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HomeThe Securitization Model
Posted by Larry Doyle on February 20th, 2009 8:49 AM |
In today’s NY Times, there is a front page article, U.S. Tries a Trillion-Dollar Key for Locked Lending, enlightening readers on the breakdown of the Wall Street securitization model.
Or you could review my piece from November 12th, “The Wall Street Model is Broken….and Won’t Soon Be Fixed,” for an even more in depth review of the development of the securitization model and resulting breakdown.
Trying to stay ahead of the curve for you here at Sense on Cents!!
Midday Market Update
Posted by Larry Doyle on February 19th, 2009 12:37 PM |
Very interesting price action in today’s markets:
The day started off with stock markets higher by 1.5-2% given a little bit of a relief rally in overseas markets.
At 8:30AM, the Producer Price Index was released and it was significnatly higher than expected (it rose .8 and, without the volatile food and energy components, it rose .4; the consensus was for an increase of .3 and ex-food and energy .1). Unemployment claims were also released and remain at the elevated level of 627K.
Concerns about inflation along with concerns about an ongoing supply of government debt have driven bonds across all sectors down by .5-1%. High yield bonds are down more than that with concerns of the deepening recession leading to an increase in defaults.
All sectors of the stock market have reversed course and are now down .5-1%. The fact that the stock market could not hold earlier gains reinforces the strength of the bear market. We should look for a further selloff of another 4% to retest lows in the DJIA seen back in late 2002.
Currency markets are having a little bit of a reversal today with the Euro strengthening on indications of potential German intervention. The dollar is strengthening versus the Japanese yen.
LD
The Fed Speaks
Posted by Larry Doyle on February 18th, 2009 2:53 PM |
Fed chairman Ben Bernanke spoke at the National Press Club this afternoon and offered revisions for the Fed’s economic statistics for 2009. What do the numbers mean? Here’s a recap:
— the Fed expects GDP for 2009 to end up between -.5% to -1.3%, revised from -.2% to +1.1%. The Fed obviously is expecting a contraction in our economy for all of 2009 and further added it does not see much of a pickup in 2010.
— the Fed is setting a long term inflation target of 2% but does not expect to see a pickup in inflationary pressures for a protracted period.
— increasing its expectation for the unemployment rate in 4th quarter of 2009 to 8.5% to 8.8%.
— the Fed has seen no indication of stability in residential housing markets in January 2009.
— some Fed governors have increased concerns about defaults and foreclosures in the commercial real estate markets.
— the Fed believes long term growth potential for GDP is 2.5% to 2.7%.
— the Fed realizes that at some point it will need to contract the growth in its balance sheet to mitigate chances of increased inflation.
What does all this mean?
In summary, the Fed is publicly acknowledging that the economic recession will be longer, deeper, and more painful. They are also offering that they are determined not to let deflation or the threat of deflation impede the economy.
I see no reason to rush into adding risk assets (equities or speculative credits) on the heels of this report. It is actually very interesting to see that some high profile individuals and institutions have actually been selling assets:
T. Boone Pickens
Pickens Reduces Energy Investments, Holdings Fall 97%
Warren Buffet
Berkshire Reduces J&J Stake, Turns to Fixed-Income
Harvard University
Harvard Retreated From U.S. Stocks as Market Tumbled
LD
Legalized Bribery ***UPDATE***
Posted by Larry Doyle on February 18th, 2009 8:55 AM |
(Editor’s Note: This post is an update to the piece Legalized Bribery, which was originally published on 2/16/09)
***Update*** After Bernie Madoff, it appears the next largest, fraudulent investment scheme is centered on an entity known as Stanford Financial. This company has offices in Houston and also operated an offshore bank in the Caribbean. While this story is developing, it is not surprising that the main principal, Allen Stanford, knew how to play the “Legalized Bribery” game I highlighted on February 16th. Who benefitted from his millions in gifts and lobbying? Charlie Rangel (D-NY), Greg Meeks (D-NY), Bill Nelson (D-FL), Pete Sessions (R-TX), former CA governor Gray Davis, and the Democratic Party. Check it out: Texas Businessman Sought Influence in Corridors of Capitol
I will continue to update this story on an ongoing basis. In the meantime, you can access my original piece entitled Legalized Bribery.
Where East Meets West
Posted by Larry Doyle on February 18th, 2009 6:00 AM |
In the late ’80s, an international banking crisis in Latin America and South America led to massive losses for many money center banks here in the United States. In the late ’90s, the collapse of the Thai bhat and Russian ruble were the precursors to global economic turmoil and significant dislocations in the capital markets. Fast forward to the current economic turmoil and the bulk of the problems have emanated in the developed markets. From the United States to the U.K. to Japan there are major destructive forces at work. Emerging markets have been following the developed markets with signs of stress present but not overwhelming…..until today.
As if western European banks did not already have enough to worry about, a major factor in Tuesday’s selloff in global equities was the expectation of truly massive unrealized losses due to exposure to the emerging economies of eastern Europe.
With capital flowing into eastern Europe truly drying up (effectively financial protectionism), the pace of delinquencies and defaults on loan payments is expected to skyrocket. European banks are not well positioned to deal with these losses. I would expect this situaiton will lead to the formal nationalization of many European banks. Does that create a wave of nationalization around the globe? At the very least it will put added pressure on the Euro and increase the sovereign credit risk of many European nations.
Banks Reel On Eastern Europe’s Bad News . . .
The Wall Street Journal; February 18, 2009
By Marc Champion, Joanna Slater and Carrick Mollenkamp
Behind the Numbers…
Posted by Larry Doyle on February 17th, 2009 1:43 PM |
While the equity markets globally are down 3-4% today and are within a few per cent of the lows seen on November 20th, let’s take a look “behind the numbers” so we can most effectively “navigate the economic landscape.”
1. While the United States has lost 2 million jobs over the last three months, China has reportedly lost 20 million jobs in that same time period.
2. Japan’s 4th quarter GDP came in at -3.3%!! This retraction equates to an annual decline of approximately 13%!!
Comment….those numbers are not indicative of economies that are weathering the storm or ready to generate domestic consumption. No wonder why both Japan and China are so concerned about protectionist policies here in the United States. (more…)
The Market Speaks . . . Investors Rush for the Exits
Posted by Larry Doyle on February 17th, 2009 8:12 AM |
Equity markets around the world are sufferring significant pullbacks overnight and this morning in the United States. What are the issues? Hope is a lousy hedge!! What does that mean? If we are relying on hope, rather than well defined plans to turn our economy and banking system, then investors are headed for the exits!
Let me highlight specific situations:
1. Banks around the world facing imminent downgrades in their credit rating due to continued pressures on their earnings capabilities and expectations of increasing defaults in their loan books.
2. Auto companies in the United States were supposed to deliver restructuring plans today. The market believes this situation is likely headed to a government backed bankruptcy.
3. Hedge funds are receiving notification that Wall Street banks are significantly pulling in, if not totally reneging on, credit lines. What does this mean? Many funds will have to find financing elsewhere or liquidate the business which means selling assets which will put further downward pressure on many sectors of the market. (more…)
