ONmoney Calls it ahead of Merrill Lynch

Shares of Wal-Mart (WMT:

Wal-Mart Stores, Inc

News, chart, profile, more

Last: 43.32-0.87-1.97%
8:20pm 08/30/2007

WMT43.32, -0.87, -2.0%) fell 2% after Merrill Lynch cut them to sell, citing margin erosion at the company's core U.S. division

Napster for Loans?

Last week, Lending Club disclosed with impeccable timing it raised $10.26 million in Series A venture capital funding, a hefty sum considering the company launched at the end of May through a small application on Facebook (I became the13,928th user this week). The company is one of a small handful of Web sites catering to people who may be having a hard time getting small loans through traditional means.

A rival site, Prosper, which raised $20 million in venture capital in July, originally set no floor for who could make a request for loans up to $25,000. The site later changed the minimum credit score for borrowers to 520, eliminating 45% of its loan listings, but still low enough to attract higher-risk borrowers in the sub-prime range.

These two sites will have a competitor soon in the U.S. in Zopa, the first to bring peer-to-peer lending online in the U.K. Zopa, which is launching here later this year, reduces lenders' risk by automatically spreading their money across many borrowers. It doesn't specify its credit score limit, but does background checks and emphasizes borrowers must have a good track record of repaying debt.

Jeff Crowe, general partner at Lending Club investor Norwest Venture Partners, said his current portfolio on Lending Club is yielding over 13%, "better than money-market funds." I'm guessing he's hoping for an even better return on his Lending Club investment.

New Mortgage Products coming soon?

As I expected, help is on the way on all sides.

The private sector and Congress should create new, affordable mortgage products that would help some homeowners refinance their mortgages and keep their homes, Federal Reserve Chairman Ben Bernanke suggested in a letter released Wednesday.

"It might be worth considering at this juncture whether the private and public sectors, separately or in collaboration, could help the situation by developing a broader range of mortgage products which are appropriate for low-and moderate-income borrowers, including those seeking to refinance," Bernanke wrote.

"Such products could be designed to avoid or mitigate the risk of payment shock and to be more transparent with respect to their terms," Bernanke wrote. "They might also contain features to improve affordability, such as variable maturities or shared-appreciation provisions for example."

Countrywide CEO on CNBC

Main Points:

"This environment is certainly not getting better," he said. "Something tomorrow could turn it around, but this is a first step in series of steps we're going to take."

"I still think so, I've been proven wrong so far," he said. "But I can't believe when you're having the level of delinquencies, foreclosures … that this doesn't have a material effect on the psyche of American people and eventually on their wallet."

"perpetual preferred, this goes on forever"

"Countrywide is NOT a Bank. The mortgage bank does not have access to the window. The bank has access, but no assets."

Yelling fire by the Merill Lynch analyst was irrepsonsible. No basis in fact.

No company can guarantee they won't go into bankruptcy.

Ron Paul on Kudlow & Company

Wells with no water

The Magic of Accounting:

Last quarter Wells Fargo reported record net income of $2.28 billion, up 9 percent from a year earlier. Read the footnotes to its latest quarterly report, though, and you will see a new term in accounting lingo called ``Level 3'' gains. Without these, the financial-services company's earnings would have declined.

What is Level 3????

Under Statement 157, this means fair value is measured using ``unobservable inputs.'' While companies can't actually see the changes in the fair values of their assets and liabilities, they're allowed to book them through earnings anyway, based on their own subjective assumptions.

The footnotes show the vast majority of the $2.24 billion in derivative losses were Level 1 or Level 2, while the $2.01 billion in MSR gains were all Level 3. In other words, it's a safe bet the losses were real, while the gains had all the substance of a prayer.

Bull or Bear: Inside a traders mind

Last week, the mini market meltdown was met with major intervention from central banks around the world. This generation has never seen the kind of synchronized movement we witnessed. And although the Rothschilds would be proud, what does this signal, and what comes next?

There are a few things to keep in mind.

1) Between March and July of 2008, most US mortgages will be recasting to a higher rate. The payment shock for those borrowers has not even been felt

"From July until the end of 2007, according to Deutsche Bank research, about $150 billion in subprime ARM loans are due to shift to higher, floating-rate payments. And another $250 billion in loans are due to reset to higher rates in 2008."

2) Defaults are continuing to rise, and the peak probably isn't even until at least the fall of 2008.

"U.S. foreclosures rise 58 percent in first half of 2007"

3) Unemployment will rise in to 6% in 2008 (my prediction)

Mortgage Job Losses Surpass 40,000 (and add to that construction)

4) Consumer spending and the infallable American Consumer ARE FINALLY FINSIHED. Recent warnings by Home Depot and Walmart are a sign of the weakness to come. I consider Walmart a leading indicator of total aggregate consumerism in the US

The company trimmed its forecast for profits for the remainder of 2007 because of "economic pressure" on consumers and troubles in its own operations.

and if you look at the 10 year chart of Walmart, its on a slow steady decent on its way to breaking 40 dollars to the downside. Someone is raising cash by selling WMT

Looking at the worldwide marketplace, there are a couple of things to watch and some that aren't truly involved in this unfolding scenario in the short term.

1) China is in its own world, not susceptible to the whims of the older, modern economies. I still remain short term bullish on mainland China. On of the few ways to play the volatility in China is the Ishare FXI. I believe we're about 2/3's the way through the upside in that country and probably will see the market retrenching into the 2008 olympics. Chinese dont have many investment options, are very bullish becouse its the year of the pig (and ultimately pigs get slaughtered) et. al. I would not short or put the market yet. It takes longer to form tops then bottoms.

2) The subprime meltdown is about half over. But its problems are moving into prime borrowers wallets. I see a major moneycenter bank (US or International) having issues by the late fall of 2007 or early 2008.

3) Financial Stocks (22% of current S&P value) are not at a bottom yet. The markets have made the highs for the year already. I would trade with a technical bias to the short side, or raise cash on rallies for most stocks. The Dow will hit 10K in 2008.

4) The dollar will continue to be under pressure. Especially watch the dollar vs. the Yen. If the Yen breaks 110, it is certain to penetrate 100 on the downside and create chaos in the carry trade most moneycenter banks have placed. (think of the speeding unwinding of carry trades as the subprime of the major moneycenter banks)

5) Commodities will continue to show strength since the dollar denominated markets will have to appreciate vs. other currencies. Worldwide demand will continue through 2009. Watch the CRB index

6) Asia and India will be the last areas of the world to find issues with the debt crisis (mainly through dropping exports to the US and devaluated dollar income). When you see those markets get rocked hard, its time to buy American and European stocks again (2010?).

7) Lawsuits resulting from market losses are going to explode in the US and Europe. The US has lost financial credibility and the repatriation of the dollar has now begun. Watch the eurodollar futures for some indication. Europe is in a better position to actually climb out of this mess faster then the US, partly becouse the EU is now showing the promise of integration that has taken over a decade to create.

Where to invest now? Watch upcoming postings for some ideas.....

Anatomy of a Government Intervention in Index Stocks

One thing you can be assured, goverment intervention in financial panics is always assured. And since the depression, most MATURE economies of the world have survived (except Japan - but that has more to do with their culture and higher business ethics)

I traded indexes, options and equities for a period of almost 10 years; turning over millions of dollars a day. THE LTC and Asian/Russian Currency crisis gave me first hand observation of goverment intervention in the markets.

Here is an analysis of such a historical time as 1998 and the Hang Seng index. We are stable in the markets in the short term becouse of multiple interventions and forced short squeezes in currencies and bond markets.

The Fed intervention and past comparisons

click the image to read the entire report:

What is MBS/ABS anyway??

A VERY basic chart showing the manufacuring of ONE basic traunch of MBS. The new Henry Ford way of creative financial manufacturing. MBS holders buy in the secondary market.

Cycle of Banks and Debt

A great chart exposing how the financial machinery works on the banking side.

Total U.S. p-c industry exposure to subprime- nvestments less than $15 billion.

A rating firm said U.S. property-casualty insurers face little impact on their portfolios from the subprime mortgage market collapse, but European carriers could face legal claims, according to an insurance brokerage.

For the p-c industry overall, investments in all forms of non-government, non-agency mortgage-backed securities, asset-backed securities and collateralized debt obligations amount to 16 percent of total industry policyholder surplus. Residential mortgage-backed securities portion is 6 percent and that the equivalent of 1 percent of surplus was rated “single-A” or lower as of year-end 2006.

In London, representatives of the financial institutions practice of Marsh turned their attention to the subject of potential claims for directors and officers liability insurers and errors and omissions (professional liability) insurers.

U.S. banking giants borrow $2 bln from Fed

U.S. banking giants Citigroup Inc., J.P. Morgan Chase, Bank of America and Wachovia Corp.

The banks paid higher interest rates for the loans than if they'd borrowed the money elsewhere. Experts said they did that to try to reduce the stigma of tapping the discount window. In the past, if a bank used this source of borrowing, investors and depositors assumed the institution couldn't get a loan anywhere else. That, in turn, often made things worse by triggering runs on the bank and cutting off what market access the firm had left.

The Fed will report on the amount of weekly discount-window borrowing tomorrow at 4:30 pm ET. That should provide more insight into how well the Fed is doing in its attempt to inject liquidity and calm financial markets.

Lehman shuts BNC Mortgage unit, cuts 1,200 jobs

Rising delinquencies on subprime mortgages have triggered a credit crunch in the mortgage business. More than 50 lenders have already gone bankrupt and investors in the secondary mortgage market have stopped buying securities backed by subprime loans.

During the recent housing boom, the securitization of subprime mortgages and other home loans was a lucrative business for investments banks. It became so attractive that some firms acquired subprime mortgage lenders so they could originate loans in-house to package up and sell.

Lehman acquired BNC in 2004

All eyes on the Penguin

For over three years, colleagues and myself have debated what has unfolded in the financial markets with differences of opinion. Although we all agreed that 2007 would mark the return of the bear markets in equities and bonds and a shift out of carry-trade currencies; The outcome and length of time was our disagreement. Dr. Vladovich foresaw the first real breakdown in Oct of 2007 with 2008 being the major cusp of financial debauchery. I still believe the worst pain is going to be after 2010, when global markets will finally retrace under the weight of the American Tax burdened, debt laden Penguin. And yes, IT has something to do with SUB-PRIME!!!

We shall discuss a primer on the issues that will plague us into the next decade, but for now - READ THIS LINK TO UNDERSTAND HOW WE ENDED UP IN THE FINANCIAL SITUATION WE ARE NOW FACING