Anonymous writes:
Boo! Bad post on hyper Bull buy the market buy the fed! Boo
Anonymous | 03.24.08 - 3:50 pm | #

Michael writes:
US GDP may have reached a permanently high plateau. More on the story at 11.
Michael | 03.24.08 - 3:54 pm | #

Anonymous writes:
I'm with CR, Tanta and NAR on this one -- the bottom is in and time to get back to business on home sales!!!
Anonymous | 03.24.08 - 3:56 pm | #

Red Pill writes:
I was wondering when the Shanghai market would be mentioned. About 40% off of peak. Ouch.
Red Pill | 03.24.08 - 3:57 pm | #

Peconic Bay writes:
It looks like the Chinese got the message that markets are tightly coupled. I would think this would take some of the air out of the global infrastructure trade that has been so strong the last few years.
Peconic Bay | 03.24.08 - 3:58 pm | #

BearChase writes:
China's got alot more hurtin' coming. Their financial system makes our bubble look like chicken feed. The've had negative real rates for years (from trying to peg to the dollar), and have been overinvesting in low margin industries for years....
BearChase | 03.24.08 - 4:00 pm | #

giacutter writes:
So if we see wave #4, does that mean we're cooked?
giacutter | 03.24.08 - 4:00 pm | #

NC Jim writes:
The Shanghai market may look terrible over the short term but a long term chart still show substantial profits for buyers a couple of years ago or dollar (Yuan) cost averagers.

http://stockcharts.com/h-sc/ui? s...id=p78818222987

Another example is Vanguard's emerging market index fund.

http://stockcharts.com/h-sc/ui? s...id=p78818222987

Not much consolation for traders but still good investments IMO for the long term.

Jim
NC Jim | 03.24.08 - 4:04 pm | #

Anonymous writes:
I guess the media has been instructed to ignore all bad news:

"The Chicago Fed National Activity Index was −1.04 in February, down from −0.68 in January. All four broad categories of indicators made negative contributions to the index in February."
http://www.chicagofed.org/ econom...i_march2008.pdf
Anonymous | 03.24.08 - 4:05 pm | #

dryfly writes:
It looks like the Chinese got the message that markets are tightly coupled. I would think this would take some of the air out of the global infrastructure trade that has been so strong the last few years.

I don't think its a reflection of coupling-decoupling... I think it is a plain old speculators bum rush for the exits. The China markets are insane and Shanghai is the King of the Asylum.

China could crash economically & continue to grow 10% and Shanghai still crash. The Shanghai market is as closely coupled to economic reality in China as are craps tables in Las Vegas coupled to US economy. Maybe a better analogy is the Russian Roulette played in the movie 'Deer Hunter'... money flying about while people blow their brains out.

dryfly | 03.24.08 - 4:12 pm | #

wally writes:
I'm betting on seven waves, personally.
wally | 03.24.08 - 4:15 pm | #

FFDIC writes:
FDIC State Profiles 4Q 2007
http://www.fdic.gov:80/bank/anal...file/ index.html
FFDIC | 03.24.08 - 4:15 pm | #

BearChase writes:
I've read that since the real interest rates are negative, companies dont want to hold cash, so they buy each other's stocks on the shanghai maket... that sounds like a recipe for stability!
BearChase | 03.24.08 - 4:15 pm | #

Anonymous writes:
First, there is no bad news, it's just a matter of how you view it. If you think America needs to crash, your going to look at valuable info from NAR and discount what they say. Second, if you think that housing is going to impact wall street, go watch the news and try to ignore a 10% increase in share value in about a week! Piss off loser!
Anonymous | 03.24.08 - 4:16 pm | #

Average Joe writes:
NC JIM said: "The Shanghai market may look terrible over the short term but a long term chart still show substantial profits for buyers a couple of years ago or dollar (Yuan) cost averagers."

I guess...but it looks alot like the Nikkei in 1991, i.e. down from 1990 but still way up from 1985, unless you were a longterm investor and held until 2002 when it dropped below '85 prices.
Average Joe | 03.24.08 - 4:19 pm | #

dryfly writes:
and have been overinvesting in low margin industries for years

Margin is relative. If your costs are low you can invest in super low cost operations and its only low margin to those looking at it from a high cost perspective. From the low cost producer there is still a lot of room between cost & price if your cost is low enough. I been on the wrong side of that one too many times, been there done that.

Prices in coastal China are climbing no doubt about it. Interior China (and there is a lot of interior still 'untapped') is way cheap even at the higher currency 'peg'.

China is pushing low skill, low cost mfg into the interior. A lot of what is replacing it along the coast is much higher on the food chain - I know folks working in both.

China may suffer but that isn't a forgone conclusion just yet.

dryfly | 03.24.08 - 4:19 pm | #

dryfly writes:
I'm betting on seven waves, personally.

Kinda like Seven Seals?

dryfly | 03.24.08 - 4:20 pm | #

dryfly writes:
China could crash economically & continue to grow 10% and Shanghai still crash.

Sloppy - trying to do too many things like blog 7 work simultaneously - my bad. Should read:

China could crash economically & Shanghai continue to bubble OR China could grow 10% and Shanghai still crash.

dryfly | 03.24.08 - 4:24 pm | #

Average Joe writes:
Why does anyone care about sales volume for homes?

I mean, when the Fed jumps in to save the stock market, does it ever do so because volume is so low?

It's the PRICE DROP in houses that is destructive.

Sales volume just means realtors aren't as broke. The banks can't be making any money lending money at these rates for 30 years with current default rates increasing and asset prices dropping to flat.

Each sold home just locks in the lower prices, putting more and more underwater and making the losses on each default greater.

I wouldn't take much comfort in volume unless it coincides with price stability.

Besides, volume is horrendous, only less so.
Average Joe | 03.24.08 - 4:24 pm | #

Interesting Times writes:
It took 3 waves to take out CFC, TMA, BSC. Coincidence? ;-)
Interesting Times | 03.24.08 - 4:25 pm | #

David Pearson writes:
China's stock correction has everything to do with the Fed.

The more the Fed cuts, the more hot money flows into China: the U.S. dollar is now the premier "carry trade" funding currency.

The Chinese Central Bank has to buy up the inflow of dollars to keep the Yuan from rising. They exchange newly-created Yuan for those dollars.

So every time the Fed cuts, broadly speaking, the Chinese Central Bank has to print more Yuan, which of course results in higher Chinese inflation. The drop in Chinese equities reflects the risk that China will have to either 1) put the breaks on the economy to stem inflation; or 2) do a maxi-reval of the Yuan to keep from buying so many dollars.

So go ahead, Bernanke, inflate to your heart's content, because the Chinese will pay the price. Until they realize they are being taken for fools, that is. And then...
David Pearson | 03.24.08 - 4:25 pm | #

Red Pill writes:
but, then it will widen! *booo hiissssss*

. . .then shrink! *yeah!!!!*


. . .then widen further!! *aaarrrgh!*


meanwhile I lost my job while I wasn't looking. *doh!*
Red Pill | 03.24.08 - 4:26 pm | #

jd writes:
is there no justice? Pure disgust

http://www.bloomberg.com/apps/ne...5P1w& refer=home
jd | 03.24.08 - 4:28 pm | #

m writes:
Wall street, Wahsington, Cramer, Stocks, all say crisis is over. Go long with everything you've got, hell, go margin up now that you can borrow again!
m | 03.24.08 - 4:30 pm | #

Average Joe writes:
Watching the stock market to see if you can make money is like watching a blackjack table to see if you should be a player or the house.

It takes long steady losses to decide your gonna take the boring house side and actually make money in the long run.

It only takes a few cool timely double downs to decide that being a player is where the action and money is.

You don't sell books on how to "be" the house, just on how to "beat" the house.

Point me to an average joe who bought stocks for 30 years in their 401K and then retired richer than if he just bought CD's and I'll show you a miracle, since 401K aren't that old.....so I bet you can't cause there aren't many (or any). It will be years before this secret is widely accepted.
Average Joe | 03.24.08 - 4:33 pm | #

dryfly writes:
So go ahead, Bernanke, inflate to your heart's content, because the Chinese will pay the price. Until they realize they are being taken for fools, that is. And then...
David Pearson | 03.24.08 - 4:25 pm | #

Then what? No more cheap tee shirts at WalMart? I can live without them.

There is nothing China produces I have to have - just a lot of stuff I might want that they produce a whole lot cheaper than anyone else for now.

And even if they stop funding our debt in retaliation, is that such a terrible end? Time to pay our own way I say.

The path out of our mess is the path out of their mess too. More coupling - only in reverse. It can't happen soon enough.

dryfly | 03.24.08 - 4:33 pm | #

ipodius writes:
It appears that the dope slap the Fed gave is working by looking at the data. Now the question is, do they believe that the Fed will do whatever it takes no matter what happens? The answer may be yes, and if so it means that everyone can stop running around screaming and get to work figuring out how to get rid of the toxic sludge. That can either happen by re-cycling it, acknowledging the amount and taking the hit to earnings, or burying it somewhere in Utah. Personally I'd go for buying it somewhere in Utah but a bunch of Mormons would probably disagree with me :)
ipodius | 03.24.08 - 4:36 pm | #

m writes:
dryfly

better learn how to speak mandarin and wash shirts. They will be our bosses in years to come.

why do I say this. Well this bomb hasnt explode yet.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements, the world's clearinghouse for central banks in Basel, Switzerland. The BIS is like the cashier's window at a racetrack or casino, where you'd place a bet or cash in chips, except on a massive scale: BIS is where the U.S. settles trade imbalances with Saudi Arabia for all that oil we guzzle and gives China IOUs for the tainted drugs and lead-based toys we buy.
To grasp how significant this five-fold bubble increase is, let's put that $516 trillion in the context of some other domestic and international monetary data:
U.S. annual gross domestic product is about $15 trillion
U.S. money supply is also about $15 trillion
Current proposed U.S. federal budget is $3 trillion
U.S. government's maximum legal debt is $9 trillion
U.S. mutual fund companies manage about $12 trillion
World's GDPs for all nations is approximately $50 trillion
Unfunded Social Security and Medicare benefits $50 trillion to $65 trillion
Total value of the world's real estate is estimated at about $75 trillion
Total value of world's stock and bond markets is more than $100 trillion
BIS valuation of world's derivatives back in 2002 was about $100 trillion
BIS 2007 valuation of the world's derivatives is now a whopping $516 trillion
Moreover, the folks at BIS tell me their estimate of $516 trillion only includes "transactions in which a major private dealer (bank) is involved on at least one side of the transaction," but doesn't include private deals between two "non-reporting entities." They did, however, add that their reporting central banks estimate that the coverage of the survey is around 95% on average.
m | 03.24.08 - 4:36 pm | #

AllenM writes:
I am betting this relief rally is short lived. More credit events are still on the horizon.

My main house has now dropped over 20% based on Zillow in a *supposedly* stable area of Phoenix. Nice to know that JPM Chase's heloc is totally underwater, and Citi's prime is now starting to go blub blub. My 20% down- gone.

Nothing like Real Estate for an investment? Geez, just got off the phone with the s.o.- she reports that the highflying mort broker we have known for years is letting his pier loaned house go- he had bought a new one just over a year ago and had been trying to sell the old one for that time period- neighbor just sold for 40K under his debt load- so by bye.

Amazing that the news is sooooo positive, yet the underlying trends are still poor.

But hey, after all NAR propaganda says "It's always a great time to buy." We got plenty, now where are the buyers?

Someday this war's gonna end...
AllenM | 03.24.08 - 4:40 pm | #

ipodius writes:
There is nothing China produces I have to have

The interesting thing here is what is going to happen to China manufacturing if we go into a good recession. We don't make much here anymore, so if we stop buying a lot of this crap, where do the headcount reductions go? What happens to Chindia if most of the ax swings their way? I can tell you that it is a lot easier for me to cut a project that is off-shored than here. There is no cost, no unemployment, and no morale issues.

So we've probably exported a lot of our pain, actually. I wonder how they'll feel about that.
ipodius | 03.24.08 - 4:44 pm | #

Average Joe writes:
option arms, option arms, option arms, option arms.....


70% make minimum payment.....


house prices are 20% down in the west........


Katrina has passed but no one is paying attention to the levees
Average Joe | 03.24.08 - 4:45 pm | #

The third wave of the liquidit writes:
http://jessescrossroadscafe.blog...sky- moment.html
The third wave of the liquidit | 03.24.08 - 4:46 pm | #

w writes:
allenm

I have a friend who has a shop in Scottsdale and has never seen business this bad in the 20 years he has been there. Had to cash in his 401k to survivr, got divirced and cant sell the house at all. There are horror stories everywhere. You must admit Phoenix did grow like a weed on steroids. Heck, a dog would take a dump and in 2 days a house would be built on it.
Best of luck to you
w | 03.24.08 - 4:46 pm | #

Jim writes:
OT: but worth repeating. The head of Citigroup, Pandit, has some advice for working wives:

his son [Pandit] told his wife ``not to work, because if you work, from whatever you earn, 50 percent will go in taxes and the rest will go in housemaids.''

Good man to get Citi straightened out.
Jim | 03.24.08 - 4:46 pm | #

w writes:
Ahh, I have finally decided to run for the hills. Its time to get out of the USD and everything related to the US. Why you might ask am I doing this? Well its simple. Would you invest in a country with policies based on debasing its own currency? What the Federal Reserve did in the last 2 weeks has done everything and more to damage the future of the US market than anything I have seen in the last 15yrs. We have the country being held ransom by a bunch of security brokers who think that the world would collapse if they collapse and unfortunately, we have a Fed Chairman who thinks exactly that. Now, with the Fed taking over the liability of US$30b of toxic mortgages, what do the shareholders of BSC do? They decide that they would rather go bankrupt or get a higher price? And the Fed nodded, and said ok you get $10. What the hell is that? What ever happened to losing money if you invest in the wrong firm? Why is the tax payer bailing out BSC shareholders? Should the Fed remove this loan? Of course not! They are not there to make sure the system works! They are there to make sure stock investors get their return WHATEVER THE COST! I have never seen a central bank ignore all the tenets of central banking. Yes, they are the lender of last resort but at prohibitive costs. They are to ensure the functioning of the financial system, not bail out bank investors. They are to protect the value of currency, not print money to save foolish risk taking. The Federal Reserve in the last 2 weeks have broken every one of these rules. What credibility is left?

Mr Bernanke, I hope you read this blog. Perhaps you will learn a few things about Central Banking and how not to let yourself be ruled by Wall Street. You have put the world at risk and you have put the future of the US at risk. You have just told Wall Street that they can do whatever they want. It doesn't matter anymore because the American tax payer, and the world would bail them out. Do you feel stupid now? You have been manipulated by Wall Street bankers to take the toxic waste of them. You have managed to put the balance sheet of the Federal Reserve at risk. And you have BSC shareholders playing chicken with you and Jamie Dimon. I really don't know whether to laugh or to cry. Where is a credible central banker when you need one?? How will you dig yourself out of this one?

Americans, I hope you know what your government is doing to you. I don't know if you actually understand what the future holds for you with the reckless actions of your central bank. HIgher taxes, weaker USD, lower standard of living, higher inflation, higher unemployment, and a global flight from the USD. Instead of a run on a bank, you will have a run on the country. Ben, read about what happened to the USD and the GBP during the Great Depression. You may have just started the rolling stone that will result in a rockslide that will end the USD as the world currency and the US as an economic power.
w | 03.24.08 - 4:47 pm | #

NC Jim writes:
When I posted earlier that emerging market equities were good investments for the long term, I meant emerging markets as an asset class not China specifically. Asians are avid gamblers and buying or selling panics are common.

Other EM's have the advantages of:

- Large exposure to commodities
- Large reserves
- Exposure to global growth even if the US has a protracted slowdown as I think it will
- Best of all, EM equities are NOT dollar demoninated. We may have a bear market rally in the USD, but ,IMO, the long term trend in down.

So think Brazil, India, or Russia not necessarily China. IMO an index fund is the best and cheapest vehicle.

Jim
NC Jim | 03.24.08 - 4:47 pm | #

Average Joe writes:
There sure are alot of jobs dependant upon selling goods from China. Walmart is our number 1 employer. I don't think they sell anything BUT Chinese goods.
Average Joe | 03.24.08 - 4:47 pm | #

--Andrew writes:
CR, the TED spread is still historically pretty high at 1.5, do you think we're in for another wave? I personally still get the feeling that there is still plenty of "dry tinder" out there to call this crisis "contained" just yet.

On a separate note, dryfly, I was just reading an article about European manufacturers, particularly automotive, are starting to scramble to lock in North American assembly plants and parts production. (I'll have to find the cite for you, sorry.) You seeing anything on the ground yet of the predicted American manufacturing renaissance?
--Andrew | 03.24.08 - 4:48 pm | #

LJ writes:
That just wonderful the TED spread is coming back down. Now it would be nice of mortgage rates followed.

I was looking at Citi wholesale rates today and guess what? You too can have a one year ARM at 11.00% with no points on a conforming loan!
Better go jumbo though, because that one year ARM is available at the low low price of 10.50%!! Woooooooohooooooooo
LJ | Homepage | 03.24.08 - 4:49 pm | #

Jim writes:
AllenM:

I was checking on prices for luxury high-rise condos in Phoenix to see if prices had come down. They still seem to be asking $800-900 per square foot or about $1,700,000 for a 2000 sf apartment. I asked a broker if any were selling and was told "none". When this will break down I can't say. It is difficult to find out if these high rises are even finished or occupied at all.
Jim | 03.24.08 - 4:50 pm | #

ipodius writes:
Yes average Joe, but Walmart doesn't over-employ and they don't pay anything either. So where are they going to cut? And they are a single entity. Probably not nearly as many jobs there as there would be at the manufacturing end where there are many, many vendors.
ipodius | 03.24.08 - 4:50 pm | #

Pondering the Mess writes:
Goodie!

We can get back to buying $500K houses on $50K a year salary! Banks can pass their drek to the Fed! The market only goes up - DOW 15,000 by June!

Glad everything is "contained!"

Ugh... Nothing will change until the fundamental issues of crushing debt load (brought on by unaffordable housing) and declining real incomes vs. runaway inflation are addressed. Nobody in charge has an interest in doing anything more than propping up the system and looting as they go, so the unwind will be long and painful with many false bottoms.
Pondering the Mess | 03.24.08 - 4:51 pm | #

sam writes:
ipodius

agreed. one manufacturing job makes at least 7-8 other jobs, unlike walmart and the casinos, the last places to make money. I HATE WALMART. Are you sure they are not a front for a hedge fund or 2?
sam | 03.24.08 - 4:53 pm | #

Jim writes:
Ahh, I have finally decided to run for the hills. Its time to get out of the USD and everything related to the US. Why you might ask am I doing this?

If I were your wife I'd be asking why you didn't do this four or five years ago. Even then you could see that Chinese stocks were way underpriced (Buffett bought a big chunk of the #1 oil company and that was a tip off) and with a currency that HAD and still HAS to appreciate, it was a slam dunk. I still think one can pick around in Chinese stocks and find some still worth buying although the BIG profits are no longer there.
Jim | 03.24.08 - 4:54 pm | #

Average Joe writes:
TED spread narrowing,

Stock Market booming,

Bulls saying I told you so,

Bears fleeing commodities,

Bottom callers in housing and stocks,

So rate cuts done?

If not done then why not?
Average Joe | 03.24.08 - 4:54 pm | #

Alec writes:
So scott/wheat/whatever is now M?

I like playing spot the mutating troll. That's how many handles in a month, 50?

Jeez, a doctorate thesis could be written.
Alec | 03.24.08 - 4:55 pm | #

gab writes:
Gretchen Morgenson has a reasonably good article in this weekend's NY Times (sorry, I don't recall which day.) It would be particularly fascinating for those of you who believe the Fed should have just let Bear Stearns fail and let the "free market" function.

In a nutshell, it was the CDS market that drove the Fed to behave as it did. It has been reported (not in the Morgenson article) that BSC had CDS exposure of $2.5 trillion. Trillion with a "T." Now, most of that had been hedged (at least I hope to God it had) but the Fed couldn't risk finding out what would happen if Bear went bk and the counterparties had to sort out the exposures, so they just did the expedient thing, and they nationalized Bear Stearns. And they would have done the same with any bid broker-dealer or bank. I think the Fed believed they didn't have a choice.
gab | 03.24.08 - 4:55 pm | #

m writes:
Jim and allenm

I was looking at condos in North Miami last year. Prices were ridiculous. Same condos are on the market for the same price. What was very interesting was that every other real estate agent was either Russian or South American. Weird.
m | 03.24.08 - 4:55 pm | #

safe_as_apartments writes:
Is the TED spread coming down because of the surge in T-bill yields today?
safe_as_apartments | 03.24.08 - 4:56 pm | #

m writes:
I dont know what you are talking about but I am not scott/wheat.
m | 03.24.08 - 4:57 pm | #

AllenM writes:
Jim, nothing has changed, because folks still think it will change in a *couple* of weeks, or that the fed is saving *their* bacon, not a bunch of wall street fat cats.

Nothing on the ground has improved, only getting worse. I have a lot of folks that I know tell me they are beginning to lose their grip and will have to let property go. I know far more that one I just related. The problem with high end stuff is that a few properties have turned with foreign money( usually canadian), so folks are hanging on hoping to get lucky.

Thanks, W. A lot of damage is going on to people that will not soon forget. I foresee a vastly changed economic landscape emerging here as the damage sets in, and a long long long time until the next boom, if ever again in real terms.

Someday this war's gonna end...
AllenM | 03.24.08 - 4:57 pm | #

Rob Dawg writes:
ipodius writes:
We don't make much here anymore,...

http://www.federalreserve.gov/RE...ES/g17/Current/

Production is up about 14% vs 2002. Prior to that pretty much the same. Even Mankiw knew it. http://www.whitehouse.gov/cea/ ma...eans_oct_30.pdf

The US is a manufacturing and technology powerhouse unsurpassed in an category excepting those we use for fancy accounting dodges.
Rob Dawg | Homepage | 03.24.08 - 4:57 pm | #

ipodius writes:
sam I don't shop at Walmart because I deplore their business model and don't approve of the way they treat employees, or vendors. Contrast with BJ's or Costco, who pay people better, have better benefits, and also have better numbers.

I also believe that, not only did they drive business out locally, but they were a huge force is destroying what was left of manufacturing jobs here. Also the quality of everything sucks there, as they are interested in price and nothing else. The dirty secret is that even if you buy Hanes t-shirts there, they are of lower quality than the ones you get at Target, Sears, or Macy's. They also bait and switch on the low price, and if you check their prices on most things, they aren't so low as to justify shopping there. Don't get me going :)
ipodius | 03.24.08 - 4:58 pm | #

Fair Economist writes:
This last wave was probably associated with quarter-end events. People prettying up balance sheet with short-term treasuries. The second wave was at least partly year-end prettying based on some strange behavior in the Euribor (short-term rates popping up one by one as expiration dates moved past the start of the year). I don't think the TED spreads pops are as ominous as many think. We'll probably get another one in late May.
Fair Economist | 03.24.08 - 4:58 pm | #

Marcel Duchamp writes:
My main house has now dropped over 20% based on Zillow in a *supposedly* stable area of Phoenix.

http://phoenixflippers.blogspot.com/

Doesn't look very stable yet in Phoenix. ;-)
Marcel Duchamp | 03.24.08 - 5:01 pm | #

ipodius writes:
Rob Dawg, what percentage of the workforce is now employed in manufacturing jobs? Also remember that McDonald's workers were re-classed as manufacturing jobs.
ipodius | 03.24.08 - 5:02 pm | #

sam writes:
ipodius
dont get me going. There are stats out that show where a walmart opens crime goes up, welfare goes up. They even teach their employees how to obtain welfare.... An interesting stat of late is that walmart like many stores sells gift cards expecting the cards to be used on high margin items. Not this year. The cards are being used to buy food.
Even the wlamrt shoppers are getting a little smarter. Those stores should all be tirned into bowling alleys.
sam | 03.24.08 - 5:03 pm | #

sam writes:
Rob Dawg

How much of our manufacturing is for the miltary, close to 70% ?
sam | 03.24.08 - 5:04 pm | #

sam writes:
ipodius

Mcdonals employees should be called manufacturers. They take crap, put it all together and give you something that my dog wouldnt eat. Its the specail sauce that he goes crazy for, but that meat is manufactured from who knows what. If it hd hoofs it wasnt a cow.
sam | 03.24.08 - 5:07 pm | #

sam writes:
off topic. Maybe this new technology can be used for regrowing wall street brains.

http://www.cbsnews.com/stories/ 2...in3960219.shtml
sam | 03.24.08 - 5:09 pm | #

alias77 writes:
50...that guy's not tryin hard enough
alias77 | 03.24.08 - 5:10 pm | #

TradingStats writes:
AllenM writes:
I am betting this relief rally is short lived. More credit events are still on the horizon.


and how is that bet placed...Long?
Short bonds?
Short comodities?
TradingStats | 03.24.08 - 5:14 pm | #

checker writes:
I feel so much better now: Rubin and Greenspan to the rescue, thanks to Clinton's new mortgage plan plus it "would be designed to be self-financing over time -- so it would cost taxpayers nothing in the long run." Can't beat that!


http://www.reuters.com/article/ v...430663920080324
checker | 03.24.08 - 5:16 pm | #

daisycolorado writes:
Average Joe Said:

Point me to an average joe who bought stocks for 30 years in their 401K and then retired richer than if he just bought CD's and I'll show you a miracle, since 401K aren't that old.....so I bet you can't cause there aren't many (or any). It will be years before this secret is widely accepted.
Average Joe | 03.24.08 - 4:33 pm

Both my partner and I have fully funded our respective 401ks since the mid-1980s and both have 7 figure accounts. Nothing fancy, just a good mix of large cap growth and foreign market exposure.
daisycolorado | 03.24.08 - 5:21 pm | #

AllenM writes:
Shorting the rocket homebuilders.

They are already the darlings of the rebound crowd, with large gains.

Now they have to report their *actual* numbers, and if the banks are still going to continue to prop them up.

I would be that at least one big homebuilder goes down in the next few weeks due to financing being pulled.

The big banks have no taste for zombie lending.

Someday this war's gonna end...
AllenM | 03.24.08 - 5:21 pm | #

Michael writes:
What would you do if you purchased a new home in an upscale community a year ago, but the builder is now selling everything for 1/2 price. SW Florida prices crash.
http://www.youtube.com/watch?v=V...h? v=VgTdxEGauok
Michael | 03.24.08 - 5:28 pm | #

daisycolorado writes:
Sam,

Military spending makes up 5% of GDP. Defense shipments as a share of all manufacturing make up 2% of the total.

Join the reality based world, it makes investing much easier.
daisycolorado | 03.24.08 - 5:28 pm | #

Terry writes:
Michael said: "What would you do if you purchased a new home in an upscale community a year ago, but the builder is now selling everything for 1/2 price."

I'd go find the builder, and then let Morticia have her way with him.

I saw that on the news last night, and had thoughts similar to yours. I would be extremely bitter, but I don't think there would be too much that I could do.

The kicker is the disparity in tax assessments - which is a significant consideration in Florida.
Terry | 03.24.08 - 5:35 pm | #

sam writes:
daisycolorado

I dont invest. I day trade. Much easier to sleep at night. Our economy is not in a reality based world anymore. As far as military manufacturing goes, I looked at figures that may have been wrong. I would never argue with someone called daisy.
sam | 03.24.08 - 5:35 pm | #

RE writes:
Emirs take pity on dollar, for now

"... Hot news for investors: The United Arab Emirates will keep the dirham pegged to the U.S. dollar. If you think you can live without that news flash, there's more: The Emirates' central bank was “conceding to U.S. pressure,” Bloomberg says, after U.S. embassy officials paid a visit to the UAE central bank governor to register their concern about reports that he was considering dropping the peg. ..."
RE | 03.24.08 - 5:42 pm | #

Jim writes:
So think Brazil, India, or Russia not necessarily China. IMO an index fund is the best and cheapest vehicle.


None of them is a screaming bargain anymore, as they were just a couple of years ago. I am intrigued however by Indian and Chinese auto companies. You can also participate in the Chinese market via Jap auto companies.
Jim | 03.24.08 - 5:42 pm | #

sam writes:
This just out from the NY Fed:

Press Release

Summary of Terms and Conditions Regarding the JPMorgan Chase Facility

March 24, 2008



The Federal Reserve Bank of New York has agreed to lend $29 billion in connection with the acquisition of Bear Stearns by JPMorgan Chase & Co.

The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008.

JPMC has agreed to provide $1 billion in funding in the form of a note that will be subordinated to the Federal Reserve note. The JPMC note will be the first to absorb losses, if any, on the liquidation of the portfolio of assets.

The FRBNY loan and the JPMC subordinated note will be made to a Delaware limited liability company (“LLC”) established for the purpose of holding the Bear Stearns assets. Using a single entity (the LLC) will ease administration of the portfolio and will remove constraints on the money manager that might arise from retaining the assets on the books of Bear Stearns.

The loan from the FRBNY and the subordinated note from JPMC will each be for a term of 10 years, renewable by the FRBNY.

The rate due on the loan from the FRBNY is the primary credit rate, which currently is 3.25 percent and fluctuates with the discount rate. The rate on the subordinated note from JPMC is the primary credit rate plus 475 basis points (currently, a total of 8 percent).

Blackrock Financial Management Inc has been retained by the FRBNY to manage and liquidate the assets.

The Federal Reserve loan is being provided under the authority granted by section 13(3) of the Federal Reserve Act. The Board authorized the FRBNY to enter into this loan and made the findings required by section 13(3) at a meeting on Sunday, March 16, 2008.

Repayment of the loans will begin on the second anniversary of the loan, unless the Reserve Bank determines to begin payments earlier. Payments from the liquidation of the assets in the LLC will be made in the following order (each category must be fully paid before proceeding to the next lower category):

to pay the necessary operating expenses of the LLC incurred in managing and liquidating the assets as of the repayment date;
to repay the entire $29 billion principal due to the FRBNY;
to pay all interest due to the FRBNY on its loan;
to repay the entire $1 billion subordinated note due to JPMC;
to pay all interest due to JPMC on its subordinated note;
to pay any other non-operating expenses of the LLC, if any.
Any remaining funds resulting from the liquidation of the assets will be paid to the FRBNY.

Statement on Financing Arrangement of JPMorgan Chase's Acquisition of Bear Stearns ››

Contact:
Andrew Williams
(212) 720-6143
(646) andrew.williams@ny.frb.org
sam | 03.24.08 - 5:44 pm | #

rich writes:
FFDIC writes:
FDIC State Profiles 4Q 2007
http://www.fdic.gov:80/bank/anal...file/ index.html

Thanks!


There's lotS of bad-off states.

And then, there's Michigan.

4th qtr. 07 unemployment rate: 7.4%

Single-family home permits (yoy) -36.4%

Multifamily building permits (yoy) -56.3%

Total bank assets declined by more than 20% in ONE QUARTER AND BY MORE THAN 30% YOY

Past due and nonaccruaal loans 3.58%, up from 2.64% yoy.

There are 164 FDIC-insured banks in Michigan and 110 have assets under $250 million.

WHAT CAN THE FED DO TO BAIL OUT MICHIGAN??
rich | 03.24.08 - 5:50 pm | #

sam writes:
rich

WHAT CAN THE FED DO TO BAIL OUT MICHIGAN??

its quite simple. Have Michigan secede fron the union declare war against the US. say you are harboring Osama bin Laden. America will attack you and rebuild your infrastructure, throw trillions at fighting the mythical al queda that you say are living in the foreclosed homes. Its a pretty good plan. The problem is what would happen if Michigan won the war?
sam | 03.24.08 - 5:55 pm | #

rich writes:
I'm serious. Everybody is focusing on Wall Street and financial firms.

But a whole state is economically rotting away.

You know things are getting worse in MI since Q4 07, with all the buyouts, layoffs, slowdowns and shutdowns in autos and auto parts.

WHAT IF SMALL BANKS IN MI JUST START FOLDING LIKE DOMINOES?

Based on the data, how can they not?

Does the Fed care??
rich | 03.24.08 - 6:00 pm | #

jd writes:
rich

I used to be a bank examiner for the FDIC right out of college. It was so boring I quit. regret it today, because I could have retired with a damn good pension. The FDIC already knows which banks may go under, if they dont, your state bank examiners do, and they typically work hand in hand withe FDIC. What typically happens is that a failing bank will be bought by another more solid regional bank through an arrangement or forced arrangement by the FDIC. Any assets the acquiring bank doesnt want the FDIC takes and it goes into their liquidation unit. The FDIC is hiring old timers like me to come back, because they expect quite a few bank failures in 2008 and beyond.
If you want to see if your assets are protected go to the bottom of this page and hit calculator

http://www4.fdic.gov/EDIE/

If you want to know which banks have failed here is another link

http://www.fdic.gov/bank/individ...d/ banklist.html

I hope I answered your question sufficiently
jd | 03.24.08 - 6:14 pm | #

David Merkel writes:
The real test of the TED spread will come at tomorrow morning's LIBOR fix. Watch to see how much it rises. Remember it only changes once per day, while T-bills trade almost constantly.
David Merkel | Homepage | 03.24.08 - 6:15 pm | #

Sam writes:
gab:

In a nutshell, it was the CDS market that drove the Fed to behave as it did. It has been reported (not in the Morgenson article) that BSC had CDS exposure of $2.5 trillion.

Here are some numbers:

Bear Stearns deal boosts J.P. Morgan’s derivatives exposure

At the end of 2007, J.P. Morgan’s exposure totaled $77.2 trillion in notional value, exceeding that of any other commercial bank, while Bear Stearns had $13.4 trillion in notional value.

http://www.financialweek.com/ app...BENEFITSFINANCE
Sam | 03.24.08 - 6:19 pm | #

m writes:
good read about the Minsky moment

http://jessescrossroadscafe.blog...sky- moment.html
m | 03.24.08 - 6:20 pm | #

gn writes:
Hmm..

Blackrock Financial Management Inc has been retained by the FRBNY to manage and liquidate the assets.

So let me get this straight. After the first billion, all losses will hit the Fed. So if it looks like the $1B is toast, what's to stop the managers from dumping everything below true value (including back to JPM) to give their friends a couple of billion in gains when they sell it after the dust settles? Lots of opportunity for collusion and price-fixing and other shenanigans.

JPM should have been on the hook for a percentage of the losses after the $1B IMO.
gn | 03.24.08 - 6:29 pm | #

Punkd Pauper writes:
You know I happen to think that plunge in the 13 wk tbill et al last week was a red herring. The banks and brokers hit the Fed for 28 billion and parked it in short term treasuries knowing they were going to pull it out this week and run up the market for the end of quarter.

Despite the record low yields, real strain in the credit markets was virtually non-existent...and now, miraculously after a long weekend...all that "strain" is gone. And all that really happened was that BSC shareholders got a bone tossed to them.

Basically, I smell a rat and wonder if Denninger et al still feel as scared as they did last week.
Punkd Pauper | 03.24.08 - 6:45 pm | #

dryfly writes:
On a separate note, dryfly, I was just reading an article about European manufacturers, particularly automotive, are starting to scramble to lock in North American assembly plants and parts production. (I'll have to find the cite for you, sorry.) You seeing anything on the ground yet of the predicted American manufacturing renaissance?
--Andrew | 03.24.08 - 4:48 pm | #

I wouldn't say it is a 'Renaissance' just yet but Euro & Asian exporters to NAFTA Zone are clearly moving in. Likewise a few NAFTA Zone producers are ramping up their export effort, especially into Europe.

I see a lot of anecdotal evidence pointing that way. Hope some of you guys like working in factories... we'll be needing you again.

dryfly | 03.24.08 - 6:47 pm | #

dryfly writes:
Average Joe writes:
There sure are alot of jobs dependant upon selling goods from China. Walmart is our number 1 employer. I don't think they sell anything BUT Chinese goods.
Average Joe | 03.24.08 - 4:47 pm | #

WalMart could switch supply chains on a dime from China to NAFTA Zone sourcing or wherever - but the prices would be quite a lot higher... meaning less demand & less volume.

That in itself isn't a killer - just means they have to make sure margins are maintained. If their logistics & distribution costs are lower than competition & they typically are then being forced to buy a higher grade of product (not the cheapest stuff China can produce) might actually BENEFIT WalMart.

Crazy unintended consequences...

dryfly | 03.24.08 - 6:53 pm | #

Bob Dobbs writes:
"I see a lot of anecdotal evidence pointing that way. Hope some of you guys like working in factories... we'll be needing you again."

Property values will have to drop 50 percent or more in the California coastal region before industry starts to move back. That may happen, but it'll be a long time.

I used to document factory-floor procedures for a Sun server plant around here; doubt that that kind of work is ever coming back from Asia. Too bad, I enjoyed it: "Do NOT stick your hand in the wave-solder machine while the red light is ON!"
Bob Dobbs | Homepage | 03.24.08 - 6:55 pm | #

dryfly writes:
Property values will have to drop 50 percent or more in the California coastal region before industry starts to move back. That may happen, but it'll be a long time.

Depends on what happens with energy. I predict a time when designs are global but assembly/recycle/reassembly processes are far more local.

Does that mean manufacturing/remanufacturing in Santa Cruz proper? Maybe not... but maybe inland 50-100 miles, say off I5 somewhere. Close enough to run zero lead-time JIT but not located in the most expensive locations.

I believe 'relocalization' will be the next big thing - but that doesn't mean it is the same thing as 'protectionism'... it will be globalization in ideas & practices but local in much of the actual production/reprododuction so as to minimize transport energy cost.

JMHO.

dryfly | 03.24.08 - 7:05 pm | #

O-Joe writes:
w writes:
Ahh, I have finally decided to run for the hills. Its time to get out of the USD and everything related to the US. Why you might ask am I doing this?

w, you are the poster child of "panic and exit at the bottom" IMO. I'm afraid you made a big mistake. US$ and US stocks will outperform the next two years. Whatever your explanation is, you will see it blow up.

O-Joe
O-Joe | 03.24.08 - 7:28 pm | #

Bob Dobbs writes:
Dryfly says:

"Does that mean manufacturing/remanufacturing in Santa Cruz proper? Maybe not... but maybe inland 50-100 miles, say off I5 somewhere. Close enough to run zero lead-time JIT but not located in the most expensive locations."

50-100 miles inland isn't coastal, not in my cosmos :-). Those Central Valley summers will fry your brain. That said, there's a lot of capacity that far inland that's just started phasing out in the last couple of years. It includes the worst of the bubble areas in Norcal -- Modesto, Stockton, Sac, etc. So yes, that'd be a ripe area, with cheap housing for the workers, too.

As far as your vision of distributed manufacturing and recycling, that's something I've thought about and would sorely like to see. I'd take it one step farther and hope that there'd be a comeback of smaller manufacturing businesses with local or regional or specialty focuses. Those are the only kind we have left in Santa Cruz.
Bob Dobbs | Homepage | 03.24.08 - 7:38 pm | #

Jim writes:
jd: Has anyone ever calculated the odds that a bank with a two star rating on Bankrate.com will go bust? Or the odds for a bank with a one star rating? That might be an advance warning.
Jim | 03.24.08 - 7:48 pm | #

Jim writes:
The loan will be against a portfolio of $30 billion in assets of Bear Stearns, based on the value of the portfolio as marked to market by Bear Stearns on March 14, 2008

30 billion!! I thought the portfolio was worth 0. Where did the 30 billion come from? Or does Bear have 30 billion of assets and, say, 60 billion of debts?
Jim | 03.24.08 - 7:52 pm | #

Bob_in_MA writes:
China could crash economically & Shanghai continue to bubble OR China could grow 10% and Shanghai still crash

Frankly, that seems a little unlikely. So far, the market there is down $1 Trillion, even if half the shares are held by the government, that's still $100s of billions held by investors.

Plus, don't forget a lot of companies there jacked profits by investing in the market. So they'll be taking big profit hits.

The market there needs to turn around soon. If it falls another 15% or so, the negative wealth effect has to start having an effect.

If China slows appreciably, the commodity markets will get whacked and your friends at Caterpillar, etc., will be right in line.

wouldn't say it is a 'Renaissance' just yet but Euro & Asian exporters to NAFTA Zone are clearly moving in. Likewise a few NAFTA Zone producers are ramping up their export effort, especially into Europe.

Really? I just read something a couple days ago that Toyota is thinking of idling plants here.

A lot of people seem to have made the underlying assumption that we live in what is essentially a golden era, and any set-back--the housing bust, the credit bust, Asian equities falling, etc.--must be temporary.

But what I see is world-wide record-high investments in plants and equipment--steel production as grown explosively and there are about as many steel mills still under construction as there are condo units in Miami--and a big chunk of emerging market growth being fueled by a speculative-supercharged commodity boom.
Bob_in_MA | 03.24.08 - 7:59 pm | #

jd writes:
JIM
bankrate is fine but I wouldnt trust their star rating system. What do they look at to come up with the ratings. They have no access, only to documents that you and I can see. Do they have higly trained accountants to read the public finanicals. I was an examiner and i cant make heads or tails of an annual report anymore. One has to be a forensic acoountant. What does other investment mean? the word other is the killer. One never knows until its too late. Net bank the internet bank's financials looked pretty good. I almost put some money in it. Lo and behold 3 months later the FDIC slapped a cease and desist order on it and ING DIRECT took over the assets.
jd | 03.24.08 - 8:19 pm | #

Stuart writes:
Might have something to do with this.

Treasury Deluge Stuns Market, Rates and Yields Soar- WSE Pro Fed Report

by Lee Adler, Monday, March 24, 2008, in Money and The Fed, Professional Edition | Permalink |Comments (1)
The Treasury stunned the market on Monday with the release of a gargantuan auction calendar totaling $136 billion raising $52 billion in new cash this week as US Government finances continued their headlong collapse. This was $30 billion more than the Treasury Borrowing Advisory Committee had estimated for this auction in its report issued January 31. The auctions included $20 billion in CMBs that were not on the TBAC’s radar at all just 7 weeks ago. That sent Treasury prices careening lower and yields soaring.
Stuart | 03.24.08 - 9:37 pm | #

dryfly writes:
Really? I just read something a couple days ago that Toyota is thinking of idling plants here.

They should be making tractors right now instead of Tundras... John Deere is 30% ahead of forecast & the forecast was already aggressive. Even if commodities fall 30-40% - there is so much bubble & profit at these prices (for ag products anyway) that I see no going back for a while - years probably.

I see the same thing in non-automotive & non-housing related mfg everywhere. Granted those first two are HUGE sectors and shrinking them takes a big hit but the others are growing & increasingly in NAFTA Zone not outside of it.

I was in a plant before Christmas that was adding ten new huge machining cells - a couple million bucks each installed. The products they will be producing will be for industrial hydraulic systems and ship all over the world. Capacity could just as easily been put in Asia where they have other plants - turns out this NAFTA Zone facility was competitive with Asia. Currency was a big part of that.

I'm not saying there aren't issues & won't eventually unwind - but I thing there is so much 'market strain' & imbalance built in it will take years.

Eventually we'll see another farm crisis just like the 80s as all those 'profits' get trapped into higher and higher land prices. But that won't be this spring/summer unless we have the onset of another dustbowl - something that can always happen on the central plains.

dryfly | 03.24.08 - 10:34 pm | #

plschwartz writes:
I think that there is a difference between the average Chinese investor and the American one. The Chinese are very practical. Paper profits don't really exist. Unless you cash in the stock. Elsewise what it is worth is what you paid for it. Or what you can get for it now.
Compare the US house owner who is in sackcloth and ashes morning the price he could have sold his house for in 2005.
The same for the BSC pension holders. Does anyone seriously believe that if Bernanke had not worked over the weekend to come up with a deal before the Japan market Sunday night, that BSC would have gone BK, and a global market crash.
The BSC problems were caused by the BSC employees who made wrong business decisions. Ditto for crybaby Lewis. Bottom line like the many RE developers who are BK because they kept building luxury condos they lost their retirement money.Boo Hoo
How many of these supersmart investment types diversified their retirement funds with money from their bonuses?? :)
plschwartz | 03.24.08 - 10:47 pm | #

Bruce F writes:
CR, Tanta,

You might want to change your title.

The TED spread is the difference between Treasuries (T) and Eurodollar futures (ED), not LIBOR. They're both measures of credit risk though. ED's are much more liquid......

I guess no one here trades futures.

Great blog by the way.........
Bruce F | Homepage | 03.24.08 - 10:51 pm | #

Bruce F writes:
Ummmm,

"Never mind".
Bruce F | Homepage | 03.24.08 - 11:06 pm | #