those LIBOR based HELOCs might shock some FBs in that next statement.
I was thinking, in order for this credit mess to be a little more contained, we would need to hear about a scrubbed Satellite launch so then it could be contained to our solar system instead of the globe.
I don't think it's possible to contain it much more than that.
Gary, the ECB action was uncommon, but this particular Fed action is common. The federal funds effective rate bounces around - you can see it daily here, but I can't recall it spiking this much.
I don't follow repos closely, so I don't have a good feeling how uncommon the amount was.
The ECB intervention is not at all common, and certainly not at the $130B level. I tend to agree with notions that something is seriously screwed up. One interpretation of money market rates shooting up was that, at the interbank level, banks were losing confidence in their counterparties. I think rather the reverse: banks are losing confidence in their own balance sheets and are looking for cash to deal with their own problems. WestLB?
Also note today that one of the first homebuilders looks set to fail: Tarragon (TARR) has, in effect, preannounce its BK, imho - it has delayed its 2Q, stated it's not in compliance on loans, failed to get $50M financing it needed this month, and expects $125M charge for 2Q. Gone. Not a surprise, they were small, Florida, and condos. 3 strikes.
You keep telling yourself that will make everything ok Sebastian. You probably believe the decoupling argument at the end of that letter. Like it makes any sense any more. And BTW, that link was posted yesterday here on CR.
re: scrubbed satellite launch: Rumor has it the latest shuttle launched contained, in addition to 1 school teacher, certificates for $137B in equity tranch CDOs. Following successful mission, the plan is to unman and seal the space station, thereby establishing near-earth containment.
Related, the Treasury department has established an emergency committee to review NASA's plan for a mission to Mars...
A BMW/Mercedes Dealer in SoCal catering to Realtors paying for your Las Vegas luxury Condotel investment unit with a LIBOR indexed HELOC on your primary luxury home purchased in 2006 with a 5/1 100% I/O.
A quick note on this from the European side of the pond: It is obvious that the crappy real estate related securities from the US have made their way around the world, so the problems with IKB and WestLB shouldn't be too surprising.
As for the ECB action, the German business paper Handelsblatt says that the spike in rates started with the $ Libor, then carried over into the Euro and finally fears over bank exposure locked up the money market. So not necessarily a big banking desaster in Europe behind this. If I read other sources correctly, the initial spike was also more pronounced with the $ rates, but I'd be interested if anyone here has a better insight on this.
PS: Anyone who's happy that the US mess got distributed around the world should consider the impact on the credibility of the financial institutions and on capital inflows for a country that requires massive capital inflows to finance a current account deficit of 800 billion $ or so annually.
"Is it possible that it wasn't the Chinese/Japanese buying all the US mortgages, but instead the French and Germans?"
Yes. They are further along towards complying with Basle II. To beef up their capital, they have been buying lots of AAA rated.........CDOs.
Other less-serious possible reasons -the French banks are huge derivative players (why, I'm not sure, but it must be something about how you need to test high in math to get into any university program, including literature). And German banks are notorious (not counting DB because it's run by Italians and Americans - but that's a different story) for buying lots of junk that they shouldn't.
I just got out of bed and started reading. All my remaining buddies in the biz have left Europe so I have no direct scoop at all and I doubt I'll get any. Sorry.
... and Euro is absolutely right pointing out the follow-on risk here to US "spreading" the risk to the rest of the world. It boggles my mind that the dollar index is holding above 80 this week, no matter what rates are doing (and they're falling). I guess its only up today due to relative euro weakness. Midterm, the rest of the world is likely to bail on US assets (as soon as prices for any of these can be established;) and nothing will be able to save the dollar.
Congress will get its wish; hope they're happy. We're gonna need to export a lot of hard goods to make up for all the financial crap we've dumped on the world.
"Is it possible that it wasn't the Chinese/Japanese buying all the US mortgages, but instead the French and Germans?"
Gary Shilling, who has accurately predicted all of this far in advance in his private newsletter, did a best guess look at whose been buying all this junk (he did this about a year ago). I could dig it up, but if I recall best he could figure out it was spread between Europe and Asia. Nobody knows for sure, the data doesn't exist, but this was as good as he could tell.
No surprises here. Old Shilling has been right on the money so far. This all leads up to a big consumer dump, probably later this year. And this will lead to (gasp - tinfoil hat time) deflation of one sort or another thereafter. Shocking ...
Sebastian, Thanks. I will review the list. It should comfort the hedge funds to know that there are still retail investors committing new funds into the market. They want to take some of it.
I was at dinner last night with a guy raising 100 mil for an entertainment tech start up. He was on a long conference call with bankers yesterday, who informed him that the price of money had spiked 300 bp...since last week.
Hmm, hopefully the real story is somewhere north of all the people calling for a depression, but I can't see how it is positive to see 130Billion Euros injected into the market.
Like I said FED needed to pump liquidity and they did. Rate cuts will follow.
Were at 5.25 not 1%. They have lots of room to move without being overly stimulative.
Policy did not cause this mess. Liquidity ALWAYS flows to a good performing asset- NOTHING we can do about that, it is a naturaly occuring event(always has been always will).
Jerome Ball, dont be so sure that Japanese and Chinese will abandon their merkantilist policies. Chinese have according to bsetser about 1oo billion exposure to ABS, this will not deter them from exporting the shit out of themselves. Japanese have been exporting mindlessly for 3o years, they wont stop it either, Those countries are the prisoners of their economic structure, they cant just swap to domestic led growth overnight, also the export industries must be heavily entrenched in national politics over there. Moreover they dont have the physical resources (oil, iron, food) to be self sustaining.
Wow. That was fast. I didn't expect anything to happen until at least Aug. 15.
So, with all this injection of "emergency liquidity", what's the effect on inflation? Any?
If LIBOR is soaring on its own accord, doesn't that tie the Fed's hands even more?
From the Bloomberg article on the Frenchie hedge fund blowup:
"Blocking investors from withdrawals was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris.If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''
Yet another blatant admission that tons of paper is worth nothing near what people thought.
And, by the way, isn't central bankers injecting liquidity into the marketplace the very definition of a PPT
Here's Jim Cramer, from today, trying to apply bone-crushing pressure on the Director of OFHEO, which oversees Fannie and Freddie. Does the regulator stand a chance?
"Most Hated Man in the U.S., or Savior of Homes"
(excerpted snippets follow)
Should the most hated man in American be a faceless bureaucrat by the names of James Lockhart?
We have, by my estimation, 7 million households that could lose their homes because of this mess. They have no idea what to do.
Why couldn't Fannie Mae be allowed to be FEMA in this case for these people?
I know it isn't set up to do that. I know that. But even if it were, judging by everything Jim Lockhart has ever said or done he wouldn't go for it. Neither would President Bush.
But that's what is needed.
And Lockhart, the man who has a chokehold on the carotid artery of Fannie Mae, is the one who could allow this to happen.
That he won't is why he could end up being the man most directly responsible for the first Okie exodus since the 1930s.
I'm a regular lurker here on these great discussions. One thing I have not seen mentioned yet is the possibility that the European banking system is double screwed. Once for holding capital in our trash securities and once more for having a looming domestic debt problem as their real estate markets follow ours aorund the bowl and down the hole.
Does anyone know if the Euro banks kept more of the toxic stuff on their balance sheets than our banks did? Given that the USA is the king of the MBS world, I would suspect that hypothesis might have merit. My apologies is this has been mentioned already.
"Liquidity ALWAYS flows to a good performing asset"
Obviously, patently untrue. It has flowed for 2 years to assets that have not performed and that is the core of the mess we are in.
And now the enhanced cries to lower the rates - which is the single most wrong thing that could now be done.
Interesting days.
Goldman's North American Equity Opportunities hedge fund had $767 million under management earlier this year. The Fund was down over 15% this year, through July 27, according to investors and was down more than 11% in July alone. It is not known how much the fund has sold in recent days.
"Now why is it so hard to believe it doesn't happen in stocks?"
Because THAT is illegal. You'd have a far wider coverup operation to contend with (mild understatement).
That's not to say I don't believe in the PPT - I'm a card carrying conspiracy theorist
What happened in the currency markets SHOULD be illegal. If banks are screwed because they engaged in risky behaviour they should be allowed to fail. Otherwise the layers of risk keep piling on, and eventually, financial crisis is inevitable, rather than just a possibility.
Not a capitulation. I said from the first there is no such thing as the PPT, there is the Fed. I don't believe the Fed intervenes in the stock market directly. But again, as I have said numerous times the Fed does coo in the ears of the major banks.
Hey banker, looks like i'm not alone,
Roubini said,
"But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode."
Alan Sinai: 75% Chance of a Recession In 3-12 Months
He is on CNBC and prefaced by stating the obvious, expansions dont go on forever. He thinks that the process of contraction of liquidity is underway. We all know that it was the free-flowing liquidity that kept the economy and the stock market afloat for the past 5 years.
Did anyone else hear 75% (Someone else thinks that he said 35%)?
"...Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''"
Any truth to this?... is there any chart that shows credit conditions vs. recessions?
slooowwww,
they were NEVER performing assets other than in somebody's hallucinatory view of the future. Those that did know lied about it, those that did not know got suckered in. Now the first group wants a longer leash to do it again because it was so much fun, I suppose.
At least somebody agrees with me! You were all slamming me when I said it.
PS: Roubini is only dis credited if you dont believe in his thesis. He actually was a member of the Clinton admin (imagine that LOL). I know that probably makes him biased. I am not in his camp because of politics.
self-preservation mode is in full effect! you're on your own! anyone here caught "Mr.Ownership Society" playing the blame game and reassuring everyone that things are OK! Judging on the record compiled so far, it just doesn't seem comforting at all coming from the naked emperor himself.
wally,
I'm not advocating it. It happens in all asset classes- Stocks, Real Estate, gold etc etc. It has happened since the begining see- Tulips, Gold, Railroad stocks, auto stocks etc etc etc.
For the last two weeks, I've got increasingly concerned about liquidity and credit card/check clearing/ATM seize ups and shared it with my wife - she's much less paranoid and relaxed about it all than me but this morning , based on the news, she herself brought up the idea that I've been floating for two weeks, viz. increase the real cash, say 3K - to "put under the mattress" so to speak.. Anybody else doing the same ? Worth doing a poll, CR?
This is all different from the survivalist crap - you know, stock up on bottled water, guns, bullets, gold, preserved food. We've always already done that ! - but that comes from having lived in a earthquake preparedness zone.
A reasonable person would tend to think that the combination of world-wide panic and massive liquidity injections would propel gold and silver to double digit gains today. However, both gold and silver are sharply down today. Such suspicious activity proves gold and silver are being strongly suppressed by central banks, at least for now anyway.
Jim Cramer crying crocodile tears for his 7 million proto-Okies (which apparently no longer includes WallStreeters losing their jobs) and chastising Lockhart for not bailing them out (as if he could) means that Cramer got the message from his masters: You will atone!
I visualize it as the scene from the movie Network where the mad newsman (played by Peter Finch) is called into the great plutocrat's ((Ned Beatty)) boardroom and told that his telling the truth and "I'm mad as hell and not going to take it any more" antics on TV are interfering with the sacred flow of cash.
the idea that I've been floating for two weeks, viz. increase the real cash, say 3K - to "put under the mattress" so to speak..
I'm surprised people don't always have a cash SHTF fund located in their home. It's like having those other things you named, guns, canned food, water etc. You never need any of it until you need it very badly. I've got 10K in a safe in the Bankerdome.
I think Gold/Silver are down because, like all assets, they will be hurt by the disappearance of money (credit). To me, it just means smart money is selling now, before ALL assets suffer in the obvious deflation of debt that is underway.
You are correct the ducks are lined up. I think the recession question remains what it was when I first found this place, how long does all this housing stuff take to play out. The longer it takes, the more the strength of the worldwide economy, the weak dollar, enterprenurial activity and all the other always moving components of a dynamic economy have to act as a counterweight. I still don't think this happens suddenly enough to throw us over the cliff.
I am also banking on there being no major exogenous shock while the markets are in dissaray. If there is? I may need to put a new wing on the Bankerdome.
Jerome Ball wrote Also note today that one of the first homebuilders looks set to fail: Tarragon (TARR) has, in effect, preannounce its BK, imho - it has delayed its 2Q, stated it's not in compliance on loans, failed to get $50M financing it needed this month, and expects $125M charge for 2Q. Gone. Not a surprise, they were small, Florida, and condos. 3 strikes.
But, but, but.... I downloaded the October ResiLogic docs, and according to them, higher amount loans were less likely to default and condos were less likely to default!!! How could this be????
Seriously, looking at the ResiLogic stuff explained quite a bit to me.
Everyone looking to the government and the Fed to fix things. "Please, please, do something to create jobs, save our home valuations, bail out our borrowers, and pump up our stock values!"
"The government must Faire something now to Laissez our investments to go up!"
Slightly on a tanget. My brother lived in the UK and was telling me that since housing was getting so expensive the banks were co-owning houses on a particular type of loan. Yes the bank would put down 20-30% of their owm money as down payment and finance you the remainder. And we thought 100% LTV exposure was bad...
Now, what would happen if housing in the UK (and much of the EU) tanks? BTW, given how expensive it has been for Londoners to buy into the market, many have invested in Spain or other EU countries (causing bubbles there) to then sell and have a down payment for a flat in London. Seems like it just won't go pop but rather pop pop pop pop...
Bill Seidman, former FDIC chair, came out soundly against any increase in funding cap or loan limits - "No bailout for the lenders". He should know. He was the in charge of the RTC debacle. He is well aware that there is no easy government fix to a market problem, They only drag out the inevitable to eventually cost the taxpayer.
"Goldman's North American Equity Opportunities hedge fund had $767 million under management earlier this year. The Fund was down over 15% this year, through July 27, according to investors and was down more than 11% in July alone. It is not known how much the fund has sold in recent days.
dis | 08.09.07 - 1:28 pm | "
Is this what the cryptic (understandably soo) Banker was referring to ?
Banker: Batteries, tuna fish and guns in the Bankerdome
Thanks for the laugh!!! Tunafish? I think I'll try to stay out of the Bankerdome. I'd prefer MREs and good wine, which was more what I was expecting for the Bankerdome.
Down in GA, we are stocking up on Brunswick stew and Billy Beer. The possums we can pick off as we need 'em - they're everywhere, according to the press.
wally asked: "Any truth to this?... is there any chart that shows credit conditions vs. recessions?"
The Wright Model "B" yield curve will, if you can find one anywhere on the web. (With a little effort it can be created in a spreadsheet.) It didn't invert in 1997 (Asian currency crisis, but no recession), 1998 (LTCM and Russian ruble crisis, but no recession) but it did in 2000 (recession the next year).
It hasn't inverted again since 2001, which means however bad things may appear now they don't rise to the level of being a precursor of recession.
The recession probability based on Model "B" is only 33% within the next 12-18 months.
Remember yesterday I said that calls for housing bottoms and credit stabilization are absurd? And asked why, I answered that increasing homeowner defaults, along with fleeing investors (hedge funds) were going to continue to make fear the driving force of the market?
It seems the Bloomberg home page is full of articles about just these things.... It's amazing what one day will do. Just goes to show, it doesn't pay to listen to daily noise.
daredevl07 says:
"...is the possibility that the European banking system is double screwed. Once for holding capital in our trash securities and once more for having a looming domestic debt problem as their real estate markets follow ours aorund the bowl and down the hole.
Does anyone know if the Euro banks kept more of the toxic stuff on their balance sheets than our banks did? ..."
I don't know, however, Germany has a slightly different way of doing things (ha!) - called covered bonds. Banks make up the MBS traunches (I suppose that's the right term here) and sell those, however, they keep all the mortgages on their books. They are playing the spread between the cash out and the cash in on the security (as well as getting any origination/fees).
Gary - Kudzu recipes. You can eat the stuff. For years I toyed with the idea of making up kudzu in little pots for Christmas gifts (shoot, people actually BUY those ChiaPets), but fear of divine retribution has so far kept me from making the plunge. There's nobody who can't grow kudzu, so I thought it might really catch on.
todays liquidity injections were like another shot in the arm for the US stock drug addict. keeping the financials and HB's suspended in animation (as of now)
For the last two weeks, I've got increasingly concerned about liquidity and credit card/check clearing/ATM seize ups and shared it with my wife - she's much less paranoid and relaxed about it all than me but this morning , based on the news, she herself brought up the idea that I've been floating for two weeks, viz. increase the real cash, say 3K - to "put under the mattress" so to speak.. Anybody else doing the same ? Worth doing a poll, CR?
I keep all cash " under the mattress" if you will, I have been out of the banks for well over a year now.(seen it coming)..and removed all positions over a year ago...no debt own my home, new car paid....just waiting for the storm..right now it is just raining hard...the thunder and lighting starts in another month with roaring winds in October..and then the flood.
I would agree that it is less than a 50/50 probablity of a recession, the rest of the world economy is simply too strong, and the weak $ will lead to a nice improvement in net exports. However, several quarters of sub 1.5% growth seem likely.
Sebastian- "Yes, after updating my data at the end of the day yesterday I got a general-market "buy" signal (using the SP500 as a proxy for the market)."
I have a question for you. Recently, you posted a link to a mortgage website, I think it was called "Mortgage - X". Do you consider the site good and with competitive rates?
For me, it sems a little too early to jump into the stock market yet. I'm still inclined to wait some weeks. In September we should resume the bull IMHO. Although recent market action was surprisingly bullish.
OMG, Banker capitulates on PPT in currency mkts. Now why is it so hard to believe it doesn't happen in stocks?
I believe it could happen in stocks, but not in cases like this. If we saw a 2000 pt plunge in response to some natural disaster, there I could see them stepping in.
Stocks aren't as critical to the financial system and the economy as the credit markets are. Remember, the 1987 stock market crash didn't even cause a recession (the situation was different in 1929 when credit and stocks were intertwined).
If there is a PPT stepping into stocks during minor corrections, they're ultimately making things worse by fostering bubbles.
The two funds, BNP Paribas ABS Euribor and Parvest ABS apply the same investment strategy which enables BNP Paribas Asset Management (BNP PAM) to offer an innovative and attractive product to European institutional investors . For Gilles Glicenstein, CEO of BNP PAM, the launch of these funds shows that BNP PAM and FFTW's common approach can offer appropriate solutions to difficult market conditions which demands new strategies.
Over the last few years ABS have lost their exotic status and entered the mainstream of fixed income investing. Growth in the ABS sector is expected to remain strong as new investors discover the merits of these instruments. ABS securities have an attractive risk/reward profile when compared to other types of non-sovereign bonds with similar maturities. They are therefore excellent instruments for enhancing returns of cash reserves. For Ullrich Koall, CFA, Manager at FFTW London, ABS should attract investors in the current market environment which combines a very tight level of spreads on corporate bonds and low volatility in European government bonds.
ABS also constitute one of the most secure forms of fixed income securities from a credit quality standpoint. Secured by collateral (the main collateral types being credit card receivables, auto and mortgage loans), they benefit from credit-enhanced structures and external protection to further ensure that obligations are met.
I'd grow it. Kudzu root flour is some of the most expensive in the world. There is kudzu jelly.
I sometimes do business as Kudzu consulting, has a picture of a kudzu flower on it. beautiful purple.
But anyway, the problem with growing kudzu is the price of motor oil needed to fertilize kudzu because lubricating the undersides of the leaves reduces the chance of sparks as it races across the ground.
True story, there was a city council meeting for the City of Mountain Brook Alabama, because a kid was scared by a tree covered in kudzu looked like a monster and the mommy wanted it cut down.
Dirk van Dijk wrote: "rest of the world economy is simply too strong" . But ECB
just added 95 billion euros to European banks this morning,huge amount of money.It just does not sound too strong to me. I believe recession/depression is just around the corner.
Optimistic Joe asked: "...I have a question for you. Recently, you posted a link to a mortgage website, I think it was called "Mortgage - X". Do you consider the site good and with competitive rates?..."
It's just an information site that gives levels on the different commonly-used indexes from which lenders calculate what they'll charge, explains what they are, how they're derived, etc. They aren't actual quotes from lenders.
O-Joe, you have a bright future as a hobo clown once you've lost all your money. Entertain the crowd between Sebastian's performances dancing for nickels.
-discussed the movement in LIBOR and action by ECB
-Many participants in capital markets have a desperate need for liquidity
-We're entering a very difficult financial environment, this is far from over
-Private banking must be extremely careful about meeting customer demands - yes, attempt to compete/satisfy close relationship customers, but not in ways that put the bank at risk
-Treasuries are diverging from stocks - this is new behavior
-Trading desks - double check everything, be extremely cautious with trading partners, be prepared for very aggressive trading
-We need to hear from the Fed. They can't let this continue for much longer without comment/action.
I bet if one did a modal analysis of a transcript of this call, the top result would be "caution".
To anybody who's interested, google the phrase "dynamic yield curve" and you see a slideable chart tat illustrates that the yield curve was inverted(slightly) during chunks of Q1 07 and has been flat with various dips along the curve since, sebastian's SSDD claims aside.
*How lucky are the US banks that Basel II was put off for a year where a 10% change in assets would've caused a mess? I believe that Basel II reqs(which EU banks are committed to) is the cause of what went on today in Europe.
--
Seb: "The recession probability based on Model "B" is only 33% within the next 12-18 months."
Any model that predicts recession 12-18 months out is a pure piece of junk. There is >50% probability of a depression in 12-18 months. Of course, that means a recession well within the next 12 months.
"Business as usual" is not the most reassuring phrase:
Goldman on Thursday insisted it was "business as usual" at Global Alpha, its flagship $9 billion macro hedge fund, amid a third day of speculation the investment bank was selling off parts of its portfolio.
As I think we have moved from the dissinflationary to a moderately inflationary environment, I will lock in for 30 years at any rate. We'll buy next year.
What the stock market doesn't seem to understand is that a rate cut doesn't mean "full speed ahead" for the homebuilders/lenders.
The exotic mortgage types and 100%+ LTV/CLTV's that helped fuel the bubble are almost extinct now due to stricter credit standards, not because rates went up.
A rate cut isn't going to suddenly allow everyone to come up with 10-20% down payments at current house prices.
A rate cut will punish the savers, which is important since they refuse to comply and be shackled with debt, and will also destroy the dollar. I am sure people will go back to buying houses at 5+X their annual income when gas is $5 a gallon. Right...
Oh, but a weak dollar will help exports - wait, what DO we make in this nation anymore? And if we do make anything, who says illegals won't get those jobs instead of Americans?
Does this mean that a rate cut is inevitable? Will mortgage rates follow the fed rate down?
newbie | 08.09.07 - 4:00 pm | #
If the Fed rate were to be dropped,
I would assume that mortgage rates wouldnt follow, not in this environment of fear. All mortgages will stink of dead fish until the pristine loans are separated from the decomposing ones. That will take a while. A full body-cavity search will be required for any future loans.
"I keep all cash " under the mattress" if you will, I have been out of the banks for well over a year now.(seen it coming)..and removed all positions over a year ago...no debt own my home, new car paid....just waiting for the storm..right now it is just raining hard...the thunder and lighting starts in another month with roaring winds in October..and then the flood."
Gee, Bofitz, when you come out of your bunker after all is said and done, you may be the lone inhabitant of the earth...
Liquididty is down so people expect a rate cut to put a little more zip into the market. But I don't quite understand why that would work. There are already plenty of people who want to borrow in this market. We don't need any more. The problem we have today is a lack of lenders! And how will cutting rates attract more lenders?
If lenders have vaporized, wouldn't the fed want to push rates UP? that would make lending more profitable, bringing more lenders to the table, and the wheels would start rotating again.
Quite unexpectedly, as Vasserot
The armless ambidextrian was lighting
A match between his great and second toe,
And Ralph the lion was engaged in biting
The neck of Madame Sossman while the drum
Pointed, and Teeny was about to cough
In waltz-time swinging Jocko by the thumb
Quite unexpectedly the top blew off:
And there, there overhead, there, there hung over
Those thousands of white faces, those dazed eyes,
There in the starless dark, the poise, the hover,
There with vast wings across the cancelled skies,
There in the sudden blackness the black pall
Of nothing, nothing, nothing -- nothing at all.
Stocks aren't as critical to the financial system and the economy as the credit markets are.-ac
maybe not from a dollar value standpoint but definitely from a psychological one. this is exactly why Paulson keeps referring to a bull market as evidence of a healthy economy.
Perhaps the central banks are simply doing their jobs and providing liquidity because it is needed. As in, markets panic -> gov't intervenes in a measured and temporary fashion -> markets eventually work it out.
Sure we'll lose some hedge funds and mortgage brokers and maybe a public builder or two. But the (global) real economy is very large and very strong.
Or is that too optimistic?
Nobody ever got rich predicting the end of the world...
Anyone considering a tinfoil hat should instead google "personal Faraday cages" they do need to be grounded to work properly,and the home style ones really are essential for anyone who wants to have a truly private conversation...
SO i wonder what pension funds and endowments are being hit by the rolling lockups and collapses in Hedge Funds? I wonder how hedge fund losses and the new rules about fully funding Pensions will impact corporate balance sheets this quarter.
alec said: "To anybody who's interested, google the phrase "dynamic yield curve" and you see a slideable chart tat illustrates that the yield curve was inverted(slightly) during chunks of Q1 07 and has been flat with various dips along the curve since, sebastian's SSDD claims aside...."
FYI, that's a simple yield-curve, not a Model "B" curve. Model "B" factors-in the level of Fed funds, and it's important to do that.
Reason: If Fed funds are high enough a recession can occur even if the yield-curve is positive. If Fed funds are low enough, a recession won't occur even with an inverted yield curve.
Two other little historical tidbits: In the last 40 years there's only been 1 important stock market correction from a Fed funds level this low.
There were no recessions in the past 40 years that began with Fed funds this low.
If the intervention is required because of the toxic waste that the IBs packaged and sold around the world while apparently knowing that it was toxic waste, and if the rating agencies were complicit in this scam, I wonder how any non-government US paper ever gets sold abroad again.
Further, I wonder whether the big IBs that sold this stuff have destroyed their credibility around the world.
So your vaunted model hasn't predicted a recession ever, or because the model hasn't seen circumstances like this in the last 40 years that it doesn't kow whether to shit or go blind?
Crikey, your knowledge is an foot wide and an inch deep.
I wonder how any non-government US paper ever gets sold abroad again.
Further, I wonder whether the big IBs that sold this stuff have destroyed their credibility around the world.
Waht else are folks with cash going to buy? No matter how bad this gets, where would you rather buy? China? India? Europe? We'll be fine on that front.
As for the IB's, from just a selling perspective, this is no worse than the dot-com bust. They'll take heat and a whack from some folks sure, but the oligopoly is awfully tough to punish in any long-term way.
So, how will lowering the Fed rate make any difference in this environment?
Easy money.
I'm still trying to figure out the significance of the Fed move.
So it's common, except for the amount . . . but how uncommon is it to exceed by the amount they did?
those LIBOR based HELOCs might shock some FBs in that next statement.
I was thinking, in order for this credit mess to be a little more contained, we would need to hear about a scrubbed Satellite launch so then it could be contained to our solar system instead of the globe.
I don't think it's possible to contain it much more than that.
Gary, the ECB action was uncommon, but this particular Fed action is common. The federal funds effective rate bounces around - you can see it daily here, but I can't recall it spiking this much.
I don't follow repos closely, so I don't have a good feeling how uncommon the amount was.
Best Wishes.
The ECB intervention is not at all common, and certainly not at the $130B level. I tend to agree with notions that something is seriously screwed up. One interpretation of money market rates shooting up was that, at the interbank level, banks were losing confidence in their counterparties. I think rather the reverse: banks are losing confidence in their own balance sheets and are looking for cash to deal with their own problems. WestLB?
Also note today that one of the first homebuilders looks set to fail: Tarragon (TARR) has, in effect, preannounce its BK, imho - it has delayed its 2Q, stated it's not in compliance on loans, failed to get $50M financing it needed this month, and expects $125M charge for 2Q. Gone. Not a surprise, they were small, Florida, and condos. 3 strikes.
Evidently we "re-distributed" a lot of the subprime risk abroad. A silver lining.
http://www.dealbreaker.com/images/pdf/HaymanJuly07.pdf
Sebastia
Seems like a desperate move. Things in Europe must be much worse than suspected.
Is it possible that it wasn't the Chinese/Japanese buying all the US mortgages, but instead the French and Germans?
You keep telling yourself that will make everything ok Sebastian. You probably believe the decoupling argument at the end of that letter. Like it makes any sense any more. And BTW, that link was posted yesterday here on CR.
The Europeans are also probably trying to lower their currency, which is biting manufacturers.
Geoff said: "...And BTW, that link was posted yesterday here on CR."
Well, for duplicating an already-posted link I sincerely apologize.
Sebastia
Didn't some bozo here yesterday claim he thought the credit markets might be straightening out a bit?
Who was THAT joker?
Me,? Batteries, tuna fish and guns in the Bankerdome
re: scrubbed satellite launch: Rumor has it the latest shuttle launched contained, in addition to 1 school teacher, certificates for $137B in equity tranch CDOs. Following successful mission, the plan is to unman and seal the space station, thereby establishing near-earth containment.
Related, the Treasury department has established an emergency committee to review NASA's plan for a mission to Mars...
Person not to be:
A BMW/Mercedes Dealer in SoCal catering to Realtors paying for your Las Vegas luxury Condotel investment unit with a LIBOR indexed HELOC on your primary luxury home purchased in 2006 with a 5/1 100% I/O.
"Money is much too serious a matter to be left to the central bankers." -- Milton Friedma
A quick note on this from the European side of the pond: It is obvious that the crappy real estate related securities from the US have made their way around the world, so the problems with IKB and WestLB shouldn't be too surprising.
As for the ECB action, the German business paper Handelsblatt says that the spike in rates started with the $ Libor, then carried over into the Euro and finally fears over bank exposure locked up the money market. So not necessarily a big banking desaster in Europe behind this. If I read other sources correctly, the initial spike was also more pronounced with the $ rates, but I'd be interested if anyone here has a better insight on this.
PS: Anyone who's happy that the US mess got distributed around the world should consider the impact on the credibility of the financial institutions and on capital inflows for a country that requires massive capital inflows to finance a current account deficit of 800 billion $ or so annually.
Got any scoops Banker?
Will pay $ for them
(OT)
"Barely" was asking yesterday if I was buying yet.
Yes, after updating my data at the end of the day yesterday I got a general-market "buy" signal (using the SP500 as a proxy for the market).
Here's a partial watchlist of small-caps from which I will choose a portfolio.
ANAD
ANET
APOG
B
CY
ECLP
ELP
GGB
GSOL
HLIT
ICOC
ICON
IFOX
MALL
Apologies to the thread-topic police.
S.
"Is it possible that it wasn't the Chinese/Japanese buying all the US mortgages, but instead the French and Germans?"
Yes. They are further along towards complying with Basle II. To beef up their capital, they have been buying lots of AAA rated.........CDOs.
Other less-serious possible reasons -the French banks are huge derivative players (why, I'm not sure, but it must be something about how you need to test high in math to get into any university program, including literature). And German banks are notorious (not counting DB because it's run by Italians and Americans - but that's a different story) for buying lots of junk that they shouldn't.
dis,
I just got out of bed and started reading. All my remaining buddies in the biz have left Europe so I have no direct scoop at all and I doubt I'll get any. Sorry.
... and Euro is absolutely right pointing out the follow-on risk here to US "spreading" the risk to the rest of the world. It boggles my mind that the dollar index is holding above 80 this week, no matter what rates are doing (and they're falling). I guess its only up today due to relative euro weakness. Midterm, the rest of the world is likely to bail on US assets (as soon as prices for any of these can be established;) and nothing will be able to save the dollar.
Congress will get its wish; hope they're happy. We're gonna need to export a lot of hard goods to make up for all the financial crap we've dumped on the world.
"Is it possible that it wasn't the Chinese/Japanese buying all the US mortgages, but instead the French and Germans?"
Gary Shilling, who has accurately predicted all of this far in advance in his private newsletter, did a best guess look at whose been buying all this junk (he did this about a year ago). I could dig it up, but if I recall best he could figure out it was spread between Europe and Asia. Nobody knows for sure, the data doesn't exist, but this was as good as he could tell.
No surprises here. Old Shilling has been right on the money so far. This all leads up to a big consumer dump, probably later this year. And this will lead to (gasp - tinfoil hat time) deflation of one sort or another thereafter. Shocking ...
Here come the helicopters now!
Sebastian, Thanks. I will review the list. It should comfort the hedge funds to know that there are still retail investors committing new funds into the market. They want to take some of it.
Oh I should add - deflation has already started. Well, only in auto, house and airline prices. Nothing big, move along ...
Euro,
Yeah, sure, this mess is entirely the product of US financial imperialism. It's not like there is a housing bubble in Europe or anything.
Joe Schmoe,
This particular mess is due to the US problems. The housing bubbles present in most of Europe will be the next shoe to drop. But it's not done yet.
I was at dinner last night with a guy raising 100 mil for an entertainment tech start up. He was on a long conference call with bankers yesterday, who informed him that the price of money had spiked 300 bp...since last week.
Hmm, hopefully the real story is somewhere north of all the people calling for a depression, but I can't see how it is positive to see 130Billion Euros injected into the market.
Something is not as it seems.
Like I said FED needed to pump liquidity and they did. Rate cuts will follow.
Were at 5.25 not 1%. They have lots of room to move without being overly stimulative.
Policy did not cause this mess. Liquidity ALWAYS flows to a good performing asset- NOTHING we can do about that, it is a naturaly occuring event(always has been always will).
Jerome Ball, dont be so sure that Japanese and Chinese will abandon their merkantilist policies. Chinese have according to bsetser about 1oo billion exposure to ABS, this will not deter them from exporting the shit out of themselves. Japanese have been exporting mindlessly for 3o years, they wont stop it either, Those countries are the prisoners of their economic structure, they cant just swap to domestic led growth overnight, also the export industries must be heavily entrenched in national politics over there. Moreover they dont have the physical resources (oil, iron, food) to be self sustaining.
Wow. That was fast. I didn't expect anything to happen until at least Aug. 15.
So, with all this injection of "emergency liquidity", what's the effect on inflation? Any?
If LIBOR is soaring on its own accord, doesn't that tie the Fed's hands even more?
From the Bloomberg article on the Frenchie hedge fund blowup:
"Blocking investors from withdrawals was a very good decision because it avoids huge redemptions,'' said Jean-Edouard Reymond, who helps manage $63 billion at Union Bancaire Gestion Institutionelle SA in Paris.If they had had redemptions they would have been obliged to sell the securities they might have in their portfolio at very cheap market prices.''
Yet another blatant admission that tons of paper is worth nothing near what people thought.
And, by the way, isn't central bankers injecting liquidity into the marketplace the very definition of a PPT
Here's Jim Cramer, from today, trying to apply bone-crushing pressure on the Director of OFHEO, which oversees Fannie and Freddie. Does the regulator stand a chance?
"Most Hated Man in the U.S., or Savior of Homes"
(excerpted snippets follow)
Should the most hated man in American be a faceless bureaucrat by the names of James Lockhart?
We have, by my estimation, 7 million households that could lose their homes because of this mess. They have no idea what to do.
Why couldn't Fannie Mae be allowed to be FEMA in this case for these people?
I know it isn't set up to do that. I know that. But even if it were, judging by everything Jim Lockhart has ever said or done he wouldn't go for it. Neither would President Bush.
But that's what is needed.
And Lockhart, the man who has a chokehold on the carotid artery of Fannie Mae, is the one who could allow this to happen.
That he won't is why he could end up being the man most directly responsible for the first Okie exodus since the 1930s.
What a legacy.
Not much effect on the inflation yet.
M3 in the Eurozone is about 88oo billion, 1oo billion extra liquidity for a couple of days wont matter much.
Licking their chops! They will have plenty to choose after the carnage. The ones with tons of liquidity on hand.
I'm a regular lurker here on these great discussions. One thing I have not seen mentioned yet is the possibility that the European banking system is double screwed. Once for holding capital in our trash securities and once more for having a looming domestic debt problem as their real estate markets follow ours aorund the bowl and down the hole.
Does anyone know if the Euro banks kept more of the toxic stuff on their balance sheets than our banks did? Given that the USA is the king of the MBS world, I would suspect that hypothesis might have merit. My apologies is this has been mentioned already.
Itasallgreek,
And, by the way, isn't central bankers injecting liquidity into the marketplace the very definition of a PPT
Um, yup.
Poszi,
Good point.
"Liquidity ALWAYS flows to a good performing asset"
Obviously, patently untrue. It has flowed for 2 years to assets that have not performed and that is the core of the mess we are in.
And now the enhanced cries to lower the rates - which is the single most wrong thing that could now be done.
Interesting days.
OMG, Banker capitulates on PPT in currency mkts. Now why is it so hard to believe it doesn't happen in stocks?
gaborka,
it's a snowballing effect if not impeded at critical time! it's the dynamic not the static nature that counts.
banker,
CB is the last resort ppt, not the front line ppt. Perhaps, the front line ppt's are having problems with liquidity themselves.
Second Goldman Hedge Fund Moves to Sell Some Positions - WSJ.com
Goldman's North American Equity Opportunities hedge fund had $767 million under management earlier this year. The Fund was down over 15% this year, through July 27, according to investors and was down more than 11% in July alone. It is not known how much the fund has sold in recent days.
Wally,
"Obviously, patently untrue. It has flowed for 2 years to assets that have not performed"
Key words HAVE NOT.
It wasn't BAD performing when it flowed there. Its easy to look back and say that now.
"which is the single most wrong thing that could now be done".
You sound like the FED in 1929.
"Now why is it so hard to believe it doesn't happen in stocks?"
Because THAT is illegal. You'd have a far wider coverup operation to contend with (mild understatement).
That's not to say I don't believe in the PPT - I'm a card carrying conspiracy theorist
What happened in the currency markets SHOULD be illegal. If banks are screwed because they engaged in risky behaviour they should be allowed to fail. Otherwise the layers of risk keep piling on, and eventually, financial crisis is inevitable, rather than just a possibility.
and we're only into the 3rd inning of the game! wow!
idoc,
Not a capitulation. I said from the first there is no such thing as the PPT, there is the Fed. I don't believe the Fed intervenes in the stock market directly. But again, as I have said numerous times the Fed does coo in the ears of the major banks.
Hey banker, looks like i'm not alone,
Roubini said,
"But the current market turmoil is much worse than the liquidity crisis experienced by the US and the global economy in the 1998 LTCM episode."
anaon,
Wait a minute, now there are multiple PPT's? Good lord, they are like tribbles!
--
August 09, 2007; 9:55 A.M. PST
Alan Sinai: 75% Chance of a Recession In 3-12 Months
He is on CNBC and prefaced by stating the obvious, expansions dont go on forever. He thinks that the process of contraction of liquidity is underway. We all know that it was the free-flowing liquidity that kept the economy and the stock market afloat for the past 5 years.
Did anyone else hear 75% (Someone else thinks that he said 35%)?
Jas
"...Chris Low, the chief economist at FTN Financial in New York, said in a report today. ``This is not a small thing. A credit crunch, when the short-term credit markets seize up, is extraordinarily serious, almost always the precursor of a significant recession.''"
Any truth to this?... is there any chart that shows credit conditions vs. recessions?
slooooow,
You could be correct, but I don't think you want to be using Roubini as your justification.
wally,
Off the top of my head 1998 didn't lead to a recession and 2001's wasn't caused by a credit crunch.
slooowwww,
they were NEVER performing assets other than in somebody's hallucinatory view of the future. Those that did know lied about it, those that did not know got suckered in. Now the first group wants a longer leash to do it again because it was so much fun, I suppose.
Maybe the Fed didnt want to inject liquidity because it would weaken the dollar so they asked someone with a strong currency to do it?
At least somebody agrees with me! You were all slamming me when I said it.
PS: Roubini is only dis credited if you dont believe in his thesis. He actually was a member of the Clinton admin (imagine that LOL). I know that probably makes him biased. I am not in his camp because of politics.
self-preservation mode is in full effect! you're on your own! anyone here caught "Mr.Ownership Society" playing the blame game and reassuring everyone that things are OK! Judging on the record compiled so far, it just doesn't seem comforting at all coming from the naked emperor himself.
wally,
I'm not advocating it. It happens in all asset classes- Stocks, Real Estate, gold etc etc. It has happened since the begining see- Tulips, Gold, Railroad stocks, auto stocks etc etc etc.
Just the facts maaaaaaaaam
sloooow,
You were never alone, Jas Jain and several others always agreed with you
For the last two weeks, I've got increasingly concerned about liquidity and credit card/check clearing/ATM seize ups and shared it with my wife - she's much less paranoid and relaxed about it all than me but this morning , based on the news, she herself brought up the idea that I've been floating for two weeks, viz. increase the real cash, say 3K - to "put under the mattress" so to speak.. Anybody else doing the same ? Worth doing a poll, CR?
This is all different from the survivalist crap - you know, stock up on bottled water, guns, bullets, gold, preserved food. We've always already done that ! - but that comes from having lived in a earthquake preparedness zone.
-K
A reasonable person would tend to think that the combination of world-wide panic and massive liquidity injections would propel gold and silver to double digit gains today. However, both gold and silver are sharply down today. Such suspicious activity proves gold and silver are being strongly suppressed by central banks, at least for now anyway.
Fireworks
Jim Cramer crying crocodile tears for his 7 million proto-Okies (which apparently no longer includes WallStreeters losing their jobs) and chastising Lockhart for not bailing them out (as if he could) means that Cramer got the message from his masters: You will atone!
I visualize it as the scene from the movie Network where the mad newsman (played by Peter Finch) is called into the great plutocrat's ((Ned Beatty)) boardroom and told that his telling the truth and "I'm mad as hell and not going to take it any more" antics on TV are interfering with the sacred flow of cash.
Long time reader, paypal tipper, first time poster.
Work for US regional bank.
Apparently recent events merit a conference call from our CEO to the capital markets and wealth mgmt. divisions today at 3:00pm EST.
Subject of call is "..take 10 mins. of our busy schedules to give us an update on the Market."
This is a first since I've been working here.
"Such suspicious activity proves gold and silver are being strongly suppressed by central banks, at least for now anyway."
lol .. oh that's a good one. I guess if you're a conspiracy theorist you'll find bugs in your bed in any case ...
Occams razor - maybe shiny metal is overvalued
Banker,
. When MEW declines significantly the consumer is toast.
You have to admit all the ducks are in a row though
or perhaps, that gold and silver have also been the beneficiaries of a credit bubble.
sk,
the idea that I've been floating for two weeks, viz. increase the real cash, say 3K - to "put under the mattress" so to speak..
I'm surprised people don't always have a cash SHTF fund located in their home. It's like having those other things you named, guns, canned food, water etc. You never need any of it until you need it very badly. I've got 10K in a safe in the Bankerdome.
Gary is spot on. I believe gold has benefited from decline of dollar and Inflation worries.
This event is Deflationary.
My head just exploded
Central Banks providing liquidity?!?
But I thought we were swimming in a sea of liquidity!!;^)
Sorry Gary i'm runnin low on the "koolaid" today. LOL
Fireworks,
I think Gold/Silver are down because, like all assets, they will be hurt by the disappearance of money (credit). To me, it just means smart money is selling now, before ALL assets suffer in the obvious deflation of debt that is underway.
No conspiracy, IMHO.
That's "rapidly deflated", Gary.
sloooow,
You are correct the ducks are lined up. I think the recession question remains what it was when I first found this place, how long does all this housing stuff take to play out. The longer it takes, the more the strength of the worldwide economy, the weak dollar, enterprenurial activity and all the other always moving components of a dynamic economy have to act as a counterweight. I still don't think this happens suddenly enough to throw us over the cliff.
I am also banking on there being no major exogenous shock while the markets are in dissaray. If there is? I may need to put a new wing on the Bankerdome.
Mortgagemole,
Please report back after your call.
WE LOVE SCOOP!
Jerome Ball wrote Also note today that one of the first homebuilders looks set to fail: Tarragon (TARR) has, in effect, preannounce its BK, imho - it has delayed its 2Q, stated it's not in compliance on loans, failed to get $50M financing it needed this month, and expects $125M charge for 2Q. Gone. Not a surprise, they were small, Florida, and condos. 3 strikes.
But, but, but.... I downloaded the October ResiLogic docs, and according to them, higher amount loans were less likely to default and condos were less likely to default!!! How could this be????
Seriously, looking at the ResiLogic stuff explained quite a bit to me.
Gotta love this Laissez Faire economy of ours.
Everyone looking to the government and the Fed to fix things. "Please, please, do something to create jobs, save our home valuations, bail out our borrowers, and pump up our stock values!"
"The government must Faire something now to Laissez our investments to go up!"
Housing time scales are slow.
So we might be safe.
On the other hand, the scale an nastiness of the problem provides vulnerability to panics real or imagined.
I'm feeling very uncomfortably here!
Slightly on a tanget. My brother lived in the UK and was telling me that since housing was getting so expensive the banks were co-owning houses on a particular type of loan. Yes the bank would put down 20-30% of their owm money as down payment and finance you the remainder. And we thought 100% LTV exposure was bad...
Now, what would happen if housing in the UK (and much of the EU) tanks? BTW, given how expensive it has been for Londoners to buy into the market, many have invested in Spain or other EU countries (causing bubbles there) to then sell and have a down payment for a flat in London. Seems like it just won't go pop but rather pop pop pop pop...
Mike in AZ receives a yellow card for failing to mix a muddled metaphor.
Bill Seidman, former FDIC chair, came out soundly against any increase in funding cap or loan limits - "No bailout for the lenders". He should know. He was the in charge of the RTC debacle. He is well aware that there is no easy government fix to a market problem, They only drag out the inevitable to eventually cost the taxpayer.
"Goldman's North American Equity Opportunities hedge fund had $767 million under management earlier this year. The Fund was down over 15% this year, through July 27, according to investors and was down more than 11% in July alone. It is not known how much the fund has sold in recent days.
dis | 08.09.07 - 1:28 pm | "
Is this what the cryptic (understandably soo) Banker was referring to ?
Banker: Batteries, tuna fish and guns in the Bankerdome
Thanks for the laugh!!! Tunafish? I think I'll try to stay out of the Bankerdome. I'd prefer MREs and good wine, which was more what I was expecting for the Bankerdome.
Down in GA, we are stocking up on Brunswick stew and Billy Beer. The possums we can pick off as we need 'em - they're everywhere, according to the press.
MOM, if kudzu is edible, you should be all set.
wally asked: "Any truth to this?... is there any chart that shows credit conditions vs. recessions?"
The Wright Model "B" yield curve will, if you can find one anywhere on the web. (With a little effort it can be created in a spreadsheet.) It didn't invert in 1997 (Asian currency crisis, but no recession), 1998 (LTCM and Russian ruble crisis, but no recession) but it did in 2000 (recession the next year).
It hasn't inverted again since 2001, which means however bad things may appear now they don't rise to the level of being a precursor of recession.
The recession probability based on Model "B" is only 33% within the next 12-18 months.
Sebastia
Oh no Fireworks. It means gold shares are held by the people at the Dow Jones Casino.
When margin calls go out, GLD drops.
Jas,
"Did anyone else hear 75% (Someone else thinks that he said 35%)?"
He said 35%. Now I'm embarassed because that means I've been watching CNBC. OK turning the TV off now.
Banker,
Remember yesterday I said that calls for housing bottoms and credit stabilization are absurd? And asked why, I answered that increasing homeowner defaults, along with fleeing investors (hedge funds) were going to continue to make fear the driving force of the market?
It seems the Bloomberg home page is full of articles about just these things.... It's amazing what one day will do. Just goes to show, it doesn't pay to listen to daily noise.
230 Calcoholics online.
Michaelcampion,
Goldman was the firm, I am gussing the fund was what the were discussing.
Shortcourage,
You were correct sir!
Sebastian,
Your models crack me up!
Banker,
Correct for today anyways!
CR and Tanta,
A when/if recession poll perhaps
Sebastian,
How far out does you model go. It is not "if" but "when" we enter recession- part of the business cycle.
Rumor and this is only a rumor is that Goldman is closing alpha fund
dis,
That was a Monday/Tuesday rumor as well.
Sebastian,
Does your model take into account that we are exiting an era where company earnings were driven largely by financing?
What will PE Ratios look like as we transition to a new era where that is no longer possible?
In past eras where a credit crunch happened, did we have a US dollar on the precipice of collapse?
daredevl07 says:
"...is the possibility that the European banking system is double screwed. Once for holding capital in our trash securities and once more for having a looming domestic debt problem as their real estate markets follow ours aorund the bowl and down the hole.
Does anyone know if the Euro banks kept more of the toxic stuff on their balance sheets than our banks did? ..."
I don't know, however, Germany has a slightly different way of doing things (ha!) - called covered bonds. Banks make up the MBS traunches (I suppose that's the right term here) and sell those, however, they keep all the mortgages on their books. They are playing the spread between the cash out and the cash in on the security (as well as getting any origination/fees).
Gary - Kudzu recipes
. You can eat the stuff. For years I toyed with the idea of making up kudzu in little pots for Christmas gifts (shoot, people actually BUY those ChiaPets), but fear of divine retribution has so far kept me from making the plunge. There's nobody who can't grow kudzu, so I thought it might really catch on.
A little OT, but I saw this on another blog. All about the psychology of subprime.
Fascinating.
The Psychology of Subprime Mortgages : The Frontal Cortex
MOM, I'm sure that park service people from other states would have tracked you down and killed you.
When I was 10, my Dad tried to import some to NJ, where it died . . . perhaps the only person in recorded history to fail at growing kudzu.
todays liquidity injections were like another shot in the arm for the US stock drug addict. keeping the financials and HB's suspended in animation (as of now)
sloooowwwwwmotion asked: "Sebastian,
How far out does your model go. It is not "if" but "when" we enter recession- part of the business cycle."
Just to be clear, it's not "my" model, but Jonathan Wright's.
FRB: FEDS paper 2006-7
I just re-created it in spreadsheet/stock-chart form so I'd have ready access to it.
It's forecasting window is 12-18 months, and since it hasn't even crossed the 50% trigger-level yet, recession is at least 12-18 months away.
Sebastia
For the last two weeks, I've got increasingly concerned about liquidity and credit card/check clearing/ATM seize ups and shared it with my wife - she's much less paranoid and relaxed about it all than me but this morning , based on the news, she herself brought up the idea that I've been floating for two weeks, viz. increase the real cash, say 3K - to "put under the mattress" so to speak.. Anybody else doing the same ? Worth doing a poll, CR?
I keep all cash " under the mattress" if you will, I have been out of the banks for well over a year now.(seen it coming)..and removed all positions over a year ago...no debt own my home, new car paid....just waiting for the storm..right now it is just raining hard...the thunder and lighting starts in another month with roaring winds in October..and then the flood.
I would agree that it is less than a 50/50 probablity of a recession, the rest of the world economy is simply too strong, and the weak $ will lead to a nice improvement in net exports. However, several quarters of sub 1.5% growth seem likely.
I have a feeling there are a lot of these
Redirect Notice
flying amongst the hedge/bank/CB crew
Foo fighters
hook me up a new revolution
Sebastian- "Yes, after updating my data at the end of the day yesterday I got a general-market "buy" signal (using the SP500 as a proxy for the market)."
Man, you have a death wish.
Sebastian:
I have a question for you. Recently, you posted a link to a mortgage website, I think it was called "Mortgage - X". Do you consider the site good and with competitive rates?
For me, it sems a little too early to jump into the stock market yet. I'm still inclined to wait some weeks. In September we should resume the bull IMHO. Although recent market action was surprisingly bullish.
Thanks, O-Joe
More hedge fund turmoil. OUCH!
Portfolio liquidation triggers turmoil among hedge funds - MarketWatch
i wonder if the doods in MSR hedging remembered to put on their swaptions...
OMG, Banker capitulates on PPT in currency mkts. Now why is it so hard to believe it doesn't happen in stocks?
I believe it could happen in stocks, but not in cases like this. If we saw a 2000 pt plunge in response to some natural disaster, there I could see them stepping in.
Stocks aren't as critical to the financial system and the economy as the credit markets are. Remember, the 1987 stock market crash didn't even cause a recession (the situation was different in 1929 when credit and stocks were intertwined).
If there is a PPT stepping into stocks during minor corrections, they're ultimately making things worse by fostering bubbles.
The two funds, BNP Paribas ABS Euribor and Parvest ABS apply the same investment strategy which enables BNP Paribas Asset Management (BNP PAM) to offer an innovative and attractive product to European institutional investors . For Gilles Glicenstein, CEO of BNP PAM, the launch of these funds shows that BNP PAM and FFTW's common approach can offer appropriate solutions to difficult market conditions which demands new strategies.
Over the last few years ABS have lost their exotic status and entered the mainstream of fixed income investing. Growth in the ABS sector is expected to remain strong as new investors discover the merits of these instruments. ABS securities have an attractive risk/reward profile when compared to other types of non-sovereign bonds with similar maturities. They are therefore excellent instruments for enhancing returns of cash reserves. For Ullrich Koall, CFA, Manager at FFTW London, ABS should attract investors in the current market environment which combines a very tight level of spreads on corporate bonds and low volatility in European government bonds.
ABS also constitute one of the most secure forms of fixed income securities from a credit quality standpoint. Secured by collateral (the main collateral types being credit card receivables, auto and mortgage loans), they benefit from credit-enhanced structures and external protection to further ensure that obligations are met.
Pity the rest of those Paribas customers.
Assessing the magnitude of today's event. I read at Brad de Long's blog
"today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.
This is indeed a significant liquidity event..."
He has talent for understatement...
(the situation was different in 1929 when credit and stocks were intertwined)
But let us remember the depression did not kick in until 2 years later...than it was full steam downward.
Kudzu
I'd grow it. Kudzu root flour is some of the most expensive in the world. There is kudzu jelly.
I sometimes do business as Kudzu consulting, has a picture of a kudzu flower on it. beautiful purple.
But anyway, the problem with growing kudzu is the price of motor oil needed to fertilize kudzu because lubricating the undersides of the leaves reduces the chance of sparks as it races across the ground.
True story, there was a city council meeting for the City of Mountain Brook Alabama, because a kid was scared by a tree covered in kudzu looked like a monster and the mommy wanted it cut down.
Now back to the real world.
Dirk van Dijk wrote: "rest of the world economy is simply too strong" . But ECB
just added 95 billion euros to European banks this morning,huge amount of money.It just does not sound too strong to me. I believe recession/depression is just around the corner.
Optimistic Joe asked: "...I have a question for you. Recently, you posted a link to a mortgage website, I think it was called "Mortgage - X". Do you consider the site good and with competitive rates?..."
It's just an information site that gives levels on the different commonly-used indexes from which lenders calculate what they'll charge, explains what they are, how they're derived, etc. They aren't actual quotes from lenders.
Mortgage Indexes: CMT, Treasury Bill, MTA, COSI, COFI, LIBOR, CODI, CD, Prime Rate
S.
O-Joe, you have a bright future as a hobo clown once you've lost all your money. Entertain the crowd between Sebastian's performances dancing for nickels.
Talking points from the conference call:
-discussed the movement in LIBOR and action by ECB
-Many participants in capital markets have a desperate need for liquidity
-We're entering a very difficult financial environment, this is far from over
-Private banking must be extremely careful about meeting customer demands - yes, attempt to compete/satisfy close relationship customers, but not in ways that put the bank at risk
-Treasuries are diverging from stocks - this is new behavior
-Trading desks - double check everything, be extremely cautious with trading partners, be prepared for very aggressive trading
-We need to hear from the Fed. They can't let this continue for much longer without comment/action.
I bet if one did a modal analysis of a transcript of this call, the top result would be "caution".
Fear is back.
To clarify, Sebastian will be the one dancing for nickels, a la Handsome Pete.
All in fun.
To anybody who's interested, google the phrase "dynamic yield curve" and you see a slideable chart tat illustrates that the yield curve was inverted(slightly) during chunks of Q1 07 and has been flat with various dips along the curve since, sebastian's SSDD claims aside.
*How lucky are the US banks that Basel II was put off for a year where a 10% change in assets would've caused a mess? I believe that Basel II reqs(which EU banks are committed to) is the cause of what went on today in Europe.
--
Seb: "The recession probability based on Model "B" is only 33% within the next 12-18 months."
Any model that predicts recession 12-18 months out is a pure piece of junk. There is >50% probability of a depression in 12-18 months. Of course, that means a recession well within the next 12 months.
Jas
PS: We miss you at the Surfergirl board, Seb.
"Business as usual" is not the most reassuring phrase:
Goldman on Thursday insisted it was "business as usual" at Global Alpha, its flagship $9 billion macro hedge fund, amid a third day of speculation the investment bank was selling off parts of its portfolio.
Sebastian: thanks. This is indeed helpful.
As I think we have moved from the dissinflationary to a moderately inflationary environment, I will lock in for 30 years at any rate. We'll buy next year.
O-Joe
Thanks for the scoop MortgageWarehouseMole!
It has scared beejesus out of me!
what a day. dow - 280 and my shorts are almost all up.....
oh well I guess there is a bail out and rate cut and I am in the wrong shorts.
btw cal was 100% correct about why the ECB acted and not the Fed: "so they asked someone with a strong currency to do it?"
What the stock market doesn't seem to understand is that a rate cut doesn't mean "full speed ahead" for the homebuilders/lenders.
The exotic mortgage types and 100%+ LTV/CLTV's that helped fuel the bubble are almost extinct now due to stricter credit standards, not because rates went up.
A rate cut isn't going to suddenly allow everyone to come up with 10-20% down payments at current house prices.
I am afraid it does not matter and they would run the whole sector up for month on this "rate cut"
A rate cut will punish the savers, which is important since they refuse to comply and be shackled with debt, and will also destroy the dollar. I am sure people will go back to buying houses at 5+X their annual income when gas is $5 a gallon. Right...
Oh, but a weak dollar will help exports - wait, what DO we make in this nation anymore? And if we do make anything, who says illegals won't get those jobs instead of Americans?
Does this mean that a rate cut is inevitable? Will mortgage rates follow the fed rate down?
ewbie, nop
Can someone explain (in english) the reason for as well as the impact of the liquidity injected for the real estate and stock markets?
Thx in advance
Does this mean that a rate cut is inevitable? Will mortgage rates follow the fed rate down?
newbie | 08.09.07 - 4:00 pm | #
If the Fed rate were to be dropped,
I would assume that mortgage rates wouldnt follow, not in this environment of fear. All mortgages will stink of dead fish until the pristine loans are separated from the decomposing ones. That will take a while. A full body-cavity search will be required for any future loans.
"I keep all cash " under the mattress" if you will, I have been out of the banks for well over a year now.(seen it coming)..and removed all positions over a year ago...no debt own my home, new car paid....just waiting for the storm..right now it is just raining hard...the thunder and lighting starts in another month with roaring winds in October..and then the flood."
Gee, Bofitz, when you come out of your bunker after all is said and done, you may be the lone inhabitant of the earth...
IMO, the S&P500 will soon test 1250.
wait, what DO we make in this nation anymore?
recent evidence suggests marginal to substandard bridges, floodable subways and levy's, and paper mache homes
Unhooked:
We make lots and lots of electrons representing engraved pictures of dead presidents which seem to be attractive to certain native tribes.
Liquididty is down so people expect a rate cut to put a little more zip into the market. But I don't quite understand why that would work. There are already plenty of people who want to borrow in this market. We don't need any more. The problem we have today is a lack of lenders! And how will cutting rates attract more lenders?
If lenders have vaporized, wouldn't the fed want to push rates UP? that would make lending more profitable, bringing more lenders to the table, and the wheels would start rotating again.
What am I missing?
Quite unexpectedly, as Vasserot
The armless ambidextrian was lighting
A match between his great and second toe,
And Ralph the lion was engaged in biting
The neck of Madame Sossman while the drum
Pointed, and Teeny was about to cough
In waltz-time swinging Jocko by the thumb
Quite unexpectedly the top blew off:
And there, there overhead, there, there hung over
Those thousands of white faces, those dazed eyes,
There in the starless dark, the poise, the hover,
There with vast wings across the cancelled skies,
There in the sudden blackness the black pall
Of nothing, nothing, nothing -- nothing at all.
\t-- Archibald MacLeish
For the markets today.
Stocks aren't as critical to the financial system and the economy as the credit markets are.-ac
maybe not from a dollar value standpoint but definitely from a psychological one. this is exactly why Paulson keeps referring to a bull market as evidence of a healthy economy.
Reuters has a story about Fannie's CEO wanting the investment cap lifted.
"We are ready to start investing now," Mudd said in an interview on CNBC.
Just great.
(sorry for no link, left vs right click is the best I normally do)
Perhaps the central banks are simply doing their jobs and providing liquidity because it is needed. As in, markets panic -> gov't intervenes in a measured and temporary fashion -> markets eventually work it out.
Sure we'll lose some hedge funds and mortgage brokers and maybe a public builder or two. But the (global) real economy is very large and very strong.
Or is that too optimistic?
Nobody ever got rich predicting the end of the world...
Anyone considering a tinfoil hat should instead google "personal Faraday cages" they do need to be grounded to work properly,and the home style ones really are essential for anyone who wants to have a truly private conversation...
More on the significant liquidity event
Economist's View: A "Significant Liquidity Event"
SO i wonder what pension funds and endowments are being hit by the rolling lockups and collapses in Hedge Funds? I wonder how hedge fund losses and the new rules about fully funding Pensions will impact corporate balance sheets this quarter.
alec said: "To anybody who's interested, google the phrase "dynamic yield curve" and you see a slideable chart tat illustrates that the yield curve was inverted(slightly) during chunks of Q1 07 and has been flat with various dips along the curve since, sebastian's SSDD claims aside...."
FYI, that's a simple yield-curve, not a Model "B" curve. Model "B" factors-in the level of Fed funds, and it's important to do that.
Reason: If Fed funds are high enough a recession can occur even if the yield-curve is positive. If Fed funds are low enough, a recession won't occur even with an inverted yield curve.
Two other little historical tidbits: In the last 40 years there's only been 1 important stock market correction from a Fed funds level this low.
There were no recessions in the past 40 years that began with Fed funds this low.
Sebastia
Seb,
Statistical models work great- until they dont work.
Read- When Genius Failed
If the intervention is required because of the toxic waste that the IBs packaged and sold around the world while apparently knowing that it was toxic waste, and if the rating agencies were complicit in this scam, I wonder how any non-government US paper ever gets sold abroad again.
Further, I wonder whether the big IBs that sold this stuff have destroyed their credibility around the world.
So your vaunted model hasn't predicted a recession ever, or because the model hasn't seen circumstances like this in the last 40 years that it doesn't kow whether to shit or go blind?
Crikey, your knowledge is an foot wide and an inch deep.
Robert,
I wonder how any non-government US paper ever gets sold abroad again.
Further, I wonder whether the big IBs that sold this stuff have destroyed their credibility around the world.
Waht else are folks with cash going to buy? No matter how bad this gets, where would you rather buy? China? India? Europe? We'll be fine on that front.
As for the IB's, from just a selling perspective, this is no worse than the dot-com bust. They'll take heat and a whack from some folks sure, but the oligopoly is awfully tough to punish in any long-term way.