Thursday, December 06, 2007

Here's a little song I wrote

Don't worry, be happy
(OK, so I didn't write that song; be happy anyway)


David Gaffen pulls together these figures for us:
"According to research from Deutsche Bank, credit rating companies Moody’s Investors Service, Standard & Poor’s and Fitch Ratings have issued an unprecedented 19,795 debt downgrades so far this year among securitized assets. That compares with the 2,539 separate downgrades they issued for all of 2006, and the previous annual record for downgrades, which was 4,168 in 2003.

“What has stunned investors is not only the sheer volume of rating actions, but also the degree to which rating downgrades are impacting the highest-rated universe of securities,” said Deutsche Bank managing director and head of US ABS and global CDO research Anthony Thompson in a report this week. “Even more alarming is the degree to which very highly rated securities seem to have deteriorated overnight,” he added...."
WOW! It must have been an absolutely shocker of a year for the stock market, right? Well, not exactly. The DJIA is standing about one thousand points higher now than when it started the year.

Analyze that.


John Mauldin's "Outside the Box" this week included some analysis from Gregory T. Weldon, in a pretty scary read, which you can peruse here (click on the "Print Preview" for an easier read).

He looked at investor confidence, the divergence between LIBOR and the US Treasury rates, the unprecedented and exponential growth of credit derivatives, record loan-loss provisioning, the "mammoth-sized exposure of US banks to construction and development loans" and other data, and concludes,
"The financial sector is hanging by a THREAD".
Given the state of the equity markets, and the rebound in the financials particularly as Weldon noted, Guambat figures that the operative word in the conclusion is "hanging": the financial sector is actually, and still, hanging in there.

Despite all the wailing, moaning and dire circumstances, the market has only managed a routine, measly, bending-like-Beckett, not breaking-like-a-bull-on-a-China-shopping-trip, 10% bl
oody correction, not even a pre-pubescent bear market.

Weldon, however, focused on the "thread":
"We may have already passed over what we have termed the 'Macro-Event- Horizon', or the point of no return. A black hole so fiercely imploding onto itself, that it will suck dry every drop of liquidity the Fed can create, and then some."
For all his soul, Guambat believes that the darkest hour has not yet come for the stock market and the economy, particularly the industrialized ones, including the newly industrialized wannabees. But only the rising dawn will tell.

The roosters are crowing and the Kookaburras are laughing. It'll be daylight soon, but soon enough?


(These last two images are book covers from an absolutely wonderful collection of old Australian children's books, which you can purchase here.)

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