Do any of you ever bother to look beyond the housing sector?
Well, let's see, there's the automobile sector - that's going really well... err...
Then there's the US savings rate. We're just a big nation of savers... err... umm... Oh, you say we're going on the 3rd year of negative savings now?
How about those energy prices? Way up. That's gotta be good for somebody ... in Saudi Arabia and Venezuela, I guess.
How about that China? Going like gangbusters. Yeah they're sitting on a $Trillion but they wanna play nice. Well, there was that sabre rattling over Taiwan the other day...
I was told today that funding was being pulled on a couple of projects, maybe what you should do is take some time and research things before you open your pie-trap.
You obviously find value here or you wouldn't show, something tells me the insecurity in regard to your beliefs causes you to seek out others who are far more intelligent than yourself. It must be difficult not being capable of forming a rational thought of your own based on a thorough analysis of a given situation.
You obviously find value here or you wouldn't show, something tells me the insecurity in regard to your beliefs causes you to seek out others who are far more intelligent than yourself. It must be difficult not being capable of forming a rational thought of your own based on a thorough analysis of a given situation.
Nope just a troll. Must have found a computer with a virgin IP address he hasn't been banned from yet.
If he stays sober & civil through the night it might even stay unbanned... but that would be a first.
I'm here to learn, and I greatly respect CR's willingness to offer his time and research. Negative comments with no data to back them serve no purpose. Please don't waste our time with emotional opinions, that serves nobody.
I appreciate the way CR keeps his work facts and reporting based and excludes the emotional/redundancy that plagues people like Roubini.
Thank you, CR. I'm now a full-fledged econo-holic.
Thanks for posting that Everquest story - very good reporting. Bears looking into further. I suspect there is even more conflicts of interest waiting to be uncovered.
I wonder if they'll keep the IPO in registration for a while - extend the quiet period and nobody involved can legally discuss the matter- nah, that's way too conspiracy theory minded, right?
a block of about $700 million of bonds from so-called collateralized debt obligations was put up for sale.
Gee I wonder who wants to be the bagholder for this and other blocks of shit that invariably will be floating down the Greenspan subprime mortgage river for next few years.
The Blackstone Group
345 Park Avenue,
New York NY 10154
Ladies and Gentlemen:
I am, together with my general partners and funds managed by our firm, pleased to propose to acquire, for a purchase price of $15 in cash per unit, all of the outstanding common units, representing limited partners' interests in Blackstone Group L.P. (the "Group"). Our offer to acquire the Chinese government's minority stake in the Group for the same price has already been accepted. Our proposal provides a substantial premium for all of the Group's common unit holders. If this offer is accepted, Blackstone Group will de-list from the New York Stock Exchange ("NYSE"). .....
..................
..................
This is not acceptable to us. Nor can we comply with the demands by our Chinese minority investors for senior management changes. Instead, my partners and I are offering to purchase all the Group's outstanding common units. Although the offer is well below the flotation price, it represents a substantial premium to where the securities have traded lately.
Of course, no binding obligation on the part of the undersigned or the Group shall arise with respect to the proposal or any transaction unless and until a definitive agreement satisfactory to us and recommended by the Special Committee and approved by the Board of Directors is executed and delivered.
We look forward to discussing our proposal with you further in the near future.
""By the time the cycle unwinds, we will have seen some very interesting marks across" Wall Street, he added. "This is the problem with large illiquid trades. Marks in the CDO market are generally subject to significant management judgment until they are actually traded."
Rosner also wondered whether Everquest's exposure to CDOs backed by subprime mortgages is appropriate for retail investors.
"Everquest is an opportunity for retail investors to own managed CDO exposures to equity tranches -- the first loss pieces," he said. "Only qualified institutional buyers can invest in CDOs, so it is interesting that the SEC is allowing the sale of shares in this company to retail investors." "
I thought Bernanke's speech pretty much put a floor under Bear Stearns. Odd that in the dot com bust no investment bank went belly up and no investment bank will go under this time. The moral hazards are increasing but maybe we have another 25 years before the bagholders pay.
The SEC stopped functioning on behalf of investors when derivatives were declared a free zone and now that the net capital computation has shifted to risk management models...well the risks too are shifted to individual investors.
OT: as long term readers know, I am open to all views in the comments. And I'm usually the first to point out when one of my predictions is wrong - I definitely don't have a crystal ball.
However, please post under one name, and don't be rude. IMO, the comments are outstanding - thanks to everyone! - and I'd like to keep them that way.
"Another lobbyist for Blackstone is Ogilvy Government Relations, which received approximately $120,000 in fees from Blackstone in the last half of 2006, according to disclosure forms filed with Congress. Ogilvy is a division of WPP PLC, which also owns the lobbying firm Quinn Gillespie & Associates, whose co-founder -- Ed Gillespie -- this week was named a top adviser to President Bush."
Did anyone else notice a certain amount of euphoria in the reporting about todays CPI? Well, Im feeling a bit cranky about this since Im damn sure paying what seems like a lot more for the same stuff. So I checked the actual data for myself. The following comes from the BLS web page: Consumer Price Index Summary
and the Table 1 reference at the bottom of the page.
As a summary ...
Category/Weight (%)/Un-adj % chg from May'06/Adjusted Chg from Apr'07
Food/ 15.0 / 3.9 / 0.3
Housing/ 42.7 / 3.3 / 0.2
Apparel/ 3.7 / -0.8 / -0.3
Transportation/ 17.2 / 1.3 / 2.8
Medical Care/ 6.3 / 4.0 / 0.3
Recreation/ 5.6 / 0.4 / 0.2
Education & Comm./ 6.0 / 2.7 / 0.6
Other/ 3.5 / 3.9 / 0.3
ALL ITEMS/ 100.0 / 2.7 / 0.7
From the press release...
\t
The index for meats, poultry, fish, and eggs registered a substantial increase for the third consecutive month--up 1.2 percent in May.
The index for fruits and vegetables, which rose 0.4 percent in April, declined 0.5 percent in May. (Prior to seasonal adjustment, prices for fruits and vegetables rose 1.0 percent.)
The index for dairy products increased 0.5 percent as a 2.2 percent increase in milk prices more than offset a 0.4 percent decline in prices for cheese...
Observation #1: Yup, we are paying more for food!
The index for housing increased 0.2 percent in May, the same as in each of the two preceding months. The index for shelter rose 0.2 percent in May... Within shelter, the index for rent rose 0.3 percent; the index for owners' equivalent rent, 0.1 percent; and the index for lodging away from home, 1.6 percent...
Observation #2: Owners Equivalent Rent is the key to a low number here, making up a bit over half of the total weighting of 42.7%.
The transportation index rose sharply for the third consecutive month- -up 2.8 percent in May. A 10.4 percent increase in the index for motor fuels was partially offset by declines in the indexes for new and used vehicles and for public transportation...
Observation #3: Yup, we really did pay a lot more for gas!
The index for apparel declined 0.3 percent in May the same as in April. (Prior to seasonal adjustment, apparel prices decreased 1.2 percent. Prices for women's and girls' apparel registered the largest decline--down 2.3 percent.)
Observation #4: Big deal, its only 3.7% of expenditures.
Medical care costs rose 0.3 percent in May and are 4.0 percent higher than a year ago...
The index for recreation rose 0.2 percent in May. The index for cable and satellite television and radio service increased 1.0 percent. This increase was partially offset by a 3.1 percent decline in the index for televisions. Television prices have declined 26.9 percent during the 12 month period ended in May.
The index for education and communication advanced 0.6 percent in May. Educational costs rose 0.4 percent
Educational costs rose 0.4 percent and the index for communication costs increased 0.7 percent. Within the communication group, the index for telephone services rose 0.9 percent....
Observation #5: So as long as we dont eat, drive, get sick or send anyone to school inflation is in check!
"Everquest is an opportunity for retail investors to own managed CDO exposures to equity tranches -- the first loss pieces," he said.
I spent some time on the institutional side at ML and GS where this crap was fought over like zebra scraps to a pack of lions. Let me share with you my advice when there's "an oppotunity for retail investors..."
RUN! Run for your lives. Don't look back, and check to make sure your wallet is still in your pants while running. Tell the kids not to answer the phone, lock the door, and change the security code on your alarm system. You can't run away fast enough from "the opportunity". Run like the wind.
Wow. Thanks risk capital. Oh my oh my; well happy to be wrong; but still Bernanke's speech seemed to be a floor; but holy cow Merrill Lynch doesn't believe it.
A 'Subprime' Fund Is on the Brink
By KATE KELLY
June 16, 2007
Concerned that an internal hedge fund at Bear Stearns Cos. wouldn't be able to meet a margin call, Merrill Lynch & Co., one of the fund's biggest lenders, seized $400 million of its assets and is preparing to auction them off.
The auction, in the coming week, could trigger the fund's dissolution -- the second blowup in recent months of a hedge fund that made dicey bets on the market for risky home loans, known as subprime mortgages.
Ralph Cioffi and Bear Stearns made bets both for and against subprime loans -- but a recovery in the market hurt.
The surprise move involving the two Wall Street firms came as the Bear fund's managers, led by bond-sales veteran Ralph Cioffi, scrambled Thursday and Friday to sell hundreds of millions of dollars in bonds to satisfy demands for cash and assets from creditors and stave off liquidation. Mr. Cioffi's group had successfully auctioned off almost $4 billion in high-quality mortgage bonds Thursday morning. Later that afternoon at Bear's New York offices, the fund managers presented lenders with a 30-day plan for selling more assets, a blueprint for meeting new margin calls that appeared to have been well-received.
Merrill opted not to wait. Friday afternoon, the firm's bond traders began circulating a list of securities that had served as collateral, or security, for the credit it had extended to the Bear fund, High-Grade Structured Credit Strategies Enhanced Leverage Fund.
Bids for the securities are scheduled to be negotiated starting at noon on Monday.
Observation #5: So as long as we dont eat, drive, get sick or send anyone to school inflation is in check!
What you're describing is increasing expenses, not inflation.
It's important not to blame some esoteric economic concept for a problem and ignore its very real and very immediate causes.
If US consumers are seeing increasing costs due to lack of competitiveness, malinvestment, complacency, and declining development of human capital, that's something entirely different than inflation.
That's a very serious problem that can't be solved by a rate hike. The situation has to be recognized for what it is and confronted head on. Trying to use some economic device to "pass the buck" to various government institutions just makes things worse.
The problem here is not inflation. It's the competitiveness of the US economy and population.
Money news.com 6/6/07
(quote)
One big lender has reduced the potential risks for brokers, Supreme's Everett said.
EMC Mortgage Corp., owned by Wall Street mortgage titan Bear Stearns Cos. has changed some broker contracts to require buybacks if a borrower fails to make payment within 30 days instead of 120 days, he said. This means brokers would be in the clear sooner.
(end quote)
I'm sure if the broker can run within 30 days instead of having to hang aroung 120 days the quality of the loan will be better. Is the first payment even due within 30 days of closing?
Lest we forget, Asian money has been the driving force behind all of this. The news that the Chinese have begun to diversify is INCREDIBLY important. This most recent report is a warning shot, and probably explains Greenspan's comments on liquidity this week.
Conclusion: I don't care what the read on inflation is, rates are going up.
A 'Subprime' Fund Is on the Brink
By KATE KELLY
June 16, 2007
..... Friday, the fund began auctioning hundreds of millions more. As this was under way, Merrill moved in and seized assets in an attempt to protect its investment.
so, someone care to explain in few words what is the significance of this and what it may cause ?
the reason I am asking is that it seems to me that since Apr 07 no news matter, reality has been suspended and the market moves on it's own.
2nd question:
From a TA the 10yr bond has "closed (or closing) a gap" - do you think it will resume going down (yield up) ?
What you're describing is increasing expenses, not inflation...
If US consumers are seeing increasing costs due to lack of competitiveness, malinvestment, complacency, and declining development of human capital, that's something entirely different than inflation.
From Wikipedia on inflation:
In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power...
...Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices...
From the BLS release:
The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households...
The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments- department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index.
ac you may be right about some of the causes of the inflation we are seeing now, but I dont agree that we can deny it IS inflation that we are experiencing.
a dollar in 1950 will buy only 12 cents worth of goods today, 88% less than before -
Inflation in my adult years increased average prices 1,000% or more -
example 1: a postage stamp in the 1950s cost 3 cents; today's cost is 41 cents - 1,266% inflation;
example 2: a gallon of 90 Octane full-service gasoline cost 18 cents before; today it is $3.05 for self-service - 1,870 % inflation;
example 3: a house in 1959 cost $14,100; today's median price is $213,000 - 1,400% inflation;
example 4: a dental crown used to cost $40; today it's $1,100 - 2,750% inflation;
example 5: an ice cream cone in 1950 cost 5 cents; today its $2.50 - 4,900% inflation;
example 6: monthly government Medicare insurance premiums paid by seniors was $5.30 in 1970; its now $93.50 - 1,664% inflation; (and up 70% past 5 years)
example: several generations ago a person worked 1.4 months per year to pay for government; he now works 5 months.
And in the past, one wage-earner families lived well and built savings with minimal debt, many paying off their home and college-educating children without loans. How about today?
Few citizens know that a few years ago government changed how they measure and report inflation, as if that would stop it - - but families know better when they pay their bills for food, medical costs, energy, property taxes, insurance and try to buy a house.
Is inflation a threat to society, beside the prices we pay and the fact fewer children have a full-time mother at home? Consider this famous quote:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist.
EMC Mortgage Corp., owned by Wall Street mortgage titan Bear Stearns Cos. has changed some broker contracts
Seems to me this EMC Mortgage's things are going so bad that they want to show some progress to owner (Bear Stern) as they are probably in the danger to be terminated. I suspect things at Bear are much worse than last report.
..... Friday, the fund began auctioning hundreds of millions more. As this was under way, Merrill moved in and seized assets in an attempt to protect its investment.
so, someone care to explain in few words what is the significance of this and what it may cause ?
Merrill Lynch has decided that they want to be 1st out the door and cripple BS(how suiting) in this game of musical chairs.
Much like in RE in a crash, the 1st guy to sell loses the least amount of money.
any more comments about diversification of china foreign reserve?
My questions include, is it a temporary thing from chinese side to counter us protectionism? a little warning?
will Euro, or commodity benefit from diversification? How will treasury yield affect risk premium? will spread widen?
In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power...
Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation.
So now inflation can have any number of causes instead of one?
I guess that's how CNBC can spin a rapid decline in inflation into a stockmarket rally, since it's all good. Pick and choose whichever definition suits your needs - it's all the same thing:
a) Costs are getting cheaper; this is great for business.
b) Liquidity is drying up; consumer spending is about to nosedive and earnings are about to be ravaged.
I guess if you're going to sweep a problem under the rug, it helps to have multiple rugs.
Stocks surged higher for the third straight day as Fed rate hike concerns dissipated further. In fact, Fed funds futures contracts show no sign of a Fed move through mid-2008.
Its a Goldilocks economy--not too hot, not too cold, and the stock market loves it.
For all the hand wringing over inflation, core prices are staying well contained. This is even more evident in the data for non-energy non-food commodity prices, which have dropped 0.7 percent from a year ago.
Inflation is contained, real growth is ramping up to a solid pace, and the Fed is out of the picture.
"example 3: a house in 1959 cost $14,100; today's median price is $213,000 - 1,400% inflation;"
Of course, a house today is double the size and has more luxury elements than that 1959 house. So the housing price inflation a "mere" 700% - and lagging the price increases for the other items listed.
My questions include, is it a temporary thing from chinese side to counter us protectionism? a little warning? will Euro, or commodity benefit from diversification? How will treasury yield affect risk premium? will spread widen?
If China seriously dumps US treasury debt & doesn't make it up with buys in other US asset areas (plus buy the continuing everyday ongoing surplus) then the USD-RMB blows wide open. We won't 'need protectionism' then if that happens... except maybe protection from inflation.
If they peg to the dollar then they or a proxy has to hold USD assets.
If Chinese turnaround & buy euro denominated assets instead... or oil... or whatever... the USD-RMB might not INITIALLY blow up but eventually it has to via arbitrage.
The only way they can even dream of holding the RMB-USD peg is to use USD surplus to buy another currency, such as the euro, instead of dollars and send that currency into orbit instead... then hope the arbitrage effects don't come back & bite them in the ass (the Europeans will have to agree to hold the dollars or buy LOTSA US stuff with dollars). It would destroy European producers - EU wouldn't stand for it.
Same thing could happen with petrodollars ... Chinese dump USD assets to buy oil... then hope OPEC doesn't just dump the dollars.
It is very difficult to have a three way trade unless it is 'balanced' or if not balanced then the trading partners all agree to maintain the imbalance (agree who holds the surplus who takes on the debt).
So maybe what China is saying is that the conundrum (imbalance) is over no matter how you cut it so they might as well get in the first blow.
Who knows. Watch Setser, he forgot more this morning brushing his teeth than I'll ever know.
The word inflation is popularly used in a confusing context.
If you imagine a closed economy on a small island then (island wide) prices cannot rise if the amount of money on the island is not also rising. All that would happen is prices would reach a point where nobody had money for some other item they needed. There would be therefore displayed prices but no buyers. If sellers required sales to survive they would be forced to lower prices.
Unless amount of money increases, then if prices rise in one part of the island and can be sustained as a rise, then in other parts of the island people have less to spend on food. If this process continued then the poor would starve if they only exchanged money they could obtain on the island in order to get food.
For the poorest people since prices had risen elsewhere and taken the money in circulation from there areas, it would mean that more money was sitting in richer wallets and richer bank accounts elsewhere and for the poor there would be no money left for them.
Of course driven by desparation, they would pay anything to get food but they would have no money. This is called poverty. Crime would pay, they could steal food, but they could not get money unless they stole it from another islander who already had money.
If price inflation is happening and continuing and it is across the whole island then from some source more money must be appearing.
Therefore price inflation can be ended immediately more or less. But the consequence is poverty rather than sustained growth or rising wealth
So ask yourself from where does the money come when inflation is uncomfortably high?
Somewhere in the economy there must be a pipe that is supplying more money and which is doing so even though prices are rising at a very high rate.
So is inflation the problem or is poverty the problem?
I agree with what you're saying except the part about growth ramping up. I'm not saying you're not correct, but I'm just not seeing it.
The China business is also a matter of concern to me. It makes sense that the Chinese would begin to diversify. This liquidity blowout has to be slowed down before everyone gets burned. But how to do it.
But when PPI is up and CPI is not someone has to absorb it. profits are down and at some point market will realize that. With rates up this is even worse.
No one can argue with the market but on the same way it is useless to "justify" the market. The market is irational and can remain this wau for a long time - this is the real reason and not this goldi nonsense.
The Chinese government last month agreed to invest $3 billion in New York-based buyout firm Blackstone Group LP through the soon-to-be-formed State Investment Co.
Web Help for Getting a Mortgage the Criminal Way - New York Times
By JULIE CRESWELL
Published: June 16, 2007
Want to buy a home, but hampered by bad credit, an empty bank account or no job? No problem!
That may sound like an exaggeration of a late-night infomercial. But it is, in effect, the pitch that a number of Web sites are making to consumers, saying insolvent home shoppers can be made to look more attractive to lenders.
The sites, for example, offer better credit scores by hitching customers to a strangers credit card, or providing them pay stubs from a bogus company. One has even offered a well-stocked bank account to rent for a month or two.
Industry experts say these sites, which are relatively new, played a role in fueling the rampant mortgage fraud that has caused a huge spike in loan defaults in recent months because people bought homes they could not afford.
There is a whole underground world an online cottage industry that has grown up that allows anyone to commit mortgage fraud, said Constance Wilson, executive vice president at the financial fraud detection firm Interthinx. Fake Pay Stubs Online, and Other Mortgage Fraud - NY Times
"The index series, ABX, measures the implied cost of insuring investments in 20 bonds and does not directly measure the price of the securities, which are traded relatively infrequently by a small group of sophisticated players. The ultimate holders of these bonds, which are essentially a stake in loans taken out by thousands of individual homeowners, are pension funds, hedge funds, insurance companies and other institutional investors."
"Of course, a house today is double the size and has more luxury elements than that 1959 house. So the housing price inflation a "mere" 700% - and lagging the price increases for the other items listed."
Not all homes were built recently. For example, every home around mine was built in the early 1900's. And trust me, the appliances and new fixtures don't cover the difference between the original price and the current replacement value.
As for "luxury items" in general, my guess would be that most Americans would give up most of them in a heart beat in exchange for more economic security. Rampant inflation, flat wages, and less job security is not what most people see as an improved standard of living, despite how many phones, cars, TVs, and iPods they may or may not have.
Looks like the Cioffi fund that Merrill made a margin call upon was making a correlation trade - short ABX and long CDOs holding MBS.
A couple of funds nearly or did blow up two years ago making similar sorts of bets on GM. They were long the bonds and short the stock- figuring the company was in trouble, so the stock would lose its value while the bonds would retain most of their value. When Kerkorian stepped in and bought a lot of stock in GM, the stock shot up and the bonds fell (bond investors worried about the company gearing up or being bought out).
In this case (at least according to the reporting), looks like the Cioffi fund figured the cost of insuring MBS would rise quickly, but the actual value of the MBS would only fall slowly. Seems like a sensible enough idea.
Guess it didn't pan out that way - in the time alloted them.
the most interesting thing will be whether this causes a long over due mark-to-market across the board, then, we should be able to eventually get a clear picture of who holds this mess.
How does the accounting actually work in these cases? Many of these securities are so thinly traded that everybody is using old prices. If there is a forcible liquidation of all this toxic waste, is every holder required to suddenly mark down the value of their own toxic waste? Could funds that don't wish to show a huge loss then engage in sham transactions - in essence saying, well that was a one-day dump of thinly-traded securities and now prices have recovered?
Could funds that don't wish to show a huge loss then engage in sham transactions - in essence saying, well that was a one-day dump of thinly-traded securities and now prices have recovered?
I'd bet that that's exactly what they'll do. At some level it's legit: you don't have to mark to a fire sale price.
And we've seen this happen before this year: remember AHM and M&T coming out in early April and telling us that current bids on their held-for-sale pipelines weren't a "mark" because trading was so thin? A whole lot of mortgage whole loan offerings just got quietly withdrawn, so nobody had to see those pathetic bid prices get sucked into the M2M.
It will keep being a problem until FASB clears up this issue of using M2M accounting for "thinly traded" assets.
"It will keep being a problem until FASB clears up this issue of using M2M accounting for "thinly traded" assets."
In the current state of affairs, I don't see how the FASB cannot react. The mark-to-model allowance seems to be ripe with conflict.
Without going into all the specifics of potential conflict, in particular in regard to hedge funds, where regulation is definitely needed, it seems that, from what I have read under current rules that the ratings agencies need to downgrade in order to force a mark-to-market, my interpretation of the BS case is that the general feeling is that more distress will leave the ratings agencies no choice but to react, thus rusulting in what everyone already seems to know and that is that the mark-to-model pricing is severely flawed in the case of MBS/CDO, etc.
Pat_in_OH said: "Did anyone else notice a certain amount of euphoria in the reporting about todays CPI? Well, Im feeling a bit cranky about this since Im damn sure paying what seems like a lot more for the same stuff. So I checked the actual data for myself..."
This goes a long way toward restoring my faith in people. If you're willing to carry the ball across the goal-line you'll be better-informed about U.S. inflation and in a better position to forecast it than 99% of anyone else that posts here (or anywhere else).
You've seen from the data that some components go up and some go down. That's a NORMAL condition for inflation. (Also, a certain amount of inflation is a permanent fixture in the U.S. economy, also NORMAL.)
Inflation only becomes truly problemmatic (and not just an irritation) when the prices of LOTS of the components are rising at the same time. When that happens, we can't prioritize (adjust what we buy so as to meet a budget). We have to pay a lot more for EVERYTHING at the same time, no choice. THEN, inflation becomes a serious problem.
Last night the CBS evening news reported that inflation for the year was running at over 5%. You are right, inflation is running high. Additionally, the numbers that we see are monthly and not yearly. Further, the number recently reported was for April.
Next it is the government that is doing the reporting and they have a vested interest in creative reporting. Remember that SS and other payments are adjusted every year based on the rated of inflation. It is called a COLA. And then there are TIPS. And then the fed that raises rates to keep inflation in check which then raises the cost of government borrowing.
Next it has been reported that the Dollar has lost 40% of it value under Bush. The loss of purchasing power is another reason that cause goods and services to cost more total dollars. Inflation.
CR good job keeping the trolls out. I too am interested in learning and not harassment. Jee, if it does not sink in that the credit markets are driving the train, then there is no use in talking.
Consider this famous quote:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist.
I'm with you Pat_in_OH
Kevin | 06.15.07 - 11:31 pm
It is a great quote, but the real credit is given by Keynes himself in the previous line, that is, Keynes is paraphrasing V. I. Lenin.
The CDS playas are making e laugh with there comments published in the press...
hey , theose banks are changin the rules...
lest we forget how most of the cds funds were spawned...
Let's be clear, 90% of thesebogus contracts will never be paid on...
Not looking good:
ABX-HE-A 07-1
Bloomberg is very, very good in tracking all that subprime mess. They were all over it during February, weeks before the crash. Great job!
Richard Cook: Its Official: The Crash of the U.S. Economy Has Begun
It just in no way ever, and I mean ever, gets any better than this-
Everquest IPO entwined with troubled Bear Stearns hedge fund - MarketWatch
We LOVE broken records CR, that's why we come here to see the same old stale oldies!
deleted by CR, using multiple aliases
Edited By Siteowner
Calculated Risk
Thanks again.
Maybe we won't have to wait until fall to see the real estate market unwind.
What is this blog, Doom and Gloom Central? I just scrolled through the thread headings and by the looks of things here, you'd think the year was 1929.
Do any of you ever bother to look beyond the housing sector?
You mean like the chip sector which is in the middle of a price war?
The memory sector which has a massive glut of product and isn't slowing down?
Or retail(ex Nordstrom & Neimann Marcus), whose growth is below the population trend line?
Or the auto industry?
Asides from machinery for export, financial firms and steel(who will crater when CRE craters), who's leading the way?
delete by CR, using multiple aliases
Edited By Siteowner
Do any of you ever bother to look beyond the housing sector?
Well, let's see, there's the automobile sector - that's going really well... err...
Then there's the US savings rate. We're just a big nation of savers... err... umm... Oh, you say we're going on the 3rd year of negative savings now?
How about those energy prices? Way up. That's gotta be good for somebody ... in Saudi Arabia and Venezuela, I guess.
How about that China? Going like gangbusters. Yeah they're sitting on a $Trillion but they wanna play nice. Well, there was that sabre rattling over Taiwan the other day...
How about that war? Going great, isn't it?
Economies don't turn on a dime(or in this instance 6 weeks)
1st finance dries up(as is happening now),
Then, projects under construction finish up,
THEN, no new projects start.
Cue recessio
wyans-
I was told today that funding was being pulled on a couple of projects, maybe what you should do is take some time and research things before you open your pie-trap.
You obviously find value here or you wouldn't show, something tells me the insecurity in regard to your beliefs causes you to seek out others who are far more intelligent than yourself. It must be difficult not being capable of forming a rational thought of your own based on a thorough analysis of a given situation.
You obviously find value here or you wouldn't show, something tells me the insecurity in regard to your beliefs causes you to seek out others who are far more intelligent than yourself. It must be difficult not being capable of forming a rational thought of your own based on a thorough analysis of a given situation.
Nope just a troll. Must have found a computer with a virgin IP address he hasn't been banned from yet.
If he stays sober & civil through the night it might even stay unbanned... but that would be a first.
I'm here to learn, and I greatly respect CR's willingness to offer his time and research. Negative comments with no data to back them serve no purpose. Please don't waste our time with emotional opinions, that serves nobody.
I appreciate the way CR keeps his work facts and reporting based and excludes the emotional/redundancy that plagues people like Roubini.
Thank you, CR. I'm now a full-fledged econo-holic.
Risk C-
Thanks for posting that Everquest story - very good reporting. Bears looking into further. I suspect there is even more conflicts of interest waiting to be uncovered.
I wonder if they'll keep the IPO in registration for a while - extend the quiet period and nobody involved can legally discuss the matter- nah, that's way too conspiracy theory minded, right?
This could be a very costly end to the buy-back bonanza-
Rule Change Could Roil Convertible Bonds | Innovation Update | Financial Articles & Investing News | TheStreet.com
Gee I wonder who wants to be the bagholder for this and other blocks of shit that invariably will be floating down the Greenspan subprime mortgage river for next few years.
Dont know if this was mentioned before, but very funny.
Breakingviews | Inefficient market
Inefficient Market: Blackstone Letter
Inefficient market: By Edward Chancellor
1 June 2012
The Blackstone Group
345 Park Avenue,
New York NY 10154
Ladies and Gentlemen:
I am, together with my general partners and funds managed by our firm, pleased to propose to acquire, for a purchase price of $15 in cash per unit, all of the outstanding common units, representing limited partners' interests in Blackstone Group L.P. (the "Group"). Our offer to acquire the Chinese government's minority stake in the Group for the same price has already been accepted. Our proposal provides a substantial premium for all of the Group's common unit holders. If this offer is accepted, Blackstone Group will de-list from the New York Stock Exchange ("NYSE"). .....
..................
..................
This is not acceptable to us. Nor can we comply with the demands by our Chinese minority investors for senior management changes. Instead, my partners and I are offering to purchase all the Group's outstanding common units. Although the offer is well below the flotation price, it represents a substantial premium to where the securities have traded lately.
Of course, no binding obligation on the part of the undersigned or the Group shall arise with respect to the proposal or any transaction unless and until a definitive agreement satisfactory to us and recommended by the Special Committee and approved by the Board of Directors is executed and delivered.
We look forward to discussing our proposal with you further in the near future.
Very truly yours,
Stephen Schwarzman
rc- this part renders me speechless-
""By the time the cycle unwinds, we will have seen some very interesting marks across" Wall Street, he added. "This is the problem with large illiquid trades. Marks in the CDO market are generally subject to significant management judgment until they are actually traded."
Rosner also wondered whether Everquest's exposure to CDOs backed by subprime mortgages is appropriate for retail investors.
"Everquest is an opportunity for retail investors to own managed CDO exposures to equity tranches -- the first loss pieces," he said. "Only qualified institutional buyers can invest in CDOs, so it is interesting that the SEC is allowing the sale of shares in this company to retail investors." "
Polonium-
I know it well. I helped Eddie with a couple of the ideas. (I write for them).
-Rob
PS- some people were not happy
I meant Polonius of course. But I like my typo.
I thought Bernanke's speech pretty much put a floor under Bear Stearns. Odd that in the dot com bust no investment bank went belly up and no investment bank will go under this time. The moral hazards are increasing but maybe we have another 25 years before the bagholders pay.
The SEC stopped functioning on behalf of investors when derivatives were declared a free zone and now that the net capital computation has shifted to risk management models...well the risks too are shifted to individual investors.
they can't even run a contest without crooks, they need to bring in former sec officials to sort out a frickin contest, what a joke-
CNBC Calls In a Judge - BusinessWeek
OT: as long term readers know, I am open to all views in the comments. And I'm usually the first to point out when one of my predictions is wrong - I definitely don't have a crystal ball.
However, please post under one name, and don't be rude. IMO, the comments are outstanding - thanks to everyone! - and I'd like to keep them that way.
Best to all.
"The SEC stopped functioning on behalf of investors when derivatives were declared a free zone..."
This is a most excellent point. It seems to me as if it's again time for someone (hint, hint) to write something about this, maybe "LTCM Redux."
Hey! TJ & The Bear! That Richard Cook guy is kind of uptight. He needs to drink more.
unbelievable-
"Another lobbyist for Blackstone is Ogilvy Government Relations, which received approximately $120,000 in fees from Blackstone in the last half of 2006, according to disclosure forms filed with Congress. Ogilvy is a division of WPP PLC, which also owns the lobbying firm Quinn Gillespie & Associates, whose co-founder -- Ed Gillespie -- this week was named a top adviser to President Bush."
Business Week Online > File Not Found
Circus Bear, you sound like you could use a beer.
I told you, it just does not ever get any better than this-
A 'Subprime' Fund Is on the Brink - WSJ.com
China Sells Treasuries, Signaling Diversification
China Sells Treasuries, Signaling Diversification (Update1) - Bloomberg.com
I meant Polonius of course. But I like my typo.
No problem.
What will 2Q07 GDP be vs. 1Q:
A.)\t500% increase.
B.)\t600% increase.
C.)\t700% increase.
Has anyone seen my inverted yield curve? I think I left it with my recession, which I cant find either.
REBear's Bloomberg piece says it all. There it is. The Chinese are diversifying. It's a new ball game.
O/T but relevent to today's news.
Did anyone else notice a certain amount of euphoria in the reporting about todays CPI? Well, Im feeling a bit cranky about this since Im damn sure paying what seems like a lot more for the same stuff. So I checked the actual data for myself. The following comes from the BLS web page: Consumer Price Index Summary
and the Table 1 reference at the bottom of the page.
As a summary ...
Category/Weight (%)/Un-adj % chg from May'06/Adjusted Chg from Apr'07
Food/ 15.0 / 3.9 / 0.3
Housing/ 42.7 / 3.3 / 0.2
Apparel/ 3.7 / -0.8 / -0.3
Transportation/ 17.2 / 1.3 / 2.8
Medical Care/ 6.3 / 4.0 / 0.3
Recreation/ 5.6 / 0.4 / 0.2
Education & Comm./ 6.0 / 2.7 / 0.6
Other/ 3.5 / 3.9 / 0.3
ALL ITEMS/ 100.0 / 2.7 / 0.7
From the press release...
\t
The index for meats, poultry, fish, and eggs registered a substantial increase for the third consecutive month--up 1.2 percent in May.
The index for fruits and vegetables, which rose 0.4 percent in April, declined 0.5 percent in May. (Prior to seasonal adjustment, prices for fruits and vegetables rose 1.0 percent.)
The index for dairy products increased 0.5 percent as a 2.2 percent increase in milk prices more than offset a 0.4 percent decline in prices for cheese...
Observation #1: Yup, we are paying more for food!
The index for housing increased 0.2 percent in May, the same as in each of the two preceding months. The index for shelter rose 0.2 percent in May... Within shelter, the index for rent rose 0.3 percent; the index for owners' equivalent rent, 0.1 percent; and the index for lodging away from home, 1.6 percent...
Observation #2: Owners Equivalent Rent is the key to a low number here, making up a bit over half of the total weighting of 42.7%.
The transportation index rose sharply for the third consecutive month- -up 2.8 percent in May. A 10.4 percent increase in the index for motor fuels was partially offset by declines in the indexes for new and used vehicles and for public transportation...
Observation #3: Yup, we really did pay a lot more for gas!
The index for apparel declined 0.3 percent in May the same as in April. (Prior to seasonal adjustment, apparel prices decreased 1.2 percent. Prices for women's and girls' apparel registered the largest decline--down 2.3 percent.)
Observation #4: Big deal, its only 3.7% of expenditures.
Medical care costs rose 0.3 percent in May and are 4.0 percent higher than a year ago...
The index for recreation rose 0.2 percent in May. The index for cable and satellite television and radio service increased 1.0 percent. This increase was partially offset by a 3.1 percent decline in the index for televisions. Television prices have declined 26.9 percent during the 12 month period ended in May.
The index for education and communication advanced 0.6 percent in May. Educational costs rose 0.4 percent
Continued...
Educational costs rose 0.4 percent and the index for communication costs increased 0.7 percent. Within the communication group, the index for telephone services rose 0.9 percent....
Observation #5: So as long as we dont eat, drive, get sick or send anyone to school inflation is in check!
"Everquest is an opportunity for retail investors to own managed CDO exposures to equity tranches -- the first loss pieces," he said.
I spent some time on the institutional side at ML and GS where this crap was fought over like zebra scraps to a pack of lions. Let me share with you my advice when there's "an oppotunity for retail investors..."
RUN! Run for your lives. Don't look back, and check to make sure your wallet is still in your pants while running. Tell the kids not to answer the phone, lock the door, and change the security code on your alarm system. You can't run away fast enough from "the opportunity". Run like the wind.
Wow. Thanks risk capital. Oh my oh my; well happy to be wrong; but still Bernanke's speech seemed to be a floor; but holy cow Merrill Lynch doesn't believe it.
Yes and the surprise comes after options expy; oh the fun is just beginning.
Woops....
Posted at WSJ.com a short while ago:
A 'Subprime' Fund Is on the Brink
By KATE KELLY
June 16, 2007
Concerned that an internal hedge fund at Bear Stearns Cos. wouldn't be able to meet a margin call, Merrill Lynch & Co., one of the fund's biggest lenders, seized $400 million of its assets and is preparing to auction them off.
The auction, in the coming week, could trigger the fund's dissolution -- the second blowup in recent months of a hedge fund that made dicey bets on the market for risky home loans, known as subprime mortgages.
Ralph Cioffi and Bear Stearns made bets both for and against subprime loans -- but a recovery in the market hurt.
The surprise move involving the two Wall Street firms came as the Bear fund's managers, led by bond-sales veteran Ralph Cioffi, scrambled Thursday and Friday to sell hundreds of millions of dollars in bonds to satisfy demands for cash and assets from creditors and stave off liquidation. Mr. Cioffi's group had successfully auctioned off almost $4 billion in high-quality mortgage bonds Thursday morning. Later that afternoon at Bear's New York offices, the fund managers presented lenders with a 30-day plan for selling more assets, a blueprint for meeting new margin calls that appeared to have been well-received.
Merrill opted not to wait. Friday afternoon, the firm's bond traders began circulating a list of securities that had served as collateral, or security, for the credit it had extended to the Bear fund, High-Grade Structured Credit Strategies Enhanced Leverage Fund.
Bids for the securities are scheduled to be negotiated starting at noon on Monday.
Place your bets
Observation #5: So as long as we dont eat, drive, get sick or send anyone to school inflation is in check!
What you're describing is increasing expenses, not inflation.
It's important not to blame some esoteric economic concept for a problem and ignore its very real and very immediate causes.
If US consumers are seeing increasing costs due to lack of competitiveness, malinvestment, complacency, and declining development of human capital, that's something entirely different than inflation.
That's a very serious problem that can't be solved by a rate hike. The situation has to be recognized for what it is and confronted head on. Trying to use some economic device to "pass the buck" to various government institutions just makes things worse.
The problem here is not inflation. It's the competitiveness of the US economy and population.
No amount of rate hikes will fix that.
Bear Stearns still hungry for sub-prime:
Money news.com 6/6/07
(quote)
One big lender has reduced the potential risks for brokers, Supreme's Everett said.
EMC Mortgage Corp., owned by Wall Street mortgage titan Bear Stearns Cos. has changed some broker contracts to require buybacks if a borrower fails to make payment within 30 days instead of 120 days, he said. This means brokers would be in the clear sooner.
(end quote)
I'm sure if the broker can run within 30 days instead of having to hang aroung 120 days the quality of the loan will be better. Is the first payment even due within 30 days of closing?
Lest we forget, Asian money has been the driving force behind all of this. The news that the Chinese have begun to diversify is INCREDIBLY important. This most recent report is a warning shot, and probably explains Greenspan's comments on liquidity this week.
Conclusion: I don't care what the read on inflation is, rates are going up.
A 'Subprime' Fund Is on the Brink
By KATE KELLY
June 16, 2007
..... Friday, the fund began auctioning hundreds of millions more. As this was under way, Merrill moved in and seized assets in an attempt to protect its investment.
so, someone care to explain in few words what is the significance of this and what it may cause ?
the reason I am asking is that it seems to me that since Apr 07 no news matter, reality has been suspended and the market moves on it's own.
2nd question:
From a TA the 10yr bond has "closed (or closing) a gap" - do you think it will resume going down (yield up) ?
What you're describing is increasing expenses, not inflation...
If US consumers are seeing increasing costs due to lack of competitiveness, malinvestment, complacency, and declining development of human capital, that's something entirely different than inflation.
From Wikipedia on inflation:
In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power...
...Inflation is measured by comparing two sets of goods at two points in time, and computing the increase in cost not reflected by an increase in quality. There are, therefore, many measures of inflation depending on the specific circumstances. The most well known are the CPI which measures consumer prices...
From the BLS release:
The Consumer Price Index (CPI) is a measure of the average change in prices over time of goods and services purchased by households...
The CPIs are based on prices of food, clothing, shelter, and fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people buy for day-to-day living. Prices are collected in 87 urban areas across the country from about 50,000 housing units and approximately 23,000 retail establishments- department stores, supermarkets, hospitals, filling stations, and other types of stores and service establishments. All taxes directly associated with the purchase and use of items are included in the index.
ac you may be right about some of the causes of the inflation we are seeing now, but I dont agree that we can deny it IS inflation that we are experiencing.
INFLATION - WHO SAYS IT'S DEAD?
88% EROSION OF PURCHASING POWER - AND CONTINUING
Inflation in my adult years increased average prices 1,000% or more -
example 1: a postage stamp in the 1950s cost 3 cents; today's cost is 41 cents - 1,266% inflation;
example 2: a gallon of 90 Octane full-service gasoline cost 18 cents before; today it is $3.05 for self-service - 1,870 % inflation;
example 3: a house in 1959 cost $14,100; today's median price is $213,000 - 1,400% inflation;
example 4: a dental crown used to cost $40; today it's $1,100 - 2,750% inflation;
example 5: an ice cream cone in 1950 cost 5 cents; today its $2.50 - 4,900% inflation;
example 6: monthly government Medicare insurance premiums paid by seniors was $5.30 in 1970; its now $93.50 - 1,664% inflation; (and up 70% past 5 years)
example: several generations ago a person worked 1.4 months per year to pay for government; he now works 5 months.
And in the past, one wage-earner families lived well and built savings with minimal debt, many paying off their home and college-educating children without loans. How about today?
Few citizens know that a few years ago government changed how they measure and report inflation, as if that would stop it - - but families know better when they pay their bills for food, medical costs, energy, property taxes, insurance and try to buy a house.
Is inflation a threat to society, beside the prices we pay and the fact fewer children have a full-time mother at home? Consider this famous quote:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist.
Grandfather Inflation Report - by MWHodges
I'm with you Pat_in_OH
How soon before Diana Olick join Ivy:
Mortgages, Foreclosures - CNBC
Seems to me this EMC Mortgage's things are going so bad that they want to show some progress to owner (Bear Stern) as they are probably in the danger to be terminated. I suspect things at Bear are much worse than last report.
..... Friday, the fund began auctioning hundreds of millions more. As this was under way, Merrill moved in and seized assets in an attempt to protect its investment.
so, someone care to explain in few words what is the significance of this and what it may cause ?
Merrill Lynch has decided that they want to be 1st out the door and cripple BS(how suiting) in this game of musical chairs.
Much like in RE in a crash, the 1st guy to sell loses the least amount of money.
any more comments about diversification of china foreign reserve?
My questions include, is it a temporary thing from chinese side to counter us protectionism? a little warning?
will Euro, or commodity benefit from diversification? How will treasury yield affect risk premium? will spread widen?
Gus, you are arguing about CPI so much today that I've decided to write a blog about inflation:
Inflation is in danger
Pat_in_OH,
From the Wikipedia entry:
In mainstream economics, the word inflation refers to a general rise in prices measured against a standard level of purchasing power...
Previously the term was used to refer to an increase in the money supply, which is now referred to as expansionary monetary policy or monetary inflation.
So now inflation can have any number of causes instead of one?
I guess that's how CNBC can spin a rapid decline in inflation into a stockmarket rally, since it's all good. Pick and choose whichever definition suits your needs - it's all the same thing:
a) Costs are getting cheaper; this is great for business.
b) Liquidity is drying up; consumer spending is about to nosedive and earnings are about to be ravaged.
I guess if you're going to sweep a problem under the rug, it helps to have multiple rugs.
Stocks surged higher for the third straight day as Fed rate hike concerns dissipated further. In fact, Fed funds futures contracts show no sign of a Fed move through mid-2008.
Its a Goldilocks economy--not too hot, not too cold, and the stock market loves it.
For all the hand wringing over inflation, core prices are staying well contained. This is even more evident in the data for non-energy non-food commodity prices, which have dropped 0.7 percent from a year ago.
Inflation is contained, real growth is ramping up to a solid pace, and the Fed is out of the picture.
No wonder markets are happy.
"example 3: a house in 1959 cost $14,100; today's median price is $213,000 - 1,400% inflation;"
Of course, a house today is double the size and has more luxury elements than that 1959 house. So the housing price inflation a "mere" 700% - and lagging the price increases for the other items listed.
My questions include, is it a temporary thing from chinese side to counter us protectionism? a little warning? will Euro, or commodity benefit from diversification? How will treasury yield affect risk premium? will spread widen?
If China seriously dumps US treasury debt & doesn't make it up with buys in other US asset areas (plus buy the continuing everyday ongoing surplus) then the USD-RMB blows wide open. We won't 'need protectionism' then if that happens... except maybe protection from inflation.
If they peg to the dollar then they or a proxy has to hold USD assets.
If Chinese turnaround & buy euro denominated assets instead... or oil... or whatever... the USD-RMB might not INITIALLY blow up but eventually it has to via arbitrage.
The only way they can even dream of holding the RMB-USD peg is to use USD surplus to buy another currency, such as the euro, instead of dollars and send that currency into orbit instead... then hope the arbitrage effects don't come back & bite them in the ass (the Europeans will have to agree to hold the dollars or buy LOTSA US stuff with dollars). It would destroy European producers - EU wouldn't stand for it.
Same thing could happen with petrodollars ... Chinese dump USD assets to buy oil... then hope OPEC doesn't just dump the dollars.
It is very difficult to have a three way trade unless it is 'balanced' or if not balanced then the trading partners all agree to maintain the imbalance (agree who holds the surplus who takes on the debt).
So maybe what China is saying is that the conundrum (imbalance) is over no matter how you cut it so they might as well get in the first blow.
Who knows. Watch Setser, he forgot more this morning brushing his teeth than I'll ever know.
The word inflation is popularly used in a confusing context.
If you imagine a closed economy on a small island then (island wide) prices cannot rise if the amount of money on the island is not also rising. All that would happen is prices would reach a point where nobody had money for some other item they needed. There would be therefore displayed prices but no buyers. If sellers required sales to survive they would be forced to lower prices.
Unless amount of money increases, then if prices rise in one part of the island and can be sustained as a rise, then in other parts of the island people have less to spend on food. If this process continued then the poor would starve if they only exchanged money they could obtain on the island in order to get food.
For the poorest people since prices had risen elsewhere and taken the money in circulation from there areas, it would mean that more money was sitting in richer wallets and richer bank accounts elsewhere and for the poor there would be no money left for them.
Of course driven by desparation, they would pay anything to get food but they would have no money. This is called poverty. Crime would pay, they could steal food, but they could not get money unless they stole it from another islander who already had money.
If price inflation is happening and continuing and it is across the whole island then from some source more money must be appearing.
Therefore price inflation can be ended immediately more or less. But the consequence is poverty rather than sustained growth or rising wealth
So ask yourself from where does the money come when inflation is uncomfortably high?
Somewhere in the economy there must be a pipe that is supplying more money and which is doing so even though prices are rising at a very high rate.
So is inflation the problem or is poverty the problem?
Why is the pipe operating?
Circus Bear- No wonder markets are happy.
I agree with what you're saying except the part about growth ramping up. I'm not saying you're not correct, but I'm just not seeing it.
The China business is also a matter of concern to me. It makes sense that the Chinese would begin to diversify. This liquidity blowout has to be slowed down before everyone gets burned. But how to do it.
Tremulous Bears ,
yes markets are happy...goldi....
very nice. no argument about that.
But when PPI is up and CPI is not someone has to absorb it. profits are down and at some point market will realize that. With rates up this is even worse.
No one can argue with the market but on the same way it is useless to "justify" the market. The market is irational and can remain this wau for a long time - this is the real reason and not this goldi nonsense.
Blackstone Investment
The Chinese government last month agreed to invest $3 billion in New York-based buyout firm Blackstone Group LP through the soon-to-be-formed State Investment Co.
Web Help for Getting a Mortgage the Criminal Way - New York Times
By JULIE CRESWELL
Published: June 16, 2007
Want to buy a home, but hampered by bad credit, an empty bank account or no job? No problem!
That may sound like an exaggeration of a late-night infomercial. But it is, in effect, the pitch that a number of Web sites are making to consumers, saying insolvent home shoppers can be made to look more attractive to lenders.
The sites, for example, offer better credit scores by hitching customers to a strangers credit card, or providing them pay stubs from a bogus company. One has even offered a well-stocked bank account to rent for a month or two.
Industry experts say these sites, which are relatively new, played a role in fueling the rampant mortgage fraud that has caused a huge spike in loan defaults in recent months because people bought homes they could not afford.
There is a whole underground world an online cottage industry that has grown up that allows anyone to commit mortgage fraud, said Constance Wilson, executive vice president at the financial fraud detection firm Interthinx.
Fake Pay Stubs Online, and Other Mortgage Fraud - NY Times
Figuring out why the stock market continues to go up is like figuring out where your drug-addicted cousin continues to get drugs.
Japan.
As long as yen interest rates are 0%, the carry trade will continue and "liquidity" will flood the US markets.
Same with China, but Japan is the worst perp.
So, the US markets are going to continue their drug-addicted ways.
When the crash comes, each day it has been put off will be another six months of recovery.
"The index series, ABX, measures the implied cost of insuring investments in 20 bonds and does not directly measure the price of the securities, which are traded relatively infrequently by a small group of sophisticated players. The ultimate holders of these bonds, which are essentially a stake in loans taken out by thousands of individual homeowners, are pension funds, hedge funds, insurance companies and other institutional investors."
Slumping Confidence in Bonds Tied to Subprime Mortgages - NY Times
on the brink-
A 'Subprime' Fund Is on the Brink - WSJ.com
"Of course, a house today is double the size and has more luxury elements than that 1959 house. So the housing price inflation a "mere" 700% - and lagging the price increases for the other items listed."
Not all homes were built recently. For example, every home around mine was built in the early 1900's. And trust me, the appliances and new fixtures don't cover the difference between the original price and the current replacement value.
As for "luxury items" in general, my guess would be that most Americans would give up most of them in a heart beat in exchange for more economic security. Rampant inflation, flat wages, and less job security is not what most people see as an improved standard of living, despite how many phones, cars, TVs, and iPods they may or may not have.
Looks like the Cioffi fund that Merrill made a margin call upon was making a correlation trade - short ABX and long CDOs holding MBS.
A couple of funds nearly or did blow up two years ago making similar sorts of bets on GM. They were long the bonds and short the stock- figuring the company was in trouble, so the stock would lose its value while the bonds would retain most of their value. When Kerkorian stepped in and bought a lot of stock in GM, the stock shot up and the bonds fell (bond investors worried about the company gearing up or being bought out).
In this case (at least according to the reporting), looks like the Cioffi fund figured the cost of insuring MBS would rise quickly, but the actual value of the MBS would only fall slowly. Seems like a sensible enough idea.
Guess it didn't pan out that way - in the time alloted them.
rc-
the most interesting thing will be whether this causes a long over due mark-to-market across the board, then, we should be able to eventually get a clear picture of who holds this mess.
maybe then and only then, mom and pop will WTFU.
RiskC-
How does the accounting actually work in these cases? Many of these securities are so thinly traded that everybody is using old prices. If there is a forcible liquidation of all this toxic waste, is every holder required to suddenly mark down the value of their own toxic waste? Could funds that don't wish to show a huge loss then engage in sham transactions - in essence saying, well that was a one-day dump of thinly-traded securities and now prices have recovered?
they will just sell to each other at high price....
I could never understood the expression "who's coolaid were you drinking" ? but after seeing this photo I think I get it:
Yahoo! 404 - Page Not Found
so RC - what took place that the trade went wrong ? MBS went down but ABX did not ?
Could funds that don't wish to show a huge loss then engage in sham transactions - in essence saying, well that was a one-day dump of thinly-traded securities and now prices have recovered?
I'd bet that that's exactly what they'll do. At some level it's legit: you don't have to mark to a fire sale price.
And we've seen this happen before this year: remember AHM and M&T coming out in early April and telling us that current bids on their held-for-sale pipelines weren't a "mark" because trading was so thin? A whole lot of mortgage whole loan offerings just got quietly withdrawn, so nobody had to see those pathetic bid prices get sucked into the M2M.
It will keep being a problem until FASB clears up this issue of using M2M accounting for "thinly traded" assets.
"It will keep being a problem until FASB clears up this issue of using M2M accounting for "thinly traded" assets."
In the current state of affairs, I don't see how the FASB cannot react. The mark-to-model allowance seems to be ripe with conflict.
Without going into all the specifics of potential conflict, in particular in regard to hedge funds, where regulation is definitely needed, it seems that, from what I have read under current rules that the ratings agencies need to downgrade in order to force a mark-to-market, my interpretation of the BS case is that the general feeling is that more distress will leave the ratings agencies no choice but to react, thus rusulting in what everyone already seems to know and that is that the mark-to-model pricing is severely flawed in the case of MBS/CDO, etc.
Pat_in_OH said: "Did anyone else notice a certain amount of euphoria in the reporting about todays CPI? Well, Im feeling a bit cranky about this since Im damn sure paying what seems like a lot more for the same stuff. So I checked the actual data for myself..."
This goes a long way toward restoring my faith in people.
If you're willing to carry the ball across the goal-line you'll be better-informed about U.S. inflation and in a better position to forecast it than 99% of anyone else that posts here (or anywhere else).
You've seen from the data that some components go up and some go down. That's a NORMAL condition for inflation. (Also, a certain amount of inflation is a permanent fixture in the U.S. economy, also NORMAL.)
Inflation only becomes truly problemmatic (and not just an irritation) when the prices of LOTS of the components are rising at the same time. When that happens, we can't prioritize (adjust what we buy so as to meet a budget). We have to pay a lot more for EVERYTHING at the same time, no choice. THEN, inflation becomes a serious problem.
Sebastia
Pat_in_Oh,
Last night the CBS evening news reported that inflation for the year was running at over 5%. You are right, inflation is running high. Additionally, the numbers that we see are monthly and not yearly. Further, the number recently reported was for April.
Next it is the government that is doing the reporting and they have a vested interest in creative reporting. Remember that SS and other payments are adjusted every year based on the rated of inflation. It is called a COLA. And then there are TIPS. And then the fed that raises rates to keep inflation in check which then raises the cost of government borrowing.
Next it has been reported that the Dollar has lost 40% of it value under Bush. The loss of purchasing power is another reason that cause goods and services to cost more total dollars. Inflation.
CR good job keeping the trolls out. I too am interested in learning and not harassment. Jee, if it does not sink in that the credit markets are driving the train, then there is no use in talking.
Yal
"what took place that the trade went wrong ? MBS went down but ABX did not ?"
That's my read of the article. Of course, ABX indices have again gone south. I guess they didn't have enough time and/or capital to wait it out.
I suspect we'll here a lot more soon.
-Rob
Consider this famous quote:
"There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose." Lord John Maynard Keynes (1883-1946), renowned British economist.
I'm with you Pat_in_OH
Kevin | 06.15.07 - 11:31 pm
It is a great quote, but the real credit is given by Keynes himself in the previous line, that is, Keynes is paraphrasing V. I. Lenin.
Lenin was certainly right.
It is in the penultimate paragraph on the page. (from Delong's class)
and for those from the other aisle, this is from Mankiw:
Lenin was certainly right.
Also, see the last paragraphs for the quotes.
The revolution is here, it is just waiting for participants.
The CDS playas are making e laugh with there comments published in the press...
hey , theose banks are changin the rules...
lest we forget how most of the cds funds were spawned...
Let's be clear, 90% of thesebogus contracts will never be paid on...
SO there's really only one solution
Hangman's Knot
The mortgage fraud did'nt start at the bottom, it started at the top....
really, who cares what the nyt reports on....
the editors are'nt exactly gonna step up and lambast the top five bank ceo's
RC-
Please file that Ogilvy story in Bush's "we have a plan" speech folder