Tuesday, March 25, 2008

Subprime crisis over, bad apple found, housing bubble can resume

Bove says financial crisis over, buy banks

"The actions taken by the Federal Reserve were innovative, dramatic and, in my view, brilliant because they went right to the problem," Bove wrote in a note to clients. "The actions being taken by the Federal Reserve are being mirrored by the Treasury, which now has finally grasped the scope of the problem.... Bove's advice stands in contrast to that of strategists at Citigroup Inc. who advised clients Wednesday to avoid leveraged financial-services company stocks because the "Great Unwind" has begun." I personally don't think it is over yet but Citigroup usually get it wrong!

Posted by happyrenterz @ 12:52 PM (1226 views)
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8 thoughts on “Subprime crisis over, bad apple found, housing bubble can resume

  • happyrenterz says:

    Here is more from the original note from Bove.

    The Financial Crisis is Over
    This comment sounds ridiculous given the conviction on the part of most commentators that the worst is yet to come; the
    extent of the decline is unknown; and that the length of the decline is similarly unclear. However, I do, in fact, believe that
    the crisis is over. There will be more negative developments but they will be meaningless. Further, let me be clear even
    though the financial crisis is over the problems facing the economy are not.
    Broad Concept
    A crisis builds up over an extended period of time. It ultimately reaches a crescendo when an event occurs that is so
    devastating that even the staunchest skeptics become fearful. At this point, the government and participants in the
    impacted sector get together and start to take actions that will ameliorate the crisis. At this point, the only question is
    whether the solutions being offered have any chance of working. However, if the solutions are powerful enough, the crisis
    ends.

    Current Crisis
    In the current crisis, the triggering event was clearly the insolvency of Bear Stearns (BSC/$5.26/Market Perform). This
    event sent so much fear through the markets that action was taken. The President of the United States was involved, as
    was the Treasury Secretary, the Chairman of the Federal Reserve, the President of the Federal Reserve of New York,
    and key industry executives.
    The actions taken by the Federal Reserve were innovative, dramatic, and, in my view, brilliant because they went right to
    the problem. In the past two weeks:
    • The Federal Funds rate was cut by 75 basis points.
    • The Discount rate was cut by 100 basis points.
    • The Federal Reserve agreed to swap $200 billion in securities with banks so that they could repo the securities
    they received and increase their liquidity.
    • The Fed instituted a program to allow banks and primary dealers to borrow up to $200 billion at the Discount
    window by providing qualified securities as collateral. These securities may be AAA rated asset backed bonds.
    • The Fed with the support of the Reserve Bank in New York agreed to guarantee up to $30 billion of Bear Stearns
    (BSC/$5.26/Market Perform) illiquid securities.
    The actions being taken by the Federal Reserve are being mirrored by the Treasury, which now has finally grasped the
    scope of the problem. After battling for seven years to cut back the power and lending capacity of Fannie Mae
    (FNM/$30.71) and Freddie Mac (FRE/$29.90), the Treasury has completely reversed course and is approving these
    institutions’ ability to increase their lending capacities. Going further, these institutions will be allowed to buy and insure
    mortgages that are over $700,000 in size.
    Congress has entered the fray. Representative Barney Frank (D. MA) has introduced a bill that would effectively bail out
    the housing market. While the Administration is loudly complaining that it will not accept any bailout, reports suggest that
    it is now debating the bill – which by the way does not bail out the bad guys.

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  • interestingly there is some HP Index out today in the states. If its good news (well not as bad as the call) lets see where the market goes – if bad news then lets see the market’s reaction.

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  • sorry some HP Index DATA out today….

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  • Dick seems very optimistic.

    B it O f V erbal E ffluence perhaps.

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  • @ techieman

    came in at 180.65, against last month’s 184.9, fractionally lower than forecasts, Consumer Confidence however will be interesting at 2pm.

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  • I don’t think I would take any advice from someone involved with financial services.
    Aren’t these the same people who invested in those dodgy sub prime mortgages packaged up as AAA rated securities?

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  • “The actions taken by the Federal Reserve were innovative, dramatic and, in my view, brilliant because they went right to the problem,”

    Yeah great – spray a load of public money around (at the public’s expense) and shills like this think its “brilliant”. Just how intellectually bankrupt and dishonest can one get?

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  • Take a walk into the city just after the markets close, or drop into one of the many city bistro’s at about 3 o’clock, when everyone else is out earning an honest crust, and see how intellectually bankrupt and dishonest these financial types really are.

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