Moody's Investors Service stripped bond insurer FGIC of its Aaa rating,
indicating that other bond insurers are also under review
(Bloomberg).
Banks who bought CDO protection face further write-downs if bond insurers lose their investment rating.
Estimates range from $70 billion (Oppenheimer & Co) to $200 billion (UBS).
While this assessment may appear gloomy, we should not under-estimate
the domino-effect that a collapsing housing market can have on the broader financial sector.
The Dow is consolidating in a triangle formation between 12000 and 12800 (the former primary support level).
Expect a continuation of the down-trend with a medium-term target of 12000-(12800-12000)=11200.
The long-term target for a "soft landing" would be 11000;
while a "hard landing" would test 10000 (a 30 percent retracement).
If any readers are planning to ride out the down-turn,
bear in mind that depression resulting from a financial sector melt-down
remains a remote possibility —
and would cause at least a 50 percent retracement.
Moody's Investors Service stripped bond insurer FGIC of its Aaa rating,
indicating that other bond insurers are also under review
(Bloomberg).
Banks who bought CDO protection face further write-downs if bond insurers lose their investment rating.
Estimates range from $70 billion (Oppenheimer & Co) to $200 billion (UBS).
While this assessment may appear gloomy, we should not under-estimate
the domino-effect that a collapsing housing market can have on the broader financial sector.
The Dow is consolidating in a triangle formation between 12000 and 12800 (the former primary support level).
Expect a continuation of the down-trend with a medium-term target of 12000-(12800-12000)=11200.
The long-term target for a "soft landing" would be 11000;
while a "hard landing" would test 10000 (a 30 percent retracement).
If any readers are planning to ride out the down-turn,
bear in mind that depression resulting from a financial sector melt-down
remains a remote possibility —
and would cause at least a 50 percent retracement.
From the Tell the Truth and Get Hit on the Head file...
They should tar-and-feather the likes of Bill Ackman of Pershing Square Capital,
the most vocal bear on MBIA, who had the audacity to very publicly
write a 60-page paper in December 2002 headlined, “Is MBIA Triple A?”.
They should further tar-and-feather the guy, and those like him, for
taking the other side of the bullish bet on company’s like MBIA — and
telling the world they’re doing so — because of their conviction and
willingness to warn others about what they believe is looming trouble.
(Funny, nobody ever complains about “dangerous market manipulation of
longs,” but I digress…) And they should tar-and feather the guy for
being right and pretty much forecasting what has happened.
It was, after all, in that paper five years ago that Ackman
started warning about the very kind of collateralized debt obligations
that have landed MBIA in hot water and, as Ackman suggested at the
time, put its Triple-A rating at risk. “In the 1990s,” he
explained at the time, “MBIA expanded its risk tolerance and guarantee
portfolio to include domestic and global structured fianance guarantees
on asset classes including subprime home equity mortgages…” This, of
course, was back when nobody cared about anything having to do with
subprime or any kind of asset-backed acronym.
At the same time Ackman also was first to point out that MBIA had
engaged in a questionable transaction that, in effect, involved
insuring a loss after the loss and then collecting on the insurance. (I
wrote about it several times; nobody gave a hoot.) The issue, which
strikes to the heart of the company’s culture, prompted an
investigation by regulators; MBIA settled the civil securities fraud
charges last year by paying $75 million.
So, here we are, five years after Ackman first surfaced on
MBIA. The ratings agencies have downgraded thousands of CDOs. Thousand
of others have been put on credit watch. MBIA had had to pay that fine
for engaging in questionable practices. And its stock has been crushed.
From the Tell the Truth and Get Hit on the Head file...
They should tar-and-feather the likes of Bill Ackman of Pershing Square Capital,
the most vocal bear on MBIA, who had the audacity to very publicly
write a 60-page paper in December 2002 headlined, “Is MBIA Triple A?”.
They should further tar-and-feather the guy, and those like him, for
taking the other side of the bullish bet on company’s like MBIA — and
telling the world they’re doing so — because of their conviction and
willingness to warn others about what they believe is looming trouble.
(Funny, nobody ever complains about “dangerous market manipulation of
longs,” but I digress…) And they should tar-and feather the guy for
being right and pretty much forecasting what has happened.
It was, after all, in that paper five years ago that Ackman
started warning about the very kind of collateralized debt obligations
that have landed MBIA in hot water and, as Ackman suggested at the
time, put its Triple-A rating at risk. “In the 1990s,” he
explained at the time, “MBIA expanded its risk tolerance and guarantee
portfolio to include domestic and global structured fianance guarantees
on asset classes including subprime home equity mortgages…” This, of
course, was back when nobody cared about anything having to do with
subprime or any kind of asset-backed acronym.
At the same time Ackman also was first to point out that MBIA had
engaged in a questionable transaction that, in effect, involved
insuring a loss after the loss and then collecting on the insurance. (I
wrote about it several times; nobody gave a hoot.) The issue, which
strikes to the heart of the company’s culture, prompted an
investigation by regulators; MBIA settled the civil securities fraud
charges last year by paying $75 million.
So, here we are, five years after Ackman first surfaced on
MBIA. The ratings agencies have downgraded thousands of CDOs. Thousand
of others have been put on credit watch. MBIA had had to pay that fine
for engaging in questionable practices. And its stock has been crushed.
“People
think the Federal Reserve can stop a bear market because they can throw
money at it and lower interest rates. It is even more certain we can
collectively stop a bear market if some fiscal stimulus is thrown in.
To which I say, ‘Oh, you mean like 2000 and 2002?’ – when they threw
what I call the greatest stimulus in American history, an unparalleled
series of interest-rate cuts, cumulating in two, almost three, years of
negative real returns, real interest rates coupled with a really
substantial tax cut, which would never have happened without 9/11.
“The
combination would have gotten the dead to walk, and it stopped the bear
market eventually. But the Standard & Poor’s 500 was down 50% and
the Nasdaq – which was all anyone talked about back then – went down
78%. And a puny five to six years later, people are saying there is not
going to be a bear market because the Fed is going to lower rates and
because the government is going to have a stimulus package. But we have
just been there, done that, and we had a nice bear market.”
“People
think the Federal Reserve can stop a bear market because they can throw
money at it and lower interest rates. It is even more certain we can
collectively stop a bear market if some fiscal stimulus is thrown in.
To which I say, ‘Oh, you mean like 2000 and 2002?’ – when they threw
what I call the greatest stimulus in American history, an unparalleled
series of interest-rate cuts, cumulating in two, almost three, years of
negative real returns, real interest rates coupled with a really
substantial tax cut, which would never have happened without 9/11.
“The
combination would have gotten the dead to walk, and it stopped the bear
market eventually. But the Standard & Poor’s 500 was down 50% and
the Nasdaq – which was all anyone talked about back then – went down
78%. And a puny five to six years later, people are saying there is not
going to be a bear market because the Fed is going to lower rates and
because the government is going to have a stimulus package. But we have
just been there, done that, and we had a nice bear market.”
We live in an interesting world. When the British government has to nationalize a bank and that is deemed good news, and a probable reason for a bear market rally in the US tomorrow, well, things are rather dire.
The Fed is trying to inflate its way out of their massive problem.They are doing so with a huge injection of liquidity.They did so previously and created....the real estate bubble. Where will the next bubble be created (or is it already apparent:commodities?)...the price of wheat itself may be a bubble.
The shift in wealth is from West to East. As that process accelerates, and it is doing so exponentially, the sheer demand from the East for raw materials, all materials, will continue.Debasing the USD will only make those prices escalate faster and higher.
Short term I see:
a. A bear market rally. A rally that will die out quickly, but which will push the USD up and even the financials up.
b A pull back of gold that of course is the usual inverse of the USD, so no surprise there.
Long term:
a. I am very, very bearish on the USD. No change there from any statements made by Bernanke (exactly the opposite in fac!!) nor anything politically.It will get worse, much worse.
b. Bullish on oil and all commodities, as I have been for quite some time. I see absolutely no reason for declines.Rising demands from increasingly richer countries with massive populations, and an increasing supply of ever more worthless dollars.A recession in the US will not stop the long term trends that have been apparent for quite some time.
I would like to see the other side, but I cannot.
We live in an interesting world. When the British government has to nationalize a bank and that is deemed good news, and a probable reason for a bear market rally in the US tomorrow, well, things are rather dire.
The Fed is trying to inflate its way out of their massive problem.They are doing so with a huge injection of liquidity.They did so previously and created....the real estate bubble. Where will the next bubble be created (or is it already apparent:commodities?)...the price of wheat itself may be a bubble.
The shift in wealth is from West to East. As that process accelerates, and it is doing so exponentially, the sheer demand from the East for raw materials, all materials, will continue.Debasing the USD will only make those prices escalate faster and higher.
Short term I see:
a. A bear market rally. A rally that will die out quickly, but which will push the USD up and even the financials up.
b A pull back of gold that of course is the usual inverse of the USD, so no surprise there.
Long term:
a. I am very, very bearish on the USD. No change there from any statements made by Bernanke (exactly the opposite in fac!!) nor anything politically.It will get worse, much worse.
b. Bullish on oil and all commodities, as I have been for quite some time. I see absolutely no reason for declines.Rising demands from increasingly richer countries with massive populations, and an increasing supply of ever more worthless dollars.A recession in the US will not stop the long term trends that have been apparent for quite some time.
I hear more and more people puttting out the total losses at @ 1 trillion dollars...in line with this article. Let us hope they are wrong.In any case the victim will be the taxpayer.It is simply of how much we will cough up to cover the criminal stupidity, duplicity, and greed of certain actors in certain sectors of the economy.
Quote Originally Posted by KOAJ:
good read
we're between steps 3 and 4 right now
I hear more and more people puttting out the total losses at @ 1 trillion dollars...in line with this article. Let us hope they are wrong.In any case the victim will be the taxpayer.It is simply of how much we will cough up to cover the criminal stupidity, duplicity, and greed of certain actors in certain sectors of the economy.
If we are heading towards the later stages on that list, then the least we need to worry about is if MBI or ABK are going under.
My theory is that most of the instruments being insured arent needing the insurance and that corporate paper isnt as toxic as sub prime mortgages, thus the instruments are safer as well.
If we are heading towards what this doom sayer is suggesting, then it is not only time to get out of the markets, it is time to get out of TOWN..commercial real estate implosion, large banking institution going under etc..that would mean DOW 6k and NAZ under 1k and some serious damage to the economy and a severe depression, not just a recession.
Guys like that seem to thrive on writing doom theses even if they never come true.
Until I see the corporate instruments start to fail, I think the severity of the situation is still way overblown.
Koaj,
If we are heading towards the later stages on that list, then the least we need to worry about is if MBI or ABK are going under.
My theory is that most of the instruments being insured arent needing the insurance and that corporate paper isnt as toxic as sub prime mortgages, thus the instruments are safer as well.
If we are heading towards what this doom sayer is suggesting, then it is not only time to get out of the markets, it is time to get out of TOWN..commercial real estate implosion, large banking institution going under etc..that would mean DOW 6k and NAZ under 1k and some serious damage to the economy and a severe depression, not just a recession.
Guys like that seem to thrive on writing doom theses even if they never come true.
Until I see the corporate instruments start to fail, I think the severity of the situation is still way overblown.
Roubini thrives by being correct, not by being a doomsayer. Tenured profs are in the safest of all jobs.
Blaming the messenger is the most popular parlor game in America. And he is not saying it will happen, he is setting out stages of what could happen, and that the possibility of it occurring is growing.That's all I got.
Now one can choose to believe the analyses of Roubini, or the self interested posturings of pols, brokers, and bond insurers. Throughout this entire period, the people who called it correctly have been vilified and threatened.
I tend to wonder if those investors who can't get their money out of certain funds today consider the analysts who warned of the danger as the bad guys.
Roubini thrives by being correct, not by being a doomsayer. Tenured profs are in the safest of all jobs.
Blaming the messenger is the most popular parlor game in America. And he is not saying it will happen, he is setting out stages of what could happen, and that the possibility of it occurring is growing.That's all I got.
Now one can choose to believe the analyses of Roubini, or the self interested posturings of pols, brokers, and bond insurers. Throughout this entire period, the people who called it correctly have been vilified and threatened.
I tend to wonder if those investors who can't get their money out of certain funds today consider the analysts who warned of the danger as the bad guys.
I have seen gloom and doomers since starting investing, everyone has their "theory of destruction" and it doesnt cost them a dime to form these theories.
The first few steps werent the most severe, and the jump "down" is assuming some serious implosion and everything working out just right.
Until I see some deterioration in the corporate credit market, the whole theory is just like reading another Fleck article or a gold bug destruction article.
I still stand firm to my view on the CDO issue..since MOST of the instruments are based off corporporate and higher rated debt (municipal etc) then until I see some deterioration in THAT group, I dont even think the losses taken on paper are accurate to this point.
Vermeer,
I have seen gloom and doomers since starting investing, everyone has their "theory of destruction" and it doesnt cost them a dime to form these theories.
The first few steps werent the most severe, and the jump "down" is assuming some serious implosion and everything working out just right.
Until I see some deterioration in the corporate credit market, the whole theory is just like reading another Fleck article or a gold bug destruction article.
I still stand firm to my view on the CDO issue..since MOST of the instruments are based off corporporate and higher rated debt (municipal etc) then until I see some deterioration in THAT group, I dont even think the losses taken on paper are accurate to this point.
I hope yu are right and I am damn sure Helicopter Ben hopes so as well. Hey, they have had it "under control" for years now, right?? Place your trust in the federal government, the regulatory agencies, and failing that, the industry, and you will see how "contained" it is.
Wall
I hope yu are right and I am damn sure Helicopter Ben hopes so as well. Hey, they have had it "under control" for years now, right?? Place your trust in the federal government, the regulatory agencies, and failing that, the industry, and you will see how "contained" it is.
Total commercial paper issued is once again shrinking, increasing the pressure on banks to tighten credit. New issues of commercial mortgage-backed securities have dwindled to almost zero,
compared $20 to $35 billion per month in 2007.
Things technical:
So far this week we
have
seen the market gap up on Tuesday then sell off into the close, gap
down on
Wednesday and subsequently rally for the rest of the day, and today
repeat what
occurred on Tuesday, a gap up opening only to watch the market once
again move
lower into the close. This back and forth action appears on the charts
as
a series of higher lows and lower highs which can be shown as
converging
trendlines that serve to form a symmetrical triangle pattern. These
symmetrical triangle patterns have now formed on many of the major
indexes and
are very close to a producing a resolution. Historically speaking,
definitive
breakouts of symmetrical triangles are highly reliable so respect a
move in
either direction – lose your bias and take the trade. On the S&P 500 it is currently trapped between 1340 and 1370, these
levels are significant.
I think in this case, if we see the market bust downward despite the huge cuts and the stimulus package, head for the nearest shelter.I am hoping that the breakout is to the upside but have some insurance in inverse ETFs.
Things in general:
Total commercial paper issued is once again shrinking, increasing the pressure on banks to tighten credit. New issues of commercial mortgage-backed securities have dwindled to almost zero,
compared $20 to $35 billion per month in 2007.
Things technical:
So far this week we
have
seen the market gap up on Tuesday then sell off into the close, gap
down on
Wednesday and subsequently rally for the rest of the day, and today
repeat what
occurred on Tuesday, a gap up opening only to watch the market once
again move
lower into the close. This back and forth action appears on the charts
as
a series of higher lows and lower highs which can be shown as
converging
trendlines that serve to form a symmetrical triangle pattern. These
symmetrical triangle patterns have now formed on many of the major
indexes and
are very close to a producing a resolution. Historically speaking,
definitive
breakouts of symmetrical triangles are highly reliable so respect a
move in
either direction – lose your bias and take the trade. On the S&P 500 it is currently trapped between 1340 and 1370, these
levels are significant.
I think in this case, if we see the market bust downward despite the huge cuts and the stimulus package, head for the nearest shelter.I am hoping that the breakout is to the upside but have some insurance in inverse ETFs.
Looks like my thoughts on the CDO insurers should happen.
Too much at stake and repricussions to all this to happen. We might not agree with it, but I cannot see that the FED or the government allows these guys to go under.
Looks like my thoughts on the CDO insurers should happen.
Too much at stake and repricussions to all this to happen. We might not agree with it, but I cannot see that the FED or the government allows these guys to go under.
Total commercial paper issued is once again shrinking, increasing the pressure on banks to tighten credit. New issues of commercial mortgage-backed securities have dwindled to almost zero, compared $20 to $35 billion per month in 2007.
Things technical:
So far this week we have seen the market gap up on Tuesday then sell off into the close, gap down on Wednesday and subsequently rally for the rest of the day, and today repeat what occurred on Tuesday, a gap up opening only to watch the market once again move lower into the close. This back and forth action appears on the charts as a series of higher lows and lower highs which can be shown as converging trendlines that serve to form a symmetrical triangle pattern. These symmetrical triangle patterns have now formed on many of the major indexes and are very close to a producing a resolution. Historically speaking, definitive breakouts of symmetrical triangles are highly reliable so respect a move in either direction – lose your bias and take the trade. On the S&P 500 it is currently trapped between 1340 and 1370, these levels are significant.
I think in this case, if we see the market bust downward despite the huge cuts and the stimulus package, head for the nearest shelter.I am hoping that the breakout is to the upside but have some insurance in inverse ETFs.
Again,I know just enough about charting to get myself into trouble, but the key words about triangular patterns as stated above is that it can move "in either direction". Be careful here, I learned the hard way earlier this year.
Quote Originally Posted by Vermeer:
Things in general:
Total commercial paper issued is once again shrinking, increasing the pressure on banks to tighten credit. New issues of commercial mortgage-backed securities have dwindled to almost zero, compared $20 to $35 billion per month in 2007.
Things technical:
So far this week we have seen the market gap up on Tuesday then sell off into the close, gap down on Wednesday and subsequently rally for the rest of the day, and today repeat what occurred on Tuesday, a gap up opening only to watch the market once again move lower into the close. This back and forth action appears on the charts as a series of higher lows and lower highs which can be shown as converging trendlines that serve to form a symmetrical triangle pattern. These symmetrical triangle patterns have now formed on many of the major indexes and are very close to a producing a resolution. Historically speaking, definitive breakouts of symmetrical triangles are highly reliable so respect a move in either direction – lose your bias and take the trade. On the S&P 500 it is currently trapped between 1340 and 1370, these levels are significant.
I think in this case, if we see the market bust downward despite the huge cuts and the stimulus package, head for the nearest shelter.I am hoping that the breakout is to the upside but have some insurance in inverse ETFs.
Again,I know just enough about charting to get myself into trouble, but the key words about triangular patterns as stated above is that it can move "in either direction". Be careful here, I learned the hard way earlier this year.
The consequences are to great for them to be allowed their suitable demise.
Grid, you are very right, the key is in either direction.I did not quote the last paragraph of waiting until that nreakout trend had identified itself before entering a position.
It will be interesting to see if this rumor/deal is enough to right the financials and that is enough to allow the other sectors follow suit.
Wall,
The consequences are to great for them to be allowed their suitable demise.
Grid, you are very right, the key is in either direction.I did not quote the last paragraph of waiting until that nreakout trend had identified itself before entering a position.
It will be interesting to see if this rumor/deal is enough to right the financials and that is enough to allow the other sectors follow suit.
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