What are the opinions on where these market corrections are leading us?
The housing market is falling apart in many parts of the country, we all know what happened to the stock market last week, and gold got pushed down by huge short selling.
I guess one of the main problems regular investors have with all of these strange capitol markets is that everything is very hush hush until the money is gone.
We started talking a few weeks ago about Bear Stearns, but there must be a great deal more trouble ahead looking at how the big sophisticated money is running to T Bills.
Anyway I thought the guy at Bloomberg had said that the Foreigners were going to come in and take up the slack in our stock market that has not happened yet, perhaps next week.
We all know that the psychology of wealth plays a major part in how freely people spend their hard earned money each month, right?
What is going to be the new thinking of a majority of Americans if they see drops in their retirement plans, losses of 10 to 15 % on there homes, ever increasing prices at the grocery store and the gas pump, and a Democratic Congress looking for every thing they can find to raise taxes on?
<< <i>What is going to be the new thinking of a majority of Americans if they see drops in their retirement plans, losses of 10 to 15 % on there homes, ever increasing prices at the grocery store and the gas pump, and a Democratic Congress looking for every thing they can find to raise taxes on? >>
Most investors will take a long term view of their stock market investments and will ride out the current volitility or will switch to fixed income assets as a temporary safe harbor. Most will take a long term view of the value of their homes and will continue to live in their house and go to their job every day. Most will save a bit less and pay a bit more for groceries and gas. Most will vote Democratic in 2008--even those who voted Republican in the past.
As for gold, every time people hear the case for gold they realize that its the same case they have been hearing for the past 35 years. By now most people understand that gold does not provide capital growth, and when they evaluate how folks like Warren Buffet got to be wealthy they see that it has been through capital growth and not by holding gold and silver.
“Most investors will take a long term view of their stock market investments”
CalGold
Here is my question for you, and any of the others here that would like to answer this.
All the Wall Street guys I have heard on the news the last few days, with the exception of Fox this morning, have all been preaching pretty much the same thing, “ Everyone should take a long term view and not worry about these devaluations”
So here is my question, most all of the real money in ALL these markets, both real-estate and stocks, belong to the baby boomers worldwide. Just how much of a long horizon do the investment guys think there is for this group?
If you are 62 plus there is NO long term!
Millions of boomers worldwide have been counting on their home equities and stock portfolios to retire on, now what?
GOLDSAINT -- that is a good point -- the baby boomers are beginning to reach retirement, and this has implications for their own view of "long term" and also has implications for the market itself as people begin to draw down assets. It is worth noting, however, that the baby boom peaked in 1957, so although the leading edge is reaching retirement, the vast bulk of the baby boom is currently in what should be "peak earnings" years.
Buffet and othes have certainly benefited from the 25 year bull market in equities. This is the only history most investors today know. No doubt a huge chunk of Buffet's returns have come in this 25 year period of excessive monetary growth (ie inflation), derivatives, buyouts, and other schemes. Let's see how the derivative's game continues to play out before we acknowledge that any of this was real "capital growth" rather than smoke and mirrors by the financially endowed. With major firms announcing huge losses on the mis-valuing of CDO's on a weekly basis what has transpired so far is just the tip of the iceberg. Where else can buyer and seller create a financial deal that benefits both parties...until the final day of reckoning (which both hope never comes). One writer equated this to a game of poker where all seats are "winning" on paper until the final hand (ie they all have plans to win the final hand and get it all back). At that point the derivatives will finally be market valued for the first tme and only one person walks away with the prize.
Metals and other commodities have been so left in the dust over this same period that it would be hard to conclude that they will have another similar 25 year period.
Derivatives (esp interest rate linked) have risen from a few trillion dollar business in the 1980's to hundreds of trillions of dollars of "equity." Does anyone really believe this is real wealth?
<< <i>GOLDSAINT -- that is a good point -- the baby boomers are beginning to reach retirement, and this has implications for their own view of "long term" and also has implications for the market itself as people begin to draw down assets. It is worth noting, however, that the baby boom peaked in 1957, so although the leading edge is reaching retirement, the vast bulk of the baby boom is currently in what should be "peak earnings" years. >>
Very true. I would also add that as a former financial advisor, my clients who were in their retirement years still held a majority of their assets in equities. The baby boomers will continue to hold stocks as a key component in their investment portfolios.
Much good discussion. On the surface, most regular folk (including boomers) are probably not looking at long term right now but likely they are repositioning themselves. When it absolutely, positively, has to be there at 62 1/2, people are not going to be playing in the seemingly deep and treacherous financial pools...especially when no one knows whats really going on. Most folk can certainly tell that there is a large amount of boogie woogie going on right now and that is a call to get the cash and hard assets out of harm's way. Not to say they won't be keeping some stocks but the nest eggs are going to be kept closer to home.
It is nice to have had a heads up through our previous discussions here. Sometimes it is much more profitable and entertaining to watch a race than it is to actually have a horse on the track. That's not scared money talking, that is secure money watching and waiting for a good play. Greed may be good but cash is king.
It may be possible that the news guys and gals are finally turning as bearish as many of us have been over the last few years.
There is no doubt that the boomer group worldwide is the best educated generation ever, my opinion is that they follow the news as well as the blog’s and would love to get at lest some of their money out of their 401’s etc., but they are stuck for at least a little while longer.
As for those already retired it seems that what I heard last week was that there were more mutual fund redemptions than there had been since the market crash some six plus years ago. For those that do redeem, I do not think they will ever go back as their time horizon will just not handle it.
What I really expect is that between now, and the first of the year, billions of dollars of ordinary folks money will move out of the stock markets into the safety of bonds and C.D.s. I also think we will see this trend worldwide, except in China where investors are still heavily restricted as to where they can put there money, I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there.
<< <i> I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there. >>
If there are plays in other capital markets why would traders move into metals? And if equities are shaky all over, traders looking for stablilty usually move into high quality bonds. There's just too much money in captial markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out.
If there are plays in other capital markets why would traders move into metals? And if equities are shaky all over, traders looking for stablilty usually move into high quality bonds. There's just too much money in captial markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out.
CG >>
Moving into bonds is a kneejerk reaction to instability. If the instability is largely in currencies there will be a rapid move back out of bonds.
Ultimately the world has no choice but to rush headlong into the future. Some things will need to be shored up and this process will eventually result in inflation. Metals should be a beneficiary, if so.
<< <i> I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there. >>
If there are plays in other capital markets why would traders move into metals? And if equities are shaky all over, traders looking for stablilty usually move into high quality bonds. There's just too much money in captial markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out.
CG >>
maybe i am reading this backwards, but if there is too much money somewhere and not enough supply somewhere else (metals?) it would cost more money to purchase that somewhere else commodity. i am missing something.
<< <i> but if there is too much money somewhere and not enough supply somewhere else (metals?) it would cost more money to purchase that somewhere else commodity >>
If you analyze and value gold a commodity based upon annual consumption (industrial use) vs annual supply (newly mined or recycled product), you will find that annual new supply is actually growing faster than consumption. From the point of view of consumption, there is no reason for someone to move into gold as an investment unless they believe that wolrd economic growth will cause a rise in consumptoin that will exceed new production. But if the world economy is growing, there should be other investment alternatives that would provide capital growth.
Therefor, running into the market with huge orders for a commodity ahead of an ascertainable greater growth in demand from the consumption side makes no sense. The buyer will only run up the price to himself, and in the end, when he stops buying, the price will go back down and he will get stuck holding the bag.
Calgold, you write as if buyers/investors make logical decisions all the times. I would say just the opposite. Who were the fools that came in to buy up the NASDAQ at 4000-5000 and hold on until 2000? The same could be said for gold in 1980, or stocks in 1929. Clearly there is not that much real thinking going on at the end of market cycles. I think you give the investor way too much credit (ie. beannie babies, coins in 1980, coins in 1990, tulips, Florida real estate in the 1920's, Florida real estate today, South Sea fiasco, Ponzi, etc.). The "madness of crowds" is much more defining of market mentality than "objectivity."
There's just too much money in capital markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out. ....one cannot be slaughtered on the way out if you bought early in the cycle......such as now for example.
This would imply that there won't be a slaughter in future stock market corrections (a la 1999-2001), that everyone will be able to get out safely. Maybe the 10% of top brokerages and investors can move out, but the 90% made up of longer term investors like pension funds, 401k's, and mom and pop will be holding the bag. I remember October 1987, and that was only a "little correction." I could not sell any of my stocks until January....at least not through the brokerages I contacted. Is it really possible for Joe Public even with electronic stops and sells in effect to wiggle out ahead of the masses? I don't think so.
The risk of getting hammered in stocks, CDO's, hedge funds at the moment is rather significant imo. And those in risky CDO's and high-risk derivative based investment packages can easily be slaughtered as Enron, Amaranth, Bear Stearns, and others can attest. And slaughter may be too kind a word.
I'd also like to get a link to the site that shows gold supplies increasing over the past few years. Every major newsletter writer I've read on every site (they must all be wrong) show gold supplies falling due to lowered production and increased demand (something like a 1-2% deficit each year). If this were not true I should have run into at least one site that stated otherwise. And with the prices of gold excavation increasing due to material, labor and fuel costs, the gap is only growing imo.
Gee, its hard enough to try to figure out what people will do if they act logically. Now how the heck am I supposed to predict what they'll do if they act irrationally?
<< I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there. >>
Unlike western investors who can put their money in any market in the world, the mainland Chinese are still very limited as to investing outside of their own country.
The Chinese government allows some mainland investors to invest in funds in Hong Kong but those are restricted to pre-approved investors, and Funds.
Most Chinese think the Chinese stock market in Shanghai is a casino, or perhaps even a government-regulated slot machine, and even though the Chinese mentality is one that likes a good gamble, they do not like losing their very hard earned money.
It is my belief that as American, European, and Japanese baby boomers, begin to cut their spending habits by half, that the huge profits of many Chinese companies will evaporate, and send the mainland Chinese running to the safety of Gold, which they are now allowed to buy.
If we think we have inflation here in housing, oil, food, etc. we have nothing compared to China where real estate, and stock prices increase by one hundred percent per year.
On the “worldwide liquidity” issue, who really knows how much of this liquidity is real money or simply made up computer entries created by overvalued CDO products etc.? When all of these products are mark to market value, how much real investor liquidity will remain. There is so much smoke and mirrors in the investment world today it is very hard for investors to do calculations as which investment to buy.
From the Mystic point of view we live on a planet that is an enclosed system. No atomic structures are added or subtracted each year. Those that are here are simply moved around. Therefore all that has been added to our financial systems over the last several decades are promises to pay, or paper. As one of you pointed out in a previous post, everyone that can now have a credit card is capable of issuing their very own “promises to pay”. In a limited enclosed atomic world how many of these trillions upon trillions of dollars of “promises to pay” can ever really be paid? At some point the “promises to pay” must be turned into real atomic structure, which can be utilized by a human being, and then what?
At the beginning of the summer, Sowood Capital was a $3 billion hedge fund run by a money manager who hailed from the team that built Harvard’s endowment into the $30 billion giant that it is today.
At one time, using leverage, or borrowed money, the fund had $12 to $15 billion worth of positions.
Yesterday, Sowood sent out a letter to investors indicating that heavy losses in the credit market had caused the fund to lose more than half its value, prompting it to sell its portfolio to another hedge fund and return the remaining $1.5 billion to investors.
“Today we made the painful and difficult decision to sell substantially all of the funds’ portfolio to Citadel Investment Group,”
The Boston-based fund is not the first distressed fund purchased by Citadel, a $14 billion hedge fund based in Chicago and run by Kenneth C. Griffin, a 39-year-old who started trading convertible bonds in his Harvard dorm room.
Hedge funds manage about $1.7 trillion, more than double the amount five years ago.
RR, If you think the risk in the markets, CDO.. etc are excessive, then you should park your funds elsewhere. The question is where. I believe in holding a balanced portfolio and will be moving some of my funds into, yes, real estate. Very selective real estate to be certain.
My point is that we cannot expect to continue to receive the high returns from the stock market without risk. I try and keep that portion of my portfolio reasonably well balanced and ignore the ups and down, re-evaluating quarterly. Sometimes we get too close to the daily grind of numbers and it can affect our view of things.
I think the interesting part for the boomers will be in another 10 years or so when the ones who are fairly flush with investments will be required to take distributions from their IRAs at 70 1/2. As I get closer to retirement I move towards less risk, but not no risk. I dont have the gloomly outlook that some here do. Hopefully, we can get out of an expensive war sometime in the not too distant future and that will help considerably. (I tried not to politicize that comment, but just allude to the economics of the situation).
Retired United States Mint guy, now working on an Everyman Type Set.
Good comments, Deepcoin. This is a very timely discussion. It seems like selective real estate is a very nice place to park for 5 years. Also, balanced portfolio with metal, stocks, cash/cash instruments, and real estate (sure, a few nice coins too) is a place where anyone could be safe and fairly well insulated from the adjustments that the financial markets are experiencing and still have a long term play but balance is so important right now.
I don't know if you can make money with metal...many have won and many have lost before now but I still don't know if that is a place to have a lopsided distribution of assets. Metal will appreciate, over time, but when you want in or out will be a matter of speculation, even for the wizkids. You get into metal when you have the cash and you get out when you need it back. For right now, get in if you plan to stay in but if you are playing the timing for short term with your personal money, just go ahead and bend over. The individual investor is not in a position to move the market, they can only respond. Metal certainly seems to be a very secure place to park some funds for a while. Slow, steady accumulation of metal, in concert with the other elements of your portfolio is not speculative, it's just investing in one of the parts of your portfolio.
Boomers aren't going to get out of the markets all together but I wouldn't think that they are going to be playing or gambling much either. Most folk that watch over their nest eggs are paying very good attention to the news and they know that there is a big shake out going on right now. Housing is going to continue adjusting well into next year and who knows what hedge funds are going to do...there is going to be some significant damage (already has been some) and the individual investor can see this. As stated before, most near retirement boomers are stuck in 401K's and IRA's and they are frozen until they leave the work place so they must bear the brunt of the financial readjustment period we are entering into but 5 years from now they aren't going to be driving the market anywhere, they are going to be sucking up the entitlements...life is good.
<< <i>send the mainland Chinese running to the safety of Gold, which they are now allowed to buy. >>
Once again a theory based on the recurring misnomer, namely “the safety” of gold. Gold is not a stable and safe haven for storing wealth. Its price is subject to volatility. It is not an international alternative currency. It has been demonetized for decades. Gold does not buy daily necessities or earn interest or generate capital growth. It just sits a vault somewhere and incurs storage costs, not to mention the transaction costs of getting in and out of it.
People in countries suffering hyperinflation do not immediately run to buy gold—they run to convert their local currency into hard currencies, and those with enough money also invest in overseas capital markets.
So why would Chinese investors behave as you have described? Where would they be if they owned all of the gold in the world and everyone else owned (through equities) all of the industrial, service and financial assets?
See, that is the problem with the case for gold. There just is no case for it. It is a commodity that can be used to make a nice necklace with matching earrings for your wife.
“People in countries suffering hyperinflation do not immediately run to buy gold—they run to convert their local currency into hard currencies, and those with enough money also invest in overseas capital markets.”
Cal Gold, I think this is my point! People in Mainland China cannot invest outside their own limited markets, cannot convert Yuan’s to Euros, and cannot buy real estate in other countries.
In fact China may be the only sane global economic player on the planet right now. They limit foreign investment, they limit imports, they limit out flows of the peoples capitol to other countries. They have two sets of rules, the rules where they play in everyone else’s markets, and the rules where they limit what happens to the own economy and the money made from inside.
Yes I am sure you are correct Gold is worthless, and makes no profits, but one has to wonder if those that just lost hundreds of millions in the latest Sowood deal wish they had some of that nasty old Gold rather than those great hedge fund certificates they can now hang on their walls as decorations?
More billions of promises to pay gone on this one!
American Home Can't Fund Mortgages, Shares Plummet.
July 31 (Bloomberg) -- American Home Mortgage Investment Corp. shares plunged 90 percent after the lender said it doesn't have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure.
``They can't function without access to capital,'' said Bose George, an analyst with KBW Inc. in New York. ``The company either has to file for bankruptcy or go through some type of rescue or restructuring, and either way will leave almost nothing for the common shareholders.''
Two years ago, the stock fetched almost $40, today it closed at $1.04.
Creditors made ``very significant margin calls'' in the last three weeks and American Home still has ``substantial unpaid margin calls pending,'' it said in the statement. Options may include ``the orderly liquidation of its assets.''
Here is something else interesting!
Today on CNBC Jim Cramer said that if he was advising someone that had bought a home for no down payment in the last couple of years, and the value had drop by 20%, his advice would be to just walk away! He also said that since 50% of all the homes bought in 2006 were purchased that way he thinks that 50% of at least those loans should be returned to the lenders!
They can try to walk away from those home loans but with the new lending laws that were passed that essentially prevents this very thing (walking away from CC or mortgage debt), those home owners will be paying until they're dead, or working every waking hour for their lender.
So why would Chinese investors behave as you have described? Where would they be if they owned all of the gold in the world?
Where would they'd be? About the same place the US was in their gold owning peak in the 1920's when it owned 80% of gold stores...."on top of the financial world." A couple of sizeable hedge funds (or China) would have enough equity to own all the existing investment gold.....if you could theoretically get it all w/o raising the price to the moon. All it would take is a few trillion. I'm sure they'd much prefer 30,000 tons or so of gold than the 1 trillion+ in US dollars they currently own. Central Banks have much of the available bullion gold stocks, and they make the rules. What would happen if someone else had it?
<< <i>Central Banks have much of the available bullion gold stocks, and they make the rules. What would happen if someone else had it? >>
Since they make the rules, they would just make rules that render gold totally irrelevant. I am not even sure how the current rules make gold relevant today.
The name of the game today is economic growth through trade. If China decided to accept only gold in payment for goods, it's economy would come to a grinding halt. As it is, I don't think they or anyone else has quite figured out what is going to happen when they so dominate manufacturing that they end up selling everything to everyone else, and everyone else is left with no money money to buy anything.
More billions of promises to pay gone on this one!
American Home Can't Fund Mortgages, Shares Plummet.
July 31 (Bloomberg) -- American Home Mortgage Investment Corp. shares plunged 90 percent after the lender said it doesn't have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure.
``They can't function without access to capital,'' said Bose George, an analyst with KBW Inc. in New York. ``The company either has to file for bankruptcy or go through some type of rescue or restructuring, and either way will leave almost nothing for the common shareholders.''
Two years ago, the stock fetched almost $40, today it closed at $1.04.
Creditors made ``very significant margin calls'' in the last three weeks and American Home still has ``substantial unpaid margin calls pending,'' it said in the statement. Options may include ``the orderly liquidation of its assets.''
Here is something else interesting!
Today on CNBC Jim Cramer said that if he was advising someone that had bought a home for no down payment in the last couple of years, and the value had drop by 20%, his advice would be to just walk away! He also said that since 50% of all the homes bought in 2006 were purchased that way he thinks that 50% of at least those loans should be returned to the lenders!
Did I hear that correctly? >>
While this is significant, lets put it in some context. Thousands of employees at Enron and Worldcom lots their entire retirement savings and shareholders lost billions. And to show how little $1 billion is today; Microsoft traded $1.7 billion worth of stock, just today.
A brief perusal of these threads will show that we predicted the result of sloppy lending practices would end badly. We should not be surprised by this.
Report: 3rd Bear Stearns fund in jeopardy Hedge fund with $900 million in mortgage investments reportedly face huge losses, according to newspaper. July 31 2007: 6:56 PM EDT
NEW YORK (CNNMoney.com) -- A Bear Stearns' hedge fund with about $900 million in mortgage investments is reportedly facing huge losses and is refusing to return investors' money, according to a news report published online Tuesday.
“While this is significant, lets put it in some context. Thousands of employees at Enron and Worldcom lots their entire retirement savings and shareholders lost billions.”
Cohodk, It looks like the Billions are starting to add up here?
This is beginning to look like falling dominos, and except for the Bear Stearns lenders who appear to be stuck with their over valued collateral we have not heard much about the damaged caused to other lenders in these other failing deals.
What seems interesting here is that this is giving everyone a look into these highly leveraged derivative deals, and how little bumps in the road seem to crash these deals. If you have a regular forecloser it is not the end of your business, nearly all mortgage companies have had those, but if you leverage that loan 30 times, then these little bumps become mountains to climb.
Lets just keep an eye on all this as these big companies continue to go belly up and see who else is affected.
. Macquarie Bank has warned two of its investment funds could lose up to 25 per cent, or $300 million, of their value as the fall-out from the United States' sub-prime loan crisis hits Australian shores. Macquarie is the third Australian fund to flag potential losses due to US credit markets drying up.
The fallout of the US subprime mortgage market hit the German banking sector on Monday as IKB, a specialised lender to smaller companies, and Commerzbank, the country’s second-biggest bank, warned they would be hit by losses from risky property loans.
July 30 (Bloomberg) -- MGIC Investment Corp. and Radian Group Inc. said turmoil in the subprime mortgage market may require the companies to write off their combined $1.03 billion stake in a venture that invests in subprime mortgages. Shares of MGIC fell as much as 9.8 percent in after-hours trading. Radian dropped as much 3.6 percent.
CNA said it held $834 million of securities linked to sub-prime mortgages at the end of June.
July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk. Bonds of U.S. investment banks lost about $1.5 billion of their face value this month.
I have been reading the postings on this thread for a while and find them very interesting.
Unfortunately, now the stock and credit markets have become more risk averse and have a great preference for liquidity. This is a big change from a month ago. As a example, many of my bank stocks took a terrific beating. Not all of them have been involved with problem loans, but in the interest of safety, investors don't seem to discriminate. I read that Gold and the metals are down today because of the move from risk.
Just like last week, there seems to be no shelter from the market tumble except for cash and some treasuries.
More context. Lets see how fast we can add up $10 Trillion.
Goldman Sachs has over $800 billion in assets. Merrill Lynch has over $800 billion in assets. JP Morgan has over $1.3 trillion in assets. Citigroup has over $1.8 trillion in assets. BAC has over $1.4 trillion in assets. Morgan Stanley has over $1.2 trillion in assets. Wells Fargo has almost $500 billion in assets. Wachovia Bank has over $700 billion in assets. HSBC Bank---over $1.8 Trillion in assets.
More context. Lets see how fast we can add up $10 Trillion.
Goldman Sachs has over $800 billion in assets. Merrill Lynch has over $800 billion in assets. JP Morgan has over $1.3 trillion in assets. Citigroup has over $1.8 trillion in assets. BAC has over $1.4 trillion in assets. Morgan Stanley has over $1.2 trillion in assets. Wells Fargo has almost $500 billion in assets. Wachovia Bank has over $700 billion in assets. HSBC Bank---over $1.8 Trillion in assets."
Cohodk,
Can you tell us what kind of assets these are? Are they CDO's that have been marked to market? Are they NET assets? Are they Cash and Treasuries?
If you read the reports of these companies failing they all had assets of billions of dollars just a few months ago, until their investors wanted their money back, then all of a sudden they were broke!
During the Savings and Loan debacle, a "junk" and treasury bond trader by the name of Leon Black scooped up thousands of properties that the S & L wanted to dump to cover losses. Many were condo developments, apartment complexes.
He has since donated over $150 million worth of impressionist/other paintings to The MET.
Someone will, as usual, make a ton of money on this subprime issue. I wouldn't call it a debacle. So a few mortgage firms are going under. Wow. Is this the first time a company in the U.S. has gone down???
Another one will flourish taking over the properties, or taking over the loans, or something.
The news in Michigan said foreclosures have gone up 60% from a year ago in Michigan. HOLY COW!!!!! No holy cow ignorant liberal media. It went from 3.9% of all homes to about 6%. That is (in laymans terms) 6 out of every 100 in one of the worst economic states in the U.S.
Hardly a debacle.
All those banks, brokerage firms??? They will still pay out multi-million dollar bonuses to the top dogs, and will still make tons of money, and will still be around longer than we will be.
CDO's and other derivatives make up a small percentage of these banks' assets. The reason I chose to list $10 trillion is because that is aboutt he size of the US mortgage market. Obviously not every mortgage is bad. Lets say 5% of mortgages are bad--and it isnt this high, then banks may be on the hook for $500 billion or just the size of 1 bank--Wells Fargo. These are not complete losses as the underlying homes are not worthless.
Bottom line is while this is making Nightly News headlines---so does Paris Hilton---this is not the end of the world and will not bankrupt our economy. So a few Mortgage lenders go out of business--so what---these companies make lousy investments anyway, and I personally rank them below even the airlines as good investments. And the airlines go out of business every 3-5 years.
Again, not to politicize, $500 billion is less than we have spent on Iraq/Afganistan over the past 5 years.
$500 billion may be more than a drop in the bucket, but the bucket is larger than a 55 gal drum.
Calgold, my point concerning China was that they have the money to buy all the gold out there for a few trillion, make all the new rules, and still conduct business and trade like they always have without skipping a beat. If gold is of so little significance why haven't the Central Banks continued to fully dishoard? And why do they refuse to let anyone outside their secret circle know who owns how much gold? And why does the ESF and PPT routinely enter the gold market via GS and other shills to massage it? There's lots more to this than meets the eye and certainly someone in our govt thinks that controlling gold pricing is very worthwhile.
CDO's and other derivatives make up a small percentage of these banks' assets. The reason I chose to list $10 trillion is because that is aboutt he size of the US mortgage market. Obviously not every mortgage is bad. Lets say 5% of mortgages are bad--and it isnt this high, then banks may be on the hook for $500 billion or just the size of 1 bank--Wells Fargo. These are not complete losses as the underlying homes are not worthless.
I'd say more like 20% of the mortagages are bad. The leverage on derivatives is often as high as 50 to 100 - 1. That said, JPM controls somewhere around $50-100 TRILL in derivatives with about one trillion dollars (give or take a trillion). Someone is on the hook for that 100 trillion. I think with leveraged mortgage CDO's that investors can indeed lose 100% regardless if a home is still worth something. The amount of derivatives floating around far exceeds the asset wealth of the world....by multiples of 10.
My buddy works at JPM. Maybe I should tell him to run to the hills?
Fear is not to be feared, but rather embraced. There were alot of fearful people who sold stock at 3:30 today. They got their butt kicked. Dont be afraid, profit.
cohodk never buck the tread bear's point is well taken say what you will the writing to me is on the wall i guess it depend on the color of your glasses
Jon Nadler at Kitco mentions Italy's government considering massive gold sales:
>> Last, but certainly not least, a story from Resource Investor's intrepid reporter Jon Nones about the possible gold sales that could come out of Italy, as early as next year. ... The plan aims to cut Italy's debt to 103.2% of gross domestic product (GDP) in 2008 from 105.1% of GDP this year - about EUR27 billion ($36.9 billion) - using the central bank's gold and foreign exchange reserves. ... Italy has some 62% of its foreign exchange reserves value in gold at about 2,452 tonnes.
Italy has the fourth largest holding of gold after the U.S., Germany and France, excluding the International Monetary Fund. If the country were to reduce its percentage to a modest 30%, it would have to sell about 1,300 tonnes of gold. At current gold prices, this would come to about EUR22 billion. Matt Turner, commodities analyst with Virtual Metals, said Italy hasn’t sold any substantial amount of gold in many years, since “possibly the 1970s.” >>
If Italy and other European governments unload, it will depress the gold market for years to come. Long term it will probably be an excellent buying opportunity. Short and intermediate term, it will hang like a sword over the longs, and any upside will likely be limited.
“If Italy and other European governments unload, it will depress the gold market for years to come. Long term it will probably be an excellent buying opportunity. Short and intermediate term, it will hang like a sword over the longs, and any upside will likely be limited.”
RedTiger
According to Jim Sinclair, No central bank gold sales ever go into the open market. They are all sold to other central banks! So there is no real effect to Gold markets when governments sell .
July 17 Jim Sinclair’s Commentary “It is so important to understand fully that selling by central banks never ever touches the open gold market. Instead, it goes to singular large buyers directly which is more often than not central banks.”
I undersatnd the meaning or "historic norm" I was hoping you could tell me exactly what indicators you were referring to. Historic mean for unemployment, for GDP growth, for inflation, for taxation--at all levels.
Where do we stand today and how does that relate to historic norms? IMHO, unemployemnt, growth, inflation, taxation are all below historic norms. Are you saying we should expect slower growth, high unemployemnt, less home ownership, higher inflation, higher taxes?
We could become an isolationist society, but I highly doubt you and I know I, would not want to be part of it.
Union Investment Halts Redemptions From $1.3 Billion Bond Fund By David Clarke
“Aug. 3 (Bloomberg) -- Union Investment Asset Management Holding AG, Germany's third-largest mutual fund manager, halted redemptions from its ABS-Invest Fund after clients pulled 100 million euros ($137 million) in the past month.
The Frankfurt-based company also closed the 950 million-euro fund to new investments, spokesman Markus Temme said today. The fund, sold to institutional investors across Europe, has about 6 percent of its assets in securities related to subprime mortgage loans, Temme said.”
So is this the way it will go here if investors decide this stock market is just getting to risky?
Do people red the fine print in the investments they buy, that says the mutual fund guys can refuse to pay you if they think their fund is in trouble?
Isn’t this like the old Bank Holidays of the depression?
Bear Stearns hedge funds file for bankruptcy Two funds were heavily exposed to struggling U.S. mortgage industry NEW YORK - Investors in two Bear Stearns Cos. hedge funds took action against the company Wednesday for allegedly misleading them about the extent of the investment bank’s exposure to risky investments.
The company told investors the Asset-Backed Securities fund was not near collapse, but that it froze redemptions to prevent from being forced to sell assets to a market with little appetite for mortgage-related securities.’
Jim Rogers Calls U.S. Housing Market One of History's `Biggest Bubbles' The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.
Comments
Edited to add: oh, I forgot...
For another 20 bn, they probably could buy the place.
Well everyone is pretty quiet out there?
What are the opinions on where these market corrections are leading us?
The housing market is falling apart in many parts of the country, we all know what happened to the stock market last week, and gold got pushed down by huge short selling.
I guess one of the main problems regular investors have with all of these strange capitol markets is that everything is very hush hush until the money is gone.
We started talking a few weeks ago about Bear Stearns, but there must be a great deal more trouble ahead looking at how the big sophisticated money is running to T Bills.
Anyway I thought the guy at Bloomberg had said that the Foreigners were going to come in and take up the slack in our stock market that has not happened yet, perhaps next week.
We all know that the psychology of wealth plays a major part in how freely people spend their hard earned money each month, right?
What is going to be the new thinking of a majority of Americans if they see drops in their retirement plans, losses of 10 to 15 % on there homes, ever increasing prices at the grocery store and the gas pump, and a Democratic Congress looking for every thing they can find to raise taxes on?
<< <i>What is going to be the new thinking of a majority of Americans if they see drops in their retirement plans, losses of 10 to 15 % on there homes, ever increasing prices at the grocery store and the gas pump, and a Democratic Congress looking for every thing they can find to raise taxes on? >>
Most investors will take a long term view of their stock market investments and will ride out the current volitility or will switch to fixed income assets as a temporary safe harbor. Most will take a long term view of the value of their homes and will continue to live in their house and go to their job every day. Most will save a bit less and pay a bit more for groceries and gas. Most will vote Democratic in 2008--even those who voted Republican in the past.
As for gold, every time people hear the case for gold they realize that its the same case they have been hearing for the past 35 years. By now most people understand that gold does not provide capital growth, and when they evaluate how folks like Warren Buffet got to be wealthy they see that it has been through capital growth and not by holding gold and silver.
CG
CalGold
Here is my question for you, and any of the others here that would like to answer this.
All the Wall Street guys I have heard on the news the last few days, with the exception of Fox this morning, have all been preaching pretty much the same thing, “ Everyone should take a long term view and not worry about these devaluations”
So here is my question, most all of the real money in ALL these markets, both real-estate and stocks, belong to the baby boomers worldwide. Just how much of a long horizon do the investment guys think there is for this group?
If you are 62 plus there is NO long term!
Millions of boomers worldwide have been counting on their home equities and stock portfolios to retire on, now what?
Metals and other commodities have been so left in the dust over this same period that it would be hard to conclude that they will have another similar 25 year period.
Derivatives (esp interest rate linked) have risen from a few trillion dollar business in the 1980's to hundreds of trillions of dollars of
"equity." Does anyone really believe this is real wealth?
roadrunner
<< <i>GOLDSAINT -- that is a good point -- the baby boomers are beginning to reach retirement, and this has implications for their own view of "long term" and also has implications for the market itself as people begin to draw down assets. It is worth noting, however, that the baby boom peaked in 1957, so although the leading edge is reaching retirement, the vast bulk of the baby boom is currently in what should be "peak earnings" years. >>
Very true. I would also add that as a former financial advisor, my clients who were in their retirement years still held a majority of their assets in equities. The baby boomers will continue to hold stocks as a key component in their investment portfolios.
Knowledge is the enemy of fear
It is nice to have had a heads up through our previous discussions here. Sometimes it is much more profitable and entertaining to watch a race than it is to actually have a horse on the track. That's not scared money talking, that is secure money watching and waiting for a good play. Greed may be good but cash is king.
It may be possible that the news guys and gals are finally turning as bearish as many of us have been over the last few years.
There is no doubt that the boomer group worldwide is the best educated generation ever, my opinion is that they follow the news as well as the blog’s and would love to get at lest some of their money out of their 401’s etc., but they are stuck for at least a little while longer.
As for those already retired it seems that what I heard last week was that there were more mutual fund redemptions than there had been since the market crash some six plus years ago. For those that do redeem, I do not think they will ever go back as their time horizon will just not handle it.
What I really expect is that between now, and the first of the year, billions of dollars of ordinary folks money will move out of the stock markets into the safety of bonds and C.D.s. I also think we will see this trend worldwide, except in China where investors are still heavily restricted as to where they can put there money, I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there.
<< <i> I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there. >>
If there are plays in other capital markets why would traders move into metals? And if equities are shaky all over, traders looking for stablilty usually move into high quality bonds. There's just too much money in captial markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out.
CG
<< <i>
If there are plays in other capital markets why would traders move into metals? And if equities are shaky all over, traders looking for stablilty usually move into high quality bonds. There's just too much money in captial markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out.
CG >>
Moving into bonds is a kneejerk reaction to instability. If the instability
is largely in currencies there will be a rapid move back out of bonds.
Ultimately the world has no choice but to rush headlong into the future.
Some things will need to be shored up and this process will eventually
result in inflation. Metals should be a beneficiary, if so.
<< <i>
<< <i> I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there. >>
If there are plays in other capital markets why would traders move into metals? And if equities are shaky all over, traders looking for stablilty usually move into high quality bonds. There's just too much money in captial markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out.
CG >>
maybe i am reading this backwards, but if there is too much money somewhere and not enough supply somewhere else (metals?) it would cost more money to purchase that somewhere else commodity. i am missing something.
straighten me out.
<< <i> but if there is too much money somewhere and not enough supply somewhere else (metals?) it would cost more money to purchase that somewhere else commodity >>
If you analyze and value gold a commodity based upon annual consumption (industrial use) vs annual supply (newly mined or recycled product), you will find that annual new supply is actually growing faster than consumption. From the point of view of consumption, there is no reason for someone to move into gold as an investment unless they believe that wolrd economic growth will cause a rise in consumptoin that will exceed new production. But if the world economy is growing, there should be other investment alternatives that would provide capital growth.
Therefor, running into the market with huge orders for a commodity ahead of an ascertainable greater growth in demand from the consumption side makes no sense. The buyer will only run up the price to himself, and in the end, when he stops buying, the price will go back down and he will get stuck holding the bag.
CG
There's just too much money in capital markets to move material portions into the precious metals where there is not sufficient supply and liquidity to aborb a massive influx of buying. Anyone moving there would risk being slaughtered on the way out. ....one cannot be slaughtered on the way out if you bought early in the cycle......such as now for example.
This would imply that there won't be a slaughter in future stock market corrections (a la 1999-2001), that everyone will be able to get out safely. Maybe the 10% of top brokerages and investors can move out, but the 90% made up of longer term investors like pension funds, 401k's, and mom and pop will be holding the bag.
I remember October 1987, and that was only a "little correction."
I could not sell any of my stocks until January....at least not through the brokerages I contacted. Is it really possible for Joe Public even with electronic stops and sells in effect to wiggle out ahead of the masses? I don't think so.
The risk of getting hammered in stocks, CDO's, hedge funds at the moment is rather significant imo. And those in risky CDO's and high-risk derivative based investment packages can easily be slaughtered as Enron, Amaranth, Bear Stearns, and others can attest. And slaughter may be too kind a word.
I'd also like to get a link to the site that shows gold supplies increasing over the past few years. Every major newsletter writer I've read on every site (they must all be wrong) show gold supplies falling due to lowered production and increased demand (something like a 1-2% deficit each year). If this were not true I should have run into at least one site that stated otherwise. And with the prices of gold excavation increasing due to material, labor and fuel costs, the gap is only growing imo.
roadrunner
Gee, its hard enough to try to figure out what people will do if they act logically. Now how the heck am I supposed to predict what they'll do if they act irrationally?
CG
<< I expect to see some serious money out of China go into gold and silver in the coming months if they have trouble with there their markets there. >>
Unlike western investors who can put their money in any market in the world, the mainland Chinese are still very limited as to investing outside of their own country.
The Chinese government allows some mainland investors to invest in funds in Hong Kong but those are restricted to pre-approved investors, and Funds.
Most Chinese think the Chinese stock market in Shanghai is a casino, or perhaps even a government-regulated slot machine, and even though the Chinese mentality is one that likes a good gamble, they do not like losing their very hard earned money.
It is my belief that as American, European, and Japanese baby boomers, begin to cut their spending habits by half, that the huge profits of many Chinese companies will evaporate, and send the mainland Chinese running to the safety of Gold, which they are now allowed to buy.
If we think we have inflation here in housing, oil, food, etc. we have nothing compared to China where real estate, and stock prices increase by one hundred percent per year.
On the “worldwide liquidity” issue, who really knows how much of this liquidity is real money or simply made up computer entries created by overvalued CDO products etc.? When all of these products are mark to market value, how much real investor liquidity will remain. There is so much smoke and mirrors in the investment world today it is very hard for investors to do calculations as which investment to buy.
From the Mystic point of view we live on a planet that is an enclosed system. No atomic structures are added or subtracted each year. Those that are here are simply moved around. Therefore all that has been added to our financial systems over the last several decades are promises to pay, or paper. As one of you pointed out in a previous post, everyone that can now have a credit card is capable of issuing their very own “promises to pay”. In a limited enclosed atomic world how many of these trillions upon trillions of dollars of “promises to pay” can ever really be paid? At some point the “promises to pay” must be turned into real atomic structure, which can be utilized by a human being, and then what?
More billions of “promises to pay” evaporate!
By JENNY ANDERSON
Published: July 31, 2007
Hedge Fund Forced to Sell Its Portfolio
At the beginning of the summer, Sowood Capital was a $3 billion hedge fund run by a money manager who hailed from the team that built Harvard’s endowment into the $30 billion giant that it is today.
At one time, using leverage, or borrowed money, the fund had $12 to $15 billion worth of positions.
Yesterday, Sowood sent out a letter to investors indicating that heavy losses in the credit market had caused the fund to lose more than half its value, prompting it to sell its portfolio to another hedge fund and return the remaining $1.5 billion to investors.
“Today we made the painful and difficult decision to sell substantially all of the funds’ portfolio to Citadel Investment Group,”
The Boston-based fund is not the first distressed fund purchased by Citadel, a $14 billion hedge fund based in Chicago and run by Kenneth C. Griffin, a 39-year-old who started trading convertible bonds in his Harvard dorm room.
Hedge funds manage about $1.7 trillion, more than double the amount five years ago.
My point is that we cannot expect to continue to receive the high returns from the stock market without risk. I try and keep that portion of my portfolio reasonably well balanced and ignore the ups and down, re-evaluating quarterly. Sometimes we get too close to the daily grind of numbers and it can affect our view of things.
I think the interesting part for the boomers will be in another 10 years or so when the ones who are fairly flush with investments will be required to take distributions from their IRAs at 70 1/2. As I get closer to retirement I move towards less risk, but not no risk. I dont have the gloomly outlook that some here do. Hopefully, we can get out of an expensive war sometime in the not too distant future and that will help considerably. (I tried not to politicize that comment, but just allude to the economics of the situation).
I don't know if you can make money with metal...many have won and many have lost before now but I still don't know if that is a place to have a lopsided distribution of assets. Metal will appreciate, over time, but when you want in or out will be a matter of speculation, even for the wizkids. You get into metal when you have the cash and you get out when you need it back. For right now, get in if you plan to stay in but if you are playing the timing for short term with your personal money, just go ahead and bend over. The individual investor is not in a position to move the market, they can only respond. Metal certainly seems to be a very secure place to park some funds for a while. Slow, steady accumulation of metal, in concert with the other elements of your portfolio is not speculative, it's just investing in one of the parts of your portfolio.
Boomers aren't going to get out of the markets all together but I wouldn't think that they are going to be playing or gambling much either. Most folk that watch over their nest eggs are paying very good attention to the news and they know that there is a big shake out going on right now. Housing is going to continue adjusting well into next year and who knows what hedge funds are going to do...there is going to be some significant damage (already has been some) and the individual investor can see this. As stated before, most near retirement boomers are stuck in 401K's and IRA's and they are frozen until they leave the work place so they must bear the brunt of the financial readjustment period we are entering into but 5 years from now they aren't going to be driving the market anywhere, they are going to be sucking up the entitlements...life is good.
<< <i>send the mainland Chinese running to the safety of Gold, which they are now allowed to buy. >>
Once again a theory based on the recurring misnomer, namely “the safety” of gold. Gold is not a stable and safe haven for storing wealth. Its price is subject to volatility. It is not an international alternative currency. It has been demonetized for decades. Gold does not buy daily necessities or earn interest or generate capital growth. It just sits a vault somewhere and incurs storage costs, not to mention the transaction costs of getting in and out of it.
People in countries suffering hyperinflation do not immediately run to buy gold—they run to convert their local currency into hard currencies, and those with enough money also invest in overseas capital markets.
So why would Chinese investors behave as you have described? Where would they be if they owned all of the gold in the world and everyone else owned (through equities) all of the industrial, service and financial assets?
See, that is the problem with the case for gold. There just is no case for it. It is a commodity that can be used to make a nice necklace with matching earrings for your wife.
CG
“People in countries suffering hyperinflation do not immediately run to buy gold—they run to convert their local currency into hard currencies, and those with enough money also invest in overseas capital markets.”
Cal Gold,
I think this is my point! People in Mainland China cannot invest outside their own limited markets, cannot convert Yuan’s to Euros, and cannot buy real estate in other countries.
In fact China may be the only sane global economic player on the planet right now. They limit foreign investment, they limit imports, they limit out flows of the peoples capitol to other countries. They have two sets of rules, the rules where they play in everyone else’s markets, and the rules where they limit what happens to the own economy and the money made from inside.
Yes I am sure you are correct Gold is worthless, and makes no profits, but one has to wonder if those that just lost hundreds of millions in the latest Sowood deal wish they had some of that nasty old Gold rather than those great hedge fund certificates they can now hang on their walls as decorations?
Actually...you can make some pretty nifty little disks with it too.
and as such are often proved worthless in the most terrible of times.
commodities, like precious metals, diamonds, art, rare coins are limited
desirable and thus have the ability to retain value. Practical commodities,
like toilet paper, food, clean water, alcoholic beverages, shoes, clothing
and weapons, while not necessarily limited, are desirable and necessary. Paper instruments of
perceived value , are nothing more then dreams,...... illusions of solid land in a sea of
economic storms.
Camelot
More billions of promises to pay gone on this one!
American Home Can't Fund Mortgages, Shares Plummet.
July 31 (Bloomberg) -- American Home Mortgage Investment Corp. shares plunged 90 percent after the lender said it doesn't have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure.
``They can't function without access to capital,'' said Bose George, an analyst with KBW Inc. in New York. ``The company either has to file for bankruptcy or go through some type of rescue or restructuring, and either way will leave almost nothing for the common shareholders.''
Two years ago, the stock fetched almost $40, today it closed at $1.04.
Creditors made ``very significant margin calls'' in the last three weeks and American Home still has ``substantial unpaid margin calls pending,'' it said in the statement. Options may include ``the orderly liquidation of its assets.''
Here is something else interesting!
Today on CNBC Jim Cramer said that if he was advising someone that had bought a home for no down payment in the last couple of years, and the value had drop by 20%, his advice would be to just walk away! He also said that since 50% of all the homes bought in 2006 were purchased that way he thinks that 50% of at least those loans should be returned to the lenders!
Did I hear that correctly?
So why would Chinese investors behave as you have described? Where would they be if they owned all of the gold in the world?
Where would they'd be? About the same place the US was in their gold owning peak in the 1920's when it owned 80% of gold stores...."on top of the financial world." A couple of sizeable hedge funds (or China) would have enough equity to own all the existing investment gold.....if you could theoretically get it all w/o raising the price to the moon. All it would take is a few trillion. I'm sure they'd much prefer 30,000 tons or so of gold than the 1 trillion+ in US dollars they currently own. Central Banks have much of the available bullion gold stocks, and they make the rules. What would happen if someone else had it?
roadrunner
<< <i>Central Banks have much of the available bullion gold stocks, and they make the rules. What would happen if someone else had it?
>>
Since they make the rules, they would just make rules that render gold totally irrelevant. I am not even sure how the current rules make gold relevant today.
The name of the game today is economic growth through trade. If China decided to accept only gold in payment for goods, it's economy would come to a grinding halt. As it is, I don't think they or anyone else has quite figured out what is going to happen when they so dominate manufacturing that they end up selling everything to everyone else, and everyone else is left with no money money to buy anything.
CG
<< <i>BYE BYE
More billions of promises to pay gone on this one!
American Home Can't Fund Mortgages, Shares Plummet.
July 31 (Bloomberg) -- American Home Mortgage Investment Corp. shares plunged 90 percent after the lender said it doesn't have cash to fund new loans, stranding thousands of home buyers and putting the company on the brink of failure.
``They can't function without access to capital,'' said Bose George, an analyst with KBW Inc. in New York. ``The company either has to file for bankruptcy or go through some type of rescue or restructuring, and either way will leave almost nothing for the common shareholders.''
Two years ago, the stock fetched almost $40, today it closed at $1.04.
Creditors made ``very significant margin calls'' in the last three weeks and American Home still has ``substantial unpaid margin calls pending,'' it said in the statement. Options may include ``the orderly liquidation of its assets.''
Here is something else interesting!
Today on CNBC Jim Cramer said that if he was advising someone that had bought a home for no down payment in the last couple of years, and the value had drop by 20%, his advice would be to just walk away! He also said that since 50% of all the homes bought in 2006 were purchased that way he thinks that 50% of at least those loans should be returned to the lenders!
Did I hear that correctly? >>
While this is significant, lets put it in some context. Thousands of employees at Enron and Worldcom lots their entire retirement savings and shareholders lost billions. And to show how little $1 billion is today; Microsoft traded $1.7 billion worth of stock, just today.
A brief perusal of these threads will show that we predicted the result of sloppy lending practices would end badly. We should not be surprised by this.
Knowledge is the enemy of fear
BYE BYE
Report: 3rd Bear Stearns fund in jeopardy
Hedge fund with $900 million in mortgage investments reportedly face huge losses, according to newspaper.
July 31 2007: 6:56 PM EDT
NEW YORK (CNNMoney.com) -- A Bear Stearns' hedge fund with about $900 million in mortgage investments is reportedly facing huge losses and is refusing to return investors' money, according to a news report published online Tuesday.
“While this is significant, lets put it in some context. Thousands of employees at Enron and Worldcom lots their entire retirement savings and shareholders lost billions.”
Cohodk,
It looks like the Billions are starting to add up here?
This is beginning to look like falling dominos, and except for the Bear Stearns lenders who appear to be stuck with their over valued collateral we have not heard much about the damaged caused to other lenders in these other failing deals.
What seems interesting here is that this is giving everyone a look into these highly leveraged derivative deals, and how little bumps in the road seem to crash these deals. If you have a regular forecloser it is not the end of your business, nearly all mortgage companies have had those, but if you leverage that loan 30 times, then these little bumps become mountains to climb.
Lets just keep an eye on all this as these big companies continue to go belly up and see who else is affected.
. Macquarie Bank has warned two of its investment funds could lose up to 25 per cent, or $300 million, of their value as the fall-out from the United States' sub-prime loan crisis hits Australian shores. Macquarie is the third Australian fund to flag potential losses due to US credit markets drying up.
The fallout of the US subprime mortgage market hit the German banking sector on Monday as IKB, a specialised lender to smaller companies, and Commerzbank, the country’s second-biggest bank, warned they would be hit by losses from risky property loans.
July 30 (Bloomberg) -- MGIC Investment Corp. and Radian Group Inc. said turmoil in the subprime mortgage market may require the companies to write off their combined $1.03 billion stake in a venture that invests in subprime mortgages. Shares of MGIC fell as much as 9.8 percent in after-hours trading. Radian dropped as much 3.6 percent.
CNA said it held $834 million of securities linked to sub-prime mortgages at the end of June.
July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.
Bonds of U.S. investment banks lost about $1.5 billion of their face value this month.
Unfortunately, now the stock and credit markets have become more risk averse and have a great preference for liquidity. This is a big change from a month ago. As a example, many of my bank stocks took a terrific beating. Not all of them have been involved with problem loans, but in the interest of safety, investors don't seem to discriminate. I read that Gold and the metals are down today because of the move from risk.
Just like last week, there seems to be no shelter from the market tumble except for cash and some treasuries.
Goldman Sachs has over $800 billion in assets.
Merrill Lynch has over $800 billion in assets.
JP Morgan has over $1.3 trillion in assets.
Citigroup has over $1.8 trillion in assets.
BAC has over $1.4 trillion in assets.
Morgan Stanley has over $1.2 trillion in assets.
Wells Fargo has almost $500 billion in assets.
Wachovia Bank has over $700 billion in assets.
HSBC Bank---over $1.8 Trillion in assets.
Knowledge is the enemy of fear
+1
to coin a phrase
<< <i>"Smell that? Do you smell that? Napalm son. Nothing else in the world smells like that. I love the smell of napalm in the morning." >>
"You want the truth?! You can't handle the truth!!"
Knowledge is the enemy of fear
Goldman Sachs has over $800 billion in assets.
Merrill Lynch has over $800 billion in assets.
JP Morgan has over $1.3 trillion in assets.
Citigroup has over $1.8 trillion in assets.
BAC has over $1.4 trillion in assets.
Morgan Stanley has over $1.2 trillion in assets.
Wells Fargo has almost $500 billion in assets.
Wachovia Bank has over $700 billion in assets.
HSBC Bank---over $1.8 Trillion in assets."
Cohodk,
Can you tell us what kind of assets these are?
Are they CDO's that have been marked to market?
Are they NET assets?
Are they Cash and Treasuries?
If you read the reports of these companies failing they all had assets of billions of dollars just a few months ago, until their investors wanted their money back, then all of a sudden they were broke!
He has since donated over $150 million worth of impressionist/other paintings to The MET.
Someone will, as usual, make a ton of money on this subprime issue. I wouldn't call it a debacle. So a few mortgage firms are going under.
Wow. Is this the first time a company in the U.S. has gone down???
Another one will flourish taking over the properties, or taking over the loans, or something.
The news in Michigan said foreclosures have gone up 60% from a year ago in Michigan. HOLY COW!!!!! No holy cow ignorant liberal media. It went from 3.9% of all homes to about 6%. That is (in laymans terms) 6 out of every 100 in one of the worst economic states in the U.S.
Hardly a debacle.
All those banks, brokerage firms??? They will still pay out multi-million dollar bonuses to the top dogs, and will still make tons of money, and will still be around longer than we will be.
Isn't the main problem with derivatives the fact that there are more financial instruments than properties upon which they are based?
I knew it would happen.
CDO's and other derivatives make up a small percentage of these banks' assets. The reason I chose to list $10 trillion is because that is aboutt he size of the US mortgage market. Obviously not every mortgage is bad. Lets say 5% of mortgages are bad--and it isnt this high, then banks may be on the hook for $500 billion or just the size of 1 bank--Wells Fargo. These are not complete losses as the underlying homes are not worthless.
Bottom line is while this is making Nightly News headlines---so does Paris Hilton---this is not the end of the world and will not bankrupt our economy. So a few Mortgage lenders go out of business--so what---these companies make lousy investments anyway, and I personally rank them below even the airlines as good investments. And the airlines go out of business every 3-5 years.
Again, not to politicize, $500 billion is less than we have spent on Iraq/Afganistan over the past 5 years.
$500 billion may be more than a drop in the bucket, but the bucket is larger than a 55 gal drum.
Knowledge is the enemy of fear
CDO's and other derivatives make up a small percentage of these banks' assets. The reason I chose to list $10 trillion is because that is aboutt he size of the US mortgage market. Obviously not every mortgage is bad. Lets say 5% of mortgages are bad--and it isnt this high, then banks may be on the hook for $500 billion or just the size of 1 bank--Wells Fargo. These are not complete losses as the underlying homes are not worthless.
I'd say more like 20% of the mortagages are bad. The leverage on derivatives is often as high as 50 to 100 - 1. That said, JPM controls somewhere around $50-100 TRILL in derivatives with about one trillion dollars (give or take a trillion). Someone is on the hook for that 100 trillion. I think with leveraged mortgage CDO's that investors can indeed lose 100% regardless if a home is still worth something. The amount of derivatives floating around far exceeds the asset wealth of the world....by multiples of 10.
roadrunner
implode some 18 months ago and warned about it. Somehow,
fudged economic numbers by the Government as to inflation
and unemployment plus expanding money supply and low
interest rates have allowed the economy to appear to chug along.
While the official inflation rate is around 3.5%, the actual rate exceeds 10%.
Increasing numbers of folks while employed are actually underemployed as
part timers, or have replaced higher paid jobs with lower paid jobs.
Risky loans, risky mortgages and complex financial instruments, have converted
relatively small actual assets into 100 trillion dollars worth of derivatives. Credit card
debt is maxed out and one wonders how much longer the Fed eral Reserve and
Federal Government can keep a lid on the pressure cooker. At some point, all of the stresses in
the economy must be released to the historic norm.
One does wonder where actual financial safety actually exists. Is all well as we are being told, or are we
all living in a dangerous fantasy of misinformation and wishfull thinking. I certainly do not know and doubt
if anyone else knows for sure.
In Friedman's book about a flat world. He states that by transfering our industrial base and jobs to third wold countries
and raising their standard of living all will be well. We will be flooded by inexpensive goods and we will increase exports.
Exports of what, tanks, planes, guns, war, bullets? Sometimes I think that the only flat things is this world, are the heads
of our political leaders of all parties. They seem to be able to add 1+1 and get 200. Truly amazing. I wonder when our so called
leader, will start to work for the people and not the mega corporations nor the politicians need for campain funds and glory.
Camelot
Please tell me what the historic norm is/are.
Knowledge is the enemy of fear
Fear is not to be feared, but rather embraced. There were alot of fearful people who sold stock at 3:30 today. They got their butt kicked. Dont be afraid, profit.
Knowledge is the enemy of fear
never buck the tread bear's point is well taken
say what you will the writing to me is on the wall
i guess it depend on the color of your glasses
Bucking the trend id how I make my living. It works well for me. Thank you.
Knowledge is the enemy of fear
>>
Last, but certainly not least, a story from Resource Investor's intrepid reporter Jon Nones about the possible gold sales that could come out of Italy, as early as next year.
...
The plan aims to cut Italy's debt to 103.2% of gross domestic product (GDP) in 2008 from 105.1% of GDP this year - about EUR27 billion ($36.9 billion) - using the central bank's gold and foreign exchange reserves.
...
Italy has some 62% of its foreign exchange reserves value in gold at about 2,452 tonnes.
Italy has the fourth largest holding of gold after the U.S., Germany and France, excluding the International Monetary Fund. If the country were to reduce its percentage to a modest 30%, it would have to sell about 1,300 tonnes of gold. At current gold prices, this would come to about EUR22 billion. Matt Turner, commodities analyst with Virtual Metals, said Italy hasn’t sold any substantial amount of gold in many years, since “possibly the 1970s.”
>>
See the full article at Kitco link
If Italy and other European governments unload, it will depress the gold market for years to come. Long term it will probably be an excellent buying opportunity. Short and intermediate term, it will hang like a sword over the longs, and any upside will likely be limited.
the excesses of inflation, debt and inflated stock values. If the imbalance
is too extreme, then a world wide depression is the harsh task master.
The government has made a deal with the devil. We will allow the Chinese to
flood our Nation with unlimited goods, if they will take the earned dollars and buy
our National debt. At some point in time, part of the deal is that the Devil (China),
will collect our very souls.
Camelot
“If Italy and other European governments unload, it will depress the gold market for years to come. Long term it will probably be an excellent buying opportunity. Short and intermediate term, it will hang like a sword over the longs, and any upside will likely be limited.”
RedTiger
According to Jim Sinclair, No central bank gold sales ever go into the open market. They are all sold to other central banks! So there is no real effect to Gold markets when governments sell .
July 17
Jim Sinclair’s Commentary
“It is so important to understand fully that selling by central banks never ever touches the open gold market. Instead, it goes to singular large buyers directly which is more often than not central banks.”
I undersatnd the meaning or "historic norm" I was hoping you could tell me exactly what indicators you were referring to. Historic mean for unemployment, for GDP growth, for inflation, for taxation--at all levels.
Where do we stand today and how does that relate to historic norms? IMHO, unemployemnt, growth, inflation, taxation are all below historic norms. Are you saying we should expect slower growth, high unemployemnt, less home ownership, higher inflation, higher taxes?
We could become an isolationist society, but I highly doubt you and I know I, would not want to be part of it.
Knowledge is the enemy of fear
BYE BYE
Union Investment Halts Redemptions From $1.3 Billion Bond Fund
By David Clarke
“Aug. 3 (Bloomberg) -- Union Investment Asset Management Holding AG, Germany's third-largest mutual fund manager, halted redemptions from its ABS-Invest Fund after clients pulled 100 million euros ($137 million) in the past month.
The Frankfurt-based company also closed the 950 million-euro fund to new investments, spokesman Markus Temme said today. The fund, sold to institutional investors across Europe, has about 6 percent of its assets in securities related to subprime mortgage loans, Temme said.”
So is this the way it will go here if investors decide this stock market is just getting to risky?
Do people red the fine print in the investments they buy, that says the mutual fund guys can refuse to pay you if they think their fund is in trouble?
Isn’t this like the old Bank Holidays of the depression?
Bear Stearns hedge funds file for bankruptcy
Two funds were heavily exposed to struggling U.S. mortgage industry
NEW YORK - Investors in two Bear Stearns Cos. hedge funds took action against the company Wednesday for allegedly misleading them about the extent of the investment bank’s exposure to risky investments.
The company told investors the Asset-Backed Securities fund was not near collapse, but that it froze redemptions to prevent from being forced to sell assets to a market with little appetite for mortgage-related securities.’
Jim Rogers Calls U.S. Housing Market One of History's `Biggest Bubbles' The U.S. subprime-market rout that wiped out $2.1 trillion from global share values last week has ``got a long way to go,'' said Jim Rogers, who predicted the start of the commodities rally in 1999.
it just boggles my mind that some people say that Gold is NOT a 'store of wealth'
"“Those who sacrifice liberty for security/safety deserve neither.“(Benjamin Franklin)
"I only golf on days that end in 'Y'" (DE59)
I knew it would happen.