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Captain Coma

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Everything posted by Captain Coma

  1. Premium doesn't cover risk - catastrophic miscalculation of risk - not enough in the pot to pay out if anything goes wrong.
  2. As I understand it ... The monolines agree to insure the corporate bonds of their clients. The act of insuring these bonds means that the bonds are effectively triple-A rated, or almost gilt-edged, despite the fact that the monolines have almost no capital to pay out if a corporation defaults. It all works fine when everything is going up in a bull market (asset bubble) when debt is cheap. But when the price of debt soars, as it has just done, the risk of corporations defaulting rises and the cosy arrangement between monolines and their insured client bonds is shown to be fictitious. Now the monolines cannot afford to pay out if anything goes wrong. A vicious circle ensues: ratings agencies (Fitch, Moody's etc) start to downgrade the monolines toward junk, meaning that they have to raise much new capital to restore confidence in their insuring abilities. But just when they need to raise extra capital, they find that nobody will give it to them. Client bonds in turn risk junk status because they are effectively uninsured. ... Let's all play default dominoes! (Don't shout at me if I've got this wrong - I am still trying to get it straight in me own head.)
  3. That's what I was thinking. They're an hour westward of the Nikkei but still in bed!
  4. I don't know, but I gotta say I think you're right. The words "straw" and "camel's back" come to mind ...
  5. I read somewhere today (can't remember where) that it's mostly in the United States, although presumably not every UK bond gets insured in the US, and also presumably they all need insuring, so ... there must be some (small) monoline market in the UK, too, logic would dictate, Would it be worth us investigating who those firms might be? It's certainly been kept quiet so far. Hilton talks in his article about the disaster being similar to the Lloyds of London debacle, but I don't think they insured bonds, though don't quote me on that!
  6. It was the monoline (bond insurer) downgrades, right? Which have only just started, AFAIK.
  7. Anthony Hilton in the London Evening Standard is spot-on about the monoline train-wreck waiting down the line: More here: http://www.thisislondon.co.uk/standard/art...ions/article.do Edited for link
  8. I would be scandalised were it not so; yet Brother Ambrose is the mildest and most modest of souls, and his spiritual purity saves him from corruption by worldly and material interests.
  9. What he said! Short them brewers, they deserve it for not standing up for their bread-and-butter customers.
  10. "£3 a cup and the govt hardly gets a slice" ... Reminds me of a joke from the olden days of yore about awful British Rail buffet beverages, when you would ask for a slice of coffee.* *And run away to the next carriage, laughing.
  11. A couple of years ago, when in Hamburg, I spent an evening trying to persuade my German friends that the euro would not last beyond 2010. In view of recent developments, I am almost prepared to revise my argument and propose that European Monetary Union will not outlast 2009. I have heard that already euro notes printed in, for example, Italy (identifiable by numbers on the note, etc) are already trading at a discount with, e.g., German-printed notes. Unofficial local currencies are also springing up (esp. in Germany). Anybody confirm? Any other tidbits? Also, which country will break first? Many Germans dream of the New Deutschmark and don't want to subsidise the weaklings any longer; France would love to devalue by 30%, no? Or will Italy beat them to it back to the Lira? Euro Crunch 2008 will be a great spectator sport, to compensate for the absence of England in the footie championships I think. And, of course, what effect will this have on house prices? In the meantime an ecumenical letter from St Ambrose in the Telegraph today, to be read from all pulpits of this parish (apols if already posted, but germane to this thread): Euro at risk from Europe's economic storm By Ambrose Evans-Pritchard One begins to glimpse the distant end of America's financial crisis. A mood of capitulation is sweeping Wall Street, the time-honoured moment of black darkness before dawn. Losses are coming into focus. We know that rates on $1,500bn in adjustable mortgages will jump by 300 basis points over 18 months. House prices may fall by 15pc from peak to trough. S&P has raised the default forecast on 2006 sub-prime debt from 14pc to 19pc. "The US housing market slump may last far longer than previously expected," it said. The phase of denial is over. Goldman Sachs and Merrill Lynch expect recession. "The perfect storm took time to brew, but it hit hard and fast - much harder and faster than we expected," said Bank of America. Few still insist that the real economy can shrug off an implosion of credit. Fund managers are adapting to the new consensus. A fifth now expected a global slump. Citigroup is coming clean on write-offs with abject confessions: a further $18.1bn last week. Merrill swallowed $16.7bn. The apparatus of the US government is now in rescue mode. The Federal Home Loan Bank system has quietly slipped mortgage banks $750bn since the crunch. It injected $210bn in November alone, with taxpayer guarantees. Citigroup gobbled $95bn. God bless socialism. The Fed will cut rates a half point to 3.75pc by month's end, if not more. Ben Bernanke is "exceptionally alert" after unemployment jumped from 4.7pc to 5pc in December, the sharpest rise in a quarter century. "It is patently obvious that the Fed has thrown its inflation worries to the wind," said Stephen Stanley, from RDB Greenwich Capital. Quite right too. Oil has broken below $90 a barrel. The Baltic Dry Index is in free fall. Shipping shares are crashing. Will anybody care about US inflation in six months? The White House is crafting the Bush bail-out, an instant helicopter drop worth 1pc of GDP. Congress is not going to get in the way. "Everyone should put their ideological baggage aside and try to pump money into the economy to get things going," said Charles Schumer, Senate Banking chairman. Spending is no cure. It will add to imbalances that have already degraded the US economy from top creditor to top debtor in a generation. But a double-shot of fiscal and monetary stimulus, laced with moral hazard, can stabilise credit. Note that the US commercial paper market finally stopped disintegrating last week. It added $35bn. Yet if the storm is peaking in the US, it has hardly begun in Europe. Bernard Connolly, global strategist at Banque AIG, says euro-losses may surpass the US debacle. "The next really big shock to financial markets is likely to be the risk of collapse in the EMU credit bubble: the private sector credit consequences are likely to be catastrophic," he said. Budget deficits must stay below 3pc of GDP, on pain of fines. Germany once breached this with impunity, but that was before Angela Merkel appeared. Virtuous again, Germany now demands rigour. Since France and Italy are already nearing the 3pc buffer, they may have to tighten into a downturn. Monetary bail-outs are not allowed either, at least not until the German bloc gives a green light to the European Central Bank. We are a decade into EMU. The outcome is what Bundesbank sceptics feared. Interest rates have been far too low for Club Med and Ireland, fuelling property booms. These have burst, are bursting, or will burst. The victims are beached with current account deficits of 10pc of GDP in Spain, 13pc in Greece. The "Nordics" have surpluses, at Club Med expense. Italy and Spain have lost 30pc in labour competitiveness against Germany under EMU. France has lost 20pc. An attempt to deflate these countries back to balance will run into revolt. Hedge funds are already circling. One has set up a Euro Divergence Fund. BNP Paribas said spreads on Club Med debt will soar this year to levels never seen in the euro-zone. "The markets are going to punish wrongdoing," said Hans Redeker, the bank's currency chief. "The politicians in Italy and Spain do not seem to realise how deep-rooted their problems are. They may have to cut real wages," he said. "While tensions can be camouflaged during economic upswings, they surface during downswings. All failed currency unions were abandoned during times of economic stress," said the bank. We are nearing the moment when the ECB must decide whether it is a bank or the political guardian of the EU Project. It cannot be both. The monetary crunch needed to restrain German wage deals after the rail workers won 11pc will crucify Spain. Over 40,000 estate agents closed doors in Spain last year. Property prices are dropping in Madrid, Barcelona, and Seville. Spanish banks are issuing mortgage bonds to use as collateral at the ECB's window, without even trying to sell them on the open market. La Gaceta said this "abuse" has reached €40bn. The ECB has taken the political pulse of Latin Europe and concluded that rigour is now too dangerous. It will face a hostile troika of Paris, Madrid and Rome if it persists, risking EMU schism. Trumped by politics, the Germanic hawks have climbed down. The euro fell hard last week. It is the start of a long slide to levels that reflect a sluggish, half-reformed bloc in demographic decline. The euro must be weak, or it will break. Whatever happens, it is already too late to avoid the Latin Crisis of 2008. (http://www.telegraph.co.uk/money/main.jhtml;jsessionid=Z2MLKSD24HESVQFIQMGCFFWAVCBQUIV0?xml=/money/2008/01/21/ccview121.xml)
  12. Listen to Goldfinger. It could all go very quick. I thought March-April, but if panic really sets in ...
  13. Reminiscent of the NSDAP c.1928, with Herr Hitler given spittle-flecked stump speeches in sweaty Munich ratskellars.
  14. Length of lease? View of the ocean? (Or herds of wildebeest, galloping majestically across the frozen steppe? The Hanging Gardens of Babylon ...?)
  15. That's beautiful. Remember everybody - make sure you buy something that's gonna last longer than the mortgage!
  16. Yes, quite. I read somewhere that you are allowed to hope for and desire many things in life, and yet the gods will not punish you for hubris. But the one thing that you must never ever do is to fix your sights on a particular property, for that will open the gates of hell to you. There will always be nice houses; the one you have seen is not the only one that will suit you. My personal opinion is that to borrow half a million pounds Sterling in January 2008 is almost the definition of financial suicide and a conscious decision to embrace economic slavery for the rest of your life. But don't believe me - see what others have to say. The banks are playing a classic bait and switch with these prices and loans. Once the prices go down and you lose your original stake of £100k, you are working for them, not yourself. If you can't stump up the vigorish each and every month for the next 25 years they kick you out and get their property (yes, their property) back. Medieval serfdom.
  17. Just tell the estate agent that you're still interested in the property, but your offer will decline by £2K per week every week from the date of your original offer, and that you are continuing to look in the area with £128K to spend.
  18. In offering the teachers this pay rise, I think Gordon is admitting that inflation is about to take off. The key thing is that this bait-and-switch teaser rate of 2.45% - followed by 2.3% in each of the following two years, hence 7.05% total - would not be offered unless Brown thought he was going to come out ahead of the deal. The teachers won't be able to renegotiate as even the CPI goes up to 6% in 18 months' time (or sooner). If RPI is over 4% already (yeah, and the rest), then over a three year period inflation could be around 20%. Nice piece of change for the Treasury. Teachers should look on the bright side: at least they won't be made redundant like everybody else. Ahoy-hoy.
  19. 0101hrs GMT the Nikkei briefly down over 600 points (- 603.41) but now - 593.61. Bed time. Interesting to see how much it has bounced back by breakfast. My, my, somebody's nervous about something. Whoops! 0102GMT slid back to - 606.66. Sogni d'oro.
  20. Simple: rent strike. You're already thinking of moving out. If you think you will get your deposit back, think again (you will be blamed for all the faults). If you stop paying rent, the landlord will have to move to evict you, which he probably doesn't want to do, as you are his best bet for covering at least some of the mortgage. In short, it will be cheaper to make the repairs than have you leave. Ergo, repairs will at last be attended to, but only if the revenue stream from you ceases. At the same time, seriously look for someplace else to go. Bluff the F*cker, and be ruthless. He doesn't care about you. He is practising what we used to call Rachmanism. He has already breached his contract with you. F*ck him. Edit: spelling as per usual
  21. The next really big piece of news to come (among others). Recall that Brown (for it was he) decided that pension funds had to get out of equities because they were "too risky". Bonds were the thing, by New Labour law, but bonds didn't pay enough to satisfy the future responsibilities of the funds to their members, so the City magically came up with a *new* kind of magic bond, risk free no less, with the sort of high interest that pension funds were desperate for. This was called a "CDO". The CDO was designed specifically for pension funds. Pension fund managers are lazy, arrogant and complacent, as well as being dumb as a drawer full of hammers. Guess what they did? Ahoy hoy
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