S&P: U.S. cash-flow, hybrid CDOs on Negative Watch
Submitted by
CalculatedRisk on Thu, 08/09/2007 - 1:15pm (56 comments)
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pulleez, do we need anymore bad news?
Tanta, I think that the Eagles Hotel Caifornia should be the video for this weekend to celebrate the run on hedge funds.
They stab it with their steely knives but they just can't kill the beast?
very appropriate!
Roach Motel funds.
Lot of folks in the Hamptons this weekend going to be drunk. I wonder at who is going to be out of business in early September when they send their fund valuation letters.
Lot of short folks going to be very happy with this market action.
They have been waiting for their day in the sun for quite a while, and now that economy is finally showing signs of slowdown they will get their alpha returns;-}
As for real estate, well, forget it on the coasts, Las Vegas, and Arizona.
Nothing but jingle mail and foreclosures with a smattering of real transactions. My five million is starting to look quite accurate as this crisis deepens.
Banker, does this start to smell like a real crisis yet, or do we need to bring back Corrigan to broker the back room deals to keep this together while a bunch of hedgies are liquidated. Fund of funds;-}
Ah well, back to the drawing board- their idea of calculated risk is starting to resemble Las Vegas kino odds.
Someday this war's gonna end...but for now I have work to do.
Do we need to add anything about heading for the door?
CR, obviously all these RMBS/CDO's have been distributed globally. Many Euro-zone bagholders started noticing. No word yet from the Chinese. Any clues as to why and any guesses on their actions once they decide to take some?
S&P publishing this on Thursday so people can get drown their sorrows a day earlier and maybe turn up for work sober on Monday?
It seems like the liquidity crunch really started happening in late June between the CDO downgrades and a bunch of junk LBO coming to the market. Maybe it was just the Q2 delinquency reports.
Link to the press release for ratings pending action:
http://www2.standardandpoors.com/portal/site/sp/en/us/page.article/2,1,9,2,1148446592535.html
CDOs of asset-backed securities collateralized by mezzanine-structured finance securities
And I thought options terminology was confusing.
New rule to live by - One should run, not walk, from any investment requiring ten or more words just to address where it derives from.
Steven Pearlstein Live
Credit Markets - washingtonpost.com
Kasriel
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0708/document/dd080907.pdf
Lot of folks in the Hamptons this weekend going to be drunk.
"Gatsby believed in the green light, the orgastic future that year by year recedes before us. It eluded us then, but that's no matter- tomorrow we will run faster, stretch out our arms farther..... And one fine morning- "
ah nuts, i was betting those cdos would be upgraded.
So who did not know that the malaise today was led by hedge fund liquidation?
Nat Gas rallied hard against the backdrop of every other commodity complex getting slaughtered.
The rumor in the market was that 6 hedge fund managers with huge jet boats, were in the Atlantic Ocean in a close circle attempting to create a hurricane.
Tough period ahead.
Hedley, Gatsby is dead, he filed for bk a few days ago. some people thought he didn't behave very gentlemanly in his last few days, trying to refute rumors and whatnot, but i went to his funeral anyways and drank champagne...
CFC in deep trouble - news coming!!
CFC Link
Countrywide Hit by Credit Market Woes - WSJ.com
Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing.
The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather ...
Did Cramer pound his head through the sets drywall on-air today?
The debt leverage tide has begun to recede. Just as it magnified asset values on the upside it will likely burn a hole in many balance sheets. Just hope its not reflected in the 401K statements of ordinary folks who did not have the luxury of billion dollar bonuses.
Clearly the fact that overnight LIBOR rates sparked up and the ECB and the Fed had to inject hundreds of billion dollars shows that the unwinding of all this debt and leverage will not be pretty.
Wall Street fed of the trough of structured finance "alchemy". Converting mortgages that never should have been issued into AAA rated tranches of securities and then created layers of derivatives on that. While the going was good they feasted. Now their demands for bailouts will be as loud as ever.
As usual the paid for politicians will socialize losses and taxpayers will be given the bill while the hedge fund mavens and Wall Street bosses will keep their billion dollar net worths created through speculation.
What happened to "No one can do what Countrywide can"? Everybody can lose money...and most will in the coming days.
Waooo
Tomorrow should be another interesting day.
Just watching CNBC, and they were discussing the good/bad aspects of bailing out companies like (just hypothetically) Countrywide.
I see a tidal wave of class-action lawsuits against safe funds touting AAA-backed securities that will be swept into the coming black hole -- because they accepted the whole case of apples without due diligence in chucking the rotten ones.
Here's the whole thing. Looks like some good ole "mark to market" action:
Countrywide Hit by Credit Market Woes
By JAMES R. HAGERTY
August 9, 2007 7:16 p.m.
Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing.
The company, the largest U.S. home mortgage lender in terms of loan volume, said reduced demand from investors is prompting it to retain more of its loans rather than selling them. The company also has been shoring up its finances. "While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown."
Payments were at least 30 days late on about 20% of "nonprime" mortgages serviced by Countrywide as of June 30, up from 14% a year earlier. Nonprime includes loans to people with weak credit records and high debt in relation to their income, as well as to people who don't document their income or assets. On prime home equity loans, the delinquency rate was 3.7%, up from 1.5% a year before. For all loans, the rate was 5%, up from 3.9%.
In a sign of the growing difficulty in selling loans, Countrywide said that it transferred $1 billion of nonprime mortgages from its "held for sale" category to "held for investment" in the first half. Countrywide marked the value of those loans down to $800 million. It also decided to retain as investments, rather than sell, $700 million of prime home equity loans, marking them down to $600 million. Countrywide has said many of those home equity loans were second-lien mortgages used by people who put little or no money down in buying a house.
One thing I hope people noted the past few days is that this isn't just a US thing. It just so happens that our housing market went bust first because the easy availability of land here allowed a glut to rapidly develop, thus bringing down the market.
Other places like the UK, Spain, and Australia may be even worse off than we are eventually (UK and AU had more house price appreciation and have higher consumer debts; housing is proportionally a much larger industry in Spain than the US).
And the credit and stock market bubbles are everywhere, and a lot of these markets are fueled by US investors that might disappear in a recession.
Even China could suffer seriously if they've developed excess capacity and US consumption drops off (likewise for other exporters). Excess capacity doesn't sounds so bad, but in fact it's the stuff that downward spirals like the Depression were made out of (in part). Their stock market bubble also poses a serious threat.
Then there's the possibility of a commodity crash if liquidity dries up (see how speculative long positions are holding up the price of oil) that could take out economies like Russia, Australia, etc.
This thing is global, folks.
Of course the way things are going these days it could just last a day or two, then it's party time.
I have never seen so much pressure applied to the Fed to lower rates. Did somebody fax these people talking points?
I thought the banks were well capitalized, awash in cash, and in a Goldilocks economy.
And the Fed will fold, but not just yet. Right now their main concern is keeping the economy placid during the upcoming election season. They do not want to see themselves - Bernanke does not want to see himself - item A in every politician's stump speech. Timing is going to be tricky on this one, but sometime in the fall.
Will lowering rates help if the US consumer is beyond borrowing money at this point?
Down 9% AH
Who has the more powerful financial position; China holding all our debt/dollars or American consumers buying all of Chinas (sometimes toxic) products?
That's a nice symmetry. In exchange for our toxic financials, they give us toxic toys, dog food, and toothpaste.
actually CFC looks to be down closer to 13.5% by the end of after hours, and heading down all the way through to the end. How quaint that they just announced how rosy everything was a couple of days ago. Let me check if leatherface unloaded any shares the past few days.
Can Wall Street engineer a pump up action tomorrow?
This has a snowball feel to it - with more shoes dropping every day. Note we have not heard from any hedgies in Asia. No doubt they been pigging off the CDO trough too.
Since nothing goes in a straight line we should expect some strong rallies. But what's interesting is that we are just a few percent from the top in the Dow and all this carnage in credit and structured finance. Will all funds institute a no redemption policy and like the Japanese not write down assets?
Hm I could be reading it wrong, but the item 4 listing on SEC is for nearly 100k shares exercised at 14 approx and sold at 28 approx. Did this both of the last two days I think. Nice way to net a couple extra mil before the ship starts sinking.
For the nerds... CFC 10-Q
http://www.sec.gov/Archives/edgar/data/25191/000110465907060931/a07-19124_110q.htm
Who has the more powerful financial position; China holding all our debt/dollars or American consumers buying all of Chinas (sometimes toxic) products?
Gort | 08.09.07 - 7:55 pm | #
Consumers buying their products.
Correct Geoff, my numbers are a few minutes old.
Good thing the TAn Man cashed out so he can miss this downside
this is from Jan 31, 2007. I wonder who is making jokes now!
Jan. 31 (Bloomberg) -- Mark Carhart looks out over the packed
New York conference and tells investors that Warren Buffett has it all wrong.
Carhart, 40, co-head of the quantitative strategies group at
Goldman Sachs Group Inc., uses his July speech to poke fun at the
Berkshire Hathaway Inc. chief executive officer's penchant for
investing in market-leading brands like Coca-Cola and Gillette. He
cites study after study showing that big-name companies with high
price-earning multiples or rapid growth rates make poor bets.
Traditional stock pickers like Buffett, a fabled raconteur,
do have one redeeming quality, Carhart jokes: ``They tell great
stories.''
Carhart himself has a pretty good story to tell. Though he
doesn't like to talk about it, Carhart is one of the world's most
successful money managers, a mastermind behind Global Alpha, a $10
billion hedge fund for wealthy clients and employees of Goldman Sachs.
Nuclear Phynance
Cal, thanks for the link to S&Ps press release. I see at the top of the list ACA ABS 2007-1 Ltd. Could this be ACA Insurance mentioned by Barrons over the weekend with 300M in equity insuring 61B?
I have never seen so much pressure applied to the Fed to lower rates. Did somebody fax these people talking points?
I wish somebody would speak up publicly and say the truth about this:
The Fed cannot lower rates yet because there's too money in speculative hands.
The hedge fund complex is still too powerful and well-capitalized. A premature rate cut could give them the control to re-ignite the rampant speculation and hot money flows, making the ultimate ending that much worse.
This is why Jim Cramer is so passionate about having rates cut now - he doesn't want the casino shut down.
The huge worldwide gambling ring that's infested the finance and investment industries needs to be shut down sooner rather than later to salvage our economic future.
This is why Bernanke hasn't lowered rates despite all the obvious turmoil. I really believe he's much more shrewd and aware than most people think - he's doing the right thing. It's just unfortunate that Fed policy dictates their members say dumb and misleading things in public so they don't influence markets.
This whole issue needs to be discussed more publicly and explained to people. I think they'd understand as long as they don't work on Wall Street.
you are on tonight ac.
very interesting analysis and suggestions.
CFC "growing into the downturn" by funding as many loans as possible (not good loans, just loans) and selling as much as possible was stupid, I like BofA strategy much better, portfolio the loans and then sell them after they show they are performing.
If you are willing to put your money on the line to portfolio a loan an investor is going to have a lot more confidence in purchasing that loan. You also resist the urge to make exceptions or risky loans without stringent underwriting.
Rthomas, I believe it is "that" ACA but dont know 100%.
Another domino on the way to falling
"Apartment and condominium builder Tarragon Corp. raised doubts about its ability to remain in business amid weak demand and an inability to raise new financing, in the latest fallout from the spreading credit crunch."
Tarragon, in Credit Crunch, Expresses Doubts on Future - WSJ.com
Previously the markets had a weekend to forget the bad news. Not today.
Seattle-based Washington Mutual said the disruption in the subprime secondary mortgage market in the first half has "spread into markets for all other nonconforming residential mortgages." It said it has been "impacted," but remains "well-capitalized and its capital position is diversified."
Washington Mutual's home loans unit lost $37 million in the second quarter as loan volume fell 24 percent. The thrift has subprime home loan volume by more than two-thirds, and tightened lending standards.
http://www.reuters.com/article/marketsNews/idUKN0927223520070810?rpc=44
All this reassurance about capitalization is giving me a Wizard of Oz feeling.
Ah - it's contained all right. Contained right up to any no-money down loan, eh?
Fortunately, the best and brightest only let a few of THOSE slip through the cracks.
ac-
that is why we have margin requirements, the Fed can and will cut.
I've finally arrived.
30 of these classes (Taberna) belong to 6 securitizations now affiliated with RAIT Financial Trust (RAS). Most of the collateral is TruPS belonging to mortgage REITs or homebuilders.
Is trump trying to sell Mir-a-Lago?
jeez, his timing stinks
Real Estate always Blows up!
AllenM,
I'm not worried in the least, really...stop looking at that gross of Arbogast Industries Extra Large Barf Bags that just got delivered to the Bankerdome...they mean nothing... really.
In all seriousness, this is some scary stuff. Potentially, really scary. We'll see.
I was lucky to get scaling for my prediction on SP500 returns.
The new scale corresponds to the drop in yearly returns during the last several days. In previous comment (
Inside Futures: Futures & Commodity Quotes, Charts, News, Commentary, Analysis & Education
July 9, 2007), timing of the current drop was perfectly predicted. SP500 will reach a new bottom value in the next two months of around 1330.
So, the new plot for the MA(12months) SP500 returns is as follows.
Figure 1
http://thumbsnap.com/v/mUXOzUpd.gif
Comparison of observed and predicted monthly returns. The observed returns are MA(12).
Figure 2.
http://thumbsnap.com/v/IJmE0zuQ.gif
Cumulative obserevd and predicted returns from Figure 1
Figure 3.
http://thumbsnap.com/v/G887ufZJ.gif
Difference between the predicted and observed returns
The San Diego law firm of Miller & Milove represents investor victims of CMO, CDO and margin fraud. Claims are being pursued in NASD/FINRA Arbitration proceedings. The participation of Wall Street brokers, Ratings and Pricing firms and Clearing firms extending unsuitable margin is currently under investigation.