Imminent and severe market correction

[Kauri]

and of course Uncle Ben weighing in hasn't helped... much

there is definitive bearish tilt to the latest Bernanke comments that the economic outlook is worse and that Bernanke sees no end to the housing market downturn. Bernanke says the Fed has been aggressive but is ready to do more.

 

[ithatheekret]

Would have to put the Swissie in the 1.11 zone just to confuse the POG traders ........ fiats who said they weren't vehicles

 

[dhukka]

I agree all initiatives will not work, but impotantly it is only human nature to delay impending disaster where one can to buy time to find relief or remedies. It can only give people, particularly those most affected time to more rationally (less panic) assess their situation and make better decisions about their future.

Project 'lifeline' as it is unfortunately named will do very little except maybe at the margin for some people who want to stay in their homes. For others it will just postpone the pain. It will do nothing for the jingle mail crowd who find themselves hopelessly underwater as home prices continue to fall and they owe more than their house is worth. The only benefit to these people as this article suggests is that they can get a months free rent and then mail in their keys.

The operative word being severity, I would have thought that avoiding a rushed panic sell off of financial markets with monetry policy, intervention and or regulation to give businesses a chance to restructure and home owners better opportunities to refinance or a chance to make-up their late payments would be obvious evidence of deminishing the severity of knock-on effects.

No doubt Helicopter Ben helped avoid a nasty equity market sell-off but all that effectively did was delude Wall Street into thinking the Fed is/can play backstop. I agree that timely and effective policy response from government and central banks can help mitigate the severity of an economic crisis. However I would argue that in the case of the US it is too little too late and it is going to be very difficult to make a significant difference.

Interest Rate cuts makes lending more attractive for the banks but you can't make them lend. The Fed's Term Auction Facility in concert with the European banks repo actions worked a treat in bringing LIBOR down. However credit spreads continue to widen.

The US labor market is starting to lose jobs and yesterday for the first time in 5 years US retail sales turned negative on an inflation adjusted basis. Here is a list of retailers that plan to close stores.

* Movie Gallery closing another 400 stores
* Charming Shoppes (CHRS) closing 150 stores and cutting expansion plans by 50%
* Starbucks (SBUX) closing 100 stores and slowing expansion plans by 34%
* Ann Taylor (ANN) shuttering 117 stores and slowing store growth
* Boston Market evaluating its real estate opportunities
* Buffet Holdings sorting out its underperformers
* Sprint Nextel (S) closing 125 stores and 4,000 distribution points
* Cost Plus World Market closing 18 stores
* Liz Claiborne (LIZ) closing 54 Sigrid Olsen stores
* New York & Company (NWY) axing the Jasmine Sola brand and its 32 stores
* Ethan Allen (ETH) closing 12 stores
* PacSun (PSUN) closing all of its 173 demo stores
* Talbots (TLB) exiting its kids and men's lines through closure of 78 stores
* Rite Aid (RAD) exiting Nevada by closing 28 stores
* Macy's (M) closing nine stores
* Krispy Kreme (KKD) expecting many franchisees to close stores
* Kirkland's Home (KIRK) likely closing 130 stores
* CompUSA's remaining 103 stores being disposed of
* Rent-A-Center (RCII) closing 280 stores
* Sofa Express closing 44 stores in bankruptcy
* 84 Lumber closing 12 stores
* Home Depot (HD) closings some call centers
* Levitz Furniture disposing of 76 stores in bankruptcy
* Pep Boys (PBY) closing 31 stores
* Lifetime Brands (LCUT) closing 30 stores
* Big A Drugs liquidating its 21 stores

This list is just the beginning, there will be many more. At least the companies listed here are aware of the problems and starting to cut back. Rob Plaza, Senior Equity Analyst for retail stocks at Zacks Investment Research had this to say in the same article:

... probably for the next decade, retailers are not going to have to open a brand new store because there's going to be so many empty ones that need to be filled. It's not going to be like before where retailers were fighting to get the best location in the new strip mall that opened up.

You don't need to be Einstein to see what this portends for Commercial Real Estate in the US. Speaking of Real Estate, US housing is a disaster and getting worse. House prices are forecast to drop 20 -30% nationally over the course of the next few years. That would put about 10 million households into negative equity making them ideal candidates for the jingle mail crowd.

Corporate default rates are still at record lows in the states but they will escalate sharply in the next 12 -18 months. The expectations of US small businesses, which employ the bulk of US workers, have hit recessionary levels according to a report released a couple of days ago.

ISM services sector indicators are all in contraction mode, the services sector makes up more than 80% of the US economy. Industrial production is flat to negative.

Europe doesn't need knock-on effects to hurt them.They have similar housing bubbles, waning retail sales and persistent (although I think the fear is overblown) inflation. Growth rates for Asia including the world saviour China are being revised down.

Effects are being felt now, mailing checks to people is poor policy response, it could jolt GDP up for a quarter or two or it could be like the early 80's when the US had a short recession in 1980, recovered briefly and then plunged into a deep protracted one just 12 months after the previous one finished.

I still believe the damage has largely been done and if the US government policy response continues in the same vain it won't make much difference. I fully expect fiscal stimulus number 2 to be on the table by the second half of this year when they wake up to how bad things actually are. Maybe they'll come up with something more constructive however for me the glass is half empty on the outlook. I think Nouriel Roubini's sums it up well:

Can the Fed and other financial officials avoid this nightmare scenario that keeps them awake at night? The answer to this question - to be detailed in a follow-up article - is twofold: first, it is not easy to manage and control such a contagious financial crisis that is more severe and dangerous than any faced by the US in a quarter of a century; second, the extent and severity of this financial crisis will depend on whether the policy response - monetary, fiscal, regulatory, financial and otherwise - is coherent, timely and credible. I will argue - in my next article - that one should be pessimistic about the ability of policy and financial authorities to manage and contain a crisis of this magnitude; thus, one should be prepared for the worst, i.e. a systemic financial crisis.

 

[ithatheekret]

You want nightmares ........ Hanks on tele .

 

[dhukka]

You want nightmares ........ Hanks on tele .

Mr containment consistently looks out of his depth whenever he's on TV. It's hilarious how they pay so much attention to what these muppets have to say. You know exactly the kind of platitudes they are going to come out with before they even open their mouths,

Bernanke - the Fed will continue to cut if needed (Of course they will, what else can they do?)

Paulson - The economy will grow slower than it has in recent years ( ahh yeah, thanks for pointing out the obvious Hank)

 

[ithatheekret]

Mr containment consistently looks out of his depth whenever he's on TV. It's hilarious how they pay so much attention to what these muppets have to say. You know exactly the kind of platitudes they are going to come out with before they even open their mouths,

Bernanke - the Fed will continue to cut if needed (Of course they will, what else can they do?)

Paulson - The economy will grow slower than it has in recent years ( ahh yeah, thanks for pointing out the obvious Hank)

If Hank wants to be useful , he should throw Ben out of the helicopter .

Sniffling for a month now , bad cold Hanks got ........ plague more like it .

 

[chops_a_must]

Sniffling for a month now , bad cold Hanks got ........ plague more like it .

He could just be coming down with depression perhaps?

 

[ithatheekret]

Hope not Chops , they don't make enuff Xanax for him .

 

[ithatheekret]

That's it , Ben used the worsening word . Now they'll have nightmares .

 

[ithatheekret]

Hanks just asked how do they avoid blah blah .....?

proactive blah blah ....

I'd of thought the Feds ( not his dept. ) Cash reserve ratio rulings would be a good start ....................

Reassessment of FICO scores . Reassessment of Fanny and Freddie . Reassessment of the oversight committee . Reassessment of the act re: GSE reform bill ...........

 

[ithatheekret]

ASX probes hedge collusion


http://www.news.com.au/business/story/0,23636,23216433-462,00.html

By Glenda Korporaal and Adele Ferguson
February 15, 2008 01:00am


THE Australian Securities Exchange yesterday signalled that it would investigate allegations that hedge funds are colluding to push down the shares of major Australian companies.




ASX head of supervision Eric Mayne yesterday said he would be investigating market rumours that hedge funds were working together in packs to target specific companies.

Mr Mayne also signalled that the ASX was keen for more regulation of the increasingly common practice of short-selling in the market, and would be looking at greater regulation of company directors who had big margin loans against their shares.

Mr Mayne's comments come after great volatility in the share market in recent months.

Some companies have complained that they have been victims of concerted action by hedge funds to push down their share prices, allowing the funds to make money by buying them back at artificially low levels.

"Anecdotally, that has been what has been suggested to me - that they are doing just that," Mr Mayne told a press conference yesterday. "As a consequence, we will be investigating it."

But one hedge fund manager lashed out at Mr Mayne's comments last night. "It's all crap. The basic point is that short-selling contributes to market efficiency," he said.

"For every hedge fund that is short-selling, there will be another hedge fund that will be buying because they believe it's been over-sold.

"If they (ASX) try to crack down on it (short-selling) they will actually destroy market efficiency. Hedge funds are notthis collusive mob where they all get together and follow one strategy."

The ASX, which yesterday reported a strong 35 per cent rise in net profit to $187.4 million for the six months to the end of December on the back of record market trading, defended itself from criticism that it had mishandled the recent problems with stock broker Tricom.

Chief executive Robert Elstone insisted the ASX still had the confidence of the market.

He said expectations that the ASX would give a "ball by ball" public commentary when it was handling issues such as Tricom's inability to meet its market settlement obligations last month were misplaced.

Mr Elstone said the ASX was not immune to criticism but said he believed investors had confidence that it could handle the pressures of operating and supervising the share and futures markets in the current volatile environment.

He rejected heavy criticism that the exchange should not be involved in providing an official market for the highly risky contracts for difference (CFDs).

Also known as "spread betting", CFDs allow investors to borrow money to bet on the short-term movement of share prices, exposing investors to potentially unlimited losses if the market moves against them.

The Australian Securities and Investments Commission has warned investors in CFDs that they are "effectively gambling a much larger amount of money than if they went to the casino or a race track".

Mr Mayne said the fact that the ASX had taken over the role of trading CFDs late last year should give investors some comfort. The market was now being properly supervised, instead of the unregulated off-market trading in CFDs that had been going on in the past.

Mr Elstone also signalled that the ASX was looking at introducing a "second generation" of CFDs, which would be listed in the first six months of next year.

He said ASIC supported the idea of the ASX offering CFD products, which were also being offered by stock markets around the world, including the London Stock Market.

But the ASX executives did call for more regulation to force the disclosure of the increasing degree of short-selling in the Australian share market.

They said this was an area that could be more closely supervised by ASIC if it were given greater control over the regulation of stock brokers. Mr Elstone called on the federal Government to set up an inquiry to look at new laws and regulations needed to cope with massive changes in financial markets in Australia in the decade since the Wallis inquiry.

The controversy comes amid some of the most volatile trading seen on the Australian share market. January had more than double the level of turnover as the same month last year.

The record turnover on the market saw the ASX yesterday report a 35 per cent rise in net profit for the six months to the end of December to $187.4 million - slightly above market expectations. But concerns about the future outlook for the market and new stock market listings saw investors mark the ASX's shares down by 34c to close at $45.13.

Analysts said the possibility of fewer new share market listings later this year, the big rebates the ASX was now giving to brokers, and concerns that the big cost savings from the merger of the ASX and the SFE were for a top-20 stock is extraordinary," said Allan Furlong, manager of private client services at stockbroker Joseph Palmer & Sons.

Mr Furlong said the recent volatility was not related to the fundamentals of the market, with hedge funds likely to be behind some of the big moves.

"I'm looking through the fabric of the market and the sort of volatility that is going on ... it's not my clients selling bank shares, because I'm telling them to hold long-term," he said.

Banking stocks regained some ground yesterday with NAB moving 3.3 per cent higher while the ANZ gained 2.7 per cent. The Commonwealth closed 1.8 per cent ahead.

"Fundamentally there are some good stocks that are on sale right now," Mr Furlong said.

"We may not pick the very bottom but why would you not buy the Commonwealth Bank or NAB on the yields they're displaying and put them away?

"Even if we have six months where the market is flat, you still know that your super fund is going to be doing all right in three years' time."




Bit fn late

 

[IFocus]

I just love it when brokers make quotes like this

Mr Furlong said the recent volatility was not related to the fundamentals of the market

 

[Trembling Hand]

But one hedge fund manager lashed out at Mr Mayne's comments last night. "It's all crap. The basic point is that short-selling contributes to market efficiency," he said.

That sums that up perfectly. Populous Crap.

 

[numbercruncher]

I love it when the Bearish (realist) commentators use the term Tsunami, has a certain ummph about it

The fallout from losses on subprime lending may result in a ``tsunami'' for the US economy extending beyond financial markets, New York Governor Eliot Spitzer told lawmakers in Washington.

Inadequate federal regulation of the mortgage market led to losses that hurt bond insurers, threatening their AAA credit ratings, and banks, Spitzer said in prepared testimony to the House subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

Insurers' woes have hurt the municipal bond market by raising borrowing costs and reducing the value of debt held by investors, said Spitzer, a first-term Democrat. Municipal bond difficulties, highlighted by failures in the auction-rate market, will be far-reaching, he said.

``It will affect the cost of college loans,'' the governor said. ``It will affect museum budgets. It will affect state and local taxes.''

http://business.smh.com.au/subprime-fall-may-trigger-tsunami-spitzer-says/20080215-1sf9.html

 

[Kauri]

Now that Moodys have downgraded one of the top 3 monos,FGIC, from AAA to A3, with the likelyhood of other agencys following suit, and the precarious standing of Ambac and MBIA, will this lead financial instos to writing off more,and not only sub-prime this time?? BB stated that more write downs were likely in his address last night. Will global banks that have been reassuring us that they have no, or very little, exposure to sub-prime, now be caught up with exposure to the "more prime" vehicles?? Will wealth management type firms get caught up in having to revalue some of their interest investments?? Will we get more than one day of rain in Perth this summer??
Thinking
............Kauri

 

[dhukka]

Now that Moodys have downgraded one of the top 3 monos,FGIC, from AAA to A3, with the likelyhood of other agencys following suit, and the precarious standing of Ambac and MBIA, will this lead financial instos to writing off more,and not only sub-prime this time?? BB stated that more write downs were likely in his address last night. Will global banks that have been reassuring us that they have no, or very little, exposure to sub-prime, now be caught up with exposure to the "more prime" vehicles?? Will wealth management type firms get caught up in having to revalue some of their interest investments?? Will we get more than one day of rain in Perth this summer??
Thinking
............Kauri

Seems the Monolines have 4-5 days to get their houses in order according to Spitzer;

Bond insurers have days to re-capitalize, Spitzer says

Bond insurers have four to five business days to re-capitalize themselves enough to keep their crucial AAA credit ratings, New York Governor Eliot Spitzer said during a Congressional hearing on the $2.4 trillion industry on Thursday. If that doesn't happen, regulators will have to step in and separate bond insurers' municipal businesses from their more troubled structured finance units. "We will need to move in that direction. It is not our first choice but time is short," Spitzer said. "In the next for or five bus days we would like to see a resolution," Spitzer added. "It's time for deals to get done."

should be an interesting few days for the Bond Insurers.

 

[blablabla]

ASX head of supervision Eric Mayne yesterday said he would be investigating market rumours that hedge funds were working together in packs to target specific companies.

Mr Mayne also signalled that the ASX was keen for more regulation of the increasingly common practice of short-selling in the market, and would be looking at greater regulation of company directors who had big margin loans against their shares.

To maintain a sense of perspective it needs to be noted that Mr Mayne is employed by the ASX who market a CFD product that allows short-selling. It also needs to be noted that the ASX is perfectly free to regulate itself as much as it likes. So presumably Mr Mayne is referring to being keen for more regulation of non-ASX-controlled shortselling, which would tend to disadvantage competitors relative to the ASX.

If we are to have a level playing field then market supervision and regulation should be taken out of the hands of the ASX and should be performed by an independent body with no vested interests who would have the power to extract any information held by the ASX. Then there would be no perception of conflicts of interest and we would at least be able to take ASX statements seriously.

 

[explod]

To maintain a sense of perspective it needs to be noted that Mr Mayne is employed by the ASX who market a CFD product that allows short-selling. It also needs to be noted that the ASX is perfectly free to regulate itself as much as it likes. So presumably Mr Mayne is referring to being keen for more regulation of non-ASX-controlled shortselling, which would tend to disadvantage competitors relative to the ASX.

If we are to have a level playing field then market supervision and regulation should be taken out of the hands of the ASX and should be performed by an independent body with no vested interests who would have the power to extract any information held by the ASX. Then there would be no perception of conflicts of interest and we would at least be able to take ASX statements seriously.

Your post is to be applauded. Have felt that the ASX, ATSIC etc have not been operating towards the fair interests of the average investor for some years. Of course the previous (following the Thatcher idea of deregulation) seemed to be supporting the big end of town at every turn.

Hope the new Government, Conroy, Tanner et. al. are tuned in.

Cheers explod

 

[Whiskers]

To maintain a sense of perspective it needs to be noted that Mr Mayne is employed by the ASX who market a CFD product that allows short-selling. It also needs to be noted that the ASX is perfectly free to regulate itself as much as it likes. So presumably Mr Mayne is referring to being keen for more regulation of non-ASX-controlled shortselling, which would tend to disadvantage competitors relative to the ASX.

If we are to have a level playing field then market supervision and regulation should be taken out of the hands of the ASX and should be performed by an independent body with no vested interests who would have the power to extract any information held by the ASX. Then there would be no perception of conflicts of interest and we would at least be able to take ASX statements seriously.

I wouldn't go so far to say it is perfectly free to regulate itself, after all it is still an Australian public company subject to the same laws as everyone else.

ASIC has been mentioned and obviously has higher control of all public companies.

It doesn't take that great man Einstein to see that certain sector indexes are hit badly on some days when the rest of the market has performed well.

This is a clissic example of (free) market failure where some participants are colluding against ASX listing rules and Corporations Law to artifically manipulate price volitility to gouge back some losses, similar to some banks breaking custom with reserve interest rates.

The US has been talking about tightening up regulation of the financial industry and Rudd signalled an intention to closely scrutenise certain aspects of commerce before the election.

It's a logical chain of consequences when people abuse trust, ethics and customary protocol, in the self righteous guise of, there is no (statute) law against it, and we have to look after the best interest of our shareholders... err themselves.

By definition by saying this these people are demonstrating (and advertising)no moral or ethical capacity or inclination to abide by codes of conduct, interpreting caviet emptor as open season, so they themselves are peeving the community and law makers off to the point of prosecution of companies and executives and imposing more statuary regulation annd controls to reign them in.

More evidence of lessening the global impact and repercussions of market participants who insist on testing the limits.

I should be fairly obvious to most people that the change of gov in Aus was essentially about a shift back to a more marxian position of a better balance in the economy and society generally. I expect the US to follow suite.

Do unto others as you wish them to do unto you. Natural justice prevails. Something traders and investors loose sight of in their narrow vision of economics.

 

[Bushman]

It is bollocks to say it is an 'efficient market' if you have hedge funds colluding to artificially collapse share prices. If that is not cartel behaviour, I don't know what is. Dick Pratt should simply have set up a hedge fund and he would still simply be Carlton's saviour.

I say to the ASX start to provide meaningful disclosure to Joe Average on hedge fund behaviour or investors will start to lose faith in the equities market.Long term they will all be f**ked if the mum's and dad's pull their money out. Look at the US housing market. It is now a TSUNAMI *shock horror*.