Loading ...I was asked by a friend, “How the F did the Collateralized Mortgage Obligations got rated AAA during the no doc fraudulent lending era”. He said, “Even I, someone not from a financing background could clearly see that the rating of the debt should have been closer to junk status”. Well, let me explain…you see, anyone who has passed a serious 7 exame knows that lending agency debts are automatically rated AAA because they are either backed by the full faith of the US government (Gimpy May) or “implied” to be fully backed by the US government (Freddy Mac and Fanny Pac). Because of this backing, it did not matter that the mortgage had been given to a strawberry picker whose credit rating was 400. In the end, it was the US government that was the underwriter. As evident of the bail out, we all know this to be 100% accurate. This also explains why no one is going to jail, getting fired or prosecuted from the rating agencies. […]
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We currently live in a world that is over invested. Every asset class is overcrowded and in some sort of bubble state. The middle class can afford to purchase homes with 20% down. Unemployment is still going increasing. Countries all over the world are printing currencies to boast up commodities. Equity markets have no real value and all common and preferred stock shares of nearly all publicly traded companies are worthless. This last in is the issue that concerns me the most. I know that most of you don’t believe what I’m saying in regards to stocks being worthless, but it is true. When you look at the financial statements of many publicly traded companies (just about all), their debt always exceeds their assets. Let me explain, today’s publicly traded companies are disastrously overleveraged. Most can’t even pay the secured debt holders, never mind the non-secured bond holders. Then you have the preferred stockholders and lastly the common stock holders. […] There are deep underlining moral hazards for us if we do not help Dubai with its financial difficulties. I’m not sure how the debt got so out of control or who participated on the ill fated funding strategies, but the cultural loss would be devastating. Dubai is one of the most progressive Islamic nations in the world. Dubai is not just tolerant of religious differences but also in the way they treat females. The country pays high wages and no taxes leading to a healthy middle class. They believe that no matter what personal differences you have, you can resolve the issue in peaceful means. On top of all those reasons, we also need to understand how the decision to not help them would be interpreted throughout the Arabic world. […] It is interesting that a significant outside catalyst, such as Dubai World potential default, has not caused a strong sell off. Instead, you notice a progressive rebound off the lows. Well, this is somewhat to be expected, there has been so many US Dollars printed, that the money has to flow somewhere. […] What do you get when you cross breed a billion debt default and low value trading? Yes, it is not looking good for Friday; it seems that the stock market will correct a few hundred points. If it doesn’t, I’ll be absolutely surprised (or not so much). The day the US stock market is closed, Dubai World asks its creditors for a 6 month extension. Naturally, this causes the global equity market to sell off and the dollar to strengthen in a flight to safety trade. Lucky for us, our equity markets are closed! Although I am not one to believe in luck, big decisions are always planned. […] We here at Alphas Edge as confused how Dubai World apparently is in danger of defaulting. Its credit swaps are souring day by day as debt payment plans are unclear. There is so many questions that should be asked, but one rises above all. How in the world are some of the richest people projects in danger of defaulting. Oh, wait; let me have a crack at that. The projects were founded to a corporation, so the debt obligation was actually passed on to the public. While the innovators of the project had first dibs on the profit, they have no stake on the liability. Jeez, talk about a blow to financial markets. If even the very rich is having problems paying back debt, how about Carlos in the US that got offered a 750K mortgage while earning a strawberry pickers wage. At least we got them back for 9 11 financially! […] This is why you are hearing a lot of folks claiming that the US currency is now the old new carry trade. Everyone is borrowing dollars and investing in foreign markets. The way I see it, the government is stuck, frozen, castrated, and impotent to move rates any time soon. Doing so would certainly create another financial collapse. This means that as rates remain low for DECADES to come, inflation will no doubt be the cancer that kills the US middle class. At least this makes buying investments such as Gold a no brainer. […] It’s interesting to notice that 4 are financial institutes that are highly leveraged and have significant exposure to the derivative market. There is little double that the bubble that has become the derivative market will someday burst causing EXTREME financial collapse of the system. It is Ironic that Goldman Sachs itself will be the collapse that hurts the system the most. Yes, it is simple math really; GS has 41 Trillion dollars in derivatives but only 119 Billion dollars in assets. That means that they are betting with 400X the amount of assets they have (of which some are illiquid and not market down). Even assuming that they are 100% market neutral, the margin of errors is too great for the system to handle. What is more amazing is that this number is close to the total Global GDP. […] We are expecting little change to the market this coming week. The dollar might end the week slightly lower or slightly higher, and the equity market will do the opposite of what the dollar does. The only thing that seems like a sure bet is that Gold will end the week higher than it finished last week. […] Frankly, the fact that he was hired even though he is a criminal himself just shows you the kind of people who are in charge of the country today. I was both disgusted and disappointed by his nomination to the treasury position. I think it’s time we clean up Washington and the greedy bankers who own it. Or, this country that I so dearly love will stop being the light that shines bright in this world. […] |
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