The deja vu with the dot.com era is unreal. But I think there are two big differences between now and then.
Then, the canaries were all tech companies, mainly Internet with some semi, hardware and software weakening early. This time, it started with housing and mortgage companies but already it's spread across much more of the economy. If the growing chorus of warnings in credit cards, retail and restaurants isn't a sign of consumer slowdown, I don't know what is. Tech is weakening, too, in case you didn't notice. Construction loans are dragging banks into the toilet.
The other difference is the degree of denial. It's even more stubborn this time than last. I'm glad people like Sebastian are here because its just a mirror of how head-in-the-sand so many people are. Every day watching TV, I almost drop my plate at least once listening to some moron deny that the "subprime problem" is going to get worse.
The denial meter tells you a lot about what's coming next.
The fed is doing the right thing here. They have no control anymore over oil/food and they know it. They have to blow out all the stops to prevent what will most likely be a moderate-severe recession from turning into something far worse.
As is often said, the Fed controls short term rates, the market controls long term rates.
Put simply, the question is how long can bond prices and gold go up together?
Not long.
One or the other will correct. Maybe today's reaction to BB is an indication: gold up, bonds down.
What's interesting is the uninamity of opinion on the topic: everyone seems to believe the Fed sets long term rates. This is due to historical coincidence. The Fed cut to 1% in '02/'03, and the Chinese, wading in dollars, recycled them into l.t. Treasuries. Will the same dynamic kick in this time? Maybe not with a Chinese CPI of 7%. They are more likely to revalue and cut off the incremental flow into Treasuries.
The fed won't be able to stop what's coming. We all know the Fed funds rate is going to fall to 1% and we'll still have our recession anyway.
"We all know..." as in 10% of the American population?
You know most of the American Idol watching population probably doesn't understand what a rate cut does or how it benefits them other than, "rate cuts make the stock market go up". I think a lot of people in New York must watch American Idol too..
Thanks for the insights CR/Tanta and commentators...
What's interesting is the uninamity of opinion on the topic: everyone seems to believe the Fed sets long term rates.
I think the fed would party like its 1999 if the long rates stayed high or went higher as long as the low rates could stay manageably low... Nothing cures a bunch of sick banks quite like a steep yield curve... make that a steep POSITIVE yield curve.
I bet they'd like to fix the banks and let the 'other economy' fix itself.
Look for 75 or even bps cut in January. Either all at once at the meeting or a 'surprise cut' next time the Dow has the temetry to drop below 12500. They have to get the cuts in ASAP before the CPI jumps too much. Plus, they know the recession is coming for sure now. Nothing to gain by conserving ammo. Cut the rates as far and as fast as possible without inciting panic, so when we are wallowing in recession, Benny and the Inkjets can say, "hey, we did what we were supposed to, what more do you want from us?"
By the way, I know nothing about finance and this is just my personal SWAG, so caveat emptor.
well i think u got that one wrong. a highly steep yield curve would kill banks and the economy. haven't u noticed that banks like CFC, WM, are offering CD rates over 5% despite a FFR of 4.25% resulting in shrinking net interest margin?
high long term rates would jack long term rates, think mortgages, even higher and kill off housing once and for all. i think this happen once the Chinese stop buying our UST's.
The Mozilo Haters A few days ago, I heard about the University of San Diego's annual real estate conference coming up next week. The themes and the panel discussions are on the capital markets, trends in commercial real estate and sustainable real estate, and I'm planning to go listen (and to report back to you Survival-ites).
But this bit caught my eye:
"Angelo Mozilo, chairman and CEO of Countrywide Financial Corp., headquartered in Calabasas, Calif., will be the keynote speaker."
I'm not saying they won't do it, but my pea brain seems to thinks they'll do 50 bps FFR, and 100bps discount, making the two equal. Stigma shmiga, giving the Fed crap at the discount window for overnight rates would be a bargain.
I'm with idoc on this one. This would KILL any chance of refi, and put new buyers so far out of the money t buy the resulting REO at anywhere near par out of the question.
That's what happens when you securitize such large amounts of consumption debt. When the consumer can't cover the securitized paper just goes boom.
Further who are they going to lend long to, whilst borrowing short at low short term rates?
the fed funds rate crosses the unemployment rate 7 times in this graph but it appears recessions, which happened only twice, occurred when the unemployment rate and fed funds rate cross during periods of rising inflation.
So looking at that blue chart..can you imagine those valuations for 3.5->4.5 remaining horizontal for 3 weeks given the performance from Dec 20?
Last ting: the danger of inflation has been reduced to a whimper now from quite a few months of tongue-wagging to the contrary, yes?
Spillover being: it was tongue-wagging then --could it still be tongue-wagging now? Was there any mention of a mislead in the data then? Any suggestion that a mistaken impression was created to give the impression that the Fed learned from the error of its former position?
They are just too holy...which is a huge handicap for those outside the choir looking for directions.
You know it's serious when the President takes his holidays in Israel and not Crawford.
Is this a mark to market story? The bank was ordered sold to pay off debts of another company? Am I reading this correctly? Bad day, on my third martooni, and that article's language is dense. If you have the time to break it down a bit.
Food for thought from J. Sinclair re: BAC buying CFC..
hmmmm....
"Let us assume one of the largest mortgage entities, Countrywide, who would have certainly been a significant player in the credit derivative market, has a very major credit derivative position with Bank of America. Lets' assume that Countrywide was the entity that had the obligation to perform, but now clearly can't. If Bank of America was to buy the non-performing other side of the many transactions and Countrywide become one entity with Bank of America, as they would, would the transactions between them not evaporate in the merge? It absolutely would. What would you then have to mark down on those specific transactions? I believe NOTHING would have to be marked down any further as two sides of the transaction became one.
That would qualify the already invested $2 billion, plus whatever else needs now to be paid to Countrywide' stockholders. This would more than likely be paid in paper.
It might explain the inexplicable "why" of Bank of America putting $2 billion into Countrywide recently when Mickey Mouse could see that as a sketchy investment at best"
mp, FDIC employees no longer carry old fashioned brief cases to the best of my knowledge. They carry blackberries and ample supplies of Excedrin PM, Motrin and other legal over the counter medications fortified with plenty of J&B and perhaps a little bongwater here and there when nobody is watching...
I think the Japanese stock market is doing what a market is supposed to do, which is to be a leading indicator of recession. They know how recessions affect earnings and are retreating. Because the U.S. market hasn't been a leading indicator this time, it eventually will have a sharper drop than japan.
Japan's economy and market will probably turn up a good year before ours.
I'm with idoc on this one. This would KILL any chance of refi, and put new buyers so far out of the money t buy the resulting REO at anywhere near par out of the question.
Mise - you didn't read what I wrote... I said i think they don't care about the refi's or any of the 'regular economy'... fuck'em. Save the banks... let heaven sort out the rest.
Seriously. They'll let the rest of the economy take care of itself... their mandate is the banks.
Banks borrow short & lend long - always have, always will. The difference between them and regular 'commercial paper junkies' is they can go to the window (or TAF) to borrow short forev'r - no one else can. So they are established middlemen... they can get short money cheaper than anyone else.
The only way this no workie is if the curve stays flat - or heaven forbid, goes negative. Last I looked it was sorta 'V' shaped... with both long and short higher than 2YR. Drop the short end and it stays nice and positive... nice for banks anyway. Big time carry.
That's my guess of what they'd wish for... but as we know 'if wishes were fishes we'd all cast nets'...
i think ur forgetting that the banks made most of their money intermediating loans via securitization, ie, passing on risk. they didn't make the majority of their money on NIM. its in their best interest to have low rates across the entire curve to keep JULS borrowing and spending. if long bonds were high this would jack up borrowers mortgage reset rates even higher then they're now at exacerbating the problem even more.
we had a similar debate months ago when we talked about the Chinese buying UST's and keeping our rates down which sustained the housing bubble whether that was their intent or not.
btw, do u still doubt the Chinese have an inflation problem?
Further who are they going to lend long to, whilst borrowing short at low short term rates?
The yield curve indicates the market rate over all durations.
If the yield curve indicates the rate for, say, 10 years is 8%, that means that someone is willing to borrow at 8% and someone is willing to lend at 8%.
Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.
Skip to next paragraph
Eric Thayer/Reuters
John A. Thain, the chief of Merrill Lynch, is urging change.
Merrill, the nations largest brokerage firm, is expected to disclose the huge write-down when it reports earnings next week, according to people who have been briefed on its plans. The loss far exceeds the $12 billion hit many Wall Street analysts had forecast.
....
Mortgage Bankers Assn asking if banks can ignore FAS 114 in reporting on restructured loans. Not a complex calculation, there are just too many FBs to process in bulk:
You aren't kidding. As brian setser at rgemonitor points out, the largest IMF bailout of so called developing countries ( Turkey and Argentina ) was 13.7b in 2001.
So far, this reverse bailout has cost $28b and counting.
What really disturbs me is that so many plead for the bailout either of the banks or via the lower FFR and cherish, revel it, regard it distasteful but necessary.
I see little evidence, even in this blog, of "taking the medicine"; as Calvin told Hobbes - "this guy's a goner".
"Let us assume one of the largest mortgage entities, Countrywide, who would have certainly been a significant player in the credit derivative market, has a very major credit derivative position with Bank of America. Lets' assume that Countrywide was the entity that had the obligation to perform, but now clearly can't. If Bank of America was to buy the non-performing other side of the many transactions and Countrywide become one entity with Bank of America, as they would, would the transactions between them not evaporate in the merge? It absolutely would. What would you then have to mark down on those specific transactions? I believe NOTHING would have to be marked down any further as two sides of the transaction became one.
That would qualify the already invested $2 billion, plus whatever else needs now to be paid to Countrywide' stockholders. This would more than likely be paid in paper.
It might explain the inexplicable "why" of Bank of America putting $2 billion into Countrywide recently when Mickey Mouse could see that as a sketchy investment at best"
Stuart"
Didn't you pull that from Mish? Might be nice to site the source.
And silvers at 16.16. Dollar limping along below 75.9 and Nikkei off 1.26%.
Comes back to what I was seeing this afternoon. Something big is up...don't know what..but it'd be a good idea to keep ones powder dry and wait for the white of the eyeball.
Strap yourselves in folks, this is gonna be a bumpy ride.
btw, do u still doubt the Chinese have an inflation problem?
idoc | 01.10.08 - 11:54 pm | #
I do - but precisely because they AREN'T doing as well at the things they did before to contain inflation... sterilize USD inflows. The reason they DIDN'T have much inflation before is because they DIDN'T have money supply growth... they got money supply growth in spades now 'cause J6P in China is buying Chinese stocks and NOT the sterilization bonds.
As for this...
i think ur forgetting that the banks made most of their money intermediating loans via securitization, ie, passing on risk. they didn't make the majority of their money on NIM. its in their best interest to have low rates across the entire curve to keep JULS borrowing and spending.
Emphasis on MADE (past tense). Now they need carry 'cause securitization isn't going to be there for them at the same insane levels IN THE FUTURE regardless of curve levels... but carry can be, even at lower borrowing levels. Fed gets it. This will be their dig out strategy - it will be a long dig.
JULS is going to have to save himself - the fed is going to take care of the banks.
Uranus-Pluto squares that simultaneously formed harsh angles to key points in the USA's horoscope have marked major turning points in American history:
1620s: African slaves introduced to Jamestown Colony
1670s: Bacon's Rebellion in Virginia Colony
1870s: Great Depression
1930s: Great Depression
Uranus and Pluto will form their next square angle beginning in 2008 and lasting a record long time till 2019. This aspect will be tightening its orb by 2012. It will be most exact in 2014 and 2015
They're going to use carry trade off of widening yield curve to blow out the bad debts? I guess it's possible...what bubble is gonna get blown to do it though? Ain't saying you're wrong, just curious as to where the spec funds blow?
They're going to use carry trade off of widening yield curve to blow out the bad debts?
Nope - write off the debts as losses and 'back fill' the hole with future earnings from 'carry'. Its how its always been done in the past when banks got in trouble.
Central banks with their 'affiliates' have a very favored position - they are the middlemen that skim the fiat system. They'll go back to it again - I'm certain.
The bad news is that it usually does mean the 'other economy' - folks like you and me that make stuff or provide services - will find the cost of money MUCH higher. But not for the banks closest to the source of the largess - they borrow short cheap and then lend long expensive.
If they can. That ONLY works if the long bond stays well above the FFR & short bonds. If the 'market' anticipates the curve falling, the long bond could get out in front & we see negative slope again... the banks worst enemy.
I think that is a big reason why the fed is lowering even in spite of 'inflation' - give the banks some almost guaranteed earnings via yield curve carry.
btw i think the inflation is much greater than u think and started earlier than 2006. its only recently been reflected in actual prices like in pork. but its been goin on for years into land, real estate, and other assets. geez, where have i seen that before?
What troubles me is the perfect "destroy the middle class" set-up we have coming:
Falling stock market, with random, violent upward motions. Hard to make money in this unless you're day trading.
Loss of jobs.
Low Fed rates = low rates on CD's and savings accounts, thus punishing savers
Run-away inflation, eating into whatever money people still have.
It seems very hard at this point to avoid massive wealth loss in the years to come thanks to a mix of lousy investment choices and out of control inflation.
Unless Bernanke know where there are untapped oil fields or stores of arable land, I think the ability of the Fed to affect the prices of oil and foodstuffs is quite limited. Think about the newly middle-class person in China who waited 20 years to be able to have a car and now has one. Are they not going to drive it, because the price of gas goes up? I doubt it. And as the yuan rises, the price of gas in China may actually drop. And now Tata has their $ 2,500 car.
No, the Fed can affect wage-driven inflation, of which there is very little, but will not have a big effect on oil or food.
So, in the end, we'll all have cars, but nobody can afford to drive them; we'll have burger joints on every corner, but nobody can afford to eat at them. Good thing there's no inflation and that plasma TV's are edible since they keep getting cheaper!
We are all B of A now
Seems to me the Fed Funds Rate is a pretty reliable leading indicator to recession. Maybe the bulls should be pushing for rate hikes.
The deja vu with the dot.com era is unreal. But I think there are two big differences between now and then.
Then, the canaries were all tech companies, mainly Internet with some semi, hardware and software weakening early. This time, it started with housing and mortgage companies but already it's spread across much more of the economy. If the growing chorus of warnings in credit cards, retail and restaurants isn't a sign of consumer slowdown, I don't know what is. Tech is weakening, too, in case you didn't notice. Construction loans are dragging banks into the toilet.
The other difference is the degree of denial. It's even more stubborn this time than last. I'm glad people like Sebastian are here because its just a mirror of how head-in-the-sand so many people are. Every day watching TV, I almost drop my plate at least once listening to some moron deny that the "subprime problem" is going to get worse.
The denial meter tells you a lot about what's coming next.
The fed is doing the right thing here. They have no control anymore over oil/food and they know it. They have to blow out all the stops to prevent what will most likely be a moderate-severe recession from turning into something far worse.
The fed won't be able to stop what's coming. We all know the Fed funds rate is going to fall to 1% and we'll still have our recession anyway.
If it gets bad, please let it do so in '08. Don't let Bush slink away from his role in this catastrophe.
As is often said, the Fed controls short term rates, the market controls long term rates.
Put simply, the question is how long can bond prices and gold go up together?
Not long.
One or the other will correct. Maybe today's reaction to BB is an indication: gold up, bonds down.
What's interesting is the uninamity of opinion on the topic: everyone seems to believe the Fed sets long term rates. This is due to historical coincidence. The Fed cut to 1% in '02/'03, and the Chinese, wading in dollars, recycled them into l.t. Treasuries. Will the same dynamic kick in this time? Maybe not with a Chinese CPI of 7%. They are more likely to revalue and cut off the incremental flow into Treasuries.
The fed won't be able to stop what's coming. We all know the Fed funds rate is going to fall to 1% and we'll still have our recession anyway.
"We all know..." as in 10% of the American population?
You know most of the American Idol watching population probably doesn't understand what a rate cut does or how it benefits them other than, "rate cuts make the stock market go up". I think a lot of people in New York must watch American Idol too..
Thanks for the insights CR/Tanta and commentators...
Paula Abdul for Fed Chairman!
Paula Abdul - Wikipedia, the free encyclopedia
Gatsby, you uber-suck.
What's interesting is the uninamity of opinion on the topic: everyone seems to believe the Fed sets long term rates.
I think the fed would party like its 1999 if the long rates stayed high or went higher as long as the low rates could stay manageably low... Nothing cures a bunch of sick banks quite like a steep yield curve... make that a steep POSITIVE yield curve.
I bet they'd like to fix the banks and let the 'other economy' fix itself.
The addict has built tolerance to the drug.
Look for 75 or even bps cut in January. Either all at once at the meeting or a 'surprise cut' next time the Dow has the temetry to drop below 12500. They have to get the cuts in ASAP before the CPI jumps too much. Plus, they know the recession is coming for sure now. Nothing to gain by conserving ammo. Cut the rates as far and as fast as possible without inciting panic, so when we are wallowing in recession, Benny and the Inkjets can say, "hey, we did what we were supposed to, what more do you want from us?"
By the way, I know nothing about finance and this is just my personal SWAG, so caveat emptor.
that should read "75 or even 100 bps cut in January"
Thanks
dryfly
well i think u got that one wrong. a highly steep yield curve would kill banks and the economy. haven't u noticed that banks like CFC, WM, are offering CD rates over 5% despite a FFR of 4.25% resulting in shrinking net interest margin?
high long term rates would jack long term rates, think mortgages, even higher and kill off housing once and for all. i think this happen once the Chinese stop buying our UST's.
What's going on with the Nikkei drop right now? I don't understand.
The Mozilo Haters
A few days ago, I heard about the University of San Diego's annual real estate conference coming up next week. The themes and the panel discussions are on the capital markets, trends in commercial real estate and sustainable real estate, and I'm planning to go listen (and to report back to you Survival-ites).
But this bit caught my eye:
"Angelo Mozilo, chairman and CEO of Countrywide Financial Corp., headquartered in Calabasas, Calif., will be the keynote speaker."
http://www.voiceofsandiego.com/articles/2008/01/10/survival/603mozilo011008.txt
Dale,
they are a lot more sensible than we are.
giacutter,
"Nothing to gain by conserving ammo. Cut the rates as far and as fast as possible without inciting panic,"
Without inciting panic? That move WOULD incite panic. The dollar cliff dove twice today:
INO Equities Stocks Indexes - U.S $ INDEX (NYBOT:DX) Price Chart and Quote
And look at this nice head and shoulders formation:
INO Equities Stocks Indexes - US DOLLAR INDEX (NYBOT:DX) Price Chart and Quote
I'm not saying they won't do it, but my pea brain seems to thinks they'll do 50 bps FFR, and 100bps discount, making the two equal. Stigma shmiga, giving the Fed crap at the discount window for overnight rates would be a bargain.
Cheers,
Dryfly-
So a repeat of early 90s? Steep yield curve bails out sick while dead taken over by gov?
Sounds about right.
Dryfly, rcyran,
I'm with idoc on this one. This would KILL any chance of refi, and put new buyers so far out of the money t buy the resulting REO at anywhere near par out of the question.
That's what happens when you securitize such large amounts of consumption debt. When the consumer can't cover the securitized paper just goes boom.
Further who are they going to lend long to, whilst borrowing short at low short term rates?
Cheers,
CR,
Credit Suisse estimates that 2007 vintage loans have LTV > 90% - still at record levels, pouring fuel on the fire
Winter (Economic and Market) Watch » Country Fried
Helping make a bad situation worse.
DD
Re Japan - an article was out today that said that some IB was claiming Japan is also at risk of heading back into recession.
Factiod: 10% of males are colorblind. And the colors chosen for inflation and unemployment on that chart prove it.
the fed funds rate crosses the unemployment rate 7 times in this graph but it appears recessions, which happened only twice, occurred when the unemployment rate and fed funds rate cross during periods of rising inflation.
we are there
Misean - my pea brain seems to thinks they'll do 50 bps FFR, and 100bps discount
This seems like the only way to go, it avoids panic and the market tantrum we got with the last cut.
So looking at that blue chart..can you imagine those valuations for 3.5->4.5 remaining horizontal for 3 weeks given the performance from Dec 20?
Last ting: the danger of inflation has been reduced to a whimper now from quite a few months of tongue-wagging to the contrary, yes?
Spillover being: it was tongue-wagging then --could it still be tongue-wagging now? Was there any mention of a mislead in the data then? Any suggestion that a mistaken impression was created to give the impression that the Fed learned from the error of its former position?
They are just too holy...which is a huge handicap for those outside the choir looking for directions.
You know it's serious when the President takes his holidays in Israel and not Crawford.
US Virgin Islands approves bank sale to pay ailing telcom's creditors
http://www.pr-inside.com/us-virgin-islands-approves-bank-sale-r381466.htm
FFDIC,
Is this a mark to market story? The bank was ordered sold to pay off debts of another company? Am I reading this correctly? Bad day, on my third martooni, and that article's language is dense. If you have the time to break it down a bit.
Cheers,
So much for the safety of offshore.
I will go out on a limb. I say 100bps. I think BB likes the power of shock and awe.
For those following the financial, I think C's logo colours will now have a hint of red.
24/7 Wall St.
Financial Mergers May Be Mandated Rather Than Preferred (nice article)
Financial Mergers May Be Mandated Rather Than Preferred (WFC, CFC, BAC, AXP, ABK, MBI, BX, COF, WM, WFC, ETFC, BSC, GS, SLM, JPM, STI, FITB, WB, NLY, CIM, BRK-A) – 24/7 Wall St.
Misean - let me check around on it.
Food for thought from J. Sinclair re: BAC buying CFC..
hmmmm....
"Let us assume one of the largest mortgage entities, Countrywide, who would have certainly been a significant player in the credit derivative market, has a very major credit derivative position with Bank of America. Lets' assume that Countrywide was the entity that had the obligation to perform, but now clearly can't. If Bank of America was to buy the non-performing other side of the many transactions and Countrywide become one entity with Bank of America, as they would, would the transactions between them not evaporate in the merge? It absolutely would. What would you then have to mark down on those specific transactions? I believe NOTHING would have to be marked down any further as two sides of the transaction became one.
That would qualify the already invested $2 billion, plus whatever else needs now to be paid to Countrywide' stockholders. This would more than likely be paid in paper.
It might explain the inexplicable "why" of Bank of America putting $2 billion into Countrywide recently when Mickey Mouse could see that as a sketchy investment at best"
Mickey Mouse was never a rat Stuart.
Walt Disney was a nobody until he met Mickey Mouse.
mp, that reminds me.. Alan Greenspan was a nobody until he met Ronald Reagan...
Alan Greenspa - Wikipedia, the free encyclopedia
That's right, FFDIC!
By the way, have you dusted off your briefcase?
mp, FDIC employees no longer carry old fashioned brief cases to the best of my knowledge. They carry blackberries and ample supplies of Excedrin PM, Motrin and other legal over the counter medications fortified with plenty of J&B and perhaps a little bongwater here and there when nobody is watching...
I think the Japanese stock market is doing what a market is supposed to do, which is to be a leading indicator of recession. They know how recessions affect earnings and are retreating. Because the U.S. market hasn't been a leading indicator this time, it eventually will have a sharper drop than japan.
Japan's economy and market will probably turn up a good year before ours.
Pearls before swine...
Japanese proverbs - Wikiquote
I'm with idoc on this one. This would KILL any chance of refi, and put new buyers so far out of the money t buy the resulting REO at anywhere near par out of the question.
Mise - you didn't read what I wrote... I said i think they don't care about the refi's or any of the 'regular economy'... fuck'em. Save the banks... let heaven sort out the rest.
Seriously. They'll let the rest of the economy take care of itself... their mandate is the banks.
Banks borrow short & lend long - always have, always will. The difference between them and regular 'commercial paper junkies' is they can go to the window (or TAF) to borrow short forev'r - no one else can. So they are established middlemen... they can get short money cheaper than anyone else.
The only way this no workie is if the curve stays flat - or heaven forbid, goes negative. Last I looked it was sorta 'V' shaped... with both long and short higher than 2YR. Drop the short end and it stays nice and positive... nice for banks anyway. Big time carry.
That's my guess of what they'd wish for... but as we know 'if wishes were fishes we'd all cast nets'...
FT.com / US & Canada - Moody’s says spending threatens US rating
the whole country is now subprime!
the whole country is now subprime!
idoc | 01.10.08 - 11:44 pm | #
Can Moody's downgrade the entire US?
dryfly
i think ur forgetting that the banks made most of their money intermediating loans via securitization, ie, passing on risk. they didn't make the majority of their money on NIM. its in their best interest to have low rates across the entire curve to keep JULS borrowing and spending. if long bonds were high this would jack up borrowers mortgage reset rates even higher then they're now at exacerbating the problem even more.
we had a similar debate months ago when we talked about the Chinese buying UST's and keeping our rates down which sustained the housing bubble whether that was their intent or not.
btw, do u still doubt the Chinese have an inflation problem?
Red Pill
why the hell not!? their in the litigation hole anyway. might as well bring down the entire ship.
seriously, what an indictment.
After BofA shoots it wad on CountryFried, and Wells & JPMorgan take out WAMU & Suntrust, who in the hell is going to save all the other banks?
Maybe the Chinese can fund RTC2, just give them some upside, it will help their economy.
Further who are they going to lend long to, whilst borrowing short at low short term rates?
The yield curve indicates the market rate over all durations.
If the yield curve indicates the rate for, say, 10 years is 8%, that means that someone is willing to borrow at 8% and someone is willing to lend at 8%.
Isn't that obvious?
Not really OT - reported writedowns for Merrill:
Giant Write-Down Is Seen for Merrill - NY Times
Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate, prompting the firm to raise additional capital from an outside investor.
Skip to next paragraph
Eric Thayer/Reuters
John A. Thain, the chief of Merrill Lynch, is urging change.
Merrill, the nations largest brokerage firm, is expected to disclose the huge write-down when it reports earnings next week, according to people who have been briefed on its plans. The loss far exceeds the $12 billion hit many Wall Street analysts had forecast.
....
-K
Can Moody's downgrade the entire US?
Sure.. its called 'mutually assured destructio
Mortgage Bankers Assn asking if banks can ignore FAS 114 in reporting on restructured loans. Not a complex calculation, there are just too many FBs to process in bulk:
HIGH & LOW FINANCE; Banks Plead They Can't Follow Rules - NY Times
Me want hedge fund go boom. HEDGE FUND GO BOOM!!!
the whole country is now subprime!
idoc
You aren't kidding. As brian setser at rgemonitor points out, the largest IMF bailout of so called developing countries ( Turkey and Argentina ) was 13.7b in 2001.
So far, this reverse bailout has cost $28b and counting.
What really disturbs me is that so many plead for the bailout either of the banks or via the lower FFR and cherish, revel it, regard it distasteful but necessary.
I see little evidence, even in this blog, of "taking the medicine"; as Calvin told Hobbes - "this guy's a goner".
-K
"Merrill Lynch is expected to suffer $15 billion in losses stemming from soured mortgage investments, almost double its original estimate,..."
There's going to be more, a lot more. Same for Morgan Stanley, Goldman Sachs, Bear Stearns.
mp
u beat me to it. how much longer can this deception go on w/o causing catastrophic consequences for the stock mkt?
UNBELIEVABLE!!!
China, U.S. Make Plans for North Korea Collapse, Reports Say - Bloomberg.com
"China, U.S. Make Plans for North Korea Collapse, Reports Say "
i think they made a mistake. it should read:
"China, Korea, Make Plans for U.S. Collapse, Reports Say "
"Let us assume one of the largest mortgage entities, Countrywide, who would have certainly been a significant player in the credit derivative market, has a very major credit derivative position with Bank of America. Lets' assume that Countrywide was the entity that had the obligation to perform, but now clearly can't. If Bank of America was to buy the non-performing other side of the many transactions and Countrywide become one entity with Bank of America, as they would, would the transactions between them not evaporate in the merge? It absolutely would. What would you then have to mark down on those specific transactions? I believe NOTHING would have to be marked down any further as two sides of the transaction became one.
That would qualify the already invested $2 billion, plus whatever else needs now to be paid to Countrywide' stockholders. This would more than likely be paid in paper.
It might explain the inexplicable "why" of Bank of America putting $2 billion into Countrywide recently when Mickey Mouse could see that as a sketchy investment at best"
Stuart"
Didn't you pull that from Mish? Might be nice to site the source.
Cheers,
spot gold 895.50 and counting
This is interesting :
http://finance.yahoo.com/charts#chart6:symbol=^n225;range=1y;compare=^tyx;indicator=volume;charttype=line;crosshair=on;logscale=on;source=undefined
Nikkei vs 10 yr UST.
They line up nicely for about a year before recessions (like the one coming down the pipe)
idoc,
And silvers at 16.16. Dollar limping along below 75.9 and Nikkei off 1.26%.
Comes back to what I was seeing this afternoon. Something big is up...don't know what..but it'd be a good idea to keep ones powder dry and wait for the white of the eyeball.
Strap yourselves in folks, this is gonna be a bumpy ride.
Cheers.
btw, do u still doubt the Chinese have an inflation problem?
idoc | 01.10.08 - 11:54 pm | #
I do - but precisely because they AREN'T doing as well at the things they did before to contain inflation... sterilize USD inflows. The reason they DIDN'T have much inflation before is because they DIDN'T have money supply growth... they got money supply growth in spades now 'cause J6P in China is buying Chinese stocks and NOT the sterilization bonds.
As for this...
i think ur forgetting that the banks made most of their money intermediating loans via securitization, ie, passing on risk. they didn't make the majority of their money on NIM. its in their best interest to have low rates across the entire curve to keep JULS borrowing and spending.
Emphasis on MADE (past tense). Now they need carry 'cause securitization isn't going to be there for them at the same insane levels IN THE FUTURE regardless of curve levels... but carry can be, even at lower borrowing levels. Fed gets it. This will be their dig out strategy - it will be a long dig.
JULS is going to have to save himself - the fed is going to take care of the banks.
I blame this horroscope on the daily mail.
Uranus-Pluto squares that simultaneously formed harsh angles to key points in the USA's horoscope have marked major turning points in American history:
1620s: African slaves introduced to Jamestown Colony
1670s: Bacon's Rebellion in Virginia Colony
1870s: Great Depression
1930s: Great Depression
Uranus and Pluto will form their next square angle beginning in 2008 and lasting a record long time till 2019. This aspect will be tightening its orb by 2012. It will be most exact in 2014 and 2015
Geof,
Most interesting is the divergence at the end in 08. Not sure what it means but it looks kinda...not good.
Cheers,
I missed this one.
Why Economists should study Astrology
dryfly,
They're going to use carry trade off of widening yield curve to blow out the bad debts? I guess it's possible...what bubble is gonna get blown to do it though? Ain't saying you're wrong, just curious as to where the spec funds blow?
Cheers,
Vacancies at U.S. Retail Centers Reach 11-Year High (Update1) - Bloomberg.com
Vacancy Rate at U.S. Shopping Centers Rises to 11-Year High
They're going to use carry trade off of widening yield curve to blow out the bad debts?
Nope - write off the debts as losses and 'back fill' the hole with future earnings from 'carry'. Its how its always been done in the past when banks got in trouble.
Central banks with their 'affiliates' have a very favored position - they are the middlemen that skim the fiat system. They'll go back to it again - I'm certain.
The bad news is that it usually does mean the 'other economy' - folks like you and me that make stuff or provide services - will find the cost of money MUCH higher. But not for the banks closest to the source of the largess - they borrow short cheap and then lend long expensive.
If they can. That ONLY works if the long bond stays well above the FFR & short bonds. If the 'market' anticipates the curve falling, the long bond could get out in front & we see negative slope again... the banks worst enemy.
I think that is a big reason why the fed is lowering even in spite of 'inflation' - give the banks some almost guaranteed earnings via yield curve carry.
dryfly,
That's a damned good argument. But base money is neutral to dropping...
Just trying to rectify my own mental models with your very logical statements...
Gotta think some more.
But thanks for the insight..that was a quite bitchen statement...if you know what I mean.
At times like these it's hard to remove the Super Colander Tin Foil Hat, but I think I can tip it without removing its protection...there you go.
Cheers,
dryfly
just who are the US banks going to lend the high rates to?
i guess by your definition Chinese inflations been raging only since beginning of 2006?
Shanghai Composite Index
btw i think the inflation is much greater than u think and started earlier than 2006. its only recently been reflected in actual prices like in pork. but its been goin on for years into land, real estate, and other assets. geez, where have i seen that before?
dryfly, From previous thread....if you do as I do and leave them when new ones start,
That's a damned good argument. But base money is neutral to dropping...
Just trying to rectify my own mental models with your very logical statements...
Gotta think some more.
But thanks for the insight..that was a quite bitchen statement...if you know what I mean.
At times like these it's hard to remove the Super Colander Tin Foil Hat, but I think I can tip it without removing its protection...there you go.
gotta go to bed guys. good nite.
Night idoc,
Hopefully tomorrow is a slow day so I can get up on these issues.
Cheers,
I'm out. Night all.
Cheers,
What troubles me is the perfect "destroy the middle class" set-up we have coming:
It seems very hard at this point to avoid massive wealth loss in the years to come thanks to a mix of lousy investment choices and out of control inflation.
"Didn't you pull that from Mish? Might be nice to site the source."
Normally I do, but I was the one who also posted it over there.
Unless Bernanke know where there are untapped oil fields or stores of arable land, I think the ability of the Fed to affect the prices of oil and foodstuffs is quite limited. Think about the newly middle-class person in China who waited 20 years to be able to have a car and now has one. Are they not going to drive it, because the price of gas goes up? I doubt it. And as the yuan rises, the price of gas in China may actually drop. And now Tata has their $ 2,500 car.
No, the Fed can affect wage-driven inflation, of which there is very little, but will not have a big effect on oil or food.
So, in the end, we'll all have cars, but nobody can afford to drive them; we'll have burger joints on every corner, but nobody can afford to eat at them. Good thing there's no inflation and that plasma TV's are edible since they keep getting cheaper!
Yes, but if you have a really good plasma TV, you won't have to go out.