Custom Search

Tuesday, October 16, 2007

Super SIV? Super Bailout!

The news of the Super SIV bailout scam coupled with new record oil prices less than impressed traders and heavy profit taking was the result.

Oil Rises to Record on Concern Turkey May Attack Northern Iraq: “Crude oil rose to a record near $88 a barrel on concern Turkey may attack Kurdish militants in Iraq and disrupt oil shipments.

Turkish Prime Minister Recep Tayyip Erdogan said he expects the country's parliament will tomorrow approve a possible military incursion into Iraq, holder of the world's third-largest reserves. Iraq today announced plans to sell 6 million barrels of Kirkuk crude that's shipped through a pipeline from its northern province.”

Today we have another scary oil headline. It does look like Turkey is deadly serious.

Turkish Dollar Bonds Decline on Concern of Conflict With Iraq: “Turkish bonds fell the most in almost six weeks on growing concern lawmakers may authorize the military to pursue Kurdish militants in Iraq.

The government's resolution would empower Prime Minister Recep Tayyip Erdogan to order a possible military strike within a maximum period of one year.”

Paulson Credit Push Earns Jeers From Free-Marketers (Update1): “U.S. Treasury Secretary Henry Paulson's plan to shore up asset-backed commercial paper is drawing criticism from free-market advocates, who say it risks shielding banks from the consequences of poor decisions.

Paulson's team brokered negotiations between the country's biggest banks that led to the creation yesterday of a fund to help revive the asset-backed commercial paper market. Citigroup Inc., Bank of America Corp. and JPMorgan Chase & Co. agreed to establish the fund after a month of talks with Treasury aides.”

Like all bailouts, it creates a moral hazard problem. I'm unhappy with situations like these.

D.R. Horton's Orders Fall 39 Percent on Mortgage Woes (Update2): “D.R. Horton Inc., the second largest U.S. homebuilder, said orders fell 39 percent in the fiscal fourth quarter as banks restricted lending.

Orders for the period ended Sept. 30 dropped to 6,374 from 10,430 a year earlier, the Fort Worth, Texas-based company said today. The value of houses ordered declined 48 percent to $1.3 billion and the cancellation rate was 48 percent.”

No bottom in sight. Not even close. In fact the housing market has deteriorated pretty dramatically, particularly in the last couple of months.

“The reduced availability of certain mortgage products such as Alt-A loans and tighter underwriting guidelines has reduced the pool of available homebuyers.”

Most of these mortgage products will never be available again at all, or with much greater scrutiny. Either way, ‘the pool of available homebuyers’ has been significantly and PERMANENTLY reduced by these tighter credit conditions. So unless the lenders go back to lending wildly again, residential real estate prices won’t snap back for many long years.

Bernanke Says Housing to Remain `Drag' on U.S. Growth Into 2008: “Federal Reserve Chairman Ben S. Bernanke said the housing industry's contraction will be a “significant drag” on U.S. growth into next year, though evidence of a broader impact on spending is limited.

Nothing new here.

Cambridge Place Limits Fund Redemptions, Cuts Fees, Person Says: “Cambridge Place Investment Management LLP, the hedge-fund manager that lost its European investment chief last week, is restricting withdrawals and reducing fees after subprime-related declines, a person with knowledge of the matter said.

The London-based firm is limiting redemptions from its flagship SCF 1000 Fund, which is down 16 percent this year, and the SCF 500 Fund, said the person, who declined to be identified because the information is private. Cambridge Place also plans to limit withdrawals from the SCF 1500 Fund, the person said.”

The hedgies are still struggling.

Ericsson Falls to 3-Year Low as Profit Misses Target (Update3): “Ericsson AB, the world's biggest maker of wireless networks, dropped as much as 29 percent to a three-year low in Stockholm trading after saying third-quarter profit and sales trailed its forecasts.

Chief Executive Officer Carl-Henric Svanberg said lower demand for network upgrades in North America and Europe hurt margins and fourth-quarter revenue may decline. Svanberg, who told investors on Sept. 11 that industry growth was “strong,” said today he was “humble, concerned and disappointed.””

Heads up: Ericsson is down 25% pre-market. IBM and Intel report after the close today.

Please spend some time reading up on the new Super SIV as it is very important development and will have long run consequences. Here is some quality analysis:

Mish Super SIVs - A Fraudulent Attempt at Concealment
Nacked Capitalism The Smoke and Mirrors SIV Rescue Plan
Zeitenwende Wall-Street plant Notfall-Fonds
Calculated Risk Musical SIVs
WSJ Deal Journal A Bailout for Citigroup?
Lee Adler The Worst Is Over ?
WSJ Opinion House of Paulson?
Paul Kasriel MLEC - Trying to Turn a Sows Ear into a Silk Purse