A Forex View From Afar

Bailing out the Wall-Street

Written by A Forex View From Afar on Thursday, February 28, 2008

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Mr. Paulson, in a recent interview, said all of these plans to bailout home-owners are made for the Wall-Street guys.

"I'm seeing a series of ideas suggested involving major government intervention in the housing market, and these things are usually presented or sold as a way of helping homeowners stay in their homes," Mr. Paulson said. "Then when you look at them more carefully what they really amount to is a bailout for financial institutions or Wall Street."

Tend to agree with him, but taxpayers money to bail-out private companies? Maybe you noticed; they are to cure the effects and not the source of problems

Source:
WSJ: Paulson Dismisses Mortgage Rescue Plans

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More write-downs?

Written by A Forex View From Afar on Thursday, February 28, 2008

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This is what I've said on 14 February

"(...)who could say in front of the whole Nation that inflation is rocking, consumer are not spending, nor are they saving, they pay mortgages to banks who are just preparing for another wave of write downs, and the financial crises was totally contained? The economy is in a mess, most of the public seem fully aware of that."

Well, we found out who could say all those things in front of the whole Nations, it was Mr B. testifying under the Senate Committee.

Today we found a person who supports the claim about further write-downs on banks, Josef Ackermann the Deutsche Bank AG Chief Executive Officer.

Being an insider, I'm pretty sure we can take its word as granted. DB has avoided, so far, sub-prime related losses by hedging earlier on.

While Mr. B was saying the worse, and Mr Ackermann was confirming our thoughts, Royal Bank of Scotland revealed another 450£ mil (980$ mil) losses coming from miscalculated risk on sub-prime. This is what ahead of the Curve really is...predicting 2 weeks earlier.

Financial sources have revealed an eventual bail-out plan organize by the government to save US home-owners will costs the Government between 200-250bn $. Adding up the cost of the current rate cuts (which will be seen over time) and the cost of the Financial Stimulus Package end up to fortune spend because of some reckless banks.


Source:
Bloomberg: Ackermann Forecasts More Writedowns at World's Banks
FT: RBS reveals further £450m losses from turmoil

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Foreclosure and Defaults

Written by A Forex View From Afar on Wednesday, February 27, 2008

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House Foreclosures for January are up 90% then a year ago, while foreclosure filings increased 57%.

RealtyTrac, an online real estate service specialized in foreclosure home sales, said most of the defaults are coming from adjustable rate mortgages. About $460 billion ARM's will reset this year raising the monthly rates payments.
While in January, about 233.000 houses were in foreclosure, bank anticipate about 1 million houses will default in 2008, adding more pressure on inventories that are already way up and sending prices down even further.



With such a big number of defaults, plus more coming, most can't see the housing market turning around too quick. Maybe it will hit a bottom and stay there for a while.

Source:
Bloomberg: U.S. Home Foreclosures Jump 90% as Mortgages Reset

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Second view on sub-prime

Written by A Forex View From Afar on Wednesday, February 27, 2008

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HSH, a German Bank, had sued UBS for selling sub-prime debt. This lawsuit provides us a chance to take a look at the Big Guys-way of doing things*.

Those Big Guys had lost a fortune, so it's not a good idea to do like them.



More lawsuits are happening against Banks for losses taken from sub-prime, and that may be the reason that the write-downs that are on the books of most investment firms cannot be realized.



Source:
WSJ: Did UBS Dump Toxic Assets?

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No Help Yet on Rates

Written by A Forex View From Afar on Tuesday, February 26, 2008

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One of the reasons the Fed reduced rates in September 2007 was the lack of liquidity from financial market, mostly credit markets. After a quick road-trip to 3% in Funds Rate, liquidity still hasn’t reach the credit market. The Auction Bond market, used by hospitals, schools and Government Institutions to access long term funds with adjustable interest rate on short term, is almost at a freeze point. With every failed Bond auction that we see, the interest rate is adjusted higher, this is called the penalty rate.

On his famous paper on The Great Depression, Mr. Bernanke said a recession is when liquidity can’t meet current liabilities. Auction Bonds shows that liquidity is hard to find, and expensive once it is found. Please Mr B, take a look at what you wrote previously.

The Housing numbers today are clearly showing that the lower rates are not impacting inventories, they will take 6-9 months, if at all at these levels because Institutions are just absorbing previous losses with the cheaper money, it would seem. Can you afford to wait, and why were these cuts not delivered in small 0.25% offerings over a longer period of time from July of last year when the LDO and CDO debt was first downgraded? We need the answers if we are to avert another Bust Cycle in 4 years time.

Who got it wrong?

Written by A Forex View From Afar on Monday, February 25, 2008

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In the last few days, some news-sources have started to say that financial markets have got it all wrong, and Mr Trichet, the Head of the ECB, will not cut this year. This claim is supported by economists at Merrill Lynch, Goldman Sachs Group Inc., ABN Amro Holding NV and Morgan Stanley.

"The gap between market expectations and the ECB's thinking is unusually wide".
We cannot dismiss this line, we have the same ideas here as well, but still do not know why they consider that they Markets got it wrong. It seems that it was only a small number of retail traders and a small number of Annalists saying this, and not the stream of people that the initial headlines indicate. Plus, if the markets really thought that the ECB will cut, they would have sent the Euro down, like they did with the Pound, and right now that is not happening.



Inflation is accelerating in the Euro-Zone, as seen in the chart above, but the best part is that Mr. Trichet warned about wage inflation coming from Unions around Europe, demanding higher wages. Guess what, they got those wage increases.

Back in 2006, inflation was around 2.5%, when the ECB gradual raised from 2.50% to 4.0%. Now inflation is at 3.1%.
It's just a hunch but I think as soon the US starts raising rates, or at least indicates that there are no more cuts, the ECB will follow in quick time. That now maybe equates to the Euro being around Fair Value.

Source:
Bloomberg: Trichet May Not Cut Rates in 2008, Say Merrill, ABN


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