Is there even a point to marking down assets without a functioning secondary market? Maybe they just needed to fully securitized these suckers and stick them into an Amex based trading vehicle.
then we could really have fun watching the share prices rip up and down depending on which newspaper the hedgies happened to read that morning;-}
I am sorry, but four guys calling each other on the phone and asking what's the price is no basis for a market!!!
Also, with respect to Bear Stearns and the dark matter securities the feeling a get is that there's this growing sense of awareness "Oh, God this stuff is just illiquid garbage in a pretty box, and there's billions and billions of dollars of it everywhere."
I expect there's a lot of really smart people working full-time right now trying to figure out some way of convincing people otherwise.
I wouldn't put it past them to be succesful, but if they don't I think we could see a very brutal collapse in portions of the finance world.
I think this picture from the Economist sums it up beautifully.
Bloomberg has two sources. One says the enhanced fund owes 1B, the other says 7B. This confusion is worthy of a supermarket tabloid. Give us the numbers when you know they are facts, please.
NEW YORK, June 25 (Reuters) - The benchmark subprime mortgage ABX index fell to new lows on Monday, after June remittance reports showed delinquencies on outstanding pools of subprime mortgage loans were rising...
The ABX 07-1 "BBB-" series, which is tied to loans made in last year's second half, sank two points to 55.94 from 57.95 at Friday's close, market sources said...."The reports look terrible. The tone is very poor in the latest performance data," said one investor....May's data showed generally weak performance in outstanding subprime mortgage loans underlying the ABX index series. Delinquencies of 60-days or more, in loans underlying the ABX 07-1 index, averaged 8.40 percent, an increase of 164 basis points...
NEW YORK, June 25 (Reuters) - Goldman Sachs Group Inc. subprime mortgage bonds issued last year are being downgraded by rating companies at the fastest rate of any issuer, according to Citigroup Inc. research dated June 22.
Portions of Goldman's GSAMP-issued bonds, which include subprime loans from a variety of lenders, have been downgraded a combined 69 times by Standard & Poor's and Moody's Investors Service in the year through June 15, analysts at Citigroup Global Markets said in a weekly note. Sixty of the downgrades refer to classes from 2006 bonds....
"At this point we believe that the fundamentals are going to be getting worse for quite some time -- another year to two you're going to keep seeing a steady march of this," Karen Weaver, Deutsche Bank AG's global head of securitization research, said on a conference call on Monday....
funny, just yesterday i said to myself "i wonder if the sec is going to look at bear stearns," although i thought the driver would be "how did bear stearns decide to bail out one fund but not the other?"
This is how this will turn out: Bear will pay a slap on the wrist, 100 million dollar or so fine without admitting guilt or wrong doing, the government will get 100 million to blow, and the investors will get the shaft they so richly deserve. Its the American way.
"scare people unnecssarily about the housing market" -- Is yelling fire in a burning theatre scaring people unnecessarily or is it warning people re. their impending doom?
Slightly OT, but I hadn't seen this posted after doing a quick search of the past comments..
The Economist had an article on the recent commercial lending cycle musing on the uncharacteristically low default rates of junk bonds citing a paper by Edward Altman, a Stern School of Business professor. It seems to conclude that the business cycle has not been revoked, but swamped under an influx of liquidity and that subprime may be the canary in the coal mine of things to come.
LOTS of people have been waiting for a turn in the credit cycle. But they have been repeatedly frustrated (or, to put it another way, investors have been pleasantly surprised). To misquote Sherlock Holmes, corporate-debt default has been the mosquito that did not bite in the night.
A recent paper by Edward Altman, a Stern School of Business professor who is the academic doyen of the bond markets, shows how remarkable this situation has been. The proportion of high-yield bonds that have been pretty junky, rated B-minus or below, has been high in recent years (see chart below). The most recent figure, for April, was nearly 50%. The worst of all ratings (except for those issues that are already in default) is CCC; this is the rating for around 20% of junk bonds and more than 50% of debt issued by this years leveraged buy-outs. Historically, more than half of CCC bonds default within six years.
So you would expect the default rate to be edging higher. There was a bit of a pick-up in 2005, when the likes of Delphi, a maker of car parts, went under. But the default rate in 2006 was just 0.5%, the lowest since 1981; Mr Altman says the rate so far this year has been just 0.2%. That compares with a weighted average between 1971 and 2005 of 4.2%.
What explains this discrepancy? One obvious answer is macroeconomic. The economic cycle has been much less volatile over the past decade, making life easier for the corporate sector. In addition, corporate profits have risen sharply as a proportion of GDP, perhaps because globalisation and technological change have improved the power of capital over labour. It has been much easier for companies to service their debt.
A second explanation is more technical. The rise of hedge funds and private equity has created an enormous demand for high-yielding debt. When companies get into trouble, they tend to be rescued before they default.
This influx of liquidity has led to another change in the structure of the debt market. Recovery rates, the amounts that investors get back in case of disaster, have increased. According to Mr Altman, in the 2001-02 period the recovery rate (as measured by bond prices at the time the default was announced) was just 25%; last year, the rate was 65%, while in the first quarter of this year, it was 81%.
This suggests that the credit cycle has lengthened and explains why those waiting for a turn have been disappointed. But two questions naturally flow from this observation. Is this improvement permanent? Or, if the cycle does turn, will the nadir be deeper because the peak was higher?
The subprime-mortgage sector may be the canary in the coal mine. Rising house prices meant stronger collateral and encouraged lenders to relax credit standards. All was fine for a few years, but the eventual result was that default rates on recent loans climbed sharply. The same will probably happen with corporate debt. Credit standards are being relaxed, as witnessed by the rating levels and by the growth of covenant-lite loans, in which lenders give up safeguards. Investors are not being rewarded for this increased risk; the spread (higher interest rate) on high-yield bonds has reached a record low.
Speaking at last weeks hedge-fund conference in Monaco, Sam DeRosa Forag of Ore Hill Partners said that the default rate would rise to 16-18% during the next downturn, not too far short of levels in the 1930s. Mr Altman is less extreme, although he is predicting a return to the long-term mean in defaults. What neither of them is predicting, unfortunately, is when the downturn will occur.
"When asked if federal banking regulators are aware of the level of CDOs in the underlying assets of hedge funds, he said: "Yes, we are.""
In other words, we are monitoring closely, cause we haven't the slightest idea on how to value this shit and when someone actually does we want to make sure we are there to prevent any potential fallout!
Underweight
The bank index continues to spiral downward in relative performance terms. Concerns about loan quality are steadily building, a natural by-product of the freewheeling lending boom in recent years. Banks have been lowering their exposure to mortgage backed securities in order to fund lending for M&A deals, but exposure to U.S. housing remains sufficiently large to deliver a blow to profitability should the sector continue to sour. Ominously, TED spreads, a direct measure of perceived banking sector risk, have continued to spike in recent weeks, even during the recent dip in bond yields. Spreads are at their widest level since 2001, but remain below the peak reached in the prior three bank bear markets. The implication is that it is still not safe to bottom fish in the bank group. Stay underweight.
``You're going to see, in all likelihood in the next 30 to 60 days, another fund blow up and it could be a significant one,'' said Tim Mungovan, a partner at law firm Nixon Peabody LLP in New York and co-head of the alternative-investments litigation practice." Bear Stearns May Put Up Less to Rescue Hedge Fund (Update2) - Bloomberg.com
Andrew - from everything that I know and/or can catch glimpses of, the situation with corporate debt is indeed worse than with mortgages.
I have recently been wondering if homebuilder defaults won't trigger the downslide in corporate. It will start out slow, just as it did with mortgages. But the fundamentals are not there; one can explain, alibi, publicize and obfuscate, but at the end of the day quite a bit of this stuff is not going to be repaid.
Another problem I see with corporate debt is that it has a broader impact because the riskier debt is resident at lower levels of the financial food chain as well as the higher levels.
"Cioffi, 51, also helped create Everquest Financial Ltd., a company that invested in CDOs and which filed in May to raise as much as $100 million in an initial public offering. The two funds transferred investments to Everquest and ended up with a 67 percent stake. Everquest withdrew its IPO today.
Guess that answers the questions on this blog. ie: "Wonder how the Everquest IPO will be accepted"?
If this IPO would have gone public I believe it would have been a huge catalyst for a "liquidy" bull run for stocks (It would have given the hedge fund worries cover)-notice I said "IF"
These securities are effectively private placements, though they are registered. Private placements are notoriously tough to mark to market because they simply don't trade much. All marks are guesses, maybe good ones, but guesses nonetheless.
As far as Bear and the SEC goes, I think beause of the above, the SEC will hve a prett tough time proving something here. Of course that is never the real threat, the threat is some sort of indictment, which efectively kills companies like these. I can't see it. Of ourse, I have been wrong three or four times already on this:
1) Bear not at financial risk (correct unless...)
2) Bear takes on significant additional fund exposure (a very unlike Bear action and none whih changes #1 above)
3) This whole thing is not a big deal (still correct, but SEC may change that pretty quick).
Bear Stearns Cos. may put up $1.6 billion to rescue one of its money-losing hedge funds, half as much as it offered last week, according to two people with knowledge of the situation. The size of the bailout dropped after the Bear Stearns High- Grade Structured Credit Fund found buyers for some assets and creditors sold others, said the people, who declined to be identified because they aren't authorized to comment for the firm. Bear Stearns, the biggest U.S. broker to hedge funds, said June 22 it would assume $3.2 billion of loans to prevent lenders from liquidating assets.
I thought for a minute someone had dropped Warren Spector on his head. This is how Bear works. Buy time, sell product, stay liquid. This $1.6 billion number will get smaller fast. I also don't think Bear has actually put up nickel et.
What neither of them is predicting, unfortunately, is when the downturn will occur
I can't say when but it will happen a little bit after the consumer curbs consumption. And it it easy to determine. It almost happens now, we are very close.
Jun 21st 2007 | NEW YORK
From The Economist print edition
A prominent hedge fund's implosion revives fears about the poisonous influence in America's subprime-mortgage market
banker said: "These securities are effectively private placements, though they are registered. Private placements are notoriously tough to mark to market because they simply don't trade much. All marks are guesses, maybe good ones, but guesses nonetheless..."
In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas. Absolutely the top commissions of any products we sold, and the vehicles never traded so the investors never knew what the value was until the term of investment was over, typically several years.
As I had said previously, HY spreads are widening. I have seen some "yields", not spreads move over 100 bps in the last 4 weeks or so.
Tresuries are moving lower, the 2's and 10's are tightening, albeit at a slower pace than I had thought due to the flight to the short end in search of safety.
Still say, curve inverts near-term, next three to 4 weeks are extremely important due to the need to fund deals, the most important being the Chrysler deal.
Sebastion said "In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas. Absolutely the top commissions of any products we sold, and the vehicles never traded so the investors never knew what the value was until the term of investment was over, typically several years.
Good times.:)"
Looks like the similiar "good times" in subprime cdo's are over.
I see the corporate debt cover up (and eventual crackup) as analagous to the residential housing blowup. The last few years of loans were just plain dumb and dumberer. Buying residential properties at top of the market by adding more and more borrowers with worse and worse credit, banking on appreciation to bail them out became an inevitable disaster if incomes & rents werent rising in tandem. I never thought yields on residential properties could get down to 3% but sure enough, they did. Same thing in a different way happening with commercial RE and corporate deals. I told clients as early as 2003-4 that the residential bubble had to deflate and was two years plus early on that call. That was based on my guess that credit just couldnt get any looser, but man, was I ever wrong on that call. Must have been my mistaken belief that someone would step in and end the madness, but clearly I wasnt cynical enough then to see how much money was being made on the whole racket. Finally, at the end, after pulling every trick you can get to bring in more mortgage money, not even fraud could keep prices going up 15% a year, and at that point, the whole thing unraveled. But it could have happened when I thought, if bubblehead Greenspan or anyone else who could have put and end to the madness decided to regulate things a bit and not let it go completely over the top.
No reason that shouldnt happen with all this other crap too. If prices of CRE keep escalating, people will find a way to justify the deal (trust me, Ive seen it up close in person), but those deals in retrospect will look pretty much insane because they are priced beyond perfection at this point. When the rest of the bubbles bust, it will just be a matter of timing and what is the trigger. Obviously in this case no one is going to change lending standards, so it will have to be some kind of other credit tightening event that triggers it, perhaps ratings changes, but that looks iffy given the conflict of interests. Perhaps a few more blown deals that spread through the system, heck I dunno. What worries me is that when this stuff unravels the contagion, the stock market blowup, and the job loss and all the other stuff that is associated it will happen much faster than the two years its taken to start seeing the damage, as it is with the residential market.
The way BS is papering over the losses and hiding the real values makes me think that this type of behavior will eventually be proven to have been incredibly widespread. But what other recourse do they have at this point? The best bet now is to try and hide this junk through obfuscation for as long as possible and pray a bottom to the underlying collateral is found and that they can weather the storm. But I think the bottom is very far off and the true state of residential mortgage credit will turn out to be much much worse when all is said and done, and they wont be able to paper things over long enough to prevent the unraveling.
"Still say, curve inverts near-term, next three to 4 weeks are extremely important due to the need to fund deals, the most important being the Chrysler deal."
Agree. Although, I suspect First Data will be more important and will result in some hung bridges.
you could very well be correct, I picked Chrysler just due to the size of what is needed.
The commodities move across the board this morning suggested further hedge trouble, it would not surprise me at all at this point due to the nervousness that is prevalent to see any one of these deals fall apart.
In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas. Absolutely the top commissions of any products we sold, and the vehicles never traded so the investors never knew what the value was until the term of investment was over, typically several years.
Good times.
Sebastian
I'm happy to say that I've protected a few clients from people like Sebastian in my career. Still, there are plenty, maybe a majority, that prefer the slick marketing material and pressure sales to my boring facts.
Anytime the feds get involved things get very unpredictable. They are bureacrats and politicians. As far as the hedge funds go? Bear will get out without putting up much, if any actual cash is my guess.
I still think I'll get to come here in a couple of weeks and ask (for the fitieth time) "has the sky fallen yet?"
But with thefeds in the loop, I am somewhat less comfortable than a few days ago.
it's all too big to fail. The SEC, nor anyone else for that matter, will do a god damn thing...nothing, zilch. Count on it. Anything affecting the wall street den of thieves will be covered up behnd closed doors. Yes, rumors of intervention, cover up etc. will fly around, but just rumors they will be absent of any proof. Too big to fail since it's all ultimately based on nothing that resemble reality just subjective models the input of which in turn motivated by the maximization of management greed. aka, the whole can of worms all based on nothing but a bunch of BS crap. The SEC knows. The Fed knows it. The entire investment bank industry knows it. The industry mortgage industry knows it. The rating agencies know it. But each of them profit from it. Even the investors know it. But if they can profit too, then what the hell I guess, eh? Fundamentals don't seem to matter anymore in today's world, smoke and mirrors and perception rules. Too big to fail, too many people to benefit from continuing the facade. Nice world we live in.
Banker said: I still think I'll get to come here in a couple of weeks and ask (for the fitieth time) "has the sky fallen yet?"
Perhaps you should pay more attention. It'll save you some trouble.
The claim is that the ceiling (not the sky) will descend very gradually (per CR's "real estate prices are sticky") for 3-5 years (per the cyclic nature of real estate prices depicted in CR's trademark graph that overlays recessionary periods).
"Not protection but accurate information which is lacking."
Exactly, DD. The vast majority of those bogus real estate and oil & gas LP's were nothing more than uber-leveraged tax dodges which TRA '86 blew out of the water, leaving a huge number of unsophisticated doctor-type investors with dramatic out-of-pocket losses long after the general partners had taken their cut and run. I had many clients who invested in these against my advice.
"As far as the hedge funds go? Bear will get out without putting up much, if any actual cash is my guess."
"My issue is with those here who see a depression, financial collapse, dogs and cats sleeping together etc behind every negative event, large or small."
Yes. You are the perfect Thanksgiving turkey (to paraphrase Nassim Taleb). That nice farmer is just swell. He feeds and clothes us. All those bad turkeys that worry just fail to appreciate that the trend is definitely positive!
The Second is the model of models paradigm where exact or even approximate knowledge of values and risks do not exist and we see 90% or so markdowns and formally folks in the know standing around shuffling their feet and thinking up excuses.
Leverage is a known risk and can be somewhat understood.
The failure of the second means loss of confidence and panic.
To use a military example, you lose more folks in a panic retreat than in the battle before hand. Panics do not happen when there is confident leadership and the trust of the men. But when the leadership is questionable, there is no trust, then disaster.
Likewise when folks have trust in the leaders, then actions, even if partially wrong are taken, folks follow. But when that trust is lost in the leaders, then it becomes every man for himself.
I don't think leverage is the wild card. It is what it has been for several years now. Liquidity. Of course we may be singing from the same songsheet in different keys. One thing is abundantly clear. If bear can go from $3.2 billion to $1.6 billion in 48-72 hours, there are still ready buyers for these sorts of securities. Now I have no idea what expected rates of return they are demanding and how different those are from where they were sold, but folks are clearly buying this stuff. This really does smell like Leon Black and the HY problems of the 1990's over again.
George,
I haven't the foggiest idea what you are saying, or trying to say. Sorry.
Less than 2 weeks ago, BSC earnings were below Street consensus on June 14th, and intra-day, on that day, the stock traded down to 146 the buck. Go back and read the earnings release and commentary afterward. Little mention of the mortgage hedge fund debacle. But plenty of commentary about BSC problems going forward with their heavy emphasis on bond and mortgage-related sales, trading and underwriting business.
Now, with BSC in the midst of a day-to-day, hour-hour struggle to "right the ship", during the mortgage hedge fund crisis, the stock is trading only ~5% of its post-earnings intra-day low. Arguably, the stock price could easily be trading here ON BSC EARNINGS MISS AND OUTLOOK ALONE! Add in the dangerous subprime liquidity scare that the Company is currently undergoing, and who knows where the bottom might be......
From a longer term perspective, remember that just 2 years ago Bear stock was trading down ~40 points from where we are tonight, at ~100 at the time. And just 2 years before that, Bear stock was trading down another 40 points, at ~60 at the time.
Prior to recent events, BSC's impressive stock performance over this particular time frame (2003-2007) is understandable given that it was achieved during what was arguably the greatest housing, lending & mortgage finance boom in the history of our country.
Truth be told, Bear is a bond trading and mortgage house, and last time one checked, the bond and mortgage market continue to sour with rates rising, the housing recession worsening and mortgage spreads (risks) widening (increasing).
From a pure business model perspective, it is simply not a pretty picture for BSC's shareholders going forward, regardless of whatever the final resolution/workaround/outcome is to the current mortgage hedge fund disaster.
I saw the killings made buying Exec Life and other HY and reselling it later. But I live in bubbly So. CA and I can see there really is completely junky 2005 and 2006 mortgage debt in the system, with 2004 and earlier at some risk also. It may be localized to certain regions and years, but big hunks of this are truly junk, and I think it will have a lasting sting.
Banker: I don't think leverage is the wild card. It is what it has been for several years now. Liquidity.
toe-may-toe toe-mah-toe
Back in my free-lunch accelerator lab, I've resorted to colliding monetary theory research papers together. In the ensuing explosion of bullshit, I've been looking for traces of the elementary particle known as "money".
The problem is that it exists for only a short time -- until it is inflated away by the background bullshit emitted from central banks.
Lest we forget, Bear Stearns is not only in deep trouble with its two hedge funds, but also has a failed IPO, Everquest, in which it has a $400 million equity stake.
That is the number I tossed out here on June 18th when I speculated that the IPO was dead on arrival. You must also add to that the $149 million that Bear Stearns loaned to Everquest to purchase junk from the two hedge funds. You'll find both numbers in the SEC filing.
Having accepted responsibility for the "high grade" fund, and offering to provide it with a facility "up to" $3.2 billion, they are going to have difficulty avoiding some kind of responsibility for the leveraged fund.
Their risk exposure goes beyond the $3.2 billion, which is approximately equal to 23% of their 2006 net worth. Let's see, $3.2 + $.4 + $.149 = $3.749 billion at risk. $3.749/$12.1 (2006 net worth)= 31% of their 2006 net worth.
You can argue over the numbers, but they are in deep trouble. It's not an exaggeration to say that the sky fell on Bear Stearns, and it's not over yet. There will also be a shock wave.
Is it a Kreditanstalt-type event? Quite possibly. I don't think the last three days of results on the European and Asian exchanges have been a coincidence.
I take no joy in being right. As things progress, you'll come around to my position, too, and you won't be happy about it either.
banker,
I've not seen doom hiding behind any prior events. I'm a very optimistic person by nature, and live a good life. That said...
There is no single overriding reason for the pending Greater Depression; it's more like a unique confluence of economic circumstances -- a "perfect storm", if you will. I guess that's what makes it so hard for so many to see. Sigh.
"One thing is abundantly clear. If bear can go from $3.2 billion to $1.6 billion in 48-72 hours, there are still ready buyers for these sorts of securities. "
You are making an assumption that the only thing in these funds where "these sorts of securities." That is false. There were also other, more liquid stuff, having nothing to do with housing. These were liquidated.
mp:Lest we forget, Bear Stearns is not only in deep trouble with its two hedge funds, but also has a failed IPO, Everquest, in which it has a $400 million equity stake.
mp: Is it a Kreditanstalt-type event? Quite possibly.
And what do you tell all the pissed off people? Who has the best story going forward if things ends up as tj suggests?
Hey everybody, look, we've finally decided to mark this shit -- your reality -- to market. All this money that everybody owes each other... well most of it doesn't really exist.
"I still think I'll get to come here in a couple of weeks and ask (for the fitieth time) "has the sky fallen yet?""
Look, the facts are now clear, you CANNOT keep this shit on your balance sheet forever, there are massive writedowns coming, you had better face that fact.
The REO's are a problem, the loans held for sale are a problem, NPL's are growing (this is a credit problem in general, there is no facet that will be immune), and the CDO's are a problem.
You had better take a deep breath and wake the hell up.
"A long time ao I called for a 5% decline in nominal terms followed by flat nominal prices for the forseeable future (5 ish years)."
Banker, that is sort of a traditional view - that 'real' prices are where the adjustment happens. But that does assume some 'real' wage growth over those 5 years. We haven't had that kind of a world for a while. It will be hard for income to catch up to houses if income stays stagnant in real dollars.
MSNBC is doing their job to scare people unnecssarily about the housing market. >:(
Is there even a point to marking down assets without a functioning secondary market? Maybe they just needed to fully securitized these suckers and stick them into an Amex based trading vehicle.
then we could really have fun watching the share prices rip up and down depending on which newspaper the hedgies happened to read that morning;-}
I am sorry, but four guys calling each other on the phone and asking what's the price is no basis for a market!!!
Someday this war's gonna end...
man, I just don't get the housing market. Subprimes, ARMs, blah blah blah.
I bought a house because I need a roof over my head and someday I don't want to have to pay for it (well, except taxes, maintenance, insurance, etc.)
Why do people do anything other than that?
Another thing I don't understand: Home Equity Loans. Come on people--you don't need soo much crap! Stop buying stuff.
Also, with respect to Bear Stearns and the dark matter securities the feeling a get is that there's this growing sense of awareness "Oh, God this stuff is just illiquid garbage in a pretty box, and there's billions and billions of dollars of it everywhere."
I expect there's a lot of really smart people working full-time right now trying to figure out some way of convincing people otherwise.
I wouldn't put it past them to be succesful, but if they don't I think we could see a very brutal collapse in portions of the finance world.
I think this picture from the Economist sums it up beautifully.
Why do people do anything other than that?
People who understood the market well and bought and sold houses at the right time made a ton of money.
People got rich buying houses they never planned to live in.
Bit like the Cold War, only this time it's Mewtually Assured Destruction.
The entire aroused the SEC headline makes one think about the position the stockholder will be in quite soon.
He he he
With the probabilities of an unbiased uncovering of the garbage trail en route to retail being less than zero...
I am putting the odds of the DEM's threatening to remove power from the SEC at 100% by the time this is over.
They are already threatening the FOMC.
Bloomberg has two sources. One says the enhanced fund owes 1B, the other says 7B. This confusion is worthy of a supermarket tabloid. Give us the numbers when you know they are facts, please.
Well....Actually, give us the scoop!!!
The idea that Christopher Cox is going to be the one to destroy Jimmy Cayne's reputation is laughable.
NEW YORK, June 25 (Reuters) - The benchmark subprime mortgage ABX index fell to new lows on Monday, after June remittance reports showed delinquencies on outstanding pools of subprime mortgage loans were rising...
The ABX 07-1 "BBB-" series, which is tied to loans made in last year's second half, sank two points to 55.94 from 57.95 at Friday's close, market sources said...."The reports look terrible. The tone is very poor in the latest performance data," said one investor....May's data showed generally weak performance in outstanding subprime mortgage loans underlying the ABX index series. Delinquencies of 60-days or more, in loans underlying the ABX 07-1 index, averaged 8.40 percent, an increase of 164 basis points...
NEW YORK, June 25 (Reuters) - Goldman Sachs Group Inc. subprime mortgage bonds issued last year are being downgraded by rating companies at the fastest rate of any issuer, according to Citigroup Inc. research dated June 22.
Portions of Goldman's GSAMP-issued bonds, which include subprime loans from a variety of lenders, have been downgraded a combined 69 times by Standard & Poor's and Moody's Investors Service in the year through June 15, analysts at Citigroup Global Markets said in a weekly note. Sixty of the downgrades refer to classes from 2006 bonds....
"At this point we believe that the fundamentals are going to be getting worse for quite some time -- another year to two you're going to keep seeing a steady march of this," Karen Weaver, Deutsche Bank AG's global head of securitization research, said on a conference call on Monday....
(end quote)
Henry Paulson, what were you thinking?
Another 2 years of this?
funny, just yesterday i said to myself "i wonder if the sec is going to look at bear stearns," although i thought the driver would be "how did bear stearns decide to bail out one fund but not the other?"
This is how this will turn out: Bear will pay a slap on the wrist, 100 million dollar or so fine without admitting guilt or wrong doing, the government will get 100 million to blow, and the investors will get the shaft they so richly deserve. Its the American way.
howard and kevin-
if the SEC were serious, they would have been in there once the Everquest registration was filed.
This shit sticks to high heaven and everyone knows it.
on another note, tj- thought I would make your night-
BIS warns of Great Depression dangers from credit spree - Telegraph
MSNBC is doing their job to scare people unnecssarily about the housing market. >:(
It's about time someone in the MSM did. For several years now all we've heard is the NAR spin.
"scare people unnecssarily about the housing market" -- Is yelling fire in a burning theatre scaring people unnecessarily or is it warning people re. their impending doom?
It's official-
Expired
More on ABX.HE
Minyan Mailbag: Subprime Mortgage Pools-Minyanville
Neal - do you know offhand where I can see the remittance report data on B Berg?
Slightly OT, but I hadn't seen this posted after doing a quick search of the past comments..
The Economist had an article on the recent commercial lending cycle musing on the uncharacteristically low default rates of junk bonds citing a paper by Edward Altman, a Stern School of Business professor. It seems to conclude that the business cycle has not been revoked, but swamped under an influx of liquidity and that subprime may be the canary in the coal mine of things to come.
Premium content | Economist.com
Unsinkable junk
Jun 24th 2007
From Economist.com
The corporate-default rate must risebut when?
LOTS of people have been waiting for a turn in the credit cycle. But they have been repeatedly frustrated (or, to put it another way, investors have been pleasantly surprised). To misquote Sherlock Holmes, corporate-debt default has been the mosquito that did not bite in the night.
A recent paper by Edward Altman, a Stern School of Business professor who is the academic doyen of the bond markets, shows how remarkable this situation has been. The proportion of high-yield bonds that have been pretty junky, rated B-minus or below, has been high in recent years (see chart below). The most recent figure, for April, was nearly 50%. The worst of all ratings (except for those issues that are already in default) is CCC; this is the rating for around 20% of junk bonds and more than 50% of debt issued by this years leveraged buy-outs. Historically, more than half of CCC bonds default within six years.
So you would expect the default rate to be edging higher. There was a bit of a pick-up in 2005, when the likes of Delphi, a maker of car parts, went under. But the default rate in 2006 was just 0.5%, the lowest since 1981; Mr Altman says the rate so far this year has been just 0.2%. That compares with a weighted average between 1971 and 2005 of 4.2%.
What explains this discrepancy? One obvious answer is macroeconomic. The economic cycle has been much less volatile over the past decade, making life easier for the corporate sector. In addition, corporate profits have risen sharply as a proportion of GDP, perhaps because globalisation and technological change have improved the power of capital over labour. It has been much easier for companies to service their debt.
A second explanation is more technical. The rise of hedge funds and private equity has created an enormous demand for high-yielding debt. When companies get into trouble, they tend to be rescued before they default.
This influx of liquidity has led to another change in the structure of the debt market. Recovery rates, the amounts that investors get back in case of disaster, have increased. According to Mr Altman, in the 2001-02 period the recovery rate (as measured by bond prices at the time the default was announced) was just 25%; last year, the rate was 65%, while in the first quarter of this year, it was 81%.
Thi
This suggests that the credit cycle has lengthened and explains why those waiting for a turn have been disappointed. But two questions naturally flow from this observation. Is this improvement permanent? Or, if the cycle does turn, will the nadir be deeper because the peak was higher?
The subprime-mortgage sector may be the canary in the coal mine. Rising house prices meant stronger collateral and encouraged lenders to relax credit standards. All was fine for a few years, but the eventual result was that default rates on recent loans climbed sharply. The same will probably happen with corporate debt. Credit standards are being relaxed, as witnessed by the rating levels and by the growth of covenant-lite loans, in which lenders give up safeguards. Investors are not being rewarded for this increased risk; the spread (higher interest rate) on high-yield bonds has reached a record low.
Speaking at last weeks hedge-fund conference in Monaco, Sam DeRosa Forag of Ore Hill Partners said that the default rate would rise to 16-18% during the next downturn, not too far short of levels in the 1930s. Mr Altman is less extreme, although he is predicting a return to the long-term mean in defaults. What neither of them is predicting, unfortunately, is when the downturn will occur.
"When asked if federal banking regulators are aware of the level of CDOs in the underlying assets of hedge funds, he said: "Yes, we are.""
In other words, we are monitoring closely, cause we haven't the slightest idea on how to value this shit and when someone actually does we want to make sure we are there to prevent any potential fallout!
U.S. monitors market liquidity after fund bailout
| Reuters
Bank Worries Continue To Mount
Underweight
The bank index continues to spiral downward in relative performance terms. Concerns about loan quality are steadily building, a natural by-product of the freewheeling lending boom in recent years. Banks have been lowering their exposure to mortgage backed securities in order to fund lending for M&A deals, but exposure to U.S. housing remains sufficiently large to deliver a blow to profitability should the sector continue to sour. Ominously, TED spreads, a direct measure of perceived banking sector risk, have continued to spike in recent weeks, even during the recent dip in bond yields. Spreads are at their widest level since 2001, but remain below the peak reached in the prior three bank bear markets. The implication is that it is still not safe to bottom fish in the bank group. Stay underweight.
BCA Research
target-
Business & Financial News, Breaking US & International News | Reuters.com
Nice catch, Andrew, thanks.
S.
Let's hope he is very wrong-
"Another One?
``You're going to see, in all likelihood in the next 30 to 60 days, another fund blow up and it could be a significant one,'' said Tim Mungovan, a partner at law firm Nixon Peabody LLP in New York and co-head of the alternative-investments litigation practice."
Bear Stearns May Put Up Less to Rescue Hedge Fund (Update2) - Bloomberg.com
Andrew - from everything that I know and/or can catch glimpses of, the situation with corporate debt is indeed worse than with mortgages.
I have recently been wondering if homebuilder defaults won't trigger the downslide in corporate. It will start out slow, just as it did with mortgages. But the fundamentals are not there; one can explain, alibi, publicize and obfuscate, but at the end of the day quite a bit of this stuff is not going to be repaid.
Another problem I see with corporate debt is that it has a broader impact because the riskier debt is resident at lower levels of the financial food chain as well as the higher levels.
From the link above,
"Cioffi, 51, also helped create Everquest Financial Ltd., a company that invested in CDOs and which filed in May to raise as much as $100 million in an initial public offering. The two funds transferred investments to Everquest and ended up with a 67 percent stake. Everquest withdrew its IPO today.
Guess that answers the questions on this blog. ie: "Wonder how the Everquest IPO will be accepted"?
If this IPO would have gone public I believe it would have been a huge catalyst for a "liquidy" bull run for stocks (It would have given the hedge fund worries cover)-notice I said "IF"
Boy is there a lot going on.
These securities are effectively private placements, though they are registered. Private placements are notoriously tough to mark to market because they simply don't trade much. All marks are guesses, maybe good ones, but guesses nonetheless.
As far as Bear and the SEC goes, I think beause of the above, the SEC will hve a prett tough time proving something here. Of course that is never the real threat, the threat is some sort of indictment, which efectively kills companies like these. I can't see it. Of ourse, I have been wrong three or four times already on this:
1) Bear not at financial risk (correct unless...)
2) Bear takes on significant additional fund exposure (a very unlike Bear action and none whih changes #1 above)
3) This whole thing is not a big deal (still correct, but SEC may change that pretty quick).
MaxedOutMama, this is one of the great questions right now - the level of bad corporate debt.
ac linked a great picture from The Economist of houses knocking down buildings. It might happen.
ac, do you have a link to the article that picture is from?
Best to all.
Arrg,
2 should say "one which." sorry
That's my Bear!
Bear Stearns May Put Up Less to Rescue Hedge Fund (Update2) - Bloomberg.com
Bear Stearns Cos. may put up $1.6 billion to rescue one of its money-losing hedge funds, half as much as it offered last week, according to two people with knowledge of the situation. The size of the bailout dropped after the Bear Stearns High- Grade Structured Credit Fund found buyers for some assets and creditors sold others, said the people, who declined to be identified because they aren't authorized to comment for the firm. Bear Stearns, the biggest U.S. broker to hedge funds, said June 22 it would assume $3.2 billion of loans to prevent lenders from liquidating assets.
I thought for a minute someone had dropped Warren Spector on his head. This is how Bear works. Buy time, sell product, stay liquid. This $1.6 billion number will get smaller fast. I also don't think Bear has actually put up nickel et.
I can't say when but it will happen a little bit after the consumer curbs consumption. And it it easy to determine. It almost happens now, we are very close.
I think ac's picture came from the following article CR. However, they may have re-used it elsewhere.
Premium content | Economist.com
The subprime meltdown, continued
Bearish turns
Jun 21st 2007 | NEW YORK
From The Economist print edition
A prominent hedge fund's implosion revives fears about the poisonous influence in America's subprime-mortgage market
Here come the regulators.
To re-phrase Warren Buffett: the tide is going out and we are going to see who has bare sterns.
rc,
Thanks for thinking of me! I'd already ran across that article elsewhere, but it doesn't hurt to link it here.
banker said: "These securities are effectively private placements, though they are registered. Private placements are notoriously tough to mark to market because they simply don't trade much. All marks are guesses, maybe good ones, but guesses nonetheless..."
In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas. Absolutely the top commissions of any products we sold, and the vehicles never traded so the investors never knew what the value was until the term of investment was over, typically several years.
Good times.
Sebastia
As I had said previously, HY spreads are widening. I have seen some "yields", not spreads move over 100 bps in the last 4 weeks or so.
Tresuries are moving lower, the 2's and 10's are tightening, albeit at a slower pace than I had thought due to the flight to the short end in search of safety.
Still say, curve inverts near-term, next three to 4 weeks are extremely important due to the need to fund deals, the most important being the Chrysler deal.
tj-
I knew you'd like the "d" word, probably sent shivers through your body when you read that the first time, eh?
Sebastion said "In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas. Absolutely the top commissions of any products we sold, and the vehicles never traded so the investors never knew what the value was until the term of investment was over, typically several years.
Good times.:)"
Looks like the similiar "good times" in subprime cdo's are over.
Wally said...
"... the tide is going out and we are going to see who has bare sterns."
Good one!
Banker,
Do I detect rising concern in your tone?
I see the corporate debt cover up (and eventual crackup) as analagous to the residential housing blowup. The last few years of loans were just plain dumb and dumberer. Buying residential properties at top of the market by adding more and more borrowers with worse and worse credit, banking on appreciation to bail them out became an inevitable disaster if incomes & rents werent rising in tandem. I never thought yields on residential properties could get down to 3% but sure enough, they did. Same thing in a different way happening with commercial RE and corporate deals. I told clients as early as 2003-4 that the residential bubble had to deflate and was two years plus early on that call. That was based on my guess that credit just couldnt get any looser, but man, was I ever wrong on that call. Must have been my mistaken belief that someone would step in and end the madness, but clearly I wasnt cynical enough then to see how much money was being made on the whole racket. Finally, at the end, after pulling every trick you can get to bring in more mortgage money, not even fraud could keep prices going up 15% a year, and at that point, the whole thing unraveled. But it could have happened when I thought, if bubblehead Greenspan or anyone else who could have put and end to the madness decided to regulate things a bit and not let it go completely over the top.
No reason that shouldnt happen with all this other crap too. If prices of CRE keep escalating, people will find a way to justify the deal (trust me, Ive seen it up close in person), but those deals in retrospect will look pretty much insane because they are priced beyond perfection at this point. When the rest of the bubbles bust, it will just be a matter of timing and what is the trigger. Obviously in this case no one is going to change lending standards, so it will have to be some kind of other credit tightening event that triggers it, perhaps ratings changes, but that looks iffy given the conflict of interests. Perhaps a few more blown deals that spread through the system, heck I dunno. What worries me is that when this stuff unravels the contagion, the stock market blowup, and the job loss and all the other stuff that is associated it will happen much faster than the two years its taken to start seeing the damage, as it is with the residential market.
The way BS is papering over the losses and hiding the real values makes me think that this type of behavior will eventually be proven to have been incredibly widespread. But what other recourse do they have at this point? The best bet now is to try and hide this junk through obfuscation for as long as possible and pray a bottom to the underlying collateral is found and that they can weather the storm. But I think the bottom is very far off and the true state of residential mortgage credit will turn out to be much much worse when all is said and done, and they wont be able to paper things over long enough to prevent the unraveling.
So f
RiskC
"Still say, curve inverts near-term, next three to 4 weeks are extremely important due to the need to fund deals, the most important being the Chrysler deal."
Agree. Although, I suspect First Data will be more important and will result in some hung bridges.
"I think this picture from the Economist sums it up beautifully."
ac | 06.25.07 - 5:16 pm | #
It makes a beautiful background for my screen. Thank You
rcyran-
you could very well be correct, I picked Chrysler just due to the size of what is needed.
The commodities move across the board this morning suggested further hedge trouble, it would not surprise me at all at this point due to the nervousness that is prevalent to see any one of these deals fall apart.
In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas. Absolutely the top commissions of any products we sold, and the vehicles never traded so the investors never knew what the value was until the term of investment was over, typically several years.
Good times.
Sebastian
I'm happy to say that I've protected a few clients from people like Sebastian in my career. Still, there are plenty, maybe a majority, that prefer the slick marketing material and pressure sales to my boring facts.
"I'm happy to say that I've protected a few clients from people like Sebastian in my career."
Were they children? I didn't realize that adults needed "protection", apart from the Benjy Compson types...
Not protection but accurate information which is lacking.
Transparency is to accuracy as opacity is to losses.
Pat,
Anytime the feds get involved things get very unpredictable. They are bureacrats and politicians. As far as the hedge funds go? Bear will get out without putting up much, if any actual cash is my guess.
I still think I'll get to come here in a couple of weeks and ask (for the fitieth time) "has the sky fallen yet?"
But with thefeds in the loop, I am somewhat less comfortable than a few days ago.
it's all too big to fail. The SEC, nor anyone else for that matter, will do a god damn thing...nothing, zilch. Count on it. Anything affecting the wall street den of thieves will be covered up behnd closed doors. Yes, rumors of intervention, cover up etc. will fly around, but just rumors they will be absent of any proof. Too big to fail since it's all ultimately based on nothing that resemble reality just subjective models the input of which in turn motivated by the maximization of management greed. aka, the whole can of worms all based on nothing but a bunch of BS crap. The SEC knows. The Fed knows it. The entire investment bank industry knows it. The industry mortgage industry knows it. The rating agencies know it. But each of them profit from it. Even the investors know it. But if they can profit too, then what the hell I guess, eh? Fundamentals don't seem to matter anymore in today's world, smoke and mirrors and perception rules. Too big to fail, too many people to benefit from continuing the facade. Nice world we live in.
Banker said: I still think I'll get to come here in a couple of weeks and ask (for the fitieth time) "has the sky fallen yet?"
Perhaps you should pay more attention. It'll save you some trouble.
The claim is that the ceiling (not the sky) will descend very gradually (per CR's "real estate prices are sticky") for 3-5 years (per the cyclic nature of real estate prices depicted in CR's trademark graph that overlays recessionary periods).
Curious,
A long time ao I called for a 5% decline in nominal terms followed by flat nominal prices for the forseeable future (5 ish years).
My issue is with those here who see a depression, financial collapse, dogs and cats sleeping together etc behind every negative event, large or small.
"Not protection but accurate information which is lacking."
Exactly, DD. The vast majority of those bogus real estate and oil & gas LP's were nothing more than uber-leveraged tax dodges which TRA '86 blew out of the water, leaving a huge number of unsophisticated doctor-type investors with dramatic out-of-pocket losses long after the general partners had taken their cut and run. I had many clients who invested in these against my advice.
A long time ao I called for a 5% decline in nominal terms followed by flat nominal prices for the forseeable future (5 ish years).
My issue is with those here who see a depression, financial collapse, dogs and cats sleeping together etc behind every negative event, large or small.
The wild card is the leverage. If it doesn't prove to be a 'problem'... we'll all laugh about this later... you know, we were all so silly to worry.
If the leverage does trip domino after domino - then it will be a mess. Feds won't be able to 'regulate' this genie back into the bottle.
I sure don't know how its going to end. Thats why this is one of my rounds (along with Setser).
"As far as the hedge funds go? Bear will get out without putting up much, if any actual cash is my guess."
"My issue is with those here who see a depression, financial collapse, dogs and cats sleeping together etc behind every negative event, large or small."
Yes. You are the perfect Thanksgiving turkey (to paraphrase Nassim Taleb). That nice farmer is just swell. He feeds and clothes us. All those bad turkeys that worry just fail to appreciate that the trend is definitely positive!
IMHO there are two wild cards.
One is the leverage.
The Second is the model of models paradigm where exact or even approximate knowledge of values and risks do not exist and we see 90% or so markdowns and formally folks in the know standing around shuffling their feet and thinking up excuses.
Leverage is a known risk and can be somewhat understood.
The failure of the second means loss of confidence and panic.
To use a military example, you lose more folks in a panic retreat than in the battle before hand. Panics do not happen when there is confident leadership and the trust of the men. But when the leadership is questionable, there is no trust, then disaster.
Likewise when folks have trust in the leaders, then actions, even if partially wrong are taken, folks follow. But when that trust is lost in the leaders, then it becomes every man for himself.
Dryfly,
I don't think leverage is the wild card. It is what it has been for several years now. Liquidity. Of course we may be singing from the same songsheet in different keys. One thing is abundantly clear. If bear can go from $3.2 billion to $1.6 billion in 48-72 hours, there are still ready buyers for these sorts of securities. Now I have no idea what expected rates of return they are demanding and how different those are from where they were sold, but folks are clearly buying this stuff. This really does smell like Leon Black and the HY problems of the 1990's over again.
George,
I haven't the foggiest idea what you are saying, or trying to say. Sorry.
Less than 2 weeks ago, BSC earnings were below Street consensus on June 14th, and intra-day, on that day, the stock traded down to 146 the buck. Go back and read the earnings release and commentary afterward. Little mention of the mortgage hedge fund debacle. But plenty of commentary about BSC problems going forward with their heavy emphasis on bond and mortgage-related sales, trading and underwriting business.
Now, with BSC in the midst of a day-to-day, hour-hour struggle to "right the ship", during the mortgage hedge fund crisis, the stock is trading only ~5% of its post-earnings intra-day low. Arguably, the stock price could easily be trading here ON BSC EARNINGS MISS AND OUTLOOK ALONE! Add in the dangerous subprime liquidity scare that the Company is currently undergoing, and who knows where the bottom might be......
From a longer term perspective, remember that just 2 years ago Bear stock was trading down ~40 points from where we are tonight, at ~100 at the time. And just 2 years before that, Bear stock was trading down another 40 points, at ~60 at the time.
Prior to recent events, BSC's impressive stock performance over this particular time frame (2003-2007) is understandable given that it was achieved during what was arguably the greatest housing, lending & mortgage finance boom in the history of our country.
Truth be told, Bear is a bond trading and mortgage house, and last time one checked, the bond and mortgage market continue to sour with rates rising, the housing recession worsening and mortgage spreads (risks) widening (increasing).
From a pure business model perspective, it is simply not a pretty picture for BSC's shareholders going forward, regardless of whatever the final resolution/workaround/outcome is to the current mortgage hedge fund disaster.
IMHO
Good luck to all
Do your own due diligence
banker, if you can't figure out what George is saying, it says quite a lot about you. Perhaps you are just being sarcastic.
In a previous life as a stockbroker I occasionally sold LPs in real estate and oil & gas
I knew there was a reason why OLDE went tits up:)
Banker, I like your level-headedness.
Thank you for your comments.
Banker,
I saw the killings made buying Exec Life and other HY and reselling it later. But I live in bubbly So. CA and I can see there really is completely junky 2005 and 2006 mortgage debt in the system, with 2004 and earlier at some risk also. It may be localized to certain regions and years, but big hunks of this are truly junk, and I think it will have a lasting sting.
patientrenter
Banker: I don't think leverage is the wild card. It is what it has been for several years now. Liquidity.
toe-may-toe toe-mah-toe
Back in my free-lunch accelerator lab, I've resorted to colliding monetary theory research papers together. In the ensuing explosion of bullshit, I've been looking for traces of the elementary particle known as "money".
The problem is that it exists for only a short time -- until it is inflated away by the background bullshit emitted from central banks.
Looks kinda like Enron before their great fall:
BSC - Deutsche Bk Ag Ldn Brh Stock Charts - CNNMoney.com
Lest we forget, Bear Stearns is not only in deep trouble with its two hedge funds, but also has a failed IPO, Everquest, in which it has a $400 million equity stake.
Funds' Woes Didn't Deter A Stock Offer - NY Times
That is the number I tossed out here on June 18th when I speculated that the IPO was dead on arrival. You must also add to that the $149 million that Bear Stearns loaned to Everquest to purchase junk from the two hedge funds. You'll find both numbers in the SEC filing.
Having accepted responsibility for the "high grade" fund, and offering to provide it with a facility "up to" $3.2 billion, they are going to have difficulty avoiding some kind of responsibility for the leveraged fund.
Their risk exposure goes beyond the $3.2 billion, which is approximately equal to 23% of their 2006 net worth. Let's see, $3.2 + $.4 + $.149 = $3.749 billion at risk. $3.749/$12.1 (2006 net worth)= 31% of their 2006 net worth.
You can argue over the numbers, but they are in deep trouble. It's not an exaggeration to say that the sky fell on Bear Stearns, and it's not over yet. There will also be a shock wave.
Is it a Kreditanstalt-type event? Quite possibly. I don't think the last three days of results on the European and Asian exchanges have been a coincidence.
The smartest guys in the room? Please.
rc,
I take no joy in being right.
As things progress, you'll come around to my position, too, and you won't be happy about it either.
banker,
I've not seen doom hiding behind any prior events. I'm a very optimistic person by nature, and live a good life. That said...
There is no single overriding reason for the pending Greater Depression; it's more like a unique confluence of economic circumstances -- a "perfect storm", if you will. I guess that's what makes it so hard for so many to see. Sigh.
"One thing is abundantly clear. If bear can go from $3.2 billion to $1.6 billion in 48-72 hours, there are still ready buyers for these sorts of securities. "
You are making an assumption that the only thing in these funds where "these sorts of securities." That is false. There were also other, more liquid stuff, having nothing to do with housing. These were liquidated.
mp:Lest we forget, Bear Stearns is not only in deep trouble with its two hedge funds, but also has a failed IPO, Everquest, in which it has a $400 million equity stake.
Topedoes away!
Uh, captain, we have a problem...
mp: Is it a Kreditanstalt-type event? Quite possibly.
And what do you tell all the pissed off people? Who has the best story going forward if things ends up as tj suggests?
Hey everybody, look, we've finally decided to mark this shit -- your reality -- to market. All this money that everybody owes each other... well most of it doesn't really exist.
I think the war might be just getting started...
"I still think I'll get to come here in a couple of weeks and ask (for the fitieth time) "has the sky fallen yet?""
Look, the facts are now clear, you CANNOT keep this shit on your balance sheet forever, there are massive writedowns coming, you had better face that fact.
The REO's are a problem, the loans held for sale are a problem, NPL's are growing (this is a credit problem in general, there is no facet that will be immune), and the CDO's are a problem.
You had better take a deep breath and wake the hell up.
commercial stress-
The resource cannot be found.
"A long time ao I called for a 5% decline in nominal terms followed by flat nominal prices for the forseeable future (5 ish years)."
Banker, that is sort of a traditional view - that 'real' prices are where the adjustment happens. But that does assume some 'real' wage growth over those 5 years. We haven't had that kind of a world for a while. It will be hard for income to catch up to houses if income stays stagnant in real dollars.
a,
Evidence please?
RC,
Great argument, really (rolling eyes)