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March 12, 2007
A Timely Upgrade

How many stocks of New Century did Bear Stearns sell between March 1st and today?

New Century upgraded at Bear Stearns – Mar 1, 2007

New Century Financial Corp. was upgraded Thursday by analysts at Bear Stearns, saying the risk of the subprime lender’s shares falling further is limited by the potential for an acquisition of the struggling business.

Shares of New Century were lifted to peer perform from underperform by Scott Coren and Michael Nannizzi at Bear Stearns.

The shares climbed almost 3% to $15.78 during afternoon trading Thursday.
…
If New Century is forced to sell itself or liquidate, the stock could still be worth $10 to $11, according to Coren and Nannizzi.

New Century Creditors Cut Funding – Mar 12, 2007

New Century Financial Corp. said Monday that all of its lenders have cut funding or announced their intent to halt financing after the subprime mortgage lender failed to make payments, pushing the company further toward bankruptcy.

…
New Century, which lends money to prospective home buyers who have poor credit histories, uses short-term borrowings to finance mortgage loan originations and purchases.

…
Its stock has been hammered by investors in recent weeks, falling from around $30 a month ago, to close Friday at $3.21 on the New York Stock Exchange. Shares plummeted $1.29, or 40.2 percent, to $1.92, in pre-market trading before trading was halted.

Posted by b on March 12, 2007 at 20:24 UTC | Permalink
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In business news, the U.S. oil services giant Halliburton has announced it will move its corporate headquarters from Houston to the city of Dubai in the United Arab Emirates. Halliburton is the biggest U.S. contractor operating in Iraq. Democratic Senator Patrick Leahy said “This is an insult to the US soldiers and taxpayers who paid the tab for their no-bid contracts and endured their overcharges for all these years.” House Oversight and Government Reform Committee Chairman Henry Waxman said his panel will hold hearings on Halliburton’s move and discuss the ramifications for the U.S. taxpayer and national security.

Beyond chutzpah, indeed. Some fancy real-estate developments in Dubai.

Posted by: PeeDee | Mar 12 2007 21:06 utc | 1

Trading risk is at least ponderable based on value at risk analysis. You would expect the real wacky hijinks to show up not in their trading activities but in their Variable-Interest Entities (VIEs). That’s where most of the collateralized mortgage obligations get securitized. The great thing about VIEs is that you don’t have to consolidate them – if you make all the tricky GAAP judgment calls just right. So the market could be blithely unaware till they blow up. VIEs have multiple beneficiaries, so a big one could potentially take down a whole bulging bracket at stroke.

Posted by: yippee | Mar 12 2007 22:46 utc | 2

Fascinating topic, b. Did you see this analysis in yesterday’s NYT?

Posted by: Hamburger | Mar 12 2007 23:26 utc | 3

A good explanation of the bubble.

Posted by: Hamburger | Mar 12 2007 23:49 utc | 4

Let’s see. A year ago, Dubai wanted to buy up US marine container ports but congress wouldn’t allow it (so Dubai quietly bought up $2billion of Manhatten real Estate). Now Halliburton goes to Dubai – somebody said follow the money. Does anybody, besides Condi, really believe the US still exercises influence?

Posted by: Allen/Vancouver | Mar 13 2007 4:49 utc | 5

Let’s see. A year ago, Dubai wanted to buy up US marine container ports but congress wouldn’t allow it (so Dubai quietly bought up $2billion of Manhatten real Estate). Now Halliburton goes to Dubai – somebody said follow the money. Does anybody, besides Condi, really believe the US still exercises influence?

Posted by: Allen/Vancouver | Mar 13 2007 4:50 utc | 6

Hamburger – Great links! Thanks.
@ yippee – can you or someone here help a finance-challenged reader a bit? GAAP? VIE? Are there mortgage securities on the market that do not originate with Fannie Mae and Freddie Mac?

Posted by: small coke | Mar 13 2007 5:21 utc | 7

Sorry, GAAP is Generally-Accepted Accounting Principles. VIE is spelled out in the post above. And yes, there’s plenty o’ mortgage securities with no guarantee from Freddy or Fannie. They’re of two basic types: pooled mortgages that behave like bonds, and the above-cited collateralized debt obligations (CDOs), which are the hairy ones. They yield more or less based on the number of defaults you’ve contracted to accept. That makes the payout binomially-distributed, normal at the limit, so financial engineering techniques can be applied. Investment banks’ quants treat defaults as a stochastic process based on past experience although the loans – the variable-rate ones, at least – are prone to vicious circles. Credit floods the market, then dries up at the worst possible time, like now. One variety of CDO (CPDOs) “guarantee” payment at term by piling on leverage under adverse circumstances. Leverage, of course, multiplies your risk when something goes awry.

Posted by: yippee | Mar 13 2007 10:17 utc | 8

Let’s say the housing bubble bursts, and as other countries and OPEC “diversify” their currency holdings/transactions and the $ “crashes” – what is a reasonable expectation of the Euro-Dollar rate? Today 1 Euro buys 1.31 dollars.
What constitutes a crash? 1 Euro = 1.5 dollars? 2 dollars? 5 dollars? What? How long would such a crash last?
As an American living in euroland, but who may end up back in the US in a few years, should I convert my $ to € now or keep ’em in dollar-denominated CDs?
Anybody?

Posted by: Hamburger | Mar 13 2007 16:23 utc | 9

Saint Marc Faber advises not only diversifying out of dollars but holding assets offshore because the government might resort to capital controls in a pinch. Lucky Hamburger kerl, you’re right there by trustworthy privacy jurisdictions like Luxembourg & Liechtenstein.
EUR/USD? IMO Europe would resist appreciation beyond 1.40, if they could, so persistent Euro strength beyond that presumes a crisis that goes out of multilateral control. Historically, the US pays for its deficits partly out of subsequent growth and that mitigates dollar depreciation. Even 7-8% currency appreciation would be pure alpha gravy so, Why not? But the really undervalued currency is the yen.

Posted by: yippee | Mar 13 2007 17:12 utc | 10

EUR/USD? IMO Europe would resist appreciation beyond 1.40, if they could, so persistent Euro strength beyond that presumes a crisis that goes out of multilateral control.
Oh well – in mid 2002 a Euro was US$0.88 now it is US$1.31. That has already been a huge depreciation of US$. If one would have changed US$1.000 to Euros at that time and switch back to US$ today the $1.000 would be $1.488 now.
One could have bought gold at $320 an ounce in 2002 and switch back to US$ at $650 per once today. Quite a result …
This is a long term development that will not stop now. When I was young the GIs stationed in Germany were rich and owned US$ that converted to 4.2 Deutschmark (some 2.2 Euro) today that same US$ would be 0.76 Euro.
The central bank of Europe tries to hold the Euro down by inflating the money supply, but as they are more afraid of inflation than the US central bank, they don’t keep up and the Euro appreciates anyhow, just more slowly. They have no way to stop it at 1.50.
So for saving I would recommend to convert US$ into some Euro or maybe Swiss Franc denominated bonds with variable interest rates (protects against inflation) or go with physical gold (though some folks don’t like the moral implications.)
Also – never take financial advice on the Internets …

Posted by: b | Mar 13 2007 21:05 utc | 11

My approach is to hold my assets in proportion to my expected long term purchasing requirements in various currencies; with a little ’tilting’ if I have a view. Right now I’m about 20% US dollars, 20% Euro, 30% Australia (my office) and 30% NZ (where I live). Not adverse to a bit more yen, and renminbi if I can get it.

Posted by: PeeDee | Mar 14 2007 1:42 utc | 12

no way to stop it at 1.50
I hope you’re right, that would be great: exchange gains for America’s rootless cosmopolitans and more painful cognitive dissonance for the brainwashed Fox News lumpen. Could easily happen if reserves are diversified while US rate cuts are negated by draconian GOP bankruptcy exactions. The right-wing cults will not break up without overwhelming ruin and desperation.

Posted by: yippee | Mar 14 2007 2:20 utc | 13

You really shouldn’t post stuff like this.
“Dow Jones down over 200.”
Now look what you’ve gone and done!

Posted by: johnf | Mar 14 2007 13:36 utc | 14

I’m putting my money into soup kitchens.

Posted by: johnf | Mar 14 2007 13:38 utc | 15

PeeDee: My approach is to hold my assets in proportion to my expected long term purchasing requirements in various currencies
Hadn’t clearly thought of it this way – thanks. Still, why wouldn’t one want assets in the “strongest” currency so that buying back (weaker) $ would be advantageous? I’m not solely focused on my personal situation – but trying to understand the US and Euro economies and how currencies work and just how consequential the sub-prime mortgage collapse will be. As part owner of a US residence on the market for over 2 years, i don’t see it selling any time soon.

Posted by: Hamburger | Mar 14 2007 14:07 utc | 16

GLOBAL MARKETS-US home loan fears spark renewed stocks slide
reuters

LONDON, March 14 (Reuters) – Global stocks tumbled on Wednesday as fears about the impact of U.S. home owners falling behind with mortgage payments hit financial shares, prompting money to flow into safe-haven government bonds.
By 1138 GMT, the pan-European FTSEurofirst 300 index <.FTEU3> was down 27 points, or 1.8 percent, at 1,439 points, within striking distance of year’s low of 1,428.2, hit earlier this month.
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“This seems to be the second leg of the global fall in equities and there is very little impetus to jump in and buy,” said one trader. “It’s time to fasten seat belts.”

Posted by: annie | Mar 14 2007 16:57 utc | 17

This personal article is a very good illustration of the housing crash in rural USA.
By extension, for ‘far off’ suburbia and Mac Manshions (sp!) It brings up all the important elements.
by Down but not Out in the rural USA / on a forum
scroll down just 3 inches

Posted by: Noirette | Mar 14 2007 18:38 utc | 18

Galvin eyeing banks’ loans to New Century Financial

Secretary of State William Galvin said yesterday he’ll look closely at a pair of loan deals as he probes ties between Wall Street firms and faltering subprime lender New Century Financial Corp.
UBS and Bear Stearns, under review by Galvin’s office for upgrading stock recommendations in the weeks before New Century’s financial meltdown, both previously provided financing to the troubled mortgage lender.
UBS disclosed earlier this month that it had lent as much as $1.5 billion to New Century. Bear Stearns, meanwhile, has been listed by New Century as one of its financial backers, The New York Times [NYT] has reported. Galvin, who said he would be looking for ties between the two firms and New Century when he launched his probe, said yesterday that examining these lending deals will be key to his review.
“Is the analysis being done on an independent basis or is it being colored by something else?” Galvin questioned.

Posted by: b | Mar 15 2007 15:08 utc | 19

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