Market Update/MBIA/SWF's

Hey guys and gals. What a news filled session we had today. I may be a little more news heavy today because there was lots of data released. Stocks were mixed as the market digested all of the news and await the CPI tomorrow.

Housing:

Well we hit an all time 26 year low for price declines year on year according to the National Association of Realtors:

"Single-family home prices dropped 7.7% in the first quarter in the largest year-over-year decline since the National Association of Realtors began reporting prices in 1982.

The median sales price fell to $196,300, down 4.8% compared with the last three months of 2007.

In California, according to Yun, homes bought with jumbo mortgages - more than $417,000 - accounted for 40% of all sales before liquidity for these loans dried up during the summer of 2007. Since then only 10% of sales in California involved jumbo loans.

In California, Sacramento prices plummeted 29.2% to $258,500 compared with last year and Riverside prices fell 27.7% to $287,100. Prices in Las Vegas fell 20.2% to $247,600 and those in Phoenix dropped 15.4% to $222,200."

Quick take:

What can I say other than these numbers are horrifying. Notice only 10% of sales since summer of '07 in Cali are jumbos versus the 40% rate during the bubble. The reason for this is interest rates on these have sored to 7-8%. Banks want nothing to do with these loans anymore.

My question here is how will any homes in LA/San Diego ever get sold when almost everything that's worth buying is over the $417,000 non jumbo limit? Can you say disaster? Expect many to drop under the $417k level. You can say the same for Nevada and Florida as well.


MBIA/Ambac:

Like a nervous mother looking over her children, Moody's is again worried that they may have to take away both mortgage insurers AAA ratings. Here is the Scoop:

"May 13 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc. had ``meaningfully'' higher losses on home-equity loans and collateralized debt obligations than anticipated, raising concern about their Aaa status, Moody's Investors Service said.

The first-quarter losses reported by the companies in the past two weeks elevate ``existing concerns about capitalization levels relative to the Aaa benchmark,'' Moody's, unit of Moody's Corp., said in a statement today. Armonk, New York-based MBIA and Ambac, the two largest bond insurers, tumbled in New York Stock Exchange composite trading and their credit-default swaps rose. "


Quick Take:

I have been saying for months that these companies are worthless. Its now up to Wall St. to decide if they want to bail them out again. The banks will be forced to take huge writedowns if these companies fail because the AAA rated CDO crap sandwiches that MBIA/Ambaq insured will have to be written down.

I have read that the banks will take a $70 billion dollar hit if the insurers fail. Time will tell if they will live to see another quarter. The insurer's business model is now dead since their are no more CDO's to insure so don't expect them to be around long.


Carlyle Capital's Rubenstein: SWF's are down almost 50% on their investments.

I wanted to bring this article to every ones attention because Rubenstein has been a bull for a long time until recently. I thought his comments were surprising at a recent conference:


"May 12 (Bloomberg) -- U.S. and European banks and financial institutions have ``enormous losses'' from bad loans they haven't yet recognized and may have a harder time wooing sovereign-fund rescuers, Carlyle Group Chairman David Rubenstein said.

``Based on information I see,'' it will take at least a year before all losses are realized, and some financial institutions may fail, Rubenstein said at a breakfast meeting of the Institute for Education Public Policy Roundtable in Washington. He didn't name any companies.

``The sovereign wealth funds are not likely to jump into the fray again to bail out these institutions,'' Rubenstein said. ``Many financial institutions aren't going to be able to survive as independent institutions.''

Rubenstein said sovereign wealth funds are becoming wary after losing $25 billion on their investments in struggling banks and securities firms worldwide.

Rubenstein said about $60 billion of that capital was provided by sovereign funds last fall, and their investments today are worth about $35 billion."

Quick Take:

Anyone notice how quiet the sovereign wealth funds have been recently? This is why. They have gotten their asses handed to them. Where are the banks going to go for capital going forward? Remember all of the bulls cheering how there was unlimited foreign capital that was going to refinance Wall St? Ooops! maybe not.

I guess Citibank doesn't look so appealing to the arabs after they have lost billions of dollars investing in banks.

Notice that the recent run of capital investment taken in by these banks has been from this country at guido rates versus the SWF's. Where is Wall St. going to go if they burn this new set of investors?

Wall St's banks are quickly running out of cash, and they are now running out of suckers to keep feeding them so they can stay alive.

Bottom Line:

If housing prices continue to slide this fast then this debacle going to spiral out of control. The financials are running out of options, and everyone involved in housing from builders to mortgage insurers is holding on by a thread.

Its not going to take much more pressure until this housing time bomb goes off. I didn't even get to Toll Brothers earnings today. Guess what? They were bad..lol

Until tomorrow!