numbercruncher
Beware of Dropbears
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My Brother works in the Car business, sales have nose dived apparently, His employer is blaming the credit crunch/market crash, whatever we are calling it now.
Imminent and severe market correction
- Thread starter Uncle Festivus
- Start date
My Brother works in the Car business, sales have nose dived apparently, His employer is blaming the credit crunch/market crash, whatever we are calling it now.
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The severe market correction is in 2009. In 2008 the insiders shell the big packets of stocks.
The next year the markets crash correction.
www.europe-markets.tk
The next year the markets crash correction.
www.europe-markets.tk
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Bolsa
Rather than giving us a link to your blog, would you mind expanding here on ASF why you make this bold prediction......... I, as I am sure many here, would be interested on how you come to this assessment.
Cheers
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In reply to Whiskers question.
How much of that 'estimated' debt and or losses goes away over time as the stock market recovers and when the US property market recovers?
Only the amount that has been repaid or written off . The stock market has nothing to do with the debt recovery , also recovery of the housing market has nothing to do with the debt , recovery is a demand matter related to price and availability to finance .
A loss if declared is just that , a loss and is unrecoverable as it has generally been written off or dealt with by a court .
If the debt is secured then the liability can remain , unsecured and the hope is not in the recovery of monies , but in the percentage of monies available to be placed in the retrieval zone , ie. 10cents to the $1 etc.
The debts in the US cases is under the realm of the FDCPA ( fair debt collection practises act ) or the Consumer Credit Protection Act . The offices that police this do so under the Federal Trade Commission Act .
None of which are linked to any stockmarket activity .
How much of that 'estimated' debt and or losses goes away over time as the stock market recovers and when the US property market recovers?
Only the amount that has been repaid or written off . The stock market has nothing to do with the debt recovery , also recovery of the housing market has nothing to do with the debt , recovery is a demand matter related to price and availability to finance .
A loss if declared is just that , a loss and is unrecoverable as it has generally been written off or dealt with by a court .
If the debt is secured then the liability can remain , unsecured and the hope is not in the recovery of monies , but in the percentage of monies available to be placed in the retrieval zone , ie. 10cents to the $1 etc.
The debts in the US cases is under the realm of the FDCPA ( fair debt collection practises act ) or the Consumer Credit Protection Act . The offices that police this do so under the Federal Trade Commission Act .
None of which are linked to any stockmarket activity .
Whiskers
It's a small world
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Hi ithatheekret.
Yeah, I understand the accounting principles... I majored in accounting and law.
I interpreted the meaning of 'estimated' as 'provision' for losses. What I was trying to get to was to qualify and quantify, 'estimated', as in bad debts, future trading losses or asset write downs
I have seen some of the numbers you refer to floating around, but I'm unsure of exactly what they refer too. Assuming they are provisions for losses against mortgages and related products, leveraged investments or whatever, and the market stabalised or even rose again, less people would be walking away from or reposessed out of their homes or be getting margin calls etc, so my question was meant to be how much of those (estimated) provisions for losses would go away?
If they are not 'provisions' for losses accumulated from reporting entities, how are they arrived at and by whom?
doctorj
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Think about the entry they're likely to raise that results in the loss:
Dr Bad Debt Expense X
Cr Provision for bad debts X
This entry will need to be done for each specific loan asset which isn't likely to be recoverable as the reasonable doubt arises.
The bad debt expense would probably be the amount loaned less the estimated recoverable amount (eg from the sale of the property). As these things resolve you'd write off loan asset against the provision.
Thing is, if house prices change in the interim, they may find they've either over or under provided.
Hopefully, they've been ultra conservative with the provisions for now, so any surprises will be to the upside.
Whiskers
It's a small world
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That's what I was thinking, because as I recall (but the GAAP rules may have changed since) the US write down rules were more severe than Aus and the US rules don't allow for upward revaluation near as generously as Aus either.
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It's the creativity that get's them in the boilers pot in the first place .
I always assumed they allowed for the provisions at a rate at which they deemed to be legally acceptable . Of course this isn't always the case and the taxman a cometh happens quite often . So what they say and what the really achieve at a bottom line levels are two seperate issues , usually dragged out by a tax audit .
A bad debt and a provision for a bad debt are again completely seperate issues , one is a fact the other a hope .
Once again it's the taxman that changes it back to reality .
The ones he/she ......IT hasn't got to yet , are still either dreaming or have the book/s in order .
Because every set of books has a stuff up or two whited out somewhere . It the ones running different sets of books for their tiered structuring , that usually end up against the wall , they haven't generally got enough to open an account for provisions . That's when the market tends to get a huge round of raisings to bolster the empty coffers , chuck in another company name change to hide the old skeletons and bingo , back in operation , new name , new accounts and new suckers to milk along with a few old ones .
But then when it gets to credit swaps , the suckers were generally buying the same crud they'd off loaded to someone else , that's just repackaged it and added a ribbon .
It's called creative financing meets creative accounting .
Anyone studying the field would no it's perfectly legal .... until you get caught .
The funny thing is they still don't know exactly how much they are liable for , if that is the case , then just perhaps they don't know how much they are really worth as a company , yet alone as a going interest .
In theory that would also mean that for years now , the financial statements have been fiction .
I always assumed they allowed for the provisions at a rate at which they deemed to be legally acceptable . Of course this isn't always the case and the taxman a cometh happens quite often . So what they say and what the really achieve at a bottom line levels are two seperate issues , usually dragged out by a tax audit
.A bad debt and a provision for a bad debt are again completely seperate issues , one is a fact the other a hope .
Once again it's the taxman that changes it back to reality .
The ones he/she ......IT hasn't got to yet , are still either dreaming or have the book/s in order .
Because every set of books has a stuff up or two whited out somewhere . It the ones running different sets of books for their tiered structuring , that usually end up against the wall , they haven't generally got enough to open an account for provisions . That's when the market tends to get a huge round of raisings to bolster the empty coffers , chuck in another company name change to hide the old skeletons and bingo , back in operation , new name , new accounts and new suckers to milk along with a few old ones .
But then when it gets to credit swaps , the suckers were generally buying the same crud they'd off loaded to someone else , that's just repackaged it and added a ribbon .
It's called creative financing meets creative accounting .
Anyone studying the field would no it's perfectly legal .... until you get caught .
The funny thing is they still don't know exactly how much they are liable for , if that is the case , then just perhaps they don't know how much they are really worth as a company , yet alone as a going interest .
In theory that would also mean that for years now , the financial statements have been fiction .
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Talking about provisions, seems like the mark to market bit is hurting too many so the talk is that they will change the way a loss from MTM is defined, somthing along the lines of if it was a forced MTM ie like we have just seen, then it is not a valid MTM because it is or would be not be at the control of the entity, so therefore shouldn't take place. Changing the goal posts again for the Work that one out. I will try to find the story again.
An article with a view there is a more to come of the credit crisis in America.
Posted for interest sake only - I do not endorse or take responsibility for material from this site.
From: http://www.moneyandmarkets.com/Issues.aspx?A-Monumental-Change-1686
A Monumental Change!
by Martin D. Weiss, Ph.D. 04-21-08
While most investors are focused on the latest stock market rally, hidden from view is a monumental change that few recognize and fewer understand: Unprecedented amounts of old debts are coming due in America, and many are not getting refinanced.
Even worse, borrowers are going into default, lenders are taking huge losses, and outstanding loans are turning to dust.
The numbers are large; the government’s response is equally massive. So before you look at one more stock quote or any other news item, I think it behooves you to understand what this means and what to do about it ...
New Evidence of
A Credit Crack-Up
Until recently, economists have had only anecdotal evidence of credit troubles.
They knew that individual banks were taking losses. They knew that many banks were tightening their lending standards. And they realized that there were hiccups in the credit markets.
So they called it the “credit crunch” ”” essentially a slowdown in the pace of new credit growth.
But we didn’t buy that. Earlier this year, we warned that America’s credit woes involved much more than just a slowdown. We wrote that it was actually a credit crack-up ”” an outright contraction of credit the likes of which had never been witnessed in our lifetime.
Wall Street scoffed. No one had seen anything like this happen before, and almost everyone assumed that it would not happen now.
They were wrong.
Indeed, three new official reports are now telling us, point blank, that the credit crack-up is already beginning!
First, the Federal Reserve is reporting
a big contraction in short-term debts.
The specifics: Based on its Flow of Funds Report (pdf page 18), we can clearly see that ...
* Just in the third quarter of last year, “open market paper” (mostly short-term commercial loans) was slashed at the annual rate of $682 billion ...
* In the fourth quarter, it shrunk again ”” at the rate of $337 billion per year, and ...
* This shrinkage doesn’t even begin to reflect the impact of the Bear Stearns failure or the huge additional bank losses announced so far this year.
I repeat: This is not a mere “slowdown” in new lending, which would be relatively routine. This is an actual reduction in the short-term loans outstanding, which is anything but routine ... which implies a rupture in the nation’s credit spigots ... and which could deliver a new shock to the U.S. economy.
If this represented a planned and voluntary effort by lenders to begin trimming America’s debt excesses, it might actually be a good thing.
But that’s not the case here, not even close. Rather, this debt reduction is almost exclusively forced on lenders by the pressure of events ”” the plunging value of mortgages, the surging defaults by debtors, and the huge losses that have caught both banks and regulators off guard.
Second, the Comptroller of the Currency (OCC)
is reporting havoc in the derivatives market.
Derivatives are bets and debts placed by banks and others.
In recent decades, derivatives have grown far beyond any semblance of reason. But in its latest report, the OCC reveals that in the fourth quarter of 2007 ...
* For the first time in history, the notional value of derivatives held by U.S. commercial banks plunged dramatically ”” by $8 trillion ...
* For the first time in history, U.S. banks suffered a massive overall loss on their derivatives ”” $9.97 billion, and, again ...
* These numbers do not yet reflect this year’s disasters at Bear Sterns and other institutions.
The OCC’s chart below illustrates the magnitude and drama of the decline:
The chart shows that, until the third quarter of last year, U.S. commercial banks had been making consistent profits from their derivatives quarter after quarter.
Their total revenue from these and related transactions (red line) never dipped into negative territory ... rarely suffered a significant decline ... and was even making brand new highs through the first half of 2007.
Then, suddenly, in the fourth quarter of last year, we witnessed a landmark game-changing event: For the first time ever, U.S. commercial banks lost big money in derivatives in the aggregate (as you can plainly see by the sharp nosedive of the red line).
Again, if this were part of a planned retreat by the banks to more prudent trading approaches, it would be a positive. But it’s anything but!
Indeed, the OCC specifically states in its report that the sudden and unusual reduction in derivatives was due entirely to the turmoil in the credit markets.
And ironically, nearly all of that turmoil was concentrated in “credit swaps” (blue line in the chart) ”” the one sector that was designed to protect investors from this precise situation.
These credit swaps were supposed to act as insurance policies that big banks and others bought to help cover their risk in the event of defaults and failures. But they’re not working out as planned: Just in the fourth quarter, U.S. banks had a net loss (after all profitable trades) of $11.8 billion on credit swaps alone, according to the OCC.
Those losses helped wipe out all the profits they made in other derivatives, leaving a net overall loss of $9.97 billion.
Third, the International Monetary Fund (IMF)
predicts that this crisis is barely ONE-THIRD over!
In its Global Financial Stability Report(see Executive Summary), the IMF predicts that the total losses from the subprime and related credit crises could reach $945 billion, or more than triple the already-huge losses that have been announced so far.
The IMF further warns that ...
* “There has been a collective failure to appreciate the extent of the leverage taken on by a wide range of institutions ”” including banks, monoline insurers, government-sponsored entities, and hedge funds ”” and the associated risks of a disorderly unwinding.” Now, both the OCC and the Fed reports confirm that this “disorderly unwinding” is already beginning.
* “The transfer of risks off bank balance sheets was overestimated. As risks have materialized, this has placed enormous pressures back on the balance sheets of banks.” Now, the OCC report confirms that “the transfer of risk” (with credit swaps) has often failed.
* “Notwithstanding unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalized institutions, and broad-based deleveraging.” This is precisely what we have been warning you about. Now, it’s happening!
Looking ahead, the IMF also warns about...
* “Deep-seated balance-sheet fragilities and weak capital bases, which mean the effects [of the crisis] are likely to be broader, deeper and more protracted.”
* “A serious funding and confidence crisis that threatens to continue for a significant period.”
The U.S. Government’s Response
You’ve seen what the Fed has already done ”” six rate cuts since August of last year ... unprecedented broker bailouts ... and massive new amounts of liquidity pumped into the banking system.
You’ve seen where a lot of that money has gone ”” into foreign currencies, gold and oil.
And you’ve seen the dramatic market surges which that money can generate. Case in point: The latest jump in crude oil to $117 per barrel.
Now, get ready for more of the same:
* More rate cuts, with the next expected as soon as April 30 ...
* More Fed bailouts ...
* Even wilder money printing, and ...
* Larger surges in foreign currencies and commodities, despite intermediate setbacks.
But also start preparing for the day when the credit crack-up temporarily overwhelms the Fed, driving the U.S. economy into a far deeper recession than most people expect.
The Bottom Line for You Right Now
The three official reports support several related conclusions:
First, whether the stock market goes up or down in the near term, this crisis is far from over ”” and it’s likely to get a lot worse.
Bottom line: It’s far too soon to waver from a path of safety.
Second, credit is already scarcer and is probably going to be even harder to get as this crisis progresses.
Bottom line: If you’re looking forward to a future day when you can buy properties at bargain prices, don’t count on doing so with a lot of borrowed money. Instead, be prepared to put up substantial amounts of cash.
Third, some banks won’t survive this crisis.
Bottom line: Be sure to keep your bank accounts ”” including principal, accrued interest and checks outstanding ”” under the FDIC’s $100,000 insurance limit. (Amounts that run above the limit could be at risk.) Plus, for maximum safety, use U.S. Treasury bills or money market funds invested exclusively in short-term Treasuries.
Fourth, for protection and profit from a falling dollar, invest in the strongest foreign currencies plus other assets that naturally rise with the falling dollar.
Posted for interest sake only - I do not endorse or take responsibility for material from this site.
From: http://www.moneyandmarkets.com/Issues.aspx?A-Monumental-Change-1686
A Monumental Change!
by Martin D. Weiss, Ph.D. 04-21-08
While most investors are focused on the latest stock market rally, hidden from view is a monumental change that few recognize and fewer understand: Unprecedented amounts of old debts are coming due in America, and many are not getting refinanced.
Even worse, borrowers are going into default, lenders are taking huge losses, and outstanding loans are turning to dust.
The numbers are large; the government’s response is equally massive. So before you look at one more stock quote or any other news item, I think it behooves you to understand what this means and what to do about it ...
New Evidence of
A Credit Crack-Up
Until recently, economists have had only anecdotal evidence of credit troubles.
They knew that individual banks were taking losses. They knew that many banks were tightening their lending standards. And they realized that there were hiccups in the credit markets.
So they called it the “credit crunch” ”” essentially a slowdown in the pace of new credit growth.
But we didn’t buy that. Earlier this year, we warned that America’s credit woes involved much more than just a slowdown. We wrote that it was actually a credit crack-up ”” an outright contraction of credit the likes of which had never been witnessed in our lifetime.
Wall Street scoffed. No one had seen anything like this happen before, and almost everyone assumed that it would not happen now.
They were wrong.
Indeed, three new official reports are now telling us, point blank, that the credit crack-up is already beginning!
First, the Federal Reserve is reporting
a big contraction in short-term debts.
The specifics: Based on its Flow of Funds Report (pdf page 18), we can clearly see that ...
* Just in the third quarter of last year, “open market paper” (mostly short-term commercial loans) was slashed at the annual rate of $682 billion ...
* In the fourth quarter, it shrunk again ”” at the rate of $337 billion per year, and ...
* This shrinkage doesn’t even begin to reflect the impact of the Bear Stearns failure or the huge additional bank losses announced so far this year.
I repeat: This is not a mere “slowdown” in new lending, which would be relatively routine. This is an actual reduction in the short-term loans outstanding, which is anything but routine ... which implies a rupture in the nation’s credit spigots ... and which could deliver a new shock to the U.S. economy.
If this represented a planned and voluntary effort by lenders to begin trimming America’s debt excesses, it might actually be a good thing.
But that’s not the case here, not even close. Rather, this debt reduction is almost exclusively forced on lenders by the pressure of events ”” the plunging value of mortgages, the surging defaults by debtors, and the huge losses that have caught both banks and regulators off guard.
Second, the Comptroller of the Currency (OCC)
is reporting havoc in the derivatives market.
Derivatives are bets and debts placed by banks and others.
In recent decades, derivatives have grown far beyond any semblance of reason. But in its latest report, the OCC reveals that in the fourth quarter of 2007 ...
* For the first time in history, the notional value of derivatives held by U.S. commercial banks plunged dramatically ”” by $8 trillion ...
* For the first time in history, U.S. banks suffered a massive overall loss on their derivatives ”” $9.97 billion, and, again ...
* These numbers do not yet reflect this year’s disasters at Bear Sterns and other institutions.
The OCC’s chart below illustrates the magnitude and drama of the decline:
The chart shows that, until the third quarter of last year, U.S. commercial banks had been making consistent profits from their derivatives quarter after quarter.
Their total revenue from these and related transactions (red line) never dipped into negative territory ... rarely suffered a significant decline ... and was even making brand new highs through the first half of 2007.
Then, suddenly, in the fourth quarter of last year, we witnessed a landmark game-changing event: For the first time ever, U.S. commercial banks lost big money in derivatives in the aggregate (as you can plainly see by the sharp nosedive of the red line).
Again, if this were part of a planned retreat by the banks to more prudent trading approaches, it would be a positive. But it’s anything but!
Indeed, the OCC specifically states in its report that the sudden and unusual reduction in derivatives was due entirely to the turmoil in the credit markets.
And ironically, nearly all of that turmoil was concentrated in “credit swaps” (blue line in the chart) ”” the one sector that was designed to protect investors from this precise situation.
These credit swaps were supposed to act as insurance policies that big banks and others bought to help cover their risk in the event of defaults and failures. But they’re not working out as planned: Just in the fourth quarter, U.S. banks had a net loss (after all profitable trades) of $11.8 billion on credit swaps alone, according to the OCC.
Those losses helped wipe out all the profits they made in other derivatives, leaving a net overall loss of $9.97 billion.
Third, the International Monetary Fund (IMF)
predicts that this crisis is barely ONE-THIRD over!
In its Global Financial Stability Report(see Executive Summary), the IMF predicts that the total losses from the subprime and related credit crises could reach $945 billion, or more than triple the already-huge losses that have been announced so far.
The IMF further warns that ...
* “There has been a collective failure to appreciate the extent of the leverage taken on by a wide range of institutions ”” including banks, monoline insurers, government-sponsored entities, and hedge funds ”” and the associated risks of a disorderly unwinding.” Now, both the OCC and the Fed reports confirm that this “disorderly unwinding” is already beginning.
* “The transfer of risks off bank balance sheets was overestimated. As risks have materialized, this has placed enormous pressures back on the balance sheets of banks.” Now, the OCC report confirms that “the transfer of risk” (with credit swaps) has often failed.
* “Notwithstanding unprecedented intervention by major central banks, financial markets remain under considerable strain, now compounded by a more worrisome macroeconomic environment, weakly capitalized institutions, and broad-based deleveraging.” This is precisely what we have been warning you about. Now, it’s happening!
Looking ahead, the IMF also warns about...
* “Deep-seated balance-sheet fragilities and weak capital bases, which mean the effects [of the crisis] are likely to be broader, deeper and more protracted.”
* “A serious funding and confidence crisis that threatens to continue for a significant period.”
The U.S. Government’s Response
You’ve seen what the Fed has already done ”” six rate cuts since August of last year ... unprecedented broker bailouts ... and massive new amounts of liquidity pumped into the banking system.
You’ve seen where a lot of that money has gone ”” into foreign currencies, gold and oil.
And you’ve seen the dramatic market surges which that money can generate. Case in point: The latest jump in crude oil to $117 per barrel.
Now, get ready for more of the same:
* More rate cuts, with the next expected as soon as April 30 ...
* More Fed bailouts ...
* Even wilder money printing, and ...
* Larger surges in foreign currencies and commodities, despite intermediate setbacks.
But also start preparing for the day when the credit crack-up temporarily overwhelms the Fed, driving the U.S. economy into a far deeper recession than most people expect.
The Bottom Line for You Right Now
The three official reports support several related conclusions:
First, whether the stock market goes up or down in the near term, this crisis is far from over ”” and it’s likely to get a lot worse.
Bottom line: It’s far too soon to waver from a path of safety.
Second, credit is already scarcer and is probably going to be even harder to get as this crisis progresses.
Bottom line: If you’re looking forward to a future day when you can buy properties at bargain prices, don’t count on doing so with a lot of borrowed money. Instead, be prepared to put up substantial amounts of cash.
Third, some banks won’t survive this crisis.
Bottom line: Be sure to keep your bank accounts ”” including principal, accrued interest and checks outstanding ”” under the FDIC’s $100,000 insurance limit. (Amounts that run above the limit could be at risk.) Plus, for maximum safety, use U.S. Treasury bills or money market funds invested exclusively in short-term Treasuries.
Fourth, for protection and profit from a falling dollar, invest in the strongest foreign currencies plus other assets that naturally rise with the falling dollar.
rub92me
Don't look back
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Classic, but seems to be a bit of a half-measure. Why not re-define debit as credit and everyone is making massive profits again. Problem solved,
explod
explod
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Classic, but seems to be a bit of a half-measure. Why not re-define debit as credit and everyone is making massive profits again. Problem solved,
That is exactly what many companies on Wall Street have been doing for years. Debt wraps have been counted as assets when calculating price eranings ratios.
It is this knowledge which has been available for some time that marks some of us doomsayers. But in fact just looking at reality.
I think "Imminent and Severe Market Correction"readers will be interested in this article.Part of-
The Credit Crunch is Dead! Long Live the Credit Crunch!
What a difference five weeks makes.
Around the ides of March, we had the mind-focusing spectacle of the possible implosion of Bear Stearns, which was feared to take down a lot of the financial system. But Fed and JP Morgan to the rescue, Lehman presents earnings that depend entirely on accounting rather than business activity, namely, widening credit spreads that made its own outstanding debt worth less, and everything is hunky dory. Oh, yes, UBS announces losses equal to 5% of Swiss GDP, but that too is rationalized as a sign that the Swiss giant has gotten past its bad patch. And while the earnings reports from Bank of America and National City were less than stellar, the Bank of England has thrown in the towel, and following the Fed, will accept £50 billion of mortgage debt as collateral (actually, they are on-upping the Fed; the BoE's loans have an one-year term). And while critics in the UK say this program won't revive the housing market, that may not be the point of this exercise.
Most observers have deemed the credit crisis to be over, and are now focusing on such pressing questions as how fast the recovery will be and how bad inflation might get.
Perhaps I am inflexible and unable to adapt to new information, but I don't see what has been accomplished beyond kicking the can down the road three to nine months. As reader Scott noted:
Basically what's happened is that we've moved bad paper from the banks, where it needed to get marked to market, at least at some point, to the Fed, where that doesn't have to happen. It's a sort of out of sight out of mind phenomenon. But all those CDOs and MBS and CLOs are made up of individual mortgages, and of hung LBO loans. They will either be paid off in the end, or they'll go into default. Assuming, as I think seems right, that some of them default, the Fed will have another line item on its balance sheet, REO. So as I see it, it's absurd to say the credit risk has been "disappeared"; it's just been moved from the banks to the public.
Let's consider just a few unpleasant realities. The Journal today points out that banks are increasing reserves, which means they need more capital (um, guess regulators are riding them to provide for likely losses ex ante rather than when they can no longer avoid taking them). The US consumer at some point is going to have to reduce spending as a percent of GDP; the open question is whether that happens in time to avert a dollar crisis (given the Fed determination to reflate assets and preserve demand, we seem to have an answer as far as the intent of policy is concerned). But then again, as reader Steve pointed out, Fed governor Frederic Mishkin testified before Congress last week that small businesses, the big engine of job growth, are starting to have trouble getting credit (they are heavily dependent on loans collaeralized by real estate and credit card borrowing, both of which are scarce and costly now).
And our old litany of woes has merely retreated from the fore rather than gone away: we still have the monolines almost destined to come apart at some point, the fact (as John Dizard pointed out) bigger GSEs are systemically destabilizing due to their pro-cyclical hedging, the not trivial problem that the housing market won't bottom till 2010 at the earliest, with more writedowns resulting, and my pet worry, CDS. As I understand it (and better informed readers can chide me if I am wrong), the CDS market basically has to keep growing to stand still. Again, perhaps I am too old school, but with inadequate margining/equity provisions, it seems guaranteed to go into crisis. You don't get happy endings with ever mushrooming bets on underlying equity that fails to show corresponding growth.
Today, we had the biggest bank fundraising announced to date, RBS's hugely dilutive £12 billion equity sale (and that's in addition to £4 billion of asset sales). Reader Steve pointed us to a key item from the press release: the Scottish bank's writedowns are markedly deeper than those taken by US banks to date, suggesting that the worst is not over on this side of the Atlantic. They have marked their US Alt-As at 50% of face, subprime at 38%, and CMBS at 83%.
Eeek. Steve's remarks:
{The] RBS summary is damn sobering and is likely the first example of the greater transparency that BOE/Treasury are demanding from UK banks in exchange for the new borrowing facility. RBS may have exaggerated the marks to give themselves wiggle room, since they really can't go back to the cap markets for a while. But still, the difference from marks at US banks (particularly commercial banks) is sobering and a sign that the crisis is going to drag on `in full opacity' in the US for quite some time.
The rest of the article is available at-
http://www.nakedcapitalism.com/2008/04/credit-crunch-is-dead-long-live-credit.html
The Credit Crunch is Dead! Long Live the Credit Crunch!
What a difference five weeks makes.
Around the ides of March, we had the mind-focusing spectacle of the possible implosion of Bear Stearns, which was feared to take down a lot of the financial system. But Fed and JP Morgan to the rescue, Lehman presents earnings that depend entirely on accounting rather than business activity, namely, widening credit spreads that made its own outstanding debt worth less, and everything is hunky dory. Oh, yes, UBS announces losses equal to 5% of Swiss GDP, but that too is rationalized as a sign that the Swiss giant has gotten past its bad patch. And while the earnings reports from Bank of America and National City were less than stellar, the Bank of England has thrown in the towel, and following the Fed, will accept £50 billion of mortgage debt as collateral (actually, they are on-upping the Fed; the BoE's loans have an one-year term). And while critics in the UK say this program won't revive the housing market, that may not be the point of this exercise.
Most observers have deemed the credit crisis to be over, and are now focusing on such pressing questions as how fast the recovery will be and how bad inflation might get.
Perhaps I am inflexible and unable to adapt to new information, but I don't see what has been accomplished beyond kicking the can down the road three to nine months. As reader Scott noted:
Basically what's happened is that we've moved bad paper from the banks, where it needed to get marked to market, at least at some point, to the Fed, where that doesn't have to happen. It's a sort of out of sight out of mind phenomenon. But all those CDOs and MBS and CLOs are made up of individual mortgages, and of hung LBO loans. They will either be paid off in the end, or they'll go into default. Assuming, as I think seems right, that some of them default, the Fed will have another line item on its balance sheet, REO. So as I see it, it's absurd to say the credit risk has been "disappeared"; it's just been moved from the banks to the public.
Let's consider just a few unpleasant realities. The Journal today points out that banks are increasing reserves, which means they need more capital (um, guess regulators are riding them to provide for likely losses ex ante rather than when they can no longer avoid taking them). The US consumer at some point is going to have to reduce spending as a percent of GDP; the open question is whether that happens in time to avert a dollar crisis (given the Fed determination to reflate assets and preserve demand, we seem to have an answer as far as the intent of policy is concerned). But then again, as reader Steve pointed out, Fed governor Frederic Mishkin testified before Congress last week that small businesses, the big engine of job growth, are starting to have trouble getting credit (they are heavily dependent on loans collaeralized by real estate and credit card borrowing, both of which are scarce and costly now).
And our old litany of woes has merely retreated from the fore rather than gone away: we still have the monolines almost destined to come apart at some point, the fact (as John Dizard pointed out) bigger GSEs are systemically destabilizing due to their pro-cyclical hedging, the not trivial problem that the housing market won't bottom till 2010 at the earliest, with more writedowns resulting, and my pet worry, CDS. As I understand it (and better informed readers can chide me if I am wrong), the CDS market basically has to keep growing to stand still. Again, perhaps I am too old school, but with inadequate margining/equity provisions, it seems guaranteed to go into crisis. You don't get happy endings with ever mushrooming bets on underlying equity that fails to show corresponding growth.
Today, we had the biggest bank fundraising announced to date, RBS's hugely dilutive £12 billion equity sale (and that's in addition to £4 billion of asset sales). Reader Steve pointed us to a key item from the press release: the Scottish bank's writedowns are markedly deeper than those taken by US banks to date, suggesting that the worst is not over on this side of the Atlantic. They have marked their US Alt-As at 50% of face, subprime at 38%, and CMBS at 83%.
Eeek. Steve's remarks:
{The] RBS summary is damn sobering and is likely the first example of the greater transparency that BOE/Treasury are demanding from UK banks in exchange for the new borrowing facility. RBS may have exaggerated the marks to give themselves wiggle room, since they really can't go back to the cap markets for a while. But still, the difference from marks at US banks (particularly commercial banks) is sobering and a sign that the crisis is going to drag on `in full opacity' in the US for quite some time.
The rest of the article is available at-
http://www.nakedcapitalism.com/2008/04/credit-crunch-is-dead-long-live-credit.html
wayneL
VIVA LA LIBERTAD, CARAJO!
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Perusal of the financial medja at the closing bell reveals much gnashing of teeth over earnings.
The USD$64,000,000 is whether there are enough Polly-Annas to shrug off reality and push the market further. The delusion factor is still high, so who knows.
The USD$64,000,000 is whether there are enough Polly-Annas to shrug off reality and push the market further. The delusion factor is still high, so who knows.
Whiskers
It's a small world
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Perusal of the financial medja at the closing bell reveals much gnashing of teeth over earnings.
The USD$64,000,000 is whether there are enough Polly-Annas to shrug off reality and push the market further. The delusion factor is still high, so who knows.
I'm watching the 'crowd'.
It seem they're thinking the worst is over... lets get optimistic.
In any case the FOMC meet next week, so they have to play down their enthusiasm a bit into the lead up to that, before they show their appreciation for another cut.
PS: Be a bummer if they don't cut this time!
explod
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The so called reports trotted out above have no substance. Michael Sivy, the nearest he gets to any sort of qualification is that Buffet is optomistic long term. Wow, we all are, but how long.
Yardeni states P/E's are low, of course they look low but a proper examination shows that a growing number of US companies on the Dow include so called assets with up to 90% debt. (Financial Armageddon, M Panzer)
One of the things I like most about ASF is that reasoning and qualification is uppermost and whilst we maintain that, our Forum will remain ahead of the pack. It is in fact a great and growing learning centre. Off topic, but go Joe.
Yardeni states P/E's are low, of course they look low but a proper examination shows that a growing number of US companies on the Dow include so called assets with up to 90% debt. (Financial Armageddon, M Panzer)
One of the things I like most about ASF is that reasoning and qualification is uppermost and whilst we maintain that, our Forum will remain ahead of the pack. It is in fact a great and growing learning centre. Off topic, but go Joe.
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I'm watching the 'crowd'.
It seem they're thinking the worst is over... lets get optimistic.
In any case the FOMC meet next week, so they have to play down their enthusiasm a bit into the lead up to that, before they show their appreciation for another cut.
PS: Be a bummer if they don't cut this time!
maybe whiskers; maybe not.
FN Arena article promo today "Quotes & Shorts: It's The End Of The Bear Market Rally, Says Morgan Stanley, And More...
Morgan Stanley strategists call for phase two of the bear market, while CBA's Ralph Norris and the ECB's Trichet believe this financial crisis is far from over. "
explod
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The ole Fed abrigating its responsibility, or is it, from Chuck Butler's daily report:
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Love these quotes - more for the almanac? Some of these bull market stars are finding it a bit harder to come to terms with a bear market, let alone trade it.
With a record like that, hope springs eternal....
With a record like that, hope springs eternal....
Fact or fiction?Some of both!!
"America, of course, is already in recession – although the cascade of defaults, business closures, and job losses has barely begun.
Japan is in recession too, according to Goldman Sachs. It is still the world’s second biggest economy by far, lest we forget.
Britain, Ireland, Spain, Italy, and New Zealand, are tipping into housing slumps and demand implosions of varying severity.
Ontario and Quebec have stalled. Canada’s growth is the weakest in fifteen years, hence the half point cut by the Bank of Canada yesterday.
Australia is on borrowed time, whatever the price of coal and iron ore. Household debt is 175pc of disposable income, up in La La Land with England, Ireland, Denmark, and the Dutch. The wholesale funding market for mortgages that underpins this nonsense remains frozen.
Together these countries and regions make up roughly 45pc of the global economy, and over half global demand. My hunch is that this bloc will be sliding towards full-blown deflation within a year as the commodity bubble pops and job losses set off a self-feeding downward spiral."
http://www.nakedcapitalism.com/2008/04/this-bear-growls-on.html
"America, of course, is already in recession – although the cascade of defaults, business closures, and job losses has barely begun.
Japan is in recession too, according to Goldman Sachs. It is still the world’s second biggest economy by far, lest we forget.
Britain, Ireland, Spain, Italy, and New Zealand, are tipping into housing slumps and demand implosions of varying severity.
Ontario and Quebec have stalled. Canada’s growth is the weakest in fifteen years, hence the half point cut by the Bank of Canada yesterday.
Australia is on borrowed time, whatever the price of coal and iron ore. Household debt is 175pc of disposable income, up in La La Land with England, Ireland, Denmark, and the Dutch. The wholesale funding market for mortgages that underpins this nonsense remains frozen.
Together these countries and regions make up roughly 45pc of the global economy, and over half global demand. My hunch is that this bloc will be sliding towards full-blown deflation within a year as the commodity bubble pops and job losses set off a self-feeding downward spiral."
http://www.nakedcapitalism.com/2008/04/this-bear-growls-on.html
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