For the believer in Yeshua and dedicated student of Scripture, the insight into our world's dilemma couldn't be clearer or more starkly apparent; The wages of Sin are deeper, more pervasive, more devastating, more effusive, and more prevalent than our human minds can fathom. Death would seem a more preferable relief to many who are overwhelmed by these waves of dark waters. It is grand testament to Almighty God's long-suffering & patience to have allowed America to continue so long in her sin and spiritual adultery.
Yet for the believer, these are precisely the times in which YHWH calls His children to LOOK UP!, not around. Cephas (Peter) didn't sink as long as he kept his eyes on the Savior. Thus, so should we all the more in today's circumstances. And even when we do take our eyes off Him, letting our fears creep in, He is there immediately extending His hand to lift us out of the depths... Praise Him for His Boundless Mercies!
"The LORD also will be a refuge for the oppressed, a refuge in times of trouble. And they that know your name will put their trust in you: for you, LORD, have not forsaken them that seek you. Sing praises to the LORD..." Ps 9:9-11
And give us this day our DAILY bread...
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Dow: February Blues After the Worst of Januarys
As investors tallied their losses at the end of 2008, they comforted themselves with the thought that at least things could not get much worse.
But yes, they can. And have.
After tumbling by more than a third last year, stock markets managed to fall even further last month, posting their worst January ever. The economy has deteriorated even faster than many economists had feared, and employers are slashing jobs by the thousands.
Gold prices are back up, volatility is rising and some economists worry that even a huge stimulus package will not pack enough oomph to quickly turn around the struggling economy.
The ineffable whisper of optimism that rang in the new year is in full retreat, and investors are beginning to ask: If this is how the year starts, where do we go from here?
“The mood is just as gloomy as at any point in this whole bear market,” said Stuart Schweitzer, global markets strategist at J.P. Morgan Private Bank. “The economy just keeps on weakening while the financial crisis just keeps on going.”
For the most part, investors who tip-toed back into the stock market at the start of the year got nothing but losses in return.
The Dow Jones industrial average fell 8.8 last month, and the broader Standard & Poor’s 500-stock index shed 8.6 percent of its value. And while the major indexes are still hovering above their late-November lows, when the financial markets plunged to their lowest levels in a decade, they are not holding on by much.
“Investors continue to be very shy,” said Nick Kalivas, vice president for financial research at MF Global. “They just have not found the catalyst to come into the market, and that’s created this negativity.”
The performance in January was an especially troubling omen for market-watchers who subscribe to the so-called January barometer effect, the theory that January is a good predictor of how markets will do over the year. In 60 of the last 80 years, the S.& P. 500’s performance in January has reflected how the index fared that year, said Howard Silverblatt, senior index analyst at S.&. P.
Last year’s rout, in fact, started with a 6 percent swoon in January.
The last two Januarys aside, stocks tend to perform well in the first month of the year, analysts said. Investors who sold shares at a loss for the tax deduction start buying again in January, and money becomes available from pension plans and retirement funds, said Philip J. Roth, chief technical market analyst at Miller Tabak & Company.
“It’s not just a statistical fluke,” Mr. Roth said. “People are making a very conscious decision not to buy, and that kind of decision is not reversed quickly.”
But this year, no major sector of the market finished January in the black. Industrial companies fell 13 percent. Telecoms were down 11 percent. Even safer bets like utilities and health care could not eke out a gain.
The worst performers were financial companies, which tumbled nearly 27 percent over the month, according to S.& P.. Major banks traded with the volatility of penny stocks or the finances of a besieged banana republic, swinging between double-digit gains and losses in session after session.
The banking giant Citigroup, whose stock once traded above $50 a share, fell by 45 percent in January to $3.55. Bank of America fell by more than 50 percent last month alone, sinking well below its lows of Nov. 20.
Regional banks took an even worse hit. Shares of Fifth Third Bancorp in Cincinnati, which received $3.4 billion in federal bailout funds, fell 71 percent in the month. Huntington Bancshares, based in Columbus, Ohio, fell 62 percent. Regions Financial Corporation, based in Birmingham, Ala., with locations throughout the South, fell by 57 percent.
This tailspin reflects a growing fear that many more financial companies will join Citigroup and Bank of America in seeking second helpings of federal bailouts as they face more losses and write-downs as the recession churns deeper.
Unemployment has surged to 7.2 percent, its highest point in 16 years, and economists fear that the January employment figures may show that the country is losing 600,000 jobs a month. As more Americans lose their jobs, the self-perpetuating cycle of lower spending, joblessness and economic contraction may only deepen, economists say.
With so much uncertainty, many investors are benching their money.
On Jan. 28, institutional and private investors had $3.9 trillion warehoused in money-market accounts that do not trade shares, compared with $3.3 trillion in January 2008, according to the Investment Company Institute. The return on safe-haven Treasury bonds is still close to historic lows, though it has ticked up slightly as investors worry about the sheer quantity of government debt that will be issued this year.
“People are just wary,” said Robert F. Baur, chief global economist at Principal Global Investors. “They’ve been burned an awful lot. They don’t want to buy into another debacle.” The economy has offered few signs of hitting a floor, and many analysts say stocks are likely to limp along in the months ahead.
“It’s unlikely that the broad market has yet seen its lows,” said Mr. Schweitzer of J.P.Morgan Private Bank. “There are more disappointments ahead.”_________________________
Toxic Loans: Risks Are Vast in Revaluation of Assets
As the Obama administration prepares its strategy to rescue the nation’s banks by buying or guaranteeing troubled assets on their books, it confronts one central problem: How should they be valued?
Not just billions, but hundreds of billions of taxpayer dollars are at stake.
The Treasury secretary, Timothy F. Geithner, is expected to announce details of the new plan within weeks. Administration and Congressional officials say it will give the government flexibility to buy some bad assets and guarantee others in an effort to have a broad impact but still tailor the aid for different institutions.
But getting this right will not be easy. The wild variations on the value of many bad bank assets can be seen by looking at one mortgage-backed bond recently analyzed by a division of Standard & Poor’s, the credit rating agency.
The financial institution that owns the bond calculates the value at 97 cents on the dollar, or a mere 3 percent loss. But S.& P. estimates it is worth 87 cents, based on the current loan-default rate, and could be worth 53 cents under a bleaker situation that contemplates a doubling of defaults. But even that might be optimistic, because the bond traded recently for just 38 cents on the dollar, reflecting the even gloomier outlook of investors.
The bond analyzed by S.& P. is just one of thousands that the government might buy or guarantee should it go forward with setting up a “bad bank” that would acquire $1 trillion or more of toxic assets from banks.
The idea is that, free from the burden of carrying these bad assets, banks would start lending again and bolster the faltering economy. The bad bank set up by the government would, over time, sell the assets and recover some or most of what it had paid.
While the government is considering several approaches to helping the banks, including more capital injections, buying or insuring toxic assets is likely to be a centerpiece. Determining the right price for these assets is crucial to success. Placing too low a value would force institutions selling and others holding similar investments to register crushing losses that could deplete their capital and make it harder for them to increase lending.
But inflated values would bail out the companies, their shareholders and executives at the expense of taxpayers, who would swallow the losses if the government could not recoup what it had paid.
Some critics of the plan warn that the government should not buy the assets, because banks will try to get too high a price and leave taxpayers holding the bag.
“To date, the banks have stuck their heads in the sand,” said Lynn E. Turner, a former chief accountant for the Securities and Exchange Commission, “and demanded that they be paid the price of good apples for bad apples.”
But many believe that, given the depth of the problem and the fact that it keeps getting worse, the government has little choice.
Finance experts from Wall Street and academia are advising the administration on other options. To sidestep the thorny valuation problem, some have suggested that the bad bank acquire only assets that have already been marked down significantly and guarantee other assets, but officials would have just as difficult a task in determining how much to charge for insuring risky assets.
Economists predict that the cost of the program will most likely exceed the $350 billion remaining in the $700 billion Troubled Assets Relief Program that Congress approved in October.
They say the Obama administration may need upwards of $1 trillion in additional aid for banks — on top of the more than $800 billion the administration is seeking in an economic stimulus measure moving through Congress.
Many in Washington question whether the rescue has achieved its goal of stabilizing the financial markets. A report by the General Accountability Office on Friday concluded that whether the bailout program had been effective might never be known.
“While the package helped avoid a financial collapse, many are frustrated by the results — and rightfully so,” President Obama said in his weekly address on Saturday. “Too often taxpayer dollars have been spent without transparency or accountability. Banks have been extended a hand, but homeowners, students, and small businesses that need loans have been left to fend on their own.”
Mr. Obama and many lawmakers have expressed anger that banks that received the first batch of aid money do not appear to have increased their lending significantly, even as some firms have spent billions on bonuses, corporate jets and other perks. In two weeks the House will hold a hearing to ask chief executives of the eight largest banks about their spending controls.
As early as this week, the Treasury Department may impose new limits on the executive pay of companies receiving financial assistance. The Oversight Panel created by Congress to monitor the program is also expected to publish a report this week looking at whether the government paid too much to the large banks that they have provided with assistance.
A frequent refrain in Washington and on Wall Street is that there are no current market prices for toxic securities. But people who buy and sell these investments say that is a simplistic reading of the problem. They say most kinds of securities can be valued and are being traded, but trading has slowed as sellers and buyers disagree about what that the price should be.
The value of these securities is based on the future cash flow they provide to investors. To determine that, traders have to make assumptions about the housing market and the economy: How high will the unemployment rate go in the coming years? How many borrowers will default? What will homes be worth?
The Standard & Poor’s group, Market, Credit and Risk Strategies, which operates independently from the company’s credit ratings business, has been studying troubled securities for investors and banks. The bond that is trading at 38 cents provides a vivid illustration of the dilemma in valuing these assets.
The bond is backed by 9,000 second mortgages used by borrowers who put down little or no money to buy homes. Nearly a quarter of the loans are delinquent, and losses on defaulted mortgages are averaging 40 percent. The security once had a top rating, triple-A.
Michael G. Thompson, a managing director at the S.& P. group, says his computer models can easily calculate what the bond is worth under different situations. “This is not rocket science, this is straight bond math,” he said. But determining what the future holds is much harder. “We are not masters of the universe who can predict the macroeconomic environment,” he added.
Some would-be buyers of these assets fear that a deep recession could drive up default rates and push down home prices much further. They also worry that a cataclysm like the failure of a big bank could send prices tumbling again, just as the collapse of Lehman Brothers did in September. Others see no reason to bid up prices because those who need to sell are desperate.
Big banks and other owners of mortgage investments have argued that the low market prices reflect fire sales. Many have classified such securities as level-three assets, for which accounting rules allow them to determine values using computer models rather than the marketplace. Mr. Thompson estimates that at the end of September financial firms had $600 billion in such hard-to-value assets.
But critics like Mr. Turner say that the banks’ accounting for these assets cannot be trusted because they have an incentive to use optimistic assumptions.
In some instances, the government has guaranteed losses on certain assets for big, systemically important companies like Citigroup and Bank of America.
Policy makers have found such arrangements appealing because they do not require upfront payments and they can be customized for each bank, Douglas J. Elliott, a fellow at the Brookings Institution, wrote in a recent paper.
Still, government guarantees need to be based on sound valuations, Mr. Elliott and others say. If the government underestimates the risks of default, taxpayers could eventually lose tens of billions of dollars. The cost of insuring such assets in the private market is often several times greater than the price the government is charging banks.
Whatever approach the Obama administration takes, investors and policy makers say it should provide more and clearer information about the health of banks and the risks that the government is taking.
Many analysts do not trust what they are told about the quality of the securities and loans held by banks and other financial firms. Most banks provide only a very general description of their holdings, because they consider the information privileged.
But the government, using its power as a big investor, could compel the banks to divulge more specific data, without giving away the names of individual bonds or loans, analysts said. The market could then do its own analysis on what the assets are worth.
“At least it would give the government one objective measure of the value of these assets,” said Anthony Lembke, co-head of investments at MKP Capital Management, a hedge fund firm that is a big investor in mortgages. “In the absence of transparency and clarity, investors are going to assume a value that will be conservative and then add a risk premium.”
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