If the market is stabilized, why this move? This is a crisis fighting stance and if the market's is saying "credit crunch is over", why does the fed need to do this?
Either the fed is wrong with this move, or the crisis is bigger than what the market is pricing in.
Term inter-bank funding is still very hard to come by, though the market has gone from death watch to merely critical on this announcement. The financial world would probably be a far less screwed up place if they'd done this two months ago and paused at 3%.
...
The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78% of the 330 metropolitan regions that NAR tracks reported price increases in the latest period -- and that despite the acknowledged downward bias in current price readings.
...
hc, Yal - the banking system is still on defcon 5. The state of the economy doesn't warrant -2% real interest rates - the banking system however does (and then some).
Jobs report for April is out. Fewer jobs lost than the median estimate, -20k vs -75k. Jobless rate down to 5.0% (almost had to fall after a 0.3% rise in March). Otherwise, the report is a stinker. Duration of unemployment up. Hiring diffusion down. Average hourly earnings growth slowing. Weekly earnings actually falling - before correcting for inflation. Goods sector (which leads) shed 110k jobs, the biggest loss since February 2003. Trade, transport and retail shed lots of jobs, spill-over from goods sector troubles. Markets taking it as good news, of course.
mostly. Net, short, but I always hedge. Trouble is, I even sold calls on some of my hedges as I got more bearish, so cancelled out some hedge positions. Clobbered.
This has very little to do with the equities or commodities markets. This is all about funding. If you don't work in finance then you probably aren't aware of the funding component of the business. Right now, banks are having a very hard time finding term funding at reasonable prices. It isn't because the cash isn't there. Banks are just terrified of loaning money to each other. Until this problem gets fixed the credit crisis will continue.
Central banks on both sides of the Atlantic are debating causes of the surge in interest rates on commercial banks' dollar-borrowing in money markets and considering what they can do about it.
Yes, banks have an absolute right to operate with a wide spread so they can make guaranteed money. Unless they make a lot of bad loans (oops), at which point...see the first sentence.
"If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," NAR Chief Economist Lawrence Yun said. "In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes."
Turbo writes:
hc, Yal - the banking system is still on defcon 5. The state of the economy doesn't warrant -2% real interest rates - the banking system however does (and then some).
Turbo | 05.02.08 - 9:35 am |
I'm a little confused - just Wiki'd it, and defcon 5 is peacetime "no problems." Is this what you meant?
En Fuego and Turbo, I don't understand the fear of interbank lending right now. Isn't the Fed backstop enough of a guarantee to convince them? I think there should be larger fear to be counterparty to CDS trades or synthetics CDOs, but simple overnight interbank lending seems it shouldn't be so scary.
Are there real fears of banks going tits up out of nowhere? Why is this? Or do banks just fear their own balance sheets are so precarious that they could slide too quick? What gives?
barely watch out for gold it broke through major support at 880. It could test its OCT 07 levels IMO. This could go back down to mid 700's if it breaks below 840.
Central banks on both sides of the Atlantic are debating causes of the surge in interest rates on commercial banks' dollar-borrowing in money markets and considering what they can do about it.
I don't think there is much debate as to the causes. Those are clear enough. I think the debate is occurring on two levels. At the obvious level the CBs are discussing the best coordinated effort to manage the LIBOR and/or any new way to cheat without getting caught again. On a higher, more abstract level there has got to be a lot of concern that the current credit crisis is beyond the control of classical monetary and banking policy coordinated or not. Lenders need low LIBOR for borrowing liquidity purposes and to lessen the shock to borrowers as US residential ARMs tied to LIBOR reset and the same banks need a high LIBOR to get a decent return (plus inflation) on money they lend out to lessen their shock as US residential ARMs reset.
Honestly, the problem isn't that the CBs don't know what to do, they just don't want to let rates rise to market.
What is this fear of systemic risk to the banking system? The banks are already bankrupt, aren't they? The link provided by Anonymous at 9:37 AM shows that the banks have negative non-borrowed reserves of about $ -90.9 billion, though their required reserves should be about $ +40.4 billion. The banks are already $131.3 billion underwater, right? And somebody else in the thread above just said "it isn't because the cash isn't there." Hey! The cash isn't there!
Perhaps the systemic risk is not to the banking system, but simply to the value of the real estate and stock portfolios of the bourgeoisie.
turbo, I am confused too. Why would banks lot lend when cheap money is plentiful c.o the largesse of the Fed, to those without the stellar collateral listed above?
Unless the crap left available to pledge against loans is now hyper-concentrated crap.
the news on bofa and countrywide is also revealing. countrywide's recent earnings debacle has left bofa most concerned and desireable of similar bail-out treatment that jpm got for the bear purchase. countrywide's books are clearly too big to fail and bofa's investors are clamoring that the countrywide purchase is a bad deal all around. i would expect this to become a problem soon where bofa looks for the exits...lastly, one has to think that today's increase in the fed collateral swapping will weigh on stocks by early afternoon. it is a clear sign of funding perils that persist even though "we're near the end" of this credit crisis.. the dollar must be impacted by these taf's. tslf's, etc// the very issuer of the us dollar has compromised its balance sheet indefinitely. the 80% of us population that makes 100k a year or less cannot afford their lifestyle anymore..its that simple so these alt-a's and other prime loans will continue to underperform going forward.
Honestly, the problem isn't that the CBs don't know what to do, they just don't want to let rates rise to market.
Rob Dawg | Homepage | 05.02.08 - 9:56 am | #
So this means that the fed wants:
1. a high(and safe) stock price/confidence for banks.
2. a low interest rate/LIBOR rate for home buyers
3. a sustained high home price, so it forever goes up
4. an economic recovery, so jobs and purchasing power will return.
Seriously! It seems to me that they want 2004 era all over again!
Lets see, #2 reduces bank profits, which hurts #1. #3 reduces consumer spending power, which hurts #4.
The credit crisis continues because the businesses and individuals that make up these economies are not credit worthy.
We simply don't have the financial knowhow or respect for debt obligations to be trustworthy borrowers. We don't use credit; we abuse it.
This is a cultural and behavioral problem that no amount of liquidity injections, no amount of bailouts, and no amount of rate cuts will fix.
Ultimately any scheme the central bankers come up with to ease the credit crisis only affects the financial system. But the financial system is merely infrastructure to serve economic participants. If the credit crisis is rooted in these economic agents, if they intentionally abuse this infrastructure in a systematic and organized way, then it doesn't really matter what the Fed does to save it.
Ultimately the credit crisis will resolve when people begin to respect debt obligations again.
Unfortunately, history suggests that's likely to be a hard lesson, and the longer we avoid learning it the harder it will be.
"Banks are just terrified of loaning money to each other. Until this problem gets fixed the credit crisis will continue."
En Fuego | 05.02.08 - 9:49 am
The banks are terrified of lending money to middle America. Middle America is tapped out, and everybody knows it.
Henry Ford understood the long term value of high wages, the alternative - greed and money hoarding - being unsustainable.
The upper economic tier is now forced to trade with its peers. Money sloshing back and forth at the upper levels (You bought that Trickle Down line? What a schmuck.) and losing value through inflation with each transaction.
After 30 plus years of generating profits from deficit spending, the dotcom bubble, the housing bubble and the credit bubble, wall street has every g**damned right to be optimistic about the future. We have built an entire culture on denying reality. Deficits don't matter. Revenue doesn't matter. Housing always goes up. Lend freely-we'll just sell the loan later.
This is no way to run a bank or a country. But guess what the f***ers that do this live in 10k sq ft. homes and fly around on private jets.
Perhaps the truth is this: deeply embrace the insanity and become filthy rich - challenge it and die.
According to Yale Hirsch, April is normally the strongest month for the stock market. He frequently said, "May comes in like a bull and goes out like a bear".
Sorry, suecris, guess that's what happens when you take military jargon face value from bad tv (which would be kind of like doing one's investment research on cnbc). The banking system is pretty much the complete opposite of defcon 5 at the moment then.
Bank's are incredibly balance sheet constrained at the moment - writeoffs mean reduced capital which requires smaller balance sheets which means less lending. Wholesale lending between banks is about as low margin business as there is in the banking world, and is purely a function of excess liquidity. At the moment there's negative excess liquidity, hence the virtual disappearance of the inter-bank lending market. The TAF auctions have been way oversubscribed, but the TSLF auctions have been lukewarm, which by my reading means the eligible commercial and investment banks have unloaded most of their "high quality crap paper" to reduce balance sheet with the smallest hit to the bottom line, but are still holding a lot of lower rated crap the Fed doesn't (currently) accept as collateral. Re credit default swaps - I've always regarded them as a nice academic concept that won't hold up to the stress test of reality. Apologies if I missed any questions. I think I almost know how Tanta feels now.
I posted this in the previous thread (no hat-tip, even - d'oh!)
"NEW YORK (MarketWatch) -- The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it provides to banks and that, for the first time, it was willing to accept bonds backed by auto loans and credit cards."
This, IMHO, means hyperinflation is the endgame they have chosen. The dollar goes to zero, effectively, as the Fed tries to print mountains of worthless paper to cover up the unpayable debt. I hope we all like 15+% inflation per year while wages decline.
They keep talking about how Americans need to consume less. I suppose that will be the case once we're reduced to living in poverty. A great plan!
Meanwhile, we have a concerted attack on the Case Shiller Index by the NAR. Just another part of the illusion. Houses are not selling (maybe because nobody can "afford" them without a toxic loan?), so they have to come up with some BS to try to sucker people back in. "Really, prices are not declining! All is well - ALL IS WELL!!" How that makes the houses more affordable (or "affordable") is beyond me, but some suckers will buy it.
The more this plays out, the more I lose hope that justice will be served and things will stabilize. What is to prevent the Big Boyz from continuing to drive prices up for everything through speculation and fraud? If they can just get the government to buy up all the bad debt and offer taxpayer backed toxic housing loans, we're toast. Housing will never again be affordable if that happens (barring social collapse, of course), and living costs will skyrocket forever while jobs vanish.
I'm truely uninformed about finance but still have to mention the practical effect of the bank spread on me.
I've got excellent credit and this fixed rate mtg. I've been watching and hoping that all the fed rate cuts would provide me w/ the opportunity to refinance at an even lower rate. But whatever the banks are doing, they keep foiling this opportunity. It occurs to me, this is purposeful; they don't want people like me to refinance into a 4.5% mrtg. They bug me no end!
Rich, true, but as well stand in soup lines, the Dow will hit new highs and the unemployment report (stripped of anyone who is unemployed) will be rosy and optimistic.
Pondering - they can't hyperinflate. If they print money, the cost of debt service ramps to account for the increase in FRN's. There is no mechanism by which the Treasury or the Fed or Congress can force other nations to purchase our debt.
They simply don't have the ability even if Ben wanted to -- if nobody purchases the issued debt, the US squicks instantly.
I'm as frustrated as anybody. The fed's continuing policy of bailing out imprudent banks and speculators at the expense of savers is infuriating. Negative real interest rates are a disgrace.
That aside, I still think that prudence is the best long term path to wealth. Although it would be even more rewarding without the fed & gov't bailouts.
FWIW, I skipped the dotcom boom & bust as well as the housing boom & bust. I didn't garner huge returns by any means, but I beat out most of the so-called "professional" managers touting the hot investments of the day (growth, value, real estate). Low volatility to boot.
There are no guarantees. But for me, a bird in the hand is still worth two in the bush. I've been investing for 30 years. Despite all of today's shenanigans, I still think that sticking to a prudent plan works. And by prudent, I mean saving like crazy and investing in fairly priced investments that increase in value. It's actually easier today than ever, although the returns are lower.
Presently, I'm growing optimistic I'll find a good price on a second home in Florida. Where is Cobradriver?
barely, They squeezed hard and I too had to capitulate on a cple shorts.
Holding twm, don't know why!
Tim, Where do you live in the bay area?
Amazing they are taking auto paper because it actually moves and hides when your trying to repo it.
I work with dealers daily and the ltv's on new and used cars is ugly.
They bury carry over from old loan above kbb into new loan. Crazy as home loans..
I agree. They are really trying to tell us :
"Look, your money is worthless. If you don't dump all your cash into things like food, housses, cars, granite countertops, we WILL steal it from you in the form of inflations the costs of basic necessities."
Pondering the Mess writes:
Rich, true, but as well stand in soup lines, the Dow will hit new highs and the unemployment report (stripped of anyone who is unemployed) will be rosy and optimistic.
No it won't.
Last October, the Dow hit the highest point it will hit for several years.
Most of the conditions underlying earnings are nasty.
Taxes on the rich and corporations are about to soar.
Government spending cutbacks will be a trend for the next five years at leaast.
The hedge fund mania is crumbling and new regulations will kill it.
CD live in SF. How about you? Barley, CD I think we are in the last throes of bear market rally. The market will either turn down today, and by Tues will have a confirmation of a downward move. Don't like to make calls and if you guys lightened up on shorts thats ok but see what happens on Tuesday.
That's something you have to decide for yourself, but I'll tell you what I'm doing.
I bought an SP500 Index fund as a LTBH back in January, and I've been swing-trading (long only) in and out of a portfolio of small-cap stocks since then. I'm waiting for another minor pull-back to re-enter that portfolio. (If you're looking for a LTBH entry, you could do the same thing with a stock mutual fund, waiting for a minor reaction.)
This is purely anecdotal, but the fact that the short-sellers are capitulating suggests to me that this market is getting a little overbought, making a pull-back more likely.
I'm as frustrated as anybody. The fed's continuing policy of bailing out imprudent banks and speculators at the expense of savers is infuriating. Negative real interest rates are a disgrace.
What I read here is the sentence:
"This strategy is running contra to my personal investing strategy".
If that is the case, then perhaps you need to change it. if you want to trade the side against the Fed and most heavy financial institutions, go right ahead. But if you can't read the macro-economic tea leaves, and understand what is going to be done, and get your personal political philosophy out of the way, then you will get creamed. Whatever you "believe" about the way it should work is irrelevant.
You're marching down the hallway with these boys behind you...and in the end you will learn to love big brother
I would say it would be very good news for all global economies including the U.S. if oil fell back below $75 a barrel.
But how can that hahppen until the dollar strengthens?
Why should an oil exporting nation spend their strong currency (oil in the ground) for a weak and uncertain currency?
If you are buying stocks into $110-120 oil, you are a fool. The destructive power of sky-high oil on all economies, and especially the U.S. is cumulative.
Every day oil closes above $100 a barrel is a terrible day for the U.S. economy. There will come a day, very soon, when the rest of the world will no longer be willing to finance U.S. oil imports. That's really what it amounts to. Every dollar that we spend as a nation on oil over $100 is being borrowed from abroad.
"Look, your money is worthless. If you don't dump all your cash into things like food, housses, cars, granite countertops, we WILL steal it from you in the form of inflations the costs of basic necessities."
Saving is critical, Bernanke said in response to questions after a speech at Montana Tech. He said the trade deficit isnt a reflection of the quality of U.S. goods and services but rather a result of the fact that the U.S. invests more than it saves and the rest of the world is a net saver.
" when people begin to respect debt obligations again. "
ac, the credit crisis will be over when Wall Street learns to fear risk again.
I recall reading that in the 1930s there was a belief that the speculative mob mentality in the late 1920s was so viral and so out of control that the only thing that could stop it was some sort of disaster.
In other words, the Great Crash might have been necessary to wipe out the equity locusts and restore sanity to the financial system.
Hopefully it won't take a cataclysmic event to restore sanity to our markets today, but the behavior I see doesn't make me optimistic.
I've noticed over the past year or so that people only start to sober up when things start to go to hell. For a brief moment in August 2007 it seemed that sanity had returned to the markets as everybody stared into the abyss and thought maybe that was it. Then Ben came running to the rescue and quickly banished any fears of returning to reality. Sanity vanished replaced by another drunken speculative super-orgy.
It's disturbing that only certain things seem to stop the disease.
Actually, the disconnect between credit and equity markets is one of the big mysteries in finance right now. Believe me, many traders are trying to figure out how to position themselves on credit vs. equity. The problem is that nobody really knows what's going to happen.
Lately credit has rallied along with equities, so that's sensible. Yet somehow funding rates haven't rallied. It's a bit of a mystery. One possibility is that we have entered a different regime in the world of finance. Prior to last summer, you could get funding at ridiculously cheap levels -- less than LIBOR sometimes. Now you gotta pay for it and it's throwing people for a bit of a loop. That is, in addition to paying for credit risk you now have to pay just to get your hands on the money ( typically more than LIBOR ).
That introduces a number of interesting questions. Is LIBOR really the risk-free rate? What should banks really charge each other for funding? That scandal we heard about last week regarding LIBOR misquotes is a result of this uncertainty. In this new market regime banks are unsure about the "price of money".
( yoda ) Uncertainty breeds fear, fear leads to anger, anger leads to hate, hate leads to ..... suffering ( yoda )
CD Haha Bombay actually its Mumbai now more PC. JAVA (Sun) got hit hard. I hope I am right too. Todays pop took me by surprise. Don't like reits because people hold them for the dividend and those dividends depend on the health or CR or home market and the value of their land/buildings. Fremont to Sunset that's like a long distance relationship with gas prices now.
Maybe many of the workers in the construction industry being laid off were illegal immigrants to begin with thus no affect on the numbers.
I agree worked at a big box retailer with a bunch of other crappy big box stores and they all hired illegal workers. Just some 4-1-1 (Yo,yo,yo!) with the exception of grocery stores who have unions all the stocking of shelfs is done by illegals.
"Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. That includes some bonds backed by student loans, ..."
Forgive my ignorance, but how are student loans "asset-backed"? I'm missing the collateral backing these loans.
RAIT Financial Trust yikes look at that chart and price action. This thing got "aggressively repriced" and anyone would be a liar if they knew the fair value on this thing. Stay away but don't short it this low either. I don't like it I mean it lost more per share than in its last quarter than they earned in all of 06'.
My personal philosophy is that the fed & gov't shouldn't steal from savers to bail out wall streeters that wrote themselve 100 billion in bonuses over the past three years.
That aside, I've been heavily weighted in intermediate term treasuries for the last decade. The fed gave me a huge boost. You know something is off when the people who don't even try are garnering the biggest returns.
If your philosophy is to follow wall street & the fed, YOU will get creamed in the years ahead. Wall street is unkind to followers to say the least. Good luck.
I know that the fundamentals are horrible, but I just can't see what is preventing the Big Boyz from keeping this perpentual motion BS machine going. If everyone "agrees" to pretend that an MBS is worth 95 cents on the dollar when it is really worth 40 and falling, who is going to stop them? If everyone "agrees" that the banks are solvent, inflation is "contained," and working for peanuts while suffering under crushing debt is "good for Americans," who's to say "no!" to all this?
Logically, it has to end somewhere, but where? This freak show of nonsense has been going on for years, peaking with the Housing Bubble and madness such as "prices / salaries no longer matter" and the sheeple bought it. Now, we're a year into the more noticeable part of the mess, and still the dance continues and the sheeple are still buying it. Nothing short of a Greater Depression is going to change this, I believe.
If the Powers That Be just decide that they get the loot and we get the shaft via: inflation, job loss, wage stagnation, fraud, BS, etc. is anyone going to say "no!" or will everyone just shrug, toss down another rat-meat burger, and shuffle off to watch "American Idol" before their 2nd shift, part-time, no benefits service sector job begins for the day?
I guess it is time for the banks to trad in their bonds on LNT for treasuries.
Securities and Exchange Commission filings say members of Linens 'n Things' pre-Chapter 11 bank group were Wells Fargo Corp., Bank of America Corp., CIT Group, UBS AG, Wachovia Corp., UPS Capital Corp. and Bear Stearns Cos.
The Federal Reserve and other central banks say they will increase funding and accept bonds backed by credit cards and car loans. Fed to soon accept all junk bonds and below investment grade securities. Timeshare debt, ATV debt, fishing boats in near default, delinquent lay-away slips, pawn shop pledges, honeydew lists, discounted legal judgment certificates, skate-key slips, Bazooka joe bubble gum wrappers -- all valid collateral for use at discount window. Corollary windows soon opening for onestop shopping. People may pawn clothes, bridgework, have gold extracted from teeth, sell hair for wigs, apply for monkey grinder/peanut huckster. We're not ALL subprime now we're all just mostly subpar.
"Commercial loans bright spot in lending?
May 2nd, 2008, 12:01 am · 1 Comment · posted by Matt Padilla, Register Reporter and Blogger
The California Mortgage Bankers Association found just 0.02 percent of commercial loans delinquent in the first quarter of this year based on a survey of 17 mortgage banks, the lowest rate since June 2002, when it was 0.01 percent. The current rate equates to $14.6 million loans 30 days or more late out of $90.9 billion serviced.
At the end of 2007, the delinquency rate was 0.05 percent, a year ago it was 0.13 percent. Heres some more facts from a CMBA release:
Fifteen of the seventeen commercial mortgage banking firms that participate in the survey reported no loans more than 30 days delinquent.
Of the four delinquent loans totaling $14.6 million, one, a $1.5 million loan on an apartment building in Sacramento, was 2 payments past due; the other three were three or more payments past due. They consisted of a $4.8 million loan on a healthcare facility in Carmel Valley, a $4 million loan on a hospitality building in Patterson, CA and a $4.3 million loan on a retail property in Westminster, CA.
By number, the four delinquent loans also represent 0.04 percent of the 10,573 commercial real estate loans included in the survey.
The media and some experts have been saying the credit crunch and housing slump are spreading to commercial real estate. But perhaps Californias income-producing properties are faring better? Bring on the debate."
"If everyone "agrees" that the banks are solvent, inflation is "contained," and working for peanuts while suffering under crushing debt is "good for Americans," who's to say "no!" to all this?"
LIBOR. People with real money want to be compensated for the real risk
Worried: I hope you're right... my concern is that if the people with the real money realize that there is no real risk because the Fed just prints more money (yes, that sounds crazy, but it seems everyone is happy with the Fed monetizing the debt), then why not continue the play the game? I'd like to think that the people with money are smarter than the average mope who went out and "bought" a $500,000 McMansion on a $50,000 a year salary, but I am having doubts at this point.
I see the market now as a group of crooks passing a bucket of worthless slop round and round to each other, each making up money out of whole cloth for their "fees" for moving it. The bucket is worthless, the fees are a fraud, but they can still go out and buy yachts with that money. What a system!
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Ben Bernanke's Fed Discount Window and Plasma Bank. Donate one liter of plasma and get 10 plastic bags. Distribute those to friends and family so everyone knows who is a holder.
If it ain't there, it ain't there. It's just not realistic to expect outsize returns from a starting point of high valuations.
Consider an unappreciated result of the fed bailout after the dotcom bust. Most investors who follow the mantra to invest yearly into stock funds have experienced weighted returns in the 2% to 3% range after fees & taxes over the past decade.
We would have been better off taking our medicine in 2001. Instead we made things worse with a housing bubble.
Will the current bailout fare any better than the last? I doubt it.
CD I am sorry to say I am not in financial services but in health care. I have been investing since 1998. I went cash in late 1999, saved a lot of money, went long reits in 2000 but exited in 2004. Much too early. Went short early 07 too early again and now am short (nervously).
Stimulus payments just really started today...Monday-Wednesday payments were window dressing to show they could do it early. Today began in earnest w/ 5,000,000 going out.
Sebastian,
I work in a bank. Corporate defaults are going to see massive increases in the next 12 months. We have seen more requests for covenant waivers so far in 2008 than we saw in all of the prior 5 years combined. That is a tried and true leading indicator for an eventual loan default.
The mandate from up high is to clamp down on credit and monitor the rapidly increasing number of troubled situations like a hawk. The credit environment is awful.
Anyone who says the credit crunch is over is clueless and certainly uninformed. Absolutely no one on the front lines in our bank would say that - there is great concern here and it is justified.
By the way, we're not a small lending institution either....
Stimulus payments just really started today...Monday-Wednesday payments were window dressing to show they could do it early. Today began in earnest w/ 5,000,000 going out.
CBs are a cartel and they're extorting money from the Fed while covering their shitty portfolios. They are worse than OPEC and they fear a Dem administration might stop the rape.
But I feel I need some real estate exposure as I have no doubts that Bernanke will keep dropping rates if economy does not improve. In that case, 5% should be supportive.
I see inflation longer term. The fed just doesn't seem to care.
Now, we're a year into the more noticeable part of the mess, and still the dance continues and the sheeple are still buying it. Nothing short of a Greater Depression is going to change this, I believe.
It may not be a Great Depression for the country. But it may be for Wall Street.
Here in NY, papers are full of dire forecasts from both the State and City about cutbacks in Wall Street jobs, bonuses and revenues. One article says 1/4 of all state revenues are tied directly to Wall Street.
The long-running Wall Street shell game is over. It won't return any time soon, mainly because la gente will not allow it.
The hardest part of this for most Americans to accept (in part because of the MSM) is that things are in the process of changing permanently in the U.S. economy and value system. This isn't just a cycle. It's a new reality.
We are moving into a phase in which not only will most people not be able to afford to drive SUVs. People will bash the headlights out of those who are arrogant and rich enough to keep driving them.
The REAL reason banks don't want to lend to each other is because of the lack of transparency, which is what the Fed keeps promoting. Each bank knows that its own balance sheet is sh!t, therefore it can only assume that everyone else's is at least as bad as their own. If you know you're technically bankrupt, would you lend to anyone in the same position? Hell no!
OTOH, they have to take the TAF just to continue the facade that they themselves are solvent.
p.s.: The market's doing exactly what it did in the last recession -- engaging in vicious bear market rallies that make no sense whatsoever. This one is about over.
The $300 billion pound pink gorilla in the room out in California is this Calpers news. They lost 1/3 of the portfolio(30 billion or so) in 2001 and I think they are in a similar situation now. Recently the the chief investment officer resigned as well as his right hand man. They report in June. This doesn't look good. Lots of pressure to pay for bloated retiree and healthcare costs.
Sebastian,
I dont need to explain to the commerical banks operating in CA because we are one.
I suggest you talk to a few loan officers rather than simply reading reporters and bloggers.
From Bloomberg: Fed expands TAF and TSFL to 75 Billion. Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. That includes some bonds backed by student loans, which Democrats in Congress had pushed Chairman Ben S. Bernanke to take on the central bank's balance sheet.
Break out the beer bongs the kids are gonna party.
Seb, The mortgage brokers website is essentially a farce! They are the same people that sd interest only no money down loans to 40K strawberry pickers at 600K was a good industry practice and helped increase home ownership.
Commercial is down. Drive around and you'll see. I see it everyday..
anaon ["they fear a Dem administration might stop the rape."
I laugh at you.]
Agreed. It's amazing die-hard cynics still have this silly belief that just because the feeding line is at the other side of the trough, the gorging will somehow simply stop.
From Costar Group: The State of CRE Financing Part 2: Denial is Not a Strategy
Banks Are Neither Anxious To Make New Loans Nor Buy into Investors' Expectations of Where Prices Should Be
The 2004-2007 run up in commercial real estate prices was as big a wave as bankers and lenders had ever seen. And they were all eager to jump on board and ride the crest. They did and rode it well until it crashed ashore last summer and had property prices retreating back into a leveling sea.
Federal banking regulators, which had already started worrying about banks overextending themselves on the commercial real estate wave, are now wading in to assess the damage from the wave's impact.
The U.S. Comptroller of the Currency, John C. Dugan said this past week that, with problem commercial real estate loans rising, it's imperative that bank management identify and address problems realistically and that the OCC deal with national banks in a consistent and balanced way.
cd - I couldn't bring myself to quit on TWM or SRS either. SKF I capitulated yesterday setting a trailing stop that got slammed this AM. Blew off DUG early too. Assets tied to a strengthening dollar don't look promising against a Ben led Fed.
Commercial and investment banks are bracing for a wave of corporate defaults. The outlook for corporate credit for the rest of the year at the IB I work for is so dour it almost makes Roubini look bullish in comparison.
cd said: "Seb, The mortgage brokers website is essentially a farce!"
Well, that's got to be a little embarrassing for you, since you clearly didn't follow the link and read the article. It's from the Orange County Register, and I got the link from CR's own site.
"The Truth is Out There", and you don't even have to look very far or very hard, but apparently even that's beyond many people. This is pretty depressing.
Speaking of currency, a co-worker just returned from lunch with a dollar bill in her hand.
She explained that a bank branch on the corner was handing out dollar bills with a sticker, eligible for $100 if you open an account with direct deposit. No obligations, you get to keep your dollar whether you take it to the bank or not.
The bank is passing out free dollar bills, using them as coupons or advertising fliers!!!!!!!!!
I'm sorry, let me repeat that: the bank is handing out free money!!!!!
Why not? The Fed is passing it around. The Treasury is kicking it back. So apparently, it is cheaper to just hand out actual dollar bills than to print up a coupon or flier.
From Bloomberg:May 2 (Bloomberg) -- Linens 'n Things Inc., the housewares retailer taken private by Apollo Management LP in 2006, filed for bankruptcy protection as mounting debt and the slumping U.S. economy led to two years of losses.
The chain sought protection in the U.S. Bankruptcy Court in Delaware, according to court papers filed today. The Clifton, New Jersey-based company plans to ask permission to close 120 of its 589 stores, according to the filing.
"Does anybody really believe Gore or Kerry would have been as bad?"
All of the bastards are the same. Bought and paid for, the inital behind the name just reflects which corporations will get the subsides, which ones get the tax breaks, which ones get bailed out. The sooner you get this the better off you will be. They don't give a rats ass about you!
More Good News: May 2 (Bloomberg) -- Crude oil rose more than $3 a barrel, the most in month, after a government report showed that the U.S. lost fewer jobs than forecast in April and as Turkey renewed its military offensive against Kurdish rebels in Iraq.
You guys leave Sebastian alone. Hey Sebastian, we have several EXCELLENT commercial properties out here in California that might interest you. IMMEDIATE occupancy. Terrific investment potential. Potentially HIGH cap rates. Good foot traffic. Freeway access. Come on out here and get you some.
""The Truth is Out There", and you don't even have to look very far or very hard..."
No kidding. I gave you the view from the front line and Turbo is telling you the same. Talk to loan officers, credit officers, bond and loan salesman/traders/investors, senior bank executives, etc. You will hear that the credit crunch is far from over and people whose livelihood depends on the credit markets (like me) are very very concerned.
Sebastian, I live it every day and you dont. The truth sucks for those of us that have to live it and your posts suggesting all is well really feel like a sharp jab into my reality. Its sort of like telling a truck driver that gas prices aren't high and that their volume is increasing so their business is robust - all when nothing could be farther from the truth. Its very frustrating to see people make proclomations about things they have no exposure to.
I'd love nothing more than your views to be true (or should I say those views you post to clearly make a point), but they dont even remotely resemble the reality that I and others have to unfortunately deal with.
Seb go there yourself and regarding Mr.Padilla-he called some of his readers something a while back that I won't mention. That's why you won't see much action there. He is an industry advocate being a former mort professional.
look for yourself..
Worth noting (and entirely ignored by the bulls) that yesterday's weekly claims numbers and more importantly continuing claims blew through forecasts. Those numbers don't get BD model and myth-based distortions.
Speaking of b/d models, +267k for April, including +45k in construction. The BLS must be hiring a lot of unemployed number crunchers from the cdo business.
I'm not generally a fan of short-selling equities - not on any moral grounds, but the reality is stocks net-net go up 3 years out of 4, the powers that be try to monetize out bear markets, and I don't like playing games where the odds seem stacked against me. That being said, today really has the feel of an outside reversal day, and the end of this short-covering / false optimism rally. I'm very tempted.
You could have gone short any time in the next hour and done just fine.
I remember thinking when I first read that post that it was the kind of arrogant and content-free jibe that often marks a turn. Then when we moved down for a couple of hours I decided to go back and look for the post and its timestamp, and sure enough....
I swear: on bad news sometimes the market ROCKETS up.
then today, arguably there was great news from the bulls (only 20k lost jobs, extension of alphabet soup by Fed), and it only allows a rally for a few hours? WTF?
I'm one of "the shorts" although I only have a smallish position. (only through ETFs)
in the past I'd panic on this stuff... but now I'm just numb. Market up a few hundred points? who cares, it'll come down soon anyway.
I think that's what our market has become. Numb.
or maybe it's just me.
that said, CNBC calls it "a trading range" I think.
however there is danger there... if other shorts are starting to feel like me (numb) then we may have some problems with short covering rallies.
Anonymous said: "The truth sucks for those of us that have to live it and your posts suggesting all is well really feel like a sharp jab into my reality."
I never suggested that all is well in the credit markets, only that it's not as bad as it's made out to be.
Here are a couple of questions I'd like to pose to someone who's on the front lines of the banking industry.
If things are so bad, who are these nearly 5 million seasonally-adjusted-at-an-annual-rate people who are still buying homes? Where are they getting their money if not from banks who are lending? Have they and the banks both lost their minds?
Why isn't the economy clearly, overwhelmingly, undeniably in a serious recession as a result of this "unprecedented" crisis?
Who would be buying risky investments like stocks in such a terrible economic environment, nearly the last asset that anyone would buy if conditions were as serious as you claim?
My point has never been that everything is great, only that things seem considerably worse than they are, and have been as bad in the past without crashing the economy.
I've tried to be one of "the shorts" but from the time Bear got bailed out to this fed meeting I just sat out (good move, yay me). From watching the trading everyday, I don't get the feeling that there are a lot of shorts sticking their necks out right now, so how far can you squeeze a few shorts? I have not been impressed by the volume since February.
"Why isn't the economy clearly, overwhelmingly, undeniably in a serious recession as a result of this "unprecedented" crisis?"
If the fed was not undertaking well publicised unprecedented action, which former fed officials are describing as at the edge of legality, this would be a reasonable comment.
Don Juan wrote:
"Does anybody really believe Gore or Kerry would have been as bad?"
Either one would have been WORSE!!!
Don Juan | 05.02.08 - 12:36 pm | #
John Kerry payed a political price for investigating and pushing forward prosecutors to investigate the BCCI banking scandal. Bush 1 had an account and bank benefactors were involved in helping bush 2 get out of the arbusto oil dry well mess he made for himself.
there were bad democrats involved too... clark cliffor prime example...but they were fewer yet still amply represented.
it is a simplistic lie to say that kerry and gore are the same as bush.
i could prvide a similar case for gore but instead...
...just for fun read about how Niel bush raided silverado bank making non recourse loans to his cohorts, plunging the bank on to the rocks and then having the taxpayers do the s&l bailout thing. reference Siedman at wiki if you like about resolution trust corp and silverado bank
finally brother jeb was involved in not a few shady re-estate deals in Fla., that also resulted in a "helping" hand from the gov, ie taxpayers
now compare all that to a Blow J and whitewater which Kenneth starr and the repubs investigated for many years at a cost of over 100 million dollars to the taxpayers.
lets face it nobody gets elected without friends on wall street and in finance. but if you think the dems are the same as the republiCONs your are willfully blind to the history that's out there.
our president said it and said it well, on video.." i represent the haves and the have mores...hahahaha"
by that he meant the real REAL wealthy in this land...the billionaires...not piss ants like me who have a large 6 fig net worth and pretend to be somebody. we are pawns in their game.
It is true that defaults are declining. However, this is b/c the debts are being shifted prior to default to other borrowers on the bank's balance sheet prior to actual "legal" default.
Essentially, it's a forced liquidation of the underlying asset to another guy on the books rather than going to the embarrassing process of legal action.
Apologies for no reference links, however, if you have access to the deed database in your state, you will see the security deeds being restructured by the bank and the underlying asset transferred to a generally larger borrower on the bank's/lender's books.
This happens all the time, however, it's the frequency and amounts that is troubling. I'm in Georgia, so, I can't speak unilaterally for the nation, but, the trading of CRE debt on the books of our bloated state and community banking industry is...problematic. Unfortunately, you don't see the balance sheets until they go teets up, but, even if they suspend payments to a bigger fish for a year or so to entice them to pick up the loan, the guys assuming the debt and assets are usually CRE debtors as well.
I wouldn't characterize it as a Ponzi scheme, but, it's certainly a dangerous shell game.
In that Centex conference call, the CEO hinted at this problem directly. namely, that the bank's are taking the stuff back but they won't reprice the dirt appropriately (b/c they can't!)
Anyway, we're in a holding pattern now. Deals are getting done, but they are being done "covertly" w/ debt restructurings in order to maintain price.
How the equity markets will react? No idea. Naively (on my part), I just don't think they understand the scope of the problem as these "deals" don't represent actual "arm's length transactions", just balance sheet shuffling. Can it go on? Sure, but not indefinitely.
Sorry for length and no links. I will note that I wouldn't be buying land until some of these banks start going under...regrettable as that may be.
Sebastian,
Man, you really do need to get out more.
To answer your questions:
1. existing home sales are down over 30% since the peek and have declined in each of the past 3 years with the sales decline accelerating significantly so far this year (down 16% vs 2007! Thats an epic decline). Credit is contracting for home borrowers in terms of number of those eligible for loans and the advance rates on those loans. Its also going to get worse from what we're seeing and hearing on the front lines.
2. Most of our corporate borrowers think we're in a recession or right on the cusp and that Q2 is going to be very ugly. Almost all of our borrowers admit 2008 and going to be below their expections. Also, this is certainly not unprecedented - this credit contraction is similar to what I saw in 1989-1992. Our bank is behaving the same way. The only difference I see is that the numbers are much much larger but so are the banks, and there are more types of loans and securities impacted because the market is much broader today. It took more than a couple Q's for that credit contraction to manifest into a recession but it ultimately did. You will find that every prolonged credit contraction has lead to a recession in our country - that is Banking 101.
3. I'm not sure what people buying stocks has to do with credit or banking. It seems that people have been selling too - the market certainly lacks a conviction from what I see. The equity market also appears to be expecting a second half economic rebound. That second half rebound certainly will not be a result of expanding credit. Conversely, I suspect you will see a continuation of tighter underwriting standards and credit scrutiny throughout the rest of 2008. Thats certainly no secret at our bank or others that I know well. Stocks may be overvalued or undervalued depending on what you're looking at - but its not what I do. However, I do know that the credit markets will most likely continue to choke economic growth in the US through the rest 2008. I can tell you there are very few buyers for risky credit assets too.
"My point has never been that everything is great, only that things seem considerably worse than they are, and have been as bad in the past without crashing the economy."
In my experience, things in the credit markets have never been this bad in the past without leading to a recession (or as you say, crashing the economy) so I have no idea what your point is other than wrong.
This conversation is very reminiscent of conversations I had with people outside of tech in the fall of 2000. I would say "you don't understand, orders have completely stopped," and they would explain to me that it wasn't as bad as I thought. But I was on the front lines talking to customers whose financing had suddenly completely come to a halt.
Many, many thanks for the highly informative posts. Though on the one hand I'm tempted to say, "Don't feed the trolls," on the other, I'm hoping for more.
I note that there is no inconsistency at all between your first post and the article Sebastian quoted, as you were talking about borrower requests for relaxation of covenants, and pointing out that this historically correlates with future defaults, whereas the quoted article was listing only defaults that had already occurred.
I am getting jittery. I invested in the stock market of 2000 and got burned and felt that the safest way to invest your money -- the greenback -- was to invest in a savings account or money market fund. I have about $50,000 liquid -- no IRAs, 401(k)s -- and that is all i have, my life savings. The inflation talk is scaring me. Does anyone have any ideas about anything where I can put this money that will protect it against inflation? I am not looking for stellar returns, just protection from inflation. I have been reading MISH's blog, where he claims deflation, rather than inflation, is what in the offing. I am confused and terrfied. Any ideas?
used auto loans, Target credit card receivables, school lunch IOUs... Sound's great!
BTW - Looking for the exits today. Can't take the nonsense.
barely were you short?
If the market is stabilized, why this move? This is a crisis fighting stance and if the market's is saying "credit crunch is over", why does the fed need to do this?
Either the fed is wrong with this move, or the crisis is bigger than what the market is pricing in.
The disconnect keeps getting bigger.
What gives?
anyone looked at the amount of net borrowing at the Fed and what it has done in the last 4 month ?
How much do they need to pump in ? and the more important question: why they need to pump more. Where is all this money going ?
o one could haver predicted this Fed Move.
Term inter-bank funding is still very hard to come by, though the market has gone from death watch to merely critical on this announcement. The financial world would probably be a far less screwed up place if they'd done this two months ago and paused at 3%.
Article out today basically calling B.S. on the Case-Schiller Index:
Market anomalies skew home-price data, providers agree Shades of Green - MarketWatch
...
The glaring discrepancy in this case is that 17 of the 20 metro areas posted record annual declines, and yet 78% of the 330 metropolitan regions that NAR tracks reported price increases in the latest period -- and that despite the acknowledged downward bias in current price readings.
...
I'd be interested to know what CR thinks of it.
Turbo have things in improved over the last few weeks?
Trade trash for cash. Banks are bailed out.
Barely, I'll race you to the door. Actually, my stops should all get blown through right about....now.
Drinks, anyone?
hc, Yal - the banking system is still on defcon 5. The state of the economy doesn't warrant -2% real interest rates - the banking system however does (and then some).
FOMC = Umbrella Corporation post-lobotomy
I.e. Column 6 from
FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009
will now read 150000 million. And this is seen as good news?
Jobs report for April is out. Fewer jobs lost than the median estimate, -20k vs -75k. Jobless rate down to 5.0% (almost had to fall after a 0.3% rise in March). Otherwise, the report is a stinker. Duration of unemployment up. Hiring diffusion down. Average hourly earnings growth slowing. Weekly earnings actually falling - before correcting for inflation. Goods sector (which leads) shed 110k jobs, the biggest loss since February 2003. Trade, transport and retail shed lots of jobs, spill-over from goods sector troubles. Markets taking it as good news, of course.
Tim - yes, things have improved somewhat. The patient survived the night, but is still in intensive care, so to speak.
Free markets is good.
The European Credit squeeze is telling us something. The disconnect with equity markets makes it difficult to unravel.
Turbo were things about to go nuclear today if the Fed didn't come out with this action?
k harris | 05.02.08 - 9:38 am
It's a good thing our population isn't growing.
Is now a good time to buy?
"and the more important question: why they need to pump more. Where is all this money going ?
Yal "
To boost the stock market, of course. And also to let their hedge fund buddies make quick profits gaming the commodities markets.
All Fed actions promote inequality.
Jobs number great and Housing Indexes overstating the drop in house prices. Join me and buy equities, any equities will do.
Jerome Ball:
You trust NAR? Is it a surprise they'd try to call BS on Case-Shiller? The NAR doesn't get mocked here and at other blogs for nothing.
I'm waiting for somebody somewhere in the MSM to discuss that nastly column in the Fed H3 that gives the huge negative for non-borrowed reserves.
I've been waiting since Dec when it first started plummeting to zero.
"barely were you short?"
mostly. Net, short, but I always hedge. Trouble is, I even sold calls on some of my hedges as I got more bearish, so cancelled out some hedge positions. Clobbered.
This has very little to do with the equities or commodities markets. This is all about funding. If you don't work in finance then you probably aren't aware of the funding component of the business. Right now, banks are having a very hard time finding term funding at reasonable prices. It isn't because the cash isn't there. Banks are just terrified of loaning money to each other. Until this problem gets fixed the credit crisis will continue.
Turbo what about the credit default swaps? Any opipnion on these things?
Banks are just terrified of loaning money to each other. Until this problem gets fixed the credit crisis will continue.
And yet the VIX volatility index is back down below 18, from around 35 six weeks ago. Eighteen? Are you frickin' kidding me?
If the left hand is panicking over the credit crunch, the right hand sure didn't get the memo ...
So Banks are the ones most knowledegeable about credit quality. If they won't lend to each other, then there is another shoe to drop. Thamks
En Fuego writes:
Banks are just terrified of loaning money to each other. Until this problem gets fixed the credit crisis will continue.
If the banks are so afraid of each other, why isn't the stock market afraid of bank stocks?
The fear on one side doesn't equal what's shown on the market.
Something doesn't add up. Please help explain.
When things don't, it usually presents a great investment opportunity.
BTW - Covered my GLD short today and went long. The USD has got to go straight into the tank on this horseshit.
keep believing there are more shoes and keep going short so that the market will continue to rally.
Central banks on both sides of the Atlantic are debating causes of the surge in interest rates on commercial banks' dollar-borrowing in money markets and considering what they can do about it.
Yes, banks have an absolute right to operate with a wide spread so they can make guaranteed money. Unless they make a lot of bad loans (oops), at which point...see the first sentence.
Jerome Ball | Homepage | 05.02.08 - 9:31 am
From the article:
"If there are a lot more homes sold on the low end and fewer on the high end, the median price is bound to drop dramatically," NAR Chief Economist Lawrence Yun said. "In normal times, a median price would reflect typical homeowner equity changes, but these are not normal times. The jumbo (mortgage) market is frozen and the buying activity is more concentrated in lower-value homes."
Lawrence Yun, Master Dissembler for the NAR.
There you go - repudiated.
Turbo writes:
hc, Yal - the banking system is still on defcon 5. The state of the economy doesn't warrant -2% real interest rates - the banking system however does (and then some).
Turbo | 05.02.08 - 9:35 am |
I'm a little confused - just Wiki'd it, and defcon 5 is peacetime "no problems." Is this what you meant?
En Fuego and Turbo, I don't understand the fear of interbank lending right now. Isn't the Fed backstop enough of a guarantee to convince them? I think there should be larger fear to be counterparty to CDS trades or synthetics CDOs, but simple overnight interbank lending seems it shouldn't be so scary.
Are there real fears of banks going tits up out of nowhere? Why is this? Or do banks just fear their own balance sheets are so precarious that they could slide too quick? What gives?
barely watch out for gold it broke through major support at 880. It could test its OCT 07 levels IMO. This could go back down to mid 700's if it breaks below 840.
Central banks on both sides of the Atlantic are debating causes of the surge in interest rates on commercial banks' dollar-borrowing in money markets and considering what they can do about it.
I don't think there is much debate as to the causes. Those are clear enough. I think the debate is occurring on two levels. At the obvious level the CBs are discussing the best coordinated effort to manage the LIBOR and/or any new way to cheat without getting caught again. On a higher, more abstract level there has got to be a lot of concern that the current credit crisis is beyond the control of classical monetary and banking policy coordinated or not. Lenders need low LIBOR for borrowing liquidity purposes and to lessen the shock to borrowers as US residential ARMs tied to LIBOR reset and the same banks need a high LIBOR to get a decent return (plus inflation) on money they lend out to lessen their shock as US residential ARMs reset.
Honestly, the problem isn't that the CBs don't know what to do, they just don't want to let rates rise to market.
Maybe this guy can get a job at the fed.
PeoplePC - News
I've been telling you, no crash during this presidency! Everything and anything will be done to prop up the Worst President Ever.
And no, I don't think the Dems will be any different. They just talk a better line, pretending to care about the average Joe and Joette.
What is this fear of systemic risk to the banking system? The banks are already bankrupt, aren't they? The link provided by Anonymous
at 9:37 AM shows that the banks have negative non-borrowed reserves of about $ -90.9 billion, though their required reserves should be about $ +40.4 billion. The banks are already $131.3 billion underwater, right? And somebody else in the thread above just said "it isn't because the cash isn't there." Hey! The cash isn't there!
Perhaps the systemic risk is not to the banking system, but simply to the value of the real estate and stock portfolios of the bourgeoisie.
To keep an eye on a good portion of the money being pumped into the system each day, try this web site (the Slosh Report) which tracks them:
The Slosh Report
Select your dates.
Select the include TIO and TAF.
Then run report.
As you will see, money is being pumped like crazy. And this doesn't even include the dollar operations that other countries are doing.
turbo, I am confused too. Why would banks lot lend when cheap money is plentiful c.o the largesse of the Fed, to those without the stellar collateral listed above?
Unless the crap left available to pledge against loans is now hyper-concentrated crap.
the news on bofa and countrywide is also revealing. countrywide's recent earnings debacle has left bofa most concerned and desireable of similar bail-out treatment that jpm got for the bear purchase. countrywide's books are clearly too big to fail and bofa's investors are clamoring that the countrywide purchase is a bad deal all around. i would expect this to become a problem soon where bofa looks for the exits...lastly, one has to think that today's increase in the fed collateral swapping will weigh on stocks by early afternoon. it is a clear sign of funding perils that persist even though "we're near the end" of this credit crisis.. the dollar must be impacted by these taf's. tslf's, etc// the very issuer of the us dollar has compromised its balance sheet indefinitely. the 80% of us population that makes 100k a year or less cannot afford their lifestyle anymore..its that simple so these alt-a's and other prime loans will continue to underperform going forward.
Honestly, the problem isn't that the CBs don't know what to do, they just don't want to let rates rise to market.
Rob Dawg | Homepage | 05.02.08 - 9:56 am | #
So this means that the fed wants:
1. a high(and safe) stock price/confidence for banks.
2. a low interest rate/LIBOR rate for home buyers
3. a sustained high home price, so it forever goes up
4. an economic recovery, so jobs and purchasing power will return.
Seriously! It seems to me that they want 2004 era all over again!
Lets see, #2 reduces bank profits, which hurts #1. #3 reduces consumer spending power, which hurts #4.
It's Fed vs Fed!
The credit crisis continues.
The credit crisis continues because the businesses and individuals that make up these economies are not credit worthy.
We simply don't have the financial knowhow or respect for debt obligations to be trustworthy borrowers. We don't use credit; we abuse it.
This is a cultural and behavioral problem that no amount of liquidity injections, no amount of bailouts, and no amount of rate cuts will fix.
Ultimately any scheme the central bankers come up with to ease the credit crisis only affects the financial system. But the financial system is merely infrastructure to serve economic participants. If the credit crisis is rooted in these economic agents, if they intentionally abuse this infrastructure in a systematic and organized way, then it doesn't really matter what the Fed does to save it.
Ultimately the credit crisis will resolve when people begin to respect debt obligations again.
Unfortunately, history suggests that's likely to be a hard lesson, and the longer we avoid learning it the harder it will be.
"Banks are just terrified of loaning money to each other. Until this problem gets fixed the credit crisis will continue."
En Fuego | 05.02.08 - 9:49 am
The banks are terrified of lending money to middle America. Middle America is tapped out, and everybody knows it.
Henry Ford understood the long term value of high wages, the alternative - greed and money hoarding - being unsustainable.
The upper economic tier is now forced to trade with its peers. Money sloshing back and forth at the upper levels (You bought that Trickle Down line? What a schmuck.) and losing value through inflation with each transaction.
TED spread is down to 1.29 from 1.6 just a week or so ago. For whatever that's worth...
" when people begin to respect debt obligations again. "
ac, the credit crisis will be over when Wall Street learns to fear risk again.
Middle America respects debt obligations just fine -- they do what Wall Street does.
After 30 plus years of generating profits from deficit spending, the dotcom bubble, the housing bubble and the credit bubble, wall street has every g**damned right to be optimistic about the future. We have built an entire culture on denying reality. Deficits don't matter. Revenue doesn't matter. Housing always goes up. Lend freely-we'll just sell the loan later.
This is no way to run a bank or a country. But guess what the f***ers that do this live in 10k sq ft. homes and fly around on private jets.
Perhaps the truth is this: deeply embrace the insanity and become filthy rich - challenge it and die.
According to Yale Hirsch, April is normally the strongest month for the stock market. He frequently said, "May comes in like a bull and goes out like a bear".
I haven't seen the actual data.
Trader Wait - keep justifying reasons for being short, you will be squealing soon enough.
Sorry, suecris, guess that's what happens when you take military jargon face value from bad tv (which would be kind of like doing one's investment research on cnbc). The banking system is pretty much the complete opposite of defcon 5 at the moment then.
Bank's are incredibly balance sheet constrained at the moment - writeoffs mean reduced capital which requires smaller balance sheets which means less lending. Wholesale lending between banks is about as low margin business as there is in the banking world, and is purely a function of excess liquidity. At the moment there's negative excess liquidity, hence the virtual disappearance of the inter-bank lending market. The TAF auctions have been way oversubscribed, but the TSLF auctions have been lukewarm, which by my reading means the eligible commercial and investment banks have unloaded most of their "high quality crap paper" to reduce balance sheet with the smallest hit to the bottom line, but are still holding a lot of lower rated crap the Fed doesn't (currently) accept as collateral. Re credit default swaps - I've always regarded them as a nice academic concept that won't hold up to the stress test of reality. Apologies if I missed any questions. I think I almost know how Tanta feels now.
I posted this in the previous thread (no hat-tip, even - d'oh!)
"NEW YORK (MarketWatch) -- The Federal Reserve, along with other central banks, said Friday that it was increasing the funding it provides to banks and that, for the first time, it was willing to accept bonds backed by auto loans and credit cards."
This, IMHO, means hyperinflation is the endgame they have chosen. The dollar goes to zero, effectively, as the Fed tries to print mountains of worthless paper to cover up the unpayable debt. I hope we all like 15+% inflation per year while wages decline.
They keep talking about how Americans need to consume less. I suppose that will be the case once we're reduced to living in poverty. A great plan!
Meanwhile, we have a concerted attack on the Case Shiller Index by the NAR. Just another part of the illusion. Houses are not selling (maybe because nobody can "afford" them without a toxic loan?), so they have to come up with some BS to try to sucker people back in. "Really, prices are not declining! All is well - ALL IS WELL!!" How that makes the houses more affordable (or "affordable") is beyond me, but some suckers will buy it.
The more this plays out, the more I lose hope that justice will be served and things will stabilize. What is to prevent the Big Boyz from continuing to drive prices up for everything through speculation and fraud? If they can just get the government to buy up all the bad debt and offer taxpayer backed toxic housing loans, we're toast. Housing will never again be affordable if that happens (barring social collapse, of course), and living costs will skyrocket forever while jobs vanish.
I'm finally reading what I have been waiting on for 6 weeks. It's almost time to load up on PUTs.
I'm truely uninformed about finance but still have to mention the practical effect of the bank spread on me.
I've got excellent credit and this fixed rate mtg. I've been watching and hoping that all the fed rate cuts would provide me w/ the opportunity to refinance at an even lower rate. But whatever the banks are doing, they keep foiling this opportunity. It occurs to me, this is purposeful; they don't want people like me to refinance into a 4.5% mrtg. They bug me no end!
It looks like we are heading for a loss of 400,000 to 500,000 manufacturing jobs this year.
As manufacturing shrinks, the U.S. economy will shrivel up and ultimately die.
The "service economy" is an illusion.
Everybody can't work for the govt. or in healthcare.
BTW - Covered my GLD short today and went long. The USD has got to go straight into the tank on this horseshit.
au contraire barely.
Rich, true, but as well stand in soup lines, the Dow will hit new highs and the unemployment report (stripped of anyone who is unemployed) will be rosy and optimistic.
"Trader Wait - keep justifying reasons for being short, you will be squealing soon enough."
I'm not short flat price. I trade spreads for a living.
au contraire barely.
ipodius | 05.02.08 - 10:33 am | #
barely - I am heavy in gold (and 2x ETFs)
I don't expect it to reach a 52 high this year again. I am going to ride a bounce up probably to 900-950. Then all bets are off.
Rates have to come back up.
Pondering - they can't hyperinflate. If they print money, the cost of debt service ramps to account for the increase in FRN's. There is no mechanism by which the Treasury or the Fed or Congress can force other nations to purchase our debt.
They simply don't have the ability even if Ben wanted to -- if nobody purchases the issued debt, the US squicks instantly.
The skyline's falling! The skyline's falling! | Marketplace From American Public Media
NPR story on CRE credit crunch
The skyline's falling! The skyline's falling!
This is really starting to piss me off.
I'm as frustrated as anybody. The fed's continuing policy of bailing out imprudent banks and speculators at the expense of savers is infuriating. Negative real interest rates are a disgrace.
That aside, I still think that prudence is the best long term path to wealth. Although it would be even more rewarding without the fed & gov't bailouts.
FWIW, I skipped the dotcom boom & bust as well as the housing boom & bust. I didn't garner huge returns by any means, but I beat out most of the so-called "professional" managers touting the hot investments of the day (growth, value, real estate). Low volatility to boot.
There are no guarantees. But for me, a bird in the hand is still worth two in the bush. I've been investing for 30 years. Despite all of today's shenanigans, I still think that sticking to a prudent plan works. And by prudent, I mean saving like crazy and investing in fairly priced investments that increase in value. It's actually easier today than ever, although the returns are lower.
Presently, I'm growing optimistic I'll find a good price on a second home in Florida. Where is Cobradriver?
OT but weren't the electronic stimulus direct deposits supposed to be finished by today?
oops I meant economic stimulus, although electronic sounds a little more interesting
If low rates can't entice people to borrow...you can always push rates negative and penalize them for saving.
At first they asked nicely, now they are demanding that you spend.
So I will. I intend to trade their worthless currency for pratical hard assets(not houses).
I capitulate.
barely, They squeezed hard and I too had to capitulate on a cple shorts.
Holding twm, don't know why!
Tim, Where do you live in the bay area?
Amazing they are taking auto paper because it actually moves and hides when your trying to repo it.
I work with dealers daily and the ltv's on new and used cars is ugly.
They bury carry over from old loan above kbb into new loan. Crazy as home loans..
What a joke..Time to go long selectively.
Willy Bernanke and The Taffy Factory
http://thumbsnap.com/v/MMWgOxGZ.jpg
I capitulate.
Kp | 05.02.08 - 10:51 am | #
I agree. They are really trying to tell us :
"Look, your money is worthless. If you don't dump all your cash into things like food, housses, cars, granite countertops, we WILL steal it from you in the form of inflations the costs of basic necessities."
This is a tax on savings. Period.
No it won't.
Last October, the Dow hit the highest point it will hit for several years.
Most of the conditions underlying earnings are nasty.
Taxes on the rich and corporations are about to soar.
Government spending cutbacks will be a trend for the next five years at leaast.
The hedge fund mania is crumbling and new regulations will kill it.
Leveraged investments always lose in the end.
CD live in SF. How about you? Barley, CD I think we are in the last throes of bear market rally. The market will either turn down today, and by Tues will have a confirmation of a downward move. Don't like to make calls and if you guys lightened up on shorts thats ok but see what happens on Tuesday.
Boat loans, do you think the Fed will take those too?
GreenPea asked: "Is now a good time to buy?"
That's something you have to decide for yourself, but I'll tell you what I'm doing.
I bought an SP500 Index fund as a LTBH back in January, and I've been swing-trading (long only) in and out of a portfolio of small-cap stocks since then. I'm waiting for another minor pull-back to re-enter that portfolio. (If you're looking for a LTBH entry, you could do the same thing with a stock mutual fund, waiting for a minor reaction.)
This is purely anecdotal, but the fact that the short-sellers are capitulating suggests to me that this market is getting a little overbought, making a pull-back more likely.
FWIW. Good luck, whatever you decide.
Sebastia
How about that action in the financials yesterday!? Just a coincidence I guess that this TAF change/enhancement was announced today. I guess.
"BTW - Covered my GLD short today and went long. The USD has got to go straight into the tank on this horseshit."
Man, do you have that right. The Fed shredding it's balance sheet by swapping garbage for treasuries, adios bucky.
I'm as frustrated as anybody. The fed's continuing policy of bailing out imprudent banks and speculators at the expense of savers is infuriating. Negative real interest rates are a disgrace.
What I read here is the sentence:
"This strategy is running contra to my personal investing strategy".
If that is the case, then perhaps you need to change it. if you want to trade the side against the Fed and most heavy financial institutions, go right ahead. But if you can't read the macro-economic tea leaves, and understand what is going to be done, and get your personal political philosophy out of the way, then you will get creamed. Whatever you "believe" about the way it should work is irrelevant.
You're marching down the hallway with these boys behind you...and in the end you will learn to love big brother
I would say it would be very good news for all global economies including the U.S. if oil fell back below $75 a barrel.
But how can that hahppen until the dollar strengthens?
Why should an oil exporting nation spend their strong currency (oil in the ground) for a weak and uncertain currency?
If you are buying stocks into $110-120 oil, you are a fool. The destructive power of sky-high oil on all economies, and especially the U.S. is cumulative.
Every day oil closes above $100 a barrel is a terrible day for the U.S. economy. There will come a day, very soon, when the rest of the world will no longer be willing to finance U.S. oil imports. That's really what it amounts to. Every dollar that we spend as a nation on oil over $100 is being borrowed from abroad.
Rich makes a good point about leveraged investments.
Consider the returns from Vanguard's High Yield Bond Fund. Current yield is around 8.2%, but don't let that fool you.
Total after tax returns (fed tax only):
1yr: -5.10%
3yr: 1.49%
5yr: 3.55%
10yr: 1.35%
Dismal returns by any measure. BTW, high yield has been a perenial cash cow for wall street. Same with mortgages.
Beware.
High Yield Bond Fund - this is an oxymoron. The name alone should scare you.
"Look, your money is worthless. If you don't dump all your cash into things like food, housses, cars, granite countertops, we WILL steal it from you in the form of inflations the costs of basic necessities."
Saving is critical, Bernanke said in response to questions after a speech at Montana Tech. He said the trade deficit isnt a reflection of the quality of U.S. goods and services but rather a result of the fact that the U.S. invests more than it saves and the rest of the world is a net saver.
So who is really getting screwed here.
Tim, I'm in Fremont or Bombay. Seems like every Indian java-oracle-programmer lives next to me. They are quiet though. No kegger parties..
I hope your right about tuesday. I did buy TWM yesterday after unloading FXP. What do you think about he reits like RSA?
Fed actions and the big boys hit me hard last 4 wks. They are just to strong and as we have here to many interests to let market go down.
My girlfriend lives in Sunset so maybe I'll run into you one of these days...
" when people begin to respect debt obligations again. "
ac, the credit crisis will be over when Wall Street learns to fear risk again.
I recall reading that in the 1930s there was a belief that the speculative mob mentality in the late 1920s was so viral and so out of control that the only thing that could stop it was some sort of disaster.
In other words, the Great Crash might have been necessary to wipe out the equity locusts and restore sanity to the financial system.
Hopefully it won't take a cataclysmic event to restore sanity to our markets today, but the behavior I see doesn't make me optimistic.
I've noticed over the past year or so that people only start to sober up when things start to go to hell. For a brief moment in August 2007 it seemed that sanity had returned to the markets as everybody stared into the abyss and thought maybe that was it. Then Ben came running to the rescue and quickly banished any fears of returning to reality. Sanity vanished replaced by another drunken speculative super-orgy.
It's disturbing that only certain things seem to stop the disease.
Actually, the disconnect between credit and equity markets is one of the big mysteries in finance right now. Believe me, many traders are trying to figure out how to position themselves on credit vs. equity. The problem is that nobody really knows what's going to happen.
Lately credit has rallied along with equities, so that's sensible. Yet somehow funding rates haven't rallied. It's a bit of a mystery. One possibility is that we have entered a different regime in the world of finance. Prior to last summer, you could get funding at ridiculously cheap levels -- less than LIBOR sometimes. Now you gotta pay for it and it's throwing people for a bit of a loop. That is, in addition to paying for credit risk you now have to pay just to get your hands on the money ( typically more than LIBOR ).
That introduces a number of interesting questions. Is LIBOR really the risk-free rate? What should banks really charge each other for funding? That scandal we heard about last week regarding LIBOR misquotes is a result of this uncertainty. In this new market regime banks are unsure about the "price of money".
( yoda ) Uncertainty breeds fear, fear leads to anger, anger leads to hate, hate leads to ..... suffering ( yoda )
tim- ras-not enough coffee yet!
Maybe many of the workers in the construction industry being laid off were illegal immigrants to begin with thus no affect on the numbers.
CD Haha Bombay actually its Mumbai now more PC. JAVA (Sun) got hit hard. I hope I am right too. Todays pop took me by surprise. Don't like reits because people hold them for the dividend and those dividends depend on the health or CR or home market and the value of their land/buildings. Fremont to Sunset that's like a long distance relationship with gas prices now.
Maybe many of the workers in the construction industry being laid off were illegal immigrants to begin with thus no affect on the numbers.
I agree worked at a big box retailer with a bunch of other crappy big box stores and they all hired illegal workers. Just some 4-1-1 (Yo,yo,yo!) with the exception of grocery stores who have unions all the stocking of shelfs is done by illegals.
"Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. That includes some bonds backed by student loans, ..."
Forgive my ignorance, but how are student loans "asset-backed"? I'm missing the collateral backing these loans.
This is great for the structured finance wonks who created the problem.
Banks are coming to them with assets to securitize into massive AAA tranche deals to post to the Fed.
The game continues...
RAIT Financial Trust yikes look at that chart and price action. This thing got "aggressively repriced" and anyone would be a liar if they knew the fair value on this thing. Stay away but don't short it this low either. I don't like it I mean it lost more per share than in its last quarter than they earned in all of 06'.
Ipodius,
My personal philosophy is that the fed & gov't shouldn't steal from savers to bail out wall streeters that wrote themselve 100 billion in bonuses over the past three years.
That aside, I've been heavily weighted in intermediate term treasuries for the last decade. The fed gave me a huge boost. You know something is off when the people who don't even try are garnering the biggest returns.
If your philosophy is to follow wall street & the fed, YOU will get creamed in the years ahead. Wall street is unkind to followers to say the least. Good luck.
shelfs = shelves. Sorry that looks bad.
Forgive my ignorance, but how are student loans "asset-backed"? I'm missing the collateral backing these loans.
Taxpayers who ever they are.
Wall street is unkind to followers to say the least. Good luck.
Angry Saver | 05.02.08 - 11:33 am | #
In the long run, real truth bites the followers in the a$$.
Then the cycle starts all over again.
I'm long truth and facts.
GD-It would be that piece of paper on the wall of the graduate!
Tim-So true, picked her up last night and darn If my full tank wasn't down to 1/2..Worth it though!
do you work in financial district?
Rich:
I know that the fundamentals are horrible, but I just can't see what is preventing the Big Boyz from keeping this perpentual motion BS machine going. If everyone "agrees" to pretend that an MBS is worth 95 cents on the dollar when it is really worth 40 and falling, who is going to stop them? If everyone "agrees" that the banks are solvent, inflation is "contained," and working for peanuts while suffering under crushing debt is "good for Americans," who's to say "no!" to all this?
Logically, it has to end somewhere, but where? This freak show of nonsense has been going on for years, peaking with the Housing Bubble and madness such as "prices / salaries no longer matter" and the sheeple bought it. Now, we're a year into the more noticeable part of the mess, and still the dance continues and the sheeple are still buying it. Nothing short of a Greater Depression is going to change this, I believe.
If the Powers That Be just decide that they get the loot and we get the shaft via: inflation, job loss, wage stagnation, fraud, BS, etc. is anyone going to say "no!" or will everyone just shrug, toss down another rat-meat burger, and shuffle off to watch "American Idol" before their 2nd shift, part-time, no benefits service sector job begins for the day?
Forgive my ignorance, but how are student loans "asset-backed"? I'm missing the collateral backing these loans.
Beer bottles
I guess it is time for the banks to trad in their bonds on LNT for treasuries.
Securities and Exchange Commission filings say members of Linens 'n Things' pre-Chapter 11 bank group were Wells Fargo Corp., Bank of America Corp., CIT Group, UBS AG, Wachovia Corp., UPS Capital Corp. and Bear Stearns Cos.
The Federal Reserve and other central banks say they will increase funding and accept bonds backed by credit cards and car loans. Fed to soon accept all junk bonds and below investment grade securities. Timeshare debt, ATV debt, fishing boats in near default, delinquent lay-away slips, pawn shop pledges, honeydew lists, discounted legal judgment certificates, skate-key slips, Bazooka joe bubble gum wrappers -- all valid collateral for use at discount window. Corollary windows soon opening for onestop shopping. People may pawn clothes, bridgework, have gold extracted from teeth, sell hair for wigs, apply for monkey grinder/peanut huckster. We're not ALL subprime now we're all just mostly subpar.
CR said: "...The credit crisis continues."
Commercial loans bright spot in lending? - Mortgage Insider : The Orange County Register
"Commercial loans bright spot in lending?
May 2nd, 2008, 12:01 am · 1 Comment · posted by Matt Padilla, Register Reporter and Blogger
The California Mortgage Bankers Association found just 0.02 percent of commercial loans delinquent in the first quarter of this year based on a survey of 17 mortgage banks, the lowest rate since June 2002, when it was 0.01 percent. The current rate equates to $14.6 million loans 30 days or more late out of $90.9 billion serviced.
At the end of 2007, the delinquency rate was 0.05 percent, a year ago it was 0.13 percent. Heres some more facts from a CMBA release:
Fifteen of the seventeen commercial mortgage banking firms that participate in the survey reported no loans more than 30 days delinquent.
Of the four delinquent loans totaling $14.6 million, one, a $1.5 million loan on an apartment building in Sacramento, was 2 payments past due; the other three were three or more payments past due. They consisted of a $4.8 million loan on a healthcare facility in Carmel Valley, a $4 million loan on a hospitality building in Patterson, CA and a $4.3 million loan on a retail property in Westminster, CA.
By number, the four delinquent loans also represent 0.04 percent of the 10,573 commercial real estate loans included in the survey.
The media and some experts have been saying the credit crunch and housing slump are spreading to commercial real estate. But perhaps Californias income-producing properties are faring better? Bring on the debate."
Sebastia
"If everyone "agrees" that the banks are solvent, inflation is "contained," and working for peanuts while suffering under crushing debt is "good for Americans," who's to say "no!" to all this?"
LIBOR. People with real money want to be compensated for the real risk
You guys better start lending money or we're going to give you more money!
Worried: I hope you're right... my concern is that if the people with the real money realize that there is no real risk because the Fed just prints more money (yes, that sounds crazy, but it seems everyone is happy with the Fed monetizing the debt), then why not continue the play the game? I'd like to think that the people with money are smarter than the average mope who went out and "bought" a $500,000 McMansion on a $50,000 a year salary, but I am having doubts at this point.
I see the market now as a group of crooks passing a bucket of worthless slop round and round to each other, each making up money out of whole cloth for their "fees" for moving it. The bucket is worthless, the fees are a fraud, but they can still go out and buy yachts with that money. What a system!
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Ben Bernanke's Fed Discount Window and Plasma Bank. Donate one liter of plasma and get 10 plastic bags. Distribute those to friends and family so everyone knows who is a holder.
Free health care checkup if you bring a friend.
Interesting Times,
If it ain't there, it ain't there. It's just not realistic to expect outsize returns from a starting point of high valuations.
Consider an unappreciated result of the fed bailout after the dotcom bust. Most investors who follow the mantra to invest yearly into stock funds have experienced weighted returns in the 2% to 3% range after fees & taxes over the past decade.
We would have been better off taking our medicine in 2001. Instead we made things worse with a housing bubble.
Will the current bailout fare any better than the last? I doubt it.
CD I am sorry to say I am not in financial services but in health care. I have been investing since 1998. I went cash in late 1999, saved a lot of money, went long reits in 2000 but exited in 2004. Much too early. Went short early 07 too early again and now am short (nervously).
Tim,
FWIW, I still own my REITS. It's tough to short a 5% yield and the underlying hard assets in a negative real yield environment.
Stimulus payments just really started today...Monday-Wednesday payments were window dressing to show they could do it early. Today began in earnest w/ 5,000,000 going out.
Angry Saver, How safe is that 5% yield though and the value of their collateral?
Sebastian,
I work in a bank. Corporate defaults are going to see massive increases in the next 12 months. We have seen more requests for covenant waivers so far in 2008 than we saw in all of the prior 5 years combined. That is a tried and true leading indicator for an eventual loan default.
The mandate from up high is to clamp down on credit and monitor the rapidly increasing number of troubled situations like a hawk. The credit environment is awful.
Anyone who says the credit crunch is over is clueless and certainly uninformed. Absolutely no one on the front lines in our bank would say that - there is great concern here and it is justified.
By the way, we're not a small lending institution either....
Stimulus payments just really started today...Monday-Wednesday payments were window dressing to show they could do it early. Today began in earnest w/ 5,000,000 going out.
Bloomberg.com:
Government Bonds
Yeah and the cost of that just went up.
CBs are a cartel and they're extorting money from the Fed while covering their shitty portfolios. They are worse than OPEC and they fear a Dem administration might stop the rape.
"they fear a Dem administration might stop the rape."
I laugh at you.
Anonymous said: "Anyone who says the credit crunch is over is clueless and certainly uninformed."
You should be explaining that to the commercial mortgage banks in California, not to me.
S.
Don Coxe this week. Really really spot on. Must listen.
http://events.startcast.com/events/199/B0003/#
Tim,
I'm unsure.
But I feel I need some real estate exposure as I have no doubts that Bernanke will keep dropping rates if economy does not improve. In that case, 5% should be supportive.
I see inflation longer term. The fed just doesn't seem to care.
It may not be a Great Depression for the country. But it may be for Wall Street.
Here in NY, papers are full of dire forecasts from both the State and City about cutbacks in Wall Street jobs, bonuses and revenues. One article says 1/4 of all state revenues are tied directly to Wall Street.
The long-running Wall Street shell game is over. It won't return any time soon, mainly because la gente will not allow it.
The hardest part of this for most Americans to accept (in part because of the MSM) is that things are in the process of changing permanently in the U.S. economy and value system. This isn't just a cycle. It's a new reality.
We are moving into a phase in which not only will most people not be able to afford to drive SUVs. People will bash the headlights out of those who are arrogant and rich enough to keep driving them.
If you can understand that change, you get it.
Here's a link:
In Downturn, Mayor Plans Lean Budget - NY Times
The REAL reason banks don't want to lend to each other is because of the lack of transparency, which is what the Fed keeps promoting. Each bank knows that its own balance sheet is sh!t, therefore it can only assume that everyone else's is at least as bad as their own. If you know you're technically bankrupt, would you lend to anyone in the same position? Hell no!
OTOH, they have to take the TAF just to continue the facade that they themselves are solvent.
p.s.: The market's doing exactly what it did in the last recession -- engaging in vicious bear market rallies that make no sense whatsoever. This one is about over.
The $300 billion pound pink gorilla in the room out in California is this Calpers news. They lost 1/3 of the portfolio(30 billion or so) in 2001 and I think they are in a similar situation now. Recently the the chief investment officer resigned as well as his right hand man. They report in June. This doesn't look good. Lots of pressure to pay for bloated retiree and healthcare costs.
"And no, I don't think the Dems will be any different. They just talk a better line, pretending to care about the average Joe and Joette."
Why do so many people feel the need to put this kind of addendum on a criticism of the modern Republican party. What is your evidence?
These addenda are particularly odd when considering the executive branch.
Does anybody really believe Gore or Kerry would have been as bad?
For that matter does anybody believe Bush I or Dole would have been better for the executive branch than Clinton.
Sebastian,
I dont need to explain to the commerical banks operating in CA because we are one.
I suggest you talk to a few loan officers rather than simply reading reporters and bloggers.
Watching the Fed is like a soap opera these days. Always something strange and dramatic. Where's all the cash going and where is the tipping point?
From Bloomberg: Fed expands TAF and TSFL to 75 Billion. Fed officials also expanded the collateral they accept under the Term Securities Lending Facility to include AAA rated asset- backed investments. That includes some bonds backed by student loans, which Democrats in Congress had pushed Chairman Ben S. Bernanke to take on the central bank's balance sheet.
Break out the beer bongs the kids are gonna party.
Anyone notice that Sebastian is a near-anagram for Ben Stein?
My favorite response to Sebastiansane in quite a while.
I don't need to explain to the commerical banks operating in CA because we are one.
Touche!
Anonymous said: "I suggest you talk to a few loan officers rather than simply reading reporters and bloggers."
Leaving aside that this is a blog that's supposedly credible, are you saying that the banks lied to the reporter?
Sebastian
Is the disconnect between the euphoria on Walls St and the gloom elswhere due to cheap Fed money creating yet another bubble?
Seb, The mortgage brokers website is essentially a farce! They are the same people that sd interest only no money down loans to 40K strawberry pickers at 600K was a good industry practice and helped increase home ownership.
Commercial is down. Drive around and you'll see. I see it everyday..
anaon ["they fear a Dem administration might stop the rape."
I laugh at you.]
Agreed. It's amazing die-hard cynics still have this silly belief that just because the feeding line is at the other side of the trough, the gorging will somehow simply stop.
LOL!
Sorry, Anonymous, one more thing: You should also take this up with CR about linking to other websites that are't credible.
The reason I found the article is because CR has a link to it on the right-hand side of his main-page, under the "Mortgage Insider" heading.
S.
From Costar Group: The State of CRE Financing Part 2: Denial is Not a Strategy
Banks Are Neither Anxious To Make New Loans Nor Buy into Investors' Expectations of Where Prices Should Be
The 2004-2007 run up in commercial real estate prices was as big a wave as bankers and lenders had ever seen. And they were all eager to jump on board and ride the crest. They did and rode it well until it crashed ashore last summer and had property prices retreating back into a leveling sea.
Federal banking regulators, which had already started worrying about banks overextending themselves on the commercial real estate wave, are now wading in to assess the damage from the wave's impact.
The U.S. Comptroller of the Currency, John C. Dugan said this past week that, with problem commercial real estate loans rising, it's imperative that bank management identify and address problems realistically and that the OCC deal with national banks in a consistent and balanced way.
cd - I couldn't bring myself to quit on TWM or SRS either. SKF I capitulated yesterday setting a trailing stop that got slammed this AM. Blew off DUG early too. Assets tied to a strengthening dollar don't look promising against a Ben led Fed.
Commercial and investment banks are bracing for a wave of corporate defaults. The outlook for corporate credit for the rest of the year at the IB I work for is so dour it almost makes Roubini look bullish in comparison.
cd said: "Seb, The mortgage brokers website is essentially a farce!"
Well, that's got to be a little embarrassing for you, since you clearly didn't follow the link and read the article. It's from the Orange County Register, and I got the link from CR's own site.
"The Truth is Out There", and you don't even have to look very far or very hard, but apparently even that's beyond many people. This is pretty depressing.
S.
Speaking of currency, a co-worker just returned from lunch with a dollar bill in her hand.
She explained that a bank branch on the corner was handing out dollar bills with a sticker, eligible for $100 if you open an account with direct deposit. No obligations, you get to keep your dollar whether you take it to the bank or not.
The bank is passing out free dollar bills, using them as coupons or advertising fliers!!!!!!!!!
I'm sorry, let me repeat that: the bank is handing out free money!!!!!
Why not? The Fed is passing it around. The Treasury is kicking it back. So apparently, it is cheaper to just hand out actual dollar bills than to print up a coupon or flier.
Glod, indeed. Thoughts?
From Bloomberg:May 2 (Bloomberg) -- Linens 'n Things Inc., the housewares retailer taken private by Apollo Management LP in 2006, filed for bankruptcy protection as mounting debt and the slumping U.S. economy led to two years of losses.
The chain sought protection in the U.S. Bankruptcy Court in Delaware, according to court papers filed today. The Clifton, New Jersey-based company plans to ask permission to close 120 of its 589 stores, according to the filing.
"Assets tied to a strengthening dollar don't look promising against a Ben led Fed."
Funny you say that as most of the equity profits reported this quarter are from overseas sales due to a weak dollar. Hummmmmmm
"Does anybody really believe Gore or Kerry would have been as bad?"
Either one would have been WORSE!!!
"Does anybody really believe Gore or Kerry would have been as bad?"
All of the bastards are the same. Bought and paid for, the inital behind the name just reflects which corporations will get the subsides, which ones get the tax breaks, which ones get bailed out. The sooner you get this the better off you will be. They don't give a rats ass about you!
Leaving aside that this is a blog that's supposedly credible, are you saying that the banks lied to the reporter?
just look away, don't engage.
he's the Pusher from xfiles epsiode.
just look away
More Good News: May 2 (Bloomberg) -- Crude oil rose more than $3 a barrel, the most in month, after a government report showed that the U.S. lost fewer jobs than forecast in April and as Turkey renewed its military offensive against Kurdish rebels in Iraq.
pump in 100s of billions....yes it is a very resilient ecocnomy
You guys leave Sebastian alone. Hey Sebastian, we have several EXCELLENT commercial properties out here in California that might interest you. IMMEDIATE occupancy. Terrific investment potential. Potentially HIGH cap rates. Good foot traffic. Freeway access. Come on out here and get you some.
""The Truth is Out There", and you don't even have to look very far or very hard..."
No kidding. I gave you the view from the front line and Turbo is telling you the same. Talk to loan officers, credit officers, bond and loan salesman/traders/investors, senior bank executives, etc. You will hear that the credit crunch is far from over and people whose livelihood depends on the credit markets (like me) are very very concerned.
Sebastian, I live it every day and you dont. The truth sucks for those of us that have to live it and your posts suggesting all is well really feel like a sharp jab into my reality. Its sort of like telling a truck driver that gas prices aren't high and that their volume is increasing so their business is robust - all when nothing could be farther from the truth. Its very frustrating to see people make proclomations about things they have no exposure to.
I'd love nothing more than your views to be true (or should I say those views you post to clearly make a point), but they dont even remotely resemble the reality that I and others have to unfortunately deal with.
Seb go there yourself and regarding Mr.Padilla-he called some of his readers something a while back that I won't mention. That's why you won't see much action there. He is an industry advocate being a former mort professional.
look for yourself..
California Association of Mortgage Brokers
the subtitle is a riot
honesty.integrity and ethics..
yeah right...
Seb-I sd yesterday its great to have you here but sometimes industries fudge numbers for their benefit...
hmmm-sort of like the govt...
Worth noting (and entirely ignored by the bulls) that yesterday's weekly claims numbers and more importantly continuing claims blew through forecasts. Those numbers don't get BD model and myth-based distortions.
barely-you won't believe it but I held my skf-Dumped FXP..I'll wait until after olympics on that one..
Did find a low volume short that's interesting (sdd)
What's your take?
Tac writes:
Trader Wait - keep justifying reasons for being short, you will be squealing soon enough.
Tac | 05.02.08 - 10:24 am | #
Bloody hell, that's impressive--the Dow had just touched its top about three minutes before you posted.
Don't recall seeing your screen name before, but I wouldn't mind seeing more posts from you. Good leading indicators are hard to find.
Speaking of b/d models, +267k for April, including +45k in construction. The BLS must be hiring a lot of unemployed number crunchers from the cdo business.
I'm not generally a fan of short-selling equities - not on any moral grounds, but the reality is stocks net-net go up 3 years out of 4, the powers that be try to monetize out bear markets, and I don't like playing games where the odds seem stacked against me. That being said, today really has the feel of an outside reversal day, and the end of this short-covering / false optimism rally. I'm very tempted.
Turbo,
felt the same way..
on days like that , i go right to the spu options.
caught nice 1450's on the low tick of the day.
Good leading indicators are hard to find.
Yalt | 05.02.08 - 1:04 pm | #
I usually need more than 3 minutes lead time. lol.
You could have gone short any time in the next hour and done just fine.
I remember thinking when I first read that post that it was the kind of arrogant and content-free jibe that often marks a turn. Then when we moved down for a couple of hours I decided to go back and look for the post and its timestamp, and sure enough....
strange things are afoot at the circle k.
I swear: on bad news sometimes the market ROCKETS up.
then today, arguably there was great news from the bulls (only 20k lost jobs, extension of alphabet soup by Fed), and it only allows a rally for a few hours? WTF?
I'm one of "the shorts" although I only have a smallish position. (only through ETFs)
in the past I'd panic on this stuff... but now I'm just numb. Market up a few hundred points? who cares, it'll come down soon anyway.
I think that's what our market has become. Numb.
or maybe it's just me.
that said, CNBC calls it "a trading range" I think.
however there is danger there... if other shorts are starting to feel like me (numb) then we may have some problems with short covering rallies.
Anonymous said: "The truth sucks for those of us that have to live it and your posts suggesting all is well really feel like a sharp jab into my reality."
I never suggested that all is well in the credit markets, only that it's not as bad as it's made out to be.
Here are a couple of questions I'd like to pose to someone who's on the front lines of the banking industry.
If things are so bad, who are these nearly 5 million seasonally-adjusted-at-an-annual-rate people who are still buying homes? Where are they getting their money if not from banks who are lending? Have they and the banks both lost their minds?
Why isn't the economy clearly, overwhelmingly, undeniably in a serious recession as a result of this "unprecedented" crisis?
Who would be buying risky investments like stocks in such a terrible economic environment, nearly the last asset that anyone would buy if conditions were as serious as you claim?
My point has never been that everything is great, only that things seem considerably worse than they are, and have been as bad in the past without crashing the economy.
Sebastia
I've tried to be one of "the shorts" but from the time Bear got bailed out to this fed meeting I just sat out (good move, yay me). From watching the trading everyday, I don't get the feeling that there are a lot of shorts sticking their necks out right now, so how far can you squeeze a few shorts? I have not been impressed by the volume since February.
"Why isn't the economy clearly, overwhelmingly, undeniably in a serious recession as a result of this "unprecedented" crisis?"
If the fed was not undertaking well publicised unprecedented action, which former fed officials are describing as at the edge of legality, this would be a reasonable comment.
TAF, +TAF, +TAF
TSLF
PDCF
(types of collateral lent against by Fed)^2
nothing to see here, move along...we gotz precedent!
Don Juan wrote:
"Does anybody really believe Gore or Kerry would have been as bad?"
Either one would have been WORSE!!!
Don Juan | 05.02.08 - 12:36 pm | #
John Kerry payed a political price for investigating and pushing forward prosecutors to investigate the BCCI banking scandal. Bush 1 had an account and bank benefactors were involved in helping bush 2 get out of the arbusto oil dry well mess he made for himself.
there were bad democrats involved too... clark cliffor prime example...but they were fewer yet still amply represented.
it is a simplistic lie to say that kerry and gore are the same as bush.
i could prvide a similar case for gore but instead...
...just for fun read about how Niel bush raided silverado bank making non recourse loans to his cohorts, plunging the bank on to the rocks and then having the taxpayers do the s&l bailout thing. reference Siedman at wiki if you like about resolution trust corp and silverado bank
finally brother jeb was involved in not a few shady re-estate deals in Fla., that also resulted in a "helping" hand from the gov, ie taxpayers
now compare all that to a Blow J and whitewater which Kenneth starr and the repubs investigated for many years at a cost of over 100 million dollars to the taxpayers.
lets face it nobody gets elected without friends on wall street and in finance. but if you think the dems are the same as the republiCONs your are willfully blind to the history that's out there.
our president said it and said it well, on video.." i represent the haves and the have mores...hahahaha"
by that he meant the real REAL wealthy in this land...the billionaires...not piss ants like me who have a large 6 fig net worth and pretend to be somebody. we are pawns in their game.
just looks away
Effective June 1, 2008, the Fed will accept the following collateral:
Turbo is it true that the debt risk of US treasuries is equal to that of Germany and Japan now?
Sebastian'sWorld writes:
"just looks away"
in other words, willful blindness
We simply don't have the financial knowhow or respect for debt obligations to be trustworthy borrowers. We don't use credit; we abuse it.
This is a cultural and behavioral problem that no amount of liquidity injections, no amount of bailouts, and no amount of rate cuts will fix.
We are all Jose Canseco now.
We are all Jose Canseco now.
Quote of the Day
They'll start taking used tampons for collateral any day now.
Re: bank CRE reports...
It is true that defaults are declining. However, this is b/c the debts are being shifted prior to default to other borrowers on the bank's balance sheet prior to actual "legal" default.
Essentially, it's a forced liquidation of the underlying asset to another guy on the books rather than going to the embarrassing process of legal action.
Apologies for no reference links, however, if you have access to the deed database in your state, you will see the security deeds being restructured by the bank and the underlying asset transferred to a generally larger borrower on the bank's/lender's books.
This happens all the time, however, it's the frequency and amounts that is troubling. I'm in Georgia, so, I can't speak unilaterally for the nation, but, the trading of CRE debt on the books of our bloated state and community banking industry is...problematic. Unfortunately, you don't see the balance sheets until they go teets up, but, even if they suspend payments to a bigger fish for a year or so to entice them to pick up the loan, the guys assuming the debt and assets are usually CRE debtors as well.
I wouldn't characterize it as a Ponzi scheme, but, it's certainly a dangerous shell game.
In that Centex conference call, the CEO hinted at this problem directly. namely, that the bank's are taking the stuff back but they won't reprice the dirt appropriately (b/c they can't!)
Anyway, we're in a holding pattern now. Deals are getting done, but they are being done "covertly" w/ debt restructurings in order to maintain price.
How the equity markets will react? No idea. Naively (on my part), I just don't think they understand the scope of the problem as these "deals" don't represent actual "arm's length transactions", just balance sheet shuffling. Can it go on? Sure, but not indefinitely.
Sorry for length and no links. I will note that I wouldn't be buying land until some of these banks start going under...regrettable as that may be.
Sebastian,
Man, you really do need to get out more.
To answer your questions:
1. existing home sales are down over 30% since the peek and have declined in each of the past 3 years with the sales decline accelerating significantly so far this year (down 16% vs 2007! Thats an epic decline). Credit is contracting for home borrowers in terms of number of those eligible for loans and the advance rates on those loans. Its also going to get worse from what we're seeing and hearing on the front lines.
2. Most of our corporate borrowers think we're in a recession or right on the cusp and that Q2 is going to be very ugly. Almost all of our borrowers admit 2008 and going to be below their expections. Also, this is certainly not unprecedented - this credit contraction is similar to what I saw in 1989-1992. Our bank is behaving the same way. The only difference I see is that the numbers are much much larger but so are the banks, and there are more types of loans and securities impacted because the market is much broader today. It took more than a couple Q's for that credit contraction to manifest into a recession but it ultimately did. You will find that every prolonged credit contraction has lead to a recession in our country - that is Banking 101.
3. I'm not sure what people buying stocks has to do with credit or banking. It seems that people have been selling too - the market certainly lacks a conviction from what I see. The equity market also appears to be expecting a second half economic rebound. That second half rebound certainly will not be a result of expanding credit. Conversely, I suspect you will see a continuation of tighter underwriting standards and credit scrutiny throughout the rest of 2008. Thats certainly no secret at our bank or others that I know well. Stocks may be overvalued or undervalued depending on what you're looking at - but its not what I do. However, I do know that the credit markets will most likely continue to choke economic growth in the US through the rest 2008. I can tell you there are very few buyers for risky credit assets too.
"My point has never been that everything is great, only that things seem considerably worse than they are, and have been as bad in the past without crashing the economy."
In my experience, things in the credit markets have never been this bad in the past without leading to a recession (or as you say, crashing the economy) so I have no idea what your point is other than wrong.
This conversation is very reminiscent of conversations I had with people outside of tech in the fall of 2000. I would say "you don't understand, orders have completely stopped," and they would explain to me that it wasn't as bad as I thought. But I was on the front lines talking to customers whose financing had suddenly completely come to a halt.
Gonna be an interesting year.
Any chance banks are leveraging cheap dollars to reflate via carry trades?
Sorry. Page not found.
Thanks for any insight.
Anonymous,
Many, many thanks for the highly informative posts. Though on the one hand I'm tempted to say, "Don't feed the trolls," on the other, I'm hoping for more.
I note that there is no inconsistency at all between your first post and the article Sebastian quoted, as you were talking about borrower requests for relaxation of covenants, and pointing out that this historically correlates with future defaults, whereas the quoted article was listing only defaults that had already occurred.
UNCONSTITUTIONAL.
I am getting jittery. I invested in the stock market of 2000 and got burned and felt that the safest way to invest your money -- the greenback -- was to invest in a savings account or money market fund. I have about $50,000 liquid -- no IRAs, 401(k)s -- and that is all i have, my life savings. The inflation talk is scaring me. Does anyone have any ideas about anything where I can put this money that will protect it against inflation? I am not looking for stellar returns, just protection from inflation. I have been reading MISH's blog, where he claims deflation, rather than inflation, is what in the offing. I am confused and terrfied. Any ideas?