I believe it is safe to say that the housing market bubble has a leak and is in the process of bursting. The Dow Jones has shed about 800 points since Oct 1, which is about 4 percent. Let's all take the time to give a special thanks to irresponsible financial companies who issued overvalued mortgage securities. The past couple of weeks major financial companies have reported a total of about 30 to 40 billion dollars in write downs tied to mortgage securities. Financial companies are laying off employees and closing out mortgage securities departments. Major banks are facing difficult times, but Wall Street will find a way to make money, and to the rescue is SIVs, which stands for structure investment vehicles. The SIVs sole purpose is to issue short-term debt and buy assets that generated higher returns. Alright enough words, lets get down to the numbers.
UBS- (Public, NYSE:UBS)- trading around $47 a share. Down approximately 22 percent since January. Write down about 3.55 billion.
Citigroup Inc- (Public, NYSE:C)- trading around $34 a share. Down approximately 38 percent since January. Write down about $3.55 billion and expects to write-down as much as $11 billion in the 4th quarter. Taking applications to replace CEO Prince.
Merrill Lynch & Co-(Public, NYSE:MER)- trading around $55 a share. Down approximately 41 percent since January. Write down of $7.9 billion and taking applications for new CEO.
Morgan Stanley- (Public, NYSE:MS)- trading around $55 a share. Down approximately 32 percent since January. Write down of 3.7 billion.
Superfund to the rescue. Bankers from Citigroup, Bank of America Corp. and J.P. Morgan Chase
have joined forces to create a $100 billion to prevent a fire sale of assets which is tied to SIVs. Banks particpating in the plan would receive a fee structure of .75 percentage point to 1 % of assets. If you want to learn more about SIVs, read an article by John Mauldin "Taking Out the SIV Garbage".
Now get back to work or go find a job. The economy needs you more than ever so get your credit cards out and start Christmas shopping. December's data on consumer spending, retail data and durable goods will be the deciding factor whether or not I'm moving to Dominican republic in 08'.
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2 comments:
Well written article, yet the consumer spending during this holiday season will be more affected by the near $100 dollar a barrel, that we are currently paying for oil. Just for fun lets throw on top of that the fact that the US dollar is at an all time low versus the Euro.
So how bad is this, not as bad as you think. With the dollar reaching such a low we have had a major influx of foriegn currency being invested in the US economy; now is that such a bad thing? The US GDP is also looking to be in the area of a 4% growth for the end of 2007. If things were that bad, the Fed would not have been so indecisive about the rate cut. Inflation is currently being tamed and even with the housing and credit market woes the US will push forward.
I agree with Mr. Bankers thoughts.
Just a four points that I think need to be emphasised ..........
1.WE 2.ARE 3.GETTING 4.POORER!!!
1. Imports! As he said the GDP is increasing by 4%, mostly caused by an increase in exports due to the weak dollar. A weaker dollar makes U.S. goods cheaper. However, for people that are paid in U.S. Dollars (you and me) this also makes goods (such as plasma tv's) much more expensive, actually reducing our real disposable income.
2. Inflation is just another pressure on U.S. consumers. Consider this, in 2001 (around the same time George W. was elected) the dollar was valued at about 1/250th of an ounce of gold, and as of November 15th, 2007 it was 1/800th of an ounce. Inflation should be a bigger concern to the American public, which will ultimately be a concern for the U.S. economy. (Note: You better start stealing your girlfriend's gold hoop earings to finance the Christmas shopping).
3.Oil...almost $100 a barrel... enough said! (And who's funding terrorism?)
4.Housing market and the "2007 credit crunch".
Unlike the last 3 years, people are realizing they can't use the equity in there house to finance their heating bill, and their new purchases. Even if they have equity in their house (which most Americans don't), I heard from a mortgage broker I know, that home equity lenders are become more selective in how much and who can get these loans. This is the biggest difference between this year and last year, we can't borrow our way through the holidays.. or can we? (Hun, do you want to put this on Visa or Capital One?).
= Don't expect those December consumer confidence numbers to paint a pretty picture of how our economy is doing. But I could be wrong, American's have done stupider things!(i.e..elect and re-elect George W.)
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