Financial Times: UBS to reveal further writedowns of up to $18bn
Submitted by
CalculatedRisk on Mon, 03/31/2008 - 3:56pm (144 comments)
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Who will have the highest write downs ?
Oh great. 3 weeks of UBS rumours to look forward to...want to hear a hot one about UBS?
So do the Swiss have a Ben Window?
Maybe we should start a pool: you know, end-of-year writedowns for the top five investment banks. Winner would get an autographed picture of Ben Bernanke or a two-dollar-off coupon from Domino's, whichever they prefer.
Swiss Chocolate will now be accepted at the fed windom... it is now contained.
I would take the picture.
But I am weird.
*Swiss miss (hot chocolate)
So did that article actually cite a source?
Japan's industrial output declined 1.2% in February from the previous month[Jan 2.2% contraction ], marking the second straight month of declines
Japan's industrial output declines 1.2% in February - MarketWatch
Background research:
The Tick cartoon gallery of supervillians
UBS, you know, you and us! Think they'll still be a major benefactor of the PGA tour? Where'd your 20% go? To Tiger!
$18B is about 5% of Switzerland's GDP. Pretty good work for 90 days.
I guess Swiss bank accounts aren't what they used to be.
Oh, and doesn't Phil Gramm, former Senator from Texas, and key economic adviser to presidential candidate John McBush sit on the UBS board? And didn't his wife Wendy chair the audit committee when on the board of Ennron?
Just wondering...
So CR - where are the job losses for these mess ups? You'd think there would be massive lay offs - where are they or are they just not getting heavy coverage?
Does the confessional translate German?
Dickeylee--
Yes, the Honorable Phil Gramm has been vice chairman of UBS for several years now, and the firm has obviously benefited from his acumen and expertise while performing black hole experiments on its balance sheet. He is a rare talent.
He is a rare talent.
Steve | 03.31.08 - 8:33 pm | #
Our next Sec'y of the Treasury maybe...
...while performing black hole experiments on its balance sheet. He is a rare talent.
Steve | 03.31.08 - 8:33 pm
Funny! A financial Philadelphia Experiment.
Guys, Phil isn't even the most evil one in his family. His better half Wendy is a modern day Cruella Deville!
This does not seem to be going away. I think it is gaining momentum. At what point do the Central bankers exit the stage to let these folks wallow in thier own dodo. At what point do taxpayers say enough is enough.
Cockroachs everywhere. I suspect UBS has already cut bonus checks for last year. How convenient. Now they will all get bonuses for "saving" the firm.
With all the frenzied blogging and opinions, basically what's going to happen is the economy tanks and then the global economy tanks. All these moves by the Fed and the Treasury and the Executive branch is distracting motion that will add up to nothing to prevent the unwinding of this credit/Crash cycle. These cycles are part of central banking control. If central banks get more control, there will be more risky investments allowed for selected profits.
The central banking system has taken a long time to evolve...and there were cycle problems before the Federal Reserve was established in the U.S. in 1913.
It's time to accept the system for what it is. There's no hope for real change. Nader is back saying flat out that the U.S. government has been taken over by corporations. He likes to use the word 'corporations' but you could say 'concentrated wealth', the elite investors, the upper upper class, etc.
Nader says the politicians work for the corporations and the mass media is owned by the corporations.
So all this movement from the Feds and the Treasury...well they are in control and that's the problem. They aren't going anywhere. Regulations can be made, then there's deregulation and then reregulation but the basic structural systematic processes of boom/bust wealth transfers remain in place.
It's like shouting at the wind to think that some superficial moves by the forces that caused the crash will repair the system.
If anyone talks real change, they are labeled, censored, monitored, deleted, or ridiculed. The system is frozen into place and we are powerless to change it in any real way. Let's just be honest about the situation. Rigorous honesty.
dryfly,
At least as far as unemployment numbers are concerned if there is any severance they don't get counted until the clock runs on that (if 8 weeks severance, they don't show up in the numbers until two months after the RIF).
On a more serious note, the Swiss still have their own currency, the Swiss Franc, so does that mean they are outside the control of the EU Central Bank? $18B last year, $18B this qtr, and hints of $10B more and pretty soon your talking about real money! So who is the lender of last resort for the Swiss? And will this affect other banks in Switzerland?
Really, makes BS look like chump change.
Maybe Uncle Ben would like some slightly used auction-rated securities.
I think CR's precis has on this infinitely rare occasion misled people. His last sentence should be:
Details of the latest writedowns and capital-raising are expected to be released alongside the agenda for the banks annual meeting on April 23, which is to be published on Tuesday or on Wednesday
i.e. we don't have to wait 3 weeks, just a couple of days to find out the amount of the writedown.
-K
I guess we can expect financial stocks to have a nice pop tomorrow, cause the markets will no that they've thrown in the kitchen sink with these latest, final writedowns.
Heck, the homebuilders and retailers will probably find a good reason to join them too.
Dickeylee--
No lender of last resort worries for UBS: UBS Securities is a primary dealer for the FRBNY, so Uncle Ben's Money Store is open to them. Tra-la-la, etc.
And I thought it was written down.
Heh? hoocodanode.
Cheeers,
I still will not take these write downs seriously until I see trillions, not billions. We know how much junk is out there, or can guess and it is the t word.
Can you feel the acceleration?
The Independent calls the second Great Depression:
USA 2008: The Great Depression -
Americas, World - The Independent
Personlly, I prefer the second hyper-expansionary downclimb
Perhaps someone should tell UBS to hold off on the writeoffs. IBD has spoken! Negative Equity Certs - here we come - here's the best part - its not a bailout if the government owns the negative certs since long term they WILL go up. So no long term loss, hence no bailout. Investors.com - Page not found
No wait, UBS go ahead writeoff now and then when you get the negative certs and money that would show up as a huge upside surprise, assuming you dont liquidate your holdings? Hmmmmm
W,
Yes I can, these used to be called mandatory acceleration events.
Maybe UBS will beat Citibank in the race to meet Jesus
$18B is about 5% of Switzerland's GDP
NICE comparison, Steve.
So I guess this country will have fewer tax dollars,, huhh?
UBS Securities used to be known as PaineWebber. They were a pretty big U.S. firm then and bigger now, after gathering a lot of high-income household assets with a big army of brokers. So, it's not just a Swiss company.
UBS Securities is the one that will be losing a ton of assets due to the auction rate meltdown/writedown. They'll probably also be slashing a ton of brokers. So long Mr. Paine. Goodbye, Mr. Webber.
Paulson is just mouthing the words at this point. You can tell he's almost scared sh*tless. The U.S. needs just one big new super-regulator, an anti-leverage czar. There's nothing wrong with the existing regulatory structure except TOO MUCH LEVERAGE, USED FOR THE WRONG REASONS.
Paulson is Mr. PPT leverage, isn't he? He's trying to cover his tracks and stay out of jail.
This is how it will work out. There will be other whisper estimates of $22 billion or more, but when they announce, it will 'only' be $18 billion in write-offs. Therefore it will be better than expected, or not as bad as expected and the market will throw a party. QED.
Lets look at Australia:
THE number of debts referred for collection rose 12 per cent in 2007, as the global credit crunch and tougher business environment began to affect repayments, a new survey shows.
The average value of referred debt rose by $1400, or 22 per cent, to $7800 across the year, collections and credit reporting agency Dun & Bradstreet said today.
In the finance sector alone, that average value rose 300 per cent to more than $26,000 between January and December 2007.
"The impact of the credit crunch and the tougher business environment is evident in D&B's default trends data,'' D&B chief executive Christine Christian said.
"The increase in the value of debts being referred suggests that some businesses are facing significant cash flow difficulties, while the increase in low-value debts suggests that businesses have been forced to chase outstanding accounts earlier in the cycle in an attempt to keep their cash flow afloat.''
According to the data, the number of low value debts referred for collection rose 23 per cent, and Victoria had the highest number of debts referred, with an 88 per cent during 2007.
Western Australia had the highest average debt value in the December quarter at close to $9000.
More about Australia:
National Australia Bank is able to make margin calls under the foreign exchange hedging contracts, however, if RJT has insufficient cash funds available to meet any..
http://www.tradingmarkets.com/.site/news/Stock%20News/1283299/
I'm expecting a 3-4% upside on the DOW tomorrow. Too much good news!
all these billions will one day add up to a BIG NUMBER. I van hardly wait for the derivative meltdown. Then we start talking trillions. Paulson is probably kicking his dog every night
Deutsche Bank AG, the world's largest foreign-exchange trader, and Royal Bank of Scotland Group Plc cut their estimates last month as global credit market losses climbed above $200 billion and reports signaled the U.S. economy may be shrinking. Private foreign investors sold a net $38.2 billion in U.S. securities in January, the most since September, Treasury Department said March 17.
We now view the U.S. economy as having slipped into recession while the rest of the world slows more modestly,'' said John Horner, a currency strategist in Sydney for Frankfurt- based Deutsche Bank. That scenarioargues for further dollar weakness,'' he said.
http://www.bloomberg.com/apps/news?pid=20601103&sid=aevZlcbjSGO8&refer=news
An Australian stockbroker has just failed, too:
Home
Some U.S. homes worth less than their copper pipes
Some homes worth less than their copper pipes
| Reuters
"In areas hit hardest by foreclosures, such as the Slavic Village neighborhood of Cleveland, Ohio, copper and other metals used in plumbing, heating systems and telephone lines are now more valuable than some homes."
""We're seeing houses sold for $100 that are distressed houses that should not be recycled," he said. Some boarded-up homes in his Slavic Village community have "No copper, only PVC" painted on the boards to stop would-be thieves."
Watching Paulson pitch his new regulation scheme was spooky. If you were playing poker with him right now you should go all in and watch him puke. He is dying in this job!
sk, thanks for the correction on timing!
Best to all.
Barley, along with that 'good' UBS news providing fuel for a rally, we'll get a couple of econ reports tomorrow too.
We'll get the ISM Mfg index, which the consensus expects 48.0. So if it comes in at 48.1, the market should blast off, as it will be 'better than expected'. Also we'll get construction spending, which is expected to fall -1.10%. And if it beats the number and comes in at only -1.0%, another reason to rally.
However, if they both come in weaker than expected, then that would be cause for celebration too...for a 75 bps rate cut!
Sometimes I forget if good news is bad news and vice versa, but with this market, it's a win-win! Party on Garth!
Yeah, Paulson doesn't look so good. The stress is a killer. I keep wondering why he is hanging on, I'd bail if I were him. I bet he is just preying for Nov to get here.
Hazard writes:
Yeah, Paulson doesn't look so good. The stress is a killer. I keep wondering why he is hanging on, I'd bail if I were him. I bet he is just preying for Nov to get here.
Hazard | 03.31.08 - 9:51 pm | #
Interesting. I wonder if something else is bothering him. Does he know of something else lurking on the horizon?
Paulson is praying for the end of the president's term. He's also happy he got to cash out all of his GS stock, tax free, as a condition of his taking this public sector job. So he got out at the top, and pays no taxes. Somehow, I think he can bear the stress.
Cal has answered the conundrum question.
The banks paper assets are the equivalent of "no copper, only pvc."
Sign that guy/gal up to be a voitng member of the Fed.
UBS is poised to reveal further writedowns of up to $1tn.
Just kidding, April fools
UBS, right on time for April fools Day (down under), except they are not joking. And no one is laughing!
Florida's population growth slows to 30 year lows, just in time for a housing glut..
404 | MiamiHerald.com
Doesn't Phil Gramm work for UBS? Way to go McCain.
I kinda feel like I should get a toaster or something. You know, just for living within my means.
UBS continually leads the pack in marking to market. I don't follow bank/broker shares, but, for all you that have intoned about there being other cockroaches...
I salute you!
Any bets on LIBOR futures?
lol FT, I was thinking a new vacuum...
o, no, no, UBS works for Phil Gramm
I was thinking a new vacuum...
Downgraded from a pony to vacuum! crikey!
In other news, our friendly independent truckers have had it with high diesel fuel costs. Walkouts begin today (April 1st, but this is not a joke).
Truckers: Full tank, empty pockets | StarTribune.com
every time my wife makes me use the vacuum around the house I feel my manly essence ebb
I think the clever woman has found a way to mask the menopause
Truckers strike
Nothing on the store shelves
Forced savings
Good
Please turn this into a depression haiku
striking truck driver
applies to job at wal mart
finds no goods on shelves in store
*finds no goods on shelves
New statistics watchdog to 'name and shame' ministers who mislead
Ministers who misuse official statistics will in future be "named and shamed" by a new official statistics "watchdog".
Sir Michael Scholar, the chair of the UK Statistics Authority (UKSA), which is established today, told The Independent: "If a minister makes an announcement in relation to a department where the effect is to undermine official statistics, then we will publicly counter that. If we have to name and shame ministers, we will". He has pledged to restore faith in public data.
While the majority of official figures will still lie outside the direct control of the UKSA and, under it, the Office for National Statistics, the UKSA will have the right to "kitemark" the numbers that are collected and published by various Government departments. The withdrawal of a "kitemark" is designed to be a powerful signal about the untrustworthiness of such data.
Sir Michael says the UKSA will be examining areas such as migration, health and crime statistics first, as they have been identified as being of particular concern to the public. He also suggested that, given the scepticism surrounding official measures of price increases, there could be "a review of how inflation is measured. It might be desirable to introduce new measures of inflation or make clearer the purview of existing datasets", though this was a personal view.
I think Paulson has the best perspective of anyone in the world to see what's coming. That's why he looks so Ichabod Crane.
I don't think Paulson orchestrated all the PPT stuff, yen carry, repos etc., just for person or crony stock market gains.
I think he also did it out of patriotism and because he believed it would help to bridge a time of short-term weakness. But the manipulation and leverage all got bigger than Paulson or anyone else thought it would.
Now, he sees that when the Big One hits, all the leverage and manipulation they've been piling on to mask weakness will just come caving in that much bigger and faster.
For almost a solid years, I've been a bear mainly because I thought markets were being over-leveraged and manipulated and it wasn't sustainable. Soon, we may see.
Do the Swiss really need two major world banks? Why not merge UBS with Credit Suisse and be done with it?
Bernanke's guru wins again!
Please note, only 'core votes' are counted.
Steve writes:
Dickeylee--
No lender of last resort worries for UBS: UBS Securities is a primary dealer for the FRBNY, so Uncle Ben's Money Store is open to them. Tra-la-la, etc.
Steve | 03.31.08 - 8:58 pm | #
So I am confused here. Is the FED then in the business of international bailouts? What happens to overseas brokerage accounts if UBS gets in trouble? Will the NY FED come to the rescue?
There is a constant stream of bad news. All kinds of accounting and regulatory contortion have been suggested and mostly abandoned without comment. Huge losses by the banks -right, left, and regular - mostly regular, and some not actually "banks". Financial institutions are splitting themselves up like some perverse form of self-corporate raiding - issuing stock to cover losses and to mask probable insolvency. The Fed has been converted into the world's largest most exclusive pawn shop and its chairman into a real life version of Winston Wolf. We're financing a war. Credit is drying up and debt is crushing us individually and as a people. And yet...
...the market is up.
Is this a great country, or what?
We are witnessing the beginning of the Japan scenario.
mp:
Konichiwa. What's next?
The Japanese economy certainly ground to a halt after the boom/bubble, but how did the standard of living change? Was there lots of unemployment and poverty? I have the impression that Japanese prosperity is still alive and well and the bursting of the bubble didn't drag real incomes down very much at all. But I would appreciate being better informed by someone who knows more than I.
Jim:
The Japanese weren't up to their eyeballs in personal or national debt, and they didn't leverage their homes to buy baubles.
In japan unemployment rose and many people lost their retirement savings. Many in Japan are still working for what they lost ten years ago.
The Fed's March 24 press release should tell you everything you need to know. The Bear Stearns bailout set a precedent, which will probably be the future modus operandi. The Fed will bail out firms as they fail, so this will be a long and drawn-out affair, just as it was in Japan.
Finally, an off-topic comment. Conjure and I are very tired, having both put in a very long day today. We notice that Tanta closed out her thread on Alphonso Jackson because of racist trolling.
Having served in the US Army, I can tell you that guys like Alphonso Jackson bleed the same way other guys do. I don't have much use for Jackson, but it isn't because he's black.
Conjure and I would appreciate a certain level of seriousness here. We've been noticing a lot of nonsense and stupidity lately that doesn't contribute to understanding the current situation.
So, please don't make this great site a waste of our time, or yours.
More later this week, if anyone is interested.
Barron's
Dr. Greenspan's Amazing Inveisible Thesis (and more evidence that the late Texas Congressman Henry B. Gonzales was a man ahead of his time.)
Dr. Greenspan's Amazing Invisible Thesis - Barrons.com
Wiki: Henry B. Gonzalez
Henry B. Gonzalez - Wikipedia, the free encyclopedia
mp,
Macanudos and McDuck - look for you later this week.
Taleb's book outsells Greenspan's:
http://www.bloomberg.com/apps/news?pid=20601109&refer=home&sid=aHfkhe8.C._8
Oil execs to take heat from lawmakers Tuesday
Page Not Found | Reuters.com
Guess they better round up the farmers next. The very same assh*les that are the most responsible for high oil prices by running our massive budget deficit to fund a war are making a little press for a dumbed down citizenry.
Anonymous | 03.31.08 - 11:34 pm
From the article:
"According to the U.S. Energy Information Administration, about 70 percent of the February 2008 average pump price of $3.03 a gallon was crude oil, with 17 percent from refining and marketing costs and 13 percent from taxes."
This doesn't make sense. These numbers add up to 100% cost. Where's the profit?
This doesn't make sense. These numbers add up to 100% cost. Where's the profit?
The profit lies in the refining and marketing costs, specifically in the refining section. See link below.
Factors Affecting Gasoline Prices - Energy Explained, Your Guide To Understanding Energy
Where's the profit?
The refiners are getting creamed. Just like the cattle, hog and chicken producers are from high grain prices which eventualy lead to shortages and higher prices.
I'm guessing a little bit of all 3 are profit, but marketing costs? How much do gas stations need to market themselves?
I'm guessing a little bit of all 3 are profit, but marketing costs? How much do gas stations need to market themselves?
It's not marketing costs of the gas station itself, but the marketing costs of the major brands (Chevron, Exxon, etc.) That's built into every gallon bought by the franchisee.
Dean: Refining costs and profits are listed together. The original article does not make that stipulation. They should be split out.
Octavio--
Being a primary dealer means that UBS Securities can use its USD dominated paper as collateral at the NY FED for low-cost funding under Uncle Ben's new ``Lean On Me'' program. The US operations are the part of UBS incurring those spectacular loses. But no, the Fed isn't loaning SF to the UBS parent...just keeping its USD liabilities liquid for cheap.
mp, I'm certainly interested.
So far this thread hasn't degraded, but some recent ones sure did. All: I suggest that if a post is blatantly vacuous, trite, or inflammatory, better to just ignore than respond. I think its best to assume that the thoughtful readers can identify such posts on their own, rather than clog up the comments with responses to comments better ignored.
This might help a bit more...
FORWARDER FOR ENERGY COMMISSION WEBSITE
Steve,
Thanks for the response. Then why did I read yesterday in bloomberg people in Zurich withdrew 700 million last week?
Marcus Aurelius writes:
Dean: Refining costs and profits are listed together. The original article does not make that stipulation. They should be split out.
Marcus Aurelius | 03.31.08 - 11:48 pm | #
Would you expect anything more from the press?
Steve, thanks for the excellent posts above.
Best
well said, mp.
Trolls come with the territory, frankly, I'm amazed there are so few here. one of the MANY things I like about this blog.
opes prime is interesting; it is shocking the press in australia because it is a small stock broker nobody had really heard of, and yet they were playing around with $1b of money from banks. Apparently they were covering the losses on shares lent to a small group of rich clients, well connected clients, by borrowing shares from their other 1200 customers and thus avoiding having to embarrass a rich favored person with a margin call.
the press today is wringing their hands a bit: how can there have been so much money sloshing around, what was ANZ, Merrill lynch, etc, thinking.. is this part of the short-sale-conspiracy or not (down under right now they are pinning a lot of the market declines on evil short selling hedge funds, skirting rules on disclosure)
Steve this is the link:
http://www.bloomberg.com:80/apps/news?pid=20601087&sid=a7OD4I9MoGVU&refer=home
UBS May Seek Approval for Capital Increase, Sonntag Says
By Elena Logutenkova
March 30 (Bloomberg) -- UBS AG, the European bank with the highest losses from the U.S. subprime crisis, may ask shareholders to approve a capital increase of as much as 16 billion Swiss francs ($16.1 billion), Sonntag newspaper said, citing people it didn't identify.
UBS needs money to keep its Tier 1 capital ratio at 12 percent, the newspaper reported, adding UBS will also report a first-quarter loss after writing down as much as 15 billion francs on the value of debt securities. Sonntag said UBS is suffering from a cash drain after customers in the Zurich area alone removed funds worth 700 million francs as of March 26....
Trolls come with the territory, frankly, I'm amazed there are so few here. one of the MANY things I like about this blog.
Key reason for this is that comments are kinda hidden, IMHO.
Observation from Karl Denninger at Market-Ticker:
As just one bit of this hidden reality, have you seen any writedowns of HELOC debt? Neither have I. Why not? An absolutely monumental part of that debt is uncollectable under present market conditions as the homes it was written on are underwater, and HELOCs are subordinate to the first mortgage. What this means in practice is that the HELOC writer gets nothing if the first forecloses and there is insufficient recovery to pay the first off in full!
He is calling for all of us to sign his congressional petition insisting on full transparency.
Go and sign! (Perhaps someone can provide a link)
Meanwhile, back at the ranch, the Shanghai Composite Index continues its slide.
Octavio--
Yeah I heard about the supposed run (I say supposed, because there is a big political brouhaha in the German press right now about UBS aiding German citizens to evade taxes, so I'm discounting the German press reports on this...a little, anyway).
It is of course theoretically possible for UBS to pledge collateral to the Fed, take the loan, and convert it into SF to increase their reserve balances in Switzerland.
I've missed this place! Network administartor at work doesn't deem us responsible enough to post here . . . or access many other sites these days. At least I can still read the posts.
Anon @ 11:34, in case you hadn't noticed, the party in charge of congress changed in 2006 . . . still not enough to get things done right, but we finally got control of committees. You have the other party to thank for endless war and utter fiscal irresponsibility.
Props to Tanta for cutting the thread on A. Jackson . . . and MP for the comments above.
For so much/so many bad news since last summer, equity markets are holding up pretty well. Drifting down slowly. Any takes on what the future will bring? NCRI just called the recession start and some morons are still debating whether we will have one. IMHO, there is still plenty of downside....
I went back to the archives from six months ago. The magnitude of what is hitting now is unprecedented, and the policy response is also.
That said, equity markets look quite calm for the reality of this damage.
I can hardly wait for the reality of this crisis to hit equity.
That is what will finally do in consumer confidence. Their shrinking retirement based on Wall Street mark to market fantasies.
The liquidation of leverage continues without interruption, and the fed is beginning the process of liquifying the financial system.
mp and a couple of others have been right so far, and the conventional thinkers have quite frankly sucked in their interpretations.
This is not the total end of the world, but what emerges from this over the next several years will not be the financial landscape we all grew to know and revile.
Someday this war's gonna end...
It is of course theoretically possible for UBS to pledge collateral to the Fed, take the loan, and convert it into SF to increase their reserve balances in Switzerland.
Steve | 04.01.08 - 12:01 am | #
I don't think regulators care what currency it is in as long as the value of the reserves hold up & match the magnitude of the credit risk they are supposed to counter-balance. Considering the dollar lately SF might be just fine with both Swiss regulators AND the fed.
Steve writes:
O...
It is of course theoretically possible for UBS to pledge collateral to the Fed, take the loan, and convert it into SF to increase their reserve balances in Switzerland.
yet another way of cheating the US taxpayer. Subsidized 2.5% loans to the Swiss!
I was shocked that today's market action was as subdued as it turned out to be. Quarter end for a totally disastrous quarter and no real attempt to shake up the market.
Eery quiet. The calm before the storm?
AllenM writes:
I went back to the archives from six months ago. The magnitude of what is hitting now is unprecedented, and the policy response is also.
We've hardly scratched the surface of 'unprecedented policy responses'... as this asset deflation intensifies there is going to be a whole lot more where all the current 'unprecedented' came from. I wish I was half as smart as those 'innovators' dreaming up all this 'unprecendence'... then maybe I wouldn't be so surprised all the time.
.... The new FED lines make the USD the ideal carry trade currency. We will continue seeing it on its way down as the swiss buy swiss francs with the USD they borrow from the FED!
Gary, it breaks my heart that the adults and babysitters put you in a 'time out.'
Get some work done 8-5, and hope that your two candidates don't torpedo your party.
Do people usually pronounce it You BS,or OOBS? I may be in polite company tomorrow and wish to avoid sounding gauche.
We're saved! Our fearless leaders (Curly, Larry, & Moe) are going to peg the USD to the Zimbabwe dollar!
barely: "The calm before the storm?"
I hope so.
AllenM,
Yep, the equities markets are definitely in for a rude awakening. I find it amazing to look at the PE ratios of the major markets today, versus one year ago. After the 15%+ drop in market indices, we have these index PE ratios:
Nasdaq: YearAgo=24.42, Today=27.20
Russell2K: YearAgo=38.70, Today=50.66
S&P500: YearAgo=17, Today=19.94
NOTE: These figures are from the WSJ "Data Center" page.
The decline in earnings is overwhelming the decline in price....so far, that is.
Look for PE's to get down to BELOW historic norms in a year or two.
We haven't even begun to see the job losses pile up. As all that leverage and cash flow dries up payrolls and employee pay will be the nail that sticks up and needs to be hammered down.
How do you CUT pay to an individual? Basically impossible. The answer is to cut the position and replace if necessary with a lower paid person. The squeeze of the middle income earner is going to hurt more than the housing bust.
Could it be things are not so bad, just easier for journalists to keep writing about bad stuff. The bad news literally don't stop from around the world...
Bloomberg.com
barely,
First cut is to hours -- managers pull back on OT say from 12 to 8 hour days. Then they cut days, then positions. 4 guys let go today at work. No warning. No scale back. And that's scary.
For inquiring minds...I left out the DOW (one year ago, versus today):
DOW Industrial PE Ratio:
Year Ago=16.74, Today=51.59
Wow! I wonder if this is a typo on the WSJ Data Center page?
Homebuilder I worked with went from 160+- in 2006, to probably 30 today.
Octavio Richetta writes:
.... The new FED lines make the USD the ideal carry trade currency. We will continue seeing it on its way down as the swiss buy swiss francs with the USD they borrow from the FED!
Octavio Richetta | 04.01.08 - 12:14 am | #
I disagree - there are TWO things a carry vehicle must have:
1) large interest rate spread - USD check!
2) exchange rate stability - USD no check
Even though we are going the 'right direction' for carry - down - experienced carry pros won't buy in heavily UNTIL they are convinced the central bank (our case the fed) won't try to rescue the currency.
That is what has made the yen such a good bet over the years - you could always count on the BOJ to trash the yen to defend exports (so the 'carriers' could use strong foreign currency to repay weak yen debt). The recent yen strength has been a real problem for yen carry.
The dollar sure looks to becoming a good candidate but one big rally and you could wipe out a couple years - maybe even a decade - of interest rate 'carry spread' profit.
The FXers will be watching the fed but I doubt many will carry USD big time until they see a trend suggesting both conditions are met.
List of the Primary Government Securities Dealers Reporting to the Government Securities Dealers Statistics Unit of the Federal Reserve Bank of New York
BNP Paribas Securities Corp.
Banc of America Securities LLC
Barclays Capital Inc.
Bear, Stearns & Co., Inc.
Cantor Fitzgerald & Co.
Citigroup Global Markets Inc.
Countrywide Securities Corporation
Credit Suisse Securities (USA) LLC
Daiwa Securities America Inc.
Deutsche Bank Securities Inc.
Dresdner Kleinwort Wasserstein Securities LLC.
Goldman, Sachs & Co.
Greenwich Capital Markets, Inc.
HSBC Securities (USA) Inc.
J. P. Morgan Securities Inc.
Lehman Brothers Inc.
Merrill Lynch Government Securities Inc.
Mizuho Securities USA Inc.
Morgan Stanley & Co. Incorporated
UBS Securities LLC.
Primary Dealer List - Federal Reserve Bank of New York
Exactly Marcus. New projects are frozen and those in the pipeline are finishing up, so there's natural labor attrition but nothing to go on to. Nothing new is getting started.
Centex Homes, the homebuilding unit of Centex Corp., has sold a portfolio of
properties to a joint venture led by RSF Partners Inc. for $455 million in
cash.
Dallas-based Centex (NYSE: CTX) said the sum includes the purchase price of
$161 million and an anticipated related tax refund of $294 million. The book
value of the properties sold was about $528 million
You can do some math on that one, and try to determine the original value of
those properties.
Lets see:
$294 Tax refund * 40% tax rate = $735M in losses + $161M = $896M
So that implies the they properties were actually sold for about 18 cents on
the dollar. Yeah, I know the math is rough, but that should be in the
ballpark.
this is after past write down on thsi property. CTX is in death spiral. selling assets to pay on going debt and expenses while having nothing left for the future.
Very nice 'back of the envelope,' Yal. Seems plausible.
Yal,
So what is keeping the share price of CTX (and LEN, PHM, TOL, etc.. for that matter) at its current level?
I'm absolutely amazed at their staying power.
There are some pretty optimistic souls out there.
dryfly --
Octavio was asking about a supposed run on UBS's Swiss franc deposits. So yes, it would potentially matter if UBS were to borrow USD from the Fed and exchange them to cover domestic liabilities in Switzerland. I'm pretty sure that Uncle Ben's ``Lean On Me'' program is intended to increase lending in the US, not to plug sinkholes in foreign depositories.
By the way, this is precisely the objection some people have to what the Fed is doing: when the Fed lends to a US bank, they have (believe me) excellent information about the bank's condition. They often have credit officers at the bank monitoring things every day. The Fed doesn't have the same level of information about the condition of their primary brokers. So the risk is greater that the Fed will have to take the collateral and suffer a loss.
mp,
Thanks for your contributions. You are the #2 reason I come to this site, after only our host.
Cheers,
prat
Software Industry - Last week we had a 17% cut. I hope the company has enough money left to pay my severance!
Here's an interesting study done for Congress, detailing the depth of recessions from WWII to 2002. The two worst are below.
From page 14 ...
In 1973, 16 months of recession, 3% neg. GDP, 9% unemployment.
In 1981, 16 months of recession, 2.9% neg. GDP, 10.8% unemployment.
Roubini is calling 2008, a 12 to 18 month recession, CR two months or so.
Based on what we know about the current fragility of the banking system, compared to history, they may both be optimistic.
Also, see page 27 concerning Depression comparisions.
Good bedtime reading.
Enjoy.
http://www.fpc.state.gov/documents/organization/7962.pdf
Steve, great response on FED oversight of banks not extending to PDs.
Dryfly is right. He was answering another post of mine (which I did not mean seriously just blogging away as I believe the USD will recover)
dryfly:
I disagree - there are TWO things a carry vehicle must have:
1) large interest rate spread - USD check!
2) exchange rate stability - USD no check
Agree 100%!
"Roubini is calling 2008, a 12 to 18 month recession, CR two months or so."
Two months is too shy.
I suppose I'll confess to "trolling" vis-a-vis baby-boomer-anger. I suppose the truth is that our country and everyone in it has been blind to what is really going on in our country... although some people are waking up I'm not sure if it is enough. It's not just one generation, but every generation showing a deficit in understanding history and thinking in a logical manner (housing never will go down, tech stocks will stay hothothot forever). Maybe it's true to say that we've allowed ourselves and have looked at others as consumers instead of people, and haven't been challenging all the BS that people peddle.
It's nice to come to this blog and find-like-minded people of all generations here, people who want to be informed and know what is happening . I know that some here have some type of different "political" preference than me, but participating in these online types of communities make me feel like our differences are small... as opposed to other more political places where they make it seem like there is a huge gap between average Americans.
FYI, the latest monthly release of ContraryInvestor.com is available, and it's great, as usual. It's called "Wagging the Dog", and it is about how deleveraging will make the market move in short-term irraitional directions for some time to come.
Yossarian,
Here is another VERY interesting take by the Bank of England:
Resolution of banking crises
OVER THE PAST QUARTER of a century, unlike the preceding 25 years, there have been many large bank failures around the world. Caprio and Klingebiel (2003), for example, document 117 episodes of systemic crises and 51 cases of borderline or non-systemic crises in developed and emerging market countries since the late 1970s. Moreover, cross-country estimates suggest that output losses during banking crises have been, on average, large over 10% of annual GDP and that bank lending and profitability have often remained subdued for years afterwards. This article reviews the merits of the various techniques used by authorities when resolving individual or widespread bank failures.
Huh, something just occurred to me. In the past it has been politically infeasible to do as Paulson wants now, which is to regulate the non-bank primary dealers more closely. But, funny enough, by opening up the discount window to them for the first time since the great depression, and having them draw on it, the Fed has completely pwned them. The argument that these institutions are better off on their own has gotten a lot harder to make.
"Octavio was asking about a supposed run on UBS's Swiss franc deposits. So yes, it would potentially matter if UBS were to borrow USD from the Fed and exchange them to cover domestic liabilities in Switzerland. I'm pretty sure that Uncle Ben's ``Lean On Me'' program is intended to increase lending in the US, not to plug sinkholes in foreign depositories."
There must be some kind of confusion about the benefit of being a primary dealer (or may be I am the one that is confused). The primary dealer can take the "approved" paper to discount window or one of the new facilities and borrow money from Fed at a low rate but with a hair cut depending on the collateral and length of the repo. So it allows the primary dealer to exchange some hard to sell (and some pretty liquid) paper for money. But it does not help the primary dealer when they loss money and need to raise capital as in the case of USB here. It seems a lot of us is making claim that somehow being primary dealer help UBS in their current problem. To the extent that they have execess asset that is not being use for Tier 1 capital, they can pledge it and get money to use for whatever purpose. But other than that they are on their own in dealing with their mortgage loss..
Fed is backdropping liquidity and let the mortgage problem play out. So everyone will write off their mortgage loss in due time instead of being force to bk becuase of the mark to market price. The market price of some of these securites are artificially low becuase a functional market does not exist. Market price for some of these paper can be a lot less than the intrinsic value after the cycle play out (after all the default etc. take place in the next few years). So Fed is just trying to make sure that the guy who need to go BK will do so in due time but not forcing those whose asset will be proven over time to be o.k. to bk now. In the mean time, Fed engineer a step yield curve to try to allow as many bank/IB/financial institutions to make it out o.k.
REBear | 04.01.08 - 12:37 am |
Sorry 'bout that.
xofruitcake --
Yeah, you are confusing two things. The (hypothetical) question is whether a foreign bank with a primary dealer subsidiary could borrow from the Fed to obtain liquidity for a bank run in their home country by exchanging their newly minted US dollars for their home currency. To pay depositors, not to raise equity.
YLSP- Understood. As a member of the Baby Boom generation I was always amused by the "don't trust anyone over thirty" mantra. I'm fairly skeptical about any age. My older sister's friends were always whining about how we had to live under the specter of nuclear war and how their parents had screwed up the world. True. Just as younger generations are correct in feeling enraged at what kind of shit they are being left with. But after all is said and done, you just end up dealing with what you get.
Kind of off track but related. I have to take reading about Native Americans or other impoverished groups around the world in small doses, because I just get so angry at the way they were treated by the US government and the American people. The rage builds because I feel helpless to do anything that actually can make a difference.
Job Losses
Financial services account for about 4 percent of the U.K.'s total employment. The industry shed about 9,000 jobs in the final quarter of 2007 and will cut as many as 11,000 in the next three months, the CBI said. The survey showed the outlook for employment was the most negative since December 2002.
U.S. banks hit by mortgage losses and writedowns also are cutting staff, eliminating more than 34,000 jobs in the past nine months, the most since the dot-com boom fizzled in 2001. Citigroup Inc., Lehman Brothers Holdings Inc. and Morgan Stanley are among firms to disclose job cuts.
By reading blogs, one can get a consensus of what some people are thinking. But the debate on blogs and in the media is tempered by restraint and there are several taboo areas that are not cool to talk about or express opinions about. Certain topics or subjects are censored.
We all should know this if you spend any time looking into issues about the government and the economy. There are lines you can't cross. I'm not talking about rascist comments.
But for example if I say I don't like all of Israel's policies or if I say I don't agree with right wing hawkish Zionism, I might unfairly be labeled an 'anti-semite'. Do you see how the information system works in our country? Some areas are sacred and cannot be analyzed or investigated. that's just the way it is. that is the truth IMO.
As long as we stay within the accepted parameters of moderated debate, one can express opinions. But if you bring up say 911 or ask who is behind the Fed or ask or question why should we nuke Iran...well the gatekeepers will come down on you and silence you.
In regards to the USD carry trade I believe the 2nd box has been ticked.
$1.60 to the euro is where CB intervention will take place, they've already said as much.
It might be a carry you can work with for a year or two, but it's been building ince the 2nd rate cut.
"I might unfairly be labeled an 'anti-semite'."
Or a self-hating jew (as the head of human rights watch was.)
Ridiculous.
Isreael wants what everybody wants, power without accountability.
Trolls come with the territory, frankly, I'm amazed there are so few here. one of the MANY things I like about this blog.
Shnapstafarian | 03.31.08 - 11:56 pm | #
I agree.
IGNORE THE TROLLS.
Threse trolls are dirty players and were burnt by the flames of greed. It could not have happened to a finer bunch of people - who are well know for shorting the stock of their competitors.... The message they should lern is that during the season of spring they must clean shop....
Changing back a handle ... don't mind me