Reuters are reporting another big dollop of liquidity has been emitted from the ECB. ( Around 61 billion Euros.) And it doesn't seem to have made much difference!
Perhaps this has to do with it? From the Wallstreet Examiner
"The Steaming Pile"
by Lee Wheeler
Interesting client letter dated July 30 from Kyle Bass, the guy who runs Hayman Capital out of Dallas. He’s nailed the subprime crisis and his fund is up 240% this year. He remains short U.S. credit vehicles and believes the pain is just beginning.
He calls the subprime CDO/CLO market the “greatest bait and switch of ALL TIME” (his caps.)
Says that he spoke with a “senior exec” in the structured product marketing group at one of the big borkers who told him:
“The ‘real money’ (U.S. insurance companies, pension funds, etc) stopped buying subprime mezzanine debt in late 2003 and they needed a mechanism to ‘mark up’ these loans, package them opaquely, and export the newly packaged risk to unwitting buyers in Asia and central Europe. The CDOs were the only way to get rid of the riskiest tranches of subprime.”
“These buyers (mainland Chinese banks, the Chinese government, Taiwanese banks, Korean banks, German banks, French banks, UK banks) possess the ‘excess’ pools of liquidity around the globe. They have had a virtually insatiable demand for U.S. dollar denominated assets…….until now.”
“This [converting toxic waste into AAA grade debt] will go down as one of the biggest financial illusions of all time. The ensuing HORROR SHOW will be worth the price of admission.”
Bass expects that this debt will ultimately fetch 10 cents on the dollar and that the problems will leak all the way up to AA debt. He also fully expects non-US buyers—the main source of U.S. debt and even schlock LBO liquidity—to hold a buyer’s strike of U.S. assets.
In essence, he says (not his words), Cheat Street has taken a giant, steaming fraudulent shite in the liquidity pool, and no one will want to swim for a long time.
Bass also mentions he took a recent tour of California’s Inland Empire where a great deal of this toxic waste was created, along with Florida, Arizona, Nevada and elsewhere.
“Let me start by saying it is MUCH WORSE than even I thought it could be. I met with mortgage lenders, originators, economists, capital market professionals. The overriding theme: ‘Everyone committed fraud.’ They told me that 90% of all subprime loans contained some kind of fraud and that 50% of applicants overstated their income by MORE THAN 50%!.”
“The borrowers are now locked out of the financing market and there is no logical buyer for these homes outside of the original borrowers. The foreclosure wave will hit these neighborhoods like the Asian Tsunami. If you plug in 15% depreciation in housing prices and 50% loss severities into our subprime model, the capital structure is wiped out all the way to the “AA” tranches.”
Bass remains short credit in the U.S. and has not taken ANY profits yet. He is also short select U.S. schlocks, mostly consumer-related. He is long non-U.S. equities and debt.
“I think the world is going to begin to decouple from the U.S. and realize that currency appreciation coupled with the globe’s best growth is an attractive alternative to fraudulent ratings, U.S. dollar depreciation and financial inventions used to export risk.”
http://www.dealbreaker.com/images/pdf/HaymanJuly07.pdf
For more great articles visit the Wall Street Examiner home page.
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This entry was posted on Wednesday, August 8th, 2007 at 7:32 PM and filed under Lee Wheeler On The Mark.
Showing posts with label Money. Show all posts
Showing posts with label Money. Show all posts
Friday, 10 August 2007
Jim Sinclair's take on these events is always worth reading
Dear Friends,
Adding financial liquidity to the marketplace is happening both in Europe and in the US even though it’s being denied. This is nothing less than MONETARY INFLATION which by economic law translates into price inflation. Adding liquidity is like pouring gasoline on a bonfire. It is proof that central banks will burn down the barn to avoid a derivative crisis. The barn is their respective currencies.
The failure today of various hedge funds in mortgage debt in Europe is a failure in credit derivatives. You are witnessing Central Banks’ reaction to a failure of credit derivatives which simply cannot be permitted unless you live in the world of “Mad Max” in a financial sense. The Carry Trade has nothing to do with gold regardless of those that profess this piece of black PR. Believe it or not, today’s circumstances are what it takes to propel the price of gold above $1,650.
The US dollar has nowhere to go because if you think that a credit derivative failure is containable to any location - or at all - I will sell you the Brooklyn Bridge cheap. All that can be gained by blasting in huge amounts of international liquidity is a temporary slowdown of failures. Adding liquidity anywhere adds liquidity everywhere in a global financial world.
Do not run with the black boxes. When the dust clears, fundamentals will dawn on major investors which will take gold to and through all the angels. All you are seeing today is madmen and women going broke and building the major platform for a major up move in gold.
Respectfully,Jim Sinclair
Adding financial liquidity to the marketplace is happening both in Europe and in the US even though it’s being denied. This is nothing less than MONETARY INFLATION which by economic law translates into price inflation. Adding liquidity is like pouring gasoline on a bonfire. It is proof that central banks will burn down the barn to avoid a derivative crisis. The barn is their respective currencies.
The failure today of various hedge funds in mortgage debt in Europe is a failure in credit derivatives. You are witnessing Central Banks’ reaction to a failure of credit derivatives which simply cannot be permitted unless you live in the world of “Mad Max” in a financial sense. The Carry Trade has nothing to do with gold regardless of those that profess this piece of black PR. Believe it or not, today’s circumstances are what it takes to propel the price of gold above $1,650.
The US dollar has nowhere to go because if you think that a credit derivative failure is containable to any location - or at all - I will sell you the Brooklyn Bridge cheap. All that can be gained by blasting in huge amounts of international liquidity is a temporary slowdown of failures. Adding liquidity anywhere adds liquidity everywhere in a global financial world.
Do not run with the black boxes. When the dust clears, fundamentals will dawn on major investors which will take gold to and through all the angels. All you are seeing today is madmen and women going broke and building the major platform for a major up move in gold.
Respectfully,Jim Sinclair
Possibly "The Worst Banking Crisis since 1931"!
Things are happening quickly. Joe public haven't got a clue because the media tells them nothing but nursery rhymes. To be educated today you need to KNOW about economics and fractional banking.
ECB steps in as lending rates rocketBy Ambrose Evans-Pritchard
Last Updated: 12:35am BST 10/08/2007
Whether it was news that BNP Paribas had suspended three funds caught in the US sub-prime swamp, or wild rumours about Goldman Sachs's hedge funds, or the delayed fallout from the €8.1bn (£5.5bn) state rescue of Germany's IKB bank, global confidence has finally buckled and led to a near total seizure of the credit markets.
Comment: ECB’s con trick won’t restore faith
The views from the trading floor
Frantic Wall Street scenes
Europe's overnight lending rate - the lubricant of the financial system - burst out of its tight 4pc band, surging by an almost unprecedented 62 basis points yesterday morning as banks cut off funding to each other for routine business. It looked alarmingly like the onset of a full-blown credit crunch.
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document.write('');
The European Central Bank stepped into the market, offering unlimited credit - something it had resisted even in the aftermath of the 9/11 terrorist attacks in 2001. The banks gobbled up €95bn yesterday, bringing the crucial interest rate back down to its target of 4pc, although it is far from clear that this will be enough to end the panic.
"Anybody who has been on holiday has come back to face a different world. It's the Wild West right now," said David Bloom, chief currency strategist at HSBC.
Had the ECB let events run their course, the overnight spike would have amounted to a sharp tightening of monetary policy at a dangerous moment and set off a chain reaction through the bond markets.
Jochen Sanio, the head of Germany's regulator BaFin, had seriously spooked investors days earlier with a warning that his country may be facing the worst banking crisis since 1931 - an allusion to the collapse of Austria's Kredit Anstalt, which set of a wave of bank failures across central Europe. It is unclear whether Mr Sanio, and the ECB itself, is privy to something that has yet to hit the media.
The relentless drip-drip of bad news has been straining nerves for two months, ever since two Bear Stearns hedge funds began to implode on US sub-prime bets and new-fangled credit instruments- mostly collateralised debt obligations.
The Bear Stearns debacle led to a forced sale of assets, exposing the dirty secret that sub-prime and similar "Alt-A" mortgage debt is worth far less than its face value. In essence, $2,000bn (£1,000bn) in securities held by funds and banks may be falsely priced on the books. The rating agencies have since been scrambling to downgrade the bonds, raising fears of a cascade effect.
A lot of dominoes have already fallen hard. Australia's Macquarie said investors in two of its hedge funds may lose 25pc of their money, while Sowood Capital said it lost $1.5bn in July. Germany's Union Investment has frozen redemptions from an $1.1bn fund. In France, Oddo & Cie is closing three funds, while the insurance group Axa has closed two funds hit by the credit turmoil. Not to mention the closure of 110 US mortgage lenders since late 2006, capped by the bankruptcy of American Home Mortgage last week.
The flight from risk has frozen the issuance of junk bonds on both sides of the Atlantic, with the cost of borrowing for low and mid-tier firms jumping by 200 basis points in early June - if they can borrow at all. Investment bank are left struggling to find buyers for $470bn in debt left from leveraged buyouts and refinancing deals.
Mr Bloom said Europe and the US were responding to the crisis in different ways. "The markets have been crying out for money, and the ECB has chosen to give them all they want. The Federal Reserve is feeding out liquidity slowly. Ben Bernanke is making his stamp felt, and this may be a different kind of Fed from the Greenspan years," he said.
The concern is whether the world is facing a repeat of the Long Term Capital Management turmoil in 1998, but with less chance of a swift Fed bail-out this time.
"Investors can't decide whether we're looking at a fundamental crisis, or whether this is just a financial story, which is why we're seeing these violent swings every day. I suggest people get out of the market until things are clearer," he said.
ECB steps in as lending rates rocketBy Ambrose Evans-Pritchard
Last Updated: 12:35am BST 10/08/2007
Whether it was news that BNP Paribas had suspended three funds caught in the US sub-prime swamp, or wild rumours about Goldman Sachs's hedge funds, or the delayed fallout from the €8.1bn (£5.5bn) state rescue of Germany's IKB bank, global confidence has finally buckled and led to a near total seizure of the credit markets.
Comment: ECB’s con trick won’t restore faith
The views from the trading floor
Frantic Wall Street scenes
Europe's overnight lending rate - the lubricant of the financial system - burst out of its tight 4pc band, surging by an almost unprecedented 62 basis points yesterday morning as banks cut off funding to each other for routine business. It looked alarmingly like the onset of a full-blown credit crunch.
advertisement
document.write('');
The European Central Bank stepped into the market, offering unlimited credit - something it had resisted even in the aftermath of the 9/11 terrorist attacks in 2001. The banks gobbled up €95bn yesterday, bringing the crucial interest rate back down to its target of 4pc, although it is far from clear that this will be enough to end the panic.
"Anybody who has been on holiday has come back to face a different world. It's the Wild West right now," said David Bloom, chief currency strategist at HSBC.
Had the ECB let events run their course, the overnight spike would have amounted to a sharp tightening of monetary policy at a dangerous moment and set off a chain reaction through the bond markets.
Jochen Sanio, the head of Germany's regulator BaFin, had seriously spooked investors days earlier with a warning that his country may be facing the worst banking crisis since 1931 - an allusion to the collapse of Austria's Kredit Anstalt, which set of a wave of bank failures across central Europe. It is unclear whether Mr Sanio, and the ECB itself, is privy to something that has yet to hit the media.
The relentless drip-drip of bad news has been straining nerves for two months, ever since two Bear Stearns hedge funds began to implode on US sub-prime bets and new-fangled credit instruments- mostly collateralised debt obligations.
The Bear Stearns debacle led to a forced sale of assets, exposing the dirty secret that sub-prime and similar "Alt-A" mortgage debt is worth far less than its face value. In essence, $2,000bn (£1,000bn) in securities held by funds and banks may be falsely priced on the books. The rating agencies have since been scrambling to downgrade the bonds, raising fears of a cascade effect.
A lot of dominoes have already fallen hard. Australia's Macquarie said investors in two of its hedge funds may lose 25pc of their money, while Sowood Capital said it lost $1.5bn in July. Germany's Union Investment has frozen redemptions from an $1.1bn fund. In France, Oddo & Cie is closing three funds, while the insurance group Axa has closed two funds hit by the credit turmoil. Not to mention the closure of 110 US mortgage lenders since late 2006, capped by the bankruptcy of American Home Mortgage last week.
The flight from risk has frozen the issuance of junk bonds on both sides of the Atlantic, with the cost of borrowing for low and mid-tier firms jumping by 200 basis points in early June - if they can borrow at all. Investment bank are left struggling to find buyers for $470bn in debt left from leveraged buyouts and refinancing deals.
Mr Bloom said Europe and the US were responding to the crisis in different ways. "The markets have been crying out for money, and the ECB has chosen to give them all they want. The Federal Reserve is feeding out liquidity slowly. Ben Bernanke is making his stamp felt, and this may be a different kind of Fed from the Greenspan years," he said.
The concern is whether the world is facing a repeat of the Long Term Capital Management turmoil in 1998, but with less chance of a swift Fed bail-out this time.
"Investors can't decide whether we're looking at a fundamental crisis, or whether this is just a financial story, which is why we're seeing these violent swings every day. I suggest people get out of the market until things are clearer," he said.
Thursday, 26 July 2007
When Will Gold Go Ballistic?
Another inciteful article by Ambrose Evans-Pritchard. I don't agree with all of it but he is perceptive and one of the few journos out there posting stuff like this.
When will gold go ballistic?
Posted by Ambrose Evans-Pritchard on 23 Jul 2007 at 15:37
Tags: Economics, Currency, Gold, Euro, financial markets
A lot of readers have asked why I duck the issue of gold when talking about the dollar crisis and the M3 monetary blow-off.
All that glitters: gold will soon sparkle again
So here we go:
I started buying gold mining shares in September 2001, missing the bottom by four months. I still hold some shares (mostly duds, since I am the village idiot when it comes to picking stocks). Gold’s 15 to 20 year upward cycle is alive and well.
For those who don’t follow bullion, gold hit $252 an ounce in the Spring of 2001 in a final capitulation sell-off when Gordon Brown began his Treasury sales. It rose to a peak of $730 in May 2006.
Gold has languished since, in part because of sales by the Spanish and Belgian central banks. I remain very wary in the short to medium-term.
What unnerves me is the way gold has tended to move in sympathy with global stock markets. Whenever risk appetite rises, it rises. When investors shun risk, it falls. In other words, it has become correlated with all the speculative trades - notably the yen and franc carry trades - responding to abundant global liquidity. This liquidity is now being drained as the BoJ, ECB, SNB, BoE, Riksbank, and Chinese Central Bank, etc, turn off the tap. So be careful.
While the pattern appears to have changed over the last couple of weeks, this is not long enough to establish a “paradigm change”, excuse the ghastly term. My concern is that gold will fall hard along with everything else (except the yen and the Swissie) in any market crash/correction.
At some point it will decouple, as it did during the 1987 crash when it fell hard, found a ledge, and then recovered hard, while the DOW kept falling. But, I would rather hold Swissies or Yen until gold finds that ledge in a downturn, resuming its old role as a safe store of value. This may happen quite quickly in a crisis. (Of course, I may also be left behind right now in an accelerating rally, but that is a risk I accept)
Ultimately, gold will surge, once it becomes clear that the euro lacks the staying power to serve as an alternative to the dollar. To restate a point I have made many times, the euro-zone is an ill-assorted mix of 13 unconverged national economies – with national treasuries, debt structures, taxes, pensions, and labour laws - that are not ready to share a currency, and are drifting further apart by the day.
(Lest anybody forgets, the motive behind monetary union was PURELY political. The economists at the European Commission warned that the project could not survive over time if it included a Latin Bloc of countries with an unreformed culture of high inflation, rising wage costs, and an export base exposed to Asian competition [unlike Germany’s, which is complimentary] – unless it were backed by a full superstate. They were ignored. Indeed, any future crisis was to be welcomed as the “beneficial crisis”, a chance to force through full political integration that would otherwise have not been possible, as Romano Prodi so candidly admitted when he was Commission chief).
At some point it will become clear to everybody that: the Club Med group cannot compete at an exchange rate of $1.40, $1.45, $1.50, or whatever it reaches; their credit booms are tipping over; they will soon need stimulus more than the US.
Goldman Sachs, by the way, is already 'shorting' Italian and French bonds, while going 'long' on German bunds to play the divergence (the opposite of the euro-zone 'convergence play' that made the banks rich in the 1990s).
We may have a situation where sharp dollar falls caused by impending rate cuts by the Fed sets off a systemic crisis for Euroland. If so, politics will quickly take over from economics and begin to dictate events in Europe. The ECB will have to stop raising rates (whatever Berlin wants), and the euro will become a structurally weak currency tilted to the need of the weakest players. If it doesn’t, the EU itself will blow up. So the ECB will have to change tack to support the union. And the European Court will interpret the treaties in such a way as to force the ECB to do so.
Gold will fly once investors can see that neither of the two reserve currency pillars (euro and dollar) is on a sound foundation, and once the pair are engaged in a beggar-thy-neighbour devaluation contest to stave off a slump (if necessary with the use of Ben Bernanke’s helicopters, meaning mass purchase of Treasuries, mortgage bonds, stocks, or assets of any kind to support the markets). This would amount to a partial breakdown of the monetary system. Gold will not stop at $800. It might well go beyond $2,000.
We are not there yet. Timing is not my forté, but 2008 looks ripe. Watch the Spanish housing market. Watch the French trade data. Watch Chinese inflation. And, of course, watch the US jobs market – the bogus prop to the alleged US recovery (on that, more later).
Posted by Ambrose Evans-Pritchard on 23 Jul 2007 at 15:37
When will gold go ballistic?
Posted by Ambrose Evans-Pritchard on 23 Jul 2007 at 15:37
Tags: Economics, Currency, Gold, Euro, financial markets
A lot of readers have asked why I duck the issue of gold when talking about the dollar crisis and the M3 monetary blow-off.
All that glitters: gold will soon sparkle again
So here we go:
I started buying gold mining shares in September 2001, missing the bottom by four months. I still hold some shares (mostly duds, since I am the village idiot when it comes to picking stocks). Gold’s 15 to 20 year upward cycle is alive and well.
For those who don’t follow bullion, gold hit $252 an ounce in the Spring of 2001 in a final capitulation sell-off when Gordon Brown began his Treasury sales. It rose to a peak of $730 in May 2006.
Gold has languished since, in part because of sales by the Spanish and Belgian central banks. I remain very wary in the short to medium-term.
What unnerves me is the way gold has tended to move in sympathy with global stock markets. Whenever risk appetite rises, it rises. When investors shun risk, it falls. In other words, it has become correlated with all the speculative trades - notably the yen and franc carry trades - responding to abundant global liquidity. This liquidity is now being drained as the BoJ, ECB, SNB, BoE, Riksbank, and Chinese Central Bank, etc, turn off the tap. So be careful.
While the pattern appears to have changed over the last couple of weeks, this is not long enough to establish a “paradigm change”, excuse the ghastly term. My concern is that gold will fall hard along with everything else (except the yen and the Swissie) in any market crash/correction.
At some point it will decouple, as it did during the 1987 crash when it fell hard, found a ledge, and then recovered hard, while the DOW kept falling. But, I would rather hold Swissies or Yen until gold finds that ledge in a downturn, resuming its old role as a safe store of value. This may happen quite quickly in a crisis. (Of course, I may also be left behind right now in an accelerating rally, but that is a risk I accept)
Ultimately, gold will surge, once it becomes clear that the euro lacks the staying power to serve as an alternative to the dollar. To restate a point I have made many times, the euro-zone is an ill-assorted mix of 13 unconverged national economies – with national treasuries, debt structures, taxes, pensions, and labour laws - that are not ready to share a currency, and are drifting further apart by the day.
(Lest anybody forgets, the motive behind monetary union was PURELY political. The economists at the European Commission warned that the project could not survive over time if it included a Latin Bloc of countries with an unreformed culture of high inflation, rising wage costs, and an export base exposed to Asian competition [unlike Germany’s, which is complimentary] – unless it were backed by a full superstate. They were ignored. Indeed, any future crisis was to be welcomed as the “beneficial crisis”, a chance to force through full political integration that would otherwise have not been possible, as Romano Prodi so candidly admitted when he was Commission chief).
At some point it will become clear to everybody that: the Club Med group cannot compete at an exchange rate of $1.40, $1.45, $1.50, or whatever it reaches; their credit booms are tipping over; they will soon need stimulus more than the US.
Goldman Sachs, by the way, is already 'shorting' Italian and French bonds, while going 'long' on German bunds to play the divergence (the opposite of the euro-zone 'convergence play' that made the banks rich in the 1990s).
We may have a situation where sharp dollar falls caused by impending rate cuts by the Fed sets off a systemic crisis for Euroland. If so, politics will quickly take over from economics and begin to dictate events in Europe. The ECB will have to stop raising rates (whatever Berlin wants), and the euro will become a structurally weak currency tilted to the need of the weakest players. If it doesn’t, the EU itself will blow up. So the ECB will have to change tack to support the union. And the European Court will interpret the treaties in such a way as to force the ECB to do so.
Gold will fly once investors can see that neither of the two reserve currency pillars (euro and dollar) is on a sound foundation, and once the pair are engaged in a beggar-thy-neighbour devaluation contest to stave off a slump (if necessary with the use of Ben Bernanke’s helicopters, meaning mass purchase of Treasuries, mortgage bonds, stocks, or assets of any kind to support the markets). This would amount to a partial breakdown of the monetary system. Gold will not stop at $800. It might well go beyond $2,000.
We are not there yet. Timing is not my forté, but 2008 looks ripe. Watch the Spanish housing market. Watch the French trade data. Watch Chinese inflation. And, of course, watch the US jobs market – the bogus prop to the alleged US recovery (on that, more later).
Posted by Ambrose Evans-Pritchard on 23 Jul 2007 at 15:37
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