Total Borrowings of Depository Institutions from the Federal Reserve
Net Free or Borrowed Reserves of Depository Institutions
Non-Borrowed Reserves of Depository Institutions
Tuesday, June 10, 2008
Fed Charts to Ponder
Discount Window Borrowings of Depository Institutions from the Federal Reserve
Total Borrowings of Depository Institutions from the Federal Reserve
Net Free or Borrowed Reserves of Depository Institutions
Non-Borrowed Reserves of Depository Institutions
Total Borrowings of Depository Institutions from the Federal Reserve
Net Free or Borrowed Reserves of Depository Institutions
Non-Borrowed Reserves of Depository Institutions
Monday, June 09, 2008
Your Petrodollars at work
While most countries are suffering from high oil prices, they are also fuelling one of the biggest transfers of wealth in history. For the oil and gas producing state of Qatar, the cost of filling up a car has not changed at all. Al Jazeera's correspondent, Dan Nolan, reports on the changing face of the country due to higher prices for oil and gas on the world market.
Qatar rides the oil boom
Qatar rides the oil boom
New Stimulus Package: Infrastructure Projects?
Back in March 08, I told you this would likely happen: Final US Economic End-Game
" Logic reasoning leads us to believe it has now become official Government policy to try to inflate our way out way out of this financial crisis, so lets assume a master plan exists to bail out numerous banks/financial institutions and rescue the bond, housing and various other markets. Let’s then go on to assume a plan exists to eventually ramp up numerous government infrastructure and military/industrial projects to promote US job growth (in the midst of our deep/dark recession). "
" Logic reasoning leads us to believe it has now become official Government policy to try to inflate our way out way out of this financial crisis, so lets assume a master plan exists to bail out numerous banks/financial institutions and rescue the bond, housing and various other markets. Let’s then go on to assume a plan exists to eventually ramp up numerous government infrastructure and military/industrial projects to promote US job growth (in the midst of our deep/dark recession). "
News of interest
The U.S. dollar index rose today after April's Pending Home Sales came in better than expected. Additionally, Treasury Secretary Paulson did not rule out currency intervention in an interview on CNBC (like we honestly believe he's not doing it now?). Oil fell ~ $4 on the news and this caused downside pressure on Gold and Silver... All part of the smoke and mirrors charade
Speaking of Silver, looks like the physical silver pinch is getting worse: Eagle rationing gets tighter
The United States Mint has been informed by its silver blank vendors
that the volume of blanks they will be shipping to us in the coming
weeks will be significantly reduced. Specifically, the quantities they
will ship to us during the week of June 9 are expected to be less than
half the quantities they shipped to us during the week of June 2.
How about that Gasoline? National Average just broke the $4-a-gallon mark.
Don't know about you fine folks, but I just spent $4.13 gal for the cheap stuff here in Vegas today. Who would have thought it would some day cost >$60 to fill up a Honda Accord? Well, it's real and that day has arrived...
Moving on to the looming Credit Crunch Phase-2: Lehman Bros Expected $2.8B Quarterly loss Deepens Fears On Credit Market
NEW YORK, June 9 -- Lehman Brothers stunned analysts Monday by reporting that it expects a quarterly loss of $2.8 billion and would raise $6 billion in capital to shore up its balance sheet, signaling that turmoil in the credit market is far from over.
After weeks of speculation about financial weakness at Wall Street's fourth-largest firm, Lehman made public its intent to raise additional money and took the unusual step of disclosing its second-quarter results a week early in an effort to assuage investors' concerns.
The firm has been plagued in recent months by questions from investors about its financial health. Some were concerned it might be headed for the same fate as another Wall Street investment bank, Bear Stearns, which nearly went bankrupt in March and was sold for a bargain-basement price to J.P. Morgan Chase in a deal hastily arranged by federal regulators. Last week, Lehman had to issue a statement to deny a rumor that it had turned to the Federal Reserve's discount window for emergency funds.
Lehman's estimated loss of $2.8 billion, or $5.14 per share, for the second quarter that ended March 31 compares to profits of $1.3 billion, or $2.21 per share, a year ago. This marks the first quarterly loss since Lehman went public in 1994 and far exceeded analysts' estimates of several hundred million dollars in losses.
Moody's Investors Service downgraded its outlook on Lehman Monday to negative from stable, in part, it said, because of "concerns over risk management decisions that resulted in elevated real estate exposures."
Lehman's shares have suffered the steepest losses among the Wall Street investment banks this year -- down more than 50 percent -- amid questions about firm's leverage, or borrowing levels, and the values it has put on mortgages and otherassets.
Oh but have no fear, Ben Bernanke is here: Bernanke's not worried, Says Risk of `Substantial Downturn' Receded (Update2)
June 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the economic outlook has improved from a month ago, and central bankers will combat any increase in inflation expectations.
``The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,'' Bernanke said today in remarks to a Boston Fed conference in Massachusetts. ``The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.''
Bernanke's remarks may reinforce investors' expectations the central bank will begin raising interest rates by year-end to contain increases in consumer prices. (HA! See my post from last Friday: Bernanke's next moves)
Lastly, I found this article very interesting: Social Security to offer benefits via debit card
The government plans to announce today that it will offer MasterCard debit cards to the estimated 4 million Social Security recipients who don't have bank accounts.
Instead of getting a paper check, a recipient's monthly benefit would be electronically transferred, at no cost, to the debit card's balance. Using the card to make purchases would be free, as would one ATM withdrawal a month.
"It's safer, more reliable and less expensive than writing checks," said Judith Tillman, commissioner of the Treasury's Financial Management Service, which handles Uncle Sam's checkbook. "This is great public policy and great use of a product."
Switching from paper checks to the debit card would save recipients -- and taxpayers -- a fair amount of money. It costs the government 88 cents more to send a paper check than it does to transfer money electronically. And people without bank accounts pay on average $6 to cash a check, according to the Treasury Department.
Plus, the card would save recipients the inconvenience of dealing with checks that are lost, stolen or delayed in the mail.
Some services and transactions do carry fees. Receiving a paper statement, for example, costs 75 cents a month. ATM withdrawals after the first one cost 90 cents. And there are surcharges for using the card in a foreign country.
My thoughts:
It's also a way for government to pander to Mastercard -- increasing their profits, as I'm sure they will capture a certain percentage of every transaction when used in a purchase transaction.
I also understand that card holders may run into some surcharge fees if they do not use an ATM in the "surcharge-free network. Additionally, I'm certain there will be overdraft/over-the-limit fees -- all adding to the unwitting consumer's misery... Why do you think many of these folks don't have a bank account to begin with? Many probably have credit problems due to poor money management... This "Mastercard" will only exacerbate their money problems as the ATM & overdraft fees add up -- taking a larger portion of their benefits every month...
Randy
Speaking of Silver, looks like the physical silver pinch is getting worse: Eagle rationing gets tighter
The United States Mint has been informed by its silver blank vendors
that the volume of blanks they will be shipping to us in the coming
weeks will be significantly reduced. Specifically, the quantities they
will ship to us during the week of June 9 are expected to be less than
half the quantities they shipped to us during the week of June 2.
How about that Gasoline? National Average just broke the $4-a-gallon mark.
Don't know about you fine folks, but I just spent $4.13 gal for the cheap stuff here in Vegas today. Who would have thought it would some day cost >$60 to fill up a Honda Accord? Well, it's real and that day has arrived...
Moving on to the looming Credit Crunch Phase-2: Lehman Bros Expected $2.8B Quarterly loss Deepens Fears On Credit Market
NEW YORK, June 9 -- Lehman Brothers stunned analysts Monday by reporting that it expects a quarterly loss of $2.8 billion and would raise $6 billion in capital to shore up its balance sheet, signaling that turmoil in the credit market is far from over.
After weeks of speculation about financial weakness at Wall Street's fourth-largest firm, Lehman made public its intent to raise additional money and took the unusual step of disclosing its second-quarter results a week early in an effort to assuage investors' concerns.
The firm has been plagued in recent months by questions from investors about its financial health. Some were concerned it might be headed for the same fate as another Wall Street investment bank, Bear Stearns, which nearly went bankrupt in March and was sold for a bargain-basement price to J.P. Morgan Chase in a deal hastily arranged by federal regulators. Last week, Lehman had to issue a statement to deny a rumor that it had turned to the Federal Reserve's discount window for emergency funds.
Lehman's estimated loss of $2.8 billion, or $5.14 per share, for the second quarter that ended March 31 compares to profits of $1.3 billion, or $2.21 per share, a year ago. This marks the first quarterly loss since Lehman went public in 1994 and far exceeded analysts' estimates of several hundred million dollars in losses.
Moody's Investors Service downgraded its outlook on Lehman Monday to negative from stable, in part, it said, because of "concerns over risk management decisions that resulted in elevated real estate exposures."
Lehman's shares have suffered the steepest losses among the Wall Street investment banks this year -- down more than 50 percent -- amid questions about firm's leverage, or borrowing levels, and the values it has put on mortgages and otherassets.
Oh but have no fear, Ben Bernanke is here: Bernanke's not worried, Says Risk of `Substantial Downturn' Receded (Update2)
June 9 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke said the economic outlook has improved from a month ago, and central bankers will combat any increase in inflation expectations.
``The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so,'' Bernanke said today in remarks to a Boston Fed conference in Massachusetts. ``The Federal Open Market Committee will strongly resist an erosion of longer-term inflation expectations.''
Bernanke's remarks may reinforce investors' expectations the central bank will begin raising interest rates by year-end to contain increases in consumer prices. (HA! See my post from last Friday: Bernanke's next moves)
Lastly, I found this article very interesting: Social Security to offer benefits via debit card
The government plans to announce today that it will offer MasterCard debit cards to the estimated 4 million Social Security recipients who don't have bank accounts.
Instead of getting a paper check, a recipient's monthly benefit would be electronically transferred, at no cost, to the debit card's balance. Using the card to make purchases would be free, as would one ATM withdrawal a month.
"It's safer, more reliable and less expensive than writing checks," said Judith Tillman, commissioner of the Treasury's Financial Management Service, which handles Uncle Sam's checkbook. "This is great public policy and great use of a product."
Switching from paper checks to the debit card would save recipients -- and taxpayers -- a fair amount of money. It costs the government 88 cents more to send a paper check than it does to transfer money electronically. And people without bank accounts pay on average $6 to cash a check, according to the Treasury Department.
Plus, the card would save recipients the inconvenience of dealing with checks that are lost, stolen or delayed in the mail.
Some services and transactions do carry fees. Receiving a paper statement, for example, costs 75 cents a month. ATM withdrawals after the first one cost 90 cents. And there are surcharges for using the card in a foreign country.
My thoughts:
It's also a way for government to pander to Mastercard -- increasing their profits, as I'm sure they will capture a certain percentage of every transaction when used in a purchase transaction.
I also understand that card holders may run into some surcharge fees if they do not use an ATM in the "surcharge-free network. Additionally, I'm certain there will be overdraft/over-the-limit fees -- all adding to the unwitting consumer's misery... Why do you think many of these folks don't have a bank account to begin with? Many probably have credit problems due to poor money management... This "Mastercard" will only exacerbate their money problems as the ATM & overdraft fees add up -- taking a larger portion of their benefits every month...
Randy
Sunday, June 08, 2008
DOW -- Trouble Ahead?
Last Dec/Jan the major US equity markets experienced significant sell offs, and the Dow nearly plunged through 11,600, but support was found, and for the next couple of months the DOW hovered slightly above the 12,000 range... Then came the month of March 08, when Bear Stearns was imploding and bad news started to pour in from every angle.
At that time, I knew the situation was grave and opined that the Plunge Protection Team (PPT) was wide awake at night, trying to find a solution -- otherwise the last leg of confidence in their "Goldilocks" economic charade would fail.
Here's my Sunday Evening, March 16th, 2008 post: Tumultuous Week Ahead
Lo and Behold, within hours of that post, opening markets around the globe began to tumble -- causing the PPT to panic and come out fighting (on a Sunday night)... With their big cannons and guns ablazing, it was announced the Fed would immediately:
Modify the Discount Window -- On March 16, 2008, the Fed further extended the term for borrowing to 90 days, and further reduced the spread to the target federal funds rate to 25 basis points.
Open the Primary Dealer Credit Facility -- The establishment of the PDCF was announced on March 16, 2008. The Board determined that unusual and exigent circumstances existed in financial markets, including a severe lack of liquidity that threatened to impair the functioning of a broad range of markets, and announced that the PDCF will be in place for at least six months and may be extended as conditions warrant.
These two new unparallelled additions would immediately join two other unprecedented actions taken earlier in the year:
- The Term Auction Facility (TAF) in Dec 07
- The Term Securities Lending Facility (TSLF) on March 11, 08
Within days, easy liquidity created through these four new monetary spigots started to calm markets, and as increasing gains were made many shills began to pronounce: "The Credit Crisis is Over".
Well, here we in June 08 and things aren't looking so well again...
With recent reports of:
- The biggest jobless increase in over two decades
- The largest housing bust since the Great Depression
- Oil/gas at an all-time high
- Contagion spreading across the banking sector (significant losses ahead)
- Recent MBIA and AMBAC downgrades
Last Friday's 400 point drop in the DOW should have been a wake-up call.
At that time, I knew the situation was grave and opined that the Plunge Protection Team (PPT) was wide awake at night, trying to find a solution -- otherwise the last leg of confidence in their "Goldilocks" economic charade would fail.
Here's my Sunday Evening, March 16th, 2008 post: Tumultuous Week Ahead
Lo and Behold, within hours of that post, opening markets around the globe began to tumble -- causing the PPT to panic and come out fighting (on a Sunday night)... With their big cannons and guns ablazing, it was announced the Fed would immediately:
Modify the Discount Window -- On March 16, 2008, the Fed further extended the term for borrowing to 90 days, and further reduced the spread to the target federal funds rate to 25 basis points.
Open the Primary Dealer Credit Facility -- The establishment of the PDCF was announced on March 16, 2008. The Board determined that unusual and exigent circumstances existed in financial markets, including a severe lack of liquidity that threatened to impair the functioning of a broad range of markets, and announced that the PDCF will be in place for at least six months and may be extended as conditions warrant.
These two new unparallelled additions would immediately join two other unprecedented actions taken earlier in the year:
- The Term Auction Facility (TAF) in Dec 07
- The Term Securities Lending Facility (TSLF) on March 11, 08
Within days, easy liquidity created through these four new monetary spigots started to calm markets, and as increasing gains were made many shills began to pronounce: "The Credit Crisis is Over".
Well, here we in June 08 and things aren't looking so well again...
With recent reports of:
- The biggest jobless increase in over two decades
- The largest housing bust since the Great Depression
- Oil/gas at an all-time high
- Contagion spreading across the banking sector (significant losses ahead)
- Recent MBIA and AMBAC downgrades
Last Friday's 400 point drop in the DOW should have been a wake-up call.
Let's look at a chart of the DOW:
Note: I'm not a chartist, but I do have a lot of common sense and believe that anyone can relate to/understand what I'm about to say.
Looking at the chart above, last Friday the DOW closed at 12,209. On the assumption more bad news will follow in the days/weeks ahead, where can one expect to see the next level of downside support and will we eventually break through it?
If you follow the chart over to March 2007, you will see that 11,939 is the next downside support level. If we break through there, it's quite likely we will also test the following downside support level-- found in Jan 08 at 11,634. Now, this 11,700-11,600 level will provide very strong downside resistance and the PPT will fight tooth and nail to prevent failure, but if we DO break through it -- look out below as automated sell signals kick in from around the Globe—potentially creating a selling panic/free-fall.
From there it's a 1,000 point drop to the next downside support level -- July 2006 @ 10,683.
Closing:
I don't expect to open in a free-fall tomorrow or the next day, but want you to be aware that we're only 300 points from breaking through key downside support levels. Once that happens (which I'm sure it will in the coming weeks) the next support level @ 11,700-11,600 becomes very vulnerable -- and if that one doesn't hold, expect all hell to break loose as the last leg of propped-up confidence in our economy gives way to unknown panic/crisis.
With that said, and expecting more bad news to roll in each and every day, I feel quite confident in stating that both of these downside support levels will eventually be broken (this year), but the real question ultimately relates to timing and the PPT -- What else do they have up their sleeves? No one yet knows, but expect a fight.
Best Regards
Randy
Economicrot.blogspot.com
.
Friday, June 06, 2008
Bernanke's Next Moves
Federal Reserve Chairman Ben Bernanke this week took the unusual step of defending the US Dollar and stated:
"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."
In layman's terms: We understand that our policy of cutting interest rates and injecting massive sums of money into our banking/financial system is causing significant dollar devaluations which is, in-turn, stoking massive inflation and future inflationary pressures. We the Fed, are on top of things and are in the process of formulating new policies to stave off these pressures, so don't bet on future rate cuts and you might even want to plan on seeing future rate increases.
HA! What a bunch of bologna... He's trapped and knows it!
With reports of the biggest jobless increase in over two decades, the largest housing bust since the Great Depression, Contagion spreading across the banking sector -- with massive writedowns to follow, recent MBIA and AMBAC downgrades, and credit crunch phase-2 ready to kick in, he is absolutely, unequivocally a caged animal with no room to move.
If he dare increase rates (he won't) our current, severely understated economic contraction will intensify and the downward sliding economic snowball, gathering momentum, will likely burst into a banking/financial system collapse.
Previously, I stated we'll likely see a 2% FFR in 08 and a 1% rate in 09. Thus far, I've been right in 08 and I still feel strongly I'll be right in 09.
As I see it, the Fed will hold five more FOMC meetings between now and the end of this year and rate announcements will be announced on the following dates:
June 25th
Aug 5th
Sept 16th
Oct 29th
Dec 16th
Baring any drop below 11,700 on the DOW between now and June 25th, I expect the fed to pause at the next FOMC meeting(no action on rates) -- If we do drop below the stated number, expect a new rate cut.
I expect Credit Crunch Phase-2 to kick in by Aug/Sept 08, and it will likely make phase-1 look like a walk in the park, so expect a cut at one of these meetings and another in October 08.
By December, semantic debate over our full-blown economic recession will be over/recession will be unquestionable and our newly elected President will demand action -- so expect another cut.
Bottom Line: Expect a 1.5% or lower FFR between now and the end of this year and a 1% or lower in 09.
Helicopter Ben's recent "strong dollar" talk is just that -- "talk", so don't expect any change from current policy.
US Dollar index going below 70 this year and inflation will intensify... His rant was all smoke and mirrors for the gullible.
Best regards
Randy
Economicrot.blogspot.com
.
"We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations."
In layman's terms: We understand that our policy of cutting interest rates and injecting massive sums of money into our banking/financial system is causing significant dollar devaluations which is, in-turn, stoking massive inflation and future inflationary pressures. We the Fed, are on top of things and are in the process of formulating new policies to stave off these pressures, so don't bet on future rate cuts and you might even want to plan on seeing future rate increases.
HA! What a bunch of bologna... He's trapped and knows it!
With reports of the biggest jobless increase in over two decades, the largest housing bust since the Great Depression, Contagion spreading across the banking sector -- with massive writedowns to follow, recent MBIA and AMBAC downgrades, and credit crunch phase-2 ready to kick in, he is absolutely, unequivocally a caged animal with no room to move.
If he dare increase rates (he won't) our current, severely understated economic contraction will intensify and the downward sliding economic snowball, gathering momentum, will likely burst into a banking/financial system collapse.
Previously, I stated we'll likely see a 2% FFR in 08 and a 1% rate in 09. Thus far, I've been right in 08 and I still feel strongly I'll be right in 09.
As I see it, the Fed will hold five more FOMC meetings between now and the end of this year and rate announcements will be announced on the following dates:
June 25th
Aug 5th
Sept 16th
Oct 29th
Dec 16th
Baring any drop below 11,700 on the DOW between now and June 25th, I expect the fed to pause at the next FOMC meeting(no action on rates) -- If we do drop below the stated number, expect a new rate cut.
I expect Credit Crunch Phase-2 to kick in by Aug/Sept 08, and it will likely make phase-1 look like a walk in the park, so expect a cut at one of these meetings and another in October 08.
By December, semantic debate over our full-blown economic recession will be over/recession will be unquestionable and our newly elected President will demand action -- so expect another cut.
Bottom Line: Expect a 1.5% or lower FFR between now and the end of this year and a 1% or lower in 09.
Helicopter Ben's recent "strong dollar" talk is just that -- "talk", so don't expect any change from current policy.
US Dollar index going below 70 this year and inflation will intensify... His rant was all smoke and mirrors for the gullible.
Best regards
Randy
Economicrot.blogspot.com
.
Thursday, June 05, 2008
Las Vegas's Economic Downturn Getting Worse
My thanks to Patrick and PDM for several of the tips/links:
Developers scrap $5 billion Las Vegas casino plan
A development group planning to build a 5,000-room hotel and skyscraper on the Las Vegas Strip has scrapped the project, owing to difficult credit- market conditions, according to one of the partners in the joint venture Wednesday.
Casino company Crown Ltd., (AU:CWN: news, chart, profile) headed by the Australian investor James Packer, said it and its partners, the private-equity firm York Capital Management and the property developer IDM, decided to pull out after conducting a strategic review.
"The recent upheaval in world credit markets has made it increasingly difficult for Crown and its partners to develop a commercially viable project," Crown Chief Executive Rowen Craigie said in a statement to the Australian Stock Exchange Wednesday.
Crown said it will write off its A$44 million (US$42.1 million) investment in the project. The development at the 27-acre site, which Reuters reported was valued at $5 billion, had included plans for the tallest tower in Las Vegas and an integrated hotel-and-casino complex
Recession Hits Las Vegas Shows
The halls of the JCK Las Vegas show this Saturday were clearly less crowded than last year, and almost all exhibitors noted a decrease of traffic into their booths. Walk-ins, visitors without prior appointments, were not only less present in lower numbers, but a number of exhibitors also noted they were less inclined to place orders.
A large Indian manufacturer commented that even the larger and much sought after 2 and 3 carat goods that they had on display were not being snatched off the shelves. While that comment may not have reflected sales of bigger goods at the show, it does reflect the mood. Stones of 3 carats and above have proved to be good sellers so far at the show.
Many booths were notably empty, with despondent business owners pacing back and forth waiting for someone to walk in.
Fliers in for pain as airlines pack it in
A USA TODAY analysis of fall airline schedules shows the nation's most popular vacation destinations will be among the biggest air-service losers. Many flights to Honolulu, Orlando, Las Vegas and other favorite vacation venues have vanished or will soon because cheap tickets bought by tourists don't cover the cost of getting there.
NOTE: I commented on this very same issue late last month:
Airlines: More problems for Las Vegas Strip
The nationwide economic downturn, combined with extremely high fuel prices and declining profit margins, has caused five airlines with services to/from Las Vegas to file for bankruptcy or cease operations since December. Additionally, US Airways recently announced it would reduce flights servicing the valley by some 20% come August, while American stated it would cut some flights after the peak season is over.
All this bad news leads to less airline competition and fewer available seats, that when combined with new fuel surcharges and luggage fees will soon put an end to cheap flights to and from Las Vegas -- reducing the number of tourists visiting and cutting into the discretionary budgets of those who decide to come anyway -- compounding the situation we're already starting to see:
Las Vegas Sands posts losses
Even Sin City is struggling throughout the US economic downturn as fewer tourists are visiting the world’s gambling capital. As a result, Las Vegas Sands, has gone into the red.
The hotel and casino company announced losses of $11.2m in the first quarter of the year, compared with a $90.9m profit a year earlier.
A weak US economy, competition in the Chinese gambling centre of Macau and rising construction costs are to blame for the losses.
William Weidner, Las Vegas Sands’ president and chief operating officer, said hotel occupancy was lower as fewer tourists came to Las Vegas and first-quarter operating results reflect both an intensely competitive operating environment in Macau as well as a weaker environment here in the US.
Moderation troubling for Vegas
LAS VEGAS — For decades, this gambling center seemed nearly immune to the nation's economic swings. But these days, the city built on excess is seeing a troubling sign: moderation.
Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown hit.
Room rates could plummet in Las Vegas as spending drops
With gaming revenues dipping in Las Vegas, the city could see room rates this summer that will be the lowest in six or seven years, one expert said. Tourists are still coming, and the rate of 9.6 million visitors in the first quarter wasn't lower than the same quarter in 2007, but visitors are spending less when they come.
Las Vegas gaming market fails to impress Wall Street
Wall Street investors do not expect a turnaround in the Las Vegas gaming market anytime soon. They also aren't impressed by the figures coming out of Macau.
"The overall economic climate remains soft, consumer confidence levels fell, gas prices continued to climb and concerns about demand for the sector persisted," Applied Analysis partner Brian Gordon said in the report.
Economic chill freezes Vegas budget
In the coming year, Las Vegans can expect it to take more time to obtain business licenses.
It’ll take longer for graffiti to be cleaned up and for city workers to replace damaged street signs. Hours at several city pools will be cut, local parks and trails won’t be as well maintained and expansion of the city jail will be delayed.
These are just a few of the ways the local economic downturn will affect residents as Las Vegas confronts a budget crunch — one that might not end anytime soon.
According to the city’s top finance official, fiscal 2009, which starts July 1, won’t be the worst of it. Although the budget slump will bottom out in fiscal 2010, further cuts could be needed through 2012, he said.
“I don’t see it bouncing back quickly,” said Mark Vincent, the city’s finance and business services director.
In the $1.5 billion 2009 budget approved by the city council May 20, expenses are expected to outpace revenues by about $20 million.
To cope with the shortfall, the city is freezing the equivalent of 186 positions, cutting travel and training programs, and reducing merit raises for nonunion workers.
Las Vegas called 'mortgage fraud ground zero'
In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.
Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."
Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.
In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.
Scott Hunter, the FBI's supervisory special agent here, describes the region as "mortgage fraud ground zero."
The problem is so widespread that everyone seems to know someone affected by it. Even one of the FBI's Las Vegas agents has a connection: Special Agent Henry Schlumpf's wife was the real estate broker who sold the Rolling Hills Drive house last year to a straw buyer representing Mazzarella and Grimm.
"We've got people who walked into neighborhoods who paid $200,000 to $400,000 more than they ever should have paid," says the FBI's Hunter. "That story is going on all over Las Vegas. Everybody thought the market was hot, but a lot of that was being manipulated."
Many of those who overpaid are stuck with mortgages larger than what their homes are worth. Those who took out home-equity lines of credit based on inflated valuations of their homes are now caught in a financial squeeze. Las Vegas had one of the nation's highest foreclosure rates last year, with 4.2% of its homes being repossessed by banks, up 169% from 2006.
"There's a close correlation between states with foreclosure problems and states with mortgage fraud problems," says Sam Garcia of MortgageDaily.com. "There's a good portion of foreclosures that probably resulted from some form of mortgage fraud."
Closing:
The Las Vegas downturn has merely just begun. Stay tuned as we keep an eye on the unfolding (soon-to-be) economic crisis.
Randy
Developers scrap $5 billion Las Vegas casino plan
A development group planning to build a 5,000-room hotel and skyscraper on the Las Vegas Strip has scrapped the project, owing to difficult credit- market conditions, according to one of the partners in the joint venture Wednesday.
Casino company Crown Ltd., (AU:CWN: news, chart, profile) headed by the Australian investor James Packer, said it and its partners, the private-equity firm York Capital Management and the property developer IDM, decided to pull out after conducting a strategic review.
"The recent upheaval in world credit markets has made it increasingly difficult for Crown and its partners to develop a commercially viable project," Crown Chief Executive Rowen Craigie said in a statement to the Australian Stock Exchange Wednesday.
Crown said it will write off its A$44 million (US$42.1 million) investment in the project. The development at the 27-acre site, which Reuters reported was valued at $5 billion, had included plans for the tallest tower in Las Vegas and an integrated hotel-and-casino complex
Recession Hits Las Vegas Shows
The halls of the JCK Las Vegas show this Saturday were clearly less crowded than last year, and almost all exhibitors noted a decrease of traffic into their booths. Walk-ins, visitors without prior appointments, were not only less present in lower numbers, but a number of exhibitors also noted they were less inclined to place orders.
A large Indian manufacturer commented that even the larger and much sought after 2 and 3 carat goods that they had on display were not being snatched off the shelves. While that comment may not have reflected sales of bigger goods at the show, it does reflect the mood. Stones of 3 carats and above have proved to be good sellers so far at the show.
Many booths were notably empty, with despondent business owners pacing back and forth waiting for someone to walk in.
Fliers in for pain as airlines pack it in
A USA TODAY analysis of fall airline schedules shows the nation's most popular vacation destinations will be among the biggest air-service losers. Many flights to Honolulu, Orlando, Las Vegas and other favorite vacation venues have vanished or will soon because cheap tickets bought by tourists don't cover the cost of getting there.
NOTE: I commented on this very same issue late last month:
Airlines: More problems for Las Vegas Strip
The nationwide economic downturn, combined with extremely high fuel prices and declining profit margins, has caused five airlines with services to/from Las Vegas to file for bankruptcy or cease operations since December. Additionally, US Airways recently announced it would reduce flights servicing the valley by some 20% come August, while American stated it would cut some flights after the peak season is over.
All this bad news leads to less airline competition and fewer available seats, that when combined with new fuel surcharges and luggage fees will soon put an end to cheap flights to and from Las Vegas -- reducing the number of tourists visiting and cutting into the discretionary budgets of those who decide to come anyway -- compounding the situation we're already starting to see:
Las Vegas Sands posts losses
Even Sin City is struggling throughout the US economic downturn as fewer tourists are visiting the world’s gambling capital. As a result, Las Vegas Sands, has gone into the red.
The hotel and casino company announced losses of $11.2m in the first quarter of the year, compared with a $90.9m profit a year earlier.
A weak US economy, competition in the Chinese gambling centre of Macau and rising construction costs are to blame for the losses.
William Weidner, Las Vegas Sands’ president and chief operating officer, said hotel occupancy was lower as fewer tourists came to Las Vegas and first-quarter operating results reflect both an intensely competitive operating environment in Macau as well as a weaker environment here in the US.
Moderation troubling for Vegas
LAS VEGAS — For decades, this gambling center seemed nearly immune to the nation's economic swings. But these days, the city built on excess is seeing a troubling sign: moderation.
Gambling revenue and hotel occupancy are down. Resorts are slashing room rates and offering coupons or free nights. Casino operators are firing hundreds of workers, and their stock prices have plummeted since October. Credit is drying up for hotel and condominium projects planned before the slowdown hit.
Room rates could plummet in Las Vegas as spending drops
With gaming revenues dipping in Las Vegas, the city could see room rates this summer that will be the lowest in six or seven years, one expert said. Tourists are still coming, and the rate of 9.6 million visitors in the first quarter wasn't lower than the same quarter in 2007, but visitors are spending less when they come.
Las Vegas gaming market fails to impress Wall Street
Wall Street investors do not expect a turnaround in the Las Vegas gaming market anytime soon. They also aren't impressed by the figures coming out of Macau.
"The overall economic climate remains soft, consumer confidence levels fell, gas prices continued to climb and concerns about demand for the sector persisted," Applied Analysis partner Brian Gordon said in the report.
Economic chill freezes Vegas budget
In the coming year, Las Vegans can expect it to take more time to obtain business licenses.
It’ll take longer for graffiti to be cleaned up and for city workers to replace damaged street signs. Hours at several city pools will be cut, local parks and trails won’t be as well maintained and expansion of the city jail will be delayed.
These are just a few of the ways the local economic downturn will affect residents as Las Vegas confronts a budget crunch — one that might not end anytime soon.
According to the city’s top finance official, fiscal 2009, which starts July 1, won’t be the worst of it. Although the budget slump will bottom out in fiscal 2010, further cuts could be needed through 2012, he said.
“I don’t see it bouncing back quickly,” said Mark Vincent, the city’s finance and business services director.
In the $1.5 billion 2009 budget approved by the city council May 20, expenses are expected to outpace revenues by about $20 million.
To cope with the shortfall, the city is freezing the equivalent of 186 positions, cutting travel and training programs, and reducing merit raises for nonunion workers.
Las Vegas called 'mortgage fraud ground zero'
In the shadow of Sunrise Mountain, where Rolling Hills Drive turns into Gold Mine Drive, a plain two-story home sits unoccupied, like thousands of other houses here in southern Nevada.
Some of these empty homes have "for sale" signs. Others bear signs saying "foreclosure." Authorities say hundreds of them, including this one on Rolling Hills Drive, should have a different sign out front, one that reads "fraud."
Prosecutors contend this house was sold last year to a straw buyer as part of a sprawling mortgage fraud perpetrated by a husband-and-wife team involving 277 properties in greater Las Vegas.
In recent years, there have been so many mortgage fraud cases, the bureau and local prosecutors have had to establish a special task force to combat the problem.
Scott Hunter, the FBI's supervisory special agent here, describes the region as "mortgage fraud ground zero."
The problem is so widespread that everyone seems to know someone affected by it. Even one of the FBI's Las Vegas agents has a connection: Special Agent Henry Schlumpf's wife was the real estate broker who sold the Rolling Hills Drive house last year to a straw buyer representing Mazzarella and Grimm.
"We've got people who walked into neighborhoods who paid $200,000 to $400,000 more than they ever should have paid," says the FBI's Hunter. "That story is going on all over Las Vegas. Everybody thought the market was hot, but a lot of that was being manipulated."
Many of those who overpaid are stuck with mortgages larger than what their homes are worth. Those who took out home-equity lines of credit based on inflated valuations of their homes are now caught in a financial squeeze. Las Vegas had one of the nation's highest foreclosure rates last year, with 4.2% of its homes being repossessed by banks, up 169% from 2006.
"There's a close correlation between states with foreclosure problems and states with mortgage fraud problems," says Sam Garcia of MortgageDaily.com. "There's a good portion of foreclosures that probably resulted from some form of mortgage fraud."
Closing:
The Las Vegas downturn has merely just begun. Stay tuned as we keep an eye on the unfolding (soon-to-be) economic crisis.
Randy
Goldilocks Economy - News Roundup
U.S. stocks rose the most in almost two months today, led by energy companies and retailers. I imaging the following issues weren't taken into consideration:
U.S. Mortgage Delinquencies, Foreclosures at Record
June 5 (Bloomberg) -- The number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their homes.
The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest in a series that goes back to 1979, the Washington-based trade group said.
Equity in Americans’ homes falls to historic low
The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.
Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.
The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.
Experts expect equity to decline further as falling home prices erode the value of Americans’ largest asset, dragging more homeowners “upside down” on their mortgages.
At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.
MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating (Update3)
June 5 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, had their AAA financial strength rankings cut by Standard & Poor's, taking with them the ratings on more than $1 trillion of securities they guaranteed.
The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending ``clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.''
UBS Plans to Close Its Municipal Bond Business
UBS said Thursday it would close its municipal bond business after failing to find a buyer for what was the third-largest underwriter of American state and local government debt last year.
“UBS explored a number of alternatives to exit the institutional municipals business and determined that because of the complexities of selling the business in the current market and limited market capacity for a business of this size, a sale of the business was unlikely in the near term,” the company said in a statement.
Richmond Federal Reserve Bank President Jeffrey Lacker Says Fed Loans to Wall Street Risk More Crises
June 5 (Bloomberg) -- Richmond Federal Reserve Bank President Jeffrey Lacker, challenging Chairman Ben S. Bernanke's unprecedented actions to stem a financial panic, warned that lending to securities firms raises the risk of future tumult.
``The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking,'' Lacker said in a speech to the European Economics and Financial Centre in London. That ``in turn could give rise to more frequent crises,'' he said.
Lacker urged that the central bank now ``clearly'' set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails ``in a costly way.''
The remarks are the strongest warning by an official about the consequences of the Fed's aid to securities dealers, the first lending to nonbanks since the Great Depression.
Federal Reserve Vice Chairman Donald Kohn Says Writedowns to Rise, Losses May Spread (Update3)
June 5 (Bloomberg) -- Federal Reserve officials expect some U.S. banks to report ``weak earnings'' and write down more assets while operating with insufficient reserves to cover bad loans, Vice Chairman Donald Kohn said.
The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn testified today to the Senate Banking Committee. Banks ``must be prepared for the possibility'' that they may find it harder to borrow if financial-market turmoil continues or credit availability declines further, he said.
``We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns,'' Kohn said during a hearing on the banking industry. Banks aren't increasing reserves enough to keep pace with losses, he said.
US banks fear $5 trillion balance impact
US banks fear accounting changes could impact lending as they force $5 trillion of assets back on to their balance sheets.
Analysts at Citigroup warn the planned tightening of accounting rules for off-balance sheet vehicles would force US banks to reconsider arrangements and could result in up to $5 trillion (₤2.5 trillion) of assets coming back on to their books.
‘We think it is very likely that these vehicles will come back on balance sheet.’ Birgit Specht, head of securitisation analysis at Citigroup, told Financial Times.
Ford Cutting Salaried Expenses By 15%; Delaying Merit Raises
DETROIT -(Dow Jones)- Ford Motor Co. (F) notified its U.S. salaried workers that it will trim expenses in its white-collar work force by 15% through layoffs, attrition and a hiring freeze on some open positions.
All moves, which will include trimming contract jobs, are slated to be completed by Aug. 1, Ford spokesman Mark Truby said Thursday. Truby also confirmed that merit raises for North American salaried workers, due to be paid in July, will be delayed until October. The auto maker will also suspend its U.S. tuition assistance program.
U.S. Auto Sales May Fall 1 Million in 2008, Ross Says (Update1)
June 5 (Bloomberg) -- U.S. auto sales may fall by 1 million vehicles this year and 350,000 more in 2009, said billionaire investor Wilbur Ross, who has been buying up suppliers of parts to the industry.
``The American consumer is tapped out and burned out,'' Ross said today in speech at the Ward's Auto Interior Show in Detroit. ``The pressure on consumers has been intensified by the loss of jobs and the high price of gas.''
Airlines Lose A Decade To Fuel
All airlines can do is cut, cut, cut. There is just no money left after dealing with increasingly rising fuel costs to continue at current levels.
"Based on a look at industry domestic capacity among legacy carriers, regional airlines, and low cost airlines, we expect 2009 domestic capacity will be in line with where it was in 1998 to 1999, essentially wiping out 10 years of growth for the legacy carriers," said McKenzie.
Summer airfares double, triple, quadruple
The law of supply and demand is kicking in for airline passengers this summer — and not in their favor.
Despite a string of price increases this year, demand for summer flights remains strong and the USA's big airlines are continuing to fill more than 80% of their seats.
This week, six Airlines (American, United, Delta, Northwest, Continental, US Airways) raised prices again for flights on many domestic routes where there's no non-stop competition from low-fare carriers. The result, says travel price guru Tom Parsons of BestFares.com, is that the cheapest tickets available on many routes in July are 100% to 300% higher than a year ago.
These are historic rates for fare increases, but even with that, airlines are failing to keep up with their rising fuel costs.
Americans' net worth took a dive in the first quarter
Yes, you have gotten poorer. And at an accelerated pace.
The net worth of U.S. households fell in the first quarter, the second straight decline, thanks to the double-whammy of sliding home values and the plunge in stock prices, the Federal Reserve said in a report today.
The central bank’s so-called flow of funds report estimated the net worth of American households at $55.97 trillion as of March 31, down $1.7 trillion from year-end. That was more than three times the $530-billion drop in the fourth quarter.
More Troubles for the US Dollar? : Trichet Says ECB May Consider Raising Rates in July
June 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials may raise interest rates next month to combat the fastest inflation in 16 years, sparking a surge in the euro and pushing bond yields to the highest level since 2001.
``It's not excluded that, after having carefully examined the situation, that we could decide to move our rates by a small amount at our next meeting,''
Not really important, but indicative of the times we live in, so I figured I'd post it anyway:
Boxer Holyfield Joins List of Celebrities Facing Foreclosure
June 5 (Bloomberg) -- Evander Holyfield, the former heavyweight boxing champion, faces losing his home to foreclosure, joining fellow athlete Jose Canseco and former ``Tonight Show'' sidekick Ed McMahon among celebrities struggling to pay mortgages.
Holyfield's estate in Fairburn, Georgia, will be put up for auction July 1 to repay a mortgage on the property with an original principal of $10 million, according to a legal notice published yesterday in the Fayette Daily News. Washington Mutual Inc., the biggest U.S. savings and loan, filed the notice, which identifies Holyfield as the property's owner.
Closing:
Very nice "Goldilocks Economy" rally in US Stocks today. Certainly hope all the bad news has been digested.
Regards
Randy
U.S. Mortgage Delinquencies, Foreclosures at Record
June 5 (Bloomberg) -- The number of Americans in danger of losing their homes to foreclosure rose to the highest in at least three decades during the first quarter as borrowers who fell behind on payments were unable to sell their homes.
The total inventory of homes in foreclosure increased to 2.47 percent and the delinquency rate, loans with one or more payments overdue, grew to 6.35 percent. All were the highest in a series that goes back to 1979, the Washington-based trade group said.
Equity in Americans’ homes falls to historic low
The equity Americans have in their most important asset — their homes — has dropped to its lowest level since the end of World War II.
Homeowners’ portion of equity slipped to 46.2 percent in the first quarter from a revised 47.5 percent in the previous quarter. That was the fifth quarter in a row below the 50 percent mark, the Federal Reserve said Thursday.
The total dollar value of equity also fell for the fourth straight quarter to $9.12 trillion from $9.52 trillion in the fourth quarter, while Americans’ total mortgage debt rose to $10.6 trillion from $10.53 trillion.
Experts expect equity to decline further as falling home prices erode the value of Americans’ largest asset, dragging more homeowners “upside down” on their mortgages.
At the end of March, nearly 8.5 million homeowners had negative or no equity in their homes, representing more than 16 percent of all homeowners with a mortgage, according to Moody’s Economy.com Chief Economist Mark Zandi. By June 2009, he estimates that will increase to 12.2 million, or almost one out of every four homeowners with a mortgage.
MBIA, Ambac, $1 Trillion of Debt, Lose S&P AAA Rating (Update3)
June 5 (Bloomberg) -- MBIA Inc. and Ambac Financial Group Inc., the world's largest bond insurers, had their AAA financial strength rankings cut by Standard & Poor's, taking with them the ratings on more than $1 trillion of securities they guaranteed.
The ratings were lowered two levels to AA, New York-based S&P said in a statement today. S&P said it would keep the ratings under review pending ``clarification of ultimate potential losses as well as future business prospects, the outcome of strategic business decisions, and potential regulatory developments.''
UBS Plans to Close Its Municipal Bond Business
UBS said Thursday it would close its municipal bond business after failing to find a buyer for what was the third-largest underwriter of American state and local government debt last year.
“UBS explored a number of alternatives to exit the institutional municipals business and determined that because of the complexities of selling the business in the current market and limited market capacity for a business of this size, a sale of the business was unlikely in the near term,” the company said in a statement.
Richmond Federal Reserve Bank President Jeffrey Lacker Says Fed Loans to Wall Street Risk More Crises
June 5 (Bloomberg) -- Richmond Federal Reserve Bank President Jeffrey Lacker, challenging Chairman Ben S. Bernanke's unprecedented actions to stem a financial panic, warned that lending to securities firms raises the risk of future tumult.
``The danger is that the effect of the recent credit extension on the incentives of financial-market participants might induce greater risk taking,'' Lacker said in a speech to the European Economics and Financial Centre in London. That ``in turn could give rise to more frequent crises,'' he said.
Lacker urged that the central bank now ``clearly'' set boundaries for its help to financial markets. In an interview yesterday on the themes of his speech, Lacker said even those new boundaries may not be believed by investors unless a financial firm fails ``in a costly way.''
The remarks are the strongest warning by an official about the consequences of the Fed's aid to securities dealers, the first lending to nonbanks since the Great Depression.
Federal Reserve Vice Chairman Donald Kohn Says Writedowns to Rise, Losses May Spread (Update3)
June 5 (Bloomberg) -- Federal Reserve officials expect some U.S. banks to report ``weak earnings'' and write down more assets while operating with insufficient reserves to cover bad loans, Vice Chairman Donald Kohn said.
The economic slump may increase problem loans for consumers, credit-card holders and corporations, Kohn testified today to the Senate Banking Committee. Banks ``must be prepared for the possibility'' that they may find it harder to borrow if financial-market turmoil continues or credit availability declines further, he said.
``We expect bank holding companies to continue to report weak earnings and further asset valuation writedowns,'' Kohn said during a hearing on the banking industry. Banks aren't increasing reserves enough to keep pace with losses, he said.
US banks fear $5 trillion balance impact
US banks fear accounting changes could impact lending as they force $5 trillion of assets back on to their balance sheets.
Analysts at Citigroup warn the planned tightening of accounting rules for off-balance sheet vehicles would force US banks to reconsider arrangements and could result in up to $5 trillion (₤2.5 trillion) of assets coming back on to their books.
‘We think it is very likely that these vehicles will come back on balance sheet.’ Birgit Specht, head of securitisation analysis at Citigroup, told Financial Times.
Ford Cutting Salaried Expenses By 15%; Delaying Merit Raises
DETROIT -(Dow Jones)- Ford Motor Co. (F) notified its U.S. salaried workers that it will trim expenses in its white-collar work force by 15% through layoffs, attrition and a hiring freeze on some open positions.
All moves, which will include trimming contract jobs, are slated to be completed by Aug. 1, Ford spokesman Mark Truby said Thursday. Truby also confirmed that merit raises for North American salaried workers, due to be paid in July, will be delayed until October. The auto maker will also suspend its U.S. tuition assistance program.
U.S. Auto Sales May Fall 1 Million in 2008, Ross Says (Update1)
June 5 (Bloomberg) -- U.S. auto sales may fall by 1 million vehicles this year and 350,000 more in 2009, said billionaire investor Wilbur Ross, who has been buying up suppliers of parts to the industry.
``The American consumer is tapped out and burned out,'' Ross said today in speech at the Ward's Auto Interior Show in Detroit. ``The pressure on consumers has been intensified by the loss of jobs and the high price of gas.''
Airlines Lose A Decade To Fuel
All airlines can do is cut, cut, cut. There is just no money left after dealing with increasingly rising fuel costs to continue at current levels.
"Based on a look at industry domestic capacity among legacy carriers, regional airlines, and low cost airlines, we expect 2009 domestic capacity will be in line with where it was in 1998 to 1999, essentially wiping out 10 years of growth for the legacy carriers," said McKenzie.
Summer airfares double, triple, quadruple
The law of supply and demand is kicking in for airline passengers this summer — and not in their favor.
Despite a string of price increases this year, demand for summer flights remains strong and the USA's big airlines are continuing to fill more than 80% of their seats.
This week, six Airlines (American, United, Delta, Northwest, Continental, US Airways) raised prices again for flights on many domestic routes where there's no non-stop competition from low-fare carriers. The result, says travel price guru Tom Parsons of BestFares.com, is that the cheapest tickets available on many routes in July are 100% to 300% higher than a year ago.
These are historic rates for fare increases, but even with that, airlines are failing to keep up with their rising fuel costs.
Americans' net worth took a dive in the first quarter
Yes, you have gotten poorer. And at an accelerated pace.
The net worth of U.S. households fell in the first quarter, the second straight decline, thanks to the double-whammy of sliding home values and the plunge in stock prices, the Federal Reserve said in a report today.
The central bank’s so-called flow of funds report estimated the net worth of American households at $55.97 trillion as of March 31, down $1.7 trillion from year-end. That was more than three times the $530-billion drop in the fourth quarter.
More Troubles for the US Dollar? : Trichet Says ECB May Consider Raising Rates in July
June 5 (Bloomberg) -- European Central Bank President Jean- Claude Trichet said officials may raise interest rates next month to combat the fastest inflation in 16 years, sparking a surge in the euro and pushing bond yields to the highest level since 2001.
``It's not excluded that, after having carefully examined the situation, that we could decide to move our rates by a small amount at our next meeting,''
Not really important, but indicative of the times we live in, so I figured I'd post it anyway:
Boxer Holyfield Joins List of Celebrities Facing Foreclosure
June 5 (Bloomberg) -- Evander Holyfield, the former heavyweight boxing champion, faces losing his home to foreclosure, joining fellow athlete Jose Canseco and former ``Tonight Show'' sidekick Ed McMahon among celebrities struggling to pay mortgages.
Holyfield's estate in Fairburn, Georgia, will be put up for auction July 1 to repay a mortgage on the property with an original principal of $10 million, according to a legal notice published yesterday in the Fayette Daily News. Washington Mutual Inc., the biggest U.S. savings and loan, filed the notice, which identifies Holyfield as the property's owner.
Closing:
Very nice "Goldilocks Economy" rally in US Stocks today. Certainly hope all the bad news has been digested.
Regards
Randy
Tuesday, June 03, 2008
GM and Ford -- Dire Straits
As I’ve stated before, the problems in our economy are many, and the issues at hand are far more than just a housing bubble losing its steam. Although housing has played a significant role in our economy for the last decade, it is just one of the many issues at play... We also have massive trade deficits, increasing cumulative debt, foreigners holding vast sums of dollars, waning confidence in those fiat dollars, soaring energy costs, skyrocketing health care costs, significant inflation, negative personal savings rates, major immigration concerns, nearly broken Social Security system, nearly bankrupt pension plan systems (PBGC), decaying moral foundation, inept leadership, out of control government spending, ignorant/completely oblivious consumers, irrational markets, etc… I could go on, but the main issue I’d like to concentrate on tonight is our faltering American Auto Industry:
I've been talking about our US Auto Industry woes since 2005, and have even posited an eventual Bankruptcy for both Ford and GM somewhere down the line. Why? Well, they have both been bleeding red ink badly and the current US consumer downturn, credit crunch and looming recession is making matters much worse.
Many of you probably don't know this, but in an act of desperation, Ford borrowed $18 Billion back in 2006, using the company as loan collateral -- the first time ever in the company's history.
GM has had it's own set of issues: GM Bankruptcy
Well, based on just released data, it certainly seems as if the situation isn't getting any better for these two -- and sky-high gas prices are making things worse:
Ford, GM See Sales Tumble in May
GM, the nation's No. 1 auto seller, said auto sales fell a greater-than-expected 30% in May to 272,363 vehicles. Truck and SUV sales dropped 39%, while car sales fell 17%.
Ford, meanwhile, said its May U.S. sales fell 15.9% to 217,377 vehicles from 258,391 the prior year. Adjusted for one extra selling day, sales dropped 19%.
GM Finally Gets it-- Admits SUVs Are a Dead-End
The company's announcement that it is embracing compact cars, shutting down four truck plants and possibly even dumping Hummer shows GM -- and, by extension, Detroit -- realizes fuel prices aren't coming down and SUVs are a dead-end. It's a fundamental change of direction for the world's largest automaker, which has for more than 10 years counted on pickups and SUVs to provide the bulk of its sales -- and profits -- while all but ceding the passenger car market to Japan and Europe.
But with gas poised to top $4 a gallon any day now, auto sales tumbling and the economy tanking, company CEO Rick Wagoner -- like his peers at Ford and Chrysler -- is scrambling to keep up with seismic changes that are coming far faster than anyone expected.
G.M. Closing 4 Truck Plants in Shift Toward Cars
With no end in sight for elevated gas prices, G.M. announced drastic cuts in production of sport utility vehicles and pickups on Tuesday and stepped up plans for smaller cars and engines.
G.M.’s chairman and chief executive, Rick Wagoner, said G.M. will cease production at four North American assembly plants that make S.U.V.’s and pickups by 2010.
And in a humbling admission that the S.U.V. era is all but over, G.M., Detroit’s leading automaker, said it was considering selling the gas-guzzling Hummer brand it once regarded as a pillar of future growth.
Ford F-Series' long reign as U.S. top-selling vehicle ends
After decades of sales domination, the Ford F-Series was outdone as the best-selling vehicle in America in May by four Japanese cars — a development that symbolizes the difficulty Ford Motor Co.’s turnaround now faces.
In May, F-Series sales plummeted 30.6%, to 42,973, as customers continued to reject trucks in favor of more affordable, fuel-efficient cars.
The F-Series decline meant the title of top-selling vehicle went to the Honda Civic, which starts at $15,010 and is rated at 29 m.p.g. in combined city-highway driving. The sporty compact car earned the purchases of 53,299 customers last month, an increase of 37.1%.
The F-Series has been the best-selling vehicle in the United States for 26 years.
Ford has drastically cut truck production and announced an incentive program to spur sales of its F-Series. Ford is offering customers the chance to purchase or lease a 2008 F-150 for the same price employees pay. Beginning today and running through June 30, Ford’s Employee Pricing Program will be available on 2008 model F-Series pickups, including the F-150, F-250 and F-350. Harley Davidson and chassis cab models are not included.
Ford Motor Credit Hurts Recovery, Independence
Ford (F) is starting to look better and better as an M&A target. The company said yesterday that it was having significant trouble at its lending unit. At Ford Credit "Delinquencies are rising on its loans -- especially those for big trucks -- and some of its borrowers owe more than their vehicles are worth," according to The Wall Street Journal.
Ford faces huge losses in it North American operation. Management had hoped for operating profits in 2009 and then backed down on that prediction. It now seems almost certain that Ford will have to cut more workers, idle more plants, and squeeze more suppliers. At some point all of that reaches a limit.
Ford may have no alternative other than to sell stock or borrow money to underwrite its prolonged recovery. The cost of debt to a company like Ford which carries a "junk" rating, will be dear.
Ford cannot support huge losses and substantial debt service forever. At some point, perhaps toward the end of this year, the Ford family, which has a large portion of the company's voting shares, will have to pick Chapter 11 or sales to a foreign buyer.
Closing:
As I've stated before: unfortunately, I believe these two companies are mortally wounded & walking dead.
I think many of you will remember the old Charles E. Wilson Quote: "What's good for the country is good for General Motors, and vice versa."
How true he was. Both the company and country are now in dire straits are both are nearly bankrupt.
I've been talking about our US Auto Industry woes since 2005, and have even posited an eventual Bankruptcy for both Ford and GM somewhere down the line. Why? Well, they have both been bleeding red ink badly and the current US consumer downturn, credit crunch and looming recession is making matters much worse.
Many of you probably don't know this, but in an act of desperation, Ford borrowed $18 Billion back in 2006, using the company as loan collateral -- the first time ever in the company's history.
GM has had it's own set of issues: GM Bankruptcy
Well, based on just released data, it certainly seems as if the situation isn't getting any better for these two -- and sky-high gas prices are making things worse:
Ford, GM See Sales Tumble in May
GM, the nation's No. 1 auto seller, said auto sales fell a greater-than-expected 30% in May to 272,363 vehicles. Truck and SUV sales dropped 39%, while car sales fell 17%.
Ford, meanwhile, said its May U.S. sales fell 15.9% to 217,377 vehicles from 258,391 the prior year. Adjusted for one extra selling day, sales dropped 19%.
GM Finally Gets it-- Admits SUVs Are a Dead-End
The company's announcement that it is embracing compact cars, shutting down four truck plants and possibly even dumping Hummer shows GM -- and, by extension, Detroit -- realizes fuel prices aren't coming down and SUVs are a dead-end. It's a fundamental change of direction for the world's largest automaker, which has for more than 10 years counted on pickups and SUVs to provide the bulk of its sales -- and profits -- while all but ceding the passenger car market to Japan and Europe.
But with gas poised to top $4 a gallon any day now, auto sales tumbling and the economy tanking, company CEO Rick Wagoner -- like his peers at Ford and Chrysler -- is scrambling to keep up with seismic changes that are coming far faster than anyone expected.
G.M. Closing 4 Truck Plants in Shift Toward Cars
With no end in sight for elevated gas prices, G.M. announced drastic cuts in production of sport utility vehicles and pickups on Tuesday and stepped up plans for smaller cars and engines.
G.M.’s chairman and chief executive, Rick Wagoner, said G.M. will cease production at four North American assembly plants that make S.U.V.’s and pickups by 2010.
And in a humbling admission that the S.U.V. era is all but over, G.M., Detroit’s leading automaker, said it was considering selling the gas-guzzling Hummer brand it once regarded as a pillar of future growth.
Ford F-Series' long reign as U.S. top-selling vehicle ends
After decades of sales domination, the Ford F-Series was outdone as the best-selling vehicle in America in May by four Japanese cars — a development that symbolizes the difficulty Ford Motor Co.’s turnaround now faces.
In May, F-Series sales plummeted 30.6%, to 42,973, as customers continued to reject trucks in favor of more affordable, fuel-efficient cars.
The F-Series decline meant the title of top-selling vehicle went to the Honda Civic, which starts at $15,010 and is rated at 29 m.p.g. in combined city-highway driving. The sporty compact car earned the purchases of 53,299 customers last month, an increase of 37.1%.
The F-Series has been the best-selling vehicle in the United States for 26 years.
Ford has drastically cut truck production and announced an incentive program to spur sales of its F-Series. Ford is offering customers the chance to purchase or lease a 2008 F-150 for the same price employees pay. Beginning today and running through June 30, Ford’s Employee Pricing Program will be available on 2008 model F-Series pickups, including the F-150, F-250 and F-350. Harley Davidson and chassis cab models are not included.
Ford Motor Credit Hurts Recovery, Independence
Ford (F) is starting to look better and better as an M&A target. The company said yesterday that it was having significant trouble at its lending unit. At Ford Credit "Delinquencies are rising on its loans -- especially those for big trucks -- and some of its borrowers owe more than their vehicles are worth," according to The Wall Street Journal.
Ford faces huge losses in it North American operation. Management had hoped for operating profits in 2009 and then backed down on that prediction. It now seems almost certain that Ford will have to cut more workers, idle more plants, and squeeze more suppliers. At some point all of that reaches a limit.
Ford may have no alternative other than to sell stock or borrow money to underwrite its prolonged recovery. The cost of debt to a company like Ford which carries a "junk" rating, will be dear.
Ford cannot support huge losses and substantial debt service forever. At some point, perhaps toward the end of this year, the Ford family, which has a large portion of the company's voting shares, will have to pick Chapter 11 or sales to a foreign buyer.
Closing:
As I've stated before: unfortunately, I believe these two companies are mortally wounded & walking dead.
I think many of you will remember the old Charles E. Wilson Quote: "What's good for the country is good for General Motors, and vice versa."
How true he was. Both the company and country are now in dire straits are both are nearly bankrupt.
The next Bear Stearns
If you recall the Bear Stearns Debacle, all was said to be well -- until it wasn't. Could Lehman Brothers be next? Many feel strongly that the answer is yes!
Lehman shares plunge on capital raising fears
Lehman Brothers Holdings Inc shares tumbled to close at nearly a 5-year low on Tuesday on concern that Wall Street's smallest surviving major brokerage may need to raise more capital.
The upheaval at Lehman -- which has already cut thousands of jobs and raised $4 billion to cushion the impact of previous write-downs -- was the latest reminder that it and larger rivals may be struggling to put the credit crunch behind them.
Afternoon Reading: Following the Bear’s Tracks?
As Felix Salmon over at Portfolio.com writes: “We’ve seen this movie before, most memorably at Bear Stearns. The fact is that during a credit crunch, when you’re stuck with illiquid assets, you can’t hedge them.”
Plenty of people are betting that Lehman implodes, says Ben Bittrolff at The Financial Ninja. “The open interest in LEH puts is absolutely massive, especially at strikes that would only pay off if LEH completely imploded (a la Bear Stearns). Either some idiots are going to be out a lot of money come June, July and October… or LEH implodes before then…”
Whether or not Lehman faces the same fate as Bear, one thing is clear: The spotlight is shining brightly on Lehman CEO Dick Fuld, a day after Wachovia CEO Ken Thompson lost his job and Washington Mutual’s Kerry Killinger was stripped of his chairman title. (He remains CEO.)
So is Fuld’s head the next to roll? Douglas A. McIntyre over at 24/7 Wall St. thinks so, writing “his board can no longer protected him from a series of bad decisions.”
Finally, check out this graphic from Portfolio.com on which CEO is next to go.
Bear Stearns replay? Lehman Bros. back in the rumor mill
Ever since the stunning demise of Bear Stearns, the spotlight has been fixed on Lehman because of the inescapable similarities between the two companies. Both were bond powerhouses and major progenitors of mortgage-backed securities. They were the two smallest of the five major independent investment banks. And Lehman's midtown-Manhattan headquarters are just a few blocks from Bear’s.
Just a few weeks ago, with its stock rebounding to more than $47 a share, Lehman appeared to be getting past the concerns about its financial viability. But it has never quite been able to put them completely to rest.
Questions arose last month about whether the firm had adequately hedged its exposure to some risky assets. And a high-profile critic, hedge fund manager David Einhorn, contends that Lehman masked its exposure to troubled credit markets through debatable accounting maneuvers.
When combined with other unsettling financial-sector news in recent days, including the ouster of Wachovia Corp.’s CEO, investors are rethinking whether the credit-crunch-related woes of the banking sector are over, as many investors had been hoping.
"We've gone from, 'hey it’s the ninth inning’ to, ‘maybe it’s the fith inning'," said Kevin Kruszenski, director of trading at KeyBanc Capital Markets in Cleveland. (My Put -- more like the second inning)
Lehman Fights an Investor Trying to Drive Down Its Stock
David Einhorn thinks another big Wall Street bank is headed for trouble — and he is not being quiet about it.
For eight months now, Mr. Einhorn, a rabble-rousing hedge fund manager, has pilloried the venerable Lehman Brothers in an effort to drive down the bank’s stock price, which he is betting against.
Lehman Brothers is not amused. In recent weeks, the bank’s chief financial officer, Erin Callan, has tried privately to rebut Mr. Einhorn to nervous investors, who have feared for Lehman’s health ever since Bear Stearns succumbed to a panic. But despite Ms. Callan’s efforts, Lehman’s stock keeps falling: It tumbled 9.5 percent more on Tuesday, in a deluge of selling, bringing its loss for the last 12 months to 59 percent.
The battle over Lehman has captivated Wall Street and left the bank struggling over what to do next. The bank, which is expected to post a quarterly loss of roughly $1 billion in a few weeks, may also raise capital to shore up investor confidence. The bank has sold more than $100 billion in assets in recent months to shore up its finances, according to a person close to the company. That person said new capital would most likely come from a source other than the public markets.
Mr. Einhorn, who runs a $6 billion hedge fund called Greenlight Capital, has been profiting from the Lehman’s growing pain. Critics say he is needlessly fanning fears about the precarious health of the financial industry at the very moment executives are struggling to stabilize their ailing companies. Many on Wall Street still wonder if hedge funds like Greenlight helped bring down Bear Stearns and spread false rumors about the bank, a possibility the Securities and Exchange Commission is investigating.
In an interview on Monday in his Midtown offices, Mr. Einhorn, fresh from his latest round of television appearances, said he was not out to tell Lehman Brothers how to fix its problems. He questioned how the company valued the assets on its books, and whether it was disclosing all the risks it faces. Investors have good reason to question banks: Worldwide, financial companies have suffered more than $380 billion in write-downs and credit-related losses in the last year, laying bare their shoddy risk management. Lehman has been singled out because of the large role it played in the mortgage market and its reluctance to disclose information about its assets compared with other Wall Street banks.
“Lehman has been one of the deniers,” Mr. Einhorn, 39, said.
Mr. Einhorn said he began betting against Lehman’s stock last July, and he has been right so far. But things have not always gone his way. His long battle against the Allied Capital Corporation prompted the S.E.C. to investigate comments he had made about that company, an episode he discusses in his new book, “Fooling Some of the People All of the Time,” which he is busy promoting. And he was a board member and longtime fan of the New Century Financial Corporation, a big subprime mortgage company that filed for bankruptcy last year.
Still, Mr. Einhorn could be a thorn in Lehman’s side for years to come. For six years he has been using a short trade as a way to bet against a rise in the stock price of Allied Capital and MBIA, the bond reinsurance company.
“He’s got a lot of conviction, and he persists in his convictions for a long time,” said Adam Zoia, managing partner of Glocap, a recruiter in New York that has worked for Mr. Einhorn.
Mr. Einhorn instigated the latest dive in Lehman’s stock price two weeks ago when he encouraged other investors to short the stock at a large conference in New York. When Standard & Poor’s lowered its debt rating for Lehman and several other Wall Street banks on Monday, Mr. Einhorn joined the ratings agency’s conference call on Tuesday and asked whether the agency reviews Lehman’s valuations of its assets.
Ms. Callan, 42, spent an hour on the phone with Mr. Einhorn answering questions before his speech. Afterwards, she found herself rebutting some of his assertions to investors.
On Tuesday, Lehman issued a public statement denying market rumors that it had turned to Federal Reserve for cash through a special program put in place after Bear Stearns collapsed. Ms. Callan and other Lehman executives declined to comment on Mr. Einhorn for this article.
It is impossible to quantify Mr. Einhorn’s influence on Lehman’s stock price. But hours before his speech two weeks ago, trading volume exploded for Lehman stock puts, which are options to sell the stock and profit if its falls. That day, more than 200,000 put contracts against Lehman were sold, up 49 percent from recent typical Lehman put trading.
Brad Hintz, the banking analyst at the Sanford C. Bernstein & Company and Lehman’s former chief financial officer, said he could hardly walk a few feet at a conference at the Waldorf-Astoria last week without having investors ask him about Mr. Einhorn’s views.
Lehman’s management has spoken with some analysts about Mr. Einhorn, but they have declined to comment publicly beyond a statement that says Mr. Einhorn “cherry picks” and misconstrues information.
“They’re furious,” Mr. Hintz said. “If you get distrust of your accounting, then it affects the valuation of the company forever going forward.”
Within Lehman, workers are calling Mr. Einhorn’s strategy “short and distort.” Many hedge fund managers talk freely with one another about companies, but they typically shun publicity. Mr. Einhorn, by contrast, is working with a financial public relations firm, the Gordon Group, to promote his book and views on stocks.
“His position on shorting Lehman is only going to get traction and be successful if he can succeed in convincing people to drive down the stock,” said Michael Claes, a managing director at the public relations firm Burson-Marsteller. “That’s best accomplished with media exposure.”
But Mr. Einhorn’s public approach leaves him open to being criticized himself. Mr. Hintz of Sanford Bernstein said in a report on Monday that supporters of Mr. Einhorn’s latest arguments are “piling on” against Ms. Callan. And Buckingham Research Group said his concerns were “just wrong.”
“These recent criticisms also seem will-timed to take advantage of the market’s concern around weak second-quarter results that we expect for Lehman,” the Buckingham analysts wrote in a report.
Lehman, to be sure, will have to explain its second-quarter earnings to be announced in the next two weeks. Ms. Callan has said the bank will take more write-downs and that some hedge trades were not effective.
Lehman, like its counterparts, is racing to use less leverage. The bank had a gross leverage ratio of 31.7:1 at the end of the first quarter, meaning it had borrowed $31.70 for each dollar of equity. Lehman has whittled that ratio down to 25:1 through its more than $100 billion in asset sales, said the person close to the company who was given anonymity because he was discussing a pending financial filing. A small amount of the sales were to two hedge funds set up by former Lehman executives.
Mr. Einhorn likes to point out that Lehman’s management has incentives to be positive since compensation is tied to performance. Short sellers, he said, receive undue skepticism, and he said he thought he would be getting far less attention if he were discussing a positive view on a company.
Aside from Lehman, Mr. Einhorn would not say if he is long or short other financial companies. But Greenlight Capital has twice as much money invested in long positions across its entire portfolio than it does shorts, he said. So a collapse of Lehman that turned into a broad economic panic could hurt Mr. Einhorn, too.
He said he would keep the Lehman trade going until he is proven right — or wrong.
“The faster the better,” Mr. Einhorn said, “but the world doesn’t work on my schedule.”
Monday, June 02, 2008
Interesting day
Today is my wife's birthday and we just got back from a family dinner out (did our part to stimulate the downturning LV economy tonight), so I really don't have much time to post up.
On that note, it was quite an interesting day on Wallstreet. A significant equities downturn was led by the financials once again... And the bad news was exacerbated by Treasury Secretary (and PPT leader) Paulson who added to the glum mood with a downbeat statement, saying it will be months before the problems end.
Note: For him to say such things, I imagine the looming "credit crunch phase-2" is worse than feared and he's making an attempt to prime the masses...
US STOCKS-Wall St ends lower, hammered by bank woes
NEW YORK, June 2 (Reuters) - U.S. stocks ended lower on Monday as financial shares slid on fears of more fallout from the mortgage crisis after Standard & Poor's cut debt ratings of three big securities companies and Wachovia, the fourth-largest U.S. bank, ousted its chief executive.
Morgan Stanley, Merrill, Lehman Ratings Cut by S&P
Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. declined in New York trading after Standard & Poor's lowered credit ratings for the investment banks, saying they may have to book more writedowns on devalued assets.
Morgan Stanley, the second-biggest U.S. securities firm by market value, was cut one level to A+ from AA-, S&P said today in a report. Merrill Lynch, the third-biggest, was also cut one level to A from A+, as was Lehman Brothers, the fourth-biggest. Goldman Sachs Group Inc., the largest of the group, was affirmed at AA-. The outlook on all four New York-based companies remains negative, S&P said.
The downgrades may make it harder for the banks to sell derivatives such as credit-default swaps that are tied to bonds or loans, said Brad Hintz, an analyst at Sanford C. Bernstein in New York. Single-A rated firms are less desirable as trading counterparties for fixed-income derivatives that extend longer than five years, he said.
``You'll see derivatives profitability drop off over a period of time,'' Hintz said of the three downgraded investment banks. ``We estimate somewhere around 1 percent to 1.5 percent of fixed- income revenues are at risk.''
The firms are also likely to have to post more collateral on the trades they've already made with other parties, raising their costs, Hintz said.
Collateral
In its last quarterly filing, Merrill said a one-notch downgrade of its credit rating would require it to post an additional $3.2 billion of collateral on over-the-counter derivative trades.
Morgan Stanley estimated in a regulatory filing that a single level downgrade would mean posting an extra $973 million. Lehman said a one level downgrade requires about $200 million of additional collateral.
Morgan Stanley spokeswoman Mary Claire Delaney declined to comment, as did Merrill spokeswoman Jessica Oppenheim and Lehman spokesman Mark Lane.
Morgan Stanley, Merrill and Lehman sank in New York Stock Exchange composite trading. The cost of insuring against a default on each of the companies' debt jumped initially and then retreated later in the day.
Lehman fell $2.98, or 8.1 percent, to $33.83 in NYSE composite trading, while Merrill lost $1.30, or 3 percent, to $42.62. Morgan Stanley dropped $1.13, or 2.6 percent, to $43.10. Goldman declined $4.07, or 2.3 percent, at $172.34.
Writedowns
The S&P rating ``actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters,'' Tanya Azarchs, an S&P analyst, said today.
S&P suggested the banks may have to sell more stock to help offset the charges, according to Hintz. The report said financial institutions have raised too much capital in the form of so-called hybrid securities, exceeding S&P's limits on such instruments.
``The risk of further equity dilution probably has gone up,'' Hintz said.
The biggest banks and securities firms have booked about $387 billion of writedowns and credit losses since the beginning of last year, as the collapse of the subprime mortgage market prompted a contraction in credit markets worldwide. So far, the firms have raised about $270 billion of capital.
`Negative Outlooks'
S&P revised its outlook on Bank of America Corp. and JPMorgan Chase & Co. to negative. Citigroup Inc. was taken off review for a downgrade and given a negative outlook, while Wachovia Corp. was placed on review for a downgrade.
Wachovia shares fell to the lowest level since July 1995 after the bank ousted Chief Executive Officer Kennedy Thompson today, signaling the company may report a second-quarter loss.
``The outlooks on the large financial institutions sector in the U.S. are now predominantly negative,'' S&P said in today's statement.
Best regards
Randy
On that note, it was quite an interesting day on Wallstreet. A significant equities downturn was led by the financials once again... And the bad news was exacerbated by Treasury Secretary (and PPT leader) Paulson who added to the glum mood with a downbeat statement, saying it will be months before the problems end.
Note: For him to say such things, I imagine the looming "credit crunch phase-2" is worse than feared and he's making an attempt to prime the masses...
US STOCKS-Wall St ends lower, hammered by bank woes
NEW YORK, June 2 (Reuters) - U.S. stocks ended lower on Monday as financial shares slid on fears of more fallout from the mortgage crisis after Standard & Poor's cut debt ratings of three big securities companies and Wachovia, the fourth-largest U.S. bank, ousted its chief executive.
Morgan Stanley, Merrill, Lehman Ratings Cut by S&P
Morgan Stanley, Merrill Lynch & Co. and Lehman Brothers Holdings Inc. declined in New York trading after Standard & Poor's lowered credit ratings for the investment banks, saying they may have to book more writedowns on devalued assets.
Morgan Stanley, the second-biggest U.S. securities firm by market value, was cut one level to A+ from AA-, S&P said today in a report. Merrill Lynch, the third-biggest, was also cut one level to A from A+, as was Lehman Brothers, the fourth-biggest. Goldman Sachs Group Inc., the largest of the group, was affirmed at AA-. The outlook on all four New York-based companies remains negative, S&P said.
The downgrades may make it harder for the banks to sell derivatives such as credit-default swaps that are tied to bonds or loans, said Brad Hintz, an analyst at Sanford C. Bernstein in New York. Single-A rated firms are less desirable as trading counterparties for fixed-income derivatives that extend longer than five years, he said.
``You'll see derivatives profitability drop off over a period of time,'' Hintz said of the three downgraded investment banks. ``We estimate somewhere around 1 percent to 1.5 percent of fixed- income revenues are at risk.''
The firms are also likely to have to post more collateral on the trades they've already made with other parties, raising their costs, Hintz said.
Collateral
In its last quarterly filing, Merrill said a one-notch downgrade of its credit rating would require it to post an additional $3.2 billion of collateral on over-the-counter derivative trades.
Morgan Stanley estimated in a regulatory filing that a single level downgrade would mean posting an extra $973 million. Lehman said a one level downgrade requires about $200 million of additional collateral.
Morgan Stanley spokeswoman Mary Claire Delaney declined to comment, as did Merrill spokeswoman Jessica Oppenheim and Lehman spokesman Mark Lane.
Morgan Stanley, Merrill and Lehman sank in New York Stock Exchange composite trading. The cost of insuring against a default on each of the companies' debt jumped initially and then retreated later in the day.
Lehman fell $2.98, or 8.1 percent, to $33.83 in NYSE composite trading, while Merrill lost $1.30, or 3 percent, to $42.62. Morgan Stanley dropped $1.13, or 2.6 percent, to $43.10. Goldman declined $4.07, or 2.3 percent, at $172.34.
Writedowns
The S&P rating ``actions reflect prospects of continued weakness in the investment banking business and the potential for more write-offs, though not of the magnitude of those of the past few quarters,'' Tanya Azarchs, an S&P analyst, said today.
S&P suggested the banks may have to sell more stock to help offset the charges, according to Hintz. The report said financial institutions have raised too much capital in the form of so-called hybrid securities, exceeding S&P's limits on such instruments.
``The risk of further equity dilution probably has gone up,'' Hintz said.
The biggest banks and securities firms have booked about $387 billion of writedowns and credit losses since the beginning of last year, as the collapse of the subprime mortgage market prompted a contraction in credit markets worldwide. So far, the firms have raised about $270 billion of capital.
`Negative Outlooks'
S&P revised its outlook on Bank of America Corp. and JPMorgan Chase & Co. to negative. Citigroup Inc. was taken off review for a downgrade and given a negative outlook, while Wachovia Corp. was placed on review for a downgrade.
Wachovia shares fell to the lowest level since July 1995 after the bank ousted Chief Executive Officer Kennedy Thompson today, signaling the company may report a second-quarter loss.
``The outlooks on the large financial institutions sector in the U.S. are now predominantly negative,'' S&P said in today's statement.
Best regards
Randy
Sunday, June 01, 2008
US and European debt markets flash new warning signals
Get ready for Credit Crisis Phase-2
US and European debt markets flash new warning signals
The debt markets in the US and Europe have begun to flash warning signals yet again, raising fears that the global credit crisis could be entering another turbulent phase.
The cost of insuring against default on the bonds of Lehman Brothers, Merrill Lynch and other big banks and brokerages has surged over the last two weeks, threatening to reach the stress levels seen before the Bear Stearns debacle. Spreads on inter-bank Libor and Euribor rates in Europe are back near record levels.
Credit default swaps (CDS) on Lehman debt have risen from around 130 in late April to 247, while Merrill debt has spiked to 196. Most analysts had thought the coast was clear for such broker dealers after the US Federal Reserve invoked an emergency clause in March to let them borrow directly from its lending window.
But there are now concerns that the Fed itself may be exhausting its $800bn (£399bn) stock of assets. It has swapped almost $300bn of 10-year Treasuries for questionable mortgage debt, and provided Term Auction Credit of $130bn.
"The steep rise in swap spreads this week is ominous," said John Hussman, head of the Hussman Funds. "The deterioration is in stark contrast to what investors have come to hope since March."
Lehman Brothers took writedowns of just $200m on its $6.5bn portfolio of sub-prime debt in the first quarter even though a quarter of the securities had "junk" ratings, typically worth a fraction of face value.
Willem Sels, a credit analyst at Dresdner Kleinwort, said the banks are beginning to face waves of defaults on credit cards, car loans, and now corporate loans. "We believe we're entering Phase II. The liquidity crisis has eased a little, but the real credit losses are accelerating. The worst is yet to come," he said.
The jump in corporate bankruptcies has not yet been picked up by the usual indicators, which tend to lag the market, lulling investors into a false sense of security. The true losses are already known to specialists in the business, said Mr Sels.
US and European debt markets flash new warning signals
The debt markets in the US and Europe have begun to flash warning signals yet again, raising fears that the global credit crisis could be entering another turbulent phase.
The cost of insuring against default on the bonds of Lehman Brothers, Merrill Lynch and other big banks and brokerages has surged over the last two weeks, threatening to reach the stress levels seen before the Bear Stearns debacle. Spreads on inter-bank Libor and Euribor rates in Europe are back near record levels.
Credit default swaps (CDS) on Lehman debt have risen from around 130 in late April to 247, while Merrill debt has spiked to 196. Most analysts had thought the coast was clear for such broker dealers after the US Federal Reserve invoked an emergency clause in March to let them borrow directly from its lending window.
But there are now concerns that the Fed itself may be exhausting its $800bn (£399bn) stock of assets. It has swapped almost $300bn of 10-year Treasuries for questionable mortgage debt, and provided Term Auction Credit of $130bn.
"The steep rise in swap spreads this week is ominous," said John Hussman, head of the Hussman Funds. "The deterioration is in stark contrast to what investors have come to hope since March."
Lehman Brothers took writedowns of just $200m on its $6.5bn portfolio of sub-prime debt in the first quarter even though a quarter of the securities had "junk" ratings, typically worth a fraction of face value.
Willem Sels, a credit analyst at Dresdner Kleinwort, said the banks are beginning to face waves of defaults on credit cards, car loans, and now corporate loans. "We believe we're entering Phase II. The liquidity crisis has eased a little, but the real credit losses are accelerating. The worst is yet to come," he said.
The jump in corporate bankruptcies has not yet been picked up by the usual indicators, which tend to lag the market, lulling investors into a false sense of security. The true losses are already known to specialists in the business, said Mr Sels.
The Non-Energy Crisis--Lindsey Williams
Excellent, Fantastic, almost unbelievable late-2006 presentation that I urge everyone to watch.
In summary: Lindsey was a an ordained Baptist minister in Alaska during the energy crisis of the 70's and was present in several "Top Level meetings" when the largest oil field ever discovered in North America was celebrated (Gull Island Oil Field)-- only to become "Classified" the next day and never tapped/put to use.... Why? To control oil supplies and establish a dollar pricing agreement w/OPEC -- so they would recycle those dollars, and buy our national debt. He who controls oil and oil pricing, controls the world.
Iraq (World's 2nd largest oil reserves) was a setup because they wouldn't accept US Dollar standard and Iran (3rd largest reserves)will be next.
There are multiple parts to this series and I highly suggest you watch them all, but I've posted up the main ones so you can get a taste.
Part 1
Part 2
Part 3
Non-Energy Crisis Part 4
Non-Energy Crisis Part 5
Non-Energy Crisis Part 6
Non-Energy Crisis Part 7
Non-Energy Crisis Part 8
In summary: Lindsey was a an ordained Baptist minister in Alaska during the energy crisis of the 70's and was present in several "Top Level meetings" when the largest oil field ever discovered in North America was celebrated (Gull Island Oil Field)-- only to become "Classified" the next day and never tapped/put to use.... Why? To control oil supplies and establish a dollar pricing agreement w/OPEC -- so they would recycle those dollars, and buy our national debt. He who controls oil and oil pricing, controls the world.
Iraq (World's 2nd largest oil reserves) was a setup because they wouldn't accept US Dollar standard and Iran (3rd largest reserves)will be next.
There are multiple parts to this series and I highly suggest you watch them all, but I've posted up the main ones so you can get a taste.
Part 1
Part 2
Part 3
Non-Energy Crisis Part 4
Non-Energy Crisis Part 5
Non-Energy Crisis Part 6
Non-Energy Crisis Part 7
Non-Energy Crisis Part 8
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