August 06, 2007

BUBBLETALK - Newest thread to talk about the global housing crash and mortgage meltdown

What's on your mind? Post housing bubble / housing crash article highlights, use tinyurl, let me know what I missed, and have a good chat


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Roccman said...


Anonymous said...

Hey HPers -

I need some advice here. I live in Minneapolis, which has had a much smaller price run-up than most of the areas discussed in this blog, however, things did get a LITTLE bit overpriced.

Prices are coming down, but slowly.

Question: Would I be "chickening out" buy buying a place right now? We still had an 'okay' spring for sales, and there is nowhere near the level of despair that other markets are experiencing.

I could buy a medium to smaller townhome or an older house for about 200-220K, which is not bad, but it would put me at about 33% debt-to-income (I would prefer the older 28%). Some smaller TH's are about 190K.

I realize these are low prices compared to the bad bubble areas, but they still seem high. One TH owner that I looked at was going to make a annualized 7% per year return on me if I paid the ask.
Essentially, I'm hoping that my intuition that says 'wait' is right, and that even though Minneapolis is not in stratospheric bubble territory, price declines can still be expected.

I'm willing to wait, but with so many places available near the median, maybe I am expected a decline in prices that just might not show up in this market.


Anonymous said...

the median price of a home sold in the month edged up 0.3 percent compared to a year ago to $230,100. It was the first time since July 2006 that there has been a gain in that closely-watched price measure. The June price jumped 3.3 percent compared to May.

Some crash.


Anonymous said...

Existing Home Sales Drop for 4th Month

WASHINGTON (AP) -- Sales of existing homes fell for a fourth straight month in June and even a small increase in home prices was not enough to lift the gloom surrounding the housing industry.
The National Association of Realtors reported that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units, the slowest sales pace in 4 1/2 years.

Federal Reserve Chairman Ben Bernanke told Congress last week that he expected housing demand to stabilize and housing to be a less severe drag on growth in the coming months.

However, private economists said the existing home sales report raised serious questions about that assessment. They noted that existing home sales were falling at an annual rate of 28 percent in the second quarter, the steepest plunge so far in the downturn.

"Housing is contracting at an accelerating pace, taking out with a vengeance the brief stabilization at the turn of the year," said Ian Shepherdson, chief economist at High Frequency Economics, a private forecasting firm.

The sales declines covered all parts of the country. Sales were down 7.3 percent in the Northeast and 6.8 percent in the West. Sales fell 2.8 percent in the Midwest and 1.7 percent in the South.

Lawrence Yun, senior economist for the Realtors, said that potential buyers have been getting mixed signals about whether now is a good time to buy a home with mortgage rates rising and banks and other lenders tightening their standards, making it harder to qualify for a loan.

"It appears that some buyers are looking for more signs of stability before they have enough confidence to make an offer," Yun said.

The Realtors are forecasting that sales of existing homes will fall by 5.6 percent this year with prices dropping by 1.4 percent. That would mark the first annual price decline on record.

Yun said that if the price decline turns out to be greater than he is forecasting that would raise concerns that consumers could cut back on their spending by enough to raise worries about a possible recession for the overall economy.

Anonymous said...

rising interest rates? the ten year is at 4.9% for crying out loud. With good credit a 6.5% 30 year fixed is available. Yeah the 5.75% days are over, but holy shit 9% was considered a good rate 10 years ago. 6.5% is still insanely low by historical standards.

Anonymous said...

Zillow is showing prices have dropped $10,000 nationwide from $264 to $254 the past 12 months

Anonymous said...

zillow shows my old house in las vegas is worth $35K more than when I sold it 6 months ago.

in other words zillow is useless.

Anonymous said...

I agree, zillow cannot be taken seriously.

Anonymous said...

The difference between the zillow zestimate and actual sales price in my neighborhood is usually over $100,000 per property and prices are still falling..... St Louis Mo

Anonymous said...


Please post this MSNBC link requesting comments regarding whether housing has hit bottom. Some of the comments of the sheeple are classic!

And, HP's- don't forget to leave some usefull knowledge.

Kevin said...

Almost bought a house in Peoria (NW Phoenix area) last year for $400K, but cancelled the contract after some good thought. I see on the Standard Pacific website, the same home is now available for "quick move in" for $300K - a 25 % loss in one year !!! I am really thankful I didn't go through with the purchase !!!

Anonymous said...


I came across this Prodigy Video today and it seemed rather poignent for all of those who bought into the hype of the housing boom and the stock market.

Lots of players, very few winners, and you usually end up in pretty bad shape.

Enjoy! said...

Check out the recent propaganda from sunny FL:

"No. 1 spot to buy a house?
Try Tampa Bay. That's according to Forbes magazine, which sees us bouncing back big."

By JAMES THORNER, Times Staff Writer
Published July 25, 2007

"The online edition of Forbes
magazine, with help from business
prognosticator Moody's, touts the Tampa Bay area as the No. 1 place in the country to buy a house.

Come again? Aren't we supposed to
be in the throes of housing agony?

Hear them out: Because of our
area's overall strong, growing
economy and comparably modest
housing prices, Forbes calls Tampa
-St.Petersburg-Clearwater a prime
bounce-back market.

It predicts our area will
experience what it calls a V-shaped recovery, where a market
experiences a free fall, but
rebounds strongly once it hits

Other regions will chart U-shaped
or L-shaped courses. U-shaped
recoveries are those in which
prices fall slowly and recover
gradually. Think Boston and

The L-shaped phenomenon is when
prices plummet but remain mostly in a trough owing to underlying
economic problems in the city.
Think Detroit.

"While the Tampa market has yet to
bottom out, the silver lining for
buyers is that it is a highly
resilient market," the article

"Most of the fallout in Tampa can
be attributed to its high investor
share, which is correctable given
the good economic and job-growth

To get on Forbes' top 10 list, a
region needed an oversupply of real estate with plenty of sellers keen to strike a bargain. That's not all, though. Forbes also sought areas where prices wouldn't fall cataclysmically, so that buyers wouldn't be booking a fare on a sinking ship.

Based on Moody's figures, Tampa Bay home prices should bottom out in the first quarter of 2008, once the region burns off excess inventory from speculators who went hog wild in 2005."

Fast Facts:
Forbes' top 10

1. Tampa

2. Minneapolis

3. Miami

4. Kansas City

5. Chicago

6. Phoenix

7. San Diego

8. Milwaukee

9. New York City

10. Atlanta

[Last modified July 24, 2007,

23:42:23] said...

A realtor consultant losing their religion:


Analyst says downturn will lead to
a recession During the real estate boom, Deerfield Beach real estate
consultant Jack McCabe was never
shy about pointing out that
escalating property values were
unsustainable and that the inflated real estate market would soon be brought back to earth.

Now that the national and Florida
real estate markets are in the
midst of a downturn, McCabe is
forecasting a tough road ahead.

What follows are excerpts from a
conversations between McCabe and
Herald-Tribune staff writer Michael Braga.

Q: Is the national economy slowing? Are we headed toward recession?

A: It's difficult to tell by what's happening on Wall Street. Stock prices keep going higher and
higher. But around the country, we
are definitely seeing a major
correction brought on by the
downturn in residential real
estate. We are beginning to see the effect on consumer spending, which has driven GDP growth over the last five years. Big box retailers are announcing layoffs, which is just part of the domino effect that, in my belief, will result in recessionary pressure on California and Florida within the next 12 months and will eventually trickle down to many states in between.

I think we will see a recession
next year, because GDP has been
driven by consumer spending, by
home equity loans and by people
using their homes as piggy banks.

The spending over the past few
years has not been normal. There
was tremendous spending on plasma
TVs and vacations. That was paid
for by people borrowing against
artificial gains in the prices of
their homes. Now that the market is correcting, people will find that equity has been converted into debt.

Retail is always the first to be
hit in a recession and luxury items are the first to see the declines.

Plasma TVs are not rolling off the
shelves like they have been.

Furniture manufacturers, home
decorators and anyone connected to
real estate and home building are
feeling the pinch.

Q: Why are you predicting recession for next year and not this year?

A: The definition of recession is
two consecutive quarters of
declines in GDP, and we don't have
two quarters left this year. We
could only have one quarter
reported by the end of 2007.

I think Florida and California will definitely see the pressures before other states, except perhaps places like Denver, Phoenix and Las Vegas, where real estate speculation was also rampant.

Q: Many people have argued that
Florida was insulated from previous national downturns. Why is it different this time?

A: The last big downturn was in the late 1980s and early 1990s. The state was overbuilt with condos. As a result, we saw limited condo activity between 1995 and 2004.

Prices did not come back for almost a decade. I would not call that insulated.

This time, the corrective downturn
is already beginning to bring real
estate prices more in line with the historical trend of property

A lot of people in the market have
never seen a downturn and still
don't understand what's going on.

They thought everything would go up and up and up. Florida has been at the forefront of this boom and bust cycle because of the amount of speculative activity that went on here. Because our prices were
pushed up the highest, we will also see the largest correction.

Q: Which areas of the state and
which markets in Florida are being
impacted the most?

A: In South Florida, it is
definitely condos. But in Naples
and Fort Myers, there was more
speculation in single-family homes.

As a result, there are large
speculative inventories.

In Sarasota, it's about half and half. There is both an oversupply of condos and single-family houses.

Jacksonville is probably in the
best shape and will see the most
percentage increase in home values
over the next five to 10 years.

Q: What do you think about the
governor and Legislature's efforts
to ease insurance rates and
property taxes?

A: Wasn't what they did a bunch of
garbage? Insurance legislation did
nothing to bring rates down. And
the tax reform proposed will not
restart growth or attract out-of-
state companies to relocate or
invest in Florida.

Market conditions will do what the
governor and Legislature were
unable to do. Falling real estate
values will bring taxes and
insurance prices down.

But those prices are not going to
come down easily. Companies and
individuals will have to fight to
reduce property assessments, and
that presents a great opportunity
for lawyers who help them with
that. I think the guys that handle
that will make a fortune over the
next few years.

Q: What lies ahead for Florida's
real estate and home building

A: We're in the survival-of-the-
fittest stage. The best-capitalized builders with the best reputations will survive. Others will vanish.

We'll see some of that with lenders as well. An awful lot of title companies will go down, and a lot of real estate companies will shut down or consolidate. We will continue to see real estate-related job losses.

Some Realtors were jumping for joy
because of recent sales numbers.
But we've got a long way to go yet.

It took five years to get into this mess. It's not going to go away in a year.

Last modified: July 23. 2007

Anonymous said...
Am reading this..'Daves the
Man' realwhore makes me want to puke....sleezeball carsalesman carpetbagging A__H___.

Anonymous said...

Sorry, didn't mean to dis carsalesmen as compared to realtors. They seem like fine upstanding citizens by comparison. By the way, in Alabama, the Realtors Association passed a law a few years back, that even if you sell your home yourself, they still get 3% of the profit...maybe more, but I know it's at least that.

Anonymous said...

***** FLASH! *****

This just in

the amount of derivatives in the U.S. are now $495 trillion, or 3.7 times the sum of all assets, stocks and bonds in existence in the U.S.

if you want an analogy, think back to that days when it was said there were enough nuclear weapons to destroy the world 10 times over.

Anonymous said...

Anonymous said...
Sorry, didn't mean to dis carsalesmen as compared to realtors. They seem like fine upstanding citizens by comparison. By the way, in Alabama, the Realtors Association passed a law a few years back, that even if you sell your home yourself, they still get 3% of the profit...maybe more, but I know it's at least that.


What are you smoking son? First off realtor associastions don't pass laws. Second, you are an idiot., 1 and 2 were enough.

Anonymous said...

My gut feeling is to rent another year and see what shakes out. Are you sure you're going to live in proposed house for at least 3 - 5 years? If
If you can find a place that needs some TLC @ a dirtcheap price....then do the work yourself and build some equity.
You sound like you have a good head on your careful out there, it's a jungle.
And for the love of not let a realtor ever, and I mean EVER, pressure you.

Anonymous said...

Well we all know if Forbes said it it has to be true.

Can't stand any of those magazines anymore. With the exception of The Economist they're all PR cover to cover, only interrupted by advertisements.

Anonymous said...
cool house on ebay..only $160,000
Yes, I realize the realtor's didn't pass the law, they got the law passed. Same results.

Anonymous said...

At least I can spell association.

Anonymous said...

"It was a bad time to buy," she said. "I shouldn't have purchased. It was just a bad time."

Christine McCullough will lose her Natomas house to the bank in September. "I'm chalking it up to 'things don't always go in your favor,'" she said.

Last year the Sacramento County employee lost $1,800 in extra monthly consulting income that had made the 2005 purchase possible. She says her lender wouldn't work out alternatives while she was still current on payments. When she started missing payments in March, the bank's insurance company refused offers of a short sale, in which the lender agrees to take less than it's owed to avoid the greater costs of foreclosure.

Anonymous said...

Foreclosure, Foreclosure, Forclosure and 2008 is going to get worse.

"This is unquestionably the worst I've seen,"

"Every week, the pace increases".

"You just wonder where it is going to end."

said Bill Pfeif, a 30-year veteran agent at Guarantee Real Estate in Fresno who sells lender-owned real estate.

Pfeif, who is trying to sell nearly 200 lender-owned homes and estimates one of every 10 houses on the market is a troubled property, thinks 2008 will be even worse.

"People just crossed their fingers,"

"But it got out of reach and kept going because of the crazy debt [that] people were willing to take on."

"They never planned for the worst-case scenario."

Anonymous said...

"What are you smoking son? First off realtor associastions don't pass laws......."

Sure they can. It's called campaign contributions. Put in say, $25,000, at election time; pull out a favorable vote later on.
That's like saying that teachers unions DON"T have the power to tax property in PA. When they totally control spineless, gutless, and weak-kneed school boards they do! Same goes for the state worker's union and its legislative puppets at the state capital. The PA Bar Assoc. got our no fault auto law kicked out because they weren't getting their soooooo deserved legal fees when the ins companies simply took care of their customers and didn't go to court!

You would be amazed at how many private organizations "pass laws" and "tax", and you NEVER voted for them!

Anonymous said... has been purchased by Aaron Krowne - owner of

Anonymous said...

The subprime mortgage meltdown has begun to spread to prime loans as even credit-worthy borrowers have started to fall behind on payments.

On Tuesday, Countrywide Financial, the nation's largest mortgage lender, attributed a big drop in profits to a spike in delinquencies among prime borrowers of "second-lien loans," including home equity loans and home equity lines of credit.

When homes go into foreclosure, first-lien lenders lay claim to proceeds from a sale. Second-lien can get stuck with a total loss.

According to Keith Gumbinger, vice president of mortgage information publisher HSH Associates, many of the delinquent second-lien borrowers bought into home ownership "with high loan-to-value ratios." They owed almost as much as the property was worth.

"These second-lien mortgages may be less likely to be paid off, especially if the borrower is having trouble paying off the first mortgage,"

Most second-lien loans come with adjustable rates - and interest rates have been rising. Since a lot of the borrowers were already at the edge of affordability, any increase hurts.

Anonymous said...

Kevin said...
Almost bought a house in Peoria (NW Phoenix area) last year for $400K, but cancelled the contract after some good thought. I see on the Standard Pacific website, the same home is now available for "quick move in" for $300K - a 25 % loss in one year !!! I am really thankful I didn't go through with the purchase !!!
Congrats Kevin-
Patience,and heads up.
If you think you will be buying soon,then check out some foreclosure auctions,and go lower on your offers.Negotiate like a Lion on your loan contract.No penalties,no ARM,no nothing.Put the carrot on a stick ,and lead the broker around.They will say no,and have a zillion reasons.Just play them.Ask for concessions,and make sure they pay for them ,not you.Be sure to look over every word of your contract,and find any backdoor penalties ,charges,changes,and specify a Man or a Woman to be held responsible for any bank failure,or broken terms of contract.The Bank cannot be held responsible to you effectively.If we end up in a heated inflationary period you will be the envy of the neighborhood.The risk now is to the downside for home prices,but if you are comfortable,and plan to stay then that risk means little.
Disclaimer- Yes that is advice about investing-take it or leave it. Much success to you.

Anonymous said...

C'mon folks! Learn to spell.

Anonymous said...

Uh oh! Bush's lackey struck out in China. Must be time to lash out at someone with another war.

China Business
Jul 26, 2007

China shying from shaky US mortgage market
By Olivia Chung

HONG KONG - While China is eager to invest a portion of its US$1.33 trillion foreign-exchange reserve overseas, it is unlikely to take a chance on buying additional US mortgage-backed securities (MBS) as they are now considered too risky, Chinese economists said.

During a recent trip to Beijing, US Department of Housing and Urban Development (HUD) Secretary Alphonso Jackson tried to sell China on the idea of buying more MBS. Investing in MBS offers better returns for China than US Treasury bonds, and at the same level of risk, Jackson claimed.

He called it a "win-win" situation in a statement released prior to his Beijing trip. "China has bought some mortgage-backed securities from us, but not in great numbers," Jackson said.

China held $414 billion in US Treasury bonds as of April, according to data compiled by Bloomberg. And according to HUD's website, as of June 2006, China held $107.5 billion in MBS, up from $3 billion in 2003 and $100 million in 2002. Jackson was particularly keen to persuade China's central bank to buy more securities from the Government National Mortgage Association (known colloquially as Ginnie Mae), a mortgage association under HUD. (The figures include securities offered by Ginnie Mae, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp, without providing a breakdown of each agency's holdings.)

"The Chinese economy is benefiting from high-yielding, safe investments in US mortgage-backed securities. Here at home, American homeowners are benefiting from lower interest rates on mortgage loans resulting from greater Chinese demand for these securities," Jackson said.

Jackson pressed his MBS case with People's Bank of China governor Zhou Xiaochuan, Construction Minister Wang Guangtao, and officials of Chinese commercial banks. Without elaborating, Jackson said his department wants to sign a memorandum of understanding with Wang when the latter visits the US next month.

However, it promises to be a tough sell for Jackson. The Chinese government may decline the offer given the current surge in mortgage defaults in the US, Chinese economists said. Moreover, China has invested most of its foreign reserve funds in US-dollar assets and wants to diversify its investment.

To improve macroeconomic stability and reduce upward pressure on the yuan, China is setting up an investment agency called the State Investment Co (SIC) to oversee part of its foreign-exchange-reserve investments. While the SIC has yet to be officially launched, it made its first investment in May by spending $3 billion for a stake in the US private-equity firm the Blackstone Group.

China's State Administration of Foreign Exchange (SAFE), which manages the reserves, does not release figures for the proportion of foreign reserves held, but it is estimated that China holds about 70% of its foreign reserves in dollar assets, including treasury bonds.

Yi Xianrong, a senior economist and finance professor with the Chinese Academy of Social Sciences, a central government think-tank, attributed the previous surge of mortgage-backed securities bought by Chinese companies to inexperience in conducting risk assessments and their miscalculation of the US property market.

"After seeing how the property prices in China kept soaring, these Chinese companies never thought of the US property market as having problems and they bought a lot of mortgage-backed securities, particularly in the past two years," Yi told Asia Times Online. "Apart from underestimating the level of risk, the better returns offered by MBS over US Treasury bonds also made the Chinese investors unable to judge the high risk of the US mortgage market."

He said subprime loans are one reason MBS investments are risky. Subprime loans are made at higher interest rates to people are considered bad or weak credit risks. They generally have interest rates at least 2-3 percentage points higher than prime loans.

Of the approximately $7 trillion worth of US mortgage securities, subprime loans currently account for about 15%. Thirteen percent of US mortgage delinquencies in the last quarter of 2006 were from subprime loans and about 30 mortgage companies have gone under in the past few months, Yi said. "There are significant financial losses," he said.

Yi said some bond ratings agencies that advise investors, including Chinese, also purposely played down the MBS risk. "Some ratings agencies slapped investment-grade ratings on mortgage-backed bonds that they knew they were risky," he charged.

Bond-rating agencies this month finally downgraded about $12 billion worth of subprime US mortgage securities, Yi said.

Economist Shi Weigan echoed Yi's comments. "With a possible burst in the housing bubble in the US, it's not the right choice for Beijing to spend foreign-exchange reserve funds on the US mortgage-backed securities," Shi said.

Olivia Chung is a senior Asia Times Online reporter.

Anonymous said...


“A charred, gutted home on a small street of foreclosed homes in Spring is more than just an empty dwelling, it’s a sign of a disturbing new pattern in mortgage fraud.”

“Explosions rocked the 7,000 square foot building Sunday afternoon when the owner was in the Bahamas. The Fire Marshal said there were 25 five-gallon containers of gasoline stashed all over the home that were ignited simultaneously.”

“The blaze came less than three weeks before $30,000 in property taxes were due. The owner of the home, Michael Macomber, posted $90,000 bond and was released from custody Monday.”

“Investigators said he confessed to everything, for he was the one left holding the bag when a $500,000 mortgage fraud ring unraveled around him.” “The previous owner, Arthur Monroe, was charged with falsely doubling the home’s value, selling it to Macomber and then paying him a kickback.”

“So far, seven people are facing charges for the complex scheme involving multiple homes, mortgage fraud, insurance fraud and fire, something arson investigators said they’re coming across more often than ever.”

“Federal investigators are getting involved too, because they believe the title company linked to the scheme may have been in on it as well.”

Anonymous said...


Anonymous said...

What's that smell?

Oh, it's the U.S. dollar being gutted by the market.

Anonymous said...

Could banks finally start getting realistic about their foreclosures' worth?

From my old hood in Las Vegas:

Home down the street from my old house last sold for $410K in 2005:

FB foreclosed in November 2007.

Listing history on MLS

Jan - $399K
April - $379K
Early June - $373K
Late June - $359K
July 7th - $343K
July 25th - $338K

This thing is speeding up, it's down 10% in less than 2 months.

As a point of reference I sold an almost similar home for $430K last year. These homes cost in the $160K to $190K range new when they were built in 2001.

I know this is just one example and a trend it does not make. Very encouraging though.

Anonymous said...

Starting to get ugly....

Anonymous said...

WASHINGTON (AP) -- Sales of new homes fell in June by the largest amount in five months as the housing industry continued to struggle with its worst downturn in 16 years. The median home price also fell.

The Commerce Department reported that sales of new single-family homes dropped by 6.6 percent last month to a seasonally adjusted annual rate of 834,000 units. The decline was more than triple what had been expected and was the largest percentage drop since sales fell by 12.7 percent in January. Sales are now 22.3 percent below the level of a year ago.

The median price of a new home sold last month dropped to $237,900, down by 2.2 percent from a year ago. It was the biggest year-over-year price drop since a 6.5 percent fall in April. The median price is the point where half the homes sold for more and half for less.

The big drop in new home sales followed a report Wednesday showing that existing home sales dropped by 3.8 percent in June to a five-year low. The weakness reflects spreading troubles in the mortgage market as more borrowers are defaulting on their loans, dumping those homes back on an already glutted market. In addition, banks and other lenders are tightening their standards, making it harder for prospective buyers to qualify for loans.

By region of the country, new home sales fell by 27.1 percent in the Northeast, 22.5 percent in the West and 17.1 percent in the Midwest. Only the South saw an increase in sales, a gain of 7.6 percent.

Economists believe the weakness in housing could linger through the rest of this year until a huge overhang of unsold homes is worked down. For June, the inventory of unsold new homes was unchanged at 537,000 units.

Anonymous said...

Help me out here. Why is your gross income used to determine a loan amount? I have always used my net when considering what I can afford (house, car, etc).

Anonymous said... about floating me a loan w/ your indy put profits?

Anonymous said...

the median price of a home sold in the month edged up 0.3 percent compared to a year ago to $230,100. It was the first time since July 2006 that there has been a gain in that closely-watched price measure. The June price jumped 3.3 percent compared to May.

Some crash.


Why is it you only look at the facts that support your side? Take the blinders off an look at the big picture.

Anonymous said...

More Americans saved by the Blogs.
I keep meeting people who have decided to research buying a home before they jump in.
They are fascinated by the reality of the Markets etc.
Way to go Kieth .

Anonymous said...

Yen surges as investors shun risky trades

The yen surged on Thursday, climbing to a three-month high against the dollar, as investors spooked by growing problems in credit markets fled risky assets financed by borrowing in the low-yielding Japanese currency.

Credit spreads widened, stocks fell sharply, and U.S. benchmark Treasury yields tumbled in a flight to quality that prompted currency traders to buy back yen that had been used to buy higher-yielding currencies like sterling in carry trades.

"It's clearly a case of the tail wagging the dog in the FX markets today," said Robert Sinche, global head of currency strategy at Bank of America in New York. "We're seeing a big rise in risk aversion and unwinding of positions in other markets, and that is hurting the carry trade."

The spillover to the currency market got even uglier after the dollar tumbled below its 200-day moving average against the yen, a long-term technical chart signal, triggering a wave of automatic orders to sell dollars and buy yen, dealers said.

By late afternoon, the dollar was down 1.4 percent at 118.70 yen, on track for its biggest daily decline against the Japanese currency in around 5 months.

Amid mounting fears that the U.S. housing market is deteriorating and worries that financing of corporate takeovers is becoming more difficult, the Dow Jones industrial average (.DJI: Quote, Profile, Research) was also on track for its worst day in five months.

U.S. and European junk bonds took a beating, while the 2-year Treasury yield dropped 18 basis points, headed for its biggest daily fall in around three years. Analysts said that until stock and bond markets settled, currency traders would likely keep buying back yen and reducing their exposure to riskier high yielding currencies.

The euro slid 1.3 percent to 163.20 yen after dropping to 162.90 yen earlier in the session, the lowest in more than a month.

The yen's gains were most pronounced against the New Zealand dollar, which boasts the world's highest interest rates and is a darling of Japanese investors, but was dealt a blow earlier in the day after the Reserve Bank of New Zealand said that it may have raised rates enough to cool inflation.

The kiwi fell 3.4 percent against the yen, the biggest decline since late February, to 93.10 yen.

Meanwhile the euro rose 0.1 percent to $1.3740, just over one cent below a record high hit earlier in the week.

The Swiss franc, another popular funding currency for carry trades, also rallied sharply. The U.S. dollar fell 0.8 percent to 1.2035 francs.

Dealing another blow to the dollar, U.S. new home sales fell unexpectedly sharply in June and prices slumped, according to a government reports on Thursday that pointed to continuing weakness in the housing sector.

"It's bad news all around for the dollar," said David Powell, senior currency strategist with IDEAglobal in New York. "That doesn't bode well for the category of GDP that's been a drag for so long, residential fixed construction."

Anonymous said...


My sentiments exactly. Gross income is meaningless. The same two people making $100K could pay $20K in taxes or $40K in taxes depending on their situation (married/single, kids/no kids, standard/itemized etc). Also things like 401k/IRA and health insurance coverage can make a HUGE difference in net income from one person to the next making the same gross salary.

And taking that even further, gross or net income alone doesn't really tell the story either.$100K a year goes a long way for a single guy in Dallas. Same $100K with 4 kids to feed/clothe goes nowhere fast for someone in New York City or San Francisco. Yet both of those people would be qualified for the same home loan.

You'd think with the sophisticated computer models out there these things would be taken into account, but they're not.

Anonymous said...

nikkei down at open 400+ pts!!! Might have a bad Friday 7/27/2007...

Anonymous said...

Countrywide Financial: Who Didn't See It Coming?

Countrywide Financial (CFC) is a good company, and Angelo Mozilo is a good Chief Executive. So one should heed his words when he speaks about the housing market, as he did on Tuesday after CFC released its quarterly results. Excerpts from the call come from Paper Money.

But as I do reflect on it, and I do a lot, nobody saw this coming.

S&P and Moody’s (MCO) didn’t see it coming, but they simply just downgrade bonds. Bear Stearns (BSC) certainly didn’t see it coming, Merrill Lynch (MER) didn’t see it coming, nobody saw this coming.

Angelo, baby, you have to drop by Running of the Bulls more often. We certainly saw it coming here. And frankly, most of my colleagues in the investment business saw it coming, too, though, admittedly, we are a cranky lot, and see more bubbles in financial markets than a trophy wife sees in her morning bath.

The Fed, knowing that well over 50%, 60%, 70% of the loans made in 2003, 2004, 2005 and 2006 were indexed variable rate loans, indexed one way or another to the Fed funds rate, increased the Fed funds rate seventeen times… seventeen consecutive times with most of the product out there being variable rate product.

You never knew when they were going to stop increasing.

The fact that they did that had a material impact on affordability as people went to refinance or people went to buy… Major major impact.

After the Tech Bubble burst, the True Believers who handed their client's heads to them on a silver platter did not blame their own faulty analysis or their utter lack of understanding of financial and economic history. Instead, many of them blamed the Fed for raising interest rates. Of course, rising interest rates are a major, if not the main reason why bubbles deflate. However, the True Believers usually fail to see that their grand vision was a bubble to begin with, and that rising interest rates are often the catalyst that implodes the bubble.

Angelo Mozilo is an accomplished man for whom I have great respect, and certainly does not deserve to be cast in with the charlatans of the Tech Bubble nor the blind prophets of this real estate bubble, such as NAR economists. However, Mr. Mozilo's business benefited enormously from the multi-generation low in interest rates and enormously lax lending standards, which brought unqualified and unknowing home owners, investors and speculators into the housing markets, which pushed housing prices up to unheard of levels. Thus, it is no surprise that as credit tightens, the process is being unwound.

On delinquencies:

So far what we have seen in delinquencies to a great extent are not resets at all but people losing their jobs, loss of marriage, loss of health and the problem is that they either can’t refinance because the value of their homes have gone down, so their under water, or the program that they used to get into the home is no longer available to them. So right now the delinquencies are being driven by more traditional issues then they are about concern about resets.

On falling home prices

I do think it’s important to observe what happens going forward because we are experiencing home price depreciation almost like never before with the exception of the Great Depression [emphasis added] and so I think using standards or frames of reference on prime and the performance of prime in other environments may not be a fair comparison in light of what’s happening to real estate values.

On the quality of the "prime" borrower:

The spillover into prime I don’t think is something that should shock anybody once you understand the definition of prime.

The basic issue you see today, particularly with Countrywide is the spillover into the HELOC [home equity line of credit] portfolio.

At least for this quarter, it’s not really a subprime story, it’s a HELOC story and the deterioration in the piggy backs that were originated in order to assist the mortgagor to avoid PMI and all the advantages that that avoidance provided for the borrower.

On the Fed and tightening credit:

The bottom line is, as values decrease, the options for borrowers, homebuyers, the combination of limiting their product available to them is exacerbating the problem.

The fact that the Fed joint agency guidelines seriously restricted liquidity for borrowers to either refinance or for people to buy homes… I’m not making a judgment whether it was right, wrong, or indifferent it’s just that that’s what it did.

And then combined with a volatile secondary market… you know if you think about the perfect storm, that’s the perfect storm.

Mr. Mozilo has sold 1.4 million shares of Countrywide stock this year. He has been in the business 54 years.

Tighten your seat belts. There is more to come.

Anonymous said...

Housing Meltdown Costing Jobs

Job cuts in housing-related industries nearly tripled in the first half of 2007 as the housing sector's collapse accelerated, according to a report issued Thursday by an employment sector consulting firm.

Announced cuts in the real estate, construction and mortgage-lending sectors surged to 37,564 through June, according to Challenger, Gray & Christmas Inc.

The cuts exceed the total for all of 2006 and accounted for 10 percent of total announced staff reductions in the first half of 2007, the report said. The affected sectors accounted for less than 3 percent of total job cuts last year.

The housing market is collapsing under an excess of unsold homes, which is forcing sellers to slash prices at a time when higher interest rates and tighter lending standards have crimped already-soft demand.

Builders curbed construction while they try to sell the glut of existing inventory, leading to layoffs at contractors and construction suppliers.

Mortgage lenders, which helped fuel the five-year housing boom that sent prices to record levels in many regions, shed 16,638 jobs in the first six months, more than double the year-ago amount, the report said.

That sector faces a sharp rise in delinquencies and defaults on all manner of mortgages. But lenders to borrowers with poor credit histories have been particularly hard hit, with several dozen filing for bankruptcy so far this year.

Challenger warned the housing market and its ancillary industries are likely to remain troubled.

"Unlike the bubble, which collapsed rapidly after the bubble burst, the deflation of the housing bubble could take several years to play out," said John Challenger, the firm's chief executive.

On Thursday, a series of homebuilder stocks fell to 52-week lows after several major companies reported quarterly losses. Industry data released this week showed sales of both existing and new homes continue to decline, as the meltdown enters its third year.

Anonymous said...

Kern's 'rainy day' looms

Kern County Supervisors and school board trustees must follow the advice parents give children who find money from the tooth fairy: Don't spend it all at once.

The county will see a rise in revenues in the coming budget year as a result of the now-fizzling housing boom. The boom has moderated and so will the property tax spike in the future.

According to County Assessor Jim Fitch, the taxable value of property values for the fiscal 2007-2008 year calculated as of January rose $8.5 billion -- 12 percent -- to $79.6 billion from the previous year. The bulk of that is attributable to single-family home sales and land sales.

But because the calendar year and the fiscal year are not the same, starting in January when the assessment was fixed, home sales and prices began to drop from their peak period between July 2006 to the present. That decrease should result in lower property tax assessments -- and lower tax revenues -- in future budget years.

Most government programs face increased demands that cannot be completely met with increased fees. And supervisors and school board trustees always have pet projects that are heavily dependent on property taxes.

Even though the county has had up and down revenue cycles in the past, the most vivid cautionary tale about the need for budget discipline is the state's dot-com spending bubble.

When that bubble burst, the once-reasonable state budget plunged into debt. Taxpayers are still struggling to pay it off.

It behooves everyone to play it smarter than that here and now.

Anonymous said...

It is now clear that the subprime /housing crash is "contained" within the broader market.

Anonymous said...

AEGIS Mortgage - Lower then SCUM

Today I just got my first look at a clients Aegis Mortgage Forbearance agreement, and to say I was horrified would be an understatement. So in the process of someone trying to keep their home, under duress the lender in exchange for doing them this "favor," wants them to sign away all of their rights and remedies. Then I visited the Aegis web site and was hopping mad at what I found there. They ask borrowers to "find money" by robbing their 401K, cashing in stocks or insurance policies, or if nothing else they recommend somehow cutting back on electricity and other household bills. IF all fails they explain how you can simply deed the house to them. A_ _ Holes. I guess they failed to read Senator Chris Dodd's new outline for borrower workouts.

Here is a specific paragraph from the forbearance agreement.

WHEREAS, The Borrower(s) acknowledge their default of certain terms of the Note and Mortgage and reaffirm their obligations there under. The Borrower(s) acknowledge by their execution and delivery hereof, that they have no defense, setoff or counterclaim with respect to their default, and their obligations under the Note and Mortgage.

I think execution is a good word. The borrower might as well just execute themselves.

WHEREAS, The Borrower(s) acknowledge that they voluntarily release, discharge, and covenant not to sue Aegis Mortgage Corp. for any and all claims, to the extent that any claims may exist now, that are related or connected in any manner, directly or indirectly, to the Note, Mortgage or the aforementioned premises.

I think voluntarily is more like under duress. Here the lender is using the situation to coerce the borrower to release all legal rights and remedies in exchange for the forbearance. I say just sue them and get it over with. This is tantamount to screwing the borrower the same way as the initial loan agreement did. Using legal documents to deceive and manipulate. It's the loan contract all over again. Nowhere in the six page forbearance agreement, which was obviously written by a lawyer to protect the lender in every way, does it recommend that the borrower have a lawyer review the agreement before signing it.

The last paragraph which really got my ire up was this:

Aegis Mortgage Corp. has agreed, so long as you are fully in compliance with your obligations under this Forbearance Agreement, to "take no affirmative steps to advance this foreclosure action." However, Aegis Mortgage Corp. specifically reserves the right, and you specifically understand and agree, that Aegis shall be entitled to postpone the sale, file notices with the Court, complete service of process, publish the pending foreclosure and to take any and all other action necessary to maintain the pending status of the foreclosure action, and the actions described in this section are expressly not considered to be affirmative steps.

What the HE-- is this? They don't consider publishing someone's home to be sold, or maintaining the pending status of the foreclosure action affirmative steps. What planet do they live on. In short this is just a few highlights of the six page document. More outrageous crap is in it. While our government is focused on Foreclosure rescue scams, the lenders are playing out their own version of how bad can we screw all these people who are in trouble and continue to protect ourselves.

I want the lenders to sign this agreement:

WHEREAS, we the lenders of America operating right under the noses of the Federal Regulators, did hereby steal millions of dollars from the American public. We created the artificial real estate bubble by sending hordes of buyers into the market with triple the amount of pre approved loan amount they could borrow and qualify for by using no doc and low doc loans, adjustable rate and teaser rates, negatively amortizing arms, and brokers who forged documents, appraisers who inflated values, and a myriad of other techniques.

WHEREAS, we the lenders of America and our partners and affiliated companies in crime, ie: the title companies, brokers, appraisers, Wall Street, and assorted other entities, did hereby steal funds on every transaction with overinflated fees, settlement costs, prepayment penalties, broker kickbacks, overcharging for recordation taxes, title insurance, float in escrow accounts, captive reinsurance, and many other nooks and crannies we hid fees and profits to us.

WHEREAS, we the lenders of America are now in trouble with everyone suing us are using the "ill gotten gains" to defend ourselves against the lawsuits and protect our CEO's and other executives who were the primary beneficiaries of the FRAUD.

WHEREAS, we the lenders of America are now walking away and closing up shop leaving everyone else to pick up the pieces of the mess we are leaving behind. We( the executives who profited the most) will be fine because we made so much money we could live the rest of our lives on what we already took out or these companies. You the borrowers, not so lucky.

In conclusion,

It's been a fun ride, thanks for coming along. Sorry it has made you nauseous in the end. Most good rides do that you know. No hard feelings. If you sign away all your legal rights we may let you keep your house. For awhile anyway. Eventually you may buckle under the pressure, and we will have to foreclose. I hope you understand. We should have never given you this loan to begin with.

Thanks a million, or should I say a hundred million,

1117 Sunshine Ave.
Cayman Islands

PS. Sorry to the IRS and the US government but you are so F_ _ _ed up we decided to go elsewhere. We didn't want all of our tax dollars going to bail out the borrowers or fight the war in IRAQ. Nevermind those young men and women are fighting and dieing so scum like us can do whatever the hell we please in America. After all you did participate by looking the other way as we ran amuck. So Thanks, so sorry to do this to you.

Anonymous said...

This is for all you guys who complain about the drivel in the MSM. Watch this CNN anchor get ragged about having to read a story about Lindsay Lohan's DUI arrest.

Anonymous said...

I couldn't have said it better myself:

"Fear and ignorance seem to be gripping retail investors these days," said Charles Biderman, chief executive of Santa Rosa, Calif.-based TrimTabs on Thursday, pointing to ongoing concerns about subprime lending and slumping housing markets.
"This is a complete panic by individual investors," he commented. "They just don't know what's going on."

Anonymous said...

This off The Ft Myers News Press today.

WCI stock takes a beating
Troubled homebuilder can't find buyer

By Tim Engstrom
Originally posted on July 27, 2007

WCI Communities Inc. stock fell into a tailspin Thursday after the luxury homebuilder conceded it has failed to attract a committed buyer.

The stock fell nearly 27 percent in initial trading and closed at $9.87, down about 13 percent from Wednesday's close. Nearly 8 million shares changed hands, compared to the recent daily average of about 1 million.

The stock is down 31 percent in heavy trading this week — nearly a third of its value.

In a statement released shortly before the markets opened, the Bonita Springs-based builder of Gulf Harbour, Pelican Preserve and many towers said the slump in the homebuilding sector made a sale "more challenging."

The stock set its recent high of $24.20 Feb. 16 after billionaire investor Carl Icahn announced he had taken a 14 percent interest in the company. In March, he made an unsolicited bid of $22 per share, or $956 million, for the company.

Icahn also launched a proxy fight against WCI, proposing his own slate of directors be voted on at the company's shareholder meeting.

WCI rejected the buyout bid as "inadequate," then postponed its shareholders meeting from June 15 to Aug. 30 to allow more time to find a buyer.

An investor holding 1,000 shares would have lost more than $14,000 since February.

"I don't know what the top-tier decision makers at WCI were thinking when they thought they could get a better offer," said Jack McCabe, a real estate consultant based in Deerfield Beach. "There was no indication in this industry that there was going to be any good news."

McCabe said he suspects that only asset management companies seriously considered buying

WCI because other large public builders are struggling in their own right.

"If you are losing hundreds of thousands of dollars every quarter, it's hard to justify spending millions on another company in the same trouble," McCabe said.

WCI builds luxury homes and high-rise condominiums in Florida, New York, New Jersey, Connecticut, Maryland and Virginia.

WCI representatives have refused to say how many potential buyers it worked with or who they might be, other than to confirm that one of Carl Icahn's companies had entered the process. Spokesman Steve Zenker said the company would have no comment Thursday outside its official statement.

The company said it will continue to explore a sale and "other potential strategic and financial alternatives, including asset sales, strategic partnerships, minority investments, and recapitalization transactions to enhance shareholder value."

Recapitalization is essentially a financial restructuring of a company's balance sheet, using bonds or other methods.

The company will also "focus on navigating the current housing downturn by emphasizing cash flow, debt reduction, and operating efficiency, while continuing to reduce spending and overhead expenses,'' chairman Don Ackerman said in a prepared release.

In May, the company reported a quarterly net loss of $15.8 million, or 38 cents per share, compared with net income of $40.2 million, or 89 cents per share, a year ago. Its financial statement showed $1.9 billion in long-term debt.

Shareholder Carole Blomberg of Estero said she was disappointed by the company's statement Thursday, but she still hoped for better news before the shareholders meeting Aug. 30.

"We still have a whole month, maybe something will turn up before then," Blomberg said.

If no bid for the company is made, Blomberg said she is uncertain how she will vote in the proxy fight between Icahn's proposed board and the current WCI board.

"I guess I won't know that until I get to the meeting," she said. "I bought WCI because I liked it the way it was."

McCabe said the company's lower share price might attract new buyers for the company, but shareholders shouldn't expect to cash in.

"Nobody is going to offer $22 a share when it is trading in single digits," McCabe said.

Anonymous said...

I live in Miami Beach, in a high rise ultra luxury condo building. Our prices have dipped somewhat but there hasn't been a big drop. In fact the more desirable units facing the water and on higher floors have steadily held their price or have increased. Inventory has also steadily declined. I do not see any opportunities in this market segment at all. I might want to add that the typical resident in my building is rather wealthy. Starting with children of Colombian narco-trafficantes who don’t comprehend the word work to wealthy stock brokers, attorneys, doctors, real estate brokers and other entrepreneurial chaff such as myself. My apartment is relatively small at 1,680 sqft. I have a maintenance payment of $1k per month and my property tax is about the same. That’s $2k before a mortgage. I’m lucky I had inherited some money and could pay for my condo in Cash when I purchased it in 2001 at pre-construction pricing. A friend of mine who is a private investment advisor with a big Swiss bank lives in a 3,800 sqft. apartment in another tower but same building. His monthly maintenance/property tax bill is roughly $6k. He has a mortgage on it so he feeds the alligator a solid $15k per month. With a W2 income of a roughly a million and a half he can easily afford it. What I’m trying to say is that the people who own here in this market segment are too wealthy to be affected by the “housing slump”. Our prices won’t go down! There are 3 new ocean front development south of 5th on Ocean Drive where the prices start at 4.8 Million dollars. These projects are vigorously moving forward and are guess what “sold out”. Where it will hurt is in the middle class. The J6P crowd that has a combined family income of roughly $120k before taxes living in a $750k suburban Clownifornia stucko box. Their equity will be wiped out by dropping prices and if anyone ever read the small print in the mortgage agreements, the lender has the right to request additional collateral. What is J6P going to do when the count commeth calling for more collateral, the real estate version of a margin call? Can someone explain to me what kind of country we’ll be facing? A pretty plausible explanation is that a new class of peasants needs to be created through an immense transfer of wealth, the complete and utter elimination of the American middle class. And let’s not forget that these folks are armed and will not hesitate to use them. Maybe it’s time to break out the old E.U. passport, pack up and let the good old USA implode without me.

Anonymous said...

1980 - Bush
1984 - Bush
1988 - Bush
1992 - Clinton and Bush
1996 - Clinton
2000 - Bush
2004 - Bush
2008 - Clinton

Anyone else sick and tired of the same 2 names being on presidential tickets every time?

I sure as hell am.

Anonymous said...

to the douche who keeps posting 1000 word's called a URL link...look into it

Anonymous said...

"Last year the Sacramento County employee lost $1,800 in extra monthly consulting income that had made the 2005 purchase possible. She says her lender wouldn't work out alternatives while she was still current on payments. When she started missing payments in March, the bank's insurance company refused offers of a short sale, in which the lender agrees to take less than it's owed to avoid the greater costs of foreclosure. "

I almost wonder when I read things like this if the banks deliberately like to lose money. Why would the bank rather sit on a REO and then have to spend the money to sell or auction, and take a HUGE loss rather than to just work with this woman, and continue to make a return on the loan? These banks really must be out of touch with reality. If I loaned money to someone, I would much rather receive a return of 5% vs 8% rather than a return of 0% and then have to pay for a sale myself, and show a loss / foreclosure on the books. I guess it makes perfect sense now that these banks handed out money like water. They really are run by complete idiots. All I can say is that I get a big smile on my face when I here of another bank losing in Wall Street and having to pony up. For what they are doing to people like the lady above, they deserve to themselves be shut down and put out on the street!


Anonymous said...

The investment experts do not want us to panic so they are withholding the truth and sugar coating everything. Don't bother to read the papers, see the news. Just listen to your common sense. Brilliant experienced money managers at Bear Sterns screwed up big time so don't be too complacent.

Anonymous said...

This is the link for the pro shares funds. Some are for shorting some aren't. I like SRS which is for shorting REITs.

Anonymous said...

China got suckered again. The partners are getting most of the funds.

Blackstone shares drop as much as 7 percent
Fri Jul 27, 2007 1:47PM EDT
Market News

NEW YORK, July 27 (Reuters) - Shares of Blackstone Group LP (BX.N: Quote, Profile, Research), the private equity firm that went public late last month, fell as much as 7 percent on Friday, amid a debt market freeze that has shut off funding for leveraged buyouts. Blackstone's stock has fallen 21 percent since its June 21 debut, making it one of the year's worst performers for U.S. IPOs.

Its shares were down another 7 percent on Thursday, before staging a late-day rally, ending slightly higher. The firm's stock fell 4.8 percent on Friday afternoon to $24.44.

Blackstone raised more than $4 billion through its IPO, most of which went to paying out top partners.

Shortly after Blackstone priced its IPO, debt investors began pushing back against the leveraged buyout financing. Banks that loaned private equity firms such as Blackstone billions of dollars for buyouts suddenly had trouble get debt investors to purchase the loans.

Now, more than $200 billion worth of debt is being held by banks and waiting to be sold down to investors sometime after the U.S. Labor Day holiday in early September.

Blackstone's slide on Friday followed a broad market decline, with all three major U.S. indexes down more than 1 percent on concerns about the broadening deterioration in credit markets.

((Reporting by Michael Flaherty; editing by Andre Grenon; email: +1-646-223-6152)) Keywords: BLACKSTONE STOCKS

(C) Reuters 2007. All rights reserved.

Anonymous said...

Anonymous said...
1980 - Bush
1984 - Bush
1988 - Bush
1992 - Clinton and Bush
1996 - Clinton
2000 - Bush
2004 - Bush
2008 - Clinton

Anyone else sick and tired of the same 2 names being on presidential tickets every time?

I sure as hell am.

July 27, 2007 1:11 PM

Well, if you want a pattern look back at where the ancestral heritage of the presidents have come from. I think Eisenhower was the only one who's family didn't come from the British isles. 'People are sick of white guys'... just think of all the white guys yet untapped who's family came from Germany, Italy, Spain, Denmark, Norway, Poland, Russia, etc. who have yet to ascend. Talk about a centuries old bias!

Anonymous said...

I'm psst, the places i want to buy just are not dropping, maui, seattle area, cetral coast of cali. Even $50,000 drop is nothing compared to what thing were in 99-01.In cali 99 house was 200,000 now 700,000 and dropped to 650,000 big deal. Houses in cali,maui,seattle need to drop 50% plus to be affordable.

Anonymous said...

Chinese the biggest gamblers in the Human History. They bought Opium and gave their gold/silver/Hongkong/Macau in exchange. Now they are buying Junk and Blackstone gems. Think of it 300 years does not change human mind.

Anonymous said...

With so much drama in the S-A-C

Its kinda hard bein K to the C

But I, some how, some way

Keep comin up with sweet deals like every single day

May I, pay off a little debt of G's

And, make some google ends as I cheat, click through

Two in the after noon and I'm still nappin

Cause I'm kicked out my sister in-laws home

I got unopen bills spread out on the living room floor

And, they aint going away so I better start getting up at six in the mornin (six in the mornin)

So what should I do, sweeet

I got my own talk cast but theres a hatercast too

So turn off the lights and close the doors

But (but what) I dont own them homes

I'm gonna take a wheat grass shot to this

Foreclosures up, sales down, while you haterz all laugh at this

Bird dogin down the street, in the Jetta, sippin on Jamba juice
It's all good [with my mind on my blog and my blog on my mind]

Anonymous said...

Anonymous said...
Chinese the biggest gamblers in the Human History. They bought Opium and gave their gold/silver/Hongkong/Macau in exchange. Now they are buying Junk and Blackstone gems. Think of it 300 years does not change human mind.

July 28, 2007 7:07 AM

Dude, the English forced China to buy opium.

FlyingMonkeyWarrior said...


FBI is after Casey Serin.
Here is the link to the NightLine ABC Housing Bubble Story.

Anonymous said...

Yen Rising And USD Bottoming - Gold & Liquidity

Christopher Laird

In the latest Prudent Squirrel newsletter, we discussed the fact that the Yen is rising and the USD appears to be bottoming. There are a slew of macroeconomic problems also developing for world markets that are heavily leveraged. A rising Yen was heavily involved in the late February global market sell off, and a bottoming or rising USD is precious metals and CRB bearish.

Not to mention the fact that any news coming out on the US mortgage problems is instantaneously hitting practically every world financial market, as investors appear to be quite a bit more concerned about the prospects of a slowing US consumer than the typical 'Asia Bull', who buys the line that Asia can withstand a serious US economic pullback. That concept is way premature, Asia's incredible growth aside. Until Asia can get serious traction in their own consumers, they have little chance of replacing a flagging US consumer who is said to account for an amazing 25% of world GDP/consumption.

Asians are willing to speculate (gamble) or save, but are not nearly as willing to spend as freely for personal consumption as the people in the West are.

But moving ahead a little more, the fact is that world markets are heavily leveraged, and two factors are hitting leveraged markets hard right now, one is subprime and even prime mortgage problems in the US accounting for well over $2 to 5 trillion dollars in value accumulated over the recent US housing boom. These pains are causing market sell offs every time there is any major news out about it, as in the case of Countrywide's troubles coming out yesterday, and causing a serious US stock sell off and flight to safer bonds ( flight to safety and cash). The recent Bear Stearns losses leaving two hedge funds basically worthless, and the illumination that cast on how illiquid mortgage derivatives are, is causing great concern world wide, and is a harbinger of things to come. Investors are seriously pulling back from the mortgage sector, and liquidity is quickly becoming a general problem in every world market too. There is so much leverage accumulated in every market - to include the CRB complex - that rising risk premiums (higher interest rates for higher risk) are forcing market liquidations overall. I expect this trend to continue all this year.

The people talking about this 'World Stock Bull' market are ignoring the clear signs that there are serious liquidity issues developing in general. The US mortgage derivative losses are just one large sector with liquidity problems. But a rising Yen is another source of liquidity trouble, more on that in a moment.

The problems in the US mortgage market are a very hot issue with investors presently, and any major negative news on that comes out as toxic to financial markets almost instantaneously. That clearly indicates how serious big investors view that emerging crisis. There is a very good chart out by Credit Suisse on the impending ARM mortgage resets shown here. Take one look at where we are now, and consider how bad the US real estate market is already, then look ahead a year or two and see that we have only just begun to see the effects of resetting ARM mortgages, and the carnage that is just beginning, and will build relentlessly for the next several years- we have been discussing this chart in the recent NL issues:

After looking at this chart, it is easy to understand how the impending ARM resets have led to severe losses in that sector and will be continuing to lead to more losses. What this means is that the US mortgage market is rapidly drying up, and or risk premiums are returning to the credit markets - and that will affect all manner of credit - and that affects all financial markets as they are heavily leveraged right now - read impending liquidations.

Last year's story

Pending world liquidations is a theme we have been discussing for several months, all the while the various flavors of 'bull' market proponents are still talking about last year's story - the CRB bull, the 'world stock bull', and every other bull that has existed in the last several years.

The truth of the matter is that this year's story is emerging forces for market liquidations, that has been directly affecting gold when there are any significant stock/financial sell offs, as in yesterdays US, European and Japanese stock sell offs, and commensurate gold liquidation in the general selling. Gold was down anywhere from 4 to 7 dollars yesterday. In fact, the continuing US mortgage woes hit gold every time there is a new negative development, and have overridden the USD weakness situation as the USD tests 80 right now. The effect of the US mortgage situation on world financial markets right now cannot be over emphasized.

The other liquidity issue is a rising Yen, which in late February led to, or was directly a part, of the Asian stock sell offs starting February 27, led to two very tense weeks of selling verging on panic - the US Dow falling 500 points one day, and led to Dow Jones falling 2 hours behind on their quotes on that day. But people are still enamored of the 'World Stock Bull', and you would think that February never happened.

The proponents of the 'World Stock Bull' are merely looking at the last several years of incredible gains in stocks, but seem to be ignoring the increasing pressure that rising interest rates, US mortgage problems, and - maybe most significantly, the effect a rising Yen has on world market liquidity.

The list goes on, but a rising Yen puts a great deal of pressure on markets to be sold. There is probably over a $trillion in value of borrowed Yen invested in markets of every kind. This is a favorite of speculators who can borrow Yen for about 1%, and speculate with the money. But when the Yen strengthens, that process reverses, as a rising Yen is deadly to people who borrowed a lot of it and now are seeing the prospect of having to pay back that Yen at a higher exchange rate when they do want to unwind those Yen loans. The Yen right now is strengthening significantly.

In addition, the USD appears to be bottoming again, and the one of the only indexes to gain yesterday was the USD which strengthened a little and held 80 on the USDX. The USD right now is at about 80.20. Needless to say, if the USD bottoms here and financial markets continue their selling, we could have another bout of precious metals selling along with general market selling. This happened with a vengeance in late February. I sent out an alert to this fact yesterday.

We at PrudentSquirrel have been closely tracking this general liquidity situation for several months, and have been discussing the prospect of having more liquidity, rather than being heavily invested in the financial markets.

Obviously, the markets world wide could recover in the short term, but there are clear pressures mounting for another serious bout of market sell offs. If speculators can get ahead of the PPT (central bank market support teams in Japan and the US) we could see a real run on 'the bank' - financial markets heavily infected with leverage. The pieces are in place for this.

Roccman said...

fROM mARKET Ticker Blog


"AHM just laid a huge turd in the mortgage sector. What they did is unprecedented - rescinding a dividend that had already been declared and passed the record date!

This is likely to assrape the living hell out of all the lenders and banks Monday. Cute releasing this one in the middle of the night; they've pulled that shit before (Good Friday was the last time) but this one is very, very serious - a declared dividend that has passed the record date is a legal obligation of the company!

This could easily be considered an "act of default" by their portfolio lenders, which means an instant margin call, which means an instant recession of their warehouse lines.

This will NOT REMAIN CONTAINED - AHM is not a subprime outfit!.....No, I'm not kidding.

We're in deep shit guys.

AHM pulled a declared and paid divvy today. At 10:00 PM. That was paid today.

Yes, for real. And not just on the common - the preferred as well.

This is going to assrape the entire mortgage sector Monday - no exceptions. CFC, IMB, DSL, all of them. Anyone with a warehouse line is gonna get roached.

This is more serious than you can imagine. I've never heard of a company pulling a dividend past the ex-date or record date, and I'm not even sure its legal. In fact, I'm reasonably sure its not; it would be viewed, I suspect, as a pure act of default, which means all their warehouse lines are defunct and the company is fucked.

There have been rumors these guys were in trouble and laying off people, but this isn't just "in trouble", this is "we're completely out of money."

AHM.PK, here you go.

If this spreads it will kick off some UGLY shit in the markets!"

Anonymous said...

Alternative media is what is driving a quicker and much more pronounced decline in the housing market - Thanks Guys

Anonymous said...

keith, here is another nice blog you can put in the links section if you so choose...i found this one reading a article in the washington post that is linked by ml-implode....

burn baby burn said...

Only the good die young!

Vice President Dick Cheney on Saturday had minor surgery to receive a new battery for an implanted device that monitors his heart rhythms, his spokeswoman said.

"The device was successfully replaced without complication," Megan McGinn, the vice president's deputy press secretary.

Cheney, who has a history of heart problems, arrived with his wife, Lynne, in the morning for the procedure at George Washington University Hospital, and walked out about four hours later. He smiled and waved at photographers as he left.

Cheney returned to his home at the Naval Observatory and then resumed his normal schedule, McGinn said.

Doctors replaced the generator and battery part of the heart defibrillator. That device monitors Cheney's heart and would deliver an electric shock to reset the heart to normal rhythm if the heart ever went out of rhythm.

Doctors did not replace wires that are attached to the device and are threaded through Cheney's heart. That would have required a much more extensive operation.

Cheney, 66, has had four heart attacks, quadruple bypass surgery, two artery-clearing angioplasties and an operation to implant the defibrillator.

During Cheney's annual physical last month, doctors tested his implanted cardioverter-defibrillator and learned that the battery powering the device had reached a level where replacement is recommended.

During that checkup, Cheney had a stress test and doctors also checked out the defibrillator, which was implanted in June 2001. The stress test showed no blockages in his heart. Doctors also said then that his defibrillator was functioning properly and that they had not had to treat any irregular beating of the vice president's heart.

In 2005, Cheney had six hours of surgery on his legs to repair a kind of aneurysm, a ballooning weak spot in an artery that can burst if left untreated. In March, doctors discovered that he had a deep venous thrombosis in his left lower leg. After an ultrasound in late April, doctors said the clot was slowly getting smaller.

Dr. John Kassotis, director of electrophysiology at State University of New York's Downstate Medical Center, said that during the battery-replacement procedure, doctors typically use a local anesthetic on the chest and shoulder area below the collar bone. They make an incision and remove the defibrillator's generator, detaching it from wires that are connected inside the patient's heart.

"Then, they will reconnect a new battery," Kassotis said. "They will test that everything is working appropriately, then they will suture him closed. What we do is watch the patient for about an hour, make sure that they're doing fine, and send them home."

Anonymous said...

two other bubbles......

credit card bubbles

property tax bubbles
what happens when values go down?
by law they have to lower them to market....

delimma for the cities and the school districts that have been weened on rising prices.....for a long time now...

the party is over now.....

Anonymous said...

Excellent find roccman!!! If true this will be big.

RJ said...

Be prepared for some serious oil price shocks this year. Mexican oil production is about to tank.
According to this report from Prensa Latina, Pemex announced that its reserves may run out in seven years.

If true, Mexico will not be able to continue exporting oil. Like many other producers, it will need to horde its remaining reserves to meet domestic needs.
The U.S. isn't ready for this. Start getting the lifeboats ready.

Anonymous said...

Deja vu, Spike Rally in Japanese yen Spooks Global Markets.

Tokyo's financial warlords, working in a close coordination with the US Treasury's Plunge Protection Team (PPT), have been skillful in guiding the dollar higher for most of this year.

But Tokyo and the PPT were caught off guard by Iran's Ayatollah, when he demanded on July 14th, that Japanese oil refiners pay for Iranian crude in yen, instead of US dollars, starting in September.

Anonymous said...

105 major U.S. lenders have "imploded"

FlyingMonkeyWarrior said...

IAFF has been closed by Casey, for good, he sez.

Anonymous said...

Thought you guys might like to see that the "correction" is even up here at the end of the line. I would defer to the experts--but I think the only reason tha the median price is stable is because of the millions dollar properties on the islands and coast that go to out of staters.

[b]Sales of existing Maine homes fell nearly 17 percent[/b]in June when compared with the same period last year, the Maine Real Estate Information System is reporting.

Realtors sold 1,316 single-family existing homes last month; in June 2006, they sold 1,581 homes.

The median sales price for homes sold last month edged up slightly, however, reaching $199,950, up a half a percent.

Nationally, sales of single-family existing homes fell 12.1 percent in the past year. According to the National Association of Realtors, the national median sales price for those homes was nearly stable, at $230,300.

Regional sales were down 7.3 in the Northeast. Prices, however, rose 1.8 percent to $294,400 from last June.

Anonymous said...

Not that anyone remembers but the house I was talking about recently just dropped 50K in price to 550K.

Some places in DC are selling because people believe DC is different. But not many....the smart money is waiting.

Anonymous said...

You can live in Phoenix, Arizona where.....

1. You are willing to park 3 blocks away because you found shade.

2. You've experienced condensation on your butt from the hot water in the toilet bowl.

3. You can drive for 4 hours in one direction and never leave town.

4. You have over 100 recipes for Mexican food.

5. You know that "dry heat" is comparable to what hits you in the face when you open your oven door.

6. The 4 seasons are: tolerable, hot, really hot, and ARE YOU KIDDING ME??!!

You can Live in California where...

1. You make over $250,000 and you still can't afford to buy a house.

2. The fastest part of your commute is going down your driveway.

3. You know how to eat an artichoke.

4. You drive your rented Mercedes to your neighborhood block party.

5. When someone asks you how far something is, you tell them how long it will take to get there rather than how many miles away it is.

6. The 4 seasons are: Fire, Flood, Mud, and Drought.

You can Live in New York City where...

1. You say "the city" and expect everyone to know you mean Manhattan.

2. You can get into a four-hour argument about how to get from Columbus Circle to Battery Park, but can't find Wisconsin on a map.

3. You think Central Park is "nature,"

4. You believe that being able to swear at people in their own language makes you multi-lingual.

5. You've worn out a car horn.

6. You think eye contact is an act of aggression.

You can Live in Maine where...

1. You only have four spices: salt, pepper, ketchup, and Tabasco.

2. Halloween costumes fit over parkas.

3. You have more than one recipe for moose.

4. Sexy lingerie is anything flannel with less than eight buttons.

5. The four seasons are: winter, still winter, almost winter, and construction.

You can Live in the Deep South where...

1. You can rent a movie and buy bait in the same store.

2. "y'all" is singular and "all y'all" is plural.

3. "He needed killin'" is a valid defense.

4. Everyone has 2 first names: Billy Bob, Jimmy Bob, Mary Sue, Betty Jean, MARY BETH, etc.

You can live in Colorado where...

1. You carry your $3,000 mountain bike atop your $500 car.

2. You tell your husband to pick up Granola on his way home and he stops at the day care center.

3. A pass does not involve a football or dating.

4. The top of your head is bald, but you still have a pony tail.

You can live in the Midwest where...

1. You've never met any celebrities, but the mayor knows your name.

2. Your idea of a traffic jam is ten cars waiting to pass a tractor or an Amish buggy.

3. You have had to switch from "heat" to "A/C" on the same day.

4. You end sentences with a preposition: "Where's my coat at?"

5. When asked how your trip was to any exotic place, you say, "It was different!"

AND You can live in Florida where..

1. You eat dinner at 3:15 in the afternoon.

2. All purchases include a coupon of some kind -- even houses and cars.

3. Everyone can recommend an excellent dermatologist.

4. Road construction never ends anywhere in the state.

5. Cars in front of you are often driven by headless people.

Anonymous said...

So, who thinks the reason Hank Paulson flew to China on Friday was to encourage the Chinese to use some of their reserves to loosen the stalled liquidity machine so Wall St. can stabilize again?

What will China's response be?

Chris said...

Casey Serin's website says it is "over". Only a brief comment now. The website is done. Yesterday it showed a long apology to his wife for screwing up their marriage.

Anonymous said...

So, who thinks the reason Hank Paulson flew to China on Friday was to encourage the Chinese to use some of their reserves to loosen the stalled liquidity machine so Wall St. can stabilize again? What will China's response be?

Come on, what do you think it will be? The Chinese will laugh their heads off....

Anonymous said...

So, who thinks the reason Hank Paulson flew to China on Friday was to encourage the Chinese to use some of their reserves to loosen the stalled liquidity machine so Wall St. can stabilize again? What will China's response be?

We've been at (economic) war with China for years, but Bush and the rest of his extremist boobs have been too stupid to realize what was happening. The Neocon numbsculls assumed the "war" was in the Middle East, but it's been in Asia all along. (My two cents....)

burn baby burn said...

So, who thinks the reason Hank Paulson flew to China on Friday was to encourage the Chinese to use some of their reserves to loosen the stalled liquidity machine so Wall St. can stabilize again?

What will China's response be?

Fool me once shame on you; fool me twice shame on me.

Anonymous said...

Curious to find out what the next strategy is from the large landowners, the Plum Creeks and the St Joes. I noticed that these companies got out of the homebuilding business just in time. And they aren't as visible as the DR Hortons and the Pulte Homes or the lenders, either.

How do they make out in the coming period?

W.C. Varones said...

The story of an MBA student who thinks it's smart to buy a 1-bedroom condo for $715,000:

Anonymous said...

Dow, S&P Have Worst Week in 5 Years

Wall Street extended its steep decline Friday, propelling the Dow Jones industrials down more than 500 points over two days after investors gave in to mounting concerns that borrowing costs would climb for both companies and homeowners. It was the worst week for the Dow and the Standard & Poor's 500 index in five years.

Investors cast aside a stronger-than-expected read on the economy and maintained negative sentiment that dominated Thursday when the market shuddered amid worries over the U.S. mortgage and corporate lending markets. Investors globally took flight from equities, shifting cash into safer investments in Treasury bonds.

The pullback Thursday and Friday wiped out $526.1 billion in shareholder wealth from the stocks in the Standard & Poor's 500 index.

Although the market has often rebounded after a steep drop - and has done so in recent weeks - investors appeared unable Friday to set aside their concerns about a weakening housing market and tightening credit.

Anonymous said...

What a difference a week makes.

Little more than a week ago, Wall Street cheered as the Dow Jones industrial average hit a record high, just a hair above 14,000 -- up 1,000 points in three months.

Then on Thursday, stocks lurched into reverse. The Dow plunged more than 300 points as panicky investors worried that tightening credit might cripple the stock market and the economy. The Dow tumbled another 200 points Friday for a 4.2 percent loss for the week.

The drop left many investors wondering what changed all of a sudden.

Anonymous said...

Let's hope the panic attack doesn't start a chain reaction

Concerns have been building for months that the problems in America's housing market and sub-prime debt market were not ring-fenced but would spread to the wider economy.

The hope was that the Fed would cut interest rates and the sector would recover. Instead, there has been a continuing seepage of bad news. Shares in sub-prime lender Accredited Home Lenders plunged more than 75% in two days after it revealed that it may have to raise extra funds. HSBC announced this month that its bad-debt provisions for 2006 would be about $10.5bn (£5bn), largely because of mortgage defaults. And last week, America's biggest independent mortgage lender posted poor earnings, sending Wall Street into a tailspin.

This further fuels worries that investors are losing their appetite for risk and are dumping debt products, with the attendant effect of further raising the cost of credit for firms, threatening to dry up the stream of debt-driven private equity merger and acquisition (M&A) deals.

Much of the gain in share prices over the past two years has been fuelled by a dramatic explosion in M&A activity. Now it looks as if these deals are drying up. "If sustained," investment bank UBS warned in a note to clients, "the recent sharp rise in the cost of credit will bring to a halt the financing of takeovers and even new investment. It could also substantially impair equity valuations."

So what is the potential magnitude of the losses? According to some back-of-the-envelope calculations flying round Wall Street last week, about half of the $1 trillion of US sub-prime mortgages might get foreclosed, with the underlying properties sold at 50% off. That would amount to a $250bn hit.

A more realistic number is the estimate of Federal Reserve chairman Ben Bernanke. This stands at $100bn. But what about the hung-up private equity deals? Reportedly, $200bn needs to be financed. Some companies are delaying or cancelling their debt offerings.

According to the Wall Street Journal, the banks are on the hook "because they are now unable to persuade skittish hedge-fund managers to buy big buyout-related debt packages". Last week alone, they were stuck with about $20bn of unwanted loans to Chrysler Group and the UK's retail chemist chain Alliance Boots.

Worse, banks have already committed to provide an additional $200bn-plus of buyout debt. "If that ends up on their balance sheets," warns Wall Street strategist Ed Yardeni, "any further decline in loan prices could slam their bottom lines."

Credit Suisse estimates that a 10% markdown on the value of those loans would cost banks a third of their 2007 earnings. If they hedge their exposures, it might be less severe. But the cost of hedging leveraged loans rose about 80% in July, and some can't be hedged at all.

A sustained rise in the cost of capital will dampen corporate activity and weigh down on a global economy that has been remarkably resilient till now. The worry for central banks is that further rises in interest rates against a background of turmoil in debt and equity markets could trigger a downturn more severe than the slowdown required to bring inflation back on track.


Anonymous said...

Economists see big investor losses in prolonged housing slump

The national housing slump could result in billions of dollars in losses to Wall Street investors as it drags on for at least another year and mortgage defaults increase, economists said Thursday.

The outlook on eroding credit quality in the U.S. mortgage market by Moody's anticipates that more than 1.2 million first mortgage loans will default this year and another 1.3 million will follow next year.

That compares with about 900,000 defaults last year and about 800,000 in 2005, Mark Zandi, the Web site's chief economist, said in a conference call.

Hedge fund investors will lose between $100 billion and $125 billion as a result, he said.

"We do expect losses in the subprime market to be very severe,"

Anonymous said...

Stocks set for losing week as investors worry about tightening credit

Stock markets are likely headed for further losses after worries about a tightening of credit conditions cut a wide swath through indexes last week.

"What we're seeing is the global re-rating of risk," said John Johnston, chief strategist for the Harbour Group at RBC Dominion Securities.

A big reason for this surge had been a wave of corporate acquisitions, financed in large part by cheap money. But last week, this wave crested.

The group of banks raising funds for the private-equity purchase of automaker Chrysler postponed a US$12-billion debt offer after investors balked at its terms. The banks were forced to assume the risk themselves after failing to unload the debt onto outsiders.

Meanwhile, underwriters were reported to have put off a sale of US$3.1 billion in notes to fund the leveraged buyout of General Motor Corp.'s Allison Transmission unit. And Cadbury Schweppes PLC extended the timetable for bids on its U.S. beverage unit because of "extreme volatility" on debt markets.

All this came amid mounting concern that sluggish U.S. home sales and continued defaults in subprime loans would spur wider debt defaults.

Johnston said the sudden risk aversion has much to do with a jump in bond yields in recent weeks that saw the benchmark U.S. Treasury run up to just over 5.3 per cent.

He also pointed out that rising bond yields make stocks less attractive because "you can park your money and get five per cent without any risk in the U.S., four per cent without any risk in the euro zone and 4.5 per cent in Canada."

Investors, of course, wonder how long the market's losses will go on and the answer is: it could be a while.

Anonymous said...


After years of lenders handing out easy credit, the mortgage market is spiraling downward and the fallout will likely be wide-ranging.

Housing sales are stagnant, and until this year, home prices nationally had not dropped on a year-over-year basis since 1997, says Robert J. Shiller, a professor of economics at Yale University.

Until recently, most of the trouble was centered in subprime mortgages, which are made to people with weaker credit backgrounds and carry higher interest rates.

Lenders began raising red flags earlier this year as more and more subprime borrowers were falling behind in their payments or losing their homes to foreclosure. This forced some lenders into bankruptcy and others to overhaul their mortgage offerings.

But concerns deepened Tuesday when the nation's largest mortgage lender, Countrywide Financial, said an increasing number of borrowers with good credit were running into trouble paying their mortgages, prompting fears that the housing market would not rebound anytime soon.

The industry's growing troubles weighed heavily on the stock market last week, contributing to a 311.50-point sell-off in the Dow Jones industrial average on Thursday and a subsequent 208.10-point drop on Friday.

Sunday and Monday, Newsday examines the impact of the industry's woes on two groups.

In the first installment, we look at how homeowners who are unable to pay their mortgages and face foreclosure are increasingly opting to give up their homes in "short sales," a tactic rarely used over the past 20 years.

Monday, we explore how lenders are tightening their credit standards - requiring better credit scores and higher downpayments - because of the troubles in the industry.

These moves are making it harder for first-time home buyers to secure mortgages.

Anonymous said...

Bonds hit by credit market dip

The contraction in the credit markets is spreading to global investment-grade debt, with issuance of highly-rated bonds falling to the lowest levels in years.

The tightening of credit has been most pronounced for lower-rated debt in the US, but figures from Thomson Financial show a significant decline in activity in the global investment-grade market as well.

Global issuance of investment-grade bonds so far this month has been $98.4bn, compared with $289.4bn in June and $144bn in July 2006. It has been the slowest month for investment-grade debt since August 2004.

Jim Sarni, managing principal at fund manager Payden & Rygel, said investors were repricing risk after months of cheap financing: "People have been swimming under water and have now come up for air."

In the US, sales of high-yield bonds have plunged to $2.4bn this month, down from $22.5bn in June, Thomson said.

Issuance is at the lowest level since October 2002, a record year for corporate defaults. The US leveraged loan market has also stalled, with $29.8bn of loans sold in July, down from a peak of $46.6bn in March.

The reluctance of investors to buy new debt is shaking confidence because banks are hoping to sell some $300bn in high-yield bonds and loans during the rest of this year to fund leveraged buy-outs.

"Some of the key drivers of liquidity, the subprime and new debt issuance markets, have effectively shut down," said Richard Gilhooly, senior fixed-income strategist at BNP Paribas.

Mark Kiesel, portfolio manager at Pimco, said debt underwriters might be forced to cut prices to attract buyers – a development that would hit profits at Wall Street banks.

More than 20 companies have been forced to cancel or postpone debt issues across the US and Europe in recent weeks. Banks were last week forced to postpone debt sales for two of the biggest leveraged buy-outs in the market. Chrysler failed to attract enough demand for $12bn worth of loans, while £5bn ($10.1bn) worth of debt for the buy-out of Alliance Boots, the UK retailer, was left on banks' balance sheets.

Contributing to the lack of demand for bonds has been a sharp decline in the appetite for so-called collateralised debt obligations.

CDO demand has dried up since two Bear Stearns hedge funds were upended by bad bets on CDOs backed by subprime mortgages.

RJ said...

I agree with yuccatree3. Furthermore, it's only a matter of time until we're on the verge of a hot war with China over energy resources. China is rapidly and desperately trying to build domestic markets. As they do, they need the U.S. less and less. So why bother trying to prop up U.S. markets over the long term. They will inject some liquidity if they feel it's in their best interest, and it's becoming increasingly evident that their best interest is to let the U.S. slowly sink.

Anonymous said...

Did speculators and Hedge Funds hedge incorrectly causing a liquidity ripple effect onto global markets?

What is the likelihood of a Bank of Japan rate rise to 0.75 percent next month.

Expectations of an August rate hike, as measured by swap contracts on the overnight call rate, fell sharply to around 50 percent on Friday from around 70 percent the previous day.

"Politics will not directly affect the BOJ's policy, but if worries about the U.S. markets have a prolonged impact, it could change the main scenario of an August rate hike," said Yasuhiro Onakado, chief economist at Daiwa SB Investments.

Anonymous said...

Who would lend to a hedge fund?

The current brutal conditions in markets from mortgages to corporate loans should be giving banks good reason to think long and hard about their loans to hedge funds.

Raising margin requirements: Hedge funds typically operate at about half the maximum leverage they have available from banks, giving them a cushion against bumping up against margin requirements.

If a hedge fund’s performance deteriorates sufficiently, its banks may require it to sell assets to repay loans.

“Tightening in lending margins to hedge funds in a period of heightened risk aversion for credit is a real possibility,” said Roger Merritt, chief credit officer at Derivative Fitch in New York.

“A sudden downward reprising of less liquid assets also may create the same result, leading some hedge funds to sell positions at a loss.”

A Fitch Ratings study published in June highlighted the possibility of a forced, synchronized sell off in credit markets. The Fitch reports sketches a possible scenario whereby an event of some sort causes hedge funds to mark down their assets. This in turn prompts prime broker margin calls or investor redemptions.

Forced sales result, which given overlapping holdings can radiate out from the original market, such as subprime, in unforeseen ways. The process then repeats.

For the banks that make these loans, and for markets generally, the stakes are very high and the decisions are not easy.

Banks face tremendous commercial pressure to lend to hedge funds. They’ve made great money at it, in aggregate the risks have been well worth taking, and there have been lots of other shops pitching for business.

But as ever, if things go very bad, the first to call their loans will do far better than those who wait, even if in so doing they worsen the panic they fear in the first place. Investors in all assets should watch this very carefully. reuters

Anonymous said...

Liquidity Crisis Hits Markets and Gold

For the last several years, corporate buyouts, corporate stock buy backs and such, the Yen carry trade, and the mortgage derivatives markets have added tremendous liquidity to world financial markets. In tandem with this, the market analysts came to view a ‘world stock bull’ emerging, and even the most conservative market bears started to get into this world stock bull theme in their writings. The total amount of these sources of financing and liquidity in the last 2 years is over $5trillion, and has been one of the major supports for stock markets.

All of a sudden, these sources of liquidity are vanishing so fast, that market experts are amazed. This all came together in about 3 or 4 weeks after the Bear Stearns mortgage derivatives mess revealed how illiquid structured finance (derivatives in mortgages and such) can become – instantaneously. After that, investors started to flee from billions of dollars value of structured finance offerings in the last several weeks, and in the blink of an eye, almost the entire derivatives financing universe lost liquidity across the board. This is a prime cause of the latest world stock crashes.

Right now, virtually all sources of liquidity are drying up faster than anyone would have thought. Or, put another way, with corporate buy outs and stock buybacks at over $1 trillion in the last year alone – that is now almost gone as support for the markets. Investment banks such as Morgan and Goldman have had to park about 40 huge deals planned this year, as they have not been able to sell of the bonds and financing for these deals. This picture emerged in only about 3 weeks.

Continuing, the now well known debacle with mortgage derivatives – structured finance packaging risky mortgages into so called AAA rated tranches – have led to financial crises at Bear Stearns, Italease, killed deals with Morgan, and Goldman and others, and caused that sector to lose liquidity to zero basically, in a mere two or three weeks after the problems with Bears two now worthless hedge funds emerged. Now, the almost the entire mortgage derivative universe is tanking – and huge margin calls by banks to counter parties are happening- and no one wants to buy.

Then, the long threatening unwinding of the Yen carry trade is afoot, the Yen strengthening significantly now for two weeks, and as that continued apace, world stock markets finally started to fall apart – or crash – this week. Lots of cheap Yen are borrowed at about 1% and invested in every financial market imaginable. As the Yen rises, investors have to sell out stocks and whatever, and then pay back Yen at higher exchange rates – a sure loser. This effect is magnified by a factor of ten by hedge funds who use 10 to 1 or more leverage.

And the list of liquidity drying up goes on, but, only a few weeks after the Bear Stearns CDO (mortgage derivative mess) showed that no one wanted to buy CDOs any more, that rumbled through credit markets, and now, as one trader said, ‘there is a full blown liquidity crisis at hand in world financial markets’. This is not just about CDOs, but has now scared almost the entire structured finance (derivatives) universe because it showed how illiquid they can become- basically instantly illiquid.

Anonymous said...

This will hurt stock values as hedge funds sell to cover margins.

Tougher lending terms for hedge funds

By Anuj Gangahar in New York

Published: July 29 2007 18:08 | Last updated: July 29 2007 18:08

Investment banks are responding to rising credit concerns by imposing tougher lending terms on hedge funds, in a move that threatens to exacerbate investor unease in the financial markets.

Prime brokerage departments at several investment banks have raised their margin requirements for certain hedge fund clients as they seek to insure themselves against the possibility of new hedge fund collapses as a result of the recent market turmoil.

“Financing terms for hedge funds are being tightened and this is forcing a further deleveraging of risk across global markets,” said Gerald Lucas, senior investment adviser at Deutsche Bank.

One prime broker said his bank had started examining its lending criteria in the wake of the much publicised problems at two hedge funds run by Bear Stearns.

“Recently we have broadened our stricter standards to funds beyond those with exposure to US mortgage market. I’d say this is now a pretty broad-based retreat from leverage.”

The move could raise the pressure on parts of the hedge fund sector, since it comes at a time when performance at some groups has slumped as a result of recent market swings.

The average hedge fund, across all strategies, returned just 0.8 per cent in June, down from 2.3 per cent in May, according to Credit Suisse Tremont. Fixed income-focused hedge funds were the worst affected, returning just 0.2 per cent in June.

If a hedge fund’s performance deteriorates sufficiently, its prime broker’s bank can demand that it sells assets to repay loans.

Ciaran O’Hagan, strategist at Société Générale, said: “Borrowers [now] find it harder to finance their leverage and that is proving a millstone for all risk-based strategies.”

The stricter approach to lending to hedge funds by investment banks comes as markets continue to suffer as a result of concerns about the state of the US credit markets.

Anonymous said...

Carry Trade Unwinding Continues, More Losses in Store

High yielding carry trades continued to perform horribly today with AUD/JPY and NZD/JPY falling another 300 points. The Chicago Board of Trade?s Volatility Index continued to rise and is less than a point shy of its 52 week high. Carry trades only perform well in low volatility environments. The fact that volatility shot up so much so rapidly makes carry trades or basically the desire for yield far less attractive for the risk. Even though USD/JPY and CAD/JPY are stronger, they have hardly put a dent into Thursday?s losses.

Japanese data released overnight was mixed with consumer prices falling, but retail spending increasing on an annualized basis. The Nikkei was also down 418 points or 2.3 percent overnight. This seems to matter little for yen traders because they are solely focused on the market?s aversion for risk. If stocks continue to collapse, carry trades will continue to fall. Meanwhile in the week ahead, there is a lot of data on the Japanese calendar including industrial production, the trade balance, household spending, labor cash earnings, and the jobless rate. The market has gone from pricing in a 64 percent chance of an August rate hike to a 45 percent chance.

Anonymous said...

What's Behind the Market's Instability?

The two primary reasons for the recent stock market drop are the carry trade, and the junk bond market.

At the beginning of last week, this blog warned you about the carry trade. Don't underestimate the damage that is done when unwinding occurs. The carry trade has funded all strata of speculative activity that has helped the stock market to rise this year. Oh, the carry trade recognition wasn't anything special, no fortune cookie to direct me to look, just the ability to break away from drinking the Kool-Aid of the parabolic lines on the S&P 500 chart.

In a basic sense, the carry trade didn't start to matter until November of last year when it became fully apparent that the Japanese economy was finally starting to climb out of the deflation hole. The rally in the yen ($XJY on stockcharts, JPY on Bloomberg) during mid November led to a drop in the stock market Thanksgiving week, and choppy trading in December. But as the yen slid back to 82 (a very key number) by late January, U.S. stocks were on their way back up. Then in early February the yen became very volatile as speculation mounted that the BOJ would hike their overnight call rate by 100% to .5% which they did on Feb 21st.

In combination with tightened banking reserves announced the following weekend in China, the yen soared, the Shanghai market plunged, and February 27th resulted on Wall Street. But things simmered down again, and the yen was allowed to sink all the way to a low of 80.75 by late June, but then began to rebound in July as talk increased that the BOJ could again increase rates in August, or September. An 82 on the chart below was the inflection point for trouble again. The 82 had been an important floor for the yen earlier in the year and once broken in June became an important resistance level which was broken just as the Dow, interestingly enough, hit 14,000. The rest is recent history.

On Friday, however, the yen was flat to a smidgen lower. So why did the stock market swoon in the final hour? Part of it was nervousness about holding ahead of the weekend, but the bigger factor was rapid deterioration on Friday in the...

The Junk Bond Market:

Bonds 101 states that trouble in one part of the market leads to trouble in the rest of the market. Many an arrogant nit wit said subprime didn't matter. That sort of ignorance had to be born in a pompous 'let them eat cake' mentality where only the little people of the subprime world would be getting their just desserts. That's a quick lesson in Social Equity 101 where the weakest rungs of the food chain can still impact the upper rungs. So two lessons for the price of one out of the School of Hard Knocks for the investment intelligentsia of the world who preached with Elmer Gantry-like verve that subprime didn't matter.

Anonymous said...

Subprime Troubles Crushing Second Life Real-estate Values

by Walid

Imaginary World to Face Real Life Problems(Second Life : Linden : Ucs News) The problems in the U.S. subprime mortgage market are spiraling out of control and have caused a virtual financial crisis, said economist Mark Zandi. The Second Life financial markets are in peril from more than $1 trillion in risky virtual mortgages, we could be just one hedge-fund collapse away from a global online liquidity crisis, said Zandi, chief economist for Moody's Virtual
A total Second Life Real-estate meltdown is likely, as the risks are growing daily, Zandi emphasized in a conference call with reporters following the release of a new study on subprime debt. The study shows that the Second Life housing crisis in Linden could be deeper and last longer than investors now believe.

With iconic structures like the Budweiser virtual pavilion and associated housing complex sitting empty and nearly bankrupt the problems are spreading into other virtual worlds. "Mounting mortgage delinquencies and defaults now pose the most serious threat to the entire Second Life financial system and economy," said Zandi in his report.

"If there is a fault line in the Second Life financial system, it runs through the U.S. housing and mortgage markets," he said.

Zandi's comments came as Second Life is reeling from lower than announce traffic and a growing online credit crunch, centered on the subprime arena, and in Linden's corporate debt market.

The shocks are rippling through the Second Life stock exchange, "I have no doubt the shares of listed virtual companies will be suffering" said Zandi.

Anonymous said...

In the end BOJ needs to remember bad Credit Worthiness will always trump reckless Credit Creation.

This week volatile should be a reminder to BOJ how fast excess liquidity can cave in.

The point of no return will past in August 24, and BOJ will need to decide on the faith of future global economies.

Yes the resumption of Yen Carry Trade could boost stocks, but at what cost when Central Banks around the World lose control of their ability to stabilize their economies.

The yen is at a natural place to weaken, technically, which could aide equities.

Prospects for a resumption of the yen-based carry trade could help boost equities in the coming weeks, putting the uptrend from March lows in the major indexes back on course after recent pullbacks.

The carry trade involves borrowing a currency at a lower interest rate, and exchanging it for another currency in order to invest in markets that offer higher return potential. For example, yen can be borrowed at a comparatively low interest rate and exchanged to buy government bonds in New Zealand, where the base rate is attractive at 8.25%. The yen-based carry trade can also boost demand for global equities.

Since early 2005, the dollar/yen has advanced (translating to a weakening yen) on a path that pretty closely matches the rally in the S&P 500 index. Low interest rates in Japan and the weakening currency have made it attractive to borrow there and invest the proceeds in other markets, including U.S. equities. As long as the yen continues to weaken, and borrowing costs are stable, the amount required to pay back loans eventually becomes cheap.

The last near-term correction in U.S. stocks started on February 27, 2007. The drop was sparked by a big sell-off in China due to news of tighter trading regulations. But the decline was likely exacerbated by an unwinding of carry trades. The dollar/yen sank sharply on that day, which suggested institutions sold stocks and other assets around the world, and bought yen in order to repay the loans taken out to initiate carry trades.

Now, move forward to March 5. The dollar/yen established a bottom on that day and began an advance that lasted into late June. The S&P 500 formed a bottom on the same day that eventually ushered in a rally through mid-July.

Looking at recent market behavior, since June 22, the dollar/yen has fallen from a high of 124.13 to a low of 119.81, as the price found technical support around 120. Based on past price behavior, 120 represents a level of perceived value - a natural place to sell yen for U.S. dollars. It is also pretty close to a 50% retracement of the advance from March to June. It is common for the price to resume an uptrend after retracing 50% of the most recent upleg. This near-term decline should be placed into the context of the long-term uptrend from the start of 2005.

There is no technical evidence to indicate this move higher has been exhausted. An upturn in the dollar/yen after testing 120 could generate increased interest in carry trades, thus contributing to upside in U.S. stocks.

Essentially, borrowing yen at a higher value compared with a month ago and selling it in order to invest elsewhere becomes an attractive scenario.

Watch the dollar/yen in the coming days or weeks to see if technical support around 120 holds. If this level does hold and the currency pair turns up, start looking for signs of investment capital moving back into U.S. equities. The uptrend in the S&P 500 since March should stay sound unless technical support at about 1484 is breached. Readers should note, however, that history does not always repeat itself.

Samuel Adams said...

Some people are still not in reality yet.

Anonymous said...

Turnover of interest rate, currency and stock index derivative contracts rose 24% to a mind boggling $533 trillion in the first quarter versus the previous quarter, underscoring the enormous leverage in the global markets. Thus, any major unexpected event can touch off a panicky and violent market reaction.

Central bankers have several tools at their disposal to influence foreign exchange rates, including verbal "Jawboning" to the media, outright intervention in the spot or futures market, or adjustments to short-term interest rates. But managing the direction of foreign currencies becomes more daunting, as the global money supply mushrooms each year, attracting more speculators to the markets.

Among the Group of Seven central banks, which oversee two-thirds of the world economy, the Bank of Japan is the most interventionist, working hard each day to guide the value of the Japanese yen to target ranges. But over the past two weeks, the Bank of Japan lost its influence over the dollar/yen exchange rate, after trying to keep the greenback in a range of 120 to 124-yen. Earlier today, the dollar tumbled below the psychological 120-yen level, and quickly slid to as low as 118.50-yen, outside the realm of market expectations, and shaking global stock markets, much like an earlier episode in late February and early March, which saw the dollar plunge to as low as 115-yen.

That was a big surprise, because the BoJ is so adept at managing its currency to its desired target ranges. In the past, as recently as Feb 9th, US House Democrats complained to the US Treasury chief about the clandestine operations of Tokyo's financial warlords. "We believe that a weak yen is a reflection of Japanese government policy,"

"The huge misalignment of the Japanese yen is giving Japanese auto manufacturers an unfair and undeserved trade advantage over US companies," "It's clear that the primary beneficiary of Japan's 25% to 30% undervalued yen is the Japanese auto industry, which is reaping a $4,000 to $10,000 yen subsidy for every vehicle it ships to the US," Collins said.

But Treasury chief Paulson has always defended Tokyo's cheap yen policy. "I think the big point is the Japanese have a currency that is traded in an open and competitive marketplace based upon economic fundamentals,"

The extent of Tokyo's intervention operations can be gauged by the size of its foreign exchange reserves. Tokyo controls a record $913 billion of foreign currency reserves, second only to China's $1.33 trillion, and mostly held in US Treasury securities. Japan's reserves ballooned after selling 35-trillion yen in 2003 and the first quarter of 2004, in exchange for 330 billion US dollars.

Tokyo controls a record $913 billion of foreign currency reserves, mostly held in US Treasury securities. Japan's reserves ballooned after selling 35-trillion yen in 2003 and the first quarter of 2004, in exchange for 330 billion US dollars. Japan's FX reserves have continued to climb with a higher Euro, and a build-up of interest income from US bonds. The BoJ earned 3-trillion yen ($25 billion) of interest income last year, while paying 7.5 billion yen in interest on short-term T-bills, issued to finance past intervention, and is therefore, the world's largest "yen carry" trader.

Since its historic intervention effort in 2003-04, Tokyo has engineered a "cheap yen" policy, designed to boost Japanese exports, a key driver of the world's second largest economy. Japanese shipments to China and Hong Kong account for 32% of its exports today, with 18% sold to the US, 16% to Korea, and 5% to Europe. The "cheap yen" policy is showing tangible results, with overall Japanese exports climbing to 7.28 trillion yen ($60.5 billion) in June, up 16.2% from a year ago.

Therefore, the Japanese yen is probably undervalued by 20% on a trade weighted basis. But the BoJ keeps the yen artificially low, by holding yen Libor interest rates at less than 1%, and by pumping 1.2 trillion yen into the banking system each month, thru the outright purchases of government bonds (JGB's). The BoJ justifies its ultra-low interest rate and "cheap yen" policy, by pointing to fraudulent statistics on inflation, conjured up by Japanese government apparatchniks.

Anonymous said...

Bush fails to calm battered stock markets

The White House last night made a concerted attempt to inject fresh confidence into the world's battered stock markets as share prices suffered a new day of falls on fears that a credit crunch will end an era of cheap funding for corporate takeovers.

With Wall Street down 100 points in early trading after Thursday's 311-point plunge, Mr Bush and his treasury secretary, Hank Paulson, downplayed fears of contagion from the crisis-ridden real estate market and claimed that the US economy was strong.

Mr Paulson said the world's biggest economy was moving to a sustainable pace of growth after official figures released in Washington showed a stronger trade performance and inventory-building by companies helped the US to grow at an annual rate of 3.4% in the second quarter.

After meeting his economic team at the White House, Mr Bush said: "The world economy is strong and I happen to believe one of the main reasons why is because we remain strong."

Markets were unimpressed, with some analysts warning that the high-profile intervention may do more harm than good. "By appearing on television in an unprecedented group interview, the White House is validating concern about the credit markets," said Tony Crescenzi, chief bond market strategist with Miller, Tabak and Co.

Anonymous said...


On days like this the best advice I can give is, don't panic. Panic selling just because the market gets a little scary will, more often than not, prove to be a big mistake.

Every once in a while the psychology of the market takes over. Regardless of fundamentals, stock prices simply move in irrational ways. The best thing to do is simply sit tight and wait it out.

Anonymous said...

Hey look cheap 400 sqft deals!

I want 10

Anonymous said...

Distress home owners must be thinking why take the risk when MBS investors were dumb enough to take it for them.

In other words when the lender allows for the property owner to sell the property at a price lower than the current mortgage debt amount who cover the difference in loss, MBS investors dumb enough to take the risk for distress home owners.

What a great deal for distress home owners - they essentially get to live rent free at MBS investors expense.

Besides, what were these retiring foreigners thinking gambling alway their pension buying worth less MBS securities.

Distress home owners and lenders are laughing in MBS investors faces saying gambling come with risk, so suck it up.

Are short sales just an opportunity to bailout homeowners?

As the landscape of the American real estate market continues to erode, many borrowers are increasingly turning to loss mitigation specialists to help negotiate "short sales" to avoid foreclosure.

Experts report that the growing inventory of homes on the market has helped in this surge and there is no foreseeable relief in many areas across the country.

A short sale is an agreement wherein the lender allows for the property owner to sell the property at a price lower than the current mortgage debt amount.

As short sales require additional time and effort from both the property owner and/or the realtor, many people turn to loss mitigation specialists to negotiate with lenders, as well as find buyers to purchase their distressed real estate.

Anonymous said...

Over at MSN Money, their "pick of the week" is Bill Fleckenstein's bearish commentary on Friday:

That's pretty interesting, given that they usually seem almost embarrassed to be carrying his commentary, typically burying them behind multiple levels of menus.

My favorite quote from this article "...the LBO put -- which has powered the stock market for some time -- is toast."

burn baby burn said...

What will this do to BOJ/ Yen carry?

Abe vows to stay despite defeat
Story Highlights
Policy gridlock looms and Abe's grip on job still uncertain

Without coalition control of upper chamber, laws will be hard to enact

Voters rebelled against string of government scandals and gaffes

TOKYO, Japan (Reuters) -- Hawkish Japanese Prime Minister Shinzo Abe vowed to stay in his post despite a crushing defeat for his ruling camp in an upper house election, but policy gridlock loomed and Abe's grip on his job was still uncertain.

Voters outraged at a string of government scandals and gaffes and government bungling of pension records stripped Abe's coalition of its upper house majority in his first big electoral test since taking office 10 months ago.

Abe's bloc will not be ousted from government by the upper house defeat, since it has a huge majority in the more powerful lower chamber, but he was expected to reshuffle his cabinet.

"I am determined to carry out my promises although the situation is severe," Abe said late on Sunday, after acknowledging that he was responsible for the huge loss.

"We need to restore the people's trust in the country and the government," a weary and drawn-looking Abe told reporters.

Abe still faces pressure to quit, although a lack of suitable successors inside his party could help him survive for now.

"As expected, there are calls for the prime minister's resignation from within his own party. One could not expect that they would accept his staying in power without question," the liberal Asahi newspaper said in an editorial.

"The prime minister should reflect more seriously on the result and step down gracefully."

The LDP and its partner, New Komeito, won 46 seats compared to 60 for the Democrats.

The coalition had needed 64 to keep their majority in the upper house, where half of the 242 seats were up for grabs.

The LDP alone won 37 seats, worse than a loss in 1998 that forced Ryutaro Hashimoto to resign as prime minister.

Without ruling coalition control of the upper chamber, laws will be hard to enact, threatening policy deadlock.

"Reforms must not be allowed to stagnate nor must there be any negative effect on the economy because of political instability," the Nikkei business daily said in an editorial.

Some analysts noted, however, that Abe -- whose top priorities were boosting Japan's security profile, rewriting its pacifist constitution and nurturing patriotism in schools, had never stressed economic reforms to begin with.

"Investors may worry that the LDP's defeat means that the ongoing reform drive will take a back seat, but they won't be greatly disappointed because expectations for Abe as reformer were not high in the first place, compared with his predecessor," said Takahide Kiuchi, chief economist at Nomura Securities.

The election loss came on top of a global shake-out in markets, with both factors combining to push the Nikkei stock index to a four-month low, although the yen shrugged off domestic issues.

Critics said Abe was out of touch with voters more concerned with bread-and-butter issues such as pensions and health care.

Democratic Party leader Ichiro Ozawa, a pugnacious veteran who bolted from the LDP 14 years ago, had pledged to shrink income gaps, protect the weak and help farmers -- a group that had long supported the LDP.

Ozawa has vowed to make an upper house win a step towards an early general election, but media warned that his party's public image could suffer if it takes too obstructionist a stance.

No lower house poll need be held until late 2009, and Abe said on Sunday he was not considering calling a snap poll for that chamber, in which his coalition has a big majority.

"The Democratic Party has called for a dissolution of the lower house ... but it should not oppose everything in parliament or intentionally cause confusion in politics," the Nikkei said. "Such an irresponsible attitude would disappoint the electorate."

Ozawa -- who suffers heart problems -- failed to put in a public appearance on Sunday while others celebrated a stunning turnaround in the party's fortunes.

Party officials said Ozawa had decided to rest to recover from the fatigue of campaigning, but his absence has cast doubts over his ability to keep leading his often fractious party.

A weakened ruling bloc is expected to try to bolster its hand by wooing independents and conservatives in the Democratic Party -- a mixed bag of former LDP lawmakers, ex-socialists and young conservatives, some of whom are seen as ripe for poaching.

Anonymous said...


The media says Hank Paulson went to one of the most polluted sites in China to make a case for environmentalism. That ain't gonna warm China into buying U.S. mortgage debt.

Anonymous said...

What are the chances that many hedge funds have received information on one of government's most closely kept secrets - how much the New Zealand Reserve Bank can risk when it intervenes in the currency market.

Blunder reveals size of bank arsenal

In an extraordinary blunder, Official Information Act documents released to the Sunday Star-Times by Cullen's office contained two top-secret figures relating to the Reserve Bank's currency intervention in the kiwi dollar.

The Star-Times was threatened with legal action if it did not return the documents immediately.

The newspaper had already decided against publishing the figures because to do so would not be in the public interest.

National leader John Key, a former currency trader, said it was "a shocking release" of information that could have been devastating in the wrong hands. The figures reveal the financial limit for the bank when it intervenes in an unjustifiably high or low currency, and the limit on its foreign exchange position.

The release, which Cullen's office said was an administrative error, caps a nightmare week for the government, which ended with the forced resignation of Environment Minister David Benson-Pope.

"It's up there with a Budget leak," said Key. "It's a potentially devastating error to make if the information was in the wrong hands. Intervention is always a game of cat and mouse."

Currrency traders can try to work out how much the Reserve Bank has already spent intervening in the market and "if you know the (limit) number you are literally telling the speculators how much is left".

Key said: "In essence, you're telling your enemy the size of your arsenal, which is never a particularly clever thing to do."

If the information had become known to traders, it would have neutered the effectiveness of future Reserve Bank interventions. Traders would be able to more precisely calculate any risk that the bank would intervene, he said.

Already, billionaire trader Warren Buffett has boasted of making $100 million in betting on the kiwi.

The dollar passed US81c last week

Anonymous said...

Why did Henry Paulson go to China?

Those who lose control of the money supply will lose control of the world.

Those who lose controls of the energy will lose control of the continents.

Those who lose controls of the food supply lose will lose control of the people.

China is now quoting in the €uro on export contracts. Has the change begun to spread significantly? If this is common practice in China the Dollar will come under heavy long-term pressure.

At the heart of the global monetary system lies the use of the U.S. Dollar as the currency used to pay for the globe’s oil. Any change in that role has a disproportionate impact on the importance of the Dollar as well as its value relative to the globe’s other currencies.

If the oil producing nations of the world decided to use other currencies for oil payments then the global monetary system itself is undermined, making gold more attractive and long-term a safer place to hold one’s savings.

So when we heard that Iran asked the Japanese refiners to switch to the Yen to pay for all crude oil purchases, after Iran's central bank said it is reducing its holdings of the U.S. Dollar, we realized that this is an undermining blow to the Dollar and will also contribute to the current fall of the Dollar in exchange rate values, despite any short-term rally.

Iran wants Yen-based transactions "for any/all of your forthcoming Iranian crude oil liftings," according to a letter sent to Japanese refiners that was signed by Ali A. Arshi, general manager of crude oil marketing and exports in Tehran at the National Iranian Oil Co. The request is for all shipments "effective immediately," according to the letter, dated July 10.

Japan's annual oil imports from Iran costs 1.24 trillion yen ($10.1 billion) against the entire world’s demand for oil of around $2.354 trillion a year. This is not a huge amount of Yen let alone U.S.’, but it is significant in that it is a breakaway from the Dollar and it is possible to break away.

Now add this to the new policy of the Central bankers of Venezuela, Indonesia, and the United Arab Emirates, which have said they will invest less of their reserves in Dollar assets because of its weakening prospects. At what point will they permit the switch to other currencies in payment of oil?

Iran isn't alone in wanting to drop the Dollar as the oil currency. Russia has been favoring the Ruble payment for the Urals oil export blend in rubles to curb currency risks. The nation plans to open the Energy Stock Exchange in St. Petersburg in the first half of next year to trade oil in rubles, U.B.S. AG reported June 14. Russia’s ambitions as the major supplier of Europe will have considerably more impact on the Dollar as well as bring the Ruble into the mainstream of global currencies.

Iran asked the refiners to use the Yen exchange rate quoted at the Bank of Tokyo Mitsubishi on the date oil cargoes are loaded. The use of yen-based letters of credit for oil "has finally been approved" by the Iranian central bank and the NIOC, according to the letter, titled "New payment mechanism for Iranian Crude Oil Cargoes."

Japan imported 1.59 million kiloliters of Iranian crude oil in May, the least since June 2006, according to government data. Only Saudi Arabia and the United Arab Emirates are larger oil suppliers to Japan than Iran.

In addition, but not of nearly so much significance, is the policy of Iran in cutting its U.S. Dollar reserves to less than 20% of total foreign currency holdings. Consequently it will buy more Euros and Yen as tensions with the U.S. increase, Central Bank Governor Ebrahim Sheibany said on March 27 2007. It is important to realize that the content of reserves is not nearly as significant as the daily use of the Dollar in paying for oil, unless it is in the hands of a nation like China with its [so far] $1.3 trillion, sitting statically in U.S. Treasuries and other Dollar denominated assets.

If one, for example cut the use of the Dollar in global transactions in oil by half $1.177 trillion, where will these dollars go? They will be surplus to global requirements. As we all know this amount of unutilized Dollars is sufficient to swamp the foreign exchanges looking for a place to go. Their eventual path will be to absorb it back into Treasuries, a burden that will hit both the Treasury yields as well as the Dollar exchange rate, heavily. This is why the paths we have described that lie ahead will be so pernicious to the U.S. Dollar. We have ignored the effect on all other Dollar users, which if brought in more than justify short, medium and long-term investments in gold.

Anonymous said...

Japan Industrial Production Rises in June, BOJ Rate Rise Is on Track

Japan's industrial output rose 1.2% in June from a month earlier for the first increase in four months, a sign that the economy's weakest link is recovering and the Bank of Japan could still be on track to raise rates.

Anonymous said...

20 percent less bacon in the mass of packaging opened today....that tripled in price over the last 4 years, guess they can nor raise the price again as it may have hit a sales standstill

Anonymous said...

Now, where did I put my yacht?

NEW YORK ( -- A hedge fund manager whose fund ran into trouble from the sell-off in securities backed by subprime mortgages is having to put his huge yacht up for sale, seeking $23.5 million.

John Devaney, the CEO of United Capital Markets, a fund that specializes in buying and selling bonds that are backed by the mortgage payments, particularly adjustable rate subprime mortgages, has put his 142-foot yacht "Positive Carry" up for sale, according to a yacht broker's Web site.

Anonymous said...

Mr. Daveney will have to
rename his yacht "Negative Carry"


"John Devaney, the CEO of United Capital Markets, a fund that specializes in buying and selling bonds that are backed by the mortgage payments, particularly adjustable rate subprime mortgages, has put his 142-foot yacht "Positive Carry" up for sale, according to a yacht broker's Web site"

Anonymous said...

Anyone know anything about the virtual real estate world? Apparantly, it is not doing well.

Anonymous said...


Make sure this doesn't go buy unoticed, I wonder how soon before we hit 10 trillion.

Roccman said...

Cramer says walk away from your mortgage...


No F'n shit genius.

Add to the credit cards...student loans...

Anyone think they are gonna "retire" is delusional.

Anonymous said...

July 30, 2007
Mortgages for illegal immigrants
Dean Foust

Bank of America kicked up a stink when it came to light several months ago that it had been quietly testing a credit card in California that didn't require an applicant to possess a Social Security number, which was tacit acknowledgement that BofA was marketing the card to illegal immigrants. Now comes a story in The Charlotte Observer that a number of banks (not including BofA, however) are experimenting with mortgages in which the lenders accept Individual Taxpayer Identification Numbers on loan applications in lieu of Social Security numbers. The Observer notes that the IRS issues so-called "ITINs" solely to process tax payments, regardless of immigration status.

Unknown said...

Oh this is just too farqing cool.

Cramer is not following the script, is he.

Anonymous said...

This site is insane. Listen to Sam Zell for a sober assesment of housing. A great time to buy one to live in and a bad time to buy one for an investment (as it usually is). I just sold my home in two days for asking price! It is a middle class home in a "bubble" area. The price I sold it for equated to a 5% annual price increase since it sold in the early 80's. 5% per year! Does that sound like a bubble? I am also sick and tired of hearing about the mortgage victims who lied about income and assets to buy homes they knew they could not afford. We need to bring back debtors prisons for these people.

Anonymous said...

"K.W. - Southern Ca. said...
Mr. Daveney will have to
rename his yacht "Negative Carry"


Anonymous said...

Why do Congress need to raise the debt level again when congress just raised it in March 2006? Why weren't Congress given more time to understand the circumstances on which Congress need to raise the debt level again?

Where is this new debt going? Is this new debt being used to pay off interest on old debt?

What method should Congress use to pay off this new debt?

When should Congress expect that this new debt be paid off?

How will this new debt help with the GDP?

In a letter to Senate Majority Leader Harry Reid of Nevada, Treasury Secretary Henry Paulson said the current ceiling of 8.965 trln usd would be reached in early October, and that Congress should raise the ceiling 'as soon as possible.'

The letter was sent the same day Treasury said it anticipates issuing 73 bln usd of marketable debt in the July-September quarter, 31 bln usd higher than it anticipated earlier this year. Treasury said this borrowing would leave it with a cash balance of 60 bln usd at the end of this quarter, which analysts say is unusually high.

Treasury also said it anticipates issuing 74 bln usd in new debt in the first quarter of fiscal year 2008.

Congress last raised the debt ceiling in March 2006 by 781 bln usd.

Anonymous said...

Try this link

Anonymous said...

Hey Keith,

You rock! Yeah, I've always loved your blog, but now I gotta say "you rock!"

I just found out it was you that really launched Casey Serin's blog.

Over there at Casey's (old) blog, they posted some history and sure enough, there you were first on the list. Good job, man.

Casey should buy you a case of beer. Oh wait, Casey doesn't have a dime to his name - Cancel that. :)

Anonymous said...


I wonder if Nicholas Retsinas of Harvard was trying to pump up the market to save Harvard's investments in Sowood?

[bump bump bump, another one bites the dust!] liquidity rapidly evaporating on Wall Street!

Hedge fund Citadel takes over Sowood's credit fund
Mon Jul 30, 2007 4:44PM EDT
By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge fund Citadel Investment Group, LLC said on Monday it took over Sowood Capital's credit portfolio after the smaller fund suffered heavy losses that triggered speculation it may have to shut down.

Chicago-based Citadel, which manages $14 billion, came to the rescue after Boston-based Sowood, which managed $3 billion, got into trouble with bond trades this summer. Rumors that Sowood might be forced to shut down roiled financial markets late last week.

No terms were announced, but hedge fund managers and investors speculated on Monday the deal was worth hundreds of millions of dollars.

Sowood, which manages money for prominent investors like Harvard University, lost 8 percent in July and 5 percent in June, bringing losses to 10 percent for the year, a person familiar with its operations told Reuters last week.

Losses came quickly at Sowood -- which had been up earlier this year and posted double-digit gains last year -- when investors got out of risky sub-prime mortgages and other debt instruments, several people said.

Citadel's move calms some nerves and also indicates liquidity is still available with buyers standing on the sidelines ready to move in to snap up beaten down portfolios.

"This transaction provides for an orderly transference of risk between the parties," Citadel's founder and chief executive Ken Griffin said in a statement.

Sowood's losses spooked markets on Friday as traders and other hedge fund managers worried the fund would have to sell into a falling market to meet margin calls. Such selling could trigger a panic among investors at other hedge funds worried about the health of their own portfolios.

Sowood Capital did not comment on Monday.

When Sowood was launched in 2004, founder Jeffrey Larson quickly attracted high-profile investors, including Harvard Management Company, where he managed foreign stocks.

Unlike Harvard's in-house investment group, which has to say how its investments fare and how much it pays its managers, Sowood was able to keep an extremely low profile.

The fund, located in Boston's tony Back Bay neighborhood, does not report to any of the $1.75 trillion hedge fund industry's performance trackers, several said.

Based on Larson's pedigree and recent performance, the fund had a very good reputation and so, when speculation mounted that Sowood was forced to sell positions into a falling market late last week, industry analysts were quick to fret.

Outsiders said that, even though Citadel moved in, investors likely suffered.

"I don't think anyone was bailed out here," said Jim Midanek, whose hedge fund firm, Black Pearl Asset Management, plans to buy cheap subprime mortgage securities battered by the current crisis. He said he had no first-hand knowledge of the deal.

Sowood's troubles follow on the heels of news two large Bear Stearns funds had essentially lost all of their capital in the subprime mortgage market.

For Citadel, one of the world's most powerful hedge funds, stepping in to help rescue another fund's portfolio is nothing new. Last year it snapped up failed hedge fund Amaranth Advisors' energy portfolio.

Anonymous said...

California Bankruptcy Revealed as Economy Collapses

The real problem for California is not with the 2007-08 budget -- which appears to be hopelessly stalemated -- but with the accelerating collapse of the state's economy, spearheaded by the popping of the huge real estate bubble, which had been responsible for higher-than-forecast revenues for the last four years. These revenues are drying up. It is now expected that California will have at least a $5 billion deficit for the next fiscal year. Instead of addressing the underlying cause of this deficit - the collapse of the physical economy, which is gaining momentum - the Governor is pretending he is addressing it with this year's budget cuts, while lunatic Republicans are demanding more cuts now, in anticipation of even more massive triage next year.

The latest economic reports, despite efforts at massaging by federal agencies in Washington, give some indication of the problem. Only 400 jobs were created in the state in June, with the housing slump largely responsible. Stephen Levy, senior economist for the Center for Continuing Study of the California Economy, said that the housing slowdown is "finally having an effect on the job numbers." In June, jobs were lost in the financial sector - mortgage brokers, real estate agents, finance and credit professionals - as well as in construction, manufacturing and transportation. One prominent economist told EIR that there are "much more serious problems coming," as the credit crunch is "just beginning to hit." The only jobs being created are low-wage, in tourism and the service sector. "California has been living a charmed life. Those days are now over," he added.

Anonymous said...

SALES of bonds that finance the $US1.2 trillion ($1.42 trillion) US subprime home loan market have ground to a halt, as delinquencies by borrowers continue to rise and credit rating agencies downgrade the securities.

Anonymous said...

China Tightens Credit to Cool Economy

China tightened credit Monday in a new effort to cool its sizzling economy, ordering banks to shrink the pool of money for lending by increasing their reserves for a sixth time this year.

The move was widely expected after the economy grew by 11.9 percent last quarter, its fastest rate in 12 years despite earlier efforts to slow the expansion. Beijing raised interest rates on July 20 for a third time this year.

The amount of reserves that lenders must keep with the central bank was raised half a percentage point to 12 percent of their deposits, the central bank said. The increase takes effect Aug. 15.

China's communist leaders want to keep overall growth high to reduce poverty. But they worry that runaway investment in real estate and other industries could push up politically volatile inflation or spark a debt crisis if borrowers default.

Regulators have tried to target individual industries with investment curbs while keeping interest rate hikes small in an effort to avoid derailing growth. Even after three rises this year, the key lending rate stands at just 6.84 percent on a one-year loan.

But economic planners worry that the export-fueled flood of cash surging through China's economy is driving dangerously fast investment in stocks, real estate and other assets.

The surge in the money supply is straining the central bank's ability to contain pressure for prices to rise. It drains billions of dollars a month from the economy through bond sales, piling up reserves that have topped $1.3 trillion.

Anonymous said...

The head of the International Monetary Fund warned on Tuesday that global investment and growth prospects were at risk from a dramatic rise in private equity buy-outs and threats posed by financial globalisation.

Rodrigo Rato said the trouble in the U.S. subprime housing market was an example of such risks and called for a fresh look at lenders’ underwriting standards and more borrower education.

"There is ground for concern in the recent dramatic growth in large private equity buy-outs," the IMF chief told a business audience in the Philippine capital.

Such deals financed by huge debt could trigger risk aversion when they turn sour, curtailing broad market access.

"This in turn could adversely affect investment and growth prospects, not just in the countries where the problems occur but worldwide," he said.

"I would urge regulators to remain vigilant about these deals, and pay especially close attention to deals whose failure could have systemic implications," he added.

"There are some risks associated with financial globalisation. I am very concerned that those risks are not fully appreciated," Rato said.

Anonymous said...

Home appraisers pressured to fudge the numbers.
As market slows, buyers may find they paid too much

Moss blankets the house's roof. The siding is rotting off. And mold has spread through the interior.

But the home's condition is "average," according to an appraisal.

It's one clear example of how many appraisers hide problems and affirm inflated prices willingly or under pressure from the mortgage brokers and bankers who give them business -- calling into question whether home buyers are getting what they pay for.

"We're pressured to hit the value every time, every single sale," said appraiser Richard Hagar, who showed pictures of the mossy house while teaching a class on mortgage fraud earlier this month for 25 appraisers, mortgage brokers and real estate agents.

It's a problem that is more common as buyers vie to outbid each other in recent go-go markets such as Seattle's. And increasingly buyers may find in coming months that they paid too much, as slowing appreciation and rising mortgage interest rates force them to sell at a loss.

"I think we'll see it come to a head here in the next year or so," said Ralph Birkedahl, manager of the state's appraisal program. "We may see more foreclosures than we're seeing now."

But while prosecutors are pursuing big fraud cases, complaints about the day-to-day pressure have gone nowhere.

Home appraisers say they are being asked by mortgage brokers to come up with the "right" number. Here are some examples of improper appraisal solicitations:

"Most comps have been in the $350K range, but we need the appraised value at $380K."

"Please push value to $925,000. Thank you."

"Wants value at $310,000 -- need aggressive appraiser!"

"Other appraisers told me 133-134 (thousand dollars) is safe. If you can guarantee me 145 I will set up appraisal tomorrow."

Anonymous said...


AHM just about to open somewhere between $1 and $2.50 a share. Obviously the shotgun blast to the face has left the organs available for donation. Traders now lining up for dibbs on the liver...

Anonymous said...

to; July 31, 2007 4:21 PM

We are all pressured every day. sports figures are pressured to take illegal enhancement drugs. Those that succumb to the pressure have accomplished an illegal act.

Cops are pressured every day to just take the bribe, sex, whatever, to just turn a blind eye and walk away. Those that do commit an illegal act.

Busboys are pressured every day. They see the tip sitting there, yet instead of taking it for themselves, they give it to the waitress AS THEY WERE INSTRUCTED.

Appraisers that commit fraud prostitute [and not in the good way] themselves for the $325 a pop, and then holler pressure. They can kiss my patoot. Any jury will hang them. The only ones listening are the legislators who succumb to, get this, PRESSURE from the appraisal lobbiest!

It all boils down to; no value, no loan. PERIOD. They are thieves, they are liars, they are prostitutes. If they can't make a living, get a different job. Don't lie and steal and then holler pressure. Pissants.

Anonymous said...

Yahoo must be targeting the realator demographic:

Anonymous said...

Great article on Mortgage Fraud

Anonymous said...

**** FLASH ****

CNBC just reported ANOTHER Bear Stearns hedge fund is in trouble. That makes 3 for those keeping track.

Anonymous said...

Bear Stearns has a 900 million dollar hedge fund thatt's ready to blow!

Anonymous said...

Bear Stearns halts redemptions in third hedge fund

Bear Stearns Cos. Inc., recently embarrassed by the collapse of two hedge funds, said on Tuesday it has halted redemptions in a third hedge fund after jittery investors wanted to pull out their money.

Bear Stearns' (BSC.N: Quote, Profile , Research) $850 million Asset-Backed Securities Fund experienced declines in July, prompting some investors to seek redemption of their investments. The investment bank, however, believes the assets in the fund -- tied to Alt-A and prime mortgages -- are worth more than what current market conditions will allow.

Through the end of June, the fund was up about 5 percent. But mortgage investments have taken a beating this month and most of the year amid a rising wave of delinquencies and defaults on subprime mortgages, or loans made to people with weak credit.

Anonymous said...

Bear Stearns Halts Redemptions on Third Hedge Fund.

The nikkei is down almost 200 points.

The stock market will probably crash tomorrow.

Anonymous said...

Looks like AHM is in more trouble than just holding back dividends...

Investor Notice: Class Action Filed On Behalf of American Home Mortgage Investment Corp.

From the article:

The lawsuit charges AHM and certain of its officers with violations of Section 10(b) and 20(a) of the Securities Exchange Act of 1934. In particular, the complaint asserts that, during the Class Period, defendants materially misrepresented and failed to disclose that the Company was experiencing increasing loan delinquencies and increasing difficulties in selling its loans. Thus, the Complaint alleges that the Company had overstated its statements of earnings and margins. When the market learned of this adverse information piecemeal, through the Company's June 28, 2007, and July 27, 2007 announcements, the Complaint asserts that shareholders were damaged.

Anonymous said...

#3 for Bear Stearns has halted redemptions tonight.

Looks like Pure prime Grade AAA.

Anonymous said...

Things have blowed up all over the place!

Tuesday, July 31, 2007
Another Bear Stearns Hedge Fund Is in Trouble

From the WSJ: Another Bear Stearns Hedge Fund Is in Trouble (hat tip ac)

Bear Stearns ... is now facing big losses in a third fund that has roughly $900 million in mortgage investments, according to people familiar with the matter.

The fund, known as the Bear Stearns Asset-Backed Securities Fund, ran into trouble in July and has refused to return investors' money for the moment, according to these people. One of these people said the redemption requests were postponed in hopes that the fund's assets would rebound in value. The fund contains a range of mortgages, but only a small slice of them that are considered subprime, the area that has given so many firms heartburn in recent weeks. Unlike the two other Bear funds that are being closed, this fund is not leveraged.
Not subprime. Not leveraged. Ouch.

Also from Bloomberg: Oddo to Shut Three Funds `Caught Out' by Credit Rout
Oddo & Cie, a French stockbroker and money manager, plans to close three funds totaling 1 billion euros ($1.37 billion), citing the ``unprecedented'' crisis in the U.S. asset-backed securities market.

Oddo said it will wind down the funds within the ``shortest possible time frame'' because of a plunge in prices for collateralized debt obligations, notes backed by other bonds, loans and their derivatives.

Posted by CalculatedRisk at 3:27 PM

Anonymous said...

Not Again! (of course again)

Japanese Land Prices Climb at Fastest Rate in 15 Years!

Anonymous said...

Just when you wonder whether or not it's ok to stick your head out of the bunker, along comes Bear Stearns with another cluster bomb.

How long before many hedge funds receive a run of redemption requests? The response? "You can't sell- NO ONE SELLS!!!!!!

Unknown said...


I finally find your blog title appropriate. We are entering a panic stage.

Anonymous said...

Big Bank Failure Could Turn
Credit Crunch Into Global Crash

As of July 27, the end of a week of international capital markets "seizing up," the world's major central banks appeared paralyzed to deal with the drying up of credit markets. The Bank of Japan was afraid to raise interest rates for fear of triggering the unwinding of the yen carry trade and collapse of the dollar. The Federal Reserve was afraid of any speculation about lowering rates, for the same reason—despite falling home sales, auto sales, industrial goods orders, industrial employment—and was overseeing the outright faking of GDP and jobs reports to justify its paralysis.

The Bank of England and European Central Bank, which had been raising rates, were forced by the crisis to leak that they would take no more such action. The International Monetary Fund put out an "update to its annual report" on July 25, specifically to deny that a global credit crunch was hitting, while acknowledging "dangerous risks have emerged."
'Never Before, Except the Great Depression'

That this financial disintegration was triggered by the meltdown of the $12 trillion U.S. home mortgage bubble, and the subsequent crumbling of mortgage-backed securities (MBS, a $6 trillion market) and their derivative collateralized debt obligations (CDOs, another $3 trillion), has become fairly well known. Billion-dollar-plus hedge funds are going bankrupt on a weekly basis, and the funds of the Credit Suisse/Tremont Hedge Index, as a whole, have lost 7.5% for the year to date. The exhaustion of the household debt bubble is dragging down auto sales, jobs, durable goods orders, and other physical economic measures.

That triggering condition continues to worsen rapidly. On July 27, following the announcement of big new falls in both new-home and existing-home sales in the United States in June, Moody's, a division of the ratings agency, issued a dire new analysis of the mortgage credit market by its chief economist, Mark Zandi. That analysis was that the housing-market plunge will continue for at least another year, at which time, average home prices will be 10% below their level of the beginning of 2006. Such a price collapse has not happened since the early 1930s, during the Great Depression. Moody's forecast U.S. unemployment to jump as a result. Two days earlier, the CEO of Countrywide, the largest American mortgage lender, said the condition of the home market had no precedent except the Great Depression.

In addition, Zandi projected that by Summer 2008, 3.6% of all American mortgages—prime as well as subprime—will be in default, and that 2.5 million more homeowners will default on first mortgages alone in two years. Second mortgages—that is, home equity and other forms of borrowing cash against homes—are defaulting at an even faster rate, 4.8%, as announced July 25 by Countrywide.

The market for the most widely used mortgage-bond derivatives, CDOs, seized up completely in June; JPMorgan Chase bank reported that only $3.7 billion in CDOs were sold in June, compared to $42.3 billion in May and much larger figures over the course of 2006.

Credit Markets 'Shaking Like an 8.0 Earthquake'

Anonymous said...

Asian shares sink as credit woes spread

Asian shares fell nearly 4 per cent and the yen and government bonds rose on Wednesday, as investors scrambled away from risky trades on worries about a worsening credit crunch.

Bookmakers were calling European markets to open down more than 2 per cent after a U.S. mortgage lender and two Australian funds became the latest casualties of a spike in volatility and exploding spreads on high-yield corporate debt.

”The fallout is not going to be confined to the U.S. market. We are already beginning to see that it’s having a knock-on effect on other financial sectors around the world,” said Chung Kyun-sik, chief investment officer at Eastar Investment Advisors.

MSCI’s measure of stocks outside of Japan fell 3.7 per cent, Japan’s Nikkei dropped below 17,000 for the first time since April 2 and the yen flirted with a 3-month high against the dollar.

Korean shares were heading for their daily biggest fall in three years, with trading of stock futures halted for the first time this year.

Australia’s Macquarie Bank fell nearly 10 per cent after it warned that retail investors face losses of up to a quarter in two of its high-yielding bond funds, just weeks after two other Australian funds reported similar problems.

The Macquarie funds – as well as troubled lender American Home Mortgage Investment Corp. and a Bear Stearns fund that on Tuesday halted redemptions – are not directly exposed to the U.S. subprime mortgage market, raising worries that fallout from this sector is spreading.

”There is obviously further to play out in the U.S. subprime market and its seems to be spreading to the slightly higher credits,” said Eric Betts, equities strategist at Nomura Australia.

Anonymous said...

Commodities Rise Along With Crude Oil

Commodity prices climbed broadly Tuesday as crude oil closed above $78 a barrel for the first time amid expectations for rising demand from U.S. refineries.

The September contract for light, sweet crude oil settled at $78.21, up $1.38 on the New York Mercantile Exchange. Oil's increase helped tug gasoline, gold and copper prices higher. The commodities markets, which often find support in a falling U.S. dollar, shrugged off the currency's slight gains on Tuesday against the euro and other world currencies.

Anonymous said...

Keith, I have mentioned in a couple of the other threads. Please make sure you cover the proposed raising of the US debt limit $9 trillion, the USA is swirling around the plughole, economically speaking of course.

blogger said...

I don't post about the US raising the debt ceiling to $9 trillion because IT'S A JOKE AND A FARCE

We're over $50 Trillion in debt. What the government doesn't account for is the cost of liabilities (soc. sec and medicare/medicaid)

$9 trillion, I wish. We're bankrupt.

Anonymous said...

Head in Sand Dept.

Paulson says subprime woes contained
Wednesday August 1, 8:47 am ET
By David Lawder

BEIJING (Reuters) - U.S. Treasury Secretary Henry Paulson said on Wednesday that the market impact of the U.S. subprime mortgage fallout is largely contained and that the global economy is as strong as it has been in decades.

European and Asian stocks tumbled on Wednesday following a sharp drop in U.S. shares on Tuesday, after American Home Mortgage Investment Corp. (NYSE:AHM - News) said it may have to liquidate assets, fuelling worries over problems in the subprime mortgage market spilling over into other sectors.

The recent volatility in global stock and currency markets reflected a repricing of risk and the unwinding of excesses in U.S. mortgage and leveraged buyout financing, Paulson said.

"There's a wake-up call, and there's an adjustment to this repricing of risk, but I see the underlying economy as being very healthy," he told reporters before leaving Beijing, where he pressed top officials to let the yuan strengthen more quickly.

On the yuan (CNY=CFXS), Paulson said he had told the officials that allowing it to appreciate more quickly would help both the Chinese and world economies.

"The case that I make is that the rate of appreciation so far, there is no evidence that it is hurting the Chinese economy," he said, adding that further acceleration of the yuan's strengthening would make it easier to manage the economy and hasten development of more value-added production.

"There is not a difference as to principle. They are committed to currency flexibility, to currency reform," Paulson told reporters. "They emphasized they are committed to reform, but financial stability is every bit as important."

Paulson met President Hu Jintao, Vice-Premier Wu Yi and other top officials in an effort to keep his "strategic economic dialogue" with China on track.

He said that China had agreed to move up to October from December the date by which it will lift a moratorium on the approval of new foreign-invested brokerage joint ventures.

His trip to Beijing and the impoverished western province of Qinghai came as the U.S. Congress intensified action on legislation aimed at pressuring China into allowing the yuan to appreciate more quickly to ease trade imbalances.

On Tuesday, two other top aides to President George W. Bush joined Paulson in speaking out against the bills, saying they could provoke a global trade backlash.

"At a time when U.S. exports are growing globally, such legislation also exposes the United States to the risk of 'mirror legislation' abroad and could trigger a global cycle of protectionist legislation," Paulson, U.S. Trade Representative Susan Schwab and Commerce Secretary Carlos Gutierrez said in a joint letter to senior senators.

Many U.S. lawmakers are tired of simply talking with China about the yuan, which they feel is deliberately undervalued, keeping Chinese goods cheap in U.S. stores and driving American competitors out of business.

"I appreciate the administration's ongoing efforts but the current dialogue isn't working," Sen. Charles Grassley said in a statement issued on Tuesday. "China can and should be moving more quickly to a market-based valuation of its currency. But it's not.."

Grassley, an Iowa Republican, said the dialogue should be continued, but should not be relied on solely. He also said the legislation, which would allow companies to seek anti-dumping duties against products from countries deemed to have "fundamentally misaligned" currencies, was not aimed solely at China.

During his meeting on Tuesday with Wu, Paulson received a lecture in front of reporters on China's economic challenges, that the country was too poor to ever pose an economic threat to anyone.

"China still has 23 million people living in poverty. China's very goal in its development is so that its 1.3 billion people can eat their fill, dress warmly and live well," Wu said. "Who could we threaten? We don't have the ability. China does not and will never threaten anyone."

Her comments went to the heart of Beijing's refusal to permit a more rapid rise in the yuan: officials fear a stronger currency could not only destroy millions of export-oriented jobs but would also make it tough for peasants who make up over 60 percent of its population to compete against cheaper food imports.

Anonymous said...

Got Gold?

Anonymous said...

From Michael Shedlock's blog (just in case anyone wanted to put too much stock in Standard & Poor's comments):

Absurdity at the S&P

The S&P is sure right on top of things as this 3:42 PM headline shows: S&P Puts AHM Rankings on Negative Watch. Wow. What a bold, stunning, and timely move by the S&P. Let's take a look.

Standard & Poor's Ratings Services on Tuesday placed its "average" residential prime ranking for American Home Mortgage Investment Corp. on credit watch with negative implications.

The ratings agency also removed the home lender from its "select servicer list."

S&P believes the company's financial troubles could result in higher turnover in its servicing operation and hurt servicing performance.
How clever of the S&P to figure out that a company that has stopped doing business might experience "higher turnover in its servicing operation and hurt servicing performance". That is simply stunning analysis. Who else could have figured that out?

Now that American Home Mortgage has ceased doing business, I suppose it's safe for the S&P to remove AHM from its "select servicer list". Does (or did) the S&P have a relationship with AHM and if so what was the nature of it? (I don't know, I'm simply asking).

Rating Company Disclosures

Moody's: "Moody's has no obligation to perform, and does not perform, due diligence."
S&P: “Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision.”

Anonymous said...

**** FLASH ****

First lawsuit filed against Bear Stearns by an investor who lost $500k. Charges: misled about sub-prime exposure and ability to manage the risk.

Jimmie King, you're on the hot seat!

Anonymous said... are assuming there will be no SS or Medicare reform. landlord came over today and we had a good talk. We live in Sedona, AZ and he has 2 properties for sale. His realtor told him there is now 4 years worth of inventory for sale our little hamlet. WOW.

Anonymous said...

keith said...
I don't post about the US raising the debt ceiling to $9 trillion because IT'S A JOKE AND A FARCE

We're over $50 Trillion in debt. What the government doesn't account for is the cost of liabilities (soc. sec and medicare/medicaid)

$9 trillion, I wish. We're bankrupt.

August 01, 2007 9:31 AM


Just when I start to think Keith is sane, he posts this. Come on dude, I know you're too smart to fall for this nonesense.
Oh I know you read about it on or some talk show host moron said so therefore it must be true.

My mistake. You may now get back to making the tinfoil hat.

Anonymous said...


Alot of for sale signs are going to be poping up in the Hamptons over the next year. said...

something is rotten!

Bear Stearns files bankruptcy protection and guess what folks?

Their assets are tied up in the Cayman Islands. Good luck trying to pry the money or what is left from an offshore investment brokerage.

blogger said...

Regarding the US $50 Trillion debt that some faux news viewers are shocked to find out about, I recommend reading the report from the US Comptroller's office where this is firmly documented. Oh, sorry, that didn't make the news in the US you're saying? Gee, imagine that

As widely reported, the $248 billion fiscal year 2006 unified budget deficitwas lower than originally forecast and lower than last year’s deficit of $318 billion. While this improvement in the 1-year fiscal picture is better than a worsening in that picture, it did not fundamentally change our long-term fiscal outlook. In fact, the U.S. government’s total reported liabilities, net social insurance commitments, and other fiscal exposures continue to grow and now total approximately $50 trillion, representing approximately four times the nation’s total output, or gross domestic product (GDP) infiscal year 2006, up from about $20 trillion, or two times GDP in fiscal year 2000.

Becky said...

Check out the debate in the comments over on on a housing bubble story. Interesting.

Anonymous said...

These funds are huge!

Tudor Hedge Funds Hit Problems
August 1, 2007 5:49 p.m.

Two huge hedge funds run by Paul Tudor Jones's Tudor Investment Corp., which manages more than $20 billion, suffered sizable losses in July. The Raptor Fund, a $9 billion hedge fund run by James Pallotta in Boston, dropped 9% in the month, and is down almost 3% so far in 2007, according to investors. The fund that Mr. Jones runs in Greenwich, Conn., the $10.3 billion Tudor BVI Fund, lost just over 3% in July, though it is up 4.6% for the year.

The losses are surprising because both managers have among the best track records in the hedge-fund world. Some investors said the results were disappointing, but noted that Mr. Jones has scored an average annual return of over 24% since launching his fund in 1986, while Mr. Pallotta has generated gains of over 19% since 1993.

Investors have been waiting to see how hedge funds fared in July, a difficult month in various markets that saw $3 billion hedge fund Sowood Capital collapse after losing more than 50% of their assets.

Write to Gregory Zuckerman at

Anonymous said...

Dominos are falling.

Europe Trembles Again
Parmy Olson, 08.01.07, 7:25 AM ET

LONDON - Europe can't seem to shake the feeling that America's credit problems will have disastrous consequences for its investments. Leading exchanges were down an average of 2.4% on Wednesday morning as stocks across the region plunged.

The belief that investors will stop taking risks in the bond market and supporting inexpensive home mortgages and corporate buyouts weighed on the world's stock markets. Stocks in Hong Kong suffered their biggest drop in nearly five months, while the Dow Jones Eurostoxx 50 Index, which tracks the performance of blue-chip companies in 12 countries using the euro, was down 108.42 points, or 2.5%, at 4,207.27 points.

London's FTSE 100 share index was down 155.6 points, at 6,204.5 points, its lowest since early March, while France's CAC 40 was down 154.55, at 5,596.5 points, and Germany's DAX was down 157.61 points, at 7,426.5 points.

Triggering the latest jitters was the announcement on Tuesday of mortgage lender American Home Mortgage (nyse: AHM - news - people ) that it may have to liquidate assets because it could not meet its debt-service obligations. (See: "American Home Rocked To Its Foundation") Traders wiped 90.1% off the company's value, and the Dow Jones industrial average duly fell to close 1.1%, or 146.32 points, lower at 13,211.99, overwhelming a more than 100 point midday gain.

The risk of owning corporate bonds soared further after Bear Stearns (nyse: BSC - news - people ), which has already seen two of its funds that invested in mortgage-backed securities nearly collapse, stopped investors from withdrawing money from a third hedge fund, which specialized in risky credit, on Tuesday.

The subprime fallout then hit Australian shores early on Wednesday morning when Macquarie Bank lost 7.9% of its value after announcing that two of its investment funds could lose up to 25%, or $300 million, of their value because of the credit market turmoil. (See: "Macquarie Funds Take Bath In High-Yield Debt")

Robert Parkes, a U.K. equities strategist at HSBC (nyse: HBC - news - people ), said the latest sell-off was partly attributable to the irrational reaction of short-term investors, particularly hedge funds, whose increasing presence in global markets is also raising the risk of volatility.

Their actions were sparked more by their exposure to the credit market than by the underlying economic environment. "The line of reasoning could be that moves are being exaggerated by distress-selling from those areas, on the back of problems on the credit market," Parkes said. "If there's pressure on hedge funds from redemptions [people who invest in hedge funds] then they're going to have to sell the more liquid assets, which are equities."

Anonymous said...

Meanwhile HGTV replaying flipper stories from 2005.


Anonymous said...

10,495 Homes Offered For Sale on Countrywide Financial's Website


Anonymous said...

Nearly every stock has received a battering in the recent downturn, but as groups go, the financials have taken a worse beating than most.

First among the wounded are the mortgage companies with exposure to the sub-prime market, where risky loans are failing in the wake of the depression in housing.

But the damage has spread far and wide. Bank of America, Bear Stearns and Barclays are among the big financial companies on the hook for loans made to American Home Mortgage, which says it may not be able to meet its loan commitments.

Bear Stearns has at least three hedge funds facing near total loses after making risky investments in the sub-prime market. It is already facing one lawsuit from investors.

All investment banks will suffer if their lucrative merger and acquisitions business slows as the cost of funds rises. The carnage in the financials has been so bad

This is not a time to buy into financials across the board.

Investors need to look at company-specific risk, specifically on the balance sheets. They need to see what could be hiding on the balance sheets. What kind of liquidity do they have to get through any market turmoil?

You need people that have strong balance sheets that they have staying power to get through if we have turmoil for the next year or two years.

Anonymous said...

From The Times
August 2, 2007
Credit markets leave banks saddled with £250bn of debt
Siobhan Kennedy and Gary Duncan

Leading investment banks on both sides of the Atlantic are saddled with almost $500 billion (£246 billion) in agreed leveraged loans that they are unable to parcel out to other investors.

New figures from Dealogic reveal that in Europe the banks are struggling to clear a backlog of $208 billion worth of leveraged loans that they would normally have sold on through syndication.

In the United States, the figures also show that investment banks are stuck with $269 billion of agreed loans that they are unable to syndicate.

News of the glut of debt on the banks’ balance sheets comes as the shake-out in credit markets produced new casualties as global markets were racked by further volatility.

The Dealogic figures highlight the growing problems faced by investment banks over loans to companies and private equity firms that they have already guaranteed but are now unable to sell down to other investors.

In Europe, RBS has been left holding the biggest debt pile, with $18 billion worth of leveraged loans, followed by JPMorgan with $17.4 billion and Barclays Capital, which has lent $16.2 billion. All three banks were involved in the £9 billion of debt underwriting Kohlberg Kravis Roberts’ acquisition of Alliance Boots, the British health and beauty retailer, which got stuck this month, forcing the banks to hold more than £7 billion of the loans on their balance sheets.

Dozens of other high-profile deals, including Cadbury’s sale of its American drinks unit and the $23 billion sale of Virgin Media, have effectively been put on hold until later in the year, when banks hope investor appetite for leveraged loans will return.

As it reported first-half results yesterday, Ken Hanna, chief financial officer at Cadbury Schweppes, said: “The correction in the debt markets last week was more serious than after September 11. It’s very difficult or impossible for buyers to get access to the debt markets . . . It looks like severe indigestion.”

In response to tightening credit markets global share markets endured another volatile day. The turmoil gripping stock and bond markets was emphasised as the US Vix index – often called Wall Street’s “fear gauge” – surged by 12.7 per cent to within a fraction of a four-year high. Investors also had to deal with record oil prices with US light crude hitting $78.77 a barrel before easing.

London’s leading shares succumbed to a renewed plunge after a short-lived rebound on Tuesday, although the Dow Jones industrial average ended a volatile session up 150.40 points at 13,362.40.

Among the latest to join the growing global casualty list were Mac-quarie, the Australian bank, which gave warning of losses in two of its credit funds, and American Home Mortgage Investment Corporation, which said it may have to liquidate assets and was now unable to borrow on its credit facilities.

Bear Stearns, the US investment bank already reeling from the American sub-prime crisis, said that it had halted redemptions in another of its hedge funds as nervous investors tried to pull their money out.

Anonymous said...

Just read in another blog that Job numbers are coming out on Friday.

On that blog a questions was posed why hasn't BLS show allot of job lost in the construction business.

Some of the construction jobs lost due to cut back on demand from large home builders are probably gained back in residential home remodeling.

As you know the housing cycle has three phases: Recovery, Boom, and Slump. Then each of the three phases has three stages: Beginning, Middle, and End.

During the beginning stage of the slump phase people feeling of greed is at the highest; therefore, home speculators or investors will not give up on the idea that house prices always goes up. This sense of greed is reinforced when the median price of homes in a given city continues to go up.

Many of these speculator will use this down home sale period to remodel their homes.

Also, there are still allot of liquidity in the market due to speculation in yen carry trade. Hedge funds still need to invest that money somewhere.

Just because hedge funds have slowed down the flow of funds of yen carry trade money to the residential mortgage backed security business it does not mean that commercial mortgage backed security business can not benefit from that flow of funds.

Some of the other lost construction jobs are gained back by the commercial side of the construction business. This is not to say that CMBS business can not end up like RMBS. In fact it can.

As posted in the past in this blog there was an news article that stated that certain rating companies are not allow to give rating to CMBS.

The remaining lost construction jobs are probably picked up by the public sectors. In the past few years many of the cities have gained a great deal of revenue from properties taxes. So many public works projects are beginning to be funded.

The only problem with construction jobs going over to those three area mentioned above is that those jobs are all depended upon the housing market staying healthy.

If foreclosure continue to raise

(1) Speculators will cut back on remodeling projects as they realize the money spent on upgrading a house will not be able to compete with the increase amount of competitively priced REO homes that fail to sell in Auction.

(2) Hedge funds that are leveraged to the max will folded as credit worthiness of debt deteriorate. This in turn would expose more bad debt causing more deterioration of credit worthiness until the USD index reach low that no one could image. This will force central banks around the world to panic as inflation runs out of control in America destroying yen carry trade.

(3) Cities that were depended on properties tax revenue will realize that they were over committed on some of their public work projects and will need to cut back on expense. In California many cities will not be able to pay the interest on bonds that were issued. The credit worthiness of these Californian bonds will reach junk status.

For signs of remodeling business slowing down look at revenue from companies like "Black and Decker" and "Home Depot"

For signs of weakness in liquidity look at the Credit Worthiness of debt.

For signs of cut back in public spending look to cities that are cutting back on or charging more for services.

Anonymous said...


Help me out here. I'm a long time HP fan, pretty much since you started.

Ok, I'm a firm believer that housing is going down hard, especially here in California. As are the bonds that back them. As is the dollar.

BUT, could it be that stocks are actually the best place to put your money?

--Stocks are fairly, if not slightly undervalued.

--Without real estate and safe bonds, where else can someone put there money except in the stock market.

--As the dollar falls, large caps that derive alot of their income from overseas (over 35% of the profits of S&P companies) go up.

I'm totally with you on housing and the related bond market and the dollar, but I think that the stock market is the place to be. Moreso internationally, but the US market is relatively safe give valuations.

Anonymous said...


The gift that keeps on giving!

Anonymous said...

Anyone ever heard the phrase "black swan"? I found this on craigslist this morning (inland empire, CA):

$10 This market is tanking, stand by for the Black Swan...

Reply to:
Date: 2007-08-01, 4:30PM PDT

The black swan is a real estate term for a bubble bursting cause 10% drops every 6 months. That's what's happening now, stand by, cause no one is buying, only a fool would buy now

365365 at hdghdghd google map yahoo map
Location: Black Swan means, rapid deprecitation
it's NOT ok to contact this poster with services or other commercial interests

PostingID: 387198352


Pretty funny, but I bet it isn't to all the people listing homes on craigslist!! HAHAHAHAHAHA :)))

Anonymous said...

Remember the trailer trash turned millionaires of Briny Breeze in FL? Well their back to being trailer trash. Here is the rest of the story:,0,4886745.story?coll=sofla_tab01_layout

Anonymous said...

50 trillion in debt.. is the woRld worth that much...

W.C. Varones said...

Crazy action in the CFC options today.


Anonymous said...

Unilever to Reduce Work Force by 20,000
Thursday August 2, 10:46 am ET
By Toby Sterling, AP Business Writer
Unilever Reports 2Q Profit Increase, to Cut 20,000 Jobs

AMSTERDAM, Netherlands (AP) -- Unilever, the maker of consumer products such as Axe deodorants, Dove soaps and Lipton teas, said Thursday it will cut its work force by 20,000 in the coming four years in a company restructuring.

Anonymous said...

Prediction: Suckers Rally in Winter/ Spring 08

Everyone I know is capitulating that the market is falling. Most of these folks, however, seem to be poised for a massive suckers rally. It as if they are basing their idea of value on what prices became in 2006 and not historical norms. I won't be buying until I see real value based on historical norms.

Roccman said...

From Calculated Risk:

Posted - 08/02/2007 : 09:19:42 AM

Pretty big lender. Don't want to say the name on here. Anyways, he called and said he wanted to give us some "scoop." He went on to say that there were some "meetings" going on with FNMA, Fitch, Moody's, S&P, etc...He said within a few weeks ALL lenders will stop offering Flex 100, My Community, SISI (completely), SIVA to 90%, Full doc maxed at 95%. NO stated on ANY seconds.

This may be BS, but this guy has ALWAYS been right on the money with his info. He runs the whole SE (has a lot of AE's under him) for a LARGE lender.

Has anyone else heard this? Thoughts?

Posted - 08/02/2007 : 09:21:27 AM
no 100% product full doc will mean your house will be worth 1/2 the price over night.

this is true

i posted a few days ago that ALL MI COMPANIES will only insure upto 90% CLTV to limit the risk they have in this market since home prices contiue to slide......... what you might see now is seller held back seconds come back soooooooooo no more 100% thats right NO MORE MI TO 100%

Matter of fact, the AmTrust rep is in our office right now. I asked her about what the guy from the other lender told me. She said they are being told there will be some HUGE changes next week coming from Fannie and Freddie.

I have a lot of files that I need to place, but almost all of the lenders I have placed them with are no longer doing stated! Any help?!

Both purchases and refi's?

Anonymous said...

Fantastic, we've spent half a trillion dollars "rebuilding" Iraq and we can't even make sure our own bridges stay up!

Anonymous said...

Analysts fear that a decline in US housing prices will result in higher loan losses for banks and investors in mortgage-backed securities, as well as hurt consumer spending and economic growth in the world's largest economy. One Thai bank, BankThai, recently set aside 276 million baht in provisions to guard against losses in offshore securities tied to US mortgage assets.

Mrs Suchada said the central bank was not concerned that the Thai property market would develop into a bubble similar to the US market. Measures to control capital flows would also help insulate the Thai economy from overseas disruption.

Anonymous said...

Anon said: Alot of for sale signs are going to be poping up in the Hamptons over the next year.

One Anon to Another said: just last night, Martha Stewart said homes prices won't go down in the Hamptons. Should we believe her?

Anonymous said...

James Dean said:"I won't be buying until I see real value based on historical norms".

LauraV said:
How can anyone afford these house prices-(even at half off) when everyone has to pay for healthcare costs?

At least in the 1970's and 80's we were still manufacturing goods, but now even Silcon Valley is shipping all manufacturing to Asia.

What is a historical norm, really?

I think this country is headed somewhere where we have not seen the likes of before.

Anonymous said...

109 major U.S. lenders have "imploded"

Anonymous said...

Tudor Hedge Funds Hit Problems
August 1, 2007 5:49 p.m.

these guys aren't that creative.... Raptor was a name the chief financial con-man at Enron used for his shell companies.


Two huge hedge funds run by Paul Tudor Jones's Tudor Investment Corp., which manages more than $20 billion, suffered sizable losses in July. The Raptor Fund, a $9 billion hedge fund run by James Pallotta in Boston, dropped 9% in the month, and is down almost 3% so far in 2007, according to investors. The fund that Mr. Jones runs in Greenwich, Conn., the $10.3 billion Tudor BVI Fund, lost just over 3% in July, though it is up 4.6% for the year.

Anonymous said...

IndyMac, Rivals Make `Major Changes' in Home Lending (Update4)

IndyMac Bancorp Inc. is joining rival lenders in making ``very major changes'' to home-loan standards and charging higher rates because of a slump in mortgage securities, the company's chief executive officer said.

The market for mortgage bonds has become ``very panicked and illiquid,'' CEO Michael Perry wrote in e-mail to employees yesterday. National City Corp. this week stopped buying second mortgages from other lenders and making some stated-income loans. Wachovia Corp., the fourth-biggest U.S. bank, today decided to stop making Alt A mortgages through brokers.

``Unlike past private secondary mortgage market disruptions, which have lasted a few weeks or so, our industry and IndyMac have to be prudent and assume that this present disruption, which appears broader and more serious, might take longer to correct itself,'' Perry wrote.

The credit tightening by Pasadena, California-based IndyMac, the ninth largest U.S. mortgage lender, and competitors on loans considered less risky than so-called subprime, comes when it's ``difficult'' to trade even AAA-rated mortgage bonds that aren't guaranteed by government-chartered Fannie Mae and Freddie Mac, or federal agency Ginnie Mae, Perry wrote.

Exiting Alt A

Atlanta-based SunTrust Banks Inc., the 14th largest home lender, has ``pretty much gotten out of Alt A'' for now, said Sterling Edmunds, who heads its mortgage unit.

``Over the past week there's been no liquidity in the non- conforming mortgage market,'' Edmunds said. He said he has less ability than ever before in his career to sell loans to companies other than Washington-based Fannie Mae or McLean, Virginia-based Freddie Mac, or in securities guaranteed by them. That includes so-called prime jumbo loans, or ones with little risk that are larger than the companies can buy, he said.

Anonymous said...

Wells Fargo curtails exposure to alt-A mortgages

Wells Fargo & Co. is curbing its presence in the market that provides home loans to mortgage buyers who don’t qualify for the very best loan terms.

The Associated Press reported today that the lender has notified mortgage brokers that it is curtailing its exposure to so-called ”alt-A” home loans. Those are made to buyers whose credit records qualify them for rates better than those offered on subprime loans, but they aren’t as good as prime loans.

Anonymous said...

Greed & Fear in the ‘deleveraging cycle’

The deleveraging cycle has now well and truly commenced, and Asian and other emerging asset markets will be big beneficiaries, says CLSA’s Christopher Wood in the latest issue of his client newsletter, Greed & Fear.

“If the catalyst was subprime mortgages, the end game is likely to be intensifying focus on the solvency or otherwise of certain financial institutions”, he says.
In the past week, (since Wood’s last G&F missive, warning of the middle market, Alt-A mortgage problem) mortgage and corporate bond spreads have further blown out, he notes, “while S&P has admitted that Alt-A is subprime by another name”.. But with market focus continuing on the still unanswered question of who owns all the garbage “tranches” of securitised debt, and with tens of billions of dollars of bonds and bridge loans funding LBOs still unsold, the market focus is switching to the risks embedded in the financial intermediaries.

And that is what the surging spreads on Wall Street investment banking credit default swaps are pointing to, he notes. “It is no longer enough to wait in hope that the rating agency will not downgrade the CDOs. Rather the desire is to sell the paper, no matter what the discount, rather than be found out owning it and running the risk of seeing it go to zero.”

Anonymous said...

The rapid unravelling of the US subprime mortgage market reminds us of the adage that history repeats itself: many of the sad excesses of today’s subprime market are but an echo of the costly savings and loan crisis of the early 1980s. Perhaps history will have taught the American taxpayer to resist vigorously picking up the bill, which this time around could prove even more costly than the earlier S&L meltdown.

At the heart of today’s subprime crisis is the unfortunate interaction of financial innovation gone awry, inept market regulation and a failure of the rating agencies to exercise their fiduciary responsibility to protect the average investor.

It began with the increased securitisation of mortgage market loans in the late 1990s. This increasingly separated the originator of mortgage loans from their final outcome. It also gave the originator every incentive to push out mortgage loans at an increasing pace without regard for how they would perform over the longer term.

Two further financial market innovations have played important roles. The first was the increased use of collateralised debt obligations, which allowed AAA ratings to be obtained for the larger part of subprime mortgage loan pools, thereby substantially expanding the participation in this market to pension funds and insurance companies.

The second was the introduction of financial market instruments such as adjustable rate mortgage loans or negative amortisation loans. These instruments, which were introduced with the encouragement of the Federal Reserve, allowed very much less creditworthy borrowers to qualify for mortgage financing for the first time.

Financial market innovation alone could not have spawned the phenomenal growth in the subprime market. Rather, what was needed was for both federal and state regulators, including the Federal Reserve, to be asleep at the wheel as loans totalling $1,300bn were issued – the equivalent of 10 per cent of US gross domestic product.

Like today’s subprime crisis, the S&L meltdown of the 1980s also had its origins in financial market innovation and poor regulation. Towards the end of the Carter administration, the balance sheets of savings and loans – the US equivalent of building societies – came under severe pressure from higher interest rates. Congress then substantially loosened S&L lending standards and allowed them to diversify into riskier and very much more profitable commercial real estate lending. At the same time, federally backed deposit insurance at these institutions was raised from $40,000 to $100,000. Not only did this trigger a rush of money into the S&Ls, it also further encouraged the S&Ls to increase risk taking.

Compounding the S&L crisis was the considerable loosening of regulatory standards. In particular, the S&Ls were given the option of choosing whether they were to be state or federally regulated. Predictably, this encouraged many states, which stood to earn large fees from registering S&Ls, to enter a race to the bottom by offering ever more lax supervisory regimes.

A cautionary lesson to be learnt from the S&L crisis is how official estimates of its scale were repeatedly ratcheted up and how in the end it was the taxpayer who got stuck with the bill. Initially, the cost was put at some $50bn. However, when the dust settled, it turned out that the federal bail-out of the S&Ls cost the taxpayer some $150bn.

Last week, after previously downplaying the fallout from the subprime mortgage lending crisis, Fed chairman Ben Bernanke finally admitted that losses to the financial system could total up to $100bn. If experience is any guide, this estimate will also prove to be on the low side. One only need contemplate that subprime and Alt-A loans (those made to people with only somewhat better creditworthiness than subprime borrowers) might in the end have to be written down on average by 10 per cent to arrive at a total cost of the crisis more in the order of $250bn. Were that to turn out to be the case, today’s subprime lending crisis would be of a similar magnitude to that of the S&Ls, even in real dollar terms.

As the subprime mortgage market was vigorously expanding, many of its financial market proponents argued that the securitisation of those loans healthily spread the risk of such lending among many market participants. Now that the bottom is falling out of this market, it is important that the financial institutions, which stood most to gain from that lending, rather than the taxpayer, foot the bill.

Anonymous said...

U.S. hedge funds likely lost big in July
Thu Aug 2, 2007 4:07PM EDT

By Svea Herbst-Bayliss

BOSTON (Reuters) - Hedge fund investors will soon see just how bad the month of July really was when thousands of managers report performance data, and industry experts are warning disasters may loom where people least expect them.

"The numbers are going to be all over the place," said Jack Yang, a partner at $40 billion hedge fund Highland Capital, which specializes in fixed income strategies.

Highland hastily assured investors that all is well with its bets after people confused the fund's name with a similarly titled separate fund and rumors of heavy losses surfaced.

Talk that Bruce Kovner's Caxton Associates was on the brink of blowing up had to be extinguished with a rare public letter that acknowledged small losses in July but stressed the firm is still in the black.

While pension funds, endowments and rich investors are bracing for heavy losses at funds that specialize in credit strategies, they may be surprised by equally big declines in equity funds and even funds of funds that promise to select portfolios that seek to spread the risk, managers warned.

"The canary in the coal mine is going to be the fund of funds because they put their money everywhere," said Sol Waksman, who invests in hedge funds and tracks their performance at the Barclay Group.

"The people who were short did well, but then there were those people who did not short," Highland's Yang said, noting that many equity hedge fund managers may have been lulled into a false sense of security by rising markets in recent weeks.

Through June the average hedge fund was up 8 percent, according to Hedge Fund Research, one of the industry's most widely respected data trackers.

July will be different, managers and investors agree.

Anonymous said...

If Japan's Finance Minister Koji Omi cares about FX fundamentals then he should let BOJ raise interest rate and quit jaw boning.

"Because of my position that I occupy I make it a rule not to make a specific comment about the issues related to the stock market or to the exchange rate," Japan's Finance Minister Koji Omi told reporters through a translator at an earlier news conference. "As far as the exchange rate is concerned, our understanding and position is that it should always reflect the economic fundamentals."

This week's Asia Pacific Economic Cooperation meeting of finance ministers came at a time of increased volatility in global financial markets, triggered by defaults in the U.S. sub-prime mortgage market. But recent days have brought improvements in some markets

But at least one minister declined to comment on whether the worst was over.

Omi said the general consensus of the APEC meeting was that the U.S. sub-prime mortgage loan problem wouldn't become a "big issue."

Omi also said his South Korean counterpart, Kwon Okyu, mentioned the carry trade in general terms.

Anonymous said...

Dollar drops against euro as ECB hints of September rate hike

The dollar weakened against the euro Thursday after European Central Bank president Jean-Claude Trichet hinted strongly that the bank's key interest rates would be raised in September.

Trichet spoke after the ECB's top officials opted to leave the bank's refinancing rate unchanged at 4.0 percent for the second consecutive month earlier Thursday.

The euro was swapping hands at 1.3703 dollars at 2100 GMT, up from 1.3666 dollars late on Wednesday in New York trading.

The euro gained as traders bid up the odds of a possible ECB rate hike. Rate hikes can boost a currency's strength as speculators can bank potentially higher yielding returns.

The euro gained after Trichet told journalists the ECB was exercising "strong vigilance" in the face of inflationary risks.

The term has been used in the past to indicate that rates will be raised in the eurozone the following month.

Anonymous said...

"The market for mortgage bonds has become ``very panicked and illiquid,'' CEO Michael Perry wrote in e-mail to employees yesterday."

And didn't Mozillo of CFC use the "D" word? Either these guys are reading HP and letting it get to them in the middle of the night or this whole meltdown is ...

Anonymous said...

Grantham Says Hedge Funds, LBO Funds to Collapse (Update1)

Jeremy Grantham, the money manager who oversees $150 billion as chairman of Grantham, Mayo, Van Otterloo & Co. LLC, said credit-market declines may force as many as half of all hedge funds to close in the next five years.

The loss of investors' appetite for risk also may cause at least one global bank and ``one or two'' of the largest private- equity firms to go out of business, Grantham, known for his pessimistic outlook, said yesterday. The 68-year-old investor said he's still bullish on emerging-markets stocks.

Hedge-fund firms such as Boston-based Sowood Capital Management LP have collapsed as investors shun riskier debt including subprime mortgages and loans to fund buyouts.

Bill Gross of Pacific Investment Management Co. in Newport Beach, California, said on July 24 he sees ``severe ramifications'' for some investors who had benefited from cheap borrowing costs.

``Probably the most stretched silly credit that ever walked the face of the earth was subprime, and that was the start of it,'' Grantham said in an interview in his Boston office. ``And then you started to see more of the fixed-income market getting contagion.''

A total of 717 hedge funds closed last year, leaving 9,800 in business, according to Chicago-based Hedge Fund Research Inc.

Anonymous said...

BOJ should realize that it is not just New Zealand saying the yen is too weak.

South Korea's Kwon Says Yen Carry Trades Are a Threat (Update3)

South Korea's Finance Minister Kwon Okyu said the yen's weakness isn't justified and that carry trades based on the Japanese currency threaten to destabilize global markets.

Borrowing cheaply in Japan to buy assets with higher returns is ``a potential threat to the international financial markets and there is a need for a global reaction,'' Kwon said in a statement after a meeting of Asia Pacific Economic Cooperation finance ministers in Coolum, Australia.

The Bank of Korea said today it will restrict companies from borrowing in foreign currencies as it seeks to reduce won gains that have made the nation's exports less competitive than Japan. The yen has dropped 26 percent against the won since the beginning of 2005. Kwon's criticism of Japan is the strongest by an Asian nation.

``The minister's comments make a lot of sense when you consider the won's appreciation against the yen since 2005 and the close match between the two countries' areas of comparative advantage,'' said Tim Condon, head of research at ING Groep NV in Singapore. Korean and Japanese companies compete in ships, autos and consumer electronics.

The yen traded at 7.74498 won at 2 p.m. in Tokyo, from 7.74679 late yesterday.

Anonymous said...

The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, a New York-based fund manager who predicted the start of the commodities rally in 1999.

This week's rebound in equity markets hasn't persuaded Rogers, 64, to pull out of bets that U.S. investment banks and homebuilders are heading for further declines.

``This was one of the biggest bubbles we've ever had in credit,'' Rogers, chairman of Beeland Interests Inc., said in an interview from Hong Kong. ``I have been and am still short the investment bankers in America. I'm also short homebuilders.''

Anonymous said...

Take away the financing for LBOs and you take away the chief source of demand for US stocks.

Collateral damage and the yen

Banks have large exposure to CDOs, some “toxic waste”, as well as owning some defaulting mortgages themselves. They also have major exposure to hedge funds that funded toxic waste with debt. When the loan spigot got closed, LBOs were the first to have their oxygen supply cut off — and stocks too, as LBOs have been the chief market bid. As they return, at higher spreads, the yen will resume its fall.

After the dire market conditions of late last week the perma-bulls got the upper hand again — momentarily — on Monday, but were knocked off balance by yet more US mortgage sector bankruptcy on Tuesday. What next?

Suppose for a moment that the mortgage-based CDO garbage has hit bottom. What may have happened in bank boardrooms? Consider the Bear Stearns hedge funds. Results were put out some ten days ago. The less leveraged fund was in single-A and better paper, leveraged about 4:1, and was declared worth 9 cents in the dollar. So if the assets started at 100, the debt was 80 and the fund 20. 9 cents in the dollar is about one tenth, so the 20 was cut to 2, and the assets were therefore worth 82. The less leveraged fund was supported (as to its creditors, not the investors) by Bear Stearns. The more leveraged fund apparently was 13:1, implying debt of 93 and the fund at 7, per 100 of original assets. If the assets are now worth 82, bank lenders have lost 12%.

Back to that bank boardroom. Chairman or CEO to Chief Credit Officer: “How much of this stuff do we own, and what’s our exposure — to the hedge funds owning toxic waste, as well as to the waste itself?” Chief Credit Officer (here I paraphrase): “I haven’t the faintest idea.” Chairman/CEO: “You’ve got two weeks to sort it out, and meantime no more lending.” So the credit business closes down while the bean-counters work 24-7. What gets caught? Huge LBO deals that have little to do with mortgages.

Take away the financing for LBOs and you take away the chief source of demand for US stocks. Most investment sectors are sellers, but buybacks, strategic (cash) M&A, and (mostly) LBOs have been major buyers. Yet aggregate US balance-sheet ratios have not got worse: net income and equity have been rising alongside debt. With the chief bid for
stocks removed, the market got sick last week. It is not particularly cheap or expensive at current prices, but slow growth is likely to erode profits, and the financing-cost hurdle is now higher. As the banks re-open for business, private-equity LBOs could be the preferred area for loans. But higher spreads imply the need for lower prices, leaving aside any erosion of profits owing to slower growth.

While the stock market could have to accept the losses of the past month, and the private equity business may only recover part of its volume, the yen bounce looks wholly temporary. My note on Tuesday outlined (yet again) the feeble domestic Japanese policy mix and fundamentals. The yen bounce seems entirely a function of asset markets shrinking. As hedge funds (etc.) funding asset positions in yen decide to shrink their books, they need fewer yen and can repay part of their funding: this involves buying the yen back to repay. So the yen bounces as spreads rise (for example) or as stocks sell off. But when spreads stabilise at some higher level (or stocks at a lower level) shrinkage of yen-carry-funded books ceases and the mechanistic buying of yen with it. Fundamentals re-assert themselves and the yen starts off down again. We have seen several iterations of this cycle in the past 18 months. At this point, the time to short the yen may have arrived again, probably against the euro.

Anonymous said...

Wall Street often shelved damaging subprime reports

Investment banks that bundle and sell home mortgages often commissioned reports showing growing risks in subprime loans to less creditworthy borrowers but did not pass on much of the information to credit rating agencies or investors, according to some of those who prepared the reports.

The mortgage consultants, known as due-diligence firms, were hired by investment banks to make sure blocks of mortgages conformed to the mortgage seller's own standards. The studies provided a first glimpse of loan quality for ratings agencies and investors who do not normally see the full reports.

As the U.S. housing boom reached its crescendo in 2006 and investors showed a strong appetite for mortgages, lenders relaxed their underwriting standards, and millions of borrowers with poor credit records were able to obtain subprime mortgages as a result.

Default rates on many of those subprime mortgages are now rising, some borrowers face foreclosure on their homes, and investors in the mortgages face losses.

"If all the information about these investments was properly disclosed, our client would have made different decisions," said Dale Ledbetter, a Florida attorney suing Credit Suisse Group on behalf of an insurer that lost money on mortgage bond investments. "Specifically," he said, they would have "not bought these investments."

Now some of the firms that prepared those damaging due-diligence reports say their work should be turned over to investors so they understand the underlying assets better.

Anonymous said...

Does Countrywide really have $50 billion financing cushion available?

Bank-to-thrift shift helps Countrywide sneak by

With new regulator, mortgage bank gets easier capital requirements.

Lenders typically keep a slice of mortgages they issue on their balance sheet. While the company, like other lenders, has been suffering from losses in subprime loans of borrowers with risky credit profiles since the beginning of the year, the recent results showed that the problem has migrated to its prime borrowers with strong credit histories.

Home-equity loans and so-called piggy-backed loans, which are generally subordinated behind a first mortgage, took an especially stiff toll, prompting the company to increase its reserve to cover home equity to $346 million in the second quarter from $239 million the previous quarter and $104 million a year ago.

Mr. Mozilo warned during a conference call discussing second-quarter results that he doesn’t rule out that losses could spread further to higher-rated Alt-A mortgages.

But the reserves necessary to cover those losses could be reduced by Countrywide’s conversion from a national bank to a federally chartered savings bank.

Under regulation by the Federal Reserve and the OCC, for instance, Countrywide had to take an immediate charge after easing the terms on an existing loan. Not so under the OTS if it can be convinced that the collateral is still strong.

Countrywide said it modified terms on about 2,000 loans in June, roughly double the prior year’s monthly level, mostly to delay foreclosures and avoid heavier losses. But thanks to its new overseer, if prices keep falling and foreclosures continue, it’s possible that Countrywide could ease the terms on future loans without its results being hurt as much as they have been under the OCC’s rules.

In addition, the OTS evaluates capital for each of its holding companies on an individual basis, which may offer Countrywide still more flexibility.

“The OTS is just an easier regulator,” said David Hendler, analyst at CreditSights. “It’s a bit more lenient than the OCC.”

Anonymous said...

To Cashcow, yep head on over to europe while the us of a implodes. Hide out there until europe implodes, they arent too far behind us. Cashcow and people like you are a large part of causing this mess. You wont be able to hide. Stay in that luxury condo and enjoy life. Looks like I might be able to afford in your neighborhood after all!

Anonymous said...

Bear Stearns stock is getting hammered this morning. S&P rating service just slapped a negative rating on them. Down $7 in the first hour of trading.

Anonymous said...

"Lenders are tightening standards and "raising rates like crazy," said Melissa Cohn, chief executive of Manhattan Mortgage, a New York mortgage broker. She said Wells Fargo & Co. is charging 8% for a prime jumbo 30-year fixed-rate loan that carried a 6 7/8% rate late last week." WSJ

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