Spiga

M3 exploding, real cash is not?


From John Mauldin:

The Chart shows the growth of the various money supply categories. Notice that M3, which the Fed no longer publishes, was rising rapidly through last year. Also notice that M3 is a growing part of the overall money supply. Basically, to get M3, you add Eurodollars, repurchase agreements, CDs to M2. M2 is cash in the banks, savings accounts, money market accounts, etc. What this tells us is that Eurodollars and repos are driving the growth in the money supply.

Can we come to any firm conclusion? Not yet, because the data is still working its way through the system. But the massive actions the central banks are taking plus the growth of the money supply while actual cash is shrinking is a worrisome development. This will be watching.

Seems like the banks are worried about something.

January upside in US and Global markets


A quick seasonal study of January will reflect a few things that are common for the first few weeks of January. I will still reiterate that the END of January / Feb might become very weak again.. The case for a January rally?

1) From New Year’s Eve to the fifth trading day of January, stocks tend to make a run. According to The Wall Street Journal, this annual advance is due to the ‘January Effect.’ (this is best for options trading)

The ‘January Effect’ is simply "a seasonal phenomenon in which stocks that have done poorly during the previous year start the new year off with a bang."

The momentum behind the ‘January Effect’ is caused by year-end selling. Investors who need to create tax losses, recognize capital gains, or raise holiday cash start selling in late December. They are joined by portfolio managers looking for some window dressing to add to their annual returns.

Donald Kiem, a researcher at the University of Chicago, first pointed out the exceptional returns of small-cap stocks during January in the years 1963 to 1979. Since then, history has repeated itself year after year.

2) Overall, big market moves most often occur in January. In fact, since 1972, January is the hottest month for the S&P 500 Index (SPX), producing higher average returns than any other month.

Since 1950, January has delivered positive gains more than 63% of the time. And more than half of the time, those S&P 500 gains were 3.46% or better!

Also since 1950, the Dow’s three best months by percentage gain all occurred in January, delivering returns of 14.41%, 14.19% and 13.87%.

And since 1971, the NASDAQ’s gain in January has averaged an amazing 3.7%, according to the Stock Trader’s Almanac.

3) In election years like the one we’re about to enter, the market bounce you typically see in January is even higher.

Consider these numbers: Since 1972, in the fourth year of the presidential cycle, the S&P 500 has delivered 2.40% gains on average, while the Dow has delivered 2.32% gains on average.
(A 10% stock move could result in gains of up to 100% or more in the option...plus you can buy call options for just a fraction of the cost of buying stocks. - Option Trading involves risk, consult with a licensed professional)

4) Fourth quarter ‘07 earnings – which will begin to be released in just a few weeks – is shaping up to deliver many potential upside surprises.

That’s because expectations for fourth quarter earnings have plummeted in light of the poor showing in the third quarter.

In fact, while "official" 3Q earnings are still being tallied, 3Q earnings growth is currently estimated somewhere between -2.5% and -4.5%, well below what investors were expecting before the announcements began.

And the negative 3Q earnings represented the first quarterly decline in earnings growth in more than 5 years, according to Thomson Financial and The Wall Street Journal.

That has caused expectations for the fourth quarter to drop precipitously. In fact, estimates for average 4Q earnings for S&P 500 companies – which were at 12.4% on August 10, according to Bespoke Investment Group – are now negative at -0.8%, according to Thomson Financial.

5) The Recent Market Correction Could Add Fuel to January’s Fire

Consider what the Stock Trader’s Almanac says: "Since 1964, there have been 16 fall declines of over 10%....Most often, it has paid to buy after fourth quarter or late third quarter ‘waterfall declines’ for a rally that may continue into January or even beyond."

I still feel the First Quarter of 2008 will have the BIGGEST downside risk for the entire year... But this First part of January might be the best upside move we will see in the first half of 2008 until the election season.

Bankers Losses so far

Bankers' write-downs

UBS$13.7 bln
Citigroup*$13.7 bln
Morgan Stanley$10.3 bln
Merrill Lynch$8.4 bln
HSBC$3.4 bln
Bank of America*$3.3 bln
Deutsche Bank$3.1 bln
Barclays$2.7 bln
Royal Bank of Scotland$2.6 bln
Credit Agricole$2.3 bln
Bear Stearns$1.9 bln
Credit Suisse$1.9 bln
JP Morgan Chase$1.6 bln
Goldman Sachs$1.5 bln
Wachovia Bank$1.1 bln
Lehman Bros.$0.8 bln
Total:$72.3 bln
SOURCE

Mad Money Hosts Ron Paul

CNBC had Ron Paul.


Open Money, what is it?

Is this too far fetched, open source money?

Thousands of different currency systems have been built during the past 100 years, with an acceleration the past 20 years (see complementary currencies). Open money is to be understood as the meta-system and standard that will let communities design the currency they need for their own purpose, and interact with one an other at local or global levels. Exactly like what happed with email, html, or http protocol.

It's likely that money will follows the same path that happened to medias and communication tools: they were once centralized, limited in numbers, expensive, owned and controlled by the few, closed systems. Now they are distributed, peer-to-peer, global and local, open. The same is about to happen to money.

Therefore in the next few years the world should expect to have millions of currencies. Just like it has today millions of medias, TV channels, blogs, discussion groups, etc. Each participant will join the currencies he/she needs for his/her own purpose.

Advantages of open money

  • Decentralized: no need for a centralized issuer like a bank, which means no threats from a centralized power.
  • Free: no interest is practiced because there is no issuer that makes a business of it. The only cost is the one of the infrastructure, which is a flat marginal cost, not an exponential one like in the interest.
  • Peer-to-peer: the total quantity of money in the community is determined in realtime by peer-to-peer exchange. There is no centralized authority that determines how much, where and when the quantity of money should be allocated. These can be seen as distributed fractal feedback loops to regulate the system and make it resilient.
  • Controlled by the people: the rules of circulation, credit limits, taxes, decision making processes, etc, are controlled by the community itself. These settings can be configured via software.
  • Sufficient: because based on mutual credit?, i.e. there's never a lack of money since it is created upon the needs/wants streaming.
  • Holoptical: transparent between users, and users have access to the meta level of the system to understand and regulate its whole equilibrium.
  • Adapted to all needs and all communities: whether communities are based on a local territory or a virtual one, each community exists because it has a circulating offer/demand within it. It can be time exchange, objects, services, knowledge... in a competitive or collaborative economy. Mainstream currencies only serve competitive markets, open money serves whatever market since it is sufficient and can be applied in any context.
  • Connected to any "real" or "virtual" value: any community currency can be based on a "real" value (time, gold, kilowatt, kilo of potatoes, oil, distance...) or a "virtual" value (i.e. no relation to anything in the real world, it is just a unit of exchange used by the community).
See for yourself and be the judge

The Money Syndrome


A scholastic post of US history compliments of Helmut Creutz

In the beginning of the eigthies a series of breakdowns of banks in the countryside occured in the USA when ten thousands of highly endebted farmers had to sell their properties at auctions and the returns couldn't cover the credits. The same happened at the end of the eighties to savings banks and a number of regional big banks. It was caused by Reagan's extended limits for credits on real estate meant as a stimulus for the economy. Consequently their value shot up and enabled further grantings of loans. When the speculative balloon burst, many of the outstanding claims could not be called in. According to a report in the Frankfurter Allgemeinen Zeitung (FAZ) from Oct. 21/92, »1'492 (=12%) of almost 12'000 business banks were close to bankruptcy and another 1'179 actually insolvent«. In the beginning of 1993 Prof. Udo Reifner reported in ›Bank Watch‹, an information service of the Institut für Finanzdienstleistungen, that the breakdown of those banks »will cost the American taxpayer depending on different estimations between 500 to 1'200 billion DM until the end of the nineties.« But as he further writes, problems also heap up in our country, for instance »the crooked position of German big banks like the Bank fuer Gemeinwirtschaft (BfG), the DG-Bank and the BRZ which can only with pains be covered by payments of billions of DM from third parties interested in the German market... or from the funds of small co-operative banks«. The security funds have already been reduced by 2.6 billion DM, and since the contribution to these funds are only 0.03 to 0.06 DM per 100 DM deposit, the securing of depositors is here limited, too.

Sound Familiar?

Monetary History Revisted....


Every so often, i find myself reading through history for answers and insight that could serve purpose in a modern world. I believe many may not be familiar with the following:

Freigeld (German for free money) or Schwundgeld (depreciative money) is a monetary (or exchange) unit, which follows the economic concept of Freiwirtschft (free economy). The concept was invented by Silvio Gesell.

The name results from the idea that there is no incentive to store the money, as it will automatically lose its value after some time (depreciate). It is claimed that as a result, interest rates will drop to almost zero, preventing any form of Inflation.

Gesell argued that saved money will keep its value, while goods - which are not consumed - will loose value by getting old, rot or deteriorate. To keep the value of the money and goods synchronised, the issued money should loose value in regular intervals. Therefore the holder of the money has an incentive to spend the money before it depreciates, which will foster consumption and economic growth.

During the Great depression in 1929 Austria and Germany was hit by a deflation, preventing economic growth and prosperity. The effects were also felt in Wörgl - a place of 4600 people, out of which more than 400 were unemployed. Since no help seemed to be available from the central bank the local council decided to try and tackle the problem themselves.

As the money was flowing again the businesses began to prosper, the town got tax income, which it used to employ more people and repair and improve streets and communal property and equipment. This lead to further economic activity.

The experiment was so successful that neighbouring villages started to accept and use the new money as well. The unemployment increased during 1932 and early 1933 by 10%, while in Wörgl it dropped by 25%. The "Miracle of Wörgl" was widely publicised in the press and many delegates came to the area to see it work. Many other regions were interested in adopting the system.

More:

1973 Inflation records broken


U.S. Nov. PPI up 3.2%
core prices up 0.4%

Actually, if you take the new measures out and use the same statistical record keeping methods that include things like real estate, we blew threw those numbers years ago. So the rates are actually much greater today then 1973. This is headline sentiment news, and its about time.

Wholesale energy prices rose 14.1% in November, beating the prior record growth of 13.4% in January 1990. Gasoline price growth also hit a record -- reaching 34.8% -- up from the prior record of 28.8% in April 1999.

Strategic Energy and Economic Research Inc. "I think we're going to see greater effects in the coming months. This is a black day for [Federal Reserve Chairman] Ben Bernanke."
Thursday's data could support concern, Lynch said, that the U.S. economy will enter a period of stagflation -- a combination of slow economic growth, high unemployment and rising prices.

more:

Why Pandit heads Citi


So why would Citi get this guy to run the bank??

Well, for one Vikram S. Pandit was head of: Co-founder, Chairman of the Alternative Investments Unit, Chief Executive Officer of the Alternative Investments Unit and Head of Institutional Clients Group

Why is that important. Becouse Citi needs new investors to feed its massive need for capital fund raising. Nothing like newly minted overseas billionaires who have an appetite for American Companies who are a phone call away from the CEO's desk. So we shall see, but remember the key executives like Bob Rubin, still hold positions of power....

Fed Funds Predictions...2008


With the sell off in the markets today, the central bank of the US is faced with a double dilemma - cutting rates and Eurodollar value, or keeping rates as high as possible to help finance our multi billion dollar deficits (capital attraction).

Thanks to John Mauldin and the bond guys, we have this to ponder......

The ultimate destination of Fed Funds is dependent on the state of the domestic economy which, in turn, will be influenced by the direction and level of U.S. housing prices. Chairman Bernanke and his divided band of governors will have to feel their way along this treacherous path with canes in hand--not totally blind, but significantly hampered by a lack of historical context which might point the way to the ideal rate via precedent as opposed to feel. Nonetheless, there are theoretical guidelines which may help to validate or invalidate current assumptions reflected in Fed Funds futures contracts which currently forecast an ultimate floor of 3¼% sometime late in 2008. Traditionalists would point to the "Taylor Rule" which formulaically computes a neutral Fed Funds yield based on divergences of real GDP and inflation from "potential" and "target" levels. Since these levels are somewhat variable and subjective, there is no one number that a computer can spit out, but nonetheless, using reasonable assumptions, neutral Fed Funds levels somewhere in the 4% "+ or ?" range are produced. Assuming the Fed would have to drop below neutral to stimulate a faltering economy, the 3¼% Fed Funds futures forecast does not seem unreasonable.

The average real short-term rate using this methodology over the past 8 years has been 1½%. Commonsensically, this 1½% real rate is the neutral rate that has pumped life into our new finance-based economy with its complicated shadow banking system. It is logical to me therefore, to assume that 1½% is the neutral rate required to keep the future Shadow oiled and properly functioning. If so, then 2% core inflation and 1½% real Fed Funds require a drop to at least 3½% just to maintain current momentum. To restart a near recessionary economy we may need to eventually go down to 3% or lower.
So we shall see

Boiler Room Revisted? Ron Paul Coins?

You would think that the pervasive nature of hubris could go away but every decade it comes back like the black plague....

How it starts:

The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.

This is how it ends up...




and this is what the US Goverment does to Libertarians:



Yea, ebay has something for you too!

And the thoughts on a guy who will probably end up in Jail....

U.S. stocks plunge as Fed action disappoints




but why would the market fall?

"There are some players out there who were hoping or estimating they would cut a little bit more," said Stuart Freeman, chief equity analyst at A.G. Edwards & Sons Inc.

"Obviously the market would have responded positively to a half (point cut in the Fed funds target rate) and a half (point cut in the discount rate, or even a quarter (in the Fed funds target rate) and a half in the discount rate," said Freeman.

MORE

A third of Workers born in 1990 will retire BROKE, GAO



So much for retiring wealthy in the US....

"Today's workers will more likely struggle to make ends meet during retirement than previous generations," said Rep. George Miller, D-Calif., who had requested the report. "While Social Security faces long-term challenges that must be addressed, this GAO report makes it clear that the real retirement security crisis is the lack of savings in private retirement plans."

The EBRI report found certain characteristics were associated with a lower level of participation in a retirement plan, such as being non-white, younger, female, never married, having a lower educational attainment, lower earnings, poorer health status, no health insurance through an employer, not working full time, not working full year, and working in service occupations or in farming, fisheries, and forestry occupations.


MORE

Buffett meets with Clinton in California

The Big Question asked to Warren, was..." Why are you a Democrat?"



Retail Sales weak


Everyone seems to be trading down in the shopping lists!

With an uncertain economy, housing bust and high gas prices hanging over their heads, consumers flocked to discount retailers like Wal-Mart, Target and Best Buy, brandishing bargain-filled fliers.

In a reversal from years past, many bypassed pricier outlets , including such retail powerhouses as Nordstrom, Coach and Abercrombie & Fitch, according to shoppers and retailers interviewed around the country.

In Columbus, Ohio, Theresa Johnson, a 47-year-old social worker, was shopping at the Big Lots discount chain — because she had to, not because she wanted to.

“It’s a little embarrassing, actually — I don’t like to be seen here,” Ms. Johnson said, who planned to buy a 42-knife-set for just $35.

Like thousands of Americans, Ms. Johnson has an adjustable-rate mortgage, and her rising payments have stolen from her holiday spending budget. “Before I shopped at Macy’s and some at J.C. Penney, so shopping at Big Lots is two steps down for me,” she said. “This is going to be a hard Christmas.”

Watch MA (seems to me that stock is forming an island top)

A final tally from Friday’s sales will not be available until Sunday, at the very earliest. MasterCard predicts sales on Black Friday will rise nearly 4 percent this year to just above $20 billion, up from $19.1 billion in 2006.

I predict Flat sales

Carlos Slim too rich?



Well he might be in the context of the country that he is richest in....

Estimated at $59bn, Mr Slim’s fortune is equal to 6.6 per cent of Mexico’s gross domestic product. Bill Gates, in contrast, at about $56bn, is worth a mere 0.4 per cent of US GDP. Even at its peak John D. Rockefeller’s wealth was less than 2 per cent of US GDP. The richest person in the US would need $900bn to possess the same wealth, relative to US GDP, as Mr Slim does relative to Mexico’s.

If, for example, one assumed a real return of 6 per cent a year, the Slim family’s permanent income would be $3.6bn a year. On World Bank figures, the average income of Mexico’s poorest 10 per cent was $1,200 per head in 2005. So the Slim family’s permanent income equals the current incomes of 3m of Mexico’s poorest people.

Thirty nine of the 100 richest people in the world, according to Forbes, are Americans. Interestingly, the fortunes of all these people together amount to only 4.5 per cent of US GDP and, so, to relatively less than Mr Slim’s in Mexico.

more here

Financial Times Blog on recessions and consumption

Willem Buiter writes:

The impact on annual consumption of the 5 percent decline in house prices would then be $38 billion. With a $ 12 trillion annual GDP, this is a decline in demand of just over 0.31 percent of GDP – not quite the stuff recessions are made off. Even if, over the next three years, house prices were to continue to decline at a 5 percent rate, this would give us a further cumulative decline in demand of just over 0.9 percent GDP.

The sub-prime crisis, like any financial crisis, is first and foremost a distributional question

The sub-prime crisis, the write-downs by commercial banks and investment banks of CDO and other ABS exposures, the ABCP meltdown and related financial kerfuffles are first and foremost a redistribution of financial wealth from creditors to debtors. All these derivative claims are ‘inside’ financial claims – for every creditor there is a matching debtor. These write downs and write-offs do not in and of themselves destroy any net wealth.

(what the author does not address is the effects of the delta creating REAL losses in the market participants, who are forced to deal with mark to market questions)

All other financial instruments, including sub-prime mortgages, ABCP and all asset-backed securities are inside instruments for which changes in valuation do not change aggregate wealth but just redistribute it. That does not mean that such changes (and the precise circumstances under which they occur) don’t matter for aggregate demand or supply. In general they will not be neutral. But it is important to recognise that for every unhappy banker who writes off $200,000 of mortgage debt, there is one happy mortgage borrower who now will no longer have to service that debt.

A single foreclosure on a sub-prime mortgage has been estimated to cost as much as $50,000. With as many as 2.2 million families with a subprime loan made from 1998 through 2006 who expected to lose their home to foreclosure in the next few years, a real resource cost of $110 billion will be incurred.

How much of the almost $1.3 trillion of subprime lending during these three years is covered by the value of the properties held as collateral is unknown, as there is no prior experience of lending to such a large subprime population. A loss of $150 bn would be just be under 12 percent; that seems low, and one could easily conceive of it being as high as 20 or 25 percent. In addition, losses will be made on subprime loans made before 2004 and after 2006, and on higher-rate loans, including Alt-A and prime loans. A $250bn to $300bn eventual loss on all mortgage-related exposure would seem to be in the ball park.
AND THE LOSSES IN THE ECONOMY ARE SUPPOSED TO BE OFFSET BY:
It is therefore not surprising that the growth rate of real exports has been pretty spectacular recently (9.6 percent in 2007 Q3 on a year earlier). There is no doubt that, if the dollar stays weak (let alone weakens further) and if global growth slows down only modestly, the growth of export demand can easily more than compensate for the decline in residential investment.
more here

How Big is the US Deritivative Market?

This is a second update to a previous post, and important for understanding the scope of how debt and equity (and currency market) movements can impact multiple parties globally

According to the latest FDIC banking profile, FDIC insured institutions currently hold a notional value of $153.8 trillion in credit derivatives. That's not a typo – though GDP itself is only about $13 trillion, the high notional value emerges because for each derivative that connects two true “end users” (one long, one short), there is a whole chain of intermediaries who are long with one intermediary and short with another, hoping to earn a tiny profit on the spread.

The S&P have underperformed Treasuries!



This chart actually shocked me, but its true. For the last seven years, buy and hold total returns on the SP has underformed treasuries.

Will we have another August 2007?


Markets are like bacteria, they will adapt to new realities; i.e. - terrorism, war, etc. It seems as though the volatility will continue in the markets for at least the next six months. I see the end of January as an extremely volatile point in the markets. More on this later. But a major issue in the economy today is the short term paper markets. And the danger has been the spread created within these markets, which have caused the freeze creating the issues of systematic risk.

The Chart illustrates the development of tensions in the credit market using credit default swaps for investment and high yield European corporate bonds as measured by the iTraxx Europe and iTraxx Europe crossover indices. As in the money markets, tensions peaked in summer (with high yield CDS spreads reaching 463bp on July 30) and subsequently eased off. However, spreads have widened again since mid-October.

Where is the Real Estate / Equity Bottom?



Its a little too early for this, but some research on the golden mean, and fib lead me to numerology, and that grand interpretation of it; astrology. Here is the short of it from one house:

Based on past history, we can expect the downtrend in housing to turn around when the North Node reaches the constellation opposite Cancer, where it usually is when prices rise. That constellation is Capricorn and the North Node is due to enter it in August 2009, 20 years after the last low in 1989.

But don’t rush headlong into the real estate market in 2009 without being aware of two major reasons the RE cycle may again be distorted and its downside extended.

1. Astrologically, Uranus and Pluto will be within orb of a square, with Pluto opposite the US natal cluster of Venus, Jupiter and Sun in Cancer. And Saturn will be moving through Virgo, coming conjunct the US Neptune, which is square the US Mars—a combination that has coincided with stock market crashes historically. Also, in 2009 Pluto and the North Node will conjoin in Capricorn. The combined effect of these astrological patterns bodes ill for the overall economy, of which the housing industry is a major part.

If the dollar crashes or continues its slide down against other world currencies, foreign investment in US assets (a major stimulus to the most recent housing bubble) will be withdrawn, worsening the situation by exacerbating US debt—federal, corporate and personal. The world’s monetary system, now based on the dollar, is likely to go through a wrenching change, mainly because US total debt is approaching the point where it will be un-repayable, which in turn could lead to a change in the existing Fed-dominated, debt-based monetary system.

During the RE bubble that followed the stock market crash of 2000-2001, a lot of investment money went into real estate, and prices continued to rise after the North Node went into Gemini. As a consequence of the boom and the Fed’s holding interest rates down, the housing bubble was extended beyond the average cyclical top. As a consequence of that extension, the RE price bottoms may be extended beyond 2011.

The longer cycles of the outermost planets overwhelm shorter cyclical indicators to concur with well-defined economic turning points. And we are moving toward one that can be expected to bring the most difficult decade since the USA was founded in 1776: Pluto moving though Capricorn, a Uranus-Pluto square lasting from 2008 to 2019, forming a grand cross with the natal US Sun-Saturn square. In August 2009, Pluto will conjoin the North Node in Capricorn, with both opposite the USA’s natal Jupiter and Venus. This combination can be expected to distort the RE cycle, and more importantly, bring an atmosphere conducive to changing some basic economic assumptions. This difficult period could be a blessing in disguise.

So we shall see.....

What about equities, the markets and metals?

We are currently in the decade of a “Triple Saturn Oppositions.” This was described in last year’s Forecast Book in great detail. This is when each of the 32-45 year cycles between Saturn and the planets outside of its orbit (Uranus, Neptune and Pluto) come into an aspect of an opposition. It doesn’t happen very often that these three oppositions unfold within a span of just ten years. In fact, it has happened only three times in the history of the U.S. stock market (last 200 years). In each case the stock market made a new all-time high. And in each case a prolonged bear market followed that lasted at least 23 months, and prices dropped at least 40%.

Do I think the stock market has now topped out and such a bear market is beginning? No, not yet, although that opinion could change depending on market patterns that could unfold at any time. I believe that before the final top is in, we have to get within 10 months of the Saturn-Uranus opposition, the last of the three Saturn oppositions that will take place November 2008 through July 2010. After all, this signature (and its conjunction) has the highest correlation of any planetary combination to very long term cycle highs or lows.
So we shall see

Why the derivative mess won't go away


Level 3.

For the seven banks Fortune surveyed, level three assets totaled over $430 billion, equivalent to 110% of the banks' combined equity. That number will likely increase in the fourth quarter, making bank balance sheets even harder to read. Yes, that's right: Wall Street's black hole is getting bigger.

OC Register Business Blog Blocks ONMONEY


Well, i guess the internet isn't free after all. After reading an article:

Here is part of the article:

State seeks to revoke Quick Loan Funding founder’s license

November 9th, 2007 ·posted by John Gittelsohn

(Updated at 6:30 p.m.)

State regulators want to revoke the finance licenses of Daniel Sadek, owner of Costa Mesa-subprime lender Quick Loan Funding Inc., saying he charged excessive fees to borrowers and took out $1 million in markers from his escrow company to cover gambling debts in Las Vegas.


AND THIS IS MY COMMENT, THAT HAS NOT BEEN POSTED:

  1. ONmoney.NET Says: Your comment is awaiting moderation.

    Smarter: Brokers make the money on the sheet, charging higher rates. The customer usually can’t tell. The best deals are at banks, so keep your credit strong and get preferred rates
    Sadek: You will end up in jail. You should just sell that strip joint you own, otherwise the feds will take it.
    Readers: Learn how to use options and short selling and take advantage of the reality of the implosion

I will remind readers and the OC blog that THIS writer is not a journalist but an actual trader and economic forecaster. And I do know those close to this Sadek. He will go to jail Its only a matter of time. This blog comes from the county who's sheriff (corona) is being investigated.

Capital One Warns, delinquencies rise

Capital One Financial Corp COF.N: which this week boosted its forecast for 2008 credit losses, on Friday said more customers had difficulty paying their bills in October than in the third quarter.

On a managed basis, the net charge-off rate in U.S. cards rose to 5.11 percent in October from 4.13 percent in the third quarter, while the rate of loans 30 or more days past due rose to 4.75 percent from 4.46 percent. The charge-off rates within auto finance and global financial services also rose in October from the third quarter, McLean, Virginia-based Capital One said.

But the interesting situation is:

People are putting their credit card payments ahead of their mortgages, said Richard Fairbank, chief executive officer of Capital One Financial Corp., the largest independent U.S. credit card issuer. Of customers who are at least three months late on their mortgage payments, 70 percent are current on their credit cards, he said.

The new bankruptcy code makes it harder for debtors to qualify for Chapter 7, the section that erases non-mortgage debt. It shifted people who get paychecks higher than the median income for their area to Chapter 13, giving them up to five years to pay off non-housing creditors.

The court-ordered payment plans fail to account for subprime loans with adjustable rates that can reset as often as every six months, said Henry Sommer, president of the National Association of Consumer Bankruptcy Attorneys. Two-thirds of debtors won't be able to complete their payback plans, according to the Center for Responsible Lending.

Four million subprime borrowers with limited or tainted credit histories will see their mortgage bills increase by an average 40 percent in the next 18 months, according to the National Association of Consumer Advocates in Washington. About 1.45 million of those will end up in foreclosure by the end of 2008, said Mark Zandi, chief economist at Moody's Economy.com, a research firm and unit of Moody's Corp. in New York.

The percentage of subprime borrowers making late payments increased to 14.82, a five-year high, from 13.77.

Personal bankruptcies rose 48 percent to 391,105 in the first half of 2007 from a year earlier and Chapter 13 filings accounted for more than one-third of those, according to the American Bankruptcy Institute. In the first half of 2005, they were just 24 percent of the total.

``The law had an unintended consequence of taking away a relief valve that mortgage borrowers used to have,'' said Rod Dubitsky, head of asset-backed research for Credit Suisse Holdings USA Inc. in New York. ``It's bad for the mortgage borrowers and bad for subprime investors because it means more losses.''...

So far, most lenders have been reluctant to change loan agreements. About 1 percent of mortgages that reset in January, April and July were modified, according to a Sept. 21 Moody's Investors Service report that surveyed 16 subprime lenders that account for 80 percent of the market.
Well, the only question in my mind is when exactly did the gilded age end?

Cuomo finally widens investigation to Fannie Mae, Freddie




News just keeps getting better??

By adding the two government-chartered enterprises, Cuomo is broadening his nine-month probe to companies that own or guarantee 40 percent of the $11.5 trillion of U.S. residential mortgage debt. He last week sued the real estate appraisal unit of First American Corp., the biggest U.S. title insurer, accusing it of inflating home values under pressure from Washington Mutual Inc.

Fannie Mae and Freddie Mac shares fell and credit-default swaps tied to the companies' bonds climbed to the highest in at least four years, signaling that the risk of default is rising.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. A basis point on a contract protecting $10 million of debt for five years is equivalent to $1,000 a year.

Investors demanded 0.60 percentage points more in yield to own Fannie Mae's 10-year notes than 10-year Treasuries, up from 0.57 percentage points yesterday, according to data compiled by Bloomberg. The spread ended last week at 0.49 percentage points.
MORE:

Why the equity market isn't any lower?




Many may wonder why the market isn't any lower with the pessimism and large writedowns from about 1/4 of the entire S&P 500 being reported. ONE ANSWER, Liquity.

And its clear where its going, tech stocks. APPL, GOOG, MSFT and the second tier companies are all benefiting, with powerful momentum.

How is this possible? Well, lowering rates and opening the discount window - someone is borrowing. BUT WHO?

Minyanville.com summed it up like this:
"Banks are taking the liquidity the Fed is forcing out there through the
discount window and repos. After using it to shore up the declining value of
their assets, they have excess to lend out. Finding no traditional borrowers
that want to buy a house or build a factory, the new rules the Fed has set
forth allows the banks to pass this liquidity onto their broker dealer
subsidiaries in much greater quantities. These broker dealers are lending thus
to hedge funds and margin buyers who are speculating in stocks. Remember, the
Fed is powerless unless it can find people to borrow the credit it wants them
to spend."
Basically, the Fed modified its rules so that the banks could provide resources to their off-balance sheets
operations (SIVs and conduits). If the Fed is willing to rubber-stamp that type
of monkey-business; then why would they mind if the money was stealthily "back-doored"
into the stock market via the hedge funds?

This might explain why the hedge funds account for as much as 40 to 50 per cent
of all trading on an average day. It also explains why the stock market is
overheating.speculative.
Bloomberg News:
"Banks shut out of the market for short-term loans are finding salvation in a
government lending program set up to revive housing during the Great
Depression. Countrywide Financial Corp., Washington Mutual Inc., Hudson City
Bancorp Inc. and hundreds of other lenders borrowed a record $163 billion from
the 12 Federal Home Loan Banks in August and September as interest rates on
asset-backed commercial paper rose as high as 5.6 percent. The
government-sponsored companies were able to make loans at about 4.9 percent,
saving the private banks about $1 billion in annual interest."
Well, the risks that are inherent in supporting "dodgy banks that make bad bets"
has been transferred to FHLB's investors. The danger, of course, is that-when
investors find out that FHLB is mixed up with these shaky banks, they are liable to selltheir shares and trigger a collapse of the system.
AAA and AA assets, the top-graded tranches, have already been downgraded by
20 per cent to 50 per cent! And the prices are bound to fall even more because
there is no market for mortgage-backed securities. This is a bank's worst
nightmare; an asset that loses value and requires greater capital reserves
every day. In fact, AAA rated MBSs have dropped 14 per cent in one month.

$882 billion has been diverted into Chinese and Indian stock markets
in the last month
alone. Sources cited from Patrick.net links...

3 of the 5 OC Housewives are just about BK



I NORMALLY DONT WRITE ABOUT such penguin media, but i think it shows something interesting going on. Society refuses to take blame for what is happening all around us. Bravo TV? or Bear TV?

Slade Smiley and girlfriend JO are basically in Chapter 11 and the house is in Foreclosure, Lauri's House has been on the market six months, no takers......(trying to marry into George because she's about had it.
Jeanna Keough (model for farm and tractor) with Remax real estate hasn't moved much property this year.

This is a facade, these gals are a gas tank away from BK. Yet Bravo presents them like high profile, successful, Frankenstein barbies.

**ON a side note, looks like the Goldman Short from the 250 range hit 201 today. The puts on that trade payed upwards of 600% for the 5 weeks or so that trade has been open. Take half the profits out now and move your stops to 215. Stay short Walmart.

China Stocks explode in Value... Lead by PetroChina

PetroChina, the nation's largest oil and gas producer, jumped 160 percent to 43.40 yuan in Shanghai. The shares earlier jumped to as high as 48.62 yuan, valuing the company at $1.1 trillion. Exxon is worth $488 billion on the New York Stock Exchange.

The company sold 4 billion shares at 16.7 yuan apiece, the top end of its pricing range, and investors ordered almost 50 times the stock on offer. Today's listing and subsequent rally catapulted China past the U.K. as the world's third-largest stock market by value.

PetroChina Co., which raised $8.9 billion in the world's biggest share sale this year, passed Exxon Mobil Corp. as the world's largest company by market value after surging on its trading debut in Shanghai.

Asian stocks fell after Citigroup Inc. said it will increase writedowns by as much as $11 billion and Chinese Premier Wen Jiabao signaled plans to allow citizens to invest in Hong Kong shares are on hold.

Subprime Mess Shoots Down CEO's

Citigroup CEO Charles Prince 57, retired under pressure on Sunday. He said it was "the only honorable course for me to take." Former Treasury secretary Robert Rubin, a board member and chairman of the company's executive committee, will serve as chairman of the board. Sir Win Bischoff, chairman of Citi Europe, will serve as acting CEO, the company said.

In business circles, former CEO Sandy Weill was a rock star. But Prince, well, Prince was a lawyer.

Citigroup (C) also is lowering the value of some of its securities tied to subprime mortgages. It estimates the value of those securities, at fair market value today, would be $8 billion to $11 billion less than it expected just Sept. 30. That write-down would be in addition to a $6.5 billion write-down it has already taken. The company also said a special unit has been set up to handle the subprime mortgage problems. Citi said it has no plans to reduce its dividend.

Merrill Lynch (MER) CEO Stanley O'Neal was pushed into retirement last week following the worst quarterly loss in his firm's history.

UBS, (UBS) the Swiss banking giant, deposed its CEO Peter Wuffli last summer after it had to shut a hedge fund that invested in mortgage-backed securities.

Bear Stearns (BSC) CEO James Cayne barely survived the implosion of two hedge funds this summer by firing a number of his firm's top executives, including the co-president.

Other executives who have been tarnished by the collapse of the subprime mortgage industry and the evaporation of value in derivative securities built on subprime mortgages or other risky investing strategies include Countrywide Financial's Angelo Mozilo and Bank of America's (BAC) Kenneth Lewis.

MGIC Posts First Loss, Predicts No Profit Next Year




Sour grapes...

MGIC Investment Corp., the largest U.S. mortgage insurer, posted its first quarterly loss in 16 years and said it won't be profitable in 2008 as foreclosures increase from record levels.

Mortgage insurers help reimburse home lenders when borrowers don't pay. Lenders often require homeowners to buy private mortgage insurance if they put down less than 20 percent in cash or if their credit rating is weak.

The number of borrowers more than 60 days behind on privately insured loans jumped 30 percent from year-earlier levels in August, the most recent data from Washington-based Mortgage Insurance Companies of America showed.



``Things are going to get worse from here,'' said Rob Haines, an analyst at CreditSights Inc. in New York. ``We've got a couple of scary quarters ahead of us.''

Fitch Ratings said it may downgrade MGIC's claims-paying ability because mortgages insured in 2007 appear to be performing at least as badly as 2006 loans.

``We have modeled in, I think, very draconian loss estimates,'' Culver said during the call. ``We have got more than enough capital to pay those.''

The company will probably end the year with about $300 million in cash, enough to weather current conditions, he said. MGIC also has $200 million available on a line of credit that requires it to maintain a minimum market value of $2.25 billion, the company said. MGIC was worth $2.14 billion at today's closing price.

The risk of owning MGIC's bonds rose, according to credit- default swap traders. The contracts, used to speculate on the company's ability to repay its debt or hedge against the risk it won't, rose 45 basis points to 210 basis points, according to broker Phoenix Partners Group. An increase suggests deterioration in investor confidence.

``It's a huge miss,'' said Geoffrey Dunn, an analyst at KBW Inc. in Hartford, Connecticut. ``Our fears that 2008 might be even worse than we forecast are being realized.''

read the rest here:

Frame by Frame Subprime Crash analysis

The best way to understand a securitized mortgage obligation explosion is to read this article

What is not being seen or talked about en mass via the media, is where are the large lawsuits and counter party claims that usually unfold from such a situation. I am assuming that at some point, Goldman should be several tranches of lawsuits from all this. Caveat Emptor aside, the big issues for Goldman in defending itself is:

Goldman said it made money in the third quarter by shorting an index of mortgage-backed securities. That prompted Fortune to ask the firm to explain to us how it had managed to come out ahead while so many of its mortgage-backed customers were getting stomped.


I would like to see what the Eliot Spitzer's of the world think of this situation. I'm sure more is about to unfold.

Dollar has Fallen more then Crude has risen

Crude reaches a ALL-TIME high in dollars.

Crude oil rose above $88 a barrel for the first time in New York on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.

Yesterday, prices passed the previous all-time inflation- adjusted record reached in 1981 when Iran cut oil exports. The cost of oil used by U.S. refiners averaged $37.48 a barrel in March 1981, according to the Energy Department, or $84.73 in today's dollars.

Crude-oil has also risen this year because the U.S. dollar declined against the euro, enhancing the appeal of commodities as an investment. A lower dollar makes oil relatively cheaper in the countries using other currencies. The dollar, which is up 0.3 percent today, has lost 12 percent of its value against the euro over the last 12 months.

In U.S. dollars, West Texas Intermediate, the New York- traded crude-oil benchmark, is up 44 percent so far this year. Oil is up 34 percent in euros, 38 percent in British pounds and 41 percent in yen.

OPEC members have said a falling dollar justifies higher prices because oil-producing countries sell oil in dollars and often buy goods in euros. The group will discuss the falling dollar when members meet on Dec. 5, Algerian Oil Minister Chakib Khelil said yesterday.

read the entire article here

Structured investment vehicles and a bailout.




Structured investment vehicles, or SIVs are at the heart of another financial rescue plan private banks are dealing with under government supervision. From the Wall Street Journal:

Over the weekend, the Treasury hosted talks to help a group of banks set up a $100 billion fund to buy troubled assets in exchange for new short-term debt. The banks hope to have the fund up and running within 90 days.

According to people familiar with the matter, the Treasury hopes the plan, which could be announced as early as this morning, will jump-start demand for commercial paper, which froze up this summer amid the credit crunch that roiled global financial markets.

Some influential investors think the Treasury-backed strategy might work. Other object to the Treasury's role in seeking to help banks avoid a big financial hit for making bad bets.

The problems stem from affiliated funds called structured investment vehicles, or SIVs, which Citigroup and others set up as a way to make money without taking the risk involved onto their balance sheets. Such vehicles are formally independent of the banks that create them. They issue their own short-term debt, usually at relatively low rates that reflects their high credit rating. Then, they use the proceeds to buy higher-yielding assets such as securities tied to mortgages or receivables from midsize businesses seeking to raise cash.

The popularity of SIVs has boomed since two Citigroup bankers, Nicholas J. Sossidis and Stephen Partridge-Hicks, invented the strategy in London in the late 1980s. (They later left to form their own company, London-based Gordian Knot, which operates the world's largest SIV.)

Behind Treasury's concern were banks like Citigroup, whose affiliates owned $80 billion in assets backed by mortgages and other securities. The world's biggest bank, by market value, held the assets off its balance sheet and was facing the prospect of either having to unload them in a disorderly fire-sale fashion or moving them onto its books.

Either scenario would have hurt financial markets and could have damped the economy by curtailing banks' ability to make new loans to consumers and corporations. Treasury envisioned a potentially "disorderly" unwinding of assets that could worsen the credit crunch, said a person familiar with the matter.

Under the proposed rescue package Citigroup, J.P. Morgan Chase & Co. and Bank of America Corp. will set up a fund, or "superconduit," to act as a buyer of last resort. It will pay market prices for SIV assets in an effort to prevent dumping.

J.P. Morgan and Bank of America don't have SIVs, but they plan to participate because they would earn fees for helping arrange the superconduit, whose lifespan, according to people briefed on the plan, is expected to be about a year. The superconduit can buy assets from any bank or fund around the world.

Details are still being worked out but the oversight committee of the three banks will set criteria for what the new fund, to be called the Master-Liquidity Enhancement Conduit, will buy.

Citigroup took the lead in pushing for the rescue plan. Large sums of SIV debt were coming due in November. And increasingly debt analysts were forecasting a tough future for SIVs. A Citigroup research report, issued two days before the banks and Treasury met for the first time, noted, "SIVs now find themselves in the eye of the storm."

Some bankers objected to the plan, calling it an escape hatch for Citigroup, which has more SIVs than any other bank, according to people familiar with the situation. The bank has accounted for about 25% of the global SIV market. As of August, assets held by SIVs totaled $400 billion

Auditors in recent weeks also had taken a hard-line when it came to assessing losses within SIVs. As the credit crunch worsened in August, many financial institutions argued that losses due to market volatility didn't reflect the assets' long-term value.

But on Oct. 3, the Center for Audit Quality, backed by the Big Four accounting firms, issued analysis that said market prices were real and couldn't be ignored. One paper argued that banks must periodically reassess the condition of off-balance-sheet funding vehicles and take account of market prices and any resulting losses, even if these were seen as an anomaly. If the losses become so great that a bank sponsoring one of these vehicles may have to shoulder some of their cost, "the sponsor would be required to consolidate" the vehicle, the paper said.

READ THE ENTIRE ARTICLE HERE:

Peter Schiff on On the Money CNBC

The latest edition of Peter on CNBC

I'm looking to exit GS




I rarely would recommend any particular equity or trade, but as a holder of GS, I am now looking to sell shares on any rallies. Shorts need to scale into this position over the next several months as we pass 250.00. Final upside target is around 260. Watch insider selling. Look for strong new highs on failing volume for good short positions. Quote today is 232.00

Chart:


Technically, the new highs are not confirmed by my proprietary indicators. All the loose change from other ailing financials made there way into this stock. But the cracks are showing even here. Its setting up for a slow drop. It is being buoyed fundamentally by the strength of overseas markets...level 3 accounting etc... but i think in 2008 the global economy will begin its descent in reduced growth. In 2010, my forecast calls for a unified global reduction in growth that might last 4-8 quaters as we move into 2012. I've held GS since its IPO.

Krugman on the US housing bubble

Paul Krugman from Princeton University predicts the biggest housing bust in history. From Bloomberg




Bill Moyers hosts housing bubble guest

Bill Moyers leads an interesting interview on how the housing bubble occurred.


Gap widens between rich and poor



Well here it is

According to recent data from the Internal Revenue Service, the richest 1 percent of Americans earned 21.2 percent of all U.S. income earned in 2005. That is a significant increase from 2004 when the top 1 percent earned 19 percent of the nation's income.

To make the top 1 percent of wealthiest Americans in 2005, a taxpayer had to earn at least $364,657. That figure is an increase from 2004, when the cut-off point stood at $328,049.

Check the full article here

Ron Paul Attacks Bernanke

An interesting question from an interesting internet character

Today is ONE WEB DAY

Dollar Dominance Threatened




As big as the sub prime problem is, and as large as the derivative debacle will become, the bears are missing something. The accounting schemes like Level 3 are just a series of tools to AVOID marking to market instruments that ultimately didn't have a market anyway.

DEJURE VS. DE FACTO

DeJure: Latin for lawful, as distinguished from de facto (actual)

De facto: Latin expression that means "in fact" or "in practice" but not spelled out by law

Dejure Accounting would make certain that level 3 would not exist. But we live in a world of de facto accounting... and market players ultimately know this.

Now, the more pointed question, is what is to happen to the dollar. In my research - it seems as though the dollar MUST enter a period of falling values in order to create the SYSTEMIC problems the bears are looking for, not the actual subprime issue. So lets take a trip down history to see a few of the things that could hurt the dollar in the near term (besides monetary policy initiating more dollar inflation)

Petrodollar recycling refers to the phenomenon of major oil-producing states mainly from OPEC earning more money from the export of oil than they could usefully invest in their own economies. The key word here is DOLLAR.

Until recently, most of this occurred in dollars. But the fastest growing world currency today is the Euro. If the EU replaces the dollar as the reserve currency, a whole host of issues will arise for the US Government, its citizens and American Based corporations who use its value for competitive advantages. Question, are these intruments that are blowing up denominated in dollars, Yen, or Sterling?? Exactly....

There is a trend to using Euro's as the currency of choice for selling petroleum. You stand to gain more if you sell in a strengthening currency. Think of it as extra profit.

This happened in Iraq, before the United States took it over...

U.N. to let Iraq sell oil for euros, not dollars


October 30, 2000
Web posted at: 8:45 PM EST (0145 GMT)

UNITED NATIONS (Reuters) -- A U.N. panel on Monday approved Iraq's plan to receive oil-export payments in Europe's single currency after Baghdad decided to move the start date back a week.

OF course, in May 2003, the Iraq oil complex was back to selling crude in dollars. And recently, this trend has started to mount its head yet again...

Archived on 11 Jan 2004.

OPEC mulls move to euro for pricing crude oil

by PATRICK BRETHOUR

More ominous for the greeback is what is actually being organized by a group of Arabic countries today

Iran is planning to open a commodity exchange, variously referred to as the Iran Petroleum Exchange, International Oil Bourse or Iranian Oil Bourse. The acronym IOB has been used as it can be interpreted as either "International Oil Bourse" or "Iranian Oil Bourse", but it has no official status. It would be a Petrobourse for petroleum, petrochemicals and gas in various non-dollar currencies, primarily the euro. If successful, it would establish a euro-based pricing mechanism for oil trading, or oil marker as it is called by traders.


Suppose for a moment this trend continues? What would be next? Gold, Agricultural futures? Financial Futures? Its this sort of DE FACTO move that would ultimately hurt the dollar the most. What would be the need to hold dollars, when the most important commodities in the world is priced in something else? This is what causes systematic risk.

More classes tommorrow............

Perma Bears need to read this...



Some have sent emails to me regarding the recent moves in the market, and what is yet to come in the future. I am here to explain that I am not a bull in this environment. However, as a trader - the technicals will show you how to trade. Money has been moving into new areas of the markets and new currencies for over a month. I expect these trends to continue. But the market is NOT going to collapse. It had a chance to collapse in August and it didn't. This is the unforeseen power of intervention that gets the bears every time. Interventionists are looking for a SLOW landing, not a crash. And this is what will take place. Imagine for a moment 9-11. The conditions of the worldwide market during that week were worse then what we are experiencing now. THERE WERE NO BIDS, stocks bonds or anything, except currencies.... Again, as much as the bear has been pawing over this bad news, I agree - but the timing is much more forward in the future. I will explain some of it in the next post.

Lehman pulls a Wells




Lehman decides to use Level 3 Accounting rules:

But, the real question bandied around Wall Street was exactly how much of their assets -- namely distressed mortgage-backed securities and loans made for corporate buyouts -- could be rendered worthless. Both lost value after defaults on loans made to people with risky credit spiked earlier in the year, which ultimately cascaded into a credit crisis that spread to all types of debt.

Lehman Chief Financial Officer Chris O'Meara, pressed by analysts to provide specific details of what loans and securities were troubled, refused because of competitive reasons. He said valuing assets left on Lehman's books has become more difficult because so many markets have locked up, and that's forced management to make judgment calls. (WHAT????)

Given the extreme uncertainty, there was speculation that banks were working together about how they value assets, and had even met with the Securities and Exchange Commission last week to go over their books. O'Meara declined to comment, though Lehman -- and its rivals -- typically divulge more when filing results to regulators.

Securities whose value is assessed only by the firm's best guess, which the SEC defines as 'Level 3' securities, now make up a slightly larger piece of the portfolio than they did three months ago.
(you'll be hearing alot more of this level 3 stuff in the future!!!)

O'Meara said Lehman ended the quarter with $6.3 billion of subprime-mortgage assets. He believes that 'the worst of the credit correction' is behind the investment bank. (I would agree, when you have these accounting tools)


Read the report:

Fed Proves We're in a Bad Spot




The debate over how bad this crisis we have will be, and ultimately where it will end - has been the ongoing debate for several years between myself and Dr. Vlado. As a trader for over a decade, i learned first hand in 1998 how the intervention process works. Our Fed did something today that Greenspan would have never done. But all this is beside the point. Because of the action today, shorts had to cover equities and the dollar is dropping even further.

Which is why I was right. THE CENTRAL BANKS will do everything to stop systematic risk. The question is: Will this be enough? I believe in the short term, the players left will eventually climb out of this mess, but there are still tougher numbers ahead to deal with. Consumer spending and overall GDP growth remain weak. The fed is clearly indicating that NO MATTER what, they will supply dollars. Until one day the dollar is no longer enough, and this "AMERO" takes root.

Our biggest risk in this debacle is Europe. Europeans have alot MORE to possibly loose in this debacle then the US institutions. This is precisely how the US smashed Japan down in the 90's, and now its the EU's turn to deal with our overinflated assets. Don't let the short covering, sigh of relief rally fool you. There is more to come. 2008 should be an interesting year.

I believe this move gives my prediction for 2010-2012's economic outlook certainty. I suggested that this fallout would occur, the central banks and governments would intervene, as they are - and the eventual worldwide economic problems would occur around that time (2011). The Penguin Society rages on, and the hopes of a gilded age seem apparent to most who are getting squeezed in a burn rate that hasn't been seen since the explosion of Dot-Com's.

We should easily be able to make new highs in some indexes in the next few months, the shorts are crushed here.

Japan bank stocks at the woodshed again...




Does this headline sound familiar?

Mizuho Financial Group Inc., Japan's second largest lender by assets, tumbled 7.9 percent and Aiful Corp., the country's biggest non-bank finance company by sales, plunged 8.3 percent after Credia Co. filed for bankruptcy protection.

Mizuho fell 52,000 yen to 605,000, dropping the most since Aug. 1. Sumitomo Mitsui Financial Group Inc., the country's third-largest bank, fell 42,000 yen, or 5.1 percent, to 776,000. Mitsubishi UFJ Financial Group Inc., Japan's biggest lender by assets, dropped below the 1 million yen level for the first time since Aug. 10, 2005, losing 41,000 yen, or 3.9 percent, to 990,000.

Japan's three biggest banks lost a combined 1.5 trillion yen ($13 billion) of their market value today. The Topix Banks Index slumped 5.3 percent, the second-worst performance among the 33 industry groups in the benchmark.

Mitsubishi UFJ's first quarter profit fell 31 percent this year partly because an increase in risky loans at its consumer lender unit, Mitsubishi UFJ Nicos Co., led to higher credit expenses. Sumitomo Mitsui Financial Group Inc. holds a 20 percent stake in Promise Co., Japan's No. 3 consumer lender.

Sanken Electric Co. dropped by the exchange-imposed daily limit of 100 yen, or 15 percent, to 554 after the maker of cold cathode fluorescent lamps slashed its full-year profit forecast by 61 percent, citing weaker-than-expected demand and falling prices.

Tokyo Seimitsu Co., the world's biggest producer of grinders that make silicon wafers for memory chips thinner, fell 500 yen, or 16 percent, to 2,700 after the company lowered its profit forecast because of weaker demand and two brokerages cut their ratings on the shares.

Bank of America Corp. warned that market turmoil will have a ``meaningful impact'' on earnings, as fallout from the subprime-mortgage crisis spread further into the nation's financial system

Well, the barely rising sun seems like its going to set again....

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