Monday, February 25, 2008
Rating Rating Agencies
The US stock market rallied today.Mostly on the back of Ambac retaining it's triple A rating,and MBIA being taken off the downgrade sick list.Ambac's trying to raise 3$ billion to bolster it's capital base.
Phew,panic over then,things can return to normal.No more write downs,and the credit market will return to normality very soon.
Nah just kidding.Here's the problem.Ratings agencies earn their revenues from the bond issuers.They get a fee to provide the the rating from the issuer.This is called conflict of interest.Let me illustrate you how this might be a problem.Remember Enron? Weeks before it went bankrupt these very same ratings agencies were assigning them healthy credit ratings.
I suspect they will have to downgrade the monolines,it's just a matter of when.
Phew,panic over then,things can return to normal.No more write downs,and the credit market will return to normality very soon.
Nah just kidding.Here's the problem.Ratings agencies earn their revenues from the bond issuers.They get a fee to provide the the rating from the issuer.This is called conflict of interest.Let me illustrate you how this might be a problem.Remember Enron? Weeks before it went bankrupt these very same ratings agencies were assigning them healthy credit ratings.
I suspect they will have to downgrade the monolines,it's just a matter of when.
Wednesday, February 20, 2008
Sovereign Investment Funds,oil & Stagflation :SELL US STOCKS
Oh dear.The Fed lowers growth forecasts,predicts increased unemployment,and oil also jumps to 101$ on supply concerns.It's the 70s all over again,and this time not just disco.Stagflation writ large.What should the Fed do? Here's the problem.It doesn't know and even if it did it's too late.
Question:who really controls the US economy now? Answer the US consumer,unfortunately he's broke at the moment.Who then if not the US consumer? It's the Sovereign Investment Funds of the Middle East silly.They've bought into the financial infrastructure of the US via Wall Street.Now OPEC will start cutting oil output.They are also probably behind the hedge funds which are taking positions in the oil market now.As the price of crude goes up,this will inject enormous inflation into the US economy and become a huge drag on growth.If you thought a recession risk was 50:50,it's probably wise to reconsider.
In a serious downturn who do you think will be buying up America's prized assets on the cheap?You guessed it.Sovereign Investment Funds.The real change after this recession will be the fact generations of American workers yet to be born will be in effective bondage to the wealth funds of the developing world.
The US in it's hunger to consume now has mortgaged away it's future.It's just another overleveraged bet that went wrong.Dump US stocks.
Question:who really controls the US economy now? Answer the US consumer,unfortunately he's broke at the moment.Who then if not the US consumer? It's the Sovereign Investment Funds of the Middle East silly.They've bought into the financial infrastructure of the US via Wall Street.Now OPEC will start cutting oil output.They are also probably behind the hedge funds which are taking positions in the oil market now.As the price of crude goes up,this will inject enormous inflation into the US economy and become a huge drag on growth.If you thought a recession risk was 50:50,it's probably wise to reconsider.
In a serious downturn who do you think will be buying up America's prized assets on the cheap?You guessed it.Sovereign Investment Funds.The real change after this recession will be the fact generations of American workers yet to be born will be in effective bondage to the wealth funds of the developing world.
The US in it's hunger to consume now has mortgaged away it's future.It's just another overleveraged bet that went wrong.Dump US stocks.
Sunday, February 17, 2008
FGIC-in great!Monoline doing the splits? Seeing double.
The big news isn't the Northern Rock nationalisation.I predicted that a while back in an earlier blog.The really big news is on the other side of the pond.You'll miss it if you blink.
Last Friday FGIC,one of the large bond insurers put forward proposals to split itself in two.Monoline to Duoline it were.It proposes to house the low risk municipal bond insurance piece in one entity,leaving the now worthless credit-default swaps insurance trash in the other.A perfectly good idea actually.
The municipal bond insurance piece then will have a higher credit rating,presumably triple A.Why does this matter.Well think about it,the the remaing piece (the writer of the risky stuff)then can be downgraded or even file for insolvency or chapter 11.
If this bifurcation process into two companies occurs and AMBAC,MBIA and others follow suit,it will result in the end game for some investment banks.The instruments they have have insured will have to be written down on the investment banks' balance sheets to zero.The G7 ministers agreed that about 400$bn of writedowns will result from sub-prime.Yet we are only half way there,if that.Maybe once monolines split,then we can see who's been fiddling their balance sheet reporting.Naughty Bankers.
Of course l believe,and sincerely hope Merrill will be on this shit list.
RB
Last Friday FGIC,one of the large bond insurers put forward proposals to split itself in two.Monoline to Duoline it were.It proposes to house the low risk municipal bond insurance piece in one entity,leaving the now worthless credit-default swaps insurance trash in the other.A perfectly good idea actually.
The municipal bond insurance piece then will have a higher credit rating,presumably triple A.Why does this matter.Well think about it,the the remaing piece (the writer of the risky stuff)then can be downgraded or even file for insolvency or chapter 11.
If this bifurcation process into two companies occurs and AMBAC,MBIA and others follow suit,it will result in the end game for some investment banks.The instruments they have have insured will have to be written down on the investment banks' balance sheets to zero.The G7 ministers agreed that about 400$bn of writedowns will result from sub-prime.Yet we are only half way there,if that.Maybe once monolines split,then we can see who's been fiddling their balance sheet reporting.Naughty Bankers.
Of course l believe,and sincerely hope Merrill will be on this shit list.
RB
