very bad for me:(
But here’s the rub. Unlike the tech bust, during the mortgage crisis fallout, it won’t be just Wall Street scions and their New York dependents struggling to find employment.
Today, given the slowdown in the housing and mortgage markets, only 59% of American employers plan to hire 2008 college gradates this year, down 17% from 2007. What’s more, according to Monster Worldwide’s annual survey, 29% of employers say they are “unsure” about hiring new grads -- twice as many as responded this way last year.
Pollsters at Monster say about half of all 2008 college grads plan on moving back home after graduation -- more than double the 22% who had the same plan in 2007. That can’t be good for family balance sheets already strapped preparing for retirement.
Wednesday, March 26, 2008
Monday, March 24, 2008
S&P 1350 is the support for new bull market
It seems we get it today . Now the question is whether it can hold for 3 days.
Monday, March 17, 2008
the lesson we learn from BSC melting down
You will recognize that line, dear reader. It describes what happened to Julius Ceasar after he was stabbed to death by a group of rivals on the Ides of March in the year
The Ides of March came this past Saturday. When it had gone, the bloody corpse on the ground was that of one of Wall Street’s biggest players – Bear Stearns.
Last week, we reported a rumor. That a large Wall Street firm was in trouble – which was said to be the real reason that the Fed announced its new $200 billion of loans.
By week’s end the news was out: the Bear had gotten the ‘Margin Call from Hell.’
The Fed and J.P. Morgan Chase rushed in to give aid and comfort. But officials were very worried that if a deal to rescue Bear Stearns were not completed before Asian markets opened this morning, there could be a financial meltdown.
“I’ve been on the phone for a couple of days straight, throughout the weekend,” said U.S. Treasury Secretary Hank Paulson on television...”but I’m not going to project right now what the outcome of that situation is...”
“That situation” of course, was the situation at Bear Stearns. Early reports here in London say that a deal was finally struck with J.P. Morgan Chase to buy out the Bear for a reported $2 a share.
The background for this latest crisis is what we’ve been reckoning with in these Daily Reckonings for so many months. The geniuses at Bear Stearns had their calculators...their Black Sholes Option Pricing Model...their mathematicians...their risk figures... They had some of the finest minds in the country – or at least, some of the finest minds money could buy on Wall Street.
And yet, a year ago they also had a stock trading for $150. Now, it is down to $2...the shareholders have been largely wiped out.
When Wall Street got the news of the Bear’s predicament, stocks were sold off – driving the Dow down 300 points. Then came word that the Fed and JP Morgan Chase were on the case, and the index bounced back, closing down 194 points. Hardest hit, (this will come as no surprise) was Bearn Stearns itself – down 47%. Other financial stocks took a beating too.
We began last week worrying that we might be wrong. We begin this one worrying that we are probably right. At the beginning of the week, U.S. stocks seemed to be rising more than gold. By week’s end, things were happening as they should: God was in his heaven. The queen was on her throne. Gold was rising...and stocks were going down. All is right with the world...or as right as it can be after a 27-year credit expansion.
Little noticed in the Bear affair is the role of Chinese investment firm, Citic. The Chinese were going to put up some money to prop up Bear Stearns. There might be many explanations for why the Citic deal didn’t go forward, but here we suggest one that is the most far-reaching: the foreigners are growing wary of the United States. You will recall our friend in Geneva told us to “Sell the United States...sell its money...sell its stocks...sell its debt.” That attitude is spreading – the belief that the United States is a short sale.
“For years,” begins a report in the Wall Street Journal , “the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.”
“Clearly, the whole world is focused on the financial crisis and the US is really the epicenter of the tension,” the paper quotes Carlos Asills, at Globista Investments. “As a result, we’re seeing the capital flow out of the US.”“The Fed’s rescue of Bear increases the odds of a generalized, taxpayer-funded financial bailout. Combined with superlow rates, that will add to pressure on the beleaguered dollar. Bear is the biggest firm so far to hit the wall this time around. But the biggest name in financial distress could eventually be the US.”
*** How do you like those foreigners? We were nice enough to take their money...spend it on stuff they sent over...and ruin our own economy and our own balance sheets so theirs could grow at breakneck speed. And this is the thanks we get! Now that we really need their money, instead of opening their wallets, they ask questions: what’s that paper really worth, they want to know?
The United States emits a lot of paper – bonds, notes, SIVs, MBS, securities, repos, you name it – but one piece of paper is the one emitted most and the one the foreigners are probably most concerned about: the paper with pictures of dead presidents.
The Ides of March came this past Saturday. When it had gone, the bloody corpse on the ground was that of one of Wall Street’s biggest players – Bear Stearns.
Last week, we reported a rumor. That a large Wall Street firm was in trouble – which was said to be the real reason that the Fed announced its new $200 billion of loans.
By week’s end the news was out: the Bear had gotten the ‘Margin Call from Hell.’
The Fed and J.P. Morgan Chase rushed in to give aid and comfort. But officials were very worried that if a deal to rescue Bear Stearns were not completed before Asian markets opened this morning, there could be a financial meltdown.
“I’ve been on the phone for a couple of days straight, throughout the weekend,” said U.S. Treasury Secretary Hank Paulson on television...”but I’m not going to project right now what the outcome of that situation is...”
“That situation” of course, was the situation at Bear Stearns. Early reports here in London say that a deal was finally struck with J.P. Morgan Chase to buy out the Bear for a reported $2 a share.
The background for this latest crisis is what we’ve been reckoning with in these Daily Reckonings for so many months. The geniuses at Bear Stearns had their calculators...their Black Sholes Option Pricing Model...their mathematicians...their risk figures... They had some of the finest minds in the country – or at least, some of the finest minds money could buy on Wall Street.
And yet, a year ago they also had a stock trading for $150. Now, it is down to $2...the shareholders have been largely wiped out.
When Wall Street got the news of the Bear’s predicament, stocks were sold off – driving the Dow down 300 points. Then came word that the Fed and JP Morgan Chase were on the case, and the index bounced back, closing down 194 points. Hardest hit, (this will come as no surprise) was Bearn Stearns itself – down 47%. Other financial stocks took a beating too.
We began last week worrying that we might be wrong. We begin this one worrying that we are probably right. At the beginning of the week, U.S. stocks seemed to be rising more than gold. By week’s end, things were happening as they should: God was in his heaven. The queen was on her throne. Gold was rising...and stocks were going down. All is right with the world...or as right as it can be after a 27-year credit expansion.
Little noticed in the Bear affair is the role of Chinese investment firm, Citic. The Chinese were going to put up some money to prop up Bear Stearns. There might be many explanations for why the Citic deal didn’t go forward, but here we suggest one that is the most far-reaching: the foreigners are growing wary of the United States. You will recall our friend in Geneva told us to “Sell the United States...sell its money...sell its stocks...sell its debt.” That attitude is spreading – the belief that the United States is a short sale.
“For years,” begins a report in the Wall Street Journal , “the US economy has been borrowing from cash-rich lenders from Asia to the Middle East. American firms and households have enjoyed readily available credit at easy terms, even for risky bets. No longer.”
“Clearly, the whole world is focused on the financial crisis and the US is really the epicenter of the tension,” the paper quotes Carlos Asills, at Globista Investments. “As a result, we’re seeing the capital flow out of the US.”“The Fed’s rescue of Bear increases the odds of a generalized, taxpayer-funded financial bailout. Combined with superlow rates, that will add to pressure on the beleaguered dollar. Bear is the biggest firm so far to hit the wall this time around. But the biggest name in financial distress could eventually be the US.”
*** How do you like those foreigners? We were nice enough to take their money...spend it on stuff they sent over...and ruin our own economy and our own balance sheets so theirs could grow at breakneck speed. And this is the thanks we get! Now that we really need their money, instead of opening their wallets, they ask questions: what’s that paper really worth, they want to know?
The United States emits a lot of paper – bonds, notes, SIVs, MBS, securities, repos, you name it – but one piece of paper is the one emitted most and the one the foreigners are probably most concerned about: the paper with pictures of dead presidents.
Thursday, March 13, 2008
Wednesday, March 12, 2008
Wow, the Fed acts again as an irresponsible person
The Fed’s new TSLF -- a promise to swap Treasuries for mortgage-backed securities -- kicked off the best day for U.S. stocks in five years.
The Dow shot up 417 points, or 3.5%, its best percentage gain since March 2003. The Nasdaq also had its biggest percentage gain since spring ’03, up nearly 4%. The S&P hasn’t seen a day this good since May 2002… it popped 3.7%.
“The Federal Reserve’s announcement,” John Williams, “that it will be providing an added $200 billion in liquidity to the system in a coordinated action with other central banks, on top of the $200 billion emergency funding announced by the Fed on Friday (March 7), again highlights the depth of and the ongoing deterioration in the banking system’s solvency crisis.
“The good news is the Fed will create whatever dollars it needs to keep the system from imploding. The bad news is the price that will be paid in higher inflation. Despite any relief rallies that seem to be taking place in the equity and dollar markets, the news here has horrendous implications for the dollar and inflation, corresponding positive implications for gold and likely continued trouble for equities.”
Stock markets in Asia rallied big on the Fed bailout plan too. Markets in Australia, Hong Kong, Malaysia and Singapore all surged about 3%. Indian and Japanese markets gained 1% apiece.
In classic form, whatever America did, China did not. The Shanghai Composite fell 2.3% on rumors the Chinese central bank is planning to hike rates again… and the government is devising more ingenious ways to stymie inflation in their fledgling capitalist economy.
The Dow shot up 417 points, or 3.5%, its best percentage gain since March 2003. The Nasdaq also had its biggest percentage gain since spring ’03, up nearly 4%. The S&P hasn’t seen a day this good since May 2002… it popped 3.7%.
“The Federal Reserve’s announcement,” John Williams, “that it will be providing an added $200 billion in liquidity to the system in a coordinated action with other central banks, on top of the $200 billion emergency funding announced by the Fed on Friday (March 7), again highlights the depth of and the ongoing deterioration in the banking system’s solvency crisis.
“The good news is the Fed will create whatever dollars it needs to keep the system from imploding. The bad news is the price that will be paid in higher inflation. Despite any relief rallies that seem to be taking place in the equity and dollar markets, the news here has horrendous implications for the dollar and inflation, corresponding positive implications for gold and likely continued trouble for equities.”
Stock markets in Asia rallied big on the Fed bailout plan too. Markets in Australia, Hong Kong, Malaysia and Singapore all surged about 3%. Indian and Japanese markets gained 1% apiece.
In classic form, whatever America did, China did not. The Shanghai Composite fell 2.3% on rumors the Chinese central bank is planning to hike rates again… and the government is devising more ingenious ways to stymie inflation in their fledgling capitalist economy.
Friday, March 7, 2008
Consumer confidence has dipped to a five-year low so far this March.
The chance counts on the chris.
According to the RBC CASH Index -- a measure of Consumer Attitudes and Spending by Household -- confidence among consumers has sunk to 33 this month, steeply down from 48 in February and its lowest reading since inception in 2002.
Jobs took a hit this morning, too. U.S. nonfarm jobs fell by 63,000 last month, the Labor Department reports. January numbers got revised down, too… from minus 17,000 jobs to minus 22,000.
That’s an “official” two-month, back-to-back loss in jobs. Worth noting, because in the past 40 years, there have never been two consecutive months of job losses that didn’t coincide with a recession.
Still, as usual, the government stats are confusing. Somehow, despite the net loss of 85,000 jobs over the past two months, “unemployment” has improved to 4.8%, up from 4.9% in January and 5% in December. Hmmmn…
Ten minutes before this morning’s jobs report, the Federal Reserve announced it’d be injecting $100 billion into the U.S. banking system. The Fed will print an extra $20 billion for both of its term auction facilities held this month on the 10th and 24th. Each will now inject $50 billion in the embattled financial industry, for a monthly total of $100 billion.
Immediately following the Fed announcement and jobs report, traders in Chicago priced in 100% odds of future Fed cuts of 75 bps.
According to the RBC CASH Index -- a measure of Consumer Attitudes and Spending by Household -- confidence among consumers has sunk to 33 this month, steeply down from 48 in February and its lowest reading since inception in 2002.
Jobs took a hit this morning, too. U.S. nonfarm jobs fell by 63,000 last month, the Labor Department reports. January numbers got revised down, too… from minus 17,000 jobs to minus 22,000.
That’s an “official” two-month, back-to-back loss in jobs. Worth noting, because in the past 40 years, there have never been two consecutive months of job losses that didn’t coincide with a recession.
Still, as usual, the government stats are confusing. Somehow, despite the net loss of 85,000 jobs over the past two months, “unemployment” has improved to 4.8%, up from 4.9% in January and 5% in December. Hmmmn…
Ten minutes before this morning’s jobs report, the Federal Reserve announced it’d be injecting $100 billion into the U.S. banking system. The Fed will print an extra $20 billion for both of its term auction facilities held this month on the 10th and 24th. Each will now inject $50 billion in the embattled financial industry, for a monthly total of $100 billion.
Immediately following the Fed announcement and jobs report, traders in Chicago priced in 100% odds of future Fed cuts of 75 bps.
Tuesday, March 4, 2008
2007 brought you terms like “ARM,” “CDO” and “SIV”… here’s one for 2008: pay option loan (POL).
The pay option loan is a variation on the ARM in which the borrower can choose how much they can pay toward their mortgage each month. The loans allow you as the borrower to pay less each month if the going gets tough. Fair enough.
Trouble is, if you pay the minimum enough times, you’ll come up short of the interest owed, the remainder of which gets added to your principal. Enough of that… and you’ve got a noticeably larger mortgage than you first signed up for… with the adjustable rates about to kick in. Fun, eh?
Yeah.
Countrywide filed an SEC report on Friday admitting they hold $29 billion worth of POLs… $26 billion of which have already grown beyond the amount of the original loan. More than eight out of 10 of these loans were made to borrowers who provided little to no income documentation. As of December, seven out of 10 of them were electing to pay less than interest-only payments.
Good grief… three guesses as to what happens next.
Trouble is, if you pay the minimum enough times, you’ll come up short of the interest owed, the remainder of which gets added to your principal. Enough of that… and you’ve got a noticeably larger mortgage than you first signed up for… with the adjustable rates about to kick in. Fun, eh?
Yeah.
Countrywide filed an SEC report on Friday admitting they hold $29 billion worth of POLs… $26 billion of which have already grown beyond the amount of the original loan. More than eight out of 10 of these loans were made to borrowers who provided little to no income documentation. As of December, seven out of 10 of them were electing to pay less than interest-only payments.
Good grief… three guesses as to what happens next.
Monday, March 3, 2008
Nothing new turns out to be good
We may see another leg donw.
The Chicago manufacturing index fell to a low not seen since 2001 on Friday.
The Chicago-area “manufacturer purchasing activity” fell from 51, to 44, in February -- way lower than quants and wonks alike thought it would. Dropping below the 50-point line signals increased uncertainty and forecasts “negative growth” -- an oxymoron only a two-armed economist could dream up.
Likewise, the Institute for Supply Management reported a worse-than-expected February manufacturing report this morning. The ISM’s monthly manufacturing index fell from 50.7, to 48.3.
Still, according to the ISM, history shows that the U.S. is not in an official “recession” until the index nears 41… as manufacturing has never been a smaller part of the U.S. economy.
Contrary to a recent increase in consumer spending, consumer sentiment is waning.
U.S. consumer sentiment in February fell to a score of 70.8, reports Reuters and the University of Michigan. Consumers haven’t been this bummed out about their prospects since Dubya’s father was asking people to read his lips. Reuters and the University of Michigan cited the first monthly drop in employment in four years -- and rising gas prices -- as the two key contributors to a worse-than-expected February.
Coupled with the Conference Board’s sentiment survey from last week -- at five-year lows -- it’s almost safe to say that U.S. consumers are starting to fear an economic downturn. When (or if) they’ll start acting like it… your guess is as good as ours. The following may, at some point, be of concern, too…
The U.S. dollar struck a fresh record low again early this morning. The dollar index declined to 73.4… but it wasn’t against the euro this time. In fact, the eurozone currency fell a penny, to $1.51. Lo and behold, it was the yen’s turn to take a few shots at the punch-drunk dollar.
The Japanese currency strengthened over 2 full points in as many days, to 103. That’s more than a three-year high versus the dollar.
The dollar index is down 13% over the last 12 months.
“The thing that put the dollar on the greased skids last week,” our currency sage Chuck Butler reminds us, “still exists this week. And that, simply put, is the fact that the Fed is going to cut rates even further.”
And they plan to do more than just cut rates. The Fed will auction off some $60 billion more in short-term loans this month.
As a “service” to the U.S. economy, the Fed will print $30 billion fresh dollar bills for auction on March 10, and then again on March 24, and then lend them to banks at rates that no normal consumer or small business could ever attain.
Gold rallied to yet another record high this morning on word of a weaker greenback. The precious metal shot up to $984 per ounce in Hong Kong trading. Silver prices followed suit, rallying to even greater 27-year highs. It’ll now cost you a cool $20 to score an ounce of silver.
Meanwhile, oil backed off its recent $103 high as the U.S. market sold everything in sight. Some “soft” commodities, namely wheat, have retreated from record highs lately, as well.
The Chicago manufacturing index fell to a low not seen since 2001 on Friday.
The Chicago-area “manufacturer purchasing activity” fell from 51, to 44, in February -- way lower than quants and wonks alike thought it would. Dropping below the 50-point line signals increased uncertainty and forecasts “negative growth” -- an oxymoron only a two-armed economist could dream up.
Likewise, the Institute for Supply Management reported a worse-than-expected February manufacturing report this morning. The ISM’s monthly manufacturing index fell from 50.7, to 48.3.
Still, according to the ISM, history shows that the U.S. is not in an official “recession” until the index nears 41… as manufacturing has never been a smaller part of the U.S. economy.
Contrary to a recent increase in consumer spending, consumer sentiment is waning.
U.S. consumer sentiment in February fell to a score of 70.8, reports Reuters and the University of Michigan. Consumers haven’t been this bummed out about their prospects since Dubya’s father was asking people to read his lips. Reuters and the University of Michigan cited the first monthly drop in employment in four years -- and rising gas prices -- as the two key contributors to a worse-than-expected February.
Coupled with the Conference Board’s sentiment survey from last week -- at five-year lows -- it’s almost safe to say that U.S. consumers are starting to fear an economic downturn. When (or if) they’ll start acting like it… your guess is as good as ours. The following may, at some point, be of concern, too…
The U.S. dollar struck a fresh record low again early this morning. The dollar index declined to 73.4… but it wasn’t against the euro this time. In fact, the eurozone currency fell a penny, to $1.51. Lo and behold, it was the yen’s turn to take a few shots at the punch-drunk dollar.
The Japanese currency strengthened over 2 full points in as many days, to 103. That’s more than a three-year high versus the dollar.
The dollar index is down 13% over the last 12 months.
“The thing that put the dollar on the greased skids last week,” our currency sage Chuck Butler reminds us, “still exists this week. And that, simply put, is the fact that the Fed is going to cut rates even further.”
And they plan to do more than just cut rates. The Fed will auction off some $60 billion more in short-term loans this month.
As a “service” to the U.S. economy, the Fed will print $30 billion fresh dollar bills for auction on March 10, and then again on March 24, and then lend them to banks at rates that no normal consumer or small business could ever attain.
Gold rallied to yet another record high this morning on word of a weaker greenback. The precious metal shot up to $984 per ounce in Hong Kong trading. Silver prices followed suit, rallying to even greater 27-year highs. It’ll now cost you a cool $20 to score an ounce of silver.
Meanwhile, oil backed off its recent $103 high as the U.S. market sold everything in sight. Some “soft” commodities, namely wheat, have retreated from record highs lately, as well.
Saturday, March 1, 2008
Brilliant or Stupid Ben?
market 's 300 point down.
“I think the greater risks are to the downside," Ben Bernanke reiterated in his second day of congressional testimony yesterday, “that is, to growth and to financial markets.”
We heard hints in his testimony Wednesday that more rate cuts might be on the way. Yesterday, the Fed chairman made it quite clear that he means to cut rates again, noting that inflation expectations have remained “pretty stable” and that “inflation will moderate this year as oil and food prices don't rise as much this year as they did last year.”
From the cheap seats, it’s sure looking like every food and energy commodity is at or near an all-time high and U.S. inflation is growing at a rate far from “pretty stable.” Regardless, gamblers in Chicago were emboldened by Bernanke’s remarks… futures there now price in a 100% chance for a 50 point rate cut in March, a 62% shot for 75 points.
Following Bernanke’s testimony, the dollar reached new lows across the globe. The dollar index has given up two full points since the Fed chairman began his testimony on Wednesday, and now sits at an all-time low of 73.
Likewise, the euro shot up to $1.52 yesterday, an all-time high of its own. The yen gained all the way to 104, a three-year high versus the greenback. The Canadian dollar and British pound stood still at about $1.02 and $1.98.
This is starting to surprise even us. We remember predicting the euro would go to $1.50 just after parity was reached… and getting roundly criticized for it. Now that we’re inching even higher, we suspect it’s going to have to gain some sympathy votes sooner or later.
“There will probably be some bank failures,” Bernanke suggested, saying that many overexposed small financial institutions in the U.S. are still at risk. While we respect Bernanke’s candor on the matter, markets didn’t care for his speculation.
Traders sold down financials in style yesterday, and the whole market followed… nearly1% losses for the Dow, S&P 500 and Nasdaq yesterday.
Neither Fannie Mae nor Freddie Mac helped in the matter much. Both banks reported big losses this week, writing down $3.6 billion and $2.5 billion in their respective fourth-quarter earnings announcements. Both losses were greater than Wall Street expected.
Naturally, as the U.S. two largest buyers and backers of American mortgages disclose a basket of bad subprime bets, the U.S. government has chosen to ease regulations on their investment capabilities.
Within hours of Freddie revealing its multibillion loss, the Office of Federal Housing Enterprise Oversight proudly announced that it will be removing limits to the amounts of loans and securities Fannie and Freddie can own. The two companies’ investment pools were formerly capped at a fixed level because of a few accounting “lapses” in 2004.
But now, Fannie and Freddie can invest in as many subprime-backed securities and risky mortgages as they can stomach, potential losses be damned. Brilliant.
“I think the greater risks are to the downside," Ben Bernanke reiterated in his second day of congressional testimony yesterday, “that is, to growth and to financial markets.”
We heard hints in his testimony Wednesday that more rate cuts might be on the way. Yesterday, the Fed chairman made it quite clear that he means to cut rates again, noting that inflation expectations have remained “pretty stable” and that “inflation will moderate this year as oil and food prices don't rise as much this year as they did last year.”
From the cheap seats, it’s sure looking like every food and energy commodity is at or near an all-time high and U.S. inflation is growing at a rate far from “pretty stable.” Regardless, gamblers in Chicago were emboldened by Bernanke’s remarks… futures there now price in a 100% chance for a 50 point rate cut in March, a 62% shot for 75 points.
Following Bernanke’s testimony, the dollar reached new lows across the globe. The dollar index has given up two full points since the Fed chairman began his testimony on Wednesday, and now sits at an all-time low of 73.
Likewise, the euro shot up to $1.52 yesterday, an all-time high of its own. The yen gained all the way to 104, a three-year high versus the greenback. The Canadian dollar and British pound stood still at about $1.02 and $1.98.
This is starting to surprise even us. We remember predicting the euro would go to $1.50 just after parity was reached… and getting roundly criticized for it. Now that we’re inching even higher, we suspect it’s going to have to gain some sympathy votes sooner or later.
“There will probably be some bank failures,” Bernanke suggested, saying that many overexposed small financial institutions in the U.S. are still at risk. While we respect Bernanke’s candor on the matter, markets didn’t care for his speculation.
Traders sold down financials in style yesterday, and the whole market followed… nearly1% losses for the Dow, S&P 500 and Nasdaq yesterday.
Neither Fannie Mae nor Freddie Mac helped in the matter much. Both banks reported big losses this week, writing down $3.6 billion and $2.5 billion in their respective fourth-quarter earnings announcements. Both losses were greater than Wall Street expected.
Naturally, as the U.S. two largest buyers and backers of American mortgages disclose a basket of bad subprime bets, the U.S. government has chosen to ease regulations on their investment capabilities.
Within hours of Freddie revealing its multibillion loss, the Office of Federal Housing Enterprise Oversight proudly announced that it will be removing limits to the amounts of loans and securities Fannie and Freddie can own. The two companies’ investment pools were formerly capped at a fixed level because of a few accounting “lapses” in 2004.
But now, Fannie and Freddie can invest in as many subprime-backed securities and risky mortgages as they can stomach, potential losses be damned. Brilliant.
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