"The panic may be over, but the results of the panic are not over." … The Economist, 1873 (the subsequent bear market ran for 5 years…)
The King Report
M. Ramsey King Securities, Inc.
Thursday February 14, 2008 – Issue 3811 "Independent View of the News"
Once again, the US Commerce Department manufactured a higher than expected, and probably warranted, retail sales number. The data is not inflation adjusted. Gasoline is +2%. The not-inflation adjusted retail sales data pushed stocks higher and bonds lower to start Wednesday; bonds tanked.
But unexpectedly, bonds caught a bid in mid-morning while stocks were soaring. The reason for the bid in bonds soon surfaced.
Auction-Bond Failures Roil Munis, Pushing Rates Up Bonds sold by U.S. municipal borrowers with rates set through periodic auctions failed to attract enough buyers as banks including Goldman Sachs Group Inc. and Citigroup Inc. that run the bidding won't commit their own capital to the debt.
Rates on $100 million of bonds sold by the Port Authority of New York and New Jersey, with bidding run by Goldman, soared to 20 percent yesterday from 4.3 percent a week ago, according to data compiled by Bloomberg. Presbyterian Healthcare in Albuquerque and New York state's Metropolitan Transportation Authority also experienced failures, officials said...
"It's the beginning of the end for the auction-rate market," said Matt Fabian, a senior analyst with Concord, Massachusetts-based Municipal Market Advisors. "Banks have stopped supporting the market." – Bloomberg
bloomberg.com
The FT: A collapse in confidence in a $330 billion corner of the debt market has left US municipalities and student loan providers facing spiralling interest rate costs. The implosion of the so-called auctionrate securities market is the latest incarnation of the credit crisis.
Isn’t Fed hyper easing supposed to prevent this type of problem? "This time it’s Austrian!"
Bloomberg: The Federal Reserve's interest-rate cuts last month have failed to lower borrowing costs for many companies and households, increasing the chance of further reductions from the central bank.
Companies are paying more to borrow now than before the Fed reduced its benchmark rate by 1.25 percentage point over nine days in January, based on data compiled by Merrill Lynch & Co. Rates on socalled jumbo mortgages, those above $417,000, have increased in the past month, making it tougher to sell properties and risking further price declines.
"It's the clogging up of the credit markets that worries me most," Harvard University economist Martin Feldstein said in an interview in New York. "The Fed has done a lot of cutting, the question is whether it's going to get the traction that it did in the past." (This time it’s Austrian!)
bloomberg.com;
;sid=awDOsJJfFbrs&refer=home
Will historians write, like many have about the Fed actions in the ‘30s, that the Fed did not provide enough credit or cut rates deep enough during the crisis of 2007-2008?
And when will US citizens asked their duly elected why the bailouts [some by taxpayers] for banks and brokers and Fed largesse is not trickling down to them?
The WSJ: Worried Bankers Seek To Shift Risk to Uncle Sam The banking industry, struggling to contain the fallout from the mortgage debacle, is urgently shopping proposals to Congress and the Bush administration that could shift some of the risk for troubled loans to the federal government.
online.wsj.com
So once again we have crony capitalists pegging the US government to social their risks but allow them toleverage up and keep profits. And why should anyone trust our duly elected to do what is right?
Another reason for bond market strength, until late in the session, was provided by our friend Rich, whotold us that there were rumors that a money market fund would ‘break the buck’.
So once again equities shrugged off ugly news and insouciantly marched higher on trading proclivities - upward expiry pressure and the tendency for Wednesday to be a big rally day.
Stocks had their best 3-day gain since December 7 and the first 3-day rally since December 27.
"Pay no attention to the man behind the curtain!" – Keep buying stocks!
Possibly supporting yesterday’s rally were reports that Rupert Murdoch's News Corp is in talks to combine MySpace and other Internet properties with Yahoo. PS – Bonds declined sharply in the last 45
minutes of the USH daily session.
Yesterday, amid the stock rally, MGIC Investment Corp., the largest U.S. mortgage insurer, posted a record quarterly loss of $1.47B for Q4 and said it had hired an adviser to raise capital. MGIC also said it expects further losses of about $3.5B due to increasing delinquencies of securitized mortgages it insurers.
Goldman Sachs’ Ed McKelvey: It is already clear that the current recession in US housing activity resembles, in depth and duration, the deep cycles that were de rigueur up through the late 1980s rather than the minuscule ones that have occurred since then. However, the dynamics of the current cycle are much different than those older ones. Whereas they featured a buildup of pent-up demand, leading eventually to a sharp and sustained recovery, this one features pent-up supply, the correction of which will require lower levels of production for a long period. This may frustrate market participants who contemplate housing investments that may look like bargain basement opportunities, as they are less
likely to be bargains than to stay in the basement, at least if our view of the sector is right…
-END-
Note:
Bill:
First it was M3 stats. Now this: economicindicators.gov
"Due to budgetary constraints, the Economic Indicators service (http://www.economicindicators.gov/) will be discontinued effective March 1, 2008."
Jay
In the Vortex of Western Decline
The Tokyo G-7 meeting has ended in total divergence. Each participant wants to get back, what still might be left of his original input. Not a single ounce will show up on the markets. From now on it will be each Central Bank on its own. Without hard asset backing, it means a nail in the coffin and "goodbye" IMF.
Instead of sending additional troops, the Allies are withdrawing troops from Afghanistan. The Taliban and Al-Queida will take over Afghanistan and Pakistan. A nail into the coffin of NATO!
The divergent diplomatic approach toward Iran by the UN and the US: a nail into the coffin of the United Nations.
The growing distrust between Banks and Financial Institutions: a nail into the coffin of the functioning of Western Finance.
And many more nails to come ….
I would like to make a proposal to clear the mess:
Declare bearer shares illegal and go back to shares on name only.
That for a fresh start. It will do a hell of a good job in making the world more transparent and in routing up the crooks.
Feb 13th 2008
Hans Schicht
Sabre:
Bill,
I know GATA touched on it yesterday but according to my source at UBS, yesterday was the largest financial panic anyone had seen in decades in the fixed income arena. For the first time in almost twenty years, the municipal bond market failed. UBS held four intra-day conference calls to address the issue.
What happened was this; most municiplaities and companies for that matter have credit lines that re-set on a weekly basis. Yesterday, all of the auctions failed. The last time this happened was Orange County. Clark County airport in Vegas saw its yield climb slightly above 17%!
The problem is that much like everything else in this leveraged world, there are players that may have to start unloading Muni's if these markets do not calm down. One big player in this arena is Blackrock, symbol BLK. They hold hundreds of billions of this paper.
Stay tuned as there are millions of fixed income players that may just decide cash is the only way to go. I'll keep the GATA faithful updated.
Sabre |
