happy holidays / frohe feiertage

i wish everybody a happy and healthy holiday season. posting will be very light until 1.1.2007.

ich wünsche allen frohe und gesunde feiertage sowie einen "guten rutsch" ins neue jahr. in sachen postings herrscht bis zum 1.1 eine weile ruhe.

"dow theory / minyanville"

looks like something in´t adding up........... but maybe this time its different......... but i doubt that when you read the fed ex warning from yesterday http://calculatedrisk.blogspot.com/2006/12/fedex-outlook.html

sieht so aus als wenn im chart irgendetwas nicht stimmt......aber evrl. ist ja diesesmal alles anders...... wenn ich mir allerdings die warnung von fedex durchlese glaube ich nicht daran.......

... the company said it expected lower third-quarter earnings than last year, largely due to a sluggish U.S. economy and fuel bills....

"We believe FedEx is beginning to see the impact of a slowing economy and as such, management is tempering expectations for the second half of the year," analyst Art Hatfield said in a report for Morgan Keegan.

Dow Theory? Dow in Blue, Transports in Green

"Global Rebalance, Consumer Imbalance / us spillover risks / pimco"

a very detailed outlook from pimco. but i have to admit that they seem to be very optimistic in their assumption regarding the impact of the housing slump in the us. so i think their call for a soft landing is very optimistic. but they made it clear that the risk is to the downside.

sehr ausführliche vorschau auf 2007 von pimco. muß gestehen das ich denke das sie sehr optimistisch im zusammenhang mit dem rückgang im us immomarkt umgehen. denke dager das deren soft landing wohl eher optimistisch ist. immerhin sagt pimco das die risikien klar gen süden gehen.

The PIMCO outlook sees growth coming in at close to 2% in the U.S., Eurozone and Japan over the next 12 months. The U.S. growth forecast is below the consensus 2½% expectation, ...... The 2-2½% range for U.S. inflation, measured by the core PCE index, suggests a modest pace of disinflation next year, .........

Overall, this adds up to a soft landing for the U.S. economy and for the global economy following a period of robust global growth. The Federal Reserve and a number of other central banks remain focused on late cycle inflation risks, but we expect those concerns to subside. We expect a combination of continued sub-par growth and an improving inflation outlook to lead to Fed rate cuts, starting after the first quarter. ( not because inflation is low but the economy is heading south.../ aber nicht wegen der infaltion sondern wegen der schwachen us wirtschaft......)

Overall, we see the risks to our U.S. soft landing call as slanted to the downside. The U.S. housing market, which helped to support U.S. consumer spending and in turn the global economy earlier in the decade is now a significant source of global risk. Eurozone and Japanese economic performance has improved markedly. But growth that is driven by investment spending rather than consumer spending remains vulnerable if U.S. consumer spending slows significantly. The U.S. remains the world’s bass drum.

Partial Rebalancing
Slower U.S. growth means that the world economy has become a bit more balanced. ...... In the past two quarters the Eurozone economy has grown at a 3.1% annualized rate, faster than the 2.4% growth rate in the U.S.

Within the U.S., growth has become more balanced, shown in Figure 2, owing to the moderation in consumer spending and the housing correction. U.S. consumer spending has cooled, growing by 2.7% year over year in the third quarter, compared with an average of about 3.5% since the start of 2004 and 3.7% over the past decade. Over the past two years U.S. GDP and U.S. domestic demand have expanded at the same rate. In contrast, over the past 10 years, domestic demand growth outstripped GDP growth by about half a percentage point per year. The current account deficit, which increased from 1% of GDP in 1996 to more than 7% in the fourth quarter of 2005 has since stabilized below that level.

The U.S. housing sector is in recession, with residential investment subtracting about 1 percentage point from the annualized GDP growth rate over the past two quarters. PIMCO’s housing experts expect that the housing market correction will be a long and drawn out process. Over the cyclical horizon, we expect residential investment to continue to subtract from GDP at a somewhat lesser rate. The labor market remains strong but over time we expect the weakness in the housing and related sectors to feed into job losses. The impact of the housing market on related sectors can already be seen with the ISM manufacturing index dipping below 50, reflecting the impact of the housing market inventory correction and also the Detroit car manufacturers’ woes.

Consumer Imbalance
The clearest sign of decoupling in the U.S. lies in the fact that the ISM non-manufacturing survey indicates the service sector remains strong, to date.(only a matter of time .../ nur ne frage der zeit....) The clearest sign of global decoupling lies in the fact that business surveys in the Eurozone and Japan remain at elevated levels, even though the expectations components have weakened.

Strong business confidence is reflected in strong investment spending. Gross fixed capital formation in plant and equipment has grown at close to a 6% rate in Japan since the start of 2004. Eurozone overall gross fixed capital formation grew at close to a 3% rate over the same period.

But as Figures 3 and 4 show, consumer spending has lagged, growing at about a 1.5% rate in the Eurozone and a bit slower than that in Japan. In part this reflects weak wage growth, which has been held down by both cyclical and secular factors, even though employment growth has strengthened this year.

On PIMCO’s baseline forecasts, a U.S. soft landing and growth at trend in the Eurozone and Japan next year will hopefully facilitate a handover to consumer spending outside the U.S., which is crucial to a rebalancing of the global economy over time. It would be easier to be confident that global rebalancing would continue during continued sub-par U.S. growth – or if there was a hard landing in the U.S. – if consumer spending rather than investment was already driving growth in the Eurozone and Japan. Business confidence and investment plans are likely to be highly sensitive to weaker than expected global growth...... (lots of if´s......./ ne menge wenn´s......)

U.S. Spillover Risk

The key uncertainty in judging the U.S. outlook is whether the housing market inventory correction will prove to be relatively well contained, or whether there will be domestic spillover effects to consumer spending........ The lagged impact of below-trend growth, including expected continued contraction in housing and housing-related sectors, is expected to translate into job losses. here is more on the jobs picture and the ripple effect http://immobilienblasen.blogspot.com/2006/09/anteil-immobiliensektor-am.html,http://immobilienblasen.blogspot.com/search?q=ripple, http://immobilienblasen.blogspot.com/search?q=tools

Trying to assess the impact of flat or lower home prices on consumer spending is more of a walk in the dark. A large part of the problem is that there is no U.S. precedent for the current conjunction of a housing correction, a personal savings rate of zero and the uncertainty created by the boom in mortgage equity withdrawal (MEW) in recent years and its uncertain relationship with consumer spending. Therefore, it is necessary to be modest in making a forecast.(better be realistic.../ lieber realistisch...)

PIMCO’s forecast of a U.S. soft landing includes the expectation of a moderate slowdown in consumer spending next year, with the negative ongoing impact from the housing market partially offset by wage growth and the boost to real incomes from lower energy prices. But there is a great degree of uncertainty in the outlook.......

The wealth effect from rising asset prices, and the greater ease of liquefying house price gains, has meant that, in aggregate, U.S. households have stopped saving out of income. Savings rates are hard to forecast, but the current stagnation of house prices and a reassessment of the rate of future house price appreciation will put upward pressure on the savings rate over time. ( fro here on there is only one way t go..., kann eh nur noch nach oben gehen....)

U.S. consumer spending has proved largely impervious to the forces of gravity in recent years. If MEW turns out to have been an important driver of consumer spending, then the leveling off of house prices and associated drop in equity withdrawal may have a more direct, mechanical and pronounced impact on consumer spending. .....(i´m reading this correct. they put an if in front of the mew impact. what a joke. just look at the mew impact on gdp.../ kann meinen augne nicht glauben. die stllen in ihrer vorhersage für 07 den einfluß des mew in frage. bei dieser grafik schwer zu verstehen.....)

The experience of the U.K. and Australia offer both comfort and warning. Consumer spending growth decelerated when the housing markets slowed in those countries in 2004-2005, but it did not grind to a halt. But it is not clear how useful those examples will prove as guides. The U.K. was helped by buoyant global growth and Australia by the commodities boom. Neither had the same huge rise in housing inventory that we have seen in the U.S.

Global Spillover Risk
Canada and Mexico are the economies most directly exposed to weaker U.S. growth. But in thinking about the impact of a weaker U.S. growth impulse on the global economy, direct trade links are only the starting point.

Figure 5 summarizes the ways in which weaker U.S. growth can impact the global economy, including trade, business confidence and a broad array of financial market linkages. Indeed, U.S. economic data and associated market movements at turning points in the U.S. cycle tend to have a greater impact on Eurozone and Japanese markets than the local data. ......

the Eurozone is experiencing another form of spillover, in the form of the euro’s appreciation against the dollar.

A U.S. slowdown as a result of a U.S.-centric housing correction is very different to the 2001 experience of a common shock in the form of a stock market/capital spending bust. While business investment is strong in the Eurozone and Japan, it is vulnerable in the event that below-consensus U.S. growth feeds into weaker business confidence around the globe.....

.... As for monetary policy, one question is how long the window of opportunity remains open for the Bank of Japan and possibly the European Central Bank to raise rates further. Fed rate cuts would send a signal of external risks. In the event of weaker than expected growth, the BoJ will be extremely reluctant to cut rates and past experience would suggest that the ECB would be in no hurry at all to react.

Monetary policymakers in English speaking countries, which are further ahead in the rate cycle and, like the Fed, currently focused on near-term inflation risks, would be the first to follow the Fed’s lead.

China has provided an increasingly important source of demand growth in Asia owing to its rapid economic expansion and openness to trade. The U.S. has accounted for about 20% of overall global growth since 2002, measured at purchasing power parity (PPP) exchange rates, while China has contributed 30% of global growth. ......In spite of its rapid growth, in nominal U.S. dollar terms, China’s economy is not much larger than the U.K.

Since trade accounts for such a large share of China’s economy, the gap with the U.S. in terms of imports is much narrower than the GDP gap. In October, U.S. imports were worth about $182bn while China’s came in at about $64bn. But a large share of that import bill represents intermediate goods shipped in from China’s neighbors to be re-exported in the form of finished goods to the U.S., meaning that independent of the Chinese authorities’ efforts to slow investment spending, slower U.S. growth should have an impact on Chinese import demand. The U.S. trade deficit stood at $59bn in the month of October. China’s trade surplus was $24bn. Over time, continued growth and a shift towards consumption will mean that China will indeed emerge as a second global bass drum. For now it is the high-hat cymbal.

To give an idea of the amount of ground that would have to be made up in the event of a more pronounced slowdown in U.S. consumer spending, it is worth noting that U.S. consumer spending accounts for about 21% of world GDP, compared with 14% for the Eurozone and a similar amount for the whole of Asia, including Japan and China. As for the oil exporting countries, the OECD2 points out that in spite of the big rise in petrodollars over the past few years, merchandise exports from its member countries to OPEC have been decelerating since early 2005. Oil exporters have taken over from developing Asian nations as the largest component of the global savings glut, measured by their combined current account surpluses.http://immobilienblasen.blogspot.com/2006/12/petrodollar-pegor-why-all-talk-about.html

Over time, strong growth in China and other emerging market countries will reduce the role of the U.S. in setting the global tempo – a long-term decoupling. ....... Every country can’t run a current account surplus: the world is a closed economy.

"Manufacturing activity / economist"

one more stat that something is different in the us........./ ne statistik mehr die zeigt das die usa anders sind..

The buoyancy of most rich countries' manufacturing industries is reflected in the healthy state of purchasing managers' indices. Managers in all but one of the countries in our chart report that activity is expanding.

The exception is America, which is also one of only two countries where manufacturing activity has weakened in the past year. The other is Japan.

"Beware the overpriced debt markets in 2007 / economist"

very good summary on the correlation of debt and other asset classes like equities. the first sign of trouble for the stockmarket will be trouble in the debtmarket like a big default or spike in spreads.

klasse zusammenfassung über das zusammenspiel von krediten und anderen vermögenswerten. die ersten probleme im aktienmarkt werden sicher mit problemen wie ausfällen oder einem ansteig der spreads im kreditmarkt einhergehen.

GENTLEMEN prefer bonds. If you look round the world for speculative excess at the end of 2006, there are many more signs in the supposedly staid world of debt than in the stockmarkets.(unfortunately they are closely correlated, dummerweise hängen diese beide eng miteinander zusammen)

Investors are enthusiastic about buying fixed-income assets, even though yields are low by historical standards and the returns on cash (particularly in America and Britain) are as attractive.

Many investors in shares argue that the low levels of bond yields make stockmarkets look cheap. To take one example, emerging-market bond spreads (the excess yield over American Treasuries) are close to all-time lows, according to Morgan Stanley, an investment bank, whereas emerging stockmarkets trade at their usual discount to developed-world shares. In the short term, the perceived cheapness of debt is persuading private-equity groups that they can make big profits from buying quoted companies. And the prospect of such bid activity is keeping a floor under share prices.


But there may also be structural reasons why investors are favouring bonds over shares. The first is that savers have changed. Pension funds and insurance companies in the developed world have become more cautious (thanks to regulation and the bear market of 2000-02) and are increasingly buying bonds in an attempt to match their liabilities. Furthermore, savers are no longer risk-happy Americans but Asian central banks, which have traditionally put bonds at the core of their portfolios.

A second reason is the massive growth of credit derivatives, which has given investors the ability to sample the debt markets so as to get exposure to the precise risks they find attractive. Debt is no longer just plain vanilla; now there is as much variety on offer as at an Italian gelateria; credit risk can be scooped out and separated from interest-rate risk; money can be made from predicting default as well as avoiding it. Rather than investing in a few, often illiquid, corporate-bond issues, investors have a host of vehicles to choose from..... Abundant liquidity has persuaded people to accept lower yields as a result.

All this has coincided with an exceptionally favourable period for corporate-debt markets. Companies have been extremely profitable, generating more than enough cash to service their debts; as a result, the default rate has been very low. Traditionally, low default rates have been associated with low spreads.

Of course, markets are supposed to look forward. All this good news might prompt investors to believe debt markets are close to a turning point. Indeed, corporate-bond spreads did edge higher earlier this year, before taking another downward lurch in the autumn.

The debt markets seem to offer little scope to absorb bad news. As Barclays Capital, a British investment bank, neatly puts it: “The entire asset class of bonds is characterised by symptoms of overvaluation and complacency.” ( they have fallen asleep...... / sind wohl eingedöst...)


But what will puncture that complacency? The most likely cause would be a big default. If the global economy slows next year, companies will find it more difficult to service their debts. And bid fever has prompted borrowers to take on more risks; according to Standard & Poor's, a rating agency, the average purchase price for European leveraged buy-outs has reached a record level of 9.4 times earnings before stripping out the costs of interest, tax, depreciation and amortisation.

The real test will come when spreads start to widen again. Will the rapid emergence of credit derivatives and the greater role of hedge funds make markets more—or less—stable?

There had been fears that hedge funds would be less willing than banks to stump up rescue money in a crisis. But the recent case of Polestar, a British printing group, showed that companies can be refinanced smoothly even if hedge funds are involved. In addition, plenty of distressed-debt funds specialise in taking positions when things look ugly.

Another fear is liquidity. Hedge funds have actively provided credit via leveraged loans. There is a risk that, just when borrowers get into difficulty, hedge-fund clients may demand their money back......

Plenty of people believe the financial system is more secure than before, because banks are not as vulnerable to the threat of corporate failures. The markets have survived the crash of big companies, such as Enron, an energy trader, and the downgrades of motor companies, Ford and General Motors, in recent years.


But the real test of a big recession has yet to be faced. If you want to dwell on one financial worry for 2007, the corporate-debt market is the place to start.

"Riskiest Mortgage Bonds May Fall as Fannie Mae Cuts Purchases "

first i must say that is a joke that a company like fannie mae that has had big big accounting problems in the past (no correct filing for a few years with a restatement over 6 billion) is such a major player in the sub prime market and buys lots of "nontraditional mortages" from lenders that cannot unload the crap fast enough.....

i am sure that regardless what fannie and freddie do the spreads in the sub sector will increase. but it will help for sure. one has to wonder if the slump is great enough maybe the loosen their standards to bail someone out.....(but this is only a guess and fear.) in the past almost all central banks around the world bought the major portion of the fnm and fre bonds.

zuallererst muß man sagen das es eh ein witz ist das ne firma wie fannie die über mehrere jahre keine bilanzen vorlegen konnte und ne berichtigung von über 6 mrd $ vornehmen mußte ein wichtiger spieler im sub prime markt ist. die kreditgeber können ihre "schrottkredite" nicht schnell genug aus ihren büchern tilgen. da paßt es gut wenn ne "halbstaatliche" organisation alles was bei 3 nicht auf den bäumen ist aufkauft und damit ins risiko geht. kein wunder das diese geschichte ausser kontrolle geraten ist.

bin mir aber trotzdem sicher das unabhängig davon was fnm und fre machen weden die spreads weiter stark ansteigen werden. meine größte sorge ist eher das wenn nichts mehr geht die ihre standarts wieder auf null fahren und so den markt retten wollen (sicher mit unterstützung des staates). auffällig in letzter zeit war das der großteil der fnm und fre bonds von den zentralbanken aufgekauft worden sind.


Dec. 20 (Bloomberg) -- Bonds backed by mortgages to the riskiest borrowers may weaken next year as Fannie Mae and Freddie Mac, the largest providers of money for U.S. home loans, cut their purchases, according to Friedman Billings Ramsey Group Inc.

The federal regulator of the government-chartered companies this month told them to tighten standards on ``nontraditional'' mortgages they finance. Waning interest by Fannie Mae and Freddie Mac in so-called sub-prime mortgage bonds would boost the yield premium investors demand to own them,...

Wider spreads on the top-rated AAA classes of such securities that Fannie Mae and Freddie Mac typically buy may raise mortgage rates for sub-prime borrowers, who have poor or short credit histories or high debt burdens. A housing slump and the highest level of late payments on sub-prime loans since 2003 have pushed up spreads on the lower-rated bonds in recent months....(this is quite an understatement.../ ne leichte untertreibung...)
New Policies
Fannie Mae and Freddie Mac, which own about 15 percent of the $10 trillion residential mortgage market, last year bought $221.3 billion of ``non-agency'' mortgage securities, or those not issued by them or government agencies such as Ginnie Mae, according to Friedman Billings. Assuming all the purchases were of sub-prime mortgage bonds, they bought 37 percent of the total new volume, the firm said.

The Office of Federal Housing Enterprise Oversight told Fannie Mae and Freddie Mac on Dec. 8 to create http://immobilienblasen.blogspot.com/2006/10/lending-guidelines-kreditrichtlinien.html policies on nontraditional loans"that mimic what federal regulators asked of banking companies three months ago, including that lenders assume borrowers face higher payments than initially required in evaluating the consumers' ability to pay off the debt. ( what a concept..., was ein fortschritt....)

Nontraditional mortgages include interest-only loans and option adjustable-rate mortgages, whose minimum payments don't cover the interest owed (like in the cartoon...). Bank regulators also may require tougher tests for common sub-prime ARMs, with rates that rise after two or three years even without higher market rates, ....

Late Payments
The seasonally adjusted rate of late payments on sub-prime loans rose last quarter to the highest since the first three months of 2003, climbing 0.93 percentage point from a year earlier to 12.56 percent, the Mortgage Bankers Association said. http://immobilienblasen.blogspot.com/2006/12/us-mortgage-delinquencies-jump-in-third.html

Congress created Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac to expand homeownership by increasing mortgage financing and provide market stability. ( bur a what price.../ aber zu welchen preiß....).

.....They've turned to the market because of narrower spreads on their own securities and rising regulatory targets on how much financing they must provide to low-income borrowers.

The typically largest floating-rate AAA classes were sold last week at spreads of 20 basis points, the least this decade, Friedman Billings' Youngblood said in an interview. Spreads on top-rated sub-prime bonds haven't widened because rating firms have required them to be protected against large losses, he said.

Still Sound
Even if spreads on AAA sub-prime bonds widen due to less demand, the credits are still sound, according to Youngblood.

``I can't envision anything short of the Great Depression of the 1930s that would bring into question the interest and principal of AAA classes,'' ......and wee all know that youngblood is always right....http://immobilienblasen.blogspot.com/2006/07/fundstck-des-tages.html

Letters from Ofheo to Fannie Mae and Freddie Mac don't explicitly say they must apply bank regulators' guidance to bond purchases.(read this twice!) The regulator does expect them to develop systems that ensure they avoid buying securities with loans not conforming to the directive, according to Corinne Russell, a spokeswoman (like the acounting model..... :-), wie das buchführungsprogramm....;-)

Non-agency securities make up about 40 percent of the U.S. mortgage-bond market. About 15 percent of Fannie Mae's $725.5 billion mortgage portfolio, or $108.6 billion, was made up of such securities on Sept. 30, compared with 13 percent, or $97.8 billion, a year earlier. About 33 percent of Freddie Mac's portfolio, or $235.7 billion, was made up of them on Oct. 31, compared with 34 percent, or $232.4 billion, a year earlier.

Sellers of sub-prime bonds to them include Countrywide Financial Corp. and ACC Capital Holdings' Ameriquest Mortgage, according to Friedman Billings.

"Rising Inventories and Price Cuts = Bottom of the Housing Recession?"

thanks to paul kasriel. rest of the story is also worth reading (headline). lots of good charts etc.

besten dank an paul kasriel. der rest ist ebenfall lesenswert (klick überschrift). ne menge gute chrts etc.

Sharply higher cancellations of new-home-purchase contracts undoubtedly are leading to the rising inventories of newly-completed homes for sale. This is prompting aggressive price incentives on the part of home builders to "move the merchandise." But with profits evaporating (see "(see Hovnanian's latest loss report) ",will builders plan to build a lot of new homes soon? The permits data suggest not. Again, separating the signal from the noise, Chart 4 shows that the year-over-year trend in building permits still is down. In November, the year-over-year change hit a new cycle low of minus 32.5%. In sum, I think builders are bending over backwards to rid themselves of expensive-to-carry inventory. But once this is accomplished, it will be a warm day in January before they begin to think about rebuilding their inventories of buildings.

the grey is showing past recessions / das grau markiert vergangene rezessionen

housing starts down 25.5% yoy, permits down 31.3%!

look out below........

U.S. building permits down 31.3% year-over-year
U.S. housing starts down 25.5% year-over-year
U.S. Nov. building permits fall to 9-year low.
U.S. Nov. building permits short of 1.55 mln expected
U.S. Nov. housing starts exceed 1.54 mln expected.
U.S. Nov. building permits fall 3% to 1.506 mln pace.
U.S. Nov. housing starts up 6.7% to 1.588 mln pace

Building permits are down 31.3% in the past year and are down 14.1% in the first 11 months of 2006 compared with the same period in 2005.

Regionally, starts rose 8.6% in the Northeast and rose 18.5% in the South. Starts fell 6.3% in the Midwest to the lowest level in 15 years. Starts fell 8.1% in the West to the lowest level in five years.

much more details and charts as always from "calculated risk!"

"billings bubble video sequel!"

make sure you see this video from doug! click on the headline. a must see!

unbedingt ansehen. wirklich ein kleines "meisterwerk" aus der provinz.

"us current account deficit / kasriel !"

make sure you read the full piece . klick on the headline.

ihr solltete den ganzen bericht lesen (überschrift anklicken)

What I found most interesting about the third quarter current account data was not that the U.S. deficit ran at a record annualized rate of $902.2 billion, nor that this represented 6.8% of nominal GDP, the second highest percentage since Q4:2005's 7.0%.

No, what I found most interesting was, as shown in Chart 1, that for the fourth consecutive quarter, the U.S. ran a deficit in the income account. That is, for the fourth consecutive quarter, the income earned on foreign assets owned by U.S. entities was less than the income earned on U.S. assets owned by foreign entities. As Chart 1 shows, in the past 45 years it was a rare occurrence for the U.S. income account to be in deficit. Prior to the most recent four quarters, a deficit in the income account has occurred only four other times since 1960.

"hovnanian faces reality"

that the stock performance since they guided down in august to 5$ for the year....... now 2,14% and for 07 1,75$. looks like the stock trades at a 20 pe! maybe even wall street will sometime realize this......

das ist die performance seit hov im august die guidance auf 5$ reduziert hat. nun sind es ganze 2,14$ geworden und für 07 sogar nur 1,75. macht ein kgv von 20!. evtl. realisiert das sogar wall street........

The Company reported net income of $138.9 million for fiscal 2006, or $2.14 (-70%!!!) per fully diluted common share, compared with $469.1 million, or $7.16 per fully diluted common share, in fiscal 2005. Total revenues increased 15% over the prior year, to $6.1 billion. (guidance august hov above 5$!, analysts in august 8$!!)

the Company reported a loss to common stockholders for the fiscal 2006 fourth quarter of $117.9 million, or $1.88 per fully diluted common share, compared to net income available to common stockholders of $165.4 million, or $2.53 per fully diluted common share, for the same period a year ago.

- During fiscal 2006, the Company incurred $336 million of charges related to inventory impairments and land option write-offs, including $315 million in the fourth quarter. ( 94% in q4. now it seems that they face reality or maybe the auditors putting pressuers on them..../ 94% davon 10 q4. endlich sind sie in der realität angekommen bzw. die wirtschaftsprüfer machen gehörig druck.)

- The number of net contracts for fiscal 2006, excluding unconsolidated joint ventures, declined 18.2% to 13,761 contracts. The dollar value of net contracts for fiscal 2006, excluding unconsolidated joint ventures, decreased 17.3% to $4.6 billion, compared to $5.6 billion last year.

- Contract backlog as of October 31, 2006, excluding unconsolidated joint ventures, was 8,496 homes with a sales value of $2.9 billion (down 30%!), compared with a $4.1 billion sales value of contract backlog at the end of fiscal 2005.

- The Company ended the year with no balance outstanding on its $1.5 billion unsecured revolving credit facility and $43.6 million in cash on the balance sheet. The Company's average ratio of net recourse debt to capital for the year was 49.0%.

- Management is providing an initial projection for 2007 earnings of between $1.50 to $2.00 per fully diluted common share on 16,000 to 18,000 home deliveries, including 1,000 to 1,500 deliveries from unconsolidated joint ventures. (is naybody seeing a trend....nut the analysts have had it always wrong ...../ trend zu erkennen....die analysten waren auch nicht besser als das management.......)

EPS Trends	Current Qtr Oct-06	Next Qtr Jan-07	Current Year Oct-06	Next Year Oct-07
Current Estimate	1.05	0.46	4.97	2.71
7 Days Ago	1.05	0.49	4.97	2.84
30 Days Ago	1.07	0.51	5.00	3.13
60 Days Ago	1.07	0.51	5.00	3.18
90 Days Ago	1.08	0.52	5.02	3.29

"We did not anticipate the suddenness or magnitude of the fall in pricing that occurred this year in many of our communities. Our profitability and the pace of new home sales in our markets continues to be adversely impacted by high contract cancellation rates, increases in the number of resale listings and increases in the number of new homes available for sale," Mr. Hovnanian said. The Company's contract cancellation rate for the fourth quarter was 35%, compared with 25% in the fourth quarter of 2005 and a 33% rate reported in the third quarter of fiscal 2006.

"In the fourth quarter, we decided to walk away from $141 million in land deposits and predevelopment costs and took impairment charges of $174 million,"

the Company had 60,714 lots held under option contracts and controlled a total of 94,618 lots, a 22% decline

For the first quarter of fiscal 2007 we anticipate modest earnings of between $0.05 and $0.10 (estimate 0,45)

We anticipate that our average ratio of net recourse debt to capitalization will average close to our target of 50% during fiscal 2007

gross margin including interest 17,7 in vs 24,7 in q4 2005!

interest capitalized up over 100%!!!! to 103 m$

mortage loans held for sale up 33% to 282 m$. (problems in the mbs market!?, maybe charges needed.....)

net contracts in the southeast down 77%!

backlog in the west down over 60%

and take this: crispy from the http://bakersfieldbubble.blogspot.com/ has researched the cash flow from operations in the last 5 quarters ! lots of read inc............

click here!" to see the bloodbath/details.......

update after the call.

disclosure: short hov

"thai´s to control speculation, stocks down 16%!"

fortunately this time it is only o financial tsunami that hits mainly foreign investors/speculators. this is a very dramatic move from the central bank and has triggered great pain the last time it has been made. but it will remind lots of investors of the risks that almost everybody seem to ignore in almost all kinds of markets these days. the vola will for sure spike and i´m sure lots of hedge funds will suffer big time! ( no sympathy ...)

glücklicherweise diesesmal nur ein finanzieller tsunami der zudem überwiegend ausländische invetsoren/spekulanten trifft. in jedem fall ist das ein dramatischer zug der beim letzten mal große verwerfungen über das jeweilige land hinaus ausgelöst hat. immerhin werden jetzt evtl auch mal wieder risiken aufgezeigt die momentan bei fast jeder assetlkasse keine rolle zu spielen scheinen. die vola wird sicher steigen udn einige hedge fonds werden sicher massive probleme bekommen. ( kein mitleid...)


Dec. 19 (Bloomberg) -- Thai stocks plunged the most in at least 19 years, triggering declines across Asia, after the central bank said international investors must pay a 10 percent penalty unless they keep funds in the country for a year.

The capital controls, announced yesterday by central bank Governor Tarisa Watanagase, are aimed at stemming a 16 percent gain in the baht this year. The Thai currency had its biggest two-day decline since April 2005.

``It's not good news, it means we've got a real problem in terms of redemption of funds,'' said Mark Mobius, who oversees $30 billion in emerging market stocks at Templeton Asset Management Ltd. ``Some people might get a bit scared because if Thailand is doing this, then maybe Malaysia might do it, and maybe the Philippines.''

Thailand's SET Index fell as much as 134.16, or 18 percent, to 596.39, led by PTT Pcl and Bangkok Bank Pcl, as of 3:09 p.m. in the Thai capital. Government bonds slumped, pushing the yield on the 10-year note up 0.23 percentage point to 5.1 percent. The baht fell as much as 1.5 percent to 36.08 and recently traded at 35.94.

Stocks also fell in India, Malaysia, Indonesia and the Philippines as the currency controls heightened concern about investing in emerging markets. Thailand in 1997 triggered currency collapses in South Korea and Indonesia, leaving much of Asia in a financial crisis that required an international bailout.

Capital Controls
Malaysia's government in 1998 fixed its currency against the dollar and imposed capital controls that barred the repatriation of proceeds from the sale of stocks and bonds for one year.

``Global investors have to recognize risk again,'' said Soichiro Monji, who helps oversee about $47 billion as senior strategist at Daiwa SB Investments Ltd. in Tokyo. ``Investors might shift from developing markets to other safer markets.''

The new rules limit international investors to using 70 percent of their funds to buy Thai stocks, bonds and property The remaining 30 percent will be held by banks and subject to a 33 percent penalty in the event an investor wants to withdraw the full amount and convert the proceeds into a foreign currency.

The baht rose to a nine-year high before yesterday's announcement on speculation economic growth would accelerate after a Sept. 19 coup ended a political deadlock that had curbed spending and confidence.

Thai Union Frozen Products Pcl, the world's second-largest tuna canner, was among exporters that last month asked the central bank to stem baht gains from undermining their competitiveness. Ten industry groups were part of the protest, including exporters of chicken meat, soybean and shrimp.

Stock Slide
``It'll help exporters and the country's trade balance,'' said Visit Tantisunthorn, secretary-general of the Government Pension Fund, the nation's largest money manager, with more than $7.8 billion in assets.
Shares of Bangkok Bank, the nation's largest lender, sank 19 percent to 100 baht, the biggest loss since at least 1990. An index of bank stocks plunged 24 percent. The magnitude of the market slump triggered a 30-minute trading halt at the Thai stock exchange.

``It's basically as if they're putting a tax on any trades less than a year,'' said Magnus Prim, a senior foreign-exchange strategist at Skandinaviska Enskilda Banken in Singapore. ``It's going to stop any buying pressure and with the stock market likely to be hit, we could see the baht falling some more.''

India's Sensitive Index declined 2.6 percent, the Kuala Lumpur Composite Index fell 2.1 percent and Indonesia's Jakarta Composite Index lost 2.2 percent. Elsewhere in Southeast Asia, Singapore's Straits Times Index dropped 1.5 percent and the Philippine Stock Exchange Index slid 1 percent.

Slowing Exports
.....``Most exporters are very happy with the central bank's new measure,'' said Dusit Chongsutthamanee, corporate finance manager at Pranda Jewelry Pcl, Thailand's biggest publicly traded jewelry exporter. ``The baht has strengthened at a much faster pace than other currencies in the region. That affects most exporters because it has made their product prices less competitive with other producers.''

`May Adjust'
.......A rising baht hurts exporters by cutting the value of their local currency-denominated profits and making their products more expensive compared with those of Asian rivals. China's yuan has added 3.2 percent against the dollar this year, Malaysia's ringgit has gained 5.5 percent and Singapore's dollar has climbed 7.4 percent.

The central bank may adjust the curbs ``if the baht doesn't continue to be strong,'' ...........

looks like they are already backpaddling.....

"Thailand Abandons Lockup on Foreign Stock Investments "

Finance Minister Pridiyathorn Devakula said Tuesday the central bank would exclude inflows into the stock market from the Bank of Thailand\'s drastic measure of 30 per cent reserve withholding requirement.

After an urgent meeting in the evening among Finance Ministry, Stock Exchange of Thailand, the Securities and Exchange Commission, and Bank of Thailand, the Thai authorities agreed that the earlier measure is too harsh. Pridiyathorn said they agreed to exclude inflows for stock investment from the harsh measure.

peter shiff on bulls and bears / fox

"peter shiff"is a hard hitter and is bearish as long as i can remember on the us $ and bullish on oil, gold and high yielding non us stocks. he was also correct on housing!

peter ist seit ich den verfolge sehr negativ in sachen $ und bullish in scahen öl und gold. ausserdem liebt er nichr us aktien mit ner hohen dividenrendite. den bubble in immosektor hat er ebenfalls gesehen.

i suggest to see the "full video!" (3 minutes. lots of fun!

unbedingt das video ansehen. ist fats ne art wunder das in der show auch wirklch bären auftreten. sonst sind doch alle irgendwie bullish. ist schließlich fox.........


thanks to tim und fred i mellerud. "transcript and tims insights here"

"In a Merger Wave, a Dangerous Undertow for Stocks "

one more indicator that questioned the upside......looks like there could be rainy days ahead....

ein indikator mehr der eher auf ne unruhige fahrt mit hoher regenwahrscheinlichkeit hinweist....


thanks to mish and his http://www.markettradersforum.com/

THE total value of mergers and acquisitions this year is already one of the largest in history. That’s ominous, because past merger waves have coincided with overvalued stock markets.

The biggest single year for mergers and acquisitions was 2000, with the totals for 1998 and 1999 only slightly behind. At the moment, 2006 ranks fourth over all. Of course, those earlier three years were at the end of the great bull market of the 1990s, and a severe bear market followed.

Should we be concerned right now? Yes, because the correlation between stock market tops and soaring M.& A. levels is no coincidence,....

“Periods of high relative valuation are nearly always associated with high M.& A. activity,” he said in an interview, “and the stock market has fallen after each major merger wave.”

Understanding the reasons for the correlation is the difficult part. Though it is easy to see why an overvalued company would want to acquire another — because it could pay for the deal with overvalued stock — it is hard to see why the company being acquired — the so-called target — would sell itself for stock that is priced too high.....

.....current merger wave, much of which has been paid for with cash raised through debt financing.

..... “To the extent the current merger wave reflects an overvalued debt market, it stands to reason that it will eventually correct — just as overvalued stock markets eventually correct,” he said. “And it can’t be good news for the stock market if money is destined to become much tighter in coming years.”

The bottom line is this: The current merger wave means that stocks are probably closer to the overvalued end of the spectrum than to the opposite extreme, and that they also are vulnerable to tighter money in coming years.

This doesn’t necessarily mean that stocks will fall in the near future. But it does imply that their prospects are well below average.

just the m&a activity today.....

"Statoil to Buy Hydro's Energy Unit for $28 billion"

"Realogy Agrees to Buyout By Apollo Management for $6.4 Billion"

"Express Scripts Bids $26 billion for Caremark to Trump CVS Offer "

"THE NEXT ROGUE WAVE/puplava!"

what a great piece. make sure you read all details and see all the charts! a must read.

fantastisch. ghet auf nummer sicher und lest alle details und charts!

RAMPANT DEBT AND SPECULATION
It isn’t just a matter of rising debt levels. It is the fact that more of that debt is going into financial speculation. This should be of great concern to Washington, Wall Street and Main Street.
Debt and speculation have become ubiquitous in the global financial markets. Yet as debt levels have risen, raising the degree of risk in the financial system, the degree of complacency has also risen along side of it. It is evident everywhere, from declining stock and bond market volatility to declining option and credit spreads! ..... (klick n headline/überschrift for full piece!)

"p/e equivalent valuations / hussman"

as always sober and excellent stuff from Hussman".
to read the full piece klick on the headline.

wie immer ne nüchterne und sehr gute analyse von hussman. bitte auf die überschrift für den vollen bericht klicken.

....when the price/peak earnings multiple for the S&P 500 has been 16 or higher (the current multiple is over 18), we find that the S&P 500 has experienced a loss, including dividends, averaging -6.5% over the 18-month period following the final hike of a Fed tightening cycle.

Only 4 bull markets over the past 75 years had life spans which exceeded the current one.” Those included 1949 (which began at a price/peak earnings multiple of 6), 1974, 1982 (both which began at multiples of 7), and 1990 (which began at a multiple of 11 and ended in a hypervalued frenzy at nearly 34 times peak earnings). The current advance began at a multiple of 16, so even from the beginning we had less room for valuations to expand, compared with those unusually long bulls. And as noted below, valuations have now moved far higher (on the basis of a broad range of fundamentals) than current earnings would lead investors to believe.

Of course, that's part of the difficulty here. As long as investors perceive valuations to be acceptable, there is no compelling reason why the actual facts should get in their way over the short-term. That allows for the possibility that the current speculative blowoff will continue further

The following chart illustrates the current disconnect, and presents the market's price/revenue, price/book, price/dividend, and enterprise value/EBITDA multiples, scaled by their historical relationship to the S&P 500 price/peak earnings multiple.

While the current price/peak-earnings multiple is already at an elevated level above 18, what I'll call the “P/E equivalent” multiples on other fundamentals are: 21 on the basis of book values, nearly 23 on the basis of enterprise value/EBITDA (which factors in the increasing share of debt on corporate balance sheets), over 25 on the basis of revenues, and 29 on the basis of dividends (largely because dividend payout ratios remain relatively low even on the basis of normalized earnings

Among these alternatives, my impression is that the “P/E equivalent” figure of just over 25, based on revenues, is the most accurate measure of “true” current valuations on the basis of normalized earnings. You can see from the chart why everybody loved EBITDA in the late 1990's, and why it's not so popular anymore. Wall Street analysts seem to pick the fundamental that gives them the lowest valuation to tout. Recently, a few analysts have even appeared on CNBC quoting metrics like “price to 2010 operating earnings.” Now there's a bag of wishes for sale.......

"No more bubbles to bail out the housing bubble / fleckenstein"

now the prediction is for 2007. his timing has really been bad. but the theses is correct.

nun wird der abschwung für 07 vorhergesagt. sein timing ist wirklich schlecht. die fakten aber sind stimmig.

The negatives keep growing, this time unchecked. The stock market, the real estate market and the economy will get in sync on the downside -- it’s just a matter of when.

Wall Street has a soft spot for the "soft landing" thesis, but to me it's crystal clear that a serious economic slowdown is under way. What has been surprising: not that the economy is weakening but that so many people seem to expect a soft landing, and therefore remain in denial about the seriousness of the slowdown.



I guess the predilection toward a soft landing is a function of the following: So many folks in the investment business -- and in the country at large-- haven't experienced a consumer-led recession in so long that they think this outcome is just not possible. That's because the Federal Reserve Board has evolved into being a business-cycle suppressor and bubble manager. Consequently, folks just assume that economic weakness is a feature of the business cycles of yesteryear.

Bubbles begat bubbles
To review: We had a mindless equity bubble that was precipitated by a complete abdication of responsibility on the part of Fed monetary policy. That bubble popped in 2000, precipitating a recession led by businesses cutting back from their previous misallocations of capital.

Next came our umpteen interest-rate cuts and tax cuts to help fight the aftermath, the result of which was a massive housing bubble -- aided and abetted by the utterly irresponsible actions on the part of lenders. The housing bubble topped out well over a year ago, though it's taken some time for the problems in real estate to begin affecting the consumer.

Follow the money (from sales tax receipts)
Now, however, it's quite clear that the consumer is being affected -- whether one looks at the sales data from Wal-Mart and other retailers, or at the Liscio Report´s
data on state sales-tax receipts. To quote from Liscio's latest survey: "The weakening consumption trend is now established, and the majority of our tax contacts expressed real concern about a slowing in sales-tax collections. It now appears clear that consumers are not spending the billions of dollars they have saved on gas in recent months."

Furthermore, when I e-mailed Liscio to share my view that we are entering a recession, here's the response I received: "We note with a shudder that our indexes look a lot the way they did in fall of 2000, especially the weakening and then big drop in the sales tax survey. The SDI led us into the last recession, and the states that led are very weak right now, as well." (The SDI is Liscio's proprietary sales-diffusion index.)

Wishing on a star, waiting on a slide
It is essential that folks understand the past, in order to prepare for what lies ahead. That the Fed was able to precipitate a housing bubble to bail out the equity bubble was a miracle. But there is no next bubble to bail out the housing bubble. ... an unstable, unsustainable engine of growth.... that the ramifications of the housing bubble's unwinding will be brutal. (just look at the effect of the mortage equity withdraw / man braucht nur auf den effekt der refinanzierung zu gucken)

What has, of course, been impossible to determine in advance is the exact timing of when the stock market, the real estate market and the economy get in sync to the downside -- i.e., "the next time down," to quote my euphemistic, forever-and-a-day-in-the-making outcome.

I expect it to occur in 2007 -- because everything seems lined up, as never before, for that scenario to play out. To quote a personal motto from my Web site: "Often wrong, never in doubt." Various areas in the stock market are more vulnerable than others, though in some ways, it's all one trade. Consequently, I think the chance for at least double-digit negative returns next year is very high.

Now to end by saying I hope everyone has a merry Christmas, happy Hanukkah and a happy new year. Until the Contrarian returns on Jan. 8, I'd like to invite folks to peruse past columns from my daily Market Rap at FleckensteinCapital.com. A complimentary username/password -- free/free -- has been established to allow access to the site.

"Money drying up for some investors in buyout firms"

this will be interesting and very importend topic to watch. there is no doubt that the main action in the stockmarket was fueled by private equity takeover/buyout/going private rumors. one thing that is even at least equally importend than the money to fund this private equity funds are the creditconditions/spreads to leverage the investment. the spreads are now close or at recordlows"across the full ratingspectrum (aaa to junk), the only exception in the last month is the bbb us mbs market. (no wonder.....)



das ist der springende punkt für die aktienmärkte in den nächsten monaten. diese spieler haben den markt in letzter zeit entscheidend geprägt. mindestens genauso wichtig wie die gelder sind allerdings die kreditkonditionen/risikoaufschläge um das investment zu hebeln. diese liegen mit ausnahme der us mbs nahe der rekordtiefs.

thanks to http://www.itulip.com/

that is happening at the same time when US credit quality in 25-year retreat toward junk-S&P. amazing!

das ganze passiert zeitgleich mit ner rapiden verschlechterung der kreditratings in den usa. erstaunlich!

this point is so importend because the pe firms didn´t really have to make an exit to get gigantic return. they just load the company up with tonns of debt to get an "extra dividend"
The debt of companies owned by buyout firms has risen to the equivalent to 5.4 times their cash flow (some deals in the last time have had even higher multiples!einer der letzten deals hatten noch höhere multiples), the most ever, S&P says. here are some examples like hertz etc
(time to call the stuntmen.../ zeit den stuntmen zu rufen)


Since buying Hertz, the Clayton Dubilier ownership group has raised debt by $3.4 billion and shaved cash and cash equivalents almost in half.
In a leveraged buyout, the acquirer borrows most of the purchase price and uses the target company's cash flow to repay lenders
The owners have received a dividend of $1 billion and plan to get another payout of about $420 million (and still they have managed to take this company public)

(Reuters) - The massive funds raised by private equity firms and the faster-than-expected speed with which they're spending them are stretching some of their investors thin, causing concern that there won't be enough money to go around in 2007.

The crunch on institutional investors is being fueled by a 32 percent drop in the number of sales by private equity firms, known as exits, in the last two years, while the number of buyouts has skyrocketed.


What is worrying institutional investors is that funds are coming back to them too quickly for money, without a track record from their prior fund.

A drying up of institutional capital would be a major setback to private equity firms raising funds next year and would likely prompt a slowdown in the torrid pace of deals sparked by the sector in the last two years.

Feeding such concerns are reports that firms such as Bain Capital, which raised $10 billion last year, may return to the fund-raising trail next year. The Carlyle Group and Warburg Pincus LLC are also expected to raise $10 billion-plus funds next year -- a relatively short turnaround time from their prior funds. (some argue this kind of fundraising is also in part to make a fortune in fees / einige kritiker behaupten das es pe auch um das abschöpfen der verwaltungsprämien geht. Now that the largest firms have as much as $30 billion in assets, their 1% to 2% management fees alone guarantee hundreds of millions of dollars annually)

Signs that The Blackstone Group is having a hard time raising the last chunk of the industry's largest-ever buyout fund, according to sources, are also helping to stoke fund-raising worries. Blackstone closed a $15.6 billion fund earlier this year, and reportedly is seeking to reopen and lift it to $20 billion. (no wonder when you look like the last "desperate" deals like this. kein wunder wenn man sich die letzten verzweifelten deals ansieht....)

There are some big funds coming out amazingly fast across the board. If you come back to market with few to no exits, that always creates difficulty for the investor. They're being asked to double down here," ......

The value of private equity-backed buyouts this year doubled to $602.4 billion from last year, according to Dealogic, on 1,912 deals.

At the same time, the value of their exits is down 23 percent to $176.8 billion. The number of exits, which include selling to other buyers or public offerings, is down 24 percent to 698, (it would be importend to know if number includes sales to another private equity frim/wäre wichtig zu wissen ob diese zahl verkäufe an andere pe firmen miteinschließt.)

"Exits are way down. That raises issues on what LPs have in cash. LPs keep plowing money out but there's nothing coming in. You've seen them do big deals, but you haven't seen the exits,"

So-called buyout firms used to take four to five years to spend their funds, allowing investors to receive returns gained from the sale of assets over that time. These institutional investors, known as limited partners (LPs), had money going out and money coming in. Right now, the money is mainly going out.

Indeed, so many big funds are spending money so fast that its sucking demand from investors. If private equity firms keep buying into companies at a pace that far exceeds their exits, the LP spigot could go from a steady stream to a slow trickle.

RUNNING DRY
....., an LP pullback in the next fund cycle would almost certainly spark a slowdown.

The Oregon State Treasury, ........, tapped out of its 2006 allocation money in September.

"That's the first time that's ever occurred for us," said Jay Fewel, senior equities investment officer at the Oregon State Treasury. He added that he was aware of other institutional investors that used up allocation money as early as May.

And no wonder. Last year, U.S. buyout funds raised around $150 billion, a 50 percent increase from the prior year, according to Thomson Financial, and roughly $50 billion was raised by overseas funds. This year, funds expect to raise $300 billion, according to private equity experts.

LPs are spending more on buyout funds because their returns are so impressive, especially from the largest funds. In the 12 months through June 2006, investments in private equity firms returned 22.5 percent vs. 6.6 percent for the S&P 500,

Buyout firms' success has been fueled in part by smart deals, favorable debt markets and an absence of corporate buyers. Private equity firms accounted for 22 percent of global M&A volume in the first nine months of the year, hitting a record $570.1 billion in deals. That's up from around 5 percent a few years ago.......


"There are a lot of fears in the back of LPs' minds that private equity firms are writing checks like crazy," said Kelly DePonte of Probitas Partners, a private equity fund-raising firm. "With another fund raising wave incoming in '07, a lot of LPs are beginning to feel tapped out. They're thinking this may be a great time to sell companies, not a great time to buy."

when this source of funding is really drying up maybe some central banks can fill the gap.... :-), the step from buying fannie mae paper isn´t that big anymore ...........

evtl. können dann ja die zentralbanken diese lücke füllen..... :-), so groß ist der schritt vn fannie mae papieren nicht mehr........

"this expansion is getting old"

this is from ""year of transition". the 2007 outlook from rosenberg/merrill lynch. please click on the headline to get to bill cara´s site for more.

das is ein auszug aud dem werk von rosenberg/merrill lynch für das jahr 2007. bitte auf die überschrift klicken um auf die seite von bill cara zu gehen um den rest zu lesen.

thanks/danke an bill cara




größer/bigger http://www.billcara.com/001o004.gif

"Asian Central Banks May Spook Investors in 2007"

its all about liquidity! to me it looks like the central banks "have" to spook investors or to say it more detailed "speculators".

es geht einzig und alleine um liquidität. meiner meinung müssen die notenbänker dringen eingreifen um investoren oder besser gesagt die spekulanten ein bißchen aufzuschrecken.

(Bloomberg) -- While a housing-led slump in the U.S. economy may indeed emerge as the biggest risk to Asian economies in 2007, a more immediate threat to investors will probably be posed by the region's central banks.

Policy makers in China, South Korea and India may have no option except to aggressively contain domestic liquidity and stamp out asset-price bubbles ....

Relying on ``shock therapy,'' central banks in these countries might end up making overstretched securities -- such as Indian and Chinese equities -- more volatile than they have to be. A case in point was the bloodbath on Indian stock markets earlier this week. ( mmmh, but when you look just 2 days later the market was unchanged close to another all time high. looks like there is much more work to be done.....!/mmmh, nur 2 tage später alles wieder ausgebügelt und nahe einem neuen ath. sieht so aus als wenn dort nich mehr zu tun ist......)

In Asia outside of Japan, lax local financial conditions and the authorities' efforts to deal with them may have a greater bearing on investor sentiment than anything that the Big Three global central banks may or may not do.

Perils of Shock Therapy
Some evidence of that came this week when the benchmark Indian equity index plunged 5.8 percent following the central bank's surprise announcement that it would remove 135 billion rupees ($3 billion) from the banking system by raising the ratio of deposits banks are required to hold as cash.( china did the same "thing"just last week.)

maybe they should be more radical like japan. they have been critizised for halting their rates close to zero. but they have taken action!

So the Bank of Japan did what any self-respecting central bank would do (unfortunatly they are the exception/leider ist das eher die ausnahme). when called on the global carpet for “creating” too much liquidity, they stopped. And not only did they stop, they began an immediate program of erasing their quantitative easing (printing money) efforts of the last half decade by beginning to shrink the Japanese monetary base in very big and rapid fashion. this is from contrary investor. i suggest to read the full excellent piece".

The need for cooling the overheated Indian economy is undeniable. What investors can't take for granted is that it will be accomplished in a credible manner.

The Reserve Bank of India isn't the only Asian monetary authority to resort to shock therapy. In Korea, the reserve requirement on demand deposits is going up by 2 percentage points after Dec. 23 to deflate a housing bubble. The decision, announced by Bank of Korea last month, is the first increase in reserves in almost 17 years.

Fragile Korean Consumer
The question in Korea is whether monetary policy will achieve a soft landing in the housing market or cause it to crash.

According to Samsung Economic Research Institute in Seoul, housing prices nationwide rose more than 11 percent in the first 11 months of 2006, compared with less than 6 percent last year. In overheated pockets, price escalation is even more rapid.

With floating-rate mortgages accounting for 98 percent of the total, a sudden drop in home prices may further depress consumer sentiment, which has yet to recover from a credit-card bubble that burst in 2003. (amazing. the debt latest debttruoble is just 3-4 years old..../ erstaunlich. nachdem der letzte bubble gerade 3-4 jahre alt ist......)

Lee Seong Tae, the central bank governor, made it clear that he won't make a habit of manipulating reserve requirements. That's reassuring. Changes in reserves, because they have long- term effects on money supply and economic activity, are generally seen as a central bank's weapon of last resort. ``The change in required reserves won't come often,'' Lee said.

the fed of course has just done the opposite and has eliminatet the reserve back in 1995./die fed hat im jahr 1995 genaus das gegenteil gemacht und die reserve defacto auf 0 gesetzt. thanks to this "piece What (Really) Happened in 1995?" from aaron krowne / itulip!

The key event that happened around 1995 is that the fractional reserve ratio was not only lowered, it was effectively eliminated entirely. You read that right.

`Heavy Dose of Medicine'
There are strong expectations that the People's Bank of China, which has already raised the reserve ratio by 2 percentage points in three steps since June, will be forced to act again to mop up the surfeit of liquidity being released by its massive trade surplus. (see first link/ siehe erster link)

People's Bank of China's third-quarter monetary policy statement released last month included 70 references to liquidity.

``Given the abundant liquidity, an increase in the reserve requirement ratio by a small margin is not a `heavy dose of medicine,' but rather a fine-tuning,'' the bank said.

Dearer Money
China's liquidity challenge is compounded by expectations of currency appreciation. The yuan, traders reckon, must strengthen substantially against the dollar to reduce the growing likelihood of the U.S. Congress passing punitive legislation against Chinese exports. (the us should be pleased with china thta it pumps all the surplusses back into the $. almost 1 trillion and counting....../ die usa sollen froh sein das china die ganzen überschüsse zurück in den $ pumpt. jetzt ne billionen euro und steigend....)

The one-way bet on yuan appreciation is drawing in overseas capital and pushing up equity prices in Shanghai and real-estate values in Beijing to dizzying heights. as shown "here"

While China's economy is plagued by overinvestment, India's is overheating. ..korea is also surprisingly strong.....

At least in these three Asian nations, investors may not find themselves worrying as much about a U.S.-induced growth slowdown next year as they may about the central banks suddenly turning off the money taps.

"you should never argue about a crazy market./ greenberg"

well said..... thanks herb!/ den nagel auf den kopf getroffen....danke herb!

Is it brains or a bull market?
Investors shouldn't lose sight that there are two sides to each trade

"It's said you should never argue with a crazy person. I'll add that you should never argue about a crazy market."

And that pretty much describes where we are - in a market that hangs by the thread of oil until it decides the risk of rising oil prices is irrelevant; in a market that hangs by the thread of the latest economic indicator, until it decides that indicator is irrelevant; in a market that one week is enthusiastic about the Fed's likelihood of cutting interest rates and the next week enthusiastic when it looks like a cut is less likely.

This is a market, as I've written previously, that lacks conviction and will fall in a vacuum on the whiff of something unexpected -......

Is the economy growing or is the economy slowing? YRC Worldwide , a trucker that should have its fingers on the pulse of the economy, says the latter.) Doesn't really matter because, as of today, the market sees both as good.

Not to worry: All that really mattes is "global liquidity," a catch-all to explain the inexplicable.

"Unnatural," is the way market strategist Jeff Saut of Raymond James explains this market in his latest missive. "....

He further marvels at how the SEC caved in to a New York Stock Exchange petition in mid-October to reduce margin requirements "for an already over-margined hedge fund community. And that 'mysterious surprise' gave the major market indices another leg up (read: re-rally)....Why in the world would one introduce more leverage into an already over-leveraged hedge fund community is a mystery to us!" (And to us!)

What about the value of the market relative to earnings? Everybody says it's cheap. Everybody, that is, but John Hussman, of Hussman Funds, who in his weekly commentary writes that at 18-times earnings the market is into its "third phase"( see labels!), ......."

There's no shortage of pundits who would disagree, of course. But that, dear readers, is what makes markets - inverted yields, consumer credit, shaky subprime-mortgages, the weak dollar, uncertain housing, financial leverage and complacency, be damned. Minyanville's Todd Harrison put it best in a column here the other day when he wrote, "For every risk, there is an offsetting reward. And those betting on a year-end ramp would be wise to remember that this is a two-way street." Amen, bro'.

"subprime subsidence / economist"

more good coverage of the big problems in the subprimesector. i suggest to read more on this topic at the "labels"

mehr gute infos zum wichtigsten sektor der hypothekenfinanzierung in den usa. i empfehle mehr dazu in den labels nachzulesen.

Parts of America's mortgage market are in turmoil. Some on Wall Street see this as an opportunity. Others are biting their nails

MORTGAGE lending is hardly the raciest business, but it has its moments. “It's a bit like the definition of combat: 59 minutes of boredom followed by a minute of sheer terror,” says Michael Youngblood, an analyst at Friedman, Billings, Ramsey, an investment bank. “And we seem to be going through another one of those minutes now.”......( youngblood is one of the worst forecasters out there)

subprime is now very much in the mainstream. Annual loan originations grew fivefold between 2001 and 2005,

With the traditional mortgage market flat, the growth has been in the one area nobody wanted to go into

But with rapid growth has come fragility. According to UBS, the rate of subprime-loan delinquencies of 60 days or more stood at around 8% in October, nearly double the rate of a year before. Foreclosures are also around twice as high as they were. Worse, loans are decaying remarkably quickly: the number of borrowers falling behind on payments in the first few months has leapt, to around 4% of the total.....

The lenders compounded their problems greatly by loosening their underwriting standards in a further attempt to keep business chugging along. Adding insult to imprudence, they lured borrowers with “alternative” mortgage products, such as “negative amortisation” deals (where payments are so low that the overall debt gets bigger, not smaller) and adjustable-rate products (where teaser rates jump after a couple of years)....

Dubious mortgages are now a growing share of the mortgage-backed market, so there is scope for more trouble. Of the $1.02 trillion of MBSs issued in the first half of this year, over 40% was linked to subprime loans, up from 6-8% in 2000-03, ...

Combined third-quarter profits for the country's nine largest mortgage lenders were $991m, less than half the level for the same period last year. ....

After years of loose money in financial markets, some observers think the mortgage morass could cause investors to rethink their attitude to other forms of credit risk, such as high-yield bonds. Housing loans are not the only area that has seen a weakening of underwriting standards. Where subprime goes, other businesses may follow..

"downing tools"

not very difficult to project what will happen next.......

nicht sonderlich schwer zu erraten was mit den jobzahlen passieren wird......

Construction is an extreme case in point, largely because it takes several months to build a house. Although employment in the building industry has fallen by over 20,000 in each of the past two months, the drops are modest compared with the collapse in construction spending. The fall in permits issued for new houses suggests there may be many more job losses ahead (see chart). Economists at Goldman Sachs expect housing-related employment to fall by 1.5m-2m in the next couple of years. Unless employment growth in the rest of the economy speeds up and absorbs some of the surplus, the overall jobless rate will soon rise, perhaps rather further than the central bankers would like

more from calculated risk http://calculatedrisk.blogspot.com/2006/12/has-nonresidential-construction-peaked.html, http://calculatedrisk.blogspot.com/2006/12/construction-related-layoffs.html

"capitalism, china´s way / economist"

very oldfashioned. looks like lots of business for the investmentbanks for years to come. one thing is for sure. they will always find a "creative" or "innovative" way to make financing possible........

noch ziemlich altmodisch. betonung liegt auf noch.... da liegt ne menge geschäft auf sicht von jahren für die investmentbanken auf der straße. und ein ist ziemlich sicher. die haben bisher immer wege gefunden finanzmittel zu verfügung zu stellen........

........ By the end of 2006, ... a record 21% of funding for Chinese companies will have come through the country's share and debt markets (the banks themselves have been the biggest share issuers). As the chart shows, funding from outside the banking system will have grown sixfold since 2002, to 806 billion yuan ($103 billion).

"gold etf"

what is the most telling from the chart is that despite the slump in mai from 725$ to 540$ or almost 25% the real demand (not the momentumplayers who were forced to liquidate their positions) that wants physical assets as insurance/protection etc. have bought more.

am beeindruckensten finde ich das obwohl der goldpreis im mai von 725$ auf 540% oder fast 25% zurückgegenagen ist der etf stetig weiter gewachsen ist. zeigt auch das hinter der downbewegung hauptsächlich momentumspieler und keine "echten" goldinvestoren stehen.

full piece and thanks to "Gold Forecaster - Global Watchby Julian D. W. Phillips"

The tonnage held in all the W.G.C. sponsored gold Exchange Traded Funds and the Comex Gold Trust is now at 599.34 tonnes

größer/bigger http://www.safehaven.com/images/phillips/6495_b.png

disclosure: long gold, long golbbugs

update wci and their flagship "one bal harbour"

readers of this blog know that i´m very very bearish on wci. wci is a builder that has its focus on building condos. to make matters worse, they are heavily depending on the florida market. not a very good combination these days.......(watch how overdeveloped miami is!).

they are betting big on their flagship "one bal harbour" that is officially (last wci conference call) 100% sold.

please make sure you read the data from the latest quarter with the conference call http://immobilienblasen.blogspot.com/2006/11/tower-homebuildingorders-minus-4.html#links to se how depressed the situation is.


this is the chart just the past 5 days compared to toll brothers and the index. looks like something isn´t working in favour for wci......

i think the problem could be relatet to their "one bal harbour / list condoflip" project that they are betting on.

there are 94 units from 260 available for sale. maybe 100% officially sold but with more and more buyers defaulting on their contracts (wci estimates a very low rate with 5%, last quarter 20%! the underlying deposit is an avergae 18%. pretty good option to defaulu on when you look at the condoflipinventory.....)

i think with this kind of competition from flippers or in this case floppers wci will have to make big big discounts to sell (if they can sell at all) this defaulting units/contracts ......

and even condoflip shows that there is still inventory from wci "these are either units being resold by the original buyers or are still part of the developers

inventory".

on top of the problems for wci is that they want to close 1 or 2 more towers in the fisrt quarter 2007. (read the call)

"mishs " Auctioneer's Perspective" shows how quick and ugly the market has changed.

disclosure: short wci

"renting is cheaper"

especially when you don´t exclude other expenses like insurance or property taxes. the real ratio is far more worse than this data shows. at least they calculate the cost on the 30 year with principal and interestpayements. (and no arm etc...) but the trend is from 2001 is obvious. (to read the story to this graph klick on the headline)

das ganze wird noch deutlicher wenn man so nebensächliche sachen wie versiucherungen oder steuern hinzurechnet. immerhin basiert die erhebnung auf ner finanzierung über 30 jahre mit ner tolgung (was alleine schon ne erwähnung wert ist...). sie zeigt zudem eindeutig den trend seit 2001. (die dazugehörige story verbiorgt sich hinter der überschrift)



größer/bigger http://www.realestatejournal.com/images/20061214-simon.gif

U.S. mortgage delinquencies jump in third quarter

no wonder the mbs market is demanding higher risk premiums.....
kein wunder das der mbs markt höhere risikoprämien verlangt......

with this kind of offers "$150,000 loan for $450 a month" (thanks to keith from http://housingpanic.blogspot.com/ ) no wonder that numbers are on the rise.....

U.S. homeowners had a harder time keeping up with their mortgage payments in the third quarter, the Mortgage Bankers Association said Wednesday, with the delinquency rate rising to 4.67% from 4.39% in the second quarter. A year ago, 4.44% of mortgage holders were 90 days or more past due on their loans. The foreclosure rate inched higher in the third quarter, with 1.05% of mortgages in the foreclosure process vs. 0.99% in the second quarter, the MBA said. While delinquency rates on all types of loans rose in the third quarter, it was the subprime category -- loans made to less creditworthy borrowers, that shot up the most to 12.56% from 10.76% a year ago.




U.S. mortgage delinquencies jump in third quarter:
U.S. mortgage delinquency rate 4.67% in 3Q vs. 4.39% in
U.S. mortgage foreclosures inch higher in third Quarter
U.S. foreclosure rate 1.05% in 3Q vs. 0.99% in 2Q
Delinquencies, foreclosures will go higher: MBA's Duncan


the crazy thing is that the next credit offers are coming soon........

reit mania / what are buyers thinking...?

to me this looks like another bubble. i suggest to read more (economist etc. on the topic (look at the label at the bottom of the post)

das sieht mir doch sehr nach nehr neuen blase aus. ich empfehle mehr darüber zu lesen. bitte auf das label am ende des posts achten)

"Deals, Deals, Deals (and a Great Year for REITs) "

WALL STREET has managed to post some pretty impressive gains in 2006. But again, the market for real estate investment trusts has beaten most stocks, as large investors pumped reams of capital into companies with large holdings of commercial property and, in some cases, gobbled up entire portfolios in private deals.

REIT mergers and acquisitions, in fact, have reached record levels this year. Some 22 transactions with a total value of $102.8 billion (including the assumption of debt) have been announced according to the research company SNL Financial, compared with 11 deals valued at $28.8 billion for all of last year and a total of $92 billion in transactions for the last six years combined.

“Everyone thought 2005 was a big year — and relative to prior years, it certainly was — but 2006 was in a completely different ballpark,” said Keven Lindemann, director for the real estate group of SNL Financial.

The deals this year have included the "Blackstone Group´s $ 36 billion"plan to acquire Equity Office Properties Trust, the nation’s largest owner and manager of office buildings, in what would be the biggest leveraged buyout ever. Earlier this year, Blackstone, a private equity firm and the biggest player in the real estate takeover scene, also agreed to acquire Carr-America Realty for $5.6 billion and to team up with Brookfield Properties to buy Trizec Properties for $7.2 billion.

The onslaught of takeovers — half by private companies, half by other public REITs, and often at premium prices — has helped to lift prices of most REIT shares, .....

All of that activity, though, took Mr. Adornato and others by surprise. “Coming into this year, we had thought that economic fundamentals alone would justify total returns of about 5 to 15 percent for REITs over all,” he said. “However, the wild card that’s impossible to price is the appetite for real estate from private institutions.”

...... “This has completely turned the investment world upside down,” he said of the influx of capital into dividend-paying REITs. .....come from big institutions, including private equity funds and both public and private pensions. ( but the dividends are les than risk free yield..../ aber die dividenden liegen unten denen von staatsanleihen....)

make sure you read this "piece from mike larson"

The top-performing REIT sectors for the year so far were offices, up 45.18 percent, and apartments, up 42.55 percent. The apartment sector continues to benefit from the reduced affordability of single-family homes; this has caused many people to defer home buying. Among other categories, the health care sector was up 39.49 percent and the self-storage sector was up 38.13 percent.

This is likely to be the seventh consecutive year that REITs eclipse most categories of stocks, according to the association. (By the calculations of Bear, Stearns, the REITs’ gains have been about 315 percent over those seven years.)

Analysts say the prolonged REIT rally is poised to continue, so long as the economy remains healthy and interest rates relatively low. (good luck ...../ viel spaß....)

“What’s happened very simply is that the private real estate markets are valuing the assets held by REITs at a much higher value than the public securities. Then you combine that with the fact that there is a huge amount of capital looking for a home.” (excess!)

Even some analysts think that prices of REIT shares have room to grow. “The analytical community was basically too shortsighted” ....

Large institutions — which have the added advantage of using leverage to increase returns by tying up less of their money ........

REITs own more than $475 billion of commercial real estate assets, .....

For institutional investors, the attraction to commercial real estate, and REITs in particular, has grown steadily over the years, though Mr. Grupe of the REIT association said that lately “there seems to be a growing sense of urgency to accelerate the allocation to real estate.”(juts as the prices are skyhigh..../ genau zum zeitpunt als die preise extrem hoch sind....)

It is almost as if they are playing a game of catch-up. “

Indeed, the California Public Employees’ Retirement System, known as Calpers, the largest public pension fund with more than $200 billion in assets, has been increasing its overall REIT allocation, particularly into global REITs. And last summer, the $144 billion California State Teachers’ Retirement System, the nation’s second-largest public pension fund, announced that it would allocate 11 percent of its portfolio assets to real estate, up from 6 percent.

Mr. Grupe, meanwhile, is concerned about the heightened merger-and-acquisition activity. “You have something very powerful that’s under way,” he said, “and just setting real estate aside, you oftentimes have these things come to an end in a manner that is not particularly pleasant.”

While not intending to infer any direct comparisons, he readily recalled the frenzy after the dot-com bust in the early part of the decade.

“I think you’re going to see some of these private companies come back as REITs in five years,” Mr. Taylor said. (for sure with much much more debt.../ dann sicherlich mit tonnenweise schulden....)

goldman sachs. hedge funds or investmentbank?

do the math! investmentbanking and asset management just over 10 b$ and trading and principal investment well over 24 b$!. (have not dig deeper into the numbers. but the trend is obvious.) looks like the guys from the genetiv research dep. can hire goldman..........

die frage ist wohl berechntigt. im ursprünglichen kerngeschäft der bank gerade mal über 10 mrd$ und im traing und beteiligungsgeschäft über 24mrd$.( habe noch nicht alle details der nummern). die typen sollten goldman wg. der anheuern......

to be fair. the numbers are fantastic. but are they sustainable.... i think no.

fairerweise muß man goldman zu diesen zahlen gratulieren. einfach wahnsinn. die frage ist nur ob dies zahlen nachhaltig sein können. da habe ich meine zweifel.




http://biz.yahoo.com/bw/061212/20061212005592.html?.v=1
Investment Banking
Net revenues in Investment Banking were $5.63 billion for the year, 53% higher than 2005. ......... Net revenues were also significantly higher in debt underwriting, primarily due to a significant increase in leveraged finance activity and, to a lesser extent, an increase in investment-grade activity. Net revenues in the firm's Underwriting business were $717 million, 78% higher than the fourth quarter of 2005. Net revenues were significantly higher in debt underwriting, primarily due to an increase in leveraged finance






Trading and Principal Investments
Net revenues in Trading and Principal Investments were $25.56 billion for the year, 52% higher than 2005. Net revenues in FICC were $14.26 billion for the year, 60% higher than 2005, primarily due to significantly higher net revenues in credit products (which includes distressed investing) and commodities. ........ In addition, corporate credit spreads tightened, the yield curve flattened and volatility levels were generally low in interest rate and currency markets.
Net revenues in Equities were $8.48 billion for the year, 50% higher than 2005, primarily reflecting significantly higher net revenues in derivatives, across all regions, as well as higher net revenues in shares. ............
Principal Investments recorded net revenues of $2.82 billion, reflecting a $937 million gain related to the firm's investment in the ordinary shares of Industrial and Commercial Bank of China Limited (ICBC), a $527 million gain related to the firm's investment in the convertible preferred stock of Sumitomo Mitsui Financial Group, Inc. (SMFG) and $1.35 billion in gains and overrides from other principal investments.........

Asset Management and Securities Services
Net revenues in Asset Management and Securities Services were $6.47 billion for the year, 36% higher than 2005.
........Securities Services net revenues were $2.18 billion, 22% higher than 2005, as the firm's prime brokerage business continued to generate strong results, primarily reflecting significantly higher global customer balances in securities lending and margin lending

value at risk!


$ in millions

Three Months Ended Twelve Months Ended
-------------------------- -------------------
Nov. 24, Aug. 25, Nov. 25, Nov. 24, Nov. 25,
2006 2006 2005 2006 2005
-------- -------- -------- --------- ---------
Risk Categories
Interest rates $ 51 $ 55 $ 45 $ 49 $ 37
Equity prices 75 61 44 72 34
Currency rates 14 21 15 21 17
Commodity prices 29 31 25 30 26
Diversification
effect (13) (63) (76) (49) (71) (44)
-------- -------- -------- --------- ---------
Total $ 106 $ 92 $ 80 $ 101 $ 70
======== ======== ======== ========= =========

"Goldman Sachs Group Inc. is paying its employees an average of $622,000 this year", after posting the highest profits ever for a securities firm.
The firm set aside $16.5 billion for salaries, bonuses and benefits for its 26,467 employees in the fiscal year ending in November, 40 percent more than it paid out all of last year, according to Goldman's earnings report today. The firm allocated 43.7 percent of its revenue for pay, down from 46.6 percent.

here is the "Goldman Sachs F4Q06 (Qtr End 11/24/06) Earnings Call Transcript"> (thanks to seeking alpha!)

"The `Skyscraper Curse' Is Worth Watching in 2007"

an alternative indicator. but a fascinating one. it also reflects some importend topics like the carry trade, loose credit etc. (see labels at the bottom of the post). i hope that someone from the us can tell me if my projection on the chicago project is correct.

zwar ein alternativer indikator. trotzdem interessant. er streift zudem wichtige themen wie den carrytrade, wild wuchernde kreditmärkte etc.... (bitte dazu die labels am ende des posts beachten)

Dec. 11 (Bloomberg) -- ...... I'm wondering if it might make more sense to look at the skyline.

Standing out amidst the tangle of skyscrapers is the 1,671- foot (509 meters) Taipei 101, which is currently the world's tallest building. Its presence, coupled with a worsening political crisis that could trip up the economy, reminds one of the ``Skyscraper Curse.''

A bizarre suggestion, perhaps, and certainly an unscientific one. Yet history shows an uncanny correlation between tallest building projects and financial crises. Be it in Kuala Lumpur in 1997, Chicago in 1974, New York in 1930 or the biblical Tower of Babel long ago, mankind's penchant for architectural overreach is a strangely reliable omen of troubles.

A coincidence? Perhaps, yet economists such as Mark Thornton, senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, argue that skyscrapers can speak volumes about a nation's wealth, technological prowess, ambition and, perhaps most importantly, hubris.

Rome's Last Days
``It's these features that make skyscrapers, especially the construction of the world's tallest building, a salient marker of 20th-century business cycle,'' Thornton argues.

For a time in the early 2000s, analyst Andrew Lawrence, then with Deutsche Bank Securities in Hong Kong, published a periodic ``Skyscraper Index'' for investors. As 2007 approaches, perhaps we need to start producing more building-project barometers.

Take Dubai, which is undergoing one of history's greatest construction booms. After visiting the city recently, economist Claudia Zeisberger of the Asia Pacific Institute of Finance at Insead in Singapore quipped: ``All the building going on made me feel like I was experiencing the last days of ancient Rome.''

Perhaps it is just a coincidence, but "dubai" is putting the finishing touches on a 2,300-foot building that will top Taipei 101.

In "china"China, the 101-story Shanghai World Financial Center will become the most populous nation's tallest building. And a residential construction project in "chicago"will top the Sears Tower, currently North America's tallest skyscraper. ( i almost rule out that the chicago project will ever get startet! the dubai and shanghai building have already breaking ground./ ich schließe fast zu 100% aus das das chicago projekt jemals gestartet wird. die projekte in dubai und shanghai sind schon gestartet.)

Excess Cash
In India, developers are planning to build a 140-story skyscraper in the city of Gurgaon, near New Delhi. In 2008, South Korea will complete the 1,903-foot International Business Center, which the government hopes will solidify Seoul's place as a global business hub. Massive skyscrapers also are being considered from Australia to Russia to Brazil.

``It all makes sense given current conditions,'' Thornton says.

Even though the Federal Reserve, Bank of Japan and European Central Bank have been raising interest rates, markets are still awash in excess cash. Loose monetary policies have fueled investment frenzies in London, Shanghai, Tokyo and elsewhere. They have increased the amount of leverage in the global financial system, raising the stakes if growth slows markedly in 2007.

Over-investment and financial speculation led to each of the Skyscraper Curse episodes during the 20th century. Coincidence or not, history suggests such projects are often less about technological innovation than economic booms. The desire to have the tallest building correlates suspiciously well with sudden capital inflows that pump up credit creation and confidence.

Presaging Gloom
In 1908, for example, New York's 47-floor Singer Building opened, followed by the 50-story Metropolitan Life Building. Both were planned, financed and raised while the U.S. was in the midst of the Panic of 1907, a credit crunch that necessitated help from financier J.P. Morgan.

In 1929, the opening of 40 Wall Street and the Chrysler Building were harbingers of the worst-ever U.S. meltdown, the Great Depression. A year later, the Empire State Building became the world's tallest building, presaging years of gloom.

The 1970s saw the completion of New York's World Trade Center and Chicago's Sears Tower. They opened amid stagflation in the U.S. economy, a fiscal crisis in New York and the breakdown of the Bretton Woods monetary system.

Tall Task
More recently, Malaysia's 1,483-foot Petronas Towers were being completed during the Asian crisis. .....

Thickening the plot: the plunge in the U.S. dollar analysts have predicted for years may come in 2007. Other risks include a slowdown in China, higher global interest rates and inflation and geopolitical risks from North Korea, Iran, Iraq and a number of other regions. Oil prices also might climb anew.

Add in the rapid increase in the number of hedge funds and the proliferation of the so-called yen-carry trade. The trade, a favorite among hedge-fund managers, involves borrowing in ultra- low-interest-rate yen and re-investing the funds in riskier, higher-yielding assets elsewhere. It is believed to have greatly increased leverage in markets around the globe.

None of this means a crisis is in the cards ........

"Phase Three: The Speculative Blowoff / hussman!"

always enjoy the excellent and sober comments from "hussman". one of my favorites!

immer ein vergnügen die sehr guten und nüchternen kommetare von hussman zu lesen.

... “Phase one is the rebound from the depressed conditions of the previous bear market. Here stocks return to known values. In the second and longest phase, shares advance in recognition of improving business and a rising economy. During the third phase they spurt skyward on the hopes and expectations of a continuing rosy future… The low-priced ‘cats and dogs' historically make great moves in this third phase…”

..... “the final stage is sometimes recognizable because people then buy stocks simply because they go up, and because other people are buying them.”

With the S&P 500 currently trading at nearly 18 times fresh record earnings, on record profit margins, it seems clear that the current bull market is well into its third phase. To anyone who examines more than one or two decades of market history, even a multiple of 18 is very rich by historical measures, and can't be reconciled simply by reference to interest rates or inflation.

On closer inspection, of course, valuations are even more hostile. Over the past three years, profit margins have widened to record levels, which has detached P/E ratios from other fundamental measures – such as price/revenue, price/dividend, and price/book ratios. The S&P 500 is currently about double its historical norms on those metrics. That isn't a forecast that stocks have to eliminate that valuation gap, but it certainly does suggest that stocks are priced to deliver unsatisfactory long-term returns from these prices.

It bears repeating if profit margins were at normal levels – even on the basis of profit margins that prevailed during the 1990's (indeed, anytime prior to the past 3 years) – the price/earnings ratio of the S&P 500 would currently be nearly 25. Unless investors want to speculate on the notion of a “permanently high plateau” in profit margins, the stock market is strenuously overvalued at present. ....

...., the first phase ....” On average, historical bull markets have begun from price/peak-earnings ratios below 11 and generally below 9. .....

Typically, the explosive first-year advance in a bull market has involved a recovery from those very depressed P/E multiples....

Not so for the current bull market, however. As brutal as the market's decline was between 2000 and late 2002 – despite a loss in the S&P 500 of about half and a loss in the Nasdaq of over two-thirds its value – market valuations at the bear market trough never penetrated below historical norms.

To put the 2000 top into perspective, recall that during the late 1990's bull run, the market experienced a series of speculative blowoffs. First, “Buffett-type” large-cap stocks...., and stocks like Coca Cola traded at hefty premiums to historical norms. Next came the dot-com bubble, ..... Though both of those blowoffs easily qualified as “stage three” advances,....

At present, stocks are dangerously beyond “known values,” unless the values observed during the late-1990's bubble are the ones investors really care to know.

Speculative blowoffs
Given the overwhelming historical evidence that profit margins normalize over time, long-term investors should build that expectation into the prices that they pay for stocks, which after all, are nothing but a claim on a stream of future cash flows. A market P/E of nearly 25, on the basis of normalized profit margins, doesn't allow any margin of safety.

.....“it is not history, facts, or intelligence that guide most investors through the final phases of a bull market; it is hopes and wishes.”

Among the current signs that the market is engaged in a speculative blowoff, investment advisory bullishness is running near 60%, which Investor Intelligance notes is about the level where historical bull markets have ended. As for the “smart money, " corporate insiders are aggressively liquidating stock" at a rate of over 7 shares sold for each share purchased, ..... Meanwhile, the new issues market is booming, and low-quality stocks (on the basis of S&P's quality rankings) have for months dominated an otherwise dwindling group of market leaders.

Though CNBC briefly seemed professional in the wake of the 2000-2002 market plunge, airing short conversational spots where the anchors emphasized journalistic responsibility, that tenor has now been replaced by carnival-barking shows like “Mad Money,” complete with its lightning round, featuring a shrill whine of irresponsible speculative “plays” backed by death-metal guitar music, and “Fast Money” promoted by spots that promise, for example, “Tonight, the boys get down and dirty with a hot commodity...” I wish I was making this up. (more on cramer etc. at the new feature labels at the bottom / mehr zu den einzelnen punkten unter "labels" am ende des postings)

Overall, it's late in the game.

"China Consumer Prices Rise Most in 20 Months on Food "

"core" rate excluding the 30% foodportion of the basket sound like the fed. add to this that china controll the eneryprices and you wonder why anybody looks at the "inflation" numbers and the all the talk about low inflation etc.

kerninflation die satte 30% des warnekorbes (essen) ausklammert und zudem noch energiepreise die staatlich festgesetzt werden.... warum nimmt überhaupt einer diese niedrigen "inflationszahlen" ernst.

Dec. 11 (Bloomberg) -- Inflation in China, the world's fastest-growing major economy, accelerated more than expected in November as food costs increased at the quickest pace in almost two years.

Consumer prices rose 1.9 percent from a year earlier, the National Bureau of Statistics said today. That was the biggest gain in 20 months, ....topped all estimates among 21 economists surveyed .....

Chinese stocks and bonds rose as non-food inflation held at 1 percent (the chinese "core"?!/die chinesiche "kerninflation"?!), damping expectations that the central bank will respond by raising interest rates. Central bank Governor Zhou Xiaochuan last month said pressure to add to two lending rate increases since April has lessened. (what a rational..../was ne logik....)

``There's nothing major to worry about,'' ........ It's mostly driven by food prices.''

Food costs, which account for a third of the consumer price index, jumped 3.7 percent after climbing 2.2 percent in October, driven by a 4.7 percent surge in grain prices. Clothing prices gained 0.1 percent, the first increase since at least 1999. For the first 11 months, consumer prices rose 1.3 percent from the same period last year.

Food prices are ``volatile'' (sound like fedtalk...) and aren't likely to cause inflation to skyrocket, .....

Trade Surplus
The Shanghai and Shenzhen 300 Index rose 2.3 percent as of 1:01 p.m. local time. The yield on the 3 percent local-currency bond due in December 2008 fell 5 basis points to 2.95 percent

As China today reported its second-largest trade surplus ever, the central bank sold 120 billion yuan ($15.3 billion) of one-year bills to lenders in the biggest sale this year, draining cash from the financial system. The November surplus was $22.9 billion.

http://immobilienblasen.blogspot.com/2006/12/china-is-putting-on-breaks-bank-reserve.html

``Headline inflation is not much of a problem right now for ...... ``It is quite benign and mostly affected by agricultural products.''

Energy Prices
The central bank last month forecast consumer inflation will ease to 1.5 percent for 2006 from 1.8 percent in 2005.(good call with the 1,9% number reportet..../hat ja wunderbar hingehauen....)

Even so, it said inflation could quicken as China deregulates energy prices and boosts welfare spending. In addition, a possible rebound in investment could send raw material costs higher, the bank said. (how do you than come up with an low inflation estimate? could only be if the yuan wil strenghten significantly/ wie kann man da mit ner niedrigen inflation rechnen? geht wohl nur wenn der yuan weiter deutlich aufwertet.)

....China, which controls gains in the yuan, should allow faster currency appreciation to prevent export-driven money inflows from fanning inflation, .....(china is not alone with this kind of problem. watch the problems in the middle east oil exporters "prices are rising in the UAE at an annual rate of 7%, but independent estimates put it at 15%."

``By allowing the currency to appreciate, China could help lower the import cost of food,'' (and of course oil!!)

Interest Rates
Zhou raised interest rates in April and August and has ordered lenders to set aside more money as reserves three times this year. http://immobilienblasen.blogspot.com/2006/12/china-is-putting-on-breaks-bank-reserve.html

On Dec. 7, Zhou and his colleagues said they plan to achieve a ``stable'' monetary policy and ``adequate'' money supply growth next year and seek to balance international payments. M2 money supply rose 16.8 percent ( always a matter of perspective what "adequate" means. / alles ne frage der definition von "adequat" )

China's stocks had the biggest fall in almost five months on Dec. 8, after state media suggested the government may raise rates to cool the property market. ( sound familiar/ klingt vertraut)

London House Prices Boom on Demand From Bankers

" There's a kind of money coming in which is quite unreal.''

yes, it is! / das stimmt wohl!

thanks to john from "housingdoom"

Dec. 11 "bloomberg" -- London house prices rose in the past month at the fastest annual pace in at least four years, fueled by demand from bankers as bonus season approaches, ......

Average asking-prices in the U.K. capital rose 24 percent to 355,097 pounds ($697,000) in the three weeks through Dec. 2 from a year earlier, the most since the index began in August 2002, Rightmove said today. The gains helped push U.K. house-price inflation to 13 percent, the fastest pace since October 2004.

A shortage of property and the prospect of a banking-bonus round worth as much as 8.8 billion pounds have helped the housing market absorb higher interest rates. The Bank of England raised its benchmark rate twice in the past four months to 5 percent. Rising home values will support consumer spending, which accounts for two-thirds of the economy, (sounds more and more like an us/new york twin..../hört sich immer mehr nach einem us bzw new york zwilling an.....)

``A million pounds can get a relatively ordinary property in London,'' said Miles Shipside, commercial director at Rightmove. ``Prosperous people want to buy three or four-bedroom houses and we're not getting enough of them. There's a limited supply.''

U.K. house prices will rise 6 percent next year, led by a further increase in London, Rightmove predicted. .....

Price Pressure
``There'll be a lower volume of property sales because fewer people can afford to move,'' Shipside said. ``That will keep upward pressure on prices. And then the London market has also still got some time to run.''

Shares of Berkeley Group Holdings Plc, a U.K. homebuilder focused on London and the southeast, have surged 54 percent this year,......



``A lot of people want to call the top of the market but we've had a strong 2006 and we'll have a good, solid market in 2007,'' Lewis said. A lack of supply linked with planning delays and a pause in interest-rate rises will encourage sales, he said.

London prices rose 2.9 percent from the previous month. The gains in the U.K. capital contrast with the rest of the country, where asking prices fell 0.3 percent in the month, the first decline since August. (thanks to the financial bonanza...... / dank den finanzakrobaten....)

Russian Influx
The biggest annual gain was in Kensington & Chelsea, where home values rose 56 percent. The district has London's priciest homes, which cost an average 1,116,041 pounds. Demand from Russian and French investors has driven up prices, Rightmove said. (also the home to lots of hedge funds!)

Russians are the biggest group of foreign nationals buying in London and for homes worth more than 10 million pounds represent about a quarter of the market (can this be right? / kann das stimmen?)

Financial services companies expect to have as much as 25 percent more cash for end-of-year bonuses than in 2005, .....

``I suppose the previous booms like this would be in the early 1970s and the late 1980s,'' ......... There's a kind of money coming in which is quite unreal.''

Luxury Market
Knight Frank expects luxury house prices in London to rise 12 percent next year after an increase of about 27 percent this year.

``The impact of demand from the City of London has meant that the traditional end-of-year slowdown is increasingly becoming a thing of the past in London,'' said Bailey. (wait for the next maybe so fat bnous rounds. they are coming...../ da sollte er lieber die nicht so fetten bonusrunden in den nächsten jahren abwarten....)

``Everything in London is booming,'' said Charles Gallagher, Chairman of Abbey Plc, a homebuilder based in Dublin. ``In places like Chelsea, it's a case of sell to which Russian you want to.''

What? Me Worry? / comstock!

to add to this "hall of fame" make sure you read comments from cramer, cohen , glassman, kudlow etc......./ mehr zu hall of fame mit müll von den heutigen marktschreiern
http://www.itulip.com/awards.htm
http://immobilienblasen.blogspot.com/2006/08/wall-street-talk.html#links
http://immobilienblasen.blogspot.com/2006/09/erben-von-blodget-meeker-cohen.html

i think their advice is as usefull as this traffic sign....same is also true for the permabears etc.
der rat ist ebenso sinnvoll wie dieses verkehrsschild. gilt ebenso für die "dauerbären" etc......

from comstock! http://tinyurl.com/ylp6v4

In a series of past comments we have spelled out our reasons why we think that a soft landing, while possible, is improbable in view of current conditions. In espousing this point of view we find ourselves in a distinct minority as a vast majority of investors, strategists and economists confidently believe that a soft landing is close to sure bet, and that the market will continue to advance at a solid pace. However, as the following quotes indicate, investors should be extremely cautious when majority opinion swings too far in one direction. In each of the following instances stocks declined substantially shortly thereafter.



July 3, 1929—“Moody’s says returns are in line with industrial activity.”

October 16, 1929—“Fisher sees stocks permanently high” (New York Times). Irving Fisher was the leading economist of the time.

November 2, 1968—“The Boom That Won’t Stop” (Business Week)

December 1, 1972—In 1973 Bulls Will Control the Market. (Business Week)

January 1, 1973—“Not a Bear Among Them” (Barron’s Annual Roundtable).

January 10, 1977—“Our Year-End Panel Sees a Further rise in Stocks.” (Barron’s)

October 26, 1987—Why Greenspan is Bullish” (Fortune) Edition was issued before the October 19 crash.

September 1999—“Dow 36,000: The Right Price For Stocks” (Atlantic Monthly)

April 27, 2000—“…relax, the over-all market probably won’t tank” (Business Week)

The stock market often undergoes a final solid rally prior to a cyclical peak as investors tell themselves that an economic slowdown is only temporary and will shortly reverse to the upside. They generally stick to this forecast until the signs of recession or hard landing become obvious to all. As former Fed Governor Edward Gramlich recalls the situation in late 2000, “everything was pointing up and, all of a sudden, everything started pointing down.” Of course, to those paying more attention to leading indicators than to coincident and lagging indicators, everything was not pointing up, and they are not pointing up today.

here the call from comstock november 2005.http://tinyurl.com/ybvwol (thanks to "barebear")!!

china is putting on the breaks / bank reserve requirements

they are taking action. but i think all the babysteps are not solving the problem.more on china here http://immobilienblasen.blogspot.com/2006/10/china-bubble-watch.html#links or under the label at the bottom of the post

immerhin unternehmen die etwas. denke aber das all diese minischritte das problem letztendlich nicht lösen werden. mehr zu china unter dem link oben oder dem label unten im posting.

Chinese banks told to buy $20B in bonds http://www.businessweek.com/ap/financialnews/D8LT4LH00.htm

China's central bank confirmed Saturday it has told banks to buy $20 billion in bonds in the government's latest effort to rein in a lending boom and cool off the sizzling economy,....

Beijing is trying to curb a surge in investment that it worries could ignite inflation or a debt crisis as economic growth races ahead at an annual rate of more than 10 percent.

The government already has raised interest rates twice this year and boosted the amount of reserves that banks must deposit with the central bank in an effort to cut runaway lending.

The latest order applies to 20 institutions, including China's top five state-owned banks and 10 other commercial banks,

The size of the 160 billion yuan ($20 billion) bond issue was nearly double the 100 billion yuan ($12 billion) figure cited Friday by bankers who first disclosed the order.

The bond sale is meant to help cool off a boom in real estate development and bank credit by shrinking the pool of money available for lending. It was the fourth time this year the central bank has ordered banks to buy bonds.

The Chinese economy grew at a 10.7 percent rate in the first nine months of the year.

The government wants fast growth to continue, but is trying to rein in runaway investment in real estate and some other industries, worried that it could lead to a glut of unneeded assets, leaving banks and companies with dangerously high debt.

So far this year, the central bank has issued 410 billion yuan ($52 billion) in bonds designated to reduce lending, according to Xinhua.

Banks' reserve requirements have been raised by 1.5 percentage points to 9 percent of deposits.

compare this to the fedpolicy. vergleicht das mit der fedpolitik this is from "the great piece from aaron krowne about reserve requirementsand the massive impact on lending" (long but very good read!)

"The key event that happened around 1995 is that the fractional reserve ratio was not only lowered, it was effectively eliminated entirely. You read that right. .....As a consequence, banks can effectively create money without limitation. "

Xinhua said that has taken a total of 450 billion yuan ($57 billion) out of the economy.

The latest bond issue is the equivalent of raising the reserve ratio by another 0.5 percentage points, the agency said.

residential fixed investment to gdp / mauldin-guerite!

maybe this time its different....../evtl ist dieses mal ja alles anders...........

make sure you read the "whole piece from john mauldin" with more great charts and insights!

ihr solltet auch den rest von john maludin lesen!

Every time the ratio has fallen from its peak by more than 10% we have had a recession, except in 1966, and then we had a mere "slowdown" for one quarter.


größer/bigger http://www.safehaven.com/images/mauldin/6472_b.gif

UK / Rate rises bite into buy-to-let rental yields

strange when you can get "4,5% - 5% in rsik free gilts...."

schon merkwürdig wenn man zwischen 4,5- 5% in risikofreien uk staatsanleihen erzielen kann......

"Rate rises bite into buy-to-let rental yields"

Landlords’ profit margins are falling as a result of rising interest rates, while the number of new properties coming onto the lettings market is slowing.

... according to the Royal Institution of Chartered Surveyors (Rics) which revealed that net yields before tax have plummeted to 3.25%.

The slowdown was skewed primarily towards flats as buy-to-let investors expressed caution in the market, says the report.

‘The recent interest rate increases have painted the buy-to-let market as a less than favourable investment,’ said Jeremy Leaf of Rics. ‘With profit margins potentially reduced, affordability conditions could bite hard into investors’ pockets and push up rents if interest rates rise further in 2007.’

....Surveyors expect rental levels to rise further, though confidence has edged back slightly after reaching record levels.

Gross yields are in decline and were 4.6% in October compared with 4.8% a year ago. After costs this would equate to a net yield before tax of around 3.25%.

and they yields in the "commercial property market /london " are not much better....../ im gewerblichen bereich sieht es kaum besser aus........

....Tenant demand for rental property remained solid this quarter, although the pace eased back compared to the previous three months. Continuing demand from tenants reflects a combination of factors, including a strong economy and rising migration.

Chartered surveyors report that migration from eastern Europe has impacted upon the demand side of the market as demand exceeded supply for a 10th consecutive quarter, putting upward pressure on rents. The slight reduction in tenant demand – especially for flats – is evidence that some would-be first-time buyers have been able to purchase a property. (been able to purchase..... i think this chart is misleading......./mhhh, dann ist dieser chart wohl verkehrt.....)

500% increase. homes sold back to lenders since 2005 in northern california

this fantastic chart comes from sean o´toole and "itulip"
and shows actual data from norhern california where this days ( cartoon) are gone for sure........

diese daten kommen von sean o´toole und "itulip"
und zeigen das düstere bild in nördlichen californien wo diese tage (cartoon) mit sicherheit gezählt sind.......

please make sure you read all the details to the chart and the "comments from itulip"

lest euch auf jeden fall die details und die "meinung von itulip" zu diesem chart an!

crash boom bang part II / subprime

this is in addition to the "crah boom bang" from the prior day abou the "ownit" bust! if you havn´t read this make sure you read this first!
http://immobilienblasen.blogspot.com/2006/12/crash-boom-bang-subprime.html

das ist ne bestätigung des artikel vorm vortag über den untergang von "ownit". solltet ihr das bisher nicht gelesen haben empfehle ich das zuerst zu lesen.
http://immobilienblasen.blogspot.com/2006/12/crash-boom-bang-subprime.html

Sub-Prime Mortgage Derivatives Fall as Lenders Fail
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aNrNjRjfwzfY
dank an russ winter für den chart http://wallstreetexaminer.com/blogs/winter/

Dec. 8 (Bloomberg) -- Sub-prime mortgage bonds had their worst week of the year on concern about the failure of two lenders, the slowing housing market and the ability of borrowers to repay the loans, derivatives based on the securities suggest.

An index of credit-default swaps based on bonds rated BBB- and consisting of sub-prime mortgages made this year fell 2.6 percent, to 95.36 today. Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on the odds the debt will be repaid.

Traders reacted after two sub-prime lenders, Agoura Hills, California-based Ownit Mortgage Solutions Inc. and Sebring Capital Partners LP of Carrollton, Texas, closed this week, ......

Default Swaps
The annual cost to protect against default for $10 million of 2006 BBB- mortgage bonds rose to $389,000 from $310,000,..... Default protection on General Motors Corp.'s bonds, which have below-investment-grade ratings, for five years costs $410,000 annually, .....

Premiums on credit-default swaps for individual low-rated bonds and yield premiums on the asset-backed securities also have showed increased concerns,

Asset-backed securities rated AA to BBB lost 0.31 percentage point this week, .......

Defaults on adjustable-rate sub-prime mortgages made this year and packaged into bonds surged 25 percent last month to the highest level for new loans in five years, .....

The percentage of such loans delinquent by 90 days or more, in foreclosure or turned into repossessed properties rose to 2.52 percent in October from 2.01 percent in the prior month,

Lippmann said the direction of the market will depend on CDOs and hedge funds, and how each react to changes in housing data and credit-rating changes.

Change in Behavior
At the then-current price of 98.3, the index-linked contracts on BBB- bonds from this year's loans appeared to be priced for losses of less than 4 percent,

There is a risk that sub-prime loans from this year will experience higher cumulative losses than the 2000 vintage, the worst-performing ever, which as of today are around 5.5 percent, Michael Youngblood, an analyst at Friedman Billings, (this is the guy that said in july that the market will be fine / das ist der typ der noch im juli alles rosarot gesehen hat.)
http://immobilienblasen.blogspot.com/2006/07/fundstck-des-tages.html#links

Sub-prime mortgage bonds rated BBB- from a securitization by Wells Fargo & Co. were sold this week at a yield 1.73 percentage points more than the one-month London interbank offered rate, he said. Similar bonds from Countrywide Financial Corp. carried 2.75 percentage points in extra yield

s&p 500 pe ratio / chart

thanks/dank an https://www.chartoftheday.com/

Today’s chart illustrates that the recent growth in earnings has led to a significantly lower PE ratio. While the PE ratio has been within the confines of a tight and very steep downtrend it is worth noting that the PE ratio has recently edged above this downtrend. Regardless, even though the significant earnings growth of late is a plus, the market has not been willing to pay what it has over the past decade for each dollar of earnings. Stay tuned…(maybe this has something to do with the quality of earnings......./hat evtl. etwas mit der ergebnisqulität zu tun.....)

The petrodollar peg......or why all the talk about china?

good stuff from the economist! / klasse!

America should worry more about fixed exchange rates in the Gulf than the gently rising Chinese yuan http://www.economist.com/finance/displaystory.cfm?story_id=8380713

AMERICAN politicians and businessmen view China's undervalued exchange rate and its huge current-account surplus as the main cause of America's vast deficit. Thus next week a high-powered delegation led by Henry Paulson, America's treasury secretary, will fly to Beijing to persuade China to take measures to reduce its surplus. But are they heading to the right place? At the global level, the biggest counterpart to America's deficit is the combined surpluses of the oil-exporting emerging economies. They are expected to run a total current-account surplus of some $500 billion this year, dwarfing China's likely surplus of $200 billion

Counting only the Middle East oil exporters, the surplus has surged from $30 billion in 2002 to an estimated $280 billion this year. One reason why this gets much less attention than the smaller $160 billion increase in China is that only a fraction of it has gone into official reserves, which are publicly reported. Most of it is stashed in government oil-stabilisation or investment funds, such as the Abu Dhabi Investment Authority, which are much more secretive than the People's Bank of China—but which probably hold just as many dollar assets.

One big difference is that China is now allowing the yuan to rise against the dollar. The exchange rate is up by an annual rate of almost 7% since September. In contrast, the six members of the Gulf Co-operation Council, or GCC (Saudi Arabia, United Arab Emirates, Kuwait, Bahrain, Oman and Qatar), which account for virtually all of the Middle East's surplus, still peg their currencies firmly to the dollar. This is partly in preparation for the GCC's plan to adopt a single currency by 2010. But the bizarre result is that over the past four years of soaring oil prices, their real trade-weighted exchange rates have fallen.




The Gulf economies are running an average current-account surplus of 30% of their GDP, well in excess of China's surplus of 8%. Oil exporters cannot spend their windfall overnight and it makes sense for them to run a surplus when oil prices rise, as a buffer for when oil prices fall. Even so, one can have too much of a good thing.





It might be best for the Gulf states as well as the world economy if they abandoned their dollar pegs and shifted to some sort of currency basket. A more flexible exchange-rate regime would allow them to regain control of their monetary policies and so cool down their overheating economies. By pegging their exchange rates to the dollar, they have had to adopt America's monetary policy, leaving real interest rates too low (often negative) for such fast-growing economies. Credit is growing too rapidly, inflation is rising and the prices of assets, especially property in places such as Dubai, have exploded. http://immobilienblasen.blogspot.com/2006/09/dubai.html#links




Official price indices almost certainly understate inflation. According to government figures, prices are rising in the UAE at an annual rate of 7%, but independent estimates put it at 15%. The dollar's slide against other major currencies is pushing up the price of imported goods. Only 10% of the GCC's imports come from America (compared with one-third each from Europe and Asia), so from a trade-weighted point of view, the dollar peg makes no sense.

In theory, a higher oil price should imply a rise in oil exporters' real exchange rates; and it is better if this occurs through a rise in the nominal rate rather than higher inflation..... pegging to the dollar has not always been a boon to the economies as a whole. When the dollar strengthened in the late 1990s, non-oil industries were squeezed at the same time that the price of crude was sliding. This is another reason why pegging to a trade-weighted basket would make much more sense.

Oiling the world's wheels
Brad Setser, an economist at Roubini Global Economics, a research firm, argues that the dollar pegs of the Gulf states are also preventing some necessary rebalancing in the world economy. ....

.... A trade-weighted basket, in which the euro had a large weight, would help to stabilise the real exchange rate of the GCC countries and so protect their competitiveness. It still would not ensure that oil exporters' currencies moved correctly in line with the oil price, however.

Some economists have therefore suggested that oil exporters should link their currencies in some way to the oil price. Currencies would rise when oil prices are high and fall when prices were weak. This would help to boost countries' external purchasing power and hence their imports when oil prices boom. It would also help to smooth the local currency value of oil revenues and hence government income, helping to avoid big deficits in bad times and huge surpluses in good times.....

However, a rise in petro-currencies would not be a cure by itself for America's deficit (nor, for that matter, is a dearer Chinese yuan). The main solution to global rebalancing is for America to save more and for surplus countries, including both the oil exporters and China, to spend more. A rise in oil exporters' currencies could play a part in that.

watch the 10 year at 4,54

now at 4,53%.

4,54 was the bottom just a few days ago. the level was taken out and slummed to almost 4,40. now back to the old resistance. maybe fun to watch....
http://immobilienblasen.blogspot.com/2006/11/bottom-in-10-year-treasuries.html#links

4,54 war bis vor kurzem ne wichtige unterstütung. nachdem diese marke durchbrochen war ging es auf fast 4,40 runter. könnte interessant werden.
http://immobilienblasen.blogspot.com/2006/11/bottom-in-10-year-treasuries.html#links

us employement data nov.2006

one of the better reports if you look at the headline (especially the small impact of the birth/death model). but as we know from prior releases we have to wait aftre the revisions in 2007 or maybe 2008 to get the right figures. ... the weak point in this release is that all the gains are coming from the servicesector and the gouvermentsector. hard to believe that especially the gain in the retailsector has much room to grow. i think it is a safe bet that there is lots of downside...... http://immobilienblasen.blogspot.com/2006/11/us-arbeitsmarktbericht-us-employement.html#links

U.S. Nov. average workweek steady to 33.9 hours
U.S. Nov. average hourly earnings up 0.2%
U.S. Nov. factory jobs down 15,000; services up 172,000.
U.S. Nov. construction jobs down 29,000
U.S. Nov. retail jobs up 20,000 strongest pace in a year
U.S. Oct., Sept nonfarm payrolls revised up by net 42,000
U.S. Nov. unemployment rate 4.5% vs 4.4% in Oct.
U.S. Nov. nonfarm payrolls up 132,000 vs 112,000 expected

one thing that is a little bid optimistic is that the bls assumes that they have only a 2k difference in the construction assumption from 2005. maybe this can be explained to some part with the desperate builders try to built as fast as they can so they can sell before the full bust is coming. if this is the rational behind this number should fall of a cliff in the next quarters!

http://www.bls.gov/web/cesbd.htm

2006 Net Birth/Death Adjustment (in thousands)

Supersector	Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov
Natural Resources & Mining	-4	0	0	1	1	1	1	1	1	1	0
Construction	-55	10	27	36	39	29	-8	14	10	8	-8
Manufacturing	-25	3	5	-1	7	9	-21	2	5	-4	3
Trade, Transportation, & Utilities	-36	10	21	23	26	20	-28	23	19	24	20
Information	-8	4	-1	7	4	-2	-6	6	-6	4	7
Financial Activities	-11	10	8	19	5	6	-11	7	3	19	4
Professional & Business Services	-59	29	30	62	33	28	-8	22	10	30	1
Education & Health Services	14	12	2	31	13	-4	-4	16	11	33	10
Leisure & Hospitality	-5	33	37	85	76	81	38	25	-28	-41	-9
Other Services	-4	5	6	8	7	7	-10	5	3	-1	1
Total	-193	116	135	271	211	175	-57	121	28	73	29

http://www.bls.gov/news.release/empsit.nr0.htm

Nonfarm employment....... 132
Goods-producing -40
Construction.........-29
Manufacturing........ -15
Service-providing 172
Retail trade 20
Professional and usiness services.. 43
Education and health services........... 41
Leisure and hospitality 31
Government........... 18

Construction employment declined by 29,000 in November, following a loss ofsimilar size in October. The November decline was spread across all componentindustries. Since peaking in February of this year, employment in residentialspecialty trades was down by 109,000. Employment in nonresidential specialtytrades edged down in November, after trending up during the first 10 months ofthe year.

Manufacturing employment continued to trend down (-15,000) in November.Motor vehicles and parts lost 7,000 jobs. Employment continued to fall in two construction-related industries: wood products (-6,000) and furniture and related products (-5,000). Computer and electronic products manufacturing added 5,000 jobs over the month.

update from mish! http://globaleconomicanalysis.blogspot.com/2006/12/november-jobs-report.html

Ageing bull / rocky VI and the bull market.......

to compare the rocky analogy to the bull market is a good one.... / klasse vergleich



With few places left to turn, investors have pinned their hopes on the stockmarket
http://www.economist.com/finance/displaystory.cfm?story_id=8382415

ROCKY is returning to American cinemas this Christmas. And the financial markets increasingly resemble Sylvester Stallone's ageing pugilist: they may get knocked about a bit, but they always seem to bounce back.

In recent weeks disappointing economic data have pointed to the possibility of an American recession in 2007. The dollar has weakened sharply, raising the spectre of the complete collapse that bears have been predicting for years......

But the stockmarket has rolled with the punches. And other asset classes have been similarly buoyant. The spreads (extra yields) on corporate bonds and emerging-market debt are low by historical standards; commercial-property valuations in America and Britain are high. (aslo residential....)

The general explanation for this bullishness is that the world is flush with liquidity. But liquidity is one of those catchall phrases that is not as good as it sounds—a bit like saying “there are more buyers than sellers”, which is itself a cliché of dubious merit (for every buyer who makes a trade, there must be a seller).

What does appear to be clear is that investors are happy to take on risk and eager to buy any asset that offers a higher yield than government bonds. And even those investors who do worry about the American recovery, or about political risks in the Middle East, have to think twice before they sell. The corporate sector is still increasing profits and churning out cash in the form of dividends and share buy-backs. Every Monday seems to bring news of a mega-merger; on December 4th, it was the combination of Bank of New York and Mellon Financial (see article). Potential bid targets from the private-equity sector get larger and larger (the latest tittle-tattle is about Home Depot, worth over $100 billion if you throw in debt). Why sell your shares if someone might be willing to buy them tomorrow at a 20% premium?
As for the dollar, the reason to worry would be if a falling currency prompted foreign investors to demand higher yields on American Treasury bonds to compensate them for the risk. That might really push America into recession. But it is not happening so far; yields have been falling.

All this adds up to what Jim Cramer, the hyperactive pundit of American financial television, describes as “one of the best markets I've ever seen.”

thats from the same the same cramer September 2000: Jim Cramer, CNBC commentator"SUNW probably has the best near-term outlook of any company I know." (Within four months Sun Microsystems went from $60 to $30, down to $10 in a year, below $3 in two years.). plus i urge everybody to read this all time classic from itulip http://www.itulip.com/awards.htm

So what might spoil the party? One problem, as the producers of the Rocky series know only too well, is that sequels are subject to the laws of diminishing returns. Once bond spreads and property yields are low, there is no longer much scope for further capital gains.

That is why investors' hopes are pinned on the stockmarket in 2007; share valuations are only at historically average levels. But company profits are at a 40-year high as a share of American GDP. If profits were about to revert to the mean, share multiples should fall below average. make sure you read this brilliant piece from hussman/hester! http://www.hussmanfunds.com/rsi/profitmargins.htm

The bulls do not think that will happen soon. But whereas one more year of above-average profits growth is possible, three or four more are hard to imagine.

Clearly, the use of borrowed money to enhance returns (often referred to as the “carry trade”) means that the markets are vulnerable to a change in sentiment. When the trend changes, as it did in May, there will be a mad rush for the exits. As Bill Gross of Pimco, a bond giant, writes: “I have a strong sense that the ability to lever any or all asset returns via increasing leverage is reaching a climax.” http://immobilienblasen.blogspot.com/2006/12/reality-check-bill-gross-pimco.html#links

Timing, however, is notoriously difficult. Bears can point to low share volatility, as measured by the Chicago Board Options Exchange's VIX gauge, as a sign of investor complacency. But it may merely be that investors have seen no need to incur the costs of insuring their portfolios against loss.
The markets will thus need some sort of shove to push them off today's course. ....

But predicting such events is more in the realms of astrology than financial punditry. Sceptical fund managers have been forced into a position of being “fully invested and scared as hell.” The knockout blow will undoubtedly come (probably in the credit markets). But just like the Rocky franchise, bull runs on financial markets have a habit of going on much longer than most people expect. (when i look at the rocky 6 picture and comapre it with the one from rocky I it looks like the end is near...../wenn ich das bild von rocky vi mit dem vom rocky i vergleiche glaube ich eher das das ende nahe ist....)

bubble world tour / economist

looks like germany is a weird place to start a "immobilienblasen"/housingbubble blog............. :-)
the bubble in the usa has popped. it is no question if it is a question when it will deflate in the rest of the world.
more on the bubble worldwide http://immobilienblasen.blogspot.com/2006/09/bubble-goes-global.html#links


schon komisch das ich als deutscher ein immobilienblasen blog gestartet habe..... :-)
in den usa ist die blase bereits geplatzt. beim rets ist frage eher wann und nicht ob sie platzen wird. mehr zum weltweiten bubble http://immobilienblasen.blogspot.com/2006/09/bubble-goes-global.html#links


While America's housing market cools, property elsewhere is still hot http://www.economist.com/finance/displaystory.cfm?story_id=8381960

IN MANY countries, people are showing little sign of losing their appetite for residential property. Although the pace in several of the raciest markets around the world has eased a bit in the last quarter, prices have risen by more than 10% in the past year in eight of the countries in our table. ....





However, in America the steam has come out of the housing market. .......


A huge number of homes is awaiting sale: 7.4 months' supply of both existing and new properties.


David Rosenberg, an economist at Merrill Lynch, points out that inventories of new homes are 40% above their historical norm. The number of new properties completed but not yet sold has risen by 50% in the past year, to 166,000. America's builders are cutting back hurriedly. In October alone private residential-construction spending fell by 1.9%; it was 9.4% lower than a year before.

Although America's bubble is deflating, other markets are still looking decidedly frothy. Denmark tops our property-inflation table; elsewhere in Europe, house prices in France, Spain and Ireland are still simmering. In Australia and Britain, where it once seemed that property markets had levelled off, prices have picked up again, rising by 9.5% and 9.6% respectively to November of this year.

The Australian figure disguises marked regional variations. Prices in Sydney rose rapidly in 2003, fell in late 2004 and 2005 and are (just) increasing again. In sizzling Perth prices rose by 46% in the year to the third quarter. In Britain too the pace varies from one area to another: in the year to the third quarter, prices in Northern Ireland rose by a third, ....., while those in the north of England rose by less than 1%. But the renewed pep in the national pattern has revived talk of a housing bubble.

In a thoughtful recent study David Miles, of Morgan Stanley, tries to explain the doubling of real British house prices in the past decade. Some of the increase, he says, can be ascribed to rising real incomes; a smaller share can be explained by increases in population; some can be put down to lower real interest rates (including the keener pricing of mortgages by lenders). However, a lot of it is speculative.(quite an understatement chart!/ lerichte untertreibung chart)

Between one-third and one-half is due to increased expectations of house-price inflation. These amplify the effects of other factors. Faster increases in prices foster the belief that future increases will also be stronger, so that higher prices fuel demand rather than dampen it.



The need to explain so much of Britain's house-price inflation by a change in expectations, writes Mr Miles, “suggests that the current level of house prices may be rather unstable.” Once those expectations come down, real house prices are likely to fall. The trouble, of course, is predicting when. (coming sooner than most people think, kommt schenller als die meisten denken....)

crash boom bang! / subprime

this event is really an importend one. looks like the dots are connecting........ lets hope that all the mbs are "insured" by derivatives/cds... :-)! i´m sure the hedgefunds and pensions plans etc. have done this...... no wonder the risk premiums in this segment are starting to spike. thanks to russ winter for the chart http://wallstreetexaminer.com/blogs/winter/

dieses beispiel zeigt eindrucksvoll wie schnell der markt an die wand gefahren ist und so langsam aber sicher die fakten nicht mehr zu leugnen sind. man kann nur hoffen das alle hedge fonds und pensionkassen die diese mbs gekauft haben und nun nicht mehr zurückgeben können ihr risiko über derivate/cds abgesichert haben.... :-). guckt euch den chart an und ihr seht wie schnell diese art der mbs crashen. nach der meldung wird sich das ganze sicher beschleunigen. dank für den chart an russ winter http://wallstreetexaminer.com/blogs/winter/
Subprime lender Ownit Mortgage shuts down http://tinyurl.com/yzkcne

Ownit Mortgage Solutions, a California company that described itself as one of the top 15 lenders to homeowners with weak or no credit histories, has shut down, citing "the current unfavorable conditions of the mortgage industry."

Merrill Lynch & Co. (MER) and private equity firm CIVC Partners hold stakes in Ownit, which built its book of new loans to $8.3 billion in 2005 from $1.1 billion in 2003, in part by introducing products like 45-year mortgages, according to its Web site. Ownit's demise comes as subprime mortgage lenders are being squeezed by higher funding costs, weakening loan demand and rising delinquencies.


"Effective Dec. 5, Ownit closed its doors, and we are no longer able to fund or process your loans," the company said on a recorded telephone message. "We apologize for any inconvenience."

Ownit ran out of cash needed to meet its obligations to repurchase loans from investment banks and others (like hedge funds, pesnsion plans etc......) who bought them in the secondary market, people in the industry said. The banks, which convert the loan payments into mortgage-backed securities for sale to investors, can force the original lenders to repurchase loans if the mortgage borrowers default. ....

The end came quickly for Ownit.

"We were all working yesterday, assuming we were fine," Dave Hanthorn, a New Jersey-based employee who sells the firm's loans to mortgage brokers, said Wednesday evening. "At 5:15 last night we got the call that we were ceasing operations." He said the company gave no explanation for its funding problems.

..... The company took down the site - ownitmortgage.com - Wednesday afternoon so as "not to confuse" clients, said Dickinson.

Ownit laid off all its staff......

much more details ind insights on this topic / mehr hierzu :

mish http://globaleconomicanalysis.blogspot.com/2006/12/demise-comes-quickly.html
sacalmtgguy http://housingbubblecasualty.com/?p=50
aaron
http://www.autodogmatic.com/index.php/sst/2006/12/08/housing_finance_breakdown_begins
roubini http://www.rgemonitor.com/blog/roubini/162056

global etf´s overbough vs oversold / tickersense!

dank/thanks to http://tickersense.typepad.com/ticker_sense/

Most countries are currently overbought, with Austria, Malaysia, and Singapore currently trading at theoretical highs. India and the Netherlands are the only countries in our model that are currently within their normal trading ranges

größer/bigger http://tickersense.typepad.com/./photos/uncategorized/globalobos1207.jpg

creditbubble

the chart speaks for itself / ohne worte

dank geht an die großartige seite itulip. http://www.itulip.com/

story relatet to chart. http://www.itulip.com/forums/showthread.php?t=674


größer/bigger http://www.itulip.com/images/creditbubbles.jpg

insider stock sales highest since 1987

the good thing is that this kind of data is very transparent and almost in real time. whenever a new record is set up and especially whne the last record is almost 20 years old you should be listening........

das gute an diesem datensatz ist das er sehr transparent und in echtzeit berichtet. immer wenn sehr alte rekordstände (hier fast 20 jahre) gebrochen werden sollte man besser genauer hinsehen.....

http://tinyurl.com/wnyhf Dec. 6 (Bloomberg) -- Stock sales by America's corporate chieftains exceeded purchases last month by the widest margin since 1987, suggesting they don't share the confidence of investors who sent the Standard & Poor's 500 Index to a six-year high.

Executives ....in aggregate sold $63.18 of shares for every $1 they bought in November, ....... That's the highest since at least January 1987.

pretty easy to judge this kind of ratio......./ bei diesem verhältnis ziemlich einfach.......

``They're pretty savvy market guys,'' .......... ``They see things are slowing down, and they're like, `Man, I'm taking some money off the table.''' .....

Insiders sold $8.4 billion in shares last month, ....... Buying was almost $133 million, for a sell-buy ratio of 63.18.

That ratio surpassed a previous high of 62.76 reached in July 2005. The S&P 500 declined 2.2 percent from August through October 2005. ........
http://insider.thomsonfn.com/tfn/insider.asp?imodule=mktTearsheet

Some investors say they're unconcerned by the selling.

``Insiders tend to buy when the prices are low and sell when they go up, so it's fairly typical'' to have selling during a rally, ........ ``The issue that you want to be more concerned about is if they are selling while it's going down.''

`Value for Investors'
Still, the overall insider-selling figure last month was the fifth-highest since 1987. Selling peaked at $13.9 billion in March 2000, when the S&P 500 reached its all-time high. The index then fell 5.2 percent in the next two months.

..... ``It's people who are very familiar with their company and their stock, and they are making a statement.''

Data from Thomson Financial also suggest that the outlook for profits is worsening.

Analysts surveyed by Thomson forecast that earnings growth at S&P 500 companies will slow to 9.4 percent in the fourth quarter, ending a 13-quarter streak of expansion above 10 percent. The estimate is down from almost 13 percent at the beginning of October.

Weekly Insider Report
The consistency of the increase in insider selling since June should also be unsettling to investors, ...

Insiders executed 6.34 sales transactions for each purchase transaction in the eight weeks ended Dec. 1, Coleman's calculations from SEC filings show. That's up from 2.45 in the period ended Aug. 4 and above the ratio of 2.25 he considers neutral for the market.

The one-week sell-buy ratio climbed to at least 7-to-1 three times in October and November, compared with a level of 1.68 in the week ended June 16, when the S&P 500 reached its 2006 low.

``In spite of the fact that insiders typically sell into a rising market, these levels of selling are highly unsettling,'' Coleman said from Fairfax County, Virginia.

more on the "surprisingly" good timing from businessweek / mehr zum guten timing von bw

Insiders with a Curious Edge
How corporate executives seem to be violating the spirit, if not the letter, of a rule meant to prevent insider trading http://tinyurl.com/yegyae (long but good read/lang aber gut)!

BusinessWeek found a surprising amount of leeway over preplanned trades. At nearly half the companies examined, sales were concentrated in the months leading up to a stock's peak or just thereafter

Jessica Simpson model of investing / saut+minyanville

ank an jeff saut und minyanville
full story! http://www.raymondjames.com/inv_strat.htm

Almost 2% of the NYSE’s entire market capitalization has been taken private (read: LBO’ed) since the beginning of this year.

So much money is sloshing around in private equity funds that we now have the Jessica Simpson model of investing – “I don’t know what it is, but I want it!”

Private equity funds are looking to “lever” corporate America’s under-leveraged balance sheets and exploit them accordingly.

There are now more hedge funds than there are stocks and 60% of those funds are less than 5 years old. This trend will end with mediocre performance by most hedge funds.

Gold is going up against most assets. And, foreign energy stocks are making new all-time highs and “pulling” U.S. energy stocks higher.

The U.S. has the highest “real” (inflation adjusted) interest rates in the developed world, implying capital should continue to flow here. (which is needed to protect the remaining of the $.....)

If current profit margins, and free cash flows, are sustainable, then the equity markets can continue to levitate. However, a “mean reverting” world suggests we are long-of-tooth in this trend.

for scale plus bigger from hussman http://www.hussmanfunds.com/rsi/profitmarginsh.gif

Sam Zell is not stupid! Therefore, the recent sale of his flagship REIT (EOP/$48.30/Underperform) should be viewed as a watershed event. http://tinyurl.com/yhkquq

Bank indices are deteriorating against the S&P 500 Index (SPX). Since the Financials have roughly a 22% weighting in the SPX, this is troublesome.

If the rumors about a Home Depot (HD/$38.97/Outperform) LBO were for real, the long-dated call-options on HD should have collapsed and that just didn’t happen.

Volatility and Risk are currently being WAY under-priced by the markets

Goldman Ousts Bridgewater as Largest Hedge Manager

the data gets even more impressive when you add the leverage (up to 12 times in the case of citadel!) / das ganze wird umso beeindruckender wenn man den hebel (von bis zu 12 bei citadel) berücksichtigt. http://immobilienblasen.blogspot.com/2006/12/read-this-twice-hedge-funds.html



in the case of goldman it is even without their official hedgefundsunit already a "hedge funds" that makes the majority from their tradingdesks......./ guckt euch mal abseits des offiziellen ablegers bei goldman an wie die ansonsten ihr geld verdienen.......

http://immobilienblasen.blogspot.com/2006/09/goldman-sachs-bank-oder-hedgefonds.html

Total Investment Banking 1,288
Total Trading and Principal Investments 4,720 (over 60%!)
Total Asset Management and Securities Services 1,455
Total net revenues $ 7,463



http://tinyurl.com/yh7xla Dec. 1 (Bloomberg) -- Hedge fund managers can make you rich quicker than just about anyone. Sometimes, they can make you poor even faster.

Just look at Amaranth Advisors LLC, the Greenwich, Connecticut-based hedge fund manager that stumbled over wrong-way bets on natural gas. Going into September, Amaranth was up 26 percent in 2006. By October, it had lost $6.6 billion.
http://immobilienblasen.blogspot.com/search?q=freunden

The next Amaranth is out there somewhere. ......

Since 2000, the secretive world of hedge funds has more than doubled in size. There are now more than 9,000 of these funds with combined assets of $1.34 trillion. .....

Investors poured a record $110.7 billion into these vehicles during the first nine months of 2006 -- more than twice what they did in all of 2005. Since September, Morgan Stanley has bought stakes in two hedge-fund firms and purchased a third outright. And since late 2005, Goldman Sachs Group Inc. has become the largest manager of hedge fund money, with $29.5 billion in assets, according to HFR and Bloomberg.


Goldman passed Westport, Connecticut-based Bridgewater Associates Inc., which has $28 billion in assets, and New York- based D.E. Shaw & Co., which has $23.2 billion.

Returns Sag
So many hedge funds have crowded into the markets that the industry is struggling to generate standout profits. As of Sept. 30, the average hedge fund was up 7.1 percent in 2006. .....

As money pours in and returns sag, Theodore Aronson, ...., sees potential danger ahead. ``You don't have to go back to the tulip bulb mania to see how things could turn out,'' he says. ``It could be ugly.'' .....

Troubled Industries
Hedge funds that trade distressed assets, typically junk bonds and corporate loans, posted an average annualized return of 14.6 percent during the three years ended on Sept. 30, according to HFR. During the first nine months of 2006, these funds returned 9.8 percent. So many hedge funds are chasing distressed investments that returns have withered from 18.9 percent in 2004. ...(explains the record low spreads./erklärt die rekorverdächtig niedrigen spreads)

Fallen Angels
More companies are likely to run into trouble soon, according to S&P. As of early October, 38 companies around the world had lost their investment-grade credit rating in 2006. Forty-one more, with a combined $77.6 billion of debt, were at risk of landing on the junk-bond heap..... (with more companies than ever with junk ratings there is plenty to choose from.....http://immobilienblasen.blogspot.com/search?q=US+credit+quality+in+25-year+retreat+toward+junk-S%26P+ )

Industry Giants
Investors poured more than $30 billion into long/short funds during the first nine months of 2006. These funds now sit atop a combined $379.3 billion in assets, more than a quarter of the industry total.


``We'll buy something that has a 40 trailing P/E, but if we look at where we see it going, it'll have a forward P/E of 10,'' Mashaal says. .....(seems to be the mentality of almost everybody... not only hedge funds.../scheint mir die menatlität von fast allen zu sein ... nicht nur bei hf)

Fed Headache
As the funds rate has climbed, so have U.S. Treasury yields. Two-year Treasury yields reached 4.75 percent on Nov. 8, up from 3.07 percent in late 2004. Ten-year yields have climbed less, to 4.64 percent from 4.22 percent. As a result, investors who borrow at short-term rates to buy bonds make less money on their investments. (hey the can use the carrytrade..../nehmt doch den carrytrade...)http://immobilienblasen.blogspot.com/2006/11/boj-chief-has-yen-carry-concern-mother.html#links

Housing Market
Mortgage bonds are getting riskier now that U.S. home prices have begun to decline. Banks fashion these securities out of mortgages and home equity loans. If enough people default on the loans, the securities' credit ratings could suffer.... (already happening at a record pace..../ ist gerade in der mache....http://immobilienblasen.blogspot.com/2006/12/mortgage-bonds-hurt-by-delinquencies.html)

Goldilocks' Wake-Up Call / hussman

i recommend reading the full piece! / empfehle den ganzen artikel zu lesen!

http://www.hussmanfunds.com/wmc/wmc061204.htm

What is the probability of a recession beginning within the next 6 months?

Well, on the basis of a larger data set that includes interest rate differentials (yield curve, credit spreads), housing starts, and the ISM Purchasing Managers Index, the probability of a recession beginning within 6 months has spiked to about 79%, with the probability of a recession within 12 months now running about 92%. That's not certainty, however, and there have indeed been a few times when risk has shot up without an imminent economic downturn (the spike in 6-month risk to 83% in 1989 was not followed by a recession for a full year, and a couple of lesser spikes in the 1990's were uneventful). Suffice it to say that based on recent data, the odds of an oncoming recession have increased sharply and abruptly.

Speculation gets even loonier! / fleckenstein

feels like he is a little bit frustratet / sieht so aus als wenn er so langsam frustriert ist.

http://tinyurl.com/y9mo7p
The evidence grows that the unwinding of the asset bubble is liable to be rapid -- and brutal.

While out of the country recently, I did something I haven't done in 20 years. I ignored the markets. I did not read a newspaper. I did not check my e-mail. I did not check my voice mail. I left instructions for my office to call me only if something dramatic transpired. (I wasn't contacted.)

In praise of being unplugged Why do I bring this up? To make the point that being removed from all information granted me the perspective that's often denied to those in the trenches. Upon my return, it was more clear to me than ever that we are at a speculative zenith of major proportions.

It is truly remarkable how reminiscent the current mindset is of the 1998-2000 stock mania, when every week would see hundreds of upward price-target revisions. Having said that, in my opinion the current psychology amongst so-called professionals is even loonier.

In the previous mania, the bulk of the madness was concentrated in technology concepts, especially Internet-oriented ideas, where a company that boasted a handful of eyeballs viewing its Web site could be worth tens of billions. Today, the insanity is spread out in various different places.

A little freefall for Freescale Leveraged-buyout madness, for example -- where airlines and semiconductor-equipment fabricators are being leveraged up to go private. Meanwhile, it's worth noting that the bonds of Freescale Semiconductor have broken par -- and that after having been lustily sought after when they were originally issued.

Of course, the pinnacle of the lunacy resides in the financial-dark-matter arena, where all forms of financial exotica exist. The latest specimen? A leveraged-up version of the CDO (collateralized debt obligation) known as the CPDO (constant proportion debt obligation). Without going into all the details, this new product supposedly allows for people to get their money back (plus a bit of interest), if its architects are adept at selling more and more premium in the form of credit default insurance (swaps) as the prices go against them.... http://immobilienblasen.blogspot.com/2006/12/reality-check-bill-gross-pimco.html

Long-Term Capital, short-term memory
Turning to another example of folks having lost their minds, a willing crowd now apparently wants to lend $2 billion to hedge fund Citadel Investment Group.http://immobilienblasen.blogspot.com/2006/12/read-this-twice-hedge-funds.html

I have to ask myself, why would anybody lend money to a hedge fund when it has no assets to claim and its structure thwarts the processes of due diligence and monitoring of one's collateral? Doesn't anyone remember Long-Term Capital Management, which melted down in 1998 and had to be rescued by the Federal Reserve?

When discussing the madness of crowds, it's never possible to predict the outer limits of that madness. Nor is it ever possible to say that the psychology can't get crazier. But in my opinion, the psychology today is about as wild as it can get.

Regrettably, there is no "timing" in that statement. Inflection points -- like tops -- are hard to position oneself around. Change seems to take forever to occur, then happens, seemingly out of the blue. That certainly describes the dollar's serious break, on Nov. 24, for no proximate cause. In all likelihood, it finally sank under the cumulative weight of preceding events,......

Piercing shards 'neath a house of cards
But, whatever "turns" this asset-bubble structure -- and whenever it turns -- the unwinding is going to be brutal, and likely to occur at a rapid clip, given the degree of lunacy on the credit (versus equity) side of the ledger.

And to think that all of this is backed by a thin piece of paper called the dollar, printed at warp speed by the central planners at the Federal Reserve, who brought us the mindless misallocation of capital that created these asset bubbles.

japan, tech and housing bubbles 1985-2006

dank geht an mish und sein http://www.markettradersforum.com/forum1/

make sure you see the other great bubble charts (credit, subprime etc) from John Rubino !
http://www.financialsense.com/editorials/rubino/2006/1129.html


größer/bigger http://www.financialsense.com/editorials/rubino/2006/images/1129.h4.jpg

read this twice! / hedge funds

welcome in the wonderland where instead of milk and honey leverage/credit are flowing or in this case running amok........

willkommen im wunderland wo anstelle von milch und honig waghalsige hebel und kredite fließen oder in diesem fall wohl besser gesagt amok laufen........
http://immobilienblasen.blogspot.com/2006/09/credit-machine-is-running-amok-mother.htmlhttp://tinyurl.com/ymhrg5

dank geht an russ winter http://wallstreetexaminer.com/blogs/winter/

Citadel trading costs hit $5.5bn http://www.msnbc.msn.com/id/15993706/

The importance to Wall Street of a handful of large hedge funds was starkly illustrated by the disclosure that Citadel Investment Group paid more than $5.5bn in interest, fees and other investment costs last year.

Although the net asset value of Citadel's two funds is only about $13bn, its costs are high because its managers trade frequently and take on huge leverage.

More than 90 per cent of the investment expenses represent interests payments, including the cost of the roughly $100bn of net debt provided by investment and commercial banks. Citadel had gross assets at the end of August of $166bn, representing leverage of 12.5 times.....(unfortunatly the can´t hire the stuntmen........)


The interest and fees will be spread among a large number of investment banks that act as "prime brokers" and commercial banks. Citadel also has huge interest income which in the current year is running slightly ahead of payments.

Senior Wall Street executives on Friday expressed surprise at the high interest costs and Citadel's willingness to reveal the leverage of its funds.

.....The figures, disclosed in Citadel's prospectus for a $2bn debt issue, explain why regulators are concerned that banks may be tempted to loosen their controls to win hedge fund business.

.....Citadel is raising $2bn in a debt issue managed by Lehman Brothers and Goldman Sachs. Fortress Investment Group, which has $26bn in hedge fund and private equity assets, last month filed for an initial public offering that is expected to value it at about $7.5bn......

Citadel's main fund, Kensington, had $9.5bn in assets under management at October 1 this year, and has returned an average of 20.7 per cent a year since 1998, well above the long-term average of about 10 per cent over that period. In 2005 it returned 7.2 per cent, partly as a result of losses in the credit, energy and reinsurance markets, Citadel said in the document.......

Mortgage Bonds Hurt by Delinquencies, Housing Slump

finally......./endlich.........

http://tinyurl.com/y43usm Dec. 1 (Bloomberg) -- The mortgage bond market is beginning to buckle under the weight of the worst U.S. housing slump in six years.

Yields on so-called sub-prime mortgage securities rated BBB have risen to 6.52 percent on average from 6.28 percent on Sept. 5, data compiled by Bank of America Corp. show. The yield premium, or spread above the one-month London interbank offered rate, a lending benchmark, rose to a seven-month high of 1.2 percentage points.

that is the key! even if i do not compare apples with apples but the 10 year has fallen almost 350 baisipoint in the meantime! this is out of the reach for the fed. when you read the latest warnings from h&r block or fith thirs bancorp you see the impact on earnings http://immobilienblasen.blogspot.com/search/label/mbs. endgame could be that even if the fed lowers rates the subprimeborrower has to pay the same or higher rates.

das ist der entscheidende faktor. das liegt ausserhalb der kontrolle der fed. im gleichen zeitraum wo die vom mbs markt verlangten risikoprämien angestiegen sind hat die 10jahresrendite 350 baisipunkte abgegeben (selbst wenn nicht die identische grundlage aber der trend ist eindeutig). die auswirkungen auf die ergebnisse der banken/kreditgeber sind täglich zu beobachten. http://immobilienblasen.blogspot.com/search/label/mbs. im enddefekt könnte bzw wird das dazu führen das selbt wenn die fed die zinsen senken wird/muß die subprime kreditnehmer davon nichts spüren werden.

About 3.3 percent of the $160 billion in sub-prime loans made this year through July have payments that are more than two months late, the highest ever for mortgages in their first year, ..

``The higher delinquencies do set off an alarm for many people and make us more conservative,'' ..
Delaware Investments, which has about $100 billion in bonds including mortgages, is buying more asset-backed bonds with top credit ratings such as AAA and less of those rated BBB, which are more sensitive to delinquencies and defaults, Wei said. The higher-rated bonds yield about 1.1 percentage points less than BBB debt.

Housing Slump
Most sub-prime mortgages -- to borrowers with poor or limited credit histories, or with higher-than-average debt levels -- pay fixed rates for the first two to three years and then adjust to market rates. They made up 19 percent of all U.S. mortgages in the first half of 2006,

......... last year, securities backed by floating-rate sub-prime mortgages returned 3.9 percent including reinvested interest, almost double the 1.97 percent gain for investment-grade corporate bonds, .... (these days are gone....! die zeiten sind vorbei...!)

Interest Costs
Sub-prime mortgage securities have returned 1.38 percent in the past three months, less than half the 3.63 percent return for corporate debt. The difference between yields on the mortgage bonds and Libor widened 0.25 percentage point in the past three months while the gap for similarly rated corporate debt narrowed 0.05 percentage point. Prime mortgages have returned 2.78 percent.

Sub-prime lenders New Century Financial Corp. of Irvine, California, Accredited Home Lenders Holding Co. in San Diego and Columbia, Maryland-based Fieldstone Investment Corp. are paying more in interest on the bonds they sell to fund mortgages.

Interest expense for New Century rose 29 percent to $375 million in the third quarter from a year earlier. Accredited's jumped 62 percent to $138 million. Fieldstone's payments climbed by 57 percent to $91 million.

Less Stringent
Late payments are accelerating after lenders began to require less documentation for loans and financed more homes without down payments, (what a surprise..../ was wunder....)

About 38 percent of the most common sub-prime mortgages this year were for the full value of the home, up from 31 percent in 2005 and 21 percent in 2004.....45.5 percent of the loans this year required ``low documentation'' of borrower income and net worth, up from 44.5 percent in 2005 and 40.1 percent in 2004.

The data reflect ``common methods of allowing first-time homebuyers to borrow more than they can afford,'' Sinha said. ....

Yield Premium
The yield premium on AAA rated securities has stayed at about 5 basis points over Libor the past three months, Bank of America data show. The 5.07 percent total return on all sub-prime mortgage securities this year is better than each of the last six years

Moody's on Nov. 14 said it may cut the ratings on $7.16 million of debt rated Ba2 sold by Anaheim, California-based Fremont Investment & Loan.

Fitch is considering whether to put ``a few'' sub-prime issues on review for a possible ratings cut..

``There's no doubt that there is going to be some increased credit risk,''

......Bill Gates, the world's richest person, bought shares of seven U.S. homebuilders through his philanthropic organization, a regulatory filing showed on Nov. 15. Homebuilder shares are up 15 percent on average since July after falling 30 percent in the first half of the year, according to the Standard & Poor's Supercomposite Homebuilding Index ( i am betting agninst gates/ich wette dagegen...)

Reality Check / bill gross pimco

good stuff from bill gross. the risk premiums are also the key to the stockmarkets. if something is hapening in this segment all the crazy lbo´s and mergers are much much harder to finance. when i read gross he thinks spreads from here on have almost only one way to go ..... up!

klasse. mit pimco hat die allianz nen guten fang gemacht. das thema risikoaufschläge ist unter anderem der schlüssel zu der weiteren entwicklung der aktienmärkte. wenn hier schwierigkeiten auftauchen werden die ganzen lbo´s oder übernahmen viel vile schwerer zu finanzieren sein. wenn ich gross richtig verstehe können die spread von hier aus nur in eine richtung gehen..... nach oben.

http://tinyurl.com/yks3fl
.........it’s hard to manufacture butter when an economy slows below the point that historically sustains profit and job growth and therefore minimizes risk......

What I would like to speak to now is the current pricing (overpricing) of certain risk assets.....

When the Fed cut interest rates to 1% in June of 2003, I could guarantee you that they could only cut them 100 basis points more. When 10-year yields on Japanese JGBs hit .35% at the same time, I could almost guarantee you that their incredible bull market run was coming to an end. NASDAQ 5,000? Easy in retrospect, but harder at the time, if only because the mathematics of value were being biased by the phantasms of hope. The floor was 5,000 points below, but the ceiling somewhere in the wild blue yonder.

Because the bond market is more mathematically oriented than riskier asset markets, it stands to reason that a quest for certainty and reality in financial markets would begin there. Fed Funds at 1%, JGBs at .35%, and ?. Where is the present day counterpart where one could claim that prices could go no higher or risk spreads compress no further? We are beginning to find such evidence in the investment grade corporate bond market, the narrowing spreads of which are displayed in Chart 1.
While a rather obvious 25 or 35 basis points to 0 analogy could quickly be advanced here, a finer, more precise analysis emanates from the quantitative dissection of a new derivative credit product retailed to institutional buyers under the sticker known as a CPDO or “constant proportion debt obligation.” more on cpdohttp://tinyurl.com/ydmv5g /economist) Without too much explanation, these multibillion-dollar instruments lever investment grade indices up to 15 times ....... The increasing use of leverage, in other words, at least as applied to this particular area, appears to have run out of its magical ability to increase returns. Investment grade corporate spreads therefore are not likely to narrow further.

This is a critical analysis because if extended to other asset markets, it begins to imply that the leverage potency of recent years is reaching a peak, ..... how much leverage can be applied before the chances of losing all your money dominate the outcome? Its conclusions, under the new world assumption of today’s low volatility and narrow asset risk spreads, reinforce in general what I have offered to be the case with the CPDO in specific. There is a maximum leverage point, 7-8x in this example and eerily reflective of today’s hedge fund proclivities, beyond which returns can be maintained only with increasing and significant expectations of financial loss. We estimate that the maximum alpha an average hedge fund can generate in today’s marketplace utilizing a broad array of financial assets which average a 50 basis point risk premium, displayed in Chart 2, is 200 basis points. Any attempt to go further by levering up an already 8x levered portfolio increasingly risks significant and in some cases, total loss of principal.

And so? No gloom and doom message here. ...... But we are approaching limits. ..... But I have a strong sense that the ability to lever any or all asset returns via increasing leverage is reaching a climax and therefore, that CPDO, corporate credit spreads, and more importantly, sophomoric assumptions of future assets returns in all markets may require some future compromise, as the current masquerade of high asset returns gradually morphs from cream to skim milk.

Attack Of The Fifty Foot Woman / contrary investor

contrary investor is spot on. this month they are digging into the hope that the slump in the fed funds rate will boost stocks further like in the past. make sure you read why this time it is unlikly. the yields will only fall to levels needed to support further gains in the stockmarket when there is a severe recession and not in the goldilocks scenario that the bulls are praying for...(even they have to admit that in a recession the best accounting can´t boost earnings plus stocks .........) plus they revisted the carrytrade. make sure you read the whole stuff and see the charts! a must read!!!!

contrary investor bringt es mal wieder auf den punkt. diesen monat nehmen sie die hoffnung der bullen aufs korn warum ein fallen der 10jahres bonds diese mal nicht ausreichen wird um aktien weiter zu treiben. der nötige level dürfte erst bei ne happigen rezession erreicht werden. (das wiederum sollte die gewinne pulveresieren....). zudem noch neus zum carrytrade. empfehle dringend den ganzen artikel zu lesen. großartig!

whole story/komplette geschichte http://www.contraryinvestor.com/mo.htm

h&r block / hrb desaster reloaded

this data from hrb shows you that the mbs market is finally demanding higher premiums and is doing the due dilligence more seriously! and remember hrb has no option arms! in the options arm segment the picture should be even worse......more on mbs and other warnings http://immobilienblasen.blogspot.com/search?q=mbs


diese date von hrb zeigt eindeutig das der mbs markt wacht endlich auf und verlangt höhere risikoprämien und prüft die angebotenen pakete genauer. und das obwohl hrb keine der riskantesten kredite mit negativer tilgung anbietet. dort dürfte es um einiges schlimmer aussehen......... mehr zu mbs und warnungen http://immobilienblasen.blogspot.com/search?q=mbs



here the details from the warning in september./ hier die fakten zur warnung vom september http://immobilienblasen.blogspot.com/2006/09/update-conference-call-hr-block-hrb.html#links


off course the stock is ways higher (in part due to the sale of anounced sale of "option one") than before the warning in september and afterhours the stock stayed at 24$ after the secound massive warning. wall street is on steroids.........the new guidance is 1,20$-1,45$ (very optimistic and off course ex massive charges!. makes a pe around 18 without charges....! with fundamentals worsening. maybe private equity can makes an offer............please.......)


selbstredend ist die aktie höher als zur letzten warnung im september (teilweise durch die ankündigung des verkaufs von "option one") und der warnung von gestern. nachbörslich weiter stabil bei 24$. wall street ist auf speed.......die neue schätzung beläuft sich auf optimistische 1,20-1,45. natürlich ohne die massiven "sonderbelastungen". macht ex restrukturiereungen ein kgv von 18. inkl. kosten wahrscheinlich eher 30-50!. und das bei sich verschlechternden fundamentals. evtl. kann ja private equity einspringen........





http://biz.yahoo.com/bw/061130/20061130005939.html?.v=1
Mortgage Services revenues decreased to $140.6 million in the fiscal 2007 second quarter from 235.8 million (down 40%!) last year. The decrease was driven by lower originations and by a decrease in gains on sale due to lower than expected loan sale premiums and higher provisions for loan losses. The business posted a pretax loss of $39.0 million versus pretax income of $48.8 million a year ago. (looks like a desaster!!!)


Non-prime loan origination volume was $6.6 billion versus a record $12.2 billion(down 46%) in the year-ago quarter and $7.8 billion (down 15% qoq) in the first quarter of fiscal 2007, as softness in the U.S. housing market and tightened loan underwriting continued to suppress loan volume.

Net gain on sale-gross margin for Mortgage Services was 37 basis points compared with 81 basis points in the fiscal year's first quarter, reflecting losses on derivatives and lower loan sale premiums.

Loan loss provisions totaled 69 basis points in the second quarter due to continued high default rates and greater loss severity. As a result of changes in loss severity estimates, the second quarter provision includes approximately 19 basis points related to production in prior periods.

Option One's mortgage servicing portfolio was $73.0 billion at the end of the quarter

......The company incurred $12.2 million in residual asset impairments, which were recorded as a reduction in gains on sale of mortgage assets in the income statement. The company also realized a net write-up to residuals of $7.6 million in the second quarter, ......

For the first six months of fiscal 2007, revenues decreased to $310.3 million from $540.8 million in the prior year period, and a pretax loss of $44.0 million compared with pretax income of $179.5 million last year.

During the six months, the company reacquired 8.4 million shares of its common stock at a total cost of $186.6 million, or an average purchase price of $22.26 per share.(22.4 mio shares left)/ no further repurchase of shares in the 2nd. half planned!

from their webcastpresentation (pdf) http://media.corporate-ir.net/media_files/irol/76/76888/Presentations/FINAL2Q07EarningsSlides.pdf

the loan to value ratio in their nonprime servicing portfolio is 82%, fico 611, 40 year accounts for 31% of their origination volume, interest only for 14% (page 8)

loan sale repurchase reserve from 0,16% in 2006 to 0,69% (plus 331%!!!!) and up from the guidance of 0,4% just given a few weeks ago. wow!!!!

75% higher than the guidance from september!!!!!!!!!!!! the mbs market is waking up!

update minyanville on hrb earnings
http://www.minyanville.com/articles/index.php?a=11705

Growth forecasts 2007/2008

to be honest i really find this longer term forecasts useless. in the us they can´t even figure out the next quarter. bernanke sees at it 2,6%, deutsche bank calls the gdp 0,0%! but one thing is for sure. when the housingbubble bursts it will crash the numbers (like in the us from over 5% in the first quarter to around 1-2% and falling.....). and i think that is no surprise that the countries with the bigger bubbles are leading the forecasts.......http://immobilienblasen.blogspot.com/2006/09/bubble-goes-global.html#links

halte diese längeren prognosen für wertlos. in den usa können ide nicht mal das nächste quartal vorhersagen. bernanke sieht es bei 2,6%. die deutsche bank erwartet 0% gdp wachstum. eines aber dürfte klar sein. wenn die immobilienblasen in den jeweiligen ländern zu ende sind kann man alle prognosen getrost über den haufen werfen. (wie in den usa wo das wachstum von über 5% auf 1-2% und weiter fallen an die wand gefahren ist). und es ist sicher kein zufall das die länder die liste mit den höchten werten anführen wo diese blase noch nicht geplatzt ist.http://immobilienblasen.blogspot.com/2006/09/bubble-goes-global.html#links

http://www.economist.com/markets/indicators/displaystory.cfm?story_id=8360075

The OECD forecasts that growth in its member countries will slow to an average rate of 2.6% in 2007 and 2008, down from 3.2% this year. America and Japan are expected to see a sharper slowdown than the euro area. Ireland (wait until the housing bubble has burst......http://immobilienblasen.blogspot.com/search?q=bubble+goes+global+is tipped to remain the fastest-expanding of the rich economies in our chart, with average growth of 4.8% over the two years. At the other extreme, Italy is forecast to grow by a measly average of only 1.5%.

china is stockpiling oil

in my opinion one of the best ways for china to spend all their quickly depreciating us $! but on the other hand it would be to the benefit of china when they let their yuan trade without the peg. the filling of the oilreserves would be much much cheaper....... who thinks oil is a bubble?

das beste was china mit all den schnell fallenden us $ machen kann. allerdings sollten die sich bald überlegen die bindung an den $ endgültig abzulegen. das auffüllen der reserve dürfte dann erhebliich biller werden....wer denkt noch immer das ne blase ist?

The Asian powerhouse quietly begins to stockpile crude

http://www.economist.com/finance/displaystory.cfm?story_id=8361232

PREDICTING China's impact on global oil demand is difficult enough at the best of times. But now that it is beginning to store emergency supplies of oil in “strategic reserves”, uncertainty is all the greater. It was not until October that China confirmed reports that it had begun filling a newly built reserve depot in Zhenhai in the eastern province of Zhejiang at least two months earlier. Its plans are shrouded in secrecy.

Given the likely scale of China's reserve build-up, this uncertainty matters a lot to the market. In the course of its transformation from Asia's biggest exporter of oil two decades ago to its second-biggest importer now, China has become increasingly anxious. Economic planners worry about the impact of oil-price surges on growth. Security planners fret that around half of the imported oil comes from an unstable Middle East and that the oil is mostly shipped along sea lanes through south-east Asia that could be blocked by America. China wants enough oil in hand to ensure that America cannot hold it to ransom. .....

State-controlled newspapers have reported that deliveries began in August when a Russian tanker docked in nearby Ningbo with crude for storage at Zhenhai. Other reports say crude may have been delivered before this. Some 3m barrels are reported to have been stored so far. This is around 10% of Zhenhai's total capacity, which itself is the equivalent of less than five days of China's crude-oil consumption. Officials have said China's aim is to store 100m barrels within five years.

The government has estimated that the total cost of building the bases and filling them will be 100 billion yuan ($12.7 billion) by 2020. But since it has apparently not decided how much oil it plans to store, this figure can be only a guess. A senior planning official last year said there were calls for reserves equal to between 90 and 120 days of consumption. This is a lot of oil. China's consumption last year of over 300m tonnes (see chart above) is expected to increase by around 50% by 2020.

The recent drop in oil prices has prompted speculation that China might accelerate the build-up.

..... A Chinese official, confirming that oil had been stored at Zhenhai, said only that this was the first step on a journey of 10,000 miles.