Bits Bucket And Craigslist Finds For July 26, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Fitch
http://www.ft.com/cms/s/06371f56-3ada-11dc-8f9e-0000779fd2ac.html
Vely intelesting. Anybody know tradable companies in this situation that will likely go under ? Leverage is bad if you’re debt servicing goes up at the same time that your revenue decreases.
I want to compile a shorting list.
Maybe this can be our weekend discussion point : Which companies will take it in the shorts ?
How do you think Private Equity works? They load the company up with debt, give themselves nice payments, and then put it back on the stock market.
Which, theoreticaly shouldn’t work. The value of the stock in the reconfigured company SHOULD be worth so much less because of the debt that it’s a zero sum game. Just like flipping a house. They’re both symptoms of the now ending global flood of liquidity.
Vely intelesting… But not nice.
Veddy Intedesting. . . but stupid.
How about CFC?
“Mozilo, the 68-year-old co-founder [of Countrywide Financial], told analysts the housing climate is so bad it will force the 10 giant mortgage firms like his to consolidate or perish.
“I think we’ll get to five,” Mozilo said while discussing Countrywide’s second-quarter earnings bomb, its third-straight quarterly loss.
“You’ve seen it in terms of Wachovia and World, and Fleet and Bank of America. Nothing is out of the realm of possibility.” ”
Mozillo, who has recently been cashing out stock and options, is carefully saying: (1) this company is for sale, and (2) this company will continue to lose value, possibly all its value.
Thanks from Germany!
Time to hire staff for the distressed debt division…….
Shouldn’t these be illegal?
http://www.ft.com/cms/s/fe78b57c-3ad9-11dc-8f9e-0000779fd2ac.html
That’s exactly what I thought.
But imagine if there was a noticeable block of shares being sold off - - that would mean that their “management reserve” or concealed liquidity was depleted, and EVERYONE would want to dump it immediately. Their scheme is a gamble to either prolong a plateau or severely exacerbate a crash.
“Their scheme is a gamble to either prolong a plateau or severely exacerbate a crash.”
The scheme will serve the first purpose quite well until it begins to serve the second.
Scary. Here’s a longer story about dark pools: http://www.portfolio.com/news-markets/national-news/portfolio/2007/07/06/Dark-Pools-Grow-Scrutiny-Does-Not#page1
Also, I like this piece of the article:
Dark liquidity pools have grown in demand along with the increasing sophistication of “trding cost analysis”.
How do you pronounce that? ‘Turding’ Cost Analysis??
The more effed up they make the fundamentals the more they want to fool themselves. It’s like a realy effed up pothead hippy chick that can’t figure out why her life is so effed up, so she becomes more sophisticated about things and the meaning of life and her destiny and soul mate by getting into crystals, astrology, new age literature(?), and attend Liz Phair concerts. LOL
“…effed up pothead hippy chick…”
Do you know any of these? This type sounds like an interesting sort of girlfriend…
I knew lots of these back in the day, but unfortunately they all had limited longevity. Like Janis, Jim, and Jimmi, most have broken on through to the other side.
The world financial system increasingly assumes the guise of a chimera…
Lehman boosts access to ‘dark liquidity’ pool
By Norma Cohen
Published: July 25 2007 22:44 | Last updated: July 25 2007 22:44
Lehman Brothers has boosted access to its own “dark liquidity” pool – offers to buy and sell shares that are hidden from the market – by installing an electronic access connection that is capable of linking with most order execution management systems.
Known as Liquidity Cross (LX), it is one of a growing number of such facilities offered by the largest investment banks seeking to capture the growing demand from investors to buy and sell large blocks of shares without causing prices to jump or fall in response.
Lehman said that while its competitors were offering similar dark liquidity pools, it believes it is the only one allowing large institutional fund managers and hedge funds to access the pool directly without manually directing that order through a trader.
It has signed up more than 120 large institutions as customers of its new system, launched this year.
Dark liquidity pools have grown in demand along with the increasing sophistication of “trding (SIC)cost analysis”.
…
hilarious, I guess Paulson and his gang are the real managers of this LX system?
“…its own dark liquidity pool that combines the “hidden” orders of all its participants.”
O.K., you guys…knock it off!
First I have to worry about “green slime” pools and west nile virus mosquitoes, now you’re tossing in “Dark Liquidity” pools… what next…evaporating “Dark Matter”?
“…and then it went dark”
Those dark pools can be found in their underwear.
Golf Clap for AndyInJersey
Main Entry: chi·me·ra
Pronunciation: kI-’mir-&, k&-
Function: noun
Etymology: Latin chimaera, from Greek chimaira she-goat, chimera; akin to Old Norse gymbr yearling ewe, Greek cheimOn winter — more at HIBERNATE
1 a capitalized : a fire-breathing she-monster in Greek mythology having a lion’s head, a goat’s body, and a serpent’s tail b : an imaginary monster compounded of incongruous parts
2 : an illusion or fabrication of the mind; especially : an unrealizable dream
Who said Trust, but verify? Now you can’t even verify! Don’t believe anything, nothing, NADA! PT Barnum has to be the wisest man ever. “You can fool some of the people…”
”
WHILE Standard & Poor’s, Fitch and Moody’s have all taken fire for their alleged failures in assessing the risk of securities backed by subprime loans, that job is complicated if those risks are intentionally obscured.
A recent report by the Mortgage Asset Research Institute (MARI) found a 30 percent increase in suspected mortgage fraud incidents during 2006. The quality of data on borrowers and loan characteristics provided by lenders to the ratings agencies “has also come under question,” Standard & Poor’s says.
“Data quality is fundamental to our rating analysis,” the ratings agency said in a report explaining its decision to reconsider its ratings on MBS classes issued in 2005 and 2006. “The loan performance associated with the data to date has been anomalous in a way that calls into question the accuracy of some of the initial data provided to us regarding the loan and borrower characteristics.”
Mason said that just as lawmakers should not bail out troubled borrowers or try to facilitate loans to people who wouldn’t otherwise qualify, investors in mortgage-backed securities should be allowed to suffer their losses. Only then, he said, will they demand the transparency needed to assess the risk of such investments.
‘PT Barnum has to be the wisest man ever. “You can fool some of the people…”’
You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the time.
–Abraham Lincoln– (attributed)
16th president of US (1809 - 1865)
“You can fool some of the people all the time, and those are the ones you want to concentrate on.”
George W. Bush
LOL.
Lincoln needs to be updated to our 2007 president ” You can fool 30% of the people ALL the time”
Some of mentioned the Shrub being smart enough to buy land outside of the US yesterday. I wonder if it’s more about fear. I think he wants to be out of the country when it all hits the fan and the public wants a scapegoat.
“I wonder if it’s more about fear.”
More like dutifully following advisors’ advice, me suspects…
I think its a front . I think GW will remain in the United States but make it appear that he lives somewhere else .
Based on futures, looks like we might have another down day in the stock market.
Credit crunch, anyone?
No problems……………it’s all contained
and the containment is spreading rapidly.
Thanks for the BIG laugh!!!!
Contained ? Ha Ha Ha Ha Ha HA!
If Sir Henry (of subprime is contained fame) Paulson drops in Chicago, it might be his LAST visit to the windy city
From the WSJ,
The automotive market is looking WONDERFUL these days:
“With the slumping housing market, consumers have been less willing to purchase big-ticket items, including vehicles,” says Mike Jackson, AutoNation’s chief executive. “We expect to continue to see a challenging new-vehicle retail market as long as the housing market difficulties persist.”
By all accounts, July’s monthly sales results appear bleak, following a soft June. July’s seasonal annual selling pace could sink to 15.9 million light vehicles, said Citigroup’s Jon Rogers, in a research note. That would be the lowest annual pace for July since 1998.
And Ford (F) announced its first profit in 2 years.
I predict Goldilocks will carry the market today. They will use Apple’s news plus a phony New Home Sales report at 10 a.m. to try to push it up. That is my prediction for today.
What do you think of the former Boeing Executive now running Ford? Think he is really making a difference or no?
Allan Mulally, (CEO Ford), is probably less useless than most of them. He was actually a bona fide engineer at one point.
Whether or not he can ’save’ ford is another matter however. And in any case the damage is probably done. Those cars are terrible.
Maybe we will see Carbon Fiber cars to reduce their weight and make them more fuel efficient. They did it with the Boeing 787.
If they can reduce the price, I’m in.
Why do they sell 5Keuro cars in Europe but here you start with a twelve foot beast?
Incidently, scooter sales have been up big since 2000, but I don’t know about the last two years. Used $600, New $3000. Nice if you have the weather for it.
Alan Mullaly is a very smart executive. He’s hands on and thinks in real-world common sense, not abstract thoughts. He will be the best thing to happen to Ford as long as the controlling, gr$$dy Ford family stays out of matters.
Give the guy a chance. A company built on the back of a couple past products (SUV, pickups) cannot be turned around in the year he’s been there. The new Taurus is a good start.
The auto companies are toast…
Why’d they push suvs as hard as they did?
Suv’s were/are just bolted on bodies on a truck chassis, not SAFE expensive unibody construction, as on regular passenger cars.
Don’t think they’ll SUVive.
Ford will be ok. While Toyota and Hyundai build ridiculously expensive new factories in the last two years, Ford borrowed some cheap money and got busy turning themselves into a company that would be profitable while selling fewer vehicles. They were widely criticized for “giving up” market share.
I think you are confusing GM and Ford. Ford had no choice but to give up market share, as their products were skewed towards trucks and SUVs when the market wanted CUVs and cars. The freestyle (Ford’s early CUV) was a flop.
GM is the company that gave up market share (mainly to rental fleets) to focus on profitability, not Ford.
Because it was the only way for US carmakers to get around all of the fuel efficiency standards that are applied to cars but not trucks, plus it’s cheaper to build a truck so there’s more of a profit margin. All they needed to do was make it look cool to drive a truck instead of a car. Before about 1990, if you drove a pickup or a Suburban or GMC Jimmy you were considered a friggin’ hick. A few well place ads with beautiful active go-getter yuppy a-holes in them and bam you gotta product.
>
I remember reading article (WSJ?) back then when the SUV craze was starting. Something about how guys liked the seating and being up high (visibility). Heck, I remember that that my German born, autobahn raised father-in-law had a Chevy Blazer (basically a pickup with a fiber glass shell in the back) in 1985 and loved it.
But what goes around comes around. Chevy dealers out here are discounting Suburbans more than $10,000. Brand new Suburbans for $28,000 (*gas not included).
Just as today people can’t imagine driving conversion vans (what were we thinking back then?), SUV’s will be the same way in 10 years. Their only legacy will be the poor people driving a couple around, and rusting heaps in the junkyards.
“Maybe we will see Carbon Fiber cars to reduce their weight and make them more fuel efficient. They did it with the Boeing 787.”
The real savings with carbon fiber in aircraft will likely be from no corrosion.
He was just on CNBC. Says he shudders every time he hears someone say housing isn’t spilling over. New car sales down over 14% in CA and FL and that is a direct result of housing problems. If we want to avoid a recession, we HAVE to lower rates.
Durable good orders is bad. Ex-transportation was expected to be up .5, actual down .5.
How will lowering rates help the housing market? Interest rates are already low. The “problem” is that genuine credit standards are being applied to loan applications, for the first time in 3-4 years.
The head of AutoNation wasn’t saying that it would help housing. He was saying it would help other consumer spending and keep corporate spending high.
However, I don’t necessarily agree. Just as real lending standards are being applied to home buyers, it is now being applied to corporate lending. Lower rates won’t lesson risk, and the risk spread will widen faster than the fed could drop rates.
The “problem” is that genuine credit standards are being applied to loan applications, for the first time in 3-4 years.
Prior to the bubble, property prices were pretty much kept locked to incomes. Over the past 5 years, income no longer mattered - you got the loan almost no matter what. Once income matters again, and I believe it does today, prices will again have to be linked to income. In the inland areas of Southern CA like Riverside county, prices became disconnected by a factor of three while in other areas such as Orange County and San Diego, a factor of two seems to be in order.
I am going to reach here a bit, and “speculate” that we will be entering a phase of the bubble in which virtually no properties change hands. Not for lack of would-be buyers, but for lack of financing, and a refusal of sellers to lower prices back to where they need to be so buyers can qualify for financing.
in most of the world income or credit history still doesn’t matter very much and home prices keep rising into the stratosphere. If you step back and look at the big picture, US home prices are just a little off their all time highs and credit is still easy to get. It seems to me that the central banks are still fully in control with their inflationary policies (just look how gold/goldstocks took a beating in the last few days …).
It’s been said here before, if house prices AREN’T going up by double digits forever, than it matters whether borrowers actually have the capability to repay their loans under the terms that they’ve agreed to. The last few years of bubble lending has been predicated upon the idea that people would never need to pay over the course of a loan, they’d simply REFI at the end of the teaser rate and give the lender a nice prepay penalty.
Now that lenders are beginning to look a borrowers ability to repay the loan, many of these FBs are locked out of refinancing.
in most of the world income or credit history still doesn’t matter very much and home prices keep rising into the stratosphere.
I agree even in the poorest third world countries property prices are very high. Interestingly, the wealthiest man in the world is not Bill Gates, but a Mexican man named Carlos Slim. That in a country where the average wage is only a few dollars a day… The US markets however do appear to be powered by credit, so while in the long term our wealth distribution will almost certainly look a lot like the rest of the world (no middle class) in the short term, no credit = no house.
The average wage in Mexico is at least $10/day. Per capita income in Mexico is nearly as high as in Brazil. The absolute lowest wages are around five pesos, or about 50c, per hour.
Also, Mexicans work a 48 hour work week, and are paid 56 hours. Also, only a small minority are paid minimum wage. While it is hard to believe, Mexico is one of the better off 3rd world nations.
The last time the richest man in the world was Mexican, the Peso was devalued pretty soon after. Inflation in Mexico is much higher than it is in the US, but yet the exchange rate has not changed in 10 years. If the amount of remittances from the US ever decreases, the Peso will be in a lot trouble.
Mexico’s Current account deficit is $1.9B with 76B in cash reserves (excluding gold).
Mexico’s inflation which includes oil and food: “Twelve-month inflation midway through July was 4.08 percent, above the upper limit of 4 percent the bank considers acceptable” July 24th, 2007 Reuters
I would not worry about Mexico.
why worry about mexico. us will soon be like mexico. very little middle class. country run by elites. vast majority of resources and production benefits the elites.
The last time the richest man in the world was Mexican, the Peso was devalued pretty soon after. Inflation in Mexico is much higher than it is in the US, but yet the exchange rate has not changed in 10 years.
For what its worth, unlike last time, Mexico’s currency is floating freely and is not pegged to any currency.
If the amount of remittances from the US ever decreases, the Peso will be in a lot trouble.
This I fully agree with.
Why worry about Mexico?
There seems to be a new “Manifest Destiny” taking place. By the look of things, very soon, Mexico, USA, and Canada will all be one. Think about NAFTA, the super highway from southern Mexico to Ontario Canada with truckers from those countries stopping at the new US customs “port of entry” in Denver, Colorado. Check out the “Amero,” the Bush Administration’s new money for all three countries, which aims to join the 3 countries at the financial hip. Could our dollar soon equal one Canadian dollar or one peso?
Check out the Amero:
http://www.youtube.com/watch?v=6hiPrsc9g98
I pull in resolution, and begin
To doubt th’ equivocation of the fiend
That lies like truth.
Housing Weakness Weighs On Auto Sector’s Outlook
By Mike Spector and John D. Stoll
Word Count: 608 | Companies Featured in This Article: General Motors, Ford Motor, Toyota Motor, Honda Motor, AutoNation
The weakening U.S. housing market is dimming the outlook for auto makers for July and the rest of the year, with some industry analysts forecasting sales for cars and trucks at their lowest rate for the month in nearly a decade.
The housing market has already taken a toll on auto sales, as weak home values dull consumer appetite for big-ticket purchases. But as more economists predict continued housing weakness, auto sales could remain under pressure the rest of the year. (See related article.)
http://online.wsj.com/article/SB118541866377178604.html?mod=home_whats_news_us
On CNBC right now they are attributing the sell-off to “lemmings”. Unbelieveable.
More like the parabolic blowout in the stock market over the last few months is attributable to “lemmings”…
Asian and European markets are down quite a bit today, based on U.S. credit worries.
Another interesting day in the stock market. Up strongly at the open, faded through the day and coming back as the day ended. Up 68 for the day. Why? What was the news that would suggest that the market should be up?
The professional traders that post comments through the day at indexcalls.com have no doubts about why. They accept as fact that the government is manipulating the stock market on a daily basis. They note that the indices “gap up” frequently through the day. Several times yesterday there were mentions of stocks being purchased at prices over the ask.
Here is what one posted yesterday:
“When the PPT is engaged near All Time Highs,
you know beyond a shadow of a doubt that:
1) our financial markets are a joke
2) our economy is a dead man walking
3) the bankers control our government
4) we are completely screwed”
And Bill Murphy, a professional trader who publishes the daily MIDAS report at lemetropolecafe.com, said:
“For the umpteenth time the problems for US financial markets and the economy disappeared overnight. The DOW is called 65 higher…
Whenever the DOW looks shaky, for whatever reason, and has a really bad day, the PPT makes sure the “Mo” immediately turns back up; at least they make an effort to do so. It has been this way ever since 9/11…
”
Certainly my experience shorting home builders has convinced me that the PPT is alive and well and frequently boosting the builder stocks when bad news is issued. Time after time companies have issued devastating news and the stocks have risen on the day.
Free market? Not on your life!
I don’t know a lot of about investing, but doesn’t the PPT piss a lot of people off? How can you go short when the markets are all nutty?
Yes,indeed. But they can’t inflate the balloon forever. At some point it will pop. Maybe that is happening now???
But don’t you lose a lot of money if you buy short or buy puts and the market foes the opposite of what you thought?
A buddy of mine - whose father was a daytrader - summarized it best: there are a bunch of guys yelling about numbers and looking at graphs; then the market either goes up or down.
Muggy, PPT, “Plunge Protection Team,” is an internet fantasy invoked by those seeking to understand why the market does what it does. If you think it should go down, and it does the opposite, the only “rational” explanation is government bureaucrats buying shares willy-nilly with taxpayer funds. Right.
The flip side of PPT is the International Banking Conspiracy (IBC) that internet-based Gold Bugs are convinced exists. The IBC, in their view, is responsible for holding down the price of gold on international markets, in effect preventing it from rising to it’s “true price,” which varies according to which Gold Bug you ask - usually anywhere from $2,000 to $200 Trillion per ounce. Whatever.
“…internet fantasy invoked…”
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
Oh there you go. Yes, these guys are buying Toll Brothers on the open market, just to frustrate you, Stucco. Guess what? I’ll bet you lunch at the Coronado that Toll Brothers is the one buying Toll Brothers, not the Treasury Department.
Oh there you go running your mouth off again without bothering to support a single thing you say with data or even a reference.
You see, Muggy? Anyone who questions the “conspiracy” is met with utter hostility. Thank heavens this is the internet - if I’da questioned the Flat Earth theory in the middle ages, I woulda got my head chopped off.
Ahh, the lengths to which we will go to try and give meaning to things we do not understand….
DC_Too,
So long as you are in the mood for sharing your wealth of undocumented opinion, would you care to explain why every time the headline indexes start to crash, they are magically buoyed up and end the day no more than 200 pts below opening bell level?
http://www.marketwatch.com/tools/marketsummary/
Yep - it’s not the record shorting and plenty of liquidity - it is the all-powerful government (same guys, btw, who can’t wipe their asses without a major f***-up).
There is a PPT, it has been confirmed by the gov’t and I think the official term is “Federal Working Markets Committee”. You would be better off debating if the recent bumps in the market are attributed to the working committee (PPT) or automated trade functions.
“You would be better off debating if the recent bumps in the market are attributed to the working committee (PPT) or automated trade functions.”
No need for that. DC_Too is another in a long line of trolls whose sole objective is to discredit regular posters.
DC,
Let’s say the PPT doesn’t really go out and buy Toll stock. Would you agree that they (and they includes large financial firms) might agree to “push money” toward certain investments?
If you don’t think this is possible, I have a bridge to sell you.
GS– Just because you’re a regular poster doesn’t make you right, it just makes you the person who has been shouting the longest.
The PPT exists; however, what you believe they do and what the reality is are probably wildly different. They aren’t propping up off 100-point DOW drops, they’re in place to prevent 1000-point automated drops, to act as a go-between for all the major houses to get a level of communication going so there’s no massive panic selling.
What you’re proposing is a shadowy organization that works to stop anything over a 50-point slide, run by the same people who stored truckloads of ice for Katrina victims in Portland Maine.
I stand corrected. ‘Nearly every time the headline indexes start to crash, they are magically buoyed up and end the day no more than 200 pts below opening bell level.’
Actually, gold seems to go down every time the stock markets go down hard. Seems like a lot of purchases of gold were leveraged and they’re also selling gold to cover margin calls (as we know the stock markets are horribly leveraged).
It’s all about DEBT DEBT DEBT.
Some of the gold bugs are pretty un-so-fist-ikat’d and don’t understand that a lot of that “paper” fiat money is not actually paper but zeros on a computer, that it was created not by a printing press but by selling credit derivatives, and that it will not flee risky assets (like paper money) and push up gold but rather VANISH when credit gets tighter.
Can we have massive asset deflation while the dollar loses value?
Yes. Yes we can.
Hoz made a very interesting point a couple of days ago. Gold sales are a very good source of liquidity for covering margin calls…
That’s an interesting thesis - can you expand?
That’s what I want quantified. How much of the gold is held by the standard prototypical investor who simply follows the norm of putting some low % of the portfolio in gold because that is what “you supposed to do.” When these typicals get zapped in the credit crunch and find their fiat investments frozen and the margin man calling they will have little recourse but to generate instant liquidity (sell gold). When the central bankers join in to keep exchange rates from going wako, it will be a one two punch to gold prices.
That’s when I would like to jump in, but I don’t trust anyone to follow such a logical course of events.
You are severely ignorant:
The Working Group on Financial Markets (also, President’s Working Group on Financial Markets or the Working Group) was created by Executive Order 12631,[1] signed on March 18, 1988 by United States President Ronald Reagan.
http://en.wikipedia.org/wiki/Plunge_Protection_Team
The question isn’t if they exist, but what is their involvement. Since we dont have visibility (other than “minutes”) we dont know.
If you think it should go down, and it does the opposite, the only “rational” explanation is government bureaucrats buying shares willy-nilly with taxpayer funds. Right.
Plus, wouldn’t the treasury end up owning the lion’s share of the market? After all, they could never sell the stuff they buy because it would drag the market down.
Of course it would, Colorado. The whole thing is preposterous. The Fed can and does conduct “open market action,” usually to defend the dollar. That involves large, rapid fire purchases of the U.S. Dollar - which are government obligations anyway - it’s fine for us to “own” them.
They do not buy homebuilder, or sub-prime lender shares on the stock exchange. Of that you may rest assured.
Can’t they sell it to one of those black pools?
I am a stubborn bear / short on the HB, got my early ‘07 ill gotten gains erased mid ‘07. Tried again with smaller stakes in BZH, HOV & KBH this month, and so far OK. BZH reported earnings today and won’t even guess when the market is going to improve.
IMHO this looks like a strong 2nd leg down. What has worked here (for shorting) is a 2 - 3 month time frame & when a 20 - 30 % gain comes GET OUT ! Looking next @ CAT puts (this may be very early in the cycle) but as the disease spreads …
IllinoisBob…
When you have a trend, stick with it. Be ready for short squeezes and ride through them. An excellent example is Ryland. It traded at 72 when I first shorted it. Several times on the way down, it surged as the PPT put the squeeze on. But the trend was obvious to anyone reading this blog. It is now trading at less than half of where it was when I shorted it. And I plan to hold on until it is clear that the housing market has bottomed or when it goes into bankruptcy, whichever comes first.
cat leaps may be a very good idea
Crap, I own CAT. I figured a weak dollar environment would be good for them. They thought so too because management was personally buying shares when I did.
Am I stupid?
“They thought so too because management was personally buying shares when I did.”
Management can dump their shares before you can blink your eyes twice.
They would have things going their way if the housing market didn’t implode. But now that all of those housing tract contractors have idle equipment with no prospects of increasing work. They are dumping heavy equipment in droves at auction. Check out the sales volume of Ritchie Brothers (the biggest market for CAT re-sales) they have never had a better year than 07′. The sad part is that a lot of the equipment ends up outside the US.
Don’t count on a quick recovery in California, with the exodus of equipment needed for the next recovery, the state air quality board is putting a stake through the heart of the industry by mandating clean burning diesel machinery that does not exist.
I have a topic for the weekend. Discuss how many ways government agencies and policies will manage to do more harm than good in getting a recovery started.
Former senate candidate, under indictment for not declaring campaign contributions, also losing his house to foreclosure:
http://tinyurl.com/27vp8h
Note the lender, and the interest rates.
The total amount of the two loans exceeded the sales price by $231,266.
No problem. Remember, it’s a new paradigm!
I bet that money went right into his campaign.
And now into legal costs
LOL - good one.
The same bank gave both loans on an 80/20? Now *that’s* creative financing.
Oh yeah, that happened all the time. It’s also one of the things that has disappeared with the tightening. A bunch of lenders that still have “100%” CLTV programs are only doing firsts on the 80/20… But now nobody’s doing seconds! Remember CW’s news that defaults were skyrocketing on prime 2nd-lien loans? Those high interest rates don’t amount to much when it’s essentially backed by no collateral.
To Housing Wizard; Thank you for yesterdays most forceful and eloquent “I WANT TO KNOW” comment. It has been printed and framed and placed in a position of prominence. Thanks also for allowing me to plagiarize it. It has now been sown to the wind, and will probably reap the whirlwind. When I am on the podium with my bandages and crutches because of being firebombed to receive my Pulitzer ( or was it the Nobel for economics ) I will certainly acknowledge you, Ben and the wonderful contributers to this blog. My prize wiil be donated to BHHB. I had a dream….
You go girl!!!
Yes, you go girl . If I helped in anyway in you getting some ideas or point or questions out there I’m glad . I usually post so better writers/thinkers can take the ball and run with it .
Megan Balod, 29, is Crisp’s sister-in-law. A year ago, she went on a shopping spree in southwest Bakersfield and bought a house on Walderi Street for $380,000, as well as a house for $920,000 on Covent Garden Court, and a home on Vista Bonita for $549,000.
Then, in one week last May, she bought two houses, one for $795,000 and another for $475,000. In all, records show she borrowed more than $3 million that spring.
That’s more than $15,000 a month in interest payments for Balod, who answers the phones at her father’s CPA business.
She’s the only borrower listed on the loans; even her husband has been taken off the deeds. Balod’s sister is married to Crisp, so one might think she’d get a good deal when she goes house shopping.
http://bakersfieldbubble.blogspot.com/
Hilarious. A receptionist makes what? $3,000/mon. Has $15,000/mon interest payments? Why event the property taxes ($33,000/year) would exceed her take home pay.
What a joke. This is obvious loan fraud. It is time these “landlords” become tenants…..at a federal institution. The whole famdamly. Idiots.
Must be CA. Receptionists in Ohio make about $1300/mo.
The news piece is magnificent Crispy.
I watched it with Mr. Gwynster last night. He used to work for a broker outside of Chicago while in grad school. He was floored by how bold the crooks have gotten. It used to be you were grifting if you were sneaking a point or two and some fees on the backside. He says this has now become a whole other ballgame.
Good work keeping these guys in the news and on people’s mind. I really hope you get rewarded somehow for all the time and effort.
For example, Crisp bought a home in 2005 on Marazion Hill Court for $630,000. In 2006, he sold it to Balod for $795,000, a $165,000 increase in eight months.
Hey Crispy, is this guy going to end up in jail or 6 ft under? I want to see his cocky smirk wiped off his face. The dudes a criminal no matter how you look at it. Hope the Feds throw the book at him.
crispy&cole, what’s happening with that 1 Lennar house? I wonder if the Crispy dynasty will be hangin’ out around Bakersfried after x-mas. Maybe they can relocate to Chula Vista…just a couple a miles to the Mexican border…just in case they need a “sudden” Baja vacation.
“Lennar Corp…“At its peak two years ago, the company took out 1,042 permits to build homes in Bakersfield,…In April, the company took out just one.”
1,042 units to ….in 24 months…1
Bakersfield…2007,
Oil, carrots and pesticide dust & 1 new Lennar built house.
Mortgage Woes May Worsen. Well, duh!
http://biz.yahoo.com/ap/070725/mortgage_woes.html?.v=4
Idiot Today Show realtor.. “now is the time to buy, you only see the bottom when you come out of it and the bottom is now!” (Barbara Corcoran)
I better get shopping.
From the lady who predicted 2 years ago that people would be out buying homes right after the super bowl. She had it backwards. People weren’t out buying them, they were out selling them.
Instead of calling it the “Spring buying season” can we call it the “Spring selling season?”.
Spring listing season… not much selling.
“spring listing season” — I think you’ve coined a new phrase there, Darrell. Well done!
you only see the bottom when you come out of it and the bottom is now!” (Barbara Corcoran)
So… how can she see the bottom?
Inconvenient questions >:)
Barbara, you need to realize the bottom is going to be long, low, and wide. You are still trying to sell fear of missing out. Today, most buyers realize it is much smarter to continue renting for 50-60% of the cost of home ownership. That way they can save $50,000 over the next 2 years, vs. owning a home. Then, they will save another $200,000 as the home prices come down to match income levels (instead of sub prime buyer levels).
Even if a smart buyer waits until the market hits bottom and goes up 5%, that buyer will be a quarter million dollars ahead of where you will put them today. So shut your flapper.
flapper. LOL
I saw this. Dunderhead Lauer called here a “Real Estate Expert”. Instead of a Real Estate Shill!
It’s great when someone who’s livelihood is completely reliant on the market not taking a nosedive, is able to spout what ever they want unchallenged. I actually thought it was Lareah in drag!
Reminds me of Lauer talking to someone from the Whit House:-}
If Matt Lauer had brains to speak of, would he be on basic cable pitching softballs to shills?
He’s not even terribly good at that, either. Larry King is much more famous.
“you only see the bottom when you come out of it and the bottom is now!” (Barbara Corcoran)”
Guess she hasn’t come out of her bottom yet.
I fully believe that even the hard news and the “soft news” like Today Show, are fully scripted commercials. I really believe that Ms. Corcoran (or someone) paid for that “infomercial”, just as analyts pay to be “interviewed” on CNBC so that they can tell current and future FSB’s (foolish stock buyers) that they are “experts” and were on tv.
In Ms. Corocran’s case, she has made millions scamming other wealthy and new-rich into buying overpriced co-ops all over Manhattan. So if it is later found out that she steered them all wrong, she will basically be ostracized, so she is probably doing anything she can to slow the inevitable.
Sounds like she’s been reading real estate romance novels?
Plenty of red here…………
http://money.cnn.com/data/world_markets/index.html
Norway was up .04%, so it wasn’t all bad.
Norway is a commodity currency with $300B in foreign reserves. Most of their reserves are diversified with 37% in the US dollar.
oil
Better yet, they sell fish and oil to generate a foreign surplus. No matter what happens to paper assets, fish and oil will do just fine.
oy vey
iTunes users:
Go look up this Podcast (Search “Tom Leykis”) called “Emergency Savings Fund”.
Description:
Some people are living hand to mouth and just won’t be able to afford to live they suddenly hit upon hard times. Do you have 3 months of emergency money that you can live on if times get rough?
Tom is an entertainer - a radio personality. He is a bright and sensible guy sometimes…
Having 3 months worth of expenses saved is nice. Being a year ahead on mortgage payments is even nicer.
He actually quotes an article on 3 months, argues for at least 6-12 months, and then goes on to laugh at people in foreclosure (with due explanation why…)
Of course every american has three months expenses saved up. When times get rough, you just go to the house basement ATM and take out some equity money. Everybody knows that this is true, so why would you have ***cash*** siting around doing nothing? You should invest in a couple of condos in Miami, and then you get even more free cash!
/Sarcasm off.
Yeah I heard this piece on Monday. It was frickin halarious and spot on. He basically laughed at 3 mos emergency savings asking what happened to 6-12 mos. He also said he has no sympathy for anyone facing foreclosure (unless in extreme cases - medical). And in fact he thanked them saying he would benefit in several years when he bought their foreclosed homes at 50% less. Laughed aloud in my car…
Capital spending weakens again in June
WASHINGTON (MarketWatch) - Capital spending by U.S. businesses weakened for a second straight month in June, while strong demand for airplanes pushed total orders for U.S.-made durable goods up by 1.4%, the Commerce Department reported Thursday.
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7B922858D4%2DC410%2D474D%2D9D2C%2D1AEF09209BCC%7D&siteid=mktw
All kinds of woes in the newspapers today:
“Easy Money, Lifeblood Of Economy, Is Drying Up”
http://tinyurl.com/yvk7zd
This reinforces the point that many have been making on this blog - that it’s not so much a housing bubble as it is a general credit bubble. And it’s now deflating - a lot.
I noticed over the past 5 years my credit card limits trippled. It is possible this is because I moved to a very high income zipcode, but I cannot help but wonder if $30K credit cards are the new norm or if we will start seeing reversals. I would never use but a fraction of my credit limit anyway, so it seems odd.
Tell me about it! I have something like 50K available - never asked for more than about $2,500 in my life. WTF???
That’s nothing. I have $50K in outstanding balances on credit cards at 0% till summer 2008, with the total limits reaching $100K. Talk about easy money.
I’ve heard of some people with variable income (salespersons, for example) trying to stave off foreclosure by living on their credit cards, hoping their fortune would change.
That article is mostly pretty good on the EFFECTS of tightening credit, but a little confused on the CAUSES.
With home prices falling in many parts of the country, millions of subprime borrowers, those with shaky credit histories, are falling behind on their payments and losing their homes. In many cases, their homes are worth less than their loan balances, and with prices down, they cannot sell or refinance their way out of trouble.
FBs don’t fall behind BECAUSE the price on their house is falling. They fall behind becuase they agreed to a loan that simply couldn’t afford. Rising house prices merely let them REFI into another loan that they couldn’t afford. The real problem isn’t that credit is contracting, it’s all the bad loans made when credit was expanding.
Right . I remember during the 23 years that I owned my last home ,there was a few years in which the RE values went below my original purchase price . The market had no bearing on me paying my loan payments that I qualified for .
It just goes back to the industry making loans to a bunch of unqualified buyers that needed real estate to continue to go up so they could refinance or sell or flip that house .
“And it’s now deflating - a lot.”
Strike up the “Ride of the Valkuries” leitmotief (aka “Apocalypse Now” battle scene background music)! Helicopter drops to the rescue!!!
You could make a “greatest hits” compilation from just today’s articles.
“Home Sales on a ‘Staircase to the Basement’”
http://tinyurl.com/2r945b
I really wish someone would buy Robert Kiyosaki a comb and teach him how to use it.
Maybe Rich Dad could give The Donald combing lessons?
Robert Kiyosaki will market a new product for his wealth portfolio:
“Bob Kiyosaki’s Botox Lip Balm” …with a testimonial from Donald “pucker lips” Trump himself.
I just finished reading “Only Yesterday: An Informal History of the 1920’s” by Fredrick Lewis Allen, University of Virginia. I was amassed by the numerous parallels happening in today’s economic environment to that time.
Real estate bubbled everywhere in the US, most notably in Florida, and topped around January 1926 across the US. Although the economy looked questionable, the stock market went parabolic around April 1927 (1 yr 3 months from the RE top) and ended October 1929 (3 yrs, 9 months from the RE top).
If we transpose these dates to today, it gets real interesting. The real estate top was about May 2005. The stock market started its latest run in July 2006 (1 yr 2 months from the RE top!). If we extrapolate, the projected top of the stock market run should be about 3 yrs 9 months from May 2005, or January-February 2009. Interestingly that’s about the time a new president will be inaugurated.
So, TXChick keep your powder dry at least for a while.
I can’t imagine stocks going up for another 1 ½ years, but I’m going to trade it that way and I’m a perma- Bear. The parallels are just too similar.
Other items of note from the book: Scandals about young skinny debutants were big topics in the news (Paris, Lindsay, & Britney?), sports figures were king, and notorious murder trials filled the newspapers of the times. Commercial RE continued until the stock market crash (Empire State building finished 1931). Plus, everyone margined everything to the hilt, it was the “get rich quick” era.
http://xroads.virginia.edu/%7EHyper/Allen/Cover.html
I think that 2009 will be much like 1929. http://en.wikipedia.org/wiki/The_Great_Crash,_1929
The only diffrence is today China is left holding the empty bag.
IMHO this is more like 1893. The big difference was in 1893 the maximum mortgage that could be obtained was an LTV of 50%.
I wonder what Kudlow’s CNBC broadcasts were like back in 1893…
The “big difference”???
LOL, Kudlow would have said “nothing to worry about” as the US faced its worst economic crisis. (probably surpassed by the great depression, but open to debate)
I have no reason to believe, despite all the similarities, that this bubble will end on exactly the same schedule as the one from the 1920s. But it is well and good to remember that crash took years to develop and this one may as well. Events in the past sometimes appear to occur in much more quick succession and their connections look more obvious than they did at the time.
I agree. I think a stock crash will occur in the next few months. Now that’s it obvious that something aint right with housing, foreclosures are up, discretionary spending is dropping etc…, The next thing will be people will start selling stocks or liquidating 401 plans even with the penalty just to get some cash and the stocks will go down. I think it’s kind of a reverse of 1929. 1929, stock crash then housing crash. THis time house crash then stock crash.
During the tech bubble didn’t people get home equity loans to buy stocks and lost their shirts? Wonder how many refied to buy into the stock market. That’ll also affect the market.
“Wonder how many refied to buy into the stock market.” Within the last month, I’ve heard anecdotal evidence that people have been doing this same thing lately!
If we transpose these dates to today, it gets real interesting. The real estate top was about May 2005. The stock market started its latest run in July 2006 (1 yr 2 months from the RE top!). If we extrapolate, the projected top of the stock market run should be about 3 yrs 9 months from May 2005, or January-February 2009.
Lincoln had a staffer named Kennedy who told him not to go to the theater. Kennedy had a staffer named Lincoln who told him not to go to Dallas.
I wouldn’t draw too many parallels. Yes, the stock markets have been going up but if you look at the last 3 years, we’ve gone from about 10,000 to 14,000. That seems huge but translates to 11.9% per year. That’s not too far from the historical average.
If you go back 4 years (2003 was a big year), it went from roughly 8500 to 14000. That’s about 13.2% per year. That’s sure higher than the average but considering that we had a big big drop proceeding that period it’s not exactly unheard of.
In the ’20s, say from 1921 to 1929, the stock markets averaged something like 27% per year.
I find it interesting that so many people go crazy over the run in the stock market when it really hasn’t been much more than the historical average. Also keep in mind that inflation has been very high and the dollar has fallen so the true gain of the U.S. market has not been as much as you might think.
That being said, I don’t doubt that the coming crash in real estate could bring down the markets. That may happen. (I will not claim to be smart enough to say it will or will not.)
Maybe our liquidity/risk situation is like that in the last ’20s but it’s manifested itself mostly in areas other than stocks.
Those recent numbers are DOW - I know not the best indicator.
Rocketrob, I think you’re right on with all the parallels to the 1920s. But that’s a dangerous game you’re playing, counting on a nice neat match in the relation of real estate bubble to stock bubble. I really have no idea how things will play out, but if I had to guess, I’d say that the dotcom bubble corresponds to the 1920s Florida RE bubble, and today’s housing bubble corresponds to the 1929 stock bubble. IMO it’s really the overall credit bubble that you should focus on; the bubbles in particular asset markets are just symptoms.
One point, we weren’t at war in the 20’s. The nation was busy blowing off steam after WW1. I’ll leave it to the experts to decide how that effects the model.
Look at what the 30s did for art and architecture. This gives me hope.
I don’t completely disagree with your logic, but you may want to consider the possible effects of faster and wider communication today. I agree with another poster on this blog (forgot who it was– sorry) who postulated that modern communications technology will accelerate the crash vs. the timeline in ‘29.
Wider, but not appreciably faster. Stock tickers certantainly existed in the 20s, so people could get real time quotes.
I would agree with you except this wasn’t a housing bubble so much as an effect of a HUGE credit bubble. The crash will happen when the credit bubble is popped…which is probably months away…
I have a question - are home equity loans secured or unsecured debt? If a person defaults on a home equity loan, can the bank that the house away?
Secured. Yes, they can. But, if they take the house and sell it, they have to pay all the costs and then pay off the first. They only get what is left over. If the holder of the second can’t take the house and sell it for a profit, they may not bother to pay the costs of foreclosure.
So if your house is underwater, it’s really not secured, except in some sort of theoretical, legal manner.
Home equities are secured with a lien, but the lien holder is 2nd in line. If the sale leaves nothing after the 1st gets their share, the 2nd is out of luck. Both are out of luck if the IRS puts liens on the house, because they take first precedence.
Stocks should get slaughtered today but I am sure something fishy will happen and stocks will be up 200 points : ).
Did anyone see DHI’s report? oer an 800 million dollar loss, as WE ALL PREDICTED HERE, so it’s no surprise when the ecaught off gaurd and it is a complete shock. Ah, but then you look at the inside sells and you see the classic pump and dump strategy.
I agree, Tom. Dark matter will surely prevail, and contrarian bulls will step in to kill the shorts. Lather, rinse, repeat.
Prime Problem: Home Prices That Are Falling
By: Scott Patterson
Wall Street Journal, 7/26/2007 — Many prime mortgages that have gone bad never should have been made at all. Some of the prime loans that are starting to go bad should have been made only if the lenders could guarantee that housing prices would keep going up.
They didn’t, and that contributed to Countrywide Financial’s 33% drop in quarterly earnings and 10% stock drop on Tuesday. The culprit, the company said, was a surprising jump in delinquencies by prime borrowers who had taken out home-equity loans.
When prices were rising, homeowners were able to wiggle out of mortgages by refinancing or selling.
Now, amid tighter lending standards, air is seeping out of the bubble, and the escape hatch for troubled borrowers has slammed shut.
“The challenge now is going to be for people who would like to refinance, but the value of the property is materially lower than their existing loan,” said housing economist Thomas Lawler.
That means more prime-loan defaults are likely on tap. Today’s report on June new-home sales could show how aggressively home builders have been cutting prices. Sales of newly built homes in April surged 12%, in part due to an 11% drop in the median sale price. Prices fell just 1% in May and sales fell again.
Another clue could come from D.R. Horton, which reports fiscal third-quarter earnings today. The home builder said earlier this month that net home orders had tumbled 40% from a year ago. The question is will the company slash prices to get sales moving again?
Citigroup May Be Hit Hard
By Tightening Debt Market
With the wheels coming off the $12 billion auto loan backing the leveraged buyout of Chrysler, J.P. Morgan Chase, the lead arranger of the deal, has a bit of egg on its face. But the bank’s archrival, Citigroup, may look just as bad as leveraged-debt investors refuse to part with their money.
Citigroup was a lead arranger of $24.6 billion of U.S. loans and bonds yanked from the market, according to Reuters Loan Pricing. Besides Chrysler, it was one of three leads on Allison Transmission, a $3.1 billion loan deal pulled earlier this week. That total doesn’t include deals like Dollar General, where underwriters including Citigroup and Goldman Sachs Group sacrificed fees to get them sold.
Citigroup’s shares have fallen about 10% since the beginning of last month, while J.P. Morgan’s are down 13%. Falling prices for loans in the secondary market could hurt banks’ results if they’re forced to sell them at a discount. The company is comfortable with the credit it has extended, Gary Crittenden, Citigroup’s finance chief, said last week.
“There’s a lot of uncertainty,” says Jeffrey Harte, analyst at Sandler O’Neill & Partners.
Citigroup has a role in the largest deals in the pipeline, too: TXU, First Data., Alltel and Clear Channel Communications. Recently, Charles Prince, Citigroup’s chief executive, said the company was still willing to finance buyouts. “As long as the music is playing, you’ve got to get up and dance,” he said. Were he asked now, would he still be dancing?
My Aunt and Uncle bought a house for 180k back in late 2002. That is right before housing prices started increasing. They also have great credit. He is disabled and on a fixed SS income and she now had to drive over 120mph to work in her SUV. As gas prices, insurance, and taxes have increased, it has eaten into their income (we’re in FL). They resorted to a Home Equity line of credit for 300k (the new value) and paid off the credit cards and got a new car. Obviously things happen like car needs repair etc, trip up north you know. So they do another Home Equity Line of Credit up to 400k. Do the same thing, pay off credit cards, put in a pool, etc… Finally they refinance it all again at a low rate, but not as low as it could have been for around 500k and do the same thing and buy a new car, but better on gas. If something happens, like gas goes up, insurance goes up again or taxes, they are screwed. These are your prime borrowers that are having problems. Credit looks good, but when the money is easy and you think it is a bail out to save your credit, you are only masking the situation until it comes home to roost. This is what is happening now.
He is disabled and on a fixed SS income and she now had to drive over 120mph to work in her SUV.
Wow, that is a terrible commute. I’ll bet the SUV doesn’t get very good mileage at that speed!
LOL! about 5mpg
Is 120mph the speed at which the flux capacitor kicks in?
Jus’ kiddin’. I’m sorry your aunt and uncle are in that situation. A lot of good people got in over their heads.
And everyone who is in over their head has a common thread: SUV driving, Starbucks drinking, serial-refinancing to enable (unnecessary) consumption
Tech, very funny.
Tom, another thing about this funny money: The fees. You aunt and uncle have financed $1.4 million in the last 5 years. One way or another, they paid 1-2% in loan origination fees, plus all the refinancing costs. That could be $30-50,000 dollars. No one pays attention when it is easy cash out mortgage money. But imagine telling someone to pay $10,000 a year out of pocket for loan expenses. It would not happen.
Good point Jingle.
But if you have to refi to make ends meet, why would you put in a pool and run up more credit card debt? Plus they’ve bought 2 new vehicles since 2002. This is how people get into trouble.
In many areas, foreclosures have already surpassed the high peak set in 1996/1997, after 6 to 7 years of a down market! Were only one year into the current downturn…I’m no longer sure what to expect over the next few years.
Today cnn.com has a quick poll. “Do you worry about making your rent or mortgage?” So far it has been 38% yes, 62% no. Considering that cnn.com viewers are primarily white-collar workers that makes for a interesting number.
My neighbor works for a mortgage lender. Her husband works for Fed Ex. We rent next door in a bubble market neighborhood in Sacramento. The neighbors purchased a new 4200 SF house (2 parents, 2 young children) for $750,000 in early 2006.
I saw her at the store the other day buying groceries. She looked haggered and beat down. While I was talking to her, she indicated she and her husband were struggling to make the house payments. The current asking price on similar models: $624,000 and dropping fast.
They are well educated people, but no clue about real estate cylces. They will be feeling a lot of pain for a year or two and probably capitulate, giving the house back to the bank. It will be absolutely impossible for them to make ends meet after the rate reset in 2008. The funny thing is they own three new cars, but have no curtains (just sheets), no furniture, and the back yard is dirt. Weird values.
“The funny thing is they own three new cars, but have no curtains (just sheets), no furniture, and the back yard is dirt. Weird values.”
Just like Tobacco Road, only in a McMansion. Beverly Hillbillies, except with no money. What were all these faux riche thinking. Just getting part of the equation does not make a millionaire.
High profile Multimillionaire checklist.
1) multimillions in the bank
2)huge paid off house
3) 5 paid off hummers
4) two yachts
5)trophy wife
6)expensive antiques, all paid for
7)impeccably furnished home, all paid for
One heavily financed house and nothing else is nowhere on that list. Who the hell were these people fooling?
Multimillionaires use banks for petty cash. The real money is invested.
“The funny thing is they own three new cars”
Do you know for a fact that they OWN three new cars or perhaps they are leased? Add to that the fact that she works for a mortgage lender and her job may not last until 2008!
CNBC Opening Bell show starts with “Looks to be an almost panic open”. Junk bonds in freefall still. Deals in danger. Home builders say end is no where in sight.
It is amazing… Markets move up without reason, and the flapping heads on CNBC think all is normal. Markets turn negative on truely scary underlying fundamentals, and they are ALL flustered. Calling people lemmings. Companies beat lowered estimates, but guided way down for 3rd quarter….and they SOO want that to be good news.
I’m beginning to think aaron burnett is a lemming.She talks out her @ss and doesn’t know too much.They are trained promoters.
They are just actors. None of them know squat about econ, finance, acctg, r.e., fractional reserve banking, etc. They get paid by the stock brokers (and others who have a stake in the consumerism of our contry) to pump up everything and convince sheeple that all is well.
Again, they are actors, nothing more - they are just trying to eat like everyone else (in their case at everyone else’s expense)…
All of the CNBC clowns are cheerleaders. When the market’s going up, there’s a lot of “we” talk, as in: “Today we hit the 14,000 mark.” Makes me want throw a brick at my TV.
Today, when the futures took a nosedive around 4 a.m. Pacific, every one of them had a befuddled look on their face and they started stammering and stuttering. “Wha happen?” they seemed to be saying.
Joe Kernan and Erin Burnett sounded like they were ready to start crying. Idiots.
– Judge Smales
“You’ll get nothing and like it”
When you say “fractional reserve banking”, I’m not sure what you mean. My understanding is that banks are no longer required to keep ANY reserves.
Housing starts at 10:00 EDT - Who wants to bet that we will see less than 900k?
Congrats on your winning bet…
U.S. new-home sales drop 6.6% to 834,000 in June
By Rex Nutting
Last Update: 10:00 AM ET Jul 26, 2007
July 26 (Bloomberg) — The risk of owning bonds of Wall Street firms surged as concerns escalated that investment banks will be hurt by rising losses from subprime mortgages and a freeze in demand for corporate debt.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ9xAxPlikwI&refer=home
I guess there will be no Wall Street bonuses this year? If Wall Street starts laying off people, then there will be many who bought expensive condos and will have to sell them.
There are always Wall Street bonuses. The street protects its own.
WOW when DR Horton records a loss it’s a huge one - 823 million!
July 26 (Bloomberg) — Absolute Capital Group Ltd., an Australian hedge fund that invests in collateralized debt obligations, suspended withdrawals from two of its funds after forecasting losses amid a rout in U.S. subprime mortgages….
The nation’s 20 million people are the world’s biggest investors per capita and Australia has the fourth-largest managed funds industry. Unlike in the U.S., where only qualified investors can place money in hedge funds, Australia allows individuals to invest in the vehicles.
http://www.bloomberg.com/apps/news?pid=20601081&sid=alyYqteqJHco&refer=australia
I suggest they get Blackstone on the case, as soon as the Basis Capital and Bear Stearns deals are done, or sooner if necessary… Gotta make sure nobody suspects them hedge fund subprime bond assets have a current market value in the fire sale price range.
Second Australia hedge fund suspends withdrawals
Wed Jul 25, 2007 9:01pm ET162
SYDNEY, July 26 (Reuters) - A second Australian hedge fund has become caught up in the subprime mortgage fallout, with Absolute Capital telling investors it has suspended withdrawals from two funds until October due to a lack of liquidity in structured credit markets.
http://today.reuters.com/news/articleinvesting.aspx?type=etfNews&storyID=2007-07-26T010104Z_01_SYD212150_RTRIDST_0_ABSOLUTE-FUNDS.XML
Blackstone ain’t gonna live up to it’s magical reputation on this one…
Why bother, after the IPO is history?
I realize it is very late for you in California and you probably will not read this, but Blackstone is key. It is why I was very worried shorting after the IPO. Blackstone has a history of success in difficult markets. Most of its stock was purchased by in ‘in house’ investors. 10% of Blackstone was purchased by the Chinese Government. China even diversifying out of over $700B still has 600B left to spend. That finances a lot of debt. Blackstone is an interest rate play. Many traders and professionals are looking at Blackstone to determine safety/ risk.
“Australia allows individuals to invest in the vehicles.”
That sounds almost as bad as enabling strawberry pickers earning $20,000/year in income to buy $700,000 houses.
http://www.chicagorealestatedaily.com/cgi-bin/news.pl?id=25792
Chicago-area home sales down almost 20% in June
(Crain’s) — The local residential real estate market continued to sputter in June, as home sales in the Chicago area fell 19.8% from the year-earlier period, according to report released Wednesday.
Statewide, home sales fell 17.1% from June 2006, says the report by the Illinois Assn. of Realtors. Year-to-date, Illinois home sales were down 15.2% compared with 2006. The median Illinois home price in June was $215,000, up 1.1% from June 2006.
The data, which covers both new and existing homes, is generated from a survey of Multiple Listing Service sales through the state.
Where did Zandi purchase his crystal ball with the turnaround date timing feature? I would like to buy one…
The State of the Slump
Tighter Credit Helps Keep Housing Inventories Rising,
Though Some Hard-Hit Cities See Signs of a Turnaround
By JAMES R. HAGERTY and RUTH SIMON
July 26, 2007; Page D1
Tighter credit is prolonging a deep slump in home sales, but a quarterly Wall Street Journal survey of 28 major metro areas shows that the surge in inventories of unsold homes is slowing. In two of those markets — Boston and Denver — the number listed for sale has actually declined from a year ago.
One three-bedroom condo in this Orlando, Fla., building, listed at $749,000, has been on sale since March.
The latest trends offer some hope for an eventual recovery in a U.S. housing market that generally has been cooling since mid-2005. Even so, many economists and industry executives say that recovery will be very gradual and won’t start before 2008 at the earliest. That’s partly because more-stringent lending policies are keeping many potential buyers on the sidelines, while others are holding off in hopes of prices heading even lower. Meanwhile, there is still a glut of homes on the market in much of the country, especially in Florida and parts of Arizona, Nevada and California. (See chart. http://tinyurl.com/2u2glj )
Home sales and prices generally should bottom out around mid-2008, says Mark Zandi, chief economist at Moody’s Economy.com, a research firm in West Chester, Pa. “The market will not revive quickly, however,” he says. “It won’t be until the turn of the decade before housing activity returns to more normal conditions.”
http://online.wsj.com/article/SB118540759669178277.html?mod=home_whats_news_us
Bad news for home sellers
Sales drop to slowest pace in five years, though prices are up slightly
By Martin Crutsinger
ASSOCIATED PRESS
July 26, 2007
WASHINGTON – Sales of existing homes fell in June for a fourth consecutive month, further evidence that housing troubles are far from over.
The National Association of Realtors reported yesterday that sales of existing homes dropped by 3.8 percent in June to a seasonally adjusted annual rate of 5.75 million units. That is the slowest sales pace since November 2002 and the decline was about twice what had been expected.
http://www.signonsandiego.com/uniontrib/20070726/news_1b26economy.html
Nomura hit by US subprime exposure
By Michiyo Nakamoto in Tokyo
Published: July 25 2007 23:02 | Last updated: July 25 2007 23:02
Nomura, Japan’s largest broker, on Wednesday said it was considering withdrawing from the US residential mortgage-backed securities market following substantial losses related to the subprime mortgage market and a writedown of its US operations.
“We are currently undertaking a thorough review of our US operations and remain focused on achieving our overall management objectives,” said Nobuyuki Koga, president.
The review of its US business follows Nomura’s disclosure for the first time of its exposure to the US subprime mortgage market, which has led to a Y31.2bn ($259m) loss in the fixed-income business in the first quarter and a Y70bn write-down of its US business.
The value of mortgage-backed securities has been dropping in the US amid a rise in homeowner defaults, especially among buyers with poor credit histories. The mortgage turmoil led to the closure of two Bear Stearns hedge funds and has hit results from many banks and mortgage lenders.
Nomura has reduced its exposure to the RMBS market, with RMBS assets falling from Y657.8bn at the end of March to Y266bn in the first quarter to the end of June. Of that balance, subprime mortgages amount to Y71.1bn.
In the first quarter, the group securitised more than Y300bn of its RMBS assets and sold them to third parties, Nomura said.
http://www.ft.com/cms/s/65342202-3aca-11dc-8f9e-0000779fd2ac.html
U.S. new-home sales drop 6.6% to 834,000 in June
By Rex Nutting
Last Update: 10:00 AM ET Jul 26, 2007
WASHINGTON (MarketWatch) - Sales of new homes declined 6.6% in June to a seasonally adjusted annual rate of 834,000, the Commerce Department estimated Thursday. Sales are now down 22.3% compared with June 2006. The sales pace in June was the lowest since March’s 830,000, which was the lowest since 1999. Economists were expecting sales to fall to an 890,000 annualized pace in June. Sales dropped in three of four regions. Sales in the West fell 22.5% to the lowest level in 12 years. Inventories of unsold homes were unchanged at 537,000. The median sales price was $237,900, down 2.2% compared with June 2006. End of Story
http://www.marketwatch.com/News/Story/Story.aspx?guid=%7BC75EE7F6%2D6C3C%2D429B%2D82E0%2DF673F9832446%7D&siteid=mktw
So much for the PPT overnight injection. Nice drop on the Dow.
“…PPT overnight injection…”
What are you talking about?
as in it didn’t happen >; )
We had that drop on Tues then overnight it was up significantly and all I could think of was where did this funny money magically come from?
anecdotal, but true:
Three friends from college, who were all trying to cash in on housing have suddenly started talking negatively about it. HMMM, this leads me to beleive the downturn is really picking up steam. I would also say that they have not been active participants in stocks for the last 6 years, and they all rake in 6 figures. Now, they are beginning to tell me they are getting into the stock market. This is my type of signal, a shoe-shine boy momment as GS puts it. See the SSB momments are not “Im getting out” they are “Im getting in”.
Reading the tea leaves: The market does have some legs left, maybe 12-18 months, but as these types of people get in, its time to get out. Caution: if the FED begins to hint at rate reductions, and inflation is kept hidden…all bets are off.
Riding bubbles and trying to time this market is not a strategy for wealth building, its a recipe for disaster.
comments like this on pre-open, could have disaterous results!
Dow down almost 400 pts.
10 yr treasuries at 4.77
yum yum scratching your bottom on the tube
down by 2.2 percent from a year ago” minus 10% in upgade and you get 12%
What tethers the headline U.S. indexes’ bungee cord? Any unsupported conjectures, DC_Too?
http://www.marketwatch.com/tools/marketsummary/
Is the tether broken? I guess no tether lasts forever…
On the other hand, it’s all good. Time to buy the dip!!!
LONDON MARKETS
British stocks blasted on credit-market jitters
By Sarah Turner & Steve Goldstein, MarketWatch
Last Update: 12:03 PM ET Jul 26, 2007
LONDON (MarketWatch) - U.K. stocks spiraled lower on Thursday in a dramatic sell-off, with miners, insurers and financials stumbling amid fears that subprime lending woes are spreading throughout credit markets.
The FTSE 100 (UK:UKX: news, chart, profile) dropped 203 points, or 3.15%, to close at 6,251.20, placing the U.K. large-cap index at levels not seen since the end of March.
http://www.marketwatch.com/news/story/londons-ftse-100-index-suffers/story.aspx?guid=%7B2C063A0A%2D977B%2D4BB1%2DB227%2D5938125B8BFA%7D&dist=
“Unsupported conjectures?” Talk about standing the issue on its head. It is up to you guys to support and prove that every time a stock rises that you think should fall, that it is rising because the federal government is buying. That is ridiculous.
“It’s a conspiracy I tell you, a conspiracy….”
Whatever the cause, all I notice is that there are often huge rises right in the middle of a down session…it makes me very suspicious. I can be watching a down trend and then all of a sudden - whoa…how come the mkt went up 100 pts in an hr when it was slumping. I’ve seen this pattern too many times to want to participate in what seems to be a phony mkt…SOMEthing is weird!
Some central banks talk about controlling inflation, while others act to do so…
New Zealand lifts lending rate to record 8.25%
By Chris Oliver, MarketWatch
Last Update: 12:18 AM ET Jul 26, 2007
HONG KONG (MarketWatch) — New Zealand’s central bank lifted interest rate 0.25 percentage points to a record 8.25% Thursday.
The increase marks the fourth time this year that the central bank has raised its benchmark lending rate. Reserve Bank of New Zealand Governor Alan Bollard said the economy was running near capacity, and a rate hike was necessary to curb rising inflationary pressures.
“The continued tight labor market, high capacity use and rising oil and food prices all point to sustained inflationary pressures,” he said in a statement posted on the central bank’s Web site.
The market had priced in a 55% chance of a rate hike, according to calculations by Thomson Financial.
New Zealand trails only Iceland among developed nations in terms of currency yield.
http://www.marketwatch.com/news/story/new-zealand-lifts-lending-rate/story.aspx?guid=%7BEA25140B%2DC342%2D4DC0%2D9E6F%2D73D3582EC403%7D
This Reuters news item lists most of the deals that have come unwound in the last few weeks.
Many are foreign companies.
FACTBOX-Bond, share sales delayed by volatile markets:
http://tinyurl.com/23yh3w
Volatile markets. What a freaking joke. That used to mean something. Now “volatile markets” means they can’t get their top dollar wishing price.
Tx, This is a once (twice in my case) in a lifetime market. Enjoy! Rarely does one get such an opportunity.
Twice in my case too. But look at crap like AAPL and BIDU. This bubble hasn’t been pricked yet. I think they’ll buy at 1490 S&P
I am particularly fond of Amazon with a PE of 146 and dubious financing.
I’m half out with a trailing stop now. I’d be a lot happier about this if the crap was falling too but it isn’t and I respect that. Not giving this windfall back.
Tx, The stock market has been following the Euro/Yen market for the last 3 yrs. As the “carry unwinds” the stock market will go down. 3/4 of the companies in the S & P 1000 are rated “junk”. Margin calls are continuing, either pay up with gold or sell junk.
yeah, I know but have rolled the stops down now. I’d be a lot more confident if AAPL and BIDU weren’t up
I am having a most frustrating day with AMZN and the QQQQ (heavily influenced by AAPL) although my financials are doing pretty good. Whoops, AMZN just went red–damn now green again. USD is having some problems with the YEN. Getting close…
There goes AMZN into the gates of HELL!!! USD down 1.52%.
Good stuff. This bear (me) didn’t cover yesterday. Shoot, after the last 4 years, I can take a hell of a lot of pain
http://www.minyanville.com/articles/gs-1987-djia-LEH-BSC/index/a/13475
Wow - 135 comments before 11 am Eastern Time. This blog has become very popular!
Wait until we get a 800 or 900 point down day on the DJIA. I think we may get one of those this fall, maybe worse. Then you’ll see 400 comments.
DJIA
Down : -1,393
Done!
Volume : unspeakable & “inconceivable”
HBB Comments : +600
When?…
Bugs: “eh, there’s many feathers on that Turkey, Foghorn”
Foghorn: “I was bambozzeled Son…I was tricked I tell ya”
Martin the Martian: “That furry varmit makes me sooooooooooo angry!”
Bugs: “eh, I think Halloween is going to be very sssscary this year Daffy”
Daffy: “Page 17…Daffy gets blasted again!”
and that would be time to get long
I will even get long if the DJIA drops over 1000 pts (in one day)…
Get long only if it is less than a10% drop. I would not get long if it is more than a10% drop. History shows that a 10% drop is followed by a larger drop.
“History shows that a 10% drop is followed by a larger drop.”
Good chaos theory example there…
We’re looking a mite panicky here. Gonna take some off the short side.
From the Census Bureau’s economic indicator release schedule:
Housing Vacancies
Friday, July 27, 2007
10:00am
2nd Quarter 2007
Tommorrow will be a very interesting day.
That is a statistic to watch. Does anyone have a sense for reporting accuracy? (I seem to recall the new home orders count is upwardly biased because it fails to consider cancelled orders…)
What is going on with Crisp & Cole?
Las Palmas condo in Sarasota. . .slow day at work so I am browsing Craiglist in Sarasota and see an interesting ad for a condo with a bunch of photos of the gates, common areas, and it is rented out - perfect. . .so I send the guy an email and ask on rent, taxes, etc. .here is his response:
Price - $134,900 - reduced!
957 square feet, 1 bed/1 bath
Condo fees $250/month - no mention of the taxes
Monthly rent . . .$795!!!
So, assume a 0 down 30 year mtg, your payments for P&I alone are $900 plus condo fees = $1150. . .so before taxes this whale is losing $350 a month. . .
I emailed him back and asked “why is the rent so low”. . .
Even the Santa Barbara News Surpress is finally starting to talk about the bubble.
Mortgage debt nips more homeowners - Foreclosures, defaults hit record highs within county, mostly in Lompoc, S.M.
MARIA ZATE, NEWS-PRESS BUSINESS WRITER
July 26, 2007 7:25 AM
The number of Santa Barbara County homeowners struggling to make their mortgage payments or losing their properties to foreclosure climbed to a record high in the second quarter.
Default notices — sent by lenders to warn homeowners who are months late in payments and face losing their properties to foreclosure — jumped to a total of 434. That number surpassed the former record of 401 set in the first quarter and is at reflects the highest level in 19 years.
Foreclosures also spiked up recently to 137, compared to 98 in the first quarter, reaching a level unseen since the last real estate downturn in the mid-1990s. Banks and other lenders sell off properties in a foreclosure sale when owners can no longer make payments.
“This is the bursting of the housing bubble. There is no question about that now,” said Harlan Green, of Bankers Pacific Mortgage in Santa Barbara. “The last time we saw this level of defaults and foreclosures was in 1994 to 1996. Things got really tough then. We’re at that level again.”
http://tinyurl.com/3dfzab
“The last time we saw this level of defaults and foreclosures was in 1994 to 1996. Things got really tough then. We’re at that level again.”
In 1994 house prices in SB were about 1/3 what they are today. Incomes haven’t tripled.
It’s going to get a lot worse.
Dow currently down 225. Was 240 a minute ago.
Bumped off of 300 down, now 270.
Just touched down 400.
Uh, does this mean subprime is no longer contained?
Well - that Bear Stearns “outperform” on HOV is sure looking sweet today — down 80 cents — more than 5% (as if around noon, eastern time)
Anyone still listens to Bear Sterns recommendations? Or Cramer, Kudlow, or any of the other P-A-I-D shills?
A fool and his/her money are soon parted… This stock bubble is nothing but an aftershock of the bursted house bubble of 2005. Sheeple and pigs are chasing the next tulip, and just as countless other idiots in the past, they will get burned.
In the meantime, Mozillo, Bob Toll, and the “elite” are dumping stock and hoarding CASH.
Pass the popcorn, Neil!!
USD is down 1.41% against the YEN. Somebody(ies) are going to blow up today.
This electronic data transmission business gets disconcerting when the headlines race ahead of the charts… From marketwatch.com:
“DOW INDUSTRIALS KEEP DROPPING; INDEX DOWN MORE THAN 400 POINTS
Credit shakes traders’ faith
Dow falls 400 points, on track for biggest drop since February plunge”
http://www.marketwatch.com/tools/marketsummary/
The silver lining for Uncle Sam, Inc.:
A flight to quality into U.S. l-t Treasuries is a vote of confidence in the future value of the $US. It is worth reflecting on the fact that a l-t Treasury bond is no more nor less than a fixed stream of future $US payments. It’s all good!
And the dark cloud:
How will the housing bubble be reflated in the wake of a credit crunch?
combination of pain for the saver and taxpayer: inflation (easier money) and bailout (congressional legislation) AND pain for the FB. But no real recovery in housing prices until babies have beards.
Like many posters have noted here, the best one can hope for in a secular bear market is to not lose one’s shirt…
Looks like the PPT had orders to hold the DOW at 13,500. Notice how just after lunch it stoped its downswing, and every time it dropped fifty points below 13,500 it rallied over and over, but just to 13,500. Did their best to bring it back just before the close, but the bears weren’t done. Can’t wait to see how the yen trades with the NZ and Aussie dollars overnight. Could be impressive down day tomorrow.
The Hedge Fund failometer is registering 15 to date. Who thinks this number will more-than-double by October 1?
http://wasatchecon.blogspot.com/2007/06/hedge-fund-failometer.html
Here are some great soundbites for the HBB archives…
FUNDWATCH
U.S. mutual-fund assets drop $5.5 billion
Second biggest sell-off in 2007 seen as investors panic over credit meltdown
By Murray Coleman, MarketWatch
Last Update: 1:51 PM ET Jul 26, 2007
SAN FRANCISCO (MarketWatch) — Outflows in U.S. mutual funds on Tuesday hit an estimated $5.5 billion, according to TrimTabs Investment Research.
That would amount to the second-biggest outflow of the year, according to the data tracking firm. Only a $6.5 billion outflow on Feb. 27 was greater.
“Fear and ignorance seem to be gripping retail investors these days,” said Charles Biderman, chief executive of Santa Rosa, Calif.-based TrimTabs on Thursday, pointing to ongoing concerns about subprime lending and slumping housing markets.
“There’s no credit risk; no bank is going to lose money on this subprime fear,” he added. “Income-tax collections are strong, and you don’t have a housing collapse when wage income and job growth are surging.”
http://www.marketwatch.com/news/story/second-biggest-outflow-year-points-fund-market/story.aspx?guid=%7B88D64DA2%2DCA6E%2D4F39%2D81AA%2D440FD495ED90%7D
Has anyone seen / commented on this? Isn’t this a significant event?
China shying from shaky US mortgage market
http://www.atimes.com/atimes/China_Business/IG26Cb02.html
THE FED
Inflation no longer Fed’s only problem
Data and stock market sell-off signal softer economy
By Greg Robb, MarketWatch
Last Update: 5:52 PM ET Jul 26, 2007
WASHINGTON (MarketWatch) — Soft economic data and a steep stock market decline stemming from shakiness in credit markets Thursday might convince Federal Reserve officials that inflation isn’t their only problem, economists said.
“I think today’s events have got to get them off the idea that everything is beautiful for the economy and inflation is the only problem,” said Joel Naroff, president of Naroff Economic Advisors.
“My view is that the economy is a lot softer than the Fed has been willing to admit to,” Naroff said.
http://www.marketwatch.com/news/story/data-stock-sell-off-show-inflation/story.aspx?guid=%7B8EA80B91%2D44A0%2D47CC%2DBD23%2DC177875E2CAF%7D
Gulp!
CLO market has almost shut down, experts say
Loans for LBOs and corporate borrowing are getting harder to sell
By Alistair Barr, MarketWatch
Last Update: 6:58 PM ET Jul 26, 2007
SAN FRANCISCO (MarketWatch) — The market for Collateralized Loan Obligations has almost shut down in recent weeks, making loans for leveraged buyouts and corporate borrowing harder to sell, experts said Thursday.
CLOs are packages of leveraged loans that are sold by investment banks to hedge funds and other institutional investors. Roughly $100 billion of the vehicles were issued in 2006 and about $58 billion were sold in the first half of 2007, according to Steven Miller, managing director of Standard & Poor’s Leveraged Commentary & Data.
The fast-growing market helped fuel the leveraged buyout boom in recent years, which in turn has been a major driver of stock market gains. However, that trend has stopped abruptly in recent weeks, Miller and others said.
“It’s absolutely shut down for any new CLOs in the last two weeks,” said Kingman Penniman, president of KDP Investment Advisors, an independent research firm focused on high-yield bonds and leverage loans.
Existing CLO deals continue to progress, Miller said, “but the market for brand new deals getting a financing line and warehousing has shut.”
http://www.marketwatch.com/news/story/clo-market-has-almost-shut/story.aspx?guid=%7BC3DBEC2E%2DCF1B%2D4E3C%2DB7FC%2D92CD82603D55%7D
“but the market for brand new deals getting a financing line and warehousing has shut.”
Does the warehouse have skylights?…or is it more like…”…and then it went dark”
Double Whammy for LBO Lenders
The market for buyout debt is under growing pressure. Collateralized loan obligations, pooled debt instruments that provide most of the financing for leveraged buyouts, are now being pinched in two ways. Wall Street is demanding more collateral from hedge fund investors. And banks are cutting the credit lines that new CLOs use to get up and running.
http://online.wsj.com/article/SB118532538276276979.html?mod=googlenews_wsj
1929: Bank runs sink Wall Street…
2007: Hedge runs sink Easy Street…
The upshot: As long as hedge runs are prevented, hedge fund assets will not be sold at fire sale prices. Consequently, nobody will be able to figure out these assets are nearly worthless, and it will all be good!
Sydney hedge fund freezes withdrawals to prevent run
Stuart Washington
July 26, 2007
SYDNEY hedge fund Absolute Capital has frozen investor redemptions from its $210 million Yield Strategies fund, blaming debt markets that have “ceased to operate normally”.
The move follows estimates the fund would fall in value by up to 6 per cent in July, following widespread re-pricing of sub-investment grade debt.
The market value of these debts has been hit hard, following credit rating downgrades related to defaults from the US sub-prime home loan markets.
The three-month freeze on investor redemptions until October 25 was made despite Absolute Capital saying it has less than 5 per cent of the Yield Strategies fund exposed to the sub-prime housing market in the US, and has limited borrowings of about 5 per cent of its total portfolio.
The low level of debt means the fund is not the subject of a margin call from its bankers.
The freeze acts to deter a potentially disastrous “run” on the fund if too many investors seek redemptions.
http://www.smh.com.au/news/business/sydney-hedge-fund-freezes-withdrawals-to-prevent-run/2007/07/25/1185339081688.html
How will the historians describe this episode? The Subprime Lending Panic of 2007?
And are U.S. politicians still bent on pushing the liability for Wall Street’s subprime follies onto the sagging backs of the downtrodden middle-class U.S. taxpayer? Because that is what will happen if sundry sordid stealth schemes for getting Fannie Mae, Freddie Mac or the FHA on the hook for the obligations of the collapsing private subprime sector take large scale effect. Think of it as the potentially morphing into the S&L Crisis writ large.
From The Times
July 27, 2007
Global markets slump as credit crunch panic spreads
Gary Duncan and Miles Costello
Shares plunged worldwide yesterday as panicked investors fled stock markets amid anxieties that the flood of cheap credit that has fuelled a global boom in corporate deals is drying up.
Mounting fears that a credit crunch will end the easy lending that has fuelled a wave of takeovers, and pushed shares to record highs, sent shockwaves through markets on both sides of the Atlantic.
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article2148307.ece
Let me remind the sage writers at The Economist that the comment about “low default rates” applies equally well to the corporate sector as it did to U.S. homeowner households through 2006 or so. Ever-upward spiraling asset prices do quite nicely in either case to hide credit risk, but look out below when the prices plateau…
And perhaps the vision has not yet entered these journalistic minds that today’s subprime lending crisis in the U.S. household sector is readily prone to morphing into tomorrow’s covenant lite lending crisis in the corporate finance world? I personally see no reason that abandonment of loan underwriting standards would have much different an effect on the behavior of the mortgage sector than it would on the corporate financial sector, but I admit that I am somewhat ignorant in both areas of finance.
Buttonwood
Spreading caution
Jul 26th 2007
From The Economist print edition
The credit market suffers from a spot of apprehension and indigestion
CALLING it a credit crunch might be an overstatement. But it does look like a credit squeeze. In recent years, investors’ enthusiasm for high-yield products has allowed borrowers free rein in the debt markets. Blessed by strong profits and buoyant economic conditions, companies seemed more than capable of paying back their debts; default rates have been remarkably low.
Indeed, such was the power of borrowers, private-equity groups chief among them, that they were able to dispense with the market’s traditional safeguards. They dropped some of the covenants that gave lenders the right to act if the borrower’s finances deteriorated.
http://economist.com/finance/displaystory.cfm?story_id=9556340
Thank you Wall Street. May I have another?