Pakistan Stocks Snap 6-Day Slump as Exchange Sets Floor Prices Bloomberg
Aug. 28 (Bloomberg) -- Pakistan's benchmark index rose for the first time in seven days after the exchange set a floor for stock prices to halt a plunge that has wiped out $36.9 billion of market value since April.
The Karachi Stock Exchange 100 index rose 55.85, or 0.6 percent, to 9,200.78 at 10:18 a.m. local time, snapping a six- day, 16 percent slump.
Securities can trade within the 5 percent daily limits ``but not below the floor-price level'' of yesterday's close, the exchange said on its Web site,without giving details.The exchange is working to restore confidence after President Pervez Musharraf quit on Aug. 18 to avoid impeachment, and ruling alliance members nominated rivals for the presidency. Investors stoned the exchange last month after it removed a 1 percent daily limit on price declines. Today's decision follows a collapse in the index to the lowest in 26 months.
Police and paramilitary forces ringed the exchange on July 17, a day after hundreds of investors stoned the building and shouted anti-government slogans. The Securities and Exchange Commission of Pakistan, which had imposed a 1 percent daily limit on price declines, was forced to remove the measure as trading volume plummeted. The commission sought to halt a slide that wiped out $30 billion of market value in three months, threatening to undo a 14-fold rally since 2001.
``Freezing the index would not be a good idea,'' said Habib-ur-Rehman, who manages the equivalent of $91.5 million of stocks and bonds at Karachi-based Atlas Asset Management Ltd. ``Direct intervention in market movements would lead to further complications as we have seen in the recent past.''
UPDATE:
Speaking of hidden & covert interventions / bailouts ....
Zum Thema der verdeckten Markteingriffe.....
Bloomberg Holders of asset-backed securities can get money 39 percent cheaper at central-bank auctions than through investors. A Spanish mortgage-backed bond rated at the highest credit rating trades with a spread of about 2.8 percentage points to the euro interbank offered rate, or Euribor. The resulting rate of 7.76 percent compares with an average rate of 4.74 percent at yesterday's ECB auction for three-month money.
New Credit Hurdle Looms for Banks WSJThe crunch will begin next month, when some $95 billion in floating-rate notes mature. J.P. Morgan Chase & Co. analyst Alex Roever estimates that financial institutions will have to pay off at least $787 billion in floating-rate notes and other medium-term obligations before the end of 2009. That's about 43% more than they had to redeem in the previous 16 months.
The problem highlights how the pain of the credit crunch, now entering its second year, won't end soon for banks or the broader economy. The Federal Deposit Insurance Corp. said on Tuesday that its list of "problem" banks at risk of failure had grown to 117 at the end of June, up from 90 at the end of March. FDIC Chairman Sheila Bair said her agency might have to borrow money from the Treasury Department to see it through an expected wave of bank failures. She said the borrowing could be needed to handle short-term cash-flow pressure brought on by reimbursements to depositors after bank failures.The rates they'll have to pay if they want to issue new debt will be much higher than they were back in 2006. In July 2007, the interest rates on banks' floating-rate notes were only about 0.02 percentage point above the London interbank offered rate, or Libor, a benchmark meant to reflect the rates at which banks lend to one another. Today, that "spread" is at least two full percentage points for some banks.
via Bloomberg U.S. Says Banks on `Problem List' Rose 30% in Quarter
> It seems to me that even the spread of 200 basispoints for lots of banks is not quite "rich"...... Especially when you add the lousy quality of their balance sheets..... Just take a look the another main sector besides residential is showing some kind of "stress"...... Hat Tip EconompicDataThe U.S. Federal Deposit Insurance Corp. said its ``problem list'' of banks increased [to] 117 ``problem'' banks as of June 30, up from 90 in the first quarter and the highest since mid 2003 ... FDIC-insured lenders reported net income of $4.96 billion, down from $36.8 billion in the ame quarter a year ago.
> Wenn man sich diese Meldung ansieht können einige Banken noch froh sein das die Spreads nur 200 Basispunkte betragen.... Ganz zu schweigen von der ansonsten oft sehr dürftigen Bilanzqualität...... Man muß sich nur einen zweiten Eckpfeiler neben dem privaten Immobiliensektor ansehen um zu erahnen das die Luft "dünner" wird..... Dank an EconompicData
As many banks compete for funds to pay off their borrowings, or sell assets to raise cash, their actions could exacerbate strains in financial markets. Banks that turn to shorter-term loans will have to renew their borrowings more frequently, increasing the risk that they won't be able to get money when they need it.
via Bloomberg Merrill, Wachovia Hit With Record Refinancing Bill
The increase in yields may cost them as much as $23 billion more in annual interest versus a year ago based on Merrill Lynch index data.
Standard & Poor's said last week that it had a ``negative'' outlook on almost half of the 50 highest-rated financial institutions in the U.S. as of June 30, the highest proportion in 15 years.
The difficulties with the floating-rate loans can be traced to the onset of the credit crunch last year. At the time, bank-affiliated funds known as structured investment vehicles, or SIVs, were among the first to suffer. Those funds had been buyers of the banks' floating-rate notes. But when SIVs were unable to find investors for their own short-term debt, the SIV market largely collapsed, taking a big chunk out of demand for new bank floating-rate notes.
The crunch comes as problems in the markets on which banks rely to borrow money are showing no sign of abating. In one gauge of jitters about banks' financial health, the three-month dollar Libor remains well above expected central-bank target rates for the same period.
Even at the higher interest rates, banks are having a hard time getting cash. The securitization markets that had allowed banks to repackage loans and sell them to investors remain all but shut. Banks today rarely make loans to one another for periods of more than a week, and even some so-called "repo" loans -- in which the borrower puts up securities as collateral -- are becoming more expensive.
At the same time, the pressures on limited resources of banks and investment banks are growing. Companies have been actively tapping bank credit lines set up before the credit crisis began, forcing banks to increase their lending at a time when they're trying to reduce risk. A number of big financial firms, including Citigroup Inc., Merrill Lynch, UBS AG, Morgan Stanley, J.P. Morgan, and Wachovia, have agreed to buy back some $42 billion of so-called auction-rate securities amid allegations that they misinformed retail investors about the securities' risks.
Central Banks' Role
All the strains have made financial institutions increasingly dependent on central banks in the U.S., the U.K. and Europe for loans to make ends meet. Many banks have been packaging mortgages into securities to use as collateral for financing from the European Central Bank and the U.S. Federal Reserve. Questions are cropping up about how long central bankers should prop up financial markets, and whether banks in Europe are taking undue advantage of the central bank's lending facilities.
On this topic..... Buy Freddie Paper With Fed Leverage via Dealbraker Hat Tip FT Alphaville
We don't know who bought the Freddie notes today. But buyers of Freddie notes who have access to borrowing from the Federal Reserve would have found the ecision to bid relatively easy. That's because the ability to exchange the Freddie debt for Fed cash means banks can buy Freddie debt with a huge amount of leverage, dramatically increasing the return on their capital.
Here's how it works. A bank that bought the six month notes from Freddie this morning could also bid to borrow from the Fed's Term Facility, which held an $75 billion auction today. As collateral for the borrowing, the bank could offer the newly purchased Freddie notes, for which the Fed would give them credit for 97% of their market value. Recently, the TAF pricing topped out at 2.35 percent for 28-day borrowing. So a bank buying $100 million of Freddie paper yielding 2.858% could flip it to the Fed, borrowing $97 million at around 2.4% (assuming the pricing will be slightly higher this time around).
At the end of the day, a credit desk could buy $100 million of Freddie debt for just $3 million down. On that $3 million, the desk would receive a 17.7% annualized return, or 8.8% over six months, for paper that is thisclose to being explicitly backed by the Treasury Department. Not a bad deal at all.
But there is growing concern banks have become over-reliant on ECB funding, or may be abusing the situation. The ECB says it is monitoring developments and will, if necessary, adjust funding rules. Some financial institutions may have started to treat the ECB’s financing window as a substitute for a well-functioning structured finance market that has been largely shut since last August.
The share of asset-backed securities — or notes backed by repayments on debt such as mortgages or credit card loans — in the total collateral held with the national central banks in the 15-nation euro zone has risen to around 20%, from around 4% in 2004. At the same time, the share of government bonds has fallen sharply.
> Here the Fed´s balance sheet..... Hardly AAA.....
> Hier das grausige Bild der Fed Bilanzkomposition..........Sieht mir nicht mehr nach AAA aus.....
Mish has also something to say and is offering this must see chart Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Scary.....
Mish trifft mit seiner Aussage den Nagel mal wieder auf den Kopf und liefert gleichzeitig einen Blick auf die detaillierte Ansicht der Fed Bilanz. Nicht verpassen! Factors Adding to Reserves and Off Balance Sheet Securities Lending Program via Cumberland Advisors. Fuchteinflösend.....
"A the current pace, the Fed runs out of treasuries about a year from now. Things are about to get very interesting."
via Telepgraph Bank borrowing from ECB is out of control
One ECB source told The Daily Telegraph that over-reliance on the ECB funds has become an increasingly bitter issue at the bank because the policy amounts to a covert bail-out of lenders in southern Europe.
"Nobody dares pinpoint the country involved because as soon as we do it will cause a market reaction and lead to a meltdown for the banks," said the source.
This "soft bail-out" is largely underwritten by German and North European taxpayers, though it is occurring in a surreptitious way. It has become a neuralgic issue for the increasingly tense politics of EMU.
The latest data from the Bank of Spain shows that the country's banks have increased their ECB borrowing to a record €49.6bn (£39bn). A number have been issuing mortgage securities for the sole purpose of drawing funds from Frankfurt.
Got gold......?
The market responded with enthusiasm to reports that the Tooth Fairy has agreed to acquire Lehman. The purchase price has not yet been determined and will be set by Dick Fuld wishing upon a star, clicking his heels three times, and being ransported back to that magical place where Lehman still sells for over $70 per share.
In related news, Lehman has agreed to sell all of its level III capital, including CDOs, ABSs, pet rocks, baseball cards, slightly used condoms, and credit default swaps written by MBIA and Ambac. Lehman’s level III capital will be acquired for 150% of its face value by Tinkerbell, who will carry it off to Neverland to be fed to a crocodile. Lehman is financing 90% of the acquisition at an interest rate that has not been announced; Tinkerbell’s up-front payment consists of a handful of pixie dust, three crickets, and a bullfrog. Analyst Dick Bove estimates that the bullfrog could eventually be transformed into three princes and a pumpkin coach. The deal gives Lehman no recourse to any of Tinkerbell’s assets other than the Level III capital. If Tinkerbell defaults, Lehman’s successor entity will stick its hand down the crocodile’s throat and attempt to get it to regurgitate. The firm’s historical value-at-risk analysis shows that sticking your hand down a crocodile’s throat is completely safe.
Treasury Secretary Hank Paulson issued a statement: “I am delighted that SWFs (Sovereign Wealth Fairies) continue to express confidence in the terrific values represented by American financial institutions. As I have been saying since August of 2007, this shows that the crisis is now over.”
Meanwhile, the SEC has announced an investigation of mean, evil, bad short-seller David Einhorn. While out for a beer with a friend, Einhorn reportedly suggested that the Tooth Fairy does not exist and that wishing upon a star is not a wholly reliable price discovery mechanism. Christopher Cox, chairman of the SEC, said, “Vicious rumors attacking the Tooth Fairy will not be tolerated. Our entire financial system and indeed the American way of life depend on the Tooth Fairy and wishing upon a star. How else could one value level III capital appropriately?” The SEC is reportedly planning to set up re-education camps for short-sellers.
Earnings Look Great, to Analysts Anyway Floyd Norris / NYT
Did you know that corporate America is going to post record profits in the final quarter of this year?
Neither did I. But that is the collective wisdom of the people who follow those companies for brokerage firms.
Howard Silverblatt, the market maven at Standard & Poor’s, has that amazing news on his blog today. It seems that the companies in the Standard & Poor’s 500 will post operating earnings of $24.61 per S.&P. unit in the fourth quarter. That would break the quarterly earnings record of $24.06 set in the second quarter of last year.
Since then earnings have been plunging, but the analysts have lots more good news. The financial stocks will return to profitability in the third quarter of this year, the one now nearing an end. And in 2009 the record annual earnings rate of 2006 will be smashed by 23 percent.
Those numbers are based on taking the consensus profit forecasts for each of the 500 companies and putting them together. Analysts are usually optimistic, but as Mr. Silverblatt says, “Let’s get real.”
It should be noted that these are operating earnings, which in practice still means companies can massage the numbers. (That’s not operating, it’s just a write-off of all those profits we never should have taken in years past.) Even so, it is one more indication that optimism runs deep in that crowd, no matter how pessimistic others may be.
> Here is one example of what will happen if you follow Wall Stett Finest without using common sense.....
> Hier kommt eines von vielen Beispielen was zwangsläufig passiert wenn man blindlings den sog. "Experten" folgt und nicht den gesunden Menschenstand benutzt.....
Brokers Trade Lower on Citi Call; Really?? Bespoke
Update via Barry Ritholtz Analysts' Profit Forecasts: Worse Than Ever!
finally the omnipresent Richard Bove ( "the citigroup dividend is safe"......) via FT Alphaville 
This is Mr Bove’s forecasting record on Lehman this year: enthusiastic “buy” recommendations between February and April, capitulation in May, before moving to a neutral stance in June.
If the analyst believed it was a buy above $50 six months ago, it must be a screaming buy now the price has fallen 70 per cent.
The follwing quote from Kevin Depew ( taken from Five Things You Need to Know: Not Your Father's Stagflation ) sums it up. Mish has another good take on this topic M3 Contraction - The Future Is Now
Die nachfolgende Aussage von Kevin Depew aus Five Things You Need to Know: Not Your Father's Stagflation trifft den Nagel auf den Kopf. Wie üblich hat auch Mish etwas zu diesem Thema beizutragen M3 Contraction - The Future Is Now . Wie bereits mehrmals betont stimme ich mit Mish überein das bei richtiger Definitionsauslegung ( siehe Inflation: What the heck is it? ) zukünftig zumindest in einigen westlichen Ländern wohl eher eine Deflationsdebatte zu führen ist.
"Stagflation is simply the transition from credit expansion to credit contraction, leading inevitably to deflation."
Needless to say that the Fed & Co have always the agenda to reverse this trend William Poole : "The Fed Wants To Create Inflation" . All the latest efforts ( lending facilities, low interest rates in the face of sky high consumer prices, rebate checks, etc ) & baliouts we have seen recently are clearly a sign of desperation and fear that they will lose the battle this time ...... Next step probably over the weekend the nationalisation of Phony Mae & Fraudie Mac
Überfllüssig zu erwähnen das die Fed & Co grundsätzlich die Agenda haben ( schließe da ausdrücklich die EZB mit ein ) Inflation extrem zu begünstigen William Poole : "The Fed Wants To Create Inflation" . Die letzten Aktionen ( diverse neue Programme zur Kreditversorgung von Banken und Investmentbanken, niedrige Leitzinsen im Angesicht explodierender Konsumentenpreise, usw. ) sowie diverse Baliouts zeigen immer verzweifelter werdende Versuche den deflationären Trend umzukehren..... Nächste Aktion dürfte die Verstaatlichung von Phony Mae & Fraudie Mac. Würde mich nicht wundern wenn es hier bereits am Montag Neuigkeiten gibt......
U.S. Foreclosures Increase 55%, Bank Seizures Rise to Record BloombergRealtyTrac now has more than three quarters of a million properties in its active REO database, a number that represents approximately 17 percent of the inventory of existing homes for sale reported in June by the National Association of Realtors.
Worry About Stretched Firms,Consumers Hits Debt Markets WSJ
A range of corporate bonds and securities backed by consumer loans and mortgages have sagged in recent weeks to levels last seen in March, when worries about a financial crisis hit a high.
This time there is much less panic, but concern is building about the health of businesses and consumers.
The weakness is most visible in the debt of auto makers, retailers and companies in sectors reliant on consumer spending. Bonds issued by some financial institutions are also strained.
While a large-scale credit meltdown looks unlikely now, rising bond yields will make it harder and more expensive for corporations and individuals to finance their businesses, homes, education and day-to-day expenses.
Investors are demanding higher interest rates on most corporate and asset-backed debt. The average junk bond now yields around 8.1 percentage points more than Treasury securities, or 11.5%. That compares with a yield of 11.1% and spread of 8.6 percentage points on March 17, according to data from Merrill Lynch & Co.
Average spreads on bonds backed by auto loans and credit cards are three percentage points and 2.1 percentage points, respectively, close to their highs this spring. .....
Moody's Investors Service recently surveyed 31 companies that distribute gas to households. Of the group, 18 companies said an increasing number of customers were falling behind on their gas bills this year compared to last year
> No surprise to see that banks are once more procyclical in their lending habbits ( Same is happening in Europe WSJ: Euro Banks Tighten Lending Standards via Calculated Risk) ....... Too bad that there is so far no bill/law that allow Bernanke & Paulson to order banks to lend...... But with all the attempts we have seen you can´t even rule this out for the future ........ :-)
> Schon bemerkenswert wie es Banken immer wieder schaffen Ihre Kreditvergabekriterien immer prozyklisch dem Markt anzupassen anstelle in Zeiten des offensichtlichen Exzesses gegenzusteuern ( gleiches passiert auch in Europa Banken geizen mit Krediten FTD ).... Zu dumm das es bisher noch keine gesetzliche Handhabe für Bernanke und Paulson gibt die Banken zu verpflichten mehr zu vereleihen.... Nach allem was bisher aus den USA gekommen ist kann man aber selbst das zukünftig nicht mehr ganz auschließen..... :-)
Core capital of $47.0 billion at end of 2008 Q2 is above both our statutory minimum capital requirement, a surplus of $14.3 billion, and the OFHEO-directed minimum capital requirement, a surplus of $9.4 billion.
Compare this one with the reality aka Hussman or Kevin Depew
Vergleicht diese Aussage mit der von Hussman oder Kevin Depew
Hussman With regard to Fannie Mae's report, the most interesting figure wasn't the reported $2.3 billion loss, but rather the much larger deterioration in the reported fair value of Fannie's balance sheet. We can observe what's going on by comparing Table 32 of Fannie Mae's Q2 2008 10Q filing with the same table in Fannie Mae's Q1 2008 10Q filing.This is another misleading statement. Technically, based on the Office of Federal Housing Enterprise Oversight (OFHEO) requirements, both companies have dequate capital cushions. But that's like jumping out of an airplane without a parachute and arguing on the way down over whether your shoes have the right government mandated soles. Yes, according to OFHEO guidelines, Fannie and Freddie have the right soles. But put in context, those shoes aren't going to be of much use when their feet hit the ground without a parachute
As of June 30, 2008, the fair value of Fannie Mae's common equity (that is, the book value available to common shareholders) was -$5.39 billion, compared with a March 31 fair value of -$2.07 billion. What's notable here is that this deterioration (-$3.32 billion) was even larger than the -$2.30 billion loss that Fannie reported to investors, which was itself about four times higher than the loss analysts had estimated.Note that balance sheet losses are excluded from earnings. Financial stocks tend to be reasonably valued when they trade at tangible book value, but simply put, Fannie Mae has no tangible book value. The common stock is now a call option.
Even if we include the fair value of preferred equity, we find that on a fair value basis, Fannie Mae is operating at a gross leverage multiple of 72.7 (total assets comprised primarily of mortgage loans, divided by shareholder equity). In other words, a slight 1.4% deterioration in the value of Fannie's book of assets will wipe out all of the remaining shareholder equity. This makes Long Term Capital Management look like a conservative strategy.
In the second quarter, the average markdown for such repurchased loans was 47% and resulted in an overall charge of $380 million. Without the special loans to delinquent borrowers, Fannie might have been forced to buy back 17,901 loans. That could have meant an additional charge of as much as $1.5 billion, based on the losses Fannie took on the mortgages it did repurchase.
Superficially, that isn't a bad trade. Fannie avoids a big extra charge by issuing just $127 million of new loans. The trouble? The special loans have their own cost. Fannie is already carrying the $127 million on its books at just $4 million, meaning it wrote the loans down to about three cents on the dollar.
In its second-quarter filing, Fannie said it expects such special loans "to continue to reduce the number of delinquent loans that we otherwise would have purchased" throughout 2008.
That may preserve capital. But it is really just postponing a problem festering out of investors' sight.
> More comedy from Hank.....Paulson Interview: No Plans to Insert Money in Fannie and Freddie . I´ll bet that during the coming 6-8 weeks the Taxpayerwill be the only one buying the new equity....
> Hier gibt es weitere Aussagen die in 6-8 Wochen vollkommen von der Wirklichkeit eingeholt werden sein dürften......Paulson Interview: No Plans to Insert Money in Fannie and Freddie .
Thanks to Bob Gorrell
Shanghai drops to 52-week low before Olympics
HONG KONG (MarketWatch) -- Chinese stocks in Shanghai and Shenzhen slumped Friday, finding little support ahead of the Beijing Olympics opening ceremony later in the day, as concerns about a slowing economy weighed down property developers and steelmakers.
The benchmark Shanghai Composite index, which tracks both the yuan-denominated A shares as well as B shares priced in foreign currency, slumped 4.5% to 2,605.72, its lowest close in the past year. The All Share index in Shenzhen tumbled even more, finishing 5.6% down at 747.34.
At Friday's closing level, the Shanghai Composite, which nearly doubled in 2007, has lost a little more than half its value at the end of last year and is down more than 57% from its 52-week high of 6,092.06.
"You would have expected Shanghai to be getting a treatment, but markets are being left to their own [fate]," said Howard Gorges, vice chairman at South China Brokerages. "There's speculation that Beijing may try and engineer a [Olympics] rally, but next week we may see markets falling quite low, in Shanghai as well."
> And the spin is still alive and kicking...... :-)
> Und wie man sehen kann hat selbst eine Halbierung einige nicht davon abhalten können sich weiter an dem anscheinend letzten Stohhalm zu klammern..... :-)
The smaller box cost $2.98 on average, up from $2.86 charged by the stores for the bigger box a year earlier. On a per-ounce basis, the retail price of Cheerios jumped 17% to 33.5 cents in the second quarter from 28.6 cents a year earlier.General Mills spokesman Tom Forsythe said moves by the Minneapolis company can't alone explain the big retail-price jump. It's possible that supermarkets, which set the retail price, are taking advantage of an opportunity to add some margin of their own.
Housing Lenders Fear Bigger Wave of Loan Defaults NYT
The first wave of Americans to default on their home mortgages appears to be cresting, but a second, far larger one is quickly building
The percentage of mortgages in arrears in the category of loans one rung above subprime, so-called alternative-A mortgages, quadrupled to 12 percent in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7 percent in that time.
Delinquencies on mortgages tend to peak three to five years after loans are made....
Prime and alt-A borrowers typically had a five- or seven-year grace period before payments toward principal were required. By contrast, subprime loans had a two-to-three-year introductory period. That difference partly explains the lag in delinquencies between the two types of loans, said David Watts, an analyst with CreditSights
> You don´t need to be a genius to figure out will happen during the next few years..... The following quotes from Calculated Risk sums it up
> Denke hier braucht man nun wirklich kein Genie zu sein um zuerkennen das die nächsten Jahre brutal werden. Der nachfolgende Kommentar von Calculated Risk dürfte zutreffen.....
I think the second wave of foreclosures will be smaller in numbers, as compared to the largely subprime first wave, but the price of each home will be much higher. And the second wave will impact prices in the mid-to-high end areas, as opposed to the subprime foreclosures impacting prices in the low end areas.
Barry Ritholtz on "perma-bottom-callers"
Wishful thinking is never a substitute for reviewing the actual data;
thoughtful analysis is better than cheerleading
UPDATE: Click trough pages 61 & 62 from the HSBC Earnings Release to get an up to date picture of their US mortgages, consumer lending, credit card and vehicles credit book.... I also want to highlight page 12 & 13. They are showing the credit trends worldwide ( personal & commercial ) ...... Watch Latin America ( mainly related to Mexico ) ......
UPDATE: Passendweise hat gerade HSBC berichtet. In diesem Report findest man auf den Seiten 61 & 62 Daten nette Charts zu der US Kreditqualität quer durch alle Sektoren ( Kreditkarten , PKW Finanzierungen usw ). Darüberhinaus sollte man einen Blick auf die Seiten 12 & 13 werfen. Hier werden die weltweiten Rsikovorsorgen für den privaten und den gewerblichen Sektor aufgeschlüsselt. Hier sticht besonders und für mich etwas überracshend der starke Anstieg in Süd Amerika hervor ( Lt. Telefonkonferenz überwiegend Mexico )...... Die 200% Aufstockung der Risikovorsorge im gewerblichen US Bereich dürfte erst der Anfang sein.....
