SIV Rescue Plan Faces New Pressure
By Carrick Mollenkamp and David Reilly
A rescue plan for investment funds that are one source of credit-market concern is under new pressure after Moody's Investors Service said the funds were liquidating assets to meet financial commitments.
The rescue plan, led by Citigroup Inc., Bank of America Corp. and J.P. Morgan Chase & Co., is aimed at providing cash to the funds, known as structured investment vehicles, or SIVs. The plan is aimed at avoiding a forced fire sale of the SIVs assets...
Citigroup for the first time disclosed details about the SIVs it sponsor in third-quarter financial statements filed earlier this week with the SEC. The bank said that as of Sept. 30, the SIVs it was affiliated with had $83 billion in assets, following the sale of $19 billion in assets since July.
The three SIVs whose capital notes were placed on negative credit by Moody's are the largest of the seven SIVs Citigroup, and they have a combined $50 billion in assets. Of the seven SIVS, 7%, or nearly $6 billion, of assets are invested in U.S. mortgage-backed securities. However, the bank added that, "the SIVs have no direct exposure to U.S. subprime assets and have approximately $70 million of indirect exposure" through investments in collateralized debt obligations.
Translation: having no "indirect exposure" to U.S. subprime assets means, yeah, we're gonna get the flu, but hey, at least we won't die of frostbite!"
The more reports I read on this issue, the more I notice a pattern: little by little, the debt grows, the trouble worsens and more companies report losses (oh, and the more people get fired, too).
The CDO/SIV/LBO "action" of 2006-2007 is going to result in the "bust" of 2008. 2009. 2010...
No, it won't be as bad as the Dot Com BOMB of 2001, but it will be close. Recession, yeah, the severity of which is yet to be seen. All of the (undisciplined) money that chased the dot com's, chased the oil and now the real estate market are going to meet their maker. The flight-to-quality buying Wednesday (gold, treasurys, etc.) is yet another sign that the smart money sees the storm and are taking shelter in brick houses rather than straw, i.e., stocks.
If you're an investor, whether it be stocks or real esate, here's what you should do: wait. PLEASE! Keep your powder dry. Just as a rising tide lifts all boats, so does an ebbing tide lower all boats. Not only should you be watching stocks, you should be watching sectors. You think "Tech" is gonna survive the coming storm? Doubtful. Remember, we now have a global economy (ugh, how I hate those words). What affects us, affects Europe, what affects Europe, affects Asia...and they bought a lot of our junk. Unfortunately we live in a consumer driven economy, and if people start losing their homes, losing their "ATM", how are they going to spend? And what do all the overseas manufacturers do with all of their inventory? Give it away like Crazy Eddie? The same with the banks. What do they do with all of those REO properties? Sell 'em for pennies on the dollar, in some cases.
And that's when you buy. If you've got any debt, knock it out. Free up your cash. That way, when you go and apply for a loan, all you'll have to supply is the money and not your DNA and / or your soul
Remember the phrase "Buy low, sell high"? Well consider Warren Buffet's advice: There are two rules to investing, #1: Don't lose money, #2: Don't forget rule #1. Both of these rules apply.But more importantly, don't curse the darkness, light a candle. Or as I like to say, don't raise the bridge, lower the river...
I'm rambling, I'm tired, my eyes are bleedin' and I have an interview tomorrow. Cover me, I'm goin' in. Adieu.