US mortgage carnage

[wayneL]

here's one..

King Reappointed as BoE Governor for 5 More Years Reuters

I'm happy about that. I don't might Merv... for a central banker that is.

... and thank f#%& that Beltchflower or Rachel Lobrow didn't get it. That would have been disaster.

 

[explod]

So the Dow rally lasted about an hour, now up only 100 points. Have to drop rates another 1% tomorra maybe.

TAlk about stuff everything up, I can no longer believe what is happening.

Was someone talking about beer the other day, looking good

 

[wayneL]

So the Dow rally lasted about an hour, now up only 100 points. Have to drop rates another 1% tomorra maybe.

TAlk about stuff everything up, I can no longer believe what is happening.

Was someone talking about beer the other day, looking good

We truly have entered The Twilight Zone; of that there is no question.

 

[Kauri]

We truly have entered The Twilight Zone; of that there is no question.

S&P has taken negative action on 6,389 US subprime RMBS and 1,953 CDO ratings. A follow-up from the Wall Street Journal says that this affects $270 bln of subprime mortgage securities. The news is not too flash for the US and US stock market. On CNBC they are still pushing similar sweeping downgrades on US bond insurers and this helped??? the stock market tumble .
MarketWatch estimates that MBIA and Ambac could both lose up to $11 bln each probably not helping either.
Cheers
..........Kauri

 

[Kauri]

Just read about a CNBC report by a "T.V analyst" that came out late in the US session saying CNBC have learned that Wall Street bond rating agencies are poised to downgrade both Ambac Financial Group and MBIA even though NY state regulators would like to get a hold until they can fully develop a bailout package. According to the CNBC report, barring some last minute agreement on a bailout package, the downgrades could come as early as Wednesday US time.
Other analysts analysing the analysts analysis say that the CNBC talking head covering the story has been very busy pushing his barrow very hard being extremely negative towards the prospect of a bail-out saving the bond insurers from down-grades and say that their analysis indicates it is unlikely that a down-grade will occur while the NY state regulator is still trying to negotiate a package.
Meanwhile, Ambac shares blithely rose over 25% yesterday, ...
Cheers
.........Kauri

and that pesky CNBC analyst needs to see his analyst... the Fed announced a 50 BP rate cut and issued a dovish statement. The Fed move was initially greeted with cheer by Wall Street with the Dow up 185 points at one stage. The commodity markets moved higher and all was looking great .
The mood suddenly changed when a CNBC reporter said that two major US bond insurers were about to be down-graded and it could happen as early as today. US stocks promptly found reverse gear..

 

[Aussiejeff]

and that pesky CNBC analyst needs to see his analyst... the Fed announced a 50 BP rate cut and issued a dovish statement. The Fed move was initially greeted with cheer by Wall Street with the Dow up 185 points at one stage. The commodity markets moved higher and all was looking great .
The mood suddenly changed when a CNBC reporter said that two major US bond insurers were about to be down-graded and it could happen as early as today. US stocks promptly found reverse gear..

There needs to be new a few new terms introduced into the "Market Analysis" lexicon...

"Counter-analyst"
"Counter-counter-analyst"
"Counter-counter-counter analyst" .... etc.

LOL

 

[IFocus]

On top of all that bad news Japanese Banks in serious trouble

Following the problems with the Northern Rock, uncertainty has hit
Japan, the origami bank has folded. Sumo bank has gone belly up, the
Bonsai bank has cut some of its branches. The Karaoke bank is up for
sale and going for a song, while shares in the kamikaze bank have
nosedived. 500 staff at the Karate bank got the chop and there is
something fishy going on at the Sushi bank where staff expect a raw
deal.

Focus

 

[explod]

On top of all that bad news Japanese Banks in serious trouble

Following the problems with the Northern Rock, uncertainty has hit
Japan, the origami bank has folded. Sumo bank has gone belly up, the
Bonsai bank has cut some of its branches. The Karaoke bank is up for
sale and going for a song, while shares in the kamikaze bank have
nosedived. 500 staff at the Karate bank got the chop and there is
something fishy going on at the Sushi bank where staff expect a raw
deal.







Focus

Maybe dats why they need to do whaling research.

Could have a whalova bank closin down party

 

[dhukka]

Commercial Real Estate construction continued to partially offset the plunge in residential in the latest US GDP report however signs of weakness are starting to show. Commercial Real Estate follows residential like night follows day but usually with a significant lag. It seems that US community banks are shouldering more than their share of Commercial Real Estate loans. The next shoe to drop perhaps?

Comptroller Dugan Expresses Concern About Commercial Real Estate Concentrations

Comptroller of the Currency John C. Dugan told a bank conference today that the OCC is focusing increased attention on problems arising from high community bank concentrations in commercial real estate (CRE) at a time of significant market disruptions and declining house and condominium sales and values.

“The combination of these conditions is putting considerable stress on one particular category of commercial real estate lending: residential construction and development – and other categories of CRE loans will feel similar stress if general economic activity slows materially,” Mr. Dugan said in a speech before a meeting of the Florida Bankers Association.

In the area of construction and development (C&D) loans, nonperforming loans in community national banks amounted to 1.96 percent of the total at the end of the third quarter, double the rate of the year before.

“Although starting from an admittedly very low baseline, an increase like this – over 100 percent in a single year – is clearly a trend that we need to monitor closely,” Mr. Dugan said.
...
In recent years, the Comptroller said, banks had become too complacent regarding the potential for significant stresses in these markets, and CRE concentrations rose significantly in many banks. The ratio of commercial real estate loans to capital has nearly doubled in the past six years, he said.

“Even more significant than this overall industry statistic is the number of individual banks that have especially large concentrations,” Mr. Dugan added. “Over a third of the nation’s community banks have commercial real estate concentrations exceeding 300 percent of their capital, and almost 30 percent have construction and development loans exceeding 100 percent of capital.”
...
“In terms of asset quality, our horizontal reviews have indeed confirmed a significant increase in the number of problem residential construction and development loans in community banks across the country,” the Comptroller added.

 

[Kauri]

Won't show up in tonights NFP... but may be adding another squad to the Ninja brigade??

A steady stream of job layoffs has emerged over the last 24 hours as the impact of the global slowdown bites with layoffs spreading north to Canada and south to Mexico. Today, Dell has announced the closing of an Edmonton job center that will impact 900 workers. Whirlpool will cut 1250 jobs in Tennessee and Mexico. Lockheed Martin will cut 850 jobs and Home Depot job cuts are expected to total 500 at its headquarters. Job cuts in the financial sector have been evident since the subprime crisis with Fortis reporting that it will cut 900 jobs in the demerger of ABN Amro"s asset management arm after receiving approval from the Dutch central bank. Wyeth announced job cuts of 4-6% by 2008 today as well with the broad base of these recent layoffs a strong sign that the economic slowdown is hitting the average worker.

Cheers
..........Kauri

 

[matilda]

www.businessspectator.com.au

2.02pm Feb 1,2008

Stephen Bartholomeusz
Going for MBIA's jugular


One of the most remarkable and nakedly self-interested attempts to destabilise financial institutions and to further threaten the stability of the global financial system is unfolding in the US.

Overnight the biggest of the credit insurers, MBIA, held a most peculiar fourth-quarter "conference" call to announce another $US3.5 billion write-down of sub-prime assets and a record $US2.3 billion quarterly loss. The conference call was peculiar because it was "listen only" – analysts and investors were required to submit written questions in advance.

MBIA took that unusual step because it was fearful that the conference would be hijacked by one of its 'investors', New York-based hedge fund Pershing Square Capital Management. Pershing Square’s founder, William Ackman, has made no secret of the fact that he has major short positions in MBIA shares and credit default swaps and similar positions in another big insurer, Ambac. He has said his firm stands to make billions of dollars if the credit insurers collapse and he personally would make $US500 million if MBIA fails, which he would donate to charity.

In response to MBIA’s attempt to prevent it from using the conference call to undermine confidence in its stability, Pershing Square mounted an assault, releasing the questions it would have asked publicly, and giving interviews. It sent a 32-page letter detailing its views on MBIA and Ambac’s finances to regulators, legislators and accounting firms that it posted on the internet and even released a highly detailed "dynamic" open source financial model that it posted on the internet.

According to its modelling – with data it says was contributed by an unnamed "global bank" which may also have "bearish" positions in the bond insurers’ holding companies – MBIA could lose between $US11.6 billion and $12.6 billion from its exposures to asset-backed collateralised debt obligations(CDOs) and residential mortgage-backed securities and Ambac could lose $US11.6 billion.

Pershing Square say the losses may be larger if the "questionable creditworthiness" of the insurers’ reinsurers were incorporated into its analysis. It says the two insurers have direct or indirect exposures totalling 79 per cent (MBIA) and 73 per cent (Ambac) to all asset-backed CDOs issued between 2005 and 2007.

Ackman says MBIA needs to raise $US10 billion of new capital. He has previously predicted the two companies would be insolvent by the second quarter of this year. MBIA, which raised $US500 million of new capital from private equity firm Warburg Pincus, has expressed confidence that it will retain its triple-A credit rating – central to its ability to stay in business – and in its ability to raise new capital. It told the conference call it was almost impossible to imagine it could become insolvent.

The fate of MBIA and Ambac and the other credit insurers has relevance that stretches beyond their investors and creditors. If they were to fail there would be significant repercussions for credit markets generally as institutions unable to hold lesser-rated paper dumped bonds whose credit had been enhanced by the insurers, which would set off a cascading effect through credit markets generally.

It has been estimated that the banks would lose $US70 billion if the big credit insurers were downgraded but the secondary effects on credit markets of a major sell-off could also be very unpleasant.

Given the losses already experienced by banks and investors in sub-prime securities, that would have a further destabilising effect on an already wobbling financial system.

Pershing Capital isn’t the only hedge fund with big short positions in the credit insurers but its highly aggressive and public attempt to topple the two biggest of the insurers amid a global credit crisis is brazen – it recalls some of the Gordon Gekko moments of the 1980s.

Ackman even sent copies of his letter to Federal Reserve chairman Ben Bernanke and the superintendent of insurance in New York, Eric Dinallo. Dinallo has been trying to organise a rescue package for the credit insurers, urging the banks to act in their self-interest and inject at least $US15 billion into the sector to avoid another round of write-downs on their sub-prime holdings, while the Fed cut official rates by 125 basis points in a week to try to relieve the pressure on the US financial system.

Ackman has previously forced Target and McDonalds into major restructurings, so cannot be dismissed lightly. He has been stalking MBIA for five years and can now almost taste the massive pay-off from his persistence. The wider systemic cost of success doesn’t appear to concern him.


--------------------------------------------------------------------------------
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[dhukka]

Not a bad summary, but it leaves out the sham that has enabled MBIA to keep it's AAA credit rating. Here is a excerpt from Bill Ackman's letter to Moody's:

Does a company deserve your highest Triple A rating whose stock price has declined 90%, has cut its dividend, is scrambling to raise capital, completed a partial financing at 14% interest (now trading at a 20% yield one week later), has incurred losses massively in excess of its promised zero-loss expectations wiping out more than half of book value, with Berkshire Hathaway as a new competitor, having lost access to its only liquidity facility, and having concealed material information from the marketplace?

Click here for the full letter. It's farcical what the credit rating agencies have been getting away with. They need to have their cosy little cartel broken up.

 

[dhukka]

Interview with Bob Shiller on the "Historic Housing Bust." A couple of interesting points to note. Shiller says if the US government doesn't get their policy decisions right it could lead to a severe recession (no surprises there for some) and that the proposed fiscal stimulus package will not be enough.

 

[ithatheekret]

I haven't listened to the U-Tube thingo Dhukka , ever actually , first visit to facebook the other day .

But I use the Case - Schiller index numbers as a main part of one set of equations . It will show sentiment towards home improvements etc etc and a few more indusries attached . I must admit I don't the "R" word is appropriate , although the mention severe suits . But I think they should have gone one further and comeout and relayed what really happened after each housing bust prior and can't see why it wouldn't now . The financial sectors getting caught out really has only exacerbated the markets problems .

It has now got a credibility problem to clean up , for global investors with risk appetite , that's largely Asia and US instos and of course some of that hot money it's easier to bring money home to play with quickly , as in the US , the Asian part is to get returns of a currency that has appreciated nearly 14% over a short period of years , not worth much really , but it's a reserve currency and fear sends players back to reserve currencies , when they been out playing the field , the appreciation hitting the carry trade forces them to look deeper than just high yield bonds etc. It not just about Japanese houswives either , you and I both know that , half of Europe has jumped on the yield wagon on mortgages and personal loans , now seeing that great plan ruined by a period of unwinding , a forced period of re-participation and probably a lot more pain ahead if the Yen ever got to reach it's true technical level ( not fundamental ) . The will be a series of further mortgage problems globally , my bet is Schiller knows this too . Wait for the Swissie to break a few loans backs , costing borrowers dearly . American mortgages of higher classes are in some Swissies , those mansions are getting expensive to keep , thank heavens movie stars and pop stars have money too burn hey .....

 

[Bushman]

China. The portrait of Mao hangs over every government committee and policy maker. Mao was the proponent of the 'Great Leap Forward', an imhumane process of industrialisation based on the concept that 1b committed socialists could propell rural based China into the stratosphere of industrialisation and the 'real' power that would ensue.

The 'Great Leap Forward' was a crude attempt at awakening the 'sleeping dragon'. Measures included such grandiose plans as the 'Sparrows Campaign' where a decree was made to the agricultural communities to increase grain production by killing sparrows, the logic being that these feathered creatures consumed grains and thus reduced yields. The effect of this measure was that entomological pests, whose natural predator was the sparrow, descended in biblical proportions in the ensuing years, wiping out much of the grain crops and leading to a famine that killed an estimated 38 million.

This campaign, and it's henious consequences, always comes to mind when I hear analysis (both professional and amateur) on China. The wily Chinese socialists know the power of 1 billion expendable souls. So what is the power of 1 billion plus middle class souls? I cannot see how anyone can simply look at Chinese growth, which admittedly has taken a piggy back ride on the back of the US consumer, and not consider Chinese history. China is set to be the most important economy in the world. Much like America just earlier in the cycle, it is driven by ideology and its sheer weight of numbers. The Sparrows campaign tells me the Chinese will stop at nothing to achieve this. I agree their financial system is crude and that there are likely to be shocks along the way. But to suppose that an US recession will forever derail a grandiose plan of building a successful Socialist empire is fanciful to me. The fact that it is being built using the building blocks of a gorged and satisfied middle class is amusing but socialism failed, so the use of capitalist tools of control are seen to be justified.

So yes I believe in eventual decoupling but only because I am a sinophile and a numbers man. I also believe that a satisfied middle class leads to excesses in the system and the implosion of Empires. George W Bush is a modern day incarnation of this time repeated trend. China too will fall one day but not in my lifetime.

As always, my 5c worth. The internet means we are all entitled to our amateurish rants. For what it is worth, I do not believe any posters on this forum are arrogant. It is great to get such a divergent range of opinions backed up by a variety of 'facts & figures' that are widely and impeccably sourced. It is always enjoyable locking horns with this motley ASF crue.

Anyway I am off to the pub for a parma and a beer. Good balmy night for it here in Melbourne.

 

[sassa]

As always, my 5c worth. The internet means we are all entitled to our amateurish rants. For what it is worth, I do not believe any posters on this forum are arrogant. It is great to get such a divergent range of opinions backed up by a variety of 'facts & figures' that are widely and impeccably sourced. It is always enjoyable locking horns with this motley ASF crue.

Anyway I am off to the pub for a parma and a beer. Good balmy night for it here in Melbourne.

Bushman,I hope your parma and beer/s were suitably enjoyed.It was wonderful to read your quote and I know it must come from a person who
truly appreciates human differences and their reasons for being a member of this forum.

 

[Judd]

It is always enjoyable locking horns with this motley ASF crue.

Maybe but have this ASF lot sold 45 million albums, had numerous brushes with the law, laid beautiful women and snorted cocaine every night?

 

[Bushman]

Maybe but have this ASF lot sold 45 million albums, had numerous brushes with the law, laid beautiful women and snorted cocaine every night?

LOL. I've had a go at the rock 'n roll lifestyle in my misspent youth but had a credibility problem calling myself the 'Rock 'N Roll Accountant'.

Sassa - thank you for your kind words!!

 

[dhukka]

I haven't listened to the U-Tube thingo Dhukka , ever actually , first visit to facebook the other day .

Don't worry Youtube won't bite, just click the arrow, and it will play right here at ASF , no need to go to Youtube. I'm a bit of a luddite myself, facebook, WTF is that?

But I use the Case - Schiller index numbers as a main part of one set of equations . It will show sentiment towards home improvements etc etc and a few more indusries attached . I must admit I don't the "R" word is appropriate , although the mention severe suits . But I think they should have gone one further and comeout and relayed what really happened after each housing bust prior and can't see why it wouldn't now . The financial sectors getting caught out really has only exacerbated the markets problems .

I'm a pretty simple guy, I look at the Case Shiller index (below) and think, it is reaching lows never seen in it's 20 year history. Not only that, those year over year declines are accelerating. Now that won't continue, eventually the year over year declines will u-turn like they did back in 91. US home prices started to fall in 1990 (earlier in some areas) and did not resume consistent year over year increases until late 1994. So I think to myself, seeing how the current housing bubble is the worst since WWII and home prices fell for 4 or 5 consecutive years during the early 90's, why would we expect US home prices to turn around anytime soon?

It has now got a credibility problem to clean up , for global investors with risk appetite , that's largely Asia and US instos and of course some of that hot money it's easier to bring money home to play with quickly , as in the US , the Asian part is to get returns of a currency that has appreciated nearly 14% over a short period of years , not worth much really , but it's a reserve currency and fear sends players back to reserve currencies , when they been out playing the field , the appreciation hitting the carry trade forces them to look deeper than just high yield bonds etc. It not just about Japanese houswives either , you and I both know that , half of Europe has jumped on the yield wagon on mortgages and personal loans , now seeing that great plan ruined by a period of unwinding , a forced period of re-participation and probably a lot more pain ahead if the Yen ever got to reach it's true technical level ( not fundamental ) . The will be a series of further mortgage problems globally , my bet is Schiller knows this too . Wait for the Swissie to break a few loans backs , costing borrowers dearly . American mortgages of higher classes are in some Swissies , those mansions are getting expensive to keep , thank heavens movie stars and pop stars have money too burn hey .....

Couldn't agree more, I know first hand it's not just Japanese house wives, my Japanese girlfriend was even having a dabble! I hear the rose colored glasses crowd saying "yes but the Fed has slashed interest rates making it very attractive for home buyers." If only it were that simple, some good news with LIBOR coming down. Fannie Mae can now load up on mortgages up to 700k, never mind that they are technically bankrupt.

I think this attempt at reflation is ultimately going to fail because you have a large swathe of insolvent households and an increasing number of insolvent firms. That's what many don't understand, liquidity is the smaller problem,, solvency the much bigger one.

 

[Uncle Festivus]

When the money men on the inside start selling........?

- NEW YORK (AP) - The chief financial officer of homebuilder KB Home exercised options for and sold 80,000 shares of stock, according to a Securities and Exchange Commission filing Friday.
In a Form 4 filed with the SEC, Domenico Cecere reported he exercised options at $21.51 apiece and sold the shares for $27.51 apiece on Jan. 31.

- Homebuilders, which in recent months had come off their lows after investors fled housing-related investments, lost ground Monday. Lennar Corp. fell $1.28, or 6 percent, to $20.12, while KB Home fell $2.42, or 8.4 percent, to $26.33.

- Residential construction dropped in the fourth quarter by the most in 26 years, making the housing recession the worst since 1982.
The National Association of Realtors will report on Feb.7 that its index of pending home sales decreased 1 percent, after falling 2.6 percent in November, according to the Bloomberg survey median.
Consumer spending may provide less support to the economy as property values fall and the unemployment increases.