UBS Dollop Of Subprime Woe
Rob Mackrill - Tue 30 Oct, 2007
News from UBS brings the latest damage assessment from August's credit squeeze. They racked up a third-quarter loss of 301m on their sub-prime exposure, and warn they're not out of the woods yet. CEO Marcel Rohner says how bad it gets depends on how bad the US housing market gets. And it's getting bad. Home prices fell for an eighth straight month and prices are down 4.4% in the past year ending August, according to the latest S&P/Case-Shiller report.
European markets are down this morning as financial markets pause for thought ahead of tomorrow’s Fed decision. Wall Street expects a twenty five basis point cut. Given the old saw, ‘buy on the rumour, sell on the news’, expect some profit-taking when the news appears.
Oil has retreated from its $93 high as Mexico reassures on the resumption of production. Gold has shied away from its headlong charge at the $800 level for the moment, easing back to $786.
News from UBS brings the latest damage assessment from August’s credit squeeze. They racked up a third-quarter loss of £301m on their sub-prime exposure, and warn they’re not out of the woods yet. CEO Marcel Rohner says how bad it gets depends on how bad the US housing market gets.
And it’s getting bad. Home prices fell for an eighth straight month and prices are down 4.4% in the past year ending August, according to the latest S&P/Case-Shiller report. It’s the worst fall since records started in 2001. Record inventory levels point to continued downward pressure for some time yet. Economist and Yale professor, Robert Shiller, comments:
“The fall in home prices is showing no real signs of a slowdown or turnaround. There is really no positive news in today's report.''
UBS’s Marcel Rohner must be wincing.
For those earning their crust in the financial sector, the good times look to be a fast receding memory as the P45s start flying like so much confetti at a wedding. About 1,500 from UBS will be looking for new work come January. Everywhere it seems the financial sector is shedding staff. In the US this is the already heaviest year for financial sector job losses since records began 15 years ago.
Meantime, over in the property market, tighter credit and rising mortgage costs will bring more repos next year, predicts the Council of Mortgage Lenders. They expect a 50% increase in repossessions, particularly as those on the margins of credit to start to slip over the edge.
*** Some research from the Social Issues Research Centre called The Coming of Wage casts some revealing light on how higher education and exorbitant property prices is making the transition into independent adult life that much more difficult for the 18-25s.
It says four times more people now go on to university than 30 years ago and come out with an average £12,000 in debt. Added to that, the cost of raising a deposit for a home has gone up 450% in the past ten years. This leaves many despairing they will never be able to afford their own home and, in turn forces them to lean more heavily on their parents for financial support.
As we’ve noted before, the market has seen the number of first time buyers fall by a fifth. The average age now for a first time buyer is 34.
*** More bad news from the world of food production. Australia has downgraded this year’s forecasted wheat harvest for a second time, after drought devastated arable crops. It now expects to produce 12.1m tonnes, a little over half its June estimate.
This compares with an average of 25m tonnes and comes after a terrible year last year yielding just 9.8m tonnes.
*** When time and energy allow - with a newborn and two siblings aged five and under in the house - your editor is making his way through Alan Greenspan’s tome, The Age of Turbulence.
The man Ayn Rand called the ‘undertaker’ - on account of his dark suits and serious demeanour - recalls the events of Black Monday 1987...
The then Fed chief Paul Volcker called an emergency meeting on a Saturday. ‘What he masterminded that day was arguably the most important change in economic policy in fifty years.’ No longer would they try to ‘fine tune’ the economy with interest rates but focus instead on clamping down on the amount of money in the economy.
Backed by President Jimmy Carter in the spring of 1980, the policy saw interest rates at 20%, unemployment at 9% and inflation peaking in mid-year at 15%. Greenspan acknowledges the ‘exceptional courage’ it took to push the US into a brutal recession. Eventually, the tough medicine worked, inflation was brought under control - but at a high political cost to Carter. It gave valuable ammunition to the successful Reagan campaign.
With that kind of political history and an election coming next year, it would be a brave Bernanke who didn’t cut.
Regards,
Rob Mackrill
The Daily Reckoning UK
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This article is from The Daily Reckoning. The Daily Reckoning digs deeper than your newspaper ever dares to bring you the real truth about the stock market...the gold price...oil supply...property trends...interest rates...the US dollar…China's bubble…commodity prices…and much more. And you can sign up FREE!
Interested in discovering the next sector set to blast off? How about learning the specific shares the experts see as the most profitable in 2008? Attend The World Money Show London and hear from 50+ investment experts as they reveal their profitable strategies and provide their specific stock picks. The World Money Show London is being held 30 November - 1 December at The Queen Elizabeth II Conference Centre and will feature 14 panel presentations and leading investment product and service providers. Call today to register for The World Money Show London at 00 800 1414 8888 (international free phone) between 10.30 am -10.30 pm EXCEPT from 28 October to 4 November when hours will be 9.30 am to 9.30 pm because of the daylight saving time difference. Don’t forget to mention priority code #009376. Or visit: http:// http://www.worldmoneyshowlondon.co.uk/main.asp?scode=009376
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