from the Wall Street Journal, with laser like analysis from yours truly...
Fresh Credit Worries Grip Markets
“"The situation is now more negative than in the summer," said Pete Nolan, a portfolio manager at Smith Breeden Associates in Chapel Hill, N.C. He said that "in many cases, the fundamentals are catching up" with investors' worst fears. The worry is that a huge financial edifice that is built on top of the now-shaky mortgage market could weaken, potentially causing lenders to tighten up on loans and slowing the economy. Translation: people (Wall St.) are now beginning to see how bad it really is...and they are scared.
In a recent report, analysts from J.P. Morgan Chase & Co. said they expect bank credit losses on mortgages and complex debt securities to continue well into 2008 as housing prices weaken further. As bank losses continue, we expect bank lending capacity to be reduced," they said, adding that banks will have to ration credit and are likely to favor lending to corporations over consumers…. Translation: Well into 2008? Try 2010! or '11! And bank "lending capacity"? Nil. Rationing credit simply means you'll be putting down 20% AND donating DNA
Besides the problems with banks and brokers, there was evidence of more problems in the mortgage market. Mortgage-servicing companies, which collect payments from borrowers, said delinquency and prepayment data were worse than expected. Translation: Cue the music! "...more problems in the mortgage markets" means IT'S BAD!! Delinquency and prepayment is worse than expected now, wait until 2008 when all those 2/5 ARM's break!
"Mortgages are still deteriorating at an accelerating pace, and that's scary," said Karen Weaver, global head of securitization research at Deutsche Bank AG. "We haven't come near a stabilization, and we expect things to get worse as the bulk of resets" of interest rates on adjustable-rate mortgages "have yet to come." The first line says it all.
The percentage of subprime mortgages -- those to home buyers with weak credit -- that were more than 60 days behind in payments topped 20% in August, up from 18.7% in July and 17.1% in June, according to the latest data from First American LoanPerformance. Like Ted Bundy once said, "add a zero" to that August number. No, he didn't say that, but you know what I mean.
Mark Zandi, an economist at Moody's Economy.com, estimates that of the $2.45 trillion in especially risky mortgages currently outstanding -- including subprimes, interest-only loans, mortgages that exceed Fannie Mae lending limits and others -- as much as a quarter could suffer defaults in the months ahead. Total losses on these mortgages, he estimates, could reach $225 billion. That would hit bondholders hard, since the value of mortgage securities is driven by the performance of underlying mortgages. And it could make such bonds harder to sell in the future. Watch that $2.45 trillion and $225 billion go up in December. Watch!
Many expect the value of homes to continue to slip as well. Mr. Zandi puts the drop at 10%, from the market's peak in the fourth quarter of 2005 to its projected bottom in the fourth quarter of 2008. Such a decline would wipe out more than $2 trillion in home values. That's less than the $7 trillion in stock wealth wiped out by the tech bust that began in 2000, but still would represent a significant hit to the economy. I pray to GOD that I'm wrong, but me thinks we might get very, very close to $7 trillion. I think alot of investors, punch drunk and stupid from the Dot Com bust, needed to make up some losses and hedged on the housing market to "right their ship". When the hits just kept on coming, they let the record play, scratches be damned.
Because mortgages are bundled into securities sold to investors all over the world, the deterioration in mortgages' value is having a wide effect. Many of the more complex securities, known as collateralized debt obligations, or CDOs, are held by banks and brokerage firms.
They've been the cause of many of the big losses at those institutions. No, firing four of your top risk analysts and piling on the risk is the cause!!!
In CDOs, risk is portioned out to different groups of investors. Those willing to take the biggest risks buy securities with the highest potential returns, while investors who want more safety give up some return to get it. Already, the riskier "tranches" of CDOs have sunk dramatically in value. An index that tracks risky subprime bonds has fallen to a record low of 17.4 cents on the dollar, down 50% from August, according to Markit Group. In other words, a billion is now only worth 174 million. I don't even think the short traders get that kind scratch on a good day.
That decline, while worrisome, hit investors willing to take risk. But the recent turmoil stems from declines in the market for the safest securities. Rated triple-A, they should be affected by mortgage defaults only in extreme circumstances. An index that tracks triple-A securities is trading at 79 cents on the dollar, down from roughly 95 cents just a month ago. Good Lord, even the rich are suffering! Help us!
At the top are "super-senior tranches." It is a decline in value of these supposedly safe securities that is hurting many banks and brokerage firms. Because banks must value many of their securities holdings at the price at which they could be sold -- called marking to market -- many banks have had to report losses. As an appraiser, when I hear the words "could be sold" I automatically think "probably won't be sold" because sellers always list their "wares" higher in order to negotiating or "wiggle" room. So if these..."things" are marked at let's say 500 million, take off five-ten percent for negotiating, that leaves you with a value of roughly of 450-475 million bucks. In today's market. What will that be like in let's 1Q08?
In October alone, Moody's Investors Service, Fitch Ratings and Standard & Poor's downgraded or put on watch for downgrade more than $100 billion in CDOs and the mortgage securities they contain. In a glimpse of how much banks have at stake, UBS holds more than $20 billion of super-senior tranches of CDOs. They're among the reasons UBS, which reported a third-quarter loss of 830 million Swiss francs ($712.8 million), has warned that its investment bank is likely to face further losses in the current quarter.
"There was some widespread miscalculation when it came to estimating the credit risk and market risk of the super-senior tranches," notes Ralph Daloiso, managing director of structured finance at Natixis, a French banking group.
Specialized funds known as structured investment vehicles, affiliated with banks and independent managers, invested in the top-rated tranches of CDOs. Banks set up the funds as a way to derive income from securities held off their balance sheets. The SIVs borrowed money from outside investors by issuing short-term and medium-term notes, then used the money to pay for the securities. Now, though, investors' reluctance to lend to SIVs has raised concerns that the funds -- which hold some $300 billion in assets -- could be forced to sell en masse.
The SIVs are the focus of an effort by major banks to raise a rescue fund that could reach up to $100 billion. The intent is to calm markets by buying good, highly rated securities from the SIVs. But the fund is still weeks away from coming into operation. And the deterioration of even the most highly rated securities will make it increasingly difficult to differentiate between good and bad investments.
The large Wall Street firms weren't alone in believing triple-A-rated debt securities were safe. In the last few years, bond insurers such as MBIA Inc. and Ambac Financial Group Inc., as well as financial guaranty units of American International Group Inc., PMI Group Inc. and ACA Capital Holdings, aggressively wrote insurance on super-senior tranches of CDOs that were backed mainly by subprime mortgages. These companies effectively agreed to bear the risk of losses on these securities.
Shares of Ambac and PMI yesterday fell 19.7% and 11%, respectively, and along with MBIA hit new 52-week lows, on growing investor worry that they may need to hold more capital against the risk they are insuring and could be hit with sizable claims down the road.
Over the past two weeks, some of the insurers posted significant net losses for the third quarter because of adjustments on credit derivatives they used to provide insurance on the bonds. The bond insurers have said, however, that they don't expect actual losses from the CDO tranches they have insured.
Anywayz, you get the gist. If you want my advice, save your money. Buying oppurtunities will abound, whether in stocks or housing in 2009. That is of course if Armageddon doesn't pop.
WSJ
Sunday, November 4, 2007
Past As Present
OK, let's continue to beat this dog into mush. Hey, I made a sled dog joke.
On October 25TH, Merrill Lynch & Co. took an $8.4 Billion credit hit, the largest in it's, or anyone else's history. Part of the reason was because of it's plunge into CDO's, spearheaded by "...Christopher Ricciardi, who from 2003 to early 2006, helped transform Merrill from bit player to powerhouse in the lucrative business of bundling loans into salable securities. But the value of many of the securities, known as collateralized debt obligations, or CDOs, has tanked this summer and fall amid rising mortgage delinquencies. Mr. Ricciardi liked to be called the grandfather of CDO's. Long before joining Merrill, he helped push Wall Street into risky new areas such as subprime mortgages, those made to home buyers with weak credit. Then he helped turn Merrill into the Wal-Mart of the CDO industry, before leaving behind a roughly $8 million annual paycheck to jump to a small firm that was a Merrill client. Along the way, he lobbied both credit-rating firms and investors, talking up the safety and juicy returns of CDOs. He and his former Merrill colleagues churned these out frenetically during the height of the boom. Now that the market has soured, leading to billions of dollars in losses for CDO investors, those involved in the business face a growing legion of angry investors." WSJ
What also contributed to the problem was the firing of four senior analysts who were tasked with overseeing the risks of these types of investments. Had the proper oversight been in place, Merrill could have avoided the mess that it's in now. But the question that begs to be asked is: who else took these risks? It's estimated that there are $300 - $400 billion (yep, that's billion with a "B") worth of CDO's out there that has yet to be accounted for.
Consider this: Merrill, in an effort to reduce it's exposure to risky mortgage-backed securities, entered into deals with hedge funds that may have been designed to to delay the day of reckoning on losses. WSJ.
As time goes on, we'll see that this may be just the tip of the iceberg.
On October 25TH, Merrill Lynch & Co. took an $8.4 Billion credit hit, the largest in it's, or anyone else's history. Part of the reason was because of it's plunge into CDO's, spearheaded by "...Christopher Ricciardi, who from 2003 to early 2006, helped transform Merrill from bit player to powerhouse in the lucrative business of bundling loans into salable securities. But the value of many of the securities, known as collateralized debt obligations, or CDOs, has tanked this summer and fall amid rising mortgage delinquencies. Mr. Ricciardi liked to be called the grandfather of CDO's. Long before joining Merrill, he helped push Wall Street into risky new areas such as subprime mortgages, those made to home buyers with weak credit. Then he helped turn Merrill into the Wal-Mart of the CDO industry, before leaving behind a roughly $8 million annual paycheck to jump to a small firm that was a Merrill client. Along the way, he lobbied both credit-rating firms and investors, talking up the safety and juicy returns of CDOs. He and his former Merrill colleagues churned these out frenetically during the height of the boom. Now that the market has soured, leading to billions of dollars in losses for CDO investors, those involved in the business face a growing legion of angry investors." WSJ
What also contributed to the problem was the firing of four senior analysts who were tasked with overseeing the risks of these types of investments. Had the proper oversight been in place, Merrill could have avoided the mess that it's in now. But the question that begs to be asked is: who else took these risks? It's estimated that there are $300 - $400 billion (yep, that's billion with a "B") worth of CDO's out there that has yet to be accounted for.
Consider this: Merrill, in an effort to reduce it's exposure to risky mortgage-backed securities, entered into deals with hedge funds that may have been designed to to delay the day of reckoning on losses. WSJ.
As time goes on, we'll see that this may be just the tip of the iceberg.
File this under: Why didn't they do this in the first place?
Fitch to Downgrade CDO's
By Anusha Shrivastava
Fitch Ratings warned that $36.8 billion of collateralized-debt-obligation transactions face downgrades, with the bulk carrying the highest, triple-A, rating.
CDOs use sliced and diced assets like subprime-mortgage bonds to create customized products that are tailored for investors' appetite for risk.
Fitch said two-thirds of the $23.9 billion in triple-A-rated CDOs on watch for a ratings cut face severe downgrades, with the revised ratings likely to be the lower rungs of investment-grade or speculative grade, or junk. WSJ
Translation: Um, we got it wrong the first time.
By Anusha Shrivastava
Fitch Ratings warned that $36.8 billion of collateralized-debt-obligation transactions face downgrades, with the bulk carrying the highest, triple-A, rating.
CDOs use sliced and diced assets like subprime-mortgage bonds to create customized products that are tailored for investors' appetite for risk.
Fitch said two-thirds of the $23.9 billion in triple-A-rated CDOs on watch for a ratings cut face severe downgrades, with the revised ratings likely to be the lower rungs of investment-grade or speculative grade, or junk. WSJ
Translation: Um, we got it wrong the first time.
Sunday, October 21, 2007
Cause:Effect - or, "Woe unto you, O Angel. Prepare thyself for thy Perp Walk!"
Elvis has left the building. The rats are licking up the scraps.
Kenneth R. Harney over at the Washington Post has written an interesting article about "opportunity investors", individuals who had the patience (and wisdom) to wait out the "irrational exuberance" of the recent real estate market bubble and pounce on buying opportunities. These individuals learned the lessons of the DotCom explosion which happened just seven short years ago, and waited for the builders, developers and investors to run themselves ragged with over-development, some of which had no reason being built (Miami, anyone?).
Well, like an opportunistic virus travelling along with the host, a new breed of "investor" is out there. They call themselves "Angels". These psuedo celestial beings are scoundrels, crooks, con artists and dirt bags who claim to be the Deus Ex Machina with all the bells and whistles from heaven above, but in reality, they are nothing more than robber barons who exploit people in dire financial straits and who need assistance. Instead of helping them climb out of their financial holes (some of which were self-inflicted wounds), these "angels" take advantage of the home owners' ignorance and "obtain" possession of their homes, primarily by gaining their trust with words like "we'll help you avoid foreclosure...", even though they never finish the rest of the sentence which reads "...by taking your house." It's similar to what Uncle Screwtape told his nephew Wormwood in C.S. Lewis' classic, "The Screwtape Letters": It's not what you tell them, it's what you DON'T tell them.
Some of these "angels" promise to share some of the sale proceeds with the (former) homeowner, but after closing (or before, if they have any scruples), they tell them that legally they cannot share any "monies" from the sale of the house, leaving the now "victim" homeless...and broke.
Next Week: The "Gurus"
Read Mr. Harney's full article here.
Kenneth R. Harney over at the Washington Post has written an interesting article about "opportunity investors", individuals who had the patience (and wisdom) to wait out the "irrational exuberance" of the recent real estate market bubble and pounce on buying opportunities. These individuals learned the lessons of the DotCom explosion which happened just seven short years ago, and waited for the builders, developers and investors to run themselves ragged with over-development, some of which had no reason being built (Miami, anyone?).
Well, like an opportunistic virus travelling along with the host, a new breed of "investor" is out there. They call themselves "Angels". These psuedo celestial beings are scoundrels, crooks, con artists and dirt bags who claim to be the Deus Ex Machina with all the bells and whistles from heaven above, but in reality, they are nothing more than robber barons who exploit people in dire financial straits and who need assistance. Instead of helping them climb out of their financial holes (some of which were self-inflicted wounds), these "angels" take advantage of the home owners' ignorance and "obtain" possession of their homes, primarily by gaining their trust with words like "we'll help you avoid foreclosure...", even though they never finish the rest of the sentence which reads "...by taking your house." It's similar to what Uncle Screwtape told his nephew Wormwood in C.S. Lewis' classic, "The Screwtape Letters": It's not what you tell them, it's what you DON'T tell them.
Some of these "angels" promise to share some of the sale proceeds with the (former) homeowner, but after closing (or before, if they have any scruples), they tell them that legally they cannot share any "monies" from the sale of the house, leaving the now "victim" homeless...and broke.
Next Week: The "Gurus"
Read Mr. Harney's full article here.
Thursday, October 18, 2007
Profiting from subprime turmoil
Here's a great article by Micheal Sivy over at CNNMoney that so far for me, explains the subprime debacle at it's "best" and simplest. It's not as long a read as you thnk, and the insight is quite sublime.
From the article:
"News this week that major banks are planning a massive fund to prop up the hardest-hit victims of the subprime mortgage crisis got investors worrying again. Specifically, they're concerned that potential losses from bad subprime bets could be much bigger than previously feared.
In fact, the bailout fund is good news. And you actually have a chance to profit personally over the long term from today's turmoil, as long as you make your investment decisions cautiously.
Shares of banks and financial services companies may not have hit bottom yet - but there will soon be bargains to be had. And some companies with exceptionally strong balance sheets are already good deals.
Understanding the problems
The credit crisis itself is very complicated, but here's pretty much what you need to know. As home prices kept rising over the past few years, more and more people wanted to buy houses. Lenders accommodated them by devising mortgages that required less money down and lower monthly payments.
Often the interest rates on these mortgages could increase sharply from initial low levels. That created the risk that buyers who had stretched to the utmost to buy a house could be forced to default.
The risks were greatly multiplied as the original mortgages were bundled into separate investments and sold off. This kind of packaging has been done for decades by institutions, and the resulting securities have long been part of a stable credit market.
But the new packages, a type of collateralized debt obligation (CDO) known as structured-investment vehicles (SIVs) are far more complicated - too complicated, in fact. The packagers sliced and diced underlying pools of mortgages, mixing lousy loans with solid ones, until nobody could tell what was what. Even the resulting investments that had great credit ratings could ultimately be backed in part by shaky mortgages.
In addition, long-term assets in the portfolios were financed with short-term borrowed money. That means that rising interest rates or tight credit could force banks to take losses as they scrambled for cash.
The great risk is that the overall credit market freezes because lenders are afraid to lend."
CNNMoney
There's more to this article, but I wouldn't do it justice by editorializing on it. Do yourself a favor...read. ;-)
From the article:
"News this week that major banks are planning a massive fund to prop up the hardest-hit victims of the subprime mortgage crisis got investors worrying again. Specifically, they're concerned that potential losses from bad subprime bets could be much bigger than previously feared.
In fact, the bailout fund is good news. And you actually have a chance to profit personally over the long term from today's turmoil, as long as you make your investment decisions cautiously.
Shares of banks and financial services companies may not have hit bottom yet - but there will soon be bargains to be had. And some companies with exceptionally strong balance sheets are already good deals.
Understanding the problems
The credit crisis itself is very complicated, but here's pretty much what you need to know. As home prices kept rising over the past few years, more and more people wanted to buy houses. Lenders accommodated them by devising mortgages that required less money down and lower monthly payments.
Often the interest rates on these mortgages could increase sharply from initial low levels. That created the risk that buyers who had stretched to the utmost to buy a house could be forced to default.
The risks were greatly multiplied as the original mortgages were bundled into separate investments and sold off. This kind of packaging has been done for decades by institutions, and the resulting securities have long been part of a stable credit market.
But the new packages, a type of collateralized debt obligation (CDO) known as structured-investment vehicles (SIVs) are far more complicated - too complicated, in fact. The packagers sliced and diced underlying pools of mortgages, mixing lousy loans with solid ones, until nobody could tell what was what. Even the resulting investments that had great credit ratings could ultimately be backed in part by shaky mortgages.
In addition, long-term assets in the portfolios were financed with short-term borrowed money. That means that rising interest rates or tight credit could force banks to take losses as they scrambled for cash.
The great risk is that the overall credit market freezes because lenders are afraid to lend."
CNNMoney
There's more to this article, but I wouldn't do it justice by editorializing on it. Do yourself a favor...read. ;-)
Tuesday, October 16, 2007
You know how when the doctor says "This is gonna hurt...
...it's gonna hurt.? Well this is gonna hoit.
Paulson Urges Action on Housing Crisis
By MARTIN CRUTSINGER AP Economics Writer
WASHINGTON (AP) -- Treasury Secretary Henry Paulson called Tuesday for an aggressive response to deal with an unfolding housing crisis that he said presents a significant risk to the economy.
In the administration's most detailed reaction to the steepest housing slump in 16 years, Paulson said that government and the financial industry should provide immediate help for homeowners trying to refinance current mortgages before they reset at much higher rates.
He also called for an overhaul of laws and regulations governing mortgage lending to halt abusive practices that contributed to the current crisis.
"Let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy," Paulson said in a speech delivered at Georgetown University's law school. "The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
"The greater the penalty..." We're not talking a five minute major for slashing. We're talking a possible terminal velocity downturn in the economy BECAUSE the "house as ATM" act has dried up and in the future no one will have those cash "reserves" to go out and buy stuff which is what really drives this economy (we stopped being a manufacturing based economy a long time ago, during the Paleolithic era).
Let's see what the suits will do next to "bail" each other out. After all, just because they create a fund to offset the housing crisis doesn't mean no one's getting paid.
Paulson Urges Action on Housing Crisis
By MARTIN CRUTSINGER AP Economics Writer
WASHINGTON (AP) -- Treasury Secretary Henry Paulson called Tuesday for an aggressive response to deal with an unfolding housing crisis that he said presents a significant risk to the economy.
In the administration's most detailed reaction to the steepest housing slump in 16 years, Paulson said that government and the financial industry should provide immediate help for homeowners trying to refinance current mortgages before they reset at much higher rates.
He also called for an overhaul of laws and regulations governing mortgage lending to halt abusive practices that contributed to the current crisis.
"Let me be clear, despite strong economic fundamentals, the housing decline is still unfolding and I view it as the most significant current risk to our economy," Paulson said in a speech delivered at Georgetown University's law school. "The longer housing prices remain stagnant or fall, the greater the penalty to our future economic growth."
"The greater the penalty..." We're not talking a five minute major for slashing. We're talking a possible terminal velocity downturn in the economy BECAUSE the "house as ATM" act has dried up and in the future no one will have those cash "reserves" to go out and buy stuff which is what really drives this economy (we stopped being a manufacturing based economy a long time ago, during the Paleolithic era).
Let's see what the suits will do next to "bail" each other out. After all, just because they create a fund to offset the housing crisis doesn't mean no one's getting paid.
Sunday, October 14, 2007
Oh, yeah, this'll work...
File this under: Everybody in the pool!!!
But wait...is there water in the pool? And is the pool sound? And will the water get all slimey in a few days? And who's gonna guarantee me that no one's gonna gravitate next to me just to piss on me? And how come all these guys seem to know each other? Hmmm...
via Bloomberg
Citigroup, Bank of America Lead Banks Creating Fund
By Mark Pittman and Elizabeth Hester
Oct. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. will announce as soon as tomorrow that they are establishing a fund of about $80 billion aimed at reviving the asset-backed commercial paper market, said people familiar with the plan.
The fund, to which other firms will probably contribute, will buy some assets from structured investment vehicles, or SIVs, the people said. SIVs are units set up by banks, hedge funds and other investors to finance purchases of securities, including corporate bonds and mortgage debt.
The Treasury Department encouraged the banks to work together, and it jump-started the talks with a meeting of Wall Street executives in Washington on Sept. 16, said a person with knowledge of the deliberations. Robert Steel, the Treasury's top domestic finance official, brought the lenders together and prodded the competitors to keep working through the following weeks. Treasury Secretary Henry Paulson, a former chief executive officer of Goldman Sachs Group Inc., also made calls.
``Paulson definitely has the cachet to bring everyone to the table, because of his long experience on Wall Street,'' said Joe Mason, associate professor of business at Drexel University in Philadelphia and a former financial economist at the Treasury's Office of the Comptroller of the Currency.
But wait...is there water in the pool? And is the pool sound? And will the water get all slimey in a few days? And who's gonna guarantee me that no one's gonna gravitate next to me just to piss on me? And how come all these guys seem to know each other? Hmmm...
via Bloomberg
Citigroup, Bank of America Lead Banks Creating Fund
By Mark Pittman and Elizabeth Hester
Oct. 14 (Bloomberg) -- Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. will announce as soon as tomorrow that they are establishing a fund of about $80 billion aimed at reviving the asset-backed commercial paper market, said people familiar with the plan.
The fund, to which other firms will probably contribute, will buy some assets from structured investment vehicles, or SIVs, the people said. SIVs are units set up by banks, hedge funds and other investors to finance purchases of securities, including corporate bonds and mortgage debt.
The Treasury Department encouraged the banks to work together, and it jump-started the talks with a meeting of Wall Street executives in Washington on Sept. 16, said a person with knowledge of the deliberations. Robert Steel, the Treasury's top domestic finance official, brought the lenders together and prodded the competitors to keep working through the following weeks. Treasury Secretary Henry Paulson, a former chief executive officer of Goldman Sachs Group Inc., also made calls.
``Paulson definitely has the cachet to bring everyone to the table, because of his long experience on Wall Street,'' said Joe Mason, associate professor of business at Drexel University in Philadelphia and a former financial economist at the Treasury's Office of the Comptroller of the Currency.
And now for something completely different...
The two posts below shine a bright light into a dark corner of my mind. I'm sorry, but I just couldn't resist.
Thursday, October 11, 2007
File this under...
a) hmmm, don't smell right
b) uh, I wouldn't do that if I was you
c) my name is Ken Lay and I'm back from the dead
d) crap, I have my mortgage with them. I'M NOT JOKING!
Stock Sales by Chief of Lender Questioned
By GRETCHEN MORGENSON
Published: October 11, 2007
The Securities and Exchange Commission has been asked to investigate stock sales made by Angelo R. Mozilo, chief executive of the mortgage lender Countrywide Financial, in the months before its shares plummeted amid the deepening mortgage crisis.
In an Oct. 8 letter to the S.E.C. chairman, Christopher Cox, the state treasurer of North Carolina, Richard H. Moore, questioned changes Mr. Mozilo made to his arranged stock selling program, adjustments that allowed him to increase significantly his sales of Countrywide shares.
After starting a plan in October 2006, Mr. Mozilo twice raised the number of shares that could be sold: once in December 2006, when Countrywide stock was $40.50, and again in February, when it hit a high of $45.03. He has had gains of $132 million since starting the October 2006 plan and expects to sell his remaining shares by the end of the week, a move that will generate millions more.
“As an investor and a Countrywide shareholder, I was shocked to learn that C.E.O. Angelo Mozilo apparently manipulated his trading plans to cash in, just as the subprime crisis was heating up and Countrywide’s fortunes were cooling off,” Mr. Moore wrote. “The timing of these sales and the changes to the trading plans raise serious questions about whether this is a mere coincidence.”
Letter from Richard H. Moore, North Carolina Treasurer (pdf)
NEW YORK TIMES
b) uh, I wouldn't do that if I was you
c) my name is Ken Lay and I'm back from the dead
d) crap, I have my mortgage with them. I'M NOT JOKING!
Stock Sales by Chief of Lender Questioned
By GRETCHEN MORGENSON
Published: October 11, 2007
The Securities and Exchange Commission has been asked to investigate stock sales made by Angelo R. Mozilo, chief executive of the mortgage lender Countrywide Financial, in the months before its shares plummeted amid the deepening mortgage crisis.
In an Oct. 8 letter to the S.E.C. chairman, Christopher Cox, the state treasurer of North Carolina, Richard H. Moore, questioned changes Mr. Mozilo made to his arranged stock selling program, adjustments that allowed him to increase significantly his sales of Countrywide shares.
After starting a plan in October 2006, Mr. Mozilo twice raised the number of shares that could be sold: once in December 2006, when Countrywide stock was $40.50, and again in February, when it hit a high of $45.03. He has had gains of $132 million since starting the October 2006 plan and expects to sell his remaining shares by the end of the week, a move that will generate millions more.
“As an investor and a Countrywide shareholder, I was shocked to learn that C.E.O. Angelo Mozilo apparently manipulated his trading plans to cash in, just as the subprime crisis was heating up and Countrywide’s fortunes were cooling off,” Mr. Moore wrote. “The timing of these sales and the changes to the trading plans raise serious questions about whether this is a mere coincidence.”
Letter from Richard H. Moore, North Carolina Treasurer (pdf)
NEW YORK TIMES
Tuesday, October 9, 2007
A Bank Bet on Condos, but Buyers Want Out
By CHRISTINE HAUGHNEY
Published: October 9, 2007
Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas. And in San Diego, Jeanette Graham would just like to meet the neighbors.
Jack McCabe, a real estate consultant in Deerfield Beach, Fla., says the market downturn will hurt even successful developers. The three seemingly unrelated predicaments have a common thread that leads to Chicago, and Corus Bankshares, which financed the construction of each condominium development involved.
Whether buyers like Mr. Miglin and Mr. Mills close on their condos will be a crucial indicator for Corus. Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag. NEW YORK TIMES
Published: October 9, 2007
Javier Miglin may walk away from an $80,000 down payment on a condominium with water views in Miami. Randal Mills may give up a $130,000 deposit on a 15th floor condo on the Strip in Las Vegas. And in San Diego, Jeanette Graham would just like to meet the neighbors.
Jack McCabe, a real estate consultant in Deerfield Beach, Fla., says the market downturn will hurt even successful developers. The three seemingly unrelated predicaments have a common thread that leads to Chicago, and Corus Bankshares, which financed the construction of each condominium development involved.
Whether buyers like Mr. Miglin and Mr. Mills close on their condos will be a crucial indicator for Corus. Many condo projects that started during the real estate boom are just being completed, and developers must begin repaying construction loans taken out before the market turned sour. If buyers do not close, and developers struggle, lenders like Corus may be left holding the bag. NEW YORK TIMES
City's Boom May Falter Over Costs
By JULIE SATOW
Staff Reporter of the Sun
October 9, 2007
New York City's building boom may be brought to a halt by something more mundane than monetary policy or global financial disruptions — it could be as simple as copper, diesel, and steel.
By the end of next year, the Producer Price Index for construction inputs — the price of materials that are used in a construction project plus the cost of diesel fuel — will rise by as much as 8% and continue to do so indefinitely, according to a report released yesterday by the Associated General Contractors of America. This is a drastic change from the previous 12 months, which saw construction inputs inch up just 1.6% for the year ending in August.
"This is a warning note," the chief economist at AGC, Ken Simonson, the author of the report, said. "Even a small percentage change can mean the difference of hundreds of millions of dollars in large projects in New York." THE NEW YORK SUN
Staff Reporter of the Sun
October 9, 2007
New York City's building boom may be brought to a halt by something more mundane than monetary policy or global financial disruptions — it could be as simple as copper, diesel, and steel.
By the end of next year, the Producer Price Index for construction inputs — the price of materials that are used in a construction project plus the cost of diesel fuel — will rise by as much as 8% and continue to do so indefinitely, according to a report released yesterday by the Associated General Contractors of America. This is a drastic change from the previous 12 months, which saw construction inputs inch up just 1.6% for the year ending in August.
"This is a warning note," the chief economist at AGC, Ken Simonson, the author of the report, said. "Even a small percentage change can mean the difference of hundreds of millions of dollars in large projects in New York." THE NEW YORK SUN
Big banks dump the risk on investors
By David Weidner, MarketWatch
NEW YORK (MarketWatch) -- Wall Street finally found a buyer for all of that bad debt on its books: the regular investor.
After the single biggest wave of credit-related write-downs in Wall Street history, more than $20 billion and growing, it's investors who are holding the risk. For example, Merrill Lynch & Co. on Friday announced a $5.5 billion charge, the Street's biggest, and immediately investors sent the stock up 2.5%. See full story
Merrill simply followed the path laid down by Citigroup Inc. , which wrote off $3.3 billion and Deutsche Bank AG, which wrote off $3.1 billion and Morgan Stanley, $940 million. All saw their stock rise after dropping the write-down bomb.
The bet is that the bigger the write-down now, the less these institutions will have to write down in the future. This is like a baseball team that celebrates after losing by nine runs, because the odds seem somehow greater that it will lose the next game by a big margin. This logic has Richard Bove, an analyst at Punk Ziegal & Co., flabbergasted.
"These companies are not going to see their markets jump back immediately," he wrote in a note to clients. "Their earnings power has been lowered. This is a reason to sell not buy. The theory that if the company writes off $2 billion it should see its stock price up $1 and if it writes off $6 billion the stock should jump $3 is not one I can embrace."
MARKET WATCH
NEW YORK (MarketWatch) -- Wall Street finally found a buyer for all of that bad debt on its books: the regular investor.
After the single biggest wave of credit-related write-downs in Wall Street history, more than $20 billion and growing, it's investors who are holding the risk. For example, Merrill Lynch & Co. on Friday announced a $5.5 billion charge, the Street's biggest, and immediately investors sent the stock up 2.5%. See full story
Merrill simply followed the path laid down by Citigroup Inc. , which wrote off $3.3 billion and Deutsche Bank AG, which wrote off $3.1 billion and Morgan Stanley, $940 million. All saw their stock rise after dropping the write-down bomb.
The bet is that the bigger the write-down now, the less these institutions will have to write down in the future. This is like a baseball team that celebrates after losing by nine runs, because the odds seem somehow greater that it will lose the next game by a big margin. This logic has Richard Bove, an analyst at Punk Ziegal & Co., flabbergasted.
"These companies are not going to see their markets jump back immediately," he wrote in a note to clients. "Their earnings power has been lowered. This is a reason to sell not buy. The theory that if the company writes off $2 billion it should see its stock price up $1 and if it writes off $6 billion the stock should jump $3 is not one I can embrace."
MARKET WATCH
Monday, October 8, 2007
Ryder Blames "Freight Recession" on Housing Spillover
Trucking company Ryder cites weak market for profit.
Ryder System Inc (R) cut its profit forecast on Monday saying that softness in the U.S. economy has spread beyond the housing sector, sending the truck leasing and logistics company's shares down more than 6 percent. "Economic conditions have softened considerably in more industries beyond those related to housing and construction," Ryder said in a statement.
Ryder cited less-than-expected demand in its commercial rental product lines and lower prices for used vehicles. Ryder's commercial rental business fluctuates with market demand and is more directly affected by a soft market than Ryder's long-term rental operations.
The U.S. trucking sector has been hit by weak volumes since the third quarter of 2006, with some analysts describing this slowdown as a "freight recession."The Ryder announcement affected other trucking companies as well. J.B. Hunt (JBHT), YRC Worldwide (YRCW), Con-Way (CNW), and iShares Dow Jones Transportation Average (IYT) all look vulnerable.The housing recession has now spawned off a "freight recession".
It can't be too much longer before prefixes like "freight" and "housing" are removed from the R word to be replaced by the dreaded "consumer-led" prefix.
MISH'S TREND ANALYSIS
Ryder System Inc (R) cut its profit forecast on Monday saying that softness in the U.S. economy has spread beyond the housing sector, sending the truck leasing and logistics company's shares down more than 6 percent. "Economic conditions have softened considerably in more industries beyond those related to housing and construction," Ryder said in a statement.
Ryder cited less-than-expected demand in its commercial rental product lines and lower prices for used vehicles. Ryder's commercial rental business fluctuates with market demand and is more directly affected by a soft market than Ryder's long-term rental operations.
The U.S. trucking sector has been hit by weak volumes since the third quarter of 2006, with some analysts describing this slowdown as a "freight recession."The Ryder announcement affected other trucking companies as well. J.B. Hunt (JBHT), YRC Worldwide (YRCW), Con-Way (CNW), and iShares Dow Jones Transportation Average (IYT) all look vulnerable.The housing recession has now spawned off a "freight recession".
It can't be too much longer before prefixes like "freight" and "housing" are removed from the R word to be replaced by the dreaded "consumer-led" prefix.
MISH'S TREND ANALYSIS
U.S. Stock Market Stumble Presaged by S&P 500 Options
By Jeff Kearns and Michael Tsang
Oct. 8 (Bloomberg) -- Skittishness over the U.S. stock market's record-setting rally is reaching a crescendo among options traders who are preparing for a crash.
Investors are paying the most ever to protect against a drop in the Standard & Poor's 500 Index, data compiled by Morgan Stanley show. The gap between the price of so-called put options on the benchmark for U.S. equity and the cost to wager on further gains has averaged about 8 percentage points since August. That's more than the previous high in July 2001, before the index dropped 34 percent and fell to the lowest this decade.
The widening spread is a warning for OppenheimerFunds Inc. and Harris Private Bank, which oversee more than $300 billion and say the bearish bets indicate stocks may fall. The S&P 500 rebounded 10 percent since Aug. 15 on speculation the worst is over for banks and homebuilders hurt by the collapse of subprime mortgages. Shares in developed markets outside the U.S. have done even better, climbing 14 percent from their trough.
``Battle-scarred investors are buying some insurance this time around, having the benefit of hindsight,'' said Jack Ablin, who oversees about $50 billion as chief investment officer at Harris Private Bank in Chicago. Ablin said he bought put options for clients during the rally. BLOOMBERG
Oct. 8 (Bloomberg) -- Skittishness over the U.S. stock market's record-setting rally is reaching a crescendo among options traders who are preparing for a crash.
Investors are paying the most ever to protect against a drop in the Standard & Poor's 500 Index, data compiled by Morgan Stanley show. The gap between the price of so-called put options on the benchmark for U.S. equity and the cost to wager on further gains has averaged about 8 percentage points since August. That's more than the previous high in July 2001, before the index dropped 34 percent and fell to the lowest this decade.
The widening spread is a warning for OppenheimerFunds Inc. and Harris Private Bank, which oversee more than $300 billion and say the bearish bets indicate stocks may fall. The S&P 500 rebounded 10 percent since Aug. 15 on speculation the worst is over for banks and homebuilders hurt by the collapse of subprime mortgages. Shares in developed markets outside the U.S. have done even better, climbing 14 percent from their trough.
``Battle-scarred investors are buying some insurance this time around, having the benefit of hindsight,'' said Jack Ablin, who oversees about $50 billion as chief investment officer at Harris Private Bank in Chicago. Ablin said he bought put options for clients during the rally. BLOOMBERG
Bank of Japan Likely to Keep Rate at 0.5% This Week
By Mayumi Otsuma
Oct. 9 (Bloomberg) -- The Bank of Japan will probably refrain from raising interest rates this week after confidence at small companies deteriorated and as policy makers assess the effect of the U.S. housing recession on economic growth.
Governor Toshihiko Fukui and his colleagues will leave the benchmark overnight lending rate at 0.5 percent on Oct. 11, according to all 39 economists surveyed by Bloomberg News.
Companies with capital of 1 million yen ($850,000) or less account for almost half of Japan's corporate revenue. Waning investment and profit growth at small businesses and a U.S. slowdown were cited as risks by Deputy Governor Kazumasa Iwata last week. BLOOMBERG
Oct. 9 (Bloomberg) -- The Bank of Japan will probably refrain from raising interest rates this week after confidence at small companies deteriorated and as policy makers assess the effect of the U.S. housing recession on economic growth.
Governor Toshihiko Fukui and his colleagues will leave the benchmark overnight lending rate at 0.5 percent on Oct. 11, according to all 39 economists surveyed by Bloomberg News.
Companies with capital of 1 million yen ($850,000) or less account for almost half of Japan's corporate revenue. Waning investment and profit growth at small businesses and a U.S. slowdown were cited as risks by Deputy Governor Kazumasa Iwata last week. BLOOMBERG
Banks' new refrain: "We're not doing this anymore"
By Jen Benepe
Shifts in the New York real estate market aren't as drastic as in the rest of the country, but credit questions are getting tougher to answer. The Real Deal looked at the moving target of credit offerings and its effect on the residential market as part of an in-depth series of stories this month examining the shifting climate.Property buyers and real estate brokers in Manhattan, Brooklyn and Queens watched with increasing disbelief as mortgage lenders and bankers walked away from previous rate commitments, further tightened borrowing restrictions or suddenly eliminated previous mortgage programs."Every day is changing," said Barbara Ladesou, a mortgage broker for Manhattan Mortgage Company. "Every day we get a message from the banks, and the catch phrase is, 'We are not doing this anymore.'" REAL DEAL
Shifts in the New York real estate market aren't as drastic as in the rest of the country, but credit questions are getting tougher to answer. The Real Deal looked at the moving target of credit offerings and its effect on the residential market as part of an in-depth series of stories this month examining the shifting climate.Property buyers and real estate brokers in Manhattan, Brooklyn and Queens watched with increasing disbelief as mortgage lenders and bankers walked away from previous rate commitments, further tightened borrowing restrictions or suddenly eliminated previous mortgage programs."Every day is changing," said Barbara Ladesou, a mortgage broker for Manhattan Mortgage Company. "Every day we get a message from the banks, and the catch phrase is, 'We are not doing this anymore.'" REAL DEAL
Tuesday, October 2, 2007
Credit Markets: Unregulated and Pathologically Addicted to Lying
(September 26, 2007)
In keeping with this week's theme, The Rot Within (week II), we've examined the rot within our legal system, Homeowners, Defective Houses and Big Builders: Justice Is Not Blind, and the intellectual hypocrisy/rot within our ruling ideology which claims to support free markets but hurries to feed at the public trough at the first signs of potential loss: Privatizing Profits, Socializing Risk: Hypocrisy and Housing.
Today we look at the rot within our financial regulatory agencies. In the past, I have referred to "lightly regulated hedge funds," and frequent contributor Harun I. has observed that hedge funds are regulated, and that the problem lies elsewhere: what isn't regulated are the exotic financial instruments and derivatives which have been sold to unwary investors the world over.
CHARLES HUGH SMITH
In keeping with this week's theme, The Rot Within (week II), we've examined the rot within our legal system, Homeowners, Defective Houses and Big Builders: Justice Is Not Blind, and the intellectual hypocrisy/rot within our ruling ideology which claims to support free markets but hurries to feed at the public trough at the first signs of potential loss: Privatizing Profits, Socializing Risk: Hypocrisy and Housing.
Today we look at the rot within our financial regulatory agencies. In the past, I have referred to "lightly regulated hedge funds," and frequent contributor Harun I. has observed that hedge funds are regulated, and that the problem lies elsewhere: what isn't regulated are the exotic financial instruments and derivatives which have been sold to unwary investors the world over.
CHARLES HUGH SMITH
Tuesday, September 25, 2007
Are we headed for an epic bear market?
The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game.
By Jon Markman
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world's leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the
laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy. MSN Money
By Jon Markman
Satyajit Das is laughing. It appears I have said something very funny, but I have no idea what it was. My only clue is that the laugh sounds somewhat pitying.
One of the world's leading experts on credit derivatives, Das is the author of a 4,200-page reference work on the subject, among a half-dozen other tomes. As a developer and marketer of the exotic instruments himself over the past 30 years, he seemed like the ideal industry insider to help us get to the bottom of the recent debt crunch -- and I expected him to defend and explain the practice.
I started by asking the Calcutta-born Australian whether the credit crisis was in what Americans would call the "third inning." This was pretty amusing, it seemed, judging from the
laughter. So I tried again. "Second inning?" More laughter. "First?"
Still too optimistic. Das, who knows as much about global money flows as anyone in the world, stopped chuckling long enough to suggest that we're actually still in the middle of the national anthem before a game destined to go into extra innings. And it won't end well for the global economy. MSN Money
The Derivatives Market Has No Clothes
When it comes to derivatives, there haven't been many truly knowledgeable experts who've been willing to lift the veil on a world where rocket scientists often compete to see who can fleece the most investors for the largest amount of money using a kind of incomprehensible, three-card Monte mathematics.
Fortunately, I came across this eye-opening article from MSN Money's Jon Markman, "Are We Headed for an Epic Bear Market?" which reveals more than a few ugly truths about new age finance and what it all means for financial markets and the economy going forward.
The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game. FINANCIAL ARMAGEDDON.
Fortunately, I came across this eye-opening article from MSN Money's Jon Markman, "Are We Headed for an Epic Bear Market?" which reveals more than a few ugly truths about new age finance and what it all means for financial markets and the economy going forward.
The credit bubble is just starting to unwind, a credit-derivative insider says. And while U.S. borrowers are being blamed for the mess, they were really just pawns in a global game. FINANCIAL ARMAGEDDON.
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