Trader Mike

Update @ 11:07 — Looks like the credit markets are easing up now. Fed funds rate has dropped to 2.5% now…

Briefing.com just posted the following note about what’s going on in the credit markets today. This is what many, including Art Cashin this morning, are very concerned about:

Floor Talk: Equity markets rebounding but credit remains very tight
The equity markets are rebounding this morning (Dow +248, SPX +32, Nasdaq Comp +45), which is a positive sign of stabilization, with hope that Congress will eventually pass some form of a bailout plan following yesterday’s rout. However, the bigger story today is taking place in the credit markets, which are not showing the same signs of stabilization. Virtually every measure …

Thanks to Mark for passing along this video ode to the 2007 credit crunch, sub-prime implosion, and hedge fund blowups on Wall Street.

The Chairman posted a link to an article about a “bank run” on Countrywide Financial Corp. (CFC) . I just had to shake my head and laugh after reading that article. I’ve been watching that company, which happens to hold my mortgage, closely this year. Back in March when the subprime/credit concerns first got serious and just after New Century blew up, I posted this in my links section:

Mortgage Lenders Whistling Past the Sub-Prime Graveyard? — I just noticed this Countrywide (CFC) ad on my site. I wonder how much longer we’ll be seeing these.

Here’s the ad I was linking to:

It just seemed incredible to me that Countrywide, …

From a Bloomberg article about the second U.K. hedge fund this week to blow up due to subprime mortgage investments (via Jack Stevison):

“The losses are going to be phenomenal” for funds worldwide holding subprime debt, said Peter Schiff, president of securities brokerage Euro Pacific Capital in Darien, Connecticut. “My guesstimate in the subprime world is that the majority of loans are going to go into default. Not just 5 or 10 percent, but the majority.”

I’d like to know if there are any funds making money off of these subprime woes. Can these CDOs or whatever the heck they are be shorted?

PIMCO’s Bill Gross covers the Bear Stearns/subprime crisis in his July 2007 investment outlook, which is entitled “Looking for Contagion in All the Wrong Places”. Here are some snippets:

Many of these good looking girls are not high-class assets worth 100 cents on the dollar. And sorry Ben, but derivatives are a two-edged sword. Yes, they diversify risk and direct it away from the banking system into the eventual hands of unknown buyers, but they multiply leverage like the Andromeda strain. When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets. Houses anyone?

[SNIP]

Those that point to a …