Archive through September 21, 2007
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     holycow
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Username: holycow
Post Number: 3219
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| | Wednesday, September 19, 2007 - 09:16 am: | 
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*** take a look
HC
...with charts will travel
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holycow
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Username: holycow
Post Number: 3220
Registered: 08-2004
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| | Wednesday, September 19, 2007 - 09:32 am: |
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http://tinyurl.com/26pyee
...if you don't believe a bear recession's coming, stop reading. But remember the happy-talking bulls: Just a few weeks ago guys like Countrywide's CEO Angelo Mozilo said: "Nobody saw this coming." About the same time both Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke were telling us that the subprime problem was "contained." Now, suddenly it's a "contagion" fueling "recession" fears.
The truth is, "everybody saw it coming," especially Wall Street's happy-talking bubble-blowers. They love bubbles because they make billions during the blowing -- and the popping. Even the chief bubble-blower of today's housing/credit mess, Alan Greenspan, finally admitted on "60 Minutes," while discussing his new book "The Age of Turbulence," that he "really didn't get it until very late." He was blowing this bubble for years, praising ARMs, ignoring reset risks and misleading investors by dismissing early signals of the coming housing bust as just a little "regional froth."
Folks we're in deep trouble when our leaders don't get it. We've had three blind mice at the helm running the "Good Ship American Economy" aground, first Greenspan, now Bernanke and Paulson, all wishful-thinking politicians ignoring reality. How could they miss? Back in mid-2005 The Economist magazine was blunt about the coming recession:
"Never before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stock market bubble burst in 2000" with an estimated $30 trillion added worldwide in the last 5 years, to $70 trillion. "The worldwide rise in house prices is the biggest bubble in history, prepare for the economic pain when it comes."
Yes, pain! Lots, warned former SEC Chairman Arthur Levitt on The Wall Street Journal's Op-Ed page a couple weeks ago: "In terms of market meltdowns and the degree of pain inflicted on the financial system, the subprime mortgage crisis has the potential to rival just about anything in recent financial history, from the savings and loan crisis of the late 1980s to the post-Enron turndown in the beginning of this decade."
And still, the happy-talk continues unabated from America's perma-bulls. The headlines of two columnists in the latest Forbes read: "Subprime Risks: Overblown." Another touts "The Fall 2007 Rally." They're in denial, folks, ignoring an aging bull sitting atop a big fat housing bubble that Wall Street's been hyping for five years. Yes, the Fed can drop rates, delay the pain. But sooner or later, all bubbles explode. And later means more pain.
How much will housing prices collapse? Economist Gary Shilling, another Forbes regular, has also been predicting that housing will collapse into a recession for a few years. In January he said a "25% decline in house prices nationwide is not a wild forecast, and may be optimistic. Indeed, a 38% fall would be needed to get house prices back in line." He also predicts a "Treasury bond rally."
Yes, a bond rally. Recent history offers powerful lessons...
*** well, we all want to see what we want to see, don't we? First they have an equity rally, so the big smart players can all exit with a decent profit, a case of stock transfer - from strong hands to weak (the herd); then, they switch over to safety shore, the bonds, and ride this storm over... and let the gullible wallow in the mud hole dreaming of their riches... whoa! Hope you love this one...
ps: this piece deserves further read, go check out the history.
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HC
...with charts will travel
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holycow
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Username: holycow
Post Number: 3221
Registered: 08-2004
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| | Wednesday, September 19, 2007 - 09:34 am: |
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http://tinyurl.com/222y4j
"The market is acting like [Federal Reserve Chairman] Ben Bernanke just cured cancer, and I can tell you, he didn't," said Art Hogan, chief market strategist at Jefferies & Co. "This is typical of the knee-jerk reaction to what we perceive to be good news."
*** in the house of mad people, the only sane person is seen as crazy... this guy is crazy! 
HC
...with charts will travel
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holycow
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Username: holycow
Post Number: 3222
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| | Wednesday, September 19, 2007 - 09:57 am: |
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http://tinyurl.com/28gv5x
Lehman Bros. Holdings Inc. reported Tuesday third-quarter net income fell 3.2% as the investment firm took more than half a billion dollars in writedowns for troubled fixed-income securities.
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Lehman said its capital markets business accounted for net revenue of $2.4 billion in the third quarter, a decrease of 14% from $2.8 billion a year ago.
Fixed-income capital markets saw net revenue fall 47%, to $1.1 billion, primarily due to weaker performances in credit and securitized products.
"We have taken significant negative marks across all asset classes this period, and we have taken actions to resize our mortgage origination platform in line with what we believe will be a smaller securitization market for the foreseeable future," O'Meara said.
Within fixed-income capital markets, "the firm recorded very substantial valuation reductions, most significantly on leveraged loan commitments and residential mortgage-related positions.
"These losses were partially offset by large valuation gains on economic hedges and other liabilities. The result of these valuation items was a net reduction in revenues of approximately $700 million," the company said in a news release.
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O'Meara said Tuesday that its merger and acquisition pipeline rose in the third quarter despite a credit crunch that drove down prices for debt securities related to some of the deals.
"Our M&A volume pipeline was $616 billion. Equity origination pipeline was $18 billion, and debt origination pipeline was $179 billion. Our aggregate fee backlog was approximately $1 billion at the end of the quarter, down from the record fee pipeline we had at the end of the second quarter but well ahead of where we started the year,"...
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http://tinyurl.com/2vx5db
Level three
At the end of the third quarter, roughly 90% of Lehman's inventory positions were classified as either level one or level two, he noted. That means about 10% of the bank's positions were level-three assets, which include private-equity exposures.
Some assets are so esoteric and trade so infrequently that investment banks have to value them based on mathematical models, rather than the market prices of similar or related securities. Some of these are known as level-three assets.
Level-two assets are those that may not trade much but can be valued by checking market prices of similar securities and making assumptions about variables such as interest rates. Level-one assets can be valued easily because they trade often.
Lehman had $22 billion of level-three assets as of June 30, and the bank expects such assets to be higher at the end of the third quarter, O'Meara said.
Spreads have widened and there's less trading, so some assets have become harder to value. That means more asset have moved from level-two status to level three, particularly certain mortgage products, he explained.
Level-three assets will be roughly 8% of assets and 10% to 11% of trading inventory at the end of the third quarter, O'Meara said.
Analysts want more details
Several analysts asked for more details on the valuation of Lehman's loan commitments and mortgage exposures.
O'Meara wouldn't say how much of the $700 million reduction came from mortgages. However, he did say that Lehman took a hit of more than $1 billion from leveraged loan commitments.
He was reluctant to give more information, arguing that some investors may try to work out exactly what valuations Lehman has set on some of its commitments -- something that the bank wants to avoid.
Mortgage hit
Some of Lehman's valuation reductions came on mortgage-backed securities.
Lehman has been the leading underwriter of subprime mortgage-backed securities, according to Bernstein Research, so it's exposed to turmoil in this area of the home loan industry. Still, Bernstein also noted that Lehman and rival Bear Stearns cut their subprime exposure in 2006, ahead of the downturn this year, so they may have sold or hedged their riskier positions.
When an investment bank securitizes loans, they chop them up into different "tranches." Some slices are less risky, pay lower interest rates and have higher ratings. But to get AAA ratings on the best bits, investment banks sometimes have to take the riskiest tranches that are exposed to the first losses on the underlying loans. These are residuals.
Among leading brokers, Lehman and Bear Stearns have the highest levels of non-investment grade mortgage-backed residuals relative to their equity bases, Bernstein Research estimated earlier this year.
Many of Lehman's mortgage positions are valued using models, O'Meara said on Tuesday.
The information the bank uses to build these valuation models -- such as credit loss assumptions, pre-payment speeds and investor yield requirements -- are based on market activity, he explained, while noting that there have been a "significant" number of trades in the market that have been used to value positions.
"Although many of these assets don't appear to be trading at their fundamental values, we have marked our book to the actual prices being transacted in the market," O'Meara said. "Fair value means marking to levels at which the assets will trade, not where we think they should trade."(...but he didn't show they mark these assets)
Lehman's inventory of mortgages and mortgage-backed securities increased by less than 10% in the third quarter ended Aug. 31. That left the bank holding $6.3 billion of U.S. subprime mortgage inventory, O'Meara said.(...is there any leverage built on these inventory?)
Leveraged loans
The other main part of Lehman's $700 million valuation hit came from leveraged loan commitments.
When investment banks arrange financing for leveraged buyouts, they often commit to lend the money needed to help the deal close quickly. They then sell the debt in the market.
When LBO financing stalls or fails, these banks are left with so-called hung loans, which they hold on their balance sheets and try to sell later. Banks sometimes have to cut the value of these loan commitments.
Lehman had roughly $27 billion of non-investment grade contingent acquisition facilities at the end of the third quarter, down from $44 billion at the end of the second quarter, O'Meara reported.
When valuing such holdings, Lehman doesn't assume that the deals will happen or be restructured in future, so the bank "marks" the whole commitment, O'Meara explained.
The bank uses its "best estimate"(=trust me!) of where these assets currently trade in the market to generate a fair value, he noted.
"Although some of our specific high-yield acquisition commitments have not traded in the market,(read:no buyers!) others actually have traded, which gives us current new issue valuation information," he said.
"The biggest LBO deals have not built full order books from investors in this distressed liquidity market, (if the distress continues, they are gonna hold their biggest LBO for a long time...) but there is price discovery of real world trades to provide information about where the prices need to be to get the trades done in an orderly manner," O'Meara added.
HC
...with charts will travel
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holycow
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Username: holycow
Post Number: 3223
Registered: 08-2004
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| | Wednesday, September 19, 2007 - 10:03 am: |
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http://tinyurl.com/yojmza
For debt-weary consumers, the Federal Reserve's decision to shave interest rates on Tuesday is welcome news for their stock holdings but won't do much for their mortgage payments or savings accounts.
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For those on the brink of foreclosure, that's not the life preserver they need to keep them from falling in. And for those who also are subprime mortgage borrowers -- there's an estimated 1.5 million to 2 million out there -- the Fed move is of little consequence.
"It will help those who need it the least," said Richard Hastings, an analyst at Bernard Sands LLC. "But for those who need the most help, this does nothing for them. The Fed cannot help them at all."...
*** but,... it will help those who caused these people grief most; so they can have another market rally!
HC
...with charts will travel
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holycow
Member
Username: holycow
Post Number: 3224
Registered: 08-2004
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| | Wednesday, September 19, 2007 - 10:07 am: |
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http://tinyurl.com/yqw39n
U.S. home builders are as pessimistic as they've ever been over the past 22 years, the National Association of Home Builders reported Tuesday...
*** remember, they were worrying about consumer pessimism induced by housing slump and drag down the whole econ... so, what has changed? The only change - the market has a big rally, celebrating,... a rate cut which meant for?
...a market rally!
HC
...with charts will travel
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holycow
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Username: holycow
Post Number: 3225
Registered: 08-2004
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| | Wednesday, September 19, 2007 - 10:23 am: |
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http://tinyurl.com/2mpm3k
Right or wrong, today’s decision will be a defining moment for Mr. Bernanke, the former economics scholar at Princeton who became Fed chairman in February 2006.
Many Wall Street economists place the odds of a recession at about one in three or somewhat higher. Alan Greenspan, who preceded Mr. Bernanke as Fed chairman, puts the odds at somewhat more than the one-in-three that he estimated earlier this year.
The Fed’s course change has been under way since early August, when fears about huge losses on subprime mortgage loans and continued downturn in housing caused a much broader panic in credit markets.
The resulting credit crunch has now affected all but the safest home mortgages, and also greatly reduced the ability of private equity funds and hedge funds to borrow money at low rates. Many banks, which had been planning to resell their loans into the giant market for tradable commercial debt securities, are now being forced to absorb loans that the securities markets will no longer take.
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But by most accounts, the turmoil in credit markets has abated very little. The market for subprime mortgages has all but disappeared, and demand for all forms of “asset-backed commercial paper,” which are securities backed by mortgages, credit card debt, company receivables, remains very weak.
*** to some, he will be seen as "lame", to others, he is $$$, it is game on for a "BB put"!
HC
...with charts will travel
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holycow
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Username: holycow
Post Number: 3226
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| | Wednesday, September 19, 2007 - 10:56 am: |
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... have you done any modelling before? Well, there's a simple truth in any sort of computerised model - garbage in garbage out - or GIGO for short.
Many of Lehman's "esoteric" assets are based on their inhouse model which based on many assumptions. What kind of assumption, we won't know coz this is their trade secret. But it seems there's one big cock-up somewhere, ie, in their model, that is, they have made a/some seriously wrong assumption(s):The information the bank uses to build these valuation models -- such as credit loss assumptions, pre-payment speeds and investor yield requirements -- are based on market activity, he explained, while noting that there have been a "significant" number of trades in the market that have been used to value positions.
They obviously had not thought about liquidity squeeze and credit crunch; and they had not banked on the possibility of "no buyers". For as long as there are no buyers wanting to take over their assets which are valued according to a set of assumptions, and are not priced through market forces... they are screwed!
They will hold these assets to their graves, or, they write them off, or give them away free...
HC
...with charts will travel
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easymoney
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Username: easymoney
Post Number: 76
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| | Wednesday, September 19, 2007 - 12:39 pm: |
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HC: let me ask you a question instead - do you have a specific target, say, of the ASX/XJO, in one year's time? Or if you are a short term trader, in one month's time?
No, I don't have a specific target. My time frame is generally either day trading or a week or two. The bets I make are based on the old idea long term trends (years) influence middle term trends (months) which influence short term trends (days).
My day trading is based on counter moves. Frequently the market will guess wrong about sentiment on the US market or the strength of sentiment. You can see the ASX futures market "turn on a dime" often at say 9:30 when they think they've got it wrong. More often it happens at night when I'm asleep.
My "longer" trades are usually based on a 20 day EMA. There is a nice repeating pattern of ASX200 penetration leading to the daily price going about 100 above the EMA. Usually my max loss is 10 to get ready for a re-entry. It usually takes a week or two to play out, then maybe a month or two between entry points.
So, if I have a projection for the future, it will be pretty much that we'll have either smooth rises with sharp falls or smooth falls with sharp rises. Then there'll be the odd episode like one we seem to be coming out of now.
I'm happy either way but I think super funds are going to push the market upward for maybe 10-20 years with a couple of bear markets of maybe a couple of years thrown in. The market in 10-20 years will be at levels unimaginably higher than today (ASX200=100,000!).
Long term, I like real property because regardless of what the price does you can always swap your old one for a new one, and someone else pays all the expenses.
Sorry, I've digressed, but if the sky falls in there'll be a market in materials for the new sky and everybody will trade that. It's the way it is, the way it always has been and the way it always will be.
Two of them say they're Jesus.
One of them must be wrong.
Industrial Disease
Dire Straits
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holycow
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Username: holycow
Post Number: 3227
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| | Wednesday, September 19, 2007 - 08:13 pm: |
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http://tinyurl.com/27wp7l
To me, the most remarkable thing about these events is that they demonstrate the breathtaking disregard that US economic policy makers have regarding the value and fate of their own national currency. Richard Nixon-era secretary of the treasury John Connolly, speaking to European economic officials, once said that the US dollar was "our currency, but your problem". The country could get away with that back in the early 1970s, when the US was the world's biggest lender; now that this situation is reversed, and the country must borrow $2-3 billion from foreigners each and every day just to feed its overconsumption addiction.
The market reaction to this Fed move was about as expected as the day's sunrise - a sharp fall in the US dollar. The greenback finally breached the record 1.4 level versus the euro; it has now fallen 15% against the euro since early 2006, 63% since early 2001.
...
Very few other countries have ever been able to make such whoopee as their national currencies are being debased. In 1981, newly elected French socialist president Francois Mitterrand had to abandon his campaign promises for an ambitious social equality program when currency traders started to sell the franc hard against the West German mark.
In 1993, when US labor secretary Robert Reich urged an expansive social welfare/jobs reflationary fiscal program; newly elected president Bill Clinton nixed this idea when treasury secretary Robert Rubin advised the president that this would cause both the US dollar and bond prices to fall. When their currencies were hit by speculative attacks, the countries most affected by the 1997 East Asian financial crisis, primarily Thailand, Indonesia and South Korea, were forced to make painful cuts in their national social welfare spending.
But it seems that the US is never forced to face such dolorous consequences as its currency weakens. Its policymakers initiate policies that they know full well will weaken the US dollar, and they just don't care. It's almost as if the nation can pay for goods with checks it knows the other party will never cash; if you could do this, you'd probably be living pretty large too...
*** well, US$ down, POO up, commodities will be up soon/too... as an indirect way to compensate for the lost in value. There is no reason not to rejoice. Three cheers to BB and his "put". Now that the market got what it wants, they will be expecting more in October, after all BB, the Greenspan wannabe, is more than happy to deliver... let's just hope the Chinese and the Japanese are not too upset with the diminishing value in their foreign reserves.
Two more days!
HC
...with charts will travel
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holycow
Member
Username: holycow
Post Number: 3228
Registered: 08-2004
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| | Thursday, September 20, 2007 - 08:33 am: |
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