Two painful days in a row. I just read that the 10% drop in the last two days is "the worst two day drop in a month." Okay, when 10% two day drops become that frequent it is perhaps time to watch from the sidelines until the volatility drops. I am separately reading at Bloomberg, however, that this two day drop was the worst since the crash in 1987.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aovYs15vXGf0&refer=home
Check out the VIX (the volatility index). Still reading well over 60, which is below its peak of nearly 90, but still well above normal. Still pretty scary out there.
Apparently peoples' expectations that Obama would be good for the economy, led to a buy-on-the-rumor and sell-on-the-news type of event. Then again I have been thumping for some time on how the recent bull run was a bit premature with a lot of pain ahead. People are finally listening (not to me, of course, because no one reads this blog, but to the continuous dribble of bad economic news).
So why down so much so fast. Let's read the tea leaves and try to guess.
I just went to the Bloomberg site and their "Breaking News" is decidely bearish:
•Qualcomm Forecast Misses Estimates as Phone-Chip Demand Wanes; Shares Fall
•Adelson's Las Vegas Sands Plunges After Casino Cites Potential Bankruptcy
•Blackstone Misses Estimates, Reports Biggest Loss Since IPO; Shares Slump
•Farallon Capital's Flagship Fund Lost 23.8% Through October, Sells Stocks
•Disney Profit Declines 13% on Drop in Parks Profit, Bad Debt From Lehman
•Genworth Has Loss on Rising Claims, Soured Investments, Suspends Dividend
The only news I could find remotely positive at Bloomberg was that oil has dropped to a 19 month low:
http://www.bloomberg.com/apps/news?pid=20601110&sid=anywOgFpqk6I
And Obama is meeting with some people who are smarter about this stuff than "you" (I am assuming someone is reading this other than me) and me. Namely Buffett, Volcker and Daley.
http://www.bloomberg.com/apps/news?pid=20601110&sid=aSzNv81CYh0c
Did I mention that first time unemployment claims came in at 481,000, above analysts expectations of 477,000. This is the highest in 25 years.
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a.pczFBwkraw
The market may be reacting badly in part because all the analysts have their head up their (well I won't say it but analysts starts with anal) in predicting the third quarter profits. They missed to the high side the worst this quarter than in any quarter in 11 years. They are reducing projections going forward but are still undoubtedly too high. When they finally get their predictions too low, then it may be time to buy.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aFLZknOvuU2k&refer=home
You might ask why I rely so much on Bloomberg. They seem to me to present the stories in a relatively unbiased factual fashion. Yes, they come up with their own explanations on why things are happening, but they don't seem to have any particular agenda. On the other hand, a lot of my slant on the news comes from financially related blogs that I follow, and which I will add to this site soon so that you can check them out too. Either way, opening up the Bloomberg site and reading the headlines generally gives you a good sense for how things are going and today was ugly. We're talkin' double brown bag ugly here.
Going Green the Credit Crunch Way
You know all those credit card offers you used to get on a daily basis that wasted so much paper and filled the old circular file. Well there isn't quite the same traffic that there used to be and you can expect it to slow even more. Defaults are rising sharply on credit card debt and there were no sales - as in nada, zero, zip - of credit card backed bonds in October. That is the first time this has happened since 1993. (As an aside here, we should divert ourselves from the stress of all this by trying to remember what we were doing when previous highs (lows) were set, like what were you doing in April 1993 when there were no credit card bond sales or what were you doing 25 years ago when the jobless claims were last this high. Then again, that may just bring up painful memories and we have enough presently to keep us busy.)
http://www.bloomberg.com/apps/news?pid=20601109&sid=awS5vZQvmwd4&refer=home
Let's Get Real
All due respect to Mr. Fox, who the next attached article is about, but jumping out a window over financial problems is just not a good answer. Economies go up and down. You wait around long enough and they will turn. (By the way, I wrote the title of today's post before seeing this story.) Nonetheless, this harkens back to the stories of stock brokers jumping out windows in the Great Depresssion. Kinda sucks.
http://online.wsj.com/article/SB122593803133403929.html
Psssttt Buddy, Yeah You, Want to Buy a Country?
Squarely in the category of "it could always be worse," certain countries make things here look absolutely rosy. Look at the Ukraine. With the commodities bubble still losing air big time, many cities there have nothing to fall back on. The entire country is broke. And it is not just the Ukraine. You have Argentina, Iceland, Pakistan and a host of other countries on the verge of bankruptcy, with the IMF not equipped to help this many. Some nasty stuff lies ahead.
http://www.spiegel.de/international/business/0,1518,588419,00.html
Thursday, November 6, 2008
Tuesday, November 4, 2008
Obama Appears To Be The Man - Good Luck
I have no idea why anyone would want to be President in these times. You have to love pressure and no sleep. Now you can take your own views on the candidates themselves, but I think Obama has the better financial advisors. Bush has Phil Gramm, who some claim is one of the major culprits for our financial demise (Gramm - Leach - Bliley Act) and who at least is naive enough to call us all whiners. Then there is Kevin Hassett, co-author of DOW 36,000 (say no more). Obama on the other hand has the likes of Warren Buffet and Paul Volcker. I for one would not mind seeing Volcker as Secretary of the Treasury, which he is in serious contention for with Obama. He did a great job as Chairman of the Fed in the 1980s in a very difficult time, and I have seen a few speeches by him lately and he clearly understands what is happening.
Hopefully Obama, if he holds his lead and wins, will temper a Democratic Congress hell bent on over-regulation. We lacked proper balance the past 8-12 years (to little regulation and oversight) but the answer is not to swing the pendulem back too far the other way.
So let's get back to all things financial.
Who Woulda Known
Okay, I did not expect a big up day today. I expected more like yesterday's relatively flat performance. I thought we might get a small bounce Wednesday if Obama won, but otherwise did not see today coming. Perhaps it was anticipation of Obama winning or perhaps it was the LIBOR improving for a 17th consecutive day. Perhaps it was the nice weather - 64 degrees in New Hampshire today. Perhaps it was some relief on the emerging markets. Perhaps it was money waiting on the sidelines thinking it is time to get back in. Who knows? Good to see either way. There is still enough bad news to temper this, but maybe the market sees a bottom and people are not waiting for the turn in the economy. The market does normally turn before the economy. I just think this turn in the market is a little premature timing wise. We will see.
When is $33 Trillion Not Such a Big Number?
Answer, when you are comparing it to $62 trillion. Just a few months ago estimates had the Credit Default Swap market (basically insurance against debt default events), on a notional basis, at $62 trillion. The actual payout threat was obvoiusly much smaller. Now, in fairly short order, we are hearing that the number is down to $33 trillion. Still a big ass number, but roughly half of what it was. I know in the run up to the Lehman settlement various financial institutions got together and tore up off-setting swaps taking the number down to the low 50 trillion range, but $33 trillion is a good further drop. This number does cancel out overlapping trades, so that likely explains the reduction, but cancelling out overlapping or off-setting swaps assumes that both counterparties are in a position to pay. What if one side is insolvent at the time of the default event?
http://www.bloomberg.com/apps/news?pid=20601087&sid=auQSTZnaO5JY&refer=home
Housing Sucks Wind
Big news here, not, housing still gettin the big hurt put on it. D.R. Horton losing as much as $900 million in its fiscal fourth quarter. Foreclosures continue and they will get worse before we turn that corner. We are probably past the subprime peak but Alt- A ARMs are resetting at extreme levels next year and with the economy in a recession, with job losses it will continue to be a perfect storm. Add credit tightening and the millions of homeowners under water on their homes and it is rather ugly. From what I read, do not expect housing to really bottom until late 2009 at the earliest, and probably 2010.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aE.WSGzVew.k&refer=home
What?!?!
We have another brilliant move by the Fed. The New York Fed has hired the former chief risk officer of Bear Stearns as the Senior Vice President in the Bank Supervision Group. One could make a fairly well reasoned argument that this is STUPID!! He may know where the bodies are buried at Bear Stearns and the U.S. is on the hook there for $29 billion of that risk but let's not reward a guy that allowed his company to take on foolish levels of risk by letting him be anywhere near a position of power, much less in bank supervision. There are few people on Earth who have proven more convincingly that they are as inappropriate for this job as he is. Aaarrgghh!!
http://www.ny.frb.org/newsevents/news/aboutthefed/2008/oa081031.html
So You Want To Buy a Skyscraper?
Commercial real estate in NY has taken a decidedly southern turn. Down 61% and worse is expected in the fourth quarter. Moreover, a lot of the sales this year have been by distressed owners looking to raise cash and pay off debt. If you are a commercial tenant that is looking to renew a lease soon, this is good news. Otherwise, just another sign of the times.
http://www.nakedcapitalism.com/2008/11/new-york-commercial-real-estate.html
Hopefully Obama, if he holds his lead and wins, will temper a Democratic Congress hell bent on over-regulation. We lacked proper balance the past 8-12 years (to little regulation and oversight) but the answer is not to swing the pendulem back too far the other way.
So let's get back to all things financial.
Who Woulda Known
Okay, I did not expect a big up day today. I expected more like yesterday's relatively flat performance. I thought we might get a small bounce Wednesday if Obama won, but otherwise did not see today coming. Perhaps it was anticipation of Obama winning or perhaps it was the LIBOR improving for a 17th consecutive day. Perhaps it was the nice weather - 64 degrees in New Hampshire today. Perhaps it was some relief on the emerging markets. Perhaps it was money waiting on the sidelines thinking it is time to get back in. Who knows? Good to see either way. There is still enough bad news to temper this, but maybe the market sees a bottom and people are not waiting for the turn in the economy. The market does normally turn before the economy. I just think this turn in the market is a little premature timing wise. We will see.
When is $33 Trillion Not Such a Big Number?
Answer, when you are comparing it to $62 trillion. Just a few months ago estimates had the Credit Default Swap market (basically insurance against debt default events), on a notional basis, at $62 trillion. The actual payout threat was obvoiusly much smaller. Now, in fairly short order, we are hearing that the number is down to $33 trillion. Still a big ass number, but roughly half of what it was. I know in the run up to the Lehman settlement various financial institutions got together and tore up off-setting swaps taking the number down to the low 50 trillion range, but $33 trillion is a good further drop. This number does cancel out overlapping trades, so that likely explains the reduction, but cancelling out overlapping or off-setting swaps assumes that both counterparties are in a position to pay. What if one side is insolvent at the time of the default event?
http://www.bloomberg.com/apps/news?pid=20601087&sid=auQSTZnaO5JY&refer=home
Housing Sucks Wind
Big news here, not, housing still gettin the big hurt put on it. D.R. Horton losing as much as $900 million in its fiscal fourth quarter. Foreclosures continue and they will get worse before we turn that corner. We are probably past the subprime peak but Alt- A ARMs are resetting at extreme levels next year and with the economy in a recession, with job losses it will continue to be a perfect storm. Add credit tightening and the millions of homeowners under water on their homes and it is rather ugly. From what I read, do not expect housing to really bottom until late 2009 at the earliest, and probably 2010.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aE.WSGzVew.k&refer=home
What?!?!
We have another brilliant move by the Fed. The New York Fed has hired the former chief risk officer of Bear Stearns as the Senior Vice President in the Bank Supervision Group. One could make a fairly well reasoned argument that this is STUPID!! He may know where the bodies are buried at Bear Stearns and the U.S. is on the hook there for $29 billion of that risk but let's not reward a guy that allowed his company to take on foolish levels of risk by letting him be anywhere near a position of power, much less in bank supervision. There are few people on Earth who have proven more convincingly that they are as inappropriate for this job as he is. Aaarrgghh!!
http://www.ny.frb.org/newsevents/news/aboutthefed/2008/oa081031.html
So You Want To Buy a Skyscraper?
Commercial real estate in NY has taken a decidedly southern turn. Down 61% and worse is expected in the fourth quarter. Moreover, a lot of the sales this year have been by distressed owners looking to raise cash and pay off debt. If you are a commercial tenant that is looking to renew a lease soon, this is good news. Otherwise, just another sign of the times.
http://www.nakedcapitalism.com/2008/11/new-york-commercial-real-estate.html
Monday, November 3, 2008
Tiny Bubbles, Make Me Happy, Make Me Feel Fine
Sorry for the long delay in posting, but things have been a tad bit hectic here lately. Anyhow, last week was just as incredible in the up direction as the week before was in the opposite. Extreme volatility persists. With the election tomorrow, expect more of the same. It seemed today that most folks were sitting on the sidelines. I have been reading that a lot of traders are choosing to do just that as the market is too difficult to call. Add to that the volatility and people are holding pat, especially with the election. We will see if that holds true tomorrow as there was a fair amount of bad news today that is not yet impacting the market, it seems. You can just look at some Bloomberg headlines for a quick summary:
U.S. Manufacturing Contracts at Fastest Pace Since 1982 (worse than predicted)
Blue Mountain Freezes Withdrawals From its $3.1 Billion Hedge Fund (some hedge fund terms allow them to do this for more orderly deleveraging)
Viacom Drops 37% on Ad Drop (and that during record election spending - what happens next week?)
U.S. Car Sales Fall 32% to Lowest Total in 17 Years (GM sales down 45% and they are calling it the worst month in the post-WWII era. So much for employee pricing. It seems that we will all be auto company stockowners soon.) This is ugly -
http://globaleconomicanalysis.blogspot.com/2008/11/grim-auto-news-on-every-front.html
Circuit City to Close 155 Stores, Cut U.S. Workforce
Okay, it was not all bad news, but the news is more bearish than bullish, on the heels of our best week for stocks in many years. I was a bit surprised the market was so flat. I think people are pausing a bit for the election. Depending on how the election goes, we could see a temporary bounce or a downdraft. It depends on who wins. Right or wrong, Americans think that Obama is better for the economy and, no doubt, a win by him is somewhat built into the market right now. If McCain wins, the immediate market reaction may not be too favorable.
BRIC-A- Brac Under Attack
There has been a fair amount lately about the BRIC (Brazil, Russia, India and China) economies hitting headwinds (and who isn't). Obviously, if you are invested in their respective stock markets, this is an understatement. For Russia and Brazil it is more commodity oriented and for China and India it is more export (goods and services) oriented. Some are down more than the 79% the U.S. dropped during the Great Depression, but for the most part that is after some pretty astronomical climbs in the past few years, so all is relative. Nonetheless, those counting on the fast growing economies to support our export growth and provide the global economy with a soft landing are possibly in for a rough awakening. China, for example, has seen its growth slow to 9%, which sounds great but it is not when you consider the number of people there for which the country is trying to create jobs. And now the country may be facing its own liquidity/credit issues. Yet another bubble bursting. So many bubbles popping right now it sounds like Chinatown on Chinese New Year. Good thing China has $1.9 trillion in reserves:
http://www.nakedcapitalism.com/2008/11/china-faces-liquidity-crunch.html
For more on the BRICs generally:
http://www.bloomberg.com/apps/news?pid=20601110&sid=aZwI8vU6TNwo
Those with BOS (Balls of Steel) might be temped to go into these markets given the big drop, but some might be wary of more drastic declines if things turn nasty and some of these countries destabilize, which would be truly ugly.
Street Cred Report
The credit markets continued their eternally slow thaw for the most part, but all is not good in credit land. Banks continue to tighten lending standards on pretty much everthing and loan demand is weakening. After all, why borrow when you cannot make the payments and you know you will not get the loan. Oh, I miss the good old days when no one expected to be able to pay and the lenders didn't care if you could. Life is good in a bubble. They make me feel fine.
http://calculatedrisk.blogspot.com/2008/11/fed-lending-standards-tighten-loan.html
The Deficit Bubble
Seems like just the other day the federal deficit passed $10 trillion and they had to add another digit to the national debt clock. Oh, so far we have come so fast. That was last month's news - literally just a month ago. Now we are almost to $10.6 trillion. In case your calculator is lacking enough digits for the math, we have increased the national debt by just about 6% in A SINGLE MONTH!! It took us over over 230 years to get to $10 trillion and just one month to add 6%. That is how bad this crisis is and it is not showing any signs of ending soon. Yes, I think we will get through this in a few years but at great cost to our kids and grandkids. We have room to grow debt but the deficit is quickly approaching high levels as a percentage of GDP. Not where we want to go, but right now we have no choice.
http://www.treasurydirect.gov/NP/BPDLogin?application=np
The Bubble That Bursts in Vegas Stays in Vegas - Not
I went to Vegas a few months after 9/11 and it was good in terms of no lines, getting a lot of attention and good deals. Well, Vegas can be added again to your cheap vacation spots (your experience may vary depending on betting). No surprise given that the city with, formerly, the highest growth in the country has also now shown some of the highest foreclosure rates. If you vacation there, don't expect a lot of happy faces, though this time the sad ones will be those dealing you the cards.
http://suddendebt.blogspot.com/2008/11/busted-in-vegas.html
Housing Bubble, Chapter 3,413
The housing bubble seems to be the slowest popping bubble ever, and believe me it has a lot of wind to go, so why so much talk about artificially trying to put a bottom under it. While we can hope and pray a bottom is near, we will get there when we get there. Trying to support a false bottom, is just like asking for - well - a fake ass. Looks nice but doesn't feel so good.
There is a lot of political support for some housing price support, but we need to get to the bottom folks. Any false bottom is not a real bottom and we will only delay the final day or reckoning. Let it drop and drop fast. The faster the better. We only get a bottom when in fact we get to the bottom. Yes, support mortgage relief for those who can afford their homes at realistic pricing and realistic rates, push for logical modifications where it makes sense (though securitized mortgages for the most part cannot be modified much due to contractual restrictions), and put in place some government programs for helping people with negotiating modifications and making payments (where appropriate). Any program has to be designed to not support moral hazard, i.e. not get people to blatantly take loans they cannot afford and avoid helping those who were speculating. But the realm of help is limited. No pain no gain.
http://bigpicture.typepad.com/comments/real_estate_/index.html
VW Bubble
Was anyone else surprised last week when VW (yes the car company started in Germany during the Hitler days as the people's car) surpassed Exxon as the largest company in terms of capital. In case you have been in a coma for two years and have not noticed, all car companies are sucking wind. So why-oh-why would VW rise in such a meteoric fashion? Well, officials are apparently asking the same question.
I noted last week that Porsche is buying enough shares of VW to increase its share to 75%. This left a very small float (freely trading shares) in the company that the short (and curlies) could not cover. And so the stock climbed high and hard. Can you say Short Squeeze! (in full disclosure I made a host of money this year on put options, but that does not make me a big short fan. I have no put options presently and most of my retirement is in Treasuries. I too am on the sidelines it seems.)
And for the elections, may the best men and women win.
U.S. Manufacturing Contracts at Fastest Pace Since 1982 (worse than predicted)
Blue Mountain Freezes Withdrawals From its $3.1 Billion Hedge Fund (some hedge fund terms allow them to do this for more orderly deleveraging)
Viacom Drops 37% on Ad Drop (and that during record election spending - what happens next week?)
U.S. Car Sales Fall 32% to Lowest Total in 17 Years (GM sales down 45% and they are calling it the worst month in the post-WWII era. So much for employee pricing. It seems that we will all be auto company stockowners soon.) This is ugly -
http://globaleconomicanalysis.blogspot.com/2008/11/grim-auto-news-on-every-front.html
Circuit City to Close 155 Stores, Cut U.S. Workforce
Okay, it was not all bad news, but the news is more bearish than bullish, on the heels of our best week for stocks in many years. I was a bit surprised the market was so flat. I think people are pausing a bit for the election. Depending on how the election goes, we could see a temporary bounce or a downdraft. It depends on who wins. Right or wrong, Americans think that Obama is better for the economy and, no doubt, a win by him is somewhat built into the market right now. If McCain wins, the immediate market reaction may not be too favorable.
BRIC-A- Brac Under Attack
There has been a fair amount lately about the BRIC (Brazil, Russia, India and China) economies hitting headwinds (and who isn't). Obviously, if you are invested in their respective stock markets, this is an understatement. For Russia and Brazil it is more commodity oriented and for China and India it is more export (goods and services) oriented. Some are down more than the 79% the U.S. dropped during the Great Depression, but for the most part that is after some pretty astronomical climbs in the past few years, so all is relative. Nonetheless, those counting on the fast growing economies to support our export growth and provide the global economy with a soft landing are possibly in for a rough awakening. China, for example, has seen its growth slow to 9%, which sounds great but it is not when you consider the number of people there for which the country is trying to create jobs. And now the country may be facing its own liquidity/credit issues. Yet another bubble bursting. So many bubbles popping right now it sounds like Chinatown on Chinese New Year. Good thing China has $1.9 trillion in reserves:
http://www.nakedcapitalism.com/2008/11/china-faces-liquidity-crunch.html
For more on the BRICs generally:
http://www.bloomberg.com/apps/news?pid=20601110&sid=aZwI8vU6TNwo
Those with BOS (Balls of Steel) might be temped to go into these markets given the big drop, but some might be wary of more drastic declines if things turn nasty and some of these countries destabilize, which would be truly ugly.
Street Cred Report
The credit markets continued their eternally slow thaw for the most part, but all is not good in credit land. Banks continue to tighten lending standards on pretty much everthing and loan demand is weakening. After all, why borrow when you cannot make the payments and you know you will not get the loan. Oh, I miss the good old days when no one expected to be able to pay and the lenders didn't care if you could. Life is good in a bubble. They make me feel fine.
http://calculatedrisk.blogspot.com/2008/11/fed-lending-standards-tighten-loan.html
The Deficit Bubble
Seems like just the other day the federal deficit passed $10 trillion and they had to add another digit to the national debt clock. Oh, so far we have come so fast. That was last month's news - literally just a month ago. Now we are almost to $10.6 trillion. In case your calculator is lacking enough digits for the math, we have increased the national debt by just about 6% in A SINGLE MONTH!! It took us over over 230 years to get to $10 trillion and just one month to add 6%. That is how bad this crisis is and it is not showing any signs of ending soon. Yes, I think we will get through this in a few years but at great cost to our kids and grandkids. We have room to grow debt but the deficit is quickly approaching high levels as a percentage of GDP. Not where we want to go, but right now we have no choice.
http://www.treasurydirect.gov/NP/BPDLogin?application=np
The Bubble That Bursts in Vegas Stays in Vegas - Not
I went to Vegas a few months after 9/11 and it was good in terms of no lines, getting a lot of attention and good deals. Well, Vegas can be added again to your cheap vacation spots (your experience may vary depending on betting). No surprise given that the city with, formerly, the highest growth in the country has also now shown some of the highest foreclosure rates. If you vacation there, don't expect a lot of happy faces, though this time the sad ones will be those dealing you the cards.
http://suddendebt.blogspot.com/2008/11/busted-in-vegas.html
Housing Bubble, Chapter 3,413
The housing bubble seems to be the slowest popping bubble ever, and believe me it has a lot of wind to go, so why so much talk about artificially trying to put a bottom under it. While we can hope and pray a bottom is near, we will get there when we get there. Trying to support a false bottom, is just like asking for - well - a fake ass. Looks nice but doesn't feel so good.
There is a lot of political support for some housing price support, but we need to get to the bottom folks. Any false bottom is not a real bottom and we will only delay the final day or reckoning. Let it drop and drop fast. The faster the better. We only get a bottom when in fact we get to the bottom. Yes, support mortgage relief for those who can afford their homes at realistic pricing and realistic rates, push for logical modifications where it makes sense (though securitized mortgages for the most part cannot be modified much due to contractual restrictions), and put in place some government programs for helping people with negotiating modifications and making payments (where appropriate). Any program has to be designed to not support moral hazard, i.e. not get people to blatantly take loans they cannot afford and avoid helping those who were speculating. But the realm of help is limited. No pain no gain.
http://bigpicture.typepad.com/comments/real_estate_/index.html
VW Bubble
Was anyone else surprised last week when VW (yes the car company started in Germany during the Hitler days as the people's car) surpassed Exxon as the largest company in terms of capital. In case you have been in a coma for two years and have not noticed, all car companies are sucking wind. So why-oh-why would VW rise in such a meteoric fashion? Well, officials are apparently asking the same question.
I noted last week that Porsche is buying enough shares of VW to increase its share to 75%. This left a very small float (freely trading shares) in the company that the short (and curlies) could not cover. And so the stock climbed high and hard. Can you say Short Squeeze! (in full disclosure I made a host of money this year on put options, but that does not make me a big short fan. I have no put options presently and most of my retirement is in Treasuries. I too am on the sidelines it seems.)
And for the elections, may the best men and women win.
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