My country is an interesting contrast to the US housing market.
70% of housing is built and sold by the government, YES the government, directly to the public. This provides a glass ceiling to how high priavte housing can go.
My local governemnt allowed the use of our pension fund to be used for the purchase of property. As a result, property market movements have more limited impact on consumption vs US where Americans pay cash for their mortgages.
So, the US governemnt can, with a lot of work, allowed Americans to use "part" of their pension to pay for their mortgage. This could be a last resort measure to keep people in their house.
But again, people would then retire with a house and NOTHING. I guess in all things, there are after-effects.
So no Daimler. One reason this is being floated in the press is so the banks can determine whether or not the investors who have verbally committed to an order will "stick" if the deal isn't fully sold. They will know that the rest of the "first-loss" bond will be coming out at some point when the market returns to some semblence of normalcy.
My guess is many will use this to either walk or ratchett pricing/call protection up another notch.
Let me explain why I think this deal won't happen. It seems to me this is a planted story. This is the best way to reach all possible buyers before the open and to give them time to think about a specific proposal. That is a $4-$5 billion deal on the automaker with the banks swallowing what is effectively a subordinated note under them. The banks aren't close enough to a deal to be able to organize a small series of calls to negotiate with a small group of buyers(the way things in markets like this usally get done). As I said earlier, the deal is simply to big. This smells like a last gasp effort to me. They also probaly beleive (rightly is my guess) is that if they can get the automaker done the finance deal will fall into place.
Couple of questions please:
1) Any recommendations on good middlebrow books re 1929 WS crash et seq please? And any suggestions on which aspects of that (e.g. personal credit) might or might not have an echo in the near future?
2) If there was (from 2002-?) a flow of (increasingly dodgily leveraged) capital into RE, now reducing fast, to what sector is it perhaps being directed at the moment? Anywhere? And with or without continued dodgy leverage?
i.e. What gives, basically? No rocket science please Thanks
Radian put out some really bad numbers after market yesterday. This is sure to weigh on the credit markets today. Can somebody with some mortgage industry experience look at their release and see if more bad news is hidden in the numbers ? Also, CFC's numbers had a huge increase in valuation of Mortgage Servicing Rights which I found hard to explain.
The headwaters of this vast stream of "liquidity" remain largely uncharted. To the extent that the stream is fed by petrodollars, capital flight and suchlike, it will not cease to flow simply because credit markets become unattractive. It will continue to seek a return. After pooling in money market and government bonds for a while, it just may overflow into equities. The alternatives, at this point, appear to be limited.
In this case CFC most certainly wrote up their MSRs to generate accrual income to help offset their otherwise putrid results.
There have been some studies done to try to assess the impact of growing defaults on MSR values. Generally this results in higher collection costs, and shorter repayment periods. Both tend to reduce MSR valuation.
It does seem odd that they're writing up the MSRs, unless you believe they're just trying to juice the earnings in which case it makes perfect sense.
Later, they can always write then down again, once the good times return.
The only point I would make is that there is no "devalue" button to push. Liquidity ends up driving output, prices, or both. Nobody gets to decide how that works out. We also don't get to decide whether asset price appreciation slops over into goods and services prices. So I agree that inflation is a risk, but "devalue the dollar" sounds like an act that somebody undertakes. We all do, in a sense, but nobody in particular does.
Picture a man swinging a yardstick by flicking his wrist. The part close to his hand barely moves, the end part moves in a wide arc.
That arc is what the markets, and Banker (with quite lucid thinking), are having to contend with. Do we discount a wide arc down? Or do we focus on near-term stability (i.e. "containment"). Such a difficult choice, which is why we see more day-to-day volatility.
At some point the market's vision moves out further on the yardstick. This can occur gradually, with lots of "signals"; or it can occur in a violent, even excessive, move down.
Some of us have argued that the nature of a correction (violent or gradual) is determined by system-wide leverage. The great unwind, particularly given the illiquidity of credit derivatives, is likely to be driven by hedge fund redemptions. This is much like the multiple runs on banks that we saw in the period 1850-1929, before the advent of deposit insurance.
In other words, it is likely to be violent. And with such corrections, you have to prepare in advance -- no time to react during. So that's the choice: prepare now, or suffer along with the bulls, even while being less optimistic then they. Which course to take?
The great unwind, particularly given the illiquidity of credit derivatives, is likely to be driven by hedge fund redemptions. This is much like the multiple runs on banks that we saw in the period 1850-1929, before the advent of deposit insurance.
In other words, it is likely to be violent.
Very nicely stated, David. I think you're on to something with that.
P.F. Chang's said customer traffic to its restaurants has trailed expectations. Many restaurant operators have reported challenging conditions as customers feel the pinch from high gasoline prices and housing-related financial issues.
Sorry, Ben, but you better not expect the consumer to bail you out this time.
Could be right, Banker. Take that story at face value and the banks would obviously be fools to tie themselves up in a poor deal in a declining economy - which is how prudence would dictate you must evaluate the environment.
The part that triggered my saywhat meter was this sentence, particularly the part I emphasize:
That sale isn't expected to be as difficult, because much of it will be backed by healthy Chrysler auto loans.
Waitaminute. They need the loan to pay off an outstanding loan, but their loans are healthy? Ummmm, right. I know this happens, but it always smacks of the people who use credit card A to pay off credit card B. Or refi their mortgage to pay off the existing car/TV/boat/etc. loan (to stay relevant to the site).
At what point do the banks realize there are no customers for these products (OK, no customer's that want the risk their selling at the price it's offered)?
If you're expecting to see this end with a big pile-up on the debt superhighway, it looks like you're going to be disappointed. More and more it's starting to look like this journey is going to be canceled for a lack of drivers and passengers (investors). No pile-up, just an empty road.
CousinJack,
John Kenneth Galbraith's (1954) book, "The Great Crash 1929," is often recommended as the best combination of data and accessible writing for non-economists but some of Galbraith's interpretations remain controversial among neoclassical economists (Galbraith was focused on sociology to the point it could be argued he was probing the edges of what is now behavioral economics).
In any case his text should probably be balanced with a more detailed historical work that does not agree with his conclusions such as Harold Bierman's (1992), "The Great Myths of 1929 and the Lessons to be Learned." You might prefer this if your main interest is the precise sequence of events leading to the crash as opposed to Galbraith's broader strokes which, IIRC, begin with the Florida Real Estate Crash of 1925.
Others here may have more and/or better recommendations.
Speaking of the 1925 Florida crash, now there was a REAL bubble: 5,000% gains and more between 1922 and 1925 followed by 90% losses and greater less than a year later. Wow!
Are you saying that the Chrysler financial deal is dependent on getting the automaker deal done? I was under the impression that they were separate, and that the one would happen regardless.
who wants a moldy hot dog??? not me!
My country is an interesting contrast to the US housing market.
70% of housing is built and sold by the government, YES the government, directly to the public. This provides a glass ceiling to how high priavte housing can go.
My local governemnt allowed the use of our pension fund to be used for the purchase of property. As a result, property market movements have more limited impact on consumption vs US where Americans pay cash for their mortgages.
So, the US governemnt can, with a lot of work, allowed Americans to use "part" of their pension to pay for their mortgage. This could be a last resort measure to keep people in their house.
But again, people would then retire with a house and NOTHING. I guess in all things, there are after-effects.
Asia stcok markets are saying that the Americans are over reacting to their small problems.
Asia markets are down about 0.5% today, with the counter flow of the Shanghai index up 1.6%, in their usual mocking of the Americans.
Can't wait for the week to unfold.
Previously posted on another thread
So no Daimler. One reason this is being floated in the press is so the banks can determine whether or not the investors who have verbally committed to an order will "stick" if the deal isn't fully sold. They will know that the rest of the "first-loss" bond will be coming out at some point when the market returns to some semblence of normalcy.
My guess is many will use this to either walk or ratchett pricing/call protection up another notch.
I still don't think this deal clears.
Here's the rest of it:
Let me explain why I think this deal won't happen. It seems to me this is a planted story. This is the best way to reach all possible buyers before the open and to give them time to think about a specific proposal. That is a $4-$5 billion deal on the automaker with the banks swallowing what is effectively a subordinated note under them. The banks aren't close enough to a deal to be able to organize a small series of calls to negotiate with a small group of buyers(the way things in markets like this usally get done). As I said earlier, the deal is simply to big. This smells like a last gasp effort to me. They also probaly beleive (rightly is my guess) is that if they can get the automaker done the finance deal will fall into place.
We'll see.
Couple of questions please:
Thanks
1) Any recommendations on good middlebrow books re 1929 WS crash et seq please? And any suggestions on which aspects of that (e.g. personal credit) might or might not have an echo in the near future?
2) If there was (from 2002-?) a flow of (increasingly dodgily leveraged) capital into RE, now reducing fast, to what sector is it perhaps being directed at the moment? Anywhere? And with or without continued dodgy leverage?
i.e. What gives, basically? No rocket science please
Radian put out some really bad numbers after market yesterday. This is sure to weigh on the credit markets today. Can somebody with some mortgage industry experience look at their release and see if more bad news is hidden in the numbers ? Also, CFC's numbers had a huge increase in valuation of Mortgage Servicing Rights which I found hard to explain.
The headwaters of this vast stream of "liquidity" remain largely uncharted. To the extent that the stream is fed by petrodollars, capital flight and suchlike, it will not cease to flow simply because credit markets become unattractive. It will continue to seek a return. After pooling in money market and government bonds for a while, it just may overflow into equities. The alternatives, at this point, appear to be limited.
Welcome to ENRON 101
In this case CFC most certainly wrote up their MSRs to generate accrual income to help offset their otherwise putrid results.
There have been some studies done to try to assess the impact of growing defaults on MSR values. Generally this results in higher collection costs, and shorter repayment periods. Both tend to reduce MSR valuation.
It does seem odd that they're writing up the MSRs, unless you believe they're just trying to juice the earnings in which case it makes perfect sense.
Later, they can always write then down again, once the good times return.
The comment about "liquidity" is interesting.
It's really "dollar liquidity" isn't it?
It's cajillions of dollars sloshing around.
Devalue the dollar, and liquidity is no longer a problem.
Devalue the dollar and inflation is a really big problem in the US.
Oh, of course, the US has an incredible industrial base that will pull the country forward if the dollar is devalued.
Well, actually, it used to have an incredible industrial base. Somehow the base got outsourced.
But, will the DJIA hit 15,000? As Yogi Berra said, if the fans don't want to come out to the ballpark, we can't stop 'em.
Arbogast,
The only point I would make is that there is no "devalue" button to push. Liquidity ends up driving output, prices, or both. Nobody gets to decide how that works out. We also don't get to decide whether asset price appreciation slops over into goods and services prices. So I agree that inflation is a risk, but "devalue the dollar" sounds like an act that somebody undertakes. We all do, in a sense, but nobody in particular does.
Picture a man swinging a yardstick by flicking his wrist. The part close to his hand barely moves, the end part moves in a wide arc.
That arc is what the markets, and Banker (with quite lucid thinking), are having to contend with. Do we discount a wide arc down? Or do we focus on near-term stability (i.e. "containment"). Such a difficult choice, which is why we see more day-to-day volatility.
At some point the market's vision moves out further on the yardstick. This can occur gradually, with lots of "signals"; or it can occur in a violent, even excessive, move down.
Some of us have argued that the nature of a correction (violent or gradual) is determined by system-wide leverage. The great unwind, particularly given the illiquidity of credit derivatives, is likely to be driven by hedge fund redemptions. This is much like the multiple runs on banks that we saw in the period 1850-1929, before the advent of deposit insurance.
In other words, it is likely to be violent. And with such corrections, you have to prepare in advance -- no time to react during. So that's the choice: prepare now, or suffer along with the bulls, even while being less optimistic then they. Which course to take?
The great unwind, particularly given the illiquidity of credit derivatives, is likely to be driven by hedge fund redemptions. This is much like the multiple runs on banks that we saw in the period 1850-1929, before the advent of deposit insurance.
In other words, it is likely to be violent.
Very nicely stated, David. I think you're on to something with that.
P.F. Chang's Lowers Full Year Outlook, Anticipates Sluggish Sales at 2 Key Chains
P.F. Chang's said customer traffic to its restaurants has trailed expectations. Many restaurant operators have reported challenging conditions as customers feel the pinch from high gasoline prices and housing-related financial issues.
Sorry, Ben, but you better not expect the consumer to bail you out this time.
Could be right, Banker. Take that story at face value and the banks would obviously be fools to tie themselves up in a poor deal in a declining economy - which is how prudence would dictate you must evaluate the environment.
The part that triggered my saywhat meter was this sentence, particularly the part I emphasize:
Waitaminute. They need the loan to pay off an outstanding loan, but their loans are healthy? Ummmm, right. I know this happens, but it always smacks of the people who use credit card A to pay off credit card B. Or refi their mortgage to pay off the existing car/TV/boat/etc. loan (to stay relevant to the site).
drip... drip... drip....
I keep reading this phrase:
...investor demand hasn't been strong enough.
At what point do the banks realize there are no customers for these products (OK, no customer's that want the risk their selling at the price it's offered)?
If you're expecting to see this end with a big pile-up on the debt superhighway, it looks like you're going to be disappointed. More and more it's starting to look like this journey is going to be canceled for a lack of drivers and passengers (investors). No pile-up, just an empty road.
But, will the DJIA hit 15,000? As Yogi Berra said, if the fans don't want to come out to the ballpark, we can't stop 'em.
Ninety percent of investing is half mental.
CousinJack,
John Kenneth Galbraith's (1954) book, "The Great Crash 1929," is often recommended as the best combination of data and accessible writing for non-economists but some of Galbraith's interpretations remain controversial among neoclassical economists (Galbraith was focused on sociology to the point it could be argued he was probing the edges of what is now behavioral economics).
In any case his text should probably be balanced with a more detailed historical work that does not agree with his conclusions such as Harold Bierman's (1992), "The Great Myths of 1929 and the Lessons to be Learned." You might prefer this if your main interest is the precise sequence of events leading to the crash as opposed to Galbraith's broader strokes which, IIRC, begin with the Florida Real Estate Crash of 1925.
Others here may have more and/or better recommendations.
Speaking of the 1925 Florida crash, now there was a REAL bubble: 5,000% gains and more between 1922 and 1925 followed by 90% losses and greater less than a year later. Wow!
Banker,
Are you saying that the Chrysler financial deal is dependent on getting the automaker deal done? I was under the impression that they were separate, and that the one would happen regardless.
RW - much obliged for the pointers.