Rumor: Feds Raid Countrywide

This just in form a reliable source but still in the rumor stage. Countrywide Financial offices are currently being raided by the FBI.

UPDATE from Reuters:

A report on theflyonthewall.com indicated that Countrywide shares were down on "unconfirmed chatter of a subprime loan investigation." Countrywide is based in Calabasas, California.

UPDATE 2 from Reuters:

Laura Eimiller, a spokeswoman for the FBI's office in Los Angeles, said "the FBI is not conducting a search warrant at the office of Countrywide Financial in Calabasas."

In the same article three Ex-Countrywide execs plead guilty to insider trading

CDOs coming home to roost

Well it looks like we have the first CDOs coming home to roost, oh wait maybe not. As Boomberg reports Bear Stearns Plans $3.2 Billion Mutual Fund Bailout. Talk about a large bailout just to keep CDOs fror revealing their true value.

How long can all these funds keep the valuations up without marking to market? The first fund to sell their CDO holdings in auction will force everyone to show their hand. Another way is for the rating agencies to lower the ratings of these holdings based. Funny isn't it how there are now laws being introuced so rating companies like Moodys and S&P can not be sued.

Hang on to your hats, a classic game of hot potato has now started and we are looking at a larger repeat of the S&L crisis. We just don't know when the shoe will drop but it will eventually.

Does a Moody's Bond Rating Really Matter?

Amazingly enough in an article from Bloomberg titled Overlapping Subprime Exposure Mask Risks of CDOs

Some collateralized debt obligations that invest in subprime mortgage bonds, related derivatives and other CDOs may be less diversified than they appear, raising investors' risks, according to Moody's Investors Service.

So what exactly has Moody's Investors Service been doing except for collecting fees for unsubstantiated ratings?

ISM Reports Showing Stagflation

The Institute of Supply Management released their Report On Business for March today. In both manufacturing and non-manufacturing sectors, prices increased significantly over February's numbers. The big surprise was non-manufacturing falling 52.4, well below what most analysists were predicting.

A glance at the 3 year graphs provided on the report make business look like it is not really expanding or declining. Overall it looks as if business is on the slight decline from previous growth. Not exactly a robust economy as the Federal Reserve has outlined in their speeches as of late. With growing prices, overstocked inventories and slowing growth, it is more likely a stagflationary envoirnment.

Another confirmation of the economic slowdown came from Monster.com today. Their stock dropped 13% after the announcement of lower than projected earnings based on slowing sales in the US market.

Moodys Cutting 40-50 Bank Credit Ratings

Last quarter Moody's Rating Service raised the credit rating of 150 banks using a new criteria based on countries likely to provide a bailout in a banking crisis. This is a far cry from rating the credit worthiness based on a banks balance sheet and ability to service debt. After being questioned on the revisions by Merrill Lynch and JPMorgan Chase, Moody's has now decided to reverse the decision to use bailout possibilities for their ratings.

According to Moody's, some banks will have their ratings lowered by two to three grades based on the revisions. This creates a problem for Moody's as they will have lost confidence in the banks they are downgrading and adding to the confidence lost when they revised the ratings in the first place. This has reflected in Moody's stock price giving up over 11% since the beginning of the year.

In an article from Bloomberg, Tom Jenkins, a senior credit research analyst at Royal Bank of Scotland Group Plc in London, said in an interview

"A lot of banks have been very upset, and it's going to take time to repair the bridge"

"I don't think this turnaround will necessarily be the magic pill"

And Merrill analyst Richard Thomas in London critized the ratings as

"perverse" the revision gave three Icelandic banks the same top Aaa ratings as the U.S. Treasury and Exxon Mobil Corp.

Moody's will be listing the banks and their credit rating changes later this evening.

Already in question is Moody's and S&P credit ratings on some bonds containing poor performing subprime mortgages and carrying a high bond rating. Could this be the turning point for credit risk awareness and the confidence in credit ratings?

Beginning of a Trade War with China?

Bloomberg reports this morning that China is not happy with the tariffs introduced on coated paper and they reserve the right to take the "necessary" action.

China's commerce ministry issued the following statements

Tariffs "have severely damaged the interests of Chinese industry"

"It's unacceptable and China strongly demands the U.S. to reconsider the decision.''

"We'll closely monitor and reserve the right to take any necessary action"

The US Treasury Secretary Henry Paulson has not been able to convince China to de-peg their currency to the US dollar and has voiced his concerns multiple times. This could be an effort to have China reconsider letting their currency float or it could just be protectionist measures pushed by lobbyists, unions and politically connected investment funds.

Expect more industries to follow suit now that the door to tarrifs has been opened on China. Either way our government is promoting inflation when the Federal Reserve is said to be fighting inflation.

Update:Newpage Corporation's Political Ties

Newpage Corporation is owned by Cerberus Capital Management. In an October 2006 press release, Cerberus appointed United States Secretary of the Treasury John W. Snow Chairman of Cerberus Capital Management.

USATODAY published a must read article on Cerberus titled "The congressman & the hedge fund"

About Cerberus Capital Management

At Cerberus, we have a long-term investment horizon and focus on value creation. We invest in undervalued companies and their people, and help them to realize their potential.

We partner with our portfolio companies to help them become industry leaders. We believe competition makes the global economy more productive and more efficient, which enables companies to succeed long-term in the globally competitive marketplace.

We encourage our companies to focus on the future through prudent capital investment, R&D, new product marketing, talent development, improved operations and appropriate strategic acquisitions.

Newpage Bios with links to Cerberus Capital Management

• Richard D. Willett, Jr. - President and Chief Operating Officer
• Jason W. Bixby - Vice President and Chief Financial Officer
• Mike Williams - Board of Directors
• Alexander M. Wolf - Board of Directors

After today's announcement what would happen to the value of Newpage Corporation?