San Diego Housing Bubble News and Analysis

Bubblesitter: I would also pay close attention to the reinsurance community. The debacle at Channel Re is probably just the opening shot there.

As to the world catching the same cold as the US: How could it not? For all the talk of "decoupling", the world remains not only closely tied to the US, but reacts to the same positives and negatives that we do.

Allan, You are probably right that the ROW will also going into recession if the US has a downturn. I do think there is probably smaller correlation than the past. I'm still holding off foreign equities thinking that there still is a good chance they will drop too. Shanghai exchange also has very, very high PE ratios.

Major foreign markets also experienced downturn during the last big US bear market in 2002 timeframe. I might try plotting historical FTSE, CAC, Asia exchanges vs DOW/S&P500 in 2001-2003. So much for diversification with broad foreign equity index funds. There are some good global funds that focus on more recession-proof companies, I'm digging around now for some.

Bubblesitter

Bubblesitter: Latest issue of Economist had an article on how Brazil would fare better now than in the past, if a worldwide recession hits. The article also mentioned, in passing, that other countries are less at risk than in previous downturns as well.

I think those countries that have a vested interest in both the US and the US consumer (think China and India) are likely to take the biggest blow. Look how hard the US toy recall hit quite a few Chinese manufacturers in that market.

On the insurance and reinsurance side, you are looking at companies like MBIA and Ambac that are virtually dead in the water if they don't arrange a seriously large cash infusion and fast. Channel Re has admitted that their holdings are essentially valueless, and I would bet they are only the first to get caught out in this respect. If the reinsurance market starts taking on heavy water, it will get very ugly quickly in the standard and premium insurance markets.

If I had some more guts I would be looking for a short plays on all these insurers. All the bad news may already be well priced in already. I wanted to short the builders, financials mid last year but didn't do it. I would have done very well.

I bet Brazil will continue do very well on commodities going forward. They are now huge producers of soybeans, sugar, metals, etc.

The growing strength of Chinese consumer may keep things OK in China. I was out in Beijing and Shanghai a few months back, saw lamborghini dealers, lots of Audis, big traffic jams. China is becoming a true consumer/car culture. I thinking the Chinese consumer may pick up some of the slack in event of US slowdown.

Bubblesitter

Bubblesitter you and me both. I posted last month about the bond insurers getting hit and I REALLY wish I would have shorted them back then..

SD Realtor

I don't know if the large insurers have priced this in yet. I might be wrong, but I think the reinsurance problem has just begun the process of unwinding. While the big players like AIG own their own reinsurance companies, quite a few of the other larger players don't. If the reinsurance companies suffer from the same opacity as the banks, there will be quite a scramble to ascertain who is holding what in terms of bad debt and liabilities.

A friend of mine works for Intel, and was recently in China. He echoed what you said, and also mentioned how quickly the consumer culture has sprung up. They are apparently minting millionaires at a frenetic pace.

http://investmenttools.com/futures/bdi_b...

Baltic exchange dry index is an indicator of how much stuff is being shipped around the world

This index provides one answer to the question, "Does the rest of the world sneeze when the US catches a cold?"

The first two charts are of the index itself - third chart and on compare the index against commodities (gold, CRB, oil) and then the SP500 index

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Ambac was downgraded from AAA to AA by one of the three rating agencies on friday - other two agencies expected to follow

Ambac insures about $2 trillion (that's "trillion" with a "t" not a typo) and supposedly has a capital base in the $40-50 billion (that's "billion" with a "b" not a typo) range

Shareholders of one of the companies (Ambac or MBIA) are publicly saying that it would be better to let the company fail than to inject more capital - and that was before friday's downgrade

Some investment entities (pension funds, college endowment funds, mutual funds) are contractually limited to ONLY holding AAA bonds - the downgrade of Ambac raises a question about the bonds that they insure - that question is, "Can a bond insured by a non-AAA company be considered AAA?"

I know what my answer to that question is. We will be finding out shortly what the market thinks.

You underwrite and lose, you pay!!!! I lose a bet in Vegas, I pay!!!!!

I guess the net impact of the insurers going belly up is a worsening of the credit crunch. The MBS market will not likely come back as anytime soon, premium to insure these thing will probably go up big time.

The only game in town for a long time may be conforming loans bought up by GSEs Fannie Mae, Freddie Mac.

Not sure % of homes financed with conforming loans in SoCal, it must be low. Net result, more downward pressure on home prices. Anybody hazard a guess at any other possible scenario?

Large downpayments with perfect credit become even more important. I wonder who will be in position to finance jumbos or any type of exotic loan? The GSEs may be the only ones standing with financial ability

Bubblesitter

Well, so much for the decoupling theory. The world seems to believe that they follow the US into recession.

Global markets are getting routed tonight again in Asia. EU and Asia markets took a beating on Monday.

Dow futures as of few minutes ago are pointing to a big drop tommorrow.

Dow is off by approx 16% since Oct.

I believe that the problems with bond insurers are driving a good part of the sentiment overseas that credit crunch will intensify.

Should be an interesting week ahead.

Bubblesitter

Cramer has been advocating a government bailout since last summer when the DOW dropped 5% from its all-time high. Don't listen to that clown. Cramer would cut rates to zero at the first sign of any market trouble. The guy is a joke.

60% of non retirement funds in cash or CDs. That is going up by the hour, haha.
Besides 401K, which is already being dollar cost average, I plan to use some of my that 60% when the drop goes into pure panic.
As far as my 401K, which is taking a beating, I hope the market stays in a bear market for the next 2 to 3 years or more. I like the idea of investing long-term needed funds every month in a brutal bear market in the short term.
Buy low, sell high!

Downgrade of MBIA today...

http://www.bloomberg.com/apps/news?pid=2...

MBIA Loses AAA Insurer Rating From Fitch Over Capital (Update2) By Emma Moody

April 4 (Bloomberg) -- Fitch Ratings cut MBIA Inc.'s insurance rating to AA from AAA, saying the bond insurer no longer has enough capital to warrant the top ranking.

MBIA, the world's largest bond insurer, would need as much as $3.8 billion more in capital to deserve an AAA, New York- based Fitch said today in a report. The outlook is negative, Fitch said.

Fitch issued the new, lower rating even though Armonk, New York-based MBIA asked the ratings company last month to stop assessing its credit worthiness. The two companies disagree over how much capital MBIA needs to absorb losses on the bonds it insures.

``It will be difficult for MBIA to stabilize its credit trend until the company can more effectively limit the downside risk'' from collateralized debt obligations, Fitch said in the report.

Interesting that MBIA asked Fitch to stop rating its insurance - and that S+P and Moody's still have MBIA at an AAA.

Could it be that Fitch is the only rating agency with any integrity?

BobS
Bubba99: You nailed it. I've read elsewhere (Forbes Magazine) that Fitch is more honest and hard-nosed than the bigger old standards Moody's and S & P.

I agree that Fitch seems to be more ethical than the bigger S&P and Moody's, but S&P and Moody's has set the ethical bar low.

I believe it is only a matter of time now before MBIA gets downgraded also by the other credit rating agencies. The pressure on these guys have to be intense not to downgrade MBIA and other insurers. At stake is potentially $10s to 100s Billions in additional writedowns of MBS and related securities by the big banks. I am willing to bet that the government is in quiet discussions with S&P and Moody's to delay the eventual downgrade. The pressure from their customers has also got to be very intense.

Bubblesitter.

MBIA reported big losses last week, significantly worse than Analysts' expectations. It is now only a matter of time that the ratings will be downgraded, resulting in additional big writedowns by the big banks.

http://www.bloomberg.com/apps/news?pid=2...

Bubblesitter

I was right about the Bailout of Insurers....just got the ones wrong.

THE MOTHER OF ALL INSURERS......AIG!