conraddobler

Um if the world ends then I don't get paid, so a nice sharp correction will be just fine, after all someone has to have money to pay me first.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

conraddobler

Well that's going to leave a mark.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

82CardsGrad

Let's hope so!

82CardsGrad

Dow at record close over 14,000


NEW YORK (Reuters) - U.S. stocks rose on Thursday, driving the Dow to its first close over the 14,000 mark, after forecast-topping results from the technology and industrial sectors shifted the market's focus back to earnings optimism, even as Fed Chief Ben Bernanke fanned concerns about the subprime market.

http://news.yahoo.com/s/nm/20070719/...HhEyXUwzO573QA


I know... I know Conrad... the end is coming. And the sun will set each day as well...

Oil up over $77 a barrel... Bear Stearns taking a massive sub-prime hit... Yet, the Dow powers past 14,000 and seems to be shooting towards 15k! 10 year note down below 5%. Jobless claims down again.
I don't know... I think the talk about Global Prosperity spurred by the global growth of free capitalism, low taxes and pro-growth policy actually might have legs after all, huh Conrad!!! 'Course, all bets off if the Dems wipe away the Bush tax cuts!!!!

conraddobler

Thanks for putting this all in writing, it's gonna make being right almost worth it.

I'll hopefully make money on the decline because well we're all going to need it.

The bomb is ticking ticking ticking..... but keep it up with the pump monkeys who tell you everything gonna be allright, cause it's not going to be much longer.

OBTW, how bout that GOOG missing after the bell, nice.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

conraddobler

Thanks for putting this all in writing, it's gonna make being right almost worth it.

I'll hopefully make money on the decline because well we're all going to need it.

The bomb is ticking ticking ticking..... but keep it up with the pump monkeys who tell you everything gonna be allright, cause it's not going to be much longer.

OBTW, how bout that GOOG missing after the bell, nice.


Short CFC, XLF and MTG, oh the hatrick day.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

82CardsGrad

Ya know why GOOG missed?? They HIRED more people than expected! But that sucks huh...


I'll never understand you bears... You think you figured out something nobody else has! Too funny!!!
I've said all along that there will be a correction. Why wouldn't there be? There always is... Speeding bullet does eventually fall.
It's amazing... I don't have the patience to check, but since you started screaming about the end of times, the coming depression to end all depressions, the Sub-Prime meltdown that will underpin one of the greatest collapses this country has ever seen - I think the market has risen by more than 1,000 points or so!!!

No economy is perfect Conrad and if you know of one, do tell! In the meantime, Free Trade, Free Capitalism, Pro-Growth, Low Taxes for everyone!!!!!
See ya at 15,000 buddy!!!!

LoyaltyisaCurse

yeah, and then right back down to DOW 10,000... Its kind of like the Internet boom in the 90's only worse...

__________________
Goin' "Double Maverick!"

82CardsGrad

LIAC - in all seriousness man. Call for help or have someone who cares about you (a stretch I know...) call! Toss all sharp objects, belts and pills in the garbage! Seek therapy. Or, get youself locked down somewhere until W's reign of terror comes to an end.
The global wrath he has brought on our generation will be over in a little more than a year! You can do this man!

conraddobler

82 Google is a great company and so is apple and dozens of others but the subprime thing I kept harping about is not contained, it's going to cause a giant credit contraction and it's comming apart at the seams, if you look at the ABX indexs which track this stuff and is the only published data then you see what I mean.

Those charts are just sick so that industry is dead, completely dead and now at least 10% of people who are right now homeowners, are in loans that will blow up in their face, this isn't a maybe, it's a certainty and with that industry dead and the fact they can't get any other type of loan they are foreclosures waiting to happen.

I'll post some after dinner about this in this thread since I think it's important people see this stuff.

Don't listen to people about it being contained, at least be cautious a bit and I'm serious here it's going to get bad.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

82CardsGrad

Conrad, I am not nearly as well-read on the subprime issue as you, however:

- You claim "at least 10% of homeowners are in loans that will blow up in their face"... As best as I can tell, that appears to be a HUGE dramatization. The total % of sub-prime and Alt A loans is less than 30%. The foreclosure rates at last check, while increasing, are still a small fraction of the 30%. Employment remains vigorous - GLOBALLY! And while I have no doubt the consumer sector will take a breather, it will not "implode". Mainly because employment and corporate profits are STRONG!

- You seem to be very concerned about the Bear Stearns story... Given your position on Sub-Prime, that's not a surprise... Yet, BofA, Citi, JP MorganChase, Wachovia and Wells Fargo just this week posted tremendous quarterly results and strong growth! Again, is sub-prime an issue? Is the ABX index spooky? Of course... Does it signal a cataclysmic event the likes of which we have never seen? One that will dwarf all other depressions, let alone recessions?? Well, I could sit here all day long and tell you that in today's world, it no longer matters if you sell something to someone who lives in another town, county or state. More and more companies are figuring that out and are selling/trading on a Global scale... There is nothing wrong with that and as such, the never-before-seen GLOBAL growth in wealth and profits is undeniable!

Just saw a report today that for the first time, Western Europe sold more goods to Eastern Europe versus the U.S.!!! Did you ever think you'd live to see that day?? And while protectionists and end of timers see that as a negative, pro growth capitalists see the HUGE opportunity a development like that presents!!!

Free Trade! Free Capitalism! Low Taxes and Pro-Growth policies!!!!

conraddobler

I haven't got time to write a beginning to end story on this and frankly I'm not qualified but I'll just touch on some basics.

The subprime we are talking about here over the last say two years was about 25% of the new purchases, but if you add alt A to that it's a much bigger number and on top of that option arms which are really prime borrowers just in California and some in AZ and Florida did to get into houses they basically could not afford.

Now subprime is nationwide, as is alt a and option arms are mostly costal phenoms.

The thing is this with subprimes first.

when people say subprime they mean 2/28 arms and these deliquent ones or foreclosures are just the ones that went bad so far because they are bad borrowers, fraud loans, stated income etc. The real problem comes when they reset, they were sold a lower teaser rate say 7% that in two years, not maybe but will go to 9 then 11 then 13 then 15 etc.

Usually they can move 2% the first adjustment and then 1.5% each six months thereafter.

These were not designed to be kept but refinanced in an appreciating market, well that's gone now and on top of that the credit criteria is now impossibly tougher, so eventually at least half of these are toast, I'm guessing there but that's pretty accurate because anyone not able to refinance out of it will get foreclosed on.

Now alt a are better borrowers in theory but there you have resets too and fraud and whatnot and it's a good sized slice also so these borrowers are experiencing incredibly fast rising default rates too.

Now all of this wouldn't be enough to kill the economy no, it would simply depress housing prices for a few years and then things would eventually even out but that's really not the problem.

The problem of course is the CDO or mortgage backed securities sold that contain these.

See the default rates were based on housing appreciation of a good amount, not excessive but say 3%, but in the real world house prices have never dropped since the depression for a whole year so that seemed a safe bet, it was most definitely not.

The models that value these bonds are blown sky high and so the value of them is tanking daily, this all without the brunt of the foreclosures showing up yet.

Now that in itself wouldn't be enough to do too much damage since the bond holders would get a spanking and that'd theoretically be the end of it, not the end of the world.

But there is much more.

These rocket scientists didn't actually own these but wanted to spiff them up for sale so they would also sell insurance against these bonds failure and traded that in a thinly traded market as insurance derivatives that were marketable basically only to the players in this field.

When the premiums were written of course they were written in a wildly appreciating market that wasn't looking very risky at the time so the premiums paid to insure these was minimal sort of like insuring phoenix against a hurricane.

Well that's fine and dandy until it gets hit with a category 5 which is what this amounts too but.... BUT the hurricane hasn't actually hit yet since no one trades these bonds much, they aren't revaluing them and so haven't shown up at the insurance collectors door yet, because the way these insurance policies were written it'll probably take a couple of years for the trigger to be hit to collect the insurance. So you might say, well that's a couple of years off, seems overblown now, well true right now it is, but it's picking up steam and soon, within a month or two you'll quietly see large broker dealers stop allowing these as collateral on margin loans and that's the key, this causes margin calls, this causes a contraction in the amount of money a hedge fund can deploy and can cause it to dump good assets at rather fire sale like prices to raise cash fast.

So in effect once the Bear funds collapsed everyone got wind these were deadly and so if you own one your stuck with it now, no one is buying it, the insurers are stuck with their insurance risk, no one will touch that instrument either so it froze these in place.

Not much in the way of losses has occured yet because these aren't really widely traded, no one has marked to market yet except in the case of Bear and so it's pretty much frozen in time as an issue but let's just say no one holding these is getting better with time.

The ratings agencies actually as of now in the absence of a trading market determine the value but of course they work for the issuers which is like appraisers working for a mortgage broker, by and large they tell you what you want to hear so you'll pay them, but their models on this as stated are simply trash and so as they watch the foreclosures they downgrade and it moves slowly along with forced sales of those bonds after they get downgraded and can't be held by certain institutions like insurance companies and pension funds, then maybe you get some mark to market and a dribble of hedge funds die, etc etc.

If you follow along with this though the S&P, Moodys and Fitch are not downgrading these very fast because the foreclosures haven't really picked up steam yet, that will come later but it will come and they all know this, but they won't downgrade yet because it's bad for business, Moody's did more than others and is already crying about being shut out of any new ratings on any bonds because people are ticked at them.

When this finally winds down about 100 to 250 billion will be lost on the CDO's but they wrote trillions in cross insurance on it, so as the bonds fail they'll show up at the door asking to be paid, the insurance writers or current holders of that policy will have to buck up and it will wipe many of them out.

This could easily set off a cascade reaction in the derivatives market that is insanely large, it's about 800 trillion $ worth, not just because these went bad but as you lose out the by paying off your bad bet, now the leverage your hedge fund uses to trade with is all out of whack and you get a margin call, once you get the margin call you must sell good assests on the books to raise cash and then the leverage balloon out there deflates rather fast and potentially almost all at once and it turns from total huge balloon to whizzing around the room like a kid just turned it loose until it lays there empty

I'm not saying the market will crash, I'm sure we'll get at least a severe correction down the road but I am saying all the ingredients are there for a crash, not just a little one either.

Warren Buffett calls these types of derivatives weapons of mass destruction because of that exact type of scenario.

So if you see Citibank doing well, it's largely as they stated through international earnings, however they also mentioned that deliquencies are rising and if you notice they also play around in the LBO market and are currently stuck with a rather large bridge loan, as they play around in this stuff and the risk premiums to write these bonds rise and rise and rise the deal make less and less and less sense, to the point one day one of these isn't going to get done, say Chrysler for example and at that point it may actually go through but what if Citi and Chase et al can't sell the bonds?

Well then they in effect get to own Chrysler in the toughest auto market in decades, where Chrysler as structured is almost all their reserve capital if it goes under.

Chrysler with the amount of debt this thing carries would just be about 2 bad months from implosion, and this is a tough tough market, Ford is dying and so is GM.

This thing could pop hard and it will be sudden, it may not pop, it may just fade down and be painful for a while but if you really see what's going on, past earnings don't matter in a credit crunch, that hits literally everything and if the dollar drops enough and the carry trade unwinds the whole thing goes poof.



One quick real world example, I'm joe hedge fund I manage 1 billion in assets, of which 200 million are CDO's like we talked about. I go to my handy dandy broker dealer and say look at my portfolio it's worth 1 billion, I would like to leverage up to 20 to 1 please and they say ok let me see what you got, this is pre housing crash btw.

He says looks good, like that nice A rating from fitch on those CDO's and you got some cash and some of the stinky stuff, I'll tell you what let's go with 15 to one to split the difference and so heres 14 billion to use to trade with have at it big guy.

Now most of what I have is traded in the open market so every night Big Daddy broker dealer says ok how'd you do today... emmm made some money on this, lost a little on that, made some on this etc until he gets to the CDO's which aren't traded, well those he says are worth just what you say I guess I really have no idea, so your good on margin and go to it tomorrow.

You repeat this daily to infinity until, one day fitch gets to your CDO's and says, um that A rating is now BBB- and your bonds are worth half what you thought at least, probably less.

Now Big Daddy broker dealer sees this at his daily tally and says, em hey sport your over your credit/margin limit now by...... hmmm 1.5 billion $ "you've got to take into account the 15 to one part which is the real beatch of it all" you got 20 minutes before I take everything you own and kick you to the curb you worthless deadbeat. Now Joe Hedge fund is mr. motivated seller so he takes out some GOOG stock and dumps dumps dumps, it's his best asset after all and now GOOG tanks on the pressure, not a lot but sizeably and so Mr. John hedgie got creamed by association and gets a similar call from another Big Daddy broker dealer.

This is how the ball gets rolling pretty fast, it's a whole in the balloon of liquidity and it's a very real danger at some point, the point being basically when your CDO is rerated.


Oh and what ultimately happend to Joe hedgie, well as he fire sold his best assests he kept shrinking himself down to the point when leveraged at 15 to one about a 7.5% loss is a total wipeout ala Bears funds, the broker dealer took all his stuff, sold what he could and ate about 1 billion and so the next guy gets his margin limit cut to 10 to 1, a few more failures and it's now 5 to 1, then 4 then 2 then aw screw it no more margin trading I'm almost busted from you idiots.

I hope that illustrates how this thing could unwind in a blinding hurry, credit contractions, ie margin requirements raising, decimate markets.

__________________
At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide.

~Abraham Lincoln Lyceum Address

LoyaltyisaCurse

You do know Wells Fargo's was mostly due to fee collection that helped increase profits by 9%... Wells Fargo is in better shape, for the already have a tremendous credit rating and can absorb and wether hicups in the market and does not get bogged down with bad loans (Subprime lending makes up a very small percentage of their loans)... Now WAMU is a different story, heck, in the past 10 months, Wells Fargo bought out about 70% of WAMU's Home Mortgage portfolio...

__________________
Goin' "Double Maverick!"

DutchmanAZ

http://www.telegraph.co.uk/money/mai...nchina107a.xml

By Ambrose Evans-Pritchard
Last Updated: 9:54am BST 08/08/2007

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.

Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.

Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing's foreign reserves should be used as a "bargaining chip" in talks with the US.

"Of course, China doesn't want any undesirable phenomenon in the global financial order," he added.

He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.

"China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.

"China is unlikely to follow suit as long as the yuan's exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar," he told China Daily.

The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being "held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo".

She said foreign control over 44pc of the US national debt had left America acutely vulnerable.

Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.

"The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles," he said.

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.

The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June.

Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.