Do not let the Fed’s cut diversion fool you.

[Sapiens]

Moody's begins cutting top-rated CDOs to junk

http://www.reuters.com/article/bonds...33940120071026

Moody's begins cutting top-rated CDOs to junk

Moody's Investors Service on Friday began cutting ratings of top-rated collateralized debt obligations to junk due to exposure to $33.4 billion in deteriorating subprime loans.

Debt that was rated as high as "A2," the sixth highest rating, was cut to "Caa1," seven levels into junk territory. Moody's cut or placed at least 45 CDOs on review for more cuts, which are tied to Moody's Oct. 11 rating cuts on $33.4 billion of subprime mortgage debt, its biggest action on mortgage debt to date.

"Some have been downgraded, and some have been placed on watch," said spokesman Michael Adler, who didn't immediately have details on the amount of debt affected.

Those deteriorating loans were packaged into bigger, complex bonds known as CDOs that are now being cut and reviewed for further cuts, Moody's said on Friday.

The ripple effect from the Oct. 11 rating cuts may be felt in 461 CDOs in United States and 41 CDOs in Europe, Moody's had said earlier.

[EJ]

Re: Do not let the Fed’s cut diversion fool you.

Not really, look closer, at a more granular level.

Look at the types of money creation, one is the monetization of bank credit, another is the monetization of government bonds.

Most of the current money is monetized bank credit, (let me look for the reference) $46 Trillion plus, then there is the monetized government bonds $9 Trillion plus.

Most of the bank credit has been secured by monetizing real assets and guaranteed by people’s labor. Most of the US Bonds, have been purchased with that monetized bank credit.

Oil and Gold are rising because people expect the government to print money, yet they don’t realize that debt defaults are going to reduce the monetary aggregates at a faster rate than the government issues new money. But the true reason Gold and Oil will rise faster than any other commodity is because people will flee to them seeking safety from their defaulting securities. Those that are dumping Treasuries will soon after realize their grave mistake.

But to be quite honest, I fear that if we reach that point, WWIII will be upon us.

-Sapiens

There is no rate of printing problem. The only problem is printing without destroying confidence in the dollar. In a floating exchange rate system, that means cooperation from the central banks of countries that issue other major currencies, primarily the ECB, Bank of England, and BoJ with all others necessarily forced to follow suit. The issue is political, not technical.

Just got off the call with Dr. Warburton. He projects a de-leveraging of debt driving a short term rise in demand for dollars followed by an eventual repudiation of the currencies of net debtor countries, especially the US dollar. To hedge, he recommends what iTulip has always recommended, with some interesting additions.

I've gone from 80% confidence in Ka-Poom Theory to 90% confidence.

Will post the interview shortly.

[jk]

Re: Do not let the Fed’s cut diversion fool you.

a post that seems germane to this thread, from a reader at bill fleckenstein's web site

A few observations. The word inside Merrill is that there is alot more where this came from. While their release was more robust than the rest of the of the street's disclosure, the conference call was broadly viewed as a disaster.

There is so much obfuscation going on around the brokerage community with regards to leveraged and structured credit markets.. investors don't fathom just how massive the issues are....

A few questions to ask the major structured credit players: How are they monitoring and
marking the collateral in their repo book and are they asking for margin calls?

How much warehouse mortage credit is being sold/converted into total return swaps at below market terms (in order to amortize the losses)?

How much credit exposure does an institution have in total return swap form that does not have reg cap attached to it?

How much price engineering (i.e contingent liabilities) is being utilized through "most
favored nation" agreements, sub market margin credit and other side agreements to support new issue lev. fin deals....

Have never seen this level of desperation to hide from price transparency in 22 years of this...

Face it, the structured credit models based on normal distribution and continuous pricing liquidity broke down at the end of June and everyone is making it up ever sense. Today was just the first slim wedge into the door of realty. Financials may have a pretty tough forth quarter to face from here..

[FRED]

Re: Do not let the Fed’s cut diversion fool you.

a post that seems germane to this thread, from a reader at bill fleckenstein's web site

Transcribing the Warburton interview.

Interesting tidbit: Ratings agencies are estimated to have downgraded approx. 5,000 securities ever... until Oct. 2007. So far in Oct. they have downgraded 2,500.

[Tet]

Re: Do not let the Fed’s cut diversion fool you.

Transcribing the Warburton interview.

Interesting tidbit: Ratings agencies are estimated to have downgraded approx. 5,000 securities ever... until Oct. 2007. So far in Oct. they have downgraded 2,500.

Now that's interesting.

[Sapiens]

Re: Do not let the Fed’s cut diversion fool you.

There is no rate of printing problem. The only problem is printing without destroying confidence in the dollar. In a floating exchange rate system, that means cooperation from the central banks of countries that issue other major currencies, primarily the ECB, Bank of England, and BoJ with all others necessarily forced to follow suit. The issue is political, not technical.

Of-course it is not a technical problem, in our present epoch all the Fed has to do in enter the numbers into the computer system. The question is, how are they going to inject those symbols representing money into the physical economy? Are they going to issue each debtor holding a mortgage certain amount to offset the outstanding amount of that mortgage? Without doing any work or wealth transfer?

Where is the fun in that?

[EJ]

Re: Do not let the Fed’s cut diversion fool you.

Of-course it is not a technical problem, in our present epoch all the Fed has to do in enter the numbers into the computer system. The question is, how are they going to inject those symbols representing money into the physical economy? Are they going to issue each debtor holding a mortgage certain amount to offset the outstanding amount of that mortgage? Without doing any work or wealth transfer?

Where is the fun in that?

I agree with Hudson on this point. Banks don't want you to pay anything off. Ever. Especially your mortgage.

If you as a credit card holder commit the indiscretion of paying off your debt you are a labeled a "deadbeat" and punished via a lower credit rating that translates into a higher rate of interest (higher rent on your labor).

Loans will be extended then extended again. As they say on Wall Street, "a rolling loan gathers no loss." A hundred year mortgage or interest-only mortgage is the perfect product for our times.

Taxation is such a crude form of government extraction of economic rent. Debt is so much more supple. I'm sure a simple spreadsheet is floating around the offices of several of our fine government institutions that demonstrates convincingly to any ambitious young pol who seeks to end the subsidy of the real estate industry represented by the mortgage interest rate deduction. The spreadsheet shows how much incremental revenue is earned by the government (rent) for each additional mortgage payment net of the interest rate deduction from income, provided the profits earned by the Federal Reserve are figured into the total, of course.

[jk]

Re: Do not let the Fed’s cut diversion fool you.

The question is, how are they going to inject those symbols representing money into the physical economy? Are they going to issue each debtor holding a mortgage certain amount to offset the outstanding amount of that mortgage?

no, they'll purchase tbills, and if that doesn't work they'll move out the rate curve, purchasing notes and bonds. if that doesn't work they'll move on to other assets, as bernanke made clear in his famous "making sure it [deflation] doesn't happen here" speech. of course, the dollar will dive unless other cb's do the same, so it's quite likely other cb's WILL do the same.

[Jim Nickerson]

Re: Do not let the Fed’s cut diversion fool you.

There is no rate of printing problem. The only problem is printing without destroying confidence in the dollar. In a floating exchange rate system, that means cooperation from the central banks of countries that issue other major currencies, primarily the ECB, Bank of England, and BoJ with all others necessarily forced to follow suit. The issue is political, not technical.

Just got off the call with Dr. Warburton. He projects a de-leveraging of debt driving a short term rise in demand for dollars followed by an eventual repudiation of the currencies of net debtor countries, especially the US dollar. To hedge, he recommends what iTulip has always recommended, with some interesting additions.

I've gone from 80% confidence in Ka-Poom Theory to 90% confidence.

Will post the interview shortly.

So, EJ, is it premature to ask you since you are at a 90% confidence level on Ka-Poom, where we are NOW?

You know I don't know a lot, but I think we are still to get into Ka, though I must say oil, PM'S, commodities are behaving Poomishly.

Set us on the right path, oh, Great One.

[Guest]

Re: Do not let the Fed’s cut diversion fool you.

Jim wrote -

<< Behaving Poomishly >>

We seem have acquired a new bit of iTulip jargon.

TESTING "POOMISH" SYNTAX ...

"Concern was expressed by KA-ish proponents that Grapejelly and Mackay et. al. might be viewing the gold gambit a bit too Poomishly ... "

"Once JK was persuaded to regard the markets a little more poomishly the community's general mood was found to be markedly improved ... "

"Bart's charts were revealed to evidence a clear poomish secular bias emerging ... "

"Jim Roger's exit from all US assets was regarded as a distinctly un-poomish portent for domestic structured debt assets, but fairly poomish for the US Bonar ... "

"regularly forced to tune out CNBC due to their unrelentingly poomish view of the broad stock market indices ... "

"August FOMC minutes interpreted to demonstrate a cautious optimism that the risk of poomish monetary drift was now well in hand ... "

"Prechter's most recent missive reported to unambiguously reiterate a long avowed anti-poomish stance ... "

"Poomish effervescence moved sharply to the forefront of the market after the FED rate cut ... leaving many pundits surprised ... "

"Mish's recent missives were reported to unambiguously debunk the poomish thesis, pouring cold water on any notion of another Fed engendered poomlet ... "

"as iTuliper's gloom deepened in August, they began to acquire an ever more contra-poomish pallor ... "

"Janszen's future articles widely anticipated to gain a more poomish tinge in the near future ? ... "

"Futures markets hinted at increased odds the Janszen bada-poomish forecast might be unfolding slightly ahead of schedule ... "

____________


The new poomish all-weather adjective is guaranteed for 40,000 miles, or for a tin ear, whichever arrives first - with free rotation at any poomishly inclined service center.

____________

An ambitious project is also underway to carry the Poomish expression into seven different languages! -

"pendant que la tristesse des iTuliper approfondissait en août, ils ont commencé à acquérir un plus contre-poomish pâleur..."

"mientras que el gloom de los iTuliper profundizó en agosto, comenzaron a adquirir siempre más contra-poomish-poomish pallor..."

"как gloom iTuliper's углубил в августе, они начал приобретать всегда больше contra-poomish-poomish pallor..."

"mentre il scarso morale dei iTuliper si e' approfondito in agosto, hanno cominciato ad acquistare sempre più contra-poomish-poomish pallore ..."

"ως κατάθλιψη iTuliper's που εμβαθύθηκε τον Αύγουστο, άρχισαν να αποκτούν μια πάντα πιό ενάντια -ενάντιος-ποομησχ ωχρότητα... "

"während Trübsinn der iTulipers im August sich vertiefte, fingen sie an, mehr gegen-poomish pallor überhaupt zu erwerben..."

"当iTuliper 的幽暗加深了在8月, 他们开始获取一更多poomish pallor..."

[jk]

Re: Do not let the Fed’s cut diversion fool you.

So, EJ, is it premature to ask you since you are at a 90% confidence level on Ka-Poom, where we are NOW?

You know I don't know a lot, but I think we are still to get into Ka, though I must say oil, PM'S, commodities are behaving Poomishly.

Set us on the right path, oh, Great One.

warburton apparently feels that we have to get to ka:

Just got off the call with Dr. Warburton. He projects a de-leveraging of debt driving a short term rise in demand for dollars followed by an eventual repudiation of the currencies of net debtor countries, especially the US dollar.

that short term deleveraging will be the ka.

[GRG55]

Re: Do not let the Fed’s cut diversion fool you.

Jim wrote -

<< Behaving Poomishly >>

We seem have acquired a new bit of iTulip jargon.

TESTING "POOMISH" SYNTAX ...

"Concern was expressed by KA-ish proponents that Grapejelly and Mackay et. al. might be viewing the gold gambit a bit too Poomishly ... "

"Once JK was persuaded to regard the markets a little more poomishly the community's general mood was found to be markedly improved ... "

"Bart's charts were revealed to evidence a clear poomish secular bias emerging ... "

"Jim Roger's exit from all US assets was regarded as a distinctly un-poomish portent for domestic structured debt assets, but fairly poomish for the US Bonar ... "

"regularly forced to tune out CNBC due to their unrelentingly poomish view of the broad stock market indices ... "

"August FOMC minutes interpreted to demonstrate a cautious optimism that the risk of poomish monetary drift was now well in hand ... "

"Prechter's most recent missive reported to unambiguously reiterate a long avowed anti-poomish stance ... "

"Poomish effervescence moved sharply to the forefront of the market after the FED rate cut ... leaving many pundits surprised ... "

"Mish's recent missives were reported to unambiguously debunk the poomish thesis, pouring cold water on any notion of another Fed engendered poomlet ... "

"as iTuliper's gloom deepened in August, they began to acquire an ever more contra-poomish pallor ... "

"Janszen's future articles widely anticipated to gain a more poomish tinge in the near future ? ... "

"Futures markets hinted at increased odds the Janszen bada-poomish forecast might be unfolding slightly ahead of schedule ... "

____________


The new poomish all-weather adjective is guaranteed for 40,000 miles, or for a tin ear, whichever arrives first - with free rotation at any poomishly inclined service center.

____________

An ambitious project is also underway to carry the Poomish expression into seven different languages! -

"pendant que la tristesse des iTuliper approfondissait en août, ils ont commencé à acquérir un plus contre-poomish pâleur..."

"mientras que el gloom de los iTuliper profundizó en agosto, comenzaron a adquirir siempre más contra-poomish-poomish pallor..."

"как gloom iTuliper's углубил в августе, они начал приобретать всегда больше contra-poomish-poomish pallor..."

"mentre il scarso morale dei iTuliper si e' approfondito in agosto, hanno cominciato ad acquistare sempre più contra-poomish-poomish pallore ..."

"ως κατάθλιψη iTuliper's που εμβαθύθηκε τον Αύγουστο, άρχισαν να αποκτούν μια πάντα πιό ενάντια -ενάντιος-ποομησχ ωχρότητα... "

"während Trübsinn der iTulipers im August sich vertiefte, fingen sie an, mehr gegen-poomish pallor überhaupt zu erwerben..."

"当iTuliper 的幽暗加深了在8月, 他们开始获取一更多poomish pallor..."

Irrationally poomish?

[Spartacus]

Re: Do not let the Fed’s cut diversion fool you.

Eric, I've been looking for proof that this happens (pay off the card, reduce your FICO) but cannot formulate the right search.

Have you any links?

There was a Gary North article on it some time ago as well but he seems to have removed it.

If you as a credit card holder commit the indiscretion of paying off your debt you are a labeled a "deadbeat" and punished via a lower credit rating that translates into a higher rate of interest (higher rent on your labor).

[Spartacus]

Re: Moody's begins cutting top-rated CDOs to junk

NObody told Moody's about the MLEC?

I think Paulson needs to take all of his 6 foot 8 body down there and apply some "persuasion". Maybe play some baksetball while he's at it. Take along Bernanke's beard to make sure Moody's knows the FED is cheerleading.

If the ratings agencies remove their air freshener, how can the Treasury buy the cr*p that on its own stinks of a most unpleasant, nauseating reek?

http://www.reuters.com/article/bonds...33940120071026

[Jim Nickerson]

Re: Do not let the Fed’s cut diversion fool you.

warburton apparently feels that we have to get to ka:



that short term deleveraging will be the ka.

Thanks, Brain, it amazes me you can store all this stuff, I guess the secret is to be able to pick out the important stuff, remember it, and forget the rest.

However, your insight does not supplant a comment still due from EJ.

Fred (1,2,3, or 4) wake up EJ and ask him to respond to

in response to EJ's comment in the post previous to mine: I've gone from 80% confidence in Ka-Poom Theory to 90% confidence.

Edit: jk, what is your opinion?