Read it here first: Back on November 6, we discussed S&P500 ex-Risk ?
That commentary suggested that the S&P500 failed to properly anticipate the Financial sector’s massive — and ongoing — risk driven losses. We further hypothesized that, had their been more credible risk assessment, a variety of data points — from year-over-year Earnings, to stock valuations, to risk adjusted returns, to measures of undervaluations — would have produced radically different results.
A reader forwarded us a November 25 NYPost article that made essentially the same point: 14,164.53* CRITICS: DOW MARK IS TAINTED:
Critics of credit reporting agencies and Wall Street analysts say their failure earlier this year to properly warn investors about the possible extend of the subprime mortgage meltdown tainted the 14,164.53 record high of the Dow Jones industrial average.
Therefore, the critics say, the record high hit on Oct. 9 should carry a Barry Bonds-like asterisk – because it was reached unfairly."These were phantom Dow highs in that they were predicated on unrealistically low expectations of risk in the housing market," Christian Stracke, a senior strategist at CreditSights in London, told The Post last week.
"It was a fool’s rally and a fool’s record Dow high in October," snapped Chris Whalen, managing director of Institutional Risk Analytics. "This whole thing was built on colossal and very deliberate deception of investors with opaque products like CDOs."
My pal Mike Panzner has a subtle quote in it:
"Credit market conditions had been steadily deteriorating ever since the bubble burst in housing," said Michael J. Panzer, the author of "Financial Armageddon." "Any analyst the claims he didn’t see it coming is kind of an idiot."
Nice!
Here’s the NYP chart:
Source:
14,164.53* CRITICS: DOW MARK IS TAINTED
JOHN AIDAN BYRNE
NYPost, November 25, 2007
http://www.nypost.com/seven/11252007/business/14_164_53__724016.htm
Aren’t we getting close to that record again just now? What would they say about that?
Wait, so, are you telling me that markets are short-term inefficient? No wai…
I don’t really understand how you can call any market close “tainted”.
we are what percentage away from that now??
Makes no difference when fake money is heaved at it. I love how all this hypothesizing about how incorrect a rally is….is done way after the fact. After the damage is done, even the Fed comments on it from time to time, it is still utilized as an indicator of strength (rightly or wrongly) and it never ceases to amaze me how the pundits “attack” an incorrect rally (usually as they are selling into it) as “bad”. Make the call beforehand as the world has enough Cramer’s who play both ends and are always “right”
How about before it happens??.that’s called pro-activity…but that wouldn’t mean much to most people anyhow.
Ciao
MS
The only truth is price(did I just say that), so saying that it’s tainted is just like when your basketball team loses and you go “the ref stole it from us”.. The score is in and the loss is in the books.
And we are within striking distance of it again.
I Am super excited to ride it back down though.
and remember as Dennis Kneale says “Shorting the market makes Baby Jesus Cry.”
If Cramer is Ronald on McBuisness TV…. Does that make Dennis The hamburgler?
look there hasn’t been any meaningful correction
and there won’t be while desperate manipulation of the indices continues
an accurate correlation between “true” balance sheets and earnings would have the dow below 10000 and drifting down
it’ll happen but not before massive rearguard actions by city hall and the major financials
particularly if they can continue to find sovereign funds managed by also rans and dazzled by the marquee names who wouldn’t normally give them the time of day and leave them to their fodder salesman
perhaps there should be a desperation index based on the executive level currently required to raise tier1 capital
rgds pcm
he did’nt really say that?? did he??
That I have to ask is somewhat of a conundrum because I can picture him saying exactly that…
or as Lewis Black said ” Bush now says he believes in Global Warming……..I’m not so sure I believe it now”
Ciao
MS
BTW Conrad Black just got 6 1/2 years
now that’s a correction!!
remind me never to tell the guys at Tweedy Browne to get f****d
rgds pcm
“Any analyst the claims he didn’t see it coming is kind of an idiot.”
… or simply an untruthteller
more to the point, the Dow high was based on incorrect financial reporting from Citi, which will write off a couple of years’ reported earnings (and break up unless the board brings back Sandy Weill), and to a lesser degree Chase.
There must be at least 6,800 reasons why we shouldn’t engage in such what-if speculation.
Does this mean he has to sell the plane too. Maybe he and Michael Vick will share the same cell. Can he catch a football?
innocent bystander
no he can’t catch a football
but he needs somewhere to park a very high maintenance woman for 6 1/2 years
no canadian passport either
so its a nasty old fed prison
rgds pcm
MS,
In light of truth, Dennis only called Green-burg “unamerican”, for saying this wasn’t just a Subprime event.
Someone email him, I’m sure he would add “baby Jesus cry” to his hyperbole, if we asked.
WaMu!
Massive dividend cut. Branch closures. Job losses.
Bond rating cut.
Doesn’t sound like the WaMu barometer is forecasting sunny skies…
Aren’t we getting close to that record again just now? What would they say about that?
Haha… I was going to say, do you mean last time or next time?
Let’s not miss the elephant room, good Gravy! My 80 year grand mammy knows this markets full of crap!
It’s friggen embarrasing to watch this unfold??
Bystander, I think Conrad better be more concerned about deflecting weiners rather than catching footballs! Good Luck with that!
Off the subject, sorry.
Czar Putin has named his successor, Dmetri Medvedev. His name is translated as David Bear. Russia in a Bear market for the next 12 years???
Peter of OZ
If they put a camera in his cell connected to the internet I would pay to watch. Nobody at the SunTimes here in Chicago got a raise for YEARS, as busisness was bad. I’m sure it was, especially when he was shovelling what there was of any cash into his plane, and out of the country.
Excuse me? Is there some kind of mailing list I should be on where someone is going to tell me the “true” risk out there (and not also tell me the other side for “balance” and make the first advice totally useless)? I’m not currently on it and if the rest of you jokers are putting money to work with insider trading information than I’m going to be some kind of pissed!
How the hell does someone or something take “blame” for a “tainted” S&P 500 print of any kind? Egomaniac, much?
By the same token, all this stuff is tainted because the NoKos and Iranians and Flying Spaghetti Monster knows who else aren’t taking blame for all the “supernotes” they print, thus devaluing the $US. COME CLEAN Kim Jon-Il!!! COME CLEAN, or forever have the “taintidity” of the S&P 500 on your sorry excuse for a soul (Seoul?)
The repeated call for aggressive interest rate cuts while the DOW is UP for the year and near it’s all time highs (now in question?)shows the sheer lunacy that is the market these days. How much longer can this sham keep up? The sands of time are running low and 2008 may not be very fun.
Well Mike did say ‘kind of’ an idiot.
The more correct NY expression is ‘a f!@# idiot’.
If you think America is in bad straits, aren’t Chinese markets up approximately 100% this year?
The repeated call for aggressive interest rate cuts while the DOW is UP for the year and near it’s all time highs (now in question?)shows the sheer lunacy that is the market these days.
——-
I disagree. The cuts are only indirectly linked to an increasing stock market (eventually). They are clamoring for them to hopefully ease the credit crunch. (The fed funds rate isn’t really the tool for that but when all you have is a hammer…) Sure, the end result of a collapse in the credit market will be no loans to businesses and eventually a severe recession but even the fed doesn’t try (at least overtly) to “steer the market”. They generally do what they do in order to try and keep the market out of chaos. Not too hot, not too cold, so market forces can dictate the actual direction.
JMHO.
…and we ain’t seen the end of it yet, no way! Good graphic – I missed the word ‘contained’ and I would say it is more than ’embarrassing’ to watch this unfold – freaky is more like it.
Interest rate ‘freeze’:
The real story is fraud
By Sean Olender
San Francisco Chronicle
Sunday, December 9, 2007
New proposals to ease our great mortgage meltdown keep rolling in. First the Treasury Department urged the creation of a new fund that would buy risky mortgage bonds as a tactic to hide what those bonds were really worth. (Not much.) Then the idea was to use Fannie Mae and Freddie Mac to buy the risky loans, even if it was clear that U.S. taxpayers would eventually be stuck with the bill. But that plan went south after Fannie suffered a new accounting scandal, and Freddie’s existing loan losses shot up more than expected.
Now, just unveiled Thursday, comes the “freeze,” the brainchild of Treasury Secretary Henry Paulson. It sounds good: For five years, mortgage lenders will freeze interest rates on a limited number of “teaser” subprime loans. Other homeowners facing foreclosure will be offered assistance from the Federal Housing Administration.
But unfortunately the “freeze” is just another fraud — and like the other bailout proposals, it has nothing to do with U.S. house prices, with “working families,” keeping people in their homes or any of that nonsense.
The sole goal of the freeze is to prevent owners of mortgage-backed securities, many of them foreigners, from suing U.S. banks and forcing them to buy back worthless mortgage securities at face value — right now almost 10 times their market worth.
The ticking time bomb in the U.S. banking system is not resetting subprime mortgage rates. The real problem is the contractual ability of investors in mortgage bonds to require banks to buy back the loans at face value if there was fraud in the origination process.
And, to be sure, fraud is everywhere. It’s in the loan application documents, and it’s in the appraisals. There are e-mails and memos floating around showing that many people in banks, investment banks and appraisal companies — all the way up to senior management — knew about it.
I can hear the hum of shredders working overtime, and maybe that is the new “hot” industry to invest in. There are lots of people who would like to muzzle subpoena-happy New York Attorney General Andrew Cuomo to buy time and make this all go away. Cuomo is just inches from getting what he needs to start putting a lot of people in prison. I bet some people are trying right now to make him an offer “he can’t refuse.”
Despite Thursday’s ballyhooed new deal with mortgage lenders, does anyone really think that it can ultimately stop fraud lawsuits by mortgage bond investors, many of them spread out across the globe?
The catastrophic consequences of bond investors forcing originators to buy back loans at face value are beyond the current media discussion. The loans at issue dwarf the capital available at the largest U.S. banks combined, and investor lawsuits would raise stunning liability sufficient to cause even the largest U.S. banks to fail, resulting in massive taxpayer-funded bailouts of Fannie and Freddie, and even the FDIC…
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2007/12/09/IN5BTNJ2V.DTL
Excellent point/article Phil.
I recall reading this fact when this mess all began but had forgotten about it, probably because no one had actually forced anyone to buy anything back.
My understanding from my readings back there were as follows:
* The purchasers of CDO’s etc. can force the CDO creators to buy back specific loans/mortgages from that CDO if that loan/mortgage is found to fall outside the risk level attributed to the CDO.
* The details (# of mortgages/loans, terms in them, overall loan mix, etc.) are so complex that the purchasers can’t afford the time/money to actually investigate the components of the CDO
* They rely on trusted agencies like Mooddy’s etc. to do that work and rate them.
* Even the rating agencies cannot pick apart each and every one of these, so they just sample them! I don’t know how great the sample is but it isn’t huge.
So I believe someone looking at massive loans on the now newly severely downgraded CDO may just find it worth their while to investigate the components themselves and force the originators to buy these things back one by one (loan by loan, not CDO by CDO).
Reminds me of the analysts who couldn’t see the tech collapse of 2000, or the demise of Enron.
Reminds me of the analysts who couldn’t see the tech collapse of 2000, or the demise of Enron.
Reminds me of the analysts who couldn’t see the tech collapse of 2000, or the demise of Enron.