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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: $Mogul who wrote (96120)	12/3/2007 2:59:32 PM
From: bentway	Read Replies (1) \| Respond to of 306849

Bush just needs to make a speech about how we need to do this to preserve his "Ownership Society". That'll make things right!

To: $Mogul who wrote (96120)	12/3/2007 4:36:28 PM
From: ChanceIs	Read Replies (4) \| Respond to of 306849

Things Are Different This Time By JACQUELINE DOHERTY ONE THING THAT CONTINUALLY SURPRISES me about the markets is how long things take to play out. Bad stocks stay afloat longer than I generally expect and good ones take longer to turn around. That's worth keeping in mind while trying to determine whether bank and brokerage stocks have hit bottom. Over the past six months or so, I've periodically called a wise group of folks with a lot of gray hair to ask whether the bottom has arrived. The latest round of calls took place last week in the wake of a number of potentially bullish events, as financial companies showed some degree of desperation. Citigroup (ticker: C) paid 11% to peddle $7.5 billion of convertible preferred (see page 40) and Freddie Mac (FRE) issued $6 billion of 8.375% perpetual preferred. The Federal Reserve indicated that it was ready, willing and able to lower interest rates. And the Treasury started pushing bankers to offer low, fixed-rate loans to subprime borrowers who have mortgages with teaser rates that are about to reset. On the face of it, these three events look very similar to what occurred in the late 1980s and early 1990s. Banks, then struggling with distressed commercial real-estate loans, had to raise expensive money to bolster their regulatory capital. The Fed cut rates sharply, and Uncle Sam created the Resolution Trust Corp. to deal with ailing loans. THOSE WHO BOUGHT CITIGROUP in October 1990, when it traded at a split-adjusted $1.39, were richly rewarded. Will the same be true for those who buy today? Investors certainly seem to think so. Citi shares climbed 9% from their lows after Monday's rout, and shares of other subprime casualties rose, too. Merrill Lynch (MER) gained 17%, Countrywide Financial (CFC) jumped 25% and Freddie Mac soared 43%. But our cadre of wizened investors see key differences between today and the 1990s. At the time of Citi's 1990 low, investors feared the bank would go out of business, the economy was mired in a recession that would last until the following March and profit margins were extremely low, notes Doug Cliggott, Dover Management's chief investment officer. Today, only Citigroup's dividend seems to be endangered, the economy has yet to enter a recession -- Cliggott does see one on the horizon -- and profit margins are near record levels. "I think we're very early in the economic slowdown," says Cliggott. And as the economy weakens, default rates will rise in other areas of lending, like credit cards or auto loans, putting additional pressure on the financials. We're also just at the beginning of a wave of equity issuance by financial companies. Many probably will tap the preferred, convertible or equity markets. They'll boost their capital ratios but dilute the earnings available to existing shareholders. Potential issuers include Merrill, Bear Stearns (BSC), Fannie Mae (FNM), Countrywide Financial, some of the financial guarantors and at least 10 commercial and regional banks. THE BOND MARKET is certainly signaling that all's not well. The London Interbank Offered Rate -- or Libor -- is what banks charge each other to borrow money. Last week marked the first time that a bank could borrow one-month money through the turn of the year. The rate on one-month Libor jumped from 4.82% Wednesday to 5.22% Thursday. Such stress hasn't been seen since 2000, when investors were worried about Y2K, and the Fed had to provide massive infusions of liquidity. "This is a credit crunch. It's not over, no matter what the stock market thinks," says Jay Diamond, managing director at Annaly Capital Management. Normally, a Libor spike is a sign of distress in the banking sector. This time, it also may indicate that banks are less willing to lend because they want to shrink their balance sheets by Dec. 31 and improve their capital ratios. Many banks will have to acknowledge shaky assets that they had hoped to keep off their balance sheets. HSBC Holdings (HBC) won't be the last institution to absorb SIV assets. Indeed, the pressure on Citigroup to fix its structured investment vehicles increased Friday after Moody's Investors Service cut or placed on review for downgrade the ratings on $64.9 billion of debt sold by Citi SIVs. As the banks and brokers deleverage, it's unlikely they'll be able to boost earnings. "This is the epitome of a dead-cat bounce," warns Doug Kass, the head of Seabreeze Partners, who has long been bearish on the financials. "People don't recognize how far bank and broker earnings will fall." So, yes, there will be a time to buy bank and brokerage stocks... but it's certainly not right now.