Bulls, Bears & Bucks #09: Euro weer 1,58 dollar waard

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The Subprime Crisis is Just Starting

Bron : financialsense.com

As the author of three books on mortgage finance and related derivative securities, and speaking as someone who first turned mortgages into rated securities in 1983, I’m going to let you in on an unfortunate little secret – the real subprime mortgage securitization crisis may not have even started yet. But, there is a good chance the real crisis will arrive soon.

This assertion that the crisis could just be getting started may seem absurd and extraordinarily out of touch. What about the approximately 45,000 homeowners losing their homes to foreclosure in the United States every month? What about the 8.9% plunge in nominal housing prices in 2007, the largest decline in over 20 years? What about Bear Stearns losing 94% of the value of its stock in 2 days, with even the remaining 6% in value being based on an unprecedented loan from the Fed before JP Morgan would agree to the acquisition? How much worse could it get?

To understand the full extent of the danger requires moving beyond current headlines to take a brief and simple look at how mortgage securitizations actually work. These securitizations are based on what are known as “stress tests”, or the ability of a security to withstand an adverse economic change and still pay principal and interest on schedule. The heart of the subprime problem is that no major stress tests happened in 2007 – and the market still blew up. Which brings up the question of what will happen to subprime and other mortgage derivative securities in 2008 if actual stress tests do occur in such possible forms as recession, increases in interest rates, or a further plunge in housing values? Given that the safety margins have already been stripped bare? As we will explore, should one of those stress tests occur – or worse, if two or three occur together – then we may look back at 2007 as being a mere stroll in the park in comparison.

The Lack Of A Problem

To explain what I mean about nothing going wrong, let’s review a bit of ancient history, and talk about how ratings and securitized mortgages used to work. You started with a creditworthy borrower, and a significant piece of equity invested in the property. The assessment of “creditworthy” was not a guess or an experiment, but rather the result of decades of underwriting experience on a national basis, through good times and bad. With single family mortgages, you had a large pool of such creditworthy borrowers, each having equity in their properties.

Then, you applied what are known as “stress tests”. A stress test is the assumption that something goes wrong. For instance, you might assume that there was a recession that would lead to homeowners losing their jobs, and then their homes. If rising interest rates hurt the security, you would check out some rising interest rate scenarios, and if falling interest rates hurt the security, you would check out some falling interest rate scenarios. Essentially you would push on the security until it fell over (using financial modeling).

The rating was simply a description of how hard you had to “push” before the security fell over and was unable to make contractual principal and interest payments to investors. If the ability to make payments was a bit shaky under the current economic environment, then the rating was junk. If the ability to repay investors was pretty good with a decent economy, but possibly grew problematic with a mild recession – then maybe you got the lowest investment grade rating, that of “BBB”. The highest rating, “AAA”, was reserved for those securities that had such powerful coverage and reserves built into them that they could withstand another Great Depression, and still make investor payments in full and on schedule. (Or so the theory went until Wall Street got collectively “brilliant” a few years ago.)

The Theory Of Turning Subprime Mortgages Into Wealth

To understand how the subprime debacle came about, we need to understand the reasons why supposedly prudent lenders would lend money to people wanting to buy houses, who, unlike our examples above, had neither equity nor a good credit history. The essence of the theory is that you charge a high enough interest rate, then you can cover the losses, and still walk away with way more money than if you had been doing ye olde traditional and boring strategy of lending to credit worthy borrowers with actual equity in their homes. A simple version of the numbers is something like what is illustrated in Scenario A, “The Way It Was Supposed To Work”:

The theory was that if you lend to people who don’t have particularly good credit, and who didn't put much equity (if any) into their homes, then sure, foreclosures were going to happen, and at rates well in excess of national averages. In this case, for illustration purposes (there were many kinds of subprime mortgages securitized over the years, this is just one round number example), we are assuming that 8% of the mortgages go into foreclosure every year, and we assume that the loss per foreclosure is 30%, so there is an annual loss of 2.4% on a large pool of mortgages. If you were lending at the same low rates that a highly creditworthy borrower can get, then this 2.4% annual loss would be a bad thing. But, if you are lending at a rate that is much higher than the market for "good" loans, and through securitization, you can get most of your funding at “good” loan rates, (the 4.8% for “AAA rates” plus expenses in our example) – then that 2.4% annual loss is no big deal, and in fact leaves a lucrative amount of money for you and others to keep.

In our example of how things were supposed to work, that 2.8% annual incentive with a $1.2 trillion market worked out to over $33 billion a year in incentives to securitize subprime mortgages. This was money that would be split many different ways: mortgage banking fees, investment banking fees, high yields on junior classes for hedge funds and other aggressive investors, bond insurance payments, and some of the most lucrative rating agency fees (to assure investors the whole thing would work) that have ever been seen in the capital markets. Multiply times seven for an average mortgage life, and we're looking at almost a quarter of a trillion dollars to be split, much of it just for massaging some numbers on a computer.

That was the theory, but there proved to be some complications in practice. The sources of these problems were myriad, including: underwriting people who could barely qualify for the teaser rate (while ignoring whether they could handle the full rate when the reset occurred); taking the thinnest of statistical histories, and creating a huge new market from the selective interpretations that allowed the deals to get done; ignoring the due diligence reports if you didn’t like them, and a number of other reasons that could all be summed up as the intersection of hubris and greed. The reasons are not our focus in this article, but a simple illustration of a general result is included below (this is an illustration, and does not purport to be an accurate statistical summary of the current market):

As illustrated in Scenario B, if it turns out that foreclosures are 15% instead of 8% for a particular grade of subprime, and foreclosure losses rise to 50% from 30% because so many people are getting foreclosed upon that it drives home prices downwards – then instead of splitting 2.8% of the excess profits in each mortgage pool, the big financial players are splitting a 2.3% loss. Meaning $27 billion in annual losses instead of $33 billion in profits (in this illustration, which does not purport to be an industry summary). While bad enough on its own, the losses showed that the securitization didn’t work, the ratings didn’t work, and the bond insurance might not work either. Which then collapsed the prices in the market to a far greater extent than mere foreclosure losses to date would justify alone, as discussed in the “Leveraging Up The Losses” section of this article.

The higher than expected losses did something else as well, something that truly made sophisticated investors nervous. Because the system failed with no genuine stress tests, and the layers of protection that were intended to insulate investors against adverse economic changes melted down – investors were left naked and exposed. Vulnerable to any adverse changes, as we illustrate in the next four charts below.

In Scenario C above we assume that a recession hits, something that is almost certainly already happening. People in marginal economic circumstances tend to be the most vulnerable to recessions, and there are already a surplus of properties on the market. So if we assume that a recession doubles subprime foreclosure rates, from 15% to 30%, and increases the loss per property from 50% to 60% as still more homes hit the market, (banks lose far more money in a foreclosure than just the decline in overall property values would indicate), then because we have no safety layers left, all the negative results go straight to the bottom line. Meaning that losses just went up by a factor of five, with over $154 billion in losses in the first year. In other words, what we saw in 2007 was nothing compared to what 2008 may hold for investors if a recession hits the nation. (Please note these are illustrations rather than precise predictions, a mild recession might inflict less losses – and a severe recession much worse.)

Recession is not the only danger. We just experienced the highest inflation rates in 17 years with an official annual CPI rate of 4.1% in 2007, and a 12 month PPI rate of 7.4% through January of 2008. Substantial inflationary dangers remain, and the Fed has effectively abandoned its (already weak) defense of the dollar, in order to try to avert recession. In Scenario D we look at what happens if recession is (miraculously) averted – but the price is a surge in inflation and rapidly increasing interest rates. Let’s say that indexed subprime mortgage rates jump from 10% to 13% -- and the result, for a group of people who barely qualified at 6% interest rates, is that the foreclosure rate doubles, going from 15% to 30%. With this scenario, rising inflation alleviates the fall in property values, so we assume that the average loss declines from 50% to 40%. Nonetheless, our bottom line is that our overall losses from subprime mortgages have tripled, from $27 billion up to $81 billion. The very effort of avoiding or minimizing a recession (if possible at all), may trigger a loss that is almost as bad as the recession driven loss would have been.

OK, let’s be optimists. Let’s say that the Fed somehow balances on the tightrope and dodges major recession through pumping the system full of new money, without triggering higher levels of inflation. This will be amazing if they can pull it off – but stranger things have happened. However, there is the separate issue of another powerful economic force at work, and that is housing prices that probably got way too high in a number of areas, and which many economists think might be in for a prolonged fall. If this happens, then two major problems occur for subprime mortgage collateralized securities investors: the foreclosure rate rises, because the more negative home equity becomes for someone who is struggling to make payments, the more likely they are to say “forget it” and walk away from their property; and, following that (of course), the greater the losses per foreclosure for investors. As illustrated in Scenario E above, if we say that the foreclosure rate rises from 15% to 20%, and in a market of falling values where few want to buy, the average foreclosure loss rises from 50% to 70%, then our annual total losses increase to $105 billion, or almost four times the current loss level under current conditions.

So, recession pushed our losses up by five times in our recession illustration (Scenario C), rising interest rates pushed up our losses by three times in Scenario D, and falling home prices pushed up our losses by four times in Scenario E. What if all three scenarios happen at the same time? What happens if: 1) a significant recession does hit despite the Fed pumping the system full of money; 2) inflation does increase thanks to the Fed’s recession fighting efforts, meaning we now have stagflation; and 3) the drop in property values accelerates with the double whammy of people losing their jobs even while mortgages grow less affordable in markets that are still falling?

Or, if we want to look on an individual level, what happens to the chances of someone making their mortgage payments, when: 1) they lose their job; 2) their mortgage payments more than double in two years (since the initial teaser rate); and 3) they owe $50,000 more on their mortgage than the market value of their home?

Troubles can arrive in threes, and the triple whammy of recession, rising interest rates and falling property values can indeed come ashore one after another, like three great tsunamis hitting a beach, as illustrated above in Scenario F. Let’s assume this three way combination means that foreclosure rates triple from 15% to 45% -- which may be a bit conservative for subprime borrowers, none of whom ever really had the money for the home in the first place, under conventional lending standards. Let’s further say that the glut of distressed homes on the market, even as unemployment is spiking upwards and mortgages are growing both less affordable and less available, means that the fall in property values accelerates, and average investor foreclosure losses rise from 50% to 70%. As shown in Scenario F – just making those two (reasonable) changes to our assumptions means that subprime losses climb from $27 billion to $315 billion, an increase of almost twelve times!

Should stagflation slam into an overpriced housing market after investor safety layers have already been stripped away, then we haven’t even begun to see the full extent of the damage to investors, to the housing market, and to the financial system as a whole.

Leveraging Up The Losses (Banking Dominos)

The scenarios shown herein may seem overly optimistic, particularly when compared to such numbers as the $600 billion in industry losses which UBS is predicting, or the $160 billion in losses which they estimate to have already occurred. The reason for the discrepancy is that we have been sticking to just the mortgages and mortgage securities – and these securities are generally not bought with cash, rather they are bought with borrowed cash. Highly volatile, short term borrowings which carry major risks of their own. As an example, when Bear Stearns fell 94% in 2 (weekend) days, there was no change in the mortgage market that precipitated the fall – it was the fear that Bear Stearns would lose their ability to borrow. An event that can make the capital of just about any seemingly solid looking major bank or investment bank disappear in a flash.

The bigger issue is that all the big financial players are highly leveraged. Now, just for round numbers, let’s say that a big financial firm has $100 billion in assets, $94 billion in liabilities and $6 billion in capital. We will assume that it owns $6 billion in questionable mortgage securities directly, with another $6 billion in loans to highly leveraged hedge funds that have their own questionable mortgage security holdings. Something drops the value of questionable mortgage securities by 25%. So the big financial firm takes a $1.5 billion hit directly – and a 50% hit on the hedge fund loans when the hedge funds collapse and the creditors are left with illiquid and distressed collateral that they don’t dare sell. The big financial firm just lost $4.5 billion, and the key number isn’t that it lost 4.5% of the value of its assets – but that it lost 75% of the value of its $6 billion capital base. With the remaining 25% being considered highly questionable.

Meaning the financial firm now has to unload $75 billion in assets to maintain its 6% capital ratio (assuming it can survive at all), or else be recapitalized by a foreign investor, with the Fed possibly propping it up in the meantime, when no one else will lend to it. In a market where everyone else has their own problems, and don’t have the money to buy the assets. Which drops the prices of everything. Which multiplies the losses upwards. Which brings us to the real problem.

If real subprime losses climb by 6 times or 12 times – then system wide financial losses likely climb by 24 times, or 36 times, or more. Because everything is linked, and the math that links all the dominos is multiplication, not addition. If you want a mental picture of how banking dominos work, don’t think of one domino hitting another domino, hitting another domino in a long line. Rather, think of one domino hitting two dominos, hitting four dominos, and so forth. Understand this, and you will understand the desperation in the current moves by the Federal Reserve.

Will This Happen?

Will this disaster scenario that we've just outlined actually happen? I sure hope not, for all of our sakes. Perhaps the easiest thing to do is to write off this article as being some wildly pessimistic fantasy. Hopefully it is. Except, we have to face some inconvenient facts. The subprime market really did melt down in 2007. The so-called financial masters of the universe really did make some spectacularly stupid moves, really did nearly go broke and are having to turn to foreign investors and Federal Reserve interventions in order to survive. Those rocks of stability and security in the financial system, the bond insurance firms and rating agencies, really did turn out to have foundations of sand rather than foundations of stone.

Most people agree we really are entering a recession. Inflation really was at its highest level in 17 years in 2007, which could also easily turn into much higher interest rates. The word stagflation really is being spoken by increasing numbers of people. Housing values really are dropping in a number of major markets. The safety margins that protected subprime mortgage derivatives investors really did collapse, even without any major economic stress test – and up to three major stress tests may actually hit this already badly wounded market in 2008. Is what we are describing here really paranoia – or is it what is happening all around us?

When we put all these unfortunate facts together, we may not know for sure whether any disaster scenario is going to happen -- but I think we all have to agree that there is a significant chance that it just… might happen. Now let's further stipulate that the very essence of financial prudence, of wisdom, of protecting your savings is to be prepared for very real possibilities. If you’re not sure, but you think something just might happen in the next year which could devastate your life savings – I think most of us feel a responsibility to try to protect ourselves, if we can. Which takes us to perhaps the most important part of this article -- how can we be prepared?

Taking Actions

First, you need to very seriously think about cutting your ownership of financial assets. The type of disaster scenario we are talking about could devastate stock and bond markets for a generation. If you are investing for retirement and your portfolio gets taken down by just such a scenario, then you may never have the chance to replace it. For these reasons, there is a powerful, powerful case for moving a substantial portion of your assets into tangible assets. Good examples of tangible assets include gold, silver, commodities, real estate, farmland and energy.

The next thing you should very seriously think about is whether crisis leads to opportunity, in ways that go well beyond a simple strategy of only buying tangible assets. John Paulson saw the crisis that was coming in subprime mortgages, researched and educated himself on this area (which had not been his field of expertise), and he turned the crisis into a $3-$4 billion personal payday in 2007. If you're not a hedge fund manager like Paulson, you may not have the tools that he used to turn a market crisis into personal billions. That’s OK, because Paulson didn’t start with the tools either. He started with educating himself, learning about a new area, until he came up with a novel way to profit from disaster. A method that wasn’t in the financial textbooks, and that he didn’t find by reading a financial columnist in the paper.

You have more tools than you may think, some of which may surprise you. Tools which can give you the opportunity to turn financial disaster into personal net worth. There are ways you can use those tools to turn the destruction of the currency into perhaps the greatest real wealth-building opportunity of your life, on a long-term and tax-advantaged basis. But, if you want this to happen --you will need to start with learning. You are going to have to educate yourself, and work to not just understand, but to master some of the financial forces and methods in play here. You will have to learn how to turn the destruction of paper wealth into real wealth. With Turning Inflation Into Wealth being the first key step. My best wishes to you for turning this challenge into an extraordinary personal opportunity.

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Op maandag 24 maart 2008 16:35 schreef Drugshond het volgende:
Lang artikel wel de moeite waard.
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NEW YORK (MarketWatch) -- U.S. stocks on Monday extended last week's solid gains, rallying as J.P. Morgan Chase & Co. agreed to a fivefold increase its acquisition bid for Bear Stearns Cos. and as economic data pointed to signs of stability in the troubled housing sector.

"If we're in a recession, we're in the middle of it, and the market is a forward-viewing mechanism," said Art Hogan, chief market strategist at Jefferies & Co.

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Op maandag 24 maart 2008 18:30 schreef ItaloDancer het volgende:

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Tja... van dat vooruitkijken naar een recessie hebben we weinig gemerkt...

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Don't trust the Wall St rally
money.cnn



(Fortune) -- Up until now, all eyes have been on the losses that are hitting the financial sector from the acronym soup of new instruments such as CDOs and SIVs. Everyone is scared, and rightly so, of the MUB (Monster Under the Bed) that might be lurking in supposedly safe havens. Still, financial stocks staged a big rally on the last trading day before the weekend, and again Monday, due to the belief that the worst is past, and that the government will step in to save the Street should that MUB pop out from under the bed.

But even once the current crisis is past, there's another issue facing the financial sector: Will it look like it used to? "I think it is important to step back and ask some broader questions about our financial system," wrote Ben Inker, the chief investment officer for quantitative equities in global developed markets at money management firm GMO, in a recent paper. "What it does, how big it should be; and what its sustainable level of profitability might be."

These questions are obviously important for financial services firms. At its recent peak stock price in December 2006, Citigroup (C), for instance, sold for $53.34, or over 2 times its reported book value (and over 4 times if you exclude goodwill and intangibles) and almost 13 times its reported 2006 earnings. Do those numbers represent a baseline to which we'll return when this crisis has passed, or are they anomalies?

And the size of the financial sector may also matter for the rest of the market. In a piece last summer, credit rating agency Moody's opined that the market was safe from systemic risk in part because the $45 billion in profits reported by a group of financial firms including Citi and Merrill Lynch (ML) were "considerable and significantly larger than in 1998," when those same firms reported profits of $12 billion. As the events surrounding Bear Stearns show all too clearly, the market isn't safe from systemic risk. Was Moody's wrong partly because that $45 billion isn't sustainable - or wasn't real in the first place?

One way to think about this is to look at the profits of the U.S. financial sector versus GDP. Inker did this, and the result was what he describes as a "truly striking chart." From 1947 to 1997, financial profits were stable at around 0.75% of GDP. But over the last ten years, the share of GDP represented by financial profits began to shoot higher. In the last few years - before the Street began to report massive writeoffs - financial profits represented roughly 2.25% of GDP. Inker says that it is too simplistic to say that the right number should be 0.75%. But when you think about what financial profits consisted of at the height of the boom, 2.25% seems unsustainable too.

The last decade saw the explosion of securitization - the carving up and redistributing of risk - the boom in hedge funds, and the private equity mania. It's apparent now that Wall Street can't transform a sub prime mortgage into a triple A credit, and that the redistribution of risk doesn't get rid of it. Unless (or until) we forget that simple lesson, it's hard to see the securitization game being played again. As for hedge funds, some commentators, such as Pimco's Bill Gross, predict the demise of broad swaths of them. With that goes the rich profits Wall Street has earned on prime brokerage. And fees from private equity, which at the height made up huge chunks of the Street's investment banking revenues? That won't come back roaring without cheap credit.

We are going to have to create whole new ways of securitizing and funding debt of all types, but especially mortgages and consumer credit. While I have confidence that those intrepid bankers on Wall Street will figure out something, as their future bonuses depend on it, it is going to take time to replace a system that took decades to build.

You also have to consider the massive writeoffs that the Street has taken. Thus far, Citigroup has taken $32 billion in writedowns related to the subprime crisis. Merrill Lynch's writedowns have totaled $22 billion. So were Citi's 2006 profits really the reported $21.2 billion, and were Merrill's the reported $7.5 billion? Or was some percentage of that an illusion? If Bear can be sold for $2 or $10 a share, then how solid was Bear Stearns' $84 per share in reported book value?

Thought about more broadly, if commentators are right that mortgage losses alone will total $300 billion to $500 billion, then, as Inker writes, "profits that look like they have been 2.25% of GDP in the past several years have actually been more like 1.75%, if we smooth the losses over the last 3 years and into next year as rough justice." And of course, mortgage losses are only a subset of the total losses.

Think back to what Ken Lewis, the CEO of Bank of America (BA), said last fall when his company announced its first round of writedowns: "Making money for several years, only to give most of it back in one year, is not a brilliant business model."

Inker says that the data doesn't point to any firm conclusions about what the level of financial profits should be. His best guess, though, is that a "normal" level of profits would be about half the amount that the financial sector reported in 2006.

Then, you also have to think about the multiple of those earnings that investors should be willing to pay. In a paper published in the fall of 2005, risk management gurus Leslie Rahl and Barbara Lucas of Capital Markets Risk Advisors, noted that in the past decade, a lot of things have happened that aren't supposed to happen, from the interest rate hikes of 1994 to the 1998 collapse of LTCM to the 2001 terrorist attacks. Or as the authors put it, "once-in-a-lifetime events seem to occur every few years."

If that's the case?and if such events now mean that Bear Stearns (BSC) can go from seemingly viable to threatening to bring down the entire financial system in the space of a week - then what sort of multiple should investors pay for Bear, or for any financial firm? Maybe investors shouldn't pay 12 times earnings, and maybe they should pay a discount to, rather than a multiple of, reported book value.

Of course, trying to guess how this will play out is just that - guessing. But if you say, for instance, that Merrill's normalized profits would be half the 2006 level, you get to about $4 billion. If you think that we should be willing to pay a smaller multiple for those earnings than we did in the past - let's be generous and say 10 times - then you get to a total market value for Merrill Lynch of $40 billion. That's still a 10% discount from today's valuation. To top of page

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Op dinsdag 25 maart 2008 08:26 schreef Drugshond het volgende:
De dollar is weer bezig met een run omhoog.
Mee dan een ct in een uur tijd.

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Op dinsdag 25 maart 2008 08:30 schreef ItaloDancer het volgende:

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We gaan trouwens 3% hoger openen, wat een mooie kans...

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NEW YORK - A widely-watched index of U.S. home prices fell 11.4 percent in January, its steepest drop since data for the indicator was first collected in 1987.

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Op maandag 24 maart 2008 11:09 schreef ItaloDancer het volgende:
Morgen 15:00 Consumentenvertrouwen (maart)... de markt verwacht dat het cijfer gelijkblijft op 75.0

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Op dinsdag 25 maart 2008 15:01 schreef ItaloDancer het volgende:

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64,5!

Of niet dan!

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NEW YORK (Dow Jones)--U.S. consumer confidence slumped again in March, the third straight month of sharp declines, according to a report released Tuesday.

The Conference Board, a private research group, said that its index of consumer confidence for March fell to 64.5, the lowest level since the Iraq War began in 2003.

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U.S. March consumer confidence down, outlook grim

Continuing its downward slide, U.S. consumer confidence fell in March, the Conference Board reported Tuesday, as expectations hit a 35-year-low, reaching levels not seen since the oil embargo and Watergate. The March consumer confidence index fell to 64.5 from a revised reading of 76.4 in February. Economists surveyed by MarketWatch had expected a March reading of 73.3. "Looking ahead, consumers' outlook for business conditions, the job market and their income prospects is quite pessimistic and suggests further weakening may be on the horizon," said Lynn Franco, director of consumer research at the private Conference Board.

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Op dinsdag 25 maart 2008 15:07 schreef ItaloDancer het volgende:

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Bron

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"If we're in a recession, we're in the middle of it, and the market is a forward-viewing mechanism," said Art Hogan, chief market strategist at Jefferies & Co.

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Op dinsdag 25 maart 2008 15:13 schreef gronk het volgende:

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Da's omdat de markt voor de komende FED-bijeenkomst volgende maand een renteverlaging van 0.5% inprijst.

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Op dinsdag 25 maart 2008 15:13 schreef gronk het volgende:

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Da's omdat de markt voor de komende FED-bijeenkomst volgende maand een renteverlaging van 0.5% inprijst.

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Op dinsdag 25 maart 2008 18:39 schreef ItaloDancer het volgende:
Grote announcements?

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“A convincing move through these levels would suggest the dollar bears are re-asserting their dominance and would lend support to arguments that the recent bounce was largely technical in nature,” said Marc Chandler, currency strategist at Brown Brothers Harriman.

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Op dinsdag 25 maart 2008 19:15 schreef tony_clifton- het volgende:

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Laatmaarzitten .

Ik heb 't gevoel dat 't sentiment aan't omslaan is; dat 't terug overwegend positief wordt. Ik verwacht wel dat 't er weer eens negatief gaat uitzien maar kan niet goed inschatten wanneer . Als je dat een beetje goed hebt kan je geld verdienen natuurlijk...

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beursduivel.be
Er zijn maar weinig beleggers die goed en wel beseffen waaraan we vorige week met zijn allen zijn ontsnapt. Sommige waarnemers noemen dit de ergste crisis sinds de depressie van de jaren '30 ... en ik ben geneigd hen gelijk te geven. Of waarom denk je dat ik goud naar voor blijf schuiven als één van mijn favoriete beleggingen?
Terug naar vorige week. Bear Stears zat in bijzonder slechte papieren en de Federal Reserve drong bij JP Morgan aan op een snelle overname. De deal werd tijdens het weekend rap-rap in mekaar gestoken en moest rond zijn vooraleer de beurzen 's maandags opnieuw openden.

Vanwaar die haast? Omdat Bear Stears op meer dan $13.000 miljard aan derivaten zat die tikten als een tijdbom. Een NUCLEAIRE TIJDBOM met het potentieel om het financiële systeem finaal onderuit te halen.

Warren Buffett omschreef derivaten in 2002 al eens als "financiële massavernietigingswapens" en hij lijkt nog maar ééns gelijk te krijgen.

Vandaar de paniekvoetbal van de Federal Reserve. Vandaar de onconventionele maatregelen van Ben Bernanke. En vandaar de drukpersen op volle capaciteit draaien.

Maar stel je voor wat er had kunnen gebeuren, indien men Bear Stears failliet had laten gaan.

Eerst en vooral zouden talrijke hedge funds die geld hadden geleend bij Bear Stearns, op droog zaad gezet worden. De uitstaande leningen zouden snel terugbetaald moeten worden... waardoor men de bestaande posities diende te liquideren. De markt zou geteisterd worden door een zelden vertoonde verkoopgolf.

Bijkomend zou de bestaande derivatenpositie van meer dan $13.000 miljard afgebouwd moeten worden. En dat is iets waar niemand ervaring mee heeft! Nooit eerder zou een dergelijk grote positie teruggedraaid moeten worden.

Om het allemaal even in perspectief te plaatsen: Bear Stears bezit evenveel derivaten dan het Bruto Nationaal Product van de VS!

Daar zijn we gelukkig aan ontsnapt!

Of toch niet?

Ik heb even de jaarverslagen van de grote spelers in de VS bekeken en kon mijn ogen niet geloven. De derivatenportefeuille van Bear Stearns komt nu namelijk in handen van JP Morgan, een bank die maar liefst $84.000 miljard aan derivaten heeft uitstaan.

Dat is $84.000.000.000.000 ... of 84 miljoen x 1 miljoen!!

Hoeveel eigen vermogen JP Morgan dan bezit om met dergelijke bedragen te mogen "spelen"? Even het jaarverslag dat op 28 februari werd gepubliceerd erbij nemen.

En het antwoord is ... $123 miljard.

$123 miljard onderpand om te speculeren met $84.000 miljard aan derivaten. Dat is amper 0,14%. Of anders gezegd, als JP Morgan een verlies van 0,14% realiseert op de derivatenportefeuille, is het "over en uit". Derivaten waarvan niemand bij benadering kan vertellen hoeveel ze nu werkelijk waard zijn.

Krankzinnig? Onverantwoord? Beangstigend? Reken maar!

En het verhaal stopt hier niet eens. Want nagenoeg ALLE financiële instellingen hebben een dergelijke portefeuille "massavernietigingswapens" in de boeken.

Kijk maar even mee:

Citigroup: $35.700 miljard aan derivaten

Lehman Brothers: $21.700 miljard

Goldman Sachs: $92.000 miljard

Morgan Stanley $77.000 miljard
Merrill Lynch: $56.000 miljard


Als ik je een goede raad mag geven: indien je vandaag nog financiële aandelen bezit, maak dan van de huidige bear market rally gebruik om alsnog te verkopen. De situatie is veel te ernstig geworden om dit giftig afval nog langer in portefeuille te houden.

Wie nog geen goud of zilver bezit, kan van de huidige terugval dan weer gebruikmaken om in te stappen.

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Totaal is het een zero-sum game, en dan is het dus de vraag: wie is de klos als er moet worden afgewikkeld? Die honderden triljarden aan derivaten bij die banken hebben allemaal een tegenpartij. Het is niet gezegd dat dat ook allemaal banken zijn. Tot nu toe lijken het vooral hedge funds die aan het verkeerde eind zitten, niet de banken.

Dat laat overigens onverlet dat er flinke klappers op de beurs gemaakt gaan worden als dat moet worden afgewikkeld. Maar dat betreft dan niet alleen de banken (sterker nog, per saldo zullen die er aan verdienen, dmv commissie). Bovendien kunnen dat net zo goed klappers naar boven zijn. Het houdt dus vooral een risico voor hogere volatiliteit in.

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Het probleem van de huidige derivaten posities bij banken is volgens mij op zich niet zozeer dat ze zo onvoorstelbaar groot zijn, banken maken er in principe immers winst op: ze houden een margin.

Het probleem is meer dat zelfs die banken amper weten aan welke risico's ze nou eigenlijk blootgesteld staan. Ze denken een groot gedeelte van 'verkochte' posities afgedekt te hebben met tegenovergestelde posities (grotendeels bij andere banken). Als er 1 grote jongen omvalt, dan zakt die hele markt in elkaar.

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Op dinsdag 25 maart 2008 21:31 schreef Arcee het volgende:
Euro anderhalve cent omhoog vandaag tov de $.

quote:

The dollar's decline against the euro ``appears to be the start of a run'' to a range of $1.60 to $1.625 over the next two to three weeks, according to Andrew Chaveriat, a currency strategist at BNP Paribas Securities SA in New York. Chaveriat, who uses historical patterns to predict currency price moves, included the forecast in a note to clients today.

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Clear Channel deal falling apart, report says

CHICAGO (MarketWatch) -- Clear Channel Communications Inc.'s deal to be taken private by two private-equity firms for $19 billion is about to fall apart over credit terms those firms were trying to put into place to finance the transaction, according to a published report.

News of the potential deal collapse sent Clear Channel shares plunging as much as 20% to $25.83 in after-hours trading.

Discussions among Thomas H. Lee and Bain Capital Partners LLC and the banks that were lined up to back the deal -- Morgan Stanley, Citigroup, Deutsche Bank and others -- have stalled in a dispute over the details of the credit agreement, The Wall Street Journal reported Tuesday afternoon, citing unnamed people familiar with the situation.

A Clear Channel spokeswoman declined to comment. Spokesmen from Thomas H. Lee and Bain Capital did not immediately return calls seeking comment.

Thomas H. Lee and Bain Capital Partners are in an agreement to acquire Clear Channel for $39.20 a share. Previously, the deal had been expected to close before the end of 2007, but Clear Channel said last December that the transaction was likely to be completed by the end of the first quarter of 2008.

Radio stocks have generally been weak in recent years, due to soft advertising trends and investor anxiety about increasing audio competition, including MP3 players, Internet radio and audio from cable and satellite-television services, as well as satellite radio. Clear Channel opted to take itself private so it could make capital investments and other decisions away from the scrutiny of Wall Street.

In a stagnant U.S. economy, hampered by the subprime mortgage crisis, the credit market has become much more difficult to navigate, potentially slowing down consolidation in a number of industries, including media.

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Op dinsdag 25 maart 2008 21:59 schreef Perrin het volgende:
Dollar Falls on Bets Fed Will Make Deeper Interest Rate Cuts
[..]

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Op dinsdag 25 maart 2008 21:44 schreef digitaLL het volgende:
Amerikanen moeten een steeds groter deel van hun inkomen besteden aan voedsel en energie. Minder noodzakelijke bestedingen lopen terug.

[ afbeelding ]
Bron

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Op dinsdag 25 maart 2008 23:22 schreef en_door_slecht het volgende:

[..]

Hoe gebalanceerd zijn deze cijfers? (Gemiddelden zeggen niet zoveel als er b.v. heel veel nieuwe armen bijkomen uit Mexico, maar iedereen er wel op vooruit gaat, bijvoorbeeld.)
Want ik vind dit toch wel een van de meest schokkende grafiekjes van deze hele reeks, met name die -29.9 procent. Hier staat in feite dat de inflatie al jaren gierend hoog is, veel hoger dan de officiele cijfers doen vermoeden.

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Op dinsdag 25 maart 2008 23:34 schreef gronk het volgende:

[..]

Andere presentatie. Je ziet hier de integraal van inflatiecijfers. Nogal wiedes dat dat er veel enger uitziet.

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Op woensdag 26 maart 2008 03:52 schreef indahnesia.com het volgende:
Aah, heerlijk om hier in de ochtend met een bak koffie bij te lezen

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Op dinsdag 25 maart 2008 23:34 schreef gronk het volgende:

[..]

Andere presentatie. Je ziet hier de integraal van inflatiecijfers. Nogal wiedes dat dat er veel enger uitziet.

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THE marvellous edifice of modern finance took years to build. The world had a weekend to save it from collapsing. On March 16th America's Federal Reserve, by nature hardly impetuous, rewrote its rule-book by rescuing Bear Stearns, the country's fifth-largest investment bank, and agreeing to lend directly to other brokers. A couple of days later the Fed cut short-term interest rates—again—to 2.25%, marking the fastest loosening of monetary policy in a generation.

It was a Herculean effort, and it staved off the outright catastrophe of a bank failure that had threatened to split Wall Street asunder. Even so, this week's brush with disaster contained two unsettling messages. One is analytical: the world needs new ways of thinking about finance and the risks it entails. The other is a warning: the crisis has opened a new, dangerous chapter. For all its mistakes, modern finance is worth saving—and the job looks as if it is still only half done.

...

Something important happened on Wall Street this week. It was not just the demise of a firm that traded through the Depression. Financiers discovered that they had created a series of risks that the market could not cope with. That is not a reason to condemn the whole system: it is far too useful. It is a sign that the rules need changing. But, first, stop the rot.

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Op maandag 24 maart 2008 11:09 schreef ItaloDancer het volgende:

Woensdag 13:30 Orders duurzame goederen (februari)... de markt verwacht dat er weer een kleine groei (m/m!) is na de duikeling in januari
15:00 Nieuwe huizenverkopen (februari) ... de markt verwacht wederom een lichte afname
15:30 Olievoorraden

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Orders for durable goods fall 1.7% in Feb.

WASHINGTON (MarketWatch) - Demand for machinery and other capital goods sank in February, driving orders for durable goods down 1.7%, the Commerce Department reported Wednesday. Economists surveyed by MarketWatch expected total orders to rise 0.5% after a revised 4.7% decline in January. Orders for capital goods - the kind of equipment businesses need to increase or modernize their productive capacity - fell 2.6% in February after a 1.8% decline in January. Machinery orders plunged a record 13.3% in February, offsetting a 5.4 increase in civilian aircraft bookings. Excluding transportation goods, orders fell 2.6%, the most in a year.

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Op woensdag 26 maart 2008 13:56 schreef Drugshond het volgende:
Niet zo verwonderlijk....
Het schijnt dat de afgelopen jaren de overwaarde van het huis ins gebruikt voor aanschaf van duurzame goederen. En dat is tegenwoordig met de dalende huizenprijzen niet meer mogelijk.
Op BNR wordt er gesproken dat door het wegvallen van deze constructie er by default 3% minder economische groei is. Met andere woorden.... de economische groei van de afgelopen jaren is gerealiseerd door over bestedingen (lees : meer lenen). En nu moet Amerika wel innovatief zijn tanden laten zien.... de consument laat het afweten. Alleen ik zie niet 1...2...3 wel marktsegment deze kar zou moet trekken...

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Op woensdag 26 maart 2008 13:56 schreef ItaloDancer het volgende:
Nee kindjes, waarom de beurzen dan niet zakken, dat weet papa ook niet.
Papa denkt nu dat de grootste financiële crisis in decennia met een hevige recessie eroverheen de aandeelhouders aan hun spreekwoordelijke derrière kan oxideren dit keer. Dat denkt papa nou. Wat moet papa anders? Ga maar naar bed het komt allemaal goed. En verhaaltjes doen we niet meer. Welterusten.

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Op woensdag 26 maart 2008 13:56 schreef Drugshond het volgende:
Niet zo verwonderlijk....

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Op woensdag 26 maart 2008 13:56 schreef ItaloDancer het volgende:
Nee kindjes, waarom de beurzen dan niet zakken, dat weet papa ook niet.
Papa denkt nu dat de grootste financiële crisis in decennia met een hevige recessie eroverheen de aandeelhouders aan hun spreekwoordelijke derrière kan oxideren dit keer. Dat denkt papa nou. Wat moet papa anders? Ga maar naar bed het komt allemaal goed. En verhaaltjes doen we niet meer. Welterusten.

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Op woensdag 26 maart 2008 14:06 schreef indahnesia.com het volgende:
Lijpe daling van de dollar ineens om 10u..

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Op woensdag 26 maart 200814:07 schreef Drugshond het volgende:

[..]

Was gisteren geloof ik ook om 10 u. ff zoeken.

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Op woensdag 26 maart 2008 14:04 schreef Drugshond het volgende:

[..]

Economie is groter dan de financiële wereld alleen. Alleen er gaat zoveel meer geld in om dat dit niet meer in verhouding staat tot bijvoorbeeld de industriële sector. Als het echt gaat klappen... dan gaat het hard. En veel beleggers onderschatten de situatie hoe deze geldverslindende storm aan het opbouwen is.
Iemand zal de rekening moeten betalen..... en als dat de belastingbetaler is met hulp van de FED dan zit je in een neergaande spiraal waaruit ontsnappen heel moeilijk is (hyperinflatie ligt dan op de loer).

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Op woensdag 26 maart 2008 14:06 schreef indahnesia.com het volgende:
Lijpe daling van de dollar ineens om 10u..

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Op maandag 24 maart 2008 11:09 schreef ItaloDancer het volgende:
15:00 Nieuwe huizenverkopen (februari) ... de markt verwacht wederom een lichte afname

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"Ik zou niet zeggen dat het ergste achter ons ligt". Die balans van de gevolgen van de financiële crisis voor Europa heeft voorzitter Jean-Claude Trichet van de Europese Centrale Bank (ECB) woensdag opgemaakt in het Europese Parlement. Trichet blijft er evenwel van overtuigd dat de ECB in deze woelige wateren de juiste koers vaart.
(belga) - De ECB-voorzitter herhaalde dat de strijd tegen de inflatie op middellange termijn de belangrijkste prioriteit moet blijven. Het ongewijzigd laten van de rentevoet op 4 procent is volgens hem het beste antwoord op de crisis. "De huidige monetaire politiek zal bijdragen aan een stabilisering van de prijzen", stelde hij.

Trichet weigert het voorbeeld te volgen van de Verenigde Staten, waar de Federal Reserve de voorwaarden voor een lening aanzienlijk versoepelde sinds de ineenstorting van de markt voor risicovolle hypothecaire leningen (subprime) in de VS vorige zomer.
Ook de Europese Commissie maakte woensdag in haar driemaandelijks rapport over de economie van de eurozone duidelijk dat de economische problemen nog niet achter de rug zijn. "Het klimaat verslechtert, hoewel de eurozone goed weerstand biedt, onder meer door de sterke groei van opkomende markten".

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Op woensdag 26 maart 2008 16:18 schreef Perrin het volgende:
Trichet: 'Einde kredietcrisis nog niet in zicht'
[..]

Kut tentamen

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NEW YORK -(Dow Jones)- Oppenheimer & Co. tripled its loss estimate for Citigroup Inc.'s (C) first quarter Wednesday, forecasting the bank could write down another $13 billion.

And with no end in sight for the credit crisis, Oppenheimer's outlook for the largest U.S. bank by assets remains grim.

"We are confident this will not be our last reduction in 2008," Oppenheimer analyst Meredith Whitney wrote in a research note to clients. "Rather as key mark-to-market indices trend lower, the housing market worsens, and the U.S. consumer comes under increasing pressure, we anticipate further downside to both estimates and stock prices."

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Op woensdag 26 maart 2008 19:08 schreef Xith het volgende:
De weerstand is dus weer gebroken, net zoals dit bij .38 en .48 begeurde :p

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Citigroup Sells 500 Million Pounds of Bonds at Higher Interest

By Shelley Smith

March 26 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, raised 500 million pounds ($1 billion) by offering bondholders twice the yield spread over government rates it provided last year.

Citigroup sold 10-year bonds yielding 308.4 basis points more than similar-maturity U.K. government notes, an increase from 133 basis points over gilts on undated debt sold in June, according to data compiled by Bloomberg.

Investors in Europe are demanding the highest yield spreads in at least nine years to buy bonds as credit losses and writedowns triggered by the U.S. subprime mortgage crisis spiral to more than $208 billion. Citigroup is paying more than the average yield spread for investment-grade bonds in euros at 182 basis points, according to Merrill Lynch & Co. indexes.

``It is difficult to see the rationale of a bank raising 10-year money at spread levels well above those paid by lesser rated non-financial borrowers,'' said Georg Grodzki, head of credit research at London-based Legal & General Group Plc, the third-largest U.K. insurer. ``The rating agencies are unlikely to be pleased about a bank raising senior funds at spread levels well out of line with its credit rating.''

Citigroup's senior unsecured debt is rated Aa3 by Moody's Investors Service, the fourth-highest of 10 investment-grade rankings, and has an equivalent AA- grade from Standard & Poor's.

Citigroup's U.K. bond sale follows a 2 billion-euro ($3.15 billion) issue of 6.4 percent senior notes due 2013 last week at a yield 311.7 basis points above German government debt. A basis point is 0.01 percentage point.

Barclays Plc, BNP Paribas SA, Credit Suisse Group and Deutsche Bank AG helped Citigroup to manage the sale.

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Op woensdag 26 maart 2008 19:18 schreef Revolution-NL het volgende:

[..]

Als de trend hetzelfde is als voorheen laat de 1,60 nu niet meer lang op zich wachten.
Wel frapant dat je constant hetzelfde patroon terug ziet.

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Op woensdag 26 maart 2008 19:41 schreef digitaLL het volgende:

[..]

Bron
Het einde van de credit crunch is nog niet in zicht. Citybank haalt via obligaties 500 miljoen pond uit de markt maar moet daarvoor wel een extra rentevergoeding van meer dan 3% geven. Het gaat dus om 4,4 + 3,1 = 7,5% rente in totaal. Je moet als bank wel hard geld nodig hebben om zoveel rente te willen betalen. In feite heeft Citybank hiermee zichzelf ook gedowngrade naar een BB status eerder dan AA vandaar dat rating agencies hier niet erg blij mee zullen zijn.

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Op donderdag 27 maart 2008 11:41 schreef Aether het volgende:
ECB eurokoersgrafiek.

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Op donderdag 27 maart 2008 11:44 schreef ItaloDancer het volgende:

[..]

Handig met die custom timescale

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The past 10 days will be remembered as the time the U.S. government discarded a half-century of rules to save American financial capitalism from collapse.

On the Richter scale of government activism, the government's recent actions don't (yet) register at FDR levels. They are shrouded in technicalities and buried in a pile of new acronyms.

But something big just happened. It happened without an explicit vote by Congress. And, though the Treasury hasn't cut any checks for housing or Wall Street rescues, billions of dollars of taxpayer money were put at risk. A Republican administration, not eager to be viewed as the second coming of the Hoover administration, showed it no longer believes the market can sort out the mess.

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Germany and other industrialized nations are desperately trying to brace themselves against the threat of a collapse of the global financial system. The crisis has now taken its toll on the German economy, where the weak dollar is putting jobs in jeopardy and the credit crunch is paralyzing many businesses.

...

So, what does apply? Should the state use taxpayer money to help greedy bankers repair the damage caused by their unscrupulous speculation? Should it invest billions to save ailing financial institutions, thereby engendering new risks and side effects? And should the government, to use the words of a Frankfurt investment banker, "treat a drug addict with cocaine"?

How does one explain to honest taxpayers that they should pony up their hard-earned money for a bank like Bear Stearns, whose long-standing CEO forked out $28 million (¤18 million) for a 600-square-meter (6,500 square-foot) duplex apartment on New York's Central Park shortly before the collapse of his company? Or that UBS, the crisis-ridden, major Swiss bank, fired three of its senior executives for poor performance only to turn around and pay them roughly 60 million Swiss francs (¤38 million/$59.2 million) in golden parachutes?

...

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Monolines take a long, hard look at the future

Bron : ft.com

Bond insurers, whose fate just a few weeks ago was affecting sentiment across equity and credit markets, have faded from the market's spotlight. Instead, the future of Bear Stearns and large banks and brokers have grabbed traders' attention.

Certainly, the biggest bond insurers - Ambac and MBIA - are temporarily off the hook after their crucial triple-A credit ratings were recently confirmed.

Indeed, the next focus for them is still a few weeks away: their forthcoming round of financial results, expected in May, will be closely scrutinised to see if there are any further surprises in terms of losses related to their ill-fated guarantees of bonds backed by risky mortgages.

Yet, in spite of the lack of headlines, the markets are still not certain that even these big fish will be able to hang on to their top ratings. In the market for credit default swaps which are a measure of a company's credit risk, both Ambac and MBIA still trade as distressed credits.

For the smaller bond insurers, the turbulence has continued unabated. This week, Fitch Ratings sharply downgraded FGIC and SCA. It cut the ratings for SCA subsidiary XL Capital Assurance (XLCA) to a junk rating - the first such dramatic slide for an entity once blessed with the top triple-A credit rating. Fitch is still working on its assessment of CIFG, expected soon.

"It is pretty clear that CIFG, FGIC and SCA could be headed to run-off mode," said Rob Haines, analyst at Creditsights.

The fate of the bond insurers could still have broader repercussions.

Between them, they guarantee over $2,400bn of debt, both municipal and structured bonds. Mr Haines estimates that just those three weakest bond insurers between them insure $560bn. Although US policymakers have started talking about alternative ways to help municipal borrowers to raise debt - and a growing number of them are ditching the bond insurance model altogether - the sharp drop in credit ratings could still have effects on some municipalities, particularly smaller ones.

Banks who have bought guarantees from bond insurers could also still be affected by their ratings cuts.

Already, many banks own some of the shares sold by Ambac in its recent frantic round of capital-raising. Downgrades at smaller bond insurers could hit them, too.

The financial pressure on the so-called monoline insurers is encouraging them to seek ways to exit their insurance policies, particularly the costly ones related to hard-hit collateralised debt obligations (CDOs) backed by mortgage assets.

FGIC has filed a suit in New York against IKB, the German state-owned bank, alleging it fraudulently induced FGIC to enter into a guarantee policy.

FGIC also claims it no longer needs to pay out on a policy which accounts for 75 per cent of its $1.26bn of reserves. The insurer believes the other party - French investment bank Calyon - had failed to provide certain information it was contractually obliged to, and this would therefore void the contract. Calyon declined to comment.

SCA's subsidiary XLCA insures about $18bn of mostly high grade asset-backed CDOs. It has moved to terminate $3.1bn worth of contracts it has with Merrill Lynch, a move Merrill is disputing.

"This highlights the legal technicalities that we think are going to drive much of the 'recovery' process in CDOs and impact financial firms' valuations on a somewhat unpredictable basis," said Chris Flanagan, analyst at JPMorgan. "Dealers that retained and hedged senior, triple-A CDO exposures may face greater losses if monolines are successful in shifting losses due to legal issues, or may face lawsuits from junior investors over sloppy documentation."

The legal situations are mostly without precedent, reflecting the fact that the CDO market and the insurance of such structured bonds only really took off in the last five years. The complexity of the structures also makes it harder to win such cases in court.

"When you have two sophisticated players in the market, mounting a misrepresentation case is very hard to make. The bar is very high," said Joel Telpner, partner at Mayer Brown. "These are very complicated financial transactions, and a lot of these issues are going to be hitting the court system for the first time"

The other area for concern is the growing list of consequences of downgrades.

In just one example, MBIA has recently asked Fitch Ratings to drop its ratings of the group. Fitch has said it will continue to rate MBIA. One reason: investors holding securities insured by MBIA but only rated by Fitch would be forced to sell if the ratings were withdrawn.

"Several large money market funds hold Tender Option Bonds rated by Fitch based on MBIA insurance," Fitch said. "If we withdraw our rating they may be forced sellers into a market already challenged by liquidity issues."

After Ambac and MBIA had their ratings affirmed after regulators pushed banks to back-stop financing, Eric Dinallo, the New York insurance superintendent, said he had "bought time".

Just how much will become clear in the coming weeks. However, the legal complexities afflicting the bond insurance sector are likely to continue for years, especially as the courts become involved.

Terri Mazur, a partner at law firm Mayer Brown, said it could take a long time for these cases to be resolved in the courts. "Certainly a year or two would not be unusual, and five years is not beyond the pale."