THE DOT - if this turns orange or red be alert

Sunday, June 8, 2008

Fasten your seat belts

Fundamentals: Many factors added to a negative cocktail which triggered a sell-off
  1. Unemployment rate jumped
  2. Israels deputy and general (ex commander in chief) Mofaz said an attack on Iran is inevitable
  3. Oil jumped
  4. Downgrading of monoliner from S&P , Moody's downgrade pending
  5. Foreclosure and delinquencies at record highs
Unemployment jumped due to a big surge of new job seekers but the numbers are anyway to low since the government have them covered with thick layers of make up. Jerusalem post had a similar report 2 weeks ago http://www.jpost.com/servlet/Satellite?cid=1210668683139&pagename=JPost%2FJPArticle%2FShowFull that is after Ahmadi-Nejad said e few days ago Israel is gonna wiped out soon (not his first time to say).

EXCERPT from www.insiidetrack.com

Israel (and Iran) know that Israel might only have a few more months when a US Administration would either overtly or tacitly approve of an attack. And Israel (and Iran) know/believe - that time is running out to stop Iran from producing a nuclear weapon. And all of this is occurring during the long-awaited, much-anticipated, cyclically-momentous Jewish Year of 5768. Coincidence??? [See the 80-page Focus 5768 I - V Reports for a multitude of details and cycles - and their expected ramifications - related to this time frame.]
5768 began in September 2007 and had been projected - for over a decade - to usher in a crescendo in Middle East turmoil. It was also projected to usher in a breakout higher in Energy prices and the onset of a new 3-5 year bull market that would initially surge into 2008.

Well from a political and strategic point of view of the Reps and Israel's it makes sense. The Reps see all the nice things G. Bush brought to them are at stake and it could be a trigger to bring Mc Cain the winning point for the elections ( Bush won his second term with fear campaigns and a little help from Florida) and for Israel they will loose some momentum in their support from the USA if Obama takes over the white house. Mc Cain as an Ex- soldier with two Admirals (father and grandfather) legacy will grant them more support. So if Obama looks like the winner in Q3 we might see a strike.

Oil jumped more in one day then it was worth in 1998 ( so in the last 10 years 100% gain on average and it was the year Russia was bankrupt) close to 11$ making new highs at 138 supported by a call of Morgan Stanley that 150 is likely.

The downgrading of the monoliner will create further losses in the balance sheets of banks since all the phony AAA rated derivatives have to be marked down and some funds have to sell them bringing prices even lower. That triggered a heavy sell off in financials with the BKX making new lows as expected. The bitter truth is that this phony ratings were never deserved and that nobody had an objection is an outrage but now the DA (district attorney is even settling with the rating agencies on a pathetic level (they do not admit any wrong doing).

Excerpt from WSJ

Ratings Raised a Red Flag

Moody's Analyst Aired Concerns on CDOs to No Avail
By AARON LUCCHETTI
June 7, 2008; Page B2

Even as Moody's Investors Service was handing out triple-A ratings last year on a huge number of securities tied to mortgages, a senior Moody's analyst involved in rating them was warning about the housing market and asking if the ratings were too optimistic.

[Chart]

In late 2006 and early 2007, the Moody's Corp. unit continued to rate new collateralized debt obligations even as the analyst, Eric Kolchinsky, aired his concerns to his colleagues and boss, people familiar with the matter said. It wasn't until October 2007, with mortgage defaults soaring, that the Moody's unit downgraded hundreds of CDOs, resulting in billions of dollars in losses for investors.

Had Moody's officials agreed with the analyst's view sooner, some of the CDOs issued last year likely would have been assigned lower ratings, which might have prevented them from being sold. That could have spared investors some of the misery they've suffered now that more than 75% of all structured-finance CDOs issued in 2007 have been downgraded, causing their values to plummet.

As the credit crunch drags on, regulators and lawmakers are pressing for answers on why rating firms gave investment-grade ratings to subprime bonds and CDOs -- and didn't respond more aggressively to signs of trouble. The scrutiny will continue despite Thursday's settlement between New York state Attorney General Andrew Cuomo and the three leading bond-rating firms -- overhauling how the firms collect fees in order to make them less reliant on winning business from bond issuers.

The trend of rising foreclosures is rising even speeding which will bring more downgrading , more mark downs and write-offs but also indicates the consumer is in deep trouble with increasing momentum. Rising negative home-equity (basically falling home equity), exploding inflation beneath a chart which is not accurate ( calculation methods for inflation and unemployment have changed , with the old formula inflation is north of 6% so the overall figure should be at least 13) but still shows the tendency.

Excerpts from WSJ

Stock-market losses and falling home values in the first three months of this year led to the largest quarterly drop in the net wealth of American households since 2002, the Federal Reserve said.

It was the second quarter in a row that household net wealth has fallen -- a worrying sign for consumer spending, which drives more than two-thirds of U.S. economic growth. Households' total wealth fell 2.9%, or $1.7 trillion, to $55.97 trillion from $57.67 trillion in the last quarter of 2007.



[oil]

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