Wow. That was some week last week. Tuesday it looked like the bottom might fall out. Then we had two big up days followed by the big FLUSH on Friday. Fun stuff. Volatility is back. Gets better next week when we throw the Fed meeting into the mix (Tuesday 2:15 et). That's good for 150 Dow points but who knows in which direction. The risks are heightened here not only for bulls but bears as well.
Friday's market was opened with a weak jobs number (92K is bunk), was spooked by Bear Stearns' call on which they said it was the worst credit market conditions in 22 years and highlighted by Cramer going apeshit on national TV. Link. That was classic. Oh please bail us out. PLEASE bail us out. Fed come to our rescue. All the spinsters who wrote and/or purchased this mortgage backed toxic waste should be forced to eat it. None of these characters deserve a bailout. Fine, whatever. Have it your way but it won't help much.
One thing I noted on Friday was the weakness in the dollar and the concomitant strength in gold. The dollar index is cracking 80 soon. The Fed will hit the panic button soon enough. The talk now is that they will change their stance to neutral and open the door to a cut this week. They do that and any cut will come too late. Maybe they'll cut now in a vain attempt to save the day which either shoots us higher a few hundred points or is interpreted as fear and we get destroyed. Either way, it's just a matter of time until the Fed cuts meaning dollar weakness which encourages "The Skeptic" (along with the strength Friday) to buy more gold. And silver. This is why I own it and the time I've been waiting for.
So Monday? The yen trade overnight Sunday could be a tell. We could go either way substantially. My guess is we work our way lower. Banks look due for a bounce (still wouldn't touch 'em) which could stabilize the tape. Maybe it's calm until Tuesday. Doubt it. Be careful. There are many stocks out there that have further to fall, bounce or no.
Disclosure: Long GOLD, Long SILVER
Saturday, August 4, 2007
Friday, August 3, 2007
Take Heed, Ye of Bullish Persuasion
``So this bubble is the worst we've had in housing and it's going to be the worst before its over cleaning it out.'' -Jim Rogers
My man Jimmy knows his shit. A significant portion of the housing market is going to just disappear. Financing will not be available for all! As of NOW. This will result in significant consequences for the American consumption-based economy.
To anyone listening (and frankly most tune me out) "The Skeptic" would advise extreme caution going forward. DE-fense. Better to have a plan for unforeseen events, which you hope to not need, than to make one up on the fly. "The Skeptic" will be shorting stocks into oblivion from his gold-plated bunker, if necessary.
My man Jimmy knows his shit. A significant portion of the housing market is going to just disappear. Financing will not be available for all! As of NOW. This will result in significant consequences for the American consumption-based economy.
To anyone listening (and frankly most tune me out) "The Skeptic" would advise extreme caution going forward. DE-fense. Better to have a plan for unforeseen events, which you hope to not need, than to make one up on the fly. "The Skeptic" will be shorting stocks into oblivion from his gold-plated bunker, if necessary.
Thursday, August 2, 2007
Don't Screw with Mother Russia
Seriously, I would not want to have to rely on Russia for energy. That's a bad bet. While all seems quiet now in regards to energy supplies to western Europe eventually Russia will flex it's growing muscle towards them as well. Here's a related story from the NYT:
MOSCOW, Aug. 1 — In the latest of Russia’s many disputes over energy payments with neighboring countries, the natural gas monopoly Gazprom warned Wednesday that it would reduce supplies to Belarus by 10 a.m. local time on Friday unless the former Soviet state pays an outstanding gas bill of $456 million.
The tough tactics could also affect Gazprom customers farther west along Europe’s natural gas pipelines, again raising worries about the reliability of Russian supplies and the wisdom of Europe’s growing dependence on Russian energy.
MOSCOW, Aug. 1 — In the latest of Russia’s many disputes over energy payments with neighboring countries, the natural gas monopoly Gazprom warned Wednesday that it would reduce supplies to Belarus by 10 a.m. local time on Friday unless the former Soviet state pays an outstanding gas bill of $456 million.
The tough tactics could also affect Gazprom customers farther west along Europe’s natural gas pipelines, again raising worries about the reliability of Russian supplies and the wisdom of Europe’s growing dependence on Russian energy.
More Evidence of Slowdown Underway
July auto sales, announced today, were positively awful. GM and Ford are in big trouble. According to Bloomberg:
GM's July sales fell 22 percent, as none of the automaker's eight brands managed a gain for July. Hummer suffered the biggest losses, dropping 30 percent to 4,895.
Sales of GM's cars were off 26 percent, and truck sales declined 20 percent, including a 29 percent slide for the Silverado large pickup. That vehicle accounts for about 15 percent of GM's total sales.
``The industry has been underperforming in the past couple of months. We have housing prices and gas prices around $3 a gallon,'' Paul Ballew, GM's chief sales analyst, said in an interview. ``Overall, it's tough in the U.S.''
Ford's 19 percent July decline included an 18 percent drop in sales of F-Series pickups, the top-selling line of vehicles in the U.S.
GM's July sales fell 22 percent, as none of the automaker's eight brands managed a gain for July. Hummer suffered the biggest losses, dropping 30 percent to 4,895.
Sales of GM's cars were off 26 percent, and truck sales declined 20 percent, including a 29 percent slide for the Silverado large pickup. That vehicle accounts for about 15 percent of GM's total sales.
``The industry has been underperforming in the past couple of months. We have housing prices and gas prices around $3 a gallon,'' Paul Ballew, GM's chief sales analyst, said in an interview. ``Overall, it's tough in the U.S.''
Ford's 19 percent July decline included an 18 percent drop in sales of F-Series pickups, the top-selling line of vehicles in the U.S.
Wednesday, August 1, 2007
Ka-Boom Redux
BloombergLink
July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back.
The Bear Stearns Asset-Backed Securities Fund had about $900 million invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said today in a telephone interview. The fund was overwhelmed by redemption requests, Sherman said.
The fund's stumble is a setback for New York-based Bear Stearns and illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5 percent of its assets in securities linked to loans to subprime borrowers, Sherman said. The two funds that collapsed invested almost fully in subprime bonds. Losses have spread to banks, insurers and hedge funds in France and Australia, including one run by Macquarie Bank Ltd.
``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.
July 31 (Bloomberg) -- Bear Stearns Cos., manager of two hedge funds that collapsed last month, halted redemptions from a third fund after a slump in credit markets prompted investors to demand their money back.
The Bear Stearns Asset-Backed Securities Fund had about $900 million invested in asset-backed securities, including mortgage bonds, spokesman Russell Sherman said today in a telephone interview. The fund was overwhelmed by redemption requests, Sherman said.
The fund's stumble is a setback for New York-based Bear Stearns and illustrates how the crisis in the subprime mortgage market has spread. The fund had less than 0.5 percent of its assets in securities linked to loans to subprime borrowers, Sherman said. The two funds that collapsed invested almost fully in subprime bonds. Losses have spread to banks, insurers and hedge funds in France and Australia, including one run by Macquarie Bank Ltd.
``This shows you don't necessarily have to be a subprime fund now to be having problems,'' said Bryan Whalen, a portfolio manager in Los Angeles at Metropolitan West Asset Management, which oversees more than $21 billion in fixed-income assets.
Tuesday, July 31, 2007
The LBO Ka-Put
At this point it's not a question of whether or not the LBO boom is over (toast) but whether "done" deals will start unravelling. The TXU deal mentioned in this WSJ is from what seems like forever ago. WSJLinkHere
"The breakup fee on an LBO deal typically runs from 1% to 3% of the total amount of debt banks need to sell to finance it. Loans and bonds for recent buyouts whose financing didn't clear the market -- and that banks got stuck with -- are trading at as little as 91 cents on the dollar (U.S. Foodservice) or lower. That means the banks who arranged the financing for these deals already have taken a hit of as much as 10% on the loans.
Take the buyout of Texas utility TXU Corp., for example. Citigroup Inc., Goldman Sachs, Inc., J.P. Morgan Chase & Co., Morgan Stanley, Credit Suisse Group and Lehman Brothers Holdings Inc. agreed to provide as much as $37.4 billion of debt financing. The breakup fee that the buyers of TXU -- Kohlberg Kravis Roberts & Co. and TPG -- would be on the hook for if they walked away is $1 billion. That is considerably less than the credit losses the banks could face if the volatility the markets is experiencing now persists when the deal is funded."
"The breakup fee on an LBO deal typically runs from 1% to 3% of the total amount of debt banks need to sell to finance it. Loans and bonds for recent buyouts whose financing didn't clear the market -- and that banks got stuck with -- are trading at as little as 91 cents on the dollar (U.S. Foodservice) or lower. That means the banks who arranged the financing for these deals already have taken a hit of as much as 10% on the loans.
Take the buyout of Texas utility TXU Corp., for example. Citigroup Inc., Goldman Sachs, Inc., J.P. Morgan Chase & Co., Morgan Stanley, Credit Suisse Group and Lehman Brothers Holdings Inc. agreed to provide as much as $37.4 billion of debt financing. The breakup fee that the buyers of TXU -- Kohlberg Kravis Roberts & Co. and TPG -- would be on the hook for if they walked away is $1 billion. That is considerably less than the credit losses the banks could face if the volatility the markets is experiencing now persists when the deal is funded."
Ever Notice?
Ever notice how the market seems to get marked up at the end of every month? Yep, Wall Street is a shady place. The SEC might as well just close up shop as they are obviously ineffectual. Just announce to all market participants that there is no regulation as opposed to feigning regulation and doing absolutely nothing to actually regulate.
Although, to be fair, it may not be the SEC's fault entirely. It may just be that they are starved for resources, allowed to wilt on the vine, under the current administration. Like the EPA for instance.
Although, to be fair, it may not be the SEC's fault entirely. It may just be that they are starved for resources, allowed to wilt on the vine, under the current administration. Like the EPA for instance.
Monday, July 30, 2007
Monday Bounce
The bounce is here however "The Skeptic" remains a seller. Going thru my watch lists I see a handful of promising longs but a whole list of juicy shorts. There is no reason this bounce couldn't last all week long. That being said I remain skeptical of the bullish gameplan which holds that every dip should be bought indiscriminately. Every once in a while that dip leads to a complete loss of altitude. We shall see.
Sunday, July 29, 2007
Growl of the Bear
It's time to put in perspective more specifically where I think we are. Following a week in which the bulls were emasculated they'll be looking for the bounce. It seems likely at this point that any bounce, while potentially violent in the short run, will be short-lived setting up a failing rally and ending the bull market. Despite ending last week in incredibly ugly fashion the Dow is near a level which could potentially offer support. The S&P however has already broken, but nearing it's 200 dma, so it's a coin flip. At some point next week we'll get a bounce and it's a bounce to sell.
The market has ignored the bad news (or what I like to call reality) for-seemingly-ever. To my eye the market and the fundamentals have never diverged to such an extreme in the ten years I've been following the market. That's a bold statement considering that I remember 1999 very clearly (though at that point I had very little idea what the hell I was doing). In '99 the valuations were more absurd but things were good in the world. We lived in a relatively peaceful world in which the US was the only world power. We enjoyed super cheap energy supplies and solid economic growth. Household balance sheets were solid. Everything was, as they say, honky-dory. Very different picture from today.
Let's step back and look at the big picture:
The Economy: It's slowing folks. The Fed bailed out the economy following the tech stock crash by taking interest rates to historic lows. This action fostered the housing boom. Rather than take our medicine we leveraged household balance sheets in the name of overconsumption. Americans have developed quite a voracious appetite for overconsumption evidenced by the fact the 70% or so of our economy is services. We no longer manufacture anything and our exports are dwarfed by our imports (you can't export mortgage brokers). During the housing boom most of the hiring that went on was in housing related sectors. That plus is now a minus.
To keep the ball rolling consumers have leveraged themselves. Mortgage equity withdrawal and the wealth effect from skyrocketing real estate values have kept consumers happily consuming. That fairy tale (the Goldilocks economy I think it's called) is over.
Real Estate/Housing: In '99 I remember my co-workers tuned into CNBC (I prefer CNBS) throughout the workday. Everyone had a hot stock and we were all going quit to be daytraders. In 2005 everyone was a mortgage broker or had a condo to flip. We are a nation of speculators. Both were bubbles. The difference? In 2007 we are stuck with a trillion dollars in suspect loans. A trillion dollars? Well really who the hell even knows but the number is BIG and GROWING.
You know all the terminology by now...ARMs, cash-out refis, flex-pay, piggybacks, HELOCs, etc...Apparently if you give the American consumer enough rope to hang himself he'll do just that. As far as the financial institutions themselves, a bull would argue that banks have done a good job of spreading the risk around by packaging these loans into securities and selling them. Great. Instead of just cordoning off the troubled banks we have bad paper everywhere. The banks themselves are still holders but so are the brokers and the insurance companies. Probably even your pension fund. This is what they call a systemic risk.
Pundits have been calling the bottom on housing for six months now. Wrong. If we're lucky we've experienced the worst of the price declines but prices aren't going to see a bounce anytime soon. There is a ton of inventory and credit will be harder to get as the lenders begin to pullback thereby taking the final leg out from under the market.
Financial Dark Matter: (term borrowed from Bill Fleckenstein) Financial dark matter are derivatives. Financial nuclear weapons. CDOs, CDS, MBS, etc... Frankly, I only have a cursory understanding of this arcane marketplace. Here's what I know. This shit is toxic. There is a bunch of it, everywhere. It's highly leveraged (like anything else on the Street these days). It's mispriced, in some cases grossly mispriced, due to faulty assumptions and we don't know who is exposed and to what degree. Oh and it's highly illiquid. It all lies cloaked beneath the surface.
The Fed: These guys are a joke. They inflated the tech bubble then bailed it out with a housing bubble. Greenspan was particularly insidious in recommending ARMs just when rates were at their nadir. Expansionary monetary policies have fostered the most well-rooted inflation since Volcker killed it in the 1970s. Even after they do their best to strip from the inflation picture everything that goes up (i.e. ex-food and energy) they still have an inflation above the stated "comfort level". Commodities are in a secular bull market. Now growth is slowing. The Fed is trapped (sooner or later). Cut in an attempt to reignite growth or remain vigilant on inflation (that pesky mandate)? I maintain that the Fed will choose to cut. Growth at all costs. The market is trained to anticipate a bailout. We've had two down days in the market and traders are already looking for a cut in rates.
Bigger Picture: Domestic oil production peaked a long time ago and global production is peaking now. We do not yet have a viable replacement for fossil fuels. Meanwhile China and India are putting new drivers on the road at a breakneck pace. Oil exporters are also using more of their own oil at home. The worldwide scramble to secure energy resources has commenced. It will remain an increasingly hostile environment.
China has us by the balls. I love how we deal with them as if we are in a position of strength. Beating them up over exchange rates though will only bring us higher prices at the Wal-Mart. The dollar is doomed anyway. China is the world's next great power. Sooner rather than later if we continue to rot from within at our current rate. We suffer from a complete lack of coherent political leadership.
So it's all somewhat depressing. Maybe I've got it wrong in regards to the market. Maybe this is a buying opportunity and we are on our way to some sort of super-charged inflation-induced equity orgy but I doubt it. Maybe the financials have their issues contained but I doubt it. Maybe we will find a wondrous new energy source, hope so. I intend to remain flexible and profit either way but I think it might be on the short side of equities as it was this last week.
The market has ignored the bad news (or what I like to call reality) for-seemingly-ever. To my eye the market and the fundamentals have never diverged to such an extreme in the ten years I've been following the market. That's a bold statement considering that I remember 1999 very clearly (though at that point I had very little idea what the hell I was doing). In '99 the valuations were more absurd but things were good in the world. We lived in a relatively peaceful world in which the US was the only world power. We enjoyed super cheap energy supplies and solid economic growth. Household balance sheets were solid. Everything was, as they say, honky-dory. Very different picture from today.
Let's step back and look at the big picture:
The Economy: It's slowing folks. The Fed bailed out the economy following the tech stock crash by taking interest rates to historic lows. This action fostered the housing boom. Rather than take our medicine we leveraged household balance sheets in the name of overconsumption. Americans have developed quite a voracious appetite for overconsumption evidenced by the fact the 70% or so of our economy is services. We no longer manufacture anything and our exports are dwarfed by our imports (you can't export mortgage brokers). During the housing boom most of the hiring that went on was in housing related sectors. That plus is now a minus.
To keep the ball rolling consumers have leveraged themselves. Mortgage equity withdrawal and the wealth effect from skyrocketing real estate values have kept consumers happily consuming. That fairy tale (the Goldilocks economy I think it's called) is over.
Real Estate/Housing: In '99 I remember my co-workers tuned into CNBC (I prefer CNBS) throughout the workday. Everyone had a hot stock and we were all going quit to be daytraders. In 2005 everyone was a mortgage broker or had a condo to flip. We are a nation of speculators. Both were bubbles. The difference? In 2007 we are stuck with a trillion dollars in suspect loans. A trillion dollars? Well really who the hell even knows but the number is BIG and GROWING.
You know all the terminology by now...ARMs, cash-out refis, flex-pay, piggybacks, HELOCs, etc...Apparently if you give the American consumer enough rope to hang himself he'll do just that. As far as the financial institutions themselves, a bull would argue that banks have done a good job of spreading the risk around by packaging these loans into securities and selling them. Great. Instead of just cordoning off the troubled banks we have bad paper everywhere. The banks themselves are still holders but so are the brokers and the insurance companies. Probably even your pension fund. This is what they call a systemic risk.
Pundits have been calling the bottom on housing for six months now. Wrong. If we're lucky we've experienced the worst of the price declines but prices aren't going to see a bounce anytime soon. There is a ton of inventory and credit will be harder to get as the lenders begin to pullback thereby taking the final leg out from under the market.
Financial Dark Matter: (term borrowed from Bill Fleckenstein) Financial dark matter are derivatives. Financial nuclear weapons. CDOs, CDS, MBS, etc... Frankly, I only have a cursory understanding of this arcane marketplace. Here's what I know. This shit is toxic. There is a bunch of it, everywhere. It's highly leveraged (like anything else on the Street these days). It's mispriced, in some cases grossly mispriced, due to faulty assumptions and we don't know who is exposed and to what degree. Oh and it's highly illiquid. It all lies cloaked beneath the surface.
The Fed: These guys are a joke. They inflated the tech bubble then bailed it out with a housing bubble. Greenspan was particularly insidious in recommending ARMs just when rates were at their nadir. Expansionary monetary policies have fostered the most well-rooted inflation since Volcker killed it in the 1970s. Even after they do their best to strip from the inflation picture everything that goes up (i.e. ex-food and energy) they still have an inflation above the stated "comfort level". Commodities are in a secular bull market. Now growth is slowing. The Fed is trapped (sooner or later). Cut in an attempt to reignite growth or remain vigilant on inflation (that pesky mandate)? I maintain that the Fed will choose to cut. Growth at all costs. The market is trained to anticipate a bailout. We've had two down days in the market and traders are already looking for a cut in rates.
Bigger Picture: Domestic oil production peaked a long time ago and global production is peaking now. We do not yet have a viable replacement for fossil fuels. Meanwhile China and India are putting new drivers on the road at a breakneck pace. Oil exporters are also using more of their own oil at home. The worldwide scramble to secure energy resources has commenced. It will remain an increasingly hostile environment.
China has us by the balls. I love how we deal with them as if we are in a position of strength. Beating them up over exchange rates though will only bring us higher prices at the Wal-Mart. The dollar is doomed anyway. China is the world's next great power. Sooner rather than later if we continue to rot from within at our current rate. We suffer from a complete lack of coherent political leadership.
So it's all somewhat depressing. Maybe I've got it wrong in regards to the market. Maybe this is a buying opportunity and we are on our way to some sort of super-charged inflation-induced equity orgy but I doubt it. Maybe the financials have their issues contained but I doubt it. Maybe we will find a wondrous new energy source, hope so. I intend to remain flexible and profit either way but I think it might be on the short side of equities as it was this last week.
Friday, July 27, 2007
Dollar Bounce
The dollar is bouncing as market participants rush for the safety of treasuries. "The Skeptic" is not a buyer. Keep an eye on the Yen which has been even stronger. Yen strength = carry trade unwinding.
Today should be interesting. Never underestimate the bulls' ability to snatch victory from the jaws of defeat.
Today should be interesting. Never underestimate the bulls' ability to snatch victory from the jaws of defeat.
Thursday, July 26, 2007
No Fear
As I stated: No Fear. None. The predictable last hour rally came through for the bulls, though 15 minutes early, and we rallied from 13,338 to 13,500ish on the Dow. Everyone is a dip buyer in this market. It works until it doesn't.
Hubris
Dow Industrials down 280 pts. and CNBC is talking about what a big up day tomorrow is going to be. Absolutely unflappable. I smell very little fear.
Skeptical Prediction
Some of these previously announced buyouts won't get done as the credit market chokes on all this supply. There are billions of dollars of deals backed up and the terms at which these deals can be completed are changing everyday. When one or more of these deals falls apart it will be a sobering reality for the bulls.
Pain Ahead
It's been awfully hard to bet against the bulls lately. Bad news hasn't seemed to matter. However, there have been some menacing trends developing. The breadth of this market has faded and the advance has been led by fewer names. Sure AMZN and AAPL shot up after earnings but the entire banking sector is dropping like a rock. Pretty hard to sustain a bull market when the financials, which represent more than 20% of the S&P, are this ugly.
Housing is a debacle. The economy is slowing. The popular viewpoint these days holds that these two facts are unrelated. Not so. Housing has sustained the economy for several years and without it the American consumer is in trouble.
Don't forget oil at $76. Collapsing dollar. Inflation problem. I could go on and on. Never have I seen such a divergence between reality and the market averages. Increasingly a market dislocation, always a low probability event, is a possibility worth considering. Be careful out there.
Housing is a debacle. The economy is slowing. The popular viewpoint these days holds that these two facts are unrelated. Not so. Housing has sustained the economy for several years and without it the American consumer is in trouble.
Don't forget oil at $76. Collapsing dollar. Inflation problem. I could go on and on. Never have I seen such a divergence between reality and the market averages. Increasingly a market dislocation, always a low probability event, is a possibility worth considering. Be careful out there.
Tuesday, July 24, 2007
Monday, July 23, 2007
This Week's Stock Pick
No pick last week. You could call me a lazy son-of-a-bitch and not be entirely inaccurate. Every week, aside from two holiday shortened weeks, since this the groundbreaking of this "blog" I've granted you a pick. Last week I was asleep at the switch. So we'll get right to it this week and maybe I'll even get a bug up my ass and grant two picks this week...but first things first.
Without further adieu... I give you GSS- Golden Star Resources. Currently trading at $4.13. The dollar is collapsing and it's time to pound the table on gold. Now, it should go without saying that any single digit midget (stock under $10) is inherently speculative. Caution is advised. Nonetheless the set-up here is too nice to pass up. GSS build a huge base between 1999-2003, then ramped to a high around $8 before collapsing back to spend 2005-06 consolidating between $2 and $4. Now it has surmounted the four dollar mark and become an obvious buy.
Disclaimer: In no way should this post or any other be considered a recommendation to buy or sell any security. Should you buy this stock based on this post you may find yourself homeless by Christmas and have to scrounge trinkets out of a dumpster to give to your children as gifts.
Disclosure: Long GSS, Long gold
Without further adieu... I give you GSS- Golden Star Resources. Currently trading at $4.13. The dollar is collapsing and it's time to pound the table on gold. Now, it should go without saying that any single digit midget (stock under $10) is inherently speculative. Caution is advised. Nonetheless the set-up here is too nice to pass up. GSS build a huge base between 1999-2003, then ramped to a high around $8 before collapsing back to spend 2005-06 consolidating between $2 and $4. Now it has surmounted the four dollar mark and become an obvious buy.
Disclaimer: In no way should this post or any other be considered a recommendation to buy or sell any security. Should you buy this stock based on this post you may find yourself homeless by Christmas and have to scrounge trinkets out of a dumpster to give to your children as gifts.
Disclosure: Long GSS, Long gold
Sunday, July 22, 2007
Dollar Continues to Slouch...
...dangerously close to key 80 level on dollar index.
Still developing...
Still developing...
Thursday, July 19, 2007
Mortgage Backed Stench
Recently, rating agency Moody's came around and started downgrading various sundry mortgage backed securities. As a result they are now getting shut out of rating new deals as issuers shop for the best rating. Further evidence of an extreme conflict of interest. One of many on the street.
From Bloomberg article:
Moody's has been shut out of nine of the past 13 deals as underwriters sought better ratings from rival companies, Tad Philipp, a managing director at Moody's said today in a telephone interview. The securities had a face value of more than $25 billion.
``There's no doubt in my mind that it's because of the change'' said Philipp, who included a chapter titled ``Rating Shopping is Alive and Well'' in a report released today. ``Normally, we'd rate 75 percent of the issues, not 30 percent. I guess this is sort of like, no good deed goes unpunished.''
Linkhere
From Bloomberg article:
Moody's has been shut out of nine of the past 13 deals as underwriters sought better ratings from rival companies, Tad Philipp, a managing director at Moody's said today in a telephone interview. The securities had a face value of more than $25 billion.
``There's no doubt in my mind that it's because of the change'' said Philipp, who included a chapter titled ``Rating Shopping is Alive and Well'' in a report released today. ``Normally, we'd rate 75 percent of the issues, not 30 percent. I guess this is sort of like, no good deed goes unpunished.''
Linkhere
Tuesday, July 17, 2007
Beware!
Ladies and gentlemen...the shit is officially hitting the fan. Bear Stearns has announced that their (two troubled) aforementioned credit hedge funds have essentially evaporated. The equity is gone. Ouch, that's gotta hurt. Not just Bear Stearns either. "The Skeptic" wouldn't touch (go long) any US based financial company with a ten foot pole. Not even with your ten foot pole. The reality is that there is so much bad paper that we can't really be sure where it is hiding (likely it's everywhere). Don't expect any one of the holders to own up to it either. Until they are forced to. That will happen soon enough at this rate.
After hours tonight many of these financial stocks are trading down. Bear is down $5. Funny, I recall Cramer end zone dancing about the fact that BSC, after the initial revelations, had seen a bounce in it's stock price off of the lows. So surely this subprime mess is overblown and the bears are all assholes. Wrong! This debacle is in the early innings. It doesn't please me to say so but on the other hand the perma-bulls have it coming.
Another ramification to consider is the effect this mess is going to have on the dollar. The dollar index is sitting just above 80. This is a key number. I cannot stress how important the 80 level is. In fact, the dollar index has never had a sustained move below that level. We break that and there is no support for the dollar. Where it eventually stops falling is anyone's guess but it won't be pretty. Seriously, this is a BIG DEAL! This will affect every American citizen. As the dollar collapses inflation will surge. Commodities are priced in dollars and as the dollar erodes it will take more dollars to pay for things.
The way our house of cards is currently situated we rely on foreigners to finance our overconsumption. With a collapsing dollar we will need to make other arrangements. Why would foreigners want to own, much less buy, US assets during a dollar depreciation? Any positive return would be cancelled out by exchange rates.
What can be done to avoid a collapsing dollar? The Fed can start tightening. The result of which would be a severe recession but it would save the dollar and tame inflation. If we dealt with our problems we could probably emerge in one piece after some short term pain. But is that likely to happen? No. The Fed will do everything in it's power to avoid dispensing the medicine. As recent history clearly shows, the Fed will do whatever it can to bailout risk-takers.
It would be wise to consider hedging your exposure to the dollar. You need to have a plan. "The Skeptic" remains a long term buyer of gold. Good luck.
After hours tonight many of these financial stocks are trading down. Bear is down $5. Funny, I recall Cramer end zone dancing about the fact that BSC, after the initial revelations, had seen a bounce in it's stock price off of the lows. So surely this subprime mess is overblown and the bears are all assholes. Wrong! This debacle is in the early innings. It doesn't please me to say so but on the other hand the perma-bulls have it coming.
Another ramification to consider is the effect this mess is going to have on the dollar. The dollar index is sitting just above 80. This is a key number. I cannot stress how important the 80 level is. In fact, the dollar index has never had a sustained move below that level. We break that and there is no support for the dollar. Where it eventually stops falling is anyone's guess but it won't be pretty. Seriously, this is a BIG DEAL! This will affect every American citizen. As the dollar collapses inflation will surge. Commodities are priced in dollars and as the dollar erodes it will take more dollars to pay for things.
The way our house of cards is currently situated we rely on foreigners to finance our overconsumption. With a collapsing dollar we will need to make other arrangements. Why would foreigners want to own, much less buy, US assets during a dollar depreciation? Any positive return would be cancelled out by exchange rates.
What can be done to avoid a collapsing dollar? The Fed can start tightening. The result of which would be a severe recession but it would save the dollar and tame inflation. If we dealt with our problems we could probably emerge in one piece after some short term pain. But is that likely to happen? No. The Fed will do everything in it's power to avoid dispensing the medicine. As recent history clearly shows, the Fed will do whatever it can to bailout risk-takers.
It would be wise to consider hedging your exposure to the dollar. You need to have a plan. "The Skeptic" remains a long term buyer of gold. Good luck.
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