Like a Waterfall

Earthside Comments: It's like a waterfall of bad economic news.

On Monday of this week, we talked about a crash -- then the Federal Reserve staged a helicopter drop of $200 billion for troubled lenders -- the stock markets soared like a junkie injected with heroin. We've got today and tomorrow for the 'high' to collapse.

And with reports like the ones below popping up everywhere, whether or not it is today, Friday, next week or next month, the crash is going to be devastating.

Note in the report about Febraury foreclosures another important and troubling bit of information: lenders cannot even sell foreclosed properties at auction. That means that there isn't enough money or desire even for financial predators to scoop-up cheap deals. Lack of confidence that this economy is coming back anytime soon? You bet.

Link: Hedge Funds on the Brink as US Federal Reserve Cash Fails to Ease Crisis | Times of London

Several hedge funds with assets of more than $4 billion (£2 billion) were on the brink of collapse last night or had halted withdrawals, despite moves by the US Federal Reserve this week to ease America’s deteriorating credit crisis with a $200 billion collateral lending facility.

The potential closure of six funds came as a leading private equity executive, who declined to be named, said that such funds were “snapping like twigs”, with one failing every day.

Yesterday Patti Cook, Freddie Mac’s chief business officer, predicted that the Federal Reserve’s $200 billion bond lending facility this week would fail to solve the long-term problem of Wall Street’s deepening credit crisis.

The funds’ predicament – seven funds have been frozen this month – was seen as evidence that the initiative by America’s central bank to allow lenders to swap their risky mortgage-backed bonds for safer Treasury debt, will be of help only in the short term. Those fears hit the dollar and New York equity markets, with the greenback falling to a new low against the euro and sterling, as the European currency hit $1.55 for the first time. ...

... Drake Management, a New York money manager, wrote yesterday to investors in its $3 billion Global Opportunities Fund, warning them that it was considering closing the fund. The fund, which lost 25 per cent last year, has already blocked investors from withdrawing their cash.

In its letter Drake, which manages $13 billion of assets, said that it may have to wind down the fund “in an attempt to maintain and maximise value for investors during this period of severe market downturn and contraction of liquidity”. ...

... Separately, GO Capital Asset Management, an Amsterdam investment group, said that it had frozen its $881 million Global Opportunities hedge fund, preventing investors from withdrawing their capital. About half the fund’s investors have already asked to withdraw their investment. ...

... ING, the Dutch bank, said that it had frozen two investment trusts in New Zealand that were highly exposed to mortgage-backed bonds, blaming the global credit crunch. ING said that the two funds held assets worth €275 million between them.

Link: Carlyle Capital On Brink Of Collapse | Forbes.com

Carlyle Capital stood on the brink of collapse on Thursday as lenders were expected to take possession of all the investment fund's remaining assets after failing to reach an agreement on $16.6 billion of debts. Hopes that its parent company, the Carlyle Group would come to the rescue have also failed to materialize.

Shares in the Guernsey-based investment fund plummeted 70.4%, or 1.97 euros ($3.07), to 83 euro cents ($1.29), in Thursday morning trading on the Amsterdam Euronext exchange, after the company said it expected its lenders to take possession of all its remaining assets because it had failed to reach a "mutually beneficial agreement" on $16.6 billion of debt. The company has received margin calls totaling $400 million on its portfolio of U.S government agency residential mortgage-backed bonds, as risk aversion has spread well beyond subprime assets.

Just a week ago Carlyle Capital warned the market that it had begun to receive default notices after getting margin calls for additional collateral from lender banks. All along, Carlyle Capital had warned that the risk of repossession remained. But there were hopes that Carlyle Group, the private equity firm that launched the fund last July, would step in. The parent company has already provided an unsecured credit facility worth $150 million to the fund, and has said it was considering all options

Link: Merrill Lynch Posts $7.8 Billion Loss | BCC

Wall Street banking giant Merrill Lynch has unveiled a huge loss for 2007, crippled by exposure to risky investments in the US housing market.

It made a net loss of $7.8 billion in the 12 months to the end of December from a net profit of $7.5 billion in 2006.

The loss includes a massive $14.1 billion write-down on failed investments related to sub-prime mortgages.

Merrill Lynch is the latest big bank to reveal losses related to the crisis in the US mortgage market.

Earlier this week, Citigroup and JP Morgan also announced write-downs because of their exposure to the crisis in the sub-prime loan sector, which focused on consumers with poor or non-existent credit histories.

JP Morgan Chase said its earnings for the last three months of 2007 fell 34%, while Citigroup reported a $9.83 billion net loss for the last three months of 2007.

Link: Bailing Out Lenders Has a Cost, Too | Fortune/CNNMoney.com

The government is showing considerable ingenuity in devising new tactics to fight the credit crunch. But some observers fear that the innovations risk making matters worse - by fueling inflation and insulating executives who made reckless bets from the full wrath of the market. ... MORE

Link: February Foreclosures up 60 Percent Over Year Before | Associated Press/msnbc.com

Nearly 60 percent more U.S. homes faced foreclosure in February than in the same month last year, with Nevada, California and Florida showing the highest foreclosure rates, a research firm said Wednesday.

A total of 223,651 homes across the nation received at least one notice from lenders last month related to overdue payments, up 59.8 percent from 139,922 a year earlier, according to Irvine, Calif.-based RealtyTrac Inc.

Nearly half of the homes on the most recent list had slipped into default for the first time. ...

... February marked the 26th consecutive month with a national year-over-year increase in foreclosure-related filings.

Meanwhile, the number of foreclosed properties that didn’t sell at auction and ended up going back to lenders soared more than 110 percent last month versus February 2007, RealtyTrac said.

Link: February Retail Sales Worse Than Expected | Associated Press/msnbc.com

Consumers, battered by plunging home prices and a credit crunch, stayed away from the malls in February, pushing retail sales down by a larger-than-expected amount. It was another worrisome sign that the country could be falling into a recession.

The Commerce Department reported Thursday that retail sales fell by 0.6 percent last month, far worse than the small 0.2 percent increase that analysts had been expecting.

The weakness was widespread with sales of autos, furniture and appliances all down.

Link: Oil Prices Set New Highs Above $110 | Associated Press/Yahoo! News

Oil prices on Thursday hit a record high above $110 a barrel as investors fled the tumbling dollar that fell to new lows against the euro and a 12-year low versus the yen.

Light, sweet crude for April delivery rose 78 cents to reach $110.70 in early afternoon European electronic trading on the New York Mercantile Exchange. On Wednesday, it had set a record trading high of $110.20 a barrel. ...

... The greenback's decline has played a role in a surge in crude futures, which have hit record territory in 11 of the past 12 sessions, despite the fact that crude supplies have risen 10.2 percent since early January.

The euro rose as high as $1.5625 before falling back to $1.5592.

In Asia, the dollar briefly slumped to 99.75 yen before creeping back up to 100.27 yen.

"The dollar will remain the dominant factor until the Fed meeting next Tuesday but oil will also have to balance with equities under the pressure of more credit hedge funds going bellyup," said Olivier Jakob of Petromatrix in Switzerland, referring to the U.S. Federal Reserve.

Link: Gold Prices Hit $1,000 Milestone | CNNMoney.com

Gold prices touched the $1,000 milestone for the first time ever Thursday as the dollar plunged and amid fears about the health of the U.S. economy.

After weeks of flirting with the key psychological mark, COMEX gold for April climbed to $1,000 an ounce in floor trading. Prices have since pared their gains and were most recently up $16.60 to $997.10 an ounce.