"The market is not a sofa, it is not a place to get comfortable."
Jim Cramer
Chartz and Table Zup.
End O' The Year and I'm head down and headed home WFO. Four weeks to go, there are a lot of money managers who got caught leanin' the wrong way through all the volitility this year, and that spells opportunity in the market as the year winds up. It's been a year with a lotta hair onnit and I've been both lucky and smart. I've got a cushion of good results and a suspicion that the underperforming managers mentioned above are gonna gun stocks hard into the end of the year if they get the slightest opportunity. The subprime/"subslime" mortgage crisis and the aging of the market cycle looks to put a lotta Wall Street guys lookin' for work next year or looking for a position in a reorganized/merged organization. They ain't gonna fall into a real estate agent/mortgage specialist jobs if their's goes away. A good last month/yearly bonus would protect a job/grubstake the search for a new one. Smells like race fuel exhaust fumes in the morning to this crusty ol' racer.
AND I've got some numbers on the Structured Investment Vehicle/MBS/CDO embroglio that'll be worth relating to 342's Two Pension/Health and Welfare/Apprenticeship Trust Funds. See ya at the end of the weekend....
Which is now.
http://www.nytimes.com/2007/11/30/busin ... tadel.html
http://www.bloomberg.com/apps/news?pid= ... NumEnGUQng
http://www.bloomberg.com/apps/news?pid= ... XVr9s&
http://www.bloomberg.com/apps/news?pid= ... 9Os9FYyqX0
http://www.investorsinsight.com/otb_va_ ... tionID=619
http://www.realestatejournal.com/buysel ... lomon.html
http://money.cnn.com/2007/11/24/magazin ... /index.htm
http://www.cnbc.com/id/22005529/for/cnbc
http://www.reuters.com/article/ousiv/id ... 5020071202
So, here's how I read it. The financial markets partied hard on the real estate bubble and pushed it too far just like they always do. They created a lot of speculative mortgage backed paper, hid it behind ratings that turned out to be bogus, leveraged it out the wazoo, and sold it to their best clients. That would include pension funds and other trust funds. When the music stops there are always patsies, late comers, and the guys throwin' the party gettin' caught. You know what I'm talkin' about. The guy in Modesto with a $700,000 house on $1400 a month income, etc. Citibank, with a huge bridge loan/lending commitment to customers who'd posted MBS's as the security, that Citibank made good on and ended up getting stuck with merchandise that they couldn't move. E Trade and Countrywide buried under toxic mortgages. And the Trust Funds with a quarter to a half of their fixed income portfolios in morgage backed securities.
Arabian petro dollars moved in to toss Citibank a life line for a high rate convertable bond.
A hedge fund with a vulture fund track record picked up all of E Trades mortgage portfolio for 26 cents on the dollar.
Freddie Mac plans to issue $6,000,000,000 in preferred stock to maintain reserves as it expects to have to meet a ton of defaulted mortgage claims.
There's going to be mergers and buyouts as companies get out from under and write off the worst of the crap. There's going to be political posturing about keeping people in their homes.
Two things concern me. The first is the riff about Wells Fargo reserving for bad HELOCs. Those things are secured by homes and are effectively second mortgages. Some of them were used for down payments and mortgage payments. There are more shoes to drop in the mortgage space. Even in the best of times there are foreclosures on houses and cars. The Fed will gun the economy to keep people in jobs while the real estate market revalues. But the real estate sector will crater.
The second thing is mortgages in 342 Trust funds. How exposed is 342 and what can be/is being done to keep us up with the big money trying to maneuver out from under in the same space? We're not gonna be the last to find out again and holding the bag a la our McMorgan equity investments after the crash of 2000 are we? Ya think?
From John Maudlin's "Outside the Box" above....
Who's Holding the Bag?
One of the uncertainties about risk in this complex system results from the unprecedented degree of financial leverage placed on real economy capital structures. Never before have we entered a downturn of an economic cycle with so much paper riding on the fortunes of companies known to have such poor credit quality. Those left holding the bag will be the sellers of CDS (the insurers), owners of CDOs, financial guarantors of CDOs, and may include another link in the food chain.[xix] Regardless, in the aftermath of the subprime mess, no one will fess up to holding politically toxic securities before they must. In short, the separation of risk production and risk taking makes any definitive assessment of risk in this market unattainable.
When subprime mortgage losses surfaced in February and again over the summer, the success of structured finance in dispersing risk was more than offset by the exceedingly high degree of risk taken across the globe. Not only did direct participants like subprime mortgage originators meet their demise, but also U.S. investment banks, European insurance companies, Chinese state-owned institutions, hedge funds promising a low risk profile, and even money market mutual funds suffered write-downs on their balance sheets.
Unfortunately for our financial system, the magnitude of risk in corporate credit is a multiple of that in subprime mortgages. Each written CDS exchanges a risk that cannot be eradicated no matter how broadly aggregate risk is dispersed. Sinking valuations of CDOs and a commensurate leverage unwind could trigger a vicious cycle of financial losses. By implication, the problems that might ensue could make the subprime mortgage problem look like a walk in the park.
I cannot be sure these assertions are true, but I suspect that it would be just as difficult to provide evidence that they are not. I have listened to arguments against systemic risk, suggesting that the double counting of CDS, matched books of investment banks, and increasing sophistication of risk management techniques make the eye-popping numbers of notional risky debt larger than they seem. Nevertheless, I remain skeptical. We've seen similar movies before, and they don't end well.
Smart guys make money. Here's a riff about a really smart guy....
http://www.washingtonpost.com/wp-dyn/co ... 00135.html
Jim Cramer
Chartz and Table Zup.
End O' The Year and I'm head down and headed home WFO. Four weeks to go, there are a lot of money managers who got caught leanin' the wrong way through all the volitility this year, and that spells opportunity in the market as the year winds up. It's been a year with a lotta hair onnit and I've been both lucky and smart. I've got a cushion of good results and a suspicion that the underperforming managers mentioned above are gonna gun stocks hard into the end of the year if they get the slightest opportunity. The subprime/"subslime" mortgage crisis and the aging of the market cycle looks to put a lotta Wall Street guys lookin' for work next year or looking for a position in a reorganized/merged organization. They ain't gonna fall into a real estate agent/mortgage specialist jobs if their's goes away. A good last month/yearly bonus would protect a job/grubstake the search for a new one. Smells like race fuel exhaust fumes in the morning to this crusty ol' racer.
AND I've got some numbers on the Structured Investment Vehicle/MBS/CDO embroglio that'll be worth relating to 342's Two Pension/Health and Welfare/Apprenticeship Trust Funds. See ya at the end of the weekend....
Which is now.
http://www.nytimes.com/2007/11/30/busin ... tadel.html
http://www.bloomberg.com/apps/news?pid= ... NumEnGUQng
http://www.bloomberg.com/apps/news?pid= ... XVr9s&
http://www.bloomberg.com/apps/news?pid= ... 9Os9FYyqX0
http://www.investorsinsight.com/otb_va_ ... tionID=619
http://www.realestatejournal.com/buysel ... lomon.html
http://money.cnn.com/2007/11/24/magazin ... /index.htm
http://www.cnbc.com/id/22005529/for/cnbc
http://www.reuters.com/article/ousiv/id ... 5020071202
So, here's how I read it. The financial markets partied hard on the real estate bubble and pushed it too far just like they always do. They created a lot of speculative mortgage backed paper, hid it behind ratings that turned out to be bogus, leveraged it out the wazoo, and sold it to their best clients. That would include pension funds and other trust funds. When the music stops there are always patsies, late comers, and the guys throwin' the party gettin' caught. You know what I'm talkin' about. The guy in Modesto with a $700,000 house on $1400 a month income, etc. Citibank, with a huge bridge loan/lending commitment to customers who'd posted MBS's as the security, that Citibank made good on and ended up getting stuck with merchandise that they couldn't move. E Trade and Countrywide buried under toxic mortgages. And the Trust Funds with a quarter to a half of their fixed income portfolios in morgage backed securities.
Arabian petro dollars moved in to toss Citibank a life line for a high rate convertable bond.
A hedge fund with a vulture fund track record picked up all of E Trades mortgage portfolio for 26 cents on the dollar.
Freddie Mac plans to issue $6,000,000,000 in preferred stock to maintain reserves as it expects to have to meet a ton of defaulted mortgage claims.
There's going to be mergers and buyouts as companies get out from under and write off the worst of the crap. There's going to be political posturing about keeping people in their homes.
Two things concern me. The first is the riff about Wells Fargo reserving for bad HELOCs. Those things are secured by homes and are effectively second mortgages. Some of them were used for down payments and mortgage payments. There are more shoes to drop in the mortgage space. Even in the best of times there are foreclosures on houses and cars. The Fed will gun the economy to keep people in jobs while the real estate market revalues. But the real estate sector will crater.
The second thing is mortgages in 342 Trust funds. How exposed is 342 and what can be/is being done to keep us up with the big money trying to maneuver out from under in the same space? We're not gonna be the last to find out again and holding the bag a la our McMorgan equity investments after the crash of 2000 are we? Ya think?
From John Maudlin's "Outside the Box" above....
Who's Holding the Bag?
One of the uncertainties about risk in this complex system results from the unprecedented degree of financial leverage placed on real economy capital structures. Never before have we entered a downturn of an economic cycle with so much paper riding on the fortunes of companies known to have such poor credit quality. Those left holding the bag will be the sellers of CDS (the insurers), owners of CDOs, financial guarantors of CDOs, and may include another link in the food chain.[xix] Regardless, in the aftermath of the subprime mess, no one will fess up to holding politically toxic securities before they must. In short, the separation of risk production and risk taking makes any definitive assessment of risk in this market unattainable.
When subprime mortgage losses surfaced in February and again over the summer, the success of structured finance in dispersing risk was more than offset by the exceedingly high degree of risk taken across the globe. Not only did direct participants like subprime mortgage originators meet their demise, but also U.S. investment banks, European insurance companies, Chinese state-owned institutions, hedge funds promising a low risk profile, and even money market mutual funds suffered write-downs on their balance sheets.
Unfortunately for our financial system, the magnitude of risk in corporate credit is a multiple of that in subprime mortgages. Each written CDS exchanges a risk that cannot be eradicated no matter how broadly aggregate risk is dispersed. Sinking valuations of CDOs and a commensurate leverage unwind could trigger a vicious cycle of financial losses. By implication, the problems that might ensue could make the subprime mortgage problem look like a walk in the park.
I cannot be sure these assertions are true, but I suspect that it would be just as difficult to provide evidence that they are not. I have listened to arguments against systemic risk, suggesting that the double counting of CDS, matched books of investment banks, and increasing sophistication of risk management techniques make the eye-popping numbers of notional risky debt larger than they seem. Nevertheless, I remain skeptical. We've seen similar movies before, and they don't end well.
Smart guys make money. Here's a riff about a really smart guy....
http://www.washingtonpost.com/wp-dyn/co ... 00135.html
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