Macquarie's Fortress Funds Fall Amid Subprime Rout

No wonder i havn´t heard the word "contained" for a few days now ....Except from a few unimportant Fed members :-)

Kein Wunder das man in den letzten Tagen das Wort "contained" immer weniger hört.....Mit Ausnahme von einigen Mitgliedern der Fed :-)

Aug. 1 (Bloomberg) -- Macquarie Bank Ltd., Australia's largest securities firm, said investors in two of its high-yield funds may lose 25 percent of their money as a rout in the U.S. sub-prime market spreads.

Macquarie Fortress Investments Ltd., with $873 million of funds, was forced to sell assets to avoid breaching its loan agreements, the firm said in a statement. The company's notes slumped while shares in its parent headed for their biggest drop in 5 1/2 years.

Funds are being caught in a downward spiral because banks are forcing borrowers to sell assets as the value of collateral declines. Bear Stearns Cos. halted redemptions from a third hedge fund yesterday while Sydney-based Absolute Capital and Basis Capital Fund Management Ltd. are trying to avoid making sales at distressed prices.

Asia Genesis Management, a hedge fund based in Singapore that manages about $450 million, today said it has increased cash holdings to 95 percent of its assets to avoid losses.

Bear Stearns's Asset-Backed Securities Fund, with about $900 million invested in asset-backed securities, including mortgage bonds, suspended redemption after investors demanded their money back, spokesman Russell Sherman said.

Fortress notes, which trade on the Australian Stock Exchange, slumped 23 percent to 58 Australian cents at 3:15 p.m. in Sydney. The company aims to pay investors a 10.1 percent annual yield by investing in loans to companies with good records of repaying debt, according to a prospectus dated Feb. 3, 2006, for a third series of notes.

Leveraged Investments
Fortress uses leverage of 4.5 to 6.5 times and allows individual investors with as little as A$5,140 ($4,350) to spend to buy the notes.

Macquarie Bank's shares headed for their biggest fall since February 2002 with a 10 percent decline to A$74.61. They have slumped 19 percent over the past two weeks, wiping A$4.6 billion from the company's market value amid concern that global takeovers may decline and prices will fall in debt markets. Shares of Goldman Sachs Group Inc. and Bear Stearns dropped 14 percent and 15 percent in July.

The stock of other Australian investment-related companies fell. Babcock & Brown Ltd., the nation's second-biggest investment bank, slid 7.8 percent and Allco Finance Group Ltd., a Sydney-based manager of energy and property assets, fell 6.5 percent.

Prices Fall
The average price of assets in the Fortress portfolios had fallen by 4 percent as at July 30, Lucas said in the statement. The value of the assets may decline a further 20 percent to 25 percent, he said. The funds had $873 million in assets on May 31.

Credit-default swaps based on $10 million of Macquarie Bank bonds rose $13,000 to $59,000 late yesterday, according to prices from National Australia Bank Ltd. That's up from $22,000 on July 10. Investors use the five-year contracts to speculate on credit quality. The costs, or spreads, increase as the perception of creditworthiness deteriorates.

Help Cramer....He Has Severe Amnesia

This guy needs help.....This was the headline from a piece that he made in August 2006 "Panic Over Option ARMS Is Just Noise" .

Thanks to Twist and John from Housing Doom for digging this Cramer video!!!!

Dieser Typ braucht wohl wirklich Hilfe......Vergleicht den Clip mit seinem Aussagen vom letzten August.....

Panic Over Option ARMS Is Just Noise ( Cramer August 2006)!

Everyone who uses a Option ARM is an idiot and will lose his house when rates go higher. There. There's a constant theme in the drumbeat of the press that the housing market is the Achilles heel of the economy.

What a joke. OK, so 12% of borrowers have taken out these unique loans that allow you to call your own shots, up from 8% a year ago. You get to have a teaser low rate that is much below what you would have without it.

The implication of the media is that people are buying these homes to flip them, and when the value doesn't go higher they will freak out and become casualties of the new higher rates and will have to default on their houses, leading to a continued glut of homes.

Sorry, that's just stupid. I am sure some of the borrowers are speculative, but you know what? Funny thing. The borrowers are not morons. They can read the papers, too. They recognize that homes aren't selling.

I would bet that most of these borrowers are simply younger people with new jobs who are correctly taking advantage of a low rate. People who have taken this rate have been very right. The long end hasn't gone up. It seems like it won't go up now. So while they build up some savings with the low rate, they get stronger down the road and then can take the higher rate.

The media call it dangerous. I call it prudence !

July 2007!


This epsiode of Cramer is almost as good as this iTulip classic

Diese Episode von Cramer kann es fast mit diesem iTulip Klassiker aufnehmen

Bear, Lehman, Merrill, Goldman Traded as Junk, Derivatives Show

Now we have gone from almost junk in March to finally junk. We will see if the rating agencies are correct in giving all the players still very high investment grade ratings. S&P has taken the lead with yesterdays action on Morgan Stanley.

GS & co sind über fast Junk im März nun bei Junk angelangt. Wir werden sehen ob die Rating Agenturen mit Ihrer Einschätzung der hohen A und AA hier richtig liegen.

S&P raises Morgan Stanley debt rating to "AA-minus".
Standard & Poor's on Monday raised its debt rating for Morgan Stanley, citing strength in the bank's core investment banking and trading businesses.

S&P raised Morgan Stanley's senior unsecured debt rating to "AA-minus," the fourth highest investment grade rating, from "A-plus."

>At least for now the market has spoken.......

>Momentan sieht der Markt das etwas anders.......


Thanks to benj

July 31 (Bloomberg) -- On Wall Street, Bear Stearns Cos., Lehman Brothers Holdings Inc., Merrill Lynch & Co. and Goldman Sachs Group Inc., are as good as junk.

Bonds of U.S. investment banks lost about $1.5 billion of their face value this month as the risk of owning the securities increased the most since at least October 2004, according to Merrill indexes. Prices of credit-default swaps based on the debt imply that their credit ratings are below investment grade, data compiled by Moody's Investors Service show.

bigger/größer

Thanks to Kevin Duffy / LewRockwell

The highest level of defaults in 10 years on subprime mortgages and a $33 billion pileup of unsold bonds and loans for funding acquisitions are driving investors away from debt of the New York-based securities firms. Concerns about credit quality may get worse because banks promised to provide $300 billion in debt for leveraged buyouts announced this year.


Credit-default swaps tied to $10 million of bonds sold by Bear Stearns, the second-largest underwriter of mortgage bonds, rose to about $110,000 on July 27, from $30,000 at the start of June, indicating growing investor concerns.

`Wall of Worry'
Prices of credit-default swaps for Goldman, the biggest investment bank by market value, Merrill, the third largest, and Lehman, the No. 1 mortgage bond underwriter, also equate to a Ba1 rating, data from Moody's credit strategy group show. Bonds of New York-based Goldman and Merrill are rated Aa3, seven levels higher than swaps suggest. Lehman is rated A1, the same as Bear Stearns.

About 1 percent of the thousands of companies followed by Moody's have a gap of more than five levels between their actual and implied rankings, analyst Tony Smith said in a July 19 report titled ``Broker Securities Climb a Wall of Worry.''

> Here is another one

Losing Value
Investment-grade bonds of brokerage firms lost 0.47 percent on average since June, while securities with similar ratings returned 0.19 percent, according to Merrill indexes. Finance companies are the biggest part of the corporate bond market, accounting for 40 percent of the $2 trillion of debt outstanding, according to New York-based Morgan Stanley, the second-biggest investment bank by market value.


Investors demand an extra 1.25 percentage points in yield to own the bonds of brokers instead of Treasuries, up from a low of 0.64 percentage point on Jan. 29. The wider spread represents an extra $6 million in annual interest for every $1 billion they borrow. ....

Bond and credit-default swap prices suggest Wall Street firms are no safer for debt investors than companies teetering on the edge of investment grade, including mining company Freeport-McMoRan Copper & Gold Inc. in Phoenix and Stamford, Connecticut-based copy machine maker Xerox Corp.


Pimco Buys
Pimco bought bonds of banks and brokers in the past two weeks, expecting them to sustain earnings growth and benefit from global mergers and acquisitions, Kiesel said. Profits at Bear Stearns will rise to $14.53 a share this year and $15.66 in 2008 from $14.27 in 2006, according to the average estimate in a Bloomberg survey of 16 analysts.

> I know that bond manager have a different view than equity investors and i respect kiesel. He has written some great reports like "still renting" but to assume that Bear Stearns will have any increase in earnings is just nuts. Bear is the most dependend on the US bondmarket and has almost no international exposure. The only way is able to increase their earnings is to "exclude" special items like losses in subprime exposure. But this would be like GM exclusing losses from their SUV´s.....But i will not rule out that this time we will see new ways of hiding bad numbers :-)

> Ich weiß das Bondinvestoren ein anderes herangehen als Aktieninvestoren haben und ich mag Kiesel von Pimco wirklich sehr. Er hat einige großartige Reports verfasst. Wie man aber allen ernstes darauf kommen kann das ausgerechnet Bears Stearns auch nur annähernd einen Gewinnzuwachs ausweisen kann ist mir schleierhaft. Bear ist die Bank die fast ausschließlich vom US Bondmarkt abhängig ist und kaum internationales Geschäft vorweisen kann. Der einzig mir denkbare Weg Zuwächse zu erzielen ist indem man zum beliebten Mittel greift und "special items" hearusrechnet. Das wäre in diesem Fall aber so als wenn man bei GM die Verluste der SUV´s herausnehmen würde....Das heißt nicht das dies in den USA nicht möglich ist :-)

Marking Down
Bear Stearns analyst Ian Jaffe raised his recommendation on broker debt to ``overweight'' from ``underweight'' on July 13 because risk premiums increased and the economy is growing. Jaffe, who is based in New York, declined to comment.

CreditSights Inc., an independent bond-research firm in New York, also says investors should buy broker bonds.

Disclosure: Short GS, long UBS

ATA Truck Tonnage Index Fell To A 7 Month Low

This index is a good real time indicator what is going on in the US economy. I find it interesting but not surprising ( because i don´t trust the GDP numbers) that despite a 7 month low and tonnage down over 3 percent yoy the government numbers show a overall GDP growth of 3.4 percent.

Dieser Index ergibt aufgrund seiner Aussagekraft ein zeitnahes Bild über die Verfassung der US Wirtschaft ab. Wen man den GDP Zahlen der Regierung glauben mag ergibt sich ein gewaltiger Unterschied des Truckindex der auf Jahressicht über 3% nachgibt und dem gesamten GDP von einem Zuwachs mit 3,4%.

Trucking serves as a barometer of the U.S. economy because it represents nearly 70 percent of tonnage carried by all modes of domestic freight transportation, including manufactured and retail goods.

Arlington, VA — The American Trucking Associations’ advanced seasonally adjusted For-Hire Truck Tonnage Index decreased 0.1 percent in June, marking the third consecutive month-to-month drop. Tonnage fell 1.3 percent in May and has dropped 3.5 percent since March. The not seasonally adjusted index dropped 3.3 percent from May to 114.1.

On a seasonally adjusted basis, the tonnage index declined to a seven-month low of 110.5 (2000 = 100) in June from 110.6 the previous month. Compared with a year earlier, tonnage was down 3.4 percent in June, which is just a slight improvement from the 3.6 percent year-over-year decrease in May.

ATA Chief Economist Bob Costello said that while the government reported the economy grew at a 3.4 percent annualized rate in the second quarter, that strength did not filter into the transport sector. “Our tonnage index fell 1.8 percent during the second quarter from the first quarter and was 3.2 percent lower than the same quarter in 2006,” he said.

Costello attributed this difference to several trends. First, the so-called “goods” economy, which is more pertinent for transportation companies and excludes services and adds in imports of goods, unlike the GDP calculation by the government, grew at a slower 2.6 percent annualized rate in the second quarter compared with the overall growth of 3.4 percent.

Second, the housing sector continues to be a bigger drag on motor carriers than the economy at large. Residential investment fell 9.3 percent during the second quarter, according to Bureau of Economic Analysis. Third, manufacturing production, once adjusted for the weight of the goods instead of the value, continues to contract on a year-over-year basis.

Trucks hauled 10.7 billion tons of freight in 2005. Motor carriers collected $623 billion , or 84.3 percent of total revenue earned by all transport modes.

IKB In Subprime Trouble...State Owned KfW To The Rescue

This is a real shocker! IKB is listed in the MDAX and one of the midsized German banks. Isn´t it funny when your main target group is the German "Mittelstand" and you brand yourself the leading player in this field and you have taken on huge bets on the riskiest assets out there that have nothing to do with your business. The thing is getting worse...All this action has taken place while the state owned KFW is the main shareholder. The main goal for the KfW (presentation) is........ to provide help through special credit programs, export financing etc for the Germany economy and especially the "Mittelstand". Now they have to provide liquidity to prevent further damage. ... Needless to say that the analysts had 12 buy, 5 holds and only 2 sells on the stock.....

Das ist doch mal ein Wochenauftakt. Wer von uns hätte gedacht das die angeblich so solide IKB die sich in erster Linie als Mittelstandsbank sieht sich heftigst im US Hypothekenmarkt verzockt hat. Das ganze wird noch trauriger wenn man bedenkt das die staatliche KfW mit fast 40% der Hauptaktionär ist und dieses Geschäftsgebaren jeglichen Zielen der KfW zuwiderläuft. Zum Dank für das offensichtlich vollkommen losgelöste oder kaum vorhandene Risikomanagement darf jetzt die KfW mit Bereitstellung von Liquidität einspringen. Meiner Meinung nach sollten auch bei der KfW Köpfe rollen. Überflüssig zu erwähnen das die Analysten 12 Kauf, 5 Neutral und nur 2 Verkaufsempfehlungen am Start hatten.... :-)

Konzerngeschäftsbericht 2006/07 der IKB / PDF Annual Report:

The capital released through our securitisation activities over recent years has been used to expandour national and international lending business. Additionally, the capital has also been used to investing international loan portfolios. Two thirds of ourinvestments are focused on US investment-gradeportfolios (including, for example, credit card claims,mortgage loan claims and corporate loans), with theremaining third being invested in similarly structured European portfolios.

Das durch die Verbriefung während der letzten Jahre freigesetzte Kapital haben wir für die Ausweitung unseres nationalen und internationalen Kreditgeschäftes genutzt. Darüber hinaus haben wir dieses Kapital verwendet, um in internationale Kreditportfolien zu investieren. Unsere Investments konzentrieren sich zu zwei Dritteln auf mindestens Investmentgrade-geratete US-Portfolios (wie zum Beispiel Kreditkartenforderungen, Hypothekenkreditforderungen sowie Unternehmenskredite) sowie zu einem Drittel auf europäische Portfolien mit ähnlichen Strukturen.

> This strategy has worked just fine........ Just as everybody wants to invest in Germany and limit US exposure the IKB is doing the opposite......In the 270 page thick annual report the word subprime isn´t mentioned once!

> Einfach genial........ Just zu Zeiten wo internationale Investoren unbedingt in Deutschland investieren wollen und nach Möglichkeit Ihre US Positionen abbauen wollen schlägt die IKB den umgekehrten Weg ein. Zudem besonders lustig das das Wort "Subprime" in den kompletten 270 Seiten nicht ein einziges Mal erwähnt wird.

Presseschau Deutschland:
Financial Times Deutschland Warum die US-Krise die IKB erwischt
Manager Magazin Subprime-Krise erreicht Deutschland
Handelsblatt Deutsche Banken müssen um ihr Geld bangen
FAZ Eine Kreditlinie wurde der IKB zum Verhängnis

KFW stützt IKB mit 8,1 Milliarden Euro

IKB Targetgroup:
The upmarketGerman mid-sized companies–the engine of the German economy

•Specialist in long-term corporate finance
•Market leader in long-term corporate lending in Germany (market share: 13.5%)

•Investments in international loan portfolios*: (March 2007)
-€7.0 billion of direct investments
-€12.7 billion of investments underadvisory in a conduit

Data and Charts taken from IKB Presentation (PDF)
IKB Deutsche Industriebank AG (IKB) has felt the impact of the crisis in the US sub-prime mortgage market, as spreads widened sharply during last week’s violent fluctuations, causing massive uncertainty amongst institutional investors. In this context, the ability of the Rhineland Funding conduit (managed by IKB) to access funding appeared to be threatened, in which case IKB would have been drawn upon liquidity facilities provided to Rhineland Funding. Rhineland Funding – and, to a lesser extent, IKB itself – have invested in structured credit portfolios, which include exposures to US sub-prime real estate loans. Despite market discounts affecting the valuation of such assets, to date there have been few loan defaults, and only some rating downgrades affecting portfolio investments. Nevertheless, towards the end of last week IKB’s creditworthiness was being questioned due to said exposures. There was a risk that this confidence crisis would deteriorate further.

KfW, IKB's main shareholder holding a 38% stake, took immediate action, implementing measures to safeguard IKB's creditworthiness without delay. Specifically, KfW will assume IKB’s financial obligations under the liquidity facilities vis-à-vis Rhineland Funding with effect from 30 July 2007. In addition, KfW will protect IKB against risks resulting from certain portfolio investments. These measures will maintain IKB’s strong creditworthiness, in particular in its banking business with German medium-sized businesses.

> today around 18 € down 17 percent

Given the developments outlined above, IKB is no longer in a position to maintain its earnings forecast of € 280 million for the 2007/08 financial year. From today’s perspective, results will be significantly lower.

Bloomberg IKB Cuts Profit Forecast Amid Rout in U.S. Mortgages

IKB Deutsche Industriebank AG, the German bank that reported 10 days ago it won't be affected by ratings downgrades on U.S. subprime mortgages, replaced its chief executive officer and said profit will be ``significantly'' lower than forecast.

Disclosure: Short MDAX (including IKB)

Bubble World Tour "Ghost Buildings in Bangkok"

The fallout from the Asian financial crisis is still visible. It is very likely that a decade from now we could see similar "skylines" outside of Bangkok......

Ein Wahnsinnsclip der anschaulich zeigt wie sehr die Auswirkungen der letzten Asienkrise noch immer sichtbar sind. So sieht es aus wenn praktisch über Nacht die Finanzierungen wegbrechen und die Nachfrage in sich zusammenfällt. Ich bin mir ziemlich sicher das wir in 10 Jahren ähnliches auch ausserhalb von Bangkok erleben müssen......

A very big hat tip to my friends from Housing Doom

Market Internals Go Negative / Hussman

Last week could have been the turning point for the broader markets. I have to admit that i have thought this at least twice in the 6 month. And you know how much fear is in the market when there is a call for the Fed to step in when the markets are just a few percentage points away from a new high. Click on the headline to read the entire piece from Hussman

Habe das Gefühl das die letzte Woche einen Wendepunkt für die Märkte eingeleitet hat. Ich muß aber auch zugeben das ich dieses Gefühl bereits mindestens zweimal in den vergangenen 6 Monaten hatte. Und ein sicheres Anzeichen wie verzweifelt einige Marktteilnehmer sind ist das bereits bei einem überfälligen Pullback von nahe 5% lauthals nach der Fed gerufen wird. Klickt bitte auf die Überschrift um den kopletten Bericht von Hussman zu lesen.

Though the S&P 500 is only 6% below its recent highs, it has already provoked a surprising amount of denial and lack of civility, with an irritated financial news anchor suggesting on Friday, for example, that Pimco's Bill Gross should “just shut up.” It does no service to investors when the media and the analysts who appear there wholly rule out any possibility of a substantial further market decline, when 10% market losses have typically occurred more than once every 2 years, and bear market losses (generally 25-35%) occur about once every 4-5 years.
Abrupt market weakness is generally the result of low risk premiums being pressed higher. There need not be any collapse in earnings for a deep market decline to occur. The stock market dropped by half in 1973-74 even while S&P 500 earnings grew by over 50%. The 1987 crash was associated with no loss in earnings. Fundamentals don't have to change overnight. There is in fact zero correlation between year-over-year changes in earnings and year-over-year changes in the S&P 500. Rather, low and expanding risk premiums are at the root of nearly every abrupt market loss.

Market internals go negative
One of the best indications of the speculative willingness of investors is the “uniformity” of positive market action across a broad range of internals. Probably the most important aspect of last week's decline was the decisive negative shift in these measures. ....Still, the favorable market internals did tell us that investors were still willing to speculate, however abruptly that willingness might end.

Evidently, it just ended, and the reversal is broad-based. For example:
Credit spreads and credit default swap spreads are surging. While we haven't observed the spike in short-term spreads (e.g. 6 month commercial paper versus 6 month Treasury yields) that would indicate near-term recession risks, we are now seeing a “tiered” widening of credit concerns. For example, note that high yield (junk) securities have experienced upward yield pressure since early June (red line). In recent weeks, we've seen a spillover into credit spreads on investment grade securities (blue line). Again, we're not observing this in short-dated spreads, which would be a signal of imminent recession risks, but it's already clear that low risk premiums are being pressed decisively higher.....

As Jim Stack of Investech Research noted near the recent highs, “The DJIA has closed higher in 5 of the past 8 trading days, but declining stocks outnumbered advancing stocks in 7 of 8 of those sessions. That type of negative breadth divergence has occurred only 15 times in 75 years – the majority of which were in bear markets.” He also noted “On Monday of last week, the DJIA hit a record high while declining stocks overwhelmed advancing stocks by a 2:1 margin.” That divergence has never before occurred in market history, though again, lesser divergences have typically been characteristic of weakening markets. ....

Other interesting measures of “overbought” conditions are also worth noting. Last week, Jim Stack reviewed an observation that a technician named Don Hahn made in the 1960's about the Coppock Guide (a measure of price momentum based on the 10-month smoothing of the averaged 14-month and 11-month rate of change in the S&P 500). He observed that when a double-top or “wave” occurs in this measure, without falling to zero between those peaks, “it identifies a bull market that hasn't experienced any normal, healthy washouts or corrections. That's a runaway market usually headed for disaster. This double-top has occurred only 6 times in 80 years.” Those instances, and the subsequent market losses were:

• October 1929 (-86.2%),
• May 1946 (-28.8%),
• February 1969 (-36.1%),
• January 1973 (-48.2%),
• September 1987 (-33.5%),
• and April 1998 (though followed by an 18% market correction by October 1998, the subsequent recovery produced a third “shelf” in the Coppock Guide by 2000, and the market lost nearly half its value between 2000 and 2002).

I don't want to create any confidence that the market is headed for steep losses, but I do want to encourage shareholders not to rule out that sort of outcome. ....

Did You Know ?

Brilliant!

Thanks to Zeitenwende & Swissstartups



Have a nice and relaxing weekend. I think that is well deserved after all the action in almost every asset class last week.

Wünsche ein entspanntes Wochenende (haben wir uns nach der letzten Börsenwoche alle redlich verdient)

Number Of The Day.....Beating The "Worldcom Panic"

"Contained"........I can smell fear...... And all this action without even a small or medium default!

What happened to the Mr. Magoo market from just two weeks ago ?

What is the "smart" money from the Merrill Lynch Fund Manager Survey July 2007 now thinking.

According to Merrill Lynch the optimism among Funds managers has reached a 16 month high in July

Nur gut das laut allen Offiziellen alles "contained" ist....Wer außer mir kann noch die Angst spüren.... Und die ganze Panik ohne das auch nur mittelgroßer Kreditausfall zu beklagen war...

Lest Euch am besten auch noch die beiden rückblickend betrachet äußerst amüsanten Links durch. Die kommen einem nach nur 14 Tagen ein bisschen weltfremd vor :-)

The extra yield investors demand to own investment-grade corporate bonds instead of Treasuries yesterday jumped 42 basis points to 413 basis points, the most for a single day since July 2002, when WorldCom Inc. filed for bankruptcy

Looks like the times when the Jessica Simpson model of investing has worked are history....

Sieht ganz so aus als wenn Jessica Simpson model of investing nicht mehr ganz zeitgemäß sind....

An Impaired Industry

What happened to all the value players that screamed day in and day out that the builders are cheap when you value them vs their book value (they switched to this argument when there was no earnings left to calculate their former argument that the p/e ratios were cheap)......Marketwatch is doing a great job of running all results from the major builders. Click on the Headline to see all details (Highlight as always WCI!). What a horror show....when you are long the stocks. :-)

Frage mich wo die ganzen "Value Palyer" sind die noch bis vor kurzem jeden Tag die niedrigen Bewertungen im Vergleich zum Buchwert als Kaufargument heraufbeschworen haben. Das sind im übrigen die identischen Personen die davor die niedrigen KGV´s als Kaufgrund angeführt haben ( bis die Gewinne zum ermitteln eines KGV´s plötzlich fehlten...) Klickt bitte auf die Überschrift um alle Details aller wichtigen Builder zu lesen (Kommentar wie immer WCI). Eine Einzige Horrorshow.....wenn man die Aktien besitzt.


D.R. Horton
The home builder said its third-quarter results, for the period ended June 30, included pretax charges of $835.8 million for inventory impairments and $16.2 million related to write-offs on land options it's abandoning. The company also took a pretax goodwill-impairment charge of $425.6 million
Beazer Homes
The Atlanta-based builder booked pretax charges of $188.5 million related to inventory impairments, abandonment of land options and goodwill impairments. The company said total revenue dropped to $761 million from $1.2 billion a year earlier.


D.R. Horton has taken over the dubious distinction of absorbing the biggest quarterly land-related write-off so far in this housing downturn, topping Pulte Homes Inc.'s roughly $750 million pretax charge announced last week. Factoring in D.R. Horton's goodwill charge, the quarterly total was nearly $1.3 billion.

Disclosure: Short the homebeuilder index and WCI

Dilbert

Dilbert rocks!

High Yield Spreads: Still Rising / Bespoke

Good Chart from Bespoke (Blogroll)

Interest rate spreads between high yield corporate bonds and treasuries have continued to widen over the last two days indicating increased risk aversion on the part of investors.

According to the Merrill Lynch High Yield Bond index, since their lows on June 1st, spreads have now widened by over 50% from 241 to 371 basis points.

Number of the Day.....Levereged Loans

They will hit the wall like the subprime borrowers in the housing sector. Should be fun to watch when the ultralow default rate will also spike at the same time. Time to hire staff for the distressed debt division.......

Denen wird ein ähnliches Schicksal wie den Subprimeschuldnern momentan blühen. Besonders spaßig dürfte es dann werden wenn zur selben Zeit die Anleiheausfälle zunehmen. Höchste Zeit die Abteilungen für notleidende Kredite massiv aufzustocken......

Hat tip to wmbz!
Junk-rated companies that have tapped generous loan markets in recent years could soon face funding difficulties, according to Fitch.

A report by the rating agency published on Thursday predicts that more than half of the $1,300bn leveraged loans market in the US will need to be refinanced in the next three years.

Companies that have low credit ratings have increasingly turned to the loan market for funding at a time of unprecedented liquidity from hedge funds and other non-traditional investors.

The report shows that about $680bn of loans will mature between 2008 and 2011 compared with only $180bn of maturing high-yield bonds.

If Leveraged Buybacks, Why Not Leveraged Dividends? / Kasriel

Kasriel from Northern Trust asks the right question. The management will be forced to do more "bondholder value" management. I recommend to read the Expedia story to see how the sentiment has collapsed within 3 weeks.

Kasriel stellt hier eindeutig die richtige Frage. Das Management wird sich zukünftig wohl immer mehr um die Belange der Anleihebesitzer kümmern müssen. Ein gutes Beispiel wie schnell die Stimmung gekippt kann man am Beispiel von Expedia sehen.

The equity investing community seems to get giddy when it hears the words "stock buyback." And why not if the stock is being bought back out of current profits? But what if the corporation is increasing its debt to fund its stock buybacks?

The chart below suggests that is what is occurring now and what occurred in the late 1980s and late 1990s. The red bars in the chart represent the dollar amount of the net issuance of equities of nonfinancial corporations. Readings below zero, which predominate, signify the net "retirement" of equities. As the chart shows, record amounts of nonfinancial corporate equities are being retired in this cycle. The blue line in the chart represents nonfinancial corporate borrowing as a percent of their nominal capital spending. If the percentage is rising, as it is now, then this indicates corporations are borrowing for purposes other than to fund their capital spending. If corporate borrowing is rising relative to capital spending and corporations are retiring equity, then it is likely that they are borrowing to fund their share buybacks.

Equity investors do not seem alarmed that corporations are leveraging themselves to fund stock buybacks. Would corporate borrowing to increase dividend payments be greeted equally as gleefully?

As an aside, with some risk starting to be priced into the credit market, funding stock buybacks via borrowing is getting more expensive. Ask Expedia . It recently had plans to buyback 42% of its shares, predominantly with borrowed funds. But with the credit markets having turned more discriminating in recent weeks, Expedia has scaled back its repurchase plan to only 8% of its shares.

London Calling....Bubble Capital Of The World

The headline from the Bloomberg Story says it all.......

Die Überschrift des Bloomberg Reports sagt alles.....

"Home Craze Gazumps London With Record Prices, $500,000 Parking "

A confluence of powerful forces from low mortgage rates to Russian petro-riches to the teeming wealth of the City of London, Europe's largest and most dynamic center of finance, has supercharged home prices across the British capital.


The average price of prime London homes, the ones brokers consider the most desirable, has soared 254 percent since 1997,

Up, Up, Up
Defying predictions that the market would sputter, that average rose 28.7 percent in 2006, the steepest increase since 1979, and then jumped 18 percent during the first half of this year.

The decade-long leap in prices has made London the most expensive city in the world for high-end homes -- costlier per square foot than Monaco, New York, Hong Kong or Tokyo, according to Knight Frank, which says prime London houses cost about 5 million pounds and prime flats run about 2.5 million pounds. The most-sought-after property in areas such as Kensington and Chelsea, the priciest of London's 32 boroughs, sells for an average of 2,300 pounds a square foot, according to Knight Frank.
Risks
The unprecedented surge has brought with it unprecedented risks. Blair's successor, Prime Minister Gordon Brown, must now contend with a host of dangers -- from accelerating inflation to rising interest rates, to mounting mortgage debt -- that could puncture the housing market and threaten the nation's longest period of economic growth in 200 years.

The housing market hasn't been this heady since the 1980s, when prices almost tripled. That boom, touched off by falling interest rates and rising stock prices, ended when a subsequent increase in inflation drove interest rates as high as 15 percent.

London home prices sank 27 percent from December 1988 to December 1992.

Now, the thunderheads are gathering once again. As the U.S. Federal Reserve battles a subprime mortgage crisis, the Bank of England is tightening credit to combat inflation. The U.K. central bank has raised its benchmark lending rate five times since August 2006, pushing that rate to a six-year high of 5.75 percent.

Squeezing Borrowers
Tightening credit will squeeze people who've gone deeper than ever into debt in order to buy homes. Since May 1997, the amount of U.K. mortgage debt outstanding has ballooned, soaring 168 percent to a record 1.12 trillion pounds as of May 30, according to the Bank of England.


British homeowners have never been so stretched. A decade ago, first-time buyers typically took out mortgages equal to 2.4 times their annual salaries. Today, that figure has climbed to 3.2 times. About 120 billion pounds of short-term fixed-rate mortgages may have to be refinanced this year at new, higher rates.

London, long attuned to old money and social class, is increasingly a city divided by new wealth. The capital is being split between the rich, who can afford homes, and a growing number of ordinary folks who can't.


Foxtons Frenzy
No broker has fed the frenzy like London-based Foxtons, which has helped drive up prices and, in the process, its own commissions, by inflating home valuations, wooing buyers and sellers -- and pushing agents to close, close, close.

This year, Foxtons itself, along with another British property broker, Countrywide Plc, was gobbled up. The buyer in both cases was the new power in global finance: private equity. London-based buyout firm BC Partners Ltd. bought Foxtons from its founder, Jonathan Hunt, in May for about 390 million pounds. New York-based Apollo Management LP bought Countrywide in May for 1.07 billion pounds.

> Another "clever" Private Equity buyout....

> Sieht nach einem weietern "spitzen" Private Equity Deal aus.....

Hunt's exit is a bad sign, says Peter Nicholls, who sold his own London real estate firm, Royston Estate Agents Ltd., to rival Douglas & Gordon Ltd. in May for an undisclosed price. ``When Jon Hunt sells, you know the market's going to be in trouble,'' Nicholls, 44, says.

> The Quality Of Living Survey doesn´t help to explain the excess in the London property market.....

> Die o.g. Studie über die Lebensqualität kann den Wahnsinn nicht erklären....

Her advice: Buy now, before prices rise even more. People who are unwilling to pay top dollar can end up getting gazumped.

Apartments in the glass-and-steel complex, scheduled for completion in 2010, have sold for a city-record 5,000 pounds per square foot, according to Edward Lewis of London-based Savills Plc, one of the brokers contracted to sell the 80 homes in the development.

Aston Martins
The two-bedroom flat, adorned with silk-and-wool carpets, a white Yamaha grand piano and a bespoke bar, was for sale for 6 million pounds in late June. A parking spot in the garage, next to three Aston Martins, two Ferraris and a pair of Rolls-Royces, costs an extra 250,000 pounds.

He's still bleary-eyed from a trip to Moscow where, he says, he pitched six Russian billionaires on the London market. To the east, a thicket of 30 construction cranes rises around the dome of St. Paul's Cathedral, Christopher Wren's 17th- century masterpiece.

At nearby Millennium Bridge, on the River Thames, developer Amir Zarbafi is converting a building that once housed a tea company into luxury flats. Zarbafi, 43, bought the building in 1997 for 3 million pounds. It's worth 50 million pounds now, he says. Zarbafi says he's stunned by the prices that people are paying for homes. ``But I haven't seen anything that suggests the momentum is stopping,'' he says.

Prophets of Doom
People have been warning of doom for years. So far, the market has confounded home buyers and research analysts alike.

Former JPMorgan Chase & Co. banker Mario Vaccarino says he bought a three-bedroom flat overlooking Porchester Square Gardens, in west London, for 275,000 pounds in 1998 and sold it for 420,000 pounds in 2002, when he moved back to his native Italy, figuring prices had topped out.

``I thought prices were going to fall,'' Vaccarino, 33, says. Wrong. His old flat is now worth about 770,000 pounds, Marsh & Parsons broker Keith Gorny says.

As prices have spiraled higher, a new breed of London real estate speculator has emerged. Londoners who can afford to buy several homes are snatching them up and then renting them out, a strategy known as buy-to-let. Nationwide, the value of outstanding mortgages for this sort of purchase rose 29 percent to 94.8 billion pounds in 2006 from the previous year, according to the Council of Mortgage Lenders.
`Still Crazy'
Another time, a Russian businessman asked her to find a 1 million-pound flat for his 20-year-old daughter and ended up spending 6 million pounds.

All the same, Fatemi knows firsthand how frustrating it can be to find a home in London these days. She bought a flat near Regent's Park last December for 452,000 pounds. It's now worth 550,000 pounds, she says.

``It was the most horrific thing I've ever been through,'' Fatemi says of the purchase. She says she had to fend off seven rival bidders.

`Unprecedented Market'
Des Forges, the Knight Frank broker, has played the market too. He bought a home for 490,000 pounds in 2001 and sold it in June for 1.05 million pounds. He's moved up to a larger, 1.4 million-pound house in Hammersmith. ``We're in an unprecedented market,'' he says.

London's Future
The ground-floor maisonette -- with a sweeping, cantilevered walnut staircase, storage for 1,200 bottles of wine and a 42-inch (1-meter) plasma TV hidden behind a walnut panel in the master bedroom -- is on the market for 3.95 million pounds. Des Forges says an Italian banker and his wife have bought one of the places upstairs for 5.75 million pounds. An Israeli couple has purchased another for 4.7 million pounds.

When des Forges looks at buyers such as these, he sees the future of London and its housing market. London, a global nexus of finance, law and media, is luring the best and brightest from around the world, he says. ``I think it's just the beginning,'' des Forges says of London's ascent. ``Where else is going to compete with it, really?''

> A sceptic could ask what happens when the financial sector is facing "headwinds". Looks like London would be suffering the most......

> Man sollte eher mal das Argument bringen was passieren wird wenn der Finanzsektor mal ins Trudeln kommt. London dürfte dann überdurchschnittlich hart getroffen werden.....

Disclosure: Short Pound vs €