Marketwatch has a nice article today highlighting thirteen reasons why Bush’s bailout plan won’t stop a recession.

Like the tide, recessions are natural, healthy, positive … and inevitable

Fortune magazine recently put CEOs such as Citi’s Prince and Merrill’s O’Neill under the microscope: “What Were They Smoking?” The best-and-brightest lost $165 billion, but exited rich, with hundreds of millions.

Now we need to ask guys like Paulson, Bernanke and their Beltway buddies: “What are you guys still smoking?” Bailout? Freeze? Voluntary? They must be smoking hundred dollar bills from lobbyists because this government intervention scheme smells bad.

It’s not what they were smoking, it’s what they were drinking. (If you want to drink some too, you can buy through Amazon by clicking the link at the top of the left column).

Why? Because all these solutions are being dreamed up by the same political and financial geniuses who got us into the problems in the first place. The same guys who failed to act before the economy spun out of control. Trusting those same guys makes absolutely no sense! They were clueless going in. They’re clueless about the solutions. So, a new rule: “What do you call a politician with a prediction? Wrong!”
Though you may disagree with Dick Cheney, this time he’s the only guy inside the Beltway who’s got it right. Fortune says “the staunchly free-market Vice President can be expected to resist any impulse to soften the blow with government action.” His position: “The markets work, and they are working.”

Good old Dick just might be right on this one. The markets work, so let them be.

Kool-Aid, Economy | 2 Comments »

CNN is reporting that Swiss bank UBS is writing down another $10B on losses in the US subprime lending market.

Swiss banking giant UBS AG said Monday it will write off a further $10 billion on losses in the U.S. subprime lending market and will raise capital by selling shares to Singapore and an unnamed investor in the Middle East.

UBS will now record a loss for the fourth quarter and a net loss attributable to shareholders for the full year, the bank said.

Yet again, we see more losses blamed on subprime. What about Alt-A and prime loans gone bad? How long will it be until we start to hear about losses related to the mortgage market in general (and not just blaming it on subprime)?

As recently as the middle of November, UBS had predicted a profit for the fourth quarter despite ongoing speculation about its subprime holdings.

“Conditions in the U.S. mortgage and housing markets have continued to deteriorate, and we have updated our loss assumptions to the levels implied by the current distressed market for mortgage securities,” the company’s chief executive, Marcel Rohner, said in a statement.

Yet another classic example of too much Kool-Aid drinking. How do you go from predicting a profit one day, then a month later you’re writing down $10B in losses? Notice how their losses are assumptions, which are based on market values of these mortgage securities. These securities, like any other asset, are only worth what someone else is willing to pay.

The writedown meant UBS (Charts) posted a net loss of 830 million francs ($712 million) in the period ending Sept. 30, the first quarter in nine years in which it suffered an operating loss.

Yet again, we see another major bank posting a first operating loss in nearly a decade. Can this be the end of all problems with mortgage-backed securities, or is the worst yet to come?

Financial Market, Kool-Aid | No Comments »

This was seen last Friday on Yahoo, but it’s too good to pass up. Recently compiled statistics show that consumer borrowing, specifically credit card use, increased significantly.

Credit card debt has been surging in recent months as consumers have started borrowing more heavily on their credit cards now that home refinancings have slowed. That slowdown has reflected tighter bank lending conditions as a serious slump in housing has sent home prices falling and increased the level of mortgage defaults.

The Home Equity ATM used by many has been tapped dry now that real estate values are going down and lending standards have tightened, so consumers are turning to the plastic. Good thing for credit cards! They’ll help keep the holiday spending train rolling.

Credit, Economy | 1 Comment »

There have been many things going on in the financial markets here in the United States; the terms “Credit Crunch” and “Subprime Crisis” seems to be dominating the headlines. But what’s going on in the rest of the world? We’ve all been aware of a booming market in China with a growing middle class and increasing wages transforming the population and moving them up on the ladder of social status. Marketwatch is reporting that the IPO boom might be over, with investors losing the desire to get in on Chinese IPOs.

“Institutions seem to have gotten a bit cautious about valuations,” said Howard Gorges, vice chairman of South China Brokerage.
Recent IPOs to be delayed include one from China’s largest aluminum-foil maker, another from a motorcycle manufacturer and also an offering from a department-store operator.

“The underwriters are realizing that people can discriminate,” said Gorges. “Unless the price is right, i.e. lower, they (underwriters) may just figure that it is too risky.”

Is the China bubble about to burst, and if so, what effect will that have on the US economy? Perhaps the China bubble was fueled by the wealth debt created in the United States (by rising real estate values), which allowed millions of consumers to buy Chinese made goods which in turn caused Chinese business to soar.

Financial Market, Investing, Economy, Stock Market | No Comments »