Positive developments in the credit markets continue to lead the equity markets higher…
Liquidation of CDOs aids banks – FT
FT reports billions of dollars’ worth of the complex securities at the heart of the financial crisis are being liquidated, enabling banks, insurance companies and other investors to clear toxic assets from their books.
Market participants say the unwinding is occurring in the market for collateralized debt obligations (CDOs). Hundreds of billions of dollars of CDOs have defaulted, but the structures can only be liquidated if the underlying collateral can be sold. In recent weeks, more investors have been buying the underlying assets at deep discounts, leading to increased trade and boosting prices for some existing CDOs.
“There has been a significant increase in the amount of CDO liquidations,” said Vishwanath Tirupattur, analyst at Morgan Stanley. “The rally across asset classes has given investors an incentive to liquidate.” The recent rally has been particularly marked for CDOs backed by corporate bonds and loans. Of the more than $500 bln of CDOs backed by asset-backed securities sold in the boom years, $350 bln have already experienced an “event of default”.
The Fed meets today and will make a statement about monetary policy. Many pundits on TV are suggesting that the Fed may begin to outline the exit strategy for monetary easing. However, I would humbly suggest that if the Fed is aware of the following three stories (these being the tip of the proverbial iceberg) then there will be no meaningful change to the Fed’s monetary stance.
Of course, if there is no change in the epic fiat money proliferation by the Fed then we would expect a continuation of the current inflation rally in assets. Please remember, inflation is currency event not an economic event. For more thoughts on this matter please see the Sept. 17th post.
Holiday jobs look scarce as pessimism grips retail – WSJ WSJ reports nearly half the nation’s 25 biggest retail chains expect to hire fewer holiday workers this season than they did last year, another sign that retailers aren’t counting on recession-strained shoppers to relax the tight grip on their pocketbooks this year. About 40% of stores surveyed across a broad swath of retailing told the Hay Group, a human resources consulting co, that they expect to hire between 5% and 25% fewer temporary workers this year than last, when the recession forced many retailers to trim staff in response to falling sales. That’s a grimmer outlook than the Hay survey found a year ago, when 29% of retailers said they would be slashing their holiday workforce. “Our staffing levels will likely be down slightly,” said an American Eagle (AEO) spokeswoman. “We’ve been focused on creating high levels of efficiency.”
U.S. mortgage delinquencies set record – Reuters.com
Reuters.com reports high U.S. unemployment keeps pushing up the rate of mortgage delinquencies, which could in turn drive personal bankruptcies and home foreclosures, monthly data from the Equifax credit bureau showed.
Among U.S. homeowners with mortgages, a record 7.58% were at least 30 days late on payments in August, up from 7.32% in July, according to the data obtained exclusively by Reuters. August marked the fourth consecutive monthly increase in delinquencies, and the report showed an accelerating pace.
By comparison, 4.89% of mortgages were 30 days past due in August 2008, while in August 2007, the rate was 3.44%, Equifax data showed. The rate of subprime mortgage delinquencies now tops 41%, up from about 39% in each of the prior five months. The results, which correlate with consumer bankruptcy filings, suggest U.S. homeowners remain under financial stress despite signs of improving sentiment and fundamentals in the U.S. housing market. August bankruptcy filings were up 32% from a year earlier, compared with a 35% year-over-year increase in July.
Delayed foreclosures stalk market – WSJ
WSJ reports legal snarls, bureaucracy and well-meaning efforts to keep families in their homes are slowing the flow of properties headed toward foreclosure sales, even when borrowers are in deep distress. While that buys time for families to work out their problems, some analysts believe the delays are prolonging the mortgage crisis and creating a growing “shadow” inventory of pent-up supply that will eventually hit the market.
The size of this shadow inventory is a source of concern and debate among real-estate agents and analysts who worry that when the supply is unleashed, it could interrupt the budding housing recovery and ignite a new wave of stress in the housing market. “There’s going to be a flood [of bank-owned homes] listed for sale at some point,” says John Burns, a real-estate consultant based in Irvine, Calif. When that happens, Mr. Burns believes, home prices will fall further, particularly in markets with large numbers of foreclosures. Overall, he expects home prices to decline 6% next year.
