Wednesday, March 12, 2008

Agonal Respiration

Well played, Bernanke, well played. A slightly new trick perhaps, but futile nonetheless. The Fed is now giving up treasuries for less secure collateral in the form of $200 billion. This is a not so subtle way of bailing out Bear Stearns from collapse, and possibly keeping Citi and BAC afloat. The question remains if the Fed will break down further and start accepting CDOs as collateral for gov't treasuries, which would of course make our whole financial institution a sham. Furthermore, WaMu as it did after giving horrible earnings, suddenly rose on rumors that Buffett or private equity will infuse their pockets a day after their bonds were slashed and burned.

Alas, let's look at some actual data from the last 2 days. TI gave a poor outlook for 2008. Hovnavian had to cut margins by 12% down to 6% to make any home sales and by the way, cancellations kept going up to 38%. Even their CEO said we have not hit a housing bottom. Gloomster Bob Toll also added that companies with joint venture exposure will be the next wave of worse news for the homebuilders. Hmmmm, did the author of this blog forewarn of that very thing several months ago? Did I offer up Lennar, Centex, and Ryland as the most exposed to these crappy investments? I believe I did. As many smaller builders have already gone belly up, the larger builder gets stuck with all the land and all the loans. Oh well. Please refer to The BBB blog on 12/14 for this analysis. Freddie Mac also came out today and said home prices have only fallen "1/3 from peak to trough from where they will." Outstanding news for my homebuilder puts that rallied ridiculously yesterday/

Just for fun, oil hit $109 yesterday but was largely ignored due to the rally. Gas prices were at an all-time high. A recent article on mall vacancies gives a scary picture for retail. As more retail space hits the market, shoppers have no money to spend. Projected vacancy rates are skyrocketing in Phoenix, KC, and San Antonio, up to possibly 20%. I gave a recent example of this at The Gardens Mall in Palm Beach Gardens, FL. If you weren't 80 years old with a pedometer or attached to a baby stroller, you weren't there. What was I doing there? Well, I was attached to a baby stroller and we only went to redeem gift cards, no cash out of pocket.

Perhaps the market is tired of going lower. Perhaps the gov't will keep printing money until there is no such thing as a bad debt for banks. At some point though, inflation (if not already) becomes a real threat and the Fed must acknowledge it. Let's hope it's before the Chinese decide our treasuries are worthless and pull out en masse, leaving us all bankrupt anyway......I told you it would be a scary market.

http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080310&id=8309874

http://www.marketwatch.com/news/story/home-builder-stocks-rally-fed-liquidity/story.aspx?guid=%7B0386D3ED%2D59EE%2D4795%2DB6FF%2D7F73D7585082%7D&dist=TQP_Mod_mktwN#comments

3 comments:

Tiger Coach said...

Bernake's move is a bit scarier when you look at his view on the Great Depression and the debt-deflation cycle...and is doing EVERYTHING to keep credit available...even at the expense of the U.S. dollar!

A large part of the obnoxious gas prices has nothing to go with Arabs, refineries, or corporate greed! Oil is priced in dollars...it is just taking more dollars to purchase the same amount of oil. The buying power of the dollar is getting beaten through the floor boards with help from a FEDERAL RESERVE that is forcing liquidity! They run out of green ink!

P.S. I will take a theme "What you're doing to stretch your dollars..." see usmegatrends...BD

boom and doom said...

S&P says the end of write downs is near? The end of write downs is near because the Fed is going to take those
mortgages in Bernanke's scheme announced on Tues. The govt. doesn't have to
write them down. I read where S&P is delaying lowering the AAA rating of
subprime debt which is going to rear its head later. Two points I saw two
different commetators make on TV yesterday:
> 1. Is the Fed now going to be a landlord accepting this subprime debt as
collateral? Is Bernanke going to be knocking on doors collecting rent?
> 2. What gives the Fed the right/obligation/means to take this debt on? This
is socialist. It should not happen unless there is a hammer and scycle(?) on
the flag.
>
> Our government is selling us out. This is not what our country is all
about. They are protecting the rich at the expense of its 300 million
citizens. I think this upsets me more than the economic situation. Well, I
guess the economy is a result of these policies. What to do, what to do????

AX said...

We all knew S&P was wrong. Bear is bankrupt as we'll see Monday. I believe Citi and WaMu are as well. I'm worried that the market only dropped 200 points on this news and that the Fed will become landlord over all loans up until munis. Things are much worse than they appear, but the market may never reflect that. A poor PPI on Tuesday will show a deeper recession in lieu of a bogus CPI yesterday.

However, I now expect a full point rate cut, whereas just Wed. I thought we might just get a half point. I don't know in the short-term how much lower the market will go. I may look to sell some of my shorts on Monday if the market is down holding its breath for the Fed.....any suggestions for more impending disaster?