Financial, Real Estate, Stock Markets Trends and Current Affairs

From Nouriel Roubini...

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I saw this on another blog and thought it was worth posting here. For those who have not heard of him, Brad Delong is a well respected economist.

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Comments from a blog member - I would like to hear my constituency's opinion on this:

One of the banks that I have been following in the recent months is ICICI bank. The stock peaked around $71 on Jan 10th and is down to around $36 of late. From what I can observe, Indian market took off just around the time MER was making margin calls on BSC (last July-August) mostly due to foreign money flows. (Smart money got in early and setup rising expectations). Of late ICICI has revealed derivative losses and may be there is more to come. And this has shown up in the near 50% drop in the stock over a 10 week period. (By the time CNBC started touting "Emerging market safe havens" smart money was already getting out). Lot of common people in India are getting hurt in the process and are learning a hard lesson. On the ground in Indian real estate is beyond bubble territory, people buying multiple homes as investment at the height of the bubble, but there are signs of sentiment turning negative. For the service industry the Rupee appreciation along with US downturn is becoming a serious problem. Although service export industry is a net positive, it can only employ a very small slice of the population. Despite all this India may not be as dependent on exports as China and has a reasonably mature/strong domestic market.

Recent news bytes:

• Bloomberg: Treasuries rose and three-month bill rates plunged to to 0.56%,
  the lowest level in almost 50 years on speculation credit market losses
  will widen (e.g. ex-LTCM Meriwether's fund facing losses, Thornburg
  Mortgage Inc. may go bankrupt, Merrill suing monoliner over recalled
  $3.1bn CDO guarantee)
• RGE Montitor: Flight to quality trades:
  -
  The rate on the three-month Treasury bill, viewed by investors as a
  haven in times of trouble, dropped 32 basis points to 0.56% on Feb 19;
  - Capital preservation trade: buy Treasuries sell stocks;
  - TED spreads (= LIBOR- T-Bill) spiking upwards in all markets
  - 2-year swap spreads widening
• BNP:
  Signs of interbank lending stress and liquidity hoarding eased after
  Fed actions on March 16/17; spreads on the rise again in US, UK and
  Euro market. Interbank spread decomposition shows that crunch is driven
  by upward trending credit premium since 2008 instead of liquidity
  premium as was the case in H2 2007. Fed interventions ultimately can
  address liquidity, not credit concerns.
• Fed, BoE, ECB intervening in their respective markets
• Krugman:
  Flight to quality and cash hoarding lead to Treasury yields close to
  zero--> if there is no compensation for holding Treasury paper,
  investors prefer to hold cash--> normal monetary policy channel via
  buying and selling of Treasuries breaks down (i.e. liquidity trap). He also points out that TED spreads - between 3-month Libor and 3-month treasuries - are now
  back to where it was, saying that the results of the rate cut and the
  new liquidity measures must be disappointing to the Fed.
• Yves Smith
  at Naked Capitalism backs up my assertion that all attention has focused so far on US banks, but European banks are in at least as much trouble, citing research that some European banks have written off senior and
  mezzanine tranches of CDOs to a large extent, while others have not at
  all, quoting CreditSights, whose model indicates a shortfall in
  write-downs of over $3bn for Barclays, RBS and SocGen, and of over $6bn
  for UBS .

Lehman
has been in my bearish sites, but until now I have not put the
microscope on them. That will change very soon. I am also intensifying my
research on Morgan Stanley since I feel they carry the most credit
risk, leverage and level 3 asset concentrations (bullsh1t risk) on the
street. I will also start covering the borrow short buy long funds that have been going bust lately like TMA and Carlyle Capital which are still over $10 per share. I had a short position on KFN, which I unfortunately closed out a while back. I am looking into to going back in, although to do so would be a bet that they will be wiped out of existence since their share price has fallen so much thus far. They have the exact same problem Carlyle Capital has (had?).

I am very close to spreading out to the European and Asian banks. I know they are in serious trouble, it is just that I have but so much to dedicate in analytical resources and time. I hate running in blind. Anyone who has experise in any of these areas (or any other areas of interest), feel free to start a post, thread or user group - or contact me to share info and thoughts.

The Naked Capitalism Blog
alleges the collateral pledged by prime brokers to the Fed via commercial
banks will be valued by the commercial banks. Since they often hold the
same collateral, this facility may induce them not to write down their
own assets and put on excessive valuations. One way to counter this is to try to identify the classes of assets and put our own gross marks on them. This is what I did with GGP and the monolines. It may not be the most accurate in some cases. GGP is quite accurate in my opinion due to ample supporting data and proven robust modeling, the monolines were educated guesses just like everyone else's opinion on valuation. What makes the monoline situation believable is that you can be off by a whopping 25% and still see how they are in trouble because the losses x leverage x macro trend is not very ambiguous.

...and for those who haven't read the popular Money Trap article, click here,