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11 Miners report this week, Bullwinkles list /
Agree, could you post it @ Chichi2.
TY
W@G1 QQQQ 10/29/07 for a 10/31/07 close
55.00 bob3
54.49 frenchee
53.93 The Cap'm
Got Gold Report - Gold, Silver Bears Nervous
By Gene Arensberg
28 Oct 2007 at 03:00 PM
HOUSTON (ResourceInvestor.com) -- A short covering surge took gold on a $16 Friday (10/26) hop to the $780s confounding bloodied and increasingly nervous underwater gold bears who were no doubt expecting help in the form of either official intervention in the foreign exchange markets or in the gold market itself, or both. Evidently they got neither, because if there was official intervention or attempted manipulation it just plain wasn’t enough to overcome escalating demand for both of the most popular precious metals, gold and silver.
Gold and silver bears usually have help sooner or later when the price of the metals looks like it might run a bit too far too fast. This report chooses to view government intervention as one more source of supply, one more market force, albeit a diminishing one as more and more global investors join the ranks of the unofficial gold ownership alliance. Whether or not one believes in government sponsored manipulation of the gold market, Chris Powell’s remarks at the New Orleans Investment Conference on Sunday, October 21, are certainly worth a look. Powell is the Secretary/Treasurer of the Gold Anti-Trust Action Committee Inc. (GATA).
“Gold has been manipulated by central banks because it is a currency that competes with their currencies, a currency whose price helps set the price of government currencies and helps determine interest rates,” Powel said after listing compelling supporting evidence.
Powell went on to say why GATA believes that governments and central banks seek to suppress or control the price of the metal.
“More than that, gold is the ticket out of the central bank system, the escape from coercive central bank and government power. As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply.”
In a sense central bankers have to view gold as the proverbial canary in the mineshaft. When gold gets too high too fast their currency confidence canary is getting sick and listless and they know they need to pump oxygen in for the current fiat currency system to keep breathing. (So as not to undermine confidence in the world’s under-backed paper currencies).
Because of the continued dilution of paper currencies worldwide and growing concern that governments will continue to competitively weaken their own mediums of exchange, over time it takes more and more “oxygen” (more and more intervention) in order to achieve results so they have to now be content with attempting to control the pace of gold revaluation. It’s obvious that gold is undervalued as measured in today’s paper, the central bankers just don’t want the price of gold to move so fast that it gets noticed in the mainstream press. They would much prefer to see the revaluation proceed in an orderly fashion.
We should expect that “official sector action” will continue to show up from time to time in the gold market. We just can’t know in advance when. But if current, escalating trends continue along the same path they are on today (increasing global investment/safe haven interest in gold versus decreasing official sector ability to maintain stable gold price escalation) we are nearing the point where the global currency confidence mine managers just won’t have enough “oxygen” to keep everyone in the currency mineshaft from noticing that the canary is lying prone, feet upward and not breathing.
In this report, we note that COMEX commercial traders remain net short in near record proportions, but actually reduced their net short positioning as of Tuesday 10/23 when gold was trading near $760. Gold is $25 higher now, and it’s looking more and more like November of 2005, isn’t it? (Details below in the COT Changes section).
Despite reportedly robust physical metal demand for both gold and silver locally and regionally only modest positive money flow showed up for gold ETFs and liquidity-driven money flow has been flat for the silver ETF all month. Yet silver prices attempted a hint of a secondary breakout toward the end of the week. (Read more in the Gold ETF and Silver ETF sections below).
Mining shares continue to struggle to keep pace with gold relatively speaking which is worrisome very short term, but they haven’t shown a telltale big-money exodus spike lower either. So if they are not exactly signaling supreme confidence they also aren’t signaling the opposite, at least not yet. All that within the context of new all time lows for the U.S. dollar index diligent readers will find more about below.
Bottom line for this report is that we have to keep short term caution flags flying because of the near all-time record net short position held today by the largest and most influential futures traders on the planet and by the increasing risk of official sector intervention most any time. However, just as we noted in the last report two weeks ago: “… momentum has shifted in favor of the gold and silver bulls short term as breakouts for both the metals and mining shares are trying to confirm and if those betting on the short side don’t get a break soon, they’ll be adding to the fuel to power both gold and silver much higher in the coming weeks as they are forced to cover those downside bets.
Should the dollar rally strongly (it might) and should gold and silver stage a more meaningful pullback it is this report’s intention to continue to add into significant to strong dips, but always with reasonable new-trade trailing stops for protection. As each week passes we get closer to the inevitable groundswell flood of global investor wealth into precious metals as more and more of the world’s major players tire of consistently devalued paper currencies, opting instead for the only real money there is. Got gold?”
On to some of the indicators.
Much More: http://www.resourceinvestor.com/pebble.asp?relid=37198
Got Gold Report - Gold, Silver Bears Nervous
By Gene Arensberg
28 Oct 2007 at 03:00 PM
HOUSTON (ResourceInvestor.com) -- A short covering surge took gold on a $16 Friday (10/26) hop to the $780s confounding bloodied and increasingly nervous underwater gold bears who were no doubt expecting help in the form of either official intervention in the foreign exchange markets or in the gold market itself, or both. Evidently they got neither, because if there was official intervention or attempted manipulation it just plain wasn’t enough to overcome escalating demand for both of the most popular precious metals, gold and silver.
Gold and silver bears usually have help sooner or later when the price of the metals looks like it might run a bit too far too fast. This report chooses to view government intervention as one more source of supply, one more market force, albeit a diminishing one as more and more global investors join the ranks of the unofficial gold ownership alliance. Whether or not one believes in government sponsored manipulation of the gold market, Chris Powell’s remarks at the New Orleans Investment Conference on Sunday, October 21, are certainly worth a look. Powell is the Secretary/Treasurer of the Gold Anti-Trust Action Committee Inc. (GATA).
“Gold has been manipulated by central banks because it is a currency that competes with their currencies, a currency whose price helps set the price of government currencies and helps determine interest rates,” Powel said after listing compelling supporting evidence.
Powell went on to say why GATA believes that governments and central banks seek to suppress or control the price of the metal.
“More than that, gold is the ticket out of the central bank system, the escape from coercive central bank and government power. As an independent currency, a currency to which investors can resort when they are dissatisfied with government currencies, gold carries the enormous power to discipline governments, to call them to account for their inflation of the money supply.”
In a sense central bankers have to view gold as the proverbial canary in the mineshaft. When gold gets too high too fast their currency confidence canary is getting sick and listless and they know they need to pump oxygen in for the current fiat currency system to keep breathing. (So as not to undermine confidence in the world’s under-backed paper currencies).
Because of the continued dilution of paper currencies worldwide and growing concern that governments will continue to competitively weaken their own mediums of exchange, over time it takes more and more “oxygen” (more and more intervention) in order to achieve results so they have to now be content with attempting to control the pace of gold revaluation. It’s obvious that gold is undervalued as measured in today’s paper, the central bankers just don’t want the price of gold to move so fast that it gets noticed in the mainstream press. They would much prefer to see the revaluation proceed in an orderly fashion.
We should expect that “official sector action” will continue to show up from time to time in the gold market. We just can’t know in advance when. But if current, escalating trends continue along the same path they are on today (increasing global investment/safe haven interest in gold versus decreasing official sector ability to maintain stable gold price escalation) we are nearing the point where the global currency confidence mine managers just won’t have enough “oxygen” to keep everyone in the currency mineshaft from noticing that the canary is lying prone, feet upward and not breathing.
In this report, we note that COMEX commercial traders remain net short in near record proportions, but actually reduced their net short positioning as of Tuesday 10/23 when gold was trading near $760. Gold is $25 higher now, and it’s looking more and more like November of 2005, isn’t it? (Details below in the COT Changes section).
Despite reportedly robust physical metal demand for both gold and silver locally and regionally only modest positive money flow showed up for gold ETFs and liquidity-driven money flow has been flat for the silver ETF all month. Yet silver prices attempted a hint of a secondary breakout toward the end of the week. (Read more in the Gold ETF and Silver ETF sections below).
Mining shares continue to struggle to keep pace with gold relatively speaking which is worrisome very short term, but they haven’t shown a telltale big-money exodus spike lower either. So if they are not exactly signaling supreme confidence they also aren’t signaling the opposite, at least not yet. All that within the context of new all time lows for the U.S. dollar index diligent readers will find more about below.
Bottom line for this report is that we have to keep short term caution flags flying because of the near all-time record net short position held today by the largest and most influential futures traders on the planet and by the increasing risk of official sector intervention most any time. However, just as we noted in the last report two weeks ago: “… momentum has shifted in favor of the gold and silver bulls short term as breakouts for both the metals and mining shares are trying to confirm and if those betting on the short side don’t get a break soon, they’ll be adding to the fuel to power both gold and silver much higher in the coming weeks as they are forced to cover those downside bets.
Should the dollar rally strongly (it might) and should gold and silver stage a more meaningful pullback it is this report’s intention to continue to add into significant to strong dips, but always with reasonable new-trade trailing stops for protection. As each week passes we get closer to the inevitable groundswell flood of global investor wealth into precious metals as more and more of the world’s major players tire of consistently devalued paper currencies, opting instead for the only real money there is. Got gold?”
On to some of the indicators.
Much More: http://www.resourceinvestor.com/pebble.asp?relid=37198
Buzz Cloud ( New on Home page )
http://investorshub.advfn.com/boards/tcloud.asp
Fleck: Tech stocks' pain proves they're vulnerable, too
By Bill Fleckenstein
10/29/2007 12:01 AM ET
Last Tuesday, based on the increasingly bizarre action of the market, I wrote in my daily "Market Rap" column: "I don't see how the four horseflies -- aka the four horsemen: Apple (AAPL, news, msgs), Amazon.com (AMZN, news, msgs), Google (GOOG, news, msgs) and Research In Motion (RIMM, news, msgs) -- and the other handful of momentum stocks can carry the market higher by themselves. . . . It will be interesting to learn the identity of the event that finally hits tech stocks over the head with a 2-by-4, making folks understand that they, too, will be vulnerable in a recession."
Was that message definitively delivered Wednesday, when tech stocks were roughed up? Given the sector's hardy resistance to reality, it's too soon to say. (And ambivalence was thrown into the mix when stocks rallied late in the session.) But one thing is for sure. Wall Street has been buying tech stocks on the belief that they are the place to be.
And, for a long enough time, folks have been able to keep the stocks up. They've performed well -- unlike the earnings reports from many companies behind the stocks -- so the dead fish, the fools who listen to them and the computers that wind up buying the back-tested version of what other folks do, all have feasted on tech.
A new leaf of grief
As to where we stand in the truth timeline, I do think Tuesday's action in semiconductor-oriented stocks may be meaningful. To wit, amid the buying frenzy that day, not only was Texas Instruments (TXN, news, msgs) down 10% (on the back of disappointing results), but it started to weigh on the other chip companies as well. For once, bulls did not pronounce the news to be company-specific.
More importantly, the semiconductor-equipment stocks, which have ignored bad news for about a year now, also were weak. That was the first time in at least a year that semiconductor-oriented stocks were under pressure in a tape that was otherwise strong. In fact, they've hardly been weak in a weak tape. Thus, I view that day's market action as an important juncture in the process whereby folks come to understand that technology does not soar unscathed above the recession at hand. Which I think may be an indication that the entire stock market is finally vulnerable.
Bulls suck the venom out of 'recession'
Another market observer on the lookout is Justin Mamis, who penned a spot-on, tongue-in-cheek description of that common misconception: Bulls "are willing, graciously, to concede that housing is already in a recession. A 'recession' has quickly lost its Victorian unspeakable-word status -- if Lenny Bruce were still around, he could readily use it without being accused of talking dirty. Ah, but such a recession will not be in technology (that's the youngsters at play)."
Of course, there is no sin of denial on the part of the Lord of the Dark Matter, whose postings on the mortgage-paper unwind will be familiar to my regular readers. The problems continue to worsen, he notes. But people keep giving him the same silly line, that it's all been discounted, which is a variation of "it's contained." He says that there are more dark-matter downgrades to come and that some of the insurers of credit may find themselves in serious trouble as credits go bad. He points out that if the insurers get into trouble, then all of the credits they insure obviously will worsen.
For those who don't know, there is an absolute mountain of paper that trades where it does only because it has insurance. Sort of like the paper that traded where it did because it was supposedly AAA, and that rating turned out to be worthless. Any AAA, AA, A or whatever rating that's based on insurance may not be worth the paper it's written on.
Barf went the Merrill bull
It's a lesson that hit Merrill Lynch (MER, news, msgs) hard. Witness the subprime fallout behind the company's sobering third-quarter earnings report. Merrill wrote down about $5.8 billion of $14.2 billion in what's known as super-senior subprime assets -- the stuff that's supposedly above AAA and bulletproof.
When asked on the conference call if everything was marked where it could be sold, there was no answer, leaving folks with the idea that there was plenty of stuff still marked to model. And you can be sure that if Merrill Lynch has this problem of potentially mismarked paper, so do all of the brokers and probably some of the big banks. This is a huge deal. (Memo to nonbelievers: The problem is spreading, it has not been discounted and it has not been contained.)
To end on a more positive theme: If you think of the return to sanity as a positive development, there's reason to be encouraged by Investors Intelligence's report, which recorded the most lopsided sentiment reading in many years. Last week, bulls stood at 62% and bears at about 19%. For anyone who's been around the stock market for any length of time, that is a clear warning sign.
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/TechStocksPainProvesTheyreVulnerableToo.aspx
Mauldin: As the Subprime Turns [+ Gold ]
by John Mauldin
October 27, 2007
As the World Turns is a popular soap opera playing on American TV. It focuses, as do most soaps, on the lives and foibles of its characters, with plenty of dramatic flair. We are watching a different type of soap opera today which we could call "As the Subprime Turns. And the world is watching. It has plenty of drama, lots of flawed characters, a plot that is hard to understand, everyone saying it was the other guys fault and the world (literally) paying for the sins of exuberance in the US.
In this week's letter we look at the housing markets, its affect on consumer spending, take a glance at oil and see if we can figure out why the stock market is so excited.
But first, let me re-visit last week's letter where I talked about the $80 billion Super SIV fund that is being created by Citigroup, Bank of American and JP Morgan Chase. A lot of commentators have been writing about what a bad idea it is, and a few have taken me to task. They think it is a bad idea to rescue bad investments. They want the market to clean out the bad stuff so we can start functioning again.
And I agree, but that is not what the fund is going to do, as I understand it. The Super SIV fund is simply offering to buy only the good assets in failed SIVs. In essence, they (and the US Treasury) are worried that there will be a rush to the exits from failing SIVs (mostly in Europe) that will result in a panic forcing down the prices of good assets far below where they should be. That could seriously affect the capital structure of US banks and create a severe credit crunch. This fund simply sets a floor for the price of good assets at $.94 cents in cash and a 4% note.
They are not going to take the subprime junk. That is going to have to be written off by whoever owns it. This does not seem like a bail-out to me, but self-interested parties in a free market whose interest is in avoiding a panic and also will allow a mark to market price for assets. I think it makes sense.
If I am wrong and any of the toxic subprime assets show up in the Super SIV, then I would agree that it is a very bad idea indeed. Anyone who wants to read my entire take on the SIV problems and missed it last week can go to http://www.2000wave.com/article.asp?id=mwo101907
"The Market for New Homes is Dead"
Consumer sentiment continued its 17 month decline, dropping in the University of Michigan poll to under 81. And the consumer has a reason to be bummed out. He is watching the price of food and energy rise and home prices fall.
Existing home sales fell to an annualized rate of 5 million while the number of homes for sale rose to a 10.5 month supply. Sales are down 19% from a year ago, but much of that drop is in the last few months, as there was an 8% drop in just the last month, as loans (see more below) keep getting harder to find. If you are trying to sell a condominium, it is even worse. There is a 12.6 months supply of condos.
But we also found out yesterday that median prices for homes that sold were down by 5%. It is the first real sign that homeowners were willing to sell for less. Typically home owners don't want to sell for less than the best price they have recently heard for their home. And as they resist lowering their price, the inventory goes up.
And that is the national number. There are markets in Florida where the supply of homes for sale is in the 36 month range. And we are adding more homes every day through foreclosures.
But wait. We find out that new home sales rose by 4.8%. Inventories are down modestly to 8.3 months of supply, but up from the 3.5 months of supply we saw this time last year. Have we seen the bottom? Depends on how you look at the data.
New home sales for September came in at 770,000. Last month they told us August sales were 795,000. So how did they figure an almost 5% rise? Well, it seems they had to revise August sales down by 60,000 as August was really only 735,000. And there is a pattern here. June was revised down by 38,000. July was revised down by 69,000. Cancellations are running at 30%. Anyone care to wager that September numbers won't be revised down below August? And then we will find out that home sales did in fact drop.
If there was such a reckless person, it probably wouldn't be someone from the housing industry. The National Association of Home Builders released their latest survey. This is not a happy group. The index is at its lowest point ever (see chart below). Homebuilder optimism is down. Traffic (people looking to buy a new home) is at its lowest level ever.
As Economy.com says this week, "The market for new homes is dead for all practical purposes. Eighteen is the lowest rating in the history of the index. The seasonally adjusted numbers are also the lowest on record for October for every subcategory, as they have been for each month since spring began. The bottom of this market will not be reached until there is another significant decline in the cost to prospective buyers, both in house prices and mortgage rates."
Why are things so bad? In part, because the home mortgage industry is reeling. It is very difficult to get a non-conforming loan. The subprime mortgage market is comatose, as any mortgage bank which makes a loan today has to expect to keep it on their books. Lending standards are then appropriately tight. There is simply no securitization of subprime loans to speak of, down from $600 billion last year.
And for good reason. As is now known to everyone, investing in subprime asset backed securities had been a bad bet. An index which tracks Residential Mortgage Backed Securities shows that the BBB- index for RMBS is down to $.18 cents on the dollar. And this was for mortgages in a security that was sold earlier this year. Being down 82% in less than a year is not what you expect from an investment grade bond. (www.markit.com)
The AAA portion of the same bonds are down by 16% and the AA is down by an astounding 48% with the A rated paper down by 71%. Again, that is for an index of 20 RMBS that was put together and sold this year. Ugly.
Mortgage Pig of the Year
And a great illustration of how really bad it is was written by Allan Sloan (senior editor-at-large for Fortune) in this week's Fortune. It is simply the best explanation of the current meltdown in the subprime market I have read anywhere. I am going to five you a brief summary, but you can read it for yourself in the October 29 Fortune, or at this link: http://money.cnn.com/
Sloan asked for someone to show him one of the worst of the RMBS. He was directed to one called the Goldman Sachs Alternative Mortgage Products Trust 2006-3. It was a mere $494 million, or about 1% of the $500 billion RMBS's that were issued last year.
It does qualify for pig of the year. It was composed entirely of second lien loans.
But let's go the story and let Sloan tell it. "In the spring of 2006, Goldman assembled 8,274 second-mortgage loans originated by Fremont Investment & Loan, Long Beach Mortgage Co., and assorted other players. More than a third of the loans were in California, then a hot market. It was a run-of-the-mill deal, one of the 916 residential mortgage-backed issues totaling $592 billion that were sold last year.
"The average equity that the second-mortgage borrowers had in their homes was 0.71%. (No, that's not a misprint - the average loan-to-value of the issue's borrowers was 99.29%.)
"It gets even hinkier. Some 58% of the loans were no-documentation or low-documentation. This means that although 98% of the borrowers said they were occupying the homes they were borrowing on - "owner-occupied" loans are considered less risky than loans to speculators - no one knows if that was true. And no one knows whether borrowers' incomes or assets bore any serious relationship to what they told the mortgage lenders.
"You can see why borrowers lined up for the loans, even though they carried high interest rates. If you took out one of these second mortgages and a typical 80% first mortgage, you got to buy a house with essentially none of your own money at risk. If house prices rose, you'd have a profit. If house prices fell and you couldn't make your mortgage payments, you'd get to walk away with nothing (or almost nothing) out of pocket. It was go-go finance, very 21st century."
Now as my long time readers know, these securities are sliced up into different portions called a tranche (which Sloan tells me is French for slice, something I didn't know). Goldman created 13 different tranches with ratings from Moody's and Standard and Poor's starting at AAA and going down to BB (and the last piece or the "equity" tranche is not rated. Six of those tranches have already been completely written off. The AA tranche is now considered junk. Look at the chart below which shows fast the losses started piling up from a start point just 18 months ago.
And that average loan to value of 1% is under water with home prices down at least 10% in those California and Florida markets and going lower. But it gets worse. You wonder if the people buying this paper actually read the prospectus on what they were buying. Back to Sloan:
"Through the end of 2005, if you couldn't make your mortgage payments, you could generally get out from under by selling the house at a profit or refinancing it. But in 2006 we hit an inflection point. House prices began stagnating or falling in many markets. Instead of HPA - industry shorthand for house-price appreciation - we had HPD: house-price depreciation.
"Interest rates on mortgages stopped falling. Way too late, as usual, regulators and lenders began imposing higher credit standards. If you had borrowed 99%-plus of the purchase price (as the average GSAMP borrower did) and couldn't make your payments, couldn't refinance, and couldn't sell at a profit, it was over. Lights out.
"As a second-mortgage holder, GSAMP couldn't foreclose on deadbeats unless the first-mortgage holder also foreclosed. That's because to foreclose on a second mortgage, you have to repay the first mortgage in full, and there was no money set aside to do that. So if a borrower decided to keep on paying the first mortgage but not the second, the holder of the second would get bagged.
"If the holder of the first mortgage foreclosed, there was likely to be little or nothing left for GSAMP, the second-mortgage holder. Indeed, the monthly reports issued by Deutsche Bank (Charts), the issue's trustee, indicate that GSAMP has recovered almost nothing on its foreclosed loans.
"By February 2007, Moody's and S&P began downgrading the issue. Both agencies dropped the top-rated tranches all the way to BBB from their original AAA, depressing the securities' market price substantially.
In March, less than a year after the issue was sold, GSAMP began defaulting on its obligations. By the end of September, 18% of the loans had defaulted, according to Deutsche Bank.
"As a result, the X tranche, both B tranches, and the four bottom M tranches have been wiped out, and M-3 is being chewed up like a frame house with termites. At this point, there's no way to know whether any of the A tranches will ultimately be impaired."
I just touched the surface of this article. It is well worth reading. But it illustrates why no subprime paper is going to be written for some time. There are going to have to be new standards for mortgages that will create the confidence in the probability that an investor will get all the principal and interest due him.
It also means that the weak housing market is going to get worse before we see the bottom. Two million homes will go into foreclosure in the next two years, if home prices continue to slump, said a report released by Joint Economic Committee Chairman Senator Charles Schumer. Home ownership rates are beginning to decline for the first time since 1981.
The ownership rate reached a record 69.3% of households in 2004, up from 64% a decade earlier. With home prices soaring, net household wealth nearly doubled to $51.8 trillion at the end of 2005 from $27.6 trillion in 1995, with real-estate accounting for 47 percent of the change, according to Federal Reserve data.
That growth has boosted consumer confidence and spending. Studies show that consumer spending increases by about $5 for every $100 rise in the value of a consumer's home. But if home values decline, the reverse should happen.
When the Going Get Rough, Simply Borrow More
Next week's Outside the Box will be from my friends at Hoisington Investment Management Company. But I have to use one of the tables as it makes a very remarkable point. Most of us (including me) have been under the impression that Home Equity Mortgage Withdrawals have been on the serious decline. But that is not entirely the case as the table below shows.
"First, home equity cash outs, as tabulated by Freddie Mac, totaled $151 billion, or an amount equal to 50% of the rise in total consumer spending (PCE) during the initial two quarters of 2007. Not all of the proceeds of the equity extractions went toward consumer spending, yet the total sum was a substantial source of liquidity for the consumer. More amazing, perhaps, is the fact that over the past 5 1/2 years, $1.1 trillion in equity has been extracted from homes. This represents 46% of the increase in total consumer spending over the same period (Table 2). The tightening of credit standards and declining home prices will virtually guarantee that $1.1 trillion will not be extracted in the next few years. Consequently, slower consumer outlay growth can be expected for an extended period."
$100 Oil and $1,000 Gold
I wrote in August of 2006 that $100 oil would be the solution and not the problem. It will cause people to look for substitute energy sources. However, I did not think we would see $100 oil so soon. I was asking in January of this year, with oil bouncing around the mid-50's (down from a recent $77) whether oil should be $40 or $80? Today, oil hit $92 before selling off a little at the close to $91.86.
Let's go back to the beginning of 2002. Oil was $15.89 a barrel and 17.96 (in euros). Oil has since risen 3.5 times in terms of euros and 5.8 in dollar terms in less than 6 years. The difference clearly shows the depreciation of the dollar.
It is hard to imagine that $90 oil is not going to have some impact on consumers. If you heat your home with oil, and tens of millions do, you are going to be wearing more sweaters in the house are you are going to have a much higher bill this winter.
Between rising costs and a decreasing ability to borrow, the US consumer is finally going to have to retreat a little in the next few quarters.
Gold closed today at $787.50 with the dollar falling to almost $1.44 in euros. That is an interesting cap to the week in which I was at the New Orleans Conference attended mainly by gold bugs. 80% of the exhibitors were natural resource companies of one flavor or another.
As you might imagine, there were a lot of happy investors. And a lot of advisors bearish on the dollar, as I have been for almost six years. But I have to tell you that makes me nervous.
One of my favorite movies of all time is Trading Places. It is Dan Akroyd and Eddie Murphy at their best. But one of the great lines comes from Don Ameche and Ralph Bellamy, who play the two older brothers Randolph and Mortimer Duke, respectively. As the world of orange juice prices go against them, Don Ameche turns to Bellamy and yells, "Sell! Mortimer. Sell!" But there was no one on the other side to buy, and they went bankrupt.
And who can forget the cameo scene in Murphy's Coming to America where he gave a sack of cash to two skid row bums, who turn out to be the Dukes. They leap up shouting "We're back in business!" Such is the mentality of traders.
I think $1.50 against the euro is in the cards. But the dollar could bounce back viciously before that, as everyone everywhere is bearish. There needs to be someone on the other side of the trade. One of the great rules of trading is that when everybody is on the same side of the investing boat, the boat is going to turn over.
That being said, I think there is still time to get in on the fun in gold. In my opinion, gold is a neutral currency. I think gold goes up against most currencies everywhere over the next five years. You can play that with an ETF on gold or by buying gold stocks. I like the stock approach.
I spent some time in New Orleans with old friends Doug Casey and David Galland of Casey Research. They do a lot of research on gold and natural resource stocks and have been on a roll of late. If you want to invest in gold stocks, you should seriously consider subscribing to Doug Casey's International Speculator. I made my first "ten-bagger" almost 25 years ago on a tip from Doug (where does the time go?). He is still on his game, although with somewhat less hair. But it is ok to lose some hair as long as you do not lose the passion.
For more information on how to subscribe, you can click here. http://www.caseyresearch.com/crpmkt/crpSolo.php?id=30&ppref=JMD031ED1007A
http://www.safehaven.com/article-8706.htm
Mauldin: As the Subprime Turns [+ Gold ]
by John Mauldin
October 27, 2007
As the World Turns is a popular soap opera playing on American TV. It focuses, as do most soaps, on the lives and foibles of its characters, with plenty of dramatic flair. We are watching a different type of soap opera today which we could call "As the Subprime Turns. And the world is watching. It has plenty of drama, lots of flawed characters, a plot that is hard to understand, everyone saying it was the other guys fault and the world (literally) paying for the sins of exuberance in the US.
In this week's letter we look at the housing markets, its affect on consumer spending, take a glance at oil and see if we can figure out why the stock market is so excited.
But first, let me re-visit last week's letter where I talked about the $80 billion Super SIV fund that is being created by Citigroup, Bank of American and JP Morgan Chase. A lot of commentators have been writing about what a bad idea it is, and a few have taken me to task. They think it is a bad idea to rescue bad investments. They want the market to clean out the bad stuff so we can start functioning again.
And I agree, but that is not what the fund is going to do, as I understand it. The Super SIV fund is simply offering to buy only the good assets in failed SIVs. In essence, they (and the US Treasury) are worried that there will be a rush to the exits from failing SIVs (mostly in Europe) that will result in a panic forcing down the prices of good assets far below where they should be. That could seriously affect the capital structure of US banks and create a severe credit crunch. This fund simply sets a floor for the price of good assets at $.94 cents in cash and a 4% note.
They are not going to take the subprime junk. That is going to have to be written off by whoever owns it. This does not seem like a bail-out to me, but self-interested parties in a free market whose interest is in avoiding a panic and also will allow a mark to market price for assets. I think it makes sense.
If I am wrong and any of the toxic subprime assets show up in the Super SIV, then I would agree that it is a very bad idea indeed. Anyone who wants to read my entire take on the SIV problems and missed it last week can go to http://www.2000wave.com/article.asp?id=mwo101907
"The Market for New Homes is Dead"
Consumer sentiment continued its 17 month decline, dropping in the University of Michigan poll to under 81. And the consumer has a reason to be bummed out. He is watching the price of food and energy rise and home prices fall.
Existing home sales fell to an annualized rate of 5 million while the number of homes for sale rose to a 10.5 month supply. Sales are down 19% from a year ago, but much of that drop is in the last few months, as there was an 8% drop in just the last month, as loans (see more below) keep getting harder to find. If you are trying to sell a condominium, it is even worse. There is a 12.6 months supply of condos.
But we also found out yesterday that median prices for homes that sold were down by 5%. It is the first real sign that homeowners were willing to sell for less. Typically home owners don't want to sell for less than the best price they have recently heard for their home. And as they resist lowering their price, the inventory goes up.
And that is the national number. There are markets in Florida where the supply of homes for sale is in the 36 month range. And we are adding more homes every day through foreclosures.
But wait. We find out that new home sales rose by 4.8%. Inventories are down modestly to 8.3 months of supply, but up from the 3.5 months of supply we saw this time last year. Have we seen the bottom? Depends on how you look at the data.
New home sales for September came in at 770,000. Last month they told us August sales were 795,000. So how did they figure an almost 5% rise? Well, it seems they had to revise August sales down by 60,000 as August was really only 735,000. And there is a pattern here. June was revised down by 38,000. July was revised down by 69,000. Cancellations are running at 30%. Anyone care to wager that September numbers won't be revised down below August? And then we will find out that home sales did in fact drop.
If there was such a reckless person, it probably wouldn't be someone from the housing industry. The National Association of Home Builders released their latest survey. This is not a happy group. The index is at its lowest point ever (see chart below). Homebuilder optimism is down. Traffic (people looking to buy a new home) is at its lowest level ever.
As Economy.com says this week, "The market for new homes is dead for all practical purposes. Eighteen is the lowest rating in the history of the index. The seasonally adjusted numbers are also the lowest on record for October for every subcategory, as they have been for each month since spring began. The bottom of this market will not be reached until there is another significant decline in the cost to prospective buyers, both in house prices and mortgage rates."
Why are things so bad? In part, because the home mortgage industry is reeling. It is very difficult to get a non-conforming loan. The subprime mortgage market is comatose, as any mortgage bank which makes a loan today has to expect to keep it on their books. Lending standards are then appropriately tight. There is simply no securitization of subprime loans to speak of, down from $600 billion last year.
And for good reason. As is now known to everyone, investing in subprime asset backed securities had been a bad bet. An index which tracks Residential Mortgage Backed Securities shows that the BBB- index for RMBS is down to $.18 cents on the dollar. And this was for mortgages in a security that was sold earlier this year. Being down 82% in less than a year is not what you expect from an investment grade bond. (www.markit.com)
The AAA portion of the same bonds are down by 16% and the AA is down by an astounding 48% with the A rated paper down by 71%. Again, that is for an index of 20 RMBS that was put together and sold this year. Ugly.
Mortgage Pig of the Year
And a great illustration of how really bad it is was written by Allan Sloan (senior editor-at-large for Fortune) in this week's Fortune. It is simply the best explanation of the current meltdown in the subprime market I have read anywhere. I am going to five you a brief summary, but you can read it for yourself in the October 29 Fortune, or at this link: http://money.cnn.com/
Sloan asked for someone to show him one of the worst of the RMBS. He was directed to one called the Goldman Sachs Alternative Mortgage Products Trust 2006-3. It was a mere $494 million, or about 1% of the $500 billion RMBS's that were issued last year.
It does qualify for pig of the year. It was composed entirely of second lien loans.
But let's go the story and let Sloan tell it. "In the spring of 2006, Goldman assembled 8,274 second-mortgage loans originated by Fremont Investment & Loan, Long Beach Mortgage Co., and assorted other players. More than a third of the loans were in California, then a hot market. It was a run-of-the-mill deal, one of the 916 residential mortgage-backed issues totaling $592 billion that were sold last year.
"The average equity that the second-mortgage borrowers had in their homes was 0.71%. (No, that's not a misprint - the average loan-to-value of the issue's borrowers was 99.29%.)
"It gets even hinkier. Some 58% of the loans were no-documentation or low-documentation. This means that although 98% of the borrowers said they were occupying the homes they were borrowing on - "owner-occupied" loans are considered less risky than loans to speculators - no one knows if that was true. And no one knows whether borrowers' incomes or assets bore any serious relationship to what they told the mortgage lenders.
"You can see why borrowers lined up for the loans, even though they carried high interest rates. If you took out one of these second mortgages and a typical 80% first mortgage, you got to buy a house with essentially none of your own money at risk. If house prices rose, you'd have a profit. If house prices fell and you couldn't make your mortgage payments, you'd get to walk away with nothing (or almost nothing) out of pocket. It was go-go finance, very 21st century."
Now as my long time readers know, these securities are sliced up into different portions called a tranche (which Sloan tells me is French for slice, something I didn't know). Goldman created 13 different tranches with ratings from Moody's and Standard and Poor's starting at AAA and going down to BB (and the last piece or the "equity" tranche is not rated. Six of those tranches have already been completely written off. The AA tranche is now considered junk. Look at the chart below which shows fast the losses started piling up from a start point just 18 months ago.
And that average loan to value of 1% is under water with home prices down at least 10% in those California and Florida markets and going lower. But it gets worse. You wonder if the people buying this paper actually read the prospectus on what they were buying. Back to Sloan:
"Through the end of 2005, if you couldn't make your mortgage payments, you could generally get out from under by selling the house at a profit or refinancing it. But in 2006 we hit an inflection point. House prices began stagnating or falling in many markets. Instead of HPA - industry shorthand for house-price appreciation - we had HPD: house-price depreciation.
"Interest rates on mortgages stopped falling. Way too late, as usual, regulators and lenders began imposing higher credit standards. If you had borrowed 99%-plus of the purchase price (as the average GSAMP borrower did) and couldn't make your payments, couldn't refinance, and couldn't sell at a profit, it was over. Lights out.
"As a second-mortgage holder, GSAMP couldn't foreclose on deadbeats unless the first-mortgage holder also foreclosed. That's because to foreclose on a second mortgage, you have to repay the first mortgage in full, and there was no money set aside to do that. So if a borrower decided to keep on paying the first mortgage but not the second, the holder of the second would get bagged.
"If the holder of the first mortgage foreclosed, there was likely to be little or nothing left for GSAMP, the second-mortgage holder. Indeed, the monthly reports issued by Deutsche Bank (Charts), the issue's trustee, indicate that GSAMP has recovered almost nothing on its foreclosed loans.
"By February 2007, Moody's and S&P began downgrading the issue. Both agencies dropped the top-rated tranches all the way to BBB from their original AAA, depressing the securities' market price substantially.
In March, less than a year after the issue was sold, GSAMP began defaulting on its obligations. By the end of September, 18% of the loans had defaulted, according to Deutsche Bank.
"As a result, the X tranche, both B tranches, and the four bottom M tranches have been wiped out, and M-3 is being chewed up like a frame house with termites. At this point, there's no way to know whether any of the A tranches will ultimately be impaired."
I just touched the surface of this article. It is well worth reading. But it illustrates why no subprime paper is going to be written for some time. There are going to have to be new standards for mortgages that will create the confidence in the probability that an investor will get all the principal and interest due him.
It also means that the weak housing market is going to get worse before we see the bottom. Two million homes will go into foreclosure in the next two years, if home prices continue to slump, said a report released by Joint Economic Committee Chairman Senator Charles Schumer. Home ownership rates are beginning to decline for the first time since 1981.
The ownership rate reached a record 69.3% of households in 2004, up from 64% a decade earlier. With home prices soaring, net household wealth nearly doubled to $51.8 trillion at the end of 2005 from $27.6 trillion in 1995, with real-estate accounting for 47 percent of the change, according to Federal Reserve data.
That growth has boosted consumer confidence and spending. Studies show that consumer spending increases by about $5 for every $100 rise in the value of a consumer's home. But if home values decline, the reverse should happen.
When the Going Get Rough, Simply Borrow More
Next week's Outside the Box will be from my friends at Hoisington Investment Management Company. But I have to use one of the tables as it makes a very remarkable point. Most of us (including me) have been under the impression that Home Equity Mortgage Withdrawals have been on the serious decline. But that is not entirely the case as the table below shows.
"First, home equity cash outs, as tabulated by Freddie Mac, totaled $151 billion, or an amount equal to 50% of the rise in total consumer spending (PCE) during the initial two quarters of 2007. Not all of the proceeds of the equity extractions went toward consumer spending, yet the total sum was a substantial source of liquidity for the consumer. More amazing, perhaps, is the fact that over the past 5 1/2 years, $1.1 trillion in equity has been extracted from homes. This represents 46% of the increase in total consumer spending over the same period (Table 2). The tightening of credit standards and declining home prices will virtually guarantee that $1.1 trillion will not be extracted in the next few years. Consequently, slower consumer outlay growth can be expected for an extended period."
$100 Oil and $1,000 Gold
I wrote in August of 2006 that $100 oil would be the solution and not the problem. It will cause people to look for substitute energy sources. However, I did not think we would see $100 oil so soon. I was asking in January of this year, with oil bouncing around the mid-50's (down from a recent $77) whether oil should be $40 or $80? Today, oil hit $92 before selling off a little at the close to $91.86.
Let's go back to the beginning of 2002. Oil was $15.89 a barrel and 17.96 (in euros). Oil has since risen 3.5 times in terms of euros and 5.8 in dollar terms in less than 6 years. The difference clearly shows the depreciation of the dollar.
It is hard to imagine that $90 oil is not going to have some impact on consumers. If you heat your home with oil, and tens of millions do, you are going to be wearing more sweaters in the house are you are going to have a much higher bill this winter.
Between rising costs and a decreasing ability to borrow, the US consumer is finally going to have to retreat a little in the next few quarters.
Gold closed today at $787.50 with the dollar falling to almost $1.44 in euros. That is an interesting cap to the week in which I was at the New Orleans Conference attended mainly by gold bugs. 80% of the exhibitors were natural resource companies of one flavor or another.
As you might imagine, there were a lot of happy investors. And a lot of advisors bearish on the dollar, as I have been for almost six years. But I have to tell you that makes me nervous.
One of my favorite movies of all time is Trading Places. It is Dan Akroyd and Eddie Murphy at their best. But one of the great lines comes from Don Ameche and Ralph Bellamy, who play the two older brothers Randolph and Mortimer Duke, respectively. As the world of orange juice prices go against them, Don Ameche turns to Bellamy and yells, "Sell! Mortimer. Sell!" But there was no one on the other side to buy, and they went bankrupt.
And who can forget the cameo scene in Murphy's Coming to America where he gave a sack of cash to two skid row bums, who turn out to be the Dukes. They leap up shouting "We're back in business!" Such is the mentality of traders.
I think $1.50 against the euro is in the cards. But the dollar could bounce back viciously before that, as everyone everywhere is bearish. There needs to be someone on the other side of the trade. One of the great rules of trading is that when everybody is on the same side of the investing boat, the boat is going to turn over.
That being said, I think there is still time to get in on the fun in gold. In my opinion, gold is a neutral currency. I think gold goes up against most currencies everywhere over the next five years. You can play that with an ETF on gold or by buying gold stocks. I like the stock approach.
I spent some time in New Orleans with old friends Doug Casey and David Galland of Casey Research. They do a lot of research on gold and natural resource stocks and have been on a roll of late. If you want to invest in gold stocks, you should seriously consider subscribing to Doug Casey's International Speculator. I made my first "ten-bagger" almost 25 years ago on a tip from Doug (where does the time go?). He is still on his game, although with somewhat less hair. But it is ok to lose some hair as long as you do not lose the passion.
For more information on how to subscribe, you can click here. http://www.caseyresearch.com/crpmkt/crpSolo.php?id=30&ppref=JMD031ED1007A
http://www.safehaven.com/article-8706.htm
MoneyTalk on the net with Bob Brinker
Brinker -KGO: http://www.kgoam810.com/listenlive.asp#
4:00pm EDT
2007 combo fractal up... maybe with 2nd rate cut charm?
Courtesy.... 1Best
#msg-24056257
2007 combo fractal up... maybe with 2nd rate cut charm?
Courtesy.... 1Best
#msg-24056257
Fed Ops: 32.50B Matures this week.
Mon: 7.50B 3day
Thur.
(1) 6.00B 14day
(2) 19.00B 7day
(3) Patern says this slot will be filled.
Float: 32.50B
==================================================
Not yet updated.
Temp Ops:
Perm Ops:
=========================================================
Public Debt:
New Limit: $9,815. T
Currently: $9,060. T
=========================================================
Just my opinion:
*The Boyz will celebrate Trading curbs lifted.
*Fed. lowers rate again.
*Gold/Silver celebrate.
** EOM action **
Fed Ops: 32.50B Matures this week.
Mon: 7.50B 3day
Thur.
(1) 6.00B 14day
(2) 19.00B 7day
(3) Patern says this slot will be filled.
Float: 32.50B
==================================================
Not yet updated.
Temp Ops:
Perm Ops:
=========================================================
Public Debt:
New Limit: $9,815. T
Currently: $9,060. T
=========================================================
Just my opinion:
*The Boyz will celebrate Trading curbs lifted.
*Fed. lowers rate again.
*Gold/Silver celebrate.
** EOM action **
NYSE Eliminates Trading Curbs Dating Back to 1987
Oct. 26 (Bloomberg) -- The New York Stock Exchange said it will no longer impose curbs on computer-program trading that were put in place after the crash of 1987, claiming they're no longer as effective in damping swings in prices.
The exchange will stop prohibiting brokerages from entering some program trades when the NYSE Composite Index rises or falls more than 2 percent, according to a notice sent to member firms today. The so-called collars had been in effect since 1988 and were triggered 17 times this year, according to a filing with the Securities and Exchange Commission.
``Volatility is neither restrained nor enhanced by the imposition of the collars,'' the NYSE said in the SEC filing making the changes effective. ``The exchange is making this change since it does not appear that the approach of market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s.''
The curbs applied only to some index arbitrage trades on stocks in the Standard & Poor's 500 Index executed at the Big Board. Brokerages weren't barred from turning to rival exchanges to complete those trades.
Increased electronic trading has also made arbitrage strategies a smaller piece of daily equity trading, the NYSE said in the filing. Index arbitrage strategies accounted for about 4.6 percent of the total shares bought or sold at the NYSE, according to data on its Web site.
The Dow Jones Industrial Average fell 22.6 percent on Oct. 19, 1987, its steepest one-day decline ever, according to the Stock Trader's Almanac. At the time, some analysts and regulators said index arbitrage trades handled electronically contributed to the drop.
During the final half-hour of trading, index arbitrage strategies accounted for about 3.2 percent of trading at the NYSE, according to the presidential report on the 1987 crash. Program trading represented a total of about 12.2 percent.
Brokerages will still be required to report program trades, defined by the NYSE as the purchase or sale of a basket of at least 15 stocks valued at a minimum of $1 million.
To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net .
Last Updated: October 26, 2007 17:27 EDT
NYSE Eliminates Trading Curbs Dating Back to 1987
Oct. 26 (Bloomberg) -- The New York Stock Exchange said it will no longer impose curbs on computer-program trading that were put in place after the crash of 1987, claiming they're no longer as effective in damping swings in prices.
The exchange will stop prohibiting brokerages from entering some program trades when the NYSE Composite Index rises or falls more than 2 percent, according to a notice sent to member firms today. The so-called collars had been in effect since 1988 and were triggered 17 times this year, according to a filing with the Securities and Exchange Commission.
``Volatility is neither restrained nor enhanced by the imposition of the collars,'' the NYSE said in the SEC filing making the changes effective. ``The exchange is making this change since it does not appear that the approach of market volatility envisioned by the use of these collars is as meaningful today as when the rule was formalized in the late 1980s.''
The curbs applied only to some index arbitrage trades on stocks in the Standard & Poor's 500 Index executed at the Big Board. Brokerages weren't barred from turning to rival exchanges to complete those trades.
Increased electronic trading has also made arbitrage strategies a smaller piece of daily equity trading, the NYSE said in the filing. Index arbitrage strategies accounted for about 4.6 percent of the total shares bought or sold at the NYSE, according to data on its Web site.
The Dow Jones Industrial Average fell 22.6 percent on Oct. 19, 1987, its steepest one-day decline ever, according to the Stock Trader's Almanac. At the time, some analysts and regulators said index arbitrage trades handled electronically contributed to the drop.
During the final half-hour of trading, index arbitrage strategies accounted for about 3.2 percent of trading at the NYSE, according to the presidential report on the 1987 crash. Program trading represented a total of about 12.2 percent.
Brokerages will still be required to report program trades, defined by the NYSE as the purchase or sale of a basket of at least 15 stocks valued at a minimum of $1 million.
To contact the reporter on this story: Edgar Ortega in New York at ebarrales@bloomberg.net .
Last Updated: October 26, 2007 17:27 EDT
Nice W@G frenchee /
Keeping eye OEYWR 690p next week
gotta have a plan....right shoulder.
chit runnin out of posts, but golds been on fire.
Doc l sent the gold update with new crude listing 4 l-box
Here: #msg-23914823
At first they said no exposure
now they have WTF, they all lie incl the guy with the mike on cnbc.
Myself, Meaning sub-prime stuff
#msg-24025707
l'm waiting the toxic sheet stilll there.
yeah, man were we early on pos.
Fed. 3day RP + 7.50B [ net giveth 1.50B ]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed. 3day RP + 7.50B [ net giveth 1.50B ]
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Gold~ Silver~ HUI~ XAU~ US$~ €uro~ Crude
Live Charts ~ Bookmark this page –
Refresh anytime during the day.
PoG
PoS
HUI
XAU
3day $US:
€uro
Crude
HUI ~ XAU ~ GDX Index Components
as of October 25, 2007
Courtesy...Bullwinkle
#msg-24026805
TA Update *****Drbob 11:38pm
The market averages were little changed today except for the Nasdaq which was down over 20 points, and the internals were negative.
The NYSE a/d and u/d vol were slightly negative and the TRIN was near 1.00, while the Nasdaq a/d was about 2/3 but u/d vol was 1/3, a TRIN close to 2.00, to there was moderately strong distribution on the Nasdaq.
Two important moving averages are converging at Spx 1535, while another is at about 1522, so the index has a lot to prove, and a bearish reversal near the higher moving averages could portend a sharp decline.
While the market had a chance to decline sharply today and did not, it still shows many bearish divergences that usually get resolved to the downside.
The McClellan Oscillator and its 10% component are both negative, and the Summation Index for the Nasdaq is falling from just below zero, a red flag for the possibility of a sharp decline.
The Bullish Percent Index indicators are also bearish now:
http://stockcharts.com/h-sc/ui?s=$BPSPX&p=D&yr=3&mn=0&dy=0&id=p57610919652&a...
Some believe that the Fed Funds rate cut expected on Tuesday will bail out the US stock market. If we rally into that meeting, then a "buy the rumor and sell the news" scenario could play out.
And yet the market could fall at any time before the meeting as it is on shaky ground technically.
The a/d line is weak as well, especially Nasdaq:
http://stockcharts.com/charts/candleglance.php?$NYAD,$NYHL,$NAAD,$NAHL,$AMAD,$AMHL
So while the Dow, Spx, and Nasdaq have been strong of late, the vast majority of stocks are not enjoying the same success as a few high-flyers.
Crude oil was up very sharply, up about $3 to above $90 fo rthe first time ever, and while oil stocks rallied today, they still lag the price and strength of crude oil.
For those owning stocks, caution is warranted, and defensive positions or hedges are prudent to consider, imho.
drbob
AIG may take $9.8 bln subprime hit, analyst says
American International Group's losses estimated to be big, but manageable
By Alistair Barr, MarketWatch
Last Update: 6:58 PM ET Oct 25, 2007
SAN FRANCISCO (MarketWatch) -- American International Group could take a $9.8 billion hit from its exposure to subprime mortgages, Friedman, Billings, Ramsey analyst Bijan Moazami estimated on Thursday.
The write-downs will be big, but manageable for one of the world's largest insurers with $104 billion in shareholders equity and the ability to generate third-quarter earnings of $4.4 billion, the analyst wrote in a note to clients.
Merrill Lynch's (MERMER
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MER) surprise $8 billion, subprime-related write-down this week has sparked fresh concerns about the impact of this summer's credit crisis on financial-services companies. See story on Merrill's write-downs.
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AIG) has the largest subprime exposure of any insurers he covers, Moazami noted. Shares of the company fell 3.2% to $61.79 on Thursday amid speculation it could be hit by big write-downs. Spokesman Chris Winans said the company doesn't comment on market rumors.
"Considering the recent write-downs at Merrill Lynch, we believe it is appropriate to evaluate the potential charges that AIG could be facing in light of the continued meltdown in subprime," the analyst wrote.
Losses from AIG's insurance investment portfolio could amount to $5.9 billion, before tax, Moazami estimated. The company has a residential mortgage backed securities (RMBS) portfolio of roughly $94.6 billion, of which $29 billion is related to subprime and $21 billion is associated with RMBS backed by so-called Alt-A home loans, the analyst said.
American General Finance has been a major player in the mortgage market, providing loans to borrowers and also originating and buying loans. The AIG unit's total lending portfolio is roughly $19.2 billion and it could report losses of about $1.4 billion, Moazami said.
AIG's United Guaranty business sells mortgage insurance and could lose $2.5 billion from exposure to second-lien home loans, the analyst estimated.
AIG Financial Products, the insurer's derivatives business, has roughly $3.6 billion of exposure where a portion of the collateral is subprime RMBS, Moazami said. But the analyst believes this unit will report no losses because 98.6% of the exposure is in the super-senior AAA parts of these securities.
Alistair Barr is a reporter for MarketWatch in San Francisco.
Looks like our pulling helped, man l'm glad
the line in sand held...the dirty sand.
Softy...keep pulling
Come on Cap'm' Pulllll...
a line in the sand, dirty sand. me too
Fed.(2)(3) 7day RP + 19.00B [NetDrain -0.50B ]
Fed.(3) 1day RP + 6.00B
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed.(2)(3) 7day RP + 19.00B [NetDrain -0.50B ]
Fed.(3) 1day RP + 6.00B
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
yes, always looking 4 opinion )expect
2 more calls.
Fed.(1) 14day RP + 6.00B [ SoFar
On deck Thu:
(2) 19.00B 7day
(3) 6.50B 1day
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Fed.(1) 14day RP + 6.00B [ SoFar
On deck Thu:
(2) 19.00B 7day
(3) 6.50B 1day
http://www.ny.frb.org/markets/omo/dmm/temp.cfm
Bidding QFZKE (FRPT) c
General Dynamics profit climbs 25%
Raises outlook as combat systems, business jets grow sales
In addition, MRAP vehicles, the armored transports designed to be resistant to road side bombs, have delivered more volume this year than anticipated. Sales volume for the year has been about $400 million to $500 million compared to the expected $300 million to $400 million, Chabraja said.
"I think we've had a lot of cooperation in the supply chain and have good partner," Force Protection Inc. (FRPTFRPT
News, chart, profile,
FRPT) ," Chabraja said. "We have a lot of capacity in our facilities that we've managed to bring to bear on the whole supply chain."
http://www.marketwatch.com/news/story/general-dynamics-profit-soars-business/story.aspx?guid=%7B2A1941FF%2D4F00%2D4ED3%2DB76A%2D86FF19FE39C3%7D&siteid=yhoof
now you have me confused
too many classes of stock to understand, PE 55, I'll do a Buffet & walk away.
sell the bankers buy golds /