Imminent and severe market correction

[Whiskers]

See, there are still some companies pleasently surprising the market.

(Reuters) - Oil refiner Holly Corp (HOC.N: Quote, Profile, Research) reported fourth-quarter profit that beat Wall Street's expectations, helped mainly by stronger sales of refined products and higher prices, sending its shares up more than 6 percent in trading before the bell.

The company reported net income of $49.8 million, or 90 cents a share, compared with $47.7 million, or 84 cents a share in the year-ago quarter.

Sales and other revenue rose 54 percent to $1.44 billion.

Analysts on average were expecting earnings of 63 cents a share, before special items, on revenue of $1,083.2 million.http://www.reuters.com/article/hotStocksNews/idUSBNG32855620080219

and another :

NEW YORK (Reuters) - Shares of General Mills Inc (GIS.N: Quote, Profile, Research) rose 1.6 percent in trading before the opening bell on Tuesday, after the maker of brands such as Cheerios cereal raised its 2008 earnings forecast.

Shares rose to $57.30 from a close of $56.39 on the New York Stock Exchange

and another :

NEW YORK (Reuters) - OfficeMax Inc (OMX.N: Quote, Profile, Research) posted a better-than-expected quarterly profit on Tuesday, helped by cost-cutting measures amid declining sales, and its shares rose more than 11 percent.

The nation's third-largest office supplies retailer said fourth-quarter profit rose to $71.5 million, or 92 cents a share, from $58 million, or 76 cents, a year earlier.

 

[ithatheekret]

Yeah oilers are travelling , I sold my XOM for $84.20 thought I did okay , till it jumped another $3 . VLO and CVX travelling okay , MON doing well too .

 

[Whiskers]

Probably getting a bit exuberant with my enthusiastm but fwiw the State Street Investor Confidence Index is up from 68.8 to 73. A bit more apetite for risk.

Financials with brokerage arms are going to get a nice injection from increased share trading in the US and UK.

Interesting that they reckon hedge funds account for 1/4 of all transactions. Thats a bit of clout if they all decide to trade the same direction.

Feb. 19 (Bloomberg) -- The biggest surprise on Wall Street this year is proving to be the record $16.3 trillion of shares traded in the U.S. as stocks show no sign of rebounding from the first bear market since 2002 and the economy teeters on the brink of a recession.

Daily trading in December and January averaged 7.44 billion shares, 13 percent more than the previous quarterly peak, New York Stock Exchange data show. The pace is a boon to Goldman Sachs Group Inc., Morgan Stanley, Merrill Lynch & Co., Lehman Brothers Holdings Inc. and Bear Stearns Cos., whose equity- trading revenue will slip just 6.1 percent in 2008 from last year's record $36.7 billion, according to Sanford Bernstein & Co. The same income-stream shrank almost 40 percent in 2001 and 2002, after the Internet bubble burst. http://www.bloomberg.com/apps/news?pid=20601109&sid=anc5uXSV7_lY&refer=exclusive

 

[blablabla]

Financials with brokerage arms are going to get a nice injection from increased share trading in the US and UK.

If there is a recession then guess where heaps of retrenched former workers will end up with their payouts? As share traders of course. Brokers will probably be winners nomatter what happens to the economy.

 

[GreatPig]

guess where heaps of retrenched former workers will end up with their payouts

Down at the pub playing the pokies?

GP

 

[ithatheekret]

" The biggest surprise on Wall Street this year is proving to be the record $16.3 trillion of shares traded in the U.S. as stocks show no sign of rebounding from the first bear market since 2002 and the economy teeters on the brink of a recession ".

Massive spin , massive .

What they didn't think the Sovereign funds would go unnoticed in the numbers ?

If they didn't set records one would be extremely worried , that it's even more worse that we can get them to admit on each round of closet cleaning .

Sorry but , I have seen better story telling in the Sunday Telegraph .......
at least they have a page three glamour shot .

Of course it comes from Micheal Bloombergs Westinghouse special ..... The man who would be king ..... of the lillies .

 

[Kauri]

OH Oh...
Watch out beloooowww

reports that noted US fund KKR could not roll-over billions in CPs which have already come due.
Cheers
...........Kauri

 

[chops_a_must]

OH Oh...
Watch out beloooowww

reports that noted US fund KKR could not roll-over billions in CPs which have already come due.
Cheers
...........Kauri

Nasty stuff. Glad I didn't close out my AMP short.

But what actually happened? I was out all day and the charts just fell off a cliff after 3. SPI fell off a cliff earlier though...

US futures not indicating big problems... yet...

 

[dhukka]

OH Oh...
Watch out beloooowww

reports that noted US fund KKR could not roll-over billions in CPs which have already come due.
Cheers
...........Kauri

Took a while to find this in the mainstream media

KKR arm in restructuring talks after repayment delay - report

(Thomson Financial delivered by Newstex) -- KKR Financial (NYSE:KFN) Holdings (KFN) has delayed repayment of billions of dollars of commercial paper for the second time, the Financial Times reported.

The listed affiliate of the private equity group has also begun a new round of restructuring talks with creditors less than six months after a rescue rights issue, the newspaper added, citing a regulatory filing.

KFN said it began talks with creditors and deferred repayment of a chunk of debt due last Friday. It put off February repayments until March 3, but warned that most investors had the right to demand their money back with one day's notice.

KFN also said it had given some note-holders the option of taking a slice of the underlying mortgages in lieu of repayment. It declined to comment further, the newspaper said.

 

[chops_a_must]

Oh oh... With inflation up, there is no way this can be stopped by the fed now:

Corporate Bond Risk Soars to Record on CDO Loss Speculation

By Abigail Moses and Hamish Risk

Feb. 20 (Bloomberg) -- The cost of protecting corporate bonds from default soared to a record as investors purchased credit-default swaps to hedge against mounting losses in the $2 trillion market for collateralized debt obligations.

``Investors are accumulating losses,'' said Andrea Cicione, a credit strategist at BNP Paribas SA in London. ``It makes sense to reduce risk and cut losses.''

Securities known as constant proportion debt obligations that package indexes of credit-default swaps may be forced to sell about $44 billion of assets because of a decline in the value of their holdings, UniCredit SpA analyst Tim Brunne in Munich said today. The value of the so-called CPDOs has fallen to as low as 40 percent of face value, according to Morgan Stanley.

Credit-default swaps on the Markit CDX North America Investment-Grade Index of 125 companies with investment-grade ratings jumped 9 basis points to 163 at 7:44 a.m. in New York, according to Deutsche Bank AG.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent if a borrower fails to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

The CDX index of credit-default swaps doubled this year as bank losses and writedowns on debt investments soared above $145 billion worldwide. The equivalent iTraxx index in Europe rose 14.5 basis points today to a record 132.5, according to JPMorgan Chase & Co., up from 51 basis points on Jan. 2.

Bank Losses

CDOs package assets and use the income to pay investors. Securities made up of credit-default swaps are known as synthetic CDOs. The notes are losing money as the cost of credit-default swaps rises. CPDOs are based on the CDX and ITraxx indexes.

Moody's Investors Service downgraded 1.1 billion euros ($1.62 billion) of CPDOs arranged by ABN Amro Holding NV, Lehman Brothers Holdings Inc. and BNP Paribas SA last week as asset values fell. CPDOs arranged in 2006 by banks including Amsterdam-based ABN Amro may be forced to unwind if the iTraxx Europe index rises to 140, according to UniCredit's Brunne and BNP's Cicione.

``Different CPDOs have different trigger levels, but once one is triggered the negative technical pressure that is created may well cause other triggers to be hit,'' Willem Sels, a credit analyst at Dresdner Kleinwort in London, said in note to investors today.

CPDO Unwinds

Banks would seek to unwind CPDOs by buying credit-default swap indexes to offset their bets.

``What seems to be clear in both Europe and the U.S. is that the continued unwind of leverage and structured products has continued to lead to underperformance in investment grade,'' Nick Burns, a London-based credit strategist at Deutsche Bank, wrote in a note today.

Contracts on U.K. mortgage lender Alliance & Leicester Plc jumped 40 basis points to 245 after the bank slashed its profit target for this year and next, citing rising borrowing costs and declining valuations on asset-backed securities because of the U.S. subprime mortgage slump.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

Contracts on Standard Chartered Plc rose 3 basis points to 112 after the London-based bank abandoned a plan to refinance its $7.15 billion Whistlejacket Capital Ltd. structured investment vehicle, the largest SIV run by a bank to collapse.

KKR Financial

KKR Financial Holdings LLC, the $18 billion publicly traded credit fund run by Kohlberg Kravis Roberts & Co., delayed repaying some of its asset-backed commercial paper and started restructuring talks with its creditors, according to a regulatory filing yesterday.

Contracts on the Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings jumped 21 basis points to 606, according to JPMorgan prices. Contracts on the benchmark Markit iTraxx Asia Ex-Japan index rose by 24 basis points to 295, according to ICAP Plc.

The risk of defaults on European LBO loans is the highest recorded by the benchmark Markit iTraxx LevX Senior Index of loan credit-default swaps. The index fell to 90, according to Bank of America Corp. prices, the lowest since it started in October 2006. A level below 100 indicates loans are valued below par.

To contact the reporter on this story: Abigail Moses in London Amoses5@bloomberg.net

Last Updated: February 20, 2008 08:00 EST

 

[dhukka]

Oh oh... With inflation up, there is no way this can be stopped by the fed now:

Last Updated: February 20, 2008 08:00 EST

Great stuff, the market has a new acronym to crap themselves over - CPDO.

Uncle Ben won't like those inflation numbers, doesn't square well with dropping money out of helicopters.

 

[chops_a_must]

Woooo! Stagflation is good!

Buy!! Buy !! Buy!!

Rofl.

 

[dhukka]

Yeah, you wonder what will happen when the market actually gets some good news.

 

[dhukka]

Interesting artilce in the WSJ by Martin Feldstein. Feldstein is the President and CEO of National Association of Economic Research (NBER), the organzation that officially calls economic cycles in the U.S.

Our Economic Dilemma

Although it is too soon to tell whether the United States has entered a recession, there is mounting evidence that a recession has in fact begun. Key measures of economic activity stopped growing in December and January or actually began to decline. The collapse of house prices and the crisis in the credit markets continue to depress the real economy.

The sharp reduction in the federal funds interest rate and the new fiscal stimulus package may, of course, be enough to avert a downturn. Many forecasters still predict that the economy will just slow in the first part of this year and then rebound after the summer. But the hope that monetary and fiscal policies would prevent continued weakness by boosting consumer confidence was derailed by the recent report that consumer confidence in January collapsed to the lowest level since 1992.

If a recession does occur, it could last longer and be more painful than the past several downturns because of differences in its origin and character. The recessions that began in 1991 and 2001 lasted only eight months from the start of the downturn until the beginning of the recovery. Even the deeper recession of 1981 lasted only 16 months.

But these past recessions were caused by deliberate Federal Reserve policy aimed at reversing a rise in inflation. In those cases, the Fed increased real interest rates until it saw the economic slowdown that it thought would move us back toward price stability. It then reversed course, reducing interest rates and bringing the recession to an end.

In contrast, the real interest rate in 2006 and 2007 stayed at a relatively low level of less than 3%. A key cause of the present slowdown and potential recession was not a tightening of monetary policy but the bursting of the house-price bubble after six years of exceptionally rapid house-price increases. The Fed therefore will not be able to end the recession as it did previous ones by turning off a tight monetary policy.

The unprecedented national fall in house prices is reducing household wealth and therefore consumer spending. House prices are down 10% from the 2006 high and are likely to fall at least another 10%. Each 10% decline cuts household wealth by about $2 trillion, and this eventually reduces annual consumer spending by about $100 billion. No one can predict the extent to which the coming fall in house prices will lead to defaults and foreclosures, driving house prices and wealth down even further. Falling house prices also discourage home building, with housing starts down 38% over the past 12 months.

But the principle cause for concern today is the paralysis of the credit markets. Credit is always key to the expansion of the economy. The collapse of confidence in credit markets is now preventing that necessary extension of credit. The decline of credit creation includes not only the banks but also the bond markets, hedge funds, insurance companies and mutual funds. Securitization, leveraged buyouts and credit insurance have also atrophied.

The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy as it has been in the past. Monetary policy may simply lack traction in the current credit environment.

click on the link for the full article. The part in bold is the key take away for me. The Fed was never tight on monetary poilcy to begin with and therefore loosening will not have the desired effect that it had in the past.

 

[ithatheekret]

The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy as it has been in the past. Monetary policy may simply lack traction in the current credit environment.



That makes sense now ............ at least we know why they greased the tracks now .

 

[Aussiejeff]

The dysfunctional character of the credit markets means that a Fed policy of reducing interest rates cannot be as effective in stimulating the economy as it has been in the past. Monetary policy may simply lack traction in the current credit environment.



That makes sense now ............ at least we know why they greased the tracks now .

Why, oh why, have these fools greased the DOWNHILL tracks heading for the Grande Canyone drop off??

Oh, I get it. Some one stands to make a LOT OF MOOLAH out of the ashes..... *grrr*.

AJ

 

[MRC & Co]

IMF October 2007.

Country................GDP (PPP) $m

United States.........13,543,330 - 19.02%

China....................11,606,336 - 16.551%
Hong Kong..................289,748 - .402%
China (Taiwan)............749,943 - 1.034%
Total China.............12,646,027 - 17.987%

India.......................4,726,537 - 6.576%

Total China + India..17,373,164 - 24.563%

Whooaaaaaa. Isnt PPP just a theory binded by economic assumptions, of which do not apply in reality? Last time I checked. A simple look at the BigMac index would agree.

 

[Whiskers]

No doubt a lot of head aches to come in the bond insurance business... self interest of the rating agencies... a change of rating system or splitting up of insurers. Be interesting to see who wins out there. The Rating agencies have 'threatened' action ages ago but interestingly have not followed through. I guess it would not be very pleasent in their shoes if a subsequent inquiry found the stalemate or disaster of rating downgrades had a smell of unjustified anomolies and self-interest.

Interesting to note the muni bonds are safer than the bond insurers. Get a reasonable fix here and most of our worries go away for now.

Common sense fix for muni bonds

If muni bonds got the ratings they deserve, we wouldn't need to bail out the bond insurers. We wouldn't need bond insurers at all.By Jon Birger, senior writer

NEW YORK (Fortune) -- What the municipal bond market needs most is not an injection of capital into the bond insurance companies. What it needs is an injection of common sense into its credit rating system.

The simple truth is that the overwhelming majority of tax-exempt bonds issued by states and cities deserve a triple-A credit rating without any bond insurance, given their historically miniscule default rates.

....

So why then do the rating agencies maintain separate rating scales for munis? Fabian contends the rating agencies are simply serving their own interests. If everything were rated double-A or triple-A, there would be little need for bond insurance. And no bond insurance would mean the rating agencies wouldn't be able to charge for two ratings per bond issue an insured rating in addition to the underlying rating instead of just one.

...

Municipal bonds have always been substantially better credit risks than the bond insurance companies insuring them. That made no sense a year ago, and with the credit markets hanging in the balance, it makes even less sense today.
http://money.cnn.com/2008/02/20/mag...ings.fortune/index.htm?postversion=2008022104

 

[Whiskers]

Whooaaaaaa. Isnt PPP just a theory binded by economic assumptions, of which do not apply in reality? Last time I checked. A simple look at the BigMac index would agree.

Yeah, agree to some extent MRC &Co.

The PPP thing came up out of a bit of a tiff I had with dukka about... not sure how it started now. You'll have to read back the thread.

 

[treefrog]

What it needs is an injection of common sense into its credit rating system

arrr, well now, the problem is that common sense is not all that common