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.
   November 9th, 2007 at 6:09 pm

   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.