US securitised mortgages backed by nothing; European markets freezing again; Citigroup's meltdown warning; Dilbert
Here are my Top 10 links from around the Internet at 10 past 5 pm, brought to you in association with New Zealand Mint for your reading pleasure.
I welcome your additions and comments below, or please send suggestions for Thursday's Top 10 at 10 via email to bernard.hickey@interest.co.nz.
I'll pop any surplus suggestions I get into the comment stream.
1. Deloitte bombshell - A former Deloitte partner and his wife who live in San Francisco have been accused by the SEC of insider trading with information received on 7 seperate deals. They handed on info to the brother-in-law, who then went on a trading spree.
This widening insider trading probe in America is spreading.
Trust in the investment bankers and hedge funds on Wall St was already non existent.
How long before the Manhattan bankers are truly punished by the voting public?
It seems a long way away while Obama is in charge.
After receiving the illegal tips, the brother-in-law took financial positions in U.S. companies that were targets of acquisitions by Arnold McClellan's clients. His subsequent trades were closely timed with telephone calls between Annabel McClellan and her sister, and with in-person visits with the McClellans.
Their insider trading reaped illegal profits of approximately $3 million in U.S. dollars, half of which was to be funneled back to Annabel McClellan.
2. Here's America's problem - Shoppers desperate for deals on 'Black Friday' are trampled in this video.
The cancer of this sort of rampant American (and NZ) consumerism will hurt us all in the end...
3. Gold ETF demand - Dow Jones and Zerohedge reports China has approved the creation of a fund that allows mainland investors to buy gold through an exchange traded fund.
Cue demand from a populace worried about inflation.
China has approved a fund that will invest in gold exchange-traded funds outside the country, opening the door to mainland China investors who face negative real interest rates on their bank deposits and want to hedge against inflation.
4. European financial markets freezing up again - FTAlphaville reports Deutsche Bank's global markets research team has found virtually no-one wants to buy government bonds from the periphery of Europe.
There are an increasing number of investors who will not touch these assets at any price for now given all the uncertainty.
That’s the worrying sign for those that think that a lot of these problems are overstated. You can have a well articulated view on why xx or yy is solvent but if the buyers have completely dried up because of all the fear and uncertainty then micro analysis becomes secondary.
For this to all end happily we need new buyers of the mountain of debt that is step by step becoming friendless in the deleveraging trade. Finding these new buyers is becoming a difficult job and maybe we’re fast forwarding towards more sizeable money printing programs.
5. 'Nothing backed securities' - Yves Smith at Naked Capitalism points out that Bank of America's Countrywide has admitted in court that it didn't transfer the proof of ownership notes on when they sliced and diced mortgages and sold them off. Now, it seems, the securitised mortgages may be backed by nothing.
We have been told separately that a senior industry executive also said that no one in the industry transferred the notes. If true, this has very serious implications.
As we’ve indicated, it means that residential mortgage backed securties are not secured by real estate, or as Adam Levitin put it, they are “non mortgage backed decurities.
Bloomberg provides further comments along those lines: “It may mean investors who think they bought mortgage- backed securities bought securities that aren’t backed by anything,” said Kurt Eggert, a professor at Chapman University School of Law in Orange, California.
6. 'Just the opening act' - Citigroup's Chief Economist Willem Buiter warns the Irish crisis is 'just the opening act' for wider concern about sovereign defaults, including America and Japan. Today's must-read for anyone sceptical about the potential for a European meltdown.
Although we have not had a sovereign default in the Advanced Economies since the West German sovereign default in 1948, the risk of sovereign default is manifest today in Western Europe, especially in the European Area periphery.
We expect these concerns to extend soon beyond the EA to encompass Japan and the US.
The analysis of the weakness of Portugal's banks, contained in the Banco de Portugal's Financial Stability Report, is disturbingly similar to the structural flaws in Ireland's banks, which took Ireland to the brink of bankruptcy.
There is however one important difference, which some will argue makes Portugal's financial predicament more perilous: Portugal's banks have not only been borrowing colossal sums from the ECB, they have also been lending billions of euros to the Portuguese government, so that it can finance the significant gap between what it spends and its dwindling tax revenues.
This is how the central bank put it: "the expansion of Portuguese banks' balance sheets in the first half of the year essentially reflected the financing of general government".Over the same period, Portuguese banks found it almost impossible to borrow from commercial sources, from other banks and financial institutions. So they avoided insolvency by using two techniques, neither of which is sustainable over the long term.
They borrowed from what the central bank calls "institutions belonging to the perimeter of the respective banking groups" by selling bonds to them - which is in effect shuffling money from one bit of an organisation to another. And they also borrowed from central banks on a colossal scale.
In the first half of 2010, domestic Portuguese banks' borrowings from central banks - largely what they borrow from the ECB and the Banco de Portugal - increased from €15.7bn to €39.7bn.
Aye Carumba.
Several factors — most notably, unaffordability, high interest rates and falling migration are acting to very rapidly reduce the clearance rate. In Sydney last month, Australian Property Monitors reported that the clearance rate had slumped to 53% of auctioned houses sold — down from 67% last year (the clearance rate last weekend was also 53% in Sydney).
In Melbourne, the situation has deteriorated even more rapidly, with the clearance slumping from about 80% throughout most of 2009 to 57% last weekend.
Even the Fairfax papers, a traditional mouth-piece of real estate bodies, has turned decidedly bearish.
My co-panelist on Sky Business’ Business View, the excellent Greg Hoffman, produced this stunningly logical piece (which was the second most read business article on the Fairfax websites), pointing out that the intrinsic value of property is, heaven forbid, dependant on its cash returns- - like every other asset.
Hoffman noted, “the Australian property price debate is divisive and emotionally charged but, whatever your view, it’s foolhardy not to acknowledge the possibility that capital gains may not always be counted on to bridge the gap between the rental income (or rent saved) and a fair return on your capital”.
9. The US Mint sold a record 4.2 million silver eagle coins in November - Reuters reports
"The underlying, basic reasons for the silver market's rise are really gold-oriented, but the speculative element of silver continues to be a big driver," said Bill O'Neill, partner of New Jersey-based commodities firm LOGIC Advisors. O'Neill said that a well established retail coin-dealer network helped increase sales of the silver Eagles. He called silver a "speculative playground" and does not recommend trading it due to high volatility.
Silver, gold and platinum group metals have benefited from the fiscal crises in Greece, Ireland that could also spread to other European nations, lingering worries about economic growth and inflation concerns.
10. Totally philosophical video about 21st century enlightenment.
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