Am I right to assume a fund that has one percent of its holdings in SIV's has only one percent of its portfolio at direct risk (from SIV's anyway)? That is, no leverage risk beyond that one percent.
Exactly, and this is a dramatically quick decrease in the amount of money and credit out there in the economy. This has got to have a long-term effect...
However the last comment is important for the SIVs: everyone wants to reduce their exposure to SIVs as the paper matures.
Let me clarify that ( or get corrected ) - the paper maturing is the short term paper, Legg Mason's mm funds right, so as that paper matures, Legg Mason just pulls it out of the SIV, right.
Then where is the SIV getting the money to pay off Legg Mason, enquiring minds want to know - there are no other schmucks out there at the moment are there ?
CR - I don't have a sub to WSJ (too cheap, plus I'm pissed off at their editorial board most of the time more so now that Sir Murdoch is their new ruling sovereign) so can't read the whole thing...
Are they saying the MMF own pieces of the SIVs themselves or did the MMFs buy the CP those SIVs issued to fund their longer term positions?
"By and large, SIVs are paying on time, and Legg Mason's money funds' exposure to SIVs continues to come down as paper matures and pays."
K, I believe the paper that "matures and pays" is being paid by the SIV back to the MM fund as loans in the SIV portfolio pay off based on whatever tranch the MM fund holds and, of course, on whoever is paying off the loans.
CR, sure, everyone wants to reduce their exposure to SIVs as the paper matures, but any lender wants to reduce its exposure to debtors with bad publicity as the paper matures. It's just the interest income that missed, not the debtor.
This might have been discussed in some other thread.
How risky are the Municipal money market funds ? And municipal bond funds ? Being in CA and trying for some tax free income, I have money in Vanguard - both CA MM fund and CA bond fund.
I know that during last RE downturn in CA, some munis defaulted and such funds suffered. So I know there is risk. Wondering if I should just pull money out and put it in CDs.
I'm not sure of its current holdings, but a Charles Schwab short term yield fund I've been following is taking a beating (ticker: swysx). This is not a money market fund, but several years ago during GREENSPANS war on yields Schwab was pushing this as a safe way to maintain liquidity and achieve enhanced current yield. Buyer beware or caviar tastes horrible or caveat empty your wallet or something like that.
Yesterday evening I was checking out the prospectus of the Western Assest MM fund, since this is the default fund in which cash on SmithBarney brokerage accounts is parked. (You don't even has a choice to put cash somewhere else.)
Indeed, it explicitly listed SIV's as one of their investments without listing the % of holdings, so I pulled out everything this morning and moved it to the MM account of my regular bank.
Which raises the question: is there a difference between a money market account of a regular bank (e.g. IngDirect, EverBank, and other high-yielding MM account) and money market funds like Western Asset?
Ok, according to this Bloomberg article (Bank of America, Legg Mason Prop Up Their Money Funds (Update6) - Bloomberg.com there has only ever been 1 MM fund that lost money:
"The only money-market fund to fail was run by Community Bankers Mutual Fund in Denver, which liquidated in 1994 because of losses on interest-rate derivatives. The fund, which had more than 27 percent of its assets in the derivatives, paid investors 96 cents on the dollar, according to SEC records."
Series EE bonds issued from May 1997 through April 2005 continue to earn market-based interest rates set at 90% of the average 5-year Treasury securities yields for the preceding six months.
I could have lived with the variable rate perhaps, but today's fixed rate of 3% (offered through April, 2008) is an insult to injury. That has about as much chance protecting a person from serious inflation (should it actually come) as a sharp stick to the eye would.
If you are an I-Bond investor and/or think the stagflation story has merit, the following is a must read.
Yeah too much of a good thing is a bad thing, for Uncle Sam at least. The government, after all, was established to scr*w the public, not the other way round.
I got out of the TIAA MM fund months ago, just suspicious. I tried recently to find out what it holds; I think it has REDUCED but not eliminated its CDOs. You might email them to see if they answer.
Which raises the question: is there a difference between a money market account of a regular bank (e.g. IngDirect, EverBank, and other high-yielding MM account) and money market funds like Western Asset?
I think you need to ask the bank if the MM fund has SIPC coverage. Not all MM funds sold by banks are covered.
I just called Schwab to find out where they had parked what they classify as "cash" in my brokerage account. They say that the cash balance can be invested in their bank that is FDIC covered, or elsewhere. So I asked where it was. It was not in the bank, but the rep told me it was still covered to $100,000 by the SIPC. This is credible, so I left the money there. I think "cash" balances in brokerage accounts are not the same as MM funds sold by the broker.
What is covered, I gather, is your money in case the firm goes under. It does not cover fraud upon you by the firm. Whether it would cover a decline in your cash balance due to "toxic waste" in the investment vehicle is not clear. I think one would need to ask the SIPC and I will.
Need to modify that. Evidently the SIPC does cover you in case of fraud. It does not cover the decline in the value of, in this case, the vehicle in which your cash is invested. Thanks for looking into it more closely. So if your "cash" balance declines due to toxic waste, the SIPC would not cover your loss. Is that your understanding?
James, that's correct. SIPC is for investments, FDIC is for savings. There IS a difference, namely principal is protected in the latter but not the former.
1) Money market funds buy the commercial paper of SIVs. Basically the SIV's debt. The CP normally matures in 1-180 days.
2) Once it matures, if it matures, the money market fund is out. The fund could then choose to say away from asset-backed CP and be fine.
3) HOWEVER, there is a ton of AB CP which is defaulting.
4) Many SIVs/ABCP programs were not involved in mortgage lending. In fact a large percentage were for accounts receivables. So you could have one MM fund with more ABCP than another, but actually have less exposure to mortgage-related CP.
5) Part of the liquidity crunch in recent months has been MM's unwilling to get back into the ABCP market. Issuance of ABCP has fallen off a cliff.
6) I'm a professional bond trader and I've decided to put all of my personal and client money in either municipal or government money market funds. I recommend you do the same. I believe you'll see at least a few MM's fail in the next 12 months. Granted, they may only lose a small percentage, but safety is the name of the game right now.
I told you that pension fiduciaries were in deep shit-
"These were highly inappropriate investments for taxpayers' money,'' said Joseph Mason, a finance professor at Drexel University in Philadelphia.This is the tip of the iceberg for pension funds. We know the paper is sitting there. There are substantial subprime-related losses that haven't shown up yet.''
Florida's Pension Fund Holds Same `Suspect' Debt as Frozen Pool
By David Evans
Dec. 4 (Bloomberg) -- Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals.
The State Board of Administration, manager of $37 billion in short-term assets, including the pool, also oversees the $138 billion Florida Retirement System. The board purchased $3.3 billion of debt whose top ratings were reduced following the collapse of the subprime mortgage market, according to documents obtained by Bloomberg News through an open records request.
Shares of Countrywide Financial Corp., the nation's largest mortgage lender, fell after Chief Executive Angelo Mozilo decried the housing market's credit shortage.
Mozilo, speaking at a conference in Washington, said government-chartered companies Fannie Mae and Freddie Mac, the two biggest sources of mortgage funds, should try harder to help home buyers and investors in mortgage securities.
"It's very important for Fannie Mae and Freddie Mac to step up," Mozilo said. "It's the only way out of this to shorten the cycle. Otherwise it's going to be very painful."
Countrywide no longer can raise funds using commercial paper and intermediate-term notes, its favored strategy for 40 years, Mozilo said. The company is instead borrowing from the Federal Home Loan Bank system and seeking to attract deposits to its bank unit, as well as selling loans to Fannie Mae and Freddie Mac.
Think of the Paulson plan as the wood chipper of capitalism:
No help for those who already passed through the wood chipper.
No help for those who have one arm already trapped in the chipper.
Tickets for orderly but delayed entry into the wood chipper to prevent it from bogging down on all of the blood and bones.
Directing those who can go, to go to a new, more aesthetic wood chipper installation around the corner.
It's all to preserve the value of the funds and the credit system, not to help the home borrower. Any good that
derives to an individual borrower is merely coincidence.
To Serve Man (The Twilight Zone) Sharing their advanced technology, the aliens quickly solve all of Earth's greatest woes, eradicating hunger, disease, and the need for warfare.
I've done some reading and talked to banks and FDIC and Money Market deposit accounts at banks are FDIC insured not SIPC insured and they can not break the dollar. They are under the same rules and categories as other FDIC insured instruments like savings accounts and checking accounts and cds. The deal is that it must clearly be a "deposit" account and it must be held by the banking arm of the holding company, not by the brokerage arm where it is SIPC insured instead.
CR = "I don't see this as a problem for the money market funds."
But what if many thousands of investors call their fund company and transfer their $$ from "ordinary money market funds" to, say, Treasury-only MM funds?
Could a large flight out of MM funds be an issue? Thanks for any insight.
Just to clarify a couple of points. A MM account would own the CP of a SIV. What made SIV paper attractive was its high credit rating and slightly higher interest rates. There really is a "shortage" of good MM investments, and SIVs qualified as corporations with good credit ratings. The only other possible SIV investment was the equity, which, as equity, would be unrated.
In a perfect world, the SIV would fund its assets with liabilities (CP and MTN) which matched the assets. In an upward sloping yield curve environment, this would be less rewarding to the equity owners, so typically funding was done primarily with CP. If the assets and liabilities were matched, however, as the funding matured, the asset would be maturing, also, and the problem would be solved as the SIV pays down. I wouldn't be surprised if this is behind all the stalling tactics (mlec) we see in an attempt to avoid forced sales.
However, a lot of CDOs (in which SIVs invested) are backed by ABS and other structured product which can extend over time if payments do not occur as expected. This could cause the SIV assets to require funding for longer periods than the liabilities, even if they were initially matched.
Every proposal we've seen so far entails some form of delay or freeze or extension, which would result in SIVs getting less money, and later. SIV investors will not readily accept this.
"Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals."
As an exercise for myself I looked at Fairfax County Educational Employees Suppl. Retirement page.
What I noticed is they measure success of returns based on an average of what other small public pension funds have received.
This means to me at least, that most US pension funds have to chase certain benchmarks to show they are doing their jobs. Even though they diversified they still put substantial amounts in funds backed by AAA to Baa.
I also noticed that the pension fund is about 10 months behind the curve as far as what the percieved actual value is?
Excellent find on the new low limits on I-bonds. I think the feds are gearing up for the possibility of inflating away the problem. The easiest way to cure the housing bubble, 9.1T national debt, and trade deficit all at once is a couple of years of double digit inflation.
By the way I just got quoted 5.5% on a conforming 30-year fixed refi with no points. Rates like that may allow the bubble to deflate at a more moderate pace than we have seen over the last year. Rates in August were about 6.375%.
The CEO of Countrywide asks for a government bailout as noted in one of the above posts. Even at the same time that the CEO was disparaging the regulators.
It is unnerving that those who fought against regulation now seek to be saved by the American taxpayer.
Just to clarify a couple of points. A MM account would own...
Just to clarify a single point, there are money market ACCOUNTS and money market FUNDs that retail investors commonly have; the two are different.
MM ACCOUNTs are FDIC insured to 100K per individual per institution - and insured for principal. it won't break the buck ( up to 100k etc...) assuming that FDIC viability doesn't come into question.
MM FUNDS are not FDIC insured - other insurance like SIPC may exist but these protect against fraud - not market volatility - your principal IS at risk and the fund can break the buck.
Then there are the enhanced capital funds.. There is an interesting continuum to this that 'accrued interest' made me aware of that and shaded my view of them - I'd previously treated as discrete exclusive categories.
Dow Chemical to Cut 1,000 Jobs
Tuesday December 4, 8:52 am ET
By Jeff Karoub, AP Business Writer
Dow Chemical Plans to Cut 1,000 Jobs, or 2.3 Pct of Work Force, in a Bid to Boost Efficiency
DETROIT (AP) -- Dow Chemical Co. announced Tuesday it is cutting 1,000 jobs, or about 2.3 percent of its work force, as part of a plan to rid itself of underperforming businesses and boost its global efficiency.
MM ACCOUNTS are FDIC insured to 100K per individual per institution - and insured for principal ...
MM FUNDS are not FDIC insured - other insurance like SIPC may exist but these protect against fraud - not market volatility - your principal IS at risk and the fund can break the buck.
Great point. And what those of you who work at large corporations are likely to discover, to your chagrin, is that virtually all 401(k) providers offer one or more "stable value" or "money market" options ... and that virtually all of these are FUNDS, not ACCOUNTS. And that buried somewhere in the prospectus thereof will be a sentence to the effect of: "Returns and principal value will fluctuate, and you may have a gain or loss when you sell your shares."
In other words ... those of us with a sizable proportion of their investments in their 401(k)'s (raises hand) should be on the phone YESTERDAY with their provider inquiring about what, if any, ABCP/CMO/CDO/WXYZ/etc. exposure their "safest investment option" actually contains.
""Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals.""
Nothing to see here folks, move along, return to your homes...
While I don't think a "break the buck" event is probable at this point, I think the risks have risen appreciably in the last few weeks. Like Accrued Interest, I too have moved all my personal money market funds to treasury only funds. My concern is two fold. First, given the size of the money funds and the fact that many financial institutions are now capital constrained, even a 2% air pocket on a $30-40B money fund starts to become real money. I can imagine some firms facing the hobson's choice letting the money fund break the buck or having the regulators declare their depository subsidiary undercapitalized because they don't have the capital to do both. Second, I think there is a major shoe to drop with respect to the ratings of MBIA & ABK. Perhaps it all gets finessed, but I don't see it without huge capital infusions. If they lose their AAA rating, I think the ripple effects in the money and capital markets will be enormous, and we will see other intermediaries have liquidity issues that will inevitably impact the money markets.
As I said, I don't see this as probable, but at this point I don't want to spend my time trying to sort out which money fund is in jeopardy. For now I'll give up the yield on focus my attention on the rest of my portfolio.
BTW, when I asked Schwab to move my funds out of my vanilla money fund, I was originally told their treasury only money funds were closed to new accounts - after about a week of pestering them they let me in, but it is clear that quite a few people are doing this.
Funny that "We are from the government and we are here to help you" was a joke during the good times but ,now that the windshield has become the bug, it is a desparate plea.
Ask Citi, ask CFC.
A positive result of the current mess may be some much needed humility on Wall Street.
Dec. 4 (Bloomberg) -- Florida officials are going to meet today to talk about the crisis in the state's Local Government Investment Pool. I don't know what they are going to talk about, but I know what they had better decide.
[snip]
In freezing the pool, Coleman Stipanovich, executive director of the board, said, ``If we don't do something quickly, we're not going to have an investment pool.''
The state stopped the clock.
The same clock is ticking for every state in the country where school districts and cities and towns put their faith in someone else, usually at the county or state level, to manage their money.
What's It Worth?
This means, I think, most of them.
Of course, that's the problem with Muniland in general: Nobody ever really knows precisely what's going on when a crisis like this hits. There might be as many as 100 pools like this across the nation, with assets of something like $200 billion.
They are supposed to offer daily liquidity for the public sector in much the same way that money-market funds do for the private sector. They are supposed to invest their clients' money in the safest possible securities, good old boring things like U.S. Treasuries, top-rated commercial paper and certificates of deposit.
It seems, however, that some of the commercial paper investments the Florida pool, and others like it across the country, purchased were backed by subprime mortgages and other things that have declined precipitously in value.
[snip]
If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth. You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.
Dec. 4 (Bloomberg) -- The Bank of Canada unexpectedly cut its main interest rate for the first time since April 2004, saying the higher Canadian dollar and financial market ``volatility'' restrained inflation more quickly than expected.
The target rate for overnight loans between commercial banks was lowered a quarter point to 4.25 percent, reversing an increase made in July. Only 12 of 27 economists surveyed by Bloomberg News predicted today's reduction, with the rest calling for no change.
If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth. You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.
What do think they sold in the first place to fund the initial $13B outflow (aka run) ? I bet they had to sell the most liquid investments ... i.e. the 'good stuff'. Now what do you expect is left in that fund ? I'm sure that some of the remaining paper is good, but the percentage of junky stuff is much higher than it was back on Nov 1st. And that is what scared the bejesus out of the guys in Tallahassee.
LGIP Holdings
I see the Sept and Oct holdings documents, but I don't see an updated document for (the end of) November ... yet. I wonder whats holding up that document ?
WASHINGTON, Dec. 3 The Bush administrations effort to help borrowers in danger of defaulting on their subprime mortgages could help only a small number of those who took out such loans, industry analysts said Monday.
Though administration officials have yet to agree on crucial details with mortgage lenders and the securities industry, a similar effort in California is likely to help about 12 percent of borrowers in the state with adjustable-rate subprime loans, according to estimates by Barclays Capital.
That's why they do the YoY comparison which, in this case, shows a strong rebound:
ICSC-UBS's chain-store tally for the Dec. 1 showed a strong 3.1 percent year-on-year growth rate for same-store sales, the strongest reading in four months. The week-on-week rate should be ignored, down 2.0 percent and distorted by weekly seasonal factors which the report said are difficult to adjust for. The report pegs year-on-year sales for the month of November at a respectable 2.5 percent. Chain stores will post their November results on Thursday. Redbook's report is up later this morning.
King
YOY sales change is better indicator of retail sales trend. First week in Dec is usually the slowest week of sales between Thanksgiving and Christmas. Mortgage, rent, etc, due. Sales pick up around the 10th of Dec and accelerate up to Dec 22-24th depending on what day of the week Christmas lands. This year has the largest amount of days betwwen the two holidays which usually means a larger dip in early December. I am not saying that sales are great, but that particular number isn't best indicator. What I am hearing is sales are O.K. but margins are suffering, which would affect profits. Gift Card sales will be used as a reason sales are being pushed into January. Also the week between Christmas and New Years has become much more important over the last 5 years. Also always look at who is providing the information, the NRF is retails version of NAR.
Busy morning - it seems the race to the bottom is on!
Canada Unexpectedly Cuts Rate as Dollar, Credit Slow Inflation
By Joe Mysak
Unexpectedly? I've been expecting this for a while - average Canadians LOVE cross border shopping with a pumped up Loonie but they have to have jobs too and they all can't work in Tar Sands. Even if the average Canuck hasn't thought that far ahead, the folks in Ottawa have.
I have heard stories about the 401 Corridor all but shutting down due to currency exchange issues - I wouldn't be surprised to see Canada keep cutting until the Loonie is back to its rightful place (just behind the dollar). Strong enough to be considered 'first world' but weak enough to easily export to the USA.
You guys ever watch a bicycle race? Or cross country skiing? Think 'drafting'.
"Okay EU its now YOUR move..." says Ben, impatiently waiting.
Can someone explain to me why banks are putting the troubled SIV's on their balance sheets now?
If the entity was truely econimcally independent, then the "Bank" is not required and shouldn't consolidate them... They should just let the SIV's fail.
If the Bank was on the hook to the support of the SIV all along, then FIN 46R would have required consolidation from the get go.
So... if they wern't consolidating before, and they must be consolidating now...who goes to jail under Sarbanes for "frauding" the accountants and internal controls.
The report pegs year-on-year sales for the month of November at a respectable 2.5 percent.
Does anyone know if this figure is adjusted for inflation? The other figures cited in the Reuters link I provided above were all nominal and only seasonally adjusted but not inflation-adjusted.
Also remember that when the first
11 months of the year are slow, christmas will be stronger. Perhaps because incomes are limited. However,
I am confident, this year will be a bust from what I hear from retailer friends. It is also to be expected from econ data.
What I am hearing is sales are O.K. but margins are suffering, which would affect profits.
My son is a retail drone at Mall of America but actually listens to & parses the stuff his managers tell them (they get store & company performance reports)... He says almost EXACTLY the same thing.
Sales at his store are strong but the chain is suffering some overall - especially in smaller malls. Traffic is moderate but not end of the world low - so far.
In order for cash to be covered by SIPC, cash held in an account must be the for the purpose of, or as a result of, securities transactions. Cash held in a securities account for the purpose of earning interest, which was not the result of a securities transaction, may not be covered by SIPC.
So, SIPC protection would cover settlement or core accounts like Fidelities FCash. It wouldn't cover you if you moved your money from your settlement account to a brokerage MM fund for higher yield.
Kicker,
thanks for the info. I am 100% short
in just one of my accounts. The money is sitting in cash, while I borrow securities in order to short. Is my
cash covered by SIPC.
"Sales at his store are strong but the chain is suffering some overall - especially in smaller malls. Traffic is moderate but not end of the world low - so far."
dryfly:
that's what I'm hearing as well.
The mall of america is ALWAYS busy (those who haven't been there have no idea)
it has been quite busy the last few times I've drove by... cars lining up about 2 blocks long to get into the parking lot (typical for this time of year).
But i went to some other area malls and parking was easy... even at places like the "Galleria" which traditionally around this time of year has difficult parking.
I won't make any consensus though until the last weekend before xmas. A lot of my colleagues seem to be waiting the retailers out... the word is out I think that they will cut prices later on...
the ONLY thing I've seen holding it's sales: the Wii...
``It's clear we can no longer solely rely on an investment's credit rating when making management decisions,''
I guess they're not going to solely rely on a party with a conflict of interest, that qualifies their ratings in their literature, to state it's not swamp land.
If the Bank was on the hook to the support of the SIV all along, then FIN 46R would have required consolidation from the get go.
I think the auditors figured this one out about the same time you did....
That is the reason the "Super SIV" was supposed to have multiple bank sponsors. That way, when it failed they could all point fingers at one another instead of needing to put it back on the balance sheet.
Funny thing is, the banks were the ones that start the run on the shadown banking industry when they pulled the rug from under the sub-prime lenders. Some of the reason for the run was fear, but some of it was also greed. They could issue margin calls, grab the securities, value the securities at whatever they wanted in a frozen market, and then hit the lender with a bill for the difference. Judge, jury, executioner.
One lender was rebuffed after offering to buy back the securities at par after they were siezed.
Now with ABCP, SIVs and every other off-balance sheet vehicle running back onto the balance sheet I'm guessing they are wishing for a mulligan.
ICBC has a conservative investmentportfolio concentrated in fixed income securities comprised of highly rated bonds, money market securities, and mortgage instruments (75% of total portfolio holdings). Equities and real estate (23% and 2% of total portfolioholdings, respectively) comprise the remainder of the portfolio.
Goldman's Abby Cohen Sees S&P 500 Rising 14% by End of 2008
Blabby Cone is a congenital and insane bull who gets her money, in my opinion, by making wild predictions re the market. Amazed she is still around; I thought her previous mis-calls would have finished her off.
Energycon
YOY Thanksgiving weekend sales.
I haven't seen any real numbers. However the weekend is not nearly as important financially as the MSM makes it out to be. It is important internally from an inventory and marketing management tool. It is the first good indication of where the buying mistakes are, either too much of a slow mover or too little of a fast mover. They then adjust marketing plans and price adjustments. If they have to spend more to advertise and lower price to move product it is harmful to earnings. Again sales are all about the last 15 days before Christmas and at what margins. Your best eyeball indicators are inventory levels Dec 23-24. Are the stores pregnant with inventory or picked over? Are the discounts after Christmas very aggressive or are the stores in a position of strength and try to use gift card redemption for additional profits or inventory liquididation?
"Unexpectedly? I've been expecting this for a while ..." dryfly
you must have better instincts about this than I...it caught me a bit off-guard. I didn't expect the Bank to be quite so anticipatory - after all, they have substantial asset inflation and wage inflation to contend with in the Western provinces. They are really putting their inflation fighting credentials on the line here. Are they anticipating a resources deflation, that will in retrospect make their interest rate move look prescient?
Sorry, you stumped me. A Google search didn't turn anything up. Let me know what you find.
Did turn up this disturbing bit:
But its when the stock leaves the broker/dealers custody that trouble can arise for the margin account customer. Thats because, if the lending broker/dealer fails, the borrowing broker/dealer may be unwilling to return the shares(even when the short is covered) until
its own counter-claims against the
failed broker/dealer are settled. Margin account customers whose shares have been lent out become unsecured creditors of the failed firm. If the margin account customer must sell those shares to meet a margin call, it cant be donethe securities arent in the account.
Eight states including Massachusetts have pledged almost $900 million this year to help borrowers replace unaffordable mortgages, but the states collectively have refinanced fewer than 100 people, a Globe survey found.
"We're confident that we're going to work through that exposure," the state board's executive director Coleman Stipanovich said last week. "It's not like we bought a stock at $100 and it's trading at $20. It's securities being marked to market at 95 to 98 cents on the dollar. ... And we think the securities are worth more than that. We're not willing to panic and give away good collateral." - Nov 14 Business: Local governments bail out of state fund
Stipanovich blamed it on a Nov.14 Bloomberg News report that he said contained "some not factual information" that the fund had bought financial instruments backed by subprime mortgages. That, he said, is "not true." - Nov 29 Florida freezes fund to halt run - Orlando Sentinel
The fund has invested $2 billion in structured investment vehicles and other subprime-tainted debt, state records show. About 20% of the pool is in asset-backed commercial paper, said executive director of the State Board of Administration, Coleman Stipanovich, this week. "There is no liquidity out there, there are no bids" for those securities. - Nov 29 Forex Street. The Foreign Exchange Market
Sink and the two other members of the SBA - Gov. Charlie Crist and Attorney General Bill McCollum -- rejected Stipanovich's solution to shore up the troubled pool by selling those risks to Florida's healthy pension fund. - Nov 30 tallahassee.com | Tallahassee | Tallahassee Democrat
The State Board of Administration, that manages about $42 billlion of short-term investments, including the pool, as well as Florida's $137 billion pension fund, is run by Coleman Stipanovich, brother of "Mac" Stipanovich, a Republican consultant and Bush family loyalist. In 2002, the fund lost $334 million on Enron, investing in the stock as the company was swirling down the drain-three times the loss of any other pension fund. A few years later, the same fund invested in Edison Schools whose stock value had collapsed from $37 to as little as 14 cents. - Nov 30 Alan Farago: The Sorrows of Suburbia
"I've provided very good leadership," Stipanovich said after his resignation. "This is just one of those things that's almost unexplainable. It's a once-in-a-lifetime event that hopefully will never happen again in the financial markets. We have fallen victim to that, and this [resignation] will go a long way to helping us restore confidence." - Dec 4 Withdrawals will be allowed from state investment fund | Jacksonville.com
Am I right to assume a fund that has one percent of its holdings in SIV's has only one percent of its portfolio at direct risk (from SIV's anyway)? That is, no leverage risk beyond that one percent.
Exactly, and this is a dramatically quick decrease in the amount of money and credit out there in the economy. This has got to have a long-term effect...
CBam, for the money market funds there is no leverage. I don't see this as a problem for the money market funds.
Best Wishes.
=========================
re: blog entry
However the last comment is important for the SIVs: everyone wants to reduce their exposure to SIVs as the paper matures.
Let me clarify that ( or get corrected ) - the paper maturing is the short term paper, Legg Mason's mm funds right, so as that paper matures, Legg Mason just pulls it out of the SIV, right.
Then where is the SIV getting the money to pay off Legg Mason, enquiring minds want to know - there are no other schmucks out there at the moment are there ?
-K
CR - I don't have a sub to WSJ (too cheap, plus I'm pissed off at their editorial board most of the time more so now that Sir Murdoch is their new ruling sovereign) so can't read the whole thing...
Are they saying the MMF own pieces of the SIVs themselves or did the MMFs buy the CP those SIVs issued to fund their longer term positions?
I assume its the latter. Yes/no?
btw, Accrued interest (no relation) has an interesting post on this subject
Accrued Interest
-K
Is this why Citi is paying 11% to Abu Dabi
"A Legg Mason spokeswoman said in an email that the company is confident in the stability of the fund's net asset value."
Mommy hold me. Now I'm scared.
.
If you are an I-Bond investor and/or think the stagflation story has merit, the following is a must read.
Extremely Bad News for I-Bonds!
I'll bet TIAA-CREF is exposed also.
"By and large, SIVs are paying on time, and Legg Mason's money funds' exposure to SIVs continues to come down as paper matures and pays."
K, I believe the paper that "matures and pays" is being paid by the SIV back to the MM fund as loans in the SIV portfolio pay off based on whatever tranch the MM fund holds and, of course, on whoever is paying off the loans.
CR, sure, everyone wants to reduce their exposure to SIVs as the paper matures, but any lender wants to reduce its exposure to debtors with bad publicity as the paper matures. It's just the interest income that missed, not the debtor.
Sorry, couldn't resist.
"Are they saying the MMF own pieces of the SIVs themselves or did the MMFs buy the CP those SIVs issued to fund their longer term positions?
I assume its the latter. Yes/no?
dryfly, good question. I did make an assumption that it was the former.
Shows you how little I think before posting.
plus I'm pissed off at their editorial board most of the time more so now that Sir Murdoch is their new ruling sovereign
They've gone more around the bend? That's unpossible!
Mark: interesting. I-bonds are yielding better than my 401k MM, and I was looking at my treasurydirect today.
Guess I gotta get in this month or forever hold my peace?
This might have been discussed in some other thread.
How risky are the Municipal money market funds ? And municipal bond funds ? Being in CA and trying for some tax free income, I have money in Vanguard - both CA MM fund and CA bond fund.
I know that during last RE downturn in CA, some munis defaulted and such funds suffered. So I know there is risk. Wondering if I should just pull money out and put it in CDs.
I'm not sure of its current holdings, but a Charles Schwab short term yield fund I've been following is taking a beating (ticker: swysx). This is not a money market fund, but several years ago during GREENSPANS war on yields Schwab was pushing this as a safe way to maintain liquidity and achieve enhanced current yield. Buyer beware or caviar tastes horrible or caveat empty your wallet or something like that.
Troy,
Guess I gotta get in this month or forever hold my peace?
I'm drunk off I-Bonds it seems, but the prohibition is setting in. The lights are dimming and the bartender wants to go home.
Anything and everything in my power. - Elliot Ness, Federal Prohibition Agent, The Untouchables (1987)
Yesterday evening I was checking out the prospectus of the Western Assest MM fund, since this is the default fund in which cash on SmithBarney brokerage accounts is parked. (You don't even has a choice to put cash somewhere else.)
Indeed, it explicitly listed SIV's as one of their investments without listing the % of holdings, so I pulled out everything this morning and moved it to the MM account of my regular bank.
Which raises the question: is there a difference between a money market account of a regular bank (e.g. IngDirect, EverBank, and other high-yielding MM account) and money market funds like Western Asset?
How can I be sure that there is no SIV exposure?
Or am I being too paranoid now?
You getting the feeling that nowhere is safe these days?
Ok, according to this Bloomberg article (Bank of America, Legg Mason Prop Up Their Money Funds (Update6) - Bloomberg.com there has only ever been 1 MM fund that lost money:
"The only money-market fund to fail was run by Community Bankers Mutual Fund in Denver, which liquidated in 1994 because of losses on interest-rate derivatives. The fund, which had more than 27 percent of its assets in the derivatives, paid investors 96 cents on the dollar, according to SEC records."
Maybe I was a bit too paranoid, indeed.
You getting the feeling that nowhere is safe these days?
I looked to see if EE Bonds might be worth buying this month as they too are tax deferred (which could be very important if inflation picks up).
They used to pay a variable rate of return. As of 2005, they don't any longer.
The word "press release" is becoming much like a stick to me now. So much for the carrots!
EE Savings Bond Press Release
The Bureau of the Public Debt today announced a fixed rate...
Series EE bonds issued from May 1997 through April 2005 continue to earn market-based interest rates set at 90% of the average 5-year Treasury securities yields for the preceding six months.
I could have lived with the variable rate perhaps, but today's fixed rate of 3% (offered through April, 2008) is an insult to injury. That has about as much chance protecting a person from serious inflation (should it actually come) as a sharp stick to the eye would.
Tom,
Maybe I was a bit too paranoid, indeed.
According to my records, we've only had one Great Depression in the last 100 years.
Paranoia will get you through times of no enemies better than enemies will get you through times of no paranoia. - Pete Granger
If you are an I-Bond investor and/or think the stagflation story has merit, the following is a must read.
Yeah too much of a good thing is a bad thing, for Uncle Sam at least. The government, after all, was established to scr*w the public, not the other way round.
I'll bet TIAA-CREF is exposed also.
I got out of the TIAA MM fund months ago, just suspicious. I tried recently to find out what it holds; I think it has REDUCED but not eliminated its CDOs. You might email them to see if they answer.
Which raises the question: is there a difference between a money market account of a regular bank (e.g. IngDirect, EverBank, and other high-yielding MM account) and money market funds like Western Asset?
I think you need to ask the bank if the MM fund has SIPC coverage. Not all MM funds sold by banks are covered.
I just called Schwab to find out where they had parked what they classify as "cash" in my brokerage account. They say that the cash balance can be invested in their bank that is FDIC covered, or elsewhere. So I asked where it was. It was not in the bank, but the rep told me it was still covered to $100,000 by the SIPC. This is credible, so I left the money there. I think "cash" balances in brokerage accounts are not the same as MM funds sold by the broker.
James,
It was not in the bank, but the rep told me it was still covered to $100,000 by the SIPC.
You might want to read this.
SIPC: Why We Are NOT the FDIC
And this...
WHAT SIPC COVERS AND WHAT IT DOES NOT
Stag...mark
What is covered, I gather, is your money in case the firm goes under. It does not cover fraud upon you by the firm. Whether it would cover a decline in your cash balance due to "toxic waste" in the investment vehicle is not clear. I think one would need to ask the SIPC and I will.
Need to modify that. Evidently the SIPC does cover you in case of fraud. It does not cover the decline in the value of, in this case, the vehicle in which your cash is invested. Thanks for looking into it more closely. So if your "cash" balance declines due to toxic waste, the SIPC would not cover your loss. Is that your understanding?
James, that's correct. SIPC is for investments, FDIC is for savings. There IS a difference, namely principal is protected in the latter but not the former.
James,
So if your "cash" balance declines due to toxic waste, the SIPC would not cover your loss. Is that your understanding?
Yeah, that's my understanding.
However the last comment is important for the SIVs: everyone wants to reduce their exposure to SIVs as the paper matures.
Uh oh, our magic money printing machine is broken! Get me 10cc's of credit, stat!
1) Money market funds buy the commercial paper of SIVs. Basically the SIV's debt. The CP normally matures in 1-180 days.
2) Once it matures, if it matures, the money market fund is out. The fund could then choose to say away from asset-backed CP and be fine.
3) HOWEVER, there is a ton of AB CP which is defaulting.
4) Many SIVs/ABCP programs were not involved in mortgage lending. In fact a large percentage were for accounts receivables. So you could have one MM fund with more ABCP than another, but actually have less exposure to mortgage-related CP.
5) Part of the liquidity crunch in recent months has been MM's unwilling to get back into the ABCP market. Issuance of ABCP has fallen off a cliff.
6) I'm a professional bond trader and I've decided to put all of my personal and client money in either municipal or government money market funds. I recommend you do the same. I believe you'll see at least a few MM's fail in the next 12 months. Granted, they may only lose a small percentage, but safety is the name of the game right now.
I told you that pension fiduciaries were in deep shit-
"These were highly inappropriate investments for taxpayers' money,'' said Joseph Mason, a finance professor at Drexel University in Philadelphia.This is the tip of the iceberg for pension funds. We know the paper is sitting there. There are substantial subprime-related losses that haven't shown up yet.''
Florida Pension Fund Has `Suspect' Debt Held by Pool (Update2) - Bloomberg.com
Florida Pension Fund Has `Suspect' Debt Held by Pool (Update2) - Bloomberg.com
Florida's Pension Fund Holds Same `Suspect' Debt as Frozen Pool
By David Evans
Dec. 4 (Bloomberg) -- Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals.
The State Board of Administration, manager of $37 billion in short-term assets, including the pool, also oversees the $138 billion Florida Retirement System. The board purchased $3.3 billion of debt whose top ratings were reduced following the collapse of the subprime mortgage market, according to documents obtained by Bloomberg News through an open records request.
dr strangemoney,
Uh oh, our magic money printing machine is broken! Get me 10cc's of credit, stat!
I somehow missed the article last year that tells us how much it costs to melt a copper penny.
I would encourage you to take a ballpark guess before you read the link though. I think it will be more fun that way.
The Cost of Melting a Copper Penny
For the fans of the tan man, LATimes:
(quote)
Mozilo asks Fannie, Freddie to 'step up'
December 4, 2007
Shares of Countrywide Financial Corp., the nation's largest mortgage lender, fell after Chief Executive Angelo Mozilo decried the housing market's credit shortage.
Mozilo, speaking at a conference in Washington, said government-chartered companies Fannie Mae and Freddie Mac, the two biggest sources of mortgage funds, should try harder to help home buyers and investors in mortgage securities.
"It's very important for Fannie Mae and Freddie Mac to step up," Mozilo said. "It's the only way out of this to shorten the cycle. Otherwise it's going to be very painful."
Countrywide no longer can raise funds using commercial paper and intermediate-term notes, its favored strategy for 40 years, Mozilo said. The company is instead borrowing from the Federal Home Loan Bank system and seeking to attract deposits to its bank unit, as well as selling loans to Fannie Mae and Freddie Mac.
(end quote)
Think of the Paulson plan as the wood chipper of capitalism:
No help for those who already passed through the wood chipper.
No help for those who have one arm already trapped in the chipper.
Tickets for orderly but delayed entry into the wood chipper to prevent it from bogging down on all of the blood and bones.
Directing those who can go, to go to a new, more aesthetic wood chipper installation around the corner.
It's all to preserve the value of the funds and the credit system, not to help the home borrower. Any good that
derives to an individual borrower is merely coincidence.
Neal,
To Wood Chip Man
To Serve Man (The Twilight Zone)
Sharing their advanced technology, the aliens quickly solve all of Earth's greatest woes, eradicating hunger, disease, and the need for warfare.
CR: HRB news is out but I can not figure out what the stock would do
DX doing a Wile E Coyote this morning..
WOW$
Goldman's Abby Cohen Sees S&P 500 Rising 14% by End of 2008
Deutsche Bank's Chadha Sees 9.6% S&P 500 Gain in 2008 (Correct) - Bloomberg.com
but again ...
Abby Cohen: DJIA Will Rise 10% to 12300 By End of 2000
Abby Cohen: DJIA Will Rise 10% to 12300 By End of 2000 at SmartMoney.com
Ray, I think this is the 50 bps cut coming....
I've done some reading and talked to banks and FDIC and Money Market deposit accounts at banks are FDIC insured not SIPC insured and they can not break the dollar. They are under the same rules and categories as other FDIC insured instruments like savings accounts and checking accounts and cds. The deal is that it must clearly be a "deposit" account and it must be held by the banking arm of the holding company, not by the brokerage arm where it is SIPC insured instead.
OT-
Cerberus has called off the purchase of H&R Block's Option One. Huge writedown coming?
Brokebuck Mountai
CR = "I don't see this as a problem for the money market funds."
But what if many thousands of investors call their fund company and transfer their $$ from "ordinary money market funds" to, say, Treasury-only MM funds?
Could a large flight out of MM funds be an issue? Thanks for any insight.
Just to clarify a couple of points. A MM account would own the CP of a SIV. What made SIV paper attractive was its high credit rating and slightly higher interest rates. There really is a "shortage" of good MM investments, and SIVs qualified as corporations with good credit ratings. The only other possible SIV investment was the equity, which, as equity, would be unrated.
In a perfect world, the SIV would fund its assets with liabilities (CP and MTN) which matched the assets. In an upward sloping yield curve environment, this would be less rewarding to the equity owners, so typically funding was done primarily with CP. If the assets and liabilities were matched, however, as the funding matured, the asset would be maturing, also, and the problem would be solved as the SIV pays down. I wouldn't be surprised if this is behind all the stalling tactics (mlec) we see in an attempt to avoid forced sales.
However, a lot of CDOs (in which SIVs invested) are backed by ABS and other structured product which can extend over time if payments do not occur as expected. This could cause the SIV assets to require funding for longer periods than the liabilities, even if they were initially matched.
Every proposal we've seen so far entails some form of delay or freeze or extension, which would result in SIVs getting less money, and later. SIV investors will not readily accept this.
OT but more news on Florida...
"Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals."
Florida Pension Fund Has `Suspect' Debt Held by Pool (Update2) - Bloomberg.com
No worries.
On CNBC this morning Steve Liesman (chief economist) was discussing how 50bps was most likely outcome.
their guest (heard on radio, couldnt see who it was) was the only voice of sanity...
everybody else was cheering the bold Fed, who was going to save "us" from Wall Street's problems.
the argument:
If we don't save Wall Street, then this subprime mess MIGHT come and affect you.
curiously, they never elaborated on the fact that when we bail Wall Street out this BY DEFINITION is affecting us...
oh well...
I'm ALL IN. (at least until December 12)
YTL
As an exercise for myself I looked at Fairfax County Educational Employees Suppl. Retirement page.
What I noticed is they measure success of returns based on an average of what other small public pension funds have received.
This means to me at least, that most US pension funds have to chase certain benchmarks to show they are doing their jobs. Even though they diversified they still put substantial amounts in funds backed by AAA to Baa.
I also noticed that the pension fund is about 10 months behind the curve as far as what the percieved actual value is?
duh: I 50bps cut in FFR is most likely outcome of Dec 11 FOMC meeting
Stagflationary Mark-
Excellent find on the new low limits on I-bonds. I think the feds are gearing up for the possibility of inflating away the problem. The easiest way to cure the housing bubble, 9.1T national debt, and trade deficit all at once is a couple of years of double digit inflation.
By the way I just got quoted 5.5% on a conforming 30-year fixed refi with no points. Rates like that may allow the bubble to deflate at a more moderate pace than we have seen over the last year. Rates in August were about 6.375%.
Make sure to see the housing forum on cspan.
The CEO of Countrywide asks for a government bailout as noted in one of the above posts. Even at the same time that the CEO was disparaging the regulators.
It is unnerving that those who fought against regulation now seek to be saved by the American taxpayer.
OT
ICSC store sales numbers fell 2% week-over-week.
TABLE-US chain store sales fell 2 pct last week-ICSC/UBS
| Reuters
re:
Just to clarify a couple of points. A MM account would own...
Just to clarify a single point, there are money market ACCOUNTS and money market FUNDs that retail investors commonly have; the two are different.
MM ACCOUNTs are FDIC insured to 100K per individual per institution - and insured for principal. it won't break the buck ( up to 100k etc...) assuming that FDIC viability doesn't come into question.
MM FUNDS are not FDIC insured - other insurance like SIPC may exist but these protect against fraud - not market volatility - your principal IS at risk and the fund can break the buck.
Then there are the enhanced capital funds.. There is an interesting continuum to this that 'accrued interest' made me aware of that and shaded my view of them - I'd previously treated as discrete exclusive categories.
-K
OT but link to Option One obit
H&R Block Shuts Option One, Will Sell Servicing Unit (Update8) - Bloomberg.com
King,
Wait a minute there - isn' this supposed to be the big holiday shopping binge-o-rama in progress - down 2%? How is that not a huge tell?
More OT but aligned with ICSC data:
Dow Chemical to Cut 1,000 Jobs
Tuesday December 4, 8:52 am ET
By Jeff Karoub, AP Business Writer
Dow Chemical Plans to Cut 1,000 Jobs, or 2.3 Pct of Work Force, in a Bid to Boost Efficiency
DETROIT (AP) -- Dow Chemical Co. announced Tuesday it is cutting 1,000 jobs, or about 2.3 percent of its work force, as part of a plan to rid itself of underperforming businesses and boost its global efficiency.
[snip]
MM ACCOUNTS are FDIC insured to 100K per individual per institution - and insured for principal ...
MM FUNDS are not FDIC insured - other insurance like SIPC may exist but these protect against fraud - not market volatility - your principal IS at risk and the fund can break the buck.
Great point. And what those of you who work at large corporations are likely to discover, to your chagrin, is that virtually all 401(k) providers offer one or more "stable value" or "money market" options ... and that virtually all of these are FUNDS, not ACCOUNTS. And that buried somewhere in the prospectus thereof will be a sentence to the effect of: "Returns and principal value will fluctuate, and you may have a gain or loss when you sell your shares."
In other words ... those of us with a sizable proportion of their investments in their 401(k)'s (raises hand) should be on the phone YESTERDAY with their provider inquiring about what, if any, ABCP/CMO/CDO/WXYZ/etc. exposure their "safest investment option" actually contains.
""Florida's pension fund owns more than $1 billion of the same downgraded and defaulted debt that sparked a run on a state investment pool for local governments and forced officials to freeze withdrawals.""
Nothing to see here folks, move along, return to your homes...
CR,
While I don't think a "break the buck" event is probable at this point, I think the risks have risen appreciably in the last few weeks. Like Accrued Interest, I too have moved all my personal money market funds to treasury only funds. My concern is two fold. First, given the size of the money funds and the fact that many financial institutions are now capital constrained, even a 2% air pocket on a $30-40B money fund starts to become real money. I can imagine some firms facing the hobson's choice letting the money fund break the buck or having the regulators declare their depository subsidiary undercapitalized because they don't have the capital to do both. Second, I think there is a major shoe to drop with respect to the ratings of MBIA & ABK. Perhaps it all gets finessed, but I don't see it without huge capital infusions. If they lose their AAA rating, I think the ripple effects in the money and capital markets will be enormous, and we will see other intermediaries have liquidity issues that will inevitably impact the money markets.
As I said, I don't see this as probable, but at this point I don't want to spend my time trying to sort out which money fund is in jeopardy. For now I'll give up the yield on focus my attention on the rest of my portfolio.
BTW, when I asked Schwab to move my funds out of my vanilla money fund, I was originally told their treasury only money funds were closed to new accounts - after about a week of pestering them they let me in, but it is clear that quite a few people are doing this.
Abbey Joseph Cohen predicts S&P to rise 14% by year end as recession risks "fade" thanks to a "vigilant" and "flexible" fed.
Funny that "We are from the government and we are here to help you" was a joke during the good times but ,now that the windshield has become the bug, it is a desparate plea.
Ask Citi, ask CFC.
A positive result of the current mess may be some much needed humility on Wall Street.
Florida Just First to Face National Run on the Bank: Joe Mysak
By Joe Mysak
Dec. 4 (Bloomberg) -- Florida officials are going to meet today to talk about the crisis in the state's Local Government Investment Pool. I don't know what they are going to talk about, but I know what they had better decide.
[snip]
In freezing the pool, Coleman Stipanovich, executive director of the board, said, ``If we don't do something quickly, we're not going to have an investment pool.''
The state stopped the clock.
The same clock is ticking for every state in the country where school districts and cities and towns put their faith in someone else, usually at the county or state level, to manage their money.
What's It Worth?
This means, I think, most of them.
Of course, that's the problem with Muniland in general: Nobody ever really knows precisely what's going on when a crisis like this hits. There might be as many as 100 pools like this across the nation, with assets of something like $200 billion.
They are supposed to offer daily liquidity for the public sector in much the same way that money-market funds do for the private sector. They are supposed to invest their clients' money in the safest possible securities, good old boring things like U.S. Treasuries, top-rated commercial paper and certificates of deposit.
It seems, however, that some of the commercial paper investments the Florida pool, and others like it across the country, purchased were backed by subprime mortgages and other things that have declined precipitously in value.
[snip]
If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth. You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.
Wow, we have reached the point that even Cerberus won't do a subprime deal. Things must really be bad!
H&R Block/Cerberus deal collapses:
Option one is toast; merry freaking christmas 650 workers
As far as Abby Joseph Cohen goes, I'm still waiting for her S&P 2000 and DOW 20000 calls from back in 2000 to pan out.
Busy morning - it seems the race to the bottom is on!
Canada Unexpectedly Cuts Rate as Dollar, Credit Slow Inflation
By Joe Mysak
By Greg Quinn
Dec. 4 (Bloomberg) -- The Bank of Canada unexpectedly cut its main interest rate for the first time since April 2004, saying the higher Canadian dollar and financial market ``volatility'' restrained inflation more quickly than expected.
The target rate for overnight loans between commercial banks was lowered a quarter point to 4.25 percent, reversing an increase made in July. Only 12 of 27 economists surveyed by Bloomberg News predicted today's reduction, with the rest calling for no change.
[snip]
If enough participants withdraw, the pools will have to sell some of that stuff that nobody can figure out what it's worth. You can bet that Wall Street, which packaged and sold the stuff in the first place, isn't going to offer 100 cents on the dollar for it.
What do think they sold in the first place to fund the initial $13B outflow (aka run) ? I bet they had to sell the most liquid investments ... i.e. the 'good stuff'. Now what do you expect is left in that fund ? I'm sure that some of the remaining paper is good, but the percentage of junky stuff is much higher than it was back on Nov 1st. And that is what scared the bejesus out of the guys in Tallahassee.
LGIP home page
I see quite a few new links there.
LGIP Holdings
I see the Sept and Oct holdings documents, but I don't see an updated document for (the end of) November ... yet. I wonder whats holding up that document ?
Paulson Sees Limited Aid in Rate Plan
By EDMUND L. ANDREWS
Published: December 4, 2007
WASHINGTON, Dec. 3 The Bush administrations effort to help borrowers in danger of defaulting on their subprime mortgages could help only a small number of those who took out such loans, industry analysts said Monday.
Though administration officials have yet to agree on crucial details with mortgage lenders and the securities industry, a similar effort in California is likely to help about 12 percent of borrowers in the state with adjustable-rate subprime loans, according to estimates by Barclays Capital.
[snip]
ICSC store sales numbers fell 2% week-over-week.
That's why they do the YoY comparison which, in this case, shows a strong rebound:
ICSC-UBS's chain-store tally for the Dec. 1 showed a strong 3.1 percent year-on-year growth rate for same-store sales, the strongest reading in four months. The week-on-week rate should be ignored, down 2.0 percent and distorted by weekly seasonal factors which the report said are difficult to adjust for. The report pegs year-on-year sales for the month of November at a respectable 2.5 percent. Chain stores will post their November results on Thursday. Redbook's report is up later this morning.
King
YOY sales change is better indicator of retail sales trend. First week in Dec is usually the slowest week of sales between Thanksgiving and Christmas. Mortgage, rent, etc, due. Sales pick up around the 10th of Dec and accelerate up to Dec 22-24th depending on what day of the week Christmas lands. This year has the largest amount of days betwwen the two holidays which usually means a larger dip in early December. I am not saying that sales are great, but that particular number isn't best indicator. What I am hearing is sales are O.K. but margins are suffering, which would affect profits. Gift Card sales will be used as a reason sales are being pushed into January. Also the week between Christmas and New Years has become much more important over the last 5 years. Also always look at who is providing the information, the NRF is retails version of NAR.
Busy morning - it seems the race to the bottom is on!
Canada Unexpectedly Cuts Rate as Dollar, Credit Slow Inflation
By Joe Mysak
Unexpectedly? I've been expecting this for a while - average Canadians LOVE cross border shopping with a pumped up Loonie but they have to have jobs too and they all can't work in Tar Sands. Even if the average Canuck hasn't thought that far ahead, the folks in Ottawa have.
I have heard stories about the 401 Corridor all but shutting down due to currency exchange issues - I wouldn't be surprised to see Canada keep cutting until the Loonie is back to its rightful place (just behind the dollar). Strong enough to be considered 'first world' but weak enough to easily export to the USA.
You guys ever watch a bicycle race? Or cross country skiing? Think 'drafting'.
"Okay EU its now YOUR move..." says Ben, impatiently waiting.
Can someone explain to me why banks are putting the troubled SIV's on their balance sheets now?
If the entity was truely econimcally independent, then the "Bank" is not required and shouldn't consolidate them... They should just let the SIV's fail.
If the Bank was on the hook to the support of the SIV all along, then FIN 46R would have required consolidation from the get go.
So... if they wern't consolidating before, and they must be consolidating now...who goes to jail under Sarbanes for "frauding" the accountants and internal controls.
Excerpted from ac's quote above:
The report pegs year-on-year sales for the month of November at a respectable 2.5 percent.
Does anyone know if this figure is adjusted for inflation? The other figures cited in the Reuters link I provided above were all nominal and only seasonally adjusted but not inflation-adjusted.
Joseph,
Have you seen any reliable YoY metrics for the Black Friday weekend? Thanks very much for the detail color on the retail numbers.
Retail sales:
Also remember that when the first
11 months of the year are slow, christmas will be stronger. Perhaps because incomes are limited. However,
I am confident, this year will be a bust from what I hear from retailer friends. It is also to be expected from econ data.
What I am hearing is sales are O.K. but margins are suffering, which would affect profits.
My son is a retail drone at Mall of America but actually listens to & parses the stuff his managers tell them (they get store & company performance reports)... He says almost EXACTLY the same thing.
Sales at his store are strong but the chain is suffering some overall - especially in smaller malls. Traffic is moderate but not end of the world low - so far.
In order for cash to be covered by SIPC, cash held in an account must be the for the purpose of, or as a result of, securities transactions. Cash held in a securities account for the purpose of earning interest, which was not the result of a securities transaction, may not be covered by SIPC.
From:
Account Protection When Investing in the Stock Market, IRAs, Mutual Funds - Scottrade
So, SIPC protection would cover settlement or core accounts like Fidelities FCash. It wouldn't cover you if you moved your money from your settlement account to a brokerage MM fund for higher yield.
Kicker,
thanks for the info. I am 100% short
in just one of my accounts. The money is sitting in cash, while I borrow securities in order to short. Is my
cash covered by SIPC.
BTW Kicker,
great to have you on this blog. You make a lot of sense.
"Sales at his store are strong but the chain is suffering some overall - especially in smaller malls. Traffic is moderate but not end of the world low - so far."
dryfly:
that's what I'm hearing as well.
The mall of america is ALWAYS busy (those who haven't been there have no idea)
it has been quite busy the last few times I've drove by... cars lining up about 2 blocks long to get into the parking lot (typical for this time of year).
But i went to some other area malls and parking was easy... even at places like the "Galleria" which traditionally around this time of year has difficult parking.
I won't make any consensus though until the last weekend before xmas. A lot of my colleagues seem to be waiting the retailers out... the word is out I think that they will cut prices later on...
the ONLY thing I've seen holding it's sales: the Wii...
``It's clear we can no longer solely rely on an investment's credit rating when making management decisions,''
I guess they're not going to solely rely on a party with a conflict of interest, that qualifies their ratings in their literature, to state it's not swamp land.
Florida Pension Fund Has `Suspect' Debt Held by Pool (Update2) - Bloomberg.com
If the Bank was on the hook to the support of the SIV all along, then FIN 46R would have required consolidation from the get go.
I think the auditors figured this one out about the same time you did....
That is the reason the "Super SIV" was supposed to have multiple bank sponsors. That way, when it failed they could all point fingers at one another instead of needing to put it back on the balance sheet.
Funny thing is, the banks were the ones that start the run on the shadown banking industry when they pulled the rug from under the sub-prime lenders. Some of the reason for the run was fear, but some of it was also greed. They could issue margin calls, grab the securities, value the securities at whatever they wanted in a frozen market, and then hit the lender with a bill for the difference. Judge, jury, executioner.
One lender was rebuffed after offering to buy back the securities at par after they were siezed.
Now with ABCP, SIVs and every other off-balance sheet vehicle running back onto the balance sheet I'm guessing they are wishing for a mulligan.
ICBC has a conservative investment portfolio concentrated in fixed income securities comprised of highly rated bonds, money market securities, and mortgage instruments (75% of total portfolio holdings). Equities and real estate (23% and 2% of total portfolioholdings, respectively) comprise the remainder of the portfolio.
http://72.14.253.104/search?q=cache:e2wwiPIX2qcJ:www.icbc.com/inside_icbc/ar06/ICBC_2006_Annual_Report_Management_Discussion_And_Analysis_PI186M.pdf+icbc+investment+portfolio&hl=en&ct=clnk&cd=2&gl=ca&client=firefox-a
Shrieks in horror.
Goldman's Abby Cohen Sees S&P 500 Rising 14% by End of 2008
Blabby Cone is a congenital and insane bull who gets her money, in my opinion, by making wild predictions re the market. Amazed she is still around; I thought her previous mis-calls would have finished her off.
Energycon
YOY Thanksgiving weekend sales.
I haven't seen any real numbers. However the weekend is not nearly as important financially as the MSM makes it out to be. It is important internally from an inventory and marketing management tool. It is the first good indication of where the buying mistakes are, either too much of a slow mover or too little of a fast mover. They then adjust marketing plans and price adjustments. If they have to spend more to advertise and lower price to move product it is harmful to earnings. Again sales are all about the last 15 days before Christmas and at what margins. Your best eyeball indicators are inventory levels Dec 23-24. Are the stores pregnant with inventory or picked over? Are the discounts after Christmas very aggressive or are the stores in a position of strength and try to use gift card redemption for additional profits or inventory liquididation?
"Unexpectedly? I've been expecting this for a while ..." dryfly
you must have better instincts about this than I...it caught me a bit off-guard. I didn't expect the Bank to be quite so anticipatory - after all, they have substantial asset inflation and wage inflation to contend with in the Western provinces. They are really putting their inflation fighting credentials on the line here. Are they anticipating a resources deflation, that will in retrospect make their interest rate move look prescient?
DH,
Sorry, you stumped me. A Google search didn't turn anything up. Let me know what you find.
Did turn up this disturbing bit:
But its when the stock leaves the broker/dealers custody that trouble can arise for the margin account customer. Thats because, if the lending broker/dealer fails, the borrowing broker/dealer may be unwilling to return the shares(even when the short is covered) until
its own counter-claims against the
failed broker/dealer are settled. Margin account customers whose shares have been lent out become unsecured creditors of the failed firm. If the margin account customer must sell those shares to meet a margin call, it cant be donethe securities arent in the account.
http://www.pinnaclevaluefund.com/reports/StockStrat(26).indd.pdf
That stinks for me because Fidelity automatically moves stocks bought in my cash account to margin.
Eight states including Massachusetts have pledged almost $900 million this year to help borrowers replace unaffordable mortgages, but the states collectively have refinanced fewer than 100 people, a Globe survey found.
Massachusetts, other states leave out many borrowers in programs for refinancing home loans - The Boston Globe
"I somehow missed the article last year that tells us how much it costs to melt a copper penny."
not sure how true it is but i heard coppper is just the veneer over zinc which is the main metal for the 'penny'.
Coleman Stipanovich, R.I.P.
"We're confident that we're going to work through that exposure," the state board's executive director Coleman Stipanovich said last week. "It's not like we bought a stock at $100 and it's trading at $20. It's securities being marked to market at 95 to 98 cents on the dollar. ... And we think the securities are worth more than that. We're not willing to panic and give away good collateral." - Nov 14
Business: Local governments bail out of state fund
Stipanovich blamed it on a Nov.14 Bloomberg News report that he said contained "some not factual information" that the fund had bought financial instruments backed by subprime mortgages. That, he said, is "not true." - Nov 29
Florida freezes fund to halt run - Orlando Sentinel
The fund has invested $2 billion in structured investment vehicles and other subprime-tainted debt, state records show. About 20% of the pool is in asset-backed commercial paper, said executive director of the State Board of Administration, Coleman Stipanovich, this week. "There is no liquidity out there, there are no bids" for those securities. - Nov 29
Forex Street. The Foreign Exchange Market
We're fiduciaries, we're investment professionals, we know what we're doing,'' Stipanovich said Nov. 29.The commercial paper defaulted, but the collateral is different,'' he said, describing it as AAA.
Florida Says Unfreezing Fund Would Spark `Fire Sale' (Update1) - Bloomberg.com
Sink and the two other members of the SBA - Gov. Charlie Crist and Attorney General Bill McCollum -- rejected Stipanovich's solution to shore up the troubled pool by selling those risks to Florida's healthy pension fund. - Nov 30
tallahassee.com | Tallahassee | Tallahassee Democrat
The State Board of Administration, that manages about $42 billlion of short-term investments, including the pool, as well as Florida's $137 billion pension fund, is run by Coleman Stipanovich, brother of "Mac" Stipanovich, a Republican consultant and Bush family loyalist. In 2002, the fund lost $334 million on Enron, investing in the stock as the company was swirling down the drain-three times the loss of any other pension fund. A few years later, the same fund invested in Edison Schools whose stock value had collapsed from $37 to as little as 14 cents. - Nov 30
Alan Farago: The Sorrows of Suburbia
"I've provided very good leadership," Stipanovich said after his resignation. "This is just one of those things that's almost unexplainable. It's a once-in-a-lifetime event that hopefully will never happen again in the financial markets. We have fallen victim to that, and this [resignation] will go a long way to helping us restore confidence." - Dec 4
Withdrawals will be allowed from state investment fund | Jacksonville.com