Daily Bear Predictions

I have just returned to the states following a 9 day daily bear summit in Greece.

Master of ceremony was Professor "gold coin" Murray

after many Mythos (greek beer) and in-depth discussions with fellow bears I conclude the following


1. we remain in the early stages of this mortgage led fall out.

2. the housing market has yet to post significant price (as valued by actual sales data) declines

3. US job growth will continue to decline - hampering consumer spending and GDP

4. Money markets may be at risk - look beneath the covers and you'll understand why

5. Consumer spending is poised to post significant y/y declines as job growth declines, access to borrowing dissipates and mortgage equity withdrawal becomes non existent

6. commercial real estate market (the once untouchable) appears to be moderating at a pretty healthy clip - out of whack cap rates coupled with higher cost of borrowing (up 200 bps in the past few weeks) - this will lead to a significant deceleration of construction spending and almost certainly put us on a recession pace

7. expect to hear continued mark to market calls for leading financial institutions.

8. Europe remains in a bind - inflation remains at the high end of comfort while growth appears to be moderating - what can they do? conundrum to say the least

9. expect a rally in the dollar/Euro as rates have likely peaked in Europe and investors realize Europe GDP expectations are way out of whack

10. China - may be the prime story in 4Q - how much sub-prime paper does Chinese financial institutions hold? how much of a downturn in US consumer spending can China withstand? If China goes, look for Japan next

11. Recession - I believe we are already there - have never had two negative month to month loss of jobs without being in recession.. I believe...... could be wrong

Mission Accomplished

Now that the market has finally reacted to reality, the Daily Bear has entered hibernation mode. We believe another shoe will fall once the consumer rolls jolting the US into a prolonged recession.

Bear

Foreclosures continue to rise

U.S. home foreclosure filings totaled 925,986 during the first six months of 2007, up 58 pct from the same period a year earlier, RealtyTrac says. The first-half total was also up more than 30 pct from the previous 6-month period, showing a foreclosure rate of one foreclosure filing for every 134 U.S. households, it says. RealtyTrac says. The first-half total was also up more than 30 pct from the previous 6-month period, showing a foreclosure rate of one foreclosure filing for every 134 U.S. households, it says.

California mortgage defaults hit 10-year high

California mortgage defaults hit 10-year high
More borrowers expected to lose homes in second half of year
Tuesday, July 24, 2007Inman News
Lenders sent California homeowners the highest number of mortgage default notices in more than a decade during the second quarter, the result of flat or falling prices, anemic sales and a market struggling with the excesses of the 2004-2005 home-buying frenzy, a real estate information service reported.
Lenders filed 53,943 notices of default (NoDs) during the April-through-June period, up 15.4 percent from 46,760 for the previous quarter, and up 158 percent from 20,909 for second-quarter 2006, according to DataQuick Information Systems of La Jolla.
Last quarter's default level was the highest since 54,045 NoDs were recorded statewide in fourth-quarter 1996, DataQuick reported. By contrast, defaults peaked in first-quarter 1996 at 61,541 and reached a low of 12,417 in third-quarter 2004. An average of 34,172 NoDs have been filed quarterly since 1992, when DataQuick's NoD statistics begin.
"A lot of the loans that went bad last quarter were made at or just beyond the cycle's peak, between summer '05 and summer '06. Appreciation rates for most of that period were in the double digits and lenders let many households stretch their finances to the max, and beyond," DataQuick President Marshall Prentice said in a statement. "It's that pool of 'beyond' mortgages that the market is working its way through."
Most of the loans that went into default last quarter had a median age of 16 months. While total loan originations peaked in August 2005, the use of adjustable-rate mortgages for primary purchase home loans peaked at 77.8 percent in May 2005 and has since fallen.
Because a residence may be financed with multiple loans, last quarter's 53,943 default notices were recorded on 50,901 different residences.
On primary mortgages statewide, homeowners were a median five months behind on their payments when the lender started the default process. The borrowers owed a median $11,126 on a median $342,000 mortgage.
On lines of credit, homeowners were a median eight months behind on their payments, according to DataQuick. Borrowers owed a median $3,457 on a median $67,121 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.
The default numbers reflect wide regional differences. The second-quarter numbers were a record in Riverside, Contra Costa, Sacramento and most Central Valley counties. In Los Angeles County it was still less than half the first-quarter 1996 peak, reflecting the depth of the recession in the mid-1990s, as well as the relative strength of today's housing market.
On a loan-by-loan basis, mortgages were least likely to go into default in Marin, San Francisco and San Mateo counties. The likelihood was highest in San Joaquin, Merced and Riverside counties.
The median price paid for a California home purchased between July 2005 and August 2006 was $460,000. Of those homes, the median price paid for those that went into default last quarter was $445,500, mostly because of low default rates at the high end.
Roughly half, 54.6 percent, of the homeowners in default emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was 88 percent. The increased portion of homes lost to foreclosure reflects the slow real estate market, as well as the number of homes bought during the height of the market with multiple-loan financing. In selling a home, all loans must be paid off, which is not the case in the formal foreclosure process, where second mortgages and lines of credit are most often written off.
The number of trustee's deeds recorded, or the actual loss of a home to foreclosure, hit a high of 17,408 during the second quarter, according to DataQuick's statistics, which go back to 1988. Last quarter was up 57.8 percent from 11,032 for the previous quarter and up 799.2 percent from 1,936 for last year's second quarter. The prior peak of foreclosure sales was 15,418 in third-quarter 1996, while the low was 637 in the second quarter of 2005.
While foreclosures tugged property values down by almost 10 percent in some areas 11 years ago, their effect in most markets today is still negligible. However, the continued rise in NoDs means that the number of homes lost to foreclosure will continue to increase in the second half of this year. Foreclosure levels are already high in certain Inland Empire and Central Valley markets, where the worst-hit neighborhoods might already be seeing property values eroded somewhat by foreclosures, DataQuick reported.

Debt market squeezing Private Equity

By MICHAEL J. de la MERCED
Published: July 21, 2007
After two years of rapid-fire deal making, private equity firms are finding it harder to get the job done.
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Debt Troubles

Some 15 to 20 debt offerings — analysts’ estimates vary — have been modified or postponed as anxious investors have demanded better terms for high-yield loans and bonds, the lifeblood of the leveraged buyout. Private equity firms have had to raise interest rates and sweeten the repayment — or risk having to withdraw the offerings entirely.
“It’s the issuers who are over a barrel right now,” said Justin B. Monteith, an analyst with the research firm KDP Investment Advisors. “The market could go lower as people see how far they can push the issuers.”
Anxiety over securities backed by risky mortgage loans and rising interest rates has roiled the credit markets for several months. Now the contagion from those troubles seems to be spreading into other parts of the marketplace. After edging past the 14,000 mark on Thursday, the Dow Jones industrial average closed yesterday at 13,851.08, down 149.33 points, in part because of continued concern about subprime mortgages.
The yields on 10-year Treasury notes fell below 5 percent yesterday, closing at 4.95 percent, in another sign that investors are looking for safe havens.
This week, the sale of loans meant to finance the buyouts of the Chrysler Group and the European retailers Alliance Boots and Maxeda have been sweetened or postponed. Bond sales have not fared much better: about $3.65 billion in offerings have been postponed since June 26, according to data from KDP.
If conditions do not improve, private equity firms and their bankers may face an even uglier situation. Some $235 billion in loans are waiting to be sold, nearly all for leveraged buyouts, according to Standard & Poor’s Leveraged Commentary and Data.
Nearly all major debt offerings that were expected to take place next month have been pushed back. First Data, a credit card processor whose $22 billion sale of loans and bonds is widely seen as a bellwether for the high-yield credit markets, has pushed back its offering until after Labor Day. Bankers for other major buyouts, like TXU’s, may hold off their debt sales even longer.
In short order, one of the friendliest environments that private equity firms have seen in years has quickly grown hostile. Once they could command extraordinarily lenient terms from investors, making the debt used to fuel leveraged buyouts quite cheap. So-called covenant-lite loans, which have few restrictions on repayment, blossomed, as did pay-in-kind toggles, bonds that could be repaid by issuing more debt.
Now, analysts say, investors have shunned that easy debt, forcing buyout firms to pay more to get their deals done.
This week, Chrysler raised the interest rates on $18 billion in loans meant to finance its buyout by Cerberus Capital Management, a private equity and hedge fund firm, Mr. Monteith said. The two sets of loans, earmarked for the carmaker itself and for its financing unit, may now cost the company millions more in interest payments.
Two companies being acquired by the private equity giant Kohlberg Kravis Roberts also postponed debt offerings amid the tougher market conditions. Alliance Boots, a British pharmacy chain, reportedly delayed £9 billion (or $18.5 billion) in loans. The chain is also said to be considering raising the interest rates on those loans.
And Maxeda, a Dutch department store retailer, also canceled an offering of 1 billion euros ($1.4 billion). It is not clear when either company will reschedule those sales.
The troubles in the loan market have followed similar struggles to sell high-yield bonds. Over the last month, companies like U.S. Foodservice, a major provider of food to restaurants and school cafeterias, and ServiceMaster International, a lawn care and pest control services provider, have had to cancel bond offerings totaling almost $2 billion.
To sell $1.175 billion in bonds to finance its buyout last month, Dollar General removed an additional $725 million in toggles.
Buyout firms are not the only ones suffering from the growing wave of caution sweeping through the markets. An increasingly popular practice among banks has been to assume part of the equity of these deals in what is known as an equity bridge. Banks normally turn around and sell off these portions to other investors. But at least two times over the past month, in the deals for U.S. Foodservice and ServiceMaster, banks have been stuck on the bridge.
“I hope they go the way of the dinosaur,” James Dimon, JPMorgan Chase’s chief executive, said in a conference call on Thursday.
Mr. Dimon has reason to sound alarmed. His bank is providing a $500 million bridge for TXU’s buyout by Kohlberg Kravis and TPG Capital; Bank of America and Citigroup are also providing $500 million each.
Later on in the call, Mr. Dimon sounded less worried. “There are some hung bridges, again nothing on our balance sheet we are particularly concerned about,” he said. But the consequences of being stuck on a bridge are serious. The more banks’ hands are tied with these loans, the less money they have to make additional loans to other deals.
One private equity firm that is particularly at risk if credit starts to dry up is Kohlberg Kravis. It is exposed to at least six deals that have been delayed, modified or canceled in the last month. The firm filed to go public earlier this month.
The tighter credit markets may not choke off deal making. But, analysts say, private equity must be willing to pay a higher price.

Global Economy? BearSh*t!!

As I took a walk this morning, I was reminded why I am so bearish on the US economy. During my 30 minute expedition, I counted 67 for sale signs of which 12 noted the asking price has recently been reduced. This is not a problem isolated in my S. Tampa neighborhood, this is an epidemic spread across the country affecting many major population centers. I note Miami, Tampa, Phoenix, Las Vegas, San Diego, Los Angeles, Atlanta and many parts of the Midwest. The Daily Bear recognizes the housing meltdown alone will not likely take down the US consumer. However, the Daily Bear is perplexed as to how US consumer sentiment and stock market confidence can so be so bullish in a time of a record collapse in the housing market. Few experts would dispute the magnitude of the contribution from housing during the rise of this bull market. How come the same is not felt now as the housing market enters depression.

The million dollar answer.... this is a global market, the US consumer does not matter... We at the Daily Bear would disagree. Can the global market continue to be robust without the US consumer. We are skeptical.

According to our research, if the US consumer slows considerably, we believe the ripple effect will be dramatic. Why?

The global economy is too dependent on exports to the United States. We believe the US accounts for ~ 20-25% of Japan's total exports, 84 percent of Canada's, 86 percent of Mexico's and about 40 percent of China's. What happens when 40% of China's economy experiences a major flu? It is likely the sickness spreads throughout the region and will reverberate in Japan, Taiwan, South Korea and so on.

The US and China account for 40%+ of global growth..... Any questions....

We believe the question remains, not if but when the US consumer falters.

This week, we experienced the first major crack. US retails sales.

Retail sales fell .9% in June, the largest fall since August 2005

even excluding the volatile auto data, sales fell .4%

Furniture sales down 3%

Building materials down 2.3%

Electronics and clothing down 1.4%

This data is causing further deterioration in the dollar which reached a life time low against the Euro. Euro $1.3812 against the dollar.

Additionally, import prices rose 1% for the 5th consecutive month. Imported petroleum prices have climbed 28.1% since January, the Labor Department said.

Excluding petroleum, import prices - a closely monitored indicator by the Fed as potential source of inflation, ticked up by 0.2% after a 0.5% gain in May.


"The price data was high and that is just another indication that inflation maybe isn't moderating as fast as the Fed expects," said Adam Brown, analyst at Barclays Capital.


You think??? We all know the CPI is lagging behind in real terms the level of inflation. The disconnect between the CPI data and our currency to gold differential is troubling.


If the US dollar falls below the "mother of all support levels" 80.00 for a sustained period, watch out, gold likely to climb to over $700 and interest rates will skyrocket.

The Fed finds itself in a precarious situation.. Lower and face hyperinflation, raise and face deep recession. Thanks Alan... We believe the bias is towards raising rates, recessions are recoverable while taming hyperinflation is considerably much more difficult.

Despite the record deceleration in equity extraction, falling housing prices, record levels of mortgage resets, record foreclosure growth, record high oil prices, record high consumer debt, record high interest rate on consumer debt, massive trade deficits, a reduction in Chinese currency purchases and out of control rise in food prices, the global economy will save the day.

Just remember these parting words (from 1999)

New Economy

Eye balls

Mind Share

Paradigm Shift

Global Economy



US Dollar

World will face oil crunch ‘in five years

Source: Financial Times
By Javier Blas, Commodities Correspondent
Published: July 9 2007 13:25 Last updated: July 9 2007 13:25
The world is facing an oil supply “crunch” within five years that will force up prices to record levels and increase the west’s dependence on oil cartel Opec, the industrialised countries’ energy watchdog has warned.
In its starkest warning yet on the world’s fuel outlook, the International Energy Agency said “oil looks extremely tight in five years time” and there are “prospects of even tighter natural gas markets at the turn of the decade”.
The IEA said that supply was falling faster than expected in mature areas, such as the North Sea or Mexico, while projects in new provinces such as the Russian Far East, faced long delays. Meanwhile consumption is accelerating on strong economic growth in emerging countries.
The problem is exacerbated by the fact that supply from non-members of the Organisation of the Petroleum Exporting Countries will increase at an annual pace of 1 per cent, or less than half the rate of the demand rise.
The widening gap between rising consumption and lagging non-Opec supply will force Opec to sharply increase its production in the next five years.
Lawrence Eagles, head of the IEA’s oil market division, told the Financial Times: “If we get to the point were there is insufficient supply, the only way to balance the market will be through higher prices and a drop in demand.”
The IEA Medium Term Oil Market Report came as oil is approaching last year’s record high. Brent crude oil on Monday rose 72 cents to a 11-month high of $76.34 a barrel.
Refineries are already paying record high prices as producing countries have cut the discount at which they sell their oil relative to Brent, according to an analysis by the FT. Most of the discounts had been reduced to levels not seen since 2004 and some even to six-years lows.
Oil demand will grow at an annual rate of 2.2 per cent during the next five years, up from a previous estimate of 2 per cent, to reach 95.8m barrels a day in 2012. China, the Middle East and other emerging countries will lead the increase.
Rex Tillerson, the chairman and chief executive of ExxonMobil, said recently that he thought non-Opec oil production was close to levelling off. He told the FT: “We still see capacity for a little more growth, but pretty modest, and then in our own energy outlook it begins to plateau. And that results then in this call on Opec.”
UK oil production is set to suffer a dramatic decline from today’s 1.7m barrels a day to just 1.0m b/d in 2012, according to the IEA.
The IEA estimates Opec would have to supply about 36.2m b/d in 2012, up from today’s 31.3m b/d. That would reduce the oil cartel’s spare capacity to a “minimal level” of 1.6 per cent of global demand, down from 2.9 per cent in 2007.
Additional reporting by Ed Crooks in London