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Five Things You Need to Know: Crisis Averted Until the Next Thing; Dang, It's the Next Thing!; Crap, It's Already the Next Next Thing; What the...?!? The Last Thing Is Becoming the Next Thing!; The Thing That Will Be the Next Thing After the Next Thing!


What you need to know (and what it means)!


Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:

1. Whew! Crisis Averted Until the Next Thing

"The market believes that the crisis is over," William Rhodes, the chief investment strategist of Rhodes Analytics, a market research firm, told the New York Times earlier this week. "Whatever problems emerged last quarter are last quarter's problems. They're over; that's it; they're done. So let's move onto the next thing."

2. Dang, It's the Next Thing!

Merrill Lynch (MER) this morning said it will take a $5 billion write down and record its first quarterly loss in six years.

  • While the market believes "the crisis is over," and even as revered former head central bankers travel the world offering up random recession probabilities rooted in facts based on their opinions while proclaiming "the worst is over," Merrill Lynch said the outlook for the current period is difficult to predict amid "continued challenges'' in credit markets.
  • And of course, the usual suspects were fired.
  • Merrill's housecleaning and write-down comes on the heels of a handful of similar moves at other banks.
  • On Monday, UBS (UBS) replaced Huw Jenkins as chief executive of its investment banking division after taking a $3.7 billion write-down.
  • Deutsche Bank (DB) said its investment banking unit would post a third-quarter pre-tax loss of up to $3.1 billion.
  • And recently Citigroup (C) took $6 billion of write-downs.

3. Crap, It's the Next Next Thing Already!

Bankers for Kohlberg Kravis Roberts & Co. and TPG Inc. area again threatening to begin selling loans to finance the $32 billion purchase of TXU Corp. (TXU) next week, according to Bloomberg. And this time they mean it!

  • Citigroup and JPMorgan (JPM) will seek buyers for at least $5 billion of loans, Bloomberg reported citing people close to the deal.
  • The move to sell the loans, which has been rumored to be imminent for weeks now, is significant because it sets up a renewed test of credit markets and appetites since financing of leveraged buyout deals dried up in July.
  • The banks on the TXU deal probably will sell the loans at a discount to attract investors, the article said citing those familiar with the deal.
  • Banks are offering discounts of as much as 4% to sell some of the $300 billion of leveraged buyout financing they promised before the market shut down, Bloomberg reported.
  • Sales of U.S. leveraged loans dropped to $12 billion in September from more than $50 billion in June, according to data compiled by Bloomberg.

4. What the...?!? The Last Thing Is Becoming the Next Thing! Again!

An article on Bloomberg this morning catalogs the pain involved in trying to survive the homebuilding business these days.

  • Among the items of desperation:
    - D.R. Horton (DHI), the second-biggest homebuilder, recently auctioned off a condominium in San Diego it had listed for $349,800... the property
    sold for 37% less.
    - About 57% of builders offered incentives to buyers in August, up from 37% in September 2005, according to a survey by the National Association of Home Builders.
    - Fifty-two percent of builders said they cut prices in August, compared with 19% in September 2005.
    - It would take 8.2 months to sell off the current inventory of unsold new homes, according to the U.S. Census Bureau, up from the average of the last six years of 4.9 months, the article said.
    - The five larges homebuilders by revenue wrote off a combined $3.3 billion in the third quarter in land they own but won't build on, Bloomberg said.
  • According to CreditSights, the following builders have asked their banks for more lenient credit terms: Pulte Homes (PHM), DR Horton (DHI), Beazer (BZH), Centex (CTX), KB Home (KBH), Lennar (LEN) and Standard Pacific (SPF).
  • Bloomberg notes there is $7.75 billion in debt weighing down the 15 largest U.S. homebuilders that's due to be repaid through 2009.

5. The Thing That Will Be the Next Thing After the Next Thing Finishes Being the Thing

We're talking about consumer spending and credit appetites of course.

  • This afternoon at 3 p.m. we get a look at Consumer Credit for August.
  • Consumer Credit increased at an annual rate of 3.75% in July.
  • Revolving credit increased at an annual rate of 6.5%, and non-revolving credit increased at an annual rate of 2%.
  • We've discussed credit cards previously here as the lender of last resort for consumers.
  • To see why this type of financing has become the norm, rather than the exception, just consider the following:
  • Since 2001, more than $350 billion in card debt has been shifted into home-equity loans or into mortgages refinanced by homeowners, according to Robert Manning, a finance professor at Rochester Institute of Technology.
  • Now, however, that avenue for credit card balance shifting has dried up as home equity loans have become more difficult to obtain.
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