“Subprime Was The Tip Of The Iceberg”.... “Prime Will Be Far Bigger In Its Impact.”

Nothing really new but sometimes it is always good to get an update on the ongoing residential housing bust..... Scary that there are still some bottom callers out there..... I really hope that they have always put their money where their mouth was during their perma-bottom-calls.....

Das nachfolgende Posting liefert nicht wirklich bahnbrechend Neues und soll in erster Linie ein Update in Sachen US Wohnimmobilienmarkt geben. Denke hier werden all diejenigen die schon fast penetrant den Boden ausrufen als Phantasten entlarvt. Wenn man jetzt bedenkt das der Verfall im gewerblichen Sektor gerade erst Fahrt aufnimmt erscheinen einige bullische Kommentare in einem noch fragwürdigerem Licht...... Kein noch so großer Bailout kann die dringend notwendige Bereinigung verhindern.... Bin sogar der Meinung das je länger die Korrektur durch die "Eingriffe" verlängert wird desto größer wird der volkswirtschaftliche Gesamtschaden letztendlich sein. Da aber in der Realität immer irgendwelche Wahlen anstehen muß man wie die aktuellen Beispiele zeigen mit dem Schlimmsten rechnen.....

Housing Lenders Fear Bigger Wave of Loan Defaults NYT
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building

The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.

Delinquencies on mortgages tend to peak three to five years after loans are made....

Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights

> You don´t need to be a genius to figure out will happen during the next few years..... The following quotes from Calculated Risk sums it up

> Denke hier braucht man nun wirklich kein Genie zu sein um zuerkennen das die nächsten Jahre brutal werden. Der nachfolgende Kommentar von Calculated Risk dürfte zutreffen.....

I think the second wave of foreclosures will be smaller in numbers, as compared to the largely subprime first wave, but the price of each home will be much higher. And the second wave will impact prices in the mid-to-high end areas, as opposed to the subprime foreclosures impacting prices in the low end areas.

Barry Ritholtz on "perma-bottom-callers"

Wishful thinking is never a substitute for reviewing the actual data;
thoughtful analysis is better than cheerleading

UPDATE: Click trough pages 61 & 62 from the HSBC Earnings Release to get an up to date picture of their US mortgages, consumer lending, credit card and vehicles credit book.... I also want to highlight page 12 & 13. They are showing the credit trends worldwide ( personal & commercial ) ...... Watch Latin America ( mainly related to Mexico ) ......

UPDATE: Passendweise hat gerade HSBC berichtet. In diesem Report findest man auf den Seiten 61 & 62 Daten nette Charts zu der US Kreditqualität quer durch alle Sektoren ( Kreditkarten , PKW Finanzierungen usw ). Darüberhinaus sollte man einen Blick auf die Seiten 12 & 13 werfen. Hier werden die weltweiten Rsikovorsorgen für den privaten und den gewerblichen Sektor aufgeschlüsselt. Hier sticht besonders und für mich etwas überracshend der starke Anstieg in Süd Amerika hervor ( Lt. Telefonkonferenz überwiegend Mexico )...... Die 200% Aufstockung der Risikovorsorge im gewerblichen US Bereich dürfte erst der Anfang sein.....

About 1 in 11 Mortgageholders Face Loan Problems

"Contained" :-) ...... No wonder the market was up yesterday......

Kein Wunder das der Markt gestern so freundlich war....... Jeder der denkt das die Krise im US Finanzsektor überstanden ist sollte sich die nachfolgende Grafik sehr genau ansehen. Finanztitel sollte man nach wie vor nicht mal mit der Kneifzange anfassen.

About 1 in 11 Mortgageholders Face Loan Problems NYT


grösser/bigger

BMW Is Taking A Hit From The US

BMW generates almost 20 percent from it´s revenue in the US. On top of this lots of the profit from almost every carmaker comes from their finance unit..... I assume the headwinds from this part of the business is facing some serious headwinds for some time to come.... At the year end report BMW pointed to only a slight increase in delinquencies to 0.46...... Times are changing very quickly......

BMW macht knapp über 20 % vom Umsatz in den USA. Hinzu kommt das bei fast jedem Autohersteller die Gewinne aus dem Finanzarm einen ganz erheblichen Anteil an den Gewinnen haben ( oder sollte ich besser sagen hatten.... ). Zumindest wird es zukünftig deutlich schwieriger hier an die goldenen Zeiten der Vergangenheit anzuknüpfen..... Zitat BMW Ende 2007 :"Dort verschlechterte sich die Risikosituation durch die Kreditkrise im Vorjahresvergleich. Die Quote der Forderungsausfälle im Segment Finanzdienstleistungen stieg gegenüber dem Vorjahr um fünf Basispunkte auf 0,46 %."

The Board of Management of BMW AG decided at the board meeting held today to increase the amount of risk provision recognised in the first quarter of the financial year 2008 in the light of the repercussions of the international financial crisis. The financial crisis has become more severe of late. This has resulted in a drop in pre-owned car selling prices, particularly in North America, and consequently in a reduction of revenues that can be generated on vehicles at the end of lease contracts. This downward trend accelerated during the month of March. For the above reasons, it was necessary to recognise a higher risk provision for lease vehicles on the one hand and for the increased level of bad debts/payment arrears on the other. In total, an expense of euro 236 million was recognised.

BMW Der Vorstand der BMW AG hat in seiner heutigen Sitzung entschieden, angesichts der Auswirkungen der internationalen Finanzkrise die Risikovorsorge im ersten Quartal des Geschäftsjahres 2008 zu erhöhen. Die Finanzkrise hat sich zuletzt verschärft. Infolge dessen sanken insbesondere in Nordamerika die Gebrauchtwagenpreise und damit die Erlöse für Fahrzeuge, die aus Leasingverträgen zurückkommen. Dieser Abwärtstrend hat sich im März verstärkt. Die oben genannten Gründe machten zudem eine höhere Risikovorsorge für den Bestand an Leasingfahrzeugen sowie für erhöhte Kreditausfälle und Zahlungsverzögerungen notwendig. Insgesamt belaufen sich die Ergebnisbelastungen auf 236 Mio. Euro.

> Here is an interesting chart that shows how sometimes irrational markets often appear... GM has only underperformed BMW slightly during the past 3 years ( at least on a nominal basis and when you compare the fundamentals ) .... BMW has had almost 18 billions € in operating cash flow during this timeframe and has an excellent A rating from the agencies....... We all know that GM has probably lost a similar $ amount during the same period and is rated as junk.....

> Hier mal ein nettes Beispiel wie "merkwürdig" sich Aktien teilweise verhalten.... GM had über ienen Zeitraum von 3 Jahren nur unwesentlich schlechter als BMW abgeschnitten ( wenn man die Währung mal aussen vor läßt )... BMW hat in dieser Zeit einen operativen Cash Flow von über 18 Mrd € erzielt und wird mit einem esrtklassigen A Kreditrating ( für einen Automobilhersteller ) von den Ratingagenturen bewertet.... GM hat bekanntermaßen einen noch größeren vergleichbaren Mittelabfluß "erwirtschaftet"und wird folgerichtig selbst von den größtenteils inkompetenten Ratingagenturen mit Junk bewertet.......

Update:

Moody's Investors Service on Friday lowered the rating outlook for General Motors Corp. to negative from stable because of weakness at GMAC LLC's subsidiary, ResCap LLC. Moody's affirmed GM's B3 corporate family rating and its SGL-1 speculative grade liquidity rating. "The change in outlook reflects Moody's concerns that GMAC LLC's ability to provide retail and wholesale funding in support of GM's automotive operations may be eroded by the operating weakness at its subsidiary, ResCap LLC," Moody's said in a statement. About $35 billion of GM debt is affected by the ratings

This is not merely a subprime crisis / Münchau on Credit Default Swaps

I´m back from my 3 week vacation and it looks like i missed a lot of fun..... Thanks for all the mails during the past weeks. I´ll answer them this week.

It looks like more and more dominoes are falling at an accelerating pace. No wonder more and more people are waking up an are finally discovering Gold ..... Wolfgang Münchau from the FT has some good thoughts on one of the next shoes to drop

Melde mich nach einem dreiwöchigen Urlaub zurück und muß feststellen das ich wohl eine Menge Spaß verpaßt habe...... Dank an alle die gemailt haben. Ich werde diese im Laufe der Woche beantworten.

Es sieht so aus als wenn unübersehbar immer mehr Dominosteine kippen. So verwundert es wenig das endlich immer mehr Leute Gold für sich entdecken.....Wolfgang Münchau from The FT hat sich Gedanken zum nächsten drohenden "Unheil" gemacht.

This is not merely a subprime crisis

If this had been a mere subprime crisis, it would now be over. But it is not, and nor will it be over soon. The reason is that several other pockets of the credit market are also vulnerable. Credit cards are one such segment, similar in size to the subprime market. Another is credit default swaps, relatively modern financial instruments that allow bondholders to insure against default. Those who such sell such protection receive a quarterly premium, based on a percentage of the amount insured.

The CDS market is worth about $45,000bn (€30,500bn, £23,000bn). This is not an easy figure to imagine. It is more than three times the annual gross domestic product of the US. Economically, credit default swaps are insurance. But legally, they are not, which is why this market is largely unregulated.

Technically, they are swaps: two parties swap payments streams – one pays a regular premium for protection, the other pays up in case of default. At a time of low insolvency rates, many investors used to consider the selling of protection as a fairly risk-free way of generating a steady stream of income. But as insolvency rates go up, so will be the payment obligations under the CDS contracts. If insolvencies reach a certain level, one would expect some protection sellers to default on their obligations.

So the general health of this market crucially depends on the rate of insolvencies. This in turn depends on the economy. The US and Europe are the two largest CDS markets in the world. It is now widely recognised, including by the Federal Reserve, that the US economy is heading for a sharp downturn, possibly a recession. The eurozone, too, is heading for a downturn, but possibly not quite as sharp. ....

Today, the really important question is not whether the US can avoid a sharp downturn. It probably cannot. Far more important is the question of how long such a downturn or recession will last. An optimistic scenario would be a short and shallow downturn. A second-best scenario would be for a sharp, but still short, recession. .....

So what then would be the effects of these scenarios on the CDS market? Bill Gross of Pimco*, who runs the world’s largest bond fund, last week produced an interesting back-of-the-envelope calculation that received widespread publicity. He projected ( see his latest Investment Outlook ) that the losses from credit default swaps caused by a rise in bankruptcies could be $250bn or more – which would be similar to the expected total loss as a result of subprime.

This is how he arrived at this estimate. His calculation assumes that the corporate insolvency rate would return to a normal level of 1.25 per cent (measured as the default rate of all investment grade and junk debt outstanding). As the entire CDS market is worth about $45,000bn, $500bn in CDS insurance would be triggered under this assumption. The protection sellers would probably be able to recover some of this, so the net loss would come to about half of that. This estimate is very rough, of course. Most important, it is based on the assumption that the hypothetical US recession would not turn into a prolonged slump. In that case, one would expect corporate default rates not merely to return to trend, but to overshoot in the other direction.

So one could take that calculation as a starting point. A downturn lasting two years could easily trigger payments streams of a multiple of $250bn.

At this point we might be tempted to conclude that this all is irrelevant, since this is only insurance, which is a zero-sum financial game. The money is still there, only somebody else has got it. But in the light of the current liquidity conditions in financial markets, that would be a complacent view to take.

If protection sellers were to default en masse, so too could some protection buyers who erroneously assume that they are protected. Given that the CDS market is largely unregulated there is no guarantee of sufficient liquidity behind each contract.

It is not difficult at all to see how the CDS market has the potential to cause serious financial contagion. The subprime crisis came fairly close to destabilising the global financial system. A CDS crisis, under a pessimistic scenario, could produce a global financial meltdown.

This is not a prediction of what will happen, merely a contingent scenario. But it is contingent on an event – a nasty and long recession – that is not entirely improbable.

"Honey, I Shrunk The Company" Centro Properties Down 76 Per Cent

Another one in the series Honey, I Shrunk The Company"....

Ein weiterer Kandidat aus der Serie Honey, I Shrunk The Company".....

Flashback March 2007

Centro Properties of Australia is set to become the fifth-largest operator of shopping centres in the US after agreeing to buy New Plan Excel Realty Trust for $3.7bn in cash. The deal is the biggest acquisition to date by an Australian real estate investment trust in the US. Including debt, it amounts to $6.2bn. Centro said it would finance the takeover by issuing new shares worth A$1.25bn in both the company and the trust, as well as raising a further A$750m from fund inflows and hybrid financing. JPMorgan Chase will underwrite the share offering.

Shopping for subprime victims, down under FT Alphaville
Anyone still needing to be convinced that synthetic financial strife has real world consequences could look down under on Monday - to Centro Properties, the Australian shopping mall operator. A cut in its 2008 earnings forecast of 13.6 per cent caused a 76 per cent plunge in its share price - bringing Centro’s market cap down from A$4.82bn to A$1.15bn.

Bloomberg

Centro Properties Group, the owner of 700 U.S. shopping malls, slumped 76 percent in Sydney trading and said it's struggling to refinance debt because of the collapse in the U.S. subprime housing market.

With A$26.6bn of property on its books, the company is having to face up to sharply higher financing costs and is already looking at selling its US acquisitions to private equity buyers, although no names were mentioned. As recently as March it paid US$6.2bn to acquire New Plan Excel Realty Trust.

Taken from todays Centro Presentation

Centro said it had won an extension for all of its maturing debt - but only up until February 15. Refinancing talk continuing in the meantime. Chairman Brian Healey said:

Tightened credit conditions have…had the effect that negotiation of a comprehensive refinancing package of these short-term facilities has not yet occurred.“It has become clear that to secure longer term financing in the current illiquid credit market, Centro will need to reduce its gearing level significantly.

Last week, Merrill Lynch said that it had doubts about Centro’s business model and rating agency Standard & Poor’s put the group on credit watch, causing a temporary suspension of Centro’s shares.

> I assume they will have to update their statement on securitisation ( and others) from their euphoric annual 2007 review

> Sieht ganz so aus als wenn die Aussagen zum Verbriefungsmodell in dem rückblickend mehr als amüsanten Rückblick für das Jahr 2007 nicht mehr ganz aktuell sind

The 2007 financial year has seen retail property continue to deliver strong total returns to investors.”
Brian Healey, Chairman

The benefits of using a CMBS funding arrangement compared to traditional
bank debt are:

• It is more flexible;
• It involves less administration; and
• It has more generous loan covenants.

OUCH!

Another Sign Of Weakness "Breast Implants" Minyanville

I assume things are not looking good when the motherland of breast implants is witnessing a "drop off" in sales. I´m not sure if this "indicator" has a long history or track record but compared to the quality of other "official" numbers it wouldn´t surprise me if this indicator is a better barometer for things to come ;-)

Die Dinge müssen wirklich nicht zum Besten stehen wenn in dem Mutterland der Implate das Geschäft plötzlich wegbricht. Evtl. sollte sich mal einer die Mühe machen den Zusammenhang zwischen Rezessionen und Implantaten zu ergründen. Eine schlechtere Datenqualität und Aussagekraft als andere "offizielle" Statistiken ist eh kaum möglich.... ;-)

Five Things You Need to Know / Minyanville

Double Entendre Opportunity Mysteriously Escapes
In the latest sign that consumer spending is slowing, the Wall Street Journal reports that plastic surgeons are seeing the hint of a slowdown in demand for breast implants.

• Breast-implant maker Mentor Corp. (MNT) says its surgeon customers have noticed a drop in patient interest for the implants.
  
• Since last November when the Food and Drug Administration approved the return on silicone implants to the cosmetic market after a 14-year partial ban, Mentor's sales have been strong, the Journal said.
  
• But the company has detected some disturbing signs at the end of the third quarter. According to Mentor CEO Joshua Levine, some plastic surgeons are seeing a drop-off in patient consultations, which is "usually a little bit of a precursor to lighter surgical calendars maybe 45 to 60 days out."
  
• "This whole mortgage credit crisis is making people think twice," Dr. J. Peter Rubin, a Pittsburgh plastic surgeon told the Wall Street Journal.
  
• "It's something I've noticed and some colleagues have noticed as well."

What's a C.D.O.?

I second what FT Alphaville has to say. Maybe they should send the link to all the "smart money" guys that are holding all this stuff so that they finally understand what they are holding.....

Ich kann mich nur FT Alphaville anschließen. Man sollte diesen Link all denen schicken die Besitzer dieser Papiere sind damit Sie endlich begreifen was für eine halsbrecherische Konstruktion den Weg in die Bücher gefunden haben und warum es täglich vorkommen kann das aus AAA über Nacht Junk werden kann. Ich denke da ganz besonders an ein paar deutsche Landesbänker......

Far and away one of the best graphics we’ve seen. Kudos to Felix Salmon and the people at Portfolio

Make sure you click here to start the interactive beauty!

Laßt euch dieses Schmuckstück nicht entgehen und klickt hier um die interaktive Schönheit zu betrachten.

It remains to be seen if the write down from Royal Bank Of Scotland is enough.... Maybe the age of the CDO portfolio is an explanation why they still value the mezzanine tranche with 70 percent..... The same CDO in 07 would be definitley close to zero....

Bin gespannt ob die Abschreibung der Royal Bank Of Scotland genug sein wird.....Evtl. ist ads bereits fortgeschrittenen Alter des CDO Portfolios ja die Erklärung dafür das die Mezzanine Tranche immer noch mit 70% bewertet wird. Ein CDO mit Baujahr 2007 würde wohl eher bei null notieren......

At 30 November, GBM's exposure to these super senior tranches, net of hedges and write-downs, totalled £1.1 billion to high grade CDOs which include commercial loan collateral as well as prime and sub-prime mortgage collateral, and £1.3billion to mezzanine CDOs based predominantly on residential mortgage collateral. The CDOs are largely based on ABS issued between 2004 and the firsthalf of 2006

And with news like this Surge in Auto-Loan DelinquenciesIs Latest Trouble for the Economy via the WSJ it should be clear that the problem is spreading to all parts of securitisations.

Und mit Meldungen wie diesen Surge in Auto-Loan DelinquenciesIs Latest Trouble for the Economy dürfte auch bald der nächste Pfeiler der Verbriefungskredite mehr als nur leichte Schlgseite bekommen....

First came housing loans and the subprime-mortgage crisis.

Now, signs of stress are creeping into another key consumer area: auto loans.

Delinquencies in the auto-loan market are ticking up to their highest level in several years. Lenders are tightening terms in some cases, and interest rates have risen from the rock-bottom levels of a few years ago. About $575 billion in loans for new and used cars are made annually, according to the National Automotive Finance Association.

About 4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent as of the end of September, up from 2.9% the previous month,according to a Lehman Brothers survey of companies servicing these loans. That is the biggest one-month jump in at least eight years. Lehman says 12% of subprime borrowers, who have poorer credit records, were delinquent on their 2006 auto loans as of September. That is the highest level since 2002 and up from 11.1% the previous month.

LTCM: Lessons Learned? via iTtulip!

I think i know the answer......Too bad that this time the problem is not "contained" to hedge funds......Big hat tip to Rajiv and iTulip for a reminder of this important history lesson of the fall from LTCM

Ich glaube die Antwort zu kenne......Dumm nur das heutzutage nicht nur die Hedge Fonds betroffen sind....Großes Kompliment an Rajiv und iTulip um uns dieses "Mißgeschick" mit dem Namen LTCM in Erinnerung zu rufen

WestLB, HSH Nordbank Bail Out $15 Billion of SIVs

Bring on the next state owned bailout.... At least West LB is gettig very close to some kind of bailout. HSH is doing much much better. Both HSH and West LB are in different ways owned through several state or municipal entities. Only 26 percent from HSH was sold last years to J.C. Flowers, a private equity firm. It is getting better. Düsseldorf seems to be the capital of incompetence in Germany. Düsseldorf is the headquarter from West LB & IKB which got a $ 7 billion ( and still counting) bailout earlier this year . I´ll bet that at the next carnival they will have something banking related on their trucks......

Der nächste bitte.......Bei der West LB ist wohl in ganz naher Zukunft in irgendeiner Weise "externe" Hilfe notwendig. Die HSH dürfte das locker wegstecken können. Sowohl die HSH Nordbank als auch die West LB haben mit Ausnahme von 26% der HSH in Weise direkte bzw indirekte ( Sparkassen) staatliche Eigentümer. Sieht ganz so aus als wenn Düsseldorf sich zur Hauptstadt der Inkompetenz in Sachen Banken gemausert hat. Neben der West LB hat auch die IKB ( biher $ 7 Mrd Bailout ...) Ihren Sitz in Düsseldorf. Ich tippe mal das beim nächsten Karnevalsumzug zumindest ein Wagen das Thema aufgreifen wird.....


WestLB, HSH Nordbank Bail Out $15 Billion of SIVs Bloomberg
WestLB AG, Germany's third-largest state-owned bank, and Hamburg-based HSH Nordbank AG provided financing to more than $15 billion of troubled investment funds to prevent a fire sale of their assets.

WestLB provided a credit line for its $11 billion structured investment vehicle called Harrier Finance to repay commercial paper, the Dusseldorf-based bank said in an e-mailed statement today. HSH Nordbank said it will provide backup funding to cover all commercial paper issued by its 3.3 billion- euro ($4.8 billion) Carrera Capital SIV, spokesman Reinhard Schmid said in an interview.

NYT
FRANKFURT, Dec. 3 — In an effort to limit fallout from the subprime lending crisis in the United States, the German bank WestLB said on Monday that it would guarantee full liquidity to several of its investment vehicles that had put money into asset-backed securities.

WestLB, based in Düsseldorf and one of the regional German banks, or Landesbanken, has two major programs, known as Harrier Finance Funding and Kestrel Funding, that borrow money by selling short-term commercial paper to investors. They then invest the proceeds in higher-yielding securities, including ones backed by American mortgages.

WestLB also has three other similar investment vehicles, known as conduits. All five will have the option of drawing up to 25 billion euros, or $36.6 billion, as the short-term paper comes due.

> Put this gigantic figure in comparison with the numbers from the balance sheet...... No wonder Libor rates are surging around the globe.....

> Nun setzt diese Wahnsinnssummen ins Verhältnis zur den Bilanzdaten....... Kein Wunder das sich Bänker untereinander nicht traeun und den Libor in die Stratosphäre schiessen lassen.....

“This will ensure that there is no compelled liquidation of the assets in the SIVs,” said Armin Kloss, a WestLB spokesman, referring to structured investment vehicles. “We are also convinced that the assets that Kestrel and Harrier have could be more highly valued, but that the market is not ready for that.”

WestLB said in August that “less than 5 percent” of its investments was subprime-related, Mr. Kloss said. But trading in asset-backed securities has largely stopped, so a forced sale now would cost the bank dearly.

Like other banks and many politicians, WestLB is betting that the market will recover.

I suggest to read this from FT Alphaville related to the NAVRevenge of the SIV: still going down

Ich empfehle zu diesem Thema Revenge of the SIV: still going down vi FT Alphaville zu lesen.

HSH Nordbank, based in Hamburg, is taking a similar step to that of WestLB, covering all of the 3.3 billion euros that its vehicle, called Carrera Capital, has issued. The step has helped secure its stable credit ratings with Moody’s Investor Service and Standard & Poor’s.

“What we’re trying to do is avoid a write-down,” Reinhard Schmid, an HSH Nordbank spokesman, said. “We can do that with liquidity.”

Two German banks, IKB Deutsche Industriebank and Landesbank Sachsen, needed an outside rescue in August when their speculation in subprime-related securities went awry. But those problems far outstripped what much more stable banks like WestLB and HSH Nordbank are facing. IKB Deutsche and SachsenLB set up funds that were triple or quintuple the size of their capital on hand.

> I wouldn´t call West LB "stable".....

> Mir würde das Wort "stabil" im Zusammenhang mit der West LB nicht über die Lippen kommen.....

The British bank HSBC said last week that it would spend $35 billion to bring two vehicles it ran directly onto its books, effectively turning the bank into their guarantor of liquidity.

A similar principle underlies the so-"Superfund"— formally known as the Master Liquidity Enhancement Conduit — proposed by Citigroup, the largest sponsor of such vehicles in the world. Together with Bank of America and JPMorgan Chase, Citigroup is proposing that up to $80 billion be devoted to buying up mortgage-backed securities and holding them until the market relaxes.

Subprime Debacle Traps Even Very Credit-Worthy / WSJ

I suggest to read the entire story including some more interesting graphs Subprime Debacle TrapsEven Very Credit-Worthy

Ich denke es ist lohnenswert sich die gesamte Geschichte mit weitern Grafiken durchzulesen. Subprime Debacle TrapsEven Very Credit-Worthy

Here the interactive version of the chart with more details

Jim Rogers On "Phony Mae and Fraudie Mac"

Make sure you hear the "amusing" Bloomberg Interview with one of my heros Jim Rogers. Here my take from yesterday Freddie Needs Fresh Capital...... It´s funny to see how the reporter tries to defend Freddie & Fannie.... But he is by far better than this must see example from FOX Business News. They even make Mark Haines look smart......

Hier das extrem amüsante Bloomberg Interview mit einem meiner Helden Jim Rogers sowier mein gestriges Post zu diesem Thema Freddie Needs Fresh Capital...... Man kann fast das Gefühl haben das der Reporter sich vor Angst fast überschlägt. Aber in jedem Fall besser als dieses Beispiel vom angeblichen Wirtschaftssender FOX Business News

Freddie, Fannie Shares Will Continue to Slide, Jim Rogers Says
Nov. 20 (Bloomberg) -- Freddie Mac, which today dropped the most ever after posting a record loss, and rival mortgage lender Fannie Mae will continue to tumble because of bad home loans, investor Jim Rogers said.

``I'm still short those companies, they both have a long way to go as far as I'm concerned,'' Rogers said in an interview. ``Neither one has a clue what's on their balance sheets.''

Freddie Mac, the second-largest U.S. mortgage company, warned of a possible cut in the dividend and the need for additional capital. The worst housing slump in 16 years caused ``significant deterioration'' in the third quarter that will continue through year-end, Freddie Mac said after reporting a net loss of $2.02 billion, or $3.29 a share, three times what some analysts estimated.

Rogers, who predicted the start of the global commodities rally in 1999, advised in a Nov. 5 interview with Bloomberg that investors should avoid financial stocks. In March 2006, he said Fannie Mae shares would decline.

Make sure you read Drilling Deeper into the Freddie Fiasco from Greenberg!

Laßt Euch auf keinen Fall Drilling Deeper into the Freddie Fiasco von Herb Greenberg entgehen!

Thanks to Rodger Rafter for the term "Phony Mae and Fraudie Mac"

Recession Talk Is Making Headlines

Finally the "recession" talk is making headlines. The only think that wonders me is that there is still a discussion that the US will face a recession.... If the US would use a more "realistic" formula ( see this example ) i assume that the recession is already here.... The clearest sign might be that Starbucks reportet the first decline ever in customer visits. :-) . Here is more Coffee Talk via Cutting The Bull

Schön das es die kommende Rezession jetzt auch die Titelseiten schafft. Merkwürdig nur das immer noch diskutiert wird ob die Rezession kommt..... Wenn Die USA eine nicht ganz so kreative Berechnungsformel ( siehe dieses Beispiel ) behaupte ich das die USA schon mitten in der Rezession stecken. Ein sicheres Anzeichen für die aktuellen Probleme liefert Starbucks die zum ersten Mal in der Geschichte einen Kundenrückgang berichten müssen. :-) Hier gibt es mehr zum Thema Coffee Talk von Cutting The Bull

IN 1929, days after the stockmarket crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the range of probability”. In a survey in March 2001, 95% of American economists said there would not be a recession, even though one had already started. Today, most economists do not forecast a recession in America, but the profession's pitiful forecasting record offers little comfort

Recession in America / America's vulnerable economy

The Consumer Crunch

ACA "Hypothetical Speaking....."

Four Month after this post the chart doesn´t look good....... What a surprise!

Vier Monate nach diesem Post hat sich die Lage offensichtlich nicht gerade verbessert...... Was für eine Überraschung!

ACA Capital Reports Financial and Economic Results

ACA Capital Holdings, Inc. (NYSE: ACA) today announced a third quarter 2007 net loss of ($1.0) billion, or ($29.42) per diluted share. The net loss was primarily a result of ($1.7) billion, or ($1.1) billion after tax, of net unrealized mark-to-market losses on the Company's portfolio of Structured Credit transactions.

Nice to see that they have still money to buy back shares.....

Schön zu sehen das immer noch genügend Geld vorhanden ist um Aktien zurückzukaufen.....

During the quarter, ACA Capital Holdings purchased 2.1 million shares or $14.9 million of its outstanding shares of common stock in open market transactions. The stock repurchase program began on July 27, 2007 and may be suspended or discontinued at any time without prior notice.

The quote from ACA and this Q+A “Understanding correlation is critical to everything we do” from a few month ago is just brilliant comedy if you are not a shareholder or even worse have bought billions of insurance from this company.....

Dieses Zitat und dieses Q+A File “Understanding correlation is critical to everything we do” von vor einigen Monaten ist nahe an guter Comedy wenn man nicht gerade Aktionär oder noch schlimmer einer derjenigen ist die Mrd an Absicherung von ACA erworben haben

ACA Capital’s Structured Credit business provides credit protection, using credit default swaps, on tranches of credit portfolios. We are primarily a seller of credit protection on tranches where the risk of loss is greater than that of the “AAA” rated level. We will sell credit protection below the “AAA” rated level but only when we see unusually strong value. The credits that underlie the portfolios on which we sell credit protection include corporate bonds and loans and mortgage and asset-backed securities

What was only a hypothetical question on the Nov. 7 th in the conference call what will happen after a downgrade from the single A rating the management said that ACA would face (hypothetical speaking....) an immediate liquidity call of $ 1.7 billion...... Now after S&P has finally eliminated the "hypothetical" just 2 days later and put ACA on the list for a possible downgrade from A this scenario described from Michael Panzner So Much For Being Hedged could lead to big trouble on balance sheets from banks and insurers.... And with actions like this Fitch Downgrades $37.2B Of CDOs, Slashing AAAs to Junk the pain is spreading fast......

Nachden noch am 07. November in der Telefonkonferenz die vollkommen abwegige Frage diskutiert wurde was denn passieren würde wenn ACA sein A Rating verlieren sollte und das Management daraufhin geantwortet hat das dann sofort eine zusätzliche Geldspritze von 1,7 Mrd $ notwendig wäre kann man nachdem S&P nur 2 tage später AVA auf die WL für ein downgrade gesetzt haben schon mal auf Betteltour gehen. Wahrscheinlich ist das dieses Szenario das Michael Panzner beschreibt So Much For Being Hedged einigen Banken und Versicherungen üble Löcher in die Bilanzen reissen wird. Und mit Meldungen wie diesen Fitch Downgrades $37.2 Billion of CDOs dürfte sich das Problem rapide weiter verschlimmern......

Here is one example from the German insurance giant Allianz. The have hedged one part and bought insurance from monolines for another ( I assume not ACA, they have bought from one the least weaker players like MBIA, I hesitate to rate anyone strong....)

Hier ist ein anschauliches Beispiel der Allianz. Die haben einen ganz gewichtigen Teil Ihrer Engagements entweder durch Shortpositionen und den Kauf einer Garantie abgesichert. Ich bin mir sicher das die Allianz niemals von ACA gekauft hätte. Sie haben sicher von einen der wenigen schwachen Spieler wie MBIA gekauft. Richtig stark auf der Brust ist aber keiner......


The WSJ has a related story Buffett Gets OpeningAs Bond Insurers TurnTo Berkshire for Succor

Das WSJ hat passend dazu heute Buffett Gets OpeningAs Bond Insurers TurnTo Berkshire for Succor eine passende Geschichte

Expecting A Recession / Hussman

This is only a smal snippet from Hussman´s latest work Expecting A Recession . Havn´t heard the word "contained" for a long long time.....

Dieses ist nur ein kleiner Ausschnitt von Hussman´s letzten Werk Expecting A Recession . Nebenbei bemerkt habe ich das wort "contained" schon lange nicht mehr gehört.......

Industry groups: rotating disappointments
It's interesting that investors have not yet put the rotating disappointments among various industry groups into a “gestalt.” Rather, investors seem to be looking at various industries as if their problems are each somehow unique and unrelated. Investors recognized early that the housing sector is profoundly vulnerable. More recently, they have recognized that financials face growing loan loss risk. With Caterpillar's disappointing guidance, they suddenly realized that cyclicals and machinery face significant challenges. With Exxon's refining difficulties, they realize that profit growth in the oil sector is unlikely to produce major upside surprises. And last week, technology stocks were clipped when Cisco produced strong earnings but didn't raise guidance. Yet somehow, investors haven't put all of these together to see the larger picture, which is that the market has lost leadership from every important group. This isn't a stock-selection or an industry-selection issue. It is a pervasive indication of oncoming economic risk.

With regard to financials in particular, investors continue to look for a bottom. Aside from periodic short squeezes and spectacular but short-lived rebounds, I don't think it is coming anytime soon. The recent concern about higher loan losses is no surprise (see The Problem with Financials), and this is likely to continue. This is not simply a problem that will go away if various financial companies “come clean” with what their CDOs and so forth are worth. The real problem is that the companies don't know what they're worth because the foreclosures that will determine their value haven't happened yet. The defaults are just starting. The heaviest round of mortgage resets only started in October, so it will probably be months before we observe mass delinquencies, and several more months until we observe significant foreclosures, loan losses, and writeoffs. This is a multi-year problem, not a multi-week problem that can be resolved by “just coming clean” with what's on the balance sheet

According to the latest FDIC banking profile, FDIC insured institutions currently hold a notional value of $153.8 trillion in credit derivatives. That's not a typo – though GDP itself is only about $13 trillion, the high notional value emerges because for each derivative that connects two true “end users” (one long, one short), there is a whole chain of intermediaries who are long with one intermediary and short with another, hoping to earn a tiny profit on the spread. For example, I buy a derivative from Andy, who goes short to me, so he buys one from Barry who is short to Andy, hopefully for a tiny spread, and covers the risk by buying a derivative from Charlene, and so on, until someone finds a true “end user” who actually wants to carry a pure short position in that derivative. Unfortunately, this also exposes banks to as-yet-unknown “counterparty” risk. If one link in the chain snaps, the links surrounding that chain have to bridge the gap. This is not a material risk in exchange traded derivatives, but can be a problem in “over-the-counter” derivatives traded between banks, where “know thy counterparty” currently ought to be chiseled into every marble surface.

Foreclosure Filings Soar in 3rd Quarter

The cartoon from Jim Borgman nails the situation..... No surprise that almost every "heatmap" looks the same....

Dieser Cartoon von Jim Borgman trifft den Nagel auf Kopf....... Es sollte auch nicht weiter verwundern das sich nahezu alle ""Heatmaps" zum verwechseln ähneln...

Foreclosure Filings Soar in 3rd Quarter
A total of 446,726 homes nationwide were targeted by some sort of foreclosure activity from July to September, up 100.1 percent from 223,233 properties in the year-ago period, according to Irvine-based RealtyTrac Inc.

The current figure was 33.9 percent higher than the 333,731 properties in foreclosure in the second quarter of this year.


Nevada reported one foreclosure filing for every 61 households, with 16,817 filings on 12,982 properties.

That marked a 22.8 percent increase in filings from the previous quarter and a tripling from the year-ago quarter.

California led the nation in total foreclosure filings and reported one filing for every 88 households.

The state had 148,147 filings on 94,772 properties, an increase in filings of 36 percent from the previous quarter and nearly four times more than the year-ago period.

In Florida, there were 86,465 foreclosure filings on 60,992 properties during the third quarter, RealtyTrac said. Foreclosure filings rose 51.5 percent from the previous quarter and more than doubled from the same quarter last year.Florida's foreclosure rate amounted to one filing for every 95 households, RealtyTrac said.Rounding out the top 10 states in foreclosure rates were Michigan, Ohio, Colorado, Arizona, Georgia, Indiana and Texas.

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.

The United States of Subprime / WSJ

Brilliant! This is a must read and the interactive map "subprime tidal wave" is a must see!

Brilliant! Der komplette Artikel ist zu Recht auf Seite 1 vom WSJ. Die interaktive Karte "Subprime Tidal Wave" ist ein echter Hingucker und sollte auf keinen Fall verpaßt werden!

I suggest to read the entire link

Ich empfehle den kompletten Link zu lesen.

The United States of Subprime
As America's mortgage markets began unraveling this year, economists seeking explanations pointed to "subprime" mortgages issued to low-income, minority and urban borrowers. But an analysis of more than 130 million home loans made over the past decade reveals that risky mortgages were made in nearly every corner of the nation, from small towns in the middle of nowhere to inner cities to affluent suburbs.

The analysis of loan data by The Wall Street Journal indicates that from 2004 to 2006, when home prices peaked in many parts of the country, more than 2,500 banks, thrifts, credit unions and mortgage companies made a combined $1.5 trillion in high-interest-rate loans. Most subprime loans, which are extended to borrowers with sketchy credit or stretched finances, fall into this basket.

High-rate mortgages accounted for 29% of the total number of home loans originated last year, up from 16% in 2004. About 10.3 million high-rate loans were made in the past three years, out of a total of 43.6 million mortgages. High-rate lending jumped by an even larger percentage in 68 metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma, Wash.

To examine the surge in subprime lending, the Journal analyzed more than 250 million records on mortgage applications and originations filed by lenders under the federal Home Mortgage Disclosure Act. Subprime mortgages were initially aimed at lower-income consumers with spotty credit. But the data contradict the conventional wisdom that subprime borrowers are overwhelmingly low-income residents of inner cities. Although the concentration of high-rate loans is higher in poorer communities, the numbers show that high-rate lending also rose sharply in middle-class and wealthier communities.

Banks and other mortgage lenders have long charged higher rates to borrowers considered high-risk, either because of their credit histories or their small down payments. As home prices accelerated across the country over the past decade, more affluent families turned to high-rate loans to buy expensive homes they could not have qualified for under conventional lending standards. High-rate loans are those that carry interest rates of three percentage points or more over U.S. Treasurys of comparable durations.

The Journal's findings reveal that the subprime aftermath is hurting a far broader array of Americans than many realize, cutting across differences in income, race and geography. From investors hoping to strike it rich by speculating on condominiums to the working poor chasing the homeownership dream, subprime loans burrowed into the heart of the American financial system -- and now are bringing deepening woe.

The data also show that some of the worst excesses of the subprime binge continued well into 2006, suggesting that the pain could last through next year and beyond, especially if housing prices remain sluggish. Some borrowers may not run into trouble for years. ....