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Originally Posted by schrocat

Oh my.
Just got sent a wsj link...
Morgan Stanley is rumored to be posting a 4th q write-down of 4-6b?

This is pre-market:

Morgan Stanley Falls Amid Exposure Concerns

Shares of Morgan Stanley (MS) fell 2.6% to $53.10 amid concerns about the securities firm's exposure to the subprime-mortgage crisis.

While the firm is a bit player in in underwriting the securities known as collateralized-debt obligations that have rocked Merrill Lynch & Co. (MER), Citigroup Inc. (C) and others, two analysts are projecting the firm may take a fourth-quarter write-down of $3 billion to $6 billion. The estimates by analysts David Trone of Fox-Pitt, Kelton and Mike Mayo of Deutsche Bank AG contributed to Morgan Stanley stock's falling 1.9% Tuesday.

While the firm may not have underwritten as many CDOs, which are securities backed by pools of assets such as mortgages, Morgan Stanley may have been involved in transactions with other firms that left it with exposure to CDO risks, market participants say, The Wall Street Journal reported.

P.S. -- Morgan Stanley (MS) just opened at $52.68, down $1.83 (-3.36%). Ten minutes later: MS is now $51.31, down $3.20 (-5.9%).

Here's an interesting comparison: GM opened at $34.40, down $1.76 (-4.9%) after reporting worse than expected earnings. Toyota (TM, ADRs) opened at $114.25, up $2.26 (+2.0%) on better than expected earnings. GM is worth $20 billion, Toyota is worth $183 billion. Toyota is worth 9 times as much as GM.

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Fed's Lacker: History will show Fed did right thing in Aug.

November 7, 2007 9:21AM EST

WASHINGTON (MarketWatch) -- History will show that the Federal Reserve took the correct actions in response to the financial market turmoil in early August, Richmond Fed President Jeffrey Lacker said Wednesday. "There is a good chance that, when all is said and done, we will be able to say that the Fed did the right thing," Lacker said in a speech to the International Association of Credit Portfolio Managers in New York. "We stood ready to lend - on good collateral at a penalty rate - but did not interfere with the market's assessment of risks," Lacker said. In a largely academic address, Lacker argued that the market turmoil was not due to banks hoarding cash, or liquidity. Instead, he said there was simply a dramatic change by the market in the valuation of a class of credit exposures, in this case tied to mortgage products.

P.S. -- Note to Federal Reserve: Wow! You guys are geniuses! Too bad you didn't see this coming three years ago when you could have done something about it. Or the SEC could have done something about it. I'm afraid it's too late now.

Hey, wait a minute, I almost forgot: they did do something about it. They encouraged it! Alan Greenspan urged home buyers to consider adjustable rate mortgages at a time when mortgage interest rates were at 45-year lows and after he had lowered the Fed Funds rate to a record 1%. They wanted to help Bush get reelected and they wanted to spur economic growth so that they could give enormous tax breaks to people like Bill Gates and Warren Buffett, both of whom have said publicly they are opposed to the complete elimination of the estate tax. At least Paris Hilton's inheritance will be tax-free, assuming her daddy dies in 2010 and a Democratic Congress and Democratic president don't change things in 2009. Good luck, Paris!

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11:00 ET Dow -160.70 at 13499.83, Nasdaq -32.47 at 2792.36, S&P -19.02 at 1501.23:

[BRIEFING.COM] Since the last update, the indices slipped to new intraday lows due to further declines in the financial sector (-2.5%).

All industry groups within the sector are in the red, with thrifts and mortgages (-5.2%) showing the most weakness. Reuters reports that when asked about Washington Mutual's (WM 22.26, -1.96) ability to maintain its dividend, the company's CEO said its "hard to speculate" about the market environment in January.
Crude oil for December delivery has traded in a highly volatile manner leading up to and following the weekly EIA report. Crude rallied past $98 following the data, despite the draw being smaller than expected. Prices have since retreated to $96.80.

Nasdaq -32.47 at 2792.36... NYSE Adv/Dec 488/2550... Nasdaq Adv/Dec 649/2109.

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12:30 ET Dow -174.60 at 13485.69, Nasdaq -38.93 at 2786.05, S&P -21.02 at 1499.25:

[BRIEFING.COM] The S&P 500 is roughly 9 points above the 1490 level, which is viewed by technical traders as a key area of support. Note that the market managed a healthy rebound from large losses on Monday when that area was re-tested and held. Given the negative tone of today's trading, it stands to reason that we may see another retest of the 1490 area, which will invite some interesting trading action.

Crude prices have eased off their intraday highs, but are still trading near record levels. The high crude prices are reflected in the underperformance of the Amex Airline Index (-3.0%) and the Dow Jones Transportation average (-2.4%). Including this session's decline, the Amex Airline Index is down 29.8% year-to-date.

Nasdaq -38.93 at 2786.05... NYSE Adv/Dec 517/2650... Nasdaq Adv/Dec 675/2178.

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13:30 ET Dow -256.30 at 13405.21, Nasdaq -53.85 at 2771.33, S&P -32.28 at 1488.20:

[BRIEFING.COM] As we previously alluded was likely given the negative tone this session, the S&P 500 tested the 1490 support level. The S&P then penetrated the weekly and month support of 1490, which spurred some additional selling pressure.

St. Louis Fed President Bill Poole said more rate cuts might still be needed if housing downdraft spreads, but excessive rate cuts would run risk of increasing inflation. Also putting pressure on stocks was a CNBC commentator's comment that Lehman Brothers (LEH 56.00, -3.37) may potentially have a $3.9 billion write-down.

Nasdaq -53.85 at 2771.33... NYSE Adv/Dec 412/2793... Nasdaq Adv/Dec 609/2300.

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16:25 ET Dow -360.92 at 13300.02, Nasdaq -76.42 at 2748.76, S&P -44.65 at 1475.62:

[BRIEFING.COM] It was one of those nerve-wracking days on Wall Street where just about everything got hit - and hit hard. The biggest blow was suffered by the financial sector, which plummeted 4.4% amid a batch of headlines that stoked concerns about the fallout from the housing market's severe downturn.

Washington Mutual (WM 20.04, -4.19) was at the epicenter of the concerns after being accused by the New York Attorney General of pressuring real estate appraisers to inflate the value of their appraisals. Both Fannie Mae (FNM 49.79, -5.60) and Freddie Mac (FRE 45.13, -4.26) were subpoenaed in this matter as the Attorney General is seeking information on the mortgages they bought from Washington Mutual and other banks.

The word "collusion" was used by the New York Attorney General, which rattled investors who didn't like the implication of widespread fraud.

In light of this development, and a Royal Bank of Scotland report suggesting losses related to the credit crisis could ultimately top $250 billion, financial stocks were dumped en masse.

The financial sector fallout wasn't event the half of it, so to speak, on Wednesday.

Stock holders were also rattled by General Motors (GM 33.95, -2.21) reporting a third quarter loss of $39 billion after writing down the value of future tax benefits. Excluding the accounting adjustment, GM lost $2.80 per share in the period as mortgage-related losses at GMAC, in which it holds a 49% stake, more than offset the small profit from its automotive operations. Analysts had been expecting a loss of $0.36.

The weakneing dollar also occupied the market's attention all day, as it got knocked back on a report that China might pursue a plan to adjust its dollar holdings in favor of stronger currencies. The dollar index hit its lowest level since inception at 75.077 before rebounding a bit to finish the day down 0.8% at 75.412.

The dollar weakness was again seen as a buying catalyst for commodity traders who bid oil and gold futures as high as $98.62 and $855.00 at one point.

Oil prices eventually sold off and finished the day down 0.3% at $96.37. The reversal was attributed to profit-taking as the contract neared $100 and to a weekly inventory report that showed a lower than expected drawdown in stockpiles.

A report that third quarter productivity rose 4.9%, while unit labor costs declined 0.2%, was completely overlooked by the market despite being good news from an inflation standpoint.

The Treasury market took some notice, but it was driven primarily by a flight-to-quality trade that coincided with the stock market sell-off.

The 10-year note gained 12 ticks, bringing its yield down to 4.33%. The strongest buying action, though, was at the front of the Treasury curve as the yield on the 3-month Treasury bill dropped 30 basis points to 3.43% with traders registering concerns about the credit market mess and frontrunning the possibility of another Fed rate cut.

The market will get some important insight Thursday on Fed policy when Fed Chairman Bernanke testifies before the Joint Economic Committee on the economic outlook.

Nasdaq -76.42 at 2748.76... NYSE Adv/Dec 300/2995... Nasdaq Adv/Dec 587/2444.

P.S. -- A reporter asked President Bush about the price of oil today. Bush told him that oil is going up because demand exceeds supply. Oil is also going up because the dollar is falling and oil is denominated in dollars. Bush doesn't want to talk about that aspect of the price of oil. That's also the main reason gold has risen so steeply over the past couple of months.

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This is really just the beginning. Things will probably continue to get worse for at least another 12-18 months. A couple of days ago, the Bank of Scotland estimated that worldwide losses from the subprime mortgage meltdown would exceed $250 billion.

Morgan Stanley on Wednesday said it has suffered a $3.7 billion loss stemming from its U.S. subprime mortgage exposure, which it expects will reduce fourth-quarter earnings by about $2.5 billion.

The Wall Street investment bank said the loss occurred in September and October, and might change before its fiscal quarter ends this month.

It attributed the loss to deterioration in capital markets, which was triggered in large part by the struggles of thousands of homeowners to keep up with mortgage payments. Morgan Stanley said markets may remain unsettled for several quarters.

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It was another bad day on Wall Street as more banks announced billion dollar-plus losses due to the subprime mortgage meltdown.

For the week, the Dow dropped 4.06 percent and the S&P 500 tumbled 3.71 percent. The technology-focused Nasdaq plunged 6.49 percent.

Federal Reserve Chairman Ben Bernanke is predicting a slowdown next year but no recession. I hope he's right but I fear he's wrong. I think we will be in a recession before the end of next year.

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The crazy San Francisco Bay Area real estate market:



Sales of existing single-family homes fell in October 2007 compared to October 2006 by 41%. That's the 33rd consecutive month of year over year declines in sales volume. However, the median price is still rising in five of the nine Bay Area counties but by single digits and not the 20-25% yearly increase that was common just a few years ago.

Foreclosures are beginning to depress the market in the outer areas and that will spread closer to the coast soon. Demand is so strong in San Francisco that it's possible prices there might not fall much.

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Oil and gold are going crazy again!

$99.29/bbl

As expected, crude oil and gold both pulled back in a technical correction over the past week or so from their highs. Oil dropped down around $91/bbl and gold dipped from the $850/oz range all the way down to the $770's, but they have both reversed course and are headed back up again.

A few hours ago, crude oil hit a new intra-day high of $99.29/bbl (right this minute it's at $98.64/bbl) and gold is sitting on $803.50/oz. This won't be good news for the stock market when it opens Wednesday morning. It was irratic yesterday, bouncing up and down before finally closing slightly to the upside. The Dow was up 51.70 to close at 13,010. If it closes below 12,845, it will be a confirmed bear market signal.

Wednesday will probably start off on the downside due to the sharp rise in oil. I'm afraid Wednesday could be a very rough day.

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As expected, the Dow Jones Industrial Average closed below 12,845 today!

The Dow closed at 12,799.04; a loss of 211.10. The significance of a close below 12,845 is that it confirms a bear market signal given previously by the transports. According to Dow Theory, this is a confirming bear market signal -- more likely than not, the Dow will fall at least another 10% from current levels, possibly more. The overall economy will probably enter recession sometime next year, probably in the second quarter but no later than the third quarter. Good luck to any Republicans running for political office next year.

Right now gold is at $802.60 and crude oil has fallen to $97.18. The euro is $1.49.

P.S. -- Thursday, Nov. 22, the euro actually hit $1.49678. That's awfully close to $1.50. Today, Nov. 23, it's hovering slightly above $1.48. The Swiss franc is up to $0.91 now.

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Mortgage mess may be even worse than I thought!

Unbelievably, HSBC, the largest bank in Europe, is spending $35 billion to bail out two of its mortgage-backed funds.

As for Citigroup, the latest rumor is that they're about to lay off 45,000 employees! That would be in addition to the 17,000 employees they laid off a few months ago.

Here's more proof that Citi is desperate: They just sold $7.5 billion in "convertible equity units" to Abu Dhabi. I believe Citi's largest individual shareholder is Saudi Prince Alwaleed bin Talal. I think he has lost a few billion dollars on his Citigroup stock in the past few months. Citigroup is down 45% over the past six months, dropping from $55 to $30. I keep thinking of Chrysler everytime I see the symbol C. That used to be Chrysler's symbol before the Germans bought Chrysler. Citigroup's symbol used to be FNC, for First National City Bank -- the bank's name before it was changed to Citibank. After Daimler-Benz bought Chrysler, the Chrysler symbol was taken over by Citigroup. Incidentally, the Germans lost their proverbial ass on Chrysler. They sold it for less than a third of what they paid for it.

The Dow Jones Industrial Average dropped 237 points today. I think they were spooked by the Citigroup news. Citi actually dropped just below $30 to $29.80. "Citigroup's shares have fallen 46 percent this year, wiping out roughly $129 billion of market value." That's a lot of money that has gone to money heaven.

One of the biggest unknowns about Citigroup is that nobody knows when they will announce another $10 billion or so in subprime mortgage losses. It seems like every six or eight weeks they add another $6 or $10 billion to their previously announced losses. (P.S. -- Let's remember that Citi's SIVs are still off-balance sheet, so nobody outside Citi knows for sure what they're worth. HSBC just moved their SIVs onto their balance sheet, along with $35 billion from the bank to keep them afloat.)

The market was really freaked out today over the Citigroup rumors and the news that HSBC was pumping $35 billion into its SIV-backed funds to keep them liquid. All those SIVs (structured investment vehicles) and CDOs (collateralized debt obligations) were new-fangled financial instruments invented by the banks to resell their crappy mortgage paper. Then they could take that money and fund more, even crappier mortgages. Pretty soon the name of the game was seeing just how much money you could lend without any regard whatsoever to the qualifications of the borrower or even the true value of the underlying property.

I still think these guys have no idea just how bad their situation really is. Of course, the cynical person might say that they do understand just how bad things are but they're still lying about it to try to stay afloat. I think that's the situation with Countrywide Financial. I think they're really upside down right now and anybody who pumps more money into that black hole has to be crazy. They're going down.

P.S. -- That news that Citigroup conned Abu Dhabi into ponying up $7.5 billion for convertible equity units was released late this evening, hours after the market closed today. That may be good news for the U.S. stock market tomorrow. It seems to have given a psychological lift to the Japanese market. They were down 2% and then they reversed direction once that Citigroup news hit the wire and they're now up .8%. We'll have to wait and see what happens tomorrow morning in New York. Those guys desperately want to believe that things aren't as bad as they seem. They're still hoping for a Santa Claus rally to get back into the black for the year. Today's close wiped out all of the gains for 2007.

Just for the record, right this minute (10:15 p.m. CST, 11/26/07), gold is at $826.30/oz and crude oil is at $97.05/bbl. The euro is $1.49.

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From today's San Francisco Chronicle:

The subprime mortgage fiasco stands to cost the Bay Area economy more than $5.4 billion next year, according to the latest report intending to put a dollar figure on the rising wave of real estate foreclosures.

The lending crisis will cost the national economy $166 billion and 524,000 potential jobs, said the report, to be released today in Detroit at a meeting of the U.S. Conference of Mayors. In addition, homeowners across the country will lose $1.2 trillion in property values in 2008.

Here.

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Why has the stock market been going up this week?

The stock market is going up because George W. Bush is pulling out all the stops to delay the inevitable recession beyond his presidency. Ben Bernanke has just about guaranteed that he will lower the fed funds rate again on December 11. Bernanke thinks they can avoid a recession if he pumps enough liquidity into the economy and lowers interest rates. This will, of course, result in inflation but the fed will worry about that later.

And now it seems the Bush administration is pressuring the big banks and mortgage companies to come up with a plan to "temporarily" freeze low teaser interest rates on home mortgages so that they don't reset to higher rates. Millions of loans are due to reset over the next several months and it is estimated that as many as 2 million homeowners could default next year because of the higher payments. Many of the borrowers who took out the most absurd loans at below market teaser rates were counting on an increase in the value of their home before the rate resets to market rates. They could barely afford the initial payment, much less the higher payment that would result after the initial two or three years. They expected to be able to refinance before the loan reset.

Why is it I'm beginning to feel like a conservative Republican all of a sudden? Probably because I'm a social liberal but a fiscal conservative. First the Bush administration got us into an unnecessary trillion-dollar exercise in nation building abroad and now they're trying to get us into a disastrous policy of price controls, because that's exactly what it amounts to. Artificially restraining interest rates is no different than what Richard Nixon tried to do back in 1971 with his disastrous wage and price controls. Nixon even had a Committee on Interest and Dividends chaired by Arthur Burns, Chairman of the Federal Reserve, to control interest rates.

Nixon's temporary 90-day freeze on prices and wages dragged on for nearly three years and inflation skyrocketed as soon as they were lifted. Check it out here.

Why is it that when the Republicans run enormous deficits, we're not supposed to notice because Republicans are the party of fiscal responsibility? Yeah, right! What a joke that is!

And when Republicans want to introduce artificial controls on the economy it's for our own good. Yeah, right! If the Democrats were proposing anything like this during a Democratic administration the GOP would go berserk. Remember how nuts they went when JFK took on the steel companies?

You cannot "fix" this problem with artificial controls just as you cannot "fix" it by cutting interest rates. You can only delay the inevitable.