How Low Woes House of Dim Sum & Muni Bonds
Guarantors Woes... S&P cut its rating on bond insurer ACA Capital Holdings to CCC from A...
and affirmed the AAA rating on MBIA and Ambac, but changed their outlook to negative on MBIA. MBIA is one of the leading muni bond insurer's.
Woe is Me and Dim Sum... #2 US Securities firm Morgan Stanley, reported a loss after $9.4 billion of writedowns on mortgage related holdings.
CEO John Mack, called the $3.56 billion Q4 loss "deeply disappointing and embarassing" and will forgo a bonus for the year, his 2006 bonus was $40 Million (corrected).
"Accountability for our results rests with me. I believe in pay for performance, so I've told our compensation committee that I will not accept a bonus for 2007."
Instead of taking his pay in the form of Hari Kari, Mack knoshed on Dim Sum. Cash strapped MS received a $5 billion cash infusion from China Investment Corp.
CIC, China's sovereign wealth fund, will acquire as much as 9.9% of Morgan Stanley, making it the company's 2nd largest shareholder.
And what was the Vig on that Dim Sum? The securities convert into Morgan Stanley shares and pay annual interest of 9%.
Mack decided to immediately cut back on his cut back, by announcing layoffs in the real estate department.
Speaking of eating less and rising food costs... Darden Restaurants (Red Lobster, Olive Garden) reported a YOY 33% drop in Q2 net income on 17% higher revenue!
Management attributed the decline in earnings to 'sales softness' because of a 'difficult consumer environment' and 'a tougher than anticipated cost environment.'
General Mills reported strong Q2 results, but included a forecast for 2008 that failed to meet analysts' expectations.
But Why? Daddy? ... German business confidence fell to the lowest in almost two years, 103 from 104.2. Why?
The Bundesbank said investment growth in Germany will slow to 4% vs 9.2% this year and economic growth will cool to 1.9% vs 2.5% in 2007. Why?
Borrowing costs surged as cash strapped banks are hoarding cash for reserves, following massive losses linked to U.S. mortgages. Increased borrowing costs decrease business investment.
Consumer price inflation in Germany accelerated to 3.3% this month, the fastest pace in 12 years. Why?
Since 2001, the dollar has been debauched in half and oil has gone from $35 per barrel to over $90.
The resulting central bank & energy based stagflation has permeated the global supply chain and decreased consumers real wages and spending power.
But computers cost 23% less than last year, so my Gamebox was cheaper. It's just getting better all the time, Son.
Good news? Headlines blurted... Foreclosures decreased 10% vs October! The decline was anticipated for as November is coming out of a seasonal cycle of resets.
Realtytrac: as rates increased, foreclosures rose 68% in November from a year earlier.
California's nation leading 39,992 filings in November were more than double its total from a year earlier.
Can't wait for the next cyclical wave of resets to hit after the first of the year.
Speaking of cyclical... analysts for Credit Suisse Group:
Interest rates increased on more than $87 billion of subprime mortgages in Q3, and another $84 billion will reset in Q4.
Forcing more foreclosures and REO's into the inventory, declining prices further.
More cyclical, and it is different this time... Homebuilder Hovnanian reported a quadrupled quarterly loss...
on a 22% decline in annual revenue. Net contracts -20%; dollar value -22%; cancellation rate 40% vs 35%.
A fifth straight quarterly loss, Q4 $469 million vs $118 million Q406. 2007 loss $638 million vs 06 net income $139 million and...
the company announced it will not pay dividends on its Series A preferred stock in fiscal 2008 because of indentures on senior and senior subordinated notes.
CEO Ara Hovnanian: "Our industry is currently experiencing a cyclical correction.
While the factors that created this downturn are different than any other throughout our 48 year history...
we know that stronger demand for new homes will return. What is not known is how long the market will take to rebound."
How long will it take? Richmond Fed Head Lacker having a moment of lucidity:
"Home construction and sales are unlikely to bottom out before the middle of the year, and I expect housing to continue to be a drag on growth well into 2008."
The moment was short lived: "Rising incomes, buttressed by job growth will support further gains in consumer spending."
Less fools catching falling knives?... The MBA Market Composite Index, declined 19.5% last week, (purchase index -11%, refi -27%).
This was the largest decline in mortgage loan applications since 2004.
Despite an orgy of central bank intervention and rate cuts to save the banking system, interest rates jumped and sidelined more fools, er, I mean potential buyers.
Repeat the mantra, there is no bleed or spill over...
The asset backed credit squeeze has Municipal bonds headed for their worst year since 1999 as muni bond holdings have been cut 16% since the end of June. Why?
Securities firms have cut back on their exposure due to losses in the mortgage bond market, and banks simply don't have any spare cash.
With the short term and asset backed commercial paper markets insolvent...
structured investment programs that sell short term debt backed by long term tax exempt bonds have been shut down.
The bond dumping caused prices to fall and yields to rise, and higher yields mean...
higher financing costs for municipalities and state governments that wish to sell bonds.
Those local governments budgets have yet to be hit by the wave of declines in assessed real estate "values" and decelerated consumer spending or sales tax revenue.
Can you say higher income and sales taxes for Californians already facing a $14 billion budget crisis? I can.
If either major bond guarantor, MBIA or Ambac's rating got cut, can you say bankruptcy that makes Orange County look small? I can.
and affirmed the AAA rating on MBIA and Ambac, but changed their outlook to negative on MBIA. MBIA is one of the leading muni bond insurer's.
Woe is Me and Dim Sum... #2 US Securities firm Morgan Stanley, reported a loss after $9.4 billion of writedowns on mortgage related holdings.
CEO John Mack, called the $3.56 billion Q4 loss "deeply disappointing and embarassing" and will forgo a bonus for the year, his 2006 bonus was $40 Million (corrected).
"Accountability for our results rests with me. I believe in pay for performance, so I've told our compensation committee that I will not accept a bonus for 2007."
Instead of taking his pay in the form of Hari Kari, Mack knoshed on Dim Sum. Cash strapped MS received a $5 billion cash infusion from China Investment Corp.
CIC, China's sovereign wealth fund, will acquire as much as 9.9% of Morgan Stanley, making it the company's 2nd largest shareholder.
And what was the Vig on that Dim Sum? The securities convert into Morgan Stanley shares and pay annual interest of 9%.
Mack decided to immediately cut back on his cut back, by announcing layoffs in the real estate department.
Speaking of eating less and rising food costs... Darden Restaurants (Red Lobster, Olive Garden) reported a YOY 33% drop in Q2 net income on 17% higher revenue!
Management attributed the decline in earnings to 'sales softness' because of a 'difficult consumer environment' and 'a tougher than anticipated cost environment.'
General Mills reported strong Q2 results, but included a forecast for 2008 that failed to meet analysts' expectations.
But Why? Daddy? ... German business confidence fell to the lowest in almost two years, 103 from 104.2. Why?
The Bundesbank said investment growth in Germany will slow to 4% vs 9.2% this year and economic growth will cool to 1.9% vs 2.5% in 2007. Why?
Borrowing costs surged as cash strapped banks are hoarding cash for reserves, following massive losses linked to U.S. mortgages. Increased borrowing costs decrease business investment.
Consumer price inflation in Germany accelerated to 3.3% this month, the fastest pace in 12 years. Why?
Since 2001, the dollar has been debauched in half and oil has gone from $35 per barrel to over $90.
The resulting central bank & energy based stagflation has permeated the global supply chain and decreased consumers real wages and spending power.
But computers cost 23% less than last year, so my Gamebox was cheaper. It's just getting better all the time, Son.
Good news? Headlines blurted... Foreclosures decreased 10% vs October! The decline was anticipated for as November is coming out of a seasonal cycle of resets.
Realtytrac: as rates increased, foreclosures rose 68% in November from a year earlier.
California's nation leading 39,992 filings in November were more than double its total from a year earlier.
Can't wait for the next cyclical wave of resets to hit after the first of the year.
Speaking of cyclical... analysts for Credit Suisse Group:
Interest rates increased on more than $87 billion of subprime mortgages in Q3, and another $84 billion will reset in Q4.
Forcing more foreclosures and REO's into the inventory, declining prices further.
More cyclical, and it is different this time... Homebuilder Hovnanian reported a quadrupled quarterly loss...
on a 22% decline in annual revenue. Net contracts -20%; dollar value -22%; cancellation rate 40% vs 35%.
A fifth straight quarterly loss, Q4 $469 million vs $118 million Q406. 2007 loss $638 million vs 06 net income $139 million and...
the company announced it will not pay dividends on its Series A preferred stock in fiscal 2008 because of indentures on senior and senior subordinated notes.
CEO Ara Hovnanian: "Our industry is currently experiencing a cyclical correction.
While the factors that created this downturn are different than any other throughout our 48 year history...
we know that stronger demand for new homes will return. What is not known is how long the market will take to rebound."
How long will it take? Richmond Fed Head Lacker having a moment of lucidity:
"Home construction and sales are unlikely to bottom out before the middle of the year, and I expect housing to continue to be a drag on growth well into 2008."
The moment was short lived: "Rising incomes, buttressed by job growth will support further gains in consumer spending."
Less fools catching falling knives?... The MBA Market Composite Index, declined 19.5% last week, (purchase index -11%, refi -27%).
This was the largest decline in mortgage loan applications since 2004.
Despite an orgy of central bank intervention and rate cuts to save the banking system, interest rates jumped and sidelined more fools, er, I mean potential buyers.
Repeat the mantra, there is no bleed or spill over...
The asset backed credit squeeze has Municipal bonds headed for their worst year since 1999 as muni bond holdings have been cut 16% since the end of June. Why?
Securities firms have cut back on their exposure due to losses in the mortgage bond market, and banks simply don't have any spare cash.
With the short term and asset backed commercial paper markets insolvent...
structured investment programs that sell short term debt backed by long term tax exempt bonds have been shut down.
The bond dumping caused prices to fall and yields to rise, and higher yields mean...
higher financing costs for municipalities and state governments that wish to sell bonds.
Those local governments budgets have yet to be hit by the wave of declines in assessed real estate "values" and decelerated consumer spending or sales tax revenue.
Can you say higher income and sales taxes for Californians already facing a $14 billion budget crisis? I can.
If either major bond guarantor, MBIA or Ambac's rating got cut, can you say bankruptcy that makes Orange County look small? I can.
Comments
there was one small item i saw in this post that I think might be off.
i might be wrong, but i think you meant to type $40 Million bonus, not billion for Mack's reported bonus of '06.
Keep up the informative posts. They are greatly appreciated.
You are correct, it should be M not B....