Wednesday, October 31, 2007

Euroland’s Real Estate and its Importance for the Euroland Economy / Pimco

Matthieu Louanges from Pimco is doing a good job of describing the Eurozone housing market and that there are regions California & Florida would be proud of....... The biggest "froth" is for sure in the UK housing market.

Matthieu Louanges von Pimco gelingt hier wie ich finde eine gute Zusammenfassung des Immobilienmarktes in der Eurozone. Und in der Tat befinden sich einige Länder und Regionen auf Augenhöhe mit Kalifornien & Co....... Für mich der mit Abstand verrückteste Markt ist jedoch nach wie vor der UK Immobilienmarkt.

The bubbles that exist now in housing are in more than two dozen countries.” Alan Greenspan, 2 October 2007

> That´s from the man who once said it is impossible to identify bubbles and especially the US housing bubble and saw a deflation threat with credit growth easy in the double digits....... And that is the same guy that for example, just a year ago, cautiously opined that the “worst [of the housing downturn] may well be over.” Please shut up! Here is what the Case/Shiller futures are predicting for 2011 and the latest news isn´t helping either Foreclosure Filings Soar in 3rd Quarter .......

> Und das vom Mann der noch vor einigen Jahren behauptet hat das es unmöglich ist zu erkennen ob es sich um Blasen handelt. Insbesondere hat er das ganze in den USA nicht kommen sehen. Zudem hat er den Boden für dioe Immobilienkrise für den Herbst 2006 vorhergesagt. Hier ein Blick auf die Housing Futures für das Jahr 2011.Die letzten Meldungen von der Zwangsvollstreckungsfront dürften auch nicht gerade hilfreich sein .... Dafür hat er trotz einem Kreditwachstum was sich bereits im zweistelligen Bereich bewegt hat eine akute Deflationsgefahr erkannt. Das Ende der Geschichte ist bekannt. Schimanski würde wohl sagen "Halt´s Maul!".... :-)

Euroland’s Real Estate and its Importance for the Euroland Economy and ECB Policy

The crisis in the U.S. housing market will – in the view of PIMCO – dominate Fed policy over the next years, and signs for this are already evident. The real estate slowdown has impacted U.S. GDP reports via the negative contribution from the construction sector and we expect that consumption will not escape some significant correction going forward. Will Euroland’s housing market and economy face a similar fate?

Euroland Chasing U.S. Property Prices
More recently, worries about housing markets in other parts of the world have surfaced and with it the fear that the housing slowdown might become a more global phenomenon. The Financial Times of 29 September reported on its front page that “Holiday homes face price fall threat,” stressing the ongoing weakness in the Spanish housing market. As I am French, I am also well placed to report that the doubling of the property prices in France over the last eight years or so has undoubtedly supported consumers’ confidence and their ultimate consumption. I myself enjoyed the wealth effect to some extent (though I don’t own much!) and certainly feel a bit less comfortable now that prices seem to have plateaued and that some house price deflation might seem as unavoidable in my nice city of Les Sables d’Olonne on the French Atlantic coast as in some parts of the United States.

In fact, the real house price appreciation trend in Euroland over the last years has kept up with the U.S. (Chart 1).

How important is and has the real estate market been for the Euroland economy in the last years? Are there signs of weakness yet in the housing market? And, finally, what impact can we expect on consumption and the overall economy, credit growth and European Central Bank (ECB) policy? These are the questions we will address in this piece.

Residential Investment’s Limited Impact
There are different ways through which the real estate market can impact the economy. The obvious one is by looking at the contribution of the construction sector to GDP growth measured by the share of residential investment in GDP as shown in Chart 2. Spain has clearly been benefiting from the boom in the construction sector. The contribution to GDP growth from that part of the economy has been about 1% per year since 1999

In fact, the housing boom in Spain presents some similarities with the post-unification era in Germany, as well as with the most recent developments in the U.S. The share of the construction sector in the Spanish GDP is now higher than it was in Germany at the end of the post-unification real estate boom and much higher than it was at the peak of the U.S. housing cycle in 2005. The impact is less pronounced in other countries.

Looking at France, the contribution of the construction sector to GDP growth has been about 0.2% in the last years while, in Germany, it has even been negative until 2004. Since then, residential investment has stopped being a drag to German GDP growth, which in itself can be seen as a positive.

Transactions and Wealth Effect Drive Consumption
Another way of looking at the importance of the real estate market, particularly housing, is through the consumption effect, which consists of two factors: the number of transactions and the wealth effect. When people buy apartments or houses, they tend to buy more furniture, TVs, etc: This is the transactions effect. When people see the prices of their homes go up, they feel wealthier, have better credit scores and tend to consume more: This is the wealth effect.

From the late 1990s until 2004, both the number of transactions and prices – as shown in Chart 3 – accelerated, especially in France and Spain.

The wealth effect is particularly evident in Chart 4. When we look at 2003 consumption growth in a large group of countries worldwide and regress the growth rate with the level of house price appreciation, we see a strong correlation. Germany and Japan, for example, had no price appreciation and no real consumption growth. On the other hand, Spain and France had strong price appreciation and stronger consumption.

So far, we have seen in this installment of the European Perspectives that since the beginning of this century the share of residential investment has increased in Euroland, particularly in Spain, and that price appreciation in Euroland supported consumption, especially in Spain and France. What we haven’t considered yet is that the boom in housing resulted also in an acceleration of credit growth for home purchases (Chart 5).
We know the ingredients from the finance side that fueled credit growth and thus the housing markets in Europe: low interest rates in the European Monetary Union (EMU) (thanks to the convergence of the national bond curves down to the German yields), innovation in the mortgage markets (with the creation, for example, of new 50-year mortgages) and the exporting of the UK housing bubble into other European regions (through the surge in demand for holiday homes).
We would add that the real estate market tends to act on momentum with increasing prices boosting the demand for real estate as those who are planning a purchase tend to accelerate their decision and as increasing prices make a real estate investment look more attractive for the cohort of pro-cyclical minded investors. On the flip-side, housing slowdowns tend to take a long time to reverse, and this is why the current signs of weakness are particularly alarming.

First Signs of Weakness in Euroland Housing
Currently, there are at least three signs of a weakening in the Euroland housing market: Price appreciation is slowing while mortgage growth and housing permits are indicating a sharp correction in construction activity in the coming months.

Price growth has been slowing for about a year. In France and Spain, the slowdown in price appreciation is remarkable (Chart 3). In fact, the last numbers released by FNAIM (the French federation of real estate agents) indicate some deflation in the French housing market in the last months, with a decline in the prices of apartments of 1.7% over the quarter to September 2007. After multiple rate hikes by the ECB, higher mortgage rates are starting to impact borrowers. In addition, prices have reached levels that made it increasingly difficult for people earning non-investment bank salaries to purchase anything in cities like Paris or Barcelona (the average price per square meter in the centre of Paris is now exceeding 7,000 euros).

Moreover, mortgage growth, as measured by the loans made to households for property purchases, has slowed remarkably since the middle of 2006 (as shown in Chart 5) under the influence of higher mortgage rates, lower affordability and probably a less favorable outlook for housing. What is similarly remarkable – and supports our previous intuition that housing and consumption are well linked – is that consumer credit growth declined simultaneously (Chart 5). The growth rate of credit to households has been slowing overall, which might indicate some weakness to come in Euroland consumption.

This is, of course, an important consideration for the ECB. This development should make the central bank less worried about the pace of credit growth than before, even though broad-based monetary growth remains quite strong due to other factors like the attractiveness of monetary assets in the context of a flat yield curve.

> Too bad that the ECB didn´t care on the escalating way up........

> Nur dumm das die EZB auf dem Weg als die Sache jahrelang eskaliert ist tatenlos zugesehen hat.....

Housing permits in Euroland are now slumping in line with the bearish developments described above. This is particularly the case in Spain, where the number of housing permits is falling by an annualized rate of about 40% (Chart 6). But permits are also falling at the entire euro area level, as the composite shows.

In addition, anecdotal evidence suggests a decline in the number of transactions in countries like Spain and France, but unfortunately, there appears to be no hard data depicting these series (if anybody knows of such a data series, please let me know!).

When summing it up, the story sounds very much like in the U.S. at first sight: Prices are not rising anymore or are even falling, mortgage growth is declining and housing permits indicate a stronger slowdown to come in the contribution of residential investments to GDP growth. However, a Euroland-wide price depreciation does not appear to be a reasonable scenario given the differences between the countries in the euro zone.

Slowing GDP and Credit Growth
The development outlined above suggest that euro area GDP will most likely suffer from negative impacts through construction sector growth as well as deteriorating consumption outlooks in the countries that had enjoyed housing booms. Spain appears particularly at risk, with a GDP growth rate that could fall from a 3.5% pace to 2.5% if the construction sector would stabilize and everything else remained equal (which would not be the case given the negative externalities in terms of consumption as previously noted). France is also at risk but the consumption effect will dominate, based on a decline in the number of transactions, as well as stabilizing, if not falling, prices. From an average of 2.4% household consumption growth per annum, consumption in France has already dropped to a level of 1.7%. However, the countries most affected by the housing and construction slowdown only contribute about 35% to euro area GDP, thus mitigating the impact on the euro zone average. Still, even countries like Germany are experiencing a slowdown in construction, as illustrated by the decline in housing permits.

The good news for the ECB should be the decelerating growth rate in credit to households. Interestingly, in the September ECB press conference, Jean-Claude Trichet spent a long time explaining that several factors are causing broad money growth to rise. He particularly mentioned the flattening of the yield curve, which has increased the attractiveness of monetary assets relative to less liquid, longer-maturity instruments (which should not be too worrisome for the ECB) and the growth of loans to non-financial companies. The recent re-pricing of risks in the credit markets and the ongoing liquidity crisis in Euroland might make these contributions to monetary growth particularly vulnerable in the next months. This should please the ECB.

To sum it up, Euroland enjoyed strong real estate markets over the last years with some similarities to the U.S. when it comes to price appreciation or the contribution of residential investment to GDP growth in some countries. Euroland is now suffering from a significant slowdown in housing, which is most likely going to impact consumption negatively and slow down credit growth to households. In fact, some of these effects are already visible and contributed to the recent downward revisions of GDP growth forecasts for 2008 by most market participants. Ultimately, the housing market developments in Euroland support the case for an ECB on hold for now.

> In the meantime the cpi is climbing to levels we havn´t seen since the ECB is in charge and is sharply higher than their official 2% percent target.... Thank god they are vigilant..... No wonder more and more peoople are daydreamimg how the Bundesbank have handled this mess

> In der Zwischenzeit bewegt sich die Konsumentenpreisinflation auf Höhen die wir seitdem die EZB das Ruder übernommen hat nicht gesehen haben...Zum Glück wird ja täglich betont das sie sehr wachsam sind.......Es wundert mich nicht das sich immer mehr Leute fragen wie eine unabhängige Bundesbank diese Situation gehandhabt hätte.

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Number / Farce Of The Day..... GDP Price Index / GDP Deflator

I think this time they have gone too far .... Reminds me somehow of "Fool´s Day".....

Ich denke diesemal sind Sie wirklich zu weit gegangen.... Das ganze erinnert mich irgendwie an den 1. April.......

U.S. economy grows at 3.9% pace in third quarter
Despite rising worries about commodity prices, the GDP price index, the broadest measure of price changes in the economy, rose just 0.8% annualized, matching a nine-year low. Inflation hasn't been lower since John F. Kennedy's administration."

Here is the nice rant (including a chart) from Barry Ritholtz on this topic I Call "Shenanigans" on GDP! & Hellasious from Sudden Debt is also "upset" in Hooray, Inflation Lowest Since 1963!! . Barry Ritholtz has also found this headline Inflation was low because oil prices surged. In GDP math, sometimes one plus one equals zero explaining how the "math" is working....

Und hier die ebenfalls deftige Meinung inklusive Chart von Barry Ritholtz zu diesem Thema I Call "Shenanigans" on GDP!. Hellasious von Sudden Debt feiert ebenfalls in Hooray, Inflation Lowest Since 1963!! kräftig mit. Diese Schlagzeile Inflation was low because oil prices surged. In GDP math, sometimes one plus one equals zero spricht für sich......

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Tuesday, October 30, 2007

Federal Home Loan Banks Act As A Lender Of Last Resort......

You already know what is coming when you read this statement from FHLB ......

Jeder der diese Zielsetzung der FHLB liest weiß was kommen muß........

The mission of the Federal Home Loan Banks is to improve access to housing for all Americans by providing FHLBank members with lowcost mortgage funding and by supporting community development.
Everytime you think the fallout from the housing debt will hit the banks another "vehicle/institution" shows up that acts as a lender of last resort. Maybe the Bank of England should use this as a blueprint to solve their "problems". Stories like this remind me why i´m bullish on gold.......

Immer wenn man glaubt alles gesehen zu haben kommt der nächste Hammer und man fragt sich ob das wirklich stimmen kann. Schon praktisch wenn man sich bei Problemen praktisch unbegrenzt zu AAA Konditionen unabhängig vom Risiko mit Liquidität eindecken kann. Evtl. sollte die Bank of England dieses Modell zur Lösung Ihrer Probleme übernehmen. Solche Nachrichten bestätigen mich Tag für Tag in meinem bullishen Ausblick für Gold......

U.S. Tosses Lifeline to Lenders Using Home Loan Banks
Oct. 30 (Bloomberg) -- Banks shut out of the market for short-term loans are finding salvation in a government lending program set up to revive housing during the Great Depression.

Countrywide Financial Corp., Washington Mutual Inc., Hudson City Bancorp Inc. and hundreds of other lenders borrowed a record $163 billion from the 12 Federal Home Loan Banks in August and September as interest rates on asset-backed commercial paper rose as high as 5.6 percent. The government-sponsored companies were able to make loans at about 4.9 percent, saving the private banks about $1 billion in annual interest.

To meet the sudden demand, the institutions sold $143 billion of short-term debt in August and September, according to the FHLBs' Office of Finance. The sales pushed outstanding debt up 21 percent to a record $1.15 trillion, an amount that may become a burden to U.S. taxpayers because almost half comes due before 2009.

> The graph for 2007 is only including September. If this pace continues the numbers should be even more shocking.........

> Bedenkt bitte das diese Grafik nur die Zahlen bis einschließlich September beinhaltet. Leicht auszurechnen wie das am Ende des Jahres aussieht.......

The government is ``taking a lot of risks through the Federal Home Loan Banks that are unnecessary,'' according to Peter Wallison, a fellow at the American Enterprise Institute, a Washington-based organization that analyzes public policy, and general counsel at the Treasury Department from 1981 until 1985.

The home loan banks, known as FHLBs, are increasing risks to taxpayers by assuming the role as a lender of last resort, said Wallison. That's the job of the Federal Reserve, he said.

System Shock
A loss of confidence in the companies could prompt investors to dump FHLB debt, potentially causing the collapse of one or more banks, according to Wallison and lawmakers including Representative Richard Baker of Louisiana. If others were unable to meet the liabilities, taxpayers would be on the hook, they said.

The FHLBs are cooperatives created by President Herbert Hoover in 1932 to spur mortgage lending. The system's 8,100 owners and customers range from New York-based Citigroup Inc., the largest U.S. bank, to the single-branch Custer Federal Savings & Loan in Broken Bow, Nebraska. Their government ties support top AAA ratings from Standard & Poor's and Moody's Investors Service.

Bigger Than Government
They borrow in the bond market and lend the money to their members. Federal Home Loan Bank obligations, when combined with the $1.5 trillion debt and $4.7 trillion in bond guarantees of Washington-based Fannie Mae and Freddie Mac in McLean, Virginia, are 46 percent more than the $5.04 trillion of Treasury debt held by the public.

Lenders turned to the FHLB as two main sources of funding, short-term IOUs backed by mortgages and mortgage-bond sales, began to dry up in August. That's when losses on securities tied to subprime home loans began to spread throughout the credit markets and investors retreated to the relative safety of Treasuries and their equivalents.

Asset-backed commercial paper outstanding fell 25 percent to $883.7 billion as of last week from $1.18 trillion on Aug. 8, data compiled by the Fed show.

Sales of mortgage bonds, excluding those issued by Fannie Mae and Freddie Mac have tumbled by 66 percent to a monthly average of $39 billion from $115 billion in 2006, according to Friedman Billings Ramsey Group Inc., a securities firm in Arlington, Virginia.

`Only Game'
The home loan banks ``were the only game in town for a lot of borrowers,'' said Jim Vogel, head of agency debt research at FTN Financial a securities firm in Memphis, Tennessee. They are ``like an old watch your grandfather left you years ago, and you pull it out of the drawer and find it's the only timepiece you have.''

In July, lenders could raise funds by issuing one-month asset-backed commercial paper that yielded 1.8 basis points less on average than the one-month London interbank offered rate. A basis point is 0.01 percentage point.

In September, the asset-backed commercial paper, when it was available, cost as much as 51 basis points more than Libor. At the same time, the Federal Home Loan Bank of New York offered one-month funds at an average of 48 basis points below Libor, making their loans more attractive.

The FHLB's outstanding discount notes rose to a record $311 billion in the first three quarters, the most since 2001, according to data compiled by Zurich-based Credit Suisse Group.

Government Ties
FHLB loans probably will continue to grow in the next few months, though at a slower rate than during August and September, said Margaret Kerins, an agency debt strategist at RBS Greenwich Capital in Greenwich, Connecticut.

``Each day we seem to have new financial institutions announcing losses and so this probably isn't over,'' she said.

The home loan banks can lend at below-market rates because their government charter enables them to borrow more cheaply than other financial institutions. The ties to the government suggest the U.S. will bail them out in times of trouble.

The system sold $3 billion of two-year notes on Oct. 26 at a yield of 4.26 percent, or 46 basis points more than Treasuries of similar maturity. Stamford, Connecticut-based General Electric Co., also rated AAA, has $1 billion of notes due a month later that yield 4.6 percent.

Syndicated Global Bond Distribution
For bullet issues –September 1, 2006
thru October 5, 2007

> I would like to see which central bank is buying....

> Ich würde gerne wissen welche Zentralbank da kauft......

Some lawmakers said they are concerned the FHLBs are taking on too much debt after they were unable to account properly for their own risks.

Stricter Oversight?
Five of the banks, including the Atlanta and Pittsburgh branches, restated earnings from 2001 through 2004, while the Chicago and Topeka branches corrected mistakes from 2001 through 2003. All of them fixed accounting errors for financial contracts used to protect against swings in interest rates.

The mistakes at the home loan banks, as well as those at Fannie Mae and Freddie Mac, prompted Republican lawmakers to spend the past four years pushing for legislation to create a tougher regulator for the government-chartered enterprises. While the House passed legislation in May, the Senate Banking Committee has yet to do so.

The failure to create new laws ``is predicting disaster,'' Baker, a Republican on the financial services panel, said in an interview. The FHLBs ``have the potential for adverse economic impact if not properly administered,'' he said.

No Losses
The banks require borrowers to put up mortgages, mortgage bonds and other assets as collateral. None has experienced ``a credit loss on an advance to a member, ever,'' Ronald Rosenfeld, chairman of the Federal Housing Finance Board, the Washington- based regulator of the FHLBs, said in an e-mail.

The New York bank looks at detailed data on each asset when deciding how much to extend against it and doesn't accept delinquent loans or non-AAA rated bonds as collateral, Paul Heroux, its head of member services said in an interview.

``The home loan banks are extremely low-risk institutions,'' Allan Mendelowitz, one of five directors of the Federal Housing Finance Board, said in an interview. ``There is probably no contingent risk to the taxpayer.''

Investors said the same about mortgage securities, which had home loans as collateral and were given top AAA ratings by S&P and Moody's. Then defaults soared for loans to people with poor credit and some securities fell as much as 80 cents on the dollar.

A collapse would create ``tremendous pressure to have the taxpayer bear the cost of a bailout,'' said Representative Ed Royce, a Republican from California on the House Financial Services Committee.

Maturing Debt
The FHLBs have $276 billion of bonds maturing in 2008 and $174 billion in 2009, according to data compiled by Bloomberg. The system last week began to refinance about $144 billion of its so-called discount notes sold in August and September with maturities ranging from eight to 12 weeks, FTN's Vogel said.

Borrowing from the system during that period was probably a record for a two-month span, Vogel said. The FHLBs disclose their borrowing at the end of each quarter.

Calabasas, California-based Countrywide, the largest U.S. mortgage lender, almost doubled borrowings from the Federal Home Loan Bank of Atlanta to $51 billion during the quarter, the company said in a statement last week.

Countrywide began to use the FHLBs in August as analysts at New York-based Merrill Lynch & Co. raised the possibility that the company could go bankrupt after it had trouble raising funds in the commercial paper market. Countrywide later sold a $2 billion stake to Charlotte, North Carolina-based Bank of America Corp., the second-biggest in the U.S. after Citigroup.

Out of Business?
``You don't want to use the phrase `going out of business' in the press, but they would be in a much, much worse liquidity position if they didn't have the Federal Home Loan Bank system sitting out there,'' said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc., a securities firm in Arlington, Virginia.

Washington Mutual, the largest U.S. savings and loan, boosted its borrowing from the FHLBs by $31 billion, the company said this month.

The Seattle-based lender's ``funding flexibility'' put it in ``a much stronger position to withstand the market disruptions of the third quarter,'' Chief Financial Officer Thomas Casey said on a Oct. 17 conference call with investors. Washington Mutual spokeswoman Libby Hutchinson declined to comment further.

Paramus, New Jersey-based Hudson City Bancorp, the third- largest thrift in the U.S., borrowed $800 million from the FHLBs in the third quarter, 25 percent more than a year earlier, said Chief Executive Officer Ronald Hermance.

``Even AAA rated credits were having a tough time issuing paper,'' Hermance said. ``It took everybody back to the Federal Home Loan Banks.''

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Jim Rogers "Bernanke Is A Madmen"

We will see on Wednesday how mad he really is. If he would shock the market with doing nothing another man will probably need medical help...... :-)

Wir werden ja am Mittwoch sehen wie "durchgeknallt" Bernanke wirklich ist. Evtl. schockiert er ja die Märkte und auch mich und läßt die Zinssätze unverändert. Sollte das passieren wird für diesen Mann wohl ärtzliche Hilfe notwendig werden..... :-)

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A Comparisson Of Bubbles

I remember the days at the peak listening to the conference calls and almost every analyst reiterated their buy rating based on the low pe, after the earnings were gone they pointed to the book value & the strong balance sheets, ...... Now we now why they call them "Wall Street Finest"....

Ich kann mich noch sehr gut an die Telefonkonferenzen zu Zeiten des Peak erinnern wo fast jeder Analyst sein "Kaufen" Urteil bestätigt hat. Begründung war seinerzeit die niedrigen KGV´s, nachdem die Gewinne sich in Luft aufgelöst haben wurde dann das Argument der niedrigen Buchbewertung und der starken Bilanzen herausgeholt..... Den Namen "Wall Street Finest" haben die sich wirklich redlich verdient

Number Of The Day ....Earnings Estimates for Homebuilders

Now the bust is taking a brutal toll. In January, industry analysts predicted that the 10 biggest builders would have average earnings per share of $3.69 for 2007; the latest forecast ( August 2007) is for a loss of $1.18.

But they were not alone. Even Bill Miller from the Legg Mason Value Trust and until last year one of the most successfull fund manager was way of the mark. He jumped on to buy the builder in mid 2006 and still has some of them in his portfolio. If you look at the Portfolio Holdings as of June 30, 2007 (unaudited) i think it is safe to say that he will underperform again. So far he is lagging over 6 percent. In 2006 he underperformed the broad market by a margin of 10 percent.......

Selbst der bis zum letzten Jahr erfolgreichte Fondsmanager Legg Mason Value Trust ist bereits Mitte 2006 massiv in die Builder eingestiegen. Dieser Wahnsinn hat ihn seine einmalige Rekordserie den S&P 500 über 15 Jahre zu schlagen gekostet. Wenn man sich die Portfolio Holdings as of June 30, 2007 (unaudited) ansieht dürfte er kaum in der Lage sein seine Underperformance von 10% in 2006 in diesem Jahr zum positiven zu wenden. Zur Zeit hinkt er dem Markt mit 6% hinterher.....

Bill Miller August 2006
"Here we clearly made a mistake by initiating positions too early," Miller said. "We were waiting for a significant sell-off to establish positions," he added. "When that sell-off occurred late last year, we jumped in,"

Revisiting the Homebuilders / Bespoke
Below we revisit our comparison between the Nasdaq bubble of the late 90s and the Homebuilder bubble of the 2000s. The chart below highlights the performance of the two from the start of their enormous gains to their eventual peaks, and back down to their lows again. As shown, the S&P 1500 Homebuilder index actually registered more gains than the Nasdaq at its peak, but the comparable time frame (both around 2,000 days) of the two rises is eerily similar.
The bursting of the Nasdaq bubble lasted 943 days with declines of 78.29%. The current bursting of the Homebuilder bubble has lasted 831 days with declines of 67%. While the declines have already been severe, for the Homebuilder index to decline to the low levels that the Nasdaq reached, it would have to go down another 34% from here.
> Keep the comments from analysts and experts in mind when they tell you that the worst is over for the banks, brokers etc.... I assume we will see the sequel of incompetence and dishonesty what we have witnessed from the homebuilding sector. Here is one funny example Citigroup Dividend, Share Drop Make Banks Unbeatable ......
> Die Lehre aus dieser Erfahrung kann nur sein dem gesunden Menschenverstand zu folgen und die Meinungen von sog. Experten mit größtmöglicher Skepsis zu begegnen...... Ich erwarte das wir eine Fortsetzung der Inkompetenz und Vernebelung die wir im Homebuildersegment zu sehen bekommen haben auch im Banken & Broker Segment bewundern dürfen. Die ersten Versuche sind in der Tat vielversprechend.... Citigroup Dividend, Share Drop Make Banks Unbeatable .......
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Sunday, October 28, 2007

Number Of The Day....."Investor Sentiment"

WOW! Just waking up in Germany and looking at my screen. Asia and especially Honk Kong is up sharply, Gold at $ 793, the Greenback is tanking again, commodities are soaring, yields (of course) almost unchanged, US Futures are roaring higher.....

Was für Wochenstart! Gucke mir wie üblich gerade nach dem Aufstehen mal die Märkte an. Asien und besonders Hong Kong massiv gen Norden, etliche Indizes auf Rekordhöhen, Gold bei knappen 800$, Der US$ weiter im freien Fall, alle Rohstoffe auf dem Weg nach oben, Die Renditen (logischerweise) kaum verändert, US Futures massiv grün......


If you think of the return to sanity as a positive development, there's reason to be encouraged by Investors Intelligence's report, which recorded the most lopsided sentiment reading in many years. Last week, bulls stood at 62% and bears at about 19%. For anyone who's been around the stock market for any length of time, that is a clear warning sign.

On top of this i´ve found this chart from Ticker Sense October 22nd Blogger Sentiment Poll

Passend hierzu der October 22nd Blogger Sentiment Poll von Ticker Sense.

I hope you have seen this clip on investor sentiment. One of the best and funniest clips on this topic! One of the most prominent examples how quick the sentiment can change is the meltdown from Jim Cramer. A few days after this he raised his target for the Dow to 14500.....No kidding.....

Ich kann nur hoffen das Ihr diesen Clip zum "Investor Sentiment" schon gesehen habt. Mit Sicherheit einer des treffensten und zugleich lustigsten Beschreibungen zu diesem Thema. Eines der wohl bekanntesten Beispiele wie schnell die Stimmung umschlagen kann ist Jim Cramer der bereits einige Tage nachdem er das Ende der Welt prophezeit sein Kursziel für den DOW auf 14500 erhöht hat. Ein heisser Anwärter auf den Titel "Wendehals des Jahres" :-)

I would like to see a seperate poll for the sentiment in Hong Kong .......

Ich würde zu gerne eine seperate Investorenbefragung für Hong Kong sehen .........

The Hang Seng has now put on more than 11 per cent in the past week, and almost 55 per cent since its August low amid the credit squeeze.

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Saturday, October 27, 2007

House Of Cards Fixed......

Maybe Bernanke, Paulson, King, Trichet, Mozillo, Prince, O´Neal & Co should hire this guy to fix some of the problems or at least to manage the Master Liquidity Enhancement Conduit ......

Evtl. sollten Bernanke, Paulson, King, Trichet, Mozillo, Prince, Ackermann & Co diesen Typen anheuern um die dringensten Probleme zu beheben oder zumindest den geplanten Master Liquidity Enhancement Conduit zu managen.....

Besten Dank an Zeitenwende

But i think even this guy could only help to delay the unavoidable for a few more quarters.....

Aber ich befürchte das selbst dieser Typ das Unvermeidliche wohl nur noch ein paar Quartale verzögern kann....

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Thursday, October 25, 2007

Northern Rock has borrowed $ 42 Billion from the BOE

I don´t care if someone still argues that this isn´t a bailout. What started with a speech from the head of the BOE Marvin King dissing the ECB and the Fed for providing liquidity has morphed into a disaster for the credibility of the BOE. They have rescued one of the most aggressive lender in the UK . I don´t care if the collateral from Northern Rock for the $ 42 billion is "first class". You just have to look at the UK housing market and combine this with the fact that Northern Rock was active in creative financing and the action from the BOE sends a clear message..... No wonder that the Bank of England set to win power for covert rescues .....

Wer spricht immer noch davon das es sich hier um keinen Bailout handelt....... Was mit einer Rede vom Kopf der BOE Marvin King angefangen hat indem er die anderen Notenbänker für deren großzügigen Liquiditätsspritzen kritisiert hat mutiert zu einem Debakel erster Klasse für ihn und die BOE. Erschwerend kommt hinzu das die Hilfe ausgerechnet dem mit Abstand aggressivsten Akteur auf dem UK Hypothekenmarkt zugeflossen ist. In meinen Augen zieht auch nicht das ja als Sicherheit angeblich das erstklassige Kreditbuch von Northern Rock eingebracht wird. Wenn ich mir den Zustand des UK Immobilienmarktes vor Augen führe und das mit der Tatsache kombiniere das Northern Rock führend im "kreativen" Hypothekensegment gewesen ist braucht man sich nicht wundern wenn dieses als Signal aufgefasst wird das im Zweifel die BOE oder der Steuerzahler schon helfen wird.......Kein Wunder das die BOE jetzt um Ermächtigung sucht verdeckte Rettungsaktionen durchzuführen......

Rock against the clock / FT
Each week the sums get ever more eyewatering. It has now emerged that Northern Rock has borrowed an extra £4.65bn from the Bank of England, taking its total state-sponsored borrowing to £20.6bn.

The facility is due to expire in February and is intended to enable the Newcastle lender to find its own solution to its funding crisis and examine possible bids.

Alistair Darling, the chancellor of exchequer, scotched one worry about the situation on Thursday when he told MPs that the European Commission had raised no objections to the facility. That suggests it is not being treated as state aid under European rules. So in theory there is scope for the facility to be extended. This matters because Northern Rock’s potential suitors – Cerberus, JC Flowers and Virgin Group – will surely want government assistance to be extended after any takeover.

After all, the size of the refinancing required for Northern Rock is the key obstacle to any bidder. A buyer will have to repay £20.6bn of Bank funding and replace £14bn of short- and medium-term loans. For example, Lloyds TSB sought a £30bn loan from the Bank as a condition of buying Northern Rock. A successful bidder would also need extra capital to continue writing a minimum volume of mortgages and drive some inflows of retail savings, because Northern Rock’s securitisation vehicle, Granite, must keep a certain level of mortgages within its securitisation trust to function.

So the government’s involvement in Northern Rock is looking increasingly long-term. The hope in Newcastle must be that the Eurocrat view that this does not fall foul of state-aid rules will be long-term too.

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MBIA / Denial ?

I´m no expert on this kind of financial alchemy. But the common sense tells me that with over $115 billion in CDO & $ 49 billion in RMBS exposure ( see pfd Subprime RMBS Conference Call Presentation ) and after some of the news we have heard on a daily basis from all over the world for months now the view from MBIA doesn´t sound "conservative"..... The fact that MBIA insures well over $ 600 billion in total with just $ 7 billion in capital and their bonds are traded as junk doesn´t give me much comfort either....

Ich bin definitiv kein Experte in Sachen Finanzakrobatik. Ader der gesunde Menschenverstand sagt mir das mit Engagements von 115 Mrd $ in CDO´s und 49 Mrd $ im Hypothekenmarkt ( siehe PDF Subprime RMBS Conference Call Presentation ) und unter dem Eindruck der ganzen Horrormeldungen die uns jetzt seit Monaten heimsuchen die Auslegung von MBIA nicht sonderlich konservativ anmuten.....Das MBIA insgesamt für über 600 Mrd $ and Krediten mit knapp 7 Mrd$ an Kernkapital gerade steht & die deren eigene Anleihen mit junk gehandelt werden ist auch nicht gerade vertrauenserweckend....

MBIA Inc. Reports
The decline was due to a pre-tax net loss of $352.4 million, or $1.80 per share, that the Company recorded in the third quarter on financial instruments at fair value (“marked-to-market”) and foreign exchange.

The loss was a consequence of wider spreads affecting the valuation of the Company’s structured credit derivatives portfolio. Compared with the previous quarter, spreads widened significantly on Commercial Mortgage-Backed Securities (CMBS) collateral and on other asset-backed collateral in the Company’s structured credit derivatives portfolio.

The Company believes that the “mark-to-market” loss does not reflect material credit impairment.

> Lets hope the rating agencies are on top of this......

> Bleibt zu hoffen das die Ratingagenturen diesesmal auf der Höhe sind......

Got gold.....?


I have just listened to the 120 minues conference call. Maybe it is not bad to have common sense.......

Ich habe mir gerade knappe 2 Stunden den Conference Call angetan. Nach dieser Erfahrung muß ich sagen das ich doch lieber beim gesunden Menschenverstand bleibe.....

MBIA Plunges After Stock Buyback Halted, First Loss

``I'm still trying to understand how the guarantors can take such low levels of mark-to-market losses relative to what the rest of the Street is taking on securities,'' said Ken Zerbe, an analyst with Morgan Stanley in New York said during the call.

Naked Capitalsim Worries About Monoline Insurers Grow

> It looks i´m not the only one wondering........

> Sieht ganz so aus als wenn ich nicht der einzige bin der sich verwundert die Augen reibt.....

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Wednesday, October 24, 2007

BOE Says Banks Vulnerable to `Shocks' After Credit Collapse

Looks like the BOE ( and other central banks) will have do to some more bailouts like they did with Northern Rock..... Should be no problem in times when their credibilty is no longer vulnerable ( already gone) .... ;-)

Sieht ganz so aus als wenn die BOE ( und andere Notenbanken weltweit ) zukünftig noch weitere Bailouts wie bei Northern Rock befürchten muß.... Nachdem die Glaubwürdigkeit eh schon arg angekratzt und kaum noch vorhanden dürfte das nicht weiter schwierig werden..... ;-)

BOE Says Banks Vulnerable to `Shocks' After Credit Collapse
Oct. 25 (Bloomberg) -- The Bank of England said the global financial system is at risk of further instability because of ``ongoing uncertainties'' about credit-market losses.

The central bank said in its financial stability report today that markets are now more susceptible to a potential slump in global stocks, a slide in the dollar or a crash in U.K. commercial property after the U.S. subprime mortgage collapse. Merrill Lynch & Co. yesterday reported the biggest quarterly loss in its 93-year history after $8.4 billion of writedowns.

> I highly recommend to read The Role of CDOs in Merrill's Losses (Updated and Expanded Version) from Naked Capitalism

> Kann dazu jedem The Role of CDOs in Merrill's Losses (Updated and Expanded Version) von Naked Capitalism ans Herz legen

``Financial systems in advanced economies are vulnerable to further shocks, either in credit markets or from new sources,'' the Bank of England said in its semiannual report.

Investors are assessing the fallout from a credit-market rout that led to a surge in borrowing costs and a run on the deposits of U.K. mortgage lender Northern Rock Plc. Today's report said British banks are still hoarding cash to protect their balance sheets, which may keep credit conditions ``tight'' into next year and make it harder for some borrowers to manage debt.

While the central bank said ``there have been signs of recovery'' in money markets, the interest rate that banks charge each other for three-month loans hasn't returned to the level before credit costs surged on Aug. 9. The London interbank offered rate, which was 6.05 percent at the start of August, was 6.28 percent yesterday. It touched a nine-year high of 6.9 percent on Sept. 11.

Crisis Management
In a worst-case scenario, U.K. banks would have to raise as much as 170 billion pounds ($348 billion) if market conditions prevented them from selling the loans on their balance sheets to other investors, the central bank said.

The Bank of England, which had been criticized for not doing enough to help lenders after markets seized up, also said U.K. authorities need to ``strengthen their crisis management arrangements.'' Lawmakers will question Chancellor of the Exchequer Alistair Darling on the U.K. government's role in the affair at 11 a.m. in London today.

``Some important lessons need to be learned by both financial institutions and authorities,'' Bank of England Deputy Governor said John Gieve in a statement. His handling of the Northern Rock crisis was singled out for criticism by members of Parliament last month.

Highlighting the risks to global financial stability, the Bank of England said a slump in U.S. economic growth may spark a further drop in ``asset prices'' that ``could trigger a sharp decline in the U.S. dollar.''

> They don´t need to point fingers to the US..... It looks like the debt problem is also spreading to UK corporations...... Easy to figure out what will happen when the economy slows and the credit is less plentyful....

> Hier muß man nicht auf die USA zeigen..... Es sieht so aus als wenn die Kreditprobleme in UK so langsam aber sicher auch die angeblich so soliden Firmenbilanzen betreffen.... Unschwer zu erahnen was passieren wird wenn die Konjunktur ernsthaft ins stocken kommt und die Kreditklemme so richtig zum tragen kommt......
Debt Burden
The U.S. currency has declined 8 percent against the pound in the past year and dropped to a 26-year low of $2.0654 on July 24.

The central bank also said a slowdown in world growth may hurt global stocks and that it's concerned about a potential decline in U.K. commercial property prices.

>LOL! I agree that they should worry about commercial property ( see Commercial property "View from the top" / Economist ). But the far bigger problem is the residential market. Just click here and you will see unlike lots of BOE members the white elefant in the room .....I highly recommend to read Oh no, it can't happen here where Alice Cook from The UK Housing Bubble takes on the view of Kate Barker, who sits on the Bank of England's monetary policy committee..... Looks like the BOE members are as smart as the Fed members....

> Schon lustig.... Ich stimme überein das sich der gewerbliche Immobiliensektor zweifelsfrei jenseits von Gut und Böse bewegt (siehe auch Commercial property "View from the top" / Economist) Aber das eigentliche Problem liegt doch eindeutig im privaten genutzten Immobilienmarkt. Um das auf einen Blick zu erkennen braucht man sich nur diese Daten und Fakten vor Augen zu halten. Ich kann jedem raten sich den nachfolgenden Link durchzulesen.Oh no, it can't happen here . Hier betrachtet Alice Cook vom The UK Housing Bubble was Kate Barker, ein Stimmberechtigtes mitglied des Bank of England's monetary policy committee zu diesem Thema zu sagen hat..... Man fragt sich schon welche Voraussetzungen man erfüllen muß um in diesen Ausschuß zu sitzen.....

The burden on British households, which have taken on a record 1.4 trillion pounds of debt, is increasing along with credit costs, the Bank of England said today. First-time buyers of residential property and investors that purchased homes to rent them out to tenants are ``particularly exposed,'' the report said.

Still, U.K. commercial banks' earnings and their capital reserves have helped them cope with the market rout, the bank said. ``Robust'' economic growth ``and the high profitability and capitalization of major U.K. banks provide a strong anchor for the financial system.''

The report also said the market selloff may be welcome because investors were taking too-optimistic a view on the risks facing the global economy.

``A return to earlier conditions would be undesirable as that involved an underpricing of risk,'' the Bank of England said.

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Scale of Past Financial Crises:Bad Debt and Public Debt Cost

I have no idea how big the current slump will be in the end. But if you share my view that we are only at the beginning of the downturn this one will make it easy on the list provided from Pimco

Ich habe momentan keine Ahnung welch dramatische Auswirkungen die aktuelle Krise haben wird. Wenn man aber wie ich davon ausgeht das wir erst am Beginn des Abschwungs sind und die jetzige Blase historische Ausmaße hat dürfte es locker für die Aufnahme in die Liste von Pimco langen.....

I´m pretty sure the current housing and credit mess will have a macroeconomic link.

Ich bin mir ziemlich sicher das die jetzige Immobilien und Kreditkrise diesesmal sicher weltweite Auswirkungen haben wird.

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Marc Faber & Greenspan Interviews

What a contrast to the screaming and hyping on CNBC. Excellent Interview covering every important topic

Was für ein Kontrast zu dem üblichen Hype der ansonsten spezeill auf Sendern wie CNBC läuft. Ein wirklich sehenswertes Interview das alle wichtigen Prolembereiche anspricht.

Faber Video

Thanks to iTulip here is the totally clueless "Easy Al" ...... This is a must see!

Dank iTulip gibt es hier als Kontrast den total ahnungslosen "Easy Al".... Unbedingt ansehen!

If you can stand more from Greenspan click here

Wenn Ihr noch mehr von Greenspan vertragen könnt klickt bitte hier.

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Tuesday, October 23, 2007

Jim Rogers Shifts All Assets Out of Dollar to Buy Yuan

I´m not sure if the Chinese are happy with comments like this...... But there is little doubt that the Yuan is significantly undervalued. I recommend to visit Brad Setser´s Blog to read more about this topic. Lets be clear a rise of the Yuan will change the landscape for lots of regions and will have big implications for all asset classes for years to come. In the meantime the Chinese have to deal with lots of hot money that is chasing Chinese assets.

Ich kann mir vorstellen das die chinesischen Offiziellen solche Kommenate nicht gerne hören.... Aber es besteht kaum ein Zweifel das der Yuan deutlich unterbewertet ist. Mehr Expertise zu diesem Thema gibt es regelmäßig auf Brad Setser´s Blog. Ein schneller Anstieg dürfte zu einigen Verwerfungen führen und dürfte kaum eine Region oder Anlageklasse unbeeindruckt lassen. In der Zwischenzeit müssen die Chinesen damit leben das eine Menge "Hot Money" chinesche Vermögenswerte regelrecht jagt .

Jim Rogers Shifts Assets Out of Dollar to Buy Yuan Oct. 24 (Bloomberg) -- Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium.

The dollar has dropped against all the 16 most actively traded currencies except the Mexican peso this year as slowing growth and the first interest-rate reduction since 2003 last month dimmed the allure of dollar-denominated assets.

Since the Fed lowered U.S. interest rates on Sept. 18, the first cut in four years, the dollar has fallen 2.8 percent against the euro and touched a record low yesterday. Gold rose to a 27-year high and platinum jumped to a record.

``It's the official policy of the central bank and the U.S. to debase the currency,'' said Rogers, a former partner of George Soros.

Reserve Currency
``The U.S. dollar is and has been the world's reserve currency, the world's medium of exchange,'' he said. ``That's in the process of changing. The pound sterling, which used to be the world's reserve currency, lost 80 percent of its value, top to bottom, as it went through the whole period of losing its status as the world's reserve currency.''

The Chinese currency, known as the renminbi, or yuan, is ``the best currency to buy right now,'' Rogers said. ``I don't see how one can really lose on the renminbi in the next decade or so. It's gotta go. It's gotta triple. It's gotta quadruple.''

> Here is short term outlook from Morgans Stanley on this topic Fasten the Seatbelt

> Hier ein aktueller Kommentar von Morgan Stanley zu diesem Thema Fasten the Seatbelt

China has followed a gradualist approach. In 2006, the renminbi appreciated against the US dollar by 3.4% but against the currency basket (i.e., the NEER) by only about 0.8%. As of last Friday, the cumulative appreciation against the US dollar so far this year was 4%, but against the currency basket only about 1.4%

Since I expect the pace of renminbi appreciation against the US dollar to accelerate markedly for the remainder of the year, I endorse our FX strategy team’s forecast that the USD/CNY rate will reach 7.30 by end-December (see FX Impulse, October 18, 2007). This year-end target implies about 2.7% appreciation of the renminbi against the US dollar for the remainder of the year and slightly less than 7% for 2007 as a whole.

Despite this seemingly aggressive USD/CNY forecast, I estimate – based on our FX strategy team’s forecasts of the exchange rates for China’s major trading partners – the cumulative appreciation of renminbi NEER for 2007 will be only about 3.9%

The yuan strengthened past 7.5 to the dollar today for the first since the central bank ended a fixed exchange rate in July 2005. The currency has gained 10.5 percent since the dollar link was abandoned.

China, growing faster than any other major economy, is ``going to be the most important country in the 21st century,'' he said. China's gross domestic product expanded 11.9 percent in the second quarter, and analysts surveyed by Bloomberg estimate the economy grew by 11.5 percent in the three months to Sept. 30.

> I recommend to read Is the credit squeeze a prelude to a China crash? from John Plender via the FT. I suggest to read the entire link.

> Hier ein weniger bullische Meinung von John Plender Is the credit squeeze a prelude to a China crash? via der FT. Ich empfehle den kompletten Link zu lesen.
The backcloth has invariably been a shift in global power whereby the growth of an immature creditor country wedded to protectionist trade policy has contributed to imbalances of savings and investment. Attempts to manage the currency volatility arising from imbalances have derailed monetary policy and created bubbles in asset markets, leading to crashes and financial distress.

Rogers also is buying Swiss francs and Japanese yen, which he said have been ``pounded down'' because of the so-called carry trades.

Unwinding Carry Trades
In the carry trade, investors borrow in countries with low interest rates, such as Japan, and invest the proceeds where rates are higher. Japan's benchmark overnight lending rate is 0.5 percent, compared with 6.5 percent in Australia and 8.25 percent in New Zealand.

The carry trades in yen and francs will ``unwind someday,'' which will send the currencies ``straight up,'' Rogers said. ``I'm buying the yen.''

The bull markets in bonds and stocks are ``over,'' he said. ``Bonds will be a terrible place to be for many years and will in fact be going down for many years.''

Rogers said he remains bullish on commodities because ``that's where the big fortunes are going to be made in the world in the next five, or 10 or 15 years. The current bull market is going to last until sometime between 2014 and 2022.''

Commodity Prices
Commodity prices have surged as demand for raw materials, especially from China, rose faster than producers were able to increase output. Agricultural prices have led recent gains, including a record high for wheat last month and a three-year high in soybeans.

``The number of hectares devoted to wheat farming has been declining for 30 years, the inventory levels of food are at the lowest level since 1972,'' Rogers said. ``Suppose we start having droughts again. God knows how high the price of agriculture is going to go, so that's where I'm putting more of my money now than in other things.''

He added, ``I think I'm going to make more money in agriculture than I make in precious metals.''

Platinum, gold, silver and palladium will ``be much, much higher during the course of the bull market,'' he said.

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