Did someone forget to send Bair the "contained" talking point memo?
My thought exactly. This is sounding more and more like Alphonso Jackson in HK this morning. Surprise! Alphonso is going to Beijing to peddle paper "backed by the full faith and credit of the United States government."
Last time I heard that phrase was during the S&L fiasco.
Regulators: No Bear Stearns fallout
Meltdown of hedge funds invested in subprime mortgage bonds don't pose broader risk, but bear watching, regulators say.
"LONDON (CNNMoney.com) -- Financial markets have weathered the recent meltdown of two hedge funds at Bear Stearns but it's unclear what impact these sorts of blowups will have on the broader market when economic conditions shift, regulators told lawmakers Wednesday.
The impact of the implosion of the Bear Stearns funds appears to be "limited," Erik Sirri, director of the division of market regulation at the Securities and Exchange Commission, said."
...
"Federal Reserve Governor Kevin Warsh said problems in the subprime mortgage market were not leading to any "immediate systemic risk issues." But the pain from the subprime fallout is not over, he added.
Regulators testified at a House Financial Services Committee hearing - one of several on hedge funds and private equity firms, which have become dominant forces in the financial markets.
Recent meltdowns like the ones at Bear Stearns and the implosion of Amaranth last year have raised scrutiny of the rapidly growing hedge fund industry, whose assets under management have ballooned to $1.6 trillion, according to some estimates.
"I think we have an uneasy consensus that there is a potential problem here that we wish we were more sure about how to approach," said Rep. Barney Frank, the committee's chairman."
CR, I thought you might want to take a look at this: Based on the fact that house prices have not declined very much for most consumers and that household wealth continues to grow, especially for those households that account for the largest share of aggregate consumption spending, it seems unlikely that we will see significant spillover effects on aggregate consumption from the housing sector. Moreover, strong employment growth, averaging 145,000 jobs per month so far this year, will support personal income growth, which in turn will continue to support healthy consumer spending.
So far, then, the troubles in the housing sector and the end of the boom in house prices have not had the dire consequences many feared for the overall U.S. economy, although it has contributed to a slowing of economic growth during 2006 and so far in 2007.
I don't have a lot of confidence in this assertion. Comparing retail sales and consumer credit through May, it looks to me like the correlation between consumer debt and consumer spending is getting stronger this year. That makes sense, considering that the ability to spackle financial cracks with MEW is declining. It isn't, however, a very positive predictor of future consumer spending.
Consumers have been deficit spending. They continue to deficit spend. And now they seem to be doing it with short-term debt which catches up with them a lot more quickly. Based on the data through May, it looks to me as if the housing market is having an effect and it is one that would indicate that things are due to get worse for retail, rather than better.
ews seems to be on most wires now. don't see the halt in slm, however. are the indices caught like a deer in the headlights? that's what seems to be not reacting... or moving higher (how is it done???)
Sallie Mae Is Told Legislation May Scuttle Buyout (Update1)
By Robert Greene
July 11 (Bloomberg) -- SLM Corp. was told by the group planning to acquire the company, known as Sallie Mae, for $25 billion that pending student-loan legislation in the U.S. House may scuttle the deal.
``Sallie Mae strongly disagrees with this assertion,'' the company said today in a statement carried by PR Newswire. The shares of the Reston, Virginia, company fell as much as 15 percent before trading was halted for the statement.
The House is debating a measure that would cut U.S. subsidies to lenders including Sallie Mae, which originates and services student loans. President George W. Bush has threatened to veto the measure.
The buyout group, led by J.C. Flowers & Co. in New York, said it believes that the current legislative proposals in the House and the Senate ``could result in a failure of the conditions to the closing of the merger to be satisfied,'' according to the statement from Sallie Mae.
History doesn't repeat itself, it rhymes. I think that 2007's "It's just a couple of funds at Bear Sternes and some subprime shops." rhymes rather well with 1985's "It's just Merrit Savings and loan and a few other thrifts in MD and OH."
MaxedOutMama, my guess is we are seeing the impact of the housing slump on consumer spending in Q2. The timing is about right - and it makes sense that less MEW would impact consumption. Of course, I realize it might just be a one quarter slowdown in PCE growth. That will make Q3 very interesting.
Plosser is correct when he says:
"So far ... the troubles in the housing sector and the end of the boom in house prices have not had the dire consequences many feared for the overall U.S. economy ..."
But I think the key words are "so far". Many people (and at times me) kept expecting events to happen at a quicker pace - and then we remember housing is a slow motion train wreck. That is good news too - the longer it takes to play out, the better the rest of the economy can absorb the blow.
MOM, you must have really appreciated Warsh's speech, especially this line:
The Board believes that the "Principles and Guidelines Regarding Private Pools of Capital" issued by the President's Working Group on Financial Markets (PWG) in February provides a sound framework for addressing these challenges associated with hedge funds, including the potential for systemic risk.
'sound framework' = let them regulate themselves
There is not an enema big enough for the giant a@#$@#$ in Washington.
Massachusetts Gov. Deval Patrick
said the state would mount a $250
million bailout fund to help borrowers
move out of their subprime mortgages
into other loans.
Let the bailouts commence.
Is there a State Income Tax Withholding option where we can have our taxes witheld directly by our loan servicer, instead of going indirectly through the state? It'd be so much more efficient.
Banker - can you summarize the WSJ piece - I don't have a subscription to WSJ (not my fav - I prefer Economist, NYT and of course FREE STUFF).
Did a quick google news & didn't see anything that changed my opinion of the buy back except maybe strengthen it. And with oil going to (maybe) $80 they all ought to be redoubling exploration efforts using their own cash, borrowing, Aunt Mae's mattress, whatever - just stay away from Venezuela, let Hugo look for himself there & make the big money.
Wow...there are lots of Golden State Mortgage hits in google....these guys were top (http://www.gsmt.com) buy I didn't see anything below 6%....it's nice to see that credit is tighter though - see:
We Have a Complete Range of Programs
We're known for our diverse selection of loan products. Whether you're a first-time home buyer looking for a special financing program to assist you with a no-down-payment loan, or an investor seeking to finance a fixer-upper fourplex, we have the programs to suit your needs. So, if you're looking to purchase or refinance a residential property, chances are we'll have just the program to fit your needs. And because we make all the decisions, in-house, you're going to like what you hear!
Conventional Financing
* Purchase and refinance loans
* A-D credit graded programs
* Cal PERS programs
* 100% purchase financing (No down payment)
* 95% Stated Income programs
* "No Doc" programs
* Programs for credit-challenged borrowers
* 125% debt consolidation loans
* Non-Owner Occupied / Investment
FHA Financing
* Owner-occupied purchase and refinance loans
* 203K Rehabilitation loans
* Title I Home Improvement loans
I'm pretty sure the deal on the "0.375% I/O" loan is this:
It's a neg-am with a minimum payment rate of 0.375%, interest only.
So, as opposed to a normal neg-am (where the minimum payment rate was calculated using a "fully-amortizing" payment schedule at a low low interest rate...see neg-am for ubernerds), the minimum payment is 0.375% of the principal per annum.
I don't know what the loan balance cap is, but it is a pretty low LTV limit.
Go long SRS or short URE (I have done both). Then buy the cheapest out-of-the money puts on each one of the homebuilders for Jan or Feb expiration. Have not had much luck shorting the originators (with hedge funds making foolhardy buyouts). Second quarter reporting soon !
Despite all the bad news I still don't see any meaningful price declines in desired areas. With all the bad news, you would think it makes a difference. I just wish they would budge more, so we can afford to buy without going unreasonably into debt.
Did you notice more price action into the right direction in Arizona? Is zillow behind the curve?
Clyde, I've looked at the ETFs in the past but somehow, not liquid enough for me to feel good about trading them. I already have a basket of HBs since Feb - all in good shape except I missed out on MTH. Can't complain, although I hear you about the lenders. I got screwed on AHM June20s that expired a few days before the recent meltdown. Still holding IMB and DSL but they're coiled springs. Maybe the coming ratings downgrades will untie the last shoe so it drops finally...
I'm still not sure REO / foreclosures will be such a great deal, particularly reading Sensible Lender's posts. We've got to search by all means possible, though.
AFBIX follows the abx index perfectly. it buys cds and stands for Access Flex Bear High Yield Inv via ProFunds.
joe,
there was an article yesterday about how the high end markets 1-2M range are doing quite well with even some appreciation. but the low, middle and extremely hi end are deflating. just one more example of class warfare.
I agree that SRS is a good ETF. I have some in a Roth. It doesn't fill as quickly as a liquid stock, but that should not be a problem for a medium term holding. It's definitely a good choice if you don't plan to diversify with options.
Unlike advise above, I prefer to buy at the money or in the money puts with about 3 or 4 months expiration. For options with high volitility, like IMB, I recently bought the 35 strike (with the stock at 30.5). Buying further in the money means that you pay less for time and volitility. In the last few months I have been lucky, buying at the money HOV Aug 25 puts (now at $16 stock price) and a dollar in the money sept MTH 30 puts. If you pay more money and buy some delta (at or in the money), you do not need big moves to make 100-200%. On the other hand with out of the money puts, you might make 400% plus on big moves.
Yesterday I was up 30-50% on RKH puts (Regional Bank Holders). The whole banking sector is very weak (nearly all regions in the lowest 10% of 197 IBD sectors). If you think that banks will continue to decline (I do)buy some RKH puts. I am holding August 160 and 165 strikes (bought at the money) and may by some October strikes before long.
AFBIX as far I understand the prospectus invest in CDS of the CDX index (High Yield American corporate bonds). This fund is not leveraged and the rise in spread on the CDX index would mildly increase the value of the fund. I thought about this fund but the minimum initial purchase ($15,000) and pretty high expenses put me off.
can anyone offer an opinion as to why the credit crash which we are witnessing is not going to run to completion?
is it because this stuff sort of flies under the radar since it is not quoted every 5 minutes on cnbc that nobody really cares that it is imploding?
i get the feeling we have already passed the point of no return. not so much because these credits might be mis-pricing potential default risk, but simply because too many people want out of this stuff at the same time because they are going down in price and the whole world trades with stop loss parameters. maybe the japansese central bank will raise rates today and everyone can blame the wipeout on them.
I think you're right to worry about counterparty risk. The fact is that the buyers of CDS are actually accepting the contingent liabilities of levered, probably irresponsible, hedge funds. Doesn't sound like a good way to make money to me. The likelihood is that a hedge fund that gets it wrong is also likely to be insolvent.
I mention this not to highlight the merits of CDS investing, but to underscore the "true" risk in this environment: the real counterparties behind these trades are the prime brokers (since at the end of the day they dictate the liquidity of hedge funds). All roads lead to a handful of firms, a handful of inflated balance sheets with untold derivatives lurking in the background. If it sounds scary, that's because it is.
Just to be clear: the "handful of firms" I noted in the above post are really Goldman, Bear and Lehman. If you want to know who's been playing in the hedge fund sandbox, just look at a five year stock price chart.
I checked my brokerage account and they quote $15,000 standard initial and $4,000 for IRA and $100 subsequent for both. But I haven't tried to purchase it below the minimum myself.
Dear CR, you wrote: , my guess is we are seeing the impact of the housing slump on consumer spending in Q2. The timing is about right - and it makes sense that less MEW would impact consumption. Of course, I realize it might just be a one quarter slowdown in PCE growth.
Well, my worry is that if the very strong relationship between increasing consumer debt and increasing retail sales I see emerging March through May is valid, consumer spending cannot be in a one quarter slowdown. The entire system seems to be acting like a tightly drawn drumhead, so that tapping any part of that drumhead produces reverberations that continue for quite a while and extend throughout.
What I did was take retail sales and consumer credit for March-May and compare them, and it looks like MEW has dropped largely out of the equation, because there is a very close correlation between increases in consumer credit and increases in retail spending. There's another correlation between the industrial production spikes in utility production and consumer spending.
I would say that the factors drawing the drumhead of consumer spending tight are high inflation for basic consumer needs which is producing declining real incomes for a large cohort of consumers, substantial pre-existing consumer debt, significant drops in income for many construction-related workers, and now increasing difficulty in taking money out of mortgages.
First! Ow!
Woo Woo! All aboard! Next stop: AltA on the Subprime Express.
Did someone forget to send Bair the "contained" talking point memo?
My thought exactly. This is sounding more and more like Alphonso Jackson in HK this morning. Surprise! Alphonso is going to Beijing to peddle paper "backed by the full faith and credit of the United States government."
Last time I heard that phrase was during the S&L fiasco.
"...whether they could creep into higher-rated tranches"???
Could? Could?
Bair, you were on the right track with your 1st comment - "...to what extent..."
Clue: a whole lotta extent
From CNN/Money
http://money.cnn.com/2007/07/11/markets/hedge_funds_house/index.htm?postversion=2007071113
Regulators: No Bear Stearns fallout
Meltdown of hedge funds invested in subprime mortgage bonds don't pose broader risk, but bear watching, regulators say.
"LONDON (CNNMoney.com) -- Financial markets have weathered the recent meltdown of two hedge funds at Bear Stearns but it's unclear what impact these sorts of blowups will have on the broader market when economic conditions shift, regulators told lawmakers Wednesday.
The impact of the implosion of the Bear Stearns funds appears to be "limited," Erik Sirri, director of the division of market regulation at the Securities and Exchange Commission, said."
...
"Federal Reserve Governor Kevin Warsh said problems in the subprime mortgage market were not leading to any "immediate systemic risk issues." But the pain from the subprime fallout is not over, he added.
Regulators testified at a House Financial Services Committee hearing - one of several on hedge funds and private equity firms, which have become dominant forces in the financial markets.
Recent meltdowns like the ones at Bear Stearns and the implosion of Amaranth last year have raised scrutiny of the rapidly growing hedge fund industry, whose assets under management have ballooned to $1.6 trillion, according to some estimates.
"I think we have an uneasy consensus that there is a potential problem here that we wish we were more sure about how to approach," said Rep. Barney Frank, the committee's chairman."
Sallie Mea halted.
slm: the first of the non-mergers?
acquirers will back-up slowly and then run to beat hell!
Oh my.
text of Plosser's speech in London.
CR, I thought you might want to take a look at this:
Based on the fact that house prices have not declined very much for most consumers and that household wealth continues to grow, especially for those households that account for the largest share of aggregate consumption spending, it seems unlikely that we will see significant spillover effects on aggregate consumption from the housing sector. Moreover, strong employment growth, averaging 145,000 jobs per month so far this year, will support personal income growth, which in turn will continue to support healthy consumer spending.
So far, then, the troubles in the housing sector and the end of the boom in house prices have not had the dire consequences many feared for the overall U.S. economy, although it has contributed to a slowing of economic growth during 2006 and so far in 2007.
I don't have a lot of confidence in this assertion. Comparing retail sales and consumer credit through May, it looks to me like the correlation between consumer debt and consumer spending is getting stronger this year. That makes sense, considering that the ability to spackle financial cracks with MEW is declining. It isn't, however, a very positive predictor of future consumer spending.
Consumers have been deficit spending. They continue to deficit spend. And now they seem to be doing it with short-term debt which catches up with them a lot more quickly. Based on the data through May, it looks to me as if the housing market is having an effect and it is one that would indicate that things are due to get worse for retail, rather than better.
yal,
pls post your source on slm
ews seems to be on most wires now. don't see the halt in slm, however. are the indices caught like a deer in the headlights? that's what seems to be not reacting... or moving higher (how is it done???)
AP "Sallie Mae Shares fell 14% before being halted"
May not be Yal's source, but this was on Bloomberg.
Sallie Mae Is Told Legislation May Scuttle Buyout (Update6) - Bloomberg.com
Sallie Mae Is Told Legislation May Scuttle Buyout (Update1)
By Robert Greene
July 11 (Bloomberg) -- SLM Corp. was told by the group planning to acquire the company, known as Sallie Mae, for $25 billion that pending student-loan legislation in the U.S. House may scuttle the deal.
``Sallie Mae strongly disagrees with this assertion,'' the company said today in a statement carried by PR Newswire. The shares of the Reston, Virginia, company fell as much as 15 percent before trading was halted for the statement.
The House is debating a measure that would cut U.S. subsidies to lenders including Sallie Mae, which originates and services student loans. President George W. Bush has threatened to veto the measure.
The buyout group, led by J.C. Flowers & Co. in New York, said it believes that the current legislative proposals in the House and the Senate ``could result in a failure of the conditions to the closing of the merger to be satisfied,'' according to the statement from Sallie Mae.
if this slm cancel hold, look out. just shorted HLT
Off Topic
DryFly,
Per our conversation re Conoco the other day, you might find this of interest
Interesting Times for Conoco - WSJ.com
No worries, it's different this time!!!
Now you might ask how I know, and I'll tell you.
I just heard on the radio that I can get a 5 year i/o @ 0.375%(no, that's not a typo.) The nut on a $400k loan is something like $150/month.
Flatulating thru silk, Babeee!!©
Of course, the reset is something like LIBOR+3, but I can live footloose & fancy free for 5 years til I mail 'em the keys.
That's how you put off a real estate crash.
as per the slm chart:
one gap filled, one to go... and who says gaps don't get filled.
Did someone forget to send Bair the "contained" talking point memo?
I can imagine that with an increased attention to purge emails immediately more of these slipped communications will occur.
PPT agent 1: "Did you cc her?"
PPT agent 2: "I don't know I already deleted it."
PPT agents' boss: "Ask the IT guy."
IT Guy: "Don't worry, it's already deleted."
????
Ooops.
History doesn't repeat itself, it rhymes. I think that 2007's "It's just a couple of funds at Bear Sternes and some subprime shops." rhymes rather well with 1985's "It's just Merrit Savings and loan and a few other thrifts in MD and OH."
MaxedOutMama, my guess is we are seeing the impact of the housing slump on consumer spending in Q2. The timing is about right - and it makes sense that less MEW would impact consumption. Of course, I realize it might just be a one quarter slowdown in PCE growth. That will make Q3 very interesting.
Plosser is correct when he says:
"So far ... the troubles in the housing sector and the end of the boom in house prices have not had the dire consequences many feared for the overall U.S. economy ..."
But I think the key words are "so far". Many people (and at times me) kept expecting events to happen at a quicker pace - and then we remember housing is a slow motion train wreck. That is good news too - the longer it takes to play out, the better the rest of the economy can absorb the blow.
Best Wishes.
"...referring to a slew of CDO downgrades announced on Tuesday by two major credit rating agencies."
No CDO's were downgraded yet, were they? I thought it was just MBS that were downgraded and CDO ratings are "under review"
Not that it matters all that much. We all know they'll have to downgrade all the junk eventually, I suppose.
UPDATE 1-Fremont to stop Mass. foreclosures for 90 days
| Reuters
"Fremont to stop Mass. foreclosures for 90 days"
People just love to give out mortgages they cant foreclose on.
The impact of the implosion of the Bear Stearns funds appears to be "limited,"...
....to the dollar.
MOM, you must have really appreciated Warsh's speech, especially this line:
The Board believes that the "Principles and Guidelines Regarding Private Pools of Capital" issued by the President's Working Group on Financial Markets (PWG) in February provides a sound framework for addressing these challenges associated with hedge funds, including the potential for systemic risk.
'sound framework' = let them regulate themselves
There is not an enema big enough for the giant a@#$@#$ in Washington.
Alec - who's offerring this?
With current Treasury rates, I just want to know how much "business" they can handle...
Something like Golden state mortgage or Option one, I actually can't remember. I'll go take a spin around the block and listen for it again.
I honestly thought that they said 3.75%, then they repeated it.
In the hyperspeed disclaimer I heard LIBOR, then "currently 8.45%" and went from there.
Maybe the lender is the PPT
Let the bailouts commence.
Is there a State Income Tax Withholding option where we can have our taxes witheld directly by our loan servicer, instead of going indirectly through the state? It'd be so much more efficient.
The Blackstone Group L.P. - Google Finance
One shoe, two shoe;
Green shoe, blue shoe?
Banker - can you summarize the WSJ piece - I don't have a subscription to WSJ (not my fav - I prefer Economist, NYT and of course FREE STUFF).
Did a quick google news & didn't see anything that changed my opinion of the buy back except maybe strengthen it. And with oil going to (maybe) $80 they all ought to be redoubling exploration efforts using their own cash, borrowing, Aunt Mae's mattress, whatever - just stay away from Venezuela, let Hugo look for himself there & make the big money.
Something in that WSJ piece the others missed?
Option One Mortgage has a "Home Retension Team"...
here
I didn't see a "Free Money Team", but I'm still looking...I'll check Golden next.
Retention, that is...funny typo though...almost freudia
Wow...there are lots of Golden State Mortgage hits in google....these guys were top (http://www.gsmt.com) buy I didn't see anything below 6%....it's nice to see that credit is tighter though - see:
We Have a Complete Range of Programs
We're known for our diverse selection of loan products. Whether you're a first-time home buyer looking for a special financing program to assist you with a no-down-payment loan, or an investor seeking to finance a fixer-upper fourplex, we have the programs to suit your needs. So, if you're looking to purchase or refinance a residential property, chances are we'll have just the program to fit your needs. And because we make all the decisions, in-house, you're going to like what you hear!
Conventional Financing
* Purchase and refinance loans
* A-D credit graded programs
* Cal PERS programs
* 100% purchase financing (No down payment)
* 95% Stated Income programs
* "No Doc" programs
* Programs for credit-challenged borrowers
* 125% debt consolidation loans
* Non-Owner Occupied / Investment
FHA Financing
* Owner-occupied purchase and refinance loans
* 203K Rehabilitation loans
* Title I Home Improvement loans
VA Financing
* No down payment purchase or refinance
Oh wait...if you hit the main "Home" tab, it looks like credit has tightened:
"We are temporarily no longer accepting applications."
Looks like they've contained it.
...the longer it takes to play out, the better the rest of the economy can absorb the blow.
Don't think so, CR, not this time.
OTOH, it continues to give all of us more time to prepare for the worst.
OTOH, it continues to give all of us more time to prepare for the worst.
And by doing that the worst doesn't happen... maybe not good happens, maybe even bad happens, but not worst.
There is a big difference between bad, worse and worst. We aren't really even into 'bad' much yet... if at all.
> Massachusetts Gov. Deval Patrick
Let the bailouts commence.
Free lunch tastes like chicken!
Poor Sheila. She gets to clean up Don's mess. Can she clean up Katrina too? Blow me.
Did they have that .00375% loan in a no doc/no down? I'd like that $1,000/month payment on the $3 mil home instead of the teardown.
Back to the good Scotch.
Recent ABX continues to degenerate into toxic sludge.
Today's pricing indicates almost every single type of tranche in the ABX index continues to close at the low of the day from Markit.
Panic is truly setting in, and of course Wall Street figures it might as well have some really good booze to wash down that private equity cocaine.
I am going to take a break and only check in after each big hedge fund implosion.
Someday this war's gonna end...
If it wasnt for the damn "ABX-HE-AAA 06-1" every single ABX tranche hit a new low. Damn you "ABX-HE-AAA 06-1"!
Markit Homepage
Yes, ABX looks nasty (or tasty?) today. All but one (unimportant) tranche are at record low.
More interesting is that CMBX (commercial mortgages) and LCDX (LBOs) are also on record spreads. The contagion is spreading.
I'm pretty sure the deal on the "0.375% I/O" loan is this:
It's a neg-am with a minimum payment rate of 0.375%, interest only.
So, as opposed to a normal neg-am (where the minimum payment rate was calculated using a "fully-amortizing" payment schedule at a low low interest rate...see neg-am for ubernerds), the minimum payment is 0.375% of the principal per annum.
I don't know what the loan balance cap is, but it is a pretty low LTV limit.
Ideas on how to best play the ABX meltdown, anyone? - CFC, AHM, IMB, WM BSC...?
"Did they have that .00375% loan in a no doc/no down?"
I'm gonna carry trade my house.
And by doing that the worst doesn't happen... maybe not good happens, maybe even bad happens, but not worst.
Dunno... too few of us really preparing.
p.s.: By worst I mean depression. Obviously there are far worse things that can happen.
Barely,
Go long SRS or short URE (I have done both). Then buy the cheapest out-of-the money puts on each one of the homebuilders for Jan or Feb expiration. Have not had much luck shorting the originators (with hedge funds making foolhardy buyouts). Second quarter reporting soon !
Despite all the bad news I still don't see any meaningful price declines in desired areas. With all the bad news, you would think it makes a difference. I just wish they would budge more, so we can afford to buy without going unreasonably into debt.
Did you notice more price action into the right direction in Arizona? Is zillow behind the curve?
Thanks, Joe
Zillow is behind the curve- this might be more informative for Arizona:
Countrywide REO Property Listings - Arizona
show countrywide reo listings with new prices...
Someday this war's gonna end...
Clyde, I've looked at the ETFs in the past but somehow, not liquid enough for me to feel good about trading them. I already have a basket of HBs since Feb - all in good shape except I missed out on MTH. Can't complain, although I hear you about the lenders. I got screwed on AHM June20s that expired a few days before the recent meltdown. Still holding IMB and DSL but they're coiled springs. Maybe the coming ratings downgrades will untie the last shoe so it drops finally...
Articles like this make me wonder what the FDIC is really doing.
"the longer it takes to play out, the better the rest of the economy can absorb the blow"
What rest of the economy? Oh, you mean the 70% consumption economy. Yes, that will certainly cushion the blow from a major housing bust. LOL.
Many years ago I may have agreed with you CR, but as it stands today the economy has been too hollowed out for any kind of a soft landing.
More deal jitters:
GE and Abbott kill $8.1bn deal
GE, Abbott Abandon Deal For Two Units - WSJ.com
Mortgage Fraud= synonomous,redundant
AllenM: thanks for the link. Great stuff.
I'm still not sure REO / foreclosures will be such a great deal, particularly reading Sensible Lender's posts. We've got to search by all means possible, though.
Thanks again.
barely,
AFBIX follows the abx index perfectly. it buys cds and stands for Access Flex Bear High Yield Inv via ProFunds.
joe,
there was an article yesterday about how the high end markets 1-2M range are doing quite well with even some appreciation. but the low, middle and extremely hi end are deflating. just one more example of class warfare.
Barely:
I agree that SRS is a good ETF. I have some in a Roth. It doesn't fill as quickly as a liquid stock, but that should not be a problem for a medium term holding. It's definitely a good choice if you don't plan to diversify with options.
Unlike advise above, I prefer to buy at the money or in the money puts with about 3 or 4 months expiration. For options with high volitility, like IMB, I recently bought the 35 strike (with the stock at 30.5). Buying further in the money means that you pay less for time and volitility. In the last few months I have been lucky, buying at the money HOV Aug 25 puts (now at $16 stock price) and a dollar in the money sept MTH 30 puts. If you pay more money and buy some delta (at or in the money), you do not need big moves to make 100-200%. On the other hand with out of the money puts, you might make 400% plus on big moves.
Yesterday I was up 30-50% on RKH puts (Regional Bank Holders). The whole banking sector is very weak (nearly all regions in the lowest 10% of 197 IBD sectors). If you think that banks will continue to decline (I do)buy some RKH puts. I am holding August 160 and 165 strikes (bought at the money) and may by some October strikes before long.
Bill, idoc, thx for the tips. I will do some invest*igating.
"AFBIX follows the abx index perfectly. it buys cds and stands for Access Flex Bear High Yield Inv via ProFunds."
That's not right. AFBIX is supposed to move inversely to a high yield index (Lehman?). Correct in that it uses cds.
I own a bit of it. Would own a lot if I weren't slighly worried about the counterparty risk in owning CDS.
AFBIX as far I understand the prospectus invest in CDS of the CDX index (High Yield American corporate bonds). This fund is not leveraged and the rise in spread on the CDX index would mildly increase the value of the fund. I thought about this fund but the minimum initial purchase ($15,000) and pretty high expenses put me off.
can anyone offer an opinion as to why the credit crash which we are witnessing is not going to run to completion?
is it because this stuff sort of flies under the radar since it is not quoted every 5 minutes on cnbc that nobody really cares that it is imploding?
i get the feeling we have already passed the point of no return. not so much because these credits might be mis-pricing potential default risk, but simply because too many people want out of this stuff at the same time because they are going down in price and the whole world trades with stop loss parameters. maybe the japansese central bank will raise rates today and everyone can blame the wipeout on them.
rcyran,
I think you're right to worry about counterparty risk. The fact is that the buyers of CDS are actually accepting the contingent liabilities of levered, probably irresponsible, hedge funds. Doesn't sound like a good way to make money to me. The likelihood is that a hedge fund that gets it wrong is also likely to be insolvent.
I mention this not to highlight the merits of CDS investing, but to underscore the "true" risk in this environment: the real counterparties behind these trades are the prime brokers (since at the end of the day they dictate the liquidity of hedge funds). All roads lead to a handful of firms, a handful of inflated balance sheets with untold derivatives lurking in the background. If it sounds scary, that's because it is.
I've had not trouble buying AFBIX in small and odd amounts through Fidelity (in a Roth Brokerage account). The chart now looks really good.
Just to be clear: the "handful of firms" I noted in the above post are really Goldman, Bear and Lehman. If you want to know who's been playing in the hedge fund sandbox, just look at a five year stock price chart.
Bill,
I checked my brokerage account and they quote $15,000 standard initial and $4,000 for IRA and $100 subsequent for both. But I haven't tried to purchase it below the minimum myself.
Dear CR, you wrote: , my guess is we are seeing the impact of the housing slump on consumer spending in Q2. The timing is about right - and it makes sense that less MEW would impact consumption. Of course, I realize it might just be a one quarter slowdown in PCE growth.
Well, my worry is that if the very strong relationship between increasing consumer debt and increasing retail sales I see emerging March through May is valid, consumer spending cannot be in a one quarter slowdown. The entire system seems to be acting like a tightly drawn drumhead, so that tapping any part of that drumhead produces reverberations that continue for quite a while and extend throughout.
What I did was take retail sales and consumer credit for March-May and compare them, and it looks like MEW has dropped largely out of the equation, because there is a very close correlation between increases in consumer credit and increases in retail spending. There's another correlation between the industrial production spikes in utility production and consumer spending.
I would say that the factors drawing the drumhead of consumer spending tight are high inflation for basic consumer needs which is producing declining real incomes for a large cohort of consumers, substantial pre-existing consumer debt, significant drops in income for many construction-related workers, and now increasing difficulty in taking money out of mortgages.
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