(Less) Sanguine on ExSanguination Part III
American Express reported rising levels of late payments from credit card issuers.
Apple's earnings report suggested the business for the iPhone was not as robust as originally thought.
Dupont reported higher raw materials costs and energy prices, results from products used in home construction and automobiles also disappointed investors.
Texas Instruments net income dropped 74%, revenue down 7%, while offering weaker than expected guidance for its current quarter.
Dataquick reported Q2 California mortgage defaults rose 15% compared with the previous three months, the highest level in a decade. Homeowners received 53,943 default notices, more than double the 20,909 filed a year ago.
The number of homes lost to foreclosure totaled 17,408 in Q2, the highest in DataQuick's statistics, which date back to 1988.
The losses were up 58% from the previous quarter and NINEFOLD from a year earlier.
Southern California home sales last month slumped 36% to the lowest for a June in 14 years and San Francisco Bay Area sales fell 26% to a 12 year low.
Building materials maker USG Corp posted sharply lower Q2 earnings. CEO William Foote said the housing recession is entering the second year of what is likely to be a multiyear downturn.
"The housing market continued to deteriorate in the second quarter, impacting both sales and earnings. This market is burdened by an excess supply of new and existing unsold homes.
The unusually large inventory of unsold homes will depress new construction and put continued pressure on volumes and prices of building materials until the excess inventory is absorbed."
Countrywide the largest US mortgage lender (20%) said Q2 profit fell 33% while revenue dropped 15%. Delinquencies rose across all mortgage product categories, and losses spread to prime loans.
Countrywide CEO Angelo Mozilo "It just takes a long time to turn a battleship around. This is a huge battleship, and we're headed in the wrong direction.
We are experiencing home price depreciation almost like never before, with the exception of the Great Depression."
Mozilo also said the U.S. housing market is unlikely to recover before 2009, as lenders and homeowners work through oversupply, stagnating home prices, and the excesses of recent lax lending standards in much of the mortgage industry.
YTD, global M&A at $2.8 trillion, +51%; corporate debt at $1.4 trillion, +32%; and private equity buy outs at $568.7 billion, +23%.
PIMCO's Bill Gross says the cheap financing that financed this boom is over...
"The tide appears to be going out for levered equity financiers and in for the passive owl money managers of the debt market. The shift promises to have severe ramifications for those caught in its wake."
The Nattering One muses... said leveraged cheap money has been a major contributor to rising global asset prices and the stock markets rise.
Well, the price of poker just went up, way up, and alot of weak hands are going to get shook out.
The Wall Street money machine known as CDO or collateralized debt obligations is grinding to a halt, imperiling $8.6 billion in annual underwriting fees and reducing credit for everyone.
Buyout groups rely on CDOs for 60% of the loans to finance U.S. acquisitions, according to JPMorgan.
Citigroup analysts said "for the last 18 months, the majority of subprime ABS was bought by another securitization vehicle that issued further bonds."
Sales of CDO securities used to pool bonds, loans and their derivatives into new debt, dwindled to $9.1 billion in the U.S. this month from $42 billion in all of June.
Banks are becoming more skittish about providing credit lines, called warehouse financing, which managers use to buy assets that go into CDOs in the months before the securities are issued.
More from Gross: "No longer will double-digit LBO returns be supported by cheap financing and shameless covenants. No longer therefore will stocks be supported so effortlessly by the double-barreled impact of LBOs and company buybacks."
JPMorgan said investors are demanding yields 15 percentage points higher than benchmark rates to compensate for the risk of losses on some of the lower investment-grade rated parts of CDOs, up from 5.5% in Feb.
The higher risk premiums have resulted in at least 35 bond and loan transactions worldwide being canceled or restructured in the past five weeks.
Alexander Baskov a fund manager at Pictet Asset Management SA in Geneva: "We're walking on thin ice. People are trying to find value and the right price and right now nobody knows what it is. Pretty much everyone is in the dark."
Today, a sale of bonds to pay for the purchase of General Motors Allison Transmission unit was postponed last night as investors demanded more interest from the buyers than originally expected.
This came on top of Expedia's announcement that it's cutting the size of a stock buyback from 117 M shares to 25 M, a buyback it was going to finance by selling debt. Expedia blamed the credit markets.
The Nattering One muses... what would happen if the Fed raised 150 basis points in a month and half?
Newsflash... that is exactly what has just occurred in the high yield market. Whats that loud sucking and whooshing sound you ask?
The sound of the multiplier effect working in reverse as a credit crunch funnel cloud sucks up all the easy credit in sight, but not all the easy money.
Isn't it amazing that the DJIA jumped 284 points on July 12th, amidst bad economic news and a major debt market crisis (Bear Stearns CDO, RMBS rating downgrades)?
Not really, the answer is supply, money supply... the Yen carry trade is alive and well, US M3 is growing at 13%, global M3 in advanced nations is averaging double digits...
the dollar is sinking to all time lows and all those foreign currency reserves from our trade partners are working overtime in the stock market.
Reduced supply?... all the M&A and LBO action the past two years has reduced the number of available equities by around 5% or $1 Trillion.
Motive... the Fed, ECB, BOE, BOJ and PBOC all have their objectives, #1 being the US ten year note NOT going over 5.25% and the Japanese 10 year NOT going over 2%.
#2 is to offset US housing sector losses with stock market gains, hopefully preventing the US economy from sliding into further recession.
Increased supply & realignment... something the Nattering One touched upon earlier this month, the realignment of portfolios from bonds to stocks...
On April 13th, 2007, the Norwegian Oil Fund with $340B, said it would realign its portfolio bond exposure from 60% to 40%, and raise its stock exposure to 60% from 40%.
Norway, China, UAE, Russia, Saudi Arabia and South Korea, along with many others (around 16 in all) are investing around $2.5 trillion of their foreign currency reserves in the global markets.
This goes a long way to explaining how global markets are so "resilient, buoyant and ebullient" despite unrealistic valuations and all the bad macro & micro economic news.
If Bennie & The Fed's and their friends can keep printing money in double digits without blowing up the bond markets, they may cushion the housing markets fall vis a vis the stock market.
We still maintain that what they didn't count on, the impending private debt market implosion, will lead to economic and commercial lending contraction.
This will force the Fed to lower by the end of October, while the BOJ will be forced to raise.
Putting a major 50 bps haircut on the Yen carry trade. Leading to serious repercussion in the stock markets.
Apple's earnings report suggested the business for the iPhone was not as robust as originally thought.
Dupont reported higher raw materials costs and energy prices, results from products used in home construction and automobiles also disappointed investors.
Texas Instruments net income dropped 74%, revenue down 7%, while offering weaker than expected guidance for its current quarter.
Dataquick reported Q2 California mortgage defaults rose 15% compared with the previous three months, the highest level in a decade. Homeowners received 53,943 default notices, more than double the 20,909 filed a year ago.
The number of homes lost to foreclosure totaled 17,408 in Q2, the highest in DataQuick's statistics, which date back to 1988.
The losses were up 58% from the previous quarter and NINEFOLD from a year earlier.
Southern California home sales last month slumped 36% to the lowest for a June in 14 years and San Francisco Bay Area sales fell 26% to a 12 year low.
Building materials maker USG Corp posted sharply lower Q2 earnings. CEO William Foote said the housing recession is entering the second year of what is likely to be a multiyear downturn.
"The housing market continued to deteriorate in the second quarter, impacting both sales and earnings. This market is burdened by an excess supply of new and existing unsold homes.
The unusually large inventory of unsold homes will depress new construction and put continued pressure on volumes and prices of building materials until the excess inventory is absorbed."
Countrywide the largest US mortgage lender (20%) said Q2 profit fell 33% while revenue dropped 15%. Delinquencies rose across all mortgage product categories, and losses spread to prime loans.
Countrywide CEO Angelo Mozilo "It just takes a long time to turn a battleship around. This is a huge battleship, and we're headed in the wrong direction.
We are experiencing home price depreciation almost like never before, with the exception of the Great Depression."
Mozilo also said the U.S. housing market is unlikely to recover before 2009, as lenders and homeowners work through oversupply, stagnating home prices, and the excesses of recent lax lending standards in much of the mortgage industry.
YTD, global M&A at $2.8 trillion, +51%; corporate debt at $1.4 trillion, +32%; and private equity buy outs at $568.7 billion, +23%.
PIMCO's Bill Gross says the cheap financing that financed this boom is over...
"The tide appears to be going out for levered equity financiers and in for the passive owl money managers of the debt market. The shift promises to have severe ramifications for those caught in its wake."
The Nattering One muses... said leveraged cheap money has been a major contributor to rising global asset prices and the stock markets rise.
Well, the price of poker just went up, way up, and alot of weak hands are going to get shook out.
The Wall Street money machine known as CDO or collateralized debt obligations is grinding to a halt, imperiling $8.6 billion in annual underwriting fees and reducing credit for everyone.
Buyout groups rely on CDOs for 60% of the loans to finance U.S. acquisitions, according to JPMorgan.
Citigroup analysts said "for the last 18 months, the majority of subprime ABS was bought by another securitization vehicle that issued further bonds."
Sales of CDO securities used to pool bonds, loans and their derivatives into new debt, dwindled to $9.1 billion in the U.S. this month from $42 billion in all of June.
Banks are becoming more skittish about providing credit lines, called warehouse financing, which managers use to buy assets that go into CDOs in the months before the securities are issued.
More from Gross: "No longer will double-digit LBO returns be supported by cheap financing and shameless covenants. No longer therefore will stocks be supported so effortlessly by the double-barreled impact of LBOs and company buybacks."
JPMorgan said investors are demanding yields 15 percentage points higher than benchmark rates to compensate for the risk of losses on some of the lower investment-grade rated parts of CDOs, up from 5.5% in Feb.
The higher risk premiums have resulted in at least 35 bond and loan transactions worldwide being canceled or restructured in the past five weeks.
Alexander Baskov a fund manager at Pictet Asset Management SA in Geneva: "We're walking on thin ice. People are trying to find value and the right price and right now nobody knows what it is. Pretty much everyone is in the dark."
Today, a sale of bonds to pay for the purchase of General Motors Allison Transmission unit was postponed last night as investors demanded more interest from the buyers than originally expected.
This came on top of Expedia's announcement that it's cutting the size of a stock buyback from 117 M shares to 25 M, a buyback it was going to finance by selling debt. Expedia blamed the credit markets.
The Nattering One muses... what would happen if the Fed raised 150 basis points in a month and half?
Newsflash... that is exactly what has just occurred in the high yield market. Whats that loud sucking and whooshing sound you ask?
The sound of the multiplier effect working in reverse as a credit crunch funnel cloud sucks up all the easy credit in sight, but not all the easy money.
Isn't it amazing that the DJIA jumped 284 points on July 12th, amidst bad economic news and a major debt market crisis (Bear Stearns CDO, RMBS rating downgrades)?
Not really, the answer is supply, money supply... the Yen carry trade is alive and well, US M3 is growing at 13%, global M3 in advanced nations is averaging double digits...
the dollar is sinking to all time lows and all those foreign currency reserves from our trade partners are working overtime in the stock market.
Reduced supply?... all the M&A and LBO action the past two years has reduced the number of available equities by around 5% or $1 Trillion.
Motive... the Fed, ECB, BOE, BOJ and PBOC all have their objectives, #1 being the US ten year note NOT going over 5.25% and the Japanese 10 year NOT going over 2%.
#2 is to offset US housing sector losses with stock market gains, hopefully preventing the US economy from sliding into further recession.
Increased supply & realignment... something the Nattering One touched upon earlier this month, the realignment of portfolios from bonds to stocks...
On April 13th, 2007, the Norwegian Oil Fund with $340B, said it would realign its portfolio bond exposure from 60% to 40%, and raise its stock exposure to 60% from 40%.
Norway, China, UAE, Russia, Saudi Arabia and South Korea, along with many others (around 16 in all) are investing around $2.5 trillion of their foreign currency reserves in the global markets.
This goes a long way to explaining how global markets are so "resilient, buoyant and ebullient" despite unrealistic valuations and all the bad macro & micro economic news.
If Bennie & The Fed's and their friends can keep printing money in double digits without blowing up the bond markets, they may cushion the housing markets fall vis a vis the stock market.
We still maintain that what they didn't count on, the impending private debt market implosion, will lead to economic and commercial lending contraction.
This will force the Fed to lower by the end of October, while the BOJ will be forced to raise.
Putting a major 50 bps haircut on the Yen carry trade. Leading to serious repercussion in the stock markets.
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