San Diego’s distressed property market grew substantially larger last month as mortgage defaults topped the 2,000 mark for the first time and foreclosures hit a record that was more than six times what they were a year ago. The city was the first major city in the hot 30 markets to head down 1-1/2 years ago. Defaults were 2,071 in August, up from 1,573 in July and up from 794 yoy. The previous record was in June at 1,596. Foreclosures were 833 up from 641 in July, 6.2 times higher than the 134 in August 2006. The previous record was in June at 657.

            In Southern California, the first half of August saw 43.4% of home loans involving jumbo loans, while in the second half usage was 39.7%.

            Goldman Sachs’ Global Alpha Group hedge fund fell 22.5% in August, its biggest monthly decline ever, on losses from currency and stock trades. Their black box computer driven geeks had their heads handed to them. As we have said you cannot even think using probabilities, LTCM found that out nine years ago and no one seemed to learn anything from that disastrous experience.

            Previously Goldman injected $2 billion into Global Equity Opportunities, another quant (quantitative) fund, after it lost 28% in the first 8 days of trading in August. A billion was received by outside investors.

            Global Alpha was short the yen and long Australian. The Auzzie dollar fell 6% and stocks in the US, Norway and Finland fell 4.7%.

            Nervous employees of Countrywide have filed suit against the company after watching their retirement accounts collapse along with Countrywide’s stock price Countrywide’s shares have fallen 60%, but as you know the CEO Anglo Mozilo bailed out with massive profits. They said the CEO and the benefits committee lied about the company’s financial health and intentionally concealed information from plan participants. Angelo may end up in jail.

             Bill Gross at PIMCO expects GDP growth to decelerate to 1% to 2% and stay there for a while. Maybe he will be right for once.

GOLD, SILVER, PLATINUM, PALADIUM AND URANIAM

 

   A sinking dollar, soaring commodities, and several diverse technical conditions on the charts, show the dynamics coming together to make the end of the gold carry trade a lot closer to reality than ever before. Central banks loan their gold to bullion banks such as JP Morgan Chase or Goldman for 1% or less. The banks sell the gold and invest the proceeds in higher yielding assets, such as US Treasuries that pay 4.6% thereby making 3.6%.

 

            If gold rises quickly and the banks buy back their gold it will make gold rise move quickly. Carry trade players got a wake up call recently as gold moved up 7.6%. Even if gold wasn’t bought back in this case the banks still have to pay the lender 7.6% more, as in this case, to end their position. The bank is essentially short and the more gold rises the bigger the losses. This could bring the gold carry trade to an end.

 

In order to more effectively destroy the upward movement in gold prices the NY Mercantile Exchange has increased margins. Gold futures contracts will increase to $2,500 from $2,000 for clearing and non-clearing members and to $3,375 from $2,700 for customers to better rig the market. The minis will increase to $1,250 from $1,000 for clearing and non-clearing members $1,688 from $1,350 for us slobs.

 

CANADA

            If you have an account at RBC watch your statements. They are transferring margin account cash into their money market fund, which is illegal. Clearly there is a liquidity problem because the money market fund has an almost 50% exposure to asset backed commercial paper.

 

            As a footnote, Chartered Canadian banks entered a standstill agreement in which they agreed not to sell ABVP into the market until 10/15/07. Redemptions will be covered by their own capital. One third of Canadian money market funds are composed of ABCP. This does not bode well for fund returns, which are not CIDC insured. If the government does not bail out the banks the public will lose big.

 

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-- Posted Monday, 17 September 2007 | Digg This Article

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