Financial Downgrades & Florida's Frozen Pool
Pots Call Kettles Black... JPMorgan Chase analysts cut earnings estimates for Citigroup, the biggest U.S. bank, and...
Wall Street's four largest securities firms, Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers.
The analysts cut their earnings estimates on concern additional writedowns for fixed income assets and a slowdown in M&A will hurt profit.
Punk Ziegel analyst Richard Bove today changed all of his ratings on the top five securities firms to "sell."
A little late given whats happened YTD, don't ya think?
Floridas Frozen Pool... It gets better...
Floridas $138 billion pension fund owns more than $1 billion of the same downgraded and defaulted debt...
which sparked a 50% or $14 billion run on the now frozen Florida local government short term investment fund.
It gets even better... As of Sept. 30, the Florida State Treasury also held $592 million in commercial paper sold by a SIV...
of which $180 million was placed under review for a possible downgrade by Moody's.
Understatement of the Decade... Florida fund CFO Alex Sink:
"It's clear we can no longer solely rely on an investment's credit rating when making management decisions."
It gets way better... Citizens Property Insurance, an insurer created by the state to provide hurricane coverage to 1.3 million residents...
has half its $10 billion of assets managed by the state board. That includes more than $3 billion of cash.
Citizens, has $1.9 billion, or almost 20%, of its assets frozen in the local government pool...
and $583 million of subprime tainted debt that was bought by the state board. Citizens, hasn't marked down the value of debt now rated default.
Clueless statement of the Decade... The insurer's CFO, Sharon Binnun:
"We do not have any information at this juncture that these are permanent declines in value."
The Nattering One muses... much like the assets underlying these downgraded glorified overleveraged debentures...
real estate hyperinflated to unrealistic and unsupportable levels by greedy speculators and lemmings...
the declines in value are real and can only increase exponentially.
Real estate "values" based on short sales and bank owned REO sales, have already rolled back to late 2003 levels in some major markets (35% to 50%).
Many current buyers of distressed properties are catching falling knives, which are only half fallen.
Three axioms come to mind: Firstly, a fool and his money (especially someone elses money) are easily separated. Secondly, the property has to "pencil out".
The value of residential or income real estate is NOT what someone is willing and able to pay for it at any point in time.
The real value is the breakeven point (principle, interest, taxes, insurance, maintenance) plus desired return on investment, based on realistic and supportable local rental rates.
Thirdly, just because everyone else jumps off a cliff in an upward price spiral, doesn't mean the prices are supportable.
Nor does it mean they will return to that level at any future point. Witness the Nasdaq since 2000, witness Japanese real estate since 1989.
But it's different this time... Yep, it sure is...
Firstly, this is the first time that real estate "values" did NOT increase because of WAGE based cost of living inflation.
Secondly, the first time that interest only, no down, 120% stated income loans were given out in droves to anyone that could fog a mirror.
Thirdly, loan to value and debt to equity ratios have never been higher, leaving the smallest equity cushion in history.
With the first downwave in "values", what little equity, buyers or 80% refi's since 2002 had, is already gone.
We repeat, this trainwreck in progress, will not end pretty, and the end or "bottom" is nowhere in sight, and there is nothing that can be done to stop it. Hattip to Bloomberg.
Wall Street's four largest securities firms, Goldman Sachs, Morgan Stanley, Merrill Lynch and Lehman Brothers.
The analysts cut their earnings estimates on concern additional writedowns for fixed income assets and a slowdown in M&A will hurt profit.
Punk Ziegel analyst Richard Bove today changed all of his ratings on the top five securities firms to "sell."
A little late given whats happened YTD, don't ya think?
Floridas Frozen Pool... It gets better...
Floridas $138 billion pension fund owns more than $1 billion of the same downgraded and defaulted debt...
which sparked a 50% or $14 billion run on the now frozen Florida local government short term investment fund.
It gets even better... As of Sept. 30, the Florida State Treasury also held $592 million in commercial paper sold by a SIV...
of which $180 million was placed under review for a possible downgrade by Moody's.
Understatement of the Decade... Florida fund CFO Alex Sink:
"It's clear we can no longer solely rely on an investment's credit rating when making management decisions."
It gets way better... Citizens Property Insurance, an insurer created by the state to provide hurricane coverage to 1.3 million residents...
has half its $10 billion of assets managed by the state board. That includes more than $3 billion of cash.
Citizens, has $1.9 billion, or almost 20%, of its assets frozen in the local government pool...
and $583 million of subprime tainted debt that was bought by the state board. Citizens, hasn't marked down the value of debt now rated default.
Clueless statement of the Decade... The insurer's CFO, Sharon Binnun:
"We do not have any information at this juncture that these are permanent declines in value."
The Nattering One muses... much like the assets underlying these downgraded glorified overleveraged debentures...
real estate hyperinflated to unrealistic and unsupportable levels by greedy speculators and lemmings...
the declines in value are real and can only increase exponentially.
Real estate "values" based on short sales and bank owned REO sales, have already rolled back to late 2003 levels in some major markets (35% to 50%).
Many current buyers of distressed properties are catching falling knives, which are only half fallen.
Three axioms come to mind: Firstly, a fool and his money (especially someone elses money) are easily separated. Secondly, the property has to "pencil out".
The value of residential or income real estate is NOT what someone is willing and able to pay for it at any point in time.
The real value is the breakeven point (principle, interest, taxes, insurance, maintenance) plus desired return on investment, based on realistic and supportable local rental rates.
Thirdly, just because everyone else jumps off a cliff in an upward price spiral, doesn't mean the prices are supportable.
Nor does it mean they will return to that level at any future point. Witness the Nasdaq since 2000, witness Japanese real estate since 1989.
But it's different this time... Yep, it sure is...
Firstly, this is the first time that real estate "values" did NOT increase because of WAGE based cost of living inflation.
Secondly, the first time that interest only, no down, 120% stated income loans were given out in droves to anyone that could fog a mirror.
Thirdly, loan to value and debt to equity ratios have never been higher, leaving the smallest equity cushion in history.
With the first downwave in "values", what little equity, buyers or 80% refi's since 2002 had, is already gone.
We repeat, this trainwreck in progress, will not end pretty, and the end or "bottom" is nowhere in sight, and there is nothing that can be done to stop it. Hattip to Bloomberg.
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