Banks And Investment Bankers Lead The Stock Market Down On Fears Of Credit Default Swap Write Downs
Thursday, 27. March 2008, 01:10:30
I. Stocks Turned Lower On Fears Of Credit Default Swaps Write Downs
Bloomberg's Shannon D. Harrington and Abigail Moses write that banks KBE, investment bankers, KCE, and insurance company, AIG, and mortgage reits, REM, and Government Sponsored Enterprise Lenders, Freddie Mac, FRE, and Fannie Mae, FNM, are leading the stock market down on fears of write downs over deleveraging credit default swaps.
Banks de-levered today: the banking sector, KBE, lost 4.5% today:
New York-based Citigroup, C, fell 6% today; it is the biggest U.S. bank by assets, and may take $13.1 billion in write downs on assets including leveraged loans and collateralized debt obligations, CDOs, which are pools of debt including mortgages, that it had once sold off to hedge funds, but was forced to take back onto its books due to "equity put" agreements with the hedge funds, which enabled the hedge funds to back out of purchased CDOs when the underlying assets fell below their purchase price.
Washington Mutual, WM, fell 9% today; Mike Mish Sheldon presents the deleveraging and devaluing that is coming from the banking sector in his article WaMu Alt-A Revisited: since May of 2007, on a credit pool rated 92.6% AAA, 22.69% is now 60 days delinquent or worse, with 11.62% in foreclosure and 3.56% already in REO status.
Investment Bankers also de-levered, KCE, lost 3.2% today:
Lehman Brothers, LEH, fell 6% and its chart shows three black crows; the fourth-largest U.S. securities firm, had its share-price forecast cut 16 percent by Fox-Pitt. The brokerage's 2008 and 2009 profit estimates were also reduced; not only is its share price forecast a concern, but as by Jesse Eisinger relates in his article Debt Shuffle, while Wall Street cheered Lehman's earnings, there are questions about its balance sheet.
Merrill Lynch, MER, suffered a 7% loss today; its 2008 profit estimates were cut by 45 percent at JPMorgan on concern the third-largest U.S. securities firm by market value may disclose further writedowns on subprime mortgages. Merrill may report a total of $5 billion in additional losses on collateralized debt obligations, so-called Alt-A mortgages and commercial mortgages, New York-based analyst Kenneth Worthington said.
Consumer Discretionary and Consumer Services Stocks and Housing Stocks fell on the Commerce Department report that new home sales dropped to the lowest level since 1995.
The real estate sector devalued today, RWR, lost 2.4%; and Mortgage Reits, REM, lost 2.5%.
The EUR/JPY, as reflected in the ongoing FXE:FXY relationship, rose to its 50 day moving average of 1.58.
II. The US Treasury Bond Marketplace May Have Topped Out Today
It could be that today marked a historic "sea change" -- a landmark change in the US Treasury Bond marketplace, as today's chart of the Treasuries ETF, TLT, fell, despite today's stock market decline: the bond market independent of Federal Reserve action may be calling bond values lower, and interest rates higher; additional evidence for such a conclusion comes from today's small rise in the inflation protected bond ETF, TIP, as well as a topping off pattern seen in the chart of 30 Year Treasury Mutual Fund, BTTRX. Additional evidence for the "sea change" comes from today's weekly chart of US Treasury Bonds in the futures marketplace, $USB, suggests a topping out; note also that it has gone up and above full retracement and has fallen to a level of two years and nine months ago.
The fall that is coming to the longer out -- the 30 Year US Treasury Bond is going to be faster and harder than that seen in the financial sector over the last six months: one should be invested inverse of the 30 year government bond with the Rydex Bear Market Mutual Fund RYJUX: we are going to see "financial shock and awe" coming to the US Treasuries.
III. A Financial Emergency Is Coming
A "financial 911" -- a "financial armageddon" is coming, likely due to a "systemic margin call" related to the credit default swaps -- the CDS, or ongoing Treasury market repos, the result of which will be a run on the dollar, a stock market meltdown, and a sell off of US Treasury Bonds.
The dollar's continual decline will be coming from a decline in stocks as the current rally ended today: foreign investors are going to pull out of dollar denominated stocks realing from deleveraging investment banker and real estate assets. In as much as gold trades inversely with gold, it will be going up. Another reason for gold increasing is that Bernanke is going to testify April 2, 2008 before Congress: the currency traders are likely to run up the Yen, FXY, and the Euro, FXE, as preemptive punishment for his actions in debasing the US currency.
The stock market's continual decline will be coming from two sources. First, Eddy Elfenbein provides the chart of borrowing from the Federal Reserve, which suggests that the banks such as Citicorp, C, are insolvent. Secondly, today's financial sector downturn over credit default swaps, suggests a type of "systemic margin call" is imminent.
The result of the coming "financial emergency" will likely be that that cash accounts such as money market accounts, money funds, checking accounts, and dollar denominated short selling accounts at brokerages cannot and will not be honored at face-value in the event of a "financial emergency".
IV. Gold Based Short Selling Preserves One's Wealth
A corporation's resources, and an individual's retirement wealth will be preserved by investing in the gold ETF, GLD, and by investing in the currency Euro ETF, FXE, and the Yen ETF, FXY; and with these margin credit obtained for short selling via one of these means:
1) The Whole Financial Sector Is Worthy Of Short Selling At This Time Because Of The S&P Downgrade Of Goldman Sachs and Lehman; This Can Be Done Via A Sell Of The ETF UYG.
The on going Google Finance chart Of UYG and UYG's ongoing Yahoo Finance Chart and UYG's ongoing Stockcharts.com chart, all show the financial sector's recent dramatic rally and today's fall
2) Closed End Municipal Bond Funds Are Worthy Of Short Selling As The Municipal Bond Market Is In Distress
One should establish a short position in these: BTA, VGM and CXE.
3) The 30 Year US Treasury Bond Is Worthy Of Short Selling
The US Treasury Bonds are only as good as the Federal Reserve's Balance Sheet.
The general population of investors sees the US Treasuries as a "lifeboat of safety" from falling stock prices; and banks have been buying the 30 Year, as a safe thing to maintain their capital requirements, so they can maintain their lending, and don't go out of business; so the US Treasury as reflected by BTTRX has gone up in value; and RYJUX has fallen in value likely due to the fact that more and more are realizing that The Fed is Now Lender of First Resort.
The disadvantage of RYJUX is that it is a dollar denominated investment; this means that when one cashes RYJUX in, one will have less purchasing power than one has today; so that is why I recommend gold, and that one obtain margin to do all short selling. Risky, one might ask? Yes, such a strategy is risky, because gold could fall further forcing one out of one's margin, if one is totally margined up; so the moral is to not be fully margined up, and to dollar cost average a short of RYJUX.
One can follow RYJUX in Google Finance and in Yahoo Finance as well.
V. Related Illustrations And Charts
The chart of the dollar, $USD, shows its fall today to its lowest level ever at $71.45 ever as currency traders took the Yen, FXY, and the Euro, FXE, higher betting that the Fed will make deeper rate cuts.
The chart of futures market place gold, $GOLD, rose to $954.
The chart of the gold ETF, GLD rose to $938.
Cartoon by Elaine Meinel Supkis highlights the risk caused by derivatives such as the credit default swaps.
Today's "critical fall" in the investment sector is seen in the chart of UYG.
Today's chart of Citigroup, C, shows a 5% fall in value for this lynchpin money center bank.
The Yen Carry Trade continue to unwind today as reflected by a sell off in the emerging markets sector and a rise in the chart of Proshares Inverse ETF, EEV this being confirmed by Bloomberg report Yen Rises on Speculation Japanese Funds Selling Overseas Assets: The yen rose for the first time in four days against the euro on speculation Japanese investors are selling overseas assets and bringing funds home as credit-market losses spread. And China's yuan gained as much as 0.3 percent to 7.0130, approaching 7 to the dollar for the first time since a fixed exchange rate ended in 2005, as the central bank allowed faster appreciation to curb inflation.
``An unexpected downward revision to GDP could be a catalyst for a weaker dollar,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia, the nation's second-largest. ``We're entering a period when the U.S. dollar can overshoot to the downside. In the next month I can see the euro getting to $1.60.''
Additional dollar weakness comes from Traders have increased bets the Federal Reserve will lower the 2.25 percent target lending rate by a half-percentage point at a meeting ending April 30. The futures showed a 36 percent chance of a reduction of that size, compared with 28 percent yesterday. The remaining bets were for a cut of a quarter-point.
The U.S. currency has fallen 8 percent against the euro this quarter and touched $1.5903 on March 17, the lowest level since the European currency debuted in 1999. Commodities gained as the weakening dollar enhanced the appeal of raw materials as a hedge against inflation. The Reuters/Jefferies CRB Index of 19 commodities has climbed 4.2 percent this week. Crude oil traded near $106 a barrel.
``The U.S. economy is feeble,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``The dollar is an unstable currency and will inevitably weaken.''
The chart of the Rydex Mutual Fund, RYJUX suggest a market bottom for this bear market inverse of the Treasuries mutual fund.
The weekly chart of the US Treasuries ETF, TLT, suggests a market top as it has turned lower not higher on today's stock market sell off.
The Yahoo Finance chart of the financial services sector,IYG, shows that the deleveraging financial sector has been devaluing the Russell 2000, IWM and S&P, SPY, stock markets.
VI. Numerous ETFs And Stocks Manifested Bearish Engulfing; and thus present as an immediate and strong short selling opportunity
The consumer staples ETF, xlp; it's wiser to short sell individual stocks in this sector rather than the ETF; thses include, Proctor & Gamble, PG, Nu Skin, NUS, Interper perfums, IPAR
The Mortgage Reits, REM, mentioned above.
Cousins Properties CUZ
Nissan Motors NSANY
John Hancock Preferred Income Fund HPI
Otelco, OTT a telephone company
Camden Property Trust, CPT
VII. Other Short Selling Idesa
Tim Knight in his article Looking Better suggests:
CIEN, a computer network provider
ACL, a medical instrument supplier
VIII. The Chart Of The Russell 2000 Shows The Ongoing Decimation Of The Elliott Wave 3 of 3 That Commenced December 11, 2007
Tim Knight in his article Looking Better provides the chart of the Russell 2000, IWM, from the October 8th, Citigroup CDO Bust to present, and how the Russell 2000 has been decimated by a deleveraging financial sector, and the futile actions of the Federal Reserve actions to liqufy insolvent banks, through lowering of the Central Bank interest rates, and facilities -- framework agreements of TAF, TSLF, and PDCF only serves to debase the US currency and inflate the price of gold.
Bloomberg's Shannon D. Harrington and Abigail Moses write that banks KBE, investment bankers, KCE, and insurance company, AIG, and mortgage reits, REM, and Government Sponsored Enterprise Lenders, Freddie Mac, FRE, and Fannie Mae, FNM, are leading the stock market down on fears of write downs over deleveraging credit default swaps.
Banks de-levered today: the banking sector, KBE, lost 4.5% today:
New York-based Citigroup, C, fell 6% today; it is the biggest U.S. bank by assets, and may take $13.1 billion in write downs on assets including leveraged loans and collateralized debt obligations, CDOs, which are pools of debt including mortgages, that it had once sold off to hedge funds, but was forced to take back onto its books due to "equity put" agreements with the hedge funds, which enabled the hedge funds to back out of purchased CDOs when the underlying assets fell below their purchase price.
Washington Mutual, WM, fell 9% today; Mike Mish Sheldon presents the deleveraging and devaluing that is coming from the banking sector in his article WaMu Alt-A Revisited: since May of 2007, on a credit pool rated 92.6% AAA, 22.69% is now 60 days delinquent or worse, with 11.62% in foreclosure and 3.56% already in REO status.
Investment Bankers also de-levered, KCE, lost 3.2% today:
Lehman Brothers, LEH, fell 6% and its chart shows three black crows; the fourth-largest U.S. securities firm, had its share-price forecast cut 16 percent by Fox-Pitt. The brokerage's 2008 and 2009 profit estimates were also reduced; not only is its share price forecast a concern, but as by Jesse Eisinger relates in his article Debt Shuffle, while Wall Street cheered Lehman's earnings, there are questions about its balance sheet.
Merrill Lynch, MER, suffered a 7% loss today; its 2008 profit estimates were cut by 45 percent at JPMorgan on concern the third-largest U.S. securities firm by market value may disclose further writedowns on subprime mortgages. Merrill may report a total of $5 billion in additional losses on collateralized debt obligations, so-called Alt-A mortgages and commercial mortgages, New York-based analyst Kenneth Worthington said.
Consumer Discretionary and Consumer Services Stocks and Housing Stocks fell on the Commerce Department report that new home sales dropped to the lowest level since 1995.
The real estate sector devalued today, RWR, lost 2.4%; and Mortgage Reits, REM, lost 2.5%.
The EUR/JPY, as reflected in the ongoing FXE:FXY relationship, rose to its 50 day moving average of 1.58.
II. The US Treasury Bond Marketplace May Have Topped Out Today
It could be that today marked a historic "sea change" -- a landmark change in the US Treasury Bond marketplace, as today's chart of the Treasuries ETF, TLT, fell, despite today's stock market decline: the bond market independent of Federal Reserve action may be calling bond values lower, and interest rates higher; additional evidence for such a conclusion comes from today's small rise in the inflation protected bond ETF, TIP, as well as a topping off pattern seen in the chart of 30 Year Treasury Mutual Fund, BTTRX. Additional evidence for the "sea change" comes from today's weekly chart of US Treasury Bonds in the futures marketplace, $USB, suggests a topping out; note also that it has gone up and above full retracement and has fallen to a level of two years and nine months ago.
The fall that is coming to the longer out -- the 30 Year US Treasury Bond is going to be faster and harder than that seen in the financial sector over the last six months: one should be invested inverse of the 30 year government bond with the Rydex Bear Market Mutual Fund RYJUX: we are going to see "financial shock and awe" coming to the US Treasuries.
III. A Financial Emergency Is Coming
A "financial 911" -- a "financial armageddon" is coming, likely due to a "systemic margin call" related to the credit default swaps -- the CDS, or ongoing Treasury market repos, the result of which will be a run on the dollar, a stock market meltdown, and a sell off of US Treasury Bonds.
The dollar's continual decline will be coming from a decline in stocks as the current rally ended today: foreign investors are going to pull out of dollar denominated stocks realing from deleveraging investment banker and real estate assets. In as much as gold trades inversely with gold, it will be going up. Another reason for gold increasing is that Bernanke is going to testify April 2, 2008 before Congress: the currency traders are likely to run up the Yen, FXY, and the Euro, FXE, as preemptive punishment for his actions in debasing the US currency.
The stock market's continual decline will be coming from two sources. First, Eddy Elfenbein provides the chart of borrowing from the Federal Reserve, which suggests that the banks such as Citicorp, C, are insolvent. Secondly, today's financial sector downturn over credit default swaps, suggests a type of "systemic margin call" is imminent.
The result of the coming "financial emergency" will likely be that that cash accounts such as money market accounts, money funds, checking accounts, and dollar denominated short selling accounts at brokerages cannot and will not be honored at face-value in the event of a "financial emergency".
IV. Gold Based Short Selling Preserves One's Wealth
A corporation's resources, and an individual's retirement wealth will be preserved by investing in the gold ETF, GLD, and by investing in the currency Euro ETF, FXE, and the Yen ETF, FXY; and with these margin credit obtained for short selling via one of these means:
1) The Whole Financial Sector Is Worthy Of Short Selling At This Time Because Of The S&P Downgrade Of Goldman Sachs and Lehman; This Can Be Done Via A Sell Of The ETF UYG.
The on going Google Finance chart Of UYG and UYG's ongoing Yahoo Finance Chart and UYG's ongoing Stockcharts.com chart, all show the financial sector's recent dramatic rally and today's fall
2) Closed End Municipal Bond Funds Are Worthy Of Short Selling As The Municipal Bond Market Is In Distress
One should establish a short position in these: BTA, VGM and CXE.
3) The 30 Year US Treasury Bond Is Worthy Of Short Selling
The US Treasury Bonds are only as good as the Federal Reserve's Balance Sheet.
The general population of investors sees the US Treasuries as a "lifeboat of safety" from falling stock prices; and banks have been buying the 30 Year, as a safe thing to maintain their capital requirements, so they can maintain their lending, and don't go out of business; so the US Treasury as reflected by BTTRX has gone up in value; and RYJUX has fallen in value likely due to the fact that more and more are realizing that The Fed is Now Lender of First Resort.
The disadvantage of RYJUX is that it is a dollar denominated investment; this means that when one cashes RYJUX in, one will have less purchasing power than one has today; so that is why I recommend gold, and that one obtain margin to do all short selling. Risky, one might ask? Yes, such a strategy is risky, because gold could fall further forcing one out of one's margin, if one is totally margined up; so the moral is to not be fully margined up, and to dollar cost average a short of RYJUX.
One can follow RYJUX in Google Finance and in Yahoo Finance as well.
V. Related Illustrations And Charts
The chart of the dollar, $USD, shows its fall today to its lowest level ever at $71.45 ever as currency traders took the Yen, FXY, and the Euro, FXE, higher betting that the Fed will make deeper rate cuts.
The chart of futures market place gold, $GOLD, rose to $954.
The chart of the gold ETF, GLD rose to $938.
Cartoon by Elaine Meinel Supkis highlights the risk caused by derivatives such as the credit default swaps.
Today's "critical fall" in the investment sector is seen in the chart of UYG.
Today's chart of Citigroup, C, shows a 5% fall in value for this lynchpin money center bank.
The Yen Carry Trade continue to unwind today as reflected by a sell off in the emerging markets sector and a rise in the chart of Proshares Inverse ETF, EEV this being confirmed by Bloomberg report Yen Rises on Speculation Japanese Funds Selling Overseas Assets: The yen rose for the first time in four days against the euro on speculation Japanese investors are selling overseas assets and bringing funds home as credit-market losses spread. And China's yuan gained as much as 0.3 percent to 7.0130, approaching 7 to the dollar for the first time since a fixed exchange rate ended in 2005, as the central bank allowed faster appreciation to curb inflation.
``An unexpected downward revision to GDP could be a catalyst for a weaker dollar,'' said Richard Grace, chief currency strategist at Commonwealth Bank of Australia, the nation's second-largest. ``We're entering a period when the U.S. dollar can overshoot to the downside. In the next month I can see the euro getting to $1.60.''
Additional dollar weakness comes from Traders have increased bets the Federal Reserve will lower the 2.25 percent target lending rate by a half-percentage point at a meeting ending April 30. The futures showed a 36 percent chance of a reduction of that size, compared with 28 percent yesterday. The remaining bets were for a cut of a quarter-point.
The U.S. currency has fallen 8 percent against the euro this quarter and touched $1.5903 on March 17, the lowest level since the European currency debuted in 1999. Commodities gained as the weakening dollar enhanced the appeal of raw materials as a hedge against inflation. The Reuters/Jefferies CRB Index of 19 commodities has climbed 4.2 percent this week. Crude oil traded near $106 a barrel.
``The U.S. economy is feeble,'' said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co., a unit of Japan's largest brokerage. ``The dollar is an unstable currency and will inevitably weaken.''
The chart of the Rydex Mutual Fund, RYJUX suggest a market bottom for this bear market inverse of the Treasuries mutual fund.
The weekly chart of the US Treasuries ETF, TLT, suggests a market top as it has turned lower not higher on today's stock market sell off.
The Yahoo Finance chart of the financial services sector,IYG, shows that the deleveraging financial sector has been devaluing the Russell 2000, IWM and S&P, SPY, stock markets.
VI. Numerous ETFs And Stocks Manifested Bearish Engulfing; and thus present as an immediate and strong short selling opportunity
The consumer staples ETF, xlp; it's wiser to short sell individual stocks in this sector rather than the ETF; thses include, Proctor & Gamble, PG, Nu Skin, NUS, Interper perfums, IPAR
The Mortgage Reits, REM, mentioned above.
Cousins Properties CUZ
Nissan Motors NSANY
John Hancock Preferred Income Fund HPI
Otelco, OTT a telephone company
Camden Property Trust, CPT
VII. Other Short Selling Idesa
Tim Knight in his article Looking Better suggests:
CIEN, a computer network provider
ACL, a medical instrument supplier
VIII. The Chart Of The Russell 2000 Shows The Ongoing Decimation Of The Elliott Wave 3 of 3 That Commenced December 11, 2007
Tim Knight in his article Looking Better provides the chart of the Russell 2000, IWM, from the October 8th, Citigroup CDO Bust to present, and how the Russell 2000 has been decimated by a deleveraging financial sector, and the futile actions of the Federal Reserve actions to liqufy insolvent banks, through lowering of the Central Bank interest rates, and facilities -- framework agreements of TAF, TSLF, and PDCF only serves to debase the US currency and inflate the price of gold.
WIDGETIZE