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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (29853)	4/1/2005 8:51:16 PM
From: orkrious	Read Replies (2) \| Respond to of 110194

lance lewis tonight on the financials. there's some bad shit that's happening out there dailymarketsummary.com The financials were once again where the real action was, and it was lower action. The IYF financial ETF (which pretty much has every currently “radioactive” financial piece of junk in it) fell a percent to a new low for the year. The BKX fell a percent and back to its low for the year, and the XBD fell just over a percent and back to its low of the year. The derivative king fell over a percent to a new 52-week low. C fell a percent. BAC fell a hair. GE fell 2 percent. GM was flat. AIG was once again the star of the show, as it plunged another 8 percent to a new multiyear low after more legal staffers in its Bermuda office quit their jobs amid allegations of stolen documents. Another 20 or so major transaction at the company were said to be under investigation as well, and investigators were also reported to be examining accounting records of counter parties to some of the transactions. This rabbit hole just keeps going deeper… Anyone else smell AIG-ron? Judging by today’s decline in the stock, I suspect more bad news is forthcoming next week, which will probably indicate more improprieties. This situation appears to be on track to get much worse and could potentially infect many others. There’s no telling what sort of crazy things were going on inside this company, which is always the risk with these enormous financial institutions, which have pretty much become giant hedge funds since the late 1990s. These big financial houses are incestuous when it comes to derivatives and such. What affects one invariably affects another. That’s the current risk. The problem is obviously that we don’t know what exactly is going on behind closed doors at AIG and these other institutions, but the mere appearance of impropriety that could affect other financial institutions greatly heightens the level of risk out there. And that concern seems to be validated by the continual pounding that the financials are receiving in the stock market. Speaking of which, MBI plunged a percent to another new low today after an independent credit analyst (who tends to be ahead of the curve I am told) lowered MBI’s credit rating to AA-. S&P’s stock analyst also lowered the company’s rating to “strong sell”, although S&P has yet to lower the company’s credit rating yet. MBI currently has a AAA rating, which is required in order to insure muni bonds. I think you can see where this is headed. Anyone else smell a credit rating downgrade in the future? As we discussed yesterday, the mere appearance of problems at MBI can send enormous ripples through the financial system, and today’s widening of credit spreads and the damage to stocks may have just been the tip of the iceberg. Elsewhere among the credit insurers, ABK fell just over a percent to a new low for the year, and MTG, which is a mortgage insurer, fell a percent and back to its recent lows. Fellow mortgage insurers RDN and PMI also slipped a percent to new lows for the move. The mortgage lenders were mostly lower by a percent or two. FRE fell 4 percent and back to its lows for the year, while FNM fell over 2 percent to a new multiyear low. Retailers were pounded, with the RTH falling 2 percent to a new low for the year. BBY guided its fiscal Q1 down, and the stock was beat for 6 percent to a new low for the year. Likewise, WMT plunged over 2 percent to a new multiyear low. The catalyst for today’s break is probably gasoline hitting another new high (it rose 4 percent), but I think in the end, people will look back and say this is also the beginning of the market signaling a US consumer-led recession is around the corner, which if asset prices fall (meaning the twin bubbles of stocks and real estate) is exactly what will begin later in the year. Remember, there’s no FNM, due to its crippled condition, to reinflate our various bubbles and bail us out this time if the twin bubbles of stock and real estate finally burst. The market may be finally appreciating this fact.