Asian News

[Ichiro]

THE BIG SHIFT-by Yiannis G. Mostrous
Editor, Growth Engines
August 2, 2007


From the start of 2007, my two main premises have been that the markets would be higher by the end of the year and that volatility would rise, so you should expect corrections--sometimes big ones. I'm two-for-two so far.

As everyone is aware by now, global markets are currently trying to price the problems emanating from the US subprime mortgage market into their valuations. As I wrote four to five months ago in The Silk Road Investor, everyone knows that the housing sector in the US is rapidly weakening and, most important, that the lending practices during the past four years have created some kind of credit bubble that's waiting to deflate.

But because of the endless financial engineering that's taken place--through the securitization of loans, for example--no one knows who holds what, what the real credit rating in these instruments is (where different kind of loans have been packaged and repackaged into collateralized debt obligations) and what the actual size of the various markets involved in the securitization scheme might be.

Consequently, the assumption being made by the majority of market participants is that the risk has been spread around. Therefore, any potential adjustment won’t be as painful as before. But given the lack of real knowledge regarding the situation, this remains more or less a speculation no matter how truthful it may be.

Nothing has really changed. Although the market is trying to assess the situation, the majority of the market participants are still in the dark regarding the details involved in the matter.

It's naive to equate volatility with a bear market as a lot of market observers often do. What volatility means is you'll need to bolster dynamic companies with large cap, high-quality investments and defensive sectors.

Asia on Top

The Asian financial crisis 10 years ago turned out to be a blessing for its economies. Every aspect of the region's financial apparatus was re-evaluated and restructured. And the region now has strong foreign exchange reserves, high household savings, little debt on most sovereign and corporate balance sheets, better governance and solid growth fundamentals.

http://www.financialsense.com/editorials/mostrous/2007/0802.html

 

[Ichiro]

AP-Dollar Falls to Euro
Monday August 6, 6:53 am ET
As Fed Meeting Looms, Dollar Falls to the Euro

FRANKFURT, Germany (AP) -- The dollar slipped lower against the euro Monday as markets looked toward the upcoming meeting of the U.S. Federal Reserve to see if interest rates might be lowered to ward off an economic slowdown.

The 13-nation euro rose to a high of $1.3839 in trading, just off its all-time high of $1.3852, before falling back to $1.3825, still above the $1.3801 it bought in late New York trading on Friday.

The dollar fell to 117.63 Japanese yen from 118.41 late Friday, while the British pound drifted lower to $2.0391 from $2.0447.

This week's Fed meeting is being held amid two weeks of market turbulence that has sent stocks tumbling.

The Fed's Open Market Committee's regularly scheduled August meeting on Tuesday may be key in settling investor anxiety.

The Fed is widely expected to maintain its benchmark rate of 5.25 percent, as it has done for the past year, in the face of increases by the Bank of England and the European Central Bank.

http://biz.yahoo.com/ap/070806/dollar.html?.v=1

 

[Ichiro]

AP-Most Asian Markets Fall
Monday August 6, 7:43 am ET
Most Asian Markets Drop in Wake of Wall Street's Plunge

TOKYO (AP) -- Many Asian and European stock markets fell Monday after Wall Street plunged at the end of last week on the lingering credit concerns that have roiled markets.

Stocks in Indonesia and Singapore fell 3 percent. Share prices in Hong Kong, the Philippines, and Thailand all fell more than 2 percent.


Chinese stocks meanwhile shrugged off the drops elsewhere to lift key indexes to record highs for the second straight session. The benchmark Shanghai Composite Index rose 1.5 percent to a record 4628.11, partly on bullish forecasts for rising profits at Chinese steel makers.

Tokyo's benchmark Nikkei 225 index shed 0.39 percent to 16,914.46 points, after hitting an intraday low of 16,675.39 points in the morning session.

Hong Kong's Hang Seng Index fell 2.67 percent to close at 21,936.73.

In Europe, London's FTSE 100 index managed to gain 0.3 percent to 6,240.30 and the German DAX 30 index edged up 0.2 percent to 7,451.50 as markets came off their earlier lows, but the French CAC-40 index was still down 0.5 percent at 5,567.96 and benchmark indexes were lower in Milan, Madrid, Zurich and Stockholm.

Wall Street's selloff on Friday set the tone for most Asian markets Monday, just as it had when it plunged earlier last week, said David Cohen, director of Asian forecasting at Action Economics in Singapore.

http://biz.yahoo.com/ap/070806/world_markets.html?.v=3

 

[Ichiro]

AP-Stocks Rise Following Pullback Friday
Monday August 6, 3:26 pm ET
By Tim Paradis, AP Business Writer
Stocks Gain Following Dow's 2 Percent Drop Friday; Volatility High Ahead of Fed Meeting

NEW YORK (AP) -- Wall Street was buffeted by volatility yet again Monday, surging higher even as investors wrestled with credit concerns ahead of Tuesday's Federal Reserve meeting.

Investors have been searching for signs of where the economy and the markets are headed after the fractious trading of the past two weeks. In a day devoid of economic news and with few earnings reports, investors early in the session seemed to avoid making big bets, though stocks later gained steam after midday.


The move comes ahead of the Fed's meeting on interest rates Tuesday. Policy makers are widely expected to hold the benchmark rate steady at 5.25 percent; as usual, the greater concern is with the Fed's economic assessment statement. This time, investors will be looking to see what the Fed says about credit.

"I think a lot of it has to do with people sort of squaring up before the Fed on the short side, covering some shorts. I really wouldn't read too much into it," said Charles Norton, principal and portfolio manager at GNICapital, referring to the market's move higher and investors who sell stocks "short," betting that they will fall. Such investors can be forced to buy stock to cover their positions if they believe the market is poised to move higher.

In late afternoon trading, the Dow Jones industrial average soared 194.04, or 1.47 percent, to 13,375.95, after zigzagging throughout the session and rising more than 200 points. The blue chip index fell about 2 percent on Friday.

http://biz.yahoo.com/ap/070806/wall_street.html?.v=37

 

[Ichiro]

AP-Oil, Gas Plunge on Economic Worries
Monday August 6, 3:48 pm ET
By John Wilen, AP Business Writer
Oil, Gas Futures Fall Sharply on Economic Worries, Profit-Taking

NEW YORK (AP) -- Oil and gasoline futures plunged Monday on concerns about the economy's health and as investors sold to lock in profits from last week's record-setting rally.

September oil fell more than $3 a barrel, and gas futures slid more than 10 cents to settle below $2 a gallon. Both contracts extended declines that began Friday after the government issued weaker-than-expected employment numbers. That data added to the sentiment of a series of other government reports analysts say suggest the economy might be slowing.


"The weaker ... numbers are raising the prospect of softening U.S. commodity demand in general, and energy demand in particular," wrote MF Global UK Ltd. analyst Ed Meir in a research note.

But investors are also taking profits from the rally that sent oil prices to record levels last week, analysts said.

"It's all related to the (investment) funds dumping a portion of their long holdings," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Ill.

Light, sweet crude for September delivery fell $3.42 to settle at $72.06 a barrel on the New York Mercantile Exchange. The contract has fallen more than $6 from the intraday price record of $78.77 it set last week.

http://biz.yahoo.com/ap/070806/oil_prices.html?.v=18

 

[Ichiro]

Reuters-Mortgage delinquencies, defaults spreading: AIG
Thursday August 9, 2:02 pm ET

NEW YORK (Reuters) - American International Group (NYSE:AIG - News), one of the biggest U.S. mortgage lenders, warned on Thursday that mortgage defaults are spreading.


While saying most of its mortgage insurance and residential loans were safe, AIG made a presentation to analysts and investors that showed delinquencies are becoming more common among borrowers in the category just above subprime.

Although acknowledging the "significant declines" in subprime securities, Chief Executive Martin Sullivan said AIG's tight underwriting standards had minimized losses and he was "poised to take advantage of opportunities" in the mortgage market.

But it was clear the overall market was getting worse.

"We are experiencing stress in the Midwest markets where jobs have been lost and we are now seeing it in Florida and California," said William Nutt Jr., chief executive of AIG's mortgage insurance arm.

AIG shares were at $65.60, down 88 cents, or 1.32 percent, in afternoon trading on the New York Stock Exchange. The Standard & Poor's insurance index (^GSPINSC - News) was down 2 percent.

'PANIC MODE'

"The market's in a panic mode because the subprime crisis is spreading into other areas of the economy," said Bill Hackney, a managing partner of Atlanta Capital Management.

But Hackney said he was keeping AIG as one of his largest holdings because it had "the size and diversity to weather it."

http://biz.yahoo.com/rb/070809/aig_subprime.html?.v=8

 

[Ichiro]

AP-Dow Plunges 387 on Subprime Concerns
Thursday August 9, 4:46 pm ET
By Tim Paradis, AP Business Writer
Dow Plunges 387 on Following Renewed Subprime Mortgage Concerns

NEW YORK (AP) -- Wall Street plunged again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages because it was unable to properly value their assets. The Dow Jones industrials extended its series of triple-digit swings, this time falling more than 380 points.

The announcement by BNP Paribas raised the specter of a widening impact of U.S. credit market problems. The idea that anyone -- institutions, investors, companies, individuals -- can't get money when they need it unnerved a stock market that has suffered through weeks of volatility triggered by concerns about tight credit and bad subprime mortgages.

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst. Although the bank's loan of more than $130 billion in overnight funds to banks at a low rate of 4 percent was intended to calm investors, Wall Street saw it as confirmation of the credit markets' problems. It was the ECB's biggest injection ever.

The Federal Reserve added a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

The concerns that arose in Europe and spilled onto Wall Street underscored the potential worldwide ramifications of an implosion of some subprime loans and perhaps also weakened arguments that strength in the global economy could help keep profit growth going in the U.S. among large companies that do business overseas.

http://biz.yahoo.com/ap/070809/wall_street.html?.v=80

 

[Ichiro]

BERNANKE:-Up Against the Wall (Bernanke may throw in the towel and start lowering the interest rate if the sub prime situation gets any worse)
by Joe Duarte, MD
Joe-Duarte.com & IntelligentForecasts.com
August 8, 2007


The stock market has found support, near the 200 day moving averages for the major indexes. This is a positive, but not necessarily the end of the road for the current market’s story, as the potential for more problems in the credit market is out there. In fact, a recent set of events is worth noting, as we move forward into the Dog Days of August, a time when thin volumes and vacant trading desks can make for highly volatile markets.

Indeed, despite the Fed’s bare bones mention of “conditions” having “become tighter” in the credit markets, found in its Tuesday afternoon statement of no change in interest rates, the situation in the mortgage market continues to implode with the jumbo mortgage market now starting to feel the negative effects of the ongoing liquidity crisis. Elsewhere, one subprime mortgage lender, American Home Mortgage Investment, has filed for Chapter 11 bankruptcy protection.

And there’s more, according to the Wall Street Journal, there is also more trouble ahead for the mortgage sector as "Aegis Mortgage Corp., Houston, notified mortgage brokers that it is unable to provide funds for loans already in the pipeline, a spokeswoman said. And Luminent Mortgage Capital Inc. of San Francisco said it faced calls for repayments from creditors and is suspending its dividend."

So, here's where things stand, as we see them.

There are two major problems in the mortgage market, a cash crunch, and a credit crunch, and they are related. When subprime borrowers stopped paying their mortgages, cash became scarce. Lower cash flows made it harder to get credit. Interest rates started to rise. And now fewer people can borrow money to pay off their loans. And the vicious cycle is repeating, rising in a deadly spiral that has now reached the mortgage lenders themselves, who can't get loans to pay off their own loans. And since many of these companies had relationships with each other, when the first one went down, it's likely just a matter of time before the dominoes start to fall.

The big question then, is how long it will take for Morgan Stanley, Goldman Sachs, and Merrill Lynch to take a hit big enough for the Fed to come to their rescue.

According to the Journal, citing comments by Doug Duncan, chief economist of the Mortgage Bankers Association, anyone who does business in the mortgage market right now has to be willing to hold on to the loan for a long period of time, or hope that the loan is of a high enough quality that it can be bought by Fannie Mae or Freddie Mac. Duncan told the Journal for any other kind of loan, "there is no market."

So this seems to be a classic battle between Bernanke’s academia and the real world, and there are no winners, no matter how it turns out. If Bernanke lowers interest rates in the near future, the market will likely rally, but eventually some will wonder why he did it and the sellers will return, with the excuse being that if Bernanke bent to pressure the situation must be a lot worse than even people like Cramer were hinting at.

Still others will likely say that Bernanke had no spine, and the Fed is in danger of losing its credibility in its fight against inflation.

No matter what, the bottom of the pile borrowers won't get any help since they've already been foreclosed against. And the bankrupt, and possibly corrupt subprime lenders, might get a break that they may not have deserved, since their lax lending practices contributed to the current situation.

http://www.financialsense.com/editorials/duarte/2007/0808.html

 

[Ichiro]

IS THE END NIGH? ( A buying opportunity!!!)
by Puru Saxena
Editor, Money Matters
August 7, 2007


Over the past few days, the ongoing credit-crunch in the US has grabbed all the media attention and the capital markets have responded with sharp declines. At present, there is an ongoing debate as to whether the sub-prime debacle will sink the US into the next “Great Depression”. Not surprisingly, the bears are out of their dens again, forecasting the very end of capitalism! So, what should we make of the current situation and more importantly, how should we invest during these volatile times?

There is no doubt in my mind that the US economy is past its prime. Gone are the days when the international markets used to shudder in fear at the very thought of American investors withdrawing their capital from overseas. Remember, not so long ago, financial crises used to spawn in some far-flung “emerging” nations in Asia, Latin America and Eastern Europe. And the US establishment used to stand firm as the lender of last resort. This time around, however, it is ironic that the world’s most influential nation is weighing down on the global economy and causing a mini-panic in the markets. A few years ago, the US was a creditor nation, but today it is the largest debtor nation the world has ever seen. Previously, Americans used to fund other less fortunate nations, however these developing nations are now funding the American way of life by financing those horrendous deficits! Based on these facts, it is clear to me that over the coming years, the over-leveraged American society will have to undergo some sort of adjustment. Moreover, I suspect that this adjustment will not be easy. In other words, I expect the standard of living in the US to gradually decline in the years ahead.

http://www.financialsense.com/editorials/saxena/2007/0807.html

 

[Ichiro]

MBS MONETIZATION & US DOLLAR--- a mild panic!!!! ECB added $130B into their money fund!!!)--very interesting!!!
by Jim Willie CB
August 9, 2007

Fannie Mae is being groomed to be the central clearing house for mortgages and their bonds, sponsored by the USGovt and the US Federal Reserve. Fannie Mae (FNM) just requested permission to take on much greater volume of mortgages, in order to alleviate the secondary market flow of capital funds. Since the accounting scandal which peaked in September 2004, a limit was imposed on FNM on its holdings at $727 billion. In today’s climate, marred by credit seizure to some degree, FNM is deeply missed in its former prominent centrifuge role. A key question arises on the general inflation impact, if and when FNM expands its role and is the nexus (surely a hidden basement) of grandiose illicit monetization of mortgage bonds. If the banking maestros undertake to put a secretive floor on mortgage backed securities (MBS), a solid bid to prevent further breakdown, then vast amounts of new printing press money will enter the system. The mortgage finance sector desperately needs a bid on subprime MBS bonds so as to clear them upon liquidations. The bank wizards could start monetizing them, and work their way up the quality ladder toward Alt-A loans which are also in trouble.

### OVERNIGHT PANIC UPDATE ###

Overnight, in the US wee hours of Thursday morning, the Europeans suffered a shock wave. The Euro Central Bank added €94.8 billion (US$130.2 billion) into the money market funds as retail depositors forced a run on their banks, in a MILD PANIC. The overnight rates that banks charge each other to lend in dollars jumped to the highest level in six years. The dollar London Interbank Offered (LIBOR) rate rose to 5.86% today from 5.35% and in euros rose to 4.30% from 4.11%. The ECB response to the fastest increase in the dollar bank rate since June 2004 signals that lenders are reducing the supply of money as losses triggered by the US mortgage slump spread worldwide. In addition to BNP Paribas halting withdrawals, and Dutch investment bank NIBC Holdings said it had lost at least €137 million on subprime investments, more evidence that credit markets are not stabilizing. A Commerzbank commercial bond trader summed it up. “Liquidity in the market has completely dried up as investors are not recycling their money back because of subprime concerns. Levels have shot up dramatically since yesterday as issuers are trying to entice investors back.” The ECB provided the largest amount ever in a single fine-tuning operation, exceeding the €69.3 billion provided on 12 Sept 2001, the day after the terror attacks on New York. The US Federal Reserve accepted $12 billion in overnight repurchase agreements overnight simultaneously.

PNB Paribas, the French bank conglomerate closed three funds associated with US subprime toxic mortgages. The company made a bold plainly worded comment, a severe criticism of this fraud-ridden credit sector. “The complete evaporation of liquidity in certain market segments of the US securitization market has made it impossible to value certain assets fairly regardless of their quality or credit rating. The situation is such that it is no longer possible to value fairly the underlying US ABS assets in the three above mentioned funds,… therefore unable to calculate a reliable net asset value (NAV) for the funds.” Export of US bond fraud to Europe has led to renewed shock waves.

Back in the Untied States, American International Group (AIG) announced that residential mortgage delinquencies and defaults are becoming more common among borrowers in the category just above subprime. AIG, the world’s largest insurer and one of the biggest mortgage lenders, said total delinquencies were 2.5% in its $25.9 billion real estate portfolio. It offered details. They cite 10.8% of its subprime mortgages were 60 days overdue, compared with 4.6% in the category with credit scores just above subprime, indicating that the threat to the mortgage market may be spreading. This no longer just a subprime problem, clearly.

http://www.[[financialsense.com/fsu/editorials/willie/2007/0809.html

 

[Ichiro]

AP-U.S. Stocks Head for Sharply Lower Open
Friday August 10, 8:43 am ET
By Tim Paradis, AP Business Writer
U.S. Stocks Head for Lower Open Amid Continued Credit Concerns; Central Banks Add Liquidity

NEW YORK (AP) -- U.S. stocks moved toward another opening plunge Friday after Thursday's huge sell-off and as bank regulators including the Federal Reserve injected cash into money markets, stoking concerns of a more pronounced liquidity crunch. Futures came off of their lows Friday after the Fed's move.


Early Friday, the Fed announced a three-day repurchase agreement, or "repo," to inject liquidity into the market. The Fed said early Friday it would accept $19 billion. The move occurred after the fed funds rate, the rate banks charge each other for overnight loans, ticked above 6 percent again Friday -- well above the Fed's target of 5.25 percent.

The Fed stepped in after the same occurrence Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system. In a repo, the Fed arranges to buy securities from dealers, who then deposit the money the Fed has paid them into commercial banks.

http://biz.yahoo.com/ap/070810/wall_street.html?.v=16

 

[Ichiro]

AP-ECB Sends Additional $83.8B Into System (Bernanke is fighting the wrong war. Its major credit crunch, not inflation!!!!)
Friday August 10, 8:44 am ET
By Matt Moore, AP Business Writer
ECB Injects Additional $83.8 Billion Into Banking System Amid Jittery Credit Markets

FRANKFURT, Germany (AP) -- The European Central Bank injected another $83.8 billion into the banking system Friday amid signs that bad U.S. mortgages were digging deeper into the world economy.

But investors did not seem appeased, with major indexes plunging in London, Frankfurt, Paris and Tokyo.

ADVERTISEMENT
The 61 billion-euro move by the ECB, which had provided 95 billion euros ($130.7 billion) in funds to banks on Thursday, came after Japan's central bank injected 1 trillion yen ($8.4 billion) into money markets. Early Friday, the U.S. Federal Reserve announced a three-day addition of liquidity. The Fed had already intervened Thursday, injecting a larger-than-normal $24 billion in temporary reserves to the U.S. banking system.

It was the first time the U.S., European and Japanese central banks had taken such action together since the aftermath of the Sept. 11 terrorist attacks. The Australian, Hong Kong and Canadian central banks also joined in.

"This liquidity-providing fine-tuning operation follows up on the operation conducted yesterday and aims to assure orderly conditions in the euro money market," the ECB said.

But edginess in global markets was reflected in sharp declines in global stock indices on Friday. London's FTSE 100 dropped 3 percent to 6,082.10, the CAC-40 in Paris fell 2.9 percent to 5,459.36 and Germany's DAX index down 1.7 percent to 7,329.99.

"Market concerns about the U.S. subprime crisis are continuing without any apparent respite," said Joerg Kraemer, chief economist at Commerzbank AG in Frankfurt.

"Its fallout will not be limited to financial markets," he added. "The U.S. economy and with it, the rest of the world, will feel the negative consequences for quite some time."

http://biz.yahoo.com/ap/070810/europe_market_jitters.html?.v=5

 

[Ichiro]

Banking Stocks, Cheapest for Decade, Attract Matrix, New Star

By Alexis Xydias

Aug. 10 (Bloomberg) -- Shares of banks, hammered over the debacle in credit markets, are now at their cheapest in more than a decade. Some investors have noticed.

Concern that defaults among U.S. subprime borrowers will spread to other debt markets and curb mergers and acquisitions made banks the target of a two-week sell-off that wiped out $600 billion, or about 8 percent of their $8.36 trillion in market value. No other industry lost that much.

Banks ``are going to be able to muddle through what's going on right now,'' said David Katz, who helps oversee $1.6 billion as chief investment officer of Matrix Asset Advisors Inc. in New York and bought Merrill Lynch & Co. shares. ``You're getting them at the lower end of their valuations with very good fundamentals.''

Members of the Morgan Stanley Capital International World Financials Index, which includes companies from Citigroup Inc. to ING Groep NV of the Netherlands, trade at an average of 11 times earnings, the lowest since Bloomberg started compiling the data in January 1995. The ratio has fallen from 13 at the start of the year, and is the lowest among the 10 industries in the MSCI World, a global equity benchmark.

The MSCI World Financials Index dropped 8.3 percent in a two-week slump that started on July 20.

Citigroup that day said it increased reserves for bad loans and Kohlberg Kravis Roberts & Co.'s banks postponed a deadline to finance 9 billion pounds ($18.5 billion) for the buyout of Alliance Boots Plc amid poor demand from investors.

`Act of Faith'

The measure declined again yesterday after BNP Paribas SA, France's biggest bank, halted withdrawals from three investment funds as turmoil in credit markets makes it hard to value their holdings. The European Central Bank, in an unprecedented response to a sudden demand for cash from banks, the same day loaned 94.8 billion euros ($130.2 billion) to ease a credit crunch.

Gregor Logan, who helps oversee $41 billion at New Star Asset Management in London, is buying shares of banks he reckons can weather the subprime woes.


http://www.bloomberg.com/apps/news?pid=20601109&sid=anlVqDz.fKuw&refer=exclusive

 

[Ichiro]

AP-Stock Prices Tumble on Credit Worries (The FEDs has no choice but to cut rates before their September Meeting).
Friday August 10, 10:04 am ET
By Tim Paradis, AP Business Writer
Stocks Fall Amid Continued Credit Concerns; Fed and Other Central Banks Add Liquidity

NEW YORK (AP) -- Wall Street skidded further Friday as investors again succumbed to anxiety over tight credit conditions even after the Federal Reserve said it would do all it can to "facilitate the orderly functioning of financial markets."


The market, which has been gyrating for weeks over fears that credit is drying up, actually suffered a milder loss than expected in the early going, an indication that the Fed, which also injected cash into the banking system early Friday, had helped soothe investors somewhat. But the drop still showed the depths of fear that have investors yanking money out of stocks.

Federal Reserve policy makers "are trying to do everything they can short of cutting the federal funds rate" to try to calm the markets, said Ed Yardeni, president of Yardeni Research in Great Neck, N.Y.

But, he said, "I think they probably have to cut rates, and probably before their scheduled September meeting."

He noted that it was Fed rate cuts that soothed the market after the 1998 Russian debt crisis and the implosion of the hedge fund Long-Term Capital Management.

In early trading, the Dow Jones industrials dropped 82.92, or 0.62 percent, to 13,187.76, adding to a 387-point plunge on Thursday and extending a series of triple-digit moves that began in late July.

http://biz.yahoo.com/ap/070810/wall_street.html?.v=44

 

[Ichiro]

THE EMPLOYMENT PROBLEM--
by David Yu
Chartmentary.com
August 6, 2007


I've had business relationship with American Home Mortgage (AHM), and I know people who used to work there. It's disheartening to see AHM employees leave their local branch offices carrying their personal belongings in boxes. About 7,000 AHM jobs have been cut. And, that wasn't the first or the only time I've seen mortgage lenders shutting down their operations. As bad as it is now, it may have only just begun.

I mentioned in my previous chartmentary that half of all American private sector jobs created since 2001 have been in housing related industries (see my Jan. 1, 2006 The Year of Charting Dangerously article). The lower than anticipated 92,000 new job number released on Friday was perhaps just the tip of the iceberg. A great number of people working in housing related industries as contractors, loan officers, and real estate agents, etc. are self-employed. They don't have any claim on unemployment benefits once they leave their jobs. Most of them perhaps have never been accounted for as unemployed.

Lately, Wall Street and financial media's focuses have been on earnings, credit problems, and oil price. They've either downplayed or ignored recent job reports. The market, nevertheless, has been taking heed of the fundamental change of the employment condition. And the change is simply too ominous, and too important, to ignore.

Chart 1 shows the number of jobs created rose convincingly from the February-March 2001 bottom to the March-April 2004 top, which coincides with the period of housing market boom. This number leveled off in April 2004 and began to decline in September-October 2005. Readers with keen observation may have noticed that Chart 1 also shows payroll number in the 2nd quarter of 2000 stumbled below the 100,000 earmark and then proceeded to plunge into the negative territory. We all know what happened to the stock market then; it formed a major, multi-year, market top in March-April 2000.

http://www.[[financialsense.com/fsu/editorials/yu/2007/0806.html

 

[Ichiro]

10aug-msn money-Stocks struggle despite Fed help

((Althought the SEC is probing Wall Street banks for hidden subprime losses, they will not uncover bulk of it because they are hidden off the books in the overseas accounts due to creative accounting. An probe won't help, but an audit could disclose the extent of the subprime problem)).

The Federal Reserve offers $38 billion in assistance to prevent the credit markets from seizing up. But stocks tumble after news of growing problems facing Countrywide Financial and Washington Mutual. The SEC is probing Wall Street banks for hidden subprime losses.

Briefly, and we mean briefly, stocks were up this afternoon. But the stresses of the financial markets have taken the market down again, despite multiple injections of cash into the U.S. financial system to foster confidence.

In an unprecedented move, the Federal Reserve injected a total of $38 billion in three moves into the banking system to keep the financial system operating smoothly. The last move came at about 1:45 p.m.

At 1:15 p.m. ET, the Dow Jones industrials were down 91 points to just under 13,180. The Nasdaq Composite Index was down 18 points to 2,538, and the Standard & Poor's 500 Index sagged more than 6 points to 1,447.

The Dow had been down 212 points at 10:30 a.m., then worked itself to a gain of 36 points at 12:20 p.m. Then it fell back a second time as the volatility that has taken over the market since the Dow peaked at 14,000 on July 19 continued.

http://articles.moneycentral.msn.com/Investing/Dispatch/070810markets.aspx

 

[Ichiro]

10aug-A BRIEF COMMENTARY ON FINANCIAL CRISES
by J. R. Nyquist

A financial crash is more than an economic glitch. It leads into dangerous political territory. It can trigger revolutions. Financial distress in the 1780s led to the French Revolution. Financial distress brought the Nazis and Japanese militarists to power before World War II. A financial earthquake may cause a political earthquake. A political earthquake, in turn, can set off a revolution, civil war, or even a world war. This is what history teaches.

It is economic distress that drives the average man to despair. Financial calamity changes his political outlook from cool detachment to naked fear. This signals opportunity to the political opportunist, the fanatic and the demagogue. These will always play on fear. America is a country that has enjoyed prosperity, and this has contributed to political moderation. The center holds as long as the economy runs smoothly. We do not know, however, what the effect of a major crash would have on an ethnically divided welfare society with an aging population supplemented by a rapidly growing foreign work force.

Then there are international and geopolitical consequences: Europe is economically tied to America. Money flows from one country to another, and so does financial trouble. This week the European Central Bank reached for $130 billion in emergency funds. The markets are jittery. Europe is nervous. American real estate prices are falling. There are growing losses connected with U.S. mortgages. The solution of lower U.S. interest rates is not an option because of Chinese threats to sink the dollar.

http://www.financialsense.com/stormwatch/geo/pastanalysis/2007/0810.html

 

[fedgolfer]

... thanks Ichiro. Normally news re: creative accounting from the big boys really irks me. In this case, i'm glad the chances of finding it are low. Those guys have written the tax code and sure know how to take advantage. However, I think Carl Levin's state is really hurting from the subprime fiasco... so there will be major digging from the Senate too.

 

[Ichiro]

10aug-THE SHODDIEST EXPORT-by Peter Schiff
Euro Pacific Capital
August 11, 2007


For years, Americans have been able to pay for enormous trade deficits by exchanging IOU's for imported consumer goods. Unfortunately for foreign creditors, a substantial percentage of those IOU’s have recently taken the form of mortgaged backed securities. ((this is bad because if the market continues to melt, the foreign creditors could start dumping those mortgaged backed securites. And what makes it even worse, is that if the fED lowers the interest, the US dollar will take a dive very fast ))

Sporting higher yields than Treasury bonds, investment grade ratings from reputable agencies, and juicy commissions for the investment banks that packaged them, these structured mortgage bonds have quickly become America’s greatest export. Ironically, amid all the recent hoopla about defective Chinese exports, America has proved that when it comes to flooding the world with shoddy merchandise, nobody beats the good old USA.

This week, several of Wall Street’s best foreign customers announced staggering losses on the American mortgaged backed securities they had been sold. The fundamental issue underlying these losses is that Americans borrowed more money than they can afford to repay. As initially low teaser rates expire and mortgage defaults increase, foreign lenders are discovering that the residential properties that collateralize the mortgage bonds are not worth anywhere near the loan amounts.

It will not be long before American borrowers come to a similar realization. When they do they will be faced with the shocking reality that all of their home equity is gone -- having disappeared just as quickly as did the paper profits of the Internet stock mania. However, this time around the situation is more dire. Although paper profits have vanished much as they did in 2001, all the mortgage debt, much of it about to get much more expensive to service, still remains.

When American homeowners come to grips with their diminished net worth, the excess consumption that has been the rule over much of the past decade will grind to a halt. If any money is left after making higher ARM payments, homeowners may actually decide to save some to repair their personal balance sheets. As consumer spending collapses, the U.S. economy will plunge into a severe recession, compounding the problems in the housing market and exacerbating the recession.

http://www.[[financialsense.com/fsu/editorials/schiff/2007/0810.html

 

[Ichiro]

WHAT WE KNOW-by Roger Conrad
Editor, Utility & Income
August 11, 2007

How do you solve a liquidity crisis? The simple answer is to inject more liquidity into the financial system. The hard part is not pouring in too much and thereby setting off a speculative boom in the markets that leads to a greater meltdown later on.

That's the dilemma facing the world's central bankers today, as the investment markets confront their worst crisis in half a decade. And unfortunately, the answer is no easier this time around than it was in the summer of 1998, the time of the last liquidity crisis.

That time around, the triumvirate of Federal Reserve Chairman Alan Greenspan, Treasury Secretary Robert Rubin and President Bill Clinton confronted the so-called "Asian Contagion" that had spread over a year and a half to engulf the entire world in a credit crunch. Their solution was to inject a huge amount of liquidity into the system to bail out the banks, and they used America’s financial and diplomatic muscle to pull the rest of the world along.

The bailout restored calm to the financial markets. But it was later blamed for creating a climate of risk-taking that led to the bubble of 1999, which saw the Nasdaq Composite double and subsequently crash in the bear market of 2000-02.

Here in summer 2007, it's deja vu all over again. Like Greenspan/Rubin/Clinton, the current team of Ben Bernanke at the Fed, Hank Paulson at the Treasury and President Bush has said a lot about letting the market action run its course. Earlier this week, Bernanke kept the widely watched fed funds rate at 5.25 percent. And, doubtless reflecting the views of Mr. Paulson, the president stated his opposition to a bailout of the mortgage industry and support of letting things play out.

http://www.financialsense.com/editorials/RConrad/2007/0811.html