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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (8090)	8/9/2007 7:17:36 AM
From: John Pitera	Read Replies (2) \| Respond to of 33421

BNP Paribas Unit Suspends Funds Amid Credit-Market Troubles By NICOLAS PARASIE August 9, 2007 5:52 a.m. PARIS -- BNP Paribas Investment Partners, a unit of French bank BNP Paribas Thursday said it temporarily suspended three of its funds as a result of a current lack of liquidity in the market. The market in these types of investment has come under pressure recently because of problems in the subprime mortgage market. "The complete evaporation of liquidity in certain market segments of the U.S. securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating," BNP Paribas said in a statement. As a result, the bank said it would suspend three funds, Parvest Dynamic ABS, BNP Paribas ABS Euribor and BNP Paribas ABS Eonia, which are in total valued at around €1.5 billion ($2.07 billion), a spokesman for the group said. All funds combined at BNP Paribas Investment Partners are worth more than €350 billion. "The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above-mentioned funds" and "therefore unable to calculate a reliable net asset value, NAV, for the funds," the company said. The news sent further shock waves through an already sensitive money market. High-yield currencies, which started the day higher, turned lower following the BNP Paribas announcement, with low-yielders such as the yen reaping the benefit. "Who knows where the subprime story is going to pop up again," said Adam Cole of RBC Capital Markets. He said any losses in the Australian and New Zealand dollars should be limited for now as are investors still waiting to buy on the dips. BNP Paribas spokesman Jonathan Mullen said "it is impossible to price assets in the funds because there is a lack of liquidity." "Investors can't do anything now, but it's in their best interest," he added. When the bank posted second-quarter results last week, Chief Executive Baudouin Prot said the bank would be virtually untouched by the plummeting valuation of some subprime mortgage portfolios in the U.S. because it has little exposure to that market. "It was a deliberate choice," he said. "For many years, we didn't get the revenue, now we don't get the problems." Earlier this week, WestLB Mellon Asset Management, the asset-management joint venture of German state bank WestLB AG and The Bank of New York Mellon Corp., said it is suspending the issuing and redemption of shares in an asset-backed securities fund. "In the scheme of BNP Paribas nothing has changed -- we have minimal impact from the subprime market," Mr. Mullen said. The valuation of these funds and the issue, redemption process will be resumed as soon as liquidity returns to the market, BNP said. BNP Paribas shares lost €2.50, or 2.9%, to €82.50, in an overall weaker market in Paris morning trading. Write to Nicolas Parasie at nicolas.parasie@dowjones.com1

To: John Pitera who wrote (8090)	8/9/2007 7:28:20 PM
From: Davy Crockett	Read Replies (1) \| Respond to of 33421

Great article John... Thanks for taking the time to post that article as well as the others. Looks like a liquidity freeze is rapidly developing.

To: John Pitera who wrote (8090)	8/9/2007 8:24:14 PM
From: Poet	Read Replies (1) \| Respond to of 33421

That is one erudite, wise speech, Mister Pitera. Thanks so much for sharing it. And the others weren't so bad either. Your thread is always my first read whenever I log into SI. Be well.

To: John Pitera who wrote (8090)	8/10/2007 2:30:07 PM
From: Hawkmoon	Respond to of 33421

I think this paragraph is worth reiterating: We are of the opinion that the distancing of the borrower from the lender has contributed to the development of lax underwriting standards. Each participant, in the securitization/origination process, takes their ounce of payment, but no one truly worries about the underlying credit quality since the loan will be sold. Furthermore, most participants are compensated on volume and not quality of loan originated. In our opinion, “a rolling loan gathers no loss.” Possibly, with so many sub-prime originators failing because of loan put-backs to them, some degree of underwriting discipline will return to the market; however, with so many types of loan originators operating outside of the regulatory system with minimal capital, it is far better to originate a loan, capture the fee, and then get out of Dodge, should the business go bad. One can always return another day. But, on the other hand, overeactions in these markets also represent opportunity for those with the guts, and the bucks, to step in an buy something that no one else wants. Also, it represents diversication of risk, much of it to the unregulated Hedge funds. And from I've seen and heard we know how much many of the traditional, and regulated, money funds loath the "Hedgies" and can't wait to see them lose their luster. Now maybe the Fed is holding off in rescuing the banks from the financial environment they've helped to create, but I can't see them permitting the system to become unwound. And I think it's why we're seeing congressional action, recently so critical of Fannie Mae, ginning up support for increasing the quantity of mortgages they can hold. But will the Fed act too late, with too little? One more edit: Don't the banks that initiated those loans (prime and Alt-A) hold some responsibility for breaking that "connection" between the borrower and lender? Say I buy a house under certain terms, my circumstances have no changed and I'm paying the mortagage with no difficulties, and then my lender sells my mortgage.. Now my situation is suddenly pooled into the mass hysteria of the rest of the asset-backed securities markets.. But I don't look at my new mortgage holder. I look at the bank where I took out my loan.. And I see them as having screwed me by selling my loan into the land of "animal spirits" (and diversifying their risk). And I take my business elsewhere... But on the other hand, these banks WHO KNOW THE BORROWER stand to make money, if they work hand in hand with them to preserve the long-term relationship so important to a bank. Hawk@gladIdidn'tbuyahousewhenIreturnedfromoverseas.com

To: John Pitera who wrote (8090)	8/10/2007 2:54:25 PM
From: The Ox	Respond to of 33421

Another example of risk knowing no boundaries, on June 1, the Government of Pakistan issued a $750 million 6.875% of 6/1/2017 dollar denominated bond priced at par and rated B1/B+ at barely 200 basis points above the ten-year Treasury bond yield. The following week in the Los Angeles Times, the headline read, “Musharraf’s grip falters in Pakistan.” The second headline, “Dismay over U.S. support of general.” I guess the market believes the extra 200 basis points of yield spread is sufficient compensation for risk. I think not. This may seem trivial with respect to the problems we face but I take at least one issue with this article. Maybe Mr. Rodriguez didn't realize that at the time of the bond issuance (it is my understanding that) the Pakistani stock market was the #1 growing equity market in the world. Not that this can't change and change quickly but (like many Americans), I wonder if Mr. Rodriguez knew how strong the Pakistani market has been over the past few years or if he simply decided not to include it in this presentation. Whether or not the above tidbit "justifies" the yield spread on the issued bonds is very debatable. However, the underlying strength of the Pakistani market certainly had a lot to do with the ultimate pricing of the bonds. finance.yahoo.com I am not disputing what was written or the fact that risk tolerance was being tossed out like the proverbial "baby in the bathwater"! Its just very easy for people to unjustly spread fear; about things they know little about or they push only one side of a story as is the case above,imo. Taking circumstances out of context is simple. Coming to conclusions by going from A to C without referencing B happens all too often, especially when taking a Bear or Bull stance with respect to the markets. Not to mention the "Monday Morning Quarterback" hindsight that all too often gets presented by pundits talking up their positions. Anyway... and on a different note, the posts on this thread have been terrific lately. I want to commend you for pointing out the potential pitfalls of the CDO sector well in advance of the current problems! Keep up the good work.

To: John Pitera who wrote (8090)	8/10/2007 6:32:20 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 33421

Fed injecting Billions in liquidity (buying T-bills)... biz.yahoo.com The Fed added $19 billion in liquidity to the market Friday morning, then another $16 billion and, finally, $3 billion. Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y. But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting." He noted that it was Fed rate cuts that calmed the market after the 1998 Russian debt crisis and the implosion of the hedge fund Long-Term Capital Management. The Dow closed down 31.14, or 0.23 percent, at 13,239.54. On Thursday, the Dow fell 387 points and extended a series of triple-digit moves that began in late July. Friday's moves were typical of the zigzag trading in the Dow since the index closed at a record 14,000.41 on July 19. The Dow is down about 761 points, or 5.4 percent, from its record close. Hawk