Time to purge the system back to sustainable fundamentals. No more cheap and easy financing for LBOs and stock buybacks. This means companies will now have to start actually making money again. That is un American!!!
I am sure your fans (they are legion) have already let you know, but cool that you made the WSJ:
July 24, 2007, 11:12 am
Blog Roll: Warehouse of Pain
Posted by Tim Annett
Blogger Tanta at Calculated Risk ponders the perils of warehouse lending. Mortgage bankers use warehouse lines of credit to fund loans as they are originated, carrying them in the warehouse until they can be sold to a whole-loan investor or securitized, Tanta writes. What happens if the bottom falls out of the whole-loan or security market and nothing moves out of the warehouse? Long walk. Short pier.
"``I have experienced the Volcker recession of 79-81, the Oil Patch and New England corrections in the mid-to-late 80's, California '89 to 94, and significant bond market corrections in87, 94 and98,'' wrote Trezevant Moore Jr., chief executive officer of mortgage-bond issuer and buyer Luminent Mortgage Capital Inc., in an investor newsletter yesterday. ```At none of these times has the distaste for mortgage and mortgage-related securities been as high as we see now.'' "
Tanta: "Back in '89, the failure of the UAL LBO marked the peak of the LBO cycle, however that deal was very different from today since UAL was contingent on obtaining debt financing (if I remember correctly)."
You remember correctly. I was working at the firm that backed out of that financing, leading to the October 1989 crash that we've all decided to stop discussing. (Bstrds in credit didn't bother telling us they were going to do it, either. [g])
Cue the helicopters, this morning there was a TIO auction announcement for another $9 billion - and the award announcement has also already been posted!
And i'm free, free falling.
Yeah i'm free, free falling.
And all the vampires walkin' through the valley move west down ventura
Boulevard.
And all the bad boys are standin' in the shadows, and the good girls
Are home with broken hearts.
I agree ac - good point. Folks will know a crash day when they see one.
The NASDAQ almost rebounded and went to new highs after its initial crash. I don't think anyone at the time really could have known whether it was headed back up to 10,000 or going into the gutter as it actually did. These inherently chaotic phenomenon can be at certain points absolutely unpredictable (unless you have the capital to actually move the market).
Actually i think the best part of Bill's artilce was the part about income inequality and the taxation of the hedgies and the PE guys. 1/20/09 can't come soon enough.
i think the fall of the financials here is the key. they usu lead the mkts and they've been falling for a while now.
hey doc, check out the yen here - if it keeps on rallying like this the end times are near. if the yen carry trade dries up we could find ourselves in a very different world very soon:
Dollar Index 80.08, where is the next floor under 80?
Doesn't matter unless the yen throws in the towel... USD at 120.15 JPY ... if it goes way under 120 (starts heading to say 110)... then 'yes' dollar has problems & index will probably plunge.
Back around January 2005 the dollar fell to around 105 JPY - my friends over at a 'nearby' transplant were all but having coronaries as they were brining parts over from Japan, it was crazy. Dollar is currently WAY above that.
"i think the fall of the financials here is the key. they usu lead the mkts and they've been falling for a while now."
You are absolutely correct, imho. Doug Nolan talks about this at length in his last credit bubble bulletin:
"The Hand of Finance
Beginning with my early-January Issues 2007, Its All About Finance has been the underlying theme of almost every one of this years CBBs. For me, the important unanswered questions inevitably relate back to my December 2000 presentation How Could Irving Fisher Have Been So Wrong? Why are so many caught bullish and completely oblivious to escalating risk - at major tops? And why is it that booms and bull markets cannot endure indefinitely? Clearly, the vast majority are today convinced they can and will. Were witnessing why they cant and wont.
Well, booms inevitably falter at The Hand of Finance. In this distant past the post-Bubble post-mortem would simplify the state of things to the money went bad. People had lost confidence and ran from banks and the stock market. The Credit wheels had ground to a halt and the abundant liquidity that seemed as if it would always be readily available instead abruptly evaporated. Jump forward to today and perceptions have it that the Fed and global central bankers are waiting to ensure that confidence is maintained and liquidity remains always bountiful. Were apparently so much more enlightened today, especially with our sophisticated risk monitoring and mitigating systems. We have derivatives..."
a large large pool of investors behind the carry trader are Japanese citizens chasing yield. When they realize, and I think they are slowly moving there, when they realize that Wall Street (Den of Thieves) packaged weeds and dandilions and sold them as roses, the carry trade unwinding will quickly accelerate indeed.
My bet is still that Chrysler doesn't get done without help from Daimler.
Banker
well the deal was, that daimler will get 7bil and from that pay 6.5 to unions for pension. so actualy they get close to nothing from it if we take in account they payed for chrysler cca 37 bil usd in the nineties.
i highly doubt they will pay themself anything, maximum few 100 grand (i mean mil ).
anyway this is america, this is capitalismus, if they came to us, definitly not to pay the unions. so i would say, if this deal with kkr falls apart they will close chrysler so who cares.
i doubt the guys buying mercedes care about chrysler being closed.
beside that, all europeans carmakers are having big currency lossess by producing in eu and selling in us. the only reason they do that is to increase their market share and that their income from us more or less nearly covers the costs and that they have the employment at home.
you in us dont get it but the same cars in eu are being offered at 50% higher price. the sales tax can cover 20% of this difference, the rest is the fall of dollar.
the inflation is real, since dollar is falling the exporters should increase the prices but they dont because its the "us market". and well even if they sell in us, they put that money in the stocks so well thats what "almost protects" them from falling dollar
i like chrysler but well. if the company is a full loss, it should be closed
a large large pool of investors behind the carry trader are Japanese citizens chasing yield.
Yeah, a lot of these are probably hedge funds with high yield fixed income or asset gearing operations. If investors start pulling out of these, which I suspect they are now, it could turn into an uncontrolled downward spiral. That's why I focus so much on the Yen in combination with higher yield bond and loan prices. This is from whence the giant geyser of easy money springs forth methinks.
a large large pool of investors behind the carry trader are Japanese citizens chasing yield. When they realize, and I think they are slowly moving there, when they realize that Wall Street (Den of Thieves) packaged weeds and dandilions and sold them as roses, the carry trade unwinding will quickly accelerate indeed.
Stuart - it is unlikely the carry will end until the BOJ changes policy... raise rates & stop direct USD intervention.
HOWEVER that isn't the same thing as saying Wall Street will benefit from continued carry. A lot of the Japanese housewife carry goes to places like New Zealand & Australia and not just to the US.
And if it does go int US it doesn't necessarily go into private securities - could go into Treasuries or highly rated agency.
Setser had some great articles a few months back on how the US was NOT the highest return target currency for carry - now, sadly those articles are behind his pay wall.
The effect of non-USD carry is an increase in general global liquidity & raises Wall Street some in that respect... but very difficult to see direct short term effects to Wall Street, up or down. At least I can't see clear predictable effects and I have one heck of a fertile imagination.
"I also read that Japan's nine biggest banking groups have more than 1 trillion yen of combined holdings in products backed by U.S. subprime mortgages".
A serious break below 120 JPY/USD will probably force a lot of carry traders to unwind their positions; when global equity markets appear to be joining debt and real estate markets (primarily their derivatives) in descent where is the rationale for continued investment in financial instruments?
Gross offered a truism in the article that should be repeated to financial reporters and any remaining optimists. It is the overextension of lenders, not borrowers, that leads to contagion. If my risk gets out of what because of mortgages, I don't have to (and may not be able to) rely on mortgages to get my risk profile back where I want it. I can pull back from whatever kind of lending gives me the best shot at getting risk back where I want it. That seems to be what is going on. Woe unto needy borrowers.
Blackbox funds will trigger a large sell of holdings once 120 is broken. Regardlessof the BOJ policy, holders/investors fearing eventual downgrades will bail before they are unable too. Selling begets more selling and down she goes. The carry trade could unwind very very quickly without "official" intervention.
On another forum there is some discussion of the CFC conference call. One of the points made in the call was apparently:
2/3 of subprime 2/28s in 2006 have already refied out of them, so the size of the ARM reset problem may only be 1/3 as large as people have been talking about.
Is this possible? Could 2/3 of the 2/28s have refi-ed in a year (or less)? Don't most of those 2/28's have prepayment penalties in force for the first few years?
That's only $8.2B, but it does sound better in Yen. From here on out, I think all prices should be quoted in the old Italian (or Turkish) Lyra. That'll put the fear of God into those not paying full attention.
Well RW I didn't say a drop below 120 would be pretty - just that I'm not impressed by the dollar 'plunge' vs an index until the yen goes along for the ride. Yen well below 120 indicates its on board too.
Isn't Daimler on the hook for the pension liabilities in any case? If that number is $6 billion, Daimler should be willing to kick in something substantial to get SOMETHING of the books.
Yes Banker you are always missing something. The Stock market is overvalued by 30%. The bears are crashing the Frat boys party. This is
America, everyone desreves a good entry point. I will get back in around S&P 1150.
all indices down today. everything went on sale incl precious metals and energy. there was real pain and fear. how long will this continue? perhaps tomorrow we will have a rally? the important thing to remember is we're just getting started. the dow hit an all time hi just a few days ago and to the masses today was just the first hint something might be wrong. so hang on to your shorts; literally.
That's the problem with Alt A: It's a name that doesn't really have a meaning,'' said Davidson.The top end of Alt A is certainly under stress but may not face serious problems.''
Not really. A little more than 200 points over almost 14000. Even the most bullish person wouldn't be fazed by this - hardly constitutes a decent buy opportunity.
If we get back down under 12000 by say mid-late August with repeated big down days... then you'll start to see some fear.
That might even get a few of those high rollers off the beach and back into the office & trading... maybe.
Katie bar the door if the Chrysler deal doesn't happen.
Yup. But I agree with banker - probably won't know until fall. From what I can tell the deal was designed to go through or else - the 'or else' option coming much later.
what liabilities banker. we live in capitalism. you think germans cant play hard? they let their daughter go bancrupt, slash pensions and close it completely.
if there is a pension money they promissed, they pay it, not more. but they can make it quite simple. they close chrysler tomorrow, sell what they can and fire emploees.
since when is a mother company responsible for a daughter?
There is no chance in hell for a FED rate cut. Everytime headline CPI goes down the Core CPI goes UP. This makes sense because if one spends less money on food and Gas, then there is more money for other stuff.
Bottom line, inflation is not going away and now the markets will have to discount proper levels of inflation not to mention less earnings growth and less buybacks.
After all the discounting you are looking at 25 to 30% DOWN.
Take a look at the chart that shows the adjustible rate reset schedule done in Jan 07 --we are in month 7-- shows a huge amount of Sub prime resets over the next 24 months. Also remember--house values have been declining so many of those that reset will have negitive equity.
"If it keeps on raining, the levys gonna break.
If it keeps on raining, the levys gonna break.
Some people still sleeping.
Some people are wide awake."
how long will this continue? perhaps tomorrow we will have a rally? the important thing to remember is we're just getting started. the dow hit an all time hi just a few days ago and to the masses today was just the first hint something might be wrong. so hang on to your shorts; literally.
The dow hit a high on Sep 3rd, 1929. The big crash started only 6 weeks later. By that time the dow was down 17% from the high.
Kett82, thanks! It's not the cover of the Rolling Stone, bezactly, but damn! Little pinko me in the WSJ! I wonder if this means the Bancrofts have given in . . .?
Dryfly, Haloscan is really misbehaving for me today (already lost one post) so, fairly quickly, I think Yen/USD stability has three elements (hat tip David Taylor): Overall stability in the financial markets, low interest rates in Japan, USD falling out of favor with investors due to yield differentials elsewhere. All three elements consider in the strategies of G10 central banks generally but, in particular, the so-called Breton Woods II 'understanding' between Japan and China. This has served to indirectly tie Yen to USD via Renmimbi and, not entirely coincidentally, allowed major Japanese banks to improve their loan portfolios in the face of unwillingness to purge bad loans and in the absence of sufficient credit demand within Japan. There is considerable logic and impetus to keep that going since it is also allowing the BRIC economies to fund their entry into the developed world but the markets appear to be increasingly exhausted by the velocity of money with ever larger quantities of low quality financial instruments bid up to levels that can not be sustained w/o ever greater quantities of credit. Predicting complex, nonlinear systems is fairly fruitless -- spontaneous behavior, particular in times of change, is such an enduring characteristic -- but in the absence of evidence that some kind of sustainable regime is growing one is forced to ask, how reasonable is it to expect the 'old' system to maintain stability indefinitely; bit like asking how long the chrysalis can contain the (almost) metamorphosed moth, eh?
roxy, it is a little strange to hear nothing. The conf call is going now. The headline numbers in their report appears to be basically in line with what many other builders have been reporting. AH they are pretty flat. Their market is largely 1st time buyers and that segment is going to get crushed further in this credit crunch as they are less likely to have a chunk for downpayment and loan terms are going to be increasingly stiff along with steeper rates.
CFC dropped a huge bomb today so I can't imagine any HB stock making a run here this week, unless... the New & Existing home sales numbers beat. Even then that's history, as credit is worse since June.
If the reports undershoot consensus or we get another CFC or LBO blowup, we will see even more savage selling... IMO
Dryfly, I had posted this on inflation in Asia a few comments ago, but in light of the above speculation on the Yen I thought I'd repeat it to see what folks thought. Bretton Woods II may be showing some signs of age.
There was an interesting article on Bloomberg today about how inflation was starting to really affect the developing economies, China in particular. It could be a bad sign for the yen-dollar balance.
" July 23 (Bloomberg) -- The rising cost of goods the U.S. imports from China may be an early warning signal that central bankers from the U.K. to India are about to pay a price for a cause they've championed: globalization.
China, a source of cheap manufactured products for the past two decades, may be starting to export inflation as the world economy grows at the fastest pace in a generation. "
Ron - thanks, I'm a country kid & seen a lot of those boxes. Though never saw one with a car company inside. I think I'd rather have kittens... I'm too soft hearted to drown a bunch of kittens but leave me a car company and who knows.
RW & Andrew on Breton Woods II... I fully agree. Its long in tooth, unsustainable and going to end. I've been saying that for so damned long my family laughs at me. Someday I will be right - I hope I'm alive to see it & say I told you so...
Then again maybe I'd REALLY rather be wrong & go to the mall & spend some more of that pseudoyen...
From DH,
"There is no chance in hell for a FED rate cut"
Yeah right.
The Bond market is going to pieces There was something alot smaller than this called LTCM and the Feds (Greenspan and croanies)actually went to the Hamptons in a limo to meet with LTCM and the Bankers to "work out" the carnage. Then the fed reserve promptly pumped the system with money and cut rates.
This will happen again.
PS: The feds have probably already been to visit Bear and the rest.
But the new beast has grown many more tentacles and these tentacles are each long enough that the depth of potential destruction isn't clear to anyone.
The yen is going to go sharply higher along with tres. bonds.
As credit spreads widen the yen and the bonds will explode up.
I hope i'am right .
Good luck everyone.
Of course this could out to be bigger than LTCM, it isn't over yet. But back when LTCM happened, the credit world pretty much stopped for ninety days or so. Banks stopped doing deals immediately, it wasn't a credit crunch, it was a credit halt. It is hard to explain to those who weren't there the fear that was rampant. That is a word that gets hugely overused today. But late that summer and up until maybe Thanksgiving, senior management at the banks were petrified. Nobody knew what was really going on. Management systems were inadequate, risk analysis was inadequate, senior management at some of the firms was not up to snuff and nobody really knew at that time what made hedge funds tick. The idea that John Meriwether had gone belly was like Joe Montana choking in the clutch or Switzerland starting a war or the Pope converting to Islam, it tilted the axis of the credit world and disoriented everyone.
We could get to that point, but we are not close yet.
Time to purge the system back to sustainable fundamentals. No more cheap and easy financing for LBOs and stock buybacks. This means companies will now have to start actually making money again. That is un American!!!
BG sounds just a little bitter huh?
An agitation of the air,
A perturbation of the light
Admonished me the unloved year
Would turn on its hinge that night.
(Stanley Kunitz)
do you hear the flushing sounds of the dow?
How many can squeeze through the exit at the same time? Early adopters edging toward the door now. It will be a long week.
In this particular case, I happen to think Gross is mostly correct, but he is such a media-hungry blowhard.
Oh yeah,
My bet is still that Chrysler doesn't get done without help from Daimler.
I am fully prepared to bet a plugged nickel that I am correct. S&P and Moody's rate me BB+/Baa1. Fitch? They've got me at AAA!
---terms that lenders are willing to accept ---
I'm confused with that line...
my gosh are we going to crash? financials are getting creamed!
Dear Tanta
I am sure your fans (they are legion) have already let you know, but cool that you made the WSJ:
July 24, 2007, 11:12 am
Blog Roll: Warehouse of Pain
Posted by Tim Annett
Blogger Tanta at Calculated Risk ponders the perils of warehouse lending. Mortgage bankers use warehouse lines of credit to fund loans as they are originated, carrying them in the warehouse until they can be sold to a whole-loan investor or securitized, Tanta writes. What happens if the bottom falls out of the whole-loan or security market and nothing moves out of the warehouse? Long walk. Short pier.
Sweet!
Best regards,
do you hear the flushing sounds of the dow?
I'm not counting it out just yet - it's suprised too many times, but if the liquidity keeps drying up then the game is over.
Even in that scenario I would expect a real fight on the way down.
Still, the more bonds and loans are selling off, the more comfortable I get taking bearish positions.
File that under (unter?) "sweet media"!
"``I have experienced the Volcker recession of 79-81, the Oil Patch and New England corrections in the mid-to-late 80's, California '89 to 94, and significant bond market corrections in87, 94 and98,'' wrote Trezevant Moore Jr., chief executive officer of mortgage-bond issuer and buyer Luminent Mortgage Capital Inc., in an investor newsletter yesterday. ```At none of these times has the distaste for mortgage and mortgage-related securities been as high as we see now.'' "
Countrywide's Net Declines 33 Percent on Home Equity (Update7) - Bloomberg.com
Tanta: "Back in '89, the failure of the UAL LBO marked the peak of the LBO cycle, however that deal was very different from today since UAL was contingent on obtaining debt financing (if I remember correctly)."
You remember correctly. I was working at the firm that backed out of that financing, leading to the October 1989 crash that we've all decided to stop discussing. (Bstrds in credit didn't bother telling us they were going to do it, either. [g])
Cue the helicopters, this morning there was a TIO auction announcement for another $9 billion - and the award announcement has also already been posted!
Wonder if BB cut the check himself?
In this particular case, I happen to think Gross is mostly correct, but he is such a media-hungry blowhard.
But that's why we love him so.
Well if this isn't the beginning of the unwind, it's at least a "release candidate".
ac-you need a hearing aid
ac-you need a hearing aid
WHA?
Wow... CFC down almost 13%. None of you screw this up by covering now, OK?
I'm not counting it out just yet - it's suprised too many times, but if the liquidity keeps drying up then the game is over.
I agree ac - good point. Folks will know a crash day when they see one.
And i'm free, free falling.
Yeah i'm free, free falling.
And all the vampires walkin' through the valley move west down ventura
Boulevard.
And all the bad boys are standin' in the shadows, and the good girls
Are home with broken hearts.
Tom Petty, by the way
"In this particular case, I happen to think Gross is mostly correct, but he is such a media-hungry blowhard."
At least he doesn't talk to rabbits.
I agree ac - good point. Folks will know a crash day when they see one.
The NASDAQ almost rebounded and went to new highs after its initial crash. I don't think anyone at the time really could have known whether it was headed back up to 10,000 or going into the gutter as it actually did. These inherently chaotic phenomenon can be at certain points absolutely unpredictable (unless you have the capital to actually move the market).
Dollar Index 80.08, where is the next floor under 80?
Actually i think the best part of Bill's artilce was the part about income inequality and the taxation of the hedgies and the PE guys. 1/20/09 can't come soon enough.
i think the fall of the financials here is the key. they usu lead the mkts and they've been falling for a while now.
72 has often been cited as the next support level. Getting fugly out there.
i think the fall of the financials here is the key. they usu lead the mkts and they've been falling for a while now.
hey doc, check out the yen here - if it keeps on rallying like this the end times are near. if the yen carry trade dries up we could find ourselves in a very different world very soon:
FXY
ac-you're right about the yen. do you hear the flush yet?
Dollar Index 80.08, where is the next floor under 80?
Doesn't matter unless the yen throws in the towel... USD at 120.15 JPY ... if it goes way under 120 (starts heading to say 110)... then 'yes' dollar has problems & index will probably plunge.
Back around January 2005 the dollar fell to around 105 JPY - my friends over at a 'nearby' transplant were all but having coronaries as they were brining parts over from Japan, it was crazy. Dollar is currently WAY above that.
Watch the yen.
"i think the fall of the financials here is the key. they usu lead the mkts and they've been falling for a while now."
You are absolutely correct, imho. Doug Nolan talks about this at length in his last credit bubble bulletin:
"The Hand of Finance
Beginning with my early-January Issues 2007, Its All About Finance has been the underlying theme of almost every one of this years CBBs. For me, the important unanswered questions inevitably relate back to my December 2000 presentation How Could Irving Fisher Have Been So Wrong? Why are so many caught bullish and completely oblivious to escalating risk - at major tops? And why is it that booms and bull markets cannot endure indefinitely? Clearly, the vast majority are today convinced they can and will. Were witnessing why they cant and wont.
Well, booms inevitably falter at The Hand of Finance. In this distant past the post-Bubble post-mortem would simplify the state of things to the money went bad. People had lost confidence and ran from banks and the stock market. The Credit wheels had ground to a halt and the abundant liquidity that seemed as if it would always be readily available instead abruptly evaporated. Jump forward to today and perceptions have it that the Fed and global central bankers are waiting to ensure that confidence is maintained and liquidity remains always bountiful. Were apparently so much more enlightened today, especially with our sophisticated risk monitoring and mitigating systems. We have derivatives..."
and it just goes on from there.
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ac-you're right about the yen. do you hear the flush yet?
Hmmmm... maybe I hear something. Let me crank the volume on the old Miracle Ear a bit.
a large large pool of investors behind the carry trader are Japanese citizens chasing yield. When they realize, and I think they are slowly moving there, when they realize that Wall Street (Den of Thieves) packaged weeds and dandilions and sold them as roses, the carry trade unwinding will quickly accelerate indeed.
My bet is still that Chrysler doesn't get done without help from Daimler.
Banker
well the deal was, that daimler will get 7bil and from that pay 6.5 to unions for pension. so actualy they get close to nothing from it if we take in account they payed for chrysler cca 37 bil usd in the nineties.
i highly doubt they will pay themself anything, maximum few 100 grand (i mean mil
).
anyway this is america, this is capitalismus, if they came to us, definitly not to pay the unions. so i would say, if this deal with kkr falls apart they will close chrysler so who cares.
i doubt the guys buying mercedes care about chrysler being closed.
beside that, all europeans carmakers are having big currency lossess by producing in eu and selling in us. the only reason they do that is to increase their market share and that their income from us more or less nearly covers the costs and that they have the employment at home.
you in us dont get it but the same cars in eu are being offered at 50% higher price. the sales tax can cover 20% of this difference, the rest is the fall of dollar.
the inflation is real, since dollar is falling the exporters should increase the prices but they dont because its the "us market". and well even if they sell in us, they put that money in the stocks so well thats what "almost protects" them from falling dollar
i like chrysler but well. if the company is a full loss, it should be closed
Yeah, that's a healthy market. What a joke!!!
Paulson's Pig Team won't be able to support this joke forever.
a large large pool of investors behind the carry trader are Japanese citizens chasing yield.
Yeah, a lot of these are probably hedge funds with high yield fixed income or asset gearing operations. If investors start pulling out of these, which I suspect they are now, it could turn into an uncontrolled downward spiral. That's why I focus so much on the Yen in combination with higher yield bond and loan prices. This is from whence the giant geyser of easy money springs forth methinks.
a large large pool of investors behind the carry trader are Japanese citizens chasing yield. When they realize, and I think they are slowly moving there, when they realize that Wall Street (Den of Thieves) packaged weeds and dandilions and sold them as roses, the carry trade unwinding will quickly accelerate indeed.
Stuart - it is unlikely the carry will end until the BOJ changes policy... raise rates & stop direct USD intervention.
HOWEVER that isn't the same thing as saying Wall Street will benefit from continued carry. A lot of the Japanese housewife carry goes to places like New Zealand & Australia and not just to the US.
And if it does go int US it doesn't necessarily go into private securities - could go into Treasuries or highly rated agency.
Setser had some great articles a few months back on how the US was NOT the highest return target currency for carry - now, sadly those articles are behind his pay wall.
The effect of non-USD carry is an increase in general global liquidity & raises Wall Street some in that respect... but very difficult to see direct short term effects to Wall Street, up or down. At least I can't see clear predictable effects and I have one heck of a fertile imagination.
From Chuck' Butlers Daily Pfennig
"I also read that Japan's nine biggest banking groups have more than 1 trillion yen of combined holdings in products backed by U.S. subprime mortgages".
WOW.
Isnt a trillion yen is like eight bucks?
My bet is still that Chrysler doesn't get done without help from Daimler.
It will be interesting. Daimler might have to put Chrysler in a box and leave by the side of the road...
"Free to good home."
A serious break below 120 JPY/USD will probably force a lot of carry traders to unwind their positions; when global equity markets appear to be joining debt and real estate markets (primarily their derivatives) in descent where is the rationale for continued investment in financial instruments?
Isnt a trillion yen is like eight bucks?
LOL. Is that 'enhanced' or just the regular leverage?
Gross offered a truism in the article that should be repeated to financial reporters and any remaining optimists. It is the overextension of lenders, not borrowers, that leads to contagion. If my risk gets out of what because of mortgages, I don't have to (and may not be able to) rely on mortgages to get my risk profile back where I want it. I can pull back from whatever kind of lending gives me the best shot at getting risk back where I want it. That seems to be what is going on. Woe unto needy borrowers.
Blackbox funds will trigger a large sell of holdings once 120 is broken. Regardlessof the BOJ policy, holders/investors fearing eventual downgrades will bail before they are unable too. Selling begets more selling and down she goes. The carry trade could unwind very very quickly without "official" intervention.
On another forum there is some discussion of the CFC conference call. One of the points made in the call was apparently:
2/3 of subprime 2/28s in 2006 have already refied out of them, so the size of the ARM reset problem may only be 1/3 as large as people have been talking about.
Is this possible? Could 2/3 of the 2/28s have refi-ed in a year (or less)? Don't most of those 2/28's have prepayment penalties in force for the first few years?
Dow down 226 pts. Black Box will kick in at around 13,670.
Indy Mac -5.9%
Downey -5.5%
Accredited Home Lending -15.33%
"Earthquake of an 8.0 scale in the high yeild market"-- Gross
is anyone having fun yet
That's only $8.2B, but it does sound better in Yen. From here on out, I think all prices should be quoted in the old Italian (or Turkish) Lyra. That'll put the fear of God into those not paying full attention.
Well RW I didn't say a drop below 120 would be pretty - just that I'm not impressed by the dollar 'plunge' vs an index until the yen goes along for the ride. Yen well below 120 indicates its on board too.
Check out October '03 to October '05...
Yahoo JPY:USD. Set to 5y horizon...
Revro,
Isn't Daimler on the hook for the pension liabilities in any case? If that number is $6 billion, Daimler should be willing to kick in something substantial to get SOMETHING of the books.
Am I missing something?
Me,me,Lawyer L, i'm having fun!
Yes Banker you are always missing something. The Stock market is overvalued by 30%. The bears are crashing the Frat boys party. This is
America, everyone desreves a good entry point. I will get back in around S&P 1150.
CR: Defaults on Some `Alt A' Loans Surpass Subprime Ones (Update1) - Bloomberg.com
watch as they upxdate it. this is the biggy ?
The carry trade could unwind very very quickly without "official" intervention
Yup... good thing BOJ knows a little about intervention. BOJ and intervention goes together like sushi and wasabi.
all indices down today. everything went on sale incl precious metals and energy. there was real pain and fear. how long will this continue? perhaps tomorrow we will have a rally? the important thing to remember is we're just getting started. the dow hit an all time hi just a few days ago and to the masses today was just the first hint something might be wrong. so hang on to your shorts; literally.
Yal - key paragraph:
Defining Alt A
That's the problem with Alt A: It's a name that doesn't really have a meaning,'' said Davidson.The top end of Alt A is certainly under stress but may not face serious problems.''
A rose by any other name... blah, blah.
Katie bar the door if the Chrysler deal doesn't happen.
there was real pain and fear.
Not really. A little more than 200 points over almost 14000. Even the most bullish person wouldn't be fazed by this - hardly constitutes a decent buy opportunity.
If we get back down under 12000 by say mid-late August with repeated big down days... then you'll start to see some fear.
That might even get a few of those high rollers off the beach and back into the office & trading... maybe.
bofiz, RE: CFC and 2/28 refi's, consider the source.
Tan man hasn't been honest in years, if ever. Even the '09 recovery' is a BS tale.
There is no way in hell that claim is true.
Katie bar the door if the Chrysler deal doesn't happen.
Yup. But I agree with banker - probably won't know until fall. From what I can tell the deal was designed to go through or else - the 'or else' option coming much later.
what liabilities banker. we live in capitalism. you think germans cant play hard? they let their daughter go bancrupt, slash pensions and close it completely.
if there is a pension money they promissed, they pay it, not more. but they can make it quite simple. they close chrysler tomorrow, sell what they can and fire emploees.
since when is a mother company responsible for a daughter?
if the daughter goes bancrupt, who cares?
There is no chance in hell for a FED rate cut. Everytime headline CPI goes down the Core CPI goes UP. This makes sense because if one spends less money on food and Gas, then there is more money for other stuff.
Bottom line, inflation is not going away and now the markets will have to discount proper levels of inflation not to mention less earnings growth and less buybacks.
After all the discounting you are looking at 25 to 30% DOWN.
Bofiz,
Take a look at the chart that shows the adjustible rate reset schedule done in Jan 07 --we are in month 7-- shows a huge amount of Sub prime resets over the next 24 months. Also remember--house values have been declining so many of those that reset will have negitive equity.
Mortgage Swamp - iTulip.com
since when is a mother company responsible for a daughter?
b..bb..bb..bbbbut revro, that wouldn't be playing fair to the American investment bankers. (/crybaby sarcasm)
No one should ever play fair with the crooked American investment bankers again, ever!!
They wanted globalization, they got it!!!
I can't wait until the Dubai toll roads crank up the fees. Maybe Americans will finally realize how wrong banker-driven policy-making has been.
"If it keeps on raining, the levys gonna break.
If it keeps on raining, the levys gonna break.
Some people still sleeping.
Some people are wide awake."
how long will this continue? perhaps tomorrow we will have a rally? the important thing to remember is we're just getting started. the dow hit an all time hi just a few days ago and to the masses today was just the first hint something might be wrong. so hang on to your shorts; literally.
The dow hit a high on Sep 3rd, 1929. The big crash started only 6 weeks later. By that time the dow was down 17% from the high.
Kett82, thanks! It's not the cover of the Rolling Stone, bezactly, but damn! Little pinko me in the WSJ! I wonder if this means the Bancrofts have given in . . .?
Quick MarkIt review:
ABX, 13 of 20 new records
CDX, 7 of 8
CMBX, 17 of 17
TABX, 12 of 12
If I counted correctly... not sure how to interpret other indices there but that is the headline count.
I think this whole Debacle started when a poster here and at housing bubble blog posted the picture of the "crack Den" in LA area offered at 285k
Dryfly, Haloscan is really misbehaving for me today (already lost one post) so, fairly quickly, I think Yen/USD stability has three elements (hat tip David Taylor): Overall stability in the financial markets, low interest rates in Japan, USD falling out of favor with investors due to yield differentials elsewhere. All three elements consider in the strategies of G10 central banks generally but, in particular, the so-called Breton Woods II 'understanding' between Japan and China. This has served to indirectly tie Yen to USD via Renmimbi and, not entirely coincidentally, allowed major Japanese banks to improve their loan portfolios in the face of unwillingness to purge bad loans and in the absence of sufficient credit demand within Japan. There is considerable logic and impetus to keep that going since it is also allowing the BRIC economies to fund their entry into the developed world but the markets appear to be increasingly exhausted by the velocity of money with ever larger quantities of low quality financial instruments bid up to levels that can not be sustained w/o ever greater quantities of credit. Predicting complex, nonlinear systems is fairly fruitless -- spontaneous behavior, particular in times of change, is such an enduring characteristic -- but in the absence of evidence that some kind of sustainable regime is growing one is forced to ask, how reasonable is it to expect the 'old' system to maintain stability indefinitely; bit like asking how long the chrysalis can contain the (almost) metamorphosed moth, eh?
Great WSJ quote: it captured both your intellect and 'tude very nicely. Congrats Tanta!
Not a word about Centex? I guess it was non-event comparing with all the credit destruction...
roxy, it is a little strange to hear nothing. The conf call is going now. The headline numbers in their report appears to be basically in line with what many other builders have been reporting. AH they are pretty flat. Their market is largely 1st time buyers and that segment is going to get crushed further in this credit crunch as they are less likely to have a chunk for downpayment and loan terms are going to be increasingly stiff along with steeper rates.
CFC dropped a huge bomb today so I can't imagine any HB stock making a run here this week, unless... the New & Existing home sales numbers beat. Even then that's history, as credit is worse since June.
If the reports undershoot consensus or we get another CFC or LBO blowup, we will see even more savage selling... IMO
Dryfly, I had posted this on inflation in Asia a few comments ago, but in light of the above speculation on the Yen I thought I'd repeat it to see what folks thought. Bretton Woods II may be showing some signs of age.
There was an interesting article on Bloomberg today about how inflation was starting to really affect the developing economies, China in particular. It could be a bad sign for the yen-dollar balance.
Bloomberg.com refer=home
" July 23 (Bloomberg) -- The rising cost of goods the U.S. imports from China may be an early warning signal that central bankers from the U.K. to India are about to pay a price for a cause they've championed: globalization.
China, a source of cheap manufactured products for the past two decades, may be starting to export inflation as the world economy grows at the fastest pace in a generation. "
Accredited slumps on concern about Lone Star deal - MarketWatch
LEND is fading. this Jean Wan is not a Gump but a Chump.
It will be interesting. Daimler might have to put Chrysler in a box and leave by the side of the road...
"Free to good home."
LOL very funny line Dryfly!
Ron - thanks, I'm a country kid & seen a lot of those boxes. Though never saw one with a car company inside. I think I'd rather have kittens... I'm too soft hearted to drown a bunch of kittens but leave me a car company and who knows.
RW & Andrew on Breton Woods II... I fully agree. Its long in tooth, unsustainable and going to end. I've been saying that for so damned long my family laughs at me. Someday I will be right - I hope I'm alive to see it & say I told you so...
Then again maybe I'd REALLY rather be wrong & go to the mall & spend some more of that pseudoyen...
From DH,
"There is no chance in hell for a FED rate cut"
Yeah right.
The Bond market is going to pieces There was something alot smaller than this called LTCM and the Feds (Greenspan and croanies)actually went to the Hamptons in a limo to meet with LTCM and the Bankers to "work out" the carnage. Then the fed reserve promptly pumped the system with money and cut rates.
This will happen again.
PS: The feds have probably already been to visit Bear and the rest.
Well there was the snap auction for $9 billion at Treasury today - TIO announcement this morning for Auction 345 and auction award about lunchtime.
Chump change but there is more on the way I am sure...
Slowmotion,
LTCM was, at the time, MUCH bigger than this. Much.
Banker is right, LTCM was much bigger.
So far.
But the new beast has grown many more tentacles and these tentacles are each long enough that the depth of potential destruction isn't clear to anyone.
(ps kill the beast)
Banker,
So far...
The dollars in the mortgage market are huge so the potential is much greater than LTCM.
This has to be contained by the fed.
slowmo,
Problem is this -- lowering rates will cause an immediate containment breach. IOW, the cure is worse than the disease.
At this point, no amount of rate cutting will help anyway.
The yen is going to go sharply higher along with tres. bonds.
As credit spreads widen the yen and the bonds will explode up.
I hope i'am right .
Good luck everyone.
Slooowmo,
Of course this could out to be bigger than LTCM, it isn't over yet. But back when LTCM happened, the credit world pretty much stopped for ninety days or so. Banks stopped doing deals immediately, it wasn't a credit crunch, it was a credit halt. It is hard to explain to those who weren't there the fear that was rampant. That is a word that gets hugely overused today. But late that summer and up until maybe Thanksgiving, senior management at the banks were petrified. Nobody knew what was really going on. Management systems were inadequate, risk analysis was inadequate, senior management at some of the firms was not up to snuff and nobody really knew at that time what made hedge funds tick. The idea that John Meriwether had gone belly was like Joe Montana choking in the clutch or Switzerland starting a war or the Pope converting to Islam, it tilted the axis of the credit world and disoriented everyone.
We could get to that point, but we are not close yet.
We're still a lot closer than banker is willing to admit.