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EJ
08-22-07, 11:55 PM
http://www.itulip.com/images/discountwin.jpg

Risk Tsunami Over?

We're still officially on vacation but thought we'd drop in with a report to note the ho-hum news of the day that Four Major Banks Borrow From Fed (http://biz.yahoo.com/ap/070822/banks_fed_window.html?.v=8) and Mortgage Job Losses Surpass 40,000 (http://biz.yahoo.com/ap/070822/mortgage_mess_jobs.html?.v=11). The 145 point DOW crash up was welcomed today in the context of short term treasury and muni yield sea level not moving much compared to the tsunami type moves of 100% over a few days that we've seen recently.

Whew! What a relief!

The analogy I offered some time ago to explain both the circumstances we were experiencing then and what was likely coming was that the recent ultra low risk premium period, which Grantham noted as an inverted risk curve, is like the period before a tsunami when the ocean is sucked away from shore. For investors who don't understand risk tsunamis it was a time to run down to what was previously the ocean floor and pick up the fish flopping there. Easy fishing in the hot sun. For anyone who understood what the inverted risk curve held in store, it was a time to head for higher ground.

We were on another Goldman client call this AM. The topic: what is the meaning of the credit market contagion to money market funds and muni bonds? They took an hour to carefully and cogently make the case that the credit market correction is technical, not fundamental. I'll write it up in further detail for subscribers tomorrow but in summary they said everything will soon return to normal–unless (here's the out) the housing market pushes the US economy into recession.

They remarked on the yield on short term treasuries changing by a factor of two in a few days, an unheard of rate of change. Munis decoupled from treasuries–highly unusual–but in the past few days things have at least stopped getting worse. We were contacted by a firm in NYC today that is in the secondary CDO market who indicated that the market appears to be starting to function again. So, more evidence of at least a bounce in confidence.

From here there are two possibilities. Either the risk tsunami has already come in and drown all the poor souls it was going to drown, or it's still pouring into the system and causing damage that no one sees or understands yet. Time will tell. We will continue to collect evidence and report our conclusions, we hope in time for the information to be useful.

On the question is Wall Street getting bailed out or not, Allan Sloan, Fortune senior editor-at-large, weighs in with Why does Wall Street always get bailed out? (http://biz.yahoo.com/hftn/070817/081707_sloan_enablers_fortune.html?.v=2)

Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.

The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued. Here's the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.

The Street itself? It's bailout city. Even before the Fed made a symbolic half-point cut in the discount rate, it and other central banks from Switzerland to Singapore were trying to rescue the Street by injecting hundreds of billions of dollars into the financial markets and announcing they will put up more, if needed.

Hello? If you believe in markets - which I do - this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars' worth of suspect mortgages from marginal U.S. borrowers-and begging mortgage makers to create more of them. The Street sliced and diced this financial toxic waste into a variety of esoteric securities, making a nice markup when it sold them and generating a continuing stream of profits when it made markets in them.
Oh, the irony. Oh, the corruption. Voters might confront the source of the problem (http://www.itulip.com/forums/showthread.php?p=14546#post14546) in the next election, but I won't hold my breath.

Meanwhile, if you're strapped for cash, you can always tap the consumer's retail "discount" window.

<object height="350" width="425">

<embed src="http://www.youtube.com/v/ns99tqLSDLU" type="application/x-shockwave-flash" wmode="transparent" height="350" width="425"></object>

Uncle Jack
08-23-07, 12:34 AM
Don't worry. All that cheap money the banks are getting will trickle down to us little folk. It's the greatest story never told.

/sarcasm

jk
08-23-07, 08:17 AM
wall street is sharing the pain:

The credit-market freeze that's paralyzing leveraged buyouts, mergers and myriad computer-driven trading strategies may cut Wall Street bonuses for the first time in five years.
:rolleyes:

dbarberic
08-23-07, 10:06 AM
I want to know who creates all the graphics/cartoons that iTulip uses. The visuals are just as good as the writing.

Charles Mackay
08-23-07, 10:51 AM
Justin Olvier still thinks there's risk

(The following commentary is from Justin Oliver at Canaccord Adams.)

The unprecedented spread between US TBill and LIBOR rates is suggesting a heretofore unseen attack on the global financial system. There is clearly something going on that the large banks are privy to, that we are not as they are clearly not willing to lend to each other without a massive risk premium. It is inconceivable that equities can continue to trade relatively unaffected by a complete backing up of the credit markets.

Watch that $80 U.S. dollar level (support for 30 years) for DXY, if the dollar falls, Long rates will go up and this will be a huge negative for the market.

Short Retail/Banks and Long Gold and Monetary Metals

If there is no money to lend there is no money to spend Hand in hand with the 3% increase in same story sales yet 17% increase in credit card sales by Walmart!

Justin Oliver CA
Institutional Equity Sales
CanaccordAdams
161 Bay Street, Suite 3000, Toronto, ON, M5J 2S1
Tel: 416-869-7214 Cell: 647-271-9604 Fax: 416-869-3280

FRED
08-23-07, 01:48 PM
Meanwhile, if you're strapped for cash, you can always tap the consumer's retail "discount" window.

Not so fast! You can't make this stuff up.

CashCall makes its own call for cash (http://www.latimes.com/business/la-fi-cashcall23aug23,0,7822902.story?coll=la-home-center)
August 23, 2007 (LA Times)

With Gary Coleman as its TV pitchman, CashCall promises money in a hurry to people who are low on cash.

But now the Fountain Valley lender is in the same bind as its customers.

The company stopped making loans this week and was scrambling to negotiate an infusion of capital so it can resume business, said Daniel Baren, the company's general counsel. CashCall also laid off about 80 of its 1,200 employees, he said.

GRG55
03-15-08, 03:33 AM
http://www.itulip.com/images/discountwin.jpg

Risk Tsunami Over?

We're still officially on vacation but thought we'd drop in with a report to note the ho-hum news of the day that Four Major Banks Borrow From Fed (http://biz.yahoo.com/ap/070822/banks_fed_window.html?.v=8) and Mortgage Job Losses Surpass 40,000 (http://biz.yahoo.com/ap/070822/mortgage_mess_jobs.html?.v=11). The 145 point DOW crash up was welcomed today in the context of short term treasury and muni yield sea level not moving much compared to the tsunami type moves of 100% over a few days that we've seen recently.

Whew! What a relief!

The analogy I offered some time ago to explain both the circumstances we were experiencing then and what was likely coming was that the recent ultra low risk premium period, which Grantham noted as an inverted risk curve, is like the period before a tsunami when the ocean is sucked away from shore. For investors who don't understand risk tsunamis it was a time to run down to what was previously the ocean floor and pick up the fish flopping there. Easy fishing in the hot sun. For anyone who understood what the inverted risk curve held in store, it was a time to head for higher ground.

We were on another Goldman client call this AM. The topic: what is the meaning of the credit market contagion to money market funds and muni bonds? They took an hour to carefully and cogently make the case that the credit market correction is technical, not fundamental. I'll write it up in further detail for subscribers tomorrow but in summary they said everything will soon return to normal–unless (here's the out) the housing market pushes the US economy into recession.

They remarked on the yield on short term treasuries changing by a factor of two in a few days, an unheard of rate of change. Munis decoupled from treasuries–highly unusual–but in the past few days things have at least stopped getting worse. We were contacted by a firm in NYC today that is in the secondary CDO market who indicated that the market appears to be starting to function again. So, more evidence of at least a bounce in confidence.

From here there are two possibilities. Either the risk tsunami has already come in and drown all the poor souls it was going to drown, or it's still pouring into the system and causing damage that no one sees or understands yet. Time will tell. We will continue to collect evidence and report our conclusions, we hope in time for the information to be useful.



On the question is Wall Street getting bailed out or not, Allan Sloan, Fortune senior editor-at-large, weighs in with Why does Wall Street always get bailed out? (http://biz.yahoo.com/hftn/070817/081707_sloan_enablers_fortune.html?.v=2)
Wall Street loves to talk about letting financial markets weed out the weak. But when the Street itself gets in trouble, it sticks out its little tin cup, asking for help. And gets it.


The subprime-mortgage-market meltdown is a classic example of the way small fry get devoured, but the whales of Wall Street get rescued. Here's the deal: People with crummy credit who took out mortgages are being allowed to fail in record numbers. The mortgage companies that made those loans are being allowed to fail.


The Street itself? It's bailout city. Even before the Fed made a symbolic half-point cut in the discount rate, it and other central banks from Switzerland to Singapore were trying to rescue the Street by injecting hundreds of billions of dollars into the financial markets and announcing they will put up more, if needed.


Hello? If you believe in markets - which I do - this rescue is especially galling, because Wall Street enabled this mess in the first place. How so? By happily sucking up hundreds of billions of dollars' worth of suspect mortgages from marginal U.S. borrowers-and begging mortgage makers to create more of them. The Street sliced and diced this financial toxic waste into a variety of esoteric securities, making a nice markup when it sold them and generating a continuing stream of profits when it made markets in them.Oh, the irony. Oh, the corruption. Voters might confront the source of the problem (http://www.itulip.com/forums/showthread.php?p=14546#post14546) in the next election, but I won't hold my breath...



And the beat goes on (as does the socialization of risk pollution).

It is interesting, at times like this, to go back and re-read the relevant previous iTulip commentary, like this. It is almost always much more illuminating than the immediate commentary in the media - Friday's output, much written with a tone of financial journalist bewilderment at what is unfolding, is classic.

At least Bloomberg seems to be able to keep their head:




Fed Invokes Little-Used Authority to Aid Bear Stearns



By Scott Lanman


March 14 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke (http://search.bloomberg.com/search?q=Ben+S.%0ABernanke&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) invoked a law last used four decades ago to keep Bear Stearns Cos. from collapsing after the securities firm sought emergency funding from the central bank.



The loan to Bear Stearns required a vote today by the Fed's Board of Governors because the company isn't a bank, Fed staff officials said. The central bank is taking on the credit risk from Bear Stearns collateral, lending the funds through JPMorgan Chase & Co. because it's operationally simpler to accomplish than a direct loan, the staff said on condition of anonymity...



...``The Fed really doesn't have any obligation to help a non- bank aside from its role or responsibility to keep the financial markets functioning,'' said Hembre, who helps oversee $107 billion as chief economist at FAF Advisors Inc. in Minneapolis. ``They made a judgment, probably an accurate one, that they're not going to function very well if you've got a full-blown crisis with a major Wall Street firm.''....

And here's the understatement of the day:



...``I appreciate the leadership of the Federal Reserve in enhancing the stability and orderliness of our markets,'' Paulson said. ``Our financial system is flexible and resilient and I am confident that the efforts of regulators and market participants will minimize disruption to the system...

Pardon me. I stand corrected. THIS is the real understatement of the day:



...Bear Stearns's liquidity problem ``definitely gives some doubt as to whether other firms are releasing all available information, and whether this credit crunch is really over,'' Garcia said...

Ooops. Wrong again. This MUST be the statement that should be accorded that status:



...``There's a clear realization among people both in the official sector and the financial markets that some of the institutions we have built over the last 100 years are not well adapted to the modern 21st century financial system,'' said former New York Fed research director Stephen Cecchetti (http://search.bloomberg.com/search?q=Stephen+Cecchetti&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1)...

And here's the winner of today's "truth in advertising" blue ribbon:



...``This creates the same moral hazard issues that we saw with Northern Rock,'' said Buiter, now a professor at the London School of Economics. ``This bank is being given access to public money, and we don't know what the terms are.''...

http://www.bloomberg.com/apps/news?pid=20601068&sid=abl8CI.8oF8U&refer=economy