Good Evening Everyone
MUST WATCH ALERT!
Before you read this post, PLEASE watch this interview of Meredith Whitney today.
You have seen Meredith on here many times before. She is the best financial analyst on the street IMO. Here is a wonderful explanation as to why we are not out of the woods and in deep trouble. As you can see, Meredith has now increased her peak to trough in housing from 30% up to 40-45%.
She also commented that banks like Citibank and others are expecting 20-25% losses in housing. You know what this means folks: All of the CDO's the financials are sitting on will be worth much less than they expected or planned for. This will trigger another string of writedowns for the financials.
Liquidations
I didn't have a full grasp of how crushing these liquidations are for the financials until I watched Meridith today. When you are forced to liquidate like Lehman and others, you have no leverage to negotiate fair pricing. As a result, assets are sold well below market value. This is simply devastating to the banks that hold the same assets.
Massive liquidations is why you saw oil go under $100/barrel today. The toxic loans that are on the banks balance sheet just got a little more toxic as Lehman is forced to mark to market and dump all of those sh*t sandwiches. Commercial real estate also got killed because Lehman holds huge amounts of commercial assets that will now have to be sold at bargain basement prices.
I am sure Donald Trump wanted to puke after watching this slaughter in commercial.
AIG
Folks, if AIG does not get funding tomorrow, run as fast as you can for the exits. Here is the story from Bloomberg:
"Sept. 15 (Bloomberg) -- American International Group Inc. is seeking a loan for as much as $75 billion through Goldman Sachs Group Inc. and JPMorgan Chase & Co. after the Federal Reserve balked at providing funding for the insurer, according to people familiar with the situation.
Representatives of Wall Street's biggest firms convened at the New York Fed for a fourth consecutive day, this time to discuss the funding crisis at AIG. The Fed urged AIG to seek private capital and discouraged the insurer from expecting a loan from the central bank, according to two people with knowledge of the discussions.
New York-based Goldman and JPMorgan are working with AIG to determine how much the insurer needs, said two more people, all of whom declined to be identified because negotiations are private. The loan would involve temporary financing, a so-called bridge loan, through a syndicate of banks, the person said, adding that there's no assurance an agreement can be worked out.
``We're still working on a number of alternatives,'' said Nicholas Ashooh, spokesman for New York-based AIG. JPMorgan's Brian Marchiony and Goldman's Lucas van Praag declined to comment.
AIG fell $7.38, or 61 percent, to $4.76 at 4:15 p.m. in New York Stock Exchange composite trading, bringing its loss for the year to 92 percent"
My Take:
AIG is big enough to take this whole market down my friends. They have a $1 trillion balance sheet. That makes them almost twice the size of Lehman. The stock dropped 61% today and now trades under $5. This is unbelievable. AIG is one of the USA's great companies. To see them in total shambles is a travesty.
When push comes to shove IMO, the Treasury is going to be forced to come to the rescue here if Wall St. fails to lend them the $75 billion they are asking for.
Anyone notice how the dollar amount on this loan keeps growing? Last night they supposedly only needed $40 billion. Now we are at $75 billion. The problem AIG has is I am not sure there is $75 billion left to borrow on Wall St.!
Bottom Line:
We are at sticksave levels folks. There is a FOMC meeting tomorrow and a rate cut would not surprise me. In fact, I wouldn't be surprised to see a half point cut. The strengthening of the dollar along with the commodity drop has given the Fed enough room to drop rates.
If a ratecut doesn't happen, expect something creative tomorrow by the Fed in an attempt to shore up the markets. The DOW was gushing red during the last hour of trading on very high volume. This was an ugly way to go out today. Market crashes occur at times like these although I am not predicting one.
As a result, expect more fireworks and a sticksave on Wed. This could lead to a bounce. Also, keep an eye on WAMU. They dropped under $2 today and could fail tomorrow. The FDIC loves to clean these messes up on a Friday.
If the Fed decides to make a "No More Bailouts" statement tomorrow to Wall St. and decides not to lend AIG any money then I have one piece of advice: Run for your life!
Monday, September 15, 2008
What Happens Next?
That's the question I am asking myself today. The Fed is taking unprecedented actions today in order to keep the market working. Lehman officially went Bankrupt this morning:
"Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990."
Quick Take:
The fall out of the Lehman bankruptcy poses a huge risk to the derivatives default swap market. Bloomberg reported on this today:
"Sept. 15 (Bloomberg) -- Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.
Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.
``The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in an interview with Bloomberg Radio yesterday. ``It induces a tremendous amount of volatility and uncertainty.''
My take:
We will just have to wait and see how this all plays out. The market is holding steady after dropping 300 points. The uncertainty and fallout however has only just begun. It appears that saving Merrill has saved the financial system at least for now.
I just watched the Merrill/BofA love fest news conference on CNBC. What a charade that was. When asked if the Fed pressured BofA to do the deal, BofA's CEO replied by saying no and blabbered on about how much strategic sense it made to acquire Merrill.
In almost the next sentence, BAC's CEO admitted that discussions to acquire Merrill started only two days ago on Saturday. Yeah OK Mr. Lewis, I am sure there was no pressure by the Fed for you to spend $50 billion to acquire Merrill after only having only 2 days to look at their books.
There is no doubt in my mind that this deal was shoved down their throat. Remember, if Merrill went down today, all of the pigmen would have been in deep trouble.
Bottom Line:
I see nothing but a big love fest on CNBC and the other financial media markets today. Everyone is holding hands and pretending everything is just fine. Don't be fooled by this charade.
The Fed is pulling out all the stops from a liquidity standpoint in order to make this huge transition in our banking system a smooth one. Unfortunately, this means more manipulation in the markets which creates more uncertianty. I also understand why this had to be done.
I am proud that the Fed did not go into bailout mode this weekend. Kudos to Paulson for finally closing up his pocketbook. Lets hope this is a trend that continues. Its the only way Wall St. will learn a lesson.
The ramifications of what happened today will take weeks to play out. Hold onto your seats because its going to be a bumpy ride.
Things to look for:
Watch the credit agencies on AIG today. They are threatening to downgrade them if they don't find a huge infusion of capital. If they get downgraded, it will trigger another wave of massive writedowns. Also keep an eye on the CDS fallout. Lehman's balance sheet was around $600 billion.
It will take time to figure out who is most exposed to Lehman, and what the ramifications are of having one of the largest investment banks go BK.
The way I see it, this whole debt bubble is unraveling and it cannot be stopped at this point. Dive into some treasuries for awhile and hangout. This is no time to be bottom feeding.
"Sept. 15 (Bloomberg) -- Lehman Brothers Holdings Inc., the fourth-largest U.S. investment bank, succumbed to the subprime mortgage crisis it helped create in the biggest bankruptcy filing in history.
The 158-year-old firm, which survived railroad bankruptcies of the 1800s, the Great Depression in the 1930s and the collapse of Long-Term Capital Management a decade ago, filed a Chapter 11 petition with U.S. Bankruptcy Court in Manhattan today. The collapse of Lehman, which listed more than $613 billion of debt, dwarfs WorldCom Inc.'s insolvency in 2002 and Drexel Burnham Lambert's failure in 1990."
Quick Take:
The fall out of the Lehman bankruptcy poses a huge risk to the derivatives default swap market. Bloomberg reported on this today:
"Sept. 15 (Bloomberg) -- Bond-default risk soared worldwide as the collapse of Lehman Brothers Holdings Inc. sparked concern than the $62 trillion credit-derivatives market will unravel.
Benchmark gauges of corporate credit risk rose by a record in Europe, and traded near an all-time high in North America, driven by a rise in Goldman Sachs Group Inc., Morgan Stanley and American International Group. U.S. two-year Treasuries climbed, pushing yields below 2 percent for the first time since April, as investors sought the relative safety of government debt.
``The immediate problem is the derivative default swaps market, in which a plethora of institutional accounts and dealer accounts are at risk,'' Bill Gross, manager of the world's largest bond fund at Pacific Investment Management Co. in Newport Beach, California, said in an interview with Bloomberg Radio yesterday. ``It induces a tremendous amount of volatility and uncertainty.''
My take:
We will just have to wait and see how this all plays out. The market is holding steady after dropping 300 points. The uncertainty and fallout however has only just begun. It appears that saving Merrill has saved the financial system at least for now.
I just watched the Merrill/BofA love fest news conference on CNBC. What a charade that was. When asked if the Fed pressured BofA to do the deal, BofA's CEO replied by saying no and blabbered on about how much strategic sense it made to acquire Merrill.
In almost the next sentence, BAC's CEO admitted that discussions to acquire Merrill started only two days ago on Saturday. Yeah OK Mr. Lewis, I am sure there was no pressure by the Fed for you to spend $50 billion to acquire Merrill after only having only 2 days to look at their books.
There is no doubt in my mind that this deal was shoved down their throat. Remember, if Merrill went down today, all of the pigmen would have been in deep trouble.
Bottom Line:
I see nothing but a big love fest on CNBC and the other financial media markets today. Everyone is holding hands and pretending everything is just fine. Don't be fooled by this charade.
The Fed is pulling out all the stops from a liquidity standpoint in order to make this huge transition in our banking system a smooth one. Unfortunately, this means more manipulation in the markets which creates more uncertianty. I also understand why this had to be done.
I am proud that the Fed did not go into bailout mode this weekend. Kudos to Paulson for finally closing up his pocketbook. Lets hope this is a trend that continues. Its the only way Wall St. will learn a lesson.
The ramifications of what happened today will take weeks to play out. Hold onto your seats because its going to be a bumpy ride.
Things to look for:
Watch the credit agencies on AIG today. They are threatening to downgrade them if they don't find a huge infusion of capital. If they get downgraded, it will trigger another wave of massive writedowns. Also keep an eye on the CDS fallout. Lehman's balance sheet was around $600 billion.
It will take time to figure out who is most exposed to Lehman, and what the ramifications are of having one of the largest investment banks go BK.
The way I see it, this whole debt bubble is unraveling and it cannot be stopped at this point. Dive into some treasuries for awhile and hangout. This is no time to be bottom feeding.
Sunday, September 14, 2008
Timberrrrr
Good evening folks!
Just a quick update tonight. There is much to digest tonight so I don't want to get ahead of myself.
Anyone wanna play the card game 52 pickup? This is what Wall St. is essentially doing tonight as it tries to clean up this disaster. I am afraid Humpty Dumpty just had a great fall and we all know how that ended.
Here is what we know.
WSJ just confirmed to CNBC that Bank of America has agreed to purchase of Merrill Lynch at $29/share. Lehman looks to be headed into some type of bankruptcy. The details on this are still not out yet. Here is the most recent Bloomberg update. Please note that according to the Wall St. Journal, the Merrill deal is done.
A great question raised tonight by the CNBC panel is why did Bank of America pay such a high price for Merrill? They refused to buy Lehman at $1 but then they turn around and cough up a $29/share offer to Merrill?
This makes no sense. You know both of their balance sheets are a mess. All of these banks had Level 3 assets that if stacked in a pile would be taller than the Empire State Building. I don't see how Goldman makes it out of this mess when its all said and done.
Bottom Line:
I need a lot of time to see how this all goes down. The futures are now down over 300 points on the DOW. I expect a drop of 3-5% in the stock markets tomorrow.
Folks, I am stunned at how fast all of this is happening. The ramifications in the CDS market are my biggest concern. This is why AIG went down the toilet on Friday. They were the big CDS insurer on Wall St. Their exposure is $500 billion to financial derivatives. They need capital and they need it fast.
Guys, if this triggers a major explosion in the derivatives market, the financial system might be toast. The pigmen really did a number on themselves with this crisis. The ball is starting to gain steam rolling downhill and I don't see how these pigs can stop it. This is what happens when you create financial crisis and then constantly get bailed out by the Fed.
You keep pushing and pushing until you go too far. This is why the line of "moral hazard" must not be crossed. We are in uncharted territory folks. I have no idea what happens from here. The one thing I am sure of is you will see total chaos in the markets this week.
Hunker down in your financial bunker and ride out the storm. I will have much more on this tomorrow as I try to get my hands around it.
Major intervention and reforms will be needed because they aren't going to be able to put Humpty Dumpty back together again.
Just a quick update tonight. There is much to digest tonight so I don't want to get ahead of myself.
Anyone wanna play the card game 52 pickup? This is what Wall St. is essentially doing tonight as it tries to clean up this disaster. I am afraid Humpty Dumpty just had a great fall and we all know how that ended.
Here is what we know.
WSJ just confirmed to CNBC that Bank of America has agreed to purchase of Merrill Lynch at $29/share. Lehman looks to be headed into some type of bankruptcy. The details on this are still not out yet. Here is the most recent Bloomberg update. Please note that according to the Wall St. Journal, the Merrill deal is done.
A great question raised tonight by the CNBC panel is why did Bank of America pay such a high price for Merrill? They refused to buy Lehman at $1 but then they turn around and cough up a $29/share offer to Merrill?
This makes no sense. You know both of their balance sheets are a mess. All of these banks had Level 3 assets that if stacked in a pile would be taller than the Empire State Building. I don't see how Goldman makes it out of this mess when its all said and done.
Bottom Line:
I need a lot of time to see how this all goes down. The futures are now down over 300 points on the DOW. I expect a drop of 3-5% in the stock markets tomorrow.
Folks, I am stunned at how fast all of this is happening. The ramifications in the CDS market are my biggest concern. This is why AIG went down the toilet on Friday. They were the big CDS insurer on Wall St. Their exposure is $500 billion to financial derivatives. They need capital and they need it fast.
Guys, if this triggers a major explosion in the derivatives market, the financial system might be toast. The pigmen really did a number on themselves with this crisis. The ball is starting to gain steam rolling downhill and I don't see how these pigs can stop it. This is what happens when you create financial crisis and then constantly get bailed out by the Fed.
You keep pushing and pushing until you go too far. This is why the line of "moral hazard" must not be crossed. We are in uncharted territory folks. I have no idea what happens from here. The one thing I am sure of is you will see total chaos in the markets this week.
Hunker down in your financial bunker and ride out the storm. I will have much more on this tomorrow as I try to get my hands around it.
Major intervention and reforms will be needed because they aren't going to be able to put Humpty Dumpty back together again.
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