350zCommtech's Account Talk

[FogSailing]

Hesh:

I don't know if you're a history buff or not, but the situation we find ourselves in isn't a whole lot different than that faced by every other major power throughout our history.

In Rome's case, they were involved in a war with Carthage and getting the crap beat out of them. Hannibal was scaring people with elephants and the the army was sucking the wealth of the country dry. After two unsuccessful attempts to destroy Carthage, the Roman's basically took everything of value they could get from the Roman citizens, bult an overwhelming force and destroyed Carthage, then went on to conquer the rest of the world. But, basicaly, everyone was broke for a while because of the personal sacrifice they all had to make for Rome.

In Spain's case, they had all the money in the world, heck, they were minting it using native american slave labor and shipping it back to Spain as bullion. But those pesky Englishman were just better sailors and destroyed a larger, better equipped Spanish armada and Spain never recovered. Just goes to show, that "money isn't everything".

All of which is to say, "Expect higher taxes and we better find our moxie!!!"

FS

 

[350zCommTech]

350Z,
OK, I'm just passing along what "Cramer" came up with. OK,OK, Cramer, I know, but please just hear it out, please.
Basically, last night, he said the US should just outright buy those ailing Mortgage Bond-insurers. He said likely cost would be pennies on the dollar) ~250B. This coincidenttly, he said, would be very close to amount Pres. Bush's "stimulus/rebate checks" to every American would cost.
Next he said something like if these insurers go under, then so do many of the largest banks, and then were all finished - conversely, if the US buys the insurers, then the US takes on their function, which basically allows for distributions to the ailing mortage-lending/banks). [He said this largely solves the problems almost overnight].

That is totally disgusting. Are we in the USA or are we in France?

First of all, you can never trust Cramer. Don't forget where he used to work. This idea didn't just pop into his head. He is being told to throw it out there.

What Cramer is proposing is basically to socialize the losses. I Don't know about you but I have a problem with that. It's pretty obvious by now that the whole sub-prime and most of the credit derivative markets are nothing more than a big Wall Street SCAM.

Remember all the $30-40M Xmas bonuses back in 2006? Did you get any of that? I didn't. Why should we eat their losses? Wall Street needs to pay for their sins. Investment Banks, mortgage brokers, rating agencies, bond insurers, and all the banks that were in on the scam needs to eat their losses. Go bankrupt if they have to. It will not be the end of the world. Good banks will fill the void. That is how a free market is suppose to work. Sure, a lot of people will lose the jobs. Some government and retirement funds could go under also. There needs to be a cleansing.

Will Cramer's idea work? Maybe. It will certainly give the markets a huge boost. But what kind of message will we be sending? Go ahead Wall Street, do whatever you want, take all the risk you want, make all the money you can, and don't worry about a think. The US government's got your back? Moral Hazard!

Further more, think about where the money will come from. The moment they announce a bailout plan for these bond insurers. The markets will think that these scams are bullet proof. Treasury yields will sky rocket, which means interest rates will shoot to the moon. How will high interest rates help struggling home owners? I hope Bush and Bernanke are smart enough to understand this.:worried:

 

[350zCommTech]

Oh, I think I need to stress this.

If and when this bail out is announced, pray that you are not in the F fund.

 

[hessian]

Hey 350Z,
OK, understand - and Much Thanks!
I wanted to post what I'd heard, for precisely the kind of feedback you returned!!

Folks need to know what ideas are being "floated" out there now, and many times there's need for assistance in thinking them thru. You helped do that here!
VR

 

[Rod]

Oh, I think I need to stress this.

If and when this bail out is announced, pray that you are not in the F fund.

No worries there... I already have that figured into my gameplan.

 

[Birchtree]

Don't ya'll remember how successful the Resolution Trust Corporation was in helping all those poor savings and loans as well as credit unions. The Government actually made money on the clean up. One reason a bailout might not be necessary is the bond insurers aren't on the hook for big cash payments the moment bonds default. Instead, they make the bonds' regular interest payments until maturity, which could be decades away. During that time, the insurers should continue to get premium payments on the bonds. Also, a downgrade doesn't mean MBIA and Ambac will have to post additional collateral, so they are unlikely to face a cash crunch. I think these potential problems are in the realm of the credit default swap market which are basically private.

 

[alevin]

The Government actually made money on the clean up. One reason a bailout might not be necessary is the bond insurers aren't on the hook for big cash payments the moment bonds default. Instead, they make the bonds' regular interest payments until maturity, which could be decades away. During that time, the insurers should continue to get premium payments on the bonds. Also, a downgrade doesn't mean MBIA and Ambac will have to post additional collateral, so they are unlikely to face a cash crunch. I think these potential problems are in the realm of the credit default swap market which are basically private.

Thanks for the clear discussion, Birch. Makes me feel a lot better and I learned something too. Now if I can remember what I learned for the next time-if there is a next time while I'm on the planet.

 

[350zCommTech]

Don't ya'll remember how successful the Resolution Trust Corporation was in helping all those poor savings and loans as well as credit unions. The Government actually made money on the clean up. One reason a bailout might not be necessary is the bond insurers aren't on the hook for big cash payments the moment bonds default. Instead, they make the bonds' regular interest payments until maturity, which could be decades away. During that time, the insurers should continue to get premium payments on the bonds. Also, a downgrade doesn't mean MBIA and Ambac will have to post additional collateral, so they are unlikely to face a cash crunch. I think these potential problems are in the realm of the credit default swap market which are basically private.

Thanks for the clear discussion, Birch. Makes me feel a lot better and I learned something too. Now if I can remember what I learned for the next time-if there is a next time while I'm on the planet.

That's not entirely correct Birchtree. With certain types of bonds, the premiums have already been collected up front. The one thing that is mostly agreed upon is that once they get downgraded, they can't write anymore new business. Their days will be numbered.

A bankruptcy by ABK or MBIA will be devestating to markets. But you are right, a bailout will save the markets.

 

[airlift]

350,

Assuming a bail-out to avoid catastrophic conditions, is it fair to say that if investment grade bonds are the core of the F fund, that the F fund should perform well in a Bear Market? Thanks for you opinion.

That's not entirely correct Birchtree. With certain types of bonds, the premiums have already been collected up front. The one thing that is mostly agreed upon is that once they get downgraded, they can't write anymore new business. Their days will be numbered.

A bankruptcy by ABK or MBIA will be devestating to markets. But you are right, a bailout will save the markets.

 

[350zCommTech]

350,

Assuming a bail-out to avoid catastrophic conditions, is it fair to say that if investment grade bonds are the core of the F fund, that the F fund should perform well in a Bear Market? Thanks for you opinion.

The majority of bonds in the F fund are fixed income bonds. 80% government and ABS. Only 20% is credit. The real problem is that when the bond insurers get downgraded, these bonds might also get downgraded. 1 notch below investment grade and some institution might have to sell, flooding the market and further depressing prices.

Yes, the F fund should do well in a bear market but, just don't be in it when a bailout, if any, is announced.

 

[RAE]

350Z,

OK, I'm just passing along what "Cramer" came up with. OK,OK, Cramer, I know, but please just hear it out, please.
Basically, last night, he said the US should just outright buy those ailing Mortgage Bond-insurers. He said likely cost would be pennies on the dollar) ~250B. This coincidenttly, he said, would be very close to amount Pres. Bush's "stimulus/rebate checks" to every American would cost.
Next he said something like if these insurers go under, then so do many of the largest banks, and then were all finished - conversely, if the US buys the insurers, then the US takes on their function, which basically allows for distributions to the ailing mortage-lending/banks). [He said this largely solves the problems almost overnight].

I was hoping that you might elaborate further - does anything sound reasonable here?

All of the so-called solutions being tossed about are nothing more than band-aids, and don't address the serious, long-term problems the country has. The sub-prime mess is just the tip of the iceberg - look at all the other credit issues that are now coming out, day by day. Our govt has been living way beyond its means, along with a fair % of its citizens, and it has finally caught up with us.

There is no easy, painless "fix" for our current problems. What is actually needed is for the govt. to cut spending dramatically, reduce debt, and strengthen the dollar by raising interest rates. But, you can imagine the pain that this would cause (over a period of several years, probably). What politician is going to propose a course of action like this, especially in an election year? Ain't gonna happen, obviously, although it would work (and I think a lot of them know that).

I'm being very cautious with my investements these days, as I think there is more pain ahead, and I don't see a quick turnaround this time.

 

[350zCommTech]

ACA Capital has until midnight, regulator says
Bond insurer may get more time from counterparties like Merrill, CIBC
By Alistair Barr, MarketWatch
Last update: 12:37 p.m. EST Jan. 18, 2008

SAN FRANCISCO (MarketWatch) -- Struggling bond insurer ACA Capital has until midnight tonight to negotiate more time or come up with a rescue package, a state regulator said on Friday.

The fate of the company has big implications for financial markets. ACA has sold default protection on $69 billion of corporate and mortgage debt. The company has several counterparties, some of which are major banks and brokerage firms including Merrill Lynch & Co. and Credit Agricole.

Indeed, Merrill wrote off the value of its hedges with ACA on Thursday, implying that they're now worthless. CIBC and Credit Agricole announced similar moves in December.

ACA's credit rating was slashed to CCC from A by Standard & Poor's in December amid mounting mortgage-related losses. That triggered a requirement that ACA post at least $1.7 billion in collateral to back its guarantees to counterparties -- money that the firm doesn't have. To avoid a collapse, ACA's counterparties agreed to waive all collateral requirements, and their rights to terminate deals. But that agreement expires at midnight on Friday.

The regulator of ACA's bond insurance unit, the Maryland Insurance Administration, stepped up scrutiny of the firm late last year. ACA agreed that, if Maryland decided to start delinquency proceedings against the firm, it would go along with the plan. But Maryland has held off because counterparties haven't demanded ACA post collateral yet.

READ THE REST HERE:http://www.marketwatch.com/news/sto...4F9-66F0-4AF6-A393-B2E71A1DBE60}&siteid=yhoof

Looks like they got a 1 month extension.

ACA Capital Announces Forbearance Extension
Sunday January 20, 9:41 pm ET

NEW YORK--(BUSINESS WIRE)--ACA Capital Holdings, Inc. today announced that it has entered into a second forbearance agreement with its Structured Credit and other similarly situated counterparties. Under the agreement, the counterparties have waived all collateral posting requirements, termination rights and policy claims relating to the rating of ACA Financial Guaranty Corporation, ACA Capital’s financial guaranty insurance subsidiary, under their respective transaction documents including any credit support annexes and similar agreements. The forbearance will remain effective through 11:59 pm (New York City local time) on February 19, 2008. The Company is pleased to have reached an additional short-term agreement with its counterparties and continues to work closely with them to develop a permanent solution to stabilize its capital position.http://biz.yahoo.com/bw/080120/20080120005082.html?.v=1

 

[Rod]

Looks like they got a 1 month extension.

Good... more time to exit (F), huh?

 

[350zCommTech]

Good... more time to exit (F), huh?

As I mentioned on Friday, ABK reports Tuesday morning. If ABK gets downgraded any time on Tuesday, it will be Armageddon.

 

[hessian]

As I mentioned on Friday, ABK reports Tuesday morning. If ABK gets downgraded any time on Tuesday, it will be Armageddon.

...lost in I-Fund posts:
350,
Re: "Its contained", I suppose its good, welcomed (vs Armagedon tomorrow), but still, isn't it temporary? I foresee buy-outs of these specific insurers, as a likely, probable scenario.
While I agree, against a US buy-up, as anything resembling a socialistic solution, I'd even less want to see foreign investors grab up these, as losing more of our America! (eg Dubai, Saudis, China, etc.) :worried:
Only seeking your opinion/perspective, not positing one myself!
VR

PS Questons now being asked: Is the cure (rate cuts), worse that the disease? http://money.cnn.com/2008/01/18/news/economy/cure.fortune/index.htm

 

[Rod]

...lost in I-Fund posts:
350,
Re: "Its contained", I suppose its good, welcomed (vs Armagedon tomorrow), but still, isn't it temporary? I foresee buy-outs of these specific insurers, as a likely, probable scenario.
While I agree, against a US buy-up, as anything resembling a socialistic solution, I'd even less want to see foreign investors grab up these, as losing more of our America! (eg Dubai, Saudis, China, etc.) :worried:
Only seeking your opinion/perspective, not positing one myself!
VR

PS Questons now being asked: Is the cure (rate cuts), worse that the disease? http://money.cnn.com/2008/01/18/news/economy/cure.fortune/index.htm

Yeah... all of this is simply a distraction from the real problem- IRAQ.

 

[Rod]

Yeah... all of this is simply a distraction from the real problem- IRAQ.

AND BEAR IN MIND the ole saying...

WAR is GOOD for the economy!

 

[350zCommTech]

This is real reason why the markets were selling off today. It's also why I think we are now in a bear market. From what I'm looking at, we haven't seen panic yet.

Corporate Default Risk Soars to Record on Ambac Ratings Cut
By Hamish Risk and Abigail Moses

Jan. 21 (Bloomberg) -- The risk of European companies defaulting soared to a record on concern credit ratings cuts at bond insurers Ambac Financial Group Inc. and MBIA Inc. may trigger forced asset sales and worsen credit market turmoil.

Credit-default swaps on the Markit iTraxx Europe index of 125 companies with investment-grade ratings jumped 10.25 basis points to 82.5, according to JPMorgan Chase & Co., the highest since the index started in 2004.
Ambac was stripped of its top AAA grade by Fitch Ratings on Jan. 18 after the New York-based company abandoned plans to raise new equity.

Moody's Investors Service and Standard & Poor's are reviewing Ambac and MBIA, throwing doubt on the ratings of the $2.4 trillion of debt guaranteed by bond insurers and threatening forced sales by investors that are restricted to holding the highest-grade bonds.

``The major risk for credit markets remains forced selling on the back of downgrades of the insurers,'' said Jochen Felsenheimer, the Munich-based head of credit derivatives research at UniCredit SpA, Italy's biggest bank.

``The problem right now is there seems no way out.''
Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A rise indicates deterioration in the perception of credit quality; a decline, the opposite.

`Significant Uncertainty'

Ambac Assurance Corp. was lowered two levels to AA and may be reduced further, New York-based Fitch said Jan. 18. The downgrade ``reflects the significant uncertainty with respect to the company's franchise, business model and strategic direction,'' Fitch said.

Credit-default swaps on Ambac, the second-biggest insurer, soared last week to $2.6 million upfront and $500,000 a year to protect $10 million in bonds, implying a more than 70 percent chance of default in the next five years, according to a JPMorgan valuation model.
It cost $2.6 million upfront and $500,000 a year for a similar contract protecting MBIA debt, signaling traders also see a more than 70 percent default risk in the next five years.

The bond insurance industry guaranteed $100 billion of collateralized debt obligations linked to subprime mortgages, $22 billion of non-prime auto loans and $1.2 trillion of municipal debt. New York-based Merrill Lynch & Co., the world's largest brokerage, last week took $3.1 billion of writedowns on the value of default protection from bond insurers.

Writedowns

WestLB AG, Germany's third-biggest state-owned lender, said today it will report a full-year loss of about 1 billion euros ($1.45 billion) and shore up capital after writedowns and trading losses triggered by worst U.S. housing slump in 26 years. Credit-default swaps on the Dusseldorf-based lender rose 30 basis points to 160, according to JPMorgan.

Credit-default swaps on U.K. mortgage lender Northern Rock Plc fell today after the British government said it will guarantee a sale of bonds backed by the bank's home loans and gave bidders two weeks to come forward with proposals. The contracts dropped 25 basis points to 290, according to CMA Datavision.

The arrangement is aimed at making it easier for a private bidder such as Richard Branson's Virgin Group Ltd. to finance a purchase of Northern Rock and repay the estimated 24 billion pounds ($47 billion) in emergency funds the company borrowed from the Bank of England.
European Banks

Contracts on London-based HSBC Holdings Plc, Europe's biggest bank, rose 9 basis points to 67 today, according to CMA Datavision. Frankfurt-based Deutsche Bank AG, Germany's biggest bank, rose 12 to 67, Paris-based BNP Paribas, France's largest bank, rose 9 to 56 and Zurich-based Credit Suisse Group rose 8 to 70.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.
The Markit iTraxx Crossover Index of 50 companies with mostly high-risk, high-yield credit ratings increased 41 basis points to 491, according to JPMorgan, the highest since July.

The Markit CDX North America Investment Grade Index closed 3.5 basis points higher at a near record 110.5 on Jan. 18, according to JPMorgan.
To contact the reporters on this story: Hamish Risk in London

hrisk@bloomberg.net
Last Updated: January 21, 2008 12:14 EST
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQXqrzKQsO98&refer=home

 

[350zCommTech]

Fed cuts .75%

Ambac swings to big loss after $5.2 billion writedown
By Greg Morcroft
Last update: 8:03 a.m. EST Jan. 22, 2008

NEW YORK (MarketWatch) -- Troubled bond insurer Ambac Financial said Tuesday its fourth quarter results swung to a loss of $3.26 billion, or $31.85 a share as the firm wrote off $5.2 billion of credit derivative exposures. The company earned $202.7 million or $1.88 a share a year ago. The firm said it is also exploring strategic options with potential partners to address some of its financial problems. The reiterated that it sees opportunities in its core markets and that it will strengthen its capital position to keep its AAA credit rating at Moody's and Standard & Poors.http://www.marketwatch.com/news/sto...x?guid={E45A8D9B-B991-4019-B67A-6439D950E62C}

 

[350zCommTech]

Fed cuts .75%

Looks like traders are looking to unload anyway despite the big cut. Damn it!!!! I should have gone F fund on Friday.


F fund currently up 5 cents.