The Best Is Yet To Come
The Best is Yet To Come... Ian Shepherdson, chief US economist at High Frequency Economics:
"People don't like borrowing to buy depreciating assets, and lenders don't like to lend on them either.
The really bad news is that these (August housing) data largely pre date the market turmoil and subsequent tightening of lending standards, so sales have further to fall."
Time to Bear Down...
Anthony Bolton at Fidelity: "The U.S. mortgage crisis is not one that will be solved overnight.
When people buy a lot of assets they thought were riskless and then lose a bundle, it's a behaviour-changing event that doesn't disappear really quickly.
Private equity and hedge funds both have cycles, and I think we're now at the peak of the cycle for the time being.
The flow of money has encouraged some mediocre people. They will all be wiped out in the current environment, which will allow the good people to go on.
It's been my central case that after a four-year bull market we are more likely to have a bear market than a correction and then the bull market continues.
It may be that we are in the first stages of that (a bear market). A typical bear market lasts six to nine months."
More Northern Exposure... Shares in UK bank Northern Rock PLC dropped more than 5% Friday.
The struggling mortgage lender has again tapped into the BOE emergency fund window for and additional $16.3 billion.
Its a Solvency Problem...
IKB Deutsche Industriebank AG recently was bailed out by its largest owner and other German banks after being hit by subprime exposures, said Friday that Q1 net profit fell 67%.
IKB had to provide €8.1 billion in emergency liquidity to an off-balance sheet investment vehicle. (Conduit or SIV).
Its largest owner, state-owned development bank KfW, subsequently assumed the €8.1 billion liquidity obligation,
and also created together with other German banks a risk shield of €3.5 billion to cover possible losses on subprime paper held at the investment vehicle.
IKB now expects to post a net loss of €600 million to €700 million in the fiscal year ending March 31, 2008,
and will not pay a dividend to shareholders this year. Since July 30, stock down 35%.
The Nattering One muses... IKB are in the process of a special audit, which could lead to a severe devaluation of the assets held by the conduit.
The losses announced so far reflect Q1 valuations of the SIV assets, not Q3. So the numbers coming from IKB at the moment are meaningless as the situation is far worse than advertised.
45% Freddie Mac...
FHLMC CEO Richard Syron: "Some parts of the housing market are literally frozen up.
(Credit turbulence) has introduced an enormous amount of fear, and I use that word advisedly, into large parts of the household sector about what’s going to happen to them when they get to reset.
(Credit turbulence) has been a substantial depressive to the overall economy.
(Another Fed cut)... I would bet that he would . . . by a material amount. (Chances of a recession)... 40 to 45 percent induced by the housing market.
This from the cheerleader of the global boom...
US investment bank Goldman Sachs warns of a likely recession in Japan and mounting risks that US property slump could spread to parts of Europe.
In a report, The Global Economy Hits a Crunch*, the bank said it was no longer sure that Asia and Europe would be able to pick up the growth baton as America stumbled.
Chief economist Jim O'Neill: "Japan's recovery is tottering, with the chance of an outright recession having risen to nearly two in three."
Goldman Sachs feared it was now "inevitable" that consumers would batten down the hatches for a while.
The bank said Europe is now so weak after a clutch of dire confidence surveys in Germany, Italy, France, and The Netherlands that any further rate rises by the European Central Bank are "off the table".
Housing Decoupling in doubt...
In a separate report, Rising Risks to the Global Housing Market:
Goldman’s Peter Berezin suggests that much of global system had succumbed to a property boom that is in some ways more stretched than in the US.
"Such a widespread housing boom has little precedent in modern history. In those markets where prices have run up the most,
and rental yields have fallen dramatically, the risks of a housing correction are likely to have increased materially,"
He expects US house prices to fall 7% in 2007 and another 7% in 2008, as mortgage lenders continue to tighten credit to large chunks of the market.
Berezin said the Goldman's "decoupling" thesis was based on the assumption that the US housing slump was a "country-specific-shock" that would not spill over into other economies. This was now in doubt.
"The spread of global credit risks has introduced a new potential transmission mechanism.
If home prices in the key economies begin to fall, this will have an adverse effect on global growth."
"People don't like borrowing to buy depreciating assets, and lenders don't like to lend on them either.
The really bad news is that these (August housing) data largely pre date the market turmoil and subsequent tightening of lending standards, so sales have further to fall."
Time to Bear Down...
Anthony Bolton at Fidelity: "The U.S. mortgage crisis is not one that will be solved overnight.
When people buy a lot of assets they thought were riskless and then lose a bundle, it's a behaviour-changing event that doesn't disappear really quickly.
Private equity and hedge funds both have cycles, and I think we're now at the peak of the cycle for the time being.
The flow of money has encouraged some mediocre people. They will all be wiped out in the current environment, which will allow the good people to go on.
It's been my central case that after a four-year bull market we are more likely to have a bear market than a correction and then the bull market continues.
It may be that we are in the first stages of that (a bear market). A typical bear market lasts six to nine months."
More Northern Exposure... Shares in UK bank Northern Rock PLC dropped more than 5% Friday.
The struggling mortgage lender has again tapped into the BOE emergency fund window for and additional $16.3 billion.
Its a Solvency Problem...
IKB Deutsche Industriebank AG recently was bailed out by its largest owner and other German banks after being hit by subprime exposures, said Friday that Q1 net profit fell 67%.
IKB had to provide €8.1 billion in emergency liquidity to an off-balance sheet investment vehicle. (Conduit or SIV).
Its largest owner, state-owned development bank KfW, subsequently assumed the €8.1 billion liquidity obligation,
and also created together with other German banks a risk shield of €3.5 billion to cover possible losses on subprime paper held at the investment vehicle.
IKB now expects to post a net loss of €600 million to €700 million in the fiscal year ending March 31, 2008,
and will not pay a dividend to shareholders this year. Since July 30, stock down 35%.
The Nattering One muses... IKB are in the process of a special audit, which could lead to a severe devaluation of the assets held by the conduit.
The losses announced so far reflect Q1 valuations of the SIV assets, not Q3. So the numbers coming from IKB at the moment are meaningless as the situation is far worse than advertised.
45% Freddie Mac...
FHLMC CEO Richard Syron: "Some parts of the housing market are literally frozen up.
(Credit turbulence) has introduced an enormous amount of fear, and I use that word advisedly, into large parts of the household sector about what’s going to happen to them when they get to reset.
(Credit turbulence) has been a substantial depressive to the overall economy.
(Another Fed cut)... I would bet that he would . . . by a material amount. (Chances of a recession)... 40 to 45 percent induced by the housing market.
This from the cheerleader of the global boom...
US investment bank Goldman Sachs warns of a likely recession in Japan and mounting risks that US property slump could spread to parts of Europe.
In a report, The Global Economy Hits a Crunch*, the bank said it was no longer sure that Asia and Europe would be able to pick up the growth baton as America stumbled.
Chief economist Jim O'Neill: "Japan's recovery is tottering, with the chance of an outright recession having risen to nearly two in three."
Goldman Sachs feared it was now "inevitable" that consumers would batten down the hatches for a while.
The bank said Europe is now so weak after a clutch of dire confidence surveys in Germany, Italy, France, and The Netherlands that any further rate rises by the European Central Bank are "off the table".
Housing Decoupling in doubt...
In a separate report, Rising Risks to the Global Housing Market:
Goldman’s Peter Berezin suggests that much of global system had succumbed to a property boom that is in some ways more stretched than in the US.
"Such a widespread housing boom has little precedent in modern history. In those markets where prices have run up the most,
and rental yields have fallen dramatically, the risks of a housing correction are likely to have increased materially,"
He expects US house prices to fall 7% in 2007 and another 7% in 2008, as mortgage lenders continue to tighten credit to large chunks of the market.
Berezin said the Goldman's "decoupling" thesis was based on the assumption that the US housing slump was a "country-specific-shock" that would not spill over into other economies. This was now in doubt.
"The spread of global credit risks has introduced a new potential transmission mechanism.
If home prices in the key economies begin to fall, this will have an adverse effect on global growth."
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