Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: 10K a day who wrote (126053)	5/30/2008 5:47:13 AM
From: Sr K	Read Replies (1) \| Respond to of 306849

bloomberg.com Moody's Implied Ratings Lab Reveals Ambac, MBIA Turning to Junk By David Evans May 30 (Bloomberg) -- Moody's Investors Service has created a new unit that surprises even its own director. The team from Moody's Analytics, which operates separately from Moody's ratings division, uses credit-default swap prices as an alternative system of grading debt. These so-called implied ratings often differ significantly from Moody's official grades. The implied ratings frequently show that swap traders think debt is in more danger of defaulting than Moody's credit ratings signify. And here's the kicker: The swaps traders are usually right. ``When I first saw this product, my reaction was, `Goodness gracious, Moody's has got a product that is basically publicizing where the market disagrees with Moody's,''' says David Munves, managing director for credit strategy research at Moody's Analytics. The implied-ratings unit works in a corner of Moody's new world headquarters in lower Manhattan, across the street from Ground Zero. ``But these differences are out there,'' Munves says. ``We might as well capture and learn from it what we can.'' The credit quality of bond insurers, which have been at the center of the subprime storm, differ dramatically. The official ratings of these companies say the insurers are in great shape; the alternative ratings say they're in dire danger of defaulting on their debts. MBIA Inc. and Ambac Assurance Insurance Inc., the two largest bond insurers, got themselves into trouble by veering away from the plain-vanilla business of insuring debt issued by municipalities and corporations. The insurers began selling credit-default swaps, which are a type of insurance, to banks eager to hedge their own risks from collateralized debt obligations. Subprime Debt Because many of those CDOs were bundles of debt laced with securitized subprime home loans and other asset-backed securities, the insurers might now shoulder tens of billions of dollars in losses. Ambac and MBIA have raised billions of dollars of new capital so that Moody's and Standard & Poor's would keep top ratings for the bond insurers -- and the rating firms have done just that. Moody's implied-ratings group paints a completely different picture. Using the CDS market, Munves's unit rates both MBIA and Ambac Caa1. That's seven notches below junk and 15 below the official Moody's rating. Swap traders see there's a huge risk that Ambac and MBIA will default, hedge fund adviser Tim Backshall says. He says swap traders don't trust S&P's and Moody's investment-grade ratings for the companies. `Into Default' ``The only thing holding them at AAA is simply the model that the rating agencies claim they use to judge that capital and the fact they know that if they downgrade the companies, it'll push them into default,'' says Backshall, of Walnut Creek, California- based Credit Derivatives Research LLC. The rating companies say their grades are correct. ``Moody's will not refrain from taking a credit rating action based on the potential effect of the action,'' says company spokesman Anthony Mirenda. S&P spokesman Chris Atkins says, ``We make rating changes when we believe events warrant such action.'' Munves says that over one year, the implied ratings have been a more accurate predictor of defaults than Moody's ratings. The Moody's unit reports that implied ratings for one year have a 91 percent accuracy ratio compared with an 82 percent ratio for Moody's official ratings. ``The Moody's accuracy ratio is consistently lower,'' he says. He says Moody's company debt ratings are designed to remain stable so they aren't influenced by short-term ripples, unlike the more volatile swap-implied ratings. ``The CDS market often ends up coming back towards Moody's rating,'' he says. By the time the two ratings converge, though, a company's debt may already be in default -- and the investors who bought it may be out of luck. Editor: Jonathan Neumann To contact the reporter on this story: David Evans in Los Angeles at davidevans@bloomberg.net. Last Updated: May 30, 2008 00:01 EDT

To: 10K a day who wrote (126053)	5/30/2008 6:51:20 AM
From: Giordano Bruno	Respond to of 306849

Its all so very bullish Ford Motor Gets Sideswiped As Credit Unit's Outlook Dims By MATTHEW DOLAN May 30, 2008; Page B1 Ford Motor Co., whose plan to return to profit next year has been derailed by a plunge in sales of trucks and sport-utility vehicles, faces a second blow from the worsening plight of its once-lucrative Ford Motor Credit arm. Unlike General Motors Corp.'s lending operation, GMAC LLC, Ford Credit steered away from home mortgages, and so hasn't racked up big losses from the nation's housing slump. (Thousands of GM workers have accepted buyout or retirement offers; please see related article.) Ford's predicament, however, is similar to that of many mortgage lenders. Delinquencies are rising on its loans -- especially those for big trucks -- and some of its borrowers owe more than their vehicles are worth. RELATED ARTICLE [Go to article] • Ford Plans Global Car Production 5/29/08 "We are still holding our view on Ford Credit that we will be profitable this year," Ford Chief Financial Officer Don Leclair said last week. But, he added, "It won't be a big profit. It will be less than last year." Ford Credit once paid billions of dollars a year in dividends to its parent, including a total of $16.7 billion from 1998 to 2006. Those dividends buoyed the auto maker during downturns in vehicle sales and helped to fund developments of new models. But Ford Credit didn't make a payout to Ford in 2007 and, because of its expected slide in profit, doesn't plan to make one this year, contrary to the unit's earlier predictions. "Given the market's volatility, it would be inappropriate" to say when dividends will resume, Ford Credit Chief Executive Michael E. Bannister said in an interview. The credit unit's main trouble stems from the cut-rate loans and leases it made during the past few years to entice customers into new trucks and SUVs. Auto lenders expect some buyers to default on loans, and count on recouping some of the loan by repossessing the vehicles and selling them. In leasing deals, they count on taking vehicles back at the end of the lease period and selling them to dealers at a reasonable price. But the housing crisis and surging gasoline prices have upset some of those assumptions. During the first quarter of 2008, repossessions of vehicles financed by Ford Credit increased 5% from a year earlier, and the proportion of loans more than 60 days past due also rose. At the same time, as many consumers abandon trucks and SUVs for smaller cars, resale values on big vehicles have plunged. In April, average prices for used pickup trucks were down almost 16% from a year earlier, according to Manheim Auctions, which runs dealer auctions of used vehicles around the country. As a result, Ford Credit often loses money when it sells used vehicles. In the first quarter, Ford's losses on the repossessed cars and trucks it resold was $2,200 more per vehicle than in the year-earlier period. "Ford Credit will face an increasingly difficult operating environment for perhaps the next 18 months," said Goldman Sachs analyst Brian Jacoby. [Chart] Keeping its credit unit healthy is important to Ford for a couple of reasons. "Even in their heyday, they needed dividends from the credit arm," said Shelly Lombard, a senior high-yield analyst for Gimme Credit. Ford Credit also plays a key role in helping Ford attract and keep customers. A 2007 survey by J.D. Power & Associates showed customer loyalty to Ford, Lincoln and Mercury products was 61% among those who financed with Ford Credit, compared with 45% for those who had dealer-arranged bank financing. Because the credit unit has relied solely on auto loans since the late 1990s, Ford Motor and Ford Credit "are inexorably linked, and it's a problem for both of them now," said Ms. Lombard. Indeed, increasing Ford Credit's profits is an essential part of Ford CEO Alan Mulally's turnaround plan for the auto maker. Ford started the year expecting its credit arm to match the $1.2 billion in pretax profit it earned last year, but now has a much dimmer outlook. In the first quarter, Ford Credit earned just $36 million, $257 million less than in the year-earlier period. The unit's plight has caught the attention of Kirk Kerkorian, the billionaire investor who recently acquired a 4.7% stake in Ford and has made a tender offer to buy 20 million more shares, which would boost his stake to 5.5%. Mr. Kerkorian's longtime adviser, Jerome B. York, has applauded Mr. Mulallys' turnaround efforts so far, but has pointed to Ford Credit as "an area of weakness." Ford Credit had $24 billion in cash and available credit lines in the first quarter. In the past two months, it has borrowed $1.1 billion in unsecured, high-interest debt and raised an added $5.3 billion in secured loans to steady its finances. It also has sold assets abroad, including most of its stake in auto lender Primus Financial Services Japan. Ford has long said it isn't interested in spinning off Ford Credit, as General Motors did with GMAC. Mr. Bannister, Ford Credit's CEO, said Ford also has reviewed the option of selling the unit many times over the years but has always come to the conclusion that Ford Credit is a strategic asset for the auto maker. Even if it changed its mind, interested buyers would probably be few amid the current credit crunch.

To: 10K a day who wrote (126053)	6/2/2008 10:24:19 AM
From: Jim McMannis	Respond to of 306849

Home Prices Fall in 23 U.S. Cities as Foreclosures Increase bloomberg.com June 2 (Bloomberg) -- Home prices fell in 23 U.S. metropolitan areas in March, led by Sacramento and San Diego, as rising foreclosures prolonged the housing recession. The price per square foot in Sacramento, California's capital, dropped 31 percent to $160 from a year earlier, according to a report released today by New York-based Radar Logic Inc., a real estate data company. Prices in San Diego declined 27 percent to $251 a square foot. New York area prices fell compared with a year earlier for the first time since Radar Logic began publishing in 2000, the report said.