http://finance.yahoo.com/q/it?s=YHOO Terry Semel between Aug and Oct 2007 sold nearly $100 M of YHO stock! must be nice to be insider......bag holder lemmings bought it...now look at it!
D
Wednesday, January 30, 2008
20 YEARS IN THE MAKING
http://prudentbear.com/index.php/CreditBubbleBulletinHome
Doug Noland's astutue credit bubble report, conclusion scroll down to above title at end of report.
Big Ben on the m0und this PM, big deal, I suspect when FED Out of way so will excuses for buying thism kt.
D
Doug Noland's astutue credit bubble report, conclusion scroll down to above title at end of report.
Big Ben on the m0und this PM, big deal, I suspect when FED Out of way so will excuses for buying thism kt.
D
Tuesday, January 29, 2008
BALTIC DRY INDEX SINKING LIKE TITANIC
BDI peaked about same time the stock market did. From WickpediaBaltic Dry Index
From Wikipedia, the free encyclopedia
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The Baltic Dry Index is an index covering dry bulk shipping rates and managed by the Baltic Exchange in London. According to Baltic Exchange, the index provides:
an assessment of the price of moving the major raw materials by sea. Taking in 40 shipping routes measured on a timecharter and voyage basis, the index covers supramax, panamax and capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain.
The index is made up of an average of the Baltic Supramax, Panamax and Capesize indices. These indices are based on professional assessments made by a panel of international shipbroking companies.
Since the cost of shipping varies with the amount of cargo that is being shipped (supply and demand), and since dry bulk is usually goods that are precursors to production (like cement, coal, and iron ore), the index is also seen as a good economic indicator of future economic growth and production.
It is my own opinion that ALL we are seeing is a bear market bounce, until proven otherwise.
Fed tomorrow, WHO doesnt think they will pander to markets demand, they dictate nothing.
50 basis is what is being DEMANDED, IMHO anything less will be sold.
VLO and other refiners are bouncing, oversold restaurants have bounced like Darden, and Calif Pizza Kitchen, Home Builders and some banks catching bids along with commodities.
We are nearing resistance in the SPX of which the 1370 -1380 are should not be broken this time around.....I would reasess if it is.
Duratek
Saturday, January 26, 2008
SYSTEMIC FINANCIAL ARMAGEDON
NOLAND:
I’ll stick with the view that an unfolding breakdown in various trading models and hedging strategies is at risk of precipitating a crisis of confidence for the leveraged speculating community. I suspect hedge fund trading was much more responsible for chaotic global securities markets this week than a rogue French equities trader. There is, unfortunately, little prospect for markets to calm down anytime soon. There is no quick or easy fix to any of the myriad current problems – seized up securitization markets, sinking housing prices, faltering bond insurers, counterparty issues, a crisis in confidence for “Wall Street finance”, or acute economic vulnerability - to name only the most obvious. Again, they’ve been More than 20 Years in the Making.
Financial Economists Roundtable
Statement on Derivative Markets and Financial Risk
September 26, 1994 *****(YES 1994 !!!!!!!!!!!!)
This concern, no doubt, partly stems from the sheer size of derivatives markets in general and to the ballooning OTC derivatives market in particular. The General Accounting Office (GAO) reports that at year-end 1992 the notional value of outstanding futures, forward, options and swap contracts alone totalled more than $17 trillion, up from $7 trillion in 1989. Another reason for concern about derivatives is the seemingly impenetrable complexity of some of these instruments. This complexity has created an aura of mystery about derivatives markets, and has fostered a fear that a miscalculation by someone, or an undetected but vital flaw in the market or regulatory system, could trigger failures cascading into a financial market meltdown.
The GAO Report, the latest of these, contains thmost provocative policy recommendations.
The GAO Report recommends additional regulation of both derivatives dealers and end-users of derivatives. The study concludes that OTC derivatives could pose a systemic risk to financial markets if a major OTC dealer were to default on its counterparty (or contractual) obligations. It also finds that certain "unregulated" dealers, such as those affiliated with securities and insurance firms, have created a potentially dangerous "regulatory gap" that needs closing.
http://www.freemarketnews.com/Analysis/178/3889/2006-02-22.asp?nid=3889&wid=178
First, the triggering event or events cause sharp and sudden declines in one or more classes of asset prices. The decline in asset prices is sufficiently steep to raise questions about the creditworthiness of major counterparties or institutions such that the analytical distinction between market risk and credit risk blurs as market risk and credit risk feed on each other.
Second, the combination of falling asset prices and the erosion of creditworthiness causes market participants to commence risk mitigation efforts such as position liquidations which - while perfectly reasonable at the micro level - add to macro pressures on asset prices wjich in turn trigger the initial evaporation of market liquidity for one or more classes of assets. The evaporation of asset liquidity aggravates both market and credit risk and begins to call into question balance sheet liquidity for some institutions. Investor position liquidations intensify these pressures.
Third, in these circumstances, once seemingly generous amounts of margin or collateral are rapidly called into question, thereby dramatically elevating credit concerns. The escalation of credit concerns further influences the defensive behavior of financial market participants, all of which acts to reinforce the cumulating the adverse market dynamics. Hence a financial crisis with systemic risks is at hand.
http://www.safehaven.com/article-4096.htm
In truth, while no one can say for certain when the day of reckoning will arrive, it seems a good bet that if some of those who are in a position to know are worried about the derivatives market and the associated systemic risks, you should be, too.
One of the difficulties people have with understanding this particular disaster-in-the making is its complexity and seeming irrelevance to their day-to-day lives. Unlike an earthquake or a car bomb, a derivatives-inspired financial meltdown won't to lead to leveled buildings or bloodshed, at least initially. Yet, the toxic fallout will likely be as painful, long-lasting, and difficult to overcome as any of the more widely discussed scenarios.
What makes the coming debacle even more difficult to comprehend is that it stems from a long chain of seemingly benign interactions and financial relationships. Indeed, despite the fact that the modern derivatives market has flourished because of big money, complex technology, and highly-paid talent, the culprit when it all goes wrong is likely to be simple: human emotions -- fear and greed -- run amok.
For most people, the term "derivative" has little meaning. In many cases, the mere mention of the word is enough to cause eyes to glaze over. That is partly because these financial instruments are somewhat ethereal. They are, in other words, largely created out of thin air. Practically speaking, they have no value in and of themselves.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1303
According to Ramaswamy, it is unlikely that trouble related to a single company like Delphi will spill over to the broad markets, but he said it would be worrisome if a large number of companies ran into serious difficulties. And Rosen noted there is a lot of dry tinder on the forest floor -- a mushrooming issuance of low-rated, high-risk debt. "I will be shocked if we don't see a significant rise in default rates over the next 18 months," he said.
If that happens, it will be easier to determine whether credit derivatives are making the world a safer place -- or a more dangerous one.
OTC and exchange-traded
Broadly speaking there are two distinct groups of derivative contracts, which are distinguished by the way they are traded in market:
Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivatives market is huge. According to the Bank for International Settlements, the total outstanding notional amount is USD 516 trillion (as of June 2007)[1].
Exchange-traded derivatives (ETD) are those derivatives products that are traded via specialized Derivatives exchanges or other exchanges. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin from both sides of the trade to act as a guarantee. The world's largest[2] derivatives exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex (which lists a wide range of European products such as interest rate & index products), and CME Group (made up of the 2007 merger of the Chicago Mercantile Exchange and the Chicago Board of Trade). According to BIS, the combined turnover in the world's derivatives exchanges totalled USD 344 trillion during Q4 2005. Some types of derivative instruments also may trade on traditional exchanges. For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance Rights, Cash xPRTs(tm) and various other instruments that essentially consist of a complex set of options bundled into a simple package are routinely listed on equity exchanges. Like other derivatives, these publicly traded derivatives provide investors access to risk/reward and volatility characteristics that, while related to an underlying commodity, nonetheless are distinctive.
THERE IT IS
Duratek
I’ll stick with the view that an unfolding breakdown in various trading models and hedging strategies is at risk of precipitating a crisis of confidence for the leveraged speculating community. I suspect hedge fund trading was much more responsible for chaotic global securities markets this week than a rogue French equities trader. There is, unfortunately, little prospect for markets to calm down anytime soon. There is no quick or easy fix to any of the myriad current problems – seized up securitization markets, sinking housing prices, faltering bond insurers, counterparty issues, a crisis in confidence for “Wall Street finance”, or acute economic vulnerability - to name only the most obvious. Again, they’ve been More than 20 Years in the Making.
Financial Economists Roundtable
Statement on Derivative Markets and Financial Risk
September 26, 1994 *****(YES 1994 !!!!!!!!!!!!)
This concern, no doubt, partly stems from the sheer size of derivatives markets in general and to the ballooning OTC derivatives market in particular. The General Accounting Office (GAO) reports that at year-end 1992 the notional value of outstanding futures, forward, options and swap contracts alone totalled more than $17 trillion, up from $7 trillion in 1989. Another reason for concern about derivatives is the seemingly impenetrable complexity of some of these instruments. This complexity has created an aura of mystery about derivatives markets, and has fostered a fear that a miscalculation by someone, or an undetected but vital flaw in the market or regulatory system, could trigger failures cascading into a financial market meltdown.
The GAO Report, the latest of these, contains thmost provocative policy recommendations.
The GAO Report recommends additional regulation of both derivatives dealers and end-users of derivatives. The study concludes that OTC derivatives could pose a systemic risk to financial markets if a major OTC dealer were to default on its counterparty (or contractual) obligations. It also finds that certain "unregulated" dealers, such as those affiliated with securities and insurance firms, have created a potentially dangerous "regulatory gap" that needs closing.
http://www.freemarketnews.com/Analysis/178/3889/2006-02-22.asp?nid=3889&wid=178
First, the triggering event or events cause sharp and sudden declines in one or more classes of asset prices. The decline in asset prices is sufficiently steep to raise questions about the creditworthiness of major counterparties or institutions such that the analytical distinction between market risk and credit risk blurs as market risk and credit risk feed on each other.
Second, the combination of falling asset prices and the erosion of creditworthiness causes market participants to commence risk mitigation efforts such as position liquidations which - while perfectly reasonable at the micro level - add to macro pressures on asset prices wjich in turn trigger the initial evaporation of market liquidity for one or more classes of assets. The evaporation of asset liquidity aggravates both market and credit risk and begins to call into question balance sheet liquidity for some institutions. Investor position liquidations intensify these pressures.
Third, in these circumstances, once seemingly generous amounts of margin or collateral are rapidly called into question, thereby dramatically elevating credit concerns. The escalation of credit concerns further influences the defensive behavior of financial market participants, all of which acts to reinforce the cumulating the adverse market dynamics. Hence a financial crisis with systemic risks is at hand.
http://www.safehaven.com/article-4096.htm
In truth, while no one can say for certain when the day of reckoning will arrive, it seems a good bet that if some of those who are in a position to know are worried about the derivatives market and the associated systemic risks, you should be, too.
One of the difficulties people have with understanding this particular disaster-in-the making is its complexity and seeming irrelevance to their day-to-day lives. Unlike an earthquake or a car bomb, a derivatives-inspired financial meltdown won't to lead to leveled buildings or bloodshed, at least initially. Yet, the toxic fallout will likely be as painful, long-lasting, and difficult to overcome as any of the more widely discussed scenarios.
What makes the coming debacle even more difficult to comprehend is that it stems from a long chain of seemingly benign interactions and financial relationships. Indeed, despite the fact that the modern derivatives market has flourished because of big money, complex technology, and highly-paid talent, the culprit when it all goes wrong is likely to be simple: human emotions -- fear and greed -- run amok.
For most people, the term "derivative" has little meaning. In many cases, the mere mention of the word is enough to cause eyes to glaze over. That is partly because these financial instruments are somewhat ethereal. They are, in other words, largely created out of thin air. Practically speaking, they have no value in and of themselves.
http://knowledge.wharton.upenn.edu/article.cfm?articleid=1303
According to Ramaswamy, it is unlikely that trouble related to a single company like Delphi will spill over to the broad markets, but he said it would be worrisome if a large number of companies ran into serious difficulties. And Rosen noted there is a lot of dry tinder on the forest floor -- a mushrooming issuance of low-rated, high-risk debt. "I will be shocked if we don't see a significant rise in default rates over the next 18 months," he said.
If that happens, it will be easier to determine whether credit derivatives are making the world a safer place -- or a more dangerous one.
OTC and exchange-traded
Broadly speaking there are two distinct groups of derivative contracts, which are distinguished by the way they are traded in market:
Over-the-counter (OTC) derivatives are contracts that are traded (and privately negotiated) directly between two parties, without going through an exchange or other intermediary. Products such as swaps, forward rate agreements, and exotic options are almost always traded in this way. The OTC derivatives market is huge. According to the Bank for International Settlements, the total outstanding notional amount is USD 516 trillion (as of June 2007)[1].
Exchange-traded derivatives (ETD) are those derivatives products that are traded via specialized Derivatives exchanges or other exchanges. A derivatives exchange acts as an intermediary to all related transactions, and takes Initial margin from both sides of the trade to act as a guarantee. The world's largest[2] derivatives exchanges (by number of transactions) are the Korea Exchange (which lists KOSPI Index Futures & Options), Eurex (which lists a wide range of European products such as interest rate & index products), and CME Group (made up of the 2007 merger of the Chicago Mercantile Exchange and the Chicago Board of Trade). According to BIS, the combined turnover in the world's derivatives exchanges totalled USD 344 trillion during Q4 2005. Some types of derivative instruments also may trade on traditional exchanges. For instance, hybrid instruments such as convertible bonds and/or convertible preferred may be listed on stock or bond exchanges. Also, warrants (or "rights") may be listed on equity exchanges. Performance Rights, Cash xPRTs(tm) and various other instruments that essentially consist of a complex set of options bundled into a simple package are routinely listed on equity exchanges. Like other derivatives, these publicly traded derivatives provide investors access to risk/reward and volatility characteristics that, while related to an underlying commodity, nonetheless are distinctive.
THERE IT IS
Duratek
Friday, January 25, 2008
GOODBYE BULL MKT
http://market-ticker.denninger.net/2008/01/goodbye-bull-market.html super video! well done Denninger
DON'T BE DUPED!!!! OPEN YOUR EYES, WE are being FUCKED WITH! And SOLD OUT!
D
DON'T BE DUPED!!!! OPEN YOUR EYES, WE are being FUCKED WITH! And SOLD OUT!
D
Wednesday, January 23, 2008
CRAMER UNDRESSED AS CARNIVAL BARKER!!!!!
http://www.youtube.com/watch?v=SGkrNJ19DSU MUST SEE! LMAO!!!! Thank you RIck Santelli. WHAT IDIOT LEMMING FOLLOWS THIS JERK? OE CNBC
Duratek
Duratek
Monday, January 21, 2008
"IT'S THE END OF THE WORLD AS WE KNOW IT"
Foreign markets crashing and burning this MLK day, Tuesday will be awful on the US exchanges, maybe even crash like.
Those who insure against losses (AMBAC) are bankrupt themselves....leaving maybe $1 Trillion up in the air.The financial system is seizing up and there is nothing the FED (reason for problem)or Bush can do, and you dont want to be LONG here or standing in the way.....you just want to survive and protect what you got!!!
http://economicrot.blogspot.com/2007/12/kondratieff-winter.html Great blog for Kondratief background
http://www.itulip.com/forums/archive/index.php?t-85.html talk on derivitives
http://www.cross-currents.net/charts.htm great unwinding
http://www.contraryinvestor.com/mo.htm JAN ISSUE
Duratek
Those who insure against losses (AMBAC) are bankrupt themselves....leaving maybe $1 Trillion up in the air.The financial system is seizing up and there is nothing the FED (reason for problem)or Bush can do, and you dont want to be LONG here or standing in the way.....you just want to survive and protect what you got!!!
http://economicrot.blogspot.com/2007/12/kondratieff-winter.html Great blog for Kondratief background
http://www.itulip.com/forums/archive/index.php?t-85.html talk on derivitives
http://www.cross-currents.net/charts.htm great unwinding
http://www.contraryinvestor.com/mo.htm JAN ISSUE
Duratek
Thursday, January 17, 2008
THE COMING BEARISH STORM
@@@CLICK CHART TO ENLARGEIt's different this time folks IMHO, I think its telling this is the worst start to a year in HISTORY of the stock market.
I am in 100% CASH, and I'll wait til the smoke clears. BEN BOMBED
I was warning in DECEMBER and long before that, I only pray someone was listening
> http://www.cnbc.com/id/22706231/site/14081545 Cramers rant
D
Tuesday, January 15, 2008
LOOK IN THE MIRROR, IS THAT FUR YOU SEE?
click to enlarge*
This thing is snowballing, rally it might, it has tried, We are in BEAR territory my friends
D
Monday, January 14, 2008
TIME TO BUY? TIME TO HIDE?
http://www.cnbc.com/id/15840232?video=623459009&play=1 must see video Peter Thiel CNBC interview
http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm I do not like this index is falling signs of world economy slowing?
Mortgage Crisis to Corporate Debt Crisis:
http://prudentbear.com/index.php/CreditBubbleBulletinHome
The financial system fell under intense stress Wednesday. The epicenter of the crisis was in the “Credit default swap,” or CDS market, and “contagion” fears were building quite a head of steam. The pricing for Countrywide Financial default protection (5-yr CDS) surged a huge 469 basis points to a record 1,610 bps (it would cost $16,100 annually for 5-yrs to insure $100,000 of Countrywide debt against default). For perspective, Countrywide default protection was priced at a mere 30 bps one year ago and didn’t even trade above 600 during the subprime crisis this past summer and autumn. Rescap CDS surged an astounding 1,360 bps Wednesday to 3,746. This was up from the year earlier 95 bps. MBIA CDS increased 85bps to 849 (year ago 87) and Ambac 89 bps to 841 (year ago 70bps). Washington Mutual CDS increased 61 bps to 611 (year ago 54bps). Many indices of corporate debt spreads rose to their widest levels in years.
In the old Greenspan days, Wednesday’s circumstance would have most-likely beckoned a “surprise” inter-meeting Fed rate cut. There were rumors for as much. And while chairman Bernanke did not ease rates, Thursday morning he provided the markets the next best thing: “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” Bernanke didn’t plan on rambling down the Greenspan path. Actually, I believe he and other members of the FOMC would have preferred to avoid it – resist responding directly to Wall Street pleas for aggressive Federal Reserve accommodation. “Let the chips fall…”, as they say. But the Fed now knows what many on Wall Street have understood since this summer: The U.S. Credit system and economy are extraordinarily fragile and the Fed simply will not risk sitting back and watching an implosion without resorting to extreme measures. If nothing else, inter-meeting “surprise” rates cuts are back on the table. Wall Street must be quite relieved to know this mechanism is available in the event market selling pressure turns unwieldy.
This week brought back memories of the 2002 Debt Crisis. Weighed down by the telecom debt collapse, Enron, and other frauds, intensifying Corporate Debt problems late in the year were at risk of smothering the consumer sector. The nexus at the time was the auto finance subsidiaries and Household International. Consumer finance Corporate Debt spreads were widening significantly, and Household, in particular, was facing a liquidity crisis in early November. The failure of a major financial institution at that juncture would have created a major systemic issue.
Well, on November 14 HSBC agreed to buy (bailout) Household International. A week later, FOMC governor Bernanke gave his now (in)famous “Deflation: Making sure ‘it’ doesn't happen here” speech. With rates at 1.0% (until June 2004!), the Fed was now publicly discussing “electronic printing presses,” “helicopters” and other “unconventional measures.” Wall Street was trumpeting “deflation” risk. Sure enough, the crisis was soon resolved and Wall Street was emboldened to perpetuate history’s greatest Credit inflation and Mortgage fiasco.
The tables have been turned these days, with the Mortgage Crisis now evolving into a full-fledged Corporate Debt Crisis. The key nexus this time around has been Wall Street “structured finance,” especially as it relates to the major Mortgage lenders (certainly including Countrywide, Rescap/GMAC, and Washington Mutual) and the “financial guarantors (in particular, MBIA and Ambac). The unfolding Mortgage implosion has destroyed the value of innumerable “structured products;” has annihilated legions of mortgage companies; has impaired scores of major lenders; has severely battered general market confidence; and this week was in the process of taking down a few huge mortgage companies. Institutions with enormous liabilities to the “money,” “repo,” securitization, and derivative markets – not to mention large borrowings from the FHLB system - were in serious jeopardy. The risk of a domino implosion in the Credit default market and the “financial guarantor” industry had become a very real possibility. System Risk Intermediation was in peril.
The Fed responded with what the market has interpreted as a promise of aggressive rate cuts, while Bank of America has apparently for now resolved the Countrywide debt issue. Citigroup’s stock rallied on rumors of a major new investment from Prince Alwaleed and others. Washington Mutual’s stock price rallied sharply on rumors of merger talks with JPMorgan. Countrywide’s stock surged as CDS prices collapsed, a dynamic sure to have caused considerable grief to those shorting the stock to hedge against default protection written.
Curiously, the general market took little comfort from developments. A case can be made that the rally in CDS and financial stocks was destabilizing for much of the leveraged speculating community (including “market neutral” and “quants”) keen to short financial stocks against (now sinking) technology shares. Overall, the market was hammered, while MBIA and Ambac CDS prices barely budged from record levels. Friday's market was one of those that surely caused havoc for numerous sophisticated trading strategies. And it is worth noting that an index of Junk bond spreads to Treasuries actually widened an additional 4 basis points to 603 bps, rising this week above 600 for the first time since – not coincidently - the 2002 Debt Crisis.
But the general environment is nothing like 2002, and I don’t expect Fed words and actions – in concert with financial bailouts - to have similar effects. For one, 13% household mortgage debt growth in 2002 provided powerful financial and economic stimulus that will not be forthcoming in 2008. With consumer Credit relatively stable, 2002’s Corporate Debt Crisis was not a serious systemic issue. Moreover, “Wall Street finance” was in an aggressive expansionary mode and the global banking community was developing quite a hankering to participate in the U.S. Credit Bubble. The economy was emerging from a shallow recession.
The world is a much different place today. The Mortgage Finance Bubble is a bust, Wall Street finance is imploding, and foreign financial institutions are keen to cut and run from the business of providing U.S. Credit. Countrywide’s mortgage problems will be absorbed – along with so many other risks – by our own highly vulnerable domestic banking system. Worse yet, the economy is quickly succumbing to recessionary forces. With a high degree of confidence we can proclaim that the Mortgage Crisis has now evolved into a Corporate Debt Crisis – and this crisis will not be resolved anytime soon – by rates, by helicopters, or by bailouts.
Unlike 2002, today’s Credit crisis is systemic. Consumer and financial sector fragilities – the heart of our Credit system - are now impaired to the point of imperiling the capacity of the Credit system to finance business spending and intermediate corporate lending risk. To be sure, prospects for a faltering U.S. consumer sector, massive financial sector Credit losses, and an imminent economic downturn have quite negative ramifications for business lending and valuations. In particular, unfolding dislocation in the CDS and Credit “insurance” markets will severely restrict Credit Availability for small, medium and large firms – especially those less than top-tier borrowers.
I’ll go further and suggest that a severe tightening of Financial Conditions has abruptly made many business borrowing plans unviable; many a balance sheet and debt load untenable; and vast numbers of business strategies - crafted in altogether different financial and economic times - much less viable. Some companies will make the necessary adjustments and many will not. The unfolding backdrop definitely makes a lot of stock buyback plans imprudent and growth strategies highly risky. The aggressive risk-taking business manager – having previously capitalized on the protracted boom - will now be at a similar handicap to that which afflicted the zealous home buyer and lender.
For those searching for explanations behind the stock market’s dismal start to the New Year, I suggest contemplating the many serious ramifications of the Mortgage Crisis having now evolved into an Incurable Corporate Debt Crisis. This week, the Bursting Credit Bubble passed another significant inflection point – one perhaps subtle but with major economic consequences.
http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm I do not like this index is falling signs of world economy slowing?
Mortgage Crisis to Corporate Debt Crisis:
http://prudentbear.com/index.php/CreditBubbleBulletinHome
The financial system fell under intense stress Wednesday. The epicenter of the crisis was in the “Credit default swap,” or CDS market, and “contagion” fears were building quite a head of steam. The pricing for Countrywide Financial default protection (5-yr CDS) surged a huge 469 basis points to a record 1,610 bps (it would cost $16,100 annually for 5-yrs to insure $100,000 of Countrywide debt against default). For perspective, Countrywide default protection was priced at a mere 30 bps one year ago and didn’t even trade above 600 during the subprime crisis this past summer and autumn. Rescap CDS surged an astounding 1,360 bps Wednesday to 3,746. This was up from the year earlier 95 bps. MBIA CDS increased 85bps to 849 (year ago 87) and Ambac 89 bps to 841 (year ago 70bps). Washington Mutual CDS increased 61 bps to 611 (year ago 54bps). Many indices of corporate debt spreads rose to their widest levels in years.
In the old Greenspan days, Wednesday’s circumstance would have most-likely beckoned a “surprise” inter-meeting Fed rate cut. There were rumors for as much. And while chairman Bernanke did not ease rates, Thursday morning he provided the markets the next best thing: “We stand ready to take substantive additional action as needed to support growth and to provide adequate insurance against downside risks.” Bernanke didn’t plan on rambling down the Greenspan path. Actually, I believe he and other members of the FOMC would have preferred to avoid it – resist responding directly to Wall Street pleas for aggressive Federal Reserve accommodation. “Let the chips fall…”, as they say. But the Fed now knows what many on Wall Street have understood since this summer: The U.S. Credit system and economy are extraordinarily fragile and the Fed simply will not risk sitting back and watching an implosion without resorting to extreme measures. If nothing else, inter-meeting “surprise” rates cuts are back on the table. Wall Street must be quite relieved to know this mechanism is available in the event market selling pressure turns unwieldy.
This week brought back memories of the 2002 Debt Crisis. Weighed down by the telecom debt collapse, Enron, and other frauds, intensifying Corporate Debt problems late in the year were at risk of smothering the consumer sector. The nexus at the time was the auto finance subsidiaries and Household International. Consumer finance Corporate Debt spreads were widening significantly, and Household, in particular, was facing a liquidity crisis in early November. The failure of a major financial institution at that juncture would have created a major systemic issue.
Well, on November 14 HSBC agreed to buy (bailout) Household International. A week later, FOMC governor Bernanke gave his now (in)famous “Deflation: Making sure ‘it’ doesn't happen here” speech. With rates at 1.0% (until June 2004!), the Fed was now publicly discussing “electronic printing presses,” “helicopters” and other “unconventional measures.” Wall Street was trumpeting “deflation” risk. Sure enough, the crisis was soon resolved and Wall Street was emboldened to perpetuate history’s greatest Credit inflation and Mortgage fiasco.
The tables have been turned these days, with the Mortgage Crisis now evolving into a full-fledged Corporate Debt Crisis. The key nexus this time around has been Wall Street “structured finance,” especially as it relates to the major Mortgage lenders (certainly including Countrywide, Rescap/GMAC, and Washington Mutual) and the “financial guarantors (in particular, MBIA and Ambac). The unfolding Mortgage implosion has destroyed the value of innumerable “structured products;” has annihilated legions of mortgage companies; has impaired scores of major lenders; has severely battered general market confidence; and this week was in the process of taking down a few huge mortgage companies. Institutions with enormous liabilities to the “money,” “repo,” securitization, and derivative markets – not to mention large borrowings from the FHLB system - were in serious jeopardy. The risk of a domino implosion in the Credit default market and the “financial guarantor” industry had become a very real possibility. System Risk Intermediation was in peril.
The Fed responded with what the market has interpreted as a promise of aggressive rate cuts, while Bank of America has apparently for now resolved the Countrywide debt issue. Citigroup’s stock rallied on rumors of a major new investment from Prince Alwaleed and others. Washington Mutual’s stock price rallied sharply on rumors of merger talks with JPMorgan. Countrywide’s stock surged as CDS prices collapsed, a dynamic sure to have caused considerable grief to those shorting the stock to hedge against default protection written.
Curiously, the general market took little comfort from developments. A case can be made that the rally in CDS and financial stocks was destabilizing for much of the leveraged speculating community (including “market neutral” and “quants”) keen to short financial stocks against (now sinking) technology shares. Overall, the market was hammered, while MBIA and Ambac CDS prices barely budged from record levels. Friday's market was one of those that surely caused havoc for numerous sophisticated trading strategies. And it is worth noting that an index of Junk bond spreads to Treasuries actually widened an additional 4 basis points to 603 bps, rising this week above 600 for the first time since – not coincidently - the 2002 Debt Crisis.
But the general environment is nothing like 2002, and I don’t expect Fed words and actions – in concert with financial bailouts - to have similar effects. For one, 13% household mortgage debt growth in 2002 provided powerful financial and economic stimulus that will not be forthcoming in 2008. With consumer Credit relatively stable, 2002’s Corporate Debt Crisis was not a serious systemic issue. Moreover, “Wall Street finance” was in an aggressive expansionary mode and the global banking community was developing quite a hankering to participate in the U.S. Credit Bubble. The economy was emerging from a shallow recession.
The world is a much different place today. The Mortgage Finance Bubble is a bust, Wall Street finance is imploding, and foreign financial institutions are keen to cut and run from the business of providing U.S. Credit. Countrywide’s mortgage problems will be absorbed – along with so many other risks – by our own highly vulnerable domestic banking system. Worse yet, the economy is quickly succumbing to recessionary forces. With a high degree of confidence we can proclaim that the Mortgage Crisis has now evolved into a Corporate Debt Crisis – and this crisis will not be resolved anytime soon – by rates, by helicopters, or by bailouts.
Unlike 2002, today’s Credit crisis is systemic. Consumer and financial sector fragilities – the heart of our Credit system - are now impaired to the point of imperiling the capacity of the Credit system to finance business spending and intermediate corporate lending risk. To be sure, prospects for a faltering U.S. consumer sector, massive financial sector Credit losses, and an imminent economic downturn have quite negative ramifications for business lending and valuations. In particular, unfolding dislocation in the CDS and Credit “insurance” markets will severely restrict Credit Availability for small, medium and large firms – especially those less than top-tier borrowers.
I’ll go further and suggest that a severe tightening of Financial Conditions has abruptly made many business borrowing plans unviable; many a balance sheet and debt load untenable; and vast numbers of business strategies - crafted in altogether different financial and economic times - much less viable. Some companies will make the necessary adjustments and many will not. The unfolding backdrop definitely makes a lot of stock buyback plans imprudent and growth strategies highly risky. The aggressive risk-taking business manager – having previously capitalized on the protracted boom - will now be at a similar handicap to that which afflicted the zealous home buyer and lender.
For those searching for explanations behind the stock market’s dismal start to the New Year, I suggest contemplating the many serious ramifications of the Mortgage Crisis having now evolved into an Incurable Corporate Debt Crisis. This week, the Bursting Credit Bubble passed another significant inflection point – one perhaps subtle but with major economic consequences.
Tuesday, January 08, 2008
BROKEBACK MARKET
CLICK CHART TO ENLARGECountrywide (CFC 5.57, -2.07) is preparing to file bankruptcy as soon as this week, according to Bloomberg.com.
Meanwhile, bond insurers got hit after reports indicated Morgan Stanley cut its bond insurers profit outlook. MBIA (MBI 13.46, -4.16) and Ambac (ABK 19.59, -3.89) shed 22% and 17% respectively.
I heard last 1/2 hour (was out of office after 1:30) consumer credit report was out...instead of $8B they put on $15B on credit cards.....sinking...
Just read my back posts to any new reader, you will see why I was worth reading.....and when I said what I said.
We are teetering at the precipice, and oversold hasnt brought the snap back rally expected...I think the market is saying more danger ahead, all laundry not aired, and it appears a BEAR MKT IS UPON US.
Duratek
Sunday, December 16, 2007
FINANCIAL TSUNAMI
CREDIT BUBBLE by DOUG NOLAND
excerpt from above:
CPI may have remained tame, but massive Credit-induced Current Account Deficits and the depreciating dollar set in motion Credit and asset Bubble dynamics in economies around the globe.
Today, the Fed confronts bursting Credit Bubbles throughout Wall Street finance, with resulting acute asset market vulnerability. Yet the unusual structures that permeate the U.S. Financial Sector at this time foster continuing rampant inflationary Credit creation. First of all, “money-like” financial sector liabilities (i.e. agencies, “repos”, and bank/money fund deposits) are proving thus far sufficient to sustain Bubble economy excesses. Second, the global recycling of ongoing massive Current Account Deficits and speculative outflows ensures over-liquefied markets (and artificially low interest rates!), including key U.S. debt instruments such as Treasuries, agencies and other perceived low-risk securities. Bubble dynamics proliferate in the face of a Wall Street bust.
The extreme divergence in liquidity conditions between bursting Bubbles in Wall Street finance and still rapidly inflating Bubbles in “money-like” Financial Sector Liabilities poses both a major quandary and policy dilemma. Aggressive rate cuts would definitely further stoke the powerful Bubbles inflating in GSE, “repo”, money fund, and bank deposit liabilities. Such ongoing Financial Sector Debt expansion would likely sustain destabilizing liquidity outflows to the world, further fueling myriad global bubbles and worsening an already problematic global inflationary backdrop. A rapidly expanding U.S. Financial Sector (with the accompanying heavy risk intermediation burden associated with transforming highly risky loans into perceived safe liabilities) also significantly increases the risk of an eventual catastrophic breakdown in U.S. and international financial systems. Besides, it is likely that lower rates would have only minimal effect on the investor and speculator revulsion that has taken hold throughout the Wall Street securitization marketplace.
Those arguing for a Greenspan-style rate collapse fail to appreciate the extraordinary circumstances and risks that have accumulated from years of Reckless Credit Bubble Excess. The outcry for an audacious policy response to avert a recession is misguided. Importantly, today’s rampant Financial Sector expansion is unsustainable. There are today acute inflationary risks to go with major financial system stability issues. While the dislocation will be substantial, the sooner the Bubble in Financial Credit is reined in the better. We are today in the midst of dangerous “blow-off” excesses in “money-like” Financial Sector liability issuance. Few seem to appreciate that such a circumstance places the stability of the “bedrock” of the entire U.S. and global financial system at considerable risk. Wall Street is clamoring for a rate collapse and bold inflation in “money” to bailout its faltering securitization markets. At this point, this would equate to throwing massive (relatively) good “money” after bad - ensuring that a dreadful situation festers into a historic calamity. The least bad course for central bank policymaking would be to hold the line on rates, while injecting liquidity as necessary as part of a program to check Credit excess and permit the economy to commence its desperately needed adjustment period.
BDI price paid to ship BULK RAW MATERIALS (end up as finished goods) is correcting and has broken uptrend line.
NOV SHEPHERD INV NEWSLETTER Shows relationship of housing to economy at large.
Finiancials added to record SPX profits on way up, and ALL the trickle down industries and companies associated with mortgages, housing, and construction (commodities) and housing is most important component to our economy, as it unravels, what effect to economy do you think it will have? to SPX profits?
MAJOR US AND FOREIGN BANKS are reporting huge loan writedowns, and there is one of many questions remain.....how much more of this BAD PAPER, and OFF RECORD BOOKS BAD INVESTMENT remains?
DECEMBER usually a BULLISH month is running into trouble as we head for XMAS, my research show usually by late Jan market reaches at least a short term high and experiences a correction.
Buying enthusiasm has waned, volume on the rallies has fallen as it rises on the declines. Less and less SECTORS contribute to these same rallies and more and more have fallen into bearish looking trends.
I would argue my friends that the OLD BULL MKT has topped, even as theh FED tries to reflate, long interest rates instead are rising, dollar firms (for now) and in my best estimation we have enterred another Bear Market, where preservation of capital is more important than growing it.
I choose to take a very defensive posture, with little equity exposure, and mostly Treasury Money Market Funds (not the typical unguaranteed MM).
Talk to your financial advisor and look over what you are invested in and decide if their council is sound, voice your concerns if any. I don't think sitting around doing nothing will work out.
One could argue over time the market in last 100 years always goes up, but it also shows during long Bear Markets getting the right allocation can be critical over that period.
JMHO
Duratek
excerpt from above:
CPI may have remained tame, but massive Credit-induced Current Account Deficits and the depreciating dollar set in motion Credit and asset Bubble dynamics in economies around the globe.
Today, the Fed confronts bursting Credit Bubbles throughout Wall Street finance, with resulting acute asset market vulnerability. Yet the unusual structures that permeate the U.S. Financial Sector at this time foster continuing rampant inflationary Credit creation. First of all, “money-like” financial sector liabilities (i.e. agencies, “repos”, and bank/money fund deposits) are proving thus far sufficient to sustain Bubble economy excesses. Second, the global recycling of ongoing massive Current Account Deficits and speculative outflows ensures over-liquefied markets (and artificially low interest rates!), including key U.S. debt instruments such as Treasuries, agencies and other perceived low-risk securities. Bubble dynamics proliferate in the face of a Wall Street bust.
The extreme divergence in liquidity conditions between bursting Bubbles in Wall Street finance and still rapidly inflating Bubbles in “money-like” Financial Sector Liabilities poses both a major quandary and policy dilemma. Aggressive rate cuts would definitely further stoke the powerful Bubbles inflating in GSE, “repo”, money fund, and bank deposit liabilities. Such ongoing Financial Sector Debt expansion would likely sustain destabilizing liquidity outflows to the world, further fueling myriad global bubbles and worsening an already problematic global inflationary backdrop. A rapidly expanding U.S. Financial Sector (with the accompanying heavy risk intermediation burden associated with transforming highly risky loans into perceived safe liabilities) also significantly increases the risk of an eventual catastrophic breakdown in U.S. and international financial systems. Besides, it is likely that lower rates would have only minimal effect on the investor and speculator revulsion that has taken hold throughout the Wall Street securitization marketplace.
Those arguing for a Greenspan-style rate collapse fail to appreciate the extraordinary circumstances and risks that have accumulated from years of Reckless Credit Bubble Excess. The outcry for an audacious policy response to avert a recession is misguided. Importantly, today’s rampant Financial Sector expansion is unsustainable. There are today acute inflationary risks to go with major financial system stability issues. While the dislocation will be substantial, the sooner the Bubble in Financial Credit is reined in the better. We are today in the midst of dangerous “blow-off” excesses in “money-like” Financial Sector liability issuance. Few seem to appreciate that such a circumstance places the stability of the “bedrock” of the entire U.S. and global financial system at considerable risk. Wall Street is clamoring for a rate collapse and bold inflation in “money” to bailout its faltering securitization markets. At this point, this would equate to throwing massive (relatively) good “money” after bad - ensuring that a dreadful situation festers into a historic calamity. The least bad course for central bank policymaking would be to hold the line on rates, while injecting liquidity as necessary as part of a program to check Credit excess and permit the economy to commence its desperately needed adjustment period.
BDI price paid to ship BULK RAW MATERIALS (end up as finished goods) is correcting and has broken uptrend line.
NOV SHEPHERD INV NEWSLETTER Shows relationship of housing to economy at large.
Finiancials added to record SPX profits on way up, and ALL the trickle down industries and companies associated with mortgages, housing, and construction (commodities) and housing is most important component to our economy, as it unravels, what effect to economy do you think it will have? to SPX profits?
MAJOR US AND FOREIGN BANKS are reporting huge loan writedowns, and there is one of many questions remain.....how much more of this BAD PAPER, and OFF RECORD BOOKS BAD INVESTMENT remains?
DECEMBER usually a BULLISH month is running into trouble as we head for XMAS, my research show usually by late Jan market reaches at least a short term high and experiences a correction.
Buying enthusiasm has waned, volume on the rallies has fallen as it rises on the declines. Less and less SECTORS contribute to these same rallies and more and more have fallen into bearish looking trends.
I would argue my friends that the OLD BULL MKT has topped, even as theh FED tries to reflate, long interest rates instead are rising, dollar firms (for now) and in my best estimation we have enterred another Bear Market, where preservation of capital is more important than growing it.
I choose to take a very defensive posture, with little equity exposure, and mostly Treasury Money Market Funds (not the typical unguaranteed MM).
Talk to your financial advisor and look over what you are invested in and decide if their council is sound, voice your concerns if any. I don't think sitting around doing nothing will work out.
One could argue over time the market in last 100 years always goes up, but it also shows during long Bear Markets getting the right allocation can be critical over that period.
JMHO
Duratek
Friday, December 07, 2007
FED WATCH
CME Group Fed Watch – December 7, 2007
In advance of next week's Federal Open Market Committee meeting on December 11, the CME Group will be reporting daily rate change probabilities in the FOMC's federal funds target rate, as indicated by the 30-Day Federal Funds futures contract. The 30-Day Federal Funds futures contract is a key benchmark interest rate barometer that reflects the forward overnight effective rate for excess reserves that are traded among commercial banks in the U.S. federal funds market.
Based upon the December 7 market close, the 30-Day Federal Funds futures contract for the December 2007 expiration is currently pricing in a 100 percent probability that the FOMC will decrease the target rate by at least 25 basis points from 4-1/2 percent to 4-1/4 percent at the FOMC meeting on December 11.
In addition, the 30-Day Federal Funds futures contract is pricing in a 41 percent probability of a further 25-basis point decreasein the target rate to 4 percent (versus a 59 percent probability of just a 25-basis point rate decrease).
In advance of next week's Federal Open Market Committee meeting on December 11, the CME Group will be reporting daily rate change probabilities in the FOMC's federal funds target rate, as indicated by the 30-Day Federal Funds futures contract. The 30-Day Federal Funds futures contract is a key benchmark interest rate barometer that reflects the forward overnight effective rate for excess reserves that are traded among commercial banks in the U.S. federal funds market.
Based upon the December 7 market close, the 30-Day Federal Funds futures contract for the December 2007 expiration is currently pricing in a 100 percent probability that the FOMC will decrease the target rate by at least 25 basis points from 4-1/2 percent to 4-1/4 percent at the FOMC meeting on December 11.
In addition, the 30-Day Federal Funds futures contract is pricing in a 41 percent probability of a further 25-basis point decreasein the target rate to 4 percent (versus a 59 percent probability of just a 25-basis point rate decrease).
Monday, December 03, 2007
PROFIT RECESSION?
http://www.bloomberg.com/apps/news?pid=20601103&sid=aZi6pAy35zW4&refer=us#
SO stocks worth bidding up as profuts are falling??
D
SO stocks worth bidding up as profuts are falling??
D
Monday, November 26, 2007
COLD HARD FACTS
LIQUIDITY PUMP RUNS DRY by Mish and Hussman
Are we in for a 30% haircut? I think so, IMHO decline will resume after "holiday" bounce.
Duratek
Are we in for a 30% haircut? I think so, IMHO decline will resume after "holiday" bounce.
Duratek
Monday, November 19, 2007
2008 ELECTION
http://www.mittromney.com/
Time to begin researching candidates, aside from ROn Paul I personally feel Romney is worth considering, none of the Dem's are.
D
Time to begin researching candidates, aside from ROn Paul I personally feel Romney is worth considering, none of the Dem's are.
D
MORE BANKING TROUBLE?
Mortgage meltdown seen spreading to credit cards
Analysts point to new round of charge-offs expected by major U.S. issuers
By Murray Coleman, MarketWatch
Last Update: 5:03 PM ET Nov 19, 2007
SAN FRANCISCO (MarketWatch) -- As shares of Citigroup Inc. tumbled on Monday, analysts pointed to signs that the mortgage meltdown could be spreading to the banking giant and other major credit card players.
"We're starting to see signs within the industry that credit quality is dropping," said Justin McHenry, research director at market tracker IndexCreditCards.com. "That's causing major credit card companies to at least consider taking out larger reserves to protect themselves against more people defaulting in the future."
In downgrading Citigroup (C
Citigroup, Inc
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C) , Goldman Sachs analyst William Tanona raised issues related to an ongoing search for a new chief executive and expectations of more write-downs related to mortgage lending. See related story.
But he also forecast an erosion in Citigroup's credit card business. Tanona says he foresees "deteriorating consumer credit trends and higher corresponding provisions and charge-offs" for the company in the future.
Such views come on the heels of at least two key credit issuers revising expectations for coming quarters.
'We're starting to see signs...that credit quality is dropping. That's causing major credit card companies to at least consider taking out larger reserves to protect themselves against more people defaulting in the future.'
— Justin McHenry, IndexCreditCards.com
On Nov. 6, Capital One Financial Corp. (COF
Capital One Financial Corporation
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COF) said that it expects charge-off rates to reach around 5.25% in the fourth quarter. That would imply that as much as $1.2 billion of its U.S. credit card portfolio could require some sort of provisions to stem short-term credit-related setbacks.
"Charge-offs are the amount that consumers have charged on their credit cards but haven't paid off," said Julie Rakes, a Capital One spokeswoman.
Typically, lenders will take charges on credit cards that are past 180 days or so overdue. Those charges go against reserves set aside for uncollected balances, among other possible uses.
Rising delinquencies, usually considered 30 days or more overdue, spur credit card issuers to usually at least consider raising reserves.
And that's definitely starting to happen, say McHenry and other analysts say.
But they warn that determining the extent credit card issuers will be hit by macroeconomic trends and falling mortgages remains difficult to state at this point.
"If we see more credit card companies raise reserve levels," said McHenry, "then that will be a fairly definitive sign about eroding credit conditions in this industry. But it's a very fluid situation right now."
More charge-offs seen
Peter Schnall, Capital One's chief risk officer, says that he now expects 2008 charge-offs of around $4.9 billion.
"We based that view on the delinquency trends we saw at the time and limited speculation about the future course of the economy," he said at Capital One's annual investor conference in early November.
In a presentation on Nov. 14 at a banking conference, Capital One's Chief Executive Rich Fairbank reiterated previous guidance.
"Delinquencies have been relatively flat, although over the last four months they have increased," he said.
Much of that rise can be traced to a changing mix in the firm's credit portfolio, Fairbank added. "But there is some component of the delinquency increase that appears to have its roots in the economy," he said.
CIBC World Markets says it now projects credit losses at Capital One to reach $5.2 billion next year, which would be in line with upper ranges given by management this month.
Meredith Whitney, a CIBC analyst, also has raised her estimates on the firm's credit losses in 2009 to $5.4 billion.
"The increase is driven by prolonged, higher credit card delinquencies and further deterioration in the housing market," she wrote on Nov. 7.
Discover Financial Services (DFS
discover finl svcs com
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Sponsored by:
DFS) also says it now expects charge-offs in 2008 to range between 4.25% to 4.75%. That could result essentially in write-offs to the firm of around $2 billion next year, estimates Mike Taiano, an analyst at Sandler O'Neill & Partners.
Still, such charge-offs wouldn't come close to levels seen in 2001-02. In that period, several large credit card companies reported close to 7% rates. And some engaged in more risky credit markets soared into double-digits as a percentage of outstanding payments.
"If you look at those numbers, charge-off rates are still pretty low from a historical view," said Taiano. "But the signs we're seeing of more charge-offs could be creating an earnings headwind for the industry."
Credit card receivables aren't growing a lot for the industry as a whole, he added. "Coupled with the fact that their losses are expected to go up in coming quarters, credit card companies could be facing a significant impact going forward on their earnings," Taiano said.
Capital One and Discover emphasized that any rise in delinquencies come after historically low levels in recent years.
"Credit card issuers are arguing their charge-offs are simply precautions and represent still manageable levels," said analyst McHenry. "But it's worth noting that they're taking out larger reserves in anticipation that more people could default on their credit card payments."
Murray Coleman is a reporter for MarketWatch in San Francisco
Analysts point to new round of charge-offs expected by major U.S. issuers
By Murray Coleman, MarketWatch
Last Update: 5:03 PM ET Nov 19, 2007
SAN FRANCISCO (MarketWatch) -- As shares of Citigroup Inc. tumbled on Monday, analysts pointed to signs that the mortgage meltdown could be spreading to the banking giant and other major credit card players.
"We're starting to see signs within the industry that credit quality is dropping," said Justin McHenry, research director at market tracker IndexCreditCards.com. "That's causing major credit card companies to at least consider taking out larger reserves to protect themselves against more people defaulting in the future."
In downgrading Citigroup (C
Citigroup, Inc
News, chart, profile, more
Delayed quote data
Add to portfolioAnalyst Create alert
InsiderDiscussFinancials
Sponsored by:
C) , Goldman Sachs analyst William Tanona raised issues related to an ongoing search for a new chief executive and expectations of more write-downs related to mortgage lending. See related story.
But he also forecast an erosion in Citigroup's credit card business. Tanona says he foresees "deteriorating consumer credit trends and higher corresponding provisions and charge-offs" for the company in the future.
Such views come on the heels of at least two key credit issuers revising expectations for coming quarters.
'We're starting to see signs...that credit quality is dropping. That's causing major credit card companies to at least consider taking out larger reserves to protect themselves against more people defaulting in the future.'
— Justin McHenry, IndexCreditCards.com
On Nov. 6, Capital One Financial Corp. (COF
Capital One Financial Corporation
News, chart, profile, more
Delayed quote data
Add to portfolioAnalyst Create alert
InsiderDiscussFinancials
Sponsored by:
COF) said that it expects charge-off rates to reach around 5.25% in the fourth quarter. That would imply that as much as $1.2 billion of its U.S. credit card portfolio could require some sort of provisions to stem short-term credit-related setbacks.
"Charge-offs are the amount that consumers have charged on their credit cards but haven't paid off," said Julie Rakes, a Capital One spokeswoman.
Typically, lenders will take charges on credit cards that are past 180 days or so overdue. Those charges go against reserves set aside for uncollected balances, among other possible uses.
Rising delinquencies, usually considered 30 days or more overdue, spur credit card issuers to usually at least consider raising reserves.
And that's definitely starting to happen, say McHenry and other analysts say.
But they warn that determining the extent credit card issuers will be hit by macroeconomic trends and falling mortgages remains difficult to state at this point.
"If we see more credit card companies raise reserve levels," said McHenry, "then that will be a fairly definitive sign about eroding credit conditions in this industry. But it's a very fluid situation right now."
More charge-offs seen
Peter Schnall, Capital One's chief risk officer, says that he now expects 2008 charge-offs of around $4.9 billion.
"We based that view on the delinquency trends we saw at the time and limited speculation about the future course of the economy," he said at Capital One's annual investor conference in early November.
In a presentation on Nov. 14 at a banking conference, Capital One's Chief Executive Rich Fairbank reiterated previous guidance.
"Delinquencies have been relatively flat, although over the last four months they have increased," he said.
Much of that rise can be traced to a changing mix in the firm's credit portfolio, Fairbank added. "But there is some component of the delinquency increase that appears to have its roots in the economy," he said.
CIBC World Markets says it now projects credit losses at Capital One to reach $5.2 billion next year, which would be in line with upper ranges given by management this month.
Meredith Whitney, a CIBC analyst, also has raised her estimates on the firm's credit losses in 2009 to $5.4 billion.
"The increase is driven by prolonged, higher credit card delinquencies and further deterioration in the housing market," she wrote on Nov. 7.
Discover Financial Services (DFS
discover finl svcs com
News, chart, profile, more
Delayed quote data
Add to portfolioAnalyst Create alert
InsiderDiscussFinancials
Sponsored by:
DFS) also says it now expects charge-offs in 2008 to range between 4.25% to 4.75%. That could result essentially in write-offs to the firm of around $2 billion next year, estimates Mike Taiano, an analyst at Sandler O'Neill & Partners.
Still, such charge-offs wouldn't come close to levels seen in 2001-02. In that period, several large credit card companies reported close to 7% rates. And some engaged in more risky credit markets soared into double-digits as a percentage of outstanding payments.
"If you look at those numbers, charge-off rates are still pretty low from a historical view," said Taiano. "But the signs we're seeing of more charge-offs could be creating an earnings headwind for the industry."
Credit card receivables aren't growing a lot for the industry as a whole, he added. "Coupled with the fact that their losses are expected to go up in coming quarters, credit card companies could be facing a significant impact going forward on their earnings," Taiano said.
Capital One and Discover emphasized that any rise in delinquencies come after historically low levels in recent years.
"Credit card issuers are arguing their charge-offs are simply precautions and represent still manageable levels," said analyst McHenry. "But it's worth noting that they're taking out larger reserves in anticipation that more people could default on their credit card payments."
Murray Coleman is a reporter for MarketWatch in San Francisco
BEAR ALERT!!!
NOW IT GETS INTERESTING! AUG LOWS FOR THE SPX ARE 60 POINTS BELOW TODAYS CLOSE 1370.60 AND FOR DOW 12,517.94 UTILITIES STILL ON SCREAM SINCE 2003 LOWS.....SAFETEY IN YIELDS? 10 YR YIELDS NEAR 4% NOWNEAR A 90% DOWNSIDE DAY, UNOFFICIAL 89% DOWN VOLUME.
iT WOULD TAKE SUBSTANTIAL more WEAKNESS TO SEE SPX AND DOWN CONFIRM NEW TRANS LOWS.
VIX IN UPWARD TREND 06 HIGH 23.81 07 HIGH 37.50 VOLATILITY CONTINTUES TO CLIMB, A BEARISH PHENOM.
I KEEP LOOKING FOR REBOUND, IS IT THAT PRICES ARE NOT LOW ENOUGH YET FOR SUSTAINED BUYING INTEREST?
DURATEK......BEEN ON THE DEFENSIVE!
Saturday, November 10, 2007
IS A BEAR MARKET APPROACHING?
*click to enlarge Transports warned in late 1999 that something was wrong, they are doing it again NOT confirming the NEW DOW HIGHS and leading the way DOWN.As we approached the all time high in the DOW, the number of stocks also hitting 52 week highs was already declining, and the strength was coming from a selective few stocks, large tech and a few multi nationals, this past week many of THOSE stocks appeared to have blowoff tops, GOOG, HANS, AAPLE, BIDU
Speculation was rampant in stocks like FSLR a chinese solar play up $50 in one day!
WED's decline had 94% downside volume, the 3rd 90% day in last 30 days, none have been followed by 90% up days, a sign of renewed buying interest. BUYING interest seems to be DRYING UP.
http://nymag.com/guides/money/2007/39952/ must read threats to our economy.
WHAT makes up for the $500B per year in consumer spending taken from home equity?
Finacials lead stealth bear market
Pity bounce may be near, it will get sold IMHO, AUG lows to be challenged
D
Tuesday, November 06, 2007
RON PAUL ON TAX REFORM
November 05, 2007
Tax Reform Promises Treats, Delivers Tricks
by Ron Paul
Representative Charles Rangel's recently announced plan to address the impending Alternative Minimum Tax's application to middle-class Americans demonstrates limited economic understanding.
The Alternative Minimum Tax (AMT) began in the late 1960's because 155 wealthy taxpayers had become savvy enough with loopholes that they managed to avoid income taxes altogether. Very few Americans avoided taxes completely this way, nonetheless, policy was enacted that now threatens 25 million Americans.
Rangel's plan boasts loudly about repealing the AMT, but under the Democrats' pay-as-you-go rules, actual tax cuts are not allowed. Congress must replace any tax revenue reduction with an increase somewhere else, and of course, there are no rules preventing tax hikes. Thus, a new 4% surtax on incomes over $150,000 for singles and $200,000 for couples is proposed to "pay for" the estimated lost revenue. This simultaneously raises $36 billion MORE than simply leaving the AMT alone, and creates a huge new marriage penalty tax. It won't be long before $150,000 is an average income, and middle class taxpayers will again face the situation we see coming today from inflation and the AMT. Overall, the Rangel tax plan is estimated to increase taxes by $3.5 trillion over the next 10 years.
With the leadership in Congress calling for this massive tax hike, spending levels promising to absorb all that and then some (thanks to our ambitiously misguided foreign policy), as well as the Federal Reserve's again cheapening the dollar, American taxpayers are wondering where their purchasing power went. We are working harder than ever before, as our standard of living falls.
The founding fathers never saw taxation as a method to direct social behavior or enforce equality. Equality to them was equality under the law, not equality of outcome, or income. It was not the founding fathers' job to manage the economy, or make American businesses competitive. That was up to the free market and American businesses. The founders sought to provide only protection of property and civil liberties such that job creation could happen naturally and peacefully in a stable, prosperous environment. They never sought to take from the rich to give to the poor, or rob Peter to pay Paul. But today, the top 5% of earners in this country pay over half of all income taxes collected, but only bring in a third of the income. One third of Americans pay nothing or receive subsidies from government.
Tax policy should not be based on the premise that government owns you and allows you to keep some arbitrary amount of your labor. Thus, the AMT should be repealed. The estate tax should be repealed. Capital gains taxes should be repealed. The income tax should be repealed. We don't need to overhaul or adjust tax policy, we need to scrap the whole thing and start over.
But this message is not getting through to the leadership of Congress. Congress has ensnared itself in rules so that the only changes in tax policy allowed are increases, while the administration is obsessed with spending, especially spending us into oblivion by spreading this dead-end war when we should be coming home.
If Washington can only do wrong, then let's hope for gridlock, until a more sensible Congress is in office. Sometimes a do-nothing Congress is a lot better than the alternative.
Dr. Ron PaulProject Freedom
Tax Reform Promises Treats, Delivers Tricks
by Ron Paul
Representative Charles Rangel's recently announced plan to address the impending Alternative Minimum Tax's application to middle-class Americans demonstrates limited economic understanding.
The Alternative Minimum Tax (AMT) began in the late 1960's because 155 wealthy taxpayers had become savvy enough with loopholes that they managed to avoid income taxes altogether. Very few Americans avoided taxes completely this way, nonetheless, policy was enacted that now threatens 25 million Americans.
Rangel's plan boasts loudly about repealing the AMT, but under the Democrats' pay-as-you-go rules, actual tax cuts are not allowed. Congress must replace any tax revenue reduction with an increase somewhere else, and of course, there are no rules preventing tax hikes. Thus, a new 4% surtax on incomes over $150,000 for singles and $200,000 for couples is proposed to "pay for" the estimated lost revenue. This simultaneously raises $36 billion MORE than simply leaving the AMT alone, and creates a huge new marriage penalty tax. It won't be long before $150,000 is an average income, and middle class taxpayers will again face the situation we see coming today from inflation and the AMT. Overall, the Rangel tax plan is estimated to increase taxes by $3.5 trillion over the next 10 years.
With the leadership in Congress calling for this massive tax hike, spending levels promising to absorb all that and then some (thanks to our ambitiously misguided foreign policy), as well as the Federal Reserve's again cheapening the dollar, American taxpayers are wondering where their purchasing power went. We are working harder than ever before, as our standard of living falls.
The founding fathers never saw taxation as a method to direct social behavior or enforce equality. Equality to them was equality under the law, not equality of outcome, or income. It was not the founding fathers' job to manage the economy, or make American businesses competitive. That was up to the free market and American businesses. The founders sought to provide only protection of property and civil liberties such that job creation could happen naturally and peacefully in a stable, prosperous environment. They never sought to take from the rich to give to the poor, or rob Peter to pay Paul. But today, the top 5% of earners in this country pay over half of all income taxes collected, but only bring in a third of the income. One third of Americans pay nothing or receive subsidies from government.
Tax policy should not be based on the premise that government owns you and allows you to keep some arbitrary amount of your labor. Thus, the AMT should be repealed. The estate tax should be repealed. Capital gains taxes should be repealed. The income tax should be repealed. We don't need to overhaul or adjust tax policy, we need to scrap the whole thing and start over.
But this message is not getting through to the leadership of Congress. Congress has ensnared itself in rules so that the only changes in tax policy allowed are increases, while the administration is obsessed with spending, especially spending us into oblivion by spreading this dead-end war when we should be coming home.
If Washington can only do wrong, then let's hope for gridlock, until a more sensible Congress is in office. Sometimes a do-nothing Congress is a lot better than the alternative.
Dr. Ron PaulProject Freedom
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