague says 17%. 2002: 13% market handled it well. Spreads will adjust. Lots of opportunities for investing in co’s that won’t go under (just need to get your analysis right)….
OR, does that mean Mennen liked big ladies? BTW isn’t it interesting how quiet Alan Greenspan has been the last few weeks?
So ES Trader, not quite a 4-Sigma down, but as close as you can get once you factor in the PPT. BTW: anybody still claiming there is no such thing as a PPT?
could someone please explain a sigma 4 event?did anyone who trades skf regularly see unusual behavior today? only up small % compared to underlying financials. btw according to fidelity bsc has a nice position. tia
The liquidity crisis at Bear Stearns looks basically like a ‘run to the investment bank’. If I get it correctly, Citi (and other commercial banks) will be run to only after J6P gets a clue, but MSM will delay the fatal moment as much as possible. Instead the more sophisticated investors in short term debt of investment banks and broker-dealers are getting the seriousness of the crisis and are starting to run already. With hindsight that could probably have been predicted. Now I don’t see how this run to the non-commercial banks can be stopped. Anybody can tell who are the most exposed?
It’s interesting that NR, London Banker, and RH have not been here lately. Both are fairly close to the action, and I’d guess that provides another index of the seriousness of the moment. Octavio R, I’m sure you’ve noted that Richard Fisher is more stridently positioning himself; he’s made several remarks lately about his objection to further rate cuts. I guess he’s signing up to be the next Volcker. I noted further on CNN/Money’s website that they’re now saying “maybe a recession is the right thing to do”. I guess that means all the right people are securely seated in their chairs, and now the music can stop. I have a “so-what” question. So what if BS, Lehman, and one or two other commercial banks get cleaned out? Beyond the immediate impact to their shareholders, do the rest of us really care? Won’t the surviving CBs just step in, mop up the assets at fire sale prices, and then the parade moves on?
@Andrew (or anyone who has an opinion) Andrew said: >The dollar will get smashed. Stick with foreign currency denominated government fixed income. >Written by Andrew Bernhardt, St. Louis on 2008-03-13 07:44:14 What are some good ways to invest in “foreign currency denominated government fixed income?” I have some dollars that I converted to Euros at Interactive Brokers (just sitting as Euros). I also have some FXE ETF shares. Any other possibilities?
With all that’s going on at many levels in our society & economy, I’m starting to think that people who are not suspicious and wary of powerful forces are the ones who are odd and that their reactions against the whole possibility of any conspiracies is unusual and maybe a form of naive denial. To say there’s nothing weird about current events & utter collapse pending is now the oddball response IMO.
Written by Giraf on 2008-03-14 15:28:55 I would guess not. I meant he was a ladies’ man in a big way. After his divorce, he married a Chilean lady ex-miss Universe*. He is about 80 now so talk about a trophy wife! But it didn’t last too long. Run a google search on her name… * http://en.wikipedia.org/wiki/Cecilia_Bolocco
Written by OuterBeltway on 2008-03-14 16:20:22 All these banks, BDs in trouble, sure the FED has to step in to keep markets functioning; but if they are insolvent, they should let the equity be wiped out and and the government take over. Build them up, then sell to best bidder when things improve… But they don’t. They bail out the stockholders, the people who are supposed to be taking the risks: big rewards, but also big failures when they happen. That is where the moral hazard is.
I honestly think you have to be a little bit, ‘in the know,’ to realize the seriousness of the situation. As JMa quoted above, he had a hard time convincing his father of what is ACTUALLY going on in the markets. I work at an engineering company and a lot of recent college grads and current students work here and I have asked them if they are talking about any of these issues in any of their classes? They say no…if I didn’t talk about it, they wouldn’t even know. These are people with technical degrees…smart, but out of the loop. My mom is totally oblivious. All she knows is what is said on the news, or is read in the paper, and that is very far from what is actually going on. It is pretty bad that the majority of America has no clue to the true scope of this mess, it is also the reason it is playing out of a long time frame. I liquidated all of my stock and changed my banking relationships because of the information I have gained from this site and others. If everyone in America did that, we would have a serious devaluation of the equity markets and a run on the banks. So, since we here can see it ahead of time, does that make our actions any different? Or just more timely? Holding cash in the safe in the house…investing in commodities, canned goods and fire-arms…and liquidating equity investments… Seems like all the signs of panic to me. I guess we are just ahead of the curve. When the majority of society starts to do exactly the same thing. That is when the real mess will happen. I wonder how long it will take them to wake up?