Consumer Spending Break-Down / Hester

Nice quote via William Hester from his piece Consumer Spending Break-Down .

Nettes Zitat via William Hester aus Consumer Spending Break-Down

Following a Bull's game in the 90's where Michael Jordan scored 69 points and the newly acquired Stacey King contributed one point, the rookie quipped, “I'll always remember this as the night Michael Jordan and I combined to score 70 points.” Whether you're handicapping basketball games or the economy, it's always best to figure out how the major producer will perform.

It´s still amazing that some are still in denial.....

Schon erschreceknd das bei den meisten "Experten" der Groschen noch immer nicht gefallen ist.....

A quick look at economist's expectations for the economy this year shows that much is riding on the forecast of a mild slowdown. The level of GDP should be essentially unchanged the first two quarters of this year, and then expand at almost 2 percent in the second half, according to a Bloomberg poll. Underlying those estimates is the forecast for spending to grow at an average rate of one half percent in each of the first two quarters, and at about 2 percent in the second half

But they are probably betting on the never ending story of creative accounting from the government level ( Pre-Revision CPI: 9%, Disappearing Economic Indicators, Unemployment Soars, Jobs Collapse etc ) to mask the real damage. At least the officials haven´t gotten so far as the pentagon ( Behind Analysts, the Pentagon’s Hidden Hand )..... :-)

Wahrscheinlich werden hier schon die "kreativen" Berechnungsmethoden von Staatsseite eingepreist ( Pre-Revision CPI: 9%,Disappearing Economic Indicators, Unemployment Soars, Jobs Collapse usw ) die nur ein Ziel haben die Wirklichkeit in einem besseren Licht erscheinen zu lassen. Das mag kurzfristig sogar funktionieren, mittel bis längerfristig wird hier aber enormer Schaden angerichtet. Immerhin sind Sie noch nicht soweit wie das Pentagon gegangen (Bush kaufte TV-Militärexperten ).... Obwohl ich ir da auch nicht immer ganz sicher bin .... :-)

UK Update & BOE Spin

Mid September Mervyn King, the governor of the Bank of England said this ...

Mitte September Tagen hatte Mervyn King, the governor of the Bank of England folgendes zu sagen .....

In an unusual public display of discord, the British central bank criticized other central banks yesterday for injecting cash into the financial system to help stabilize credit markets, saying that such a policy amounted to a bailout of investors who made bad decisions.

The main thrust of his written testimony to Parliament, however, was a sharp warning about “moral hazard” — a term used to describe the downside of policies that effectively rescue investors when their bets turn out wrong.

“The provision of such liquidity support undermines the efficient pricing of risk by providing ex-post insurance for risky behavior,” Mr. King wrote. “That encourages excessive risk-taking and sows the seeds of a future crisis.”

Too bad that everything he has said has been proven dead wrong ( in the case of Northern Rock he flip flopped within 48 hours) and he often did the exact opposite of what he was proposing. Welcome to the world of "respectable" central bankers.......Now move on to todays headlines......

Zu dumm nur das er bereist wenige Wochen um im Fall von Northern Rock nach wenigen Tagen in allen Bereichen eingeknickt ist und das oftmals das genaue Gegenteil praktiziert hat. Willkommen im Club der "ehrenwerten" Zentralbänker............ Hier ein weiteres Beispiel Wolfgang Münchau: Entzauberung einer Zentralbank

Is Britain's economy heading for the perfect storm?

UK's Northern Rock could be nationalized: report

U.K. House Prices Fall the Most Since December 2006, HBOS Says

U.K. Consumer Confidence Falls Most Since 2004

Lenders 'must prepare for worst'

An Irrelevant Fed: Thimbles of Water in a Forest Fire / Hussman

Always good to start the week with some rational thoughts from Hussman

Immer eine gute Idee die Woche mit erhellendem von Hussman zu starten

An Irrelevant Fed: Thimbles of Water in a Forest Fire
Pop Quiz
How much “liquidity” has the Federal Reserve “pumped” into the $12.7 trillion U.S. banking system since March 2007?

a) $1.2 trillion, which banks have used to firm up their balance sheets

b) $600 billion, which banks can now use to make new loans

c) $16 billion, all of which has been drawn out of the banking system as currency in circulation

If you answered c, move to the head of the class. Investors who answered a or b have not only been misled by analysts and media stories, but have no idea how irrelevant the Fed's actions are likely to be, except on short-term market psychology. More charts and data below. ....

The Fed can certainly penalize savers by pressuring deposit rates lower, but it isn't having a measurable effect on the market-determined interest rates that borrowers actually face. Nor can the Fed significantly affect the solvency of the mortgage market.

As for stocks, I noted a couple of weeks ago (extending Jim Stack's analysis) that in each instance that the market declined materially after successive discount rate cuts, S&P 500 earnings were down sharply a year later. Given that a large portion of S&P 500 profits are from financials, that profit margins in other industries are well above historical norms, and that profit margins have always collapsed during recessions, my impression is that S&P 500 earnings could easily fall by 40% over the next 18 months (investors who view this as impossible haven't examined earnings history). This could become far worse than a 5% decline off the high, which is where the S&P 500 is now.

FT Equity investors: Denial is not a river in Egypt

Suppose three years ago, they said, you had been given the following scenario for November 2007: oil close to $100 a barrel, the dollar at $1.50 to the euro, corporate profit margins at a record high but starting to turn, house prices falling in the US and the UK and the global banking system in chaos. Would you have predicted that European equities would be only 6 per cent off their peak?

It's possible that investors could adopt a fresh willingness to speculate on the hopes and eventuality of a Fed rate cut (the economic news this week will determine the likelihood of 25 vs. 50). Regardless, given the economic backdrop, my impression is that any such speculation would be short-lived - as it has after other Fed cuts this year. For now, we don't have evidence to support any amount of bullish speculation. ..... In any event, historically, investors would have considered themselves lucky to clip off their excess risk so close to all-time highs, even after market action and economic news began to sour.

The Fed – thimbles of water in a forest fire
My greatest concern at present is that investors are being bombarded with empty hope that the Fed will save them by “injecting liquidity” into the banking system. Time spent examining these false perceptions is not time wasted.

Very simply, the impact of Fed actions is sorely exaggerated. The amount of liquidity that the Fed provides is minuscule in relation to the U.S. banking system, and also in relation to the volume of capital inflows (about $2 billion daily) that the U.S. relies on from foreigners, thanks to our massive fiscal deficits and low savings rate.

What strikes me as particularly absurd is that the analysts who wax rhapsodic about “Fed liquidity” speak in a way that makes it obvious that they have no understanding of how these Fed operations work. Then again, it's precisely because we do understand how they work that we're convinced that they're irrelevant (aside from boosting short-term market psychology and accommodating short-term spikes in the demand for currency).

Let's start with a basic fact. There is only one monetary aggregate that the Fed directly controls: the monetary base – consisting of currency in circulation plus bank reserves. Here's the data.

Monetary Base : = Currency in Circulation : + Total Reserves :

In the early 1990's, reserve requirements were abolished on everything but demand deposits (checking accounts). Since then, the quantity of bank reserves has gradually declined, and has no relationship with the volume of bank loans or total bank assets – again look at the data. In recent months, as has been the case since the early 1990's, virtually all of the increase in the U.S. monetary base has represented the gradual and predictable increase of currency in circulation, held outside of the banking system.

So how does the Fed increase the monetary base? There are three sources of “liquidity” managed by the FOMC: permanent open market operations, temporary open market operations, and loans through the discount window. Let's take a look at each. Again, here are the Fed's own statistics:

Permanent Open Market Operations:
Temporary Open Market Operations:
Discount Window Borrowings:

The Fed uses permanent open market operations primarily to finance the gradually increasing stock of U.S. currency in circulation. The Fed buys Treasury securities (which become an asset on the Fed's balance sheet) and pays for them by printing money (a liability of the Fed, as evidenced by the words “Federal Reserve Note” on top of the pieces of paper in your wallet). The Fed has not engaged in any permanent open market operations since May.

Next, the Fed can use temporary open market operations to vary the amount of day-to-day reserves in the banking system, in order achieve the targeted Federal Funds rate (which is the interest rate that banks charge to lend reserves overnight to other banks that are temporarily short). What's important is that these are temporary operations, in the form of “repurchase agreements”: the Fed provides reserves to the banks, usually for periods of 1-14 days. It purchases Treasuries or government-backed mortgage securities from the banks as collateral, and at the end of the period, the banks are obligated to buy them back from the Fed, at the purchase price plus interest.

What's important here is that every time a repo matures, the Fed generally enters a new one for a similar amount. The average maturity of these repos is only about 7 days, so there is a lot of activity. These transactions are constantly reported by the media as if they are “new injections” of liquidity – but they are just rollovers. If the Fed does a $20 billion 7-day repo one day, you can pretty much bet that the Fed will be doing another $20 billion in repos a week later when the outstanding one comes due. What matters is the total amount of repos outstanding. The chart below presents the 30-day average of Fed repos outstanding since March (see the above link for source data - thanks to Brooke Steinau for tying all of these figures out).

Note that the total amount of liquidity added by the Fed since March is only about $16 billion (it turns out that all of this has been drawn out of the banks as currency in circulation, probably for good, so at some point in the coming months, the Fed will undoubtedly do about $10-$15 billion in “permanent” open market operations to recognize this withdrawal, and will simultaneously reduce the outstanding amount of these “temporary” repos).

The third way the Fed can “inject liquidity” is to make loans to banks through the “discount window,” for which it charges interest at the “discount rate.” While market participants behave as if changes in the discount rate are wildly important, the fact is that even at their peak last summer, total loans to banks through the discount window only rose to about $3 billion. Currently, the total amount of “liquidity” being lent by the Fed through the discount window is $55 million. Yes, million.

FT Fed considers steps for money market

The Federal Reserve is considering measures to make liquidity more readily available to financial institutions. Analysts close to the Fed believe it is considering a cut in the discount rate, at which it lends directly to banks, and steps to reduce the stigma associated with such borrowing. The Fed could announce plans to cut the discount rate by 25bp to 4.75%. That would halve the interest penalty on discount window borrowing compared to the main, Fed funds, rate of 4.5%. The reduction of the discount rate penalty could come before the next FOMC meeting on Dec 11 if credit market conditions remain stressed. Alternatively, the Fed may cut the discount rate by an extra 25bp over and above any reduction in the Fed funds rate at that meeting, the analysts said.

> Maybe this could bring the amount back over $ 100 mio...... Watch for the spin if this move happend outside the regular Fed meeting ....I´m pretty sure that almost nobody will mention that the entire discount window borrowing is almost nonexistend despite the latest cuts...

> Evtl. könnte dieser Schritt die Summe ja über 100 Mio hieven..... Sollte dieser Schritt ausserhalb des regulären Fed Meetings stattfinden dürfe das als Anlaß genommen werden die Spinmaschinerie heißlaufen zu lassen..... Ich vermute das die Tatsache das diese Art der Kreditversorgung trotz der bisherigen Senkungen keinerlei Rolle gespielt hat mal wieder "unterschlagen wird"......

Last week, investors made a great deal about an $8 billion 43-day repo that the Fed initiated. While this was reported as an extraordinary measure to stabilize the financial markets, the fact is that the Fed regularly enters a long-dated repo every year, just before the holidays, in order to accommodate a moderate increase in the demand for currency (in 1999, the amount was massive because of year-2000 fears, and was quickly reabsorbed after the new year). The $8 billion repo the Fed entered last week amounts to roughly $25 per American in extra cash to carry around the malls. To frame this as some sort of extraordinary effort to stabilize the banking system is absurd.

Again, the problem with the U.S. financial system here is not liquidity, but the solvency of mortgage loans and securitized debt. The Fed's actions are not likely to have material impact on this. To believe otherwise is mindless sheep-like superstition. Do investors really want to bet their financial security on the hope for “Fed liquidity” promised by uninformed analysts who don't understand monetary policy because they can't be bothered to look at the data?

Fineprint Citigroup Warning

This story fits perfect with the latest news from the UBS (and more to come probably on a weekly basis...). Make sure you also read this from Minyanville A Look Inside Citigroup's Writedowns & No Kidding.... More Off Balance Sheet Vehicles For Citigroup . A must read!

Das ganze paßt hervorragend zu den heutigen Neuigkeiten die aus der Schweiz von der UBS (und zukünftig auf Wochenbasis von rund um den Globus) kommen. Zudem solltet Ihr Euch das A Look Inside Citigroup's Writedowns via Minyanville & No Kidding.... More Off Balance Sheet Vehicles For Citigroup nicht entgehen lassen.

Quote Prince CEO Citigroup just a few weeks ago The $1 Billion Break Up Fee & An Ignorant And Deaf CEO

Dieses Zitat vom CEO der Citigroup ist gerade einige Wochen alt.......

"When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance. We’re still dancing".

Not a good sign if the CEO of the world biggest bank need signs like this.......

Kein gutes Zeichen wenn der CEO der weltgrößten Bank anscheinend solch deutliche Hinweisschilder benötigt.....

FT Citi takes big hits across the board: 60 per cent drop in Q3 income That huge loss has been realised from two hits from LBO debt and subprime mortgages. throughout the credit crunch, banks have been quick to point out that they hold few, or no subprime assets. Most casualties so far have thus been victims of contagion. No such luck for Citi.

Instead, there’s just huge amount of LBO debt and subprime mortgage securities stuck on the bank’s balance sheet - making it the most direct casualty of the credit crunch to date. Citi lost $1.4bn on holdings of LBO debts:

Write-downs of approximately $1.4 billion pre-tax, net of underwriting fees, on funded and unfunded highly leveraged finance commitments. These commitments totalled $69 billion at the end of the second quarter, and $57 billion at the end of the third quarter. Write-downs were recorded on all highly leveraged finance commitments where there was value impairment, regardless of the expected funding date.

And Citi are still having difficulty syndicating. As FT Alphaville observed earlier Monday, bank’s are having to brook significant losses on sales where they can make them - so there could be more pain for Citi to come.

As for Citi’s subprime debt, it too is stuck on the bank’s books: “warehoused” for use in future securitizations. Here the bank reports $1.3bn in losses:

Losses of approximately $1.3 billion pre-tax, net of hedges, on the value of sub-prime mortgage-backed securities warehoused for future collateralized debt obligation (”CDO”) securitizations, CDO positions, and leveraged loans warehoused for future collateralized loan obligation (”CLO”) securitizations.

Note that Citi, a touch coy here, hasn’t disclosed the total amount of subprime securities they hold - only the $1.3bn loss on them they’ve realised so far.

But those losses aren’t just coming from toxic debt products. Citi has also lost $600m through their fixed income trading operations because of “market volatility”. And a massive $2.6bn hit has been taken because of an increase in global “credit costs”. The charge was:

Due to continued deterioration in the credit environment, organic portfolio growth, and acquisitions. Approximately one-fourth of the increase in credit costs was due to higher net credit losses and approximately three-fourths was due to higher charges to increase loan loss reserves.

While other banks have been nimble on their feet and hedged their way around big losses, Citi’s results look nothing short of an out and out embarrassment. UBS was quick to direct senior figures towards the job pages and announce changes and cost cutting. Surely heads will also roll at Citi?

We suspect that all that troubling talk of a Citigroup break up to unlock shareholder value could gain ground again - fast.

> Maybe that´s the reason why the stock is up. I have the feeling that there is almost no news bad enough out there to put a positive spin on it. At least i havn´t heard a "Buffet" rumor yet... ;-)

> Wird wohl auch der Grund sein warum die Aktie z.Zt. höher notiert.Es gibt wohl kaum eine Meldung die schlecht genug ist um nicht für einen Spinversuch herhalten zu müssen. Immerhin mußte das letzte Mittel "Buffet" bisher nicht herausgeholt werden..... ;-)

Earnings Quality Part XXIII........

Another example why you should read the earnings news especially from financial with great scepticism......Add this to the list of "creative accounting" like Negative Amortisation, Level 3 " Mark-To-Make-Believe Gains", Level 2 "Mark-To-Model", "Preferred Measurements Of Income", loan loss "politics" Part 1 & Part 2 etc.......

Einmal mehr Beleg dafür das man besonders die Ergebnisse der Finanzinstitute mit einer gewissen Portion "Skepsis" betrachten sollte......Hier ein paar weitere Beispiele die belegen das nicht wirklich "konservativ" bilanziert wird Negative Amortisation, Level 3 " Mark-To-Make-Believe Gains", Level 2 "Mark-To-Model", "Preferred Measurements Of Income", Risikovorsorge Teil 1 & Teil 2 etc.......

Brokers' Head-Scratcher / WSJ

Still, some investors remained concerned about earnings quality, in part, because the firms all benefited from a tumble in the value of their own debt. Accounting rules require firms to take a gain on such declines if they are applying market values to some forms of debt or financial instruments.

At Bear Stearns, the already dismal quarter would have been even worse without about $225 million in such gains. Morgan Stanley, which also had a rocky quarter, said it booked $390 million in such debt-related gains, while Goldman said it benefited from nearly $300 million in this way. Lehman didn't specify its gains, but said they helped lower to $700 million the hit the firm took from markdowns on loans and securities.

Hat tip to Barry Ritholtz

Keep this in mind when Wall Street is pointing to low pe´s......They also often forget to mention that financials are the biggest sector of almost every major US index....

Behaltet all das im Hinterkopf wenn der nächste Analyst mal wieder auf die niedrigen KGV´s verweist....... Zudem wird nur zu gerne unterschlagen das Finanzwerte der mit Abstand wichtigste Sektor aller US Indizes sind....

Waiting for the Witch Doctor / Hussman

If you are a bull and still believe that rate cuts from the Fed will save this market you should stop reading.... If you want to read what Hussman has to say what is the primary cause for inflation watch this chart or click on the headline to read the entire piece.

Solltet Ihr bullish für die Märkte sein und daran glauben das die kommenden Zinssenkungen der Fed diesen Markt wirklich retten können solltet Ihr besser nicht weiter lesen.... Desweiteren hat Hussman eine erschreckend einfache Inflationsindikator ausfindig gemacht. Hier die Kurzform im Chart oder aber die längere Version wenn Ihr auf die Überschrift klickt.

Given Friday's substantially weak employment report, the universal and unrelenting topic on Wall Street is whether the Fed will ease monetary policy in its September meeting, and by how much. This is an amazing exercise in superstition. This is not to say that the Fed's actions will be unimportant. It's just that whatever the Fed does, the impact will be almost entirely psychological. I've written about superstition and the Fed before, but given the dominating focus on the Federal Reserve here, it's important to refresh those comments.

> Thanks to Wall Street Follies

There's no question that interest rates – market determined interest rates – have a substantial role in economic activity, particularly on the durable goods and housing sectors of the economy. But if you look carefully at what the Fed does, and the instruments it uses, economists and even central bankers (both at the Fed and internationally) are at a loss to describe the “monetary transmission mechanism” in any detail – that is, why the tools of monetary policy should actually exert an effect on the real economy.

The problem, as I've noted before, is that since the early 1990's when reserve requirements were removed for all bank deposits except checking accounts, there is no longer any relationship between the volume of bank reserves and the volume of lending in the U.S. banking system (see Why the Fed is Irrelevant for a more complete review of the data).

> If you want to read more on this topis i highly recommend What (Really) Happened in 1995? / Aaron Krowne

> Wenn Ihr genaueres über die laxen Resrevevorschriften wissen möchsten kann ich Euch diesen Link What (Really) Happened in 1995? / Aaron Krowne
empfehlen.

Simply put, you can draw a clear connection between Federal Reserve operations and the monetary base. You can draw a connection between the monetary base and the overnight Fed Funds rate. You can draw connections between market interest rates, bank lending, and economic activity. But what you can't do in any specific, meaningful way is to complete the diagram by drawing a cause-and-effect connection between the monetary base and the Fed Funds rate on one hand, and market interest rates and bank lending on the other. Yes, in crises, you can – briefly. If there's a bank run, the Fed has a real and essential role to play in supplying emergency liquidity. Outside of that, the monetary transmission mechanism is hypothetical at best.

It's strange that Wall Street makes such strong assumptions about the link between monetary policy and economic outcomes when there's no agreement among economists and central bankers about how changes in the quantity of the monetary base should exert an effect on the real economy. Again, there's clear agreement that market interest rates matter. There's also clear agreement that the Fed has direct control over the monetary base, and approximate control over the overnight Federal Funds rate. But that's where the agreement about fact ends and the debate about theory starts. .......

A small base of influence
Recall that the only thing that the Fed can do is to change the mix of government liabilities held by the public. When it “eases” monetary policy, it purchases Treasury securities, and recently, government backed mortgage securities, and replaces them with monetary base (currency and bank reserves).

As it happens, the vast majority of the base money created by the Fed is drawn off as currency in circulation – very little is actually retained as bank reserves. Indeed, of the $15.9 billion in monetary base the Federal Reserve has created over the past year, all of it has been drawn off as currency, leaving bank reserves about $2 billion lower than last year. That's not unusual. Total bank reserves have been gradually declining since the early 1990's. Since then, in contrast to what I used to teach my undergraduates about “money multipliers” and such, there no longer any link between the quantity of bank reserves and the volume of bank lending.

Moreover, it's unclear exactly how changes in the Federal Funds rate presumably cause changes in market interest rates – statistically, market rates lead and Fed Funds typically follow. We can of course argue that, well, the markets are anticipating the Fed. But why do we really need so badly to believe that a government entity that influences an overnight interest rate on a $41 billion pool of money (this is the entire amount of U.S bank reserves) is actually in tight control of a $13.8 trillion economy?

Think about it. The full range of variation in the U.S. monetary base (including both bank reserves and currency in circulation) typically amounts to only about $50 billion annually. Over the past year, foreign holdings of U.S. government debt have increased by $300 billion – more than six times the fluctuation in the monetary base, and over a hundred times the amount by which U.S. bank reserves have changed.

It might seem that Fed must have an effect because periods of easing are typically followed by subsequent economic recovery, and periods of tightening are typically followed by economic softness, albeit with a “long and variable lag.” But that's a lot like saying the sun comes up because the rooster crows. The Fed generally only raises the Fed Funds rate when the economy is near full capacity and continues until the economy softens. It lowers the Fed Funds rate when the economy is already weakening and continues until the economy recovers. The Fed is “effective” as surely as economic softness follows strength and strength follows softness.

Even if a round of Fed easing will eventually be followed by economic strength, we should not prefer it. By that sort of logic, a major spike in unemployment would be a great thing, because as we know, such spikes are also typically followed by economic recoveries, though with a long and variable lag.

Ultimately, what's really going on is that we in free market economies are very uncomfortable with the idea that there's nobody in control. As Voltaire said, “If there were no God, it would be necessary to create him.” And since we can be pretty sure that God's first priority isn't bailing out the mortgage market, we look to the Fed. When things are going smoothly, we understand that the economy is complex, and diffuse, and driven by millions of individual decisions. But when trouble strikes, we want to believe that there's somebody up at headquarters with their hands firmly on the controls of the entire operation.

Still, just as Pavlov's dog salivated when he rang the bell, investors have been conditioned to believe that the Fed matters. And so it does. But it's important to recognize that this effect is primarily psychological. Unfortunately, the belief that the Fed somehow has our back creates a “moral hazard” by encouraging speculative risk. One might recall that the Fed did not prevent the U.S. stock market from losing more than half its value several years ago, despite fourteen consecutive rate cuts.

What the Fed does next week will certainly have an effect on short-term market psychology. The Fed can also have an impact by maintaining liquidity in the banking system in response to short-term demands for withdrawals. But managing the day-to-day demand fluctuations in a $41 billion pool of funds will not cure the much deeper solvency issues in the trillion dollar mortgage and commercial paper markets. To believe otherwise is plain and dangerous superstition.

> Here the latest Fed view from Paul McCulley/ Pimco predicting / beggin for rate cuts

> Hier das letzte Update von Paul McCulley / Pimco die mehr oder weniger massive Zinssenkungen erwarten bzw. herbeisehnen

Spin of the Week.....Citigroup’s SIV Overseers

Isn´t it refreshing when everybody is calling for more transparency the persons / institutions concerned are heading way too often in the opposite direction...... A big hat tip to the Financial Times that once more trumps the often superficial WSJ! Click on the headline to read the entire report.

Ist es nicht nett anzusehen wenn die ganze Welt nach mehr Transparenz im Finanzchaos sucht und sobald es ans Eingemachte geht die betroffenen Akteure "höchst fragwürdige" Auskünfte geben.... Einmal mehr großen Dank an die Financial Times die mal wieder deutlich die Nase vorm allzu oft oberflächlich berichtenden WSJ hat. Klickt wie üblich auf die Überschrift um den ganzen Bericht zu lesen.
In a letter seen by the WS Journal, Citigroup’s SIV overseers, Paul Stephens and Richard Burrows, said that:

Quite simply, portfolio quality is extremely high and we have no credit concerns about any of the constituent assets… SIVs remain robust and their asset portfolios are performing well.

But look at the filings with the London Stock Exchange, and you will see that Citi’s SIVs have seen declines in portfolio net asset value of 17-20 per cent in the past few months, which doesn’t quite sit comfortably with Stephens and Burrows assertion that “asset portfolios are performing well”.

Citi’s SIVs certainly do contain some very strong assets - their direct subprime exposure is accordingly, minimal, and a large chunk of their portfolios is rated highly. SIV managers are trying to stress the quality of their portfolios over their current values. But in a market such as this, that doesn’t necessarily matter, because a whole range of assets are suffering from contagion and fear.

Harley Davidson "retail sales have fallen sharply during August"

Another sign that maybe the housing slump isnt´t contained. You better don´t show them the view from the just released Beige Book. Will this perma spinning from officials ever stop ? They are making things only worse. No wonder gold is acting....

Die Einschläge das in den USA etwas aus dem Ruder läuft kommn näher. Es ist wohl keine gute Idee den Leuten von Harley die letzten Aussagen der Fed vom Beige Book zu zeigen. Das permanente schönreden ist wirklich nur noch peinlich. Im Endeffekt wird durch das "Perma Spinning" alles nur noch verschlimmert. Kein Wunder das Gold in Bewegung kommt.....

On top of the slump in sales Harley faces another problem with its financial division.

Zudem hat Harley wie wohl etliche andere noch erhebliche Probleme in Ihrem Finanzierungsarm

Kass: Harley Hogs Feed at the Subprime Trough

In 2006-07, 28% of HDFS loans in its securitized pools had FICO scores below 650, which is considered subprime, which is very close to the 21% subprime market share of total mortgage loans made the previous year.

During the company's investor day on Feb. 28, Harley acknowledged that several of the securitization pools had breached their credit-quality metrics -- like subprime, the most recent pools' credit losses and delinquencies are rising faster than expected and more rapidly than earlier pools.

Harley-Davidson announced today that it expects to ship between 86,000 and 88,000 Harley-Davidson® motorcycles in the third quarter of 2007. Shipments of between 91,000 units and 95,000 units were originally planned for the quarter

"Initial reports about our 2008 model year motorcycles from our dealers and the media have been excellent, but this is a difficult time for the U.S. consumer," said Jim Ziemer, Chief Executive Officer of Harley-Davidson, Inc. "Coming off a negative U.S. retail sales trend in the first six months of the year, we ran an effective promotion in July that increased retail sales and reduced inventories of 2007 model motorcycles. However, our U.S. dealers' retail sales have fallen sharply during August.

> Even if you assume that the "promotion" in July has eaten some August sales the wording is pretty clear. And it shows that they were able to sale prior to August only if they have offered big discounts.

> Selbst wenn man einwenden kann das die "Verkaufsoffensive" im Juli wohl einige geplante Augustkäufe vorweggenommen hat zeigt es doch auch deutlich das ohne größere Rabatte offensichtlich nicht mehr viel abzusetzen ist......

Looking ahead to 2008, the Company anticipates the U.S. retail motorcycle environment will continue to be challenging

New foreclosures set 55 year record

After numbers and more important increases like this every person that is using the word "contained" should know better that the wave is coming.....And we are still early in the process.....

So langsam dürfte auch dem letzten Zweifler bewußt werden was da für eine Welle auf die USA zukommt...... Und wir sind immer noch ziemlich am Anfang........

Very reassuring that right now the loan loss reserves are at new lows....

Beruhigend zu wissen das gerade jetzt die Risikovorsorge der Banken neue Tiefen erreicht.....

“for the fifth quarter in a row, reserves failed to keep pace with the increase in non-current loans.” The industry's “coverage ratio” of reserves to non-current loans fell to the lowest level since the third quarter of 2002, while non-current loans posted the largest quarterly increase since the fourth quarter of 1990.

CHICAGO (MarketWatch) -- The number of mortgage loans entering the foreclosure process in the second quarter set another record, according to the latest data from the Mortgage Bankers Association.

According to the group's quarterly delinquency survey, a seasonally adjusted 0.65% of loans on one- to four-unit residential properties entered the foreclosure process during the period, the highest level in the survey's 55-year history. In the first quarter, when the previous record was set, 0.58% of loans entered the process; a year ago, 0.43% entered the process.

Driving the numbers were the states of California, Florida, Nevada and Arizona, said Doug Duncan, MBA's chief economist and senior vice president of research and business development, in a news release.

"Were it not for the increases in foreclosure starts in those four states, we would have seen a nationwide drop in the rate of foreclosure filings.

> Too bad that he didn´t came with this argument during the boom and that he didn´t mention that states like California account for 13% of the US GDP...... Time to report "foreclosures ex foreclosures" or a "core foreclosure rate"......

> Dumm nur das solche Typen nicht wärend des Booms ähnliche Berechnungen aufgemacht haben und das er nicht erwähnt das Staaten wie Kalifornien für ca. 13% der gesamten US Wirtschaftsleistung stehen..... Wir werden demnächst ne "core" Zwangsvollstreckungszahl von ihm zu hören bekommen.....

From Greenberg Why California housing matters

Because the Golden State accounts for 13% of the country's gross domestic product or the total value of all goods and services produced nearly double the No. 2 contributor, New York. That means that what happens in California, home to such growth industries as high-tech, biotech, venture capital and film, doesn't necessarily stay in California.

The impact of slow economic growth, or even recession, in the state will ripple through the rest of the country.

Thirty-four states had decreases in their rates of new foreclosure and the increases were very modest in the states with increases, other than those four," Duncan said.

Duncan said there was a "clear divergence" in performance between fixed-rate and adjustable-rate mortgages because of the impact that rate resets have.

"While the seriously delinquent rate for prime fixed loans was essentially unchanged from the first quarter of the year to the second ( Bloomberg is reporting "In the second quarter, 2.73 percent of prime borrowers made their mortgage payments at least 30 days late, up from 2.58 percent in the first quarter"), and the rate actually fell for subprime fixed- rate loans, that rate increased 36 basis points for prime ARM loans and 227 basis points for subprime loans," he said.

California has 17% of the subprime ARMs in the country and more than 19% of the foreclosure starts on subprime ARMs. California, Florida, Nevada and Arizona have more than one-third of the country's subprime ARMs and more than one-third of the foreclosure starts on subprime ARMs.

According to the survey, 1.40% of all outstanding loans were somewhere in the foreclosure process during the second quarter, up from 1.28% in the first quarter and 0.99% a year ago.

The delinquency rate for mortgages on one- to four-unit proprieties was 5.12% in the second quarter, up from 4.84% in the first quarter and 4.39% a year ago.

Disclosure: Short KBW Mortgage Finance Index

Times are tough.....

Hat tip to my fellow blogger from the superb New York City Housing Bubble and the cartoonist Bob Gorrell

But there is hope if you can stand to listen what Lawrence Yun from the NAR has to say about the future of the housing market.....

Twist from the excellent Housing Doom was so polite to put this warning in front of her post

WARNING: Do not attempt to read if you suffer from vertigo

I’ve
Changed My Mind- Can We Have Lereah Back?

I think that not even Charly Brown and all his friends can safe Snoopy & co......

Wenn man den Prognosen von Lawrence Yun dem Cheflobbyisten der Immobilienmakler glauben schenken möchte besteht noch Hoffnung für Snoopy & co....

Twist von Housing Doom war so freundlich die Leser zu warnen das diese Aussagen wirkich nur für Hartgesottene oder Leute mit viel Humor zu ertragen sind.

I’ve
Changed My Mind- Can We Have Lereah Back?

Ich denke das nicht einmal Charly Brown samt all seiner Freunde Snoopy & co retten kann.....

Quote Of The Day "The amount of talking seems to indicate they are worried.''

Thats a very good quote and is describing the exact feeling that i have way too often when i see statements from the Fed, CEO´s, Wall Street strategist etc..... I think everybody has heard the word "contained" for month now in thousends of press releases, conference calls, statements etc.....

Der Kommentar trifft ziemlich genau meine Gefühlslage wenn ich Erklärungen der Fed, Vorstandsvorsitzenden, Strategen, "Experten" usw vor Augen halte..... Ich verweise in diesem Zusammenhang das seit Monaten gebrauchte Wort "contained" in nahezu allen Veröffentlichungen im Zusammenhang mit der Immobilienkrise

You should relax less!

Excellent Quote taken from CEOs See `No Clear Signs' of Crisis as Subprime Woes Intensify

Wall Street CEOs and CFOs ``are talking their books,'' said Tim Backshall, chief strategist at Credit Derivatives Research LLC, a Walnut Creek, California-based firm that advises clients on how to invest in the market for credit-default protection. ``The amount of talking seems to indicate they are worried.''

Bernanke Vs The CEO Of Nestle On Food Inflation

Who do you believe? I´ll go with the expert from the world largest food company and not with the spin masters from the FED who eats at the CPI cafe.

Wem würdet Ihr glauben? Ich halte mich da doch eher an den Experten des größten Nahrungsmittelkonzernes der Welt und nicht and den in einer parallelwelt lebenden FED Chef der im CPI Cafe essen geht....

Thanks to Wall Street Follies

This is taken from Herb Greenberg.

The head of Nestle doesn't see food inflation as a short-term issue, but part of "structural" changes in his world. So much for this "core inflation is in check" mumbo jumbo. Check, please.

At the same time Bernanke is living in his own "core world" and wonders why the inflation expectation are imperfectly anchored.....

Zur gleichen Zeit fabuliert Bernanke weiter über seine eigene "core" Welt und wundert sich das die Inflationserwartungen nur suboptimal verankert sind....

"Delivering a speech to the National Bureau of Economic Research, the Fed chief said "changes in energy [and food] prices should have relatively little influence on 'core' inflation, that is, inflation excluding the prices of food and energy."

Make sure you read Barry Ritholtz nice rant Un-frickin-believable

US $ vs. Major Currencies

Thank God that the US is committed to their strong their "strong $ policy"........

Gott sei Dank sind die USA ja Ihrer legendären Politik des starken $ verpflichtet.....
> The charts don´t include yesterday´s brutal sell off.....

> Charts sind vom 09. July und beinhalten nicht den gestrigen Ausverkauf

got Gold ....... ?

Interest Rate Intuition / Hussman On The "Fed Model"

Excellent anti spin from Hussman. Keep this in mind when the "eyperts" try to spin bad economic news into gold (lower yields, higher stock prices) . Hussman shows that this is in the longe term just bubbletalk. But i have the feeling that long term is today often viewed until the next jobs report, the next cpi number etc...... Click on the headline to read the entire report

Großartiger Bericht zu dem oft zitierten "Fed Model" von Hussman. Man sollte die "Experten" nicht für voll nehmen wenn Sie dieses Argument undifferenziert bringen. Das passiert immer dann wenn schlechte Daten in positive für die Börsen umgedeutet werden (niedrige Renditen, steigende Aktienkurse). Hussman zeigt sehr schön das dieses Argument langfristig aus dem Reich der Fabel stammt. Da ich aber eh immer mehr das Gefühl habe das langfristig heutzutage (speziell in den USA) häufig nur bis zum nächsten Arbeitsmarktbericht, der nächsten Fed Sitzung etc bedeutet....... Klickt bitte auf die Überschrift um den kompletten Bericht zu lesen

It continues to fascinate me that investors are entirely willing to base their financial security on concepts that can be wholly disproved with even a cursory look at historical data. The Fed Model is the predominant example of this at present. The following chart should be sufficient to reiterate that the effect of interest rates on stock valuations is vastly overrated, and that raw earnings yields (particularly based on peak earnings to date) explain subsequent market returns far better than indicators that “adjust” for interest rates in the way the Fed Model does.

The truth is that the relationship between stocks and interest rates is far more nuanced than the Fed Model assumes.

Since 1950, the average yield on the 10-year Treasury bond has been just below 6%, while the average price/peak earnings multiple on the S&P 500 has been slightly over 14. For simplicity, we'll use those levels to define bond yields as “low” or “high” and to define stock valuations as “cheap” or “expensive” relative to long historical averages. Also for simplicity, we'll classify interest rates as “falling” when the 10-year Treasury yield is below its level of 6 months earlier, and “rising” otherwise.

Our intuition should immediately suggest that stocks probably perform best when valuations are cheap and interest rates are both low and falling. We should also expect that such favorable conditions would not have been observed too often. As it happens, that intuition is correct. That combination of conditions has historically occurred only about 7% of the time, but during those periods, the S&P 500 has achieved average annualized returns of 31.72%.

In contrast, our intuition should suggest that stocks probably perform worst when valuations are expensive and interest rates are both high and rising. Again, that intuition is correct. Such a combination of conditions has historically occurred about 10% of the time, and during those periods, the S&P 500 has achieved average annualized returns of 3.05%, clearly below Treasury bill yields, and generally with a great deal of volatility as well. When interest rates have been high and rising, the total return on the S&P 500 has been muted at about 4.00% annualized even when stocks have been relatively cheap.

Low interest rates are no panacea
Beyond those conditions, however, the intuition of the typical investor is likely to be badly off the mark. The reason is that investors have come to believe that low interest rates are a good thing for stocks in general, when in fact they are only a good thing if stock valuations are cheap. Importantly, low interest rates are of no help to stocks when stock valuations are rich. Contrary to the bad intuition that the Fed Model instills in the minds of investors, relatively low interest rates (at least on the basis of 10-year bond yields) are not nearly sufficient to justify or offset the negative effect of rich stock valuations. ....

In general, high stock valuations coupled with low interest rates (as we have now) have historically been symptomatic of a fully priced, overly optimistic market, with little margin for error.

With stock valuations rich, interest rates still relatively low but clearly rising, just 18% of investment advisors bearish, and short-term trends overbought, my hope is that investors do not allow the excitement (or frustration) of a market near new highs to obscure the very real danger here for long-term investors.

Bears Stearns "How Could This Happen ?" / Minyanville

:-)! click on the headline to read the 4 other things you need to know

:-)! klickt bitte auf die Überschrift wenn ihr die anderen 4 Topics lesen wollt.

How Could This Happen?

“Traders and industry executives who saw lists of C.D.O.’s on offer from the Bear Stearns funds say that even as the manager of the funds, Ralph Cioffi, bought some protection against a deteriorating housing market, on balance his investments seem to be based on a belief that the subprime market would not crumble, or at least not soon," the New York Times reported this morning.

Now, that raises the following question: How would a smart hedge fund manager arrive at the belief that the subprime market would not crumble?

Probably by listening to the following experts:

-March 28, 2007: Federal Reserve Chairman Ben Bernanke said, "At this juncture ... the impact on the broader economy and financial markets of the problems in the subprime markets seems likely to be contained."

- March 29, 2007: Treasury Secretary Henry Paulson said he thinks the economic damage from the subprime lending crisis is "contained."

- April 4, 2007: Federal Reserve Bank of Dallas President Richard Fisher said damage from the U.S. subprime mortgage market is "mostly contained."

- April 11, 2007: The subprime mortgage market is "little more than an asterisk in the overall U.S. credit economy," said Roth Capital Partners economist Donald Straszheim.

- June 12, 2007: Lehman Brothers Chief Financial Officer Chris O'Meara said Tuesday he remains confident that weakness in the nation's subprime mortgages is waning.

> Just one more example that Bernanke, Paulson & co are acting more like Spinmasters/PR-People than telling the truth like it is. With reality often so depressing no real surprise........

> Das ganze ist einmal mehr ein Beleg dafür das Bernanke, Paulson & co mehr oder weniger PR betreiben und selten reinen Weiin einchenken. Da die Realität teilweise so erschreckend ist kann man es Ihnen wohl nicht wirklich übel nehmen......

Home builders' confidence falls back to 16-year low

anybody remember this great work from minyanville? on this headline from the nahb oktober 2006 .......

evtl. erinnert sch ja noch einer an die euphorische überschrift der buildervereinigung vom letzten oktober und diesem super teil von minyanville.....

"Builder Confidence Stabilizes In October"

http://tinyurl.com/2cz2o2 / thanks to Minyanville !

that´s my take on almost every press release from the nar, nahb etc..........

das umschreibt am besten meine meinung zum thema pressearbeit von lobbyistenvereinigungen......

Tightening lending standards shook U.S. home builders in May, sending a gauge of their confidence back down to a 16-year low, an industry trade group reported Tuesday.

The National Association of Home Builders/Wells Fargo housing market index slid three points to 30 in May, matching the 16-year low set in September. Economists were predicting the home builders' index would remain at 33, according to a survey conducted by MarketWatch.

Seiders said he doesn't expect any improvement in housing sales or production until late this year. "We're expecting the early stages of the subsequent recovery to be quite sluggish," he said.

All three components of the housing market index declined in May. The index of current sales fell two points to 31, a low for this business cycle. The index for future sales fell three points to 41, the lowest since September. The index for buyer traffic at developments dropped four points to 23, also the lowest since September.

Builders' confidence fell in three of four regions. In the South, the index dropped four points to 33. The index fell three points to 32 in the West and six points to 32 in the Northeast. It rose one point to 23 in the Midwest.

The index was at 46 a year ago, and 70 two years ago. It peaked at 72 in June 2005.

Greater fool theory / Hussman

excellent anti spin from hussman. click on the headline to see more charts and on the "short squeeze-spin"etc.

tut gerade in diesen zeiten gut mal wieder sachliches zu hören. klickt bitte auf die überschrift um mehr charts und besonders zu dem thema "short squeeze" zu sehen.

It's fascinating to watch the increasingly carnival-like atmosphere on CNBC on any given day (I generally catch about half an hour with breakfast before the market opens, to hear the prevailing arguments and get the tone of investor sentiment). One quickly finds that the cheerleading tone of the late 90's is back, and the greater fool theory is in full bloom, with investors regularly encouraged to “buy high and sell higher.” Lately, the bullish arguments are running so fast and loose that it is apparently no longer a requirement that they have any relationship to fact.

Take for example a remark last week that “mutual funds are sitting on piles of cash that these managers are going to have to get invested.”

Wow. That's just a bald-faced fib. It could not be further from the truth. Cash as a proportion of mutual fund assets has never been lower. Never.



To offer an idea of exactly how stark the situation is, keep in mind that when money market yields (e.g. Treasury bill yields) are high, mutual fund managers have a greater incentive to hold cash balances than when yields are low

The greater fool theory relies on one thing – the assumption that there is somebody else out there who is willing to pay an even more reckless premium for stocks. That's what the market is thriving on at this point; the hope that there is an ocean of unsatisfied demand out there by short sellers or mutual fund managers who will be “forced” to buy. Unfortunately, the facts do not support that assertion. As noted last week, we may see additional buyout activity, but that is driven primarily by credit spreads and does not have a strong relationship to subsequent market returns.

thanks 2 times to http://www.wallstreetfollies.com/

In any event, mutual fund cash is at a historic low, and higher short interest is more than offset by rising margin debt.

There may not be many greater fools out there after all. As they say, if you're sitting at the poker table and you can't spot the pigeon… you're probably the pigeon.