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LA_Renter
ParticipantCramer did a doom and gloom scenario as a “just in case” this actually happens this is what the argument would be. Actually I thought it was pretty creative to out Bear the Bears. I mean the 100% default on 2/28’s is obviously hyperbole. The eerie thing about this act is that it had substance and it does show he understands the bearish outlook on housing and lenders. The peak of resets on 2/28’s beginning Oct going through Feb is Real. The NOD’s and NOT’s we are seeing are Real. And yes it is true that you are better off walking away from an upside down home. These things are too close to home right now to make too much fun of. The one thing he kept mentioning is that this would all go away if the FED lowers 100 basis points. Is he doing this series to send a message to the FED? or is this satire by taking jab at somebody like Bill Gross at Pimco who makes a very bearish housing argument to persuade the FED to lower the overnight funds rate which would benefit somebody like Bill Gross. Overall I think this is Cramer’s way of acknowledging the bear argument on RE through humor by taking an even more hyperbolic bearish stance.
ParticipantBy the way did anybody see the comments from Cramer today on housing. He basically says it best to walk away from your house and that this is a “Total Crisis” He thinks the default rate on the 2/28’s will be 100%. Check this out
http://housingdoom.com/2007/07/30/cramer-says-walk-away-from-underwater-homes/
ParticipantBy the way did anybody see the comments from Cramer today on housing. He basically says it best to walk away from your house and that this is a “Total Crisis” He thinks the default rate on the 2/28’s will be 100%. Check this out
http://housingdoom.com/2007/07/30/cramer-says-walk-away-from-underwater-homes/
ParticipantC’mon HereWeGo, the last thing money managers want to say to the general public is that we are in a bear market. I’m not saying we are in one but these guys are never going to admit to that. That’s like listening to the NAR on the state of housing.
ParticipantC’mon HereWeGo, the last thing money managers want to say to the general public is that we are in a bear market. I’m not saying we are in one but these guys are never going to admit to that. That’s like listening to the NAR on the state of housing.
ParticipantChris,
I respect your analysis from a technical view and you are correct this is not a bear market yet. IMO the thing you have to factor into the market is the turmoil in the credit markets right now. The mortgage market debacle has spread to the corporate debt market which is now basically frozen. Banks have underwritten $200 Billion to $300 Billion of deals that they can’t get financed right now. The stock market has priced in this premium and now it’s a big question mark if these will be completed, plus there will be pressure on the market due to LBO’s drying up completely. Even if this is just a re-pricing of debt in lieu of a global market credit crunch the impact on the equity markets could be substantial. I don’t know, the markets have shaken these things off in the past, I just think the equation has changed looking at the second half of the year. I don’t think this will be remedied in two weeks.
ParticipantChris,
I respect your analysis from a technical view and you are correct this is not a bear market yet. IMO the thing you have to factor into the market is the turmoil in the credit markets right now. The mortgage market debacle has spread to the corporate debt market which is now basically frozen. Banks have underwritten $200 Billion to $300 Billion of deals that they can’t get financed right now. The stock market has priced in this premium and now it’s a big question mark if these will be completed, plus there will be pressure on the market due to LBO’s drying up completely. Even if this is just a re-pricing of debt in lieu of a global market credit crunch the impact on the equity markets could be substantial. I don’t know, the markets have shaken these things off in the past, I just think the equation has changed looking at the second half of the year. I don’t think this will be remedied in two weeks.
Participant“WASHINGTON (MarketWatch) — A global financial shock is just one “Bear-like” event away, economist Mark Zandi warned Thursday, giving it a one-in-five chance. In the current “high level of angst” following the collapse of two Bear Stearns funds, the uncertainty caused by another hedge-fund failure could cause investors to freeze, he said. Zandi, chief economist for Moody’s Economy.com, said he expects significant declines in home sales and prices in coming months to further erode mortgage credit quality. About half of the structured securities owned by hedge funds are in the riskiest tranches of complicated derivatives based on the subprime mortgages that are going sour quickly, he said. If there is a global financial crisis, he said he expected the Federal Reserve would ease, but questioned how effective it would be in restoring confidence in the U.S. financial system. ”
Pay attention to margin calls at these hedge funds, these guys are in big trouble. AHM is a big story right now, they got hit with a margin call and withdrew their divi until a later date, in pre-market they fell 32%, right now trading is halted. That will be the poster child of the ALT-A meltdown.
There is probably one thing that can unhinge this global bull market and it’s the financial crisis stemming from the US Housing bubble. The overall $$ loss of these loans while substantial are relatively small in comparison to the total wealth of US households, but its impact can be major. The re-pricing of risk in the credit markets is a good thing, but one false move could create a stampede right now large enough to really damage the economy. The markets show they can weather these things with 1987 as an example. No matter how you look at it, the U S Housing market just got hit in the gut again and we are going to see another leg down.
Participant“WASHINGTON (MarketWatch) — A global financial shock is just one “Bear-like” event away, economist Mark Zandi warned Thursday, giving it a one-in-five chance. In the current “high level of angst” following the collapse of two Bear Stearns funds, the uncertainty caused by another hedge-fund failure could cause investors to freeze, he said. Zandi, chief economist for Moody’s Economy.com, said he expects significant declines in home sales and prices in coming months to further erode mortgage credit quality. About half of the structured securities owned by hedge funds are in the riskiest tranches of complicated derivatives based on the subprime mortgages that are going sour quickly, he said. If there is a global financial crisis, he said he expected the Federal Reserve would ease, but questioned how effective it would be in restoring confidence in the U.S. financial system. ”
Pay attention to margin calls at these hedge funds, these guys are in big trouble. AHM is a big story right now, they got hit with a margin call and withdrew their divi until a later date, in pre-market they fell 32%, right now trading is halted. That will be the poster child of the ALT-A meltdown.
There is probably one thing that can unhinge this global bull market and it’s the financial crisis stemming from the US Housing bubble. The overall $$ loss of these loans while substantial are relatively small in comparison to the total wealth of US households, but its impact can be major. The re-pricing of risk in the credit markets is a good thing, but one false move could create a stampede right now large enough to really damage the economy. The markets show they can weather these things with 1987 as an example. No matter how you look at it, the U S Housing market just got hit in the gut again and we are going to see another leg down.
ParticipantYou can try these guys
everbank.com
They have several vehicles to play currencies.
ParticipantYou can try these guys
everbank.com
They have several vehicles to play currencies.
Participant(cont)
Job risk is greater than market risk in this environment,” he adds pithily. In which case, discretion is the better part of valor for traders and portfolio managers.
All of which has accelerated the contraction of credit discussed ad infinitum in this space. And the evaporation of this propellant for the market’s moonshot, to lift Cunningham’s turn of phrase, sent the markets crashing around the globe.
“Equity investors should not ignore the message from the fixed-income markets,” Richard Bernstein, Merrill Lynch’s chief investment strategist, wrote in a note to clients before the market’s open. “The rationing of credit means equity investors should discontinue their speculation regarding takeovers and LBOs.”
As they heeded that advice, the market’s slide recalled the minicrash of Oct. 13, 1989, when financing for UAL’s proposed LBO fell through. That event marked the end of the junk-bond-financed takeover boom of the 1980s.
Cunningham of State Street likens Thursday’s rout to the Long Term Capital Management crisis of 1998, when the collapse of that hedge fund caused the capital markets to seize up, even while the economy was in relatively good shape. At the behest of the Federal Reserve, the major banks and brokers arranged a bailout of LTCM. The Fed helped out by cutting its short-term interest rate target, even as growth was humming along.
The LTCM incident helped burnish the legend of the so-called Greenspan Put, the perceived insurance policy provided by the former Fed chairman to the markets when things got rough. After the crash of October 1987, the Maestro flooded the financial system with liquidity. And after the Tech Bubble burst, he did the same, slashing the overnight federal-funds rate all the way to 1% through 2003 into mid-2004, by which time the bull market and recovery were well along.
That’s had two consequences: The cheap money inflated the housing bubble, which is now deflating with noxious effects. And it increases moral hazard — the tendency of market participants to take on risk with impunity with the knowledge that they won’t suffer the consequences if there’s a bust. The expected Fed easing in reaction to any market setback is their Get Out of Jail Free card.
This episode marks Ben Bernanke’s first test as Fed chairman. “Never mind foreign oil, the U.S. economy is addicted to easy credit, and an easing by the Fed in the current situation will only maintain this addiction, but it still may be necessary in the short term,” asserts Cunningham. “The real test would be how quickly it was reversed, which was likely the mistake Greenspan made following LTCM,” he concludes.
Or Bernanke could show he’s no Gentle Ben and apply some tough love to the adolescents in the markets who don’t know any limits.
So we are looking at a spectrum between Volcker and Greenspan. Who and where is BB on this??
Participant(cont)
Job risk is greater than market risk in this environment,” he adds pithily. In which case, discretion is the better part of valor for traders and portfolio managers.
All of which has accelerated the contraction of credit discussed ad infinitum in this space. And the evaporation of this propellant for the market’s moonshot, to lift Cunningham’s turn of phrase, sent the markets crashing around the globe.
“Equity investors should not ignore the message from the fixed-income markets,” Richard Bernstein, Merrill Lynch’s chief investment strategist, wrote in a note to clients before the market’s open. “The rationing of credit means equity investors should discontinue their speculation regarding takeovers and LBOs.”
As they heeded that advice, the market’s slide recalled the minicrash of Oct. 13, 1989, when financing for UAL’s proposed LBO fell through. That event marked the end of the junk-bond-financed takeover boom of the 1980s.
Cunningham of State Street likens Thursday’s rout to the Long Term Capital Management crisis of 1998, when the collapse of that hedge fund caused the capital markets to seize up, even while the economy was in relatively good shape. At the behest of the Federal Reserve, the major banks and brokers arranged a bailout of LTCM. The Fed helped out by cutting its short-term interest rate target, even as growth was humming along.
The LTCM incident helped burnish the legend of the so-called Greenspan Put, the perceived insurance policy provided by the former Fed chairman to the markets when things got rough. After the crash of October 1987, the Maestro flooded the financial system with liquidity. And after the Tech Bubble burst, he did the same, slashing the overnight federal-funds rate all the way to 1% through 2003 into mid-2004, by which time the bull market and recovery were well along.
That’s had two consequences: The cheap money inflated the housing bubble, which is now deflating with noxious effects. And it increases moral hazard — the tendency of market participants to take on risk with impunity with the knowledge that they won’t suffer the consequences if there’s a bust. The expected Fed easing in reaction to any market setback is their Get Out of Jail Free card.
This episode marks Ben Bernanke’s first test as Fed chairman. “Never mind foreign oil, the U.S. economy is addicted to easy credit, and an easing by the Fed in the current situation will only maintain this addiction, but it still may be necessary in the short term,” asserts Cunningham. “The real test would be how quickly it was reversed, which was likely the mistake Greenspan made following LTCM,” he concludes.
Or Bernanke could show he’s no Gentle Ben and apply some tough love to the adolescents in the markets who don’t know any limits.
So we are looking at a spectrum between Volcker and Greenspan. Who and where is BB on this??
ParticipantI thought this was good article from Barrons. This little crisis will put BB to the test and allow him to show his true colors. Right now the Fed Funds Futures are putting .25 rate by the end of this year at 100%.
Will Bernanke Bail Out This Credit Meltdown?
“THE TURNING POINT IN LEVERAGED FINANCE HAS BEEN reached,” junk-bond guru Martin Fridson declared four weeks ago in the print version of Up and Down Wall Street (“Dear Lord!” July 2). Any doubters of that prophesy were disabused by Thursday’s rout in the stock market that had the Dow Jones Industrial Average down by more than 400 points at its low.Since then, the cost of credit has skyrocketed, imperiling the raft of corporate buyouts that have fueled the bull market. And Business Week’s cover story of Feb. 19 — “It’s a Low, Low, Low-Rate World: Money is cheap. And some experts say it could stay that way for years” — is looking like a worthy successor to its infamous “Death of Equities” cover of 1979.
The entire spectrum of credit was being repriced, with far greater premiums to compensate for risk that had been cavalierly accepted by lenders and investors just a few short weeks ago. The notorious ABX.HE — the index of credit default swaps on asset-backed securities, the main hedging vehicle for subprime risk — not surprisingly took another tumble amid unrelenting bad news from home builders and in home sales data. And junk bonds had their worst day since the collapse of WorldCom in 2002, according to KDP Investment Advisors.
But the more important indicator has been the widening of spreads on corporate loans, the lifeblood of the deal business, evident in a further deterioration in the LCDX, an index which reflects credit default swaps (derivatives based on the cost of insuring against default on loans.) The LCDX hit another new low in its young life, resulting in the cost of default insurance rising to 325.5 basis points (3.255 percentage points).
That represents a doubling in the risk premium on corporate loans since Fridson made his prescient statement at the end of June, and triple where it started in May. Wall Street firms and banks that made commitments to lend to private-equity firms at the previously narrow spreads may now be holding the bag.
As a result, the cost of insuring Wall Street firms’ credit soared Thursday, Dow Jones Newswires reports. For instance, the cost of insuring $10 million of Bear Stearns debt soared to $105,000 from $83,500, a huge increase in a single day. Indeed, the credit derivatives market is pricing Bear and Lehman Brothers investment-grade debt as junk, the DJ story adds.
That’s set off a chain reaction throughout the markets. “Large banks, choking on LBO bridge debt that they cannot distribute, have likely tapped all their traders and risk takers to lower any and all risk positions and refrain from taking on any more, regardless of level,” writes William Cunningham, head of global fixed-income research for State Street Global Markets.
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