Totally Discredited S&P

On 2007-07-31 American Home Mortgage went under. After receiving multiple margin calls, it simply ran out of cash. Bear in mind that just a couple weeks ago it "reaffirmed" its $.70 dividend. Today it was lights out. The stock was halted on Monday and sank 90% when trading resumed today. See Liquidity Crunch at American Home and Unable to Borrow for a recap.

Dave Donhoff at No Bull Mortgage sent me the following earlier today.

AHM/ABC Kapputt
From our clearing firm's office this AM;
Subject: Notice: American Brokers Conduit closes it's doors

Our office received a phone call this morning from the Operations Manager of American Brokers Conduit in Las Vegas, Nevada. They have ceased doing business as of this morning. They have no money for wires on loans that have already signed loan docs. Please contact our Rep, Sanja and she will see that your files are returned to you so you can place your loans with other lenders.

Dave posted this comment on The Market Traders: "This is significant as the first MAJOR A-paper mortgage bank, with significant volume and a huge brokerage base, to go belly up."

AHM is out of money and out of business. It's the end of the line for American Home Mortgage. Judging from insider sales, it seems only one insider, John A. Johnston (president Western Division) saw this coming and bailed. A few of the losses are staggering.

Absurdity at the S&P

The S&P is sure right on top of things as this 3:42 PM headline shows: S&P Puts AHM Rankings on Negative Watch. Wow. What a bold, stunning, and timely move by the S&P. Let's take a look.

Standard & Poor's Ratings Services on Tuesday placed its "average" residential prime ranking for American Home Mortgage Investment Corp. on credit watch with negative implications.

The ratings agency also removed the home lender from its "select servicer list."

S&P believes the company's financial troubles could result in higher turnover in its servicing operation and hurt servicing performance.

How clever of the S&P to figure out that a company that has stopped doing business might experience "higher turnover in its servicing operation and hurt servicing performance". That is simply stunning analysis. Who else could have figured that out?

Now that American Home Mortgage has ceased doing business, I suppose it's safe for the S&P to remove AHM from its "select servicer list". Does (or did) the S&P have a relationship with AHM and if so what was the nature of it? (I don't know, I'm simply asking).

Rating Company Disclosures

• Moody's: "Moody's has no obligation to perform, and does not perform, due diligence."
• S&P: �Any user of the information contained herein should not rely on any credit rating or other opinion contained herein in making any investment decision.�

In Fitch Discloses Its Fatally Flawed Rating Model I asked a series of questions and still have no answers. Here they are again.

Questions To Ponder

• How many billions of dollars will be lost because of absurd pricing models?
• How can it be that an entire system of investment decisions are based on ratings that the ratings companies tell everyone not to use for investment purposes?
• Were the ratings companies grossly incompetent or just foolish?
• Will the disclaimers of the ratings companies hold up in court?
• How long will it be before there be a court test of those disclaimers?
• Why has only a minuscule portion of subprime debt (2.1% or $12 billion of a massive $565.3 billion of subprime bonds) downgraded. See Stress Test.
• Are the ratings companies under pressure by the banks and/or the Fed to not rerate this debt?
• Why is it that ratings companies are allowed to have outside business relationships with the companies whose debt they rate?
• Did banks realize how absurd those ratings were but look away because of greed and the ease in offloading he debt to pension plans, insurance companies, and hedge funds out of pure greed?
• Heck, did the upper echelons at the ratings companies themselves know their ratings model was flawed and look the other way out of greed?
• How long before there is a government sponsored bailout of this mess? Hint small ones are starting already. See Please - No More Help! for a discussion.
• How long before Bernanke starts cutting rates?
• How high will gold prices rise when Bernanke starts cutting?
  

Here's the big question:
How big will the taxpayer bailout be?

Running Scared

Forbes has an interesting article out today called Running Scared.

On a day when another mortgage lender, American Home Mortgage, teetered toward liquidation, Standard & Poor's said the U.S. corporate bond market was officially speculative grade.

The big ratings agency said 50.7% of the corporate bond market is now rated speculative grade, the first time this has happened, marking a decade-long shift toward more aggressive finance strategies and the evolution of the leveraged finance market. S&P calls anything below BBB- "speculative," but most people just call it junk. These days, the market calls it scary.

S&P said the ratings mix of corporate bonds continues to deteriorate as firms borrow to buy back shares and make acquisitions, but the key factor to the deterioration is simply the sheer number of lower-rated bonds coming to market. Through the first half of 2007, 70% of 158 new issues were rated B, according to S&P research.

"It would not be surprising to see even more new speculative-grade entrants this year," wrote Diane Vazza, S&P's managing director of fixed-income research, in a note Tuesday. "Though firms may have to curtail leverage" to find buyers.

Without a doubt the S&P has made many huge mistakes recently in rating debt associated with mortgages. The models Moody's, Fitch, and the S&P used to rate mortgage debt are now thoroughly discredited. Worse yet is the fact that everyone of the rating companies refuse to downgrade all but 2%-3% of the worst mortgage debt. And putting American Home Mortgage on credit watch after it ceased business can only be considered bizarre.

The S&P says 50.7% of the corporate bond market is now rated speculative grade. What the S&P does not say is how much of the debt that is not rated speculative should be rated speculative. What the S&P also does not say is how much of the total debt it has rated is over rated.

According to Bloomberg "Almost 65 percent of the bonds in indexes that track subprime mortgage debt don't meet the ratings criteria in place when they were sold." The S&P is so freaking behind the curve in debt downgrades that a company has to cease doing business before being removed from its "select servicer list". So exactly who (and why) would anyone have any confidence in the S&P's ratings of damn near anything?

But whether or not the S&P, Moody's, or Fitch has the nerve to act, the credit markets won't sand still. American Home Mortgage sure proved that with a stunning 90% drop overnight.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

One Speech Two Interpretations

In Unable to Borrow I mentioned a speech by the Fed's Poole. Minutes later a second version of the same story hit the news. Here are the headlines and stories.

From MarketWatch

Fed won't ride to rescue of upset markets: Poole
Last Update: 1:30 PM ET Jul 31, 2007

Financial markets understand that the Federal Reserve will not respond quickly to a typical financial market upset such as last week's sharp stock sell off, said St. Louis Fed President William Poole on Tuesday. Poole said the best policy for the Fed in cases of market turmoil is to be cautious and try to understand the reasons for the volatility. The Fed should only act "in due time" if evidence accumulates that the market upsets threaten to cause price stability or low unemployment, or when financial-market developments threaten market processes themselves, Poole said. "If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second guess the Fed than trying to understand what is happening to business and household behavior," Poole said in a speech prepared for delivery at the University of Missouri.

From Reuters (14 minutes later)
Fed will act on market slide if warranted: Poole
Tuesday July 31, 1:44 pm ET

The U.S. central bank is still examining the impact of last week's stock market slide, but would act if this threatened its goals for inflation or employment, a top Federal Reserve official said on Tuesday. Poole said the Fed should not add to the uncertainty by making its own policy less predictable. But if it was convinced about the scale of the risks, it would not stand idle.

"The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate," he said.

"Most of these upsets stabilize on their own, but some do not. I'm not saying that the Fed should ignore what happened last week - we need to understand what is happening," he said.

Poole also said the decline in long-term interest rates last week as investors sought the sanctuary of U.S. Treasury bonds had helped to stabilize financial markets. He said that this was thanks to well-anchored inflation expectations.

What a difference reporting makes. Here is the key sentence:
"The market understands, I believe, that the Fed will act in due time if and when evidence accumulates that action would be appropriate," he said.

Essentially the Fed views a falling market as a threat. Of course a rising market, no matter how reckless or speculative is not a threat. Such is the nature of the misguided policies of the Fed that constantly blows bigger and bigger bubbles to cover up its own mistakes.

To top it off there is enormous hubris by Poole to think the Fed can control the market. See Can the Fed control prices? for a discussion of how the Fed is not really in control of prices or anything else.

Meanwhile another Bear Stearns hedge fund is in trouble.

15:22 *BEAR STEARNS FACES LOSSES FROM THIRD HEDGE FUND, WSJ SAYS
15:22 *BEAR STEARNS FUND HAS $900M IN MORTGAGE INVESTMENTS, WSJ SAYS
15:28 *BEAR STEARNS HALTS REDEMPTIONS ON ABS FUND, SPOKESMAN SAYS
15:28 *BEAR STEARNS FUND HAS $900M OF ASSETS UNDER MANAGEMENT
15:29 *BEAR STEARNS SAYS SUBPRIME LESS THAN 1% OF HEDGE FUND ASSETS
15:29 *BEAR STEARNS SPOKESMAN SAYS HEDGE FUND HAS NO DEBT
15:30 *BEAR STEARNS SPOKESMAN SPEAKS IN TELEPHONE INTERVIEW
15:31 *BEAR STEARNS SAYS HEDGE FUND REDEMPTION REQUESTS ROSE IN JULY

Six Questions

• Want to stop serial bubble blowing?
• Want to get rid of the Fed and its misguided policies?
• Want to get rid of the IRS?
• Want to restore sound monetary policies?
• Want to restore sound fiscal policies?
• Want a currency backed by gold as the constitution says?

One Answer

Vote for Ron Paul.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Unable to Borrow

Reuters is reporting American Home Mortgage unable to borrow.

American Home Mortgage Investment Corp., (AHM) a mortgage lender, said that it is unable to borrow under its bank lines and is looking at ways to raise money, including "the orderly liquidation of its assets."

The company said it has retained Milestone Advisors and Lazard to help it evaluate its strategic options.

MarketWatch is reporting American Home Mortgage Working To Resolve Liquidity Issues.

American Home Mortgage Investment Corp. (AHM) said Tuesday it is trying to resolve liquidity issues, which it said arose from disruptions in the secondary mortgage market. The Melville, N.Y., mortgage real-estate investment trust said Tuesday that lenders have initiated margin calls in response to the declining collateral value of certain loans and securities in its portfolio. American Home Mortgage has received and paid significant margin calls in the last three weeks and has substantial unpaid margin calls pending, the company said. The company said that, at present, it can't borrow on its credit facilities and couldn't fund its lending obligations Monday of about $300 million. It doesn't anticipate being able to fund about $450 million to $500 million Tuesday

Q: What happens when you are unable to borrow and can't fund margin calls and other obligations?
A: Something like this (except divided by 10) ...



AHM is currently sitting at a $1.10 (but changing rapidly now) having hit a low of $1.06, down 90% (overnight) from already depressed levels.

Obviously another chapter in the Liquidity Crunch at American Home is being written today. Eventually someone will buy them out at pennies on the dollar but the final chapter will no doubt be massive numbers of lawsuits.

No Poole Party

Earlier today Fed member Poole said Fed won't ride to rescue of upset markets.

Financial markets understand that the Federal Reserve will not respond quickly to a typical financial market upset such as last week's sharp stock sell off, said St. Louis Fed President William Poole on Tuesday. Poole said the best policy for the Fed in cases of market turmoil is to be cautious and try to understand the reasons for the volatility. The Fed should only act "in due time" if evidence accumulates that the market upsets threaten to cause price stability or low unemployment, or when financial-market developments threaten market processes themselves, Poole said. "If the market believes that the Fed is always primed to adjust policy, then market participants will spend more time trying to second guess the Fed than trying to understand what is happening to business and household behavior," Poole said in a speech prepared for delivery at the University of Missouri.

There is no such thing as "In Due Time". The Fed should not attempt to bail out the market place, ever, period. It is the repeated intervention over the years (otherwise known as the "Greenspan Put") that puts an unnatural bid on the market and promotes speculative behavior.

The foreclosures and the housing related blowups we see now are a direct result of the last party. The Fed managed to bailout lenders in the wake of a dotcom bust by slashing rates to 1%. What's next? I suggest the biggest party has already been thrown. There is no conceivable bailout coming that is going to create jobs and encourage reckless spending like housing did. It's the end of the line.

Today Poole says "No Party ... yet". What the Fed doesn't know is that few will be willing to put on those party hats when they next attempt to pass them out. Banks wont lend to poor credit risks and good credit risks will have no reason to borrow in a world awash in overcapacity. Cheap labor enhances the problem and will make it impossible for many consumers to pay back debts.

The party is over but a massive hangover is just starting.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Serpentine Construction

Since 2002, 0lll has documented and published the construction process of the Serpentine Gallery Summer Pavilion. This year's pavilion is by artist Olafur Eliasson and Kjetil Thorsen of Sn�hetta and is set to open in August, remaining on site until November.



Click the image to check out the ongoing construction process.

Unofficial Stirling Prize Poll

Just like last year, PartIV is holding its own unofficial Stirling Prize Poll. So head on over for some antifreeze and a vote.



To acquaint yourselves with the nominees, check out the Guardian's slide show of the seven projects under consideration.

Massive Bets On Idiots

CNN Money is reporting Fund manager's fun sailing away.

Hedge fund manager [John Devaney] whose fund ran into trouble from the sell-off in securities backed by subprime mortgages is having to put his huge yacht up for sale, seeking $23.5 million.

John Devaney, the CEO of United Capital Markets, a fund that specializes in buying and selling bonds that are backed by the mortgage payments, particularly adjustable rate subprime mortgages, has put his 142-foot yacht "Positive Carry" up for sale, according to a yacht broker's Web site.

Devaney's fund has run into trouble lately. A spokesman for the firm told Reuters on July 3 that it had stopped honoring request from some of its investors for redemptions, or withdrawal, of investments.

Devaney told Money magazine this spring that despite problems that the loans cause for borrowers, the assets backed by them provided a good return for his fund.

"The consumer has to be an idiot to take on those loans," he said. "But it has been one of our best-performing investments."

But with rising delinquency and default rates in the sector, investors have been scared away from the assets lately, hitting those like Devaney who made a big bet on the investment.

According to the yacht broker's listing, the yacht has accommodations for 10 passengers in its five staterooms, along with space for a crew of seven. Its amenities include his and her baths in the master suite, and four guest bathrooms with Jacuzzi tubs and showers and cherry wood interior throughout.

It has two 2,250-horsepower engines and a range of 3,500 nautical miles.

The New York Post reported Monday that Devaney is also seeking to sell a home in Aspen for $16.5 million.

Pure Arrogance

On 2007-05-02 Devaney spoke with CNN Money about How to get rich trading "idiot" loans.

The housing boom was good to John Devaney. Really good. He owns a Rolls-Royce, a Gulfstream Jet, a 12,000-square-foot mansion in Key Biscayne and a 143-foot yacht, as well as a few Renoirs and a valuable 1823 reproduction of the Declaration of Independence.

Devaney's not a developer, and he's certainly not a flipper. The 36-year-old CEO of United Capital Markets is a bond trader. And one of his specialties is buying and selling bonds that are backed by the mortgage payments of ordinary homeowners.

Option ARMs? Devaney loves 'em. "The consumer has to be an idiot to take on those loans," he says. "But it has been one of our best-performing investments."

"Some of the investors who bought CDOs certainly took on more risk than they thought," says John Weicher, a former assistant secretary of housing now at the Hudson Institute. But Devaney, who told a crowd of investors that the riskiest mortgage bonds looked "awful" before the crash, says he thinks he'll be buying. "I don't believe the carnage and fallout will be as bad as people think," he says.

Whether or not big investors come out okay, the damage is done for many homeowners. "The system allowed banks to create unsustainable loans that are going to haunt borrowers for years to come," says Allen Fishbein, director of credit and housing policy at the Consumer Federation of America. "Unlike the bank, the borrower has no way to lay off the risk."

Indeed "the damage is done". In more ways than one. Not only was he willing to bet on "idiots" willing to buy houses at ever absurd prices he was willing to roll the dice with OPM (other people's money) with that idea on his hedge fund. Why not? Hedge funds collects 20% of the profits and suffer 0% of the losses when they blow up.

Devaney, like Bear Stearns (whose High-Grade Structured Credit Strategies Enhanced Leverage Fund went to zero) has locked in investors and has stopped redemptions.

Devaney did NOT say this, but he may as well have: "You have to be an idiot to knowingly invest in a hedge fund that admittedly makes money by betting on the behavior of other idiots (with leverage), knowing full well that one or the other or both idiots is bound to blow up".

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Walk Score

At City Comforts I came across Walk Score, a web site that "calculates the walkability of an address by locating nearby stores, restaurants, schools, parks, etc.," using Google Maps. The image below shows a location (88 Bedford Street in Manhattan's West Village) with a walk score of 100 out of 100. Trying a couple other locations, my current address in Astoria, Queens scores 92 and my childhood home in the suburbs of Chicago scores a 57, each reflecting their respective (sub)urban conditions.



But is this scoring the best way of measuring and determining walkability? The programming includes commercial, institutional, educational, and recreational locations (a good mix), but then measures proximity based on "as the bird flies" distances, ignoring things like safety, terrain, sidewalks (or lack thereof), climate, and other pedestrian-level concerns. The comments on the City Comforts post pick up on these and other deficiencies that probably can't be addressed by this basic programming, but that should be part of the discussion on walkability. This points to walkability being more than just mixed-use zoning and proximity, but also the design of the public realm, design that hopefully takes these and other pedestrian-level concerns into account.

Book of the Moment

The World Without Us is a new book by journalist Alan Weisman that is receiving a lot of press, certainly due to its timely, science-fiction premise: what would happen to the earth if humans disappeared?



The book first came to my attention in a recent Scientific American interview with the author, which includes a description -- with online video and timeline companion -- describing what might happen to Manhattan without people maintaining infrastructure, buildings, and the landscape.



While I'll admit it's interesting to ponder what would happen a few days after humans theoretically disappeared, or a few weeks, years, millennia, the effort ultimately must be about, as Weisman describes, "another way of looking at...what goes on in our presence." If the book affects the way we do things remains to be seen, but the lasting impact of human-created things like plastic and nuclear waste, when seen in the context of a human-deprived world, may not be enough to change our ways.

Monday, Monday

My weekly page update:

Condominium Trnovski Pristan in Ljubljana, Slovenia by Sadar Vuga Arhitekti.

The updated book feature is Formula New Ljubljana, by Sadar Vuga Arhitekti.

Some Slovenia/Ljubljana links for your enjoyment:

Far from Home: Contemporary Slovenian Architecture in the Making
Kontakt magazine explores 2004's 6IX PACK, a traveling exhibition on six young Slovene architectural practices.

Arhitekturni Muzej Ljubljana
The Architectural Museum of Ljubljana, the "central Slovenian museum for architecture, physical planning, industrial and graphic design and photography.".

Slovenia Cultural Profile
The Profile is part of the Visiting Arts Cultural Profiles project, created "to provide both cultural professionals and the general public with a comprehensive picture of Slovene culture, with the aim of enhancing international awareness and encouraging and facilitating creative dialogue and exchange."

Liquidity Crunch at American Home (a complete recap)

Brian McAuley, my partner at Sitka Pacific Capital Management tells me that "things always happen when I am on the road". They sure did last week while I was in Vancouver for an Agora sponsored wealth symposium called "Rim of Fire".

The conference was about Crisis and Opportunity in the New Asian Era. It was a fantastic conference with speakers including Bill Bonner, Rick Rule, Nassim Taleb (author of The Black Swan) Frank Trotter (president of Everbank), Richard "Mogambo Guru" Daughty, James Kunstler, Paul Van Eden, Agora newsletter writers, and many more. A multitude of commodity oriented vendors were there (energy, base metals, gold, silver, nickel, uranium, copper, alternative energy). It was a fantastic conference and if you get a chance to go next year I think it would be worth your while to do so. Obviously my association with Agora makes my opinion somewhat biased but I am not getting anything per se for putting in this plug, nor was I asked to do it by Agora or anyone else.

With the conference going on, and not wanting to miss any sessions, it was a struggle trying to keep up with commenting on all the news about canceled IPOs, the falling stock market and other things. Saturday was a travel day and it was not until late Saturday evening that I saw what could be one of the stories of the year: a Liquidity Crunch at American Home Mortgage. This story had been brewing for a long time. And it worsened again this weekend, dramatically. Let's recap.

Recap of American Home Mortgage Woes

2007-06-29

Roof Caves In For American Home Mortgage

American Home Mortgage announced missed payments on loans will lead to a big second quarter loss just as concerns escalate that defaulting mortgages could roil the economy. Shares of American Home Mortgage (AHM) plummeted 2.51, or 12.0%, to $18.40, after the company yanked its second quarter guidance. American Home said "substantial" charges will push the company to a second quarter loss. Analysts were expecting earnings per share of 75 cents.

2007-07-19

AHM Plunges On Rumor Credit Line Yanked

American Home Mortgage Investment shares plunged 21% Thursday on rumors that a large lender had withdrawn a credit line. Keefe, Bruyette & Woods analyst Bose George said that the rumor circulating was that Lehman Brothers had pulled the company�s credit line, however, George said American Home doesn�t receive a credit line from Lehman Brothers and that American Home�s chief financial officer had denied the rumor.

Nonetheless, shares of the Melville, N.Y.-based company plunged 20.8%, or $2.83, to $10.76 at the close on Thursday, although it gained 3.2% in after-hours trading.

2007-07-20
American Home Mortgage Back On Track?

Talk about a rebound! Although American Home Mortgage Investment hasn�t recovered all of the value it lost when the stock plunged on Thursday following a rumor that Lehman Brothers had yanked its credit line, it has certainly made up lost ground.

Another boost to American Homes shares may have been a research note put out by RBC Capital Markets analyst James Ackor saying the stock tumbled on Thursday well below its value. While investors fear the investment banks that lend the company money might withdraw their credit lines, Ackor said he doesn�t believe they will.

2007-07-20
American Home Mortgage Holdings "outperform," target price raised

Analysts at RBC Capital Markets maintain their "outperform" rating on American Home Mortgage Holdings, while reducing their estimates for the company. The target price has been raised from $20 to $25.

2007-07-25
American Home Mortgage Plunge is Portfolio-Management Lesson

Thursday's selloff was evidently triggered by speculation the company was being denied access to short-term lines of credit, the lifeblood of a mortgage lender. When I contacted AHM, a spokeswoman said no credit line had been pulled. Apart from the speculation, there's little to explain why AHM stock has been punished so severely. Some bargain hunters stepped in Friday, and on the face of it, the stock screams "buy." The dividend yield is 22%, and the P/E is 7.7.

In June, AHM forecast a second-quarter loss and withdrew guidance for the year, but reaffirmed its dividend of 70 cents a share. It attributed the shortfall to rising delinquencies on mortgages it issued, a reduced demand for the mortgages it packages and sells to investors, and losses on loans it had to buy back under warranties extended to buyers. But it said these trends were stabilizing and had shown some improvement.

My initial recommendation was based on the good reputation of the company's management, its excellent liquidity and its lack of exposure to the subprime crisis. None of that has changed. But what started as a subprime-mortgage crisis is working its way through the financial system in some unexpected and unpredictable ways.

2007-07-26

AHM Infected By Subprime Problems.

The tentacles of the subprime mortgage debacle have now reached even further. American Home Mortgage Investment, which specializes in both prime and �Alt-A� loans, which are riskier than prime loans but safer than subprime loans, is laying off 500 employees nationwide Thursday.

A senior staffer at AHM, who only agreed to speak anonymously, told Forbes.com that in their office, which only has 100 employees, 25 positions are being cut. �The company is calling this �the largest lay-off in AHM company history� and a necessary reaction to market trends,� the employee said. "Unless volume increases in the next 60 to 90 days, most feel these lay-offs are only the beginning and additional lay-offs seem inevitable."

2007-07-26
American Home Mortgage cuts more jobs

American Home Mortgage Investment Corp., the beleaguered Melville-based mortgage bank, has laid off another 228 employees, bringing to 428 the number of job cuts this month, a company spokeswoman said yesterday.

Several current and former employees numbered the total planned layoffs at 1,200, including the 448 already announced. The company would not respond to questions about future layoffs.

Another cause for concern is the company's delay in scheduling the release of second-quarter earnings. The earnings are due by early August and historically American Home has set a date two weeks in advance. But no such announcement has been made.

One possible reason for this, analysts said, is that market turbulence makes it more difficult for the company to determine the value of the $10.7 billion in loans it was carrying as "Off-balance sheet securities" at the end of fiscal 2006. Many of these loans carry higher credit risk than those the company bundles and sells to investors, and if market conditions cause their value to drop, the company will be required to take an earnings mark-down.

2007-07-27
American Home Mortgage Investment Corp. Delays Payment of Dividends

The quarterly cash dividend of $0.70 per share on the Company�s common stock had been declared on June 15, 2007 and was to be paid on July 27, 2007 to all shareholders of record as of July 9, 2007. The Series A Preferred Stock dividend and Series B Preferred Stock dividend had been declared on June 15, 2007 and are payable on July 31, 2007, to shareholders of record as of July 9, 2007.

American Home Mortgage Investment Corp. is a mortgage real estate investment trust (REIT) focused on earning net interest income from self-originated loans and mortgage-backed securities, and, through its taxable subsidiaries, from originating and selling mortgage loans and servicing mortgage loans for institutional investors.

2007-07-28
American Home Mortgage yanks dividend at last minute

In a sign of continuing tumult at American Home Mortgage Investment Corp., the troubled Melville-based mortgage bank announced at 10:19 p.m. Friday that it would not deliver the 70 cent per share dividend that was to be paid out that day of major write-downs in its loan portfolios.

Company officials made the move, which they called a delay, because, "The disruption in the credit markets in the past few weeks ... has caused major write-downs of its loan and security portfolios and consequently has caused significant margin calls with respect to its credit facilities," according to a release.

Dividends were pulled "in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company's balance sheet and overall liquidity," the company said.

The deadline for American Home's second-quarter earnings release is August 8, but the company has yet to set a date for that announcement.

2007-07-29
American Home Mortgage says faces margin calls

American Home Mortgage Investment Corp. said its lenders are demanding it put up more cash after the mortgage lender wrote down the value of its loan and security portfolios significantly.

The company said in a statement released late Friday that as a result of the margin calls from lenders, it has delayed paying dividends on its common stock, and plans to delay payments on its preferred shares.

Margin calls can create severe difficulty for a company that depends on funds from its lenders to finance loans, and can force the company to sell assets or seek other financing. If the company cannot generate enough money to satisfy its lenders, in the worst case scenario it can be forced to reorganize its debt or file for bankruptcy.

One has to laugh at the staunch belief that that American Home Mortgage could maintain a 22% dividend while the share price and spreading credit risks said otherwise. That 22% dividend is now 0%. About that PE... Well there are no earnings.

James B. Stewart at the WSJ put out a buy recommendation apparently based on the following ideas.

• The carnage in the subprime-mortgage market should be reflected in its share price
• The good reputation of the company's management
• Its excellent liquidity
• Its lack of exposure to the subprime crisis

Excellent liquidity?! In the face of the debacle at Bear Stearns how can anyone think there is (or recently was) excellent liquidity in ANY mortgage related stocks?

Or are Mortgage "REITs" supposedly different? Did Stewart not see the debacle at New Century Financial Corporation? Was there any doubt that things were spreading from subprime to Alt-A to Prime?

If American Home Mortgage is facing margin calls what does that say about its use of leverage? The next question then must be: what does that say about the company's management?

I happened to talk to a commercial real estate developer going back some 30 years at the Agora symposium late Friday. He was not a reader of my blog and had no idea I had written about Sam Zell in a Vital Lesson From Blackstone. But somehow we got to discussing the Florida condo situation and other real estate woes when all of a sudden he exclaimed, "Commercial real estate is through". I asked him why and he told me about cycles: Residential followed by commercial followed by industrial, and how they peak in that order. He went on to tell me about how Sam Zell marked the top in commercial and there was at most one year left or so in industrial. The developer I was speaking to "cashed out" over the past few years.

Perhaps it's time to review Debating the Flat Earth Society (Part 1) and Debating the Flat Earth Society (Part 2). In particular, let's take a look at the addendum of part 2 written December 28, 2006. Here goes:

I want to include a few comments from Professor John Succo on Minyanville:

As central banks rain liquidity (credit) down on markets, its long range effects eventually cause the very thing central banks are trying to avoid: deflation. The reason people don�t understand this is that it is cumulative: the accumulation of debt is in itself inflationary, but at a certain point it becomes unmanageable. Why is this?

Easy or free money (when central banks drive real interest rates below inflation rates) is irresistible. It wouldn�t be if people managed risk properly but they do not. Easy money causes competition for �projects� to increase: companies with free money take risk with it for less and less return. We are seeing deals getting done in LBO land and commercial real estate being built using very aggressive assumptions and low cap rates. With all that �money� out there rates of return drops dramatically. Everyone is starved for income.

At the very time that income and returns are dropping debt is increasing. Less income with more debt means that eventually it gets impossible to service that debt.

That was an on time, real time, warning from Professor Succo much along the lines of what I have been writing about in my deflation themes. The warning was virtually ignored by everyone. The arrogance in which it was ignored caused a total 100% wipeout of Bear Stearns' High-Grade Structured Credit Strategies Enhanced Leverage Fund. Sadly, some Bear Stearns investors wanted out as early as January but Bear Stearns would not let them out. I am sure those assets were worth something (perhaps even 60% or more) in January or even March, but Bear Stearns halted redemptions and held on until the fund went to zero. Lawsuits will fly over this.

If the market dips a bit more, the buy the dip mantra will be sung loud and clear. I have no doubt it will be based on an absurd Fed Model and/or expected interest rate cuts by the Fed (see Rate Hike Odds Plunge - Gold Should Benefit). Of course the same people were singing the tune: The Fed hiking shows the economy is strong.

The Fed Model was thoroughly trashed by Hussman (see Tightening Cycle) but that will not slow down the number of comments on it one bit. Earnings?! forget about it. Where are earning headed in a slowing economy? What are the forward earnings of Merrill Lynch (MER) , Lehman (LEH), Goldman Sachs (GS), and Morgan Stanley (MS) going to look like when it becomes harder and harder to get pools of CDOs out the door and demand for leveraged buyouts dries up? The earnings of American Home Mortgage (AHM) effectively went negative. There is only one reason to buy major market indices here (a belief that he greater FOOL theory will be revived) because the case sure can't be made on fundamentals.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

The Primer on Digital Camera Printers

The Primer on Digital Camera Printers
By Kevin Rockwell

Once you have clicked photos through your digital camera, then the next step is to turn these �virtual� images into real photos. One way is to send the memory card to a digital photo laboratory and get the images developed there. But if you click digital photos on a regular basis, then it is better that you buy yourself a digital camera printer, or more commonly known as a digital photo printer.

There are lots and lots of choices available in the market today. The top three companies are HP, Canon and Epson. So, before you go and spend your money, here are some tips on what you must keep in mind while deciding on a digital photo printer.

Firstly, digital photo printers are available in two basic types. There are 4-color printers and 6-color printers. Nowadays, there are even 8-color printers available. So, the higher the number of colors the better will be the photo quality once you have hit the print file button. Using good quality photo paper and one of the 8 color printers will give you results that rival your photo lab.

Secondly, the printing method used by the printer is also very important. There are 2 main printing methods: inkjet and thermal. Inkjet is commonly used for taking photo prints but the quality of the printout is not excellent. You need to have at least a 6-color printer to get decent print quality. Also, the ink cartridges are quite expensive and the biggest disadvantage is that inkjet printing does not provide a waterproof coating to the images. Hence, the color fades after some time.

Thermal printing, on the other hand, is much better since it not only applies a waterproof coating but is also better quality-wise. It is also more cost effective as the paper and ink cartridges used are cheaper.

Most of these printers can be purchased under $500. However, there are few key characteristics that are different in all these printers which determine their price. These are :

� The printing width differs amongst printers. Normally the width is either 8.5" or 13". The highest quality printers will allow you to go larger but at a much higher per print cost.

� If you want to print really great looking black-and-white images, then the printer needs to have grey inks as well. So, an 8-color printer would be best suited for this purpose.

� Whether your printer has separate ink tanks for each color or does it have multiple inks in each cartridge. If you have multiple inks, then you have to replace the entire cartridge even if one color finishes. Hence, it is more expensive to replace such cartridges and you waste a lot of ink as well.

� The ability of the printer to print directly from your camera or a memory card through a link.

� The printing speed per minute. This can go up to 10 minutes for a colored snap, so you must properly check this out depending upon our usage.

Multi use printers are great for a busy office or household but if you want to make fine prints out of your digital images you should invest in a dedicated digital camera printer or digital photo printer. Look for models that will take the most popular memory cards straight into the printer without having to load the images into your computer.
Author information:

Kevin Rockwell worked as a network TV cameraman for 20 years shooting news and sports. Now a devoted fan of digital photography and video he works to gather information, tips and news for digital camera users. Oh and he loves to shoot pictures of his kids playing sports with his digital camera. He has some nice prints hanging on the wall.

http://www.great-digital-cameras.com/gdcj.html

Source: Kevin Rockwell

Today's archidose #119

Richard Desmond Children's Eye Centre, originally uploaded by bensmawfield.

Richard Desmond Children's Eye Centre of Moorfields Eye Hospital in Islington, London by Penoyre & Prasad.

To contribute your Flickr images for consideration, just:

:: Join and add photos to the archidose pool, and/or
:: Tag your photos archidose

Rate Hike Odds Plunge - Gold Should Benefit

Bloomberg is reporting BOJ Less Likely to Raise Rates as Stocks, Prices Fall.

The Bank of Japan is less likely to raise interest rates in August after global stocks slumped and the nation's consumer prices fell for a fifth month.

Investors see a 48 percent likelihood of a rate increase next month, down from 66 percent yesterday, according to Credit Suisse Group calculations based on the exchange of interest payments. Consumer prices excluding fresh food fell 0.1 percent in June from a year earlier, the government said in Tokyo today.

Japan's retail sales unexpectedly fell 0.4 percent in June, the Trade Ministry said today, as higher taxes, lower wages and a furor over lost pension records weighed on consumer sentiment.

Weak Data

"Given today's weak CPI and retail data as well as the stock decline in the U.S., there are more factors mounting against an August rate increase," said Hiromichi Shirakawa, chief economist at Credit Suisse Group in Tokyo. Shirakawa, a former central bank official, said he put the chances of an August rate increase at "less than 50 percent."

Consumer prices in Japan have failed to rise this year, after posting gains in eight months of last year. Those increases led to speculation that the economy was emerging from more than seven years of deflation that discouraged investment and consumer spending.

Nationwide core prices may fall as much as 0.2 percent in August and September because crude oil costs were near records in those months in 2006, said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.

Competition among mobile-phone operators is also exerting downward pressure on prices. KDDI Corp., Japan's second-biggest mobile-phone carrier, said last week that it will cut monthly fees by half, matching a move by larger rival NTT DoCoMo Inc.

Insane Worry Over Falling Prices

Japan is still worried about falling prices. Imagine that. The idea of course is absurd. Falling prices are actually the natural state of affairs as productivity is constantly improving due to advancements in technology. This allows more goods to be produced with decreasing effort (a price deflationary effect).

It is absurd to be worried about falling prices. Falling prices should be embraced. But worries over deflation in Japan caused Japan to go from surplus to having a national debt in excess of 150% of GDP (250% by some measures I have seen) as Japan fought deflation. What did Japan get for its deflation fighting policies? The answer is bridges to nowhere and massive amounts of debt.

What did the Fed get from fighting an imaginary deflation threat in 2001? The answer of course is the worlds biggest housing bubble, massive debt, tapped out consumers, and a real deflation threat. Of course deflation is not really a threat per se. Deflation is only perceived as a threat because of the insane bubble blowing policies and the risk of crash because of those policies. Deflation is needed to wipe out the many malinvestments of insane fiscal and monetary policy over the last 20 years.

In Inflation: What the heck is it? there is a quote from Ludwig von Mises who describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

Thus the real threat is a policy of theft by inflation that steals from the poor and the middle class. Bernanke of course wants that policy of theft for the benefit of those having first access to money (banks and brokerage houses).

Rate Cut Odds Soar

Nonetheless the odds now favor rate cuts as the WSJ headline Futures Markets Bet Fed Will Cut Rates This Year shows.

Amid stocks battered by credit concerns and disappointing durable-goods and new-home data the futures markets now are betting that the Federal Reserve will cut interest rates this year.

Trading in December fed funds contracts translates into the market giving 100% certainty that the Fed will cut rates to 5% by the Dec. 11 Fed meeting from the current 5.25% rate.

That is up from about a 44% chance at Wednesday�s close. The market is pricing in roughly 50% odds that the FOMC could cut the rate as early as the September or October meetings.

Cleveland Fed Charts

The Fed charts do not go out to December but here is the September chart.



Notice how quickly the odds of FF rate holding at 5.25% have plunged with this market selloff. The odds of a 50 basis point cut have climbed to 20% by September. I doubt that but the odds that the next move is down regardless of what it may or may not do to the dollar are increasingly likely.

There has been a bit of a selloff in gold lately and part of that might be attributed to a yield curve that is inverting once again. Part of it can be contributed to a decrease in liquidity everywhere and raising of cash in conjunction with unwinding of leverage.

But this Fed like all others before it will respond the way they always do: by slashing rates and attempting to blow an even bigger bubble. But this is the end of the line. There is no bigger bubble than housing that will create enough jobs to allow a bigger bubble to be blown. The housing bubble was the "bubble of last resort". It cannot be revived by lowering interest rates.

But the Fed will try. The yield curve will steepen, and gold will take off on its next run higher. In the meantime, volatility in gold associated with the unwinding of leverage and various carry trades can be expected.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Basics of Flash Photography

Almost every digital camera made today�with the exception of very inexpensive VGA-resolution cameras�comes with a built-in flash unit. The flash is a way to bring extra light with you and brighten many kinds of pictures. On the other hand, I have found that most people don�t really know how to take advantage of the flash that is built into their camera, so in this chapter I discuss techniques like fill flash, red eye reduction, and bounce flash. Lighting isn�t just about using a flash, either. You can use a reflector to spread light around for a more pleasing effect, and play with the white balance built into your camera for better lighting control as well.

These days, most digital cameras have an electronic flash unit built right into the camera body. The flash is designed to fire for a very short period of time and illuminate your scene in one of two ways:
1) As the main source of light indoors or in the dark
2) As a secondary source of light to fill in shadows when you�re shooting in bright light, such as outdoors
In general, your flash will probably know when to fire and can illuminate most pictures without your direct intervention. When your camera is set to the fully automatic exposure mode, the flash will probably come on as needed and not fire when it is not needed. On the other hand, you can probably figure out when you need a flash more effectively than your camera can. There will be situations when you may want your flash to fire when it would probably stay off, and vice versa. That�s why your camera has several flash modes to choose from.

Flash Modes

(note: Difference camera brand may difference sign modes)
In this digital age, �on� and �off� are just too easy. Instead, your camera�s flash has three or more modes, each intended for a specific photographic situation. Here�s the rundown of your options. Your camera may not include all of these features, so you might want to check out your camera manual before you get your heart set on trying all of them out. Your camera should have some, if not all, of these modes:

• Off This one is easy. When you set your camera to this mode, no matter how strongly your camera believes that you need extra light, the flash will not fire. This is handy for situations where you are not allowed to fire a flash, such as in a church or a museum, or when you�re too close to the subject and think you might overexpose it. You may also want to turn off the flash in many night photography situations.


• Auto This is the standard mode that you�ll probably want to leave your flash in most of the time. When set to auto, the flash determines whether it needs to fire based on the amount of light in the scene. This is a good mode to use when you don�t want to think about whether the flash needs to fire. For typical snapshot photography, just set your flash to auto.


• Forced This mode goes by many different names depending upon the camera you are using. Sometimes called �forced flash,� �fill flash,� or just �on,� forced flash is probably the most appropriate name. When you set your camera�s flash to this mode, it will fire regardless of how much light is available. Why would you want to use this mode? It�s most useful as a fill flash: when you�re shooting outdoors in natural light, the fill flash can erase shadows that would appear based on the way the sun hits your subject. Fill flash, or forced flash, is great for portraits.


• Red eye Red eye reduction mode has become extremely popular in all sorts of cameras, both digital and analog. By pre-flashing the camera flash several times quickly right before the picture is taken, the red eye reduction mode forces your subject�s pupils to close down to a smaller size, thus decreasing the chances that they will reflect the light of the flash. When you use this mode, remember that it will take a fraction of a second longer for the picture to be taken; don�t pull the camera away as soon as you press the shutter release, or you�ll blur the picture. If you�re photographing people in a dark room, however, this mode is probably worth the extra time. You do not need to use red eye reduction outdoors or in bright light.


• Low power Some digital cameras let you control the power output of the flash. You might be able to reduce its intensity by 50 percent or more. You can use this mode when you are using the flash to fill in shadows, or when you are taking a close-up and a full flash burst would overexpose your subject.


• Slow In the world of 35mm photography, this slow setting is sometimes referred to as a rear curtain flash. Other cameras, such as Nikon digitals, call it Slow Sync. Of course, that name may not help you understand what the slow setting does. When you set the camera to slow flash, it fires the flash at the tail end of the exposure. It�s used most often at night, when the exposure is long (such as a second or more). What does it do? Suppose you were trying to take a picture of a car driving down the street. With an ordinary flash exposure, the flash fires right away, thus freezing the car at the start of the frame. In a long exposure, you will then see headlights cut through the car and out of the frame. The slow mode, however, saves the flash for the end. In a picture taken with this mode, you will see headlights that travel through the frame and then meet up with the rear of a flash-frozen car. The car is leaving the picture at the end of the exposure, just like it should. As you can imagine, you won�t use this mode all the time, but it is indispensable when you need to get a certain kind of long-exposure photograph.

The Range of Your Flash

How far will the light from your flash travel? That�s something you need to know if you expect to get the most out of your flash. The flash built into most digital cameras is not extremely powerful; at best, you can expect to get a range of about 20 feet. To find the range of your camera�s flash, refer to the owner�s manual that came with your camera. You can almost always find the flash range listed in the specifications section of the manual. If you cannot find the range of your flash listed there, assume it is no more than about 15 feet.

• The range of your flash also depends upon two other factors: the current ISO (light sensitivity) setting on your camera and the focal length setting of the zoom lens. The first factor�ISO�is pretty obvious. The more sensitive the CCD is made to light, the more effective the flash will be.
• 
  
  It is an unfortunate side effect of zoom lens technology that when you increase the focal length to telephoto, you typically process less light than when you are using a wide angle or normal focal lengths. Since there�s less light getting through the lens barrel to the CCD at telephoto magnifications, the flash has less range.
• 
  
  If you�re used to the great range you would get from an external flash unit mounted on top of a 35mm SLR camera, you might be disappointed by the range from a digital camera flash. It stands to reason, though, that the small flash built into a digital camera could not have the same power as the large flash head�with lots of AA batteries�mounted on an SLR.
• 
  
  That means you�ll have to be aware of how far you�re trying to get the flash to throw light, especially at night or in very dark conditions. If your subject is very far away, such as 25 feet or more, it is unlikely that the built-in flash will have any effect at all on your photograph. In fact, some digital cameras disable the flash automatically when they sense that the lens is focused on infinity. You might want to check your camera manual or experiment to see if that feature applies to your camera.

Flash: Getting Too Close

Believe it or not, it�s possible to get too close to your subject as well. Some digital camera flash units overexpose the subject when you are within a foot or two of that person or object. Since you know about the light-reducing properties of a telephoto lens, you might expect that you can get closer when you zoom in than if you are zoomed out. And you�d be right; with a typical camera, you cannot shoot any closer than about 3 feet when set on normal zoom, but you can shoot to within a single foot if you are zoomed in to telephoto.

close-up photos are easy to overexpose if you leave the flash turned on. There are a few ways to work around this problem, depending upon what your flash unit is capable of doing:
1) Turn the flash off completely and shoot with natural light.
2) Bounce the flash off a plain white reflector, such as the ceiling or a reflector card. You�ll probably need an external flash unit to bounce, though.
3) Reduce the flash�s power setting to 50 percent or 25 percent.
4) Cover the flash with a tissue or gel (available at any camera shop) to reduce its intensity.

=TIP=
For many digital cameras, there�s an optimum range for your flash photographs. Try to stay between about 5 and 14 feet from your subject. Avoid using the flash in situations where the subject is more than about 15 feet away or closer than 3 feet.

Canon Powershot SD750

Slim and sophisticated, the Canon SD750 is an ultracompact Elph with a massive 3-inch LCD. Similar to the SD1000, the SD750 has a larger LCD and a slightly thicker body, featuring a metallic finish and a circular accent around the lens. Meanwhile, inside the camera, Canon's DIGIC III processor is at work with Face Detection and Noise Reduction, ensuring great shots under almost any conditions. Speedy operation, improved image quality, and long battery life make this sleek camera ideal for the style-conscious as well as the photo perfectionists.

Canon SD750 Specifications

* 7.1 megapixels
* 3x optical zoom / 4x digital zoom
* Auto focus
* Auto exposure
* JPEG Exif 2.2, DCF, DPOF file formats
* Movie mode with sound
* ISO 80-1600
* Proprietary lithium-ion batteries
* 3 inch LCD
* SD / SDHC / MMC storage (32 MB card supplied)

Vital Lesson From Blackstone

Before we get to the lesson, let' take a look at commercial REITs. (This will all tie together nicely I assure you). Please consider the following "TA Tips". Watch these three short videos (in order) for a good laugh: (Thanks to Ilya)

REITs discussion with Beejal Patel 2007-04-18
REITS continue to be high flyers...the sector is considered over-valued by many, but Beejal tells us why the technicals show why REITS will likely keep rising.

REITs discussion with Beejal Patel 2007-05-30
Buyouts in the REIT Sector bring back the bullish momentum...A look at the technicals behind the exchange traded fund that tracks the REITS.

REITs discussion with Beejal Patel 2007-04-17
Could the Commercial Reits Sector be ready for another leg up? Beejal takes a closer look at whether the long term bull market could continue.

It seems like it's strike three on commercial REITs. Now, for some charts.

Click on any chart for a sharper image.

2007-07-26 IYR Daily



IYR 2007-07-26 Weekly



Flashback November 20, 2006

Blackstone Acquiring Trust in Richest Buyout

The Blackstone Group, a private investment firm, said yesterday that it had agreed to acquire Equity Office Properties Trust, the nation�s largest office-building owner and manager, for about $36 billion.

The deal marks the largest leveraged buyout in history, eclipsing the $33 billion paid earlier this year for H.C.A., the hospital chain, and it illustrates how private equity firms continue to gobble up corporate America. Under the transaction, Equity Office will go from being a publicly held company to a private one. Blackstone will pay $20 billion and assume $16 billion in debt.

Equity Office, with some 590 buildings and over 105 million square feet of office space in major metropolitan markets, was created in 1976 by Sam Zell, a real estate tycoon who built the business through dozens of acquisitions that were worth, in aggregate, more than $17 billion. Last year, Equity Office acquired the Verizon Building on Sixth Avenue in Manhattan for $515 million.

Matthew L. Ostrower, an analyst at Morgan Stanley, called the proposed deal �a ground-breaking transaction for the real estate world in general and an earthquake for the REIT industry.�

Private equity firms are vying to hold the crown of having led the biggest buyout in history, and, with this deal, Blackstone will be able to do so at least for now. Blackstone will move ahead of Kohlberg Kravis Roberts & Company, which led the H.C.A. sale. Kohlberg Kravis also held the prior record with its 1989 takeover of RJR Nabisco, a deal that came to define an era when it was chronicled in the book �Barbarians at the Gate.�

The transaction comes amid a private equity frenzy for the next big leveraged buyout.

Matthew L. Ostrower, an analyst at Morgan Stanley, called the proposed deal �a ground-breaking transaction for the real estate world in general and an earthquake for the REIT industry.�

Oh it was "groundbreaking" alright. Groundbreaking in LBO stupidity, right up there in silliness with the AOL "take under" of Time Warner. Someone at Time Warner clearly lost their mind to approve that deal. And the Blackstone IPO itself sure was an "earthquake" given that it just might have been the deal that finally choked the IPO market.

On that note the Mish telepathic question lines are now open. Questions are now pouring in.

Q: What did Blackstone know that Sam Zell didn't?
A: Obviously nothing. One would have to be a fool to take the other side of a bet as Sam Zell especially when Zell was selling after a runup like that.

Q: Why did they do it?
A: Everyone was desperate to see who could pulloff the biggest deal, no matter how little sense it made.

Q: Why was funding available?
A: For the same reason funding was available for subprime lending until that blew up: fees. Underwriting big deals like this means huge fees to the brokerages. The lack of such deals going forward in addition to enormously reduced fees for packaging CDOs makes it very likely that broker dealers such as Merrill Lynch (MER), Goldman Sachs (GS), and Lehman (LEH) have peaked.

Q: Did Blackstone even think they knew something that Sam Zell didn't?
A: That is much harder to answer. If they did, they were wrong. Perhaps Blackstone only thought it could unload the junk to an even greater fool.

Q: Wasn't the greater fool theory at least part of the IPO of Blackstone itself?
A: Absolutely, so let's take a look at the chart.

Blackstone - BX



Flash Forward July 27, 2007

Blackstone Falls to Record Low in Debt Market Freeze

Blackstone Group LP shares fell to a record low, making the leveraged buyout firm the worst- performing initial public offering this year.

Blackstone has tumbled 23 percent since the New York-based company sold shares in June on mounting concern that the LBO market will dry up as investors shun riskier bonds and loans used to fund takeovers. Rival Fortress Investment Group LLC fell 1.8 percent to $18.96 today, 49 percent below the $37 high reached the first trading day in February.

"If you believe private equity is under some pressure, you are definitely going to take it out on these stocks," said Frederick Lane, managing director of Boston-based investment bank Lane Berry & Co.

Investors around the world are avoiding riskier assets such as the loans that finance LBOs after being stung by losses in the U.S. subprime mortgage market. That rout may hamper New York-based Kohlberg Kravis Roberts & Co.'s plan to raise about $1.25 billion in an IPO later this year.

Ryan O'Keefe, a London-based spokesman for KKR, declined to comment.

Shares of Blackstone, led by Stephen Schwarzman, fell $1.51 to $24.10 at 10:07 a.m. in New York Stock Exchange composite trading. It's the lowest price since it went public at $31 on June 21.

Chrysler, the Auburn Hills, Michigan-based automaker, and Alliance Boots Plc, the U.K. pharmacy chain that KKR is acquiring, failed to find buyers this week for $20 billion of loans. Ten banks, including Deutsche Bank AG and JPMorgan Chase & Co., were stuck holding the debt.

A Vital Lesson

Inquiring minds might be wondering if there is a lesson in all of this. Indeed there is. It can be found by comparing Sam Zell to Bear Stearns and also to the greed at Blackstone. Sam Zell sold when he could, not when he had to. Sam Zell got top dollar. Bear Stearns sold when it had to. The High-Grade Structured Credit Strategies Enhanced Leverage Fund went to zero when Bear Stearns HAD to sell it because of margin calls. See Implications of Basis Capital Fund Missing Margin Calls for more info.

Neither the Blackstone IPO or Sam Zell's sale to Blackstone that needed $16 billion in debt to finance could be accomplished in today's market. That is the lesson here: Sell when you can, not when you have to.

I must give credit where credit is due. That is a saying I frequently hear from Bennet Sedacca on Minyanville. He's one of the brightest minds I know. And as you can see by comparing Sam Zell to Bear Stearns, the difference is vital.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/

Mark Yr Calenders

The New Museum has announced that it will be opening its new SANAA-designed home on the Bowery on Saturday, December 1, 2007. The opening coincides with the museum's 30th anniversary and will be celebrated with 30 hours of continuous free admission to the museum, starting on the first.



In a July 26 press release (PDF link), it was also announced that the inaugural exhibition will be Unmonumental, "an international group show that proposes a dynamic, new exhibition model by beginning with a major sculpture exhibition then adding layers of collage, sound, and new media."

Still Life Photography

Learn the craft of still-life photography

Is still-life photography one of the least exciting areas of photography? This is up to each individual and each individual�s own personal interest, but still-life photography demands a great deal of care and imagination. The rewards for a good still-life photographer can be enormous.

A large percentage of the advertisement market uses still life photography images. A large portion of still-life images fall under the fine art photography class and could make a great extra source of income for an established photographer.

There are many ways to approach still-life photography - the best and most used by professional photographers is to spend days in a studio, arranging and rearranging the set up until they get it perfect. This is what it takes to create perfect still-life portraits. With practice and a great deal of patience you will find your own unique way.

Most objects can form part of a still-life portrait. Objects from around the house or in the garden will make excellent still-life subjects.

Still-life photography is a simple discipline of photography for beginners. The equipment you need is very basic and you can start off photographing a bowl of fruit or a flower. Most professional still-life photographers use a medium or large format camera, but you can get great still-life pictures using your 35mm camera.

A small studio can be assembled in a corner of a garage or bedroom, or on a fine calm day can be constructed outdoors. Some of the best still-life arrangements are quite simple to set up. The main rule to follow is to keep it simple. Placing too many objects in front of the camera will cluster the setting.

If you are interested in still-life photography try the following.

Set up your studio beside a window. First pick a simple background - a plain drape or lace makes a perfect background. Using a vase or bowl as the main subject can make for an attractive still-life image. Take some shots using the natural light from the window.

Take more pictures using low light - this can be morning or evening - place a reflector at the other side of the vase to soften the image and get rid of any harsh shadows.

Now compare the two sets of images. The difference between both images will be immense but tests like this will lead to creating a better eye and mastering the true art of still-life photography. The effort seems extreme but still-life photography requires a great deal of patience and practice. Trial and error will play an important part in developing a new skill.

TJ Tierney is an award winning Irish Landscape photographer. For more tips you can visit his photography directory. To view his images visit his on-line gallery of flower pictures or see his travel site.

Digital Camera Microscope Adapter

Digital Camera Microscope Adapter: Connecting a digital camera to a light optical microscope

To capture digital microscope images with a digital SLR camera, the digital camera must be optically and mechanically adapted to the microscope. An adapter connects the camera with the microscope. A firm mechanical connection is particularly important, because even the smallest movements (vibrations) of the camera strongly reduce the image quality. Furthermore, the light path must be optically adapted so that a fully lit, focused image is projected to the camera sensor (CCD/CMOS). There are several methods for attaching a digital camera to a microscope. One solution is to use the phototube. Using the adapter, the digital camera is screwed firmly onto the tube. The two oculars continue to be used for the visual observation of the specimen. Unfortunately, almost all microscopes that are equipped with a phototube are very costly. For simple purposes, another option is to directly place a digital camera, without any adaptations, directly to the ocular, and to capture an image with a steady hand. Due to the lack of optical adaptation, however, this method produces a smaller, vignetted image in most cases. Vignettation means that the edges of an image are darker than the centre. This effect causes only a small part of the sensor to be optimally used; the rest remains black. A more professional, but also more costly solution is to use a tube adapter. With this method, the ocular is removed and an adapter is fitted into the phototube with the digital camera. The adapter acts as a mechanical and optical interface between microscope and digital camera. This makes it possible to avoid motion blurs due to camera shake and vignettation effects, leading to a much higher quality of the image.

Source: WP

Tips: Photographing Babies

Tips: Photographing Babies

Before you know it, your baby will have left the crib for the classroom. Make picture-taking a part of your lifestyle so you can catch all those amazing firsts. We can help you take pictures you'll want to share with friends and relatives and treasure for years to come.

Take pictures frequently
Catch each step of baby's development�the first smile, the first bath, the first tooth, the first step. Babies change so rapidly, make sure you capture all the milestones before they become history. Or show a day in the life of baby. From the morning's waking stretch to the evening's yawns, track your child for one full day. You'll have a series you'll cherish for years to come.

Capture feelings
A smirk, a frown, a wail�capture all the emotions, not just the pretty smiles. Babies are uninhibited and uncensored. Show it in your pictures.

Get close
Fill the camera's viewfinder or LCD display with your subject to create pictures with greater impact. Step in close or use your camera's zoom to emphasize what is important and exclude the rest. Check the manual for your camera's closest focusing distance.

Try different angles
Start by shooting at the baby's eye level. Prop the baby on someone's shoulder. Or line up several wee ones on the sofa. Then try something different�stand on a (sturdy!) chair and shoot down at the baby in the crib.

Include other people in pictures
Capture others with the baby�Big Sister feeding the baby, Grandpa dancing with his baby granddaughter. Or introduce two babies to each other and catch that instant bonding in their eyes.

Use a simple background
An uncluttered background focuses attention on the subject, resulting in a stronger picture. Place your subject against a plain, non-distracting background. Alternatively, sometimes just moving yourself (and the camera) a few feet one way or the other can eliminate distractions from view.

Use natural light
You may be surprised to learn that cloudy, overcast days provide the best lighting for pictures of people. Bright sun makes people squint, and it throws harsh shadows on their faces. On overcast days, the soft light flatters faces. Indoors, try turning off the flash and use the light coming in from a window to give your subject a soft, almost glowing appearance.

Source: Kodak

USDA Prime Only

CNNMoney is reporting Wells Fargo Closes Nonprime Wholesale Lending Business.

Wells Fargo Home Mortgage, a division of Wells Fargo Bank, N.A., said today that it will close its nonprime wholesale lending business, which processes and funds nonprime loans for third-party mortgage brokers. In 2006, this business represented 1.6 percent of Wells Fargo's total residential mortgage loan volume of $397.6 billion(1).

"Wells Fargo will continue to offer nonprime loans in channels where the company has direct relationships with consumers, including Wells Fargo Home Mortgage's retail channel and Wells Fargo Financial, an affiliate of Wells Fargo Bank, N.A," said Cara Heiden, Wells Fargo Home Mortgage division president. "The decision to close our nonprime wholesale lending business has no effect on Wells Fargo's robust prime lending business which has long held an industry leading position. We will continue to offer prime loans through all our distribution channels, including wholesale."

"For the foreseeable future, we believe continued turmoil in the nonprime sector will result in financial returns for our nonprime wholesale channel that are not commensurate with the risks inherent in this business," Heiden stated. "As a result, we have chosen to discontinue this channel."

Press Release - Alternative Lending Wholesale Division to Close

A Message from Mike Lepore, EVP, Institutional Lending

Continued challenges in the nonprime market have made it impossible to generate acceptable returns that are commensurate with the risks in the Wholesale Alternative Lending business. Because we expect this trend to continue for the foreseeable future, we have made the very difficult decision to discontinue doing nonprime lending in Wholesale, and to focus only on prime lending in this channel.

Effective on Thursday, July 26 at 5 p.m. CT, we will no longer accept new applications through our Wholesale Alternative Lending channel.

Wells Fargo remains committed to making credit accessible to a wide spectrum of consumers, where consistent with our responsible lending practices. We will continue to follow our controlled, profitable growth strategy and sustain our industry leading position by offering nonprime loans through channels that enable direct access to consumers. Prospects for these businesses � which include Wells Fargo Home Mortgage Retail, and Wells Fargo Financial � continue to be promising.

Wells Fargo Email

Following is the email that went out to some mortgage brokers doing business with Wells Fargo.

To all,

It is with deep regret that the decision to close has been made. Thank you for all your support over the past 3 years. If you desire, you may contact me at ****.com [email address removed by Mish]. I hope that I may be able to work with all of you in another capacity sometime in the near future.

Best Regards,

Dave Driscoll
Account Executive
Wells Home
Fargo Mortgage

Some lenders are sure to follow suit and others will tighten lending standards dramatically. In the latter category is JPMorgan / Chase.

JPMorgan / Chase Tightens Lending Standards

JPMorgan / Chase announced Simplified Mortgage Disclosures, Product Choices for Non-Prime Consumers.

Chase today announced it:

• Has developed a new upfront disclosure in a simple format. Consumers now can compare important product features for traditional as well as non-traditional mortgages, including more information on how an adjustable-rate feature can affect the monthly payment
• Will require an initial fixed rate for at least five years on adjustable-rate mortgages for non-prime borrowers to reduce payment shock risk
• Will employ underwriting guidelines that require borrowers to demonstrate their ability to handle increases in interest rates on non-traditional mortgages
• Has tightened credit standards, including making adjustments to acknowledge declining home values in certain markets and reducing the use of high loan-to-value ratios and stated-income products
• Will continue to consider borrowers� required property tax and homeowners� insurance payments in determining affordability. Chase offers all its borrowers an option to escrow those payments with Chase
• Will continue its practice of not offering option ARMs, which can expose borrowers to negative amortization when their monthly payment does not cover interest costs

Yield Curve as of 2007-07-26



Chart thanks to Bloomberg.

A yield curve that is increasingly inverted typically is not good for gold, but the runup from $640 to $690 was overdue for a little pullback anyway. The key point is that after a very brief stint in flat to slightly positive territory, the yield curve has inverted once again. This time however it is the 3 year treasury with widest spread. That will not help home buyers one bit.

Fed to the Rescue?

Forget about it. Falling treasury yields will not help anyone that does not qualify with much tighter lending standards. Falling treasury yields will not remotely come close to helping those whose interest rates jumps 200-300 basis points or more. Heck, in spite of a recent treasury rally, 10-year rates are still higher than earlier this year. And, the Fed will not be acting in time to help anyone. It will be too little too late for most.

Anyone with a subprime loan whose rate will reset later this year, is in deep trouble. Pricing pressures on housing are going to get worse, much worse. Anyone who thinks the Fed can save housing is enormously mistaken.

Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/