inOrlando writes:
New Bin Laden tape shows mastermind behind 9/11 endorsing Mozilo for Prez.
inOrlando | 09.07.07 - 6:30 pm | #

Max writes:
1,000 layoffs a week, that's all we ask.
Max | Homepage | 09.07.07 - 6:34 pm | #

freakdog writes:
I read somewhere that they could only lay off 1000 a week, since that's all the ERP could handle...
freakdog | 09.07.07 - 6:35 pm | #

Detroit Dan writes:
From 900 to 11,000 in 24 hours. It doesn't get much better than this for us bears...
Detroit Dan | 09.07.07 - 6:35 pm | #

akpundit writes:
You could lend money to CFC for six months (uninsured bond) at 12% today. Not a bad return if you think they won't go tango uniform by February.

Still that seems to price in a lot more risk than the recent BAC deal.
akpundit | 09.07.07 - 6:35 pm | #

Kett82 writes:
Dear CR and Tanta

The long and short double team...has my head spinning.

Best regards!
Kett82 | 09.07.07 - 6:36 pm | #

gng writes:
No big deal. Once you account for births and deaths, it turns out they're actually hiring 1,200 people.
gng | 09.07.07 - 6:38 pm | #

Calculated Risk writes:
akpundit, I saw that rate today on A rated bonds (on credit watch - so they are really junk). I admit I was tempted - will CFC go BK by Feb? I guess a lot of people think so.

Kett82, this post HAD to be short since I wanted to keep Tanta's excellent post above the fold. For UberNerds her post is definitely worth reading.

Best to all.
Calculated Risk | Homepage | 09.07.07 - 6:42 pm | #

Kett82 writes:
Dear CR

Absolutely…you two provide the best coverage of this issue anywhere, IMO. By the way the WSJ has a copy of the Countrywide letter to employees:

http://online.wsj.com/public/ res...ter09072007.pdf

The section on “Recent Media Coverage” seemed incongruous with the rest of the letter, but interesting reading.

Thanks for your insights.
Kett82 | 09.07.07 - 6:52 pm | #

Robert Coté writes:
10,000 here. 12,000 there. Pretty soon this mess will start to affect real people and not just stockholders.
Robert Coté | Homepage | 09.07.07 - 6:53 pm | #

Craven Moorehead writes:
So, the Tan Man and Wall-martians think they can lure the Fed into a rate cut by offering a lame "layoffs could be lower if interest-rates improve" (quote off of current front page of Marketwatch). "Cut the rate now or we'll kill every one of these hostages" sez Mozilo.

Marketwatch also pumping furiously, saying "Fed has a smoking gun". They can't get enough propaganda on the front page. The only voice of sanity is Herb Greenberg, who shadows a dark corner in that office, I'm sure.

The Fed needs to show these clowns that they will not be held hostage by maniacs. I mean, seriously, what is a 50 or 75 point cut going to do at this point, aside from open the door to more insane shorting? It will never trickle down to "consumers" fast enough to save Countrywide.

Maybe this is the New New Paradigm. An economy based entirely on massive liquidity injections and shorting activity. Fundamentals won't matter, accounting won't matter, nothing will matter, just a constant state of turmoil that only the rich get richer from.

I hope Bernanke calls this bluff, but I know he won't. He is, at the end of the day, a Wall-martian too.
Craven Moorehead | 09.07.07 - 6:54 pm | #

Sippn writes:
"Still contained!" BenB
Sippn | 09.07.07 - 6:59 pm | #

Mike writes:
Anybody surprized that Countrywide waited until after the markets had closed to fess up the truth that there are thousands of job cuts instead of hundreds?

Do you suppose the same management would have waited until after the bell if they were hiring 10,000+ people for new jobs?

I think the news releases late on Fridays will be worth looking forward to.
Just a couple of months ago, it was the constant leveraged buyout news on Monday mornings. My have things changed!
Mike | 09.07.07 - 7:03 pm | #

Cal writes:
"Fitch Affirms $10.4MM and Downgrades $544.8MM from 2 Countrywide Second Lien Transactions"

http://home.businesswire.com/por...754& newsLang=en


That is some quality underwriting, I can't imagine why they are in trouble.
Cal | Homepage | 09.07.07 - 7:08 pm | #

dogfacegeorge writes:
"Absolutely…you two provide the best coverage of this issue anywhere"

I agree. You two remind me of that old 16 tons lyric:

"One fist of iron, the other of steel
If the right one don't getcha, then the left one will"
dogfacegeorge | 09.07.07 - 7:08 pm | #

Calculated Risk writes:
Kett82, thanks for the letter. I can understand Countrywide's frustration with the sloppy reporting at the NY Times - if Gretchen would have gotten the details right, it would have been a much better story.

Mike, good points. Every Friday I'm watching for the breaking news ...

Best to all.
Calculated Risk | Homepage | 09.07.07 - 7:12 pm | #

Sue writes:
Shirley Bassey singing "Goldfinger" for tomorrow's Rock Blogging?
Sue | 09.07.07 - 7:12 pm | #

Calculated Risk writes:
Cal, ahhh ... it wouldn't be Friday without some downgrades!

Thanks!
Calculated Risk | Homepage | 09.07.07 - 7:13 pm | #

FFDIC writes:
Hat tip FFDIC. Not to worry. FDIC will be hiring 12,000.
FFDIC | 09.07.07 - 7:18 pm | #

Elvis writes:
Just another "mere flesh wound."
Elvis | 09.07.07 - 7:18 pm | #

Cal writes:
Yeah, its just another downgrade Friday but the amount of losses expected (40%+) and the fact that so much AAA went to BBB- in one instant is pretty amazing.
Cal | Homepage | 09.07.07 - 7:21 pm | #

Mike writes:
"Fitch Affirms $10.4MM and Downgrades $544.8MM from 2 Countrywide Second Lien Transactions"


Wow! Look at those numbers. Expected losses of 42% on one of the deals and 47% on the other. Who in their right mind would buy one of these issues?

Now I know what Toxic is.

Gold is over $700 and foreign central banks are selling US Treasuries, $48 Billion just in the last 6 weeks. It looks like they are not putting their money on Bernanke whether he cuts or not.

We live in interesting times!
Mike | 09.07.07 - 7:21 pm | #

Shirley writes:
My best Goldfinger... .. .

http://youtube.com/watch?v=crn5ephc4UM
Shirley | 09.07.07 - 7:23 pm | #

km4 writes:
Dazed Bush forgets what country he's in, what summit he's at
http://rawstory.com//news/2007/ I...en_in_0907.html

But somehow he remembers to tell us that the US economy is fine and strong ;)
km4 | 09.07.07 - 7:27 pm | #

FFDIC writes:
Mark Ernst, chief executive of H&R Block says problems are on scale of The Great Depression

http:// business.timesonline.co.u...icle2358099.ece
FFDIC | 09.07.07 - 7:33 pm | #

akpundit writes:
CR

There's an interesting trade here for those of us short CFC or ready to. You could loan CFC money at 12% for 6 months as a creditor and not buy back the stock til February at the earliest. That puts the BAC $2 billion investment between both trades; i.e. if CFC goes tango uniform soon you've made $18 bucks on the stock and are in a long line of unsecured creditors but you get paid before the BAC preferred gets the 7.5% dividend.

The same thing happened when GM fell to junk a few years ago and GMAC bonds secured car loans (better than CFC portfolio!) paid over 10% when the stock kept most of its values.

Not suggesting this as investment advice just commenting on possible risk disjunction anamoly between the loan and stock markets at crisis times. Besides I decided long ago you and Tanta are WAY brighter than I am.
akpundit | 09.07.07 - 7:36 pm | #

ron writes:
Indy trying to change its business model in the middle of the game and basically most mortgage lenders are in the same position. The market will be the decider when it comes to who lives and dies, maybe the smaller regional banks with lower overheads will become the winners over the long haul, it will be interesting to see it play out but for sure we don't need all the players on the field today.

Very sorry for the many families who will be affected by this economic down cycle not only citizens facing job loss but also the many homeowners facing dificult choices, all this is going to extract a terrible price to our social and economic well being.
ron | Homepage | 09.07.07 - 7:39 pm | #

BR writes:
Interesting -- the things one discovers about Gretchen by looking around --
http://busmovie.typepad.com/ ideo...ing_gretch.html
BR | 09.07.07 - 7:43 pm | #

borkafatty writes:
OUCH!!!!
borkafatty | 09.07.07 - 7:48 pm | #

borkafatty writes:
Kinda puts that fictitious 4000 number into perspective don't it.
borkafatty | 09.07.07 - 7:51 pm | #

FFDIC writes:
Paulson hedge fund up 410% this year
Subprime bet pays off for $20 billion hedge fund firm

http://www.marketwatch.com/news/...D& dist=hplatest
FFDIC | 09.07.07 - 7:51 pm | #

BR writes:
More on Gretchen:
http://busmovie.typepad.com/ ideo...ower_of_th.html
BR | 09.07.07 - 7:52 pm | #

Kid Clu writes:
Not to worry, the people who got laid off can all get jobs as truck drivers. Oops ! My bad ! The Preznut just gave all those jobs away to Mexican nationals in 18 wheelers with no brakes so that Walmart could lower their prices!

inOrlando,
Faux News had a big segment after the market close today about how Ossama is trying to destroy our economy. For real, not a joke--it's truly mind boggling how Faux can lay blame at the feet of anyone and everyone except the real culprits.
Kid Clu | 09.07.07 - 7:58 pm | #

Bob Dobbs writes:
" Not to worry, the people who got laid off can all get jobs as truck drivers. Oops ! My bad ! The Preznut just gave all those jobs away to Mexican nationals in 18 wheelers with no brakes so that Walmart could lower their prices! "

I suspect that there'll be fewer "jobs that Americans don't want to do" in the future, out of sheer desperation. Following that -- unionization? The '30s all over gain? I can dream, can't I?
Bob Dobbs | 09.07.07 - 8:19 pm | #

donna writes:
Ruh-oh.

I hope my friend who works there doing computer security won't be looking again soon. I have too many friends out of work right now.
donna | Homepage | 09.07.07 - 8:19 pm | #

Chris writes:
Barclays is offering clients in Portugal (and elsewhere?) 8% on their money if they open an account that will last until January 15th. I am not a banker and I don't know what the going rates are in Europe, but that suggests to me that Barclays needs to raise money pretty badly. Any other opinions?
Chris | 09.07.07 - 8:23 pm | #

barely writes:
I took today as an opportunity to get out of the way and reload. I was expecting to do it next week but today was too tempting so I closed out 4/5 of my position. Oct could be huge as long as we don't get a lot more HOGs warning way out ahead of the normal warning period.

I am getting a little concerned that we won't even get a nice pop after the fed cuts. That was going to be my all-in coup de gras to ride through Oct when all hell breaks loose...
barely | 09.07.07 - 8:31 pm | #

Bailey writes:
Does anyone know how the 60,000 employees are geographically distributed?
Bailey | 09.07.07 - 8:43 pm | #

Robert Coté writes:
Countrywide, which, after Amgen, is Ventura County’s second-largest private employer, has approx 7500 centered on Calabasas, scattered from Oxnard to the west SFV and Simi Valley/Moorpark.
Robert Coté | Homepage | 09.07.07 - 8:50 pm | #

Neal writes:
Drop in income and drop in jobs lead to decreased spending leading to drop in jobs and drop in spending.

First loop of the death spiral in process-many more to go.

Still a valid question--has anyone ever figured out how much of the GDP has been pushed by the real estate inflation and all of it's manifestations? If the value of real estate doubled, does that mean that half of the 10 trillion in mortgages is "new" money that was injected into the 13 trillion dollar a year economy over the past five years? With a "recycle rate between 2.5 and 5, where does that leave the economy?

I am afraid that very few has grasped the awful truth related to this, that without an inflating real estae, the US economy is sunk.
Neal | 09.07.07 - 8:55 pm | #

risk capital writes:
"developing"-

http://money.cnn.com/news/newsfe...707092007- 1.htm
risk capital | 09.07.07 - 8:58 pm | #

micronin127 writes:
This could be a scary pattern. Large corporations (mainly financials) that are not cash-flow positive.

Their income statement may be fudged by booking negative amortization as current income. So although they may technically have earnings, they are tapping lines of credit to make payroll.

It feels more like they are losing money from operations because of the questionable value of their assets, receivables, and income. Even though they claim to have earnings...

Then one day, when they can no longer make the payroll, 12K layoffs announced over 3 months.

How many other corporations are tapping credit lines to make payroll? How many 'sudden bankruptcies' are lurking out there? And how many of these corporations are the counter-parties in the whole derivatives mess?

A Fed cut will not solve all problems, but with the economy slowing, they should do what they can within reason.
micronin127 | 09.07.07 - 9:01 pm | #

FFDIC writes:
Bailey
Countrywide has large operations at several Dallas area sites but its headcount is unknown. The local media are more concerned about the new Bush Library at SMU.
FFDIC | 09.07.07 - 9:03 pm | #

risk capital writes:
more-

http://today.reuters.com/news/ar...-CHEYNE-S- P.XML

http://www.ft.com/cms/s/0/ 68a81e...00779fd2ac.html
risk capital | 09.07.07 - 9:05 pm | #

justintime writes:
You have to feel a little bad for the one's who drank the "It can only go higher kool-aid". Did they really believe that double figure annual increases in home prices could continue? Wages never came close to that appreciation rate. That is the trouble with a PONZI. The last ones in are always the biggest losers. Lessons learned by hardship are the ones never forgotten. All those toys bought with tomorrow's loses.
justintime | 09.07.07 - 9:07 pm | #

greenlander writes:
Woohoo! Only 45K employees left to go!

Shall we start a betting pool on when they turn out the lights?
greenlander | 09.07.07 - 9:12 pm | #

Neal writes:
Via Times UK, today:

Mr Greenspan said: "The behaviour in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987, I suspect what we saw in the land-boom collapse of 1837 and certainly [the bank panic of] 1907.”
Neal | 09.07.07 - 9:13 pm | #

dryfly writes:
Gold is over $700 and foreign central banks are selling US Treasuries, $48 Billion just in the last 6 weeks. It looks like they are not putting their money on Bernanke whether he cuts or not.

Well they might be selling T's for a totally different reason... From Macro Man

As proof, the author points to the Fed's custody data, which does indeed demonstrate a decline in holdings of Treasuries since late July. Of course, what the article ignores is that holdings of Agencies continue to rise apace; indeed, even before the recent drawdown in Treasury holdings, CB Agency holdings had been rising at a faster pace this year. If China were going to sell off its US bondholdings, why sell Treasuries but not Agencies?

CHART

Moreover, if a Big Kahuna like China started to whack the Treasury market, don't you think word would leak out? Or if SAFE really did sell $45 billion in Treasury bonds, wouldn't the price have gone down/yield gone up? In point of fact, the entire yield curve shifted lower between the date of the peak in Fed custody holdings of Treasuries and the latest datapoint. And Macro Man has yet to hear word one of Chinese Treasury sales. If SAFE really is dumping bonds, they've managed to do so in an incredibly quiet fashion-and silence hasn't exactly been a hallmark of SAFE's investment activities over the past few years.

Who knows what's goin' on and why. But we do know about 10,000 families are going to think whatever it is - it sucks.

dryfly | 09.07.07 - 9:13 pm | #

Geoff writes:
Neal - he forgot to add at the end of that : "And it was all my fault! BWAHAHAHAHAHAHA!!!!" Now shut up and pay me the big bucks!

Does anyone else not see something wrong with this? His speaking fees should be put into a fund for people who were defrauded during this racket.
Geoff | 09.07.07 - 9:15 pm | #

risk capital writes:
citi pulls back on whse lines-

http://www.bloomberg.com/apps/ne...1J30& refer=home
risk capital | 09.07.07 - 9:16 pm | #

dryfly writes:
Barclays is offering clients in Portugal (and elsewhere?) 8% on their money if they open an account that will last until January 15th. I am not a banker and I don't know what the going rates are in Europe, but that suggests to me that Barclays needs to raise money pretty badly. Any other opinions?

But did they offer them a toaster?

dryfly | 09.07.07 - 9:16 pm | #

sterling writes:
How does one add back end points on an order of fries?
sterling | 09.07.07 - 9:23 pm | #

Max writes:
Their income statement may be fudged by booking negative amortization as current income. So although they may technically have earnings, they are tapping lines of credit to make payroll.

Don't forget all the REO that has yet to sold or marked-to-market.
Max | Homepage | 09.07.07 - 9:26 pm | #

Max writes:
They're up to $2.5 billion as of Wednesday:

11,836 Homes Offered For Sale on Countrywide Financial's Website
Max | Homepage | 09.07.07 - 9:28 pm | #

Neal writes:
From NAHB, in 2002:

(quote)

According to the National Association of Home Builders, investment in housing -- that is, the creation of new subdivisions and apartment communities -- accounts for 4.3 percent of GDP. And housing sector consumption -- expenditures for housing such as monthly payments and utilities -- was responsible for 9.7 percent.

That's a total of 14 percent, a share that "has varied little over the past 50 years," says Kent Conine, a Dallas builder and first vise president of the 205,000-member trade group.

But that's not all, according to Kent Colton, a senior scholar at the Harvard Joint Center for Housing Studies, who adds that if you include all spending for furniture, appliances and the like, housing's share of GDP is something on the order of 22 percent.

(end quote)

And this was written before all of the craziness of the past few years.

What did all of the extra mortgage wealth extraction due to real estate inflation add to that 10 to 22 percent? Once again, where would the economy have been the past few years?

We will now see the full depth of the pit of missing GDP due to the extensive over-building and over-mortgaging of the recent past.
Neal | 09.07.07 - 9:30 pm | #

km4 writes:
A good solid recession with economic pain is what America and Americans needs to wake them the fuck up and stop listening to the tripe and pablum of MSM shills.
km4 | 09.07.07 - 9:31 pm | #

FFDIC writes:
Two UK banks left with loan pools of $20bn

Barclays Capital and Royal Bank of Scotland have between them more than $20bn of loans still to syndicate, coming second only to Citigroup, which has almost $12bn.

http://www.ft.com/cms/s/dd2d9cb0...2Fhome% 2Feurope
FFDIC | 09.07.07 - 9:36 pm | #

RayOnTheFarm writes:
I have to wonder.. if any of the people being laid-off by CFC (or other financial firms) may be living in houses with sub-prime or alt-A mortgages ?

Seems like a feedback loop of sorts.
RayOnTheFarm | 09.07.07 - 9:41 pm | #

Misean writes:
Robert Cote:

"Countrywide, which, after Amgen, is Ventura County’s second-largest private employer, has approx 7500 centered on Calabasas, scattered from Oxnard to the west SFV and Simi Valley/Moorpark."

Just to be accurate. Calabasas is in LA County. Oxnard is just east of Ventura, in west VTA County. Simi and Moorpark are North VTA County. CFC has a HUGE complex in Calabasas, just two miles down the 101 another HUGE office complex...another just down the road in Thousand Oaks. You see these CRE buildings littered along the 101 heading west toward the4 city of Ventura. CFC has too much CRE.
Misean | 09.07.07 - 9:46 pm | #

billygoat writes:
Shirley Bassey is BAAAAAADDDDD....

whoo!
billygoat | Homepage | 09.07.07 - 9:51 pm | #

FFDIC writes:
Economists React:'Worse to Come'
"Even Pollyanna and Mary Poppins would be reaching for the Prozac after reading the August employment report..."

http://blogs.wsj.com/economics/2...-worse-to-come/

http://www.rxlist.com/cgi/generi.../ fluoxetine.htm
FFDIC | 09.07.07 - 9:52 pm | #

Shirley writes:
Mr. billygoat

Are you a big spender?

http://youtube.com/watch?v=VQ7fQ...related& search=

Call me.
Shirley | 09.07.07 - 10:00 pm | #

touche writes:
“The Company presently estimates a total workforce reduction of 10,000 to 12,000 over the next three months representing up to 20 percent of its current workforce.”

It should be 40,000 to 50,000 over the next three weeks, for starters. CFC is toast.
touche | 09.07.07 - 10:06 pm | #

Called_Bluff writes:
Barclays is offering clients in Portugal (and elsewhere?) 8% on their money if they open an account that will last until January 15th. I am not a banker and I don't know what the going rates are in Europe, but that suggests to me that Barclays needs to raise money pretty badly. Any other opinions?

But did they offer them a toaster?

dryfly | 09.07.07 - 9:16 pm |

I smell burning bridges
Called_Bluff | 09.07.07 - 10:06 pm | #

crispy&cole writes:
Is Wamu next to go under??:

http://forum.brokeroutpost.com/l...um/2/ 162845.htm
crispy&cole | Homepage | 09.07.07 - 10:07 pm | #

Called_Bluff writes:
I really hate to do this on a night when bears are celebrating impending doom...
The OCC report
http://www.occ.treas.gov/ftp/der...deriv/ dq406.pdf

pg 5 , no credit losses, not once, mostly ZERO

How are we to square that statement with our individual investment styles and needs...

It's close to high time this gets a roundtable discussion.IMO
Called_Bluff | 09.07.07 - 10:11 pm | #

central_scrutinizer writes:
akpundit, I like the way you think. Basically loan money to CFC and take the 12% and plow it back into puts or outright shorts. You can't lose either way!

At 12%, their credit rating must be on par with a Latin American economic basket case like Ecuador. Which is more likely, CFC goes BK or Ecuador goes commie and defaults on all its' bonds? Hard to say at this point.
central_scrutinizer | 09.07.07 - 10:14 pm | #

RoastedBear writes:
You have to feel a little bad for the one's who drank the "It can only go higher kool-aid".

what about the permabear, who said
"surely it can't go any higher"
RoastedBear | 09.07.07 - 10:15 pm | #

Wonderin writes:
Hat tip FFDIC. Not to worry. FDIC will be hiring 12,000.
FFDIC | 09.07.07 - 7:18 pm | #

Yeah, well I'd actually be surprised if these CFC people have 12 accounting credits between them, never mind that they surely lack Tanta's ability to turn a lit background into a crack knowledge of banking and finance.
Wonderin | 09.07.07 - 10:16 pm | #

billygoat writes:
Mozilo has long maintained that Calabasas, California-based Countrywide would survive an industry shakeout. He said the industry would begin "to see the light" in the middle of next year.

"By 2009, we're going to have a very healthy market from Countrywide's point of view," he said. "There will be very little competition in 2009 and 2010."

Yeah, we won't even be in our own way by then...

Ah well....

http://www.reuters.com/article/ b...442661620070424
billygoat | Homepage | 09.07.07 - 10:17 pm | #

rich writes:
"There's an interesting trade here for those of us short CFC or ready to. You could loan CFC money at 12% for 6 months as a creditor and not buy back the stock til February at the earliest."

The crazy thing is, there's a whole market out there that does exactly this. It's called PIPEs -- private investment in public equity. Buy unrated, low-quality debt and convertibles dirt cheap. Short the common to hedge. But the PIPE market is mainly the dregs of micro-cap public companies, not CFCs.

There's at least a thousand small-cap or micro-cap public companies in the U.S. that are in desperate need of capital and probably will have to pay the equivalent of 15-20% to borrow in today's environment. You could get senior debt for 12-14%. But the common of these companies is still selling for 30-50 times earnings, if they have earnings at all.

Tell me stocks of miserable little companies aren't about to tank. Man, I'm short as hell TWM.
rich | 09.07.07 - 10:20 pm | #

billygoat writes:
Wait, wait...

I see the light!

Oh... just Angelo's tan.
billygoat | Homepage | 09.07.07 - 10:20 pm | #

inpoortaste writes:
Does anyone know how the 60,000 employees are geographically distributed?


About 12000 are on there backs
about 30000 are on there knees
about 16000 are on cruthces
about 1999 are in the islands
and 1 is pissing on them all from a golden parachute
inpoortaste | 09.07.07 - 10:20 pm | #

billygoat writes:
More "Mozilo's Greatest Hits"

(yeah kid, I gotta million of 'em)

Chief Executive Angelo Mozilo said on July 24 he expects Countrywide to be one of five major mortgage lenders left after an industry shakeout. He also said the U.S. housing market was a "huge battleship" that might not turn around before 2009.

"You will have reduced competition [and] very substantial pent-up demand," he said.

http://money.cnn.tv/2007/08/14/n....reut/ index.htm
billygoat | Homepage | 09.07.07 - 10:25 pm | #

rich writes:
I meant to say, I'm long TWM. It's a double short ETF.
rich | 09.07.07 - 10:27 pm | #

billygoat writes:
rich:

Hopefully you got real long early Jul, b4 the bump.

http://finance.yahoo.com/q/bc?s=TWM&t=1y
billygoat | Homepage | 09.07.07 - 10:30 pm | #

FFDIC writes:
Called_Bluff

Thanks for the glossy OCC report. I had not yet seen it. Page 5: "The low incidence of charge-offs on derivatives exposures results from two main factors: 1) most of the large credit exposures from derivatives, whether from other dealers, large non-dealer banks or hedge funds, are collateralized on a daily basis; and 2) the credit quality of the typical derivatives counterparty is much higher than the credit quality of the typical C&I borrower." Lets see what OCC is willing to disclose about these matters in its next glossy report.
FFDIC | 09.07.07 - 10:35 pm | #

FFDIC writes:
inpoortaste - LOL - Tanta was looking for a spiffy ghost writer to help her out a little bit on the patio... .. .
FFDIC | 09.07.07 - 10:39 pm | #

rich writes:
"Hopefully you got real long early Jul, b4 the bump."

billygoat:

I'm not a market genius and I'm a terrible market timer. I got long TWM and SRS (double short REIT) last January and have no intention of selling until I see terror in the bulls' eyes.

All my bones are telling me that this isn't just a recession. It's something unique in U.S. economic history. An epic economic, credit and market panic. Why?

Two words:

Hedge funds.

If you think mortgage implosions are scary, wait until you see what happens with hedge funds.
rich | 09.07.07 - 10:44 pm | #

Called_Bluff writes:
collateralized on a daily basis

we all know how that "collateral" thing is working these days

Which brings up a side point froma previous entry up page-
Paulson fund up 400%
some details are so important, that it's useless to write a story about it, and have said details ommitted.
Like, 400% on $500 or $500mm
the 20billion is under Paulson umbrella, with many subaccounts, i'm sure.
The other details are - were the trades closed out and 'SETTLED'
The premise that i've come up with is that many of these otc cds trades will have a hard time collecting vs unknown, soon to be insolvent counterparties(just speculating, of course).
Called_Bluff | 09.07.07 - 10:47 pm | #

REBear writes:
bluff,
Isn't that report a 'bit' old?
REBear | 09.07.07 - 10:48 pm | #

Called_Bluff writes:
Isn't that report a 'bit' old?
REBear

hell yeah, it's old
it's from friggin 2006--- ancient mphuggginnnn history


I can't wait for the newest version...

OCC q407- yep , like we said -- credit losses are ZERO- no one losses...


I don't think that statement will change, do you?

Just think about the alternative to
'no losses' in a 400 trillion dollar market.
Called_Bluff | 09.07.07 - 10:57 pm | #

Called_Bluff writes:
Ps FF
how were you able to C&P from adobe file. nice trick.
Called_Bluff | 09.07.07 - 11:00 pm | #

FFDIC writes:
c&c- This important piece came out 8/22...

http://www.thestreet.com/s/is-wa...9.html?puc=_dm&
FFDIC | 09.07.07 - 11:01 pm | #

DannyHSDad writes:
Called_Bluff: C&P from adobe file. nice trick.

You need to install newer Adobe reader. There are tools which will let you edit them, too (even locked ones, if you look really hard :-). C&P in Adobe Reader 8 works for me in Firefox on Windows XP....
DannyHSDad | Homepage | 09.07.07 - 11:10 pm | #

TulsaTime writes:
I don't give Countrywide 90 days. Hell, they may not make 30. They are the figurehead for the excess of this latest bubble, and they will expire in grand fashion, probably taking out some distinguished financial institution in the crash. BOA must have been delusional to have gotten involved, but that is BOA all over. Some grand scheme that will come around to bite them on the ass.
TulsaTime | 09.07.07 - 11:10 pm | #

Called_Bluff writes:
RE Bear
Q1'07
http://www.occ.treas.gov/ftp/der...deriv/ dq107.pdf

latest available
Called_Bluff | 09.07.07 - 11:10 pm | #

FFDIC writes:
Bluff,
I ditched my '95 Toshiba & upgraded to an HP that does everything except wipe my butt. Guess I should have gotten a Dell for that. I see where DannyHSDad kindly offered Utips so I'll assume you are well on your way to your C&P glory days. Regards.
FFDIC | 09.07.07 - 11:18 pm | #

Called_Bluff writes:
DannyHSDad
TY, sir
my adbe8 download has been hanging for 3 months... i gave up on it, as i always get busy doing somethen else.
Maybe this weekend
Called_Bluff | 09.07.07 - 11:19 pm | #

FFDIC writes:
Tulsa
I'll always believe BOA was forced into that dysfunctional relationship by the Feds due to Countrywide's depositor run on the bank (and nationwide media coverage). You notice the run stopped soon afterwards which is what the Feds wanted. No doubt lots of Fed lawyers will get bonus pay for that 'wise' move.
FFDIC | 09.07.07 - 11:25 pm | #

FFDIC writes:
Managing the shift to bank CD accounts - FDIC Insurance update

http://www.newsday.com/business/ ...0,3175323.story
FFDIC | 09.07.07 - 11:40 pm | #

crispy&cole writes:
FFDIC-

Thanks!
crispy&cole | Homepage | 09.07.07 - 11:52 pm | #

arbogast writes:
I am beginning to wonder whether the reason the Fed won't lower is that the game is over?

Is it possible that the whole deal with the discount window was done because it was the only thing they could do that would help?

After all, we are now getting a whiff of ...the envelope please...FED IMPOTENCE. The markets don't seem to care if the Fed lowers.

Money lenders have to be less greedy and less strung out on cocaine in the future (someone please tell George).
arbogast | Homepage | 09.08.07 - 12:01 am | #

dryfly writes:
After all, we are now getting a whiff of ...the envelope please...FED IMPOTENCE. The markets don't seem to care if the Fed lowers.

arbo - I'm of the opinion the Fed knows there is going to be a recession fairly soon - whether 2H'07 or '08 isn't important... its likely to start within the 18 month window of 'monetary influence' before a cut would have full effect. So avoiding it is probably a fools errand - i.e. too late.

Even if they cut now - there is little effective stimulus for six months to a year and something like 18 months before we 'feel' the full effects. Monetary 'stimulus' isn't a bong hit - its a timed release kinda thing.

The stock market may have a short *pop* but that's not what they are looking at - its GDP outputs & employment they will want to see pick up. That will take time - whatever slow down is coming is already baked in, so to speak.

My guess is they are holding back as long as possible so that the eventual cut comes at an appropriate time to reinforce an exit FROM the upcoming eventual recession. They won't want the recovery to be indecisive - that's asking for Japan like issues.

But they also won't want to be premature or overdo it. Greenspan taught them that mistake.

The only reason they cut in Sept is because they think we are 'there' now - imminent recession - regardless what the official metrics say. In which case, if the cut now, the load won't really start lightening up until late next spring and summer as the rate cuts fully take effect through '08.

But I think they would like to hold off longer if possible...

That's my guess.

dryfly | 09.08.07 - 12:38 am | #

Kevin writes:
NEW YORK – Lower hemlines are coming back in fashion for spring and that could spell bad news for the U.S. stock market.
The higher the hemlines, the better the outlook for stocks, according to a popular, but frequently disputed, theory. When hemlines drop, watch out – the Dow Jones Industrial Average is likely to fall, the theory goes.

http://www.signonsandiego.com/ne...ion- stocks.html

Damn!
Kevin | 09.08.07 - 12:39 am | #

FFDIC writes:
So This Subprime Lender Walks Into an Audit...(NovaStar vs Deloitte)

http://select.nytimes.com/2007/0...ml? ref=business
FFDIC | 09.08.07 - 12:40 am | #

FFDIC writes:
Royal Bank of Canada to Buy Alabama National BanCorp for $1.6 Billion

(New logo: Moose in cotton patch)


http://www.banknet360.com/blogs/ ...browseItem.biId
FFDIC | 09.08.07 - 12:53 am | #

ShortCourage writes:
OK here's a puzzler for you late-night readers...

What's the likely trajectory for hi-tech employment numbers in this next recession? Do hi-tech job centers like Silicon Valley stand strong and solid? Or are there still lots of zombie tech companies out there with bad business plans that are extremely vulnerable? Does Web 2.0 go the way of companies like Pet.Com ?

Just wondering, since I live in the Bay Area and work in hi-tech...
ShortCourage | 09.08.07 - 1:04 am | #

ShortCourage writes:
For tech centers like my home in Silicon Valley, any significant amount of job losses would be fatal for the housing market.

For a family with two income-earners, each making $100K+ (both software engineers, for example), housing expenses of $100K is not unreasonable. With a household income between $200-250K, the normal 3X income is not really necessary. You can cut your non-housing expenses and get by.

But if you lose one of those high-paying jobs....Yikes!

That's what I think will drive the total collapse of our housing market. That and the fact that the bottom of our market will not be there to prop up the top of the market going forward...
ShortCourage | 09.08.07 - 1:22 am | #

ShortCourage writes:
In my last post, I meant "the normal 3X income limit on the home purchase price is not really necessary"...
ShortCourage | 09.08.07 - 1:24 am | #

DannyHSDad writes:
ShortCourage: I would think that the bubble (or easy credit) lifted all boats, including the tech products (and their stocks).

The question is which companies will withstand the best as people stop spending money. Since 70% of GDP is by consumers, I guess companies which are directly tied to consumers won't do well (cellphones, home PCs and mp3 players come to mind). Infrastructure tech might do better like high end servers, but who knows how bad the post bubble will spread.

Maybe even Ebay (electronic swap meet or garage sale) won't do well since craigslist is (almost all) free....
DannyHSDad | Homepage | 09.08.07 - 1:48 am | #

Trainwreck writes:
Wow 100 posts, hope you see this CR

This http://www.marketwatch.com/news/...D& dist=hplatest
over at marketwatch has me wondering about the official definition of what is a recession.

I never put much stock in the two or three quarters of negative GDP definition of a recession, but is the NBER definition more accurate?

I guess I am wondering how you would classify a recession?
Trainwreck | 09.08.07 - 1:51 am | #

FFDIC writes:
Debugging Wall Street's funky math

http://money.cnn.com/2007/09/06/ ...sion=2007090717
FFDIC | 09.08.07 - 2:00 am | #

Bob Dobbs writes:
Shortcourage:

I rode the Valley through two recessions; it hurts. It always hurts.

I'll tell you one thing: companies will ramp up outsourcing and offshore subsidiaries even more to cut costs. Which may help the companies survive, but will hurt the Valley economy, except at the highest investor/management level.

Real estate will suffer; it did back in the early '90s, before outsourcing and offshoring, and when real estate prices weren't nearly as stratospheric. How much more now?

On the other hand, you might find some Silicon Valley workers fleeing their foreclosed tract homes in Tracy and Livermore for close-in condos and townhomes in the Bay Area. Could be a certain amount of bottom-end support there, assuming they can get real mortgages.
Bob Dobbs | 09.08.07 - 2:34 am | #

ShortCourage writes:
DannyHSDad,

Thanks for the reply.

I agree that tech stocks dependent upon spendy consumers will suffer (gee, maybe that's why Apple had to cut it's iPhone by 33%, perhaps?).

But I'm really wondering more about the Google's of the tech world, the ones with a business model dependent upon ad revenue (from all those mortgage lender ads, for instance).

And what about the tech companies, like my own, that depend upon government spending, the war and defense spending for their profits? How sustainable is the amount of spending on defense (offense?) and weaponry in the face of declining tax revenues?
ShortCourage | 09.08.07 - 2:40 am | #

ShortCourage writes:
Bob Dobbs,

I'm not so sure about offshoring as a savior for Silicon Valley companies going forward. I don't think the cost savings are that great anymore, because skilled labor in India and other places is getting more scarce and more expensive as a result.

BTW, I think the popping credit bubble and its negative effect on venture capital and other investors will be a big blow to valley businesses and employment.
ShortCourage | 09.08.07 - 2:47 am | #

LawFitz writes:
I speak anecdotally, but I can tell you from first hand experience that many out there used MEW to support imprudent home budgeting and that over the last 12 months that trend has shifted to CC debt.

The following cycle manifested itself over and over and over again until it could no longer sustain itself in 2006... run up CCs, take a cash out refi to cosolidate, run up CCs, clean up again using the C/O refi.

Then a funny thing happened. First houses stopped appreciating, then lenders adopted more sane standards. And the result?...

Take a look at Credit Card (aka "revolving debt")...

http://www.federalreserve.gov/re...ent/ default.htm

Profligacy used to be cleaned up via MEW. No more, my friends. The Fed cannot stop this train wreck.

Remember all those people who have been calling for the end to the consumer for the last few years? Well it turns out they were right, just not timely.
LawFitz | 09.08.07 - 3:05 am | #

Lumpeninvestor writes:
The general outline of my investing strategy these days: short/puts on builders/lenders. Wrap that up, and short retailers, wrap that up and short tech.

We all know what the builders/lenders stocks are doing now. Retailers will start to feel the impact of the lack of MEW and the CC "septic pumping" it provides. The Wealth Effect will impact this as well.


There are thousands of computers that are now surplus in all those defunct lenders. Tightened credit will probably make other companies more cautious about tech spending, lest they need that credit or cash for operations. PC upgrades will probably be postponed if the current stuff still works. Who needs a faster desktop PC to process fewer loans? So unless Eurozone or Asia ramps up tech consumption to fill the void, the tech supply chain (AMAT, DELL, MSFT, etc) will probably slow. (GOOG is not really tech; its an advertising agency with a schizophrenic and hyperactive IT department).

Not sure of the timing, but thats what I'm watching. As cash spins off of this, I'm using it to buy something real - PMs - or safe - T-bills.
Lumpeninvestor | 09.08.07 - 3:19 am | #

KirkH writes:
"What's the likely trajectory for hi-tech employment numbers in this next recession? Do hi-tech job centers like Silicon Valley stand strong and solid? Or are there still lots of zombie tech companies out there with bad business plans that are extremely vulnerable? Does Web 2.0 go the way of companies like Pet.Com ?"

I think a lot of companies are going to try to automate their way out of employment costs. Though chip makers are probably going to take a beating, I mean who really needs a quad core 3.4Ghz processor? I'm betting on Google, SalesForce, Canonical, VMWare and IBM as survivors. Anybody with a job reliant on workarounds for slow hardware or reliability fixes is probably going to have to find a new job soon.
KirkH | Homepage | 09.08.07 - 4:15 am | #

arbogast writes:
dryfly,

I think the problem is too many bong hits in ocean front rentals in the Hamptons.

Having said that, I think your analysis is correct.

I would add, however, that the Fed now has two problems:

1) Recession/employment

2) The banking system

What's going on in the "banking system" right now is the perfect payback to the "Kill the Beast/Zero Regulation" folks who stole the White House and the Congress.

They've got what they wanted. I hope they enjoy it.

Even a little [rhymes with bird] like Sarkozy knows better than to "Kill the Beast" or get rid of all regulation.

And then of course there's the European banking system. Whatever the Fed does, it should not assume savings from Europe. Never again.
arbogast | Homepage | 09.08.07 - 4:22 am | #

revro writes:
in my family we tend to buy the best computer that is outhere and then hold on it for five years :) i know we overpay but i am now in the fourth year of this pentium4 3ghz, 1gb ram and ati radeon 9700pro i am writing from and i kind of see no reason to buy another computer or more ram since i dont feel like i have to have vista. if i ever switch os now, it will be to ubuntu ultimate :) and the graphic card is still running like mad even on the newest games in large resolution so i really dont need to buy a new pc :) i have a 30 month old mobile phone and it does everything i need, if i were to buy another mobile phone with a lot of features it would just cost money and i would have to recharge it more frequently, and i got a very high tech mobile phone now, its that i hold it in lowest energy consumption mode. simply said i am just too lazy to recharge it every three days :)

motto of my family, "we drive everything to death whether cars, mobile phones or computers" :)
revro | 09.08.07 - 6:05 am | #

black swan writes:
It's possible that a Fed funds rate cut could actually have an adverse effect on Countrywide and other lenders. Do people realize that the 30-yr loan interest rate is lower today, with the Fed funds rate at 5.25%, than it was in 5/04, when the Fed funds rate was at 1%? The same thing can be said for the 10-yr note. See chart:
http://library.hsh.com/?row_id=90

If, in fact, the Fed lowers its funding rate and the European Union does not follow suit, we could actually see a higher 10-yr note rate, as foreign investors demand more yield in order to compensate for our weaker USD. Consequently, this is not going to help 'potential homeowners', and it will probably hurt existing homeowners in need of refinancing.
black swan | 09.08.07 - 6:22 am | #

arbogast writes:
I was beginning to become fearful and depressed before I read Alan Abelson this morning:

Most of these "rescue" schemes put the onus for making the adjustments to the mortgages on the lenders; presumably somewhere behind the curtain will lurk the government as a kind of co-signer. It sounds to us like a perfect prescription to scare the lenders silly and choke off a recovery in the mortgage market for a decade or so. There's also another little problem. As the always astute Stephanie Pomboy of MacroMavens asks rhetorically, "How do you get a lender to renegotiate a mortgage when you don't know who the lender is?"

Ultimately, she fears, the policy makers, thwarted by securitization, will switch their focus to borrowers. "Why waste precious time trying to identify and then cajole lenders," she reasons, "to play nice with their customers, when you can just run off a fresh batch of dollar bills and dispense them to ailing low-end consumers so they pay their mortgage and credit card bills?"

But, Stephanie sighs, the current credit bust is not confined to real-estate lending. In truth, there are interest rate "resets" galore across the entire economy. Borrowing short has become a raging epidemic. Floating-rate paper now accounts for 54% of total debt issuance, up from 26% as recently as 2002. That means a startling $540 billion in corporate bonds will need to be rolled over next year.

The serial abusers in this realm are -- who else? -- financial enterprises, who need to replace a tidy $428 billion in debt next year, a third more than this year. In 2008, too, some $160 billion worth of leverage loans mature.

To top off this orgy of borrowing short, there's the $87 trillion interest-rate swaps market. Essentially, she explains, here's where long-term fixed-rate obligations are converted into floating-rate short-term notes. Swaps, Stephanie reports, accounted for more than half the growth in the $145 trillion derivatives market in the past two years.

What she foresees is a kind of financial Armageddon as the credit crunch deepens and widens. "Scarcely will they finish putting the subprime situation under house arrest" before policymakers will be forced to address similar problems in "credit-card debt, commercial-real-estate loans, CLOs . . . and beyond."

As the credit engine sputters, the repair crew will be forced to "print and spend." That, she says, is what gold has figured out. And what equities, we might add, are only beginning to learn.

MF
arbogast | Homepage | 09.08.07 - 6:35 am | #

arbogast writes:
Rip roaring inflation would be kind of hard on the fabric of society.

Thanks George. Thanks Alan.
arbogast | Homepage | 09.08.07 - 6:37 am | #

Bill writes:
I'm fairly close to you, Lumpeninvestor. I am keeping a good number of builder puts but sold off enough yesterday and during the past week to have a good deal of cash. I also have a lot of puts on midsized banks with high CRE exposures. The XHB (home building etf) is a good put if you don't want to select specific companies.

This week, retailers were great puts. I am using puts on RTH (Retailers etf)and other housing housing related puts (BBBY, HD and LOW). Home depot was a great put last week. I could not believe how high it bounced when it sold off its wholesale unit for a "disappointing price." Not to descriminate too much, I also have puts on Lowes. The best puts and shorts are stocks in strong downturns that bounce up. I am learning to be more patient in buys and to sell at least some nearer term positions on panic days like yesterday.
Bill | 09.08.07 - 6:54 am | #

banker,,, not writes:
Countrywide may not be in this mess by itself. It is just not as good at keeping its business off the street. See:
http:// reggiemiddleton.typepad.c...rywid.html#more
banker,,, not | 09.08.07 - 7:21 am | #

ozajh writes:
KirkH,

IMHO VMWare is running the Red Queen's race against Microsoft. Even with (and in some areas because of) EMC behind them they may not win.

I think a lot of people want them to stick around, but if MS bundle good enough virtualisation into their product and then add even a reasonable management layer a lot of really big IT users will take the safe option. I know my (foreign government) employer will.

If you work at VMWare and you're good I would say your job is pretty safe, because a real downturn will increase the virtualisation trend, but at the current price I reckon the stock is a 'crash through or crash' investment.

(* Not investment advice *)
ozajh | 09.08.07 - 7:51 am | #

energyecon writes:
black swan,

I believe you nailed it, the bigger the Fed rate cuts, the likelier foreign capital flight becomes...reduced demand for our debt results in higher interest rates to clear the market, resulting in the opposite of the desired effect.

And how many of those resets are tied to LIBOR (did it move up again on Friday)?
energyecon | 09.08.07 - 8:39 am | #

Grasshopper writes:
Barclays is offering clients in Portugal (and elsewhere?) 8% on their money if they open an account that will last until January 15th. I am not a banker and I don't know what the going rates are in Europe, but that suggests to me that Barclays needs to raise money pretty badly. Any other opinions?

But did they offer them a toaster?

dryfly | 09.07.07 - 9:16 pm |


I'm reminded of that Mike Moore movie where a bank was offering individuals a rifle if they opened a new account. I bet they are rethinking that one.
Grasshopper | 09.08.07 - 8:53 am | #

energyecon writes:
Just posted a question on the August job numbers thread, please excuse the OT post but anyone already have the August Birth/Death adjustment broken out?

I plead slack and the three year old sitting in my lap at the moment - breakfast time!
energyecon | 09.08.07 - 8:54 am | #

yesIamClueless writes:
OT: I expect to see more articles like this and note this is not one of the seven supposed bubble states.

Twelve remaining lots in Amity Township’s upscale but unfinished Pond View development were bought at sheriff’s sale Friday by Bancorp Bank, Berks County officials said.

The bank, based in Exton, Chester County, has a $2 million judgment against owner Pond View Associates LLC. The bank paid the $3,100 cost of the sale for the lots along Pine Lane near Route 662.

Bank officials were unavailable for comment.

A separate sheriff’s sale of 32 remaining lots in another upscale but unfinished Amity development, Glenwood Estates, between Morlatton Road and Russell Avenue, was postponed for undisclosed reasons.

Harleysville Bank and Trust Co. has a $4.5 million judgment against the owner of that development, Commonwealth at Glenwood LLC.

Both developments were marketed by Commonwealth New Homes, Lederach, Montgomery County.
yesIamClueless | 09.08.07 - 8:58 am | #

DannyHSDad writes:
Completely OT:

To KirkH and ozajh (and ShortCourage): Here are my random thoughts on future of virtualization:
http://dannytech.blogspot.com/ 20...ualization.html
DannyHSDad | Homepage | 09.08.07 - 9:08 am | #

micronin127 writes:
'Just posted a question on the August job numbers thread, please excuse the OT post but anyone already have the August Birth/Death adjustment broken out?'

Mish broke them out yesterday, but he posted another topic when Countrywide announced the layoffs.

http://globaleconomicanalysis.bl...ssive- jobs.html

The BLS also lowered the participation rate in the labor force and that kept unemployment rate at 4.6%.
micronin127 | 09.08.07 - 9:39 am | #

flipthiscondo writes:
[i]No big deal. Once you account for births and deaths, it turns out they're actually hiring 1,200 people.[/i]

Best post of the day! hahaha
flipthiscondo | 09.08.07 - 9:40 am | #

revro writes:
in Austria you can get cca 3,5% for a yearly deposit, in Slovakia you get 3%. rates are too low, no wonder no one saves, except for few fools like me :)
revro | 09.08.07 - 9:47 am | #

energyecon writes:
micro,

Thanks for the steer towards Mish - always a good read there - so if I parsed that correctly we arrived at the -4K job loss for August after 120K increase from the birth/death adjustment?!

30K of the 120K being Construction, Manufacturing and Financial Services and the Financial Services August number represents an almost 100% increase over the July number (11K increase in August B/D vs the 6K in July).

Riiiiiiiiiiight...
energyecon | 09.08.07 - 9:49 am | #

Kevin writes:
energyecon

http://www.bls.gov/web/cesbd.htm

Why don't you just go to the source? Same place as always.
Kevin | 09.08.07 - 10:04 am | #

arbogast writes:
I have a general comment on the idea of bailouts.

I have said ad nauseum that if you buy the Brooklyn Bridge you don't get to keep the bridge.

The analogy can be refined.

If it is discovered that hundreds of thousands of people have bought the Brooklyn Bridge from the same small group of individuals, then, clearly, you don't get to keep the bridge.

BUT

You don't put the solution to the problem in the hands of the guys who were going around selling the bridge.

Speaking against bailouts, I fear, has really become speaking in favor of letting the criminals who created this catastrophe solve it.

In other words, like putting Greenspan back as Chairman of the Federal Reserve.

I would develop fatal vomitting if that happened.
arbogast | Homepage | 09.08.07 - 10:14 am | #

risk capital writes:
Allow me to make one comment concerning the discussion of "someone else's" blog here-

what some of you may not realize is that CR and Tanta, in my opinion, consistently strive to provide extremely accurate information. I have seen many instances on this site where they will adjust data based on new information to present more accurate results. Both are extremely knowledgeable and this is likely why most read their blog.

There are "other" sites which do not take this seriously and often present information which is not fact-based. The other sites may also be represented a personal financial position presenting an inherent conflict of interest.

My belief is that we are very fortunate to have access to this blog and the information provided, especially with two hosts which are clearly driven by a good foundation of ethics & the objective to deliver accurate intormation & data.

My thanks.
risk capital | 09.08.07 - 11:02 am | #

Robert Coté writes:
I second risk capitals comments. That said however it appears that the expectation of a Saturday Morning Rock Blogging post has been built into the market and if the Fed... err CR crew doesn't come through there could be market err... blog chaos.
Robert Coté | Homepage | 09.08.07 - 11:15 am | #

arbogast writes:
I have a serious question which I am going to post higher in the comment ladder on a subsequent post (risking the wrath of Khan, I know), but I think it is as serious as any question that can be posed on this blog.

My assumption, and the assumption of many if not all on this blog, has been that the Fed's lowering interest rates and otherwise opening a variety of spigots is inflationary.

Not so much.

Perhaps it is deflationary. And that is my question.

What do I mean?

Well, perhaps the inflation has already occurred. And perhaps, given that the inflation is already in place, the Fed will be incapable of printing enough money to replace the funds that are currently going up in smoke.

Is this possible?

After all, in a world of 250-fold leverage, how can a central bank possibly make up the difference when the house of cards collapses?

What is the answer?
arbogast | Homepage | 09.08.07 - 12:02 pm | #

Sebastian writes:
Well, this is what a bottom looks like.

First shoe to drop was earlier in the year when the smallest and weakest in the mortgage industry took their hits (bankruptcy, absorption into larger entities, etc.).

Countrywide's (one of the major players) big hit is the second shoe.

Interest rates are falling across the curve, which will help out both on the ARM resets and bring in new buyers.

(Both Lennar and Hovnanian took out full-page ads in my local paper today. Lennar is offering 4.99% (5.4% APR) *fixed* loans, Hovnanian is offering 5.75% *fixed*. The average 30-year rate in my area: 6.1%. Rates this low are an exceptional long-term opportunity and will bring buyers out of the woodwork.)

Finally, there's the heavily-lagged employment indicator signalling the end of the economic downturn.


Sebastian
Sebastian | 09.08.07 - 12:14 pm | #

Premier writes:
Arbogast

Here is a paper for your review

http://woodrow.mpls.frb.fed.us/r...ch/wp/ wp609.pdf
Premier | 09.08.07 - 12:15 pm | #

Robert Coté writes:
Sebastian,
While you are sitting on Santa's knee wearing those spiffy rose colored glasses the Easter Bunny brought you could I have a pink pony too?

Countrywide has announced intentions of laying off another 20%. It hasn't happened yet and you want to claim the the fallout has already passed. And what? You think Countrywide is a special case? What is special about it? Okay then why on Eath would antone not safely assume that many other lenders are in the same situation?

The homebuilders are offering subsidized rates because they need to avoid two things; marking to market their inventory and incurring the wrath of every buyer of similar products over the last two years.

Finally interest rates falling. Nope sorry. It isn't a rate driven event that people are not borrowing. They don't qualify anymore. A few percentage points drop in DTI isn't gonna work when 2003-2006 we front loaded any future purchasers with lower rates and lower standards.
Robert Coté | Homepage | 09.08.07 - 12:25 pm | #

arbogast writes:
Premier,

Thanks, am reading it.
arbogast | Homepage | 09.08.07 - 12:29 pm | #

arbogast writes:
Sebastian,

Are you telling me to buy stocks?
arbogast | Homepage | 09.08.07 - 12:30 pm | #

Sebastian writes:
risk capital said: "My belief is that we are very fortunate to have access to this blog and the information provided, especially with two hosts which are clearly driven by a good foundation of ethics & the objective to deliver accurate information & data."

I agree that they both provide good information...as far as it goes.

The weakness (and it's a serious one) is that little context is offered. Here's an example.

Yesterday's -4,000 net job loss in August is almost universally hailed as being proof of either current or imminent recession.

Yet if you look at this chart at the BLS website (and expand the output options), you'd see that there are *many* times when there's a net monthly loss of jobs when there's *not* a recession.

http://data.bls.gov/PDQ/servlet/ ...t_view=net_1mth

That depth of analysis (as opposed to simply presenting data/charts) is vital to making good decisions as to what is happening in the economy. But CR's attitude (essentially, "I'm bearish and here's the proof" instead of "here's the data, what does it actually say?") is dangerous because it appears to be solidly grounded in the numbers.


Sebastian
Sebastian | 09.08.07 - 12:31 pm | #

Kevin writes:
"Well, this is what a bottom looks like."

FRANTIC BUILDERS SLASH HOME PRICES

September 8, 2007 -- The fire sale of the century is now under way in the real estate sector, with the prices of thousands of unsold new homes being slashed as much as $100,000 from typical $500,000 prices.

Homebuilders across the nation are scrambling to raise cash as their once-booming industry slides deeper into recession, leaving behind the ruins of scores of bankrupt firms.

One major homebuilder in the New York area, Hovnanian Homes, is fighting back the threat of ruin with a brave counterattack.

Hovnanian, the nation's sixth-largest builder, said yesterday it's launching its first-ever national ad campaign to promote a three-day sales blitz next weekend aimed at unloading dozens of unsold homes with as much as 17 percent markdowns

http://www.nypost.com/seven/ 0908...ash_home_pr.htm

You funny Sabastain markets always bottom in silence.
Kevin | 09.08.07 - 12:31 pm | #

arbogast writes:
Premier,

Very interesting article. Required reading.

In the context of the article, it is perhaps worth recalling that the real damage was done when the Greenspan rates were at their HIGHEST, not their lowest.
arbogast | Homepage | 09.08.07 - 12:39 pm | #

Sebastian writes:
arbogast asked: "Sebastian,

Are you telling me to buy stocks?"

I'm telling you that I've bought stocks within the past few weeks and am looking for opportunities to buy more because the odds favor economic expansion now.


Sebastian
Sebastian | 09.08.07 - 12:40 pm | #

dryfly writes:
Is this possible?

No.

Printing money is NEVER deflationary by definition. The 'proper' questions (IMHO) are:

1) Will the deflationary forces in the market be greater than the inflationary forces of the Central Bank printing money?

That is possible.

The answer to this question lies in just how determined the banks & gov't is in fighting deflation. I mean if they are really determined they do both monetary fiscal policy stimulation: print money AND increase gov't spending AND tax savings while allowing spenders & borrowers to have a tax holiday. Deflation gonna stand up to that?

The real weakness in deflationist thinking is their inability to grasp just how far inflationist CBs & gov't is prepared to go to defeat deflation. Answer: pretty damned far. That was BB's point about helicopters - please take them at their word, they mean it.

2) How will the public respond? Deflationists always throw out 'What about Japan?'... Well, what about Japan? Japanese were savers with a society & gov't policy that punished domestic consumption & spending while promoting production and rewarded saving.

And people wonder why they horded & saved the money the BoJ printed? Even exported the money via 'carry' before tehy would consume it themselves.

If Japan had simultaneously instituted policy to promote consumption at the same time they printed money - they wouldn't have had deflation. But then they wouldn't have had savings left today then either.

Point is that situation doesn't describe us. We promote, worship and reward spending and punish savers. No surprise then that we have a negative savings rate.

I don't see a Japanese future for America unless a whole lot changes... and all the cajoling & ranting by savers isn't going to make non-savers save.

I mean do a 'cultural exchange' someday, visit a major mall. They gonna change without a gun to their head? They gonna vote for somebody who's gonna give them tough love?

I wouldn't bank on it... but that is my near worthless opinion.

dryfly | 09.08.07 - 12:41 pm | #

black swan writes:
Sabastian, the shoe has even farther to drop. Here's an example of housing in a Denver neighborhood. Denver is not Detroit. It's got strong employment:

"THE DEL MAR NEIGHBORHOOD
When Anita Criticos bought her house in Aurora's Del Mar neighborhood 10 years ago, most people living there owned their homes.

Today, Del Mar is a collection of well-cared-for homes scattered among vacant houses with peeling paint and overgrown yards. Most homes are rentals, and For Sale signs are prevalent.

Del Mar has emerged as the metro-area neighborhood hit hardest by skyrocketing foreclosures and plummeting home values, according to an analysis by Your Castle Real Estate. In the past year, 71 percent of the 91 homes sold in Del Mar were either foreclosures or "short sales" - where lenders agree to accept a home sale and payoff for less than the balance owed on the mortgage.

Home values in the neighborhood near Aurora's West Middle School have plummeted 57 percent. The average price of a home is $117,000.

"Ten years ago, it was very nice, and they were all owner-occupied," Criticos said."

There will be over twice as many mortgage resets over the next 12 months than there were over the last 12 months. Over the last 12 months, the US set a record in foreclosures. The next 12 months will be far worse. Your shoes have a lot longer to drop. Please tell me what stocks you are buying, so that I can short them.
black swan | 09.08.07 - 12:47 pm | #

dryfly writes:
Well, this is what a bottom looks like.

And the next bottom too... only lower.

dryfly | 09.08.07 - 12:48 pm | #

Alec writes:
Finally, there's the heavily-lagged employment indicator signalling the end of the economic downturn.


Sebastian


Wait, the economic downturn you've been saying never happened is now turning the corner?

Which side of your mouth is that coming from? Or is it another orifice?
Alec | 09.08.07 - 12:50 pm | #

Sebastian writes:
Robert Coté said: "While you are sitting on Santa's knee wearing those spiffy rose colored glasses the Easter Bunny brought you could I have a pink pony too?..."

As a reward for being snotty? I don't think so. Posts like yours make me think that people like Jas Jain and dotcommunist are right: Americans are in dire need of a good bitch-slapping to teach them how to behave in a civilized world.:)


Sebastian
Sebastian | 09.08.07 - 12:50 pm | #

vader writes:
IMHO, the one case where we can have CB dumping tonnes of cash into the system and have a general deflation is for the idolatry of the governing class at the time to funnel the cash into the deserving rich who then put the money into assets such as stocks, intangible investments, trophy women, boy toys and works of art. In which case, the added liquidity flows away from the average consumer and into areas where it will not help the general economy.

Then again that does sound a bit like recent history. I'm assuming that additional $ from MEW and CCs are temporary and deflationary in the long term. Gotta pay the stupid debts back.

The miracle of FDR was not that he dumped liquidity into the system, but where he put it. Giving banks(and pseudo banks) a lot of money to make stupid loans at 30% annual intest does not prevent a general deflation.

Generally I agree with dryfly, but I am fearful that even the Dems will follow the GOP's worship of the 'Market'.
vader | 09.08.07 - 12:55 pm | #

Striper writes:
Thanks Tanta
Your work is fantastic and much appreciated. What a conviluted mess we have cobbled together. What are all those "brokers/bankers/lenders" going to do for a living/scalping now? I have a feeling that used car lots will be a place to avoid even more so in the next few yrs!
Striper | 09.08.07 - 12:59 pm | #

Robert Coté writes:
Sebastian,
Snotty is; "Well, this is what a bottom looks like."

You can dish it out but you can't take it? You are not dealing symetrically.
Robert Coté | Homepage | 09.08.07 - 1:00 pm | #

Quincy k writes:
If I can remember correctly, I believe that Sebastian is under 30 years old.

Do you guys realize that you are debating economics and past life experiences with someone under thirty? It is one thing to read about it in some book lounging in a soft and safe cubicle, but to actually have lived through a down cylce is an entirely different scenario. I am forty, semi-retired, and find little if anything in common with the majority of individuals in their late 20's. Yes, maybe some type of sporting event, but business and human behavior, no.

Don't any of you remember how clueless you where when you were under thirty?
Quincy k | 09.08.07 - 1:01 pm | #

Eli writes:
arbogast,

That's an interesting question. If the fed cuts rates, would the result be deflationary?

My understanding (magic feeling, uninformed opinion) is that the entire planet is sort of leveraged 10 to 1 (or maybe "just" 3 to 1). This is mainly due to the notional value of all the derivatives contracts outstanding. So, $1 goes in and $10 (or $3) "comes out" (or, well, the number is printed on the big global bank statement.)

So.. one would have to ask if this feeling of there being more money is more important than the actual physical existence of the money. i.e. would printing large amounts of currency have little effect on general inflation at this point?

I think it's possible. There could be no other option but deflation across all assets since the money we thought existed really did just go up in smoke like cheech and chong.

Here's one way for this all to play out:

1st: Severe deflationary shock with prices decreasing 30% - 70%

2nd: Severe inflationary shock due to drastic money printing and liquidity injection schemes like zero taxation

3rd: ???

4th: Profit!!1

Ignore the last two steps.. those are just silly, but the first two seem plausible. I'd rather this happen fast.. It would really suck to spend the next several years stuck in a zombie economy.
Eli | 09.08.07 - 1:02 pm | #

REBear writes:
Sebastian,

Do you believe we are experiencing a credit crunch? If so, do you think this credit crunch is bad for the economy? Do you have a timeline for credit crunch to ease beyond which you will turn bearish on the economy?
If you have a timeline, what exactly do you want to see accomplished to verify credit easing?

Will a negative or close to negative Sep payroll number change your mind?
If not, what is it that will change your mind?

Thank you.
REBear | 09.08.07 - 1:05 pm | #

number2son writes:
Don't any of you remember how clueless you where when you were under thirty?

Thirty? ... Er, yes, thirty!
number2son | 09.08.07 - 1:21 pm | #

ron writes:
We have a poker game played by 5 people each puts up $1000. At some point one player has won a huge pot and elects to cash in his chips which amount to 50% of the purse or $5000. Now 50% of the orginal money has left the table and will not return. The other 4 players must now compete for a much smaller dollar amount and the weaker ones (those with less chips) are in the worst position.
The ABCP market has had a similiar effect on the economy. The world wide surplus has left the table, gone not to return and the players left must compete for a smaller amount of money. Money that was once available and plentiful is hard to find and fought over.
ron | Homepage | 09.08.07 - 1:22 pm | #

Eli writes:
dryfly and vader,

Both of you are overlooking the possibility that the global economy is operating as if $X exists when, in fact, some amount $Y < $X is only in circulation.

Do you believe the global economy is not leveraged (or leveraged very little)?

or

Do you believe that the central banks can easily print enough money and stuff it into the system to catch up to the level of money the system had "created" using derivatives contracts? (Nevermind the fractional reserve system where you can "create" $1,000 on paper with a starting amount of $100)

or

Do you believe something more nuanced?

I think arbogast's question is very important.. It is not a given that we'll just get super-inflation because the fed prints lots of money.
Eli | 09.08.07 - 1:25 pm | #

idoc writes:
everyone has to remember that Sebastian has been saying "no problem" on this site for as many months as i've been following since around the beginning of this year. things keep on getting worse and worse. the financials he's gone long in, namely New Century, are now bankrupt and financials/HB's in general are down probably down on average 250% or more. if u want to lose money, follow his advice.
idoc | 09.08.07 - 1:26 pm | #

dryfly writes:
IMHO, the one case where we can have CB dumping tonnes of cash into the system and have a general deflation is for the idolatry of the governing class at the time to funnel the cash into the deserving rich who then put the money into assets such as stocks, intangible investments, trophy women, boy toys and works of art. In which case, the added liquidity flows away from the average consumer and into areas where it will not help the general economy.

To follow up on vader's point... the only way you have deflation simultaneous with massive CB liquidity event is if the populace looses faith in the system and regardless of how much money there is out there they refuse to consume.

How does this happen? When people no longer trust things like pensions, social security, etc. And feel they have to save themselves - somehow. That to a certain extent is what happened in Japan - they have a very weak safety net.

But that alone STILL doesn't get you to deflation unless money supply actually declines & prices with it. If they lose faith is those systems they probably also lose faith in fiat money in general - which is very inflationary. They dump money as fast as possible & buy something, anything with it... In effect that is what the Japanese did, ship it all offshore via carry - they bought US T's & MBS instead of SUVs (American style).

So I still don't see any way a Fed money drop becomes 'deflationary'...

dryfly | 09.08.07 - 1:28 pm | #

idoc writes:
Eli

even if cb's create the same amt of money thats been lost, do u actually think it will flow back into the same buckets, namely derivatives, mortgages, leveraged plays? i don't since i think ppl have lost faith in the opaque system of wall st finance. it will flow into real assets like oil, precious metals which we are seeing as we speak.
idoc | 09.08.07 - 1:30 pm | #

dryfly writes:
Do you believe that the central banks can easily print enough money and stuff it into the system to catch up to the level of money the system had "created" using derivatives contracts?

Yes - if they want to AND we as citizens let them. My guess is the majority of citizens are debtors and will want them to do it so they will try.

Not saying it will end well, just saying it won't end with 'deflation'.

dryfly | 09.08.07 - 1:30 pm | #

Sebastian'sWorld writes:
Sebastian's application for Trolldom is revoked... Nice try.
You add value on occasion. Not Today.

If I thought you were a professional trader(prop) I'd give you more credit for attempting to call a bottom(and being wrong).
Sebastian'sWorld | 09.08.07 - 1:33 pm | #

idoc writes:
dryfly

i personally have lost faith in the system and have put just about everything i have into oil, precious metals, and shorts. i believe we are starting to see plenty of signals about the wisdom of that strategy in Fridays price of oil $76, gold >$700, and USD index
idoc | 09.08.07 - 1:34 pm | #

idoc writes:
oops

continuing last post:

i personally have lost faith in the system and have put just about everything i have into oil, precious metals, and shorts. i believe we are starting to see plenty of signals about the wisdom of that strategy in Fridays price of oil $76, gold >$700, and USD index
idoc | 09.08.07 - 1:36 pm | #

Alec writes:
Seb, let's take a quick walk around the good ol USofA, economically.

A: The B/D model added 26k jobs in construction(15k) and finance(11k) this month.

Do you think those numbers(esp. the finance) are even close to being accurate as the BED data shows that the unadjusted number has turned out to be the more accurate one? So in all reality just in those 2 sectors alone the job number should be a 15-20000 loss, not a 4,000 one. Cutting rates doesn't help there, because of:

B: Interest rates are dropping, yet none of the big boys(ya know, the ones who drive the economy) can borrow money. Cutting rates doesn't help there, because this is a price discovery issue. For rates to work in this instance, they'd have to go to zero.

C: Manufacturing is building inventory (even if only slightly).

D: Mining in raw material sectors are running close to capacity, so inflation in this area is looming even before a rate cut.

E: You keep spouting the canard that ARM rates will come down when LIBOR is doing no such thing. FB's would love to re-fi into dipping 30 yr fixed, but the recent vintages who are scheduled to reset over the next 9 months can't because they're likely underwater. Interest rate cuts don't work here because of a massive overhang of supply.

So ex auto, housing, finance, tech & retail, everything is sunshine and rainbows!!

The pain hasn't even begun and you're talking about buying?

With the way you read the tea leaves, it's no wonder you were short the S&P in 96 and long New Century.
Alec | 09.08.07 - 1:36 pm | #

barely writes:
Sebastian, How many bottoms did you discover during the NASD crash? I'm sure there were plenty. Clearly, you couldn't spot a top if it screamed at you while your account was being decimated. Pssst.. we already saw the weak top in the DOW as it struggled to lurch ahead as the S&P was already in decline.

risk_capital, I agree. What I like about as much as the quality of the posts is the quality of the comments - obviously because CR&Tanta's outstanding work attracts quality like gravity works on CFC shareprice.

Time to reach for the tip-jar for the month. I don't want to lose this gem...
barely | 09.08.07 - 1:37 pm | #

idoc writes:
haloed again,

... USD index
idoc | 09.08.07 - 1:37 pm | #

idoc writes:
does haloscan reject less than signs?

... USD index less than 80, short portfolio up 85%
idoc | 09.08.07 - 1:38 pm | #

barely writes:
Almost forgot, Kevin, I like the HOV sale! HOV is now accelerating the race to the bottom in a desperate grab for cash flow to keep debt service current regardless of the loss -- 20% off on existing homes. That should make last month’s buyers feel good and also provide some measure of confidence to any prospective buyers that they are getting the best deal they will ever get, or will it? They may figure wait another month for the next gasp. Other builders will need to match this and losses should be staggering next quarter.
barely | 09.08.07 - 1:39 pm | #

Robert Coté writes:
THe HB death spiral appears imminent. It was more than a year ago that I uietly explained that the HBs wouldn't make the same mistakes this time that they did last time. They learned. No, instead they'll make entirely new mistakes. We are seeing that now. Last time they built on spec and got caught with inventory. This time they carefully gasuged demand and increased build to order only to get caught with inventory because of three different things. 1 as CR has proven the demand was not real but speculation by buyers. 2 thin exposure allowed people to walk away from small commi