Meredith Whitney Scares the Crap out of Everyone

Posted on September 15th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

Today, Meredith Whitney was on CNBC interviewed by Maria Bartoromo.  It was a seven minute segment that was essentially a monologue by Whitney trying to fit in as much as she could. Boy, and did she.  Click the link here, or read the loosely transcribed version below.

What she says fits in perfectly with a report I wrote mid last month called ‘The Real Estate Quickening is Upon Us’. If you have not read please do. -Best Mr Mortgage

  • At a minimum, this is traumatic for everyone involved. Never in my wildest dreams would I have thought the landscape would exclude Lehman, Bear and Merrill. 
  • What this does is exacerbates the credit crunch. Pulls so much liquidity out of the market.
  • Reality is this situation makes it worse. BofA Merrill is good.
  • Loss of Lehman pulls liquidity out of market
  • None of the $500b in previous write downs was done amidst liquidity pressure.
  • Near term Lehman and AIG will be selling assets. When there is a liquidity crunch asset prices will go lower.
  • Lehman’s forced selling of $600bb in assets very quickly will drive asset prices down very quickly causing pain across Wall Street
  • Other institutions will have to mark their assets lower. A real virus will spread; I don’t know how we get out of this short of real government intervention.
  • Maria: “What’s next?”
  • Underlying root of all evil has been us house prices.
  • Where have you (each bank) gone into this with assumptions of where housing prices will go?
  • Futures indicate a 33% peak to trough housing price decline…I think well north of 40-45%.
  • WB estimates a peak to trough house price decline of 21% with 60% exposure in CA where prices have been hit the hardest. 
  • CITI assumes a 23% peak to trough house price decline. That math is not going to work.
  • The banks will have to play catch up with their write downs due to underestimating house price declines.
  • WaMu should be on forefront of everyone’s mind.
  • Maria asks about dividends:
  • It never made any sense why CITI kept their dividend. They should not pay one. They don’t earn any money. They can’t afford to pay. They will be selling assets. They have alot of stuff to sell like AIG.
  • Everyone is under asset value pressure and should not pay a dividend.
  • All these (financials) names will be bought at much cheaper levels in the short term.
  • I can’t believe equities market has held up so well as bond market credit spreads blown out across board.
  • So much destruction because of Lehman…very messy credit market next several weeks.
  • Don’t understand why equities market hanging in there so well
  • Europe and Asia:
  • When one of your major investment banks does not answer the phone it’s traumatic across globe. Lehman going down pulls liquidity out of the economy across the globe. To date $3 trillion less liquidity is flowing through the market than last year across the globe and $2 trillion less in the US markets. 
  • How does engine go forward without any lubrication?
  • In the past the market did not impact the economy.  But now, market directly impacts the economy and exacerbated certainly by this weekend and what I expect over the next couple of weeks. Now you will see economy impact the market going forward. 
  • So much of the losses so far have been because on given loans prices have declined so much. There has been a small number of relative portion of given loans defaulted so far. Going forward, there will be a higher frequency of defaults in all states. Unemployment went up 50% from July 2007 to July 2008. The market has yet to appreciate how the economy is going to impact the market. The market is still reigning havoc on the economy.

 

 

 

66 Responses to “Meredith Whitney Scares the Crap out of Everyone”

  1. What’s left, Wamu, Wachovia,GM, Ford, Many state and local govts…..am I missing anyone?

  2. Well, I suppose this will create more Government jobs perhaps. I mean with an 80% ownership and controling interest they would be classified as such correct? Hey, do I get my shares or does the Government hold onto them too? Is this legal?

    What a complete injustice to the American people!!!

  3. Airlines Peterb… AIRLINES!!!

  4. Interesting thoughts from my buddy Karl on tomorrow’s trade.

    Commentary On The Capital Markets
    Tuesday, September 16. 2008
    Posted by Karl Denninger at 18:46
    (Page 1 of 266, totaling 531 entries) » next page
    AIG “Rescued” With Fed-Backed Bridge Loan?

    The market will roar tomorrow.

    Now here’s my advice – sell any and all financial stocks – anything that may have written CDS in the market – into the spike tomorrow.

    Do it at the opening bell, and do not look back.

    Here’s why:

    By getting warrants that massively dilute existing shareholders what Paulson has done is paint a target on the back of every financial firm in America.

    All of them.

    Let’s say I’m a Hedge Fund. I want to make a billion dollars.

    I pick on, oh, Goldman Sachs. I know they wrote a bunch of CDS. I, and a bunch of my hedge fund buddies, short the firm’s stock into the ground.

    Eventually, this will force a ratings downgrade. As soon as it does, Goldman can’t make the capital calls on the CDS, and is forced to ask for help.

    They get help and the common stockholders are wiped out.

    I, Mr. Hedgie, say “thank you very much” and cover my short at a huge profit.

    Then I repeat this with the next firm.

    I get rich and buy me a new yacht, while the common stockholders in the firms are destroyed.

    This will happen to every firm in America as soon as this is figured out by the Hedge Fund community, which, incidentally, will take less time than it took me to write this and record the attached video.

    Sell your financial stocks into the spike tomorrow folks. No firm that is “seriously interconnected” in our financial system is safe from this, and this “risk” was wholly manufactured by the actions of our government this evening.

    You’ve been warned!

  5. Next “bail Out” for “WE THE PEOPLE” is the FDIC!!!

    Mark my words people… When, not if, WaMu goes belly up (probably this weekend IMO) the Fed will play hard ball (wink, wink) as the FDIC (OR WE the “Tax Payers”) covers their losses. Then they go to the Fed and tap their LOC from WE the “Tax Payers”. It’s all there to see so easily folks… just open your eyes and look and it plays like music right there in front of you!!!

  6. Thanks Mr. M. and mine were sold awhile ago, but good advise if you are still holding!!! Their is also the reprucussions of this that will reverberate through every single financial company out there today in IMO a very negative manner. This will take months to unwind, but it will, so staying in for any length of time is like catching a falling knife!!!

  7. “Sell” includes short selling, selling calls, and buying puts.

    Speaking of catching falling knives.

  8. Amazing! What the terrorists were incapable of doing on 9/11 we have done to ourselves in less than a year. Absolutely, simply amazing!

  9. Shorting is the way the beast brings the weak to the ground and then devours its prey. Because if the weak are truely weak, they cant get their hands on the resources they need to survive and thus must capitulate to the strong. But the weak had to be weak in the first place. Kinda like the lion going after the lame gazelle. Nature would get the gazelle eventually, but the lion expedites the process for its own purposes.

  10. I guess Karl Marx was right; “Democracy is the road to socialism.”

    Oh well, time to start over!

  11. Mr. M,

    Thanks for the great site. Despite being eager to buy in CA, you’ve helped keep me on the sidelines and “in cash & CDs, eating popcorn” since I started following your site in the Spring.

    FYI For those who still believe in “decoupling,” YOY real estate declines in Kazakhstan (home of Borat) -40%, Kyrgyzstan (Where!?) -60%.

    So far, Moscow prices are holding up, but after their stock market lost 17% yesterday, they just shut it down. It’s closed today “for repairs.”

    Keep up the good work,

    JAllen

  12. Don’t know if this has already been mentioned, but an Asia Times Online article says that AIG was a major repository for Chinese global investors

    perhaps, a major factor in the necessity of prompt action?

  13. link to Asia Times Online article:

    http://www.atimes.com/atimes/China_Business/JI18Cb02.html

  14. Well, right after the AIG takeover was announced last night he Dow futures spiked to about 130. Then everybody got wise before the market opened.

  15. I just checked the price action of some of the financials today. If you sold right at the opening you probably saved yourself some serious money.

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