Elaine Meinel Supkis
The money spent on saving the G7 nation's intra-banking system is now $326.3 billion and climbing! And the markets are closed during the weekend. Will this get worse? Well, the biggest brokers won't fund mortgages above $400,000 anymore except at crazy rates well over 8%! And more hedge funds are dying and the SEC is investigating Goldman Sachs (!!!!OMG!!!) and Merrill Lynch for lying about the value of their assets and hedge fund holdings. And Bear Stearns executives sold out right before the crash! It's Enron time!
Most of those losses before this year came in 2005, when returns dipped 6%. That was an abrupt departure from past cycles. In 2002, while the broader market was diving, Countrywide's star was bright on Wall Street as it racked up gains of 27%. In the next year, those surged to 97% and then tapered to 48% in 2004.Residential mortgages have been rocky since then, though. "When interest rates were really low and coming off historically high levels, everyone in America wanted to refinance their mortgages," said Frederick Cannon, an analyst at Keefe, Bruyette & Woods. "As the leading mortgage bank in the U.S., Countrywide was one of the biggest benefactors of the refinancing boom."
It is easy to grow if money is free. I am a saver and I hated the 1% years because we savers were offered Japanese rates! Needless to say, savings plunged. I only save in order to pay taxes now. CD rates were pretty slender, too. Everyone had to invest or lose their money to inflation. From 2002 to 2005, the price of gasoline in my community went from $1.05 to $3.00 a gallon. Food prices shot up, too. I ceased heating my house with propane and went strictly to firewood from my own forest. A bank would sit on my savings and use it to generate these ridiculous mortgages while I waited to pay my taxes. And this annoying situation still continues. I warned the Federal Reserve that interest rates were NOT reflecting 'inflation'---whatever that is. But rather, the amount was supposed to attract SAVINGS! Who saves when it is 1% or less? Or if it scrapes along the rate of inflation which makes it basically 0%?
From the Market Watch article above:
"Wells Fargo is a much more diversified play and an extremely well-run bank," said Ryan Lentell, a Morningstar analyst.But he added that Countrywide is a much better bargain these days than Wells Fargo. Morningstar estimates that Countrywide is trading now at about a 45% discount to its intrinsic value. Its analysts view Wells Fargo selling for 13% less than its $39 "fair value" price.
Going out of business sales are all great bargain hunting times but not with stocks. When they go belly up, you lose everything. It is not like buying a car or a chair from a business liquidating itself. More than any instruments around, stocks are nearly as liquid as money only it is quite vapid. Money takes time to lose value, stocks can do it instantaneously. Countrywide is very big so it will go sailing off the side of the earth in due time unless the government saves them from their own folly.
For Countrywide, like all the other outfits, boasted about granting loans to '4 out of 5 applicants!' The Federal government can't save '4 out of 5' lending institutions. This will bankrupt us. Speaking of which, all the articles in the mainstream media forget to mention that ugly little detail: our government is in serious financial trouble which is worsening by the minute due to our need to irritate Russia and China, our bankers. When Katrina destroyed New Orleans, the government was estatically happy. 'We can spend up to $250 billion rebuilding New Orleans,' they said in Congress and the White House. I said back then, 'Sorry, we are near our bank limit. We can't do that.' And note that no one is bothering with rebuilding much of anything in New Orleans.
We are way overdue for a nasty earthquake in California. This will cause at least $300 billion in damages if it shakes up any of the large communities in California. The Treasury and the Federal Reserve won't be able to ladle out that kind of sums. We did do this after 9/11 because China kindly bought up around $300 billion in US bonds between 2002 and 2004. When we came begging soon after for New Orleans, they said 'No' pretty firmly.
Actually, they said 'Yes' and asked for Taiwan. Then they said, 'No.' When we refused.
Chinese Foreign Ministry spokesman Liu Jianchao Thursday said the Taiwan authorities' attempt to join the United Nations was "ridiculous" and "doomed to fail."Liu's remarks came after China's UN Ambassador Wang Guangya in his capacity as the rotating president of the U.N. Security Council in July rejected the Taiwan authorities' application forwarded by representatives of Swaziland and the Solomon Islands to the UN on July 31.
I hope I don't bore regular readers with the flood of tie-ins with Asia when talking about domestic mortgage and hedge fund troubles. But this is because most people are not given the whole picture. And I have to assure myself, I am on the right scent and tracking the correct permutation of events. For things will move faster and faster as banks are forced to call in options on loans for gamblers in assets and bonds. Many of the players in this once-lucrative area are doing this on loans. So are a vast army of FOREX speculators. If things go cockeyed, and I expect this to happen, many a Japanese housewife may be toying with committing suicide when her 10-1 bets go bad. 10,000 ¥ pot in this casino can mean a 100,000 ¥ payback if the wheel of fortune stops on the wrong point on the roulette wheel.
From the Murdoch Street Journal:
Securities regulators are checking the books at top Wall Street brokerage firms and banks to make sure they aren't hiding losses in the subprime-mortgage meltdown, said people familiar with the inquiry.The SEC is looking into whether Wall Street brokers are using consistent methods to calculate the value of subprime-mortgage assets in their own inventory, as well as assets held for customers such as hedge funds, the same people said. The concern: that the firms may not be marking down their inventory as aggressively as assets held by clients.
Always, the SEC does a splendid job after the fact. The criminals, cheats and jerks all get to face interrogation and judgement. They don't get shot in the back of the head at a stadium. But I wish the SEC would step in at the beginning of a bubble to stop them from cheating people! But of course, this is all political and the cheats and carny men all spend a fortune buying politicians, 90% of whom are GOP, for just this reason. The devaluation of stocks, bonds, CDs and other instruments held by brokers so the owners can gamble with the 10-1 margins can swiftly unravel if things go south for the summer. In other words, if the assets held in case of bankruptcy have no value, there can be no loans and the guys playing games will have to find better, more or solid gold coins to cover their bets. And this means they must sell things exactly like a gambler in Vegas has to go to the pawn broker with the three balls, the Medieval universal sign of using assets to get a loan to hold until the holder can pay back.
Even pawn brokers have a sense of relative value. In good times, you can leave many things with them. In bad times, they get very cranky. The diamond necklace in good times might get one a couple thousand dollars. In a depression, a few hundred. There can easily be a 90% loss in asset value in a declining market. This is not so very unusual. Wars and insurrections do the same. Property values in Hiroshima on August 7th, 1945 were near zero ¥.
From Murdoch's Financial Outlet, the WSJ:
After the close of trading, Renaissance Technologies Corp., a hedge-fund company with one of the best records in recent years, told investors that a key fund has lost 8.7% so far in August and is down 7.4% in 2007. Another big fund company, Highbridge Capital Management, told investors its Highbridge Statistical Opportunities Fund was down 18% as of the 8th of the month, and was down 16% for the year. The $1.8 billion publicly traded Highbridge Statistical Market Neutral Fund was down 5.2% for the month as of Wednesday.
And so the best of the hedgers is dying. None will survive. No one keeps money in these dog pounds if the dogs chew them to pieces and pee on them. The hedge fund philosophy was, they make money going up AND going down. They were cocksure about this. Their fancy computer programs told them so. There is a cruel rule of thumb: you have to test the umbrella in the rain, not the sun. And there was no rain while 9,000 hedge funds were launched. Instead of waiting to see how they perform in bad times, everyone launched these ridiculous things and now we can clearly see how weak and dangerous they all are.
The SEC should have stopped this but the army of lobbyists and the navy of campaign contributors paid many people to not examine their activities. They all claimed that these hedge funds were private money and everyone should butt out. Then they moved them off shore to British-type places run for the Queen of England such as the Bermudas and Guernsey. The Bears Stearns funds that are sailing off to the Caymen Islands to jeer at investors and the SEC has very seriously triggered a global liquidity crisis as all sane people with money in these schemes rush to pull their money out. And for good reason.
Bears Stearns caused a major rout in the world markets. They should be investigated and shut down. If their lawyers dispute me on this, we can argue in front of the SEC and on the major TV stations about all this. Boy, are hedge funds touchy. They want to be invisible yet visible enough to attract people to rip off.
Goldman Sachs Group Inc.'s $8 billion Global Alpha hedge fund has fallen 26 percent so far this year, a decline that may prompt more investors to withdraw their money, according to people familiar with the fund.Goldman's largest hedge fund, managed by Mark Carhart and Raymond Iwanowsk, has dropped almost 40 percent since July 31, 2006, said the people, who declined to be named because the fund is private. The Standard & Poor's 500 Index of the biggest U.S. stocks has returned 16 percent during the same period.
Looking at all the funds going down, it is obvious that when Goldman Sacks (of s...t) boast about controlling $1 trillion in assets, this is pre-crash money. I would suggest they actually control less than that by at least 20% or more. And each day, it shrinks. Their ability to bribe politicians or warp our nation's economy fade as their wealth evaporates. The SEC should investigate them. They could also quiz clueless Paulson. Maybe they can arrest him, too. Under his time in office, all the numbers have been very bad for our nation! He has let the trade deficit get infinitely worse. He has set the stage for a global banking crisis. He acted like a crybaby in front of the Chinese who are still gleeful about that.
So many people to investigate! And let's not forget Greenspan who urged banks to hand out more Alt A loans. Reading yesterday's stories, I found another hedge fund toy: AQR.
From Alpha Geeks at Info Process:
The Global Alpha fund was seeded in late 1995 with just $10 million, and in its first full year, 1996, the fund returned 140%, one former group member recalls. Mr. Asness left Goldman in 1997 with seven of the group's 13 members, to form his own hedge-fund business, AQR -- short for Applied Quantitative Research....The Global Alpha group's lineage traces to a group of students of Professor Eugene Fama, an influential Chicago finance professor known for a belief in efficient markets. In the early 1990s, his former teaching assistant, Mr. Asness, was recruited to join Goldman by a college friend, and in turn recruited numerous colleagues from Chicago.
One of the group's early assignments was to build quantitatively oriented asset-allocation models. Part of the methodology, which underpinned the strategy of Global Alpha, was to select stocks selling at cheap prices based on their book value, earnings or other metrics, while betting on a decline in stocks selling at higher prices based on their growth prospects.
The Goldman group later used similar methods to choose not only stocks but also bonds, currencies, and entire country markets, former group members say. The models also included a "momentum" factor based on which stocks or markets have recently performed well. Although the models have evolved, the underlying "quant" methodology remains similar.
In addition to Global Alpha, Goldman employees manage two other hedge funds specializing in quantitative stock and bond investments with an estimated $8 billion in assets. While some competitors grumble that Goldman traders could gain an advantage based on possible access to client information, the Goldman funds don't have such access, former group members say.
Ho boy. Ain't this Quant quaint? This is an old article from 2 years ago. So it is very upbeat rather than beat up. And the ingenious claim that Goldman Sachs which infests all our government systems including elected office such as the gov. of New Jersey, isn't dealing with insider information! Being hyper-connected to the seats of power and being the ones negotiating trade treaties and hobnobbing with the rulers of more than one nation, they are the ultimate insiders. Now they are deep inside a pile of shit. They made.
Always, the schemes based on playing a system that declines so that one can shave off pennies from the movement of values always ends up leaning heavily on things going UP. Not down. And the whole system resets itself. Indeed, the down stocks go up thanks to these programs so it elides over to up, up, upwards momentum and the hedging disappears in a delirium of lust for upwards momentum only.
From the above study:
Geoff Considine (Quantext) submits: I often hear from investors who want to build a portfolio that is more effective than simply buying a generic set of broad-based index funds. If you read my articles, you will note that I believe that individual stocks are an important part of getting the highest returns for a specific amount of portfolio risk.
*snip*
The lower the correlation between portfolio components, the more effectively diversification is working for a portfolio---and the higher the return you will be able to get for a specific level of portfolio risk. The article linked above shows, for example, that the S&P500 and the NASDAQ have a correlation of 87%, so combining an S&P500 ETF like IVV with the NASADQ-tracking QQQQ does not do much for your portfolio diversification. The correlation between the S&P500 and the international large-cap EAFE index is around 82%--slightly better in terms of the ability to diversify, but not much. Put in this context, we can look at the correlation matrix above and see that there are a lot of very low correlations between the assets in this portfolio.To come up with candidate ETFs for this portfolio, I screened for ETFs that have low values of R-squared (also written as R^2). This type of screen is available on Yahoo! Finance, for example. Low-R^2 ETFs are not highly driven by the broader market---this is precisely what R^2 measures. I ended up with a great deal of redundancy from this screening process—some of it was obvious, but some was not until I looked at the correlation matrix. After rejecting the ETFs that were too highly correlated with one another, I ended up with a much shorter list. My goal was to end up with a fairly small number of ETFs that yielded a high average return relative to the standard deviation in return (the measure of risk) for both the historical period and the forward-looking projections. In other words, I was trying to get a portfolio of ETFs that has a high risk adjusted return.
For a portfolio with a projected average annual return of around 10%, about the minimum risk you can realistically plan for is annualized standard deviation in return of around 10%. This is, of course, just a rule of thumb but Ray Dalio has also presented some fairly compelling evidence (pdf file) in favor of this rule of thumb. I have studied dozens of possible portfolio strategies and an expected 10% return for 10%-12% in standard deviation is about as good as it gets on a forward-looking basis.
Alas for the creature we call 'Greed'. In many a fairy tale, when a virtuous young lady can spin straw to gold, the greedy king demands more and more. Or the lad who finds a gold coin under his pillow, his greedy stepmother will kill him in the hopes of more gold for herself. And the golden goose, the most famous bird of them all. Not happy with mere 10% returns, there is pressure for 20% returns. Thus the push for hazardous CDOs based on sales of mortgages to liars, cheats and deadbeats thinking they could make a killing in realestate speculation.
It is very amusing to see what qualifications they want. 3 years experience means some freckless youth fresh out of school and working for a short while in this wacky market. Age does matter. Us oldsters have institutional memories.
Click here to see this particular web site, the home base of Legg Mason.This is the guys looking for these fresh youngsters. Legg Mason sounds like a Bugs Bunny character. Foghorn Leghorn, for example. Heh. They claim they have $992 billion in assets 'under managment'. Um, that is a trillion dollars...pre-SEC investigation. Who knows what it is all worth now? I bet, significantly less. I wonder if they will sue me for wondering about them? I read their lawyer's page at their site. They have all their bases covered. They don't want anyone passing along information at their site. Perhaps they will be angry because I talk about their fabulous wealth!
They can't have it both ways! They can't put stuff in public and then demand we not discuss their information! This is, or was, America which has free speech. I worry these guys are behind the push to eliminate our Constitution since they want to be opaque while being public. They want to be creatures of the darkest night gloom while walking in daylight. So many contridictary things here! So go look at this site, they are very rich and very powerful and extremely frightened right now.
Trillionaires extrordinaires Goldman Sachs and Merrill Lynch are already under investigation. I suspect everyone will end up in this same boat. And it won't be a yacht.
Wall Street bank Bear Stearns (BSC - Cramer's Take - Stockpickr - Rating) is right at the heart of the subprime mortgage meltdown. It's reeling from massive, multibillion-dollar losses at two hedge funds.And every investor who has watched the stock collapse from more than $172 to just $117.78 in a few months is probably kicking himself for not selling at least some back at the peak, before the crisis hit.
Four savvy investors did just that.Step forward, Alan Greenberg, Sam Molinaro, James Cayne and Warren Spector.
Who are they?
Top honchos at ... Bear Stearns. (Or they were: Spector has now left in a management shake-up. The others remain.)
HAHAHA. Talk about a bunch of rats! I herewith award this trio of cheats and criminal gangsters the 'Enron of the Year' Award! They all lied to their investors and then sold out. Bush Jr. did this too and the SEC was supposed to investigate him and his Silverado Brother, Ned. But they were protected by a very powerful and horrible father, Bush Sr. These stupid Bushes will certainly go down in history along side Pol Pot and Louis the XVI. And King George III.
I want a law passed forbidding officers of any corporation from selling stock until they resign or retire. And these sales must be in a special stock market: the Insiders Market. Then investors can beware. That stupid English hedge fund that lives offshore threatened me for calling on them to be investigated.
Well, here it comes, everyone: INVESTIGATE ALL OF THESE GUYS! Everyone! And may the SEC have a lot of fun. Oh, and one last item: the tremendous flood of liquidity from Thursday night to Saturday morning now stands at an astonishing $326.3 billion and climbing. Wow. All because banks refused to lend to each other overnight funds! If this isn't a full-blown Asian Currency Crisis, I'm a three headed hound dog!
And a special treat tonight: cartoons I drew the last three years. The lady going off the cliff with the housing bubble popping was from October, 2005! I nailed the housing bubble perfectly. That was the month it began to pop.
My Original question:
I recently been made aware that a security certificate used by your site is none other than one which is tied to www.imf.org which actually belongs to the "international monetary fund". So who the hell are you working for 'anywho'??????
Posted by: Don Parker | August 11, 2007 at 05:59 PM
Which was then questioned by ??? "blues"???:
How were you "made aware" of this, Parker?
Posted by: blues | August 11, 2007 at 07:40 PM
My response to ???:
Within the last week when opening Elaine's weblog,I get a message from within Firefox that I am attempting to establish a connection with "www.internationalmonetaryfund.com". However, the security certificate is from IMF.ORG.
Craig Opined:
If Parker wonders who you are working for I would suggest Parker is sloppy in doing his homework. He should read more of your work.
My reply:
While I have extensively read Elaine's web published work and appreciate her obvious insight and, I do mean "insight", I still wonder what the hell her web-sight is doing with an imf.org security certificate. By the *uckin* way Craig, who the hell are you.
Do a web search on "Elaine Meinel Supkis" and see what info you can find. I'm done with that one and have moved on to shall we say; more indirect research now.
Posted by: Don Parker | August 12, 2007 at 05:26 AM
I think the security certificate error relates to this link:
http://www.imf.org/external/np/tr/2007/tr070806.htm
It's just an article that was linked to in a post. I think the browser looks at the links when you first hit the page to generate the link preview boxes that pop up on mouseover. Probably just a glitch at the IMF site. They set their security certificate up for "www.internationalmonetaryfund.org" rather than "www.imf.org". If you check both URL's you'll see that they both go to the same site, both domains owned by the IMF. It looks like a web design screw up on their part and one that Elaine might not have seen if she was using Microsoft Internet Explorer.
Posted by: David | August 12, 2007 at 07:50 AM
It doesn't show up on Safari, either! I am very amused by this. I link to many government and international organizations because I believe in going to the source for information. A reader sent me a screen shot of what is going on and it is in French.
I will try to post it later today.
Posted by: Elaine Meinel Supkis | August 12, 2007 at 08:55 AM
Yep. The IMF certificate only popped up for me when I clicked a link to an IMF site (I'm using Firefox). It always was obvious that the IMF certificate has nothing to do with this site.
Posted by: Chris | August 12, 2007 at 11:55 AM
Yep. The IMF certificate only popped up for me when I clicked a link to an IMF site (I'm using Firefox). It always was obvious that the IMF certificate has nothing to do with this site.
Posted by: Chris | August 12, 2007 at 11:56 AM
Elaine, another lead:
320 billion USD is about 2 days world GDP. Fed accepted as colateral MBS. For ECB and others i don't know. So if the banks fail their loans, FED will have to use MBS colateral. If this doesn't have any value, FED&ECB&Others will just increase worldwilde inflation by 2/365%.
OMG !
Posted by: PJSV | August 12, 2007 at 02:47 PM
Correct me if I am wrong, but is that not a one half of one percent increase in global inflation in just one day?
Ex: 10% to 10.5% in one day?
Posted by: DeVaul | August 12, 2007 at 03:23 PM
"blues" is "blues" on 40+ websites (all in my KeePass password safe). Try Googling "blues" and see for yourself!
Posted by: blues | August 12, 2007 at 03:46 PM
This intra-bank rescue operation put Europe, Japan and the US into greater danger. China and Russia didn't participate at all. They are watching like hawks.
Posted by: Elaine Meinel Supkis | August 12, 2007 at 10:43 PM
Cash infusion operations are as old as the markets. But they never work. Money down a rat hole. J.P. Morgan is widely credited for being the hero by providing broker call money during the Panic of 1907. Instead he sent the dealers to National City Bank of New York with a note to get the funds there. He knew the bank wouldn't defy him.
Not surprisingly National City was eager to replace the old Money Trust (JP Morgan, Lee Higginson & Sons, Kidder Peabody & Kuhn Loeb were savvy and never wasted their capital in bailout operations). Citibank was the first Fed member bank having learned the best bagholder is the public.
Posted by: Cato | August 13, 2007 at 04:53 PM
Yeah, this is really what upsets me the most: how the rich gamblers manage to leave the public "holding the bag".
If we were a monarchy or something, I would expect that, but our sham republic should not be that way. It is because those who control it work exclusively for the rich gamblers, and hardly make any effort to deny it.
Posted by: DeVaul | August 13, 2007 at 05:54 PM
Correct, Cato. Thanks for the 1907 reminder. They fixed that depression with a world war.
Posted by: Elaine Meinel Supkis | August 13, 2007 at 09:16 PM