Spiga

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....

Europe's Northern Rock in trouble...

The news coming out of Europe proves that the housing boom is over in most of Europe, and the era of cheap money is over...Germany is having its own issues as well.

CLICK FOR VIDEO

Greenspan on CNBC


CLICK IMAGE and Watch this interview on the future of the US economy, a forecast with Mr. Greenspan

Banks pulling an Enron?


Off balance sheet was a term Americans learned about during the fiasco of Enron. But it doesn't look like things have changed much.

BF........the fact that conduits, and special-purpose entities generically, reside off balance sheets is a reason why everyone has been caught by surprise. Because if mountains of this paper are away from plain sight, potential problems can't be anticipated, as you can't attempt to understand what you can't see.

with the spotlight now trained on the structured-credit arena, institutional investors have become choosier about what paper they're willing to own, thus creating the illiquid environment that the short-term money-market funds and the banks currently find themselves in.

Meanwhile, though London appears to be the epicenter of conduit angst these days, our homegrown Citigroup (C, news, msgs) appears to have plenty of exposure. That's according to a friend who in an e-mail to me rattled off the following list of its structured investment vehicles, or SIVs: Beta Finance, Centauri, Dorada, Five Finance, Sedna Finance, Vetra Finance and Zela Finance.

Citigroup notes that the leverage in this particular vehicle, Beta Finance, is "only 14.24 times." Thus, Citigroup, a leveraged entity, owns a gaggle of leveraged S&Ls. That helps illustrate a point I've made many times: that the well of liquidity that bulls were citing two months ago as a reason to be bullish was just a wall of leverage. (It's worth noting that the net asset value of Beta Finance has declined 19% from its high and that Citigroup's other conduits are apparently down a similar amount.)

The source indicated to me that commercial mortgage-backed securities will also see problems. Though I did not get the impression from her that the timing was imminent, the weakness in the commercial version of the ABX index indicates that some pain is already being dispensed, even if little ink has been spilled on this subject.
Read the story...

Commodities Prices Higher?

CLICK THE IMAGE FOR THE INTERVIEW

Leslie Phang, head of investments at Commonwealth Private Bank

"Risk of inflation is higher..."

China mass affluence creating many of the dynamics.

Petrol is a small part of the asian economies.

Yen Stronger vs. Dollar

CLICK IMAGE FOR INTERVIEW:
Amanda Drury ONmoney


Sean Callow, senior currency strategist at Westpac Bank IS bullish on the YEN.

Greenspan's Interview on CBS "60 Minutes"




After watching the interview, the gist:

Presidents and Traits:

His best experience with a President: Bill Clinton " the brightest"
Bush #1: Pressured the Fed Publicly
Bush#2 and the Vice Pres: Considers VP a big "spender"
Ford: Integrity
Nixon: Swore a lot

Greenspan admits he "had no notion of how significant they had become" in terms of the MBS market and other derivative markets.

He would not comment on any of his investments.

He admitted as an economist, that "one should be diversified in currencies" (I was surprised that he did not favor the dollar)

He feels after this credit "issue" euphoria will return. (thats not saying much)

Finally, he feels that the biggest issue facing the economy is actually "inflationary pressures"

Thats one way of stating that the dollar is about to get alot weaker over time.

Credit Problems are Larger then Central Banks


The outstanding amounts of derivatives ($ trillion).

End-Dec 2006 End-June 2006 End-Dec 2005

Interest rates 292 262 212

Credit 29 20 14

Equity 7.5 6.8 5.8

Commodities 6.9 6.4 5.4

Foreign Exchange 40 38 31

T*

(interest rate Derivatives were three hundred trillion over a year ago)

As I have predicted through various mediums in the last few years, we've seen some calm in the American capital markets regarding the credit crisis currently underway. Some would coin this the work of the "PPT" (actually it would be the The Financial Stability Forum (FSF) which convened in April 1999 to promote international financial stability through information exchange and international co-operation in financial supervision and surveillance.) working through mechanisms such as the BIS.

Although the market is anticipating as much as a 50 bps rate cut by the Fed, there are still many risks out there. The biggest toxin is the potential short term currency fluctuations that could jeopardize the entire global financial system. But the root cause, as I have been writing for some time, lies within the system itself. The inability of credit markets to properly hedge or liquidate has caused the short term panic. This panic was attributed the warm feeling that things such as Credit Default swaps could actually "insure" the almost 450 Trillion of derivatives tied to everything from weather to corn crops. Hyman Minsky famously stated that stability produces instability, and that the longer things are stable, the greater the instability that will result, precisely because we are unprepared for it.

In the Mortgage arena, the underwriting/securitization process as we know it has changed forever. How will end up is only answered in the process of time. But credibility has been shaken. And there is liquidity, but there is no certainty.

It seems that the Enron debacle around the turn of the century had one CLEAR outcome far beyond what would have seemed to be important at the time, but very important today. Asymmetric information, which
won economist Joseph Stiglitz a 2001 Nobel prize, was clearly apparent.

When the borrower involved fails to make timely payments of interest and principal, the buyer of the protection can exchange the debt it holds for cash from the seller of the swap. But when commercial banks are involved in the deals, the party on the other side has to worry that the lenders can profit from the use of information they have privately gleaned from borrowers in the course of assessing their creditworthiness.

Fans of swaps argue that they encourage bank lending, an assertion that isn't reflected in loan data. Critics contend that banks' reliance on credit default insurance and other forms of risk transfer leads to poorer credit oversight, as it shifts the responsibility from those with the most intimate knowledge of a borrower's financial position to those with less.

What is keeping me up is why banks exist if all they're going to do is transfer risk to someone else?

Warren Buffett was worried enough about the extensive portfolio of credit swaps and other derivatives held by Berkshire Hathaway's insurance subsidiary, General Re, to close down the company's derivatives operations years ago.

But where insurance companies stepped off, thrice the number of hedge funds stepped up to play.

Add to this element, the world of derivatives, which have actually played a stability role in many mini financial issues in the recent past.

Where this leads is into the equation of currency. The dollar has always been a store of value and liquidity worldwide. Today, because of the instability, it is quickly becoming a liability for those holding dollar denominated assets. For some this could be profitable, but for the American consumer in general, it is a hidden tax.

We can be certain of one thing; This will not turn out like most pundits or the MEDIA is spinning it to be. Somewhere, in the horizon - lays a greater iceberg. We've already hit something, but the largest piece of risk lays just beyond the fog.

-Oscar Toscano

UK Housing is now Falling as well



The credit market turmoil is not affecting London. But London will be caught up in this slowdown.

UK house prices have seen their biggest monthly fall in five years as turmoil in the world's financial system unnerved both buyers and sellers, according to property website Rightmove.

Average UK asking prices dropped 2.6pc in September to £235,176. Estate agents have seen just 121,000 properties come onto their books this month - the lowest figure for September since 2004.

Property in the South West suffered the most, with average asking prices dropping as much as 4.1pc. The South East and East Anglia also saw above average slumps in asking prices of -3.3pc and -3pc respectively.
Transactions will slow, rather then actual prices falling. Seems like the analysts are somewhat bullish.

China creates its own Private Equity Funds



The pressures of the west, and the opportunities at home, have forced the government to allow the establishment of these players, for the benefit of the country.

The government has given the go-ahead to four new industry investment funds worth 46 billion yuan.

The State Council approved the funds, which are a type of private equity (PE) fund. The Shanghai Financial Industrial Investment Fund will raise 20 billion yuan, the Guangdong Nuclear Power Industrial Investment Fund and the Shanxi Coal Energy Industrial Investment Fund 10 billion yuan each, and the Sichuan Mianyang High Technology Industrial Investment Fund, six billion yuan.

Chen Zongsheng, chief of the preparatory group for the Bohai Industrial Investment Fund, said problems including a rigid registration and approval system for PE funds and fund managers' lack of experience is hampering the development of PE funds in the country. "The development of PE funds in China will be even faster if these barriers are removed."


We will keep you updated.

New Home Deals in Southern California



I am seeing many ads for amazing deals on new homes.

Dollar down, all else up?


There is a relationship that many pundits dont seem to bring up. As our dollar has fallen in value, all things denominated in dollars must rise. This is classic devaluation.

The globalgurus thoughts:

The U.S. economy has become dangerously dependent on foreign capital. Foreign investors have (finally) tired of financing the profligate ways of the United States and are betting against the dollar -- sending it even lower. Foreign central banks -- fearing the United States may not be able to repay its huge debts in outstanding Treasury bonds -- are rushing to unload their Greenback reserves. This will lead quickly to a dollar collapse. This in turn would prevent the Fed from cutting interest rates, tipping the Titanic that is the U.S. economy into the cold waters of economic depression.

Despite hitting record lows against some currencies, overall it has fallen by less than 1.5% since the financial turmoil hit in early August. It may have hit record lows against the euro, but that's against a young currency. According to research by Brown Brothers Harriman, the now-defunct German mark hit a record high in 1995 that would be the equivalent of a euro level of $1.4575.

It's also hard to crash if you've already been slowing down. The U.S. dollar has already fallen by some 20% since its recent peak in 2002. Indeed, growth in U.S. exports is already shrinking America’s external deficit. Throw in falling domestic demand, imbalances begin to correct themselves just like the economics textbooks said they would.

The bottom line? Currencies are part of a complex system. Push one lever, and another one moves in ways that you cannot often predict. And as tempting as it is to make it into a moral issue, analyzing it through the cold, hard lens of facts rather than rhetoric

The largest risk to America and the global economies isn't a recession or a prolonged retraction of US growth from slower consumption, but rather the risk that currency volatility will derail a few large money center banks who bet the wrong way.

American Community Survey: US Housing more costly



Here is the an excerpt:

Nationally, half of renters and more than one third of mortgage holders — 37 percent, up from 35 percent in 2005, or a rise of more than 1.5 million households — spent at least 30 percent of their gross income on housing costs, the level many government agencies consider the limit of affordability.

“Maybe it all means that housing is not as smart an investment for as many people as we thought,” said Matt Fellowes, a scholar in metropolitan policy at the Brookings Institution. “Stocks perform better than houses over time. Maybe the American dream should be building wealth in general, not building a certain type of wealth, which we see is narrow and dangerous.”

Fourteen percent of mortgage-holders spent at least half their income on housing in 2006, up from 13 percent last year, while among renters there was little change. In both years, 25 percent of renters spent half their income on housing.


5 Years before the increase has a chance of starting again!

We're in Systemic Risk!!!!!!!!!!!



And im a bit confused as to why the markets are not alot lower at this point and the dollar hasn't crashed (any worse). Of course, my experience trading through a decade worth of market taught me that intervention is working overtime to overcome this issue. Currency fluctuation is the ultimate blow to this environment. But by definition, since 2001, this is where we find ourselves:

In finance, systemic risk describes the likelihood of the collapse of a financial system[citation needed], such as a general stock market crash or a joint breakdown of the banking system. As such, it is a type of "aggregate risk" as opposed to "idiosyncratic risk", which is specific to individual stocks or banks. Systemic risk should also be carefully distinguished from Non-systemic risk, which describes risks which the whole economy faces such as business cycles or wars.
Thanks wikip....

Fed Banks going to merge?





If things get any worse, its probably likely that some fed branches are going to merge. How about Chicago and Dallas. Getting ready for round four!

We might end up with 6 fed districts by the end of the decade.

Goldman vs. BofA on Countrywide


Am I hearing this right? I believe that "Angelo M" will be ousted from the seat at Countrywide, with Goldman becoming lead shareholder of the resized company. I think that Goldman knows the stock is headed lower and much more pain is to come, and they know the timing really well. My speculative hunch is that a similiar sweetheart deal will be done with a syndicated headed by Goldman, at much better terms then the BofA plunge. Maybe it will be done somewhere in the vacinity of a 10 dollar strike?

"Reiterating its earlier statements regarding cash and liquidity needs, the company has already taken decisive steps to address the challenges arising in this environment and thereby enable Countrywide to meet its funding needs and position the company for continued growth and success."
Paulson and Company (off balance sheet partner) - The Treasury Secratary of the US?? Is going in with Goldman for a Countrywide run. TMZ dont have this kinda scoop!!!!!

Somehow Buffet will end up in all this deal... Time always tells.....

Photo Courtesy of our network partner TodoExito.com

Citigroup Grants $21 Billion in Funding to GMAC



wow

GMAC LLC, the lender partly owned by General Motors Corp. that lost more than $1 billion on mortgages, will receive as much as $21.4 billion from Citigroup Inc. to fund auto and home loans.

The financing replaces a $10 billion arrangement dating from August 2006 with New York-based Citigroup, the biggest U.S. bank, according to a federal filing today. GMAC will get access to $14.4 billion and may be granted $7 billion more if certain conditions are met, according to the filing. The funds are for assets tied to U.S. automobiles, mortgages and other items.

When will this end?

The Million Mercedes March????




Dr. Vlado broke this over the phone to me. I am shocked that this actually happened.

Chanting "No Rate Cut, No Peace," the furious money managers were pepper-sprayed by police as their protest threatened to take a violent turn.

Mr. Klujian's words seemed almost prophetic as a mob of angry trophy wives looted a Ralph Lauren boutique in East Hampton, New York later in the day, stripping the establishment of its entire fall collection.

If the Fed fails to intervene, Mr. Klujian warned, an ugly situation among the nation's wealthiest money managers will only get uglier.

"A lot of these guys are mad as hell right now," he said. "But wait until they're down to their last billion."

read the rest........

Libor, Not Fed Funds.. Is what matters...

The fed will cut the Fund rate.. 50 bps. Aug 18. The market will rally to 13,500~ (another shorting opp.?) and the reality of the recession will start to unfold @ Christmas.

click the image to read the article......

The dollar drop crucial support

The crucial numbers to watch are Dollar/Yen Figures. 110 is first support, followed by 100. If we break to the downside within a small time frame, money center banks will see major losses from the sudden losses stemming from carry trade principle losses. The dollar index is clearly in the beginning of a secular bear market. click the image to watch a CNBC video discussing the dollar. Bank Julius Bear:

I personally don't agree that a large carry trade percentage has been cleared from the marketplace. There is much more to go to unwind this arbitrage. As the dollar falls, Japanese exporters will suffer, and china will have an opportunity to sell higher end manufactured items.

Fed Expected to Cut by 50 Bps?

Amanda Drury of CNBC:

Recession in the foray and the Fed might cut rates 50 bps.

Click image for interview

500 Ficos Hurt Eastern Europe




How could liar loans hurt far away economies?

Rising credit costs would put the brakes on Eastern Europe's skyrocketing growth, which has easily outpaced Western Europe's since 2004. Latvia's economy, for instance, grew 12% last year, but now the country—whose external debt is forecast to hit 140% of current account receipts by 2008—faces the prospect of a downturn if the credit crunch continues or worsens. Bulgaria and Romania, with current account deficits of 14.8% and 10%, respectively, are also at risk.
And who do they own money to?

Price at the pump powers new global liquidity




Middle East interests have seen 5 years of steady and growing margin expansion in their core oil exports. Today, that massive positive balance of trade with the world has garnered hundreds of billions in liquidity to these primarily OPEC Muslim powers. And at a recent conference, Arab leaders talked of western economies being more open to direct investment.

Five nations in the Middle East hold US$1.7 trillion in their central banks, the largest single concentration of assets in the world. The center of global wealth, Mr Alabbar added, is shifting from the Atlantic Ocean to the Indian Ocean, creating the right conditions for the new global champions from the Middle East and Asia and the basis for the new world economy.


“The Middle East has the liquidity, and should be given the opportunity to move into established and developing markets. Only when the large economies of the world take their foot off the brakes will growth advance.” The World Economic Forum’s inaugural Annual Meeting of the New Champions at Dalian, focused on the new generation of fast-emerging multinational companies, opened Thursday in the Chinese coastal city. Likened to a “Summer Davos,” the high-powered gathering of business, industry and government leaders has drawn more than 1,700 participants from 90 countries.

It is clear the the middle east is the new piggy bank of liquidity for the world. With it, religious and cultural ideologies will expand...

Johnny and Bambi Subprime


Countrywide and Indy mac announce layoffs, and this is about the 3rd inning...

In the last five years, the average US citizen with decent credit and a halfway consistent job was able to improve his income by the amount of debt incurred.

Aug. 9, 2006 - For the first time ever recorded, Americans owe more money than they make. Household debt levels have now surpassed household income by more than eight percent, reaching 108.4 percent in 2005, according to a May 2006 study by the Center for American Progress. Consumer debt is now at a record $2.17 trillion, reports the Federal Reserve Board and consumers cashed out a whopping $431 billion in home equity last year.

and an Exclusive word from Dr. Vladovich.

5.12% of total mortgages (45 million) are running late, and Foreclosure rates are 1.12%. When you see the Foreclosure rate hits about 2.5% look out. We should see this trend develop in the second quarter of 2008, when 780 billion dollars of mortgage resets will have occured. If the major mortgage banks have to foreclose and stop the process, market to market will kill the balance sheet further; its a no win situation. Off balance sheet chicanery will be forced to come clean at major public banks. Non-Depository institutions will be jeapordy.
1) Lack of capital
2) Goverment
3)Priced out of the market (rates will be higher).

"A complete extermination of mortgage brokers will occur"

(Dr. Vladovich, Sept 2007)

"One of the issues that hurt the ABX and MBS (and its truanches) ..was that trading desks representing the equity had no where to hedge or short against their own positions. There was no insurance policy to take out. These positions where created without a fire exit. Everyone assumed this things would pay out perfectly forever" Oscar Toscano

Flat tax or Tax overhaul?



Something needs to be done about the tax system in the United States. Part of US competitiveness worldwide depends on it. A proposal is brewing and has been coined, the "mother of all tax overhauls."

House Ways and Means Committee Chairman Charles Rangel said he would introduce an overhaul of the tax code that would repeal the alternative minimum tax, reduce payments for as many as 90 million U.S. households and increase levies on hedge-fund and private-equity executives.

Rangel said his proposal would be the biggest overhaul of the U.S. tax code since 1986. He said the changes would cost between $75 billion and $100 billion over 10 years, in addition to the $800 billion required to repeal the minimum tax. The legislation, he said, would result in a ``real simplified, fairer system.''


We'll see what happens. The passage looks bleak.

Shared Appreciation Mortgages coming back?



With all the discussion of the subprime issues and the decline of housing, new innovative ways of financing will emerge, when applicable. One such program is the SAM.

A shared appreciation mortgage or SAM is a mortgage in which the lender agrees as part of the loan to accept some or all payment in the form of a share of the increase in value (the appreciation) of the property.
Of course, in a flat or declining market, this may not be a good deal for a bank. Some banks seem to be offering this type of program.

U.S. employers cut hiring in August first time in four years


Of course, markets declined heavily. What is most amazing is the commentary coming from average citizens, who's opinion is that everything around them is a farce.

The decline in payrolls was much weaker than the 115,000 increase that had been expected by Wall Street economists surveyed by MarketWatch. See Economic Calendar.


Oil rises over 77 dollars a barrel

US Energy Information Administration figures showed that American crude reserves had slumped by 3.9 million barrels in the week to 31 August. Analysts had expected a drop of about 2.2 million barrels.

Gold blazes past $700 on a new bull run



The price of gold surged above US$700 an ounce Thursday to the highest level since May 2006, boosting the share prices of Canadian gold mining companies along with it.

Canadian mining giant Barrick Gold Corp. (TSX:ABX) shares closed up nearly nine per cent to $38.10 on the Toronto Stock Exchange Thursday, and Kinross Gold Corp. (TSX:K) closed up more than seven per cent to $13.95. Goldcorp Inc. (TSX:G) stock rose nearly eight per cent to $27.21 and shares in Aurelian Resources Inc.(TSXV:ARU) were up 8.8 per cent to $6.90.

On a technical basis, Gold is set to revisit and break the old highs of 2006

Major Banks Hording Credit




Proof of the money fund yields tied to the LIBOR.

The average seven-day annualized yield on retail money funds that invest only in U.S. government securities jumped to 4.29% in the one-week period that ended Tuesday, from 4.01% the week before, according to IMoneyNet Inc.

One key global short-term interest rate -- the London interbank offered rate, or LIBOR -- has taken a surprising jump in recent weeks. That indicates that many British and other European banks are reluctant to lend to one another because of concerns about potential further upheaval in credit markets.


Should Congress not adopt the recommendations outlined above, we can expect core inflation rates to rise over the next decade, and at an accelerated rate – so that in ten years from now we can expect cheering in the media when the inflation rate falls below 50%. As inflation deepens and accelerates, inflationary expectations will
intensify, and prices will begin to spurt ahead faster than the money supply. / It will be at that point that a fateful decision will be made – the same that was made by Rudolf Havenstein and the German Reichsbank in the early 1920’s: whether to stop or greatly slow down the inflation, or to yield to public outcries of a “shortage of money” or a “liquidity crunch” (as business called it in the mini-recession of 1966). / In the latter case, the central bank will promise business or the public that it will issue enough money to enable the money supply to “catch up” with prices. When that fateful event occurs, as it did in Germany in the early 1920’s, prices and money could spiral upward to infinity and it could cost $10 billion to buy a loaf of bread. America could experience the veritable holocaust of runaway inflation, a cataclysm which would make the Depression of the 1930’s – let alone an ordinary recession – seem like a tea party.
CNBC world video on Wednesday's interviews and the continuation of uncertainty in the markets.

Credit Crunch Part 2


As we start the Labor Day celebration... i don't want to recap what was said on Friday by Bush and Bernanke regarding the credit market. I would rather confront what is yet to come, and how the central banks and governments may handle the crisis yet to unfold...

Rephrasing:

no one - ever expected these conduits to move from off-balance sheet back on-balance sheet and I don't think the market yet understands the earnings, capital and liquidity impact of this migration. If you figure you need anywhere from 6-8% capital per dollar of loans, then a move of $1.0 trln from off-balance sheet to on requires $60-80 bln in additional equity capital. I don't know about you, but I don't see this kind of free capital sitting around. (THE FED DOES)

In the asset-backed commercial paper market, maturing commercial paper is normally either rolled over or replaced by loans from standby liquidity banks when it can't be rolled over. With Friday’s change, it would appear that investors now have the ability to "put" unmatured commercial paper back to the bank affiliated brokers - who in turn will pass it along through the Discount window to the Fed.

I don't think the market yet appreciates the fact that banks are currently provisioned for the top of the market. (And, in fact, up until recently, most major banks reported net provision reductions over the last several quarters.) As credit continues to deteriorate, the earnings/capital hits will be enormous as provisions need to reflect higher and higher delinquency and loss rates.

As consumers have been shut out of the mortgage and home equity world, the last available credit is plastic. One statistic that I have found very troubling is the degree to which credit card balance growth is running ahead of retail sales growth - a key sign that the consumer is stretched. In normal times, you would expect aggregate credit card balance growth to run about in line with GDP and retail sales growth. This year it is running almost 2.5 times that.

China's Global Impact




How big is the Chinese influence?

China's reach now extends from the Australian desert through the Sahara to the Amazonian jungle — and it's those regions supplying goods for China, not just the other way around. China has stepped up its political and diplomatic presence, most notably in Africa, where it is funneling billions of dollars in aid. And it is increasingly shaping the lifestyle of people around the world, as the United States did before it, right down to the Mandarin-language courses being taught in schools from Argentina to Virginia.

If China's growth continues, its consumer market will be the world's second largest by 2015. The Chinese already eat 32 percent of the world's rice, build with 47 percent of its cement and smoke one out of every three cigarettes.

China is buying coal mining equipment from Poland and drilling for oil and gas in Ethiopia and Nigeria. It has poured hundreds of millions of dollars into Zambia's copper industry. It is the world's biggest market for mobile phones, headed for 520 million handsets this year. The list goes on.

"The Chinese don't want war — the Chinese just want to trade their way to power," said David Zweig, a professor at the Hong Kong University of Science and Technology. "In the past, if a state wanted to expand, it had to take territory. You don't need to grab colonies any more. You just need to have competitive goods to trade."

If China stays on the same economic track, it would become the world's largest economy in 2027, surpassing the United States, according to projections by Goldman, Sachs & Co., a Wall Street investment bank. And unlike Japan, which rose in the 1980s only to fade again, China still has a huge pool of workers to tap and an emerging middle class that is just starting to reach critical mass. Many development economists believe China still has 20 years of fairly high growth ahead.

As Beijing plays an ever bigger role in the developing world, some Western countries fear it could undermine efforts to promote democracy. In its attempt to secure markets and win allies, China is stepping up development aid to Africa and Asia. Chinese President Hu Jintao pledged last year to double Chinese aid to Africa between 2006 and 2009, promising $3 billion in loans, $2 billion in export credits and a $5 billion fund to encourage Chinese investment in Africa. China has also promised Cambodia a $600 million aid package and agreed to loan $500 million to the Philippines for a rail project.

And those who benefit from China's growth express some wariness. Aerospace giant Boeing expects China to be the largest market for commercial air travel outside the United States in the next 20 years, buying more than $100 billion worth of commercial aircraft, U.S. trade envoy Karan Bhatia said in a recent speech.

Yet Boeing workers remain wary of China's ambitions to build its own planes. next year China plans to test-fly a locally made midsize jet seating 78 to 85 passengers. It also has announced plans to roll out a 150-seat plane by 2020.

That's what happened to Western and Japanese automakers, which made inroads in the Chinese market only to see their designs copied and technologies stolen. Already, China's vehicle manufacturers are venturing overseas, exporting 325,000 units last year — mostly low-priced trucks and buses to Asia, Africa and Latin America.

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