Southofdub

Friday, August 15, 2008

Thursday, August 14, 2008

The subprime monster won’t have completed its damage until the end of next June. ALT-A loans are in play to reset over the next three years. They are double the volume in dollars of subprimes. Now beginning for the next five years we have Option Arm pick-an-pay loans, whose dollar value is five times greater than subprime and ALT-A loans. $500 billion in ARMs will reset this year more than half of which will become foreclosures, far more than anticipated are simply walking away from their homes. The worst is ahead of us. Three to five years to the bottom and at least five years on the bottom after that. As we predicted bank losses will be over $2 trillion, plus in excess of $2 trillion in losses for Fannie and Freddie. Worse yet, interest rates are higher than a year ago and we forecast mortgage rates ½% higher by the end of the year.

What we have is systemic failure in our banking system; that is being drawn out as long as possible by the Fed, which is hoping for a miracle. All kinds of gimmicky is being employed by the Fed, banks, Wall Street and corporate America. As we said banks alone are looking at $2 trillion in losses. It is not only American banks that are in trouble. The ECB banks took down 40% of the toxic CDOs and SIVs. Housing markets in Spain, Ireland, England, Italy, Australia and New Zealand will take trillions in losses. The amount of money in US banks that is uninsured is more than $2 trillion. America will hit the wall some time within the next three years and when it does there will be no banking system left and what will be in the banks will be worth 50% or more less than it is today due to inflation. Gold is where it is because of de-leveraging and negative bullion borrowing rates. Take advantage of this great opportunity to buy more gold and silver related assets. We also warn you to remove any excess funds from banks and put them in gold and silver assets and Swiss franc government bonds.

The International Forecaster

Here we go again

Anyone get the feeling that the banking and credit crisis is about to get worse? We may be waiting a lot longer than the third quarter for the bleeding to stop.
J.P. Morgan seems to be taking one of the two strategies that have emerged during the crisis: hold onto the junk and hope the market turns. This is the same plan that's in place at Lehman Brothers Holdings Inc, and was in place at Bear Stearns Cos.
There's a technical term for the other strategy that's being employed at Merrill Lynch & Co. Dump it.
Merrill employed this strategy back on July 29 when it took a healthy haircut and accepted 22 cents on the dollar for about $30 billion in collateralized debt obligations that were stinking up the balance sheet. About the only good news the market took from this was that there was actually someone willing to buy it.
The point is that even though there are different strategies, there is a single truth: the books on Wall Street are still loaded with stuff that stinks.
Not everyone is holding their noses. Brad Hintz, the Sanford Bernstein analyst and former chief financial officer at Lehman, is among the best who have assessed the situation. He doesn't think the Alt-A loans and the subprime loans are going to be a problem. Most of that stuff has been written off. "After all, the marks can't go past zero," he wrote me in an e-mail.
'Impossible to hedge'
That doesn't mean Hintz is whistling like Frank Quattrone past the courthouse. He's worried about a couple of things: commercial mortgage backed securities, the kind J.P. Morgan copped to having $11.6 billion worth, and good old prime mortgages, which like the Titanic would never default and are now taking on water.
If the prime stuff goes, the whole system implodes and we're all sleeping in the park. The commercial stuff is more likely to fail.

MarketWatch