jimp re: Credit Crisis
There are some amazing things going on in the financial world...
Citibank goes from being a subprime lender – to becoming
a subprime borrower – with it’s 11% convertible deal with
the government of Abu Dhabi’s investment arm - ADIA.
11% !
You could of been 12 months out of bankruptcy, with a
foreclosure, have a 520 credit score, and lie about
your income and your job...and still get a rate better
than 11% from Citi itself -- just a few months ago.
My how things change.
And we've always looked at all these foreign countries
accumulating massive foreign currency reserves as
foes...and actually, they've now become our
friends bailing out our banks and financial system.
Friend, or still foe? (more on that later).
In the past two years, sovereign wealth funds have
invested over $77 billion in US & European banks and
private equity firms. Notably…
-- The Abu Dhabi Investment Authority invested $7.5
billion for a 4.9 percent holding in Citigroup.
-- China Investment Corp. bought $5 billion of
Morgan Stanley.
-- Singapore’s Temasek Holdings also invested $4.4
billion in Merrill Lynch & Co. with an option to buy
an additional $600 million of stock.
-- The Government of Singapore Investment Corp invested
$9.7 billion investment in Switzerland's UBS.
-- Singapore-based Temasek Holdings invested $9.2 billion,
buying an 18 % stake in Britain's Standard Chartered bank.
Now what's scary is this...
LTCM was a $4.5 billion dollar event.
And we've had an LTCM equivalent, or better, virtually
every couple of weeks.
It makes you wonder how in the hell the market has held
together and not gone into complete and total free-fall?
The US Federal Reserve initially estimated U.S. subprime
credit losses at $50 billion.
And Hank Paulson assured the markets that the worst had
passed and everything was under control.
Then the bottom fell out of mortgage bonds, SIV’s imploded
and the markets completely seized up. And Goldman made
100's of millions shorting subprime - thank you Hank.
Now estimates on subprime losses have risen to between
$200 and $400 billion.
And it’s no longer just subprime mortgage loans.
Now ramping delinquencies and rising losses in consumer
debt such as credit cards and auto loans, have taken credit
loss estimates up to between $400 and $800 billion.
To put that in perspective:
Japan's losses during it's banking crisis that led to a
17 year bear market in it's stock market and property
values - was created by a $700 billion loss.
Can you say Nikkei deja vu?
But, here's the kicker...
If losses reach the $600 billion level, it would mean that
as much as 1/3rd of the “tier one” core banking capital of
many US and European banks would be vaporized.
...and FASB 157 lies dead ahead.
You would think that Enron and "off balance" sheet risk
would be fresh on the memories of the market, but evidently
not, because we've got about 400 Enrons afloat right now.
The original SIV bailout was proposed at $80 billion. Now
analysts are saying that it will take $300 billion.
Bear Stearns CEO Jimmy Cayne just joined the unemployment
line today.
Given the losses, the CEO shakeouts, and the infusion of
capital from SWF's -- this is truly becoming a historic
market event.
The key here is patience.
Back in August I thought Goldman would separate itself
from the pack on the initial meltdown and it did.
Then Fannie & Freddie seemed to defy gravity as the rest of
the financials went into meltdown and they become a sitting
duck short.
I think shorting the rallies off of each Fed cut & market
rally is "the trade" for now. There are lots of
manipulations and interventions.
I think the one thing that traders are missing vis a vis
the arguement on whether central banks are really adding
liquidity here - is two things.
The cloak of anonymity on both "who" comes to the discount
window and "what" the Fed is taking as collateral.
If central banks are taking illiquid assets off the hands
of banks and replacing it with freshly minted cash...they
most certainly are adding liquidity and lots of it.
The wild card is the role that these SWF's (sovereign wealth
funds) will play in the bailout. They are sitting on over
$2 trillion of total capital.
Think about how much capital Wall Street insiders have
sucked out of not just the American citizenery, but of
our public companies as well.
The have sucked the lifeblood out of our economy, our
financial system, our housing market and now out of many
of our public companies.
This has been an amazing transfer of wealth...and we are
sitting at a historic tipping point both economically and
politically here in the U.S.
Think about how precarious the financial system is
right here and now... then, think back on how the Fed
created and profited from the great Depression...
...by pulling the plug on Wall Street, contracting
credit and bringing the entire house of cards
crashing down.
...once again -- two words...and two thoughts:
Deja Vu...
When, not if..
Everyone is looking to gold, oil and commodities as a safe
haven, but should this contagion move to the next level,
investors are going to have to institute "short" trades,
not just hedges in commodities, or currencies to maintain
wealth, let alone make money.
Think about the fall of the Nikkei from 40,000 to 7,000.
Gold up $13 and change as I type... because it knows which
side of the "liquidity" debate it stands and it also smells
.50 bp coming from "blinky."
I guess the "boyz" bidding up Barrick - knew what they
were doing (vbg).
It's really getting interesting.
If we get .50bp from the Fed...
Gold will look like Secretariat coming out of the gate!
I'm waiting for Bernanke to tell Ron Paul that we shouldn't
be worried about he triple digit gold price, because if we
adjust the price for inflation... gold would have to be at
$2176 to equal the levels of the early 80's...and that gold
is thus not signaling inflation, but is actually cheap! (vbg).
S.O.T.B. |
