Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
Short-term Turnaround in Bitcoin Might Not Be What You Think - 19th Jun 18
Stock Market’s Short Term Downside Will be Limited - 19th Jun 18
Natural Gas Setup for 32% Move in UGAZ Fund - 19th Jun 18
Magnus Collective To Empower Automation And Artificial Intelligence - 19th Jun 18
Trump A Bull in a China Shop - 19th Jun 18
Minor Car Accident! What Happens After You Report Your Accident to Your Insurer - 19th Jun 18
US Majors Flush Out A Major Pivot Low and What’s Next - 18th Jun 18
Cocoa Commodities Trading Analysis - 18th Jun 18
Stock Market Consolidating in an Uptrend - 18th Jun 18
Russell Has Gone Up 7 Weeks in a Row. EXTREMELY Bullish for Stocks - 18th Jun 18
What Happens Next to Stocks when Tech Massively Outperforms Utilities and Consumer Staples - 18th Jun 18
The Trillion Dollar Market You’ve Never Heard Of - 18th Jun 18
The Corruption of Capitalism - 17th Jun 18
North Korea, Trade Wars, Precious Metals and Bitcoin - 17th Jun 18
Climate Change and Fish Stocks – Burning Oxygen! - 17th Jun 18
A $1,180 Ticket to NEW Trading Opportunities, FREE! - 16th Jun 18
Gold Bullish on Fed Interest Rate Hike - 16th Jun 18
Respite for Bitcoin Traders Might Be Deceptive - 16th Jun 18
The Euro Crashed Yesterday. Bearish for Euro and Bullish for USD - 15th Jun 18
Inflation Trade, in Progress Since Gold Kicked it Off - 15th Jun 18
Can Saudi Arabia Prevent The Next Oil Shock? - 15th Jun 18
The Biggest Online Gambling Companies - 15th Jun 18
Powell's Excess Reserve Change and Gold - 15th Jun 18
Is This a Big Sign of a Big Stock Market Turn? - 15th Jun 18
Will Italy Sink the EU and Boost Gold? - 15th Jun 18
Bumper Crash! Land Rover Discovery Sport vs Audi - 15th Jun 18
Stock Market Topping Pattern or Just Pause Before Going Higher? - 14th Jun 18
Is the ECB Ending QE a Good Thing? Markets Think So - 14th Jun 18
Yield Curve Continues to Flatten. A Bullish Sign for the Stock Market - 14th Jun 18
How Online Gambling has Impacted the Economy - 14th Jun 18
Crude Oil Price Targeting $58 ppb Before Finding Support - 14th Jun 18
Stock Market Near Another Top? - 14th Jun 18
Thorpe Park REAL Walking Dead Living Nightmare Zombie Car Park Ride Experience! - 14th Jun 18
More on that Gold and Silver Ratio 'Deviant Conundrum' - 13th Jun 18
Silver Shares? Nobody Cares - 13th Jun 18
What Happens to Stocks, Forex, Commodities, and Bonds When the Fed Hikes Rates - 13th Jun 18
Gold and Silver Price Setting Up for A Sleeper Breakout - 13th Jun 18
Tesla Stock Analysis - 12th Jun 18
What Happens Next to Stocks when Russell Goes up 6 Weeks in a Row - 12th Jun 18
Gold vs. Stocks: Ratios Do Not Imply Correlation - 12th Jun 18
Silver’s Not-so-subtle Outperformance - 12th Jun 18

Market Oracle FREE Newsletter

5 "Tells" that the Stock Markets Are About to Reverse

Credit Crisis Pressure Points Building as Major Banks Heading for Bankruptcy

Stock-Markets / Credit Crisis 2008 Jun 06, 2008 - 09:47 AM GMT

By: Jim_Willie_CB

Stock-Markets

Best Financial Markets Analysis ArticleStandard & Poor announced in late May it has cut or might cut debt ratings on $34 billion of securities tied to Alt-A mortgages, whose type issued in 2007 have a default rate to 6.64% for 90 days late as of end April. Massive S&P downgrades might soon force Wall Street firms to move up to $5000 billion of assets from off-balance sheet locations back onto their books. The bank sector has so far seen very little in bank failures, compared to past cycles.

The Texas Ratio is calculated by dividing non-performing loans at a bank, including those 90 days delinquent, by their tangible equity capital plus money set aside for future loan losses. Using this ratio, IndyMac Bancorp, Sterling Financial, Corus Bankshares, Imperial Capital Bancorp, and GMAC Bank are all on the verge of busts. Look for these banks to possibly lead the list of failures, each with unique vulnerabilities.


Many of the regional and other private banks scattered across the United States are in deep trouble. The Federal Deposit Insurance Corp (FDIC) has declared 76 banks as official ‘Troubled' in a rise from the 50 declared with similar status at the end of year 2006. Joining the breakdown of the big banking stock index BKX breakdown in progress is the breakdown of the regional bank stock index RKH. It has fallen below the pennant pause pattern. The word CONTAGION comes to mind, the nightmare for USFed officials. The worst lies directly ahead for banks and stated losses. All propaganda will be unmasked very soon. Panic might set in within a few months time.

The big banks have begun to set up private resolution business segments , entrusted with the duty to liquidate credit related assets. This trend appears to be an attempt to circumvent regulators, to avoid proper accounting, and to prevent a cascading decline of valuations in disclosed bond markets. JPMorgan hired Blackrock to manage the $30 billion raid on Bear Stearns. Merrill Lynch has also set up a private resolution business segment , according to an internal memo. They seek to reduce their $1000 billion book of assets. They had $6.6 billion in asset backed CDO bonds at the end of March. UBS has created a new distressed asset fund under Blackrock management, again another private resolution business segment. UBS conducted an ugly circular deal, where they sold basically to themselves $22 billion worth of impaired bonds for 68 cents on the dollar value.

Special Purpose Entities, Structured Investment Vehicles, and now Variable Interest Entities (VIE) constitute the shell game for insolvent giant banks avoiding honest balance sheet reporting. CreditSights estimates that impaired mortgage related assets of up to $784 billion remain in VIEs are scattered across major Wall Street and money center banks. The potential additional losses related to VIEs could reach $88 billion, they estimate. Goldman Sachs recently admitted they are holding $11.1 billion in VIEs. Citigroup has a whopping $320 billion in VIEs that are off-balance sheet still.

Standard & Poor just downgraded MBIA and Ambac, the major bond insurers.

Last month Fitch downgraded them. This could provide the ultimate push for the banks to move damaged assets on their balance sheets. An avalanche of bank writeoffs looms. The insurers are dead! Municipal bonds are another matter altogether. Delays by banks on credit asset portfolio writedowns, create risks maybe greater in the Untied States today than they were in Japan in the 1990s. The next process with involve heavy stock dilution much like shampooing: lather, rinse, repeat, then write down, raise capital, repeat.

Lehman Brothers stock has massive option puts, especially at strikes that would only pay off if LEH completely imploded, with some even that expire in June, an identical situation to Bear Stearns just three months ago. Lehman Brothers is poised to be killed. The Credit Default Swap for Lehman Brothers corporate bonds has jumped from 130 at end April to 240 at end May and to 275 in early June. In 1Q2008, Lehman recently admitted a mere $200 million in losses from the oversized $6.5 billion portfolio of subprime securities on its balance sheet. Consider that a quarter of their total securities bear junk status. Lehman executive comments made public do not match reality. The time has come to punish, err, to impose proper value.

The USFed portfolio of resources is limited. The USFed is in possession of $800 billion in assets. It has relinquished at least $300 billion in USTreasurys so far for damaged mortgage bonds. It has extended over $140 billion in credit.

UBS, the Union Bank of Switzerland, is a prime highlighted candidate for imminent failure and declared bankruptcy.

The bank still is plagued by rather substantial continued debt exposure, despite heavy writedowns already. They have $45 billion in US mortgage assets, $8.6 billion in leverage financial commitments like Collateralized Debt Obligations, and $10.4 billion in US student loans. Rumors have swirled that Barclays of London is considering an acquisition of either Lehman Brothers or UBS. The US-UK tag team of banking fascists take their turns.

Countrywide might lose its acquiring suitor in Bank of America, which could quickly force its bankruptcy. The implication is that the credit market will realize that the financial scheiss storm is nowhere ended. Some call the last couple months ‘the eye of the hurricane' appropriately. They originated almost 20% of the US mortgages in recent years. Countrywide could produce the largest bankruptcy of a bank in US history. Ripple effects could be enormous and cause contagion across the banking industry.

In April 73,880 homeowners with privately insured mortgages fell more than 60 days late on payments, compared with 39,584 who got back on track, according to their report. The lower 54% so-called ‘Cure Ratio' among defaulted mortgages last month compares with 80% in April 2007 and 87% in March. The foreclosure process is not abating.

The Standard & Poor Case Shiller composite index of 20 metropolitan areas showed prices of existing homes fell 2.2% in March, accelerating to worse than a scary 20% annualized decline. The National Assn of Realtors reports the 1Q2008 single family home price to be 14.1% lower than Q1 of last year. Home values provide the collateral basis for the majority of bank assets.

The precious metal mining stock index HUI does not show anywhere near as much volatility as the gold and silver prices. The triple leg down in the precious metal price charts contrasts with a double leg down for the HUI in correction this spring. The necessary event for systemic conditions to be favorable to gold, silver, and their mining stocks is the creation and operation of the New Resolution Trust Corp for mortgages. Until then, banks are just playing shell games, shifting bonds among themselves to and from the USFed. Some draining might be taking place by the USFed in open market actions in the rebalance of their own portfolios. The New RTC would enable the USFed to have another Clydesdale horse pulling the GOLDEN beer wagon, one from the USGovt breed. That would constitute the mammoth monetary inflation.

To date all profligate money creation has been hogged by the money center banks and investment banks on Wall Street. However, the US Congress is a pack of cowards on the matter. They refuse to make the tough decisions on the New RTC until the November presidential elections. Until then, housing declines further. Households will retrench as they endure dire straits, then fail. Until then, bank mortgage bonds and portfolios crumble further. They will retrench until they seize then fail. Until then, money creation funnel to Manhattan at the further expense of the USEconomy and US Middle Class. They will enjoy the counterfeit fiesta first, despite being the most culpable for the excesses tied to lax lending and fraudulent loan packaging. When the second big horse is fitted for the harness, we will have the powerful pair ready to drive all things precious. We are witnessing a foundation built for gold. We might be witnessing a calculated plan to subjugate the Middle Class and centralize power in a historical manner.

THE HAT TRICK LETTER PROFITS IN THE CURRENT CRISIS.

From subscribers and readers:

“You are able to consume and regurgitate complicated information into layman's terms. It shows that you understand your subject well. It is very easy to take complicated material and repackage it as complicated material. You, however, have the ability to take the complicated and make it understandable to the common man.” (RickS in Californiaa)

“Keep up the good work, and stay safe- the world needs your interpretative skills. “From your radio interviews, I know that your quick wit and conviction are genuine. Your confidence and eloquence comes across just as strongly. You make specific, seemingly outrageous predictions with specific timing, and you are very often right. Really, can one offer any higher praise to an analyst?” (TomH in California )

“The unfortunate demise of Dr. Kurt Richebacher leaves Jim Willie, Bob Chapman, and Jim Sinclair as the finest financial minds on the scene today.” (DougR in Nevada )

“There are four writers that I MUST READ. You are absolutely one of those favorites!! William Buckler, Ty Andros, Richard Russell, and YOU!!” (BettyS in Missouri )

“Your newsletter caught my attention when the Richebächer report ended. Yours has more depth and is broader in coverage for the difficult topics of relevance today. You pick up where he left off, and take it one level deeper, a tribute.” (JoeS in New York )

By Jim Willie CB
Editor of the “HAT TRICK LETTER”
www.GoldenJackass.com
www.GoldenJackass.com/subscribe.html

Use the above link to subscribe to the paid research reports, which include coverage of several smallcap companies positioned to rise like a cantilever during the ongoing panicky attempt to sustain an unsustainable system burdened by numerous imbalances aggravated by global village forces. An historically unprecedented mess has been created by heretical central bankers and charlatan economic advisors, whose interference has irreversibly altered and damaged the world financial system. Analysis features Gold, Crude Oil, USDollar, Treasury bonds, and inter-market dynamics with the US Economy and US Federal Reserve monetary policy. A tad of relevant geopolitics is covered as well. Articles in this series are promotional, an unabashed gesture to induce readers to subscribe.

Jim Willie CB is a statistical analyst in marketing research and retaicl forecasting. He holds a PhD in Statistics. His career has stretched over 24 years. He aspires to thrive in the financial editor world, unencumbered by the limitations of economic credentials. Visit his free website to find articles from topflight authors at www.GoldenJackass.com . For personal questions about subscriptions, contact him at JimWillieCB@aol.com

Jim Willie CB Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules