This could explain why stocks like homebuilders and lenders like DSL, which all have had huge short positions, are up today--funds needing to buy shares to close short positions. Otherwise, it's hard to explain why DSL is way up on a day when big banks are getting pounded.
for those of you who were following my opening bell short on FHN if you look at the chart i'm the guy all the way at the left at $33.21. i just covered at $32.20. my mistake is i didn't cover at $30.18 eleven minutes into the day.
Bob-interesting theory on DSL. i also think investors feel financials have been oversold.
i keep saying this but Richard Bookstabers "Demon of our own Design" and his interview a few wks ago with Puplava is so appropo and explains whats happening with these quant funds to a tee. people never learn that computers are only as good as their programmers.
CR, it seems that Bush is quashing hopes that Fanny and Freddie be allowed to help out in the subprime mess, stating that they need to be reformed before they are allowed to expand portfolios and take on larger loans. .. Oh joy. Now subprime is becoming a political football, just what we need.
" Aug. 9 (Bloomberg) -- President George W. Bush said Fannie Mae and Freddie Mac must complete a ``robust reform package'' before the government will allow the two largest mortgage finance companies to buy home loans beyond current federal limits.
Congress needs to get the companies ``reformed, get them streamlined, get them focused, and then I will consider other options,'' Bush told a White House news conference today in response to a question about whether the two companies would be allowed to buy more mortgages to help spur the housing market. "
...
Bob-who knows but if i were to guess i think it would be b/c large banks like Citigroup (C) over in Europe have been getting hit. don't forget they also have the largest balance sheet of retained LBO fundings that really haven't been "priced in" yet.
"I think we're gonna need a bigger containment vessel."
Just being right is usually satisfaction enough for me, but now that it has become clear to the MSM and the CNBC bubble-heads that "containment" is BS, I want maximum pain inflicted.
Paulson, Lereah, Yun, Kudlow, Cramer ... all of them, off with their heads!
this crossed my desk this morning from Lehman Asset Management
Turbulent Times in Quant Land
Investment Conclusion
As market conditions have calmed, the performance of equity market neutral
managers has become more challenged. We believe performance of most factors,
particularly value factors, have turned perverse in a dramatic fashion. It is
unclear how long current situation will persist, but stability will be
facilitated by understanding that underperformance is systematic, not due to
individual model misspecification, in our view.
Summary
* July 2007 saw returns to quant factors increase dramatically, with
volatility at 2 to 3 times normal levels. In July, the misperformance of the
factors was driven primarily on the long side.
* Factor returns for the first 5 trading days in August have been roughly of
the same magnitude for what we experienced for all of July, however, now
model misbehavior has primarily been the results of shorts outperforming.
* Factor performance does not appear to have notable sector biases so we
discount the possibility of sector rotation being responsible for observed
dynamics.
Over the past few days, most quantitative fund managers have experienced
significant abnormal performance in their returns. It is not just that most
factors are not working but rather they are working in a perverse manner, in
our view. The names that are short are outperforming, often notably, while
the names that are long are underperforming, although less severely.
Moreover, there appears to be very little news coming out surrounding these
names and all of this is occurring against the backdrop of the general
markets appearing to calm down. This has led to our fielding a large number
of calls from our quantitative asset management clients, trying to understand
what is occurring in our market.
It is impossible to know for sure what was the catalyst for this situation.
In our opinion, the most reasonable scenario is that a few large multi-
strategy quantitative managers may have experienced significant losses in
their credit or fixed income portfolios. In an attempt to lower the risks in
their portfolios and being afraid to "mark to market" their illiquid credit
portfolios, these managers probably sought to raise cash and de-lever in the
most liquid market - the U.S. equity market.
As these managers unwound significant factor based portfolios, these factors
started to behave in unexpected and potentially troubling ways. Short names
started to rally and long names started to fall as these trades started to
hit the market. As most quantitative managers use similar quantitative
factors, this abnormal factor phenomenon was not confined to a few funds.
Rather, a large number of quantitative managers have seen their models begin
to behave in unexpected ways. Again, it is no longer only the multi-strategy
managers, but now pure quantitative equity managers who have started to see
their portf
In case anyone missed this in the last comments section... I thought it was extremely funny.
re: scrubbed satellite launch: Rumor has it the latest shuttle launched contained, in addition to 1 school teacher, certificates for $137B in equity tranch CDOs. Following successful mission, the plan is to unman and seal the space station, thereby establishing near-earth containment.
Related, the Treasury department has established an emergency committee to review NASA's plan for a mission to Mars...
Jerome Ball
"misbehave", both U.S. domestic and global fund managers.
To be absolutely clear, when we are discussing misbehavior, it is not simply
that model returns are flat (or not working) but specifically that the models
(ours included) are behaving in the opposite way we would predict and have
seen and tested for over very long time periods (45+ years). Additionally,
the magnitude (or volatility) of the returns in July increased substantially
with the factor returns being on the order of 1 to 4 times what we have
traditionally seen. Those returns look placid relative to what we have seen
in the first six trading days of August. As for what has been transpiring in
August, we have been able to document daily returns of this magnitude
occurring before only at the height of the bursting of the Internet Bubble
and in the late 1960s. This appears to be an event with little precedent.
This breakdown in traditional factor returns is, of course, not limited to
the return (or alpha) side but also is now extending to traditional risk
models - that is, managers are finding their risk models are now
miscalibrated for the current market environment. Again, this is not limited
to any one model but overall to all factor based (or structural) risk models.
This has led to further concerns within a number of asset management
organizations we have been speaking to, with risk-managers facilitating
further de-leveraging as they seek to better understand the situation.
I wonder if all this turmoil in the equities & credit markets and is being greatly aplified by hedge fund liquidations. I am certain there are few retail buyers for HBs. Let's hope the fed and the other government agencies/authorities don't overreact to something that is a short term wall st event.
Andrew, I'm not sure what the best solutions are going forward - obviously the regulators failed a few years ago, and now the problem is much worse than it should have been.
I'm not a fan of increasing the conforming limits as a solution. I think the best thing the government agencies could do right now is put out a clear guide on what happens when you lose your home to foreclosure. Explain the process, what happens to your credit, the tax implications, etc.
The last thing we want to do is bail out the lenders and investors - and that is what raising the conforming limit would do (IMO).
Very important story to look at here -- Ohio's $100 million foreclosure bailout loan program is being slashed dramatically because "an overwhelming number of those were beyond the point at which this program could be of any help." In other words, they were already in foreclosures or they had past credit problems that disqualified them.
Lots of states have been trying to design foreclosure rescue programs. What does Ohio's failure say about the nation's problem with bad loans? It's an unmitigated mess, that's what.
In the past two weeks, another 13 corporate loan or bond deals have been postponed or reduced, representing just under $43 billion, in new research released Thursday by Baring Asset Management. The total number of deals pulled since June 22nd now stands at 46, analysts at the firm said, valued at more than $60 billion.
It's not clear from the story how much of this, if any, will end up as shiny new piers for the IBs.
joe-that is absolutely fascinating. internet bubble of the 1960's? Bookstaber spells it all out in his book and describes the exact same problem in 1987 and with LTCM. Basically its a problem of interactive complexity with tight coupling. Complexity being derived from derivatives with layers upon layers of side bets all leveraged to the hilt hiding risk and assuming correlations that exist only in normal trading times not extremes as we have today. Tight coupling meaning unfathomable moving parts all interacting under real time instantaneous feedback getting the masses to scramble from one side of the boat to the other. Quant funds who try to anticipate these mass movements don't realize that when the Titanic hits the iceberg people start jumping off both sides and ends of the boat in panic. Enemies become helpers jumping off the side together. Friends become enemies trying to get into the raft first. +1 correlations become -1 uncorrelations. Geez, what a mess!
i wonder if they've disconnected the computers? i gotta believe there must be bedlam and panic now that the quants have to get in there and manually trade, heaven forbid! i've always enjoyed playing chess against computers. i am proud to say my portfolio is performing FAR better than these guys. they must still be using 486's.
Billionaire investor Wilbur Ross was just on CNBC saying that Aug. 15 is the key date for hedgies. That's the date by which 3Q redemptions must be filed in order to be redeemed by Sept. 30 (45-day notice).
He had tons of good info. I don't know if this has been posted on the other thread, but Ross said the Euro Central Bank's cash injection today of $131 billion was TWICE AS MUCH as it injected on the day trading resumed after 9/11.
idoc: ...when the Titanic hits the iceberg people start jumping off both sides and ends of the boat in panic. Enemies become helpers jumping off the side together. Friends become enemies trying to get into the raft first.
That's...almost poetic!
About the correlations though, I think they were assuming a -1 correlation, which would be a perfect negative correlation, and therefore a perfect hedge. As you say though, once in a while the relationship reverses and you get a +1. The strengths are equal, but the signs are opposite.
"Until the bulk of mortgage resets kick in during the next six months, we're not going to have any idea which banks and hedge funds have been swimming naked. I envision many more Bear Stearns-style "surprise" announcements that shake the markets to their core. Anyone who bought the dip in the financials and is going long, better strap in tight."
Today: Hmmm. BNP Paribas locks down 3 funds. Dow down 387.
Yes, I am a GENIUS and my books and tapes are on sale in the lobby.
Just kidding, of course, but these few days, weeks, months and years are going to be, well, interesting.
"Filing on time. We've heard of it" FNM files to delay 10Q. My amateur read is that they cannot meet the normal 5 day extension alloted (to 8/14/07), and needs more time than that = they are not particularly close to finished.
That is not helping convince me that we need to lighten the regulatory load on FRE and FNM.
HVH-it depends on the play. as an example, HF's can be caught using a trade where they go short Treasuries and long hi yield junk to take advantage of the spread. normally their interest rates move with a +1 correlation, ie, same direction. easy money in normal times. in crisis times, HF's will dump hi yield junk and buy Treasuries in a flight to safety. hi yield interest rates skyrocket and Treasury rates plunge for a -1 correlation thus creating a double hit for these HF's.
Squeezed living in florida-every once in a while we ppl wowing about how many of us are online and if its a record. the REAL record was 381, correct me if i'm wrong, the nite of the BS announcement about how much money was left in those 2 funds a prophetic (or do i mean pathetic) few wks back.
I have a feeling we might challenge that 381 visitor record soon! Time to bring the CR board of options and futures exchange back! Your funds will be guaranteed by a depositor that is at least as reliable as all major US and EU banks!
Seriously, thanks for the great flow of information overload. I have been on the most brutal of conference calls for over two hours now. As scary as it sounds, reading this group's banter is actually keeping me SANE
Sorry there CR, for what it is worth I agree with you. And I also don't have a clue how to proceed, just opinions on how we shouldn't. I was mainly commenting/venting on how this issue has gained political traction and notice recently, which will probably guarantee that we get some sort of knee jerk SNAFU as both sides engage in a tug of war over the crisis from their own particular political ideologies.
(Warning: Political Opinion Ahead. Disclaimer: I personally consider myself to be what I like to call a "foaming at the mouth irate moderate" with a few progressive leanings thrown in for good measure.) It seem that Bush will try to act from his regulation busting, free market, voodoo laffer curve right wing economics and the Congress from pork barrel politics leavened with a good portion of entitlement/government should be involved in everything from the old school left wing types like Schumer. As I view this I find myself longing to find an old fashioned pragmatic "centrist" politician, of either right or left wing variety. One that eschews name calling, educates themselves on the issues, and who is in favor of problem solving with hammer and tongs compromise, and is not in favor of gridlock.
Lord knows we need to fix a few things.
On the Housing Mess: We shouldn't bail out the lenders or the investors. Yes, we should save the system because that will take us all down as it did in 1930, but not bail out the perpetrators. I'm even highly skeptical on the wisdom of bailing out the mortgage holders, as many calls to action seem to be in favor of these days. This needs to hurt to reinforce the idea of risk and reassert a natural aversion to speculation that went missing in recent years. However, I'm also not in favor of ruining people's lives forever to accomplish that. If you got in trouble you don't get to keep your shiny new toys or your borrowed lifestyle, and you definitely don't get to keep a pristine credit rating, but you do get a chance to start over.
I assume many on this blog have read Fooled by Randomness and When Genius Failed. If not, run, do not walk, and finish those by Sunday. The most telling part is that in times of stress all correlations go to 1, and that no matter how good the model, it will always miss the fat tail events that cause the correlations to go to 1. Forgive me if I'm stating the obvious, but fat tails are extreme outlier events on a normal distribution. So when the gent at Lehman says in 45 years of history, this is an extreme anomaly, he misses the point. OF COURSE it's an extreme anomaly, that's what always does people in. Leverage + undying faith in gaussian distributions = total carnage when the black swan arrives.
The swan is here and he wants revenge for all the bastards claiming that there are only white swans in the world.
As a layperson (someone not in the mortgage/banking industry) what does all this mean to the average person. A few people have suggestion waiting until December to purchase a home however now I'm concerned about the higher interest and the credit crunch. The news said today that even people with great credit are going to have to pay points to get a mortgage. Your thoughts?
Wow. I have been involved in the hedge fund world for a long time. I have been wondering if losses in one quantitative market neutral hedge("stat arb") would cause losses in other stat arb funds, but I have never seen this before. Without naming names I can say that I am also very surprised to see certain hedge funds that I know very well managing money such sumsin the stat arb area. As mentioned by someone else, this would explain the very odd behaviour in the housing stocks.
Okay, a small challenge, tell me, concisely, why the Fed is wrong, or I am wrong in interpreting it this way.
The Fed is relying on the value of the underlying stock being related to their earnings. Earnings even with MEW declining and the housing sector shaving 1% off the GDP shuld still be decent. Especially in the export sector.
Some fancy hedge positions may have to unwind in high volatility, but, in the end, shouldn't the price be rational with respect to earnings?
So, the bond holders lose 100 or 200 billion, why is that the end of the world? Is the risk a cascade of bankruptcys? And how real is the risk, especially if many of the bond holders are pension funds and insurance companies?
Market is Adjusting Risk Tolerance
Fannie Mae (FNM) and Freddie Mac (FRE) have rallied significantly in the last week. The reason: several senators in a panic to aid borrowers who want to buy houses are demanding that curbs be lifted on these companies ability to buy mortgage paper.
Apparently the "market" is adjusting its tolerance for risk and has decided to demand better terms on the loans being made (including not making them to unworthy borrowers). Banks, with their own money, have decided that they would like to reduce their risk in the paper they already hold. So certain Senators in their infinite economic wisdom have decided that the market is wrong and they are right. FNM, which are not government institutions when the government doesn't want them to be, but are when they do, should step in and buy the crappy paper and make the loans that the market doesn't want.
So investors believe the "revenue opportunities" have increased for the companies and have decided to bid up the stock prices. This ignores something that Minyans should understand by now: RISK.
Yes, if these companies buy the paper that investors have decided is too risky they may make more "revenue" in the near term, but that ignores the fact that they must take much higher risk to do so. If I tell you I will pay you an extra dollar today at the risk of you losing $20 tomorrow is that a good deal?
The government, of course, probably won't let these companies fail if they truly get in trouble as a result (which I believe they will). But what does that have to do with the stock? The stock is an option on profits; if the company loses money on their positions the bondholders will get bailed out by the government but the stockholders will not.
RP,
If you wait you are more likely to get 'your' price. The mortgage issuers will also be extremely happy to have your warm little body walk in the door - assuming you have a down payment, a job and a good credit history.
That day, you will be king.
myr cut to the heart of what left me scratching my head. If hedge funds are responding to margin calls or redemption requests they are forced to sell losers AND winners. It's my understanding that hedge funds are majorly short HBs. If they are clearing their positions to raise cash they are driving up stocks that don't deserve to be up where they are. Sound like an explanation, given the grim housing market conditions?
This is the comment that will destroy the market, (Briefing.com):
"The latest shoe to drop came from BNP Paribas. The French bank halted withdrawals from three of its funds as a lack of liquidity left it unable to fairly value their holdings on account of the turmoil in the U.S. credit market. Also discouraging was the fact that the company's CEO reportedly said just last week that the bank's exposure to U.S. subprime was "absolutely negligible."
One week from "absolutely negligible" to massive problem. True ignorance, wishful thinking, cupidity, or fraud? All the same in the end.
Much more work for the Cayman bankruptcy courts in the future, eh Mr. Bear Stearns?
By the way, if I has lost big, I would be checking out whether I could buy some legal standing in the Caymans.
Some fancy hedge positions may have to unwind in high volatility, but, in the end, shouldn't the price be rational with respect to earnings?-mf
if i understand your question properly, no the price doesn't have to end up being rational in respect to earnings. why? b/c when the margin calls come, HF's have to unload anything and everything that is liquid just to meet the call. that will drive down stock prices even in uncorrelated industries more than they deserve. some ppl use this in excusing gold/gold stocks poor performance during recent mkt pullbacks when historically they have gone up acting like a hedge.
This post follows up an earlier discussion with Sebastian and idoc regarding FED Funds target rate as a lagging indicator.
Given LIBOR's vigorous activity today, it is interesting to compare previous LIBOR moves with FED rate.
At all major rate inflections LIBOR has anticipated FED by 1 - 2 months.
FED follows LIBOR.
Jan '01 - LIBOR (3-month) moves 6.40 to 5.52 and FED holds steady.
Feb '01 - FED moves 6.50 to 5.50
May '04 - Libor moves 1.17 to 1.30 (first meaningful increase after multi-year decline). FED holds steady.
Jul '04 - FED moves 1.00 to 1.25
Jul '06 - LIBOR ceases multi year increase with move from 5.5085 to 5.4889. FED moves 5.00 to 5.25.
Aug '06 - FED ceases multi year increase holding at 5.25.
(Data source: moneycafe.com)
As counterintuitive as it may seem, data suggests that if LIBOR is on the rise, chances are that the FED will raise rates proportionately one to two months hence.
Market leads. FED reacts.
Hat-tip for this goes to Elliott Wave Int'l whose original comparison wasn't LIBOR, but that triggered the insight.
barely,
I worked at a company owned 100% by a PEG. The place was minting money for them. They sold us off to compensate for a loss they realized in the same year so they could keep the investors happy. It was a bad economic decision, but I'd guess it kept their managers employed.
Not just America. Followign some stocks in Europe that are down 20% in 2 days on no news, while others that have been faring badly are suddenly rising.
So we have signs that some major market neutral funds are in trouble
(to add to the toasted credit funds) and that a major European bank is in trouble given the amount of money injected into the system by the ECB.
That just leaves sovreign risk. Step right up, people, I've got Spain at no. 1, followed by Hungary, Italy and Uncle Sam with his reserve currency a good each way bet.
idoc - But in the longer term aren't they going to end up being rational with respect to earnings? With the huge volatility and unwinding of positions they could certainly be irrational for a while, if funds are selling to raise cash...
A few people have suggestion waiting until December to purchase a home however now I'm concerned about the higher interest and the credit crunch. The news said today that even people with great credit are going to have to pay points to get a mortgage. Your thoughts?
RP
RP: If mortgage rates go up and stay there a while that will help lead to lower house prices. People still need to be able to afford the monthly payments so price moves inverse to rates. The thing to do is to wait for the prices to fall and then buy even if the rate is still high because you can always refi down the line when rates go lower again (as they will eventually).
If you buy a house at a high price level compared to what it will be in the future, you can't refi the price as you can the interest rate.
RP,
Before buying you might want to read this paper from the Federal Reserve. It is a study of the decline in Japan. It shows why inventory builds and why price drops are sticky as homes priced above market "fish" for buyers -- until they get foreclosed. It about how a market behaves after it gets a price spike shock -- how it acts as it returns to normal works off the spike (drops). How the debt keeps people from having downpayments to move up and how it keeps people from being able to sell -- ergo sticky prices often until foreclosure -- and the last hanger-oners have it worst. Commercial propery dropped in Japan too but these drops are faster -- as we are already experiencing here in the US. You can just pass over the parts on math modeling if you want -- the definition and ideas have it all. The drops in Japan are still occuring and so are the foreclosures and the Japanese had increasing salaries and decreasing interest rates. I doubt we will have rates that low because unlike Japan we have huge debt and must attract investments. http://www.frbsf.org/publications/economics/papers/2004/wp04-16bk.pdf
Falcor said: "This post follows up an earlier discussion with Sebastian and idoc regarding FED Funds target rate as a lagging indicator."
Thanks for the follow-up.
You might want to look at domestic market-driven rates (T-bills) instead of LIBOR. The 13-week Treasury Index is below Fed funds, suggesting that the Fed's next move is an easing. Given everything that's going on (slower economic growth, liquidity concerns, low inflation), wouldn't it seem more likely that the Fed will be easing if they do anything?
Not arguing the merits of tightening or easing, just what's more likely given the circumstances.
America is a much more mobile society than Japan in every way. Americans are more likely to take the hit and walk away and start a new life. Things ought to resolve quicker here, I hope.
Lehman should be the next shoe to drop in my opinion,
1)Big Mortagage Bond House (like bsc)
2)They did 100% stated, no reserves, no verification of rent history. ie: stupid shit
M-F,
It is hard to know how it will play out, but the Fed paper convinced me that it doesn't hurt to wait and that maybe in the future the best time to buy will be upon retirement -- instead of selling at retirement like the paper points out is done now. I guess I can't see people just walking away and every study I've ever read on US or European housing shows home mortgages to be the least likely to default because people do everything they can to avoid default. If memory serves me, Basel I and II rate home loans at lower risk that all other kinds of debt due to people's absolute avoidance of default. And default of course means you still will owe the bank some money and you have to pay Uncle Sam gift taxes for any amount you walk away from and it hurts your credit rating and it could even hurt in getting a job.
"Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing."
""While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown.""
I agree with most of what you said. The only point I was making was that since the US is a more mobile society than Japan, the US is likely to take less time to work through the hangover than in Japan.
I think 'later' is a better time to buy than now, I think Real Estate will definitely come down more in price, maybe a lot more in some poart of the country. Having a house is expensive compared to renting, but it is nicer than renting in many ways. So don't wait too long if the prices are right
You ca get decent acreage on some of the outlying bahamian islands pretty cheap: You'll eventually lose them to global warming, but have it long enough for your lawsuit to work its way thru the crown courts.
housing: Those who can't make payments get nut reduced, those who can barely afford keep same nut term shortened, LTV covenants get waived for 3 years. Leders write it off as a 1 time charge next Q.
*I reall believe tha Basel II requirements are drivig the ECB injection.
I would't touch a financial company with a 100ft pole until October, then buy BofA & JPMChase. They'll be out of the woods 1st because of their check clearance system gives them an extra days float(unless other banks got similar systems approved in the last year)
*Citi is hating life. I just read where they're already on the hook for $25 Billion in piers and have a lot more concrete to digest. The Prince of darkness was aggressive @ the worst possible time. I think he's already cost them a FY in profits, it may get worse.
". . . wouldn't it seem more likely that the Fed will be easing if they do anything?"
Yes, it would. That's why this whole LIBOR correlation is so counter-intuitive, particularly at this juncture.
My thought is that Fed would rather ease if it knew for certain that everyone/thing would follow. But a greater risk is to ease, have rates (LIBOR et al) surge and be seen as impotent and irrelevant.
Let me agree with Lama (we Massholes stick together!).
If you really want the stability and predictability that comes with owning a home (pauses for cries of "Oh yeah? Have you seen the default numbers?" to cease,) then now is a fine time to buy...but do it on your terms. You holds the whip hand. Don't be shy about radical lowball offers, all they can do is say no. Have your financing in place, give the seller a short close and dare them to say no.
Don't rush, don't do a deal for the sake of getting it done and don't fall in love with a property you "have to have." There will be another available just like it soon enough.
Have your financing in place, give the seller a short close and dare them to say no.
I did all that, seller hosed me for an extra dime, now the property is 60 day delinquent on a HELOC yet he won't return my call.
My plan, have a proxy buy the note on the cheap and squeeze his feet til they bleed, I'll pay 20% over the potential low but I'll have the lot I wanted.
Banker,
I am just in the process of closing on the purchase of a home. We moved due to family reasons. I had my financing in place, and the home in question is a flip. My bank appraised the home at $15k under the offer price; the sellers agreed to knock $10k off and my bank was OK with that.
Parenthetically, once we had the sales contract finalized, my bank started jerking me around every day this week. Every morning I'd get a call from the branch saying "The underwriters want this additional information", or the real kick in the shorts was they told me I had to add another 5% down. Luckily I had plenty of equity from the sale of my previous home, so all I had to do was say OK, do it. But that would have tanked the purchase right there for most people. It would be hard to come up with that extra 5% when you were expecting to close in a couple of days.
This could explain why stocks like homebuilders and lenders like DSL, which all have had huge short positions, are up today--funds needing to buy shares to close short positions. Otherwise, it's hard to explain why DSL is way up on a day when big banks are getting pounded.
for those of you who were following my opening bell short on FHN if you look at the chart i'm the guy all the way at the left at $33.21. i just covered at $32.20. my mistake is i didn't cover at $30.18 eleven minutes into the day.
Bob-interesting theory on DSL. i also think investors feel financials have been oversold.
i keep saying this but Richard Bookstabers "Demon of our own Design" and his interview a few wks ago with Puplava is so appropo and explains whats happening with these quant funds to a tee. people never learn that computers are only as good as their programmers.
idoc,
If it were buying after a dip, why would Citi be down 4% and DSL up 4%? A flight to quality?
--
It is my sincere hope that people here start warming up to Fraudentials, Hopebuilders, and Bankrupters and Fraudsters of New York City (BFNYC).
Jas
CR, it seems that Bush is quashing hopes that Fanny and Freddie be allowed to help out in the subprime mess, stating that they need to be reformed before they are allowed to expand portfolios and take on larger loans. .. Oh joy. Now subprime is becoming a political football, just what we need.
Bush Says Overhaul Must Precede Raising Fannie Assets (Update4) - Bloomberg.com
" Aug. 9 (Bloomberg) -- President George W. Bush said Fannie Mae and Freddie Mac must complete a ``robust reform package'' before the government will allow the two largest mortgage finance companies to buy home loans beyond current federal limits.
Congress needs to get the companies ``reformed, get them streamlined, get them focused, and then I will consider other options,'' Bush told a White House news conference today in response to a question about whether the two companies would be allowed to buy more mortgages to help spur the housing market. "
...
Andrew,
I wonder if this were Bush's first term and he were up for re-election in a year if he would hold the same position?
I'm starting to develop a strong dislike for Schumer, and I'm a pinko. He's sounds like Huey Long.
It is healthy to distrust Chuck Schumer. He will get a challenger from the left in the next primary, count on it.
Of course, he'll probably still win, but he will be challenged.
Bob-who knows but if i were to guess i think it would be b/c large banks like Citigroup (C) over in Europe have been getting hit. don't forget they also have the largest balance sheet of retained LBO fundings that really haven't been "priced in" yet.
To paraphrase Jaws:
"I think we're gonna need a bigger containment vessel."
Just being right is usually satisfaction enough for me, but now that it has become clear to the MSM and the CNBC bubble-heads that "containment" is BS, I want maximum pain inflicted.
Paulson, Lereah, Yun, Kudlow, Cramer ... all of them, off with their heads!
-- Judge Smales
"You'll get nothing and like it"
this crossed my desk this morning from Lehman Asset Management
Turbulent Times in Quant Land
Investment Conclusion
As market conditions have calmed, the performance of equity market neutral
managers has become more challenged. We believe performance of most factors,
particularly value factors, have turned perverse in a dramatic fashion. It is
unclear how long current situation will persist, but stability will be
facilitated by understanding that underperformance is systematic, not due to
individual model misspecification, in our view.
Summary
* July 2007 saw returns to quant factors increase dramatically, with
volatility at 2 to 3 times normal levels. In July, the misperformance of the
factors was driven primarily on the long side.
* Factor returns for the first 5 trading days in August have been roughly of
the same magnitude for what we experienced for all of July, however, now
model misbehavior has primarily been the results of shorts outperforming.
* Factor performance does not appear to have notable sector biases so we
discount the possibility of sector rotation being responsible for observed
dynamics.
Over the past few days, most quantitative fund managers have experienced
significant abnormal performance in their returns. It is not just that most
factors are not working but rather they are working in a perverse manner, in
our view. The names that are short are outperforming, often notably, while
the names that are long are underperforming, although less severely.
Moreover, there appears to be very little news coming out surrounding these
names and all of this is occurring against the backdrop of the general
markets appearing to calm down. This has led to our fielding a large number
of calls from our quantitative asset management clients, trying to understand
what is occurring in our market.
It is impossible to know for sure what was the catalyst for this situation.
In our opinion, the most reasonable scenario is that a few large multi-
strategy quantitative managers may have experienced significant losses in
their credit or fixed income portfolios. In an attempt to lower the risks in
their portfolios and being afraid to "mark to market" their illiquid credit
portfolios, these managers probably sought to raise cash and de-lever in the
most liquid market - the U.S. equity market.
As these managers unwound significant factor based portfolios, these factors
started to behave in unexpected and potentially troubling ways. Short names
started to rally and long names started to fall as these trades started to
hit the market. As most quantitative managers use similar quantitative
factors, this abnormal factor phenomenon was not confined to a few funds.
Rather, a large number of quantitative managers have seen their models begin
to behave in unexpected ways. Again, it is no longer only the multi-strategy
managers, but now pure quantitative equity managers who have started to see
their portf
In case anyone missed this in the last comments section... I thought it was extremely funny.
re: scrubbed satellite launch: Rumor has it the latest shuttle launched contained, in addition to 1 school teacher, certificates for $137B in equity tranch CDOs. Following successful mission, the plan is to unman and seal the space station, thereby establishing near-earth containment.
Related, the Treasury department has established an emergency committee to review NASA's plan for a mission to Mars...
Jerome Ball
"misbehave", both U.S. domestic and global fund managers.
To be absolutely clear, when we are discussing misbehavior, it is not simply
that model returns are flat (or not working) but specifically that the models
(ours included) are behaving in the opposite way we would predict and have
seen and tested for over very long time periods (45+ years). Additionally,
the magnitude (or volatility) of the returns in July increased substantially
with the factor returns being on the order of 1 to 4 times what we have
traditionally seen. Those returns look placid relative to what we have seen
in the first six trading days of August. As for what has been transpiring in
August, we have been able to document daily returns of this magnitude
occurring before only at the height of the bursting of the Internet Bubble
and in the late 1960s. This appears to be an event with little precedent.
This breakdown in traditional factor returns is, of course, not limited to
the return (or alpha) side but also is now extending to traditional risk
models - that is, managers are finding their risk models are now
miscalibrated for the current market environment. Again, this is not limited
to any one model but overall to all factor based (or structural) risk models.
This has led to further concerns within a number of asset management
organizations we have been speaking to, with risk-managers facilitating
further de-leveraging as they seek to better understand the situation.
I wonder if all this turmoil in the equities & credit markets and is being greatly aplified by hedge fund liquidations. I am certain there are few retail buyers for HBs. Let's hope the fed and the other government agencies/authorities don't overreact to something that is a short term wall st event.
would someone tutor me as to why Reps are against GSE's and Dems are for them? something about funding for the poor?
everytime i hear that guy Schumer talk i want to barf. he gives New Yorkers a bad name.
Andrew, I'm not sure what the best solutions are going forward - obviously the regulators failed a few years ago, and now the problem is much worse than it should have been.
I'm not a fan of increasing the conforming limits as a solution. I think the best thing the government agencies could do right now is put out a clear guide on what happens when you lose your home to foreclosure. Explain the process, what happens to your credit, the tax implications, etc.
The last thing we want to do is bail out the lenders and investors - and that is what raising the conforming limit would do (IMO).
Best Wishes.
Very important story to look at here -- Ohio's $100 million foreclosure bailout loan program is being slashed dramatically because "an overwhelming number of those were beyond the point at which this program could be of any help." In other words, they were already in foreclosures or they had past credit problems that disqualified them.
Lots of states have been trying to design foreclosure rescue programs. What does Ohio's failure say about the nation's problem with bad loans? It's an unmitigated mess, that's what.
Ohio Cuts $100 Million Refinancing Plan as Few Owners Seek Help - Bloomberg.com
"behaving in the opposite way we would predict and have
seen and tested for over very long time periods (45+ years)"
Maybe they need to go back a little further, like maybe 1929 or thereabouts.
CR,
How does raising the FNM conforming limit bail out all of this non-conforming garbage?
Small condo/multifamily builder blowing up, TARR is the ticker.
To Bob in MA -
I agree with you about Chuck Schumer. I'm also a pinko but he has become a real political whore.
PPT couldn;t get it done today. Need more ammo.
market freefall coming....
-367 1:02 pacific
Darth Toll, it doesn't.
All, From MarketWatch: Another $43 billion in loan deals pulled in past two weeks
In the past two weeks, another 13 corporate loan or bond deals have been postponed or reduced, representing just under $43 billion, in new research released Thursday by Baring Asset Management. The total number of deals pulled since June 22nd now stands at 46, analysts at the firm said, valued at more than $60 billion.
It's not clear from the story how much of this, if any, will end up as shiny new piers for the IBs.
Best to all.
joe-that is absolutely fascinating. internet bubble of the 1960's? Bookstaber spells it all out in his book and describes the exact same problem in 1987 and with LTCM. Basically its a problem of interactive complexity with tight coupling. Complexity being derived from derivatives with layers upon layers of side bets all leveraged to the hilt hiding risk and assuming correlations that exist only in normal trading times not extremes as we have today. Tight coupling meaning unfathomable moving parts all interacting under real time instantaneous feedback getting the masses to scramble from one side of the boat to the other. Quant funds who try to anticipate these mass movements don't realize that when the Titanic hits the iceberg people start jumping off both sides and ends of the boat in panic. Enemies become helpers jumping off the side together. Friends become enemies trying to get into the raft first. +1 correlations become -1 uncorrelations. Geez, what a mess!
"Shiny new piers". Frightening thought.
Forbes.com File Not Found
woops...this doesn't appear to be working out as planned.
Can't wait to see what Nardelli has in store for Chrysler.
i wonder if they've disconnected the computers? i gotta believe there must be bedlam and panic now that the quants have to get in there and manually trade, heaven forbid! i've always enjoyed playing chess against computers. i am proud to say my portfolio is performing FAR better than these guys. they must still be using 486's.
Billionaire investor Wilbur Ross was just on CNBC saying that Aug. 15 is the key date for hedgies. That's the date by which 3Q redemptions must be filed in order to be redeemed by Sept. 30 (45-day notice).
He had tons of good info. I don't know if this has been posted on the other thread, but Ross said the Euro Central Bank's cash injection today of $131 billion was TWICE AS MUCH as it injected on the day trading resumed after 9/11.
All is can say is: FRIGGIN' WOW!
-- Judge Smales
"You'll get nothing and like it"
Tine to get some marked-off gardening tools at HD's going out of busines sale.
idoc: ...when the Titanic hits the iceberg people start jumping off both sides and ends of the boat in panic. Enemies become helpers jumping off the side together. Friends become enemies trying to get into the raft first.
That's...almost poetic!
About the correlations though, I think they were assuming a -1 correlation, which would be a perfect negative correlation, and therefore a perfect hedge. As you say though, once in a while the relationship reverses and you get a +1. The strengths are equal, but the signs are opposite.
Incidentally, I posted this yesterday afternoon:
"Until the bulk of mortgage resets kick in during the next six months, we're not going to have any idea which banks and hedge funds have been swimming naked. I envision many more Bear Stearns-style "surprise" announcements that shake the markets to their core. Anyone who bought the dip in the financials and is going long, better strap in tight."
Today: Hmmm. BNP Paribas locks down 3 funds. Dow down 387.
Yes, I am a GENIUS and my books and tapes are on sale in the lobby.
Just kidding, of course, but these few days, weeks, months and years are going to be, well, interesting.
-- Judge Smales
"You'll get nothing and like it"
Since no one seems to have mentioned it:
"Filing on time. We've heard of it" FNM files to delay 10Q. My amateur read is that they cannot meet the normal 5 day extension alloted (to 8/14/07), and needs more time than that = they are not particularly close to finished.
That is not helping convince me that we need to lighten the regulatory load on FRE and FNM.
Our little secret is out. 231 visitors on line. Is that a record? Great Job Tanta and CR!!!
HVH-it depends on the play. as an example, HF's can be caught using a trade where they go short Treasuries and long hi yield junk to take advantage of the spread. normally their interest rates move with a +1 correlation, ie, same direction. easy money in normal times. in crisis times, HF's will dump hi yield junk and buy Treasuries in a flight to safety. hi yield interest rates skyrocket and Treasury rates plunge for a -1 correlation thus creating a double hit for these HF's.
Sounds like its time for Ron Paul to become president.
I wouldn't go that far; but he certainly deserves the GOP nomination. What a bunch of crooks and hacks.
McCain. Rudy. Mitt. Tancredo. Hunter. Brownback. A bunch of jokers and worse.
Squeezed living in florida-every once in a while we ppl wowing about how many of us are online and if its a record. the REAL record was 381, correct me if i'm wrong, the nite of the BS announcement about how much money was left in those 2 funds a prophetic (or do i mean pathetic) few wks back.
I have a feeling we might challenge that 381 visitor record soon! Time to bring the CR board of options and futures exchange back! Your funds will be guaranteed by a depositor that is at least as reliable as all major US and EU banks!
Seriously, thanks for the great flow of information overload. I have been on the most brutal of conference calls for over two hours now. As scary as it sounds, reading this group's banter is actually keeping me SANE
Nice Blog
"Nice Blog
," says teri
what a deep comment.
--
C Hamberger
Elizabethtown Kentucky Real Estate
Via bigpicture.typepad.com -- video of Kramer on the Colbert Report...
"Can't wait to see what Nardelli has in store for Chrysler."
The only Nardelli has in store to Chrysler is the large severance package he's already worked out.
Sorry there CR, for what it is worth I agree with you. And I also don't have a clue how to proceed, just opinions on how we shouldn't. I was mainly commenting/venting on how this issue has gained political traction and notice recently, which will probably guarantee that we get some sort of knee jerk SNAFU as both sides engage in a tug of war over the crisis from their own particular political ideologies.
(Warning: Political Opinion Ahead. Disclaimer: I personally consider myself to be what I like to call a "foaming at the mouth irate moderate" with a few progressive leanings thrown in for good measure.) It seem that Bush will try to act from his regulation busting, free market, voodoo laffer curve right wing economics and the Congress from pork barrel politics leavened with a good portion of entitlement/government should be involved in everything from the old school left wing types like Schumer. As I view this I find myself longing to find an old fashioned pragmatic "centrist" politician, of either right or left wing variety. One that eschews name calling, educates themselves on the issues, and who is in favor of problem solving with hammer and tongs compromise, and is not in favor of gridlock.
Lord knows we need to fix a few things.
On the Housing Mess: We shouldn't bail out the lenders or the investors. Yes, we should save the system because that will take us all down as it did in 1930, but not bail out the perpetrators. I'm even highly skeptical on the wisdom of bailing out the mortgage holders, as many calls to action seem to be in favor of these days. This needs to hurt to reinforce the idea of risk and reassert a natural aversion to speculation that went missing in recent years. However, I'm also not in favor of ruining people's lives forever to accomplish that. If you got in trouble you don't get to keep your shiny new toys or your borrowed lifestyle, and you definitely don't get to keep a pristine credit rating, but you do get a chance to start over.
I assume many on this blog have read Fooled by Randomness and When Genius Failed. If not, run, do not walk, and finish those by Sunday. The most telling part is that in times of stress all correlations go to 1, and that no matter how good the model, it will always miss the fat tail events that cause the correlations to go to 1. Forgive me if I'm stating the obvious, but fat tails are extreme outlier events on a normal distribution. So when the gent at Lehman says in 45 years of history, this is an extreme anomaly, he misses the point. OF COURSE it's an extreme anomaly, that's what always does people in. Leverage + undying faith in gaussian distributions = total carnage when the black swan arrives.
The swan is here and he wants revenge for all the bastards claiming that there are only white swans in the world.
Wow.will the new slogan be "Real Estate only blows up?"
As a layperson (someone not in the mortgage/banking industry) what does all this mean to the average person. A few people have suggestion waiting until December to purchase a home however now I'm concerned about the higher interest and the credit crunch. The news said today that even people with great credit are going to have to pay points to get a mortgage. Your thoughts?
Wow. I have been involved in the hedge fund world for a long time. I have been wondering if losses in one quantitative market neutral hedge("stat arb") would cause losses in other stat arb funds, but I have never seen this before. Without naming names I can say that I am also very surprised to see certain hedge funds that I know very well managing money such sumsin the stat arb area. As mentioned by someone else, this would explain the very odd behaviour in the housing stocks.
RP, wait until December . . . of 2009.
At the earliest.
Okay, a small challenge, tell me, concisely, why the Fed is wrong, or I am wrong in interpreting it this way.
The Fed is relying on the value of the underlying stock being related to their earnings. Earnings even with MEW declining and the housing sector shaving 1% off the GDP shuld still be decent. Especially in the export sector.
Some fancy hedge positions may have to unwind in high volatility, but, in the end, shouldn't the price be rational with respect to earnings?
So, the bond holders lose 100 or 200 billion, why is that the end of the world? Is the risk a cascade of bankruptcys? And how real is the risk, especially if many of the bond holders are pension funds and insurance companies?
Keep it simple because I am stoopid
From Mr Practical
02:14:30 PM
Market is Adjusting Risk Tolerance
Fannie Mae (FNM) and Freddie Mac (FRE) have rallied significantly in the last week. The reason: several senators in a panic to aid borrowers who want to buy houses are demanding that curbs be lifted on these companies ability to buy mortgage paper.
Apparently the "market" is adjusting its tolerance for risk and has decided to demand better terms on the loans being made (including not making them to unworthy borrowers). Banks, with their own money, have decided that they would like to reduce their risk in the paper they already hold. So certain Senators in their infinite economic wisdom have decided that the market is wrong and they are right. FNM, which are not government institutions when the government doesn't want them to be, but are when they do, should step in and buy the crappy paper and make the loans that the market doesn't want.
So investors believe the "revenue opportunities" have increased for the companies and have decided to bid up the stock prices. This ignores something that Minyans should understand by now: RISK.
Yes, if these companies buy the paper that investors have decided is too risky they may make more "revenue" in the near term, but that ignores the fact that they must take much higher risk to do so. If I tell you I will pay you an extra dollar today at the risk of you losing $20 tomorrow is that a good deal?
The government, of course, probably won't let these companies fail if they truly get in trouble as a result (which I believe they will). But what does that have to do with the stock? The stock is an option on profits; if the company loses money on their positions the bondholders will get bailed out by the government but the stockholders will not.
RP,
If you wait you are more likely to get 'your' price. The mortgage issuers will also be extremely happy to have your warm little body walk in the door - assuming you have a down payment, a job and a good credit history.
That day, you will be king.
76 more on ratings downgrade watch from S&P; over $2B worth.
S&P: 76 ratings on 19 U.S. cash-flow, hybrid CDOs may be cut - MarketWatch
myr cut to the heart of what left me scratching my head. If hedge funds are responding to margin calls or redemption requests they are forced to sell losers AND winners. It's my understanding that hedge funds are majorly short HBs. If they are clearing their positions to raise cash they are driving up stocks that don't deserve to be up where they are. Sound like an explanation, given the grim housing market conditions?
This is the comment that will destroy the market, (Briefing.com):
"The latest shoe to drop came from BNP Paribas. The French bank halted withdrawals from three of its funds as a lack of liquidity left it unable to fairly value their holdings on account of the turmoil in the U.S. credit market. Also discouraging was the fact that the company's CEO reportedly said just last week that the bank's exposure to U.S. subprime was "absolutely negligible."
One week from "absolutely negligible" to massive problem. True ignorance, wishful thinking, cupidity, or fraud? All the same in the end.
Much more work for the Cayman bankruptcy courts in the future, eh Mr. Bear Stearns?
By the way, if I has lost big, I would be checking out whether I could buy some legal standing in the Caymans.
Some fancy hedge positions may have to unwind in high volatility, but, in the end, shouldn't the price be rational with respect to earnings?-mf
if i understand your question properly, no the price doesn't have to end up being rational in respect to earnings. why? b/c when the margin calls come, HF's have to unload anything and everything that is liquid just to meet the call. that will drive down stock prices even in uncorrelated industries more than they deserve. some ppl use this in excusing gold/gold stocks poor performance during recent mkt pullbacks when historically they have gone up acting like a hedge.
mf-sorry that's me
Will FED raise or cut?
This post follows up an earlier discussion with Sebastian and idoc regarding FED Funds target rate as a lagging indicator.
Given LIBOR's vigorous activity today, it is interesting to compare previous LIBOR moves with FED rate.
At all major rate inflections LIBOR has anticipated FED by 1 - 2 months.
FED follows LIBOR.
Jan '01 - LIBOR (3-month) moves 6.40 to 5.52 and FED holds steady.
Feb '01 - FED moves 6.50 to 5.50
May '04 - Libor moves 1.17 to 1.30 (first meaningful increase after multi-year decline). FED holds steady.
Jul '04 - FED moves 1.00 to 1.25
Jul '06 - LIBOR ceases multi year increase with move from 5.5085 to 5.4889. FED moves 5.00 to 5.25.
Aug '06 - FED ceases multi year increase holding at 5.25.
(Data source: moneycafe.com)
As counterintuitive as it may seem, data suggests that if LIBOR is on the rise, chances are that the FED will raise rates proportionately one to two months hence.
Market leads. FED reacts.
Hat-tip for this goes to Elliott Wave Int'l whose original comparison wasn't LIBOR, but that triggered the insight.
Best Regards,
By the way, if I has lost big, I would be checking out whether I could buy some legal standing in the Caymans.
Neal
if it was me i would be checking out whether i could buy a new residence in the Caymans.
barely,
I worked at a company owned 100% by a PEG. The place was minting money for them. They sold us off to compensate for a loss they realized in the same year so they could keep the investors happy. It was a bad economic decision, but I'd guess it kept their managers employed.
Not just America. Followign some stocks in Europe that are down 20% in 2 days on no news, while others that have been faring badly are suddenly rising.
So we have signs that some major market neutral funds are in trouble
(to add to the toasted credit funds) and that a major European bank is in trouble given the amount of money injected into the system by the ECB.
That just leaves sovreign risk. Step right up, people, I've got Spain at no. 1, followed by Hungary, Italy and Uncle Sam with his reserve currency a good each way bet.
idoc - But in the longer term aren't they going to end up being rational with respect to earnings? With the huge volatility and unwinding of positions they could certainly be irrational for a while, if funds are selling to raise cash...
A few people have suggestion waiting until December to purchase a home however now I'm concerned about the higher interest and the credit crunch. The news said today that even people with great credit are going to have to pay points to get a mortgage. Your thoughts?
RP
RP: If mortgage rates go up and stay there a while that will help lead to lower house prices. People still need to be able to afford the monthly payments so price moves inverse to rates. The thing to do is to wait for the prices to fall and then buy even if the rate is still high because you can always refi down the line when rates go lower again (as they will eventually).
If you buy a house at a high price level compared to what it will be in the future, you can't refi the price as you can the interest rate.
Bottom line: sit tight and watch the fireworks.
RP,
Just to add to bofiz's bulleye; If you don't currently own, you can always lowball offers. It costs you nothing, and you never know....
You doom and gloomers can whine all you want, but everyone knows that stocks are always a good long term buy.
I'm backing up the truck here.
RP,
Before buying you might want to read this paper from the Federal Reserve. It is a study of the decline in Japan. It shows why inventory builds and why price drops are sticky as homes priced above market "fish" for buyers -- until they get foreclosed. It about how a market behaves after it gets a price spike shock -- how it acts as it returns to normal works off the spike (drops). How the debt keeps people from having downpayments to move up and how it keeps people from being able to sell -- ergo sticky prices often until foreclosure -- and the last hanger-oners have it worst. Commercial propery dropped in Japan too but these drops are faster -- as we are already experiencing here in the US. You can just pass over the parts on math modeling if you want -- the definition and ideas have it all. The drops in Japan are still occuring and so are the foreclosures and the Japanese had increasing salaries and decreasing interest rates. I doubt we will have rates that low because unlike Japan we have huge debt and must attract investments.
http://www.frbsf.org/publications/economics/papers/2004/wp04-16bk.pdf
Falcor said: "This post follows up an earlier discussion with Sebastian and idoc regarding FED Funds target rate as a lagging indicator."
Thanks for the follow-up.
You might want to look at domestic market-driven rates (T-bills) instead of LIBOR. The 13-week Treasury Index is below Fed funds, suggesting that the Fed's next move is an easing. Given everything that's going on (slower economic growth, liquidity concerns, low inflation), wouldn't it seem more likely that the Fed will be easing if they do anything?
Not arguing the merits of tightening or easing, just what's more likely given the circumstances.
FWIW.
Sebastia
"oops, we forgot correlation moves to 1 in times of distress. our bad..."
Alternate Reality,
America is a much more mobile society than Japan in every way. Americans are more likely to take the hit and walk away and start a new life. Things ought to resolve quicker here, I hope.
Lehman should be the next shoe to drop in my opinion,
1)Big Mortagage Bond House (like bsc)
2)They did 100% stated, no reserves, no verification of rent history. ie: stupid shit
M-F,
It is hard to know how it will play out, but the Fed paper convinced me that it doesn't hurt to wait and that maybe in the future the best time to buy will be upon retirement -- instead of selling at retirement like the paper points out is done now. I guess I can't see people just walking away and every study I've ever read on US or European housing shows home mortgages to be the least likely to default because people do everything they can to avoid default. If memory serves me, Basel I and II rate home loans at lower risk that all other kinds of debt due to people's absolute avoidance of default. And default of course means you still will owe the bank some money and you have to pay Uncle Sam gift taxes for any amount you walk away from and it hurts your credit rating and it could even hurt in getting a job.
"Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing."
from Countrywide Hit by Credit Market Woes - WSJ.com
More on Countrywide from the same article
""While we believe we have adequate funding liquidity," it said in a quarterly filing with the Securities and Exchange Commission, "the situation is rapidly evolving and the impact on the company is unknown.""
Anonymous,
I agree with most of what you said. The only point I was making was that since the US is a more mobile society than Japan, the US is likely to take less time to work through the hangover than in Japan.
I think 'later' is a better time to buy than now, I think Real Estate will definitely come down more in price, maybe a lot more in some poart of the country. Having a house is expensive compared to renting, but it is nicer than renting in many ways. So don't wait too long if the prices are right
You ca get decent acreage on some of the outlying bahamian islands pretty cheap: You'll eventually lose them to global warming, but have it long enough for your lawsuit to work its way thru the crown courts.
*I reall believe tha Basel II requirements are drivig the ECB injection.
*Citi is hating life. I just read where they're already on the hook for $25 Billion in piers and have a lot more concrete to digest. The Prince of darkness was aggressive @ the worst possible time. I think he's already cost them a FY in profits, it may get worse.
Sebastian wrote:
". . . wouldn't it seem more likely that the Fed will be easing if they do anything?"
Yes, it would. That's why this whole LIBOR correlation is so counter-intuitive, particularly at this juncture.
My thought is that Fed would rather ease if it knew for certain that everyone/thing would follow. But a greater risk is to ease, have rates (LIBOR et al) surge and be seen as impotent and irrelevant.
I think we shall soon see.
Best regards,
Joe,
Thanks for the information, I'm going to go outside and be sick now
One thing I am trying to figure out, with all this deleveraging going on, who exactly are these positions being sold to?
RP,
Let me agree with Lama (we Massholes stick together!).
If you really want the stability and predictability that comes with owning a home (pauses for cries of "Oh yeah? Have you seen the default numbers?" to cease,) then now is a fine time to buy...but do it on your terms. You holds the whip hand. Don't be shy about radical lowball offers, all they can do is say no. Have your financing in place, give the seller a short close and dare them to say no.
Don't rush, don't do a deal for the sake of getting it done and don't fall in love with a property you "have to have." There will be another available just like it soon enough.
Have your financing in place, give the seller a short close and dare them to say no.
I did all that, seller hosed me for an extra dime, now the property is 60 day delinquent on a HELOC yet he won't return my call.
My plan, have a proxy buy the note on the cheap and squeeze his feet til they bleed, I'll pay 20% over the potential low but I'll have the lot I wanted.
mf-yes eventually when mkts stabilize. how long that will take is anyones guess given the magnitude of whats happening here. it could be years.
Banker,
I am just in the process of closing on the purchase of a home. We moved due to family reasons. I had my financing in place, and the home in question is a flip. My bank appraised the home at $15k under the offer price; the sellers agreed to knock $10k off and my bank was OK with that.
Parenthetically, once we had the sales contract finalized, my bank started jerking me around every day this week. Every morning I'd get a call from the branch saying "The underwriters want this additional information", or the real kick in the shorts was they told me I had to add another 5% down. Luckily I had plenty of equity from the sale of my previous home, so all I had to do was say OK, do it. But that would have tanked the purchase right there for most people. It would be hard to come up with that extra 5% when you were expecting to close in a couple of days.