Eeyore's Important News and Views Special Report

Economy and Hurricane Updates

You need to be paying attention to what is happening, around the World.
Japan and England
Adding to the gloom was a grim warning from Nokia, the world's largest mobile phones manufacturer, which said it expects to lose market share in the third quarter as sales slide. In London the FTSE 100 index of leading shares fell 121.4 points to 5240.7, its worst week since July 2002, falling just shy of 400 points over the course of five trading days. In the UK, there is growing evidence that the economy is sliding into recession. The housing market has ground to a halt, with prices tumbling 12.7% in August, the biggest annual fall since records began in the early 80s, according to Britain's largest mortgage lender Halifax. Unemployment has risen by 70,000 so far this year and consumer confidence is at an all-time low. Wall Street opened around 40 points lower this afternoon on the back of the jobs data, and was more than 80 points down by the time the London market closed. On Thursday, an unexpected increase in US jobless claims and weak retail sales for August sent US shares tumbling to their worst session in more than two months, with the Dow Jones falling 3%, or 344.65 points, leaving it back in bear market territory. In Asia overnight, Japan's benchmark Nikkei index fell 2.8%, or 345.43 points, to 12,212.23, a five-and-a-half month low, while Hong Kong's benchmark Hang Seng index dropped 3.1% to 19,752.65, the lowest level in a year. The broader Topix index in Japan lost 2.6% to 1,170.84. The yen soared to a 13-month high against the euro as investors, spooked by the sharp fall in stock markets, fled risky positions such as leveraged carry trades - positions funded by borrowing yen at lower rates to buy higher-yielding currencies or commodities. The euro fell to ¥150.60. "This is not a flight to quality, it is simply a flight," said Alan Ruskin, chief international strategist at RBS Greenwich Capital. http://www.guardian.co.uk/business/2008/sep/05/marketturmoil.economicgrowth

And here is one about China
Central Bank Drops $4Bln to Prop Ruble 05 September 2008 By Toni Vorobyova, Andrey Ostroukh / Reuters The Central Bank stepped into the market and sold up to $4 billion on Thursday to brake the ruble's fall, while shares went into free-fall despite a much-awaited shareholder peace deal on oil company TNK-BP. The ruble fell as low as 30.41, its lowest since the current composition of the basket was set at 55 cents and 45 euro cents in February 2007. The benchmark RTS Index closed 3.94 percent lower, at 1,526.57, less than a point above the intraday low that marked the index's weakest level this year. The RTS has not seen levels this low since October 2006. Falling Western markets and fears that capital outflows could accelerate outweighed a long-awaited end to a conflict between BP and its local partners, which had played out in the international media and poisoned sentiment. "It is easier to undermine investor trust than it is to revive it," said Alexander Orlov, head of research at Da Vinci Capital Management. The ruble's move took its combined losses for the last two days to around 60 kopeks, or 2 percent. That appeared to galvanize the Central Bank into its first major intervention since it sold an estimated $12 million to $13 billion in two days during the height of Russia's military conflict with Georgia last month. "The move from a fixed-currency regime to a more flexible one is part of the Central Bank's long-term strategy," said Vladimir Osakovsky, a Moscow-based analyst at UniCredit.

And here is Russia
Central Bank Drops $4Bln to Prop Ruble 05 September 2008 By Toni Vorobyova, Andrey Ostroukh / Reuters The Central Bank stepped into the market and sold up to $4 billion on Thursday to brake the ruble's fall, while shares went into free-fall despite a much-awaited shareholder peace deal on oil company TNK-BP. The ruble fell as low as 30.41, its lowest since the current composition of the basket was set at 55 cents and 45 euro cents in February 2007. The benchmark RTS Index closed 3.94 percent lower, at 1,526.57, less than a point above the intraday low that marked the index's weakest level this year. The RTS has not seen levels this low since October 2006. Falling Western markets and fears that capital outflows could accelerate outweighed a long-awaited end to a conflict between BP and its local partners, which had played out in the international media and poisoned sentiment. "It is easier to undermine investor trust than it is to revive it," said Alexander Orlov, head of research at Da Vinci Capital Management. The ruble's move took its combined losses for the last two days to around 60 kopeks, or 2 percent. That appeared to galvanize the Central Bank into its first major intervention since it sold an estimated $12 million to $13 billion in two days during the height of Russia's military conflict with Georgia last month. "The move from a fixed-currency regime to a more flexible one is part of the Central Bank's long-term strategy," said Vladimir Osakovsky, a Moscow-based analyst at UniCredit.Look what happened today to the markets after the take over of Freddie and Fannie Mae
http://www.themoscowtimes.com/article/600/42/370690.htm

US government takes on big role in mortgage market September 8, 2008 - 8:12am WASHINGTON (AP) - Uncle Sam has just become the 800 pound gorilla in the U.S. mortgage market. The Bush administration announced Sunday it was seizing troubled mortgage giants Fannie Mae and Freddie Mac in a bid to help reverse a prolonged housing and credit crisis. But private analysts worried that it may not be enough to stabilize the slumping housing market given the glut of vacant homes for sale, rising foreclosures, rising unemployment and weak consumer confidence. Mark Zandi, chief economist at Moody's Economy.com predicted that 30-year mortgage rates, currently averaging 6.35 percent nationwide, could dip to close to 5.5 percent. That's because investors will be more willing to buy the debt issued by Fannie and Freddie _ and at lower rates _ since the federal government is now explicitly standing behind that debt. "Effectively, the federal government has now become the nation's mortgage lender," he said. "This takes a major financial threat off the table." Officials announced that both Fannie Mae and Freddie Mac were being placed in a government conservatorship, a move that could end up costing taxpayers billions of dollars. Treasury Secretary Henry Paulson refused to estimate how much the takeover of the two companies will cost the government, but he insisted that taxpayers will get paid back first. "We structured this facility to protect the taxpayer," Paulson said Monday in an interview on the CBS Early Show. "The government will be repaid ... before the shareholders of these companies get a penny." In a separate appearance on CNBC, Paulson said "we obviously don't know" when asked how much the takeover could end up costing taxpayers. He said that will depend on how quickly the housing market turns around. The plan touched off a global stock rally Monday. Japan's Nikkei stock average jumped 3.4 percent and Hong Kong's Hang Seng index surged 4.3 percent. In morning trading, Britain's FTSE 100 jumped 3.81 percent, Germany's DAX index rose 3.21 percent, and France's CAC-40 surged 4.44 percent. U.S. stock futures pointed to a huge rally, jumping more than 2 percent ahead of Monday's open in New York. The companies, which together own or guarantee about $5 trillion in home loans, about half the nation's total, have lost $14 billion in the last year and are likely to pile up billions more in losses until the housing market begins to recover. The Treasury Department said it was prepared to put up as much as $100 billion over time in each of the companies if needed to keep them from going broke, in exchange for senior preferred stock. Treasury will immediately be issued $1 billion of such stock from each company, which will pay 10 percent interest. Further purchases of preferred stock will be triggered if quarterly audits find that the companies' capital cushion is below prudent standards. The government, which will receive warrants representing ownership stakes of 79.9 percent in each company, is hoping that its moves will reassure nervous investors that they can continue to buy the debt of the two companies. In a statement, President Bush said, "Americans should be confident that the actions taken today will strengthen our ability to weather the housing correction and are critical to returning the economy to stronger sustained growth."http://wtop.com/?nid=111&sid=1438603

Does anyone think it is a good idea, that the Government now hold the mortgage on over half the homes in the US? Does anyone think it is a good idea that the World is so interconnected?

Something to watch for in the future
The Banks’ Next Hot Zone: Home Equity Delinquencies
By Elizabeth MacDonald
Delinquencies on home equity loans and lines of credit are at their highest levels in a decade.That should give Wall Street and investors pause. Because when home equity borrowers, default on their lines of credit, bankers don’t have first recourse to the underlying property, the home. Mortgage bankers who own the mortgage on the home do. That’s why bankers are growing ashen-white over looming losses, and why they are scrambling to fix this problem now.
The numbers are staggering. Borrowers had outstanding $1.12 tn of home equity loans this year, virtually the same amount in the fourth quarter of 2007.
The American Bankers Association recently said the percentage of home equity lines of credit more than 30 days past due rose to 1.10 % during the first quarter, the highest since 1997, though still lower than bank card delinquencies which hit 4.51 %, slightly above the five year average delinquency rate of 4.40 %. The number of home equity lines more than a month past due is 55% above the average since the American Bankers Association began tracking it around 1990; delinquencies on home equity loans are 45% higher.
Sluggish personal income growth, plunging home equity, job losses and a rocky stock market, as well as soaring food and energy prices, are partly to blame for the spike in delinquencies.
Over the past two decades, value of home equity loan balances outstanding soared to more than $1 tn from just $1 bn. One in four homeowners have a home equity line of credit, and banks have made huge sums of money on them due to fat fees, returns that are a quarter or 50% higher than regular consumer loans.
Lenders are to blame for recasting these loans as borrowings that really didn’t seem to be backed by their most important investment, their homes, caling these loans “equity access” or as a Citigroup campaign called it, take a home equity loan and “Live Richly” or as Fleet Bank once advertised it, “”The smartest place to borrow? Your place.” All glammed up ways to essentially hock your house.
Bank exposure to home equity lines/loans are a major problem is huge. At last look, Wells Fargo (WFC: 31.20, +1.53, +5.15%) had $84 bn of them on their portfolio. In late 2007, Wells Fargo hived off $12 bn in home-equity loans in a separate portfolio to prepare them for liquidation. Bank of America (BAC: 32.23, +1.63, +5.32%), Wachovia (WB: 16.75, +1.22, +7.85%) and JPMorgan Chase have frozen borrowers’ access to home equity lines or changed the terms to cut their potential home equity exposure, The Financial Times reports.
National City (NCC: 4.82, +0.03, +0.62%), the US bank that has been among the hardest hit by the subprime crisis, is trying to cut its exposure to the riskiest category of home loans by offering customers cash to close their untapped home equity lines, the Financial Times reported.
If the scheme is successful, analysts say other banks could follow suit, choosing to spend money now to avoid taking on more exposure to the US housing slump.
The bank’s initiative, which was launched at the end of July, encourages National City customers to surrender their unused home equity lines by waiving the $350 fee it would normally charge for closing the line and by writing customers a $200 check. The idea here is to avoid future losses on lines or home equity loans that go belly up by enticing borrowers to bail out of them early with cash. The question for banks is, will this be a help in getting their own houses in order, and, for borrowers, is it worth taking the money and running?
Finally, the losses don’t just stop on the loans and lines of credit themselves. They also will take a bite out of bonds backed by these borrowings.
Moody’s Investors Service issued a report recently that said losses on prime home-equity loans, also called second mortgages, repackaged into bonds, vintage 2007, will climb to 17% on average. Home equity backed bonds from 2006 will rise to 13%, and 6% for 2005.
For home-equity lines of credit, 2007 bond losses will rise to 26 %, Moody’s said. For 2006, losses on securities will increase to 24 %, while losses for 2005 “vintage” bonds will reach 9%.
http://emac.blogs.foxbusiness.com/2008/09/04/the-banks-next-hot-zone-home-equity-delinquencies/

Ike blasts Turks and Caicos as Category 4 storm Sunday September 7, 8:16 am ET By Ben Fox, Associated Press Writer
People 'holding on for life' as Hurricane Ike hits islands, threat to Haiti, Florida, Cuba
PROVIDENCIALES, Turks and Caicos (AP) -- Hurricane Ike damaged most of the homes on Grand Turk island as it roared onto the Bahamas, raked Haiti's flooded cities with driving rain and threatened the Florida Keys on its way to Cuba as a ferocious Category 4 storm Sunday.

Grand Turk, the capital of Turks and Caicos, is home to about 3,000 people, and has little natural protection from the sea and expected storm surge of up to 18 feet (5.5 meters). Rain was driving through in horizontal sheets early Sunday and wind was tearing through some roofs. It was too early to know of any deaths or injuries.

Cuba, which just suffered a devastating hit from Category 4 Hurricane Gustav, was directly in Ike's projected path. The government warned people to be ready to take emergency action.
http://biz.yahoo.com/ap/080907/tropical_weather.html?.v=2

Today about Ike

Hurricane Ike weakens to Cat. 2 storm over Cuba September 8, 2008 - 5:42am
MIAMI (AP) - The National Hurricane Center says Hurricane Ike has weakened to Category 2 storm as it moves over Cuba.
Meanwhile, a tropical storm warning was issued early Monday for the Florida Keys.
As of 5 a.m. EDT, Ike had maximum sustained winds near 105 mph. And forecasters expect further weakening as the hurricane moves over central Cuba on Monday.
The hurricane is centered about 40 miles east-southeast of Camaguey, Cuba, and moving west near 15 mph.
http://wtop.com/?nid=104&sid=1136424