TraderMark

Dubai Friday: The Black Swan Rears Its Ugly Head

everyone knew real estate was risky but that did not stop the black swan event

I dont recall reading all the stories on Seeking Alpha or hearing on CNBC or readng in WSJ about how shorting Dubai would be an awesome opportunity 7 days ago.


On Nov 27 05:42 AM Alan Young wrote:

> It's not a "Black Swan" if everyone knew it was risky. Junk bonds
> defaulting are business-as-usual. Black Swan would be Japan defaulting.

Dubai Friday: The Black Swan Rears Its Ugly Head

Dubai's "suitor" will be UAE as you state. They will (unlike the US government towards Goldman Sachs...err, I mean AIG) require a haircut and actually demand a good deal instead of handing out taxpayer money 100% on the dollar. Only an idiot country would do that... or one captured by their banks.

but yes it is actually a lot like Bear, or the bear hedge funds which crashed summer 2007. They were shrugged off and away we went to all time highs by October 2007.

US, UK, Japan, Greece, Ireland, there are lot of full blown ponzi scheme economies going on where debts shall overwhelm the ability to service them. Over the next 15 years I expect many Argentina's to emerge in Western Economies and we'll see what Japan does on the East.

All in good time, the canaries are suffocating as we speak but certainly in between we can have many eye of the storms. Certainly in the US we are not even admitting we have an issue so rather than putting on the brakes to our insolvency we are pressing the pedal to the metal.


On Nov 27 08:49 PM Road Runner wrote:

> Dubai should be viewed like Bear-Sterns or Lehman Bros before the
> market collapse in 2008. Bear-Sterns was gong under in the spring
> of 2008, but it found a suitor that took it over which prevented
> its problems from spreading to the wider market. But later, Lehman
> Bros found no such suitor and it failed. It’s failure caused AIG
> to fail from credit default swaps, which lead to the money markets
> locking up, which lead to ….
>
> If Dubai can find a suitor that takes over its loans for equity positions,
> then this crisis will pass without big consequences. But, if it
> doesn’t, then watch out below – there could be another ripple effect
> like Lehman Bros.
>
> I think it is highly likely that Abu Dhabi, an oil-rich neighboring
> fellow member of the United Arab Emirates, will come to the rescue.
> They have motive to help a fellow United Arab Emirates kingdom, and
> to get some of Dubai’s assets at a great price. Also, there is motive
> to prevent another financial crisis that would negatively affect
> the world economy, thus pushing down oil prices. Plus, there may
> also be world pressure on Abu Dhabi to take care of its “irresponsible
> relative”.
>
> Thus, I believe that this crisis is more sizzle than steak.

Why I'm Starting a Stake in Assured Guaranty

I used to think Munis were a suicide mission. Then I realized the US government will backstop everything in its power.

Do you really believe they will let CA for example to default? They will just print money and keep handing it out.


On Nov 26 05:00 PM Alan Young wrote:

> This sounds suicidal to me, too. Munis are very risky due to collapsing
> tax bases. If a muni is strong, it will look at two insurers going
> bankrupt already and decide that insurance is useless; if not, it
> could weigh on its insurer's book like cement shoes. This only looks
> good if you really believe that the economy is recovering.

Why I'm Starting a Stake in Assured Guaranty

Fair enough

Much like all banks the question is can they "out earn" their losses. Hard for anyone to tell...


On Nov 26 02:53 PM Gtarras wrote:

> Mark
> I'd be very careful and tried to learn as much as you can about AGO's
> TruPs exposure. this asset class might cause major damage to their
> book. while AGO's subordination is very high in these transactions,
> the underlying quality is deteriorating rapidly (regional banks).
> deferrals are a credit event, and many banks are taking that path.
> my personal opinion they will take bigger hits there than the market
> estimates now (subordination is eroding rapidly, and we've had 130
> bank defaults so far with 4x as many expected to follow).. HELOCs
> are also an issue. i'm also looking into AGO, but decided to stay
> away for now.

The Truth Behind the U.S Government's Stealth Stimulus Plan

I do believe that point is accurate

But the equity owned in the other 2/3rds has been driven off a cliff the past decade, even BEFORE this mess the past 2 years as homes became ATMs.

A good question to ask is how many of those homes that were totally free of a note (i.e. the 1/3rd) have started to see new financing as people try to survive this recession. I would love to see some data along those lines.

The real disaster will be in retirement... in the old days, you wanted to go into retirement without a note. Then you could live on far less income as your #1 expense was done. The current generation of 40, 50 years old (not all of them!) don't seem to think that far out and use the house as a piggy bank. So when they come to the day of retirement they won't be able to. Since they will be paying for a roof over their head until they can no longer work. And then I suppose the young taxpayers will pay for them since its "only right".

We have a lot of disasters piled one on top of each other in the next few decades. Will be a fun.


On Nov 26 11:07 AM rm wrote:

> Great analysis.
>
> For years, I've heard the "1/3 of all homes are owned free and clear."
>
>
> Where is that data coming from?
>
> I questioned its accuracy when I first heard it fifteen years ago,
> and I'd guess it's even less accurate today.
>
> We've replaced one financial mirage with another.
>
> Extend and pretend on all fronts.

The Truth Behind the U.S Government's Stealth Stimulus Plan

<IMG class=authors_reply src="static.seekingalpha.co..."> Who changed the rules on accounting this spring to change from mark to market to mark to myth? Which board was under massive political pressure to do it?

Why can banks get away with not foreclosing ? Why can they look the other way and pretend? Who allows it?

Most of these mortgages are in the hands of a few banks only alive by government decree. It's all about the government (BAC would not be alive, Citi would not be alived)... don't forget Fannie, Freddie...


On Nov 26 05:07 PM Alan Young wrote:

> Why is this a "government" stimulus plan? In most cases of non-payment,
> the banks could foreclose if they chose, but it makes no economic
> sense to do so because there are no viable buyers.
> So it's a bank-sponsored stimulus plan. They would rather the same
> debtors pay their credit card bills, which are unsecured, than their
> mortgages.

David Rosenberg: "US in form of Depression" - Stock Market Cheers

Only Wall Street people

Most Main street people who obviously like the opposite. Job growth, small business health is more important to them than seeing the market surge on easy money. But the country is not really run for the masses anymore.


On Nov 25 01:12 PM Graham and Dodd Investor wrote:

> People are more "crazy" about low rates than they are about the forces
> that brought about the low rates,

Why I'm Starting a Stake in Assured Guaranty

when the Ambak and MBIA hubbub was happening everyone said Buffet would be here and I too had thought he had started. But the CEO who claims new competition would start in 2010, and the analysts who follow the sector all claim there is not much there. Not sure why the disconnect myself.

The larger point is no industry has zero competition for long. So anyone investing should not assume 10 years of no competition... but in a very small competitor space, it seems the incumbents have been mortally wounded. So now we wait for the next entrants, unless Phoenix like miracles happen with MBIA and Ambak.


On Nov 26 09:28 AM BobGeorge wrote:

> "We don't see a viable competitor," Jim Ryan, an equity analyst at
> Morningstar, said in an interview on Tuesday. It is my understanding
> that Warren Buffett via Berkshire Hathaway has entered this market.
> If that is not "a viable competitor" than what is ? I for one would
> not want to compete Mr. Buffett's Berkshire Hathaway, its cost of
> funds is almost zero percent.

The Truth Behind the U.S Government's Stealth Stimulus Plan

I tried to be very conservative in each figure so that no one could come and say "hyperbole!" I think the figure can be quite a bit higher but I tried to do a baseline figure that would be hard to argue with.


On Nov 26 05:27 AM Robohogs wrote:

> I think LTV vs. today's median levels is probably closer to 90-100%
> so numbers could be slightly higher than you have here. But nice
> thinking.

The Truth Behind the U.S Government's Stealth Stimulus Plan

The UK will be a good canary in coal mine for the US. A smaller economy without the advantage of a global reserve currency which seems to be doing 90% of the same things the US is doing.

I will be watching them closely, as in about 7-8 years there might be some very interesting predicaments happening there. And the US will probably lag by 5-7 years, mostly due to the advantage of acting like a reckless teenager with the world's credit card.... that reserve currency status is a huge advantage.

It should be an interesting horse race, and Japan is right in there too, only being saved by the fact its people, unlike its government are massive savers so 85% of their debt is "in house".


On Nov 26 07:09 AM swissfrank wrote:

> 200 billion USD seems a very plausible quantification of the annual
> non-payment. Just part of the cost of the overall policy to defer
> recognition of losses and allow lenders to misrepresent asset values
> on their balance sheet.
>
> On a totally different note, my Volvo garage in the UK told me yesterday
> that it had sold more new cars in the last quarter than in the whole
> of 2008 (car scrappage 'clunker'-style program is ongoing in the
> UK). 'Did the customers pay cash?' I enquired. No, mostly on credit,
> apparently.
>
> It seems to me that consumers in both the US and the UK have grown
> accustomed, rather quickly, to the idea of an ever-open spigot of
> cash flowing out from central government. Increase financial aid
> now, pay it off ... oh well, sometime down the road.
>
> Mortgage rates are at all time lows in the UK, no political party
> will talk about meaningfully large tax rises or spending cuts before
> the election in May 2010... and maybe not even then. DSK, head of
> the IMF, popped up at an industry conference in Britain the other
> day to warn of the 'dangers' of reducing stimulus too soon. Yes,
> let's not face reality too soon. Let's all have another drink rather
> than face the bill.
>
> How and when will the stimulus end? Bernanke would no doubt be willing
> to call it a day when real estate values had been reinflated enough
> to detoxify housing-based securities. But even today the tab looks
> unpayable. And he's nowhere near done - before an 'extended' period.
>
>
> Consumers who have lost house or job, or both, need no reminder about
> economic reality. Many others, though, continue to behave as if bail-outs
> and assorted stimuli are here to stay.
>
> Happy Thanksgiving to the SA community.

The Truth Behind the U.S Government's Stealth Stimulus Plan

To some degree. But many of these losses are being shuffled to the Federal Reserve balance sheet so you do not have a closed system. There is a leak, and the costs are being offset into the "future".

You are assuming some 1:1 relationship. Just 2 homeowners not paying their bills for a year is about $50K. i.e. 1 job in a bank. Who knows what the balance is, and I am not sure there is any reason to wonder what it is.

How many people in the bottom third lost an opportunity to buy a cheap car when Cash for Clunkers destroyed cars they would be buying in 2009-2010? So the stimulus helped car dealers, and some production - and "helped" those consumers who can afford a new car, but hurt consumers on the low end. There are always offsets but not sure what the larger point of the question is.


On Nov 26 06:29 AM GotLife wrote:

> Just wondering. Wouldn't there be a coincident decline in bank income,
> hirings, payroll to offset stimulus?

The Truth Behind the U.S Government's Stealth Stimulus Plan

Leftfield - didn't realize that, good to know. I guess more "stimulus" than I thought ;)


On Nov 26 05:58 AM Leftfield wrote:

> Just so you know, tenant protection laws have long given tenants
> the opportunity to skip many months of payments, then go elsewhere
> and do it again. Probably the ranks of "tenants with mortgages"
> includes many with just such skills and experiences.
> Interesting article. Imagine the stimulus if everyone just stopped
> paying all their bills! And taxes!

Is Monday the New Rally Day?

I don't disagree

but first we need to stop having fed officials say the exact same thing every weeked (free money for far as the eye can see)

second, we need to stop reacting each monday as if this is new news. We are like a people with no memory. A fed official says one thing Sunday - we all say yippee! Then by the next Sunday when another fed official says the exact same thing it is like we forgot we just rallied off the exact same news 7 days earlier. It's always "new" news. It's become ridiculous.

But the more obvious something this, the larger the chance of people getting trapped.

There was some supporting reasons for that observation Friday... the market had relieved an overbought condition with 4 middling days and we had pulled back to the 20 day MA on the S&P 500, NASDAQ and similar sized indexes. So the receipe was set to have odds in favor of some sort of rally. Didn't expect a +10 pre market but then again, the Fed always comes through letting us know they will be happy to harpoon the dollar.


On Nov 23 11:02 AM j-dub wrote:

> I have a feeling either today or next Monday,(the Monday after next
> at the latest) one of these dollar beating rallies is going to reverse
> AND REVERSE HARD. Bulls won't know what hit em
> A gentleman's bet!!!

What Natural Gas Prices Say about the Domestic Economy

So we are reaching the stage of full production.

Now you believe CEO's will curtail production?

Let's check back in 3 months.


On Nov 23 11:35 AM ricardoRI wrote:

> For those of you who missed Econ 101 in college, here is a little
> refresher. Natural gas is a commodity, so there is no way to increase
> your margin over the market price. Natural gas extraction and delivery
> is highly capital intensive, which means high fixed costs, such as
> interest and equipment maintenance. Since the gas market is relatively
> free and competitive, there is no single monopolistic producer than
> can set prices.
>
> Any CEO who did not sleep through Econ 101 knows to maximize profit
> (e.g., his/her bonus and stock price) knows he has to generally produce
> as much as he can so long as his marginal cost is below his marginal
> selling price.
>
> There is no benefit for a CEO to reduce his company's production,
> although he would love it if all the other CEOs reduce production.
> When all the storage is full and production exceeds current demand,
> then he will reduce production because prices will crater.
>
> His only other option is to try to control prices with a cartel or
> oligopoly, which is illegal.
>
> This has nothing to do with irrational CEOs or investors. This is
> basic economics.

Is Monday the New Rally Day?

Another Monday

Another rally.

Boo yah.