Just a quick note on today.
Well we avoided Black Friday after Reuters reported that the Fed might allow Fannie and Freddie to access the discount window. Stocks bounced on the rumor, and then faded at the end of the day. The Dow ended up down 128 points. Here is the Reuters article:
"WASHINGTON (Reuters) - Fannie Mae and Freddie Mac said on Friday that their finances were sufficiently sound to withstand the housing crisis as government officials scrambled to restore confidence in the country's two largest mortgage finance companies.
U.S. Treasury Secretary Henry Paulson indicated that a bailout of Fannie and Freddie was unlikely despite financial market concerns that the agencies, which finance nearly half of U.S. homes, may have trouble raising enough money to keep buying mortgages.
A key senator said the U.S. Federal Reserve was considering allowing Fannie and Freddie to borrow directly from the central bank, spurring speculation that the Fed may take action as early as this weekend. Fannie and Freddie shares, after taking a beating, recovered some of their earlier losses but ending lower on the day.
Sen. Christopher Dodd, the Connecticut Democrat who chairs the Senate Banking Committee, said he spoke with Fed Chairman Ben Bernanke and Paulson. Dodd said they were looking at various options, including opening access to the discount window, through which the Fed acts as a lender of last resort for the U.S. banking system.
Investors were worried that the mortgage agencies might run short of capital, placing the fragile U.S. economy at even greater risk and deepening the housing slump. Dodd sought to reassure investors about the health of the two companies."
Quick Take:
Well, we avoided a financial crash for the time being. This is a critical time for the Fed. Bernanke's legacy may be decided on how he reacts to the Fannie Freddie disaster. If these two GSE's fail then we face a systemic risk to the financial system.
Moral Hazard is seriously in play here. Ben won't be sleeping much this weekend.
Lets see what he and Paulson can come up with.
What a week! Stay tuned!
Friday, July 11, 2008
What a Morning! Financials Capitulating?
I wanted to jump on real quick with a note as the markets go haywire this morning. Fannie and Freddie are crashing on insolvency worries. Oil is also going through the roof on reports that Israel may be getting ready to attack Iran.
In case you woke up late, here is what happened this morning.
"July 11 (Bloomberg) -- U.S. stocks tumbled, extending the longest stretch of weekly losses for the Standard & Poor's 500 Index in four years, as oil jumped more than $5 a barrel and financial stocks fell on growing concern about the health of Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, each lost nearly half of their value, dragging down shares of Bank of America Corp., Washington Mutual Inc. and Wachovia Corp. Wal-Mart Stores Inc. and Walt Disney Co. declined after crude advanced to a record above $146 a barrel, leaving consumers with less money to spend as fuel bills increase.
The S&P 500 lost 15.9, or 1.3 percent, to 1,237.49 at 10:27 a.m. in New York, its lowest level in two years. The Dow Jones Industrial Average fell 161.7, or 1.4 percent, to 11,067.32. The Nasdaq Composite Index slid 26.83, or 1.2 percent, to 2,231.02. About three stocks fell for each that rose on the New York Stock Exchange.
``It's the worst of both worlds,'' said Matthew Kaufler, portfolio manager at Clover Capital Management Inc. in Rochester, New York, which oversees $2.7 billion. ``Watching two government- sponsored entities evaporate before our eyes from an equity perspective, and the damage that does to investor confidence on the one hand, and watching the price of oil, which is clearly meaningful from a consumer and business perspective, continue to escalate upward creates other pressures.''
Quick Take:
I am amazed at the speed at which Fannie and Freddie are falling apart. How the government decides to handle this problem will tell us a lot in terms of where we go from here.
Paulson and Bernanke will have some long sleepless nights this weekend. The sad thing is I don't know what they can do other than try to keep this crash orderly. Paulson's statement was bland today because they are trying to figure out what in the hell to do.
Stocks are deep in the red. The financials seem to be capitulating. Anyone short in this sector might want to take some profits due to the threat of a huge bounce based on government intervention.
I really don't know what to say here folks. I am speechless. Oil, financials, Fannie and Freddie. we are witnessing unbelievable destruction today. If Fannie and Freddie go under there is no housing market so I assume the government will do something to keep them alive.
Remember folks, no bank wants to do loans without the government backing of Fannie or Fannie. Expect interest rates to shoot up to the 9-10% area if a solution to the Fannie and Freddie situation isn't found.
Whats scary is I still don't see market capitulation! Until this happens we are going lower. The debt bubble is blowing up.
DOW 9000 at some point? Its not out of the question.
Stay tuned.
In case you woke up late, here is what happened this morning.
"July 11 (Bloomberg) -- U.S. stocks tumbled, extending the longest stretch of weekly losses for the Standard & Poor's 500 Index in four years, as oil jumped more than $5 a barrel and financial stocks fell on growing concern about the health of Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac, the largest buyers of U.S. home loans, each lost nearly half of their value, dragging down shares of Bank of America Corp., Washington Mutual Inc. and Wachovia Corp. Wal-Mart Stores Inc. and Walt Disney Co. declined after crude advanced to a record above $146 a barrel, leaving consumers with less money to spend as fuel bills increase.
The S&P 500 lost 15.9, or 1.3 percent, to 1,237.49 at 10:27 a.m. in New York, its lowest level in two years. The Dow Jones Industrial Average fell 161.7, or 1.4 percent, to 11,067.32. The Nasdaq Composite Index slid 26.83, or 1.2 percent, to 2,231.02. About three stocks fell for each that rose on the New York Stock Exchange.
``It's the worst of both worlds,'' said Matthew Kaufler, portfolio manager at Clover Capital Management Inc. in Rochester, New York, which oversees $2.7 billion. ``Watching two government- sponsored entities evaporate before our eyes from an equity perspective, and the damage that does to investor confidence on the one hand, and watching the price of oil, which is clearly meaningful from a consumer and business perspective, continue to escalate upward creates other pressures.''
Quick Take:
I am amazed at the speed at which Fannie and Freddie are falling apart. How the government decides to handle this problem will tell us a lot in terms of where we go from here.
Paulson and Bernanke will have some long sleepless nights this weekend. The sad thing is I don't know what they can do other than try to keep this crash orderly. Paulson's statement was bland today because they are trying to figure out what in the hell to do.
Stocks are deep in the red. The financials seem to be capitulating. Anyone short in this sector might want to take some profits due to the threat of a huge bounce based on government intervention.
I really don't know what to say here folks. I am speechless. Oil, financials, Fannie and Freddie. we are witnessing unbelievable destruction today. If Fannie and Freddie go under there is no housing market so I assume the government will do something to keep them alive.
Remember folks, no bank wants to do loans without the government backing of Fannie or Fannie. Expect interest rates to shoot up to the 9-10% area if a solution to the Fannie and Freddie situation isn't found.
Whats scary is I still don't see market capitulation! Until this happens we are going lower. The debt bubble is blowing up.
DOW 9000 at some point? Its not out of the question.
Stay tuned.
Thursday, July 10, 2008
Foreclosure Activity Rises to Highest levels Since the 1930's
Good Afternoon!
Anyone feel like they just got off a roller coaster after watching the markets today? Fannie and Freddie continue to be center stage. Paulson and Bernanke were again out barking that both are safe and the government will be there if capital issues arise.
The big question is slowly becoming are Fannie and Freddie too big too fail? I gave you my answer last night. The government will ensure their survival, but that doesn't mean they cannot fail on Wall St.
I will reinforce what I said yesterday. The government will not take on $5 trillion in "bubble debt". This is the amount of housing debt that these two Ponzi machines have ran up. Our government is not that stupid.
Back to today. So Paulson and Benanke were grilled by Congress this morning. They answered many tough questions with the same "everything will be ok" rhetoric that they did yesterday.
They gave no firm data on why they think Fannie and Freddie are well capitalized. They also failed to explain exactly how they plan on saving these two GSE's if they do begin to fail. I believe their failure is inevitable as private entities.
I mean lets look at the foreclosure data that was released today:
"Foreclosures Rose 53% in June, Bank Seizures Tripled
July 10 (Bloomberg) -- U.S. foreclosure filings increased 53 percent in June from a year earlier and bank seizures rose the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes.
More than 252,000 properties, or one in 501 U.S. households, entered a stage of the foreclosure process, RealtyTrac Inc., a seller of default data, said today in a statement. Bank seizures rose 171 percent, the most since the Irvine, California-based company began tracking statistics on default notices, warnings of a scheduled auction and repossessions in January 2005.
``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.''
Foreclosure activity is the highest since the Great Depression of the 1930s, said Rick Sharga, RealtyTrac's vice president of marketing. Home prices, which fell the most on record in April, according to the S&P/Case-Shiller index of 20 U.S. metropolitan areas, have created a cycle where shrinking equity drives homeowners into foreclosure, which in turn further pushes down home prices, Sharga said."
My Take:
Yeah right Mr. Bernanke, everything will be just fine. Give me a break. It doesn't take a brain surgeon to realize that the above data shows that the housing market is on the brink of collapsing . Foreclosure activity hasn't been this bad since The Great Depression!
How can they be so confident that Fannie and Freddie are fine when housing is literally self destructing as we speak?
Banks are grabbing homes at the highest rates on record. Prices are free falling, the credit markets remain frozen. Paulson and Bernanke are starting to look like fools as they try to calm the sheeple. Plain and simple.
Notice the statement by Mark Zandi above explaining that foreclosures are worsening and will stay with us until the next decade.
What happened to the second half recovery that Wall St. promised us?? HA! What a joke! Now we are hearing that this will last well into the next decade. What does that mean? 2015 or 2016?
Remember folks, the economy will not grow to any large degree without housing and Wall St. Bank of America's Ken Lewis said in his speech yesterday that he saw the housing issue being with us until 2013.
You are slowly but surely hearing the reality of the housing story. Its going to be a long, slow, painful process before housing begins to recover.
Rick Santelli
This is one of the few guys that I love on Bubblevision. The bond guys tell you the real story on Wall St. He made a great point on the Fannie/Freddie debt today from a bond traders perspective.
He explained the reason spreads are widening on this debt is because the bond market believes that Fannie and Freddie will get buried before Congress gets a chance to act and help.
He also explained that Fannie and Freddie came too late to the capital raising party which is making traders even more skeptical about Fannie and Freddie's future as private entities.
You see, the SWF's and big money guys threw billions and billions to Wall St. over the past year when all the firms raised capital. They were then pummeled by losses as the financials continued to lose billions and watched their share prices plummet.
So ask yourself this question if you were a big money wealth fund that has already been burned by throwing billions at Wall St.:
If Fannie and Freddie came to you asking for capital so that they could continue to do loans in a housing market thats in the midst of the biggest collapse since The Great Depression what would you say? Ahhh No?
So the bond market is asking the logical question: Where is the money going to come from if the big money guys are out of the game? Its pretty obvious Fannie and Freddie's next stop will be Washington DC. The bond traders think that by the time help arrives it will be too late.
These companies are in deep trouble as private entities, and there is no obvious answer as to how this plays out.
Bottom Line:
The foreclosure data today was horrific and took us another step closer to The Housing Time Bomb.
2016 can't come fast enough.
Anyone feel like they just got off a roller coaster after watching the markets today? Fannie and Freddie continue to be center stage. Paulson and Bernanke were again out barking that both are safe and the government will be there if capital issues arise.
The big question is slowly becoming are Fannie and Freddie too big too fail? I gave you my answer last night. The government will ensure their survival, but that doesn't mean they cannot fail on Wall St.
I will reinforce what I said yesterday. The government will not take on $5 trillion in "bubble debt". This is the amount of housing debt that these two Ponzi machines have ran up. Our government is not that stupid.
Back to today. So Paulson and Benanke were grilled by Congress this morning. They answered many tough questions with the same "everything will be ok" rhetoric that they did yesterday.
They gave no firm data on why they think Fannie and Freddie are well capitalized. They also failed to explain exactly how they plan on saving these two GSE's if they do begin to fail. I believe their failure is inevitable as private entities.
I mean lets look at the foreclosure data that was released today:
"Foreclosures Rose 53% in June, Bank Seizures Tripled
July 10 (Bloomberg) -- U.S. foreclosure filings increased 53 percent in June from a year earlier and bank seizures rose the most on record as deteriorating property values and higher rates on adjustable mortgages forced more people to give up their homes.
More than 252,000 properties, or one in 501 U.S. households, entered a stage of the foreclosure process, RealtyTrac Inc., a seller of default data, said today in a statement. Bank seizures rose 171 percent, the most since the Irvine, California-based company began tracking statistics on default notices, warnings of a scheduled auction and repossessions in January 2005.
``The foreclosure problem is getting worse and will stay with us well into the next decade,'' Mark Zandi, chief economist for Moody's Economy.com in West Chester, Pennsylvania, said in an interview. ``The job market is eroding and homeowners have less equity. Lenders are much less willing to work with you if you've got negative equity, and you're more likely to give up your house if you're deeply underwater.''
Foreclosure activity is the highest since the Great Depression of the 1930s, said Rick Sharga, RealtyTrac's vice president of marketing. Home prices, which fell the most on record in April, according to the S&P/Case-Shiller index of 20 U.S. metropolitan areas, have created a cycle where shrinking equity drives homeowners into foreclosure, which in turn further pushes down home prices, Sharga said."
My Take:
Yeah right Mr. Bernanke, everything will be just fine. Give me a break. It doesn't take a brain surgeon to realize that the above data shows that the housing market is on the brink of collapsing . Foreclosure activity hasn't been this bad since The Great Depression!
How can they be so confident that Fannie and Freddie are fine when housing is literally self destructing as we speak?
Banks are grabbing homes at the highest rates on record. Prices are free falling, the credit markets remain frozen. Paulson and Bernanke are starting to look like fools as they try to calm the sheeple. Plain and simple.
Notice the statement by Mark Zandi above explaining that foreclosures are worsening and will stay with us until the next decade.
What happened to the second half recovery that Wall St. promised us?? HA! What a joke! Now we are hearing that this will last well into the next decade. What does that mean? 2015 or 2016?
Remember folks, the economy will not grow to any large degree without housing and Wall St. Bank of America's Ken Lewis said in his speech yesterday that he saw the housing issue being with us until 2013.
You are slowly but surely hearing the reality of the housing story. Its going to be a long, slow, painful process before housing begins to recover.
Rick Santelli
This is one of the few guys that I love on Bubblevision. The bond guys tell you the real story on Wall St. He made a great point on the Fannie/Freddie debt today from a bond traders perspective.
He explained the reason spreads are widening on this debt is because the bond market believes that Fannie and Freddie will get buried before Congress gets a chance to act and help.
He also explained that Fannie and Freddie came too late to the capital raising party which is making traders even more skeptical about Fannie and Freddie's future as private entities.
You see, the SWF's and big money guys threw billions and billions to Wall St. over the past year when all the firms raised capital. They were then pummeled by losses as the financials continued to lose billions and watched their share prices plummet.
So ask yourself this question if you were a big money wealth fund that has already been burned by throwing billions at Wall St.:
If Fannie and Freddie came to you asking for capital so that they could continue to do loans in a housing market thats in the midst of the biggest collapse since The Great Depression what would you say? Ahhh No?
So the bond market is asking the logical question: Where is the money going to come from if the big money guys are out of the game? Its pretty obvious Fannie and Freddie's next stop will be Washington DC. The bond traders think that by the time help arrives it will be too late.
These companies are in deep trouble as private entities, and there is no obvious answer as to how this plays out.
Bottom Line:
The foreclosure data today was horrific and took us another step closer to The Housing Time Bomb.
2016 can't come fast enough.
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