I think fraud charges means someone is going to jail?
I’ll bet you could see the smoke coming from shredding machines on Wall Street last night.
I am not sure if this 10% correction we had in the equity markets is the bottom? All of this selling was being done by the leverage boys trying to raise cash, right? It does not sound like that is over by a long shot. Perhaps we are headed for another big leg down, and have just had a few days of a break?
Sentinel charged with fraud : Aug. 21 (Bloomberg) Sentinel Sued by SEC, Trying to Force Payout to Investors Sentinel Management Group Inc., the asset manager that filed a Chapter 11 petition Aug. 17 after selling assets it was holding for clients, was sued by the Securities and Exchange Commission for lying to investors and misappropriating their assets.
FORBES: J. Kyle Bass, managing partner of Hayman Capital in Dallas, predicts that the highly leveraged mezzanine paper of the CDO (collateralized debt obligations) structures "will fetch bids of around 10 cents on the dollar, creating what he calls an "ensuing horror show."
The banks have lent billions to hedge funds that hold illiquid and highly leveraged assets and need to raise money to meet the demands of banks for more collateral. Second, the banks are still warehousing loans to private equity houses for multibillion-dollar leveraged buyout deals that are stymied.
The debt markets are twice as large as global equity markets, over $100 trillion, compared with $50 trillion. They are an early warning sign of troubles ahead.
If de-leveraging in the credit markets has a long way to go, then expect more downdrafts in the equity markets. The Bernanke reprieves may be a way to lighten up exposure if the updraft continues.
Today the so-called TED spread, between three-month Treasuries and the London Interbank Offered Rate, soared to 300 basis points, up from its usual 20 basis points. This is an indication that the market is still worried about the financial condition of the world’s largest banks.
Just look at Thursdays DOW chart. Why would a market in a freefall suddenly turn 180 and go back up 300 points on no good news at all??
Markets and stocks make V bottoms all the time. In fact most intraday bottoms are V bottoms, especially in bull markets.
At 12pm the Philly Fed Index came out that was rather bearish, the market quickly fell 150 points from -190 to -340. There was a tremendous amount of fear. I was long AA-Alcoa-A dow component and getting my a$$ handed to me. I was down almost $2. The stock was down 10% that day after already being down 35% in the previous 4 weeks. The biggest moves always come at the end, whether it be an up move or a down move. Alcoa dropped to $30.25, which just happened to be a test of a 2yr uptrend line. Even though I was already down $2 on the stock--yes I was shellshocked--I stepped in and loaded the boat. I now only needed a 50c bounce to break even. The stock rallied $1.75 from its low.
That example is just one of many that day. There was no insider "massive" insider buying. No leak of a rate cut. The VIX was over 37--the highest level in years. Only 4% of the SP500 was trading above its 50 day moving average. We were GROSSLY oversold.
The only reasonable explanation for the sudden turnaround is that the market was suffering from schizophrenia and the Fed has been injecting Prozac. Going up on bad news is obviously the rational/sane thing for a free market to do. The only alternative is to admit our markets are extremely manipulated and there's nothing free about them. Which would you rather believe?
So my big SUV is nearly out of gas today, I pull in the local gas station, pull out the old credit card, shove it in the machine, and start to fill up.
Even with the extremely low gas price of $2.70 per gallon, this beast of mine normally sucks up about $75.00 worth at that price.
I am standing there whistling a little tune, and all of a sudden the gas pump shuts off, exactly at $50.00, and it will not pump a drop more.
I now have a little less than ¾ of a tank!
I pull up to the front of the store, go in and tell the nice lady, “hey your pump is on the blink”, No sir, she says, it cut you off at $50.00 didn’t it?
In a very nice way I say, look lady I have had this MasterCard since 1986, and I am to embarrassed to tell you what the limit is, so why did it cut me off?
Then she says, the credit card companies have told the gas company that they will no longer take charges of any more than $50.00 Per customer on these pumps!
So my big SUV is nearly out of gas today, I pull in the local gas station, pull out the old credit card, shove it in the machine, and start to fill up.
Even with the extremely low gas price of $2.70 per gallon, this beast of mine normally sucks up about $75.00 worth at that price.
I am standing there whistling a little tune, and all of a sudden the gas pump shuts off, exactly at $50.00, and it will not pump a drop more.
I now have a little less than ¾ of a tank!
I pull up to the front of the store, go in and tell the nice lady, “hey your pump is on the blink”, No sir, she says, it cut you off at $50.00 didn’t it?
In a very nice way I say, look lady I have had this MasterCard since 1986, and I am to embarrassed to tell you what the limit is, so why did it cut me off?
Then she says, the credit card companies have told the gas company that they will no longer take charges of any more than $50.00 Per customer on these pumps!
So what is going on out here? >>
That happened to me last week with my dual tank pickup truck, it will hold over 40 gallons! I just figured it was that little station as it was fairly rural. Guess not.
"Lenin is certainly right. There is no subtler or more severe means of overturning the existing basis of society(destroy capitalism) than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and it does it in a manner which not one man in a million is able to diagnose." John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
I feel sorry for all those traders who shorted the financials. They should have made out like bandits. Just goes to prove you can't beat a crooked system, no matter how smart you are.
"...the credit card companies have told the gas company that they will no longer take charges of any more than $50.00..."
Could be a number of things:
A. The card companies are trying to protect their asseTs by limiting their exposure to credit card accounts used for consumables. Most folk need gasoline and all God's children need food, whether they have money or not.
B. Drive offs are common, particularly now that money for the regular folk is getting tighter. Limit their exposure by only letting you have $50 worth of their gas.
C. There is some kind of imposed rationing going on at the corporate level either because of refinery supply output or because of environmental concerns.
Is this something new? Just a couple of weeks ago, I was moving my in-laws from NY to Florida and several times, I filled up the rental truck for over $100 on my credit card with no problems.
I just looked this up. There is a limit. It's $75 for master card and $50 for Visa+discover. Apparently stolen cards get used all the time at automated pumps. The cardholder and the gas station are not liable for the charges so the cc companies limit the charges to $50/$75 since they are the ones who have to eat the loss. This rule doesn't apply if you go in and pay face to face, it's just at the automated pump outside. Not all gas stations are bound by these rules.
<< <i>Overall, even if some of these sales are picked up by other Central Banks which may be building up gold reserves, the level of sales serves to be a dampener on the overall gold market, which may well account for the rise in gold price anticipated by some not having occurred. That gold has held up so well, though, despite the high sales levels should be seen as long term positive for the yellow metal. >>
The last sentence is a case of spin doctoring that would make Carl Rove blush.
Gold has been demonitized for decades. The capital markets out grew it long ago. If the Swiss banks don't want it, why should you?
Nothing, I repeat nothing, could make Carl Rove blush.
If gold is demonitized, why has it performed in basic lock step inverse to the dollar for the past several years? Sheer coincidence? That sure sounds like real money to me.
The Swiss may not want gold, nor the dumb Brits who sold half of theirs at $260/oz, but emerging BRIC desperately wants it. Where do you think all the US/EU CB gold has been going to for the past 10 years?
<< <i>The only reasonable explanation for the sudden turnaround is that the market was suffering from schizophrenia and the Fed has been injecting Prozac. Going up on bad news is obviously the rational/sane thing for a free market to do. The only alternative is to admit our markets are extremely manipulated and there's nothing free about them. Which would you rather believe? >>
<< <i>If gold is demonitized, why has it performed in basic lock step inverse to the dollar for the past several years? Sheer coincidence? That sure sounds like real money to me. >>
Isn't this just the price of an internationally traded commodity adjusting to changes in the value of the dollar relative to other currencies? I suppose you could make some sort of case that holding gold is a way to hedge the purchasing power of your dollars against foreign currencies, but if your are convinced that the dollar will continue to fall against foreign exchange, wouldn’t it make more sense to invest in foreign capital markets or high quality bonds denominated in Euros or pounds sterling where you will at least earn interest on your money?
I am beginning to get a much better feel for how worldwide stock markets are really operating now that I am a “stock player” Ha Ha.
Over the last week I have spent many many hours talking to folks, reading, and generally just pushing my educational curve. I would also like to thank cohodk here for answering lots of my dumb questions.
Here are a couple of things that I am finding out in my investigations. First, the general public, for the most part, really are the sheep. Each and every month they blindlessly pour billions of dollars into the mutual funds, pension funds, retirement funds etc. Even if their money does happen to earn a few percent per year they are barely keeping up with the taxes they will have to pay, and inflation.
All of the BIG/SMART money just moves in waves according to what trend is taking place on the planet. Their ideal goal is to gather however many chips they can, no matter what. They move to where ever the market is most volatile. Here is a good example, lets say the large tech companies are doing great and all expected to make a great returns for the year, but one day the weather service says three hurricanes are on there way. All the big money jumps out of tech into oil, and of course the tech sector drops.
A huge part of the liquidity in the markets moves in seconds into any trend, up or down, where they add more chips.
So I was wrong when I said all these markets are just casinos.
The stock markets are really divided into two parts, the big/smart sophisticated money playing casino style trading, and the sheep investors who just send in their checks each month.
This is why the S&P has not made any real investment money profits in the last nearly 8 years. Oh, yes sir, billions of dollars have been made in the markets, but not for investors, for traders.
wouldn’t it make more sense to invest in foreign capital markets or high quality bonds denominated in Euros or pounds sterling where you will at least earn interest on your money?
That is a safe way to try and hold steady against the dollar's loss in value. But one thing I like about the metals markets is their ability to go up or down on a dime for weeks or months at a time. Swings can be 10-30% in fairly short time intervals. I don't think you can get that as a rule from investing in currencies. And since I'm a believer in gold doubling from here, I don't see myself doing as well in a currency selection. For what it's worth I don't play much with bullion gold. I'd rather play the generic gold coin market where bigger swings occur and leverage is at play. While it's not the futures market, it's more leveraged than straight bullion coins. And you have physical possession. I'm more interested in the larger net price gain than earning interest over a year's time.
My current favorite play in generics are MS64 $2-1/2 Libs at around $960. They've fallen off from $1450+ from May of last year. And $960 is about where they were when gold price was back in the $400-$500 range. They have the potential to move up 10% in a week (of course they could fall 10% in a week as well).
This is why the S&P has not made any real investment money profits in the last nearly 8 years. Oh, yes sir, billions of dollars have been made in the markets, but not for investors, for traders.
Depends. My buddy at work was +-63 in 2000 and ready to retire. His Merrill Lynch stock broker turned his $1 million into $500,000 when the crash came. (To be fair, the broker said he hadn't lost because he hadn't sold). No way has he recovered to this day, especially considering healthcare buying power of that original $1 million.
Conversely, a young person who started a 401k in 2002 is miles ahead, even if they chose the sheep approach to any of the various stock investment choices.
<< <i>The stock markets are really divided into two parts, the big/smart sophisticated money playing casino style trading, and the sheep investors who just send in their checks each month. >>
The fact of the matter is, high finance is complicated. I, as one of the "sheep," know a great deal more about my particular area of professional endeavor than these finacial manipulators know about my profession.
The point is that if the high rollars want people who are non-experts to put their money into mutual funds on a regular basis, their inescapable requirement is that they establish and keep an atmosphere of trust. If that trust is eroded because they didn't leave enough slop in the trough for us after they've taken their cut (however substantial), then they can kiss their sheep-shearing good-bye.
Make no mistake. Us sheep will leave in literal droves and go elsewhere (uncluding shoe-boxes under the mattress), if the scam gets to be too obvious. And then, the economy is in REALLY big trouble.
"For what it's worth I don't play much with bullion gold. I'd rather play the generic gold coin market where bigger swings occur and leverage is at play. While it's not the futures market, it's more leveraged than straight bullion coins. And you have physical possession. I'm more interested in the larger net price gain than earning interest over a year's time."
Gold does seem to have a place in every portfolio. Not so much because of the chance that it will break out but because it is very insulated against market swings and financial anomalies. With gold, you will never wake up in the morning and find that your fund isn't going to pay out, or your stock is now worthless, or your bank is out of business or you can't get to your 401K for another 6 years. By far, the most important quality about gold accumulation is that it is so liquid...readily convertible into buks, as in cash, regardless of where in the world you are when you need to have the money. Sort of like the Swiss buying boat loads in '04 at $400 and selling it in '07 for $650...why would they do that? Oh yes, the money.
Gold becomes more valuable with time and a little accumulation here and there is a good thing for most folk. Accumulation is not metal trading, metal trading is a rare art form and a respectful profession populated by fearless peoples, where the fools, the greedy, and the timid are quickly consumed and the successful people sometimes are happy to just to still be alive. Accumulation is different than metal trading. With accumulation, you won't need a short term loan, just drop a couple of wrapped unc buffs on the counter, pick up your 15 or so Bens and you're buckulated.
Gold coins is another story. Buy as high a grade as you can stand, buy them low, pack them away, sell them or trade them when it is to your advantage or you need some cash or need an upgrade on a weak piece. The nice thing about US gold coins is that they are not only very liquid but they are beautiful and they can appreciate significantly in value fairly quickly (2-3 yrs). Anybody can play that game...from quarter eagles to doubles, they are all in play. I was buying slabbed MS 62 $10 indians for $500-$600 three years ago...
You will hear a lot of high fliers poo poo generic gold US coins in 62-63 but for us small time guys, they will suit most portfolios just fine. The nice thing about generics is that if gold busts out...you get the gold price rise plus the numismatic bump, plus the lemming factor from the scaredey cats buying anything they can get their hands on and the higher the grade the better...it's a triple bagger. Sure, the generics languish when gold and/or numismatic interest is flat but just be patient until gold breaks resistance (it will at some point) and then you have your hands full of good stuff.
Not meaning to bore anyone just throwing in my 2c about generic gold US coins, particularly better dates. Don't get me wrong, stocks are good too, along with cash, and metal...balance, balance, balance.
<< <i> The stock markets are really divided into two parts, the big/smart sophisticated money playing casino style trading, and the sheep investors who just send in their checks each month. >>
I've been around the markets a long time. Too long, some might say. Over the long term, the "sheep" have done very well. That is how Vanguard Funds have made their living and John Bogle became an investment kingpin. Keeping expenses down, diversifying are cornerstones for the little guy/gal. There are plenty of would be "players" that out smart themselves.
A few of the big funds do well, the majority of trained, highly educated, well connected, expert fund managers, underperform the averages. Why? Expenses, slippage, commissions, tax consequences of short term trading all eat into real returns. Hedge funds and other exotics often have an even shakier real world average rate of return. Short term trading is sexy. Asset allocation, and tax efficient investing are often what works best when managing large sums in the real world. A tiny percentage of traders do exceptionally well. However, most do not, and many a gunslinger trader eventually loses everything (I know a few of those).
Most of the little fish are better off being "sheep" and sending in their money month after month, and diversifying. Many little fish that think they are a bit smarter than the others tend to out smart themselves and on average do worse than the major stock indices.
Hey Monsterman, you need to look into this, maybe an inside buying opportunity?
Joe Montana's Firm Says Fund of Hedge Funds Lost 12.3% in August alone! By Jenny Strasburg
Aug. 23 (Bloomberg) -- HRJ Capital LLC, the investment firm whose partners include retired football players Joe Montana and Ronnie Lott, said one of its funds lost 12.3 percent in the first two weeks of August, erasing most of its 2007 gain.
Hedge funds are private, largely unregulated pools of capital whose managers, CAN USUALLY PASS THE BALL, JUST KIDDING, and can buy or sell any assets and participate substantially in profits from money invested.
Lott, a former defensive back with the San Francisco 49ers of the National Football League, is a founder and managing partner of HRJ.
I guess the shorts either got killed, or got out of this deal, before the bubba’s in the game started to glue this thing back together.
Gee I thought the CEO said last week when he got the 11.9 billion that he had enough money to last until the end of 2008? He seems pretty desperate to sell stock when he has discounted it to $18.00.
Countrywide Gives Bank of America $700 Million Gain (Update1)
By Caroline Salas and Steven Church
Aug. 23 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. lender, is already up about $700 million on its $2 billion preferred stock investment in Countrywide Financial Corp. This is ``something of a sweetheart deal,'' David Hendler, an analyst at research firm CreditSights Inc. in New York, said in a report. Bank of America, based in Charlotte, North Carolina, can convert the preferred stock to common shares at $18 each, compared with a high reached today of $24.46. Countrywide, the biggest U.S. mortgage lender, will also pay interest of 7.25 percent on the preferred shares.
I agree with Bear. This is a good time to unload stocks before what is likely to be an economic slowdown and bear market.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
Agreed.... use caution. They are pumping some money in..... to allow time for more of the big guys to squeeze the last amount out they can before the little guy is left holding the bag.
A couple of bottom callers that have good track records show stocks ready to move back. While I won't take their bet and buy, I just have a got feel they're right as usual. Too much negativity right now with many fundamentals at far ends of the spectrum (put to call ration, VIX, etc).
<< <i>I tend to discount what the talking heads are saying. They are
all a part of the rigged game ,that always leaves the little guy holding
a large bag of doo doo. While the heads are saying that the big boys are
scooping up stocks at cheap prices, I would bet they are actually selling
on balance. BofA bought 2 billion of notes in Countrywide at such favorable
terms, they have already made 700 million dollars on the conversion to stock
at a fixed 18 a share price. Bof A made the move to stabilize the market for mortgages,
with the secret intention of buying controlling interest in the large mortgage company.
Country wide savedsits self from bankruptcy and Bof A made a windfall profit. >>
Don't forgot about all those people who bought into the overpriced "creative financing" real estate schemes. They are holding a "large bag of doo doo" thats liable to put the economy into a recession. The liquidity crunch is on . . . . To me, it looks like it is a good time to take your profits (if you have any) and raise cash and come in later (after things wash out of the system [ie possible major market correction]) to help mop things up.
. Bof A made the move to stabilize the market for mortgages,with the secret intention of buying controlling interest in the large mortgage company.Country wide savedsits self from bankruptcy and Bof A made a windfall profit.
Probably correct, but I would hold off on the "windfall profit" comment. CFC is down $1 today. Had BAC not pumped in $2 billion, CFC very likely would be a single digit stock. This would have led to another leg down it the markets and perhaps a trillion dollars would have be evaporated. Risking $2 billion to save hundreds of billions seems a wise move.
Will the markets still trade lower, possibly, but not as low as they would have had panic started.
O. K. So tell me this? Why would anyone now pay more than $18.00 for Countywide until this shake up is over, when they just sold 2 billion in stock at $18? The stock closed yesterday at $21. Yes I know this is convertible debt, but no doubt BOFA did this deal to buy them out later if the deal does not go chap.11.
I am sure this will not last, but I made 3% profit my first 4 days of trading, in oil SPDR’S.
I have already made my first big mistake, I really like this investment and have not sold.
I guess I have the sickness now, and am deluding myself that these SPRD’S will go up another 5% in the next few weeks.
How quickly this stock gambling fever gets hold of you! HA HA
I think I'll drive to Atlantic City & do some gambling with the slots.....less nerve wrenching & the odds are just about the same, plus you accumulate comps....
"Bongo drive 1984 Lincoln that looks like old coin dug from ground."
Buy some of these, SIV-lites, and your portfolio will not get to FAT!
Barclays Capital banker quits By Gillian Tett, Peter Thal Larsen and Neil Hume Published: August 24 2007 03:00 | Last updated: August 24 2007 03:00 Edward Cahill, a banker who ran the collateralised debt obligation division, which creates complex debt vehicles linked to assets such as subprime loans, left on Monday after returning from holiday.
Mr Cahill's group was considered to be a leader in developing so-called SIV-lites, whichfund themselves by issuing short-term commercial paper and using the proceeds to buy longer-dated securities. SIV-lites typically employ leverage of between 40 to 70 times, compared with leverage rates of 12 to 16 at normal SIVs.
Barclays created the first deal, Golden Key, in November 2005 for Avendis Group, a Swiss asset management group, and then arranged other deals for banks and hedge funds, including Mainsail II. In recent days, Golden Key and Mainsail, total more than $3.5bn in SIV-lites.”
I think Jim Sinclair is right , we should just replace the word subprime mortgage with CREDIT DERIVITAVE!
Ben Stein and other pundits keep saying that the subprime default rate just cannot be that bad in the U.S. looking at the real numbers.
It appears that just because there might have been some subprime loans in your derivitave package, all these creative paper deals are called a subprime problem.
All of these Voo Doo deals are coming and out of the bag now, and it looks like a very BIG unwinding is going to continue to take place.
SAN FRANCISCO (Market Watch) Aug. 25th -- Sachsen LB, one of two German banks threatened by a global credit crisis, is in talks to sell itself to a rival after an investment in a hedge fund turned sour, the Wall Street Journal reported on Saturday.”
THIS IS THE BIG ONE! WATCH YOUR MONEY MARKET FUND!
On any news where money market funds stops redemptions, this will be the sign to get back to the insurance of the banks. Most people think their money in one of these funds is insured, it is not!
Aug 23rd 2007 | LONDON AND NEW YORK From The Economist print edition FOR those who stop short of stuffing their mattress with banknotes, money-market funds are meant to be the next best thing. They invest their clients' money in supposedly safe and liquid short-term instruments. But as America's mortgage malaise has spread with shocking alacrity from one corner of the credit markets to another, even these staid
GOLDSAINT, if the money market funds are in danger....... what is the average Joe to do with his 401K where he has to choose between..... stocks..... or a fixed account which probably is made up of similar investments?
I think you're going to find credit derivatives sitting in almost every major stock or fund out there. It's just a matter as to how much each firm has. I do not see banks as being exempt from the carnage. In fact due to easy lending practices they may be right behind the large mortgage lenders. If there was any relatively safe haven other than treasuries I'd be with sound companies that are based on hard assets or critical services (energy, oil, water, mining, health care, etc.). Banks and Financial Companies in this environment? Not for a while imo.
I was reading the "money" section in my local paper today and they had Banks as having "lost" the least money since the July 19th peak (-1.6%). In other words hinting that this was the "best" place to park one's money. And at the bottom of the list were all the hard asset companies -8 to -10% (PM's, oil, gas). Home Construction anchored the last spot at -18%. Anyone for loading up on Home Construction Stocks since they are now historically way undervalued?
Dont worry , be happy , Bernanke will bail the money market funds out , otherwise my congressman and others will be asking him why and how he bails some folks out and not others.
“GOLDSAINT, if the money market funds are in danger....... what is the average Joe to do with his 401K where he has to choose between..... stocks..... or a fixed account which probably is made up of similar investments?”
Tincup, I would think that most 401K’s are in something definite, i.e. stocks, bonds, etc. I also think that JoFlax is right here that the Fed will bail out everything, and then we will some REAL inflation.
Jim Sinclair says not to worry too much about your 401K’S and brokerage accounts if you are fully invested and own those bonds or securities in your account. It is the cash and the money markets that may take some time to get back in a crisis since it is pooled.
What seems dangerous to me here is a panic. These funds might be safe over time as long as there is not a run, but lets say some of the money funds put money in 20% of these credit derivatives, that cannot be sold at this time. If word gets out these funds are in trouble, and people start pulling money out, and they have 50% withdrawals, then they will not allow any future redemption, and the panic will be on for all funds.
AS to RR’s point, I have already ask the President of our Bank here if they were playing in this market, and he said no, but at any rate some of the money is FDIC insured which means the Gov. will print it.
What seems dangerous to me here is a panic. These funds might be safe over time as long as there is not a run, but lets say some of the money funds put money in 20% of these credit derivatives, that cannot be sold at this time. If word gets out these funds are in trouble, and people start pulling money out, and they have 50% withdrawals, then they will not allow any future redemption, and the panic will be on for all funds.
I agree with GOLDSAINT on this 2 weeks ago. I also think this could force the fed to react in a bail out , and if they do T-BILLS will go south, wait and see.
As has been wisely mentioned on this thread thru the years , this market operates on FEAR AND GREED, unfortunately with all this recent talk of money market funds possibly being at risk (and money market funds are the traditional refuge of fearful traders). The fearful traders are going to have to do something else with their money and they willl probably have a run on redemptions and we will see 1929 again. Bernanke has lectured widely on the causes of the great depression and I believe he will do anything in his power to prevent another one. My thoughts are that his responses will be inflationary in the extreme and the GREEDY investor has to look at inflation hedges as the best way of protecting our assets. Does anyone have any ideas on inflation hedges in this scenario besides precious metals and property and betting against the dollar..I would love to look into any of the ideas you may have??
For over three years we have made many cases about what a disaster it would be for the U.S. economy if the Asians stopped buying our debt.
The following is an article in the Asian Times today. If you don’t think the Asians are P/Oed over their recent loss of billions in the current market mess please read this article. This is longer than usual, but then it is scarier than usual.
ASIAN TIMES AUG. 25th 2007
'Cracks' in credit By Chan Akya
Not a day goes by without a major European or US bank announcing some kind of financial complication or the other. While much of the problem lies with exposures to the US subprime market, it is perhaps no exaggeration to point out that when banks cannot or will not lend to one another, the global financial system is for all intent and purposes broken.
There are multiple facets of this problem, as I described in recent articles: first, the penchant of Asian countries to preserve Fixed. currency values against the US dollar, which has caused the massive and unnecessary reserves buildup that underpins the whole deck of cards that the financial system is today. The second issue is the repackaging of billions of dollars of US housing (mortgage) debt, the defaults on which threaten to wipe out many years of already meager investment returns for Asian central and commercial banks. Third, we have the reactions from the Western central banks such as the US Federal Reserve and the European Central Bank that are aimed at stabilizing the financial system but draw much on the implicit support of Asian savers.
The second issue raised above, though, goes much deeper, into the moral values that the United States upholds. The principle of caveat emptor or "buyer beware" has held for centuries. It in essence implies that anyone purchasing a product must bear the consequences of subsequent performance. Though, the US government changed this core principle to caveat venditor or "seller beware", in other words transferring the onus of the problem to the sellers and indeed their countries.
Borrowing outside of one's means provides the opportunity for people to make more than their fair share of income. This leveraging effect has been at the heart of much of the value that the United States supposedly created for itself in the past 20 years. Take it away and suddenly the famed finance-based economy simply falls apart like a house of cards.
The US can no longer make stuff, ranging from refrigerators to cars, that will compete with the offerings from Japan, China, and Europe on either price or quality. In that context, creating a nation of software developers (the Internet boom and bust) and then property developers (real-estate boom and bust) seems a logical choice.
As borrowers expanded their appetite for loans and depended increasingly on house-price appreciation to repay mortgage debt, US banks of course felt the need to sell down their risks increasingly, in turn spawning the financial innovations that I wrote about in previous articles. Selling down the risk to hapless Asian savers seeking higher returns than Treasury bonds also freed up the banks to make more loans.
The collapse of market confidence has hit the North American and European financial systems hard. Banks fear the simple activity of lending to one another in the overnight market, necessitating that central banks cut rates for emergency funding (known as the discount window) and the Fed being pushed to cut rates next month, which now appears a dead certainty. However, neither rate cuts nor central-bank intervention will work without the crucial ingredient of the US getting more support from the rest of the world.
This is where the principle of caveat venditor that I described above will come into operation. In essence, US legislators have already started blaming lenders for the problems being faced by borrowers. The country's most famous bond manager, Bill Gross at PIMCO, has gone to the extraordinary length of suggesting direct government assistance for affected mortgage borrowers. This is among the silliest things said by pretty much anyone in the markets recently.
Thus lenders will be asked to pony up for further restructuring payments in one way or the other - either by accepting lower interest rates or by facing the dreaded haircuts that I wrote about previously. They wouldn't be given the option to sell down risk, though, as the financial system has frozen up. Government officials including US Treasury Secretary Hank Paulson have reportedly made dozens of calls to Asian central banks this week demanding support for their markets, to be provided through emergency issues of loans for banks in Europe and North America.
A lack of cooperation would inevitably increase the chances for more nasty outcomes - including trade sanctions of the sort that the US is now mulling on China ostensibly for quality-control reasons but more likely for the ones stated above.
It remains an unmitigated principle of banking that if one owes a million dollars to a bank and cannot pay, one is in trouble, but if one owes a billion dollars to a bank and cannot pay, the bank is in trouble. By lending to inept bankers in North America and Europe, Asian savers will now realize how true that principle is.
There is always another choice open for Asian policymakers. That would be to examine the system as it stands now and decide that ultimately the United States can simply never repay its debts. This would mean calling the greatest bluff in history, that of US financial strength, and letting the system collapse under its own weight. Doing this would cause significant short-term pain to the global economy, but eventually the removal of excessive US consumption cannot but be a good thing for the rest of the World.
Comments
BYE BYE
I think fraud charges means someone is going to jail?
I’ll bet you could see the smoke coming from shredding machines on Wall Street last night.
I am not sure if this 10% correction we had in the equity markets is the bottom?
All of this selling was being done by the leverage boys trying to raise cash, right?
It does not sound like that is over by a long shot. Perhaps we are headed for another big leg down, and have just had a few days of a break?
Sentinel charged with fraud :
Aug. 21 (Bloomberg)
Sentinel Sued by SEC, Trying to Force Payout to Investors Sentinel Management Group Inc., the asset manager that filed a Chapter 11 petition Aug. 17 after selling assets it was holding for clients, was sued by the Securities and Exchange Commission for lying to investors and misappropriating their assets.
FORBES:
J. Kyle Bass, managing partner of Hayman Capital in Dallas, predicts that the highly leveraged mezzanine paper of the CDO (collateralized debt obligations) structures "will fetch bids of around 10 cents on the dollar, creating what he calls an "ensuing horror show."
The banks have lent billions to hedge funds that hold illiquid and highly leveraged assets and need to raise money to meet the demands of banks for more collateral. Second, the banks are still warehousing loans to private equity houses for multibillion-dollar leveraged buyout deals that are stymied.
The debt markets are twice as large as global equity markets, over $100 trillion, compared with $50 trillion. They are an early warning sign of troubles ahead.
If de-leveraging in the credit markets has a long way to go, then expect more downdrafts in the equity markets. The Bernanke reprieves may be a way to lighten up exposure if the updraft continues.
Today the so-called TED spread, between three-month Treasuries and the London Interbank Offered Rate, soared to 300 basis points, up from its usual 20 basis points. This is an indication that the market is still worried about the financial condition of the world’s largest banks.
Markets and stocks make V bottoms all the time. In fact most intraday bottoms are V bottoms, especially in bull markets.
At 12pm the Philly Fed Index came out that was rather bearish, the market quickly fell 150 points from -190 to -340. There was a tremendous amount of fear. I was long AA-Alcoa-A dow component and getting my a$$ handed to me. I was down almost $2. The stock was down 10% that day after already being down 35% in the previous 4 weeks. The biggest moves always come at the end, whether it be an up move or a down move. Alcoa dropped to $30.25, which just happened to be a test of a 2yr uptrend line. Even though I was already down $2 on the stock--yes I was shellshocked--I stepped in and loaded the boat. I now only needed a 50c bounce to break even. The stock rallied $1.75 from its low.
That example is just one of many that day. There was no insider "massive" insider buying. No leak of a rate cut. The VIX was over 37--the highest level in years. Only 4% of the SP500 was trading above its 50 day moving average. We were GROSSLY oversold.
Knowledge is the enemy of fear
So my big SUV is nearly out of gas today, I pull in the local gas station, pull out the old credit card, shove it in the machine, and start to fill up.
Even with the extremely low gas price of $2.70 per gallon, this beast of mine normally sucks up about $75.00 worth at that price.
I am standing there whistling a little tune, and all of a sudden the gas pump shuts off, exactly at $50.00, and it will not pump a drop more.
I now have a little less than ¾ of a tank!
I pull up to the front of the store, go in and tell the nice lady, “hey your pump is on the blink”, No sir, she says, it cut you off at $50.00 didn’t it?
In a very nice way I say, look lady I have had this MasterCard since 1986, and I am to embarrassed to tell you what the limit is, so why did it cut me off?
Then she says, the credit card companies have told the gas company that they will no longer take charges of any more than $50.00 Per customer on these pumps!
So what is going on out here?
<< <i>O.K. this is very weird;
So my big SUV is nearly out of gas today, I pull in the local gas station, pull out the old credit card, shove it in the machine, and start to fill up.
Even with the extremely low gas price of $2.70 per gallon, this beast of mine normally sucks up about $75.00 worth at that price.
I am standing there whistling a little tune, and all of a sudden the gas pump shuts off, exactly at $50.00, and it will not pump a drop more.
I now have a little less than ¾ of a tank!
I pull up to the front of the store, go in and tell the nice lady, “hey your pump is on the blink”, No sir, she says, it cut you off at $50.00 didn’t it?
In a very nice way I say, look lady I have had this MasterCard since 1986, and I am to embarrassed to tell you what the limit is, so why did it cut me off?
Then she says, the credit card companies have told the gas company that they will no longer take charges of any more than $50.00 Per customer on these pumps!
So what is going on out here? >>
That happened to me last week with my dual tank pickup truck, it will hold over 40 gallons! I just figured it was that little station as it was fairly rural. Guess not.
John Marnard Keynes, The Economic Consequences of the Peace, 1920, page 235ff
you have to pay your bill. haha!!! and you should go green!!! haha!!! i never heard of that one before.
eddye
Could be a number of things:
A. The card companies are trying to protect their asseTs by limiting their exposure to credit card accounts used for consumables. Most folk need gasoline and all God's children need food, whether they have money or not.
B. Drive offs are common, particularly now that money for the regular folk is getting tighter. Limit their exposure by only letting you have $50 worth of their gas.
C. There is some kind of imposed rationing going on at the corporate level either because of refinery supply output or because of environmental concerns.
D. It may just be nature's way of telling you...
Member ANA, SPMC, SCNA, FUN, CONECA
Is having an effect on oil companies and
credit cards companies.
Camelot
<< <i>Overall, even if some of these sales are picked up by other Central Banks which may be building up gold reserves, the level of sales serves to be a dampener on the overall gold market, which may well account for the rise in gold price anticipated by some not having occurred. That gold has held up so well, though, despite the high sales levels should be seen as long term positive for the yellow metal. >>
The last sentence is a case of spin doctoring that would make Carl Rove blush.
Gold has been demonitized for decades. The capital markets out grew it long ago. If the Swiss banks don't want it, why should you?
CG
If gold is demonitized, why has it performed in basic lock step inverse to the dollar for the past several years? Sheer coincidence?
That sure sounds like real money to me.
The Swiss may not want gold, nor the dumb Brits who sold half of theirs at $260/oz, but emerging BRIC desperately wants it. Where do you think all the US/EU CB gold has been going to for the past 10 years?
roadrunner
Going up on bad news is obviously the rational/sane thing for a free market to do.
Bull markets rise on good news and then rise on bad news.
Bear markets fall on bad news and then fall on good news.
<< <i>The only reasonable explanation for the sudden turnaround is that the market was suffering from schizophrenia and the Fed has been injecting Prozac. Going up on bad news is obviously the rational/sane thing for a free market to do. The only alternative is to admit our markets are extremely manipulated and there's nothing free about them. Which would you rather believe? >>
Amen brother !!
Freak
<< <i>If gold is demonitized, why has it performed in basic lock step inverse to the dollar for the past several years? Sheer coincidence? That sure sounds like real money to me. >>
Isn't this just the price of an internationally traded commodity adjusting to changes in the value of the dollar relative to other currencies?
I suppose you could make some sort of case that holding gold is a way to hedge the purchasing power of your dollars against foreign currencies, but if your are convinced that the dollar will continue to fall against foreign exchange, wouldn’t it make more sense to invest in foreign capital markets or high quality bonds denominated in Euros or pounds sterling where you will at least earn interest on your money?
CG
I am beginning to get a much better feel for how worldwide stock markets are really operating now that I am a “stock player” Ha Ha.
Over the last week I have spent many many hours talking to folks, reading, and generally just pushing my educational curve. I would also like to thank cohodk here for answering lots of my dumb questions.
Here are a couple of things that I am finding out in my investigations.
First, the general public, for the most part, really are the sheep. Each and every month they blindlessly pour billions of dollars into the mutual funds, pension funds, retirement funds etc. Even if their money does happen to earn a few percent per year they are barely keeping up with the taxes they will have to pay, and inflation.
All of the BIG/SMART money just moves in waves according to what trend is taking place on the planet. Their ideal goal is to gather however many chips they can, no matter what. They move to where ever the market is most volatile. Here is a good example, lets say the large tech companies are doing great and all expected to make a great returns for the year, but one day the weather service says three hurricanes are on there way. All the big money jumps out of tech into oil, and of course the tech sector drops.
A huge part of the liquidity in the markets moves in seconds into any trend, up or down, where they add more chips.
So I was wrong when I said all these markets are just casinos.
The stock markets are really divided into two parts, the big/smart sophisticated money playing casino style trading, and the sheep investors who just send in their checks each month.
This is why the S&P has not made any real investment money profits in the last nearly 8 years. Oh, yes sir, billions of dollars have been made in the markets, but not for investors, for traders.
That is a safe way to try and hold steady against the dollar's loss in value. But one thing I like about the metals markets is their ability to go
up or down on a dime for weeks or months at a time. Swings can be 10-30% in fairly short time intervals. I don't think you can get that
as a rule from investing in currencies. And since I'm a believer in gold doubling from here, I don't see myself doing as well in a currency
selection. For what it's worth I don't play much with bullion gold. I'd rather play the generic gold coin market where bigger swings occur and leverage is at play. While it's not the futures market, it's more leveraged than straight bullion coins. And you have physical possession.
I'm more interested in the larger net price gain than earning interest over a year's time.
My current favorite play in generics are MS64 $2-1/2 Libs at around $960. They've fallen off from $1450+ from May of last year. And $960 is about where they were when gold price was back in the $400-$500 range. They have the potential to move up 10% in a week (of course they could fall 10% in a week as well).
roadrunner
Depends. My buddy at work was +-63 in 2000 and ready to retire. His Merrill Lynch stock broker turned his $1 million into $500,000 when the crash came. (To be fair, the broker said he hadn't lost because he hadn't sold). No way has he recovered to this day, especially considering healthcare buying power of that original $1 million.
Conversely, a young person who started a 401k in 2002 is miles ahead, even if they chose the sheep approach to any of the various stock investment choices.
<< <i>The stock markets are really divided into two parts, the big/smart sophisticated money playing casino style trading, and the sheep investors who just send in their checks each month. >>
The fact of the matter is, high finance is complicated. I, as one of the "sheep," know a great deal more about my particular area of professional endeavor than these finacial manipulators know about my profession.
The point is that if the high rollars want people who are non-experts to put their money into mutual funds on a regular basis, their inescapable requirement is that they establish and keep an atmosphere of trust. If that trust is eroded because they didn't leave enough slop in the trough for us after they've taken their cut (however substantial), then they can kiss their sheep-shearing good-bye.
Make no mistake. Us sheep will leave in literal droves and go elsewhere (uncluding shoe-boxes under the mattress), if the scam gets to be too obvious. And then, the economy is in REALLY big trouble.
Here's a warning parable for coin collectors...
I'm more interested in the larger net price gain than earning interest over a year's time."
Gold does seem to have a place in every portfolio. Not so much because of the chance that it will break out but because it is very insulated against market swings and financial anomalies. With gold, you will never wake up in the morning and find that your fund isn't going to pay out, or your stock is now worthless, or your bank is out of business or you can't get to your 401K for another 6 years. By far, the most important quality about gold accumulation is that it is so liquid...readily convertible into buks, as in cash, regardless of where in the world you are when you need to have the money. Sort of like the Swiss buying boat loads in '04 at $400 and selling it in '07 for $650...why would they do that? Oh yes, the money.
Gold becomes more valuable with time and a little accumulation here and there is a good thing for most folk. Accumulation is not metal trading, metal trading is a rare art form and a respectful profession populated by fearless peoples, where the fools, the greedy, and the timid are quickly consumed and the successful people sometimes are happy to just to still be alive. Accumulation is different than metal trading. With accumulation, you won't need a short term loan, just drop a couple of wrapped unc buffs on the counter, pick up your 15 or so Bens and you're buckulated.
Gold coins is another story. Buy as high a grade as you can stand, buy them low, pack them away, sell them or trade them when it is to your advantage or you need some cash or need an upgrade on a weak piece. The nice thing about US gold coins is that they are not only very liquid but they are beautiful and they can appreciate significantly in value fairly quickly (2-3 yrs). Anybody can play that game...from quarter eagles to doubles, they are all in play. I was buying slabbed MS 62 $10 indians for $500-$600 three years ago...
You will hear a lot of high fliers poo poo generic gold US coins in 62-63 but for us small time guys, they will suit most portfolios just fine. The nice thing about generics is that if gold busts out...you get the gold price rise plus the numismatic bump, plus the lemming factor from the scaredey cats buying anything they can get their hands on and the higher the grade the better...it's a triple bagger. Sure, the generics languish when gold and/or numismatic interest is flat but just be patient until gold breaks resistance (it will at some point) and then you have your hands full of good stuff.
Not meaning to bore anyone just throwing in my 2c about generic gold US coins, particularly better dates. Don't get me wrong, stocks are good too, along with cash, and metal...balance, balance, balance.
<< <i> The stock markets are really divided into two parts, the big/smart sophisticated money playing casino style trading, and the sheep investors who just send in their checks each month. >>
I've been around the markets a long time. Too long, some might say. Over the long term, the "sheep" have done very well. That is how Vanguard Funds have made their living and John Bogle became an investment kingpin. Keeping expenses down, diversifying are cornerstones for the little guy/gal. There are plenty of would be "players" that out smart themselves.
A few of the big funds do well, the majority of trained, highly educated, well connected, expert fund managers, underperform the averages. Why? Expenses, slippage, commissions, tax consequences of short term trading all eat into real returns. Hedge funds and other exotics often have an even shakier real world average rate of return. Short term trading is sexy. Asset allocation, and tax efficient investing are often what works best when managing large sums in the real world. A tiny percentage of traders do exceptionally well. However, most do not, and many a gunslinger trader eventually loses everything (I know a few of those).
Most of the little fish are better off being "sheep" and sending in their money month after month, and diversifying. Many little fish that think they are a bit smarter than the others tend to out smart themselves and on average do worse than the major stock indices.
Hey Monsterman, you need to look into this, maybe an inside buying opportunity?
Joe Montana's Firm Says Fund of Hedge Funds Lost 12.3% in August alone!
By Jenny Strasburg
Aug. 23 (Bloomberg) -- HRJ Capital LLC, the investment firm whose partners include retired football players Joe Montana and Ronnie Lott, said one of its funds lost 12.3 percent in the first two weeks of August, erasing most of its 2007 gain.
Hedge funds are private, largely unregulated pools of capital whose managers, CAN USUALLY PASS THE BALL, JUST KIDDING, and can buy or sell any assets and participate substantially in profits from money invested.
Lott, a former defensive back with the San Francisco 49ers of the National Football League, is a founder and managing partner of HRJ.
I guess the shorts either got killed, or got out of this deal, before the bubba’s in the game started to glue this thing back together.
Gee I thought the CEO said last week when he got the 11.9 billion that he had enough money to last until the end of 2008? He seems pretty desperate to sell stock when he has discounted it to $18.00.
Countrywide Gives Bank of America $700 Million Gain (Update1)
By Caroline Salas and Steven Church
Aug. 23 (Bloomberg) -- Bank of America Corp., the second- biggest U.S. lender, is already up about $700 million on its $2 billion preferred stock investment in Countrywide Financial Corp.
This is ``something of a sweetheart deal,'' David Hendler, an analyst at research firm CreditSights Inc. in New York, said in a report.
Bank of America, based in Charlotte, North Carolina, can convert the preferred stock to common shares at $18 each, compared with a high reached today of $24.46. Countrywide, the biggest U.S. mortgage lender, will also pay interest of 7.25 percent on the preferred shares.
are tempted to plunge into the market. The small
uptick the last few days, is only a hiccup before
another serious downturn. Be careful out there in
Walls Street Land.
Camelot
Makes me feel bad to have it named after
me.
Camelot
<< <i>Just a friendly warning for those folks who
are tempted to plunge into the market. The small
uptick the last few days, is only a hiccup before
another serious downturn. Be careful out there in
Walls Street Land. >>
Agreed.... use caution. They are pumping some money in..... to allow time for more of the big guys to squeeze the last amount out they can before the little guy is left holding the bag.
all a part of the rigged game ,that always leaves the little guy holding
a large bag of doo doo. While the heads are saying that the big boys are
scooping up stocks at cheap prices, I would bet they are actually selling
on balance. BofA bought 2 billion of notes in Countrywide at such favorable
terms, they have already made 700 million dollars on the conversion to stock
at a fixed 18 a share price. Bof A made the move to stabilize the market for mortgages,
with the secret intention of buying controlling interest in the large mortgage company.
Country wide savedsits self from bankruptcy and Bof A made a windfall profit.
Camelot
roadrunner
<< <i>I tend to discount what the talking heads are saying. They are
all a part of the rigged game ,that always leaves the little guy holding
a large bag of doo doo. While the heads are saying that the big boys are
scooping up stocks at cheap prices, I would bet they are actually selling
on balance. BofA bought 2 billion of notes in Countrywide at such favorable
terms, they have already made 700 million dollars on the conversion to stock
at a fixed 18 a share price. Bof A made the move to stabilize the market for mortgages,
with the secret intention of buying controlling interest in the large mortgage company.
Country wide savedsits self from bankruptcy and Bof A made a windfall profit. >>
Don't forgot about all those people who bought into the overpriced "creative financing"
real estate schemes. They are holding a "large bag of doo doo" thats liable to put the
economy into a recession. The liquidity crunch is on . . . . To me, it looks like it is a good
time to take your profits (if you have any) and raise cash and come in later (after
things wash out of the system [ie possible major market correction]) to help mop things up.
SoundPoint
Probably correct, but I would hold off on the "windfall profit" comment. CFC is down $1 today. Had BAC not pumped in $2 billion, CFC very likely would be a single digit stock. This would have led to another leg down it the markets and perhaps a trillion dollars would have be evaporated. Risking $2 billion to save hundreds of billions seems a wise move.
Will the markets still trade lower, possibly, but not as low as they would have had panic started.
Knowledge is the enemy of fear
Geesh, one of the drillers I own is up over 10% in a week or so. Don't know how that happened but I think I'll put that money in the Fishing Fund.
O. K. So tell me this? Why would anyone now pay more than $18.00 for Countywide until this shake up is over, when they just sold 2 billion in stock at $18? The stock closed yesterday at $21. Yes I know this is convertible debt, but no doubt BOFA did this deal to buy them out later if the deal does not go chap.11.
I am sure this will not last, but I made 3% profit my first 4 days of trading, in oil SPDR’S.
I have already made my first big mistake, I really like this investment and have not sold.
I guess I have the sickness now, and am deluding myself that these SPRD’S will go up another 5% in the next few weeks.
How quickly this stock gambling fever gets hold of you! HA HA
Hurricane season
<< <i>Gee, looks like Happy Days are here again..... stock market did good on Friday...... why so much doom and gloom?
Oops.... looks like I spoke too soon. Gee, maybe everythin ISN'T so good yet....
Imaging that.... rules being bent for the big boys.....
GeeHelpMeToo!
Buy some of these, SIV-lites, and your portfolio will not get to FAT!
Barclays Capital banker quits
By Gillian Tett, Peter Thal Larsen and Neil Hume
Published: August 24 2007 03:00 | Last updated: August 24 2007 03:00
Edward Cahill, a banker who ran the collateralised debt obligation division, which creates complex debt vehicles linked to assets such as subprime loans, left on Monday after returning from holiday.
Mr Cahill's group was considered to be a leader in developing so-called SIV-lites, whichfund themselves by issuing short-term commercial paper and using the proceeds to buy longer-dated securities. SIV-lites typically employ leverage of between 40 to 70 times, compared with leverage rates of 12 to 16 at normal SIVs.
Barclays created the first deal, Golden Key, in November 2005 for Avendis Group, a Swiss asset management group, and then arranged other deals for banks and hedge funds, including Mainsail II. In recent days, Golden Key and Mainsail, total more than $3.5bn in SIV-lites.”
I think Jim Sinclair is right , we should just replace the word subprime mortgage with CREDIT DERIVITAVE!
Ben Stein and other pundits keep saying that the subprime default rate just cannot be that bad in the U.S. looking at the real numbers.
It appears that just because there might have been some subprime loans in your derivitave package, all these creative paper deals are called a subprime problem.
All of these Voo Doo deals are coming and out of the bag now, and it looks like a very BIG unwinding is going to continue to take place.
SAN FRANCISCO (Market Watch) Aug. 25th -- Sachsen LB, one of two German banks threatened by a global credit crisis, is in talks to sell itself to a rival after an investment in a hedge fund turned sour, the Wall Street Journal reported on Saturday.”
THIS IS THE BIG ONE! WATCH YOUR MONEY MARKET FUND!
On any news where money market funds stops redemptions, this will be the sign to get back to the insurance of the banks. Most people think their money in one of these funds is insured, it is not!
Aug 23rd 2007 | LONDON AND NEW YORK
From The Economist print edition
FOR those who stop short of stuffing their mattress with banknotes, money-market funds are meant to be the next best thing. They invest their clients' money in supposedly safe and liquid short-term instruments. But as America's mortgage malaise has spread with shocking alacrity from one corner of the credit markets to another, even these staid
I was reading the "money" section in my local paper today and they had Banks as having "lost" the least money since the July 19th peak (-1.6%). In other words hinting that this was the "best" place to park one's money. And at the bottom of the list were all the hard asset companies -8 to -10% (PM's, oil, gas). Home Construction anchored the last spot at -18%. Anyone for loading up on Home Construction Stocks since they are now historically way undervalued?
roadrunner
Tincup,
I would think that most 401K’s are in something definite, i.e. stocks, bonds, etc. I also think that JoFlax is right here that the Fed will bail out everything, and then we will some REAL inflation.
Jim Sinclair says not to worry too much about your 401K’S and brokerage accounts if you are fully invested and own those bonds or securities in your account. It is the cash and the money markets that may take some time to get back in a crisis since it is pooled.
What seems dangerous to me here is a panic. These funds might be safe over time as long as there is not a run, but lets say some of the money funds put money in 20% of these credit derivatives, that cannot be sold at this time. If word gets out these funds are in trouble, and people start pulling money out, and they have 50% withdrawals, then they will not allow any future redemption, and the panic will be on for all funds.
AS to RR’s point, I have already ask the President of our Bank here if they were playing in this market, and he said no, but at any rate some of the money is FDIC insured which means the Gov. will print it.
I agree with GOLDSAINT on this 2 weeks ago. I also think this could force the fed to react in a bail out , and if they do T-BILLS will go south, wait and see.
Does anyone have any ideas on inflation hedges in this scenario besides precious metals and property and betting against the dollar..I would love to look into any of the ideas you may have??
For over three years we have made many cases about what a disaster it would be for the U.S. economy if the Asians stopped buying our debt.
The following is an article in the Asian Times today. If you don’t think the Asians are P/Oed over their recent loss of billions in the current market mess please read this article. This is longer than usual, but then it is scarier than usual.
ASIAN TIMES AUG. 25th 2007
'Cracks' in credit
By Chan Akya
Not a day goes by without a major European or US bank announcing some kind
of financial complication or the other. While much of the problem lies with
exposures to the US subprime market, it is perhaps no exaggeration to point
out that when banks cannot or will not lend to one another, the global
financial system is for all intent and purposes broken.
There are multiple facets of this problem, as I described in recent
articles: first, the penchant of Asian countries to preserve Fixed.
currency values against the US dollar, which has caused the massive and
unnecessary reserves buildup that underpins the whole deck of cards that the
financial system is today. The second issue is the repackaging of billions
of dollars of US housing (mortgage) debt, the defaults on which threaten to
wipe out many years of already meager investment returns for Asian central
and commercial banks. Third, we have the reactions from the Western
central banks such as the US Federal Reserve and the European Central Bank
that are aimed at stabilizing the financial system but draw much on the
implicit support of Asian savers.
The second issue raised above, though, goes much deeper, into the moral
values that the United States upholds. The principle of caveat emptor or
"buyer beware" has held for centuries. It in essence implies that anyone
purchasing a product must bear the consequences of subsequent performance.
Though, the US government changed this core principle to caveat venditor or
"seller beware", in other words transferring the onus of the problem to the
sellers and indeed their countries.
Borrowing outside of one's means provides the opportunity for people to
make more than their fair share of income. This leveraging effect has been
at the heart of much of the value that the United States supposedly created
for itself in the past 20 years. Take it away and suddenly the famed
finance-based economy simply falls apart like a house of cards.
The US can no longer make stuff, ranging from refrigerators to cars, that
will compete with the offerings from Japan, China, and Europe on either price or
quality. In that context, creating a nation of software developers (the
Internet boom and bust) and then property developers (real-estate boom and
bust) seems a logical choice.
As borrowers expanded their appetite for loans and depended increasingly on
house-price appreciation to repay mortgage debt, US banks of course felt the
need to sell down their risks increasingly, in turn spawning the financial
innovations that I wrote about in previous articles. Selling down the risk
to hapless Asian savers seeking higher returns than Treasury bonds also
freed up the banks to make more loans.
The collapse of market confidence has hit the North American and European
financial systems hard. Banks fear the simple activity of lending to one
another in the overnight market, necessitating that central banks cut rates
for emergency funding (known as the discount window) and the Fed being
pushed to cut rates next month, which now appears a dead certainty. However,
neither rate cuts nor central-bank intervention will work without the
crucial ingredient of the US getting more support from the rest of the
world.
This is where the principle of caveat venditor that I described above will
come into operation. In essence, US legislators have already started blaming
lenders for the problems being faced by borrowers. The country's most famous
bond manager, Bill Gross at PIMCO, has gone to the extraordinary length of
suggesting direct government assistance for affected mortgage borrowers. This is among the silliest things said by pretty much anyone in the markets recently.
Thus lenders will be asked to pony up for further restructuring payments in
one way or the other - either by accepting lower interest rates or by facing
the dreaded haircuts that I wrote about previously. They wouldn't be given
the option to sell down risk, though, as the financial system has frozen up.
Government officials including US Treasury Secretary Hank Paulson have
reportedly made dozens of calls to Asian central banks this week demanding
support for their markets, to be provided through emergency issues of loans
for banks in Europe and North America.
A lack of cooperation would inevitably increase the chances for more nasty
outcomes - including trade sanctions of the sort that the US is now mulling
on China ostensibly for quality-control reasons but more likely for the ones
stated above.
It remains an unmitigated principle of banking that if one owes a million
dollars to a bank and cannot pay, one is in trouble, but if one owes a
billion dollars to a bank and cannot pay, the bank is in trouble. By lending
to inept bankers in North America and Europe, Asian savers will now realize
how true that principle is.
There is always another choice open for Asian policymakers. That would be to
examine the system as it stands now and decide that ultimately the United
States can simply never repay its debts. This would mean calling the
greatest bluff in history, that of US financial strength, and letting the
system collapse under its own weight. Doing this would cause significant
short-term pain to the global economy, but eventually the removal of
excessive US consumption cannot but be a good thing for the rest of the
World.