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?

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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.

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Bloomberg.com is reporting that the Federal Reserve may couple a rate cut with additional measures to increase credit.

Federal Reserve officials, who are forecast to lower their main interest rate next week, are signaling that they are looking for additional ways to increase credit to companies and consumers.

“The Fed has to re-liquefy the markets to reduce the risk of a financial accident,” said Lou Crandall, who used to work at the New York Fed and is now chief economist at Wrightson ICAP LLC, a Jersey City, New Jersey-based research firm that focuses on government debt.

Banks are panicking. Credit isn’t available like it used to be because banks, lenders, investors, and everyone involved are trying to cover their positions and price the risk accordingly. The subprime mess is only the tip of the iceberg. There’s been a lot of talk about bad debt related to subprime mortgages dragging the markets down and causing CDOs to collapse, however we still haven’t heard too much about problems with regular mortgages made to borrowers with good credit.

Stay tuned for more! Until then, keep drinking and believing!

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Bloomberg.com reports that Abby Joseph Cohen, a Goldman Sachs strategist, predicts the Standard & Poor’s 500 Index will rise 14 percent by the end of next year.

Cohen, 55, says the S&P 500 will climb to a record 1,675, extending the longest stretch of annual gains since the 1980s. She joins strategists at Citigroup Inc., Bear Stearns Cos. and Strategas Research Partners LLC in forecasting the benchmark will at least reach that level in 2008.

“U.S. stocks will offer moderate gains and will dramatically outperform bonds over a 12-month horizon,” New York-based Cohen wrote in a report today. “Recession will likely be avoided, due to strength in exports and capital spending by corporations and governments, and thanks to a vigilant and flexible Federal Reserve.”

How appropriate for a site called “Drinking Is Believing.” She does, however, provide some supporting arguments for her prediction:

Pressure on earnings stemming from more then $60 billion in losses from subprime loans may be offset by a weaker dollar, strong U.S. labor productivity and healthy corporate balance sheets, the strategist wrote.

Looking at what’s going on with the markets, it’s difficult to see how things will get better any time soon, however the market isn’t always motivated by factual data. Human emotion is the driving force.

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