Market Observations 08/24/07
Quote of the Day: Countrywide CEO Angelo Mozilo; "I've seen this movie before and the ending of the movie always ends up in some form of recession."
Garden Hedgers... Due to the ABCP squeeze, Home Depot may be on the verge of accepting as much as $1.2 billion less than the original $10.3 billion pricetag for the sale of its supply business. Quite the trim...
Happy Daze... Sun: "Friday New Homes & Durable Goods will not be pretty." Sequential up, YOY disaster, the "happy daze" crowd bought in.
Ignorance is bliss... Tues: "Wait till Friday to see if anyone steps on a land mine. BOJ will not raise." BOJ held, negative news was ignored.
Nice, but not... Fri: "New Housing Sales awaits." New housing up, but leading homebuilders sold off.
SP500 open 1462, down 2 to 1460 then rising 19 to 1479. 1455 was not breeched and 1472 resistance was broken. NDX at 1961,1965 resistance awaits.
Their back... Revenge of the carry traders, VIX & Yen down BIG, commodities catching a bid with crude above $71.
In the weeds... Mon: Existing home sales awaits. Again, If the numbers are bad, its a downdraft till Labor Day.
Again, this is no longer a liquidity issue, its a solvency problem.
There is plenty of liquidity and the short term market appears to be coming back in lieu of asset backed paper.
Constipation... Banks and brokers are trying to sell as much as $400 billion of securities to finance leveraged buyouts.
Indigestion...With an estimated $550 Billion in ABCP maturing in the next 90 days, who will buy the paper?
Heartburn... On Aug 20, the difference between 3 month bill yields and the London interbank offered rate, called the TED spread...
reached the widest since the stock market crashed in 1987. It has since ticked down to 1.28%.
Since Aug 20, 3 month bills have climbed from a 2 yr low, as yields on ABCP declined...
Hubba Hubba, who do you trust? US Treasuries are being used as collateral to obtain overnight loans at rates closer to the Fed's target rate.
Pepto & Ex-lax... We've commented before on how "someone" might just make a killing...
and solve some Social Security and Pension funding problems, by scooping up high yield paper at a discount. Perhaps the Fed & Treasury? Maybe...
Conspiracy theory? ... Regardless of their dubious validity...
the debt ratings are everything as there are rules regarding the grade of debt that insurance companies & pension funds can hold.
Any downgrade means existing holdings NOT meeting the criteria, must be liquidated. Reinforcing the downward spiral. Even money sez limited downgrades from hereon in?
Survival of the fittest... if the debt wears a institutional grade rating stamp...
asset managers, insurance companies and pension funds, who already hold 22%; 19% and 18% of ALL MBS respectively might load up after a 2 year buying hiatus.
Feeding time... also, large, cash rich buyers (read petrodollar and other large solvent financial institutions)
may be willing to purchase leveraged loans in relatively significant volumes at a healthy discount.
The real containment issue... If the debt raters play Tommy again(deaf, dumb & blind), and these sales don't turn into bloodbaths...
and the write downs are $75 Billion or less (i.e. a 7.5% loss on $1 Trillion) perhaps the damage could be weathered.
And the American Way... Lets watch and see if collusion, greed and self interest can save the day.
Wen: "If the market can survive more bad news and stay above 200DMA SP500 1455, we could see a slow grind up till October. " And we just might.
Often wrong, but never in doubt, this is the Nattering Naybob and you're not!
Garden Hedgers... Due to the ABCP squeeze, Home Depot may be on the verge of accepting as much as $1.2 billion less than the original $10.3 billion pricetag for the sale of its supply business. Quite the trim...
Happy Daze... Sun: "Friday New Homes & Durable Goods will not be pretty." Sequential up, YOY disaster, the "happy daze" crowd bought in.
Ignorance is bliss... Tues: "Wait till Friday to see if anyone steps on a land mine. BOJ will not raise." BOJ held, negative news was ignored.
Nice, but not... Fri: "New Housing Sales awaits." New housing up, but leading homebuilders sold off.
SP500 open 1462, down 2 to 1460 then rising 19 to 1479. 1455 was not breeched and 1472 resistance was broken. NDX at 1961,1965 resistance awaits.
Their back... Revenge of the carry traders, VIX & Yen down BIG, commodities catching a bid with crude above $71.
In the weeds... Mon: Existing home sales awaits. Again, If the numbers are bad, its a downdraft till Labor Day.
Again, this is no longer a liquidity issue, its a solvency problem.
There is plenty of liquidity and the short term market appears to be coming back in lieu of asset backed paper.
Constipation... Banks and brokers are trying to sell as much as $400 billion of securities to finance leveraged buyouts.
Indigestion...With an estimated $550 Billion in ABCP maturing in the next 90 days, who will buy the paper?
Heartburn... On Aug 20, the difference between 3 month bill yields and the London interbank offered rate, called the TED spread...
reached the widest since the stock market crashed in 1987. It has since ticked down to 1.28%.
Since Aug 20, 3 month bills have climbed from a 2 yr low, as yields on ABCP declined...
Hubba Hubba, who do you trust? US Treasuries are being used as collateral to obtain overnight loans at rates closer to the Fed's target rate.
Pepto & Ex-lax... We've commented before on how "someone" might just make a killing...
and solve some Social Security and Pension funding problems, by scooping up high yield paper at a discount. Perhaps the Fed & Treasury? Maybe...
Conspiracy theory? ... Regardless of their dubious validity...
the debt ratings are everything as there are rules regarding the grade of debt that insurance companies & pension funds can hold.
Any downgrade means existing holdings NOT meeting the criteria, must be liquidated. Reinforcing the downward spiral. Even money sez limited downgrades from hereon in?
Survival of the fittest... if the debt wears a institutional grade rating stamp...
asset managers, insurance companies and pension funds, who already hold 22%; 19% and 18% of ALL MBS respectively might load up after a 2 year buying hiatus.
Feeding time... also, large, cash rich buyers (read petrodollar and other large solvent financial institutions)
may be willing to purchase leveraged loans in relatively significant volumes at a healthy discount.
The real containment issue... If the debt raters play Tommy again(deaf, dumb & blind), and these sales don't turn into bloodbaths...
and the write downs are $75 Billion or less (i.e. a 7.5% loss on $1 Trillion) perhaps the damage could be weathered.
And the American Way... Lets watch and see if collusion, greed and self interest can save the day.
Wen: "If the market can survive more bad news and stay above 200DMA SP500 1455, we could see a slow grind up till October. " And we just might.
Often wrong, but never in doubt, this is the Nattering Naybob and you're not!
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