E.g: Certificateholder Distribution Summary or the reasons why the ABX is continuing to melt; anyone have a simple way to look at this in terms of how the ABX impacts this type of trust?
The Ambac BS was needed. The crooks that are very, very, very afraid of OBAMA are aware that "Hill the banker shill" will be done tonight. That leaves the bought politicians that will work on the bankers' behalf all losers.
They are waiting for the results, then when Hill the Banker shill loses and is considered gone for good, THEN AND ONLY THEN will the markets be allowed to tank, in an attempt to scare the masses about their stocks under an Obama presidency.
WaMu Asset-Backed Certificates WaMu Series 2007-HE2^ABX-HE-BBB 07-2
Re: Metropolitan West Funds · N-CSRS · For 9/30/07
We are pleased to provide the following September 30, 2007 Semi-Annual Report for the Metropolitan West Funds. Thank you for your continued investment with us. With the beginning of the second quarter of 2007, we moved into the second decade of managing the Total Return and Low Duration Funds, and in the middle part of 2007 celebrated the 5-Year Anniversaries of the Intermediate and High Yield Funds. Participation in the Funds grew to more than $6.5 billion at September month-end, with the combined share classes of the flagship Total Return Fund approaching $4 billion in assets.
Receive a fixed rate equal to 5.00% and the Fund will pay to the counterparty at par including interest accrued in the event of default of ABX-HE-BBB 07-2, due 01/25/38. Counterparty: Lehman Brothers Holdings, Inc
First - you're living in a fantasy world if you really believe there is a significant difference in the funding sources of the three remaining (until tonight) candidates. Saint Obama is just smart enough to make sure the Lobbying firm employees donate in their own names as "private citizens".
Second - I have to give you kudos for the most batshit crazy conspiracy theory I've ever heard on here. I guess this means that CR has really "arrived" now.
For some reason as I look as the crumbling housing prices and real estate market vs. the idiotic "everything only goes up!" mindset of a few years ago, I am left thinking of this Halo 2 quote:
Prophet of Truth: "There are those who said this day would never come. What are they to say now?"
We are hearing of more and more comparisons to the Great Depression of the 30's. Unfortunately, the comparisons are quite correct. The stock market crash of '29 is widely blamed BUT in the 1920's there was massive speculation in real estate in Florida (this is where the saying "swampland in Florida" comes from). Miami was booming and 1/3 of the population there were employed as real estate agents. A hurricane in '25 shut down the port and the market tanked followed by a stock market boom that was over leveraged. Reg T did not exist and margin was 10% to trade stocks. Today it is 50%.
This is similar to the conditions that have existed in this decade. We have had massive spec in real estate in the "sunshine states" as well to do baby boomers and other speculators trying to get in on the action, causing distortions in the market to the upside and now the downside.
The securitization of loans basically mirrored the stock market over-leveraging of the 1920's but w/ debt securities, not equities.
Be concerned. Very concerned 'cause this is quite serious. Negative bias only feeds the self defeating process that will become a self-fullfilling prophecy if we let it.
The excesses need to be corrected but we don't have to slip into utter depression if we play the cards correctly.
I'm surprised he was so forthright about it. When you compare a statement like this to those of the NAR's Lawrence Yun, it's almost like, I don't know - honesty, or something.
I hate to go into some OT madness, but it looks like the ABX implosion is a result of swap imbalances, i.e, these boys flip coins, using other peoples coins, and they take bets that all go the wrong way. This is the casino game where the speculator continues to bet until they exhaust the cash, and then the casino gives them free drinks, then they grasp the butt of a waitress and get the hell kicked out of them.
Sorry if this has already been posted:
The value of the reference obligation received by the seller, coupled with the periodic payments previously received may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to illiquidity risk, counter-party risk and credit risk.
The Funds may write (sell) and purchase put and call swaptions. Swaption contracts written by the Funds represent an option that gives the purchaser the right, but not the obligation, to enter into a new swap agreement, or to shorten, extend, cancel or modify an existing swap agreement, on a future date on specified terms. Depending on the terms of the particular option agreement, a Fund will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Fund writes a swaption, upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement.
The Funds also may enter into total return swap agreements. Total Return Swap is the generic name for any non-traditional swap where one party agrees to pay the other the total return of a defined underlying asset, usually in return for receiving a stream of LIBOR based cashflows. The Total Return Swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined portfolios of loans and mortgages. The Total Return Swap is a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, usually LIBOR, is spread to reflect the non-balance sheet nature of the product. Total Return Swaps can be designed with any underlying asset agreed between two parties. No notional amounts are exchanged with Total Return Swaps.
As a result, unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statements of Assets and Liabilities. The change in the value of the swaps, including periodic amounts of interest paid or received on swaps is reported as unrealized gains or losses in the Statements of Operations. A realized gain or loss is recorded upon payment or termination of swap agreements. Swap agreements are stated at fair value. Notional principal amounts are used upon payment or receipt of a periodic payment or termination of swap agreements to express the extent of involvement in these transactions, but the amounts subject to credit risk are much smaller. At September 30, 2007, the Funds had outstanding swap agreements as listed in the Funds Schedules of Portfolio Investments. Swap transactions present risk of loss in excess of the related amounts in the Statements of Assets and Liabilities.
one thing at a time. SABR 06-HE2 is a home equity backed deal which is part of ABX index 2007-1. I can't read the info as posted on the SEC site and do not need to. Instead, I got the remittance report from the trustee, Wells Fargo. From that, I
can tell that as of Feb. 08, 28.1% of the collateral is 60 days delinquent or worse. Other deals in ABX have similar horrible delinquency levels, which accounts for the miserable state of ABX.
the other thing you posted was on someone's credit default swap.
"Second - I have to give you kudos for the most batshit crazy conspiracy theory I've ever heard on here. I guess this means that CR has really "arrived" now.
Scott"
Watch it happen. AIPAC is very afraid of Obama. They own Hill the banker shill. But the massive discontented voting is preventing the old crony networks from scoring. Rockefeller was a little late to be a believable endorsement. It came because the elite network sees the writing on the walls.
Three reasons. First, he has no background in economics and no real history of ties with Washington or Wall Street powerbrokers. He would need to build a new economic team from scratch, and it's possible many big players on it could be outsiders. Out with the old and in with the new is scary change for Wall Street.
Second, he's got a hefty social agenda plus war cost that needs to be financed, and there would probably be heavy new taxes on wealthy and biz.
Third, if Obama really got rolling, he could sweep in wholesale change in Congress across both parties, and all those lobbyist connections and goodwill would vanish.
I'm not convinced Obama will win tonight or that he has legs. He could go straight down from here. But there's no doubt his strength is bad news for markets and corporate profits. Much worse than the two other remaining choices, both of which are known biz-friendly.
Yeah, at least the guy was honest, or sounded so. Beware, he'll expect something in return for his candor, like say, cramming down a bunch of mortgages on houses they sold last year in order to keep the comps in the new development floating...oops, Uncle Ben covered that already.
OT - Zarley - I think you mean the Great Hurricane of 1926. The history of Florida in the 20's is interesting IMO - and people might want to read about that storm. BTW - lots of property titles got totally screwed up in Florida as a result of the building crash in the 20's and the Great Depression in the 30's. The problems only started to get sorted after the Marketable Record Title Act was passed in the 1960's. Roby
Thought I'd point out, the actual Global Insight press release was not half so shilly:
Jeannine Cataldi, Senior Economist and Manager of the Global Insight Regional Real Estate Service, added that, "Along with the tighter credit market, weakness in overall economic conditions will keep housing below historical trends for the near future."
Oh, and Obama? Please. The bankers have nothing in particular to fear from him, though they'd certainly prefer their "maverick" lapdog, "Keating Five" McCain. Edwards was the real nemesis; he threatened to push America from financial capitalism back to industrial capitalism by force. He wasn't allowed traction.
Anyway, in general, the stock market does well under Democratic White Houses, not so much under Republicans.
Three reasons. First, he has no background in economics and no real history of ties with Washington or Wall Street powerbrokers. He would need to build a new economic team from scratch, and it's possible many big players on it could be outsiders. Out with the old and in with the new is scary change for Wall Street.
Bernanke anf Greenspan have plenty o' economics experience, and Bush is the MBA prez. What's your point, here?
Second, he's got a hefty social agenda plus war cost that needs to be financed, and there would probably be heavy new taxes on wealthy and biz.
The next President, no matter who that ends up being, will also have these issues to deal with.
Third, if Obama really got rolling, he could sweep in wholesale change in Congress across both parties, and all those lobbyist connections and goodwill would vanish.
And along with the "connections" and "goodwill", the cronyism, criminality, and incompetence.
I'm not convinced Obama will win tonight or that he has legs. He could go straight down from here. But there's no doubt his strength is bad news for markets and corporate profits. Much worse than the two other remaining choices, both of which are known biz-friendly.
There is certainly doubt. I wouldn't say Obama is anti-business. Why do you?
CR- Seiders quoted a number of 2 million vacant homes for sale. Your charts indicate around 550k new homes for sale and you estimated another "excess" 825k vacant homes in the existing inventory. Any idea where the other 500k of vacant inventory he is talking about is coming from?
I am going from memory so you are likely correct that the event involving the hurricane was in '26. Thanx for the further insight.
I am one of those crazies who thinks that history repeats itself...
But can we talk more about Obama and silly ABX derivatives? Obama could be the next Pres. And watch your counter-parties if you have the balls for those ABX deals.
(Sorry for joining the political discussion. And this used to be such a nice neighborhood...)
rich --
But there's no doubt his strength is bad news for markets and corporate profits. Much worse than the two other remaining choices, both of which are known biz-friendly.
Hillary's husband was reasonably biz-friendly, but I am not convinced she is. Evidence suggests that at heart she is a central-planning socialist in the finest Soviet tradition.
"whereas Mr Obamas economist is Austan Goolsbee, a brilliant Massachusetts Institute of Technology PhD at Chicago Business School and a valuable source of free-trade advice over almost a decade, Mrs Clintons campaign boasts of no professional economist of high repute. Instead, her trade advisers are reputed to be largely from the pro-union, anti-globalisation Economic Policy Institute and the AFL-CIO union federation."
Gee, some of you folks sound like you think the market would do so much better under "more of the same McCain". 8 years of Bush is more than enough. Add 4 years of McCain and the U.S. economy would sink below that of Argentina. More war, keep the crazy bush tax cuts, etc. Yeah he stands up against earmarks, but BFD, some earmarks are actually useful, some are outrageous wastes of money, but from a macro standpoint they are damm near totally irrelevant. All the earmarks in 2007 combined made up a grand total of 0.6% of the federal budget. Assume half were worthwhile and the waste is 0.3%. Is it a good idea to get rid of 0.3% waste, of course it is. Will it make a real difference, of course not. Either Obama or Hillary would also tend to have advisors with above room temperature IQ's, the same can not be said of McCain.
sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008
What was it again that CR said about construction being persistently above sales and reported "sales" being persistently above closings in a down market.
The Cambridge researchers say that in Britain between 1,300 and 5,100 people could die if a significant proportion of banks suffered crises similar to that at Northern Rock.
"The SEC said that from March through August 2007, Thompson Consulting embarked on progressively riskier trading strategies without disclosing the change to the hedge funds' investors. The investors had been promised returns of 3 percent per month, or more than 36 percent per year."
Could it be that Sebastian was a client or a principal?
I think it was o-joe, mp
How about that nice little turn in commodities and AU today? That ought to catch some by surprise.
It bears repeating: if you think what is playing out starts with an I then you'd better think again. It starts with a D. And it isn't depression, although if you are unprepared xanax may help with the results.
That National City/Global Insight report is a pretty good read (for laughs). I took Providence as an example city since there hasn't really been any big drivers of economic change there in the last decade or so. In Q4 2005, the median was 281.1. In Q4 2007, the median was 268.4 (4.5% drop). Yet, the "overvaluation" has gone from 29.4% to 11.8%. Mob salaries must have skyrocketed.
They seem to assume everything was seriously undervalued about 15 years before the recent runup and somehow the underlying funadmentals have jumped since the slowdown began.
The National City graphic uses a regression over time to determine appropriate values. The recent bubble which resulted in excessively high values also results in overestimating the increase in value with time, so recent predicted prices are too high. Additionally, "fairly valued" includes overpriced up to 15%, which is actually pretty overpriced - more than the current average downpayment.
Also there is a nifty little chart in the NYT that plots the price of oil from the 1940's to now. It is interesting to note that, since the 70's the peak in the price of oil has occured just prior to or at the advent of recession.
What do you think is going to happen to inflationary pressures as the economy slows? As the price of oil drops? As asset prices drop?
What is the definition of asset price drop? Of contraction of credit? Of contraction of the money supply?
Now, given all of this, do you think that China will decouple? How about the rest of Asia? When Wal-Mart cuts it's orders where is the manufacturing base now? How about Home Depot? Best Buy?
mp since you have Conjure (who must be bouncing up and down at the prospect of repprochement with Cuba and Cohibas at the local tobacconist!), I'm sure that you are taking advantage of the under-valuation of some of these assets...at the right time.
The screaming doom and gloomers should be rubbing their hands at the chance to pick up the seriously undervalued things...not at the bottom, but near to it. And dump the seriously over-valued.
I think this time it's real. Ambac is back to the original plan (no split) so it should move along quickly. Speaking as a shareholder, I think we'll hear something by the end of this week (probably tomorrow).
It's amazing to see short-term players trip over themselves on a well-known rumour... never thought the same rumour can move the major markets three times...
The action in commodities today, particularly gold, was genuinely un-nerving and spooky.
It was. I didn't expect any break at this time. I can't determine if we've reached a pause, or this marks the turn. All I know is, after today, I'd be taking profits...
It might be an interesting thought that, if commodities and oil begin a retreat now, the Fed played the game correctly as prices on these retreat as the downturn takes hold. That means their view of inflationary pressures was correct and the problem was (and is) the financial markets.
Siv, what they are grasping at is a glimmer of hope in a darkening field.
What I see is the usual pump and dump of wall street. They are pumping and dumping a dead stock for maximum gain on the way to the slaughterhouse.
why not- it is more efficient to spread the losses to folks buying hope instead of selling doom.
Whenever I see a bunch of wall street folks charging down a street, I run the other way- because at the end there is a very crowded trade arranged by the folks who operate the ride.
Nice to see someone so trusting in a bailout. Buffett has already tried to cherrypick the best assets, and instead has organized a new competitor instead. Long term (over the next several years) it is all but guaranteed that companies saddled with current handicaps will be gone compared to undamaged competitors.
As for housing, well someday the bottom will arrive, and we all will be looking for further drops, but history teaches that a whole bunch of false dawns occur before that truly darkest hour.
Someday this war's gonna end...when it does, the commodity bubble will too. But for right now...just a false dawn...
Ipodius, twice now in the last six months my son and I have been offered businesses at liquidation prices by tearful owners. I derive no satisfaction in reporting this, but relate it as a warning.
The two men I'm referring to were responsible businessmen and I respect them. They were not highly leveraged. The leverage they did have sank them.
It might be an interesting thought that, if commodities and oil begin a retreat now, the Fed played the game correctly as prices on these retreat as the downturn takes hold.
Barring a massive selloff, would the Fed hold in March, just to give commodities a swift kick in the pants down the other side of the parabola?
High input costs cannot possibly be helpful to any kind of recovery can they?
AllenM: "Nice to see someone so trusting in a bailout. Buffett has already tried to cherrypick the best assets, and instead has organized a new competitor instead. Long term (over the next several years) it is all but guaranteed that companies saddled with current handicaps will be gone compared to undamaged competitors."
We shall see (recall that I'm long Ambac so I have a different view from you).
Buffett's operation is overrated. He capitalized it initially with around $100 million, which will let Berkshire write around $10 billion (if we assume a 100-to-1 leverage). Ambac alone historically wrote around $20b so you are looking at Berkshire with maybe 10% market share at best. Already it seems many municipalites are balking at Buffett's high rates (many are forgoing Berkshire's wraps).
Who knows if he added more capital but it doesn't seem like it. He is also charging higher premiums so there will be an opportunity for others to undercut his operations. One other note is that Berkshire likely won't enter the international market or structured products. I'm in the minority, given the debacle with the ABS of subprime RMBS, but I really feel that the most potential in the future is structured products (although CDS-type insurance written by monolines compete against plain CDS written by non-insurance investors/funds/etc).
As far as I'm concerned, if Ambac can maintain AAA rating, the real threat (ignoring MBIA) is Assured Guaranty. Berkshire won't be a big competitor for many years, if ever. Berkshire won't have the infrastructure and expertise for years. It also seems like Buffett is positioning Berkshire Hathaway Assurance as a niche player that enters and leaves the market (kind of like what he does with mega-catastrophe insurance). If Buffett was more serious, he would have put more money into the business. I mean, even Wilbur Ross, a late entrant, put more into the industry than Buffett.
As MBIA's CEO recently remarked, the muni market wants someone who is there permanently and we'll see if Berkshire fits that bill. I think Berkshire will leave the market if premiums decline...
"Barring a massive selloff, would the Fed hold in March, just to give commodities a swift kick in the pants down the other side of the parabola?"
IMO, that would be a very dangerous thing to do, but it would depend on events in the credit markets. If the economy and the credit markets continue to deteriorate, which is likely, the easing will continue.
Once the economy is brought back along with credit, Bernanke can deal with any incipient inflation, but it's going to take more than a few months to do it.
The "bottom line" is this: inflation isn't the problem now, deflation is the problem.
Anonymous - I am curious about your remarks about AIPAC. Why do you think what you said? As a Jew - I am frankly puzzled about the Jewish establishment not challenging anything about Obama at any turn. Most major Jewish organizations seem to be going out of their way to say he's ok - although he has (at least according to him) religiously and fervantly attended church services at a church where love of Jews doesn't seem to be the first order of business.
Zarley - The mention of Obama is above. The only thing I know about the ABX is that it it a way to gamble. I don't think it has anything to do with unfreezing frozen credit markets. The best - perhaps only - way to unfreeze those markets is to develop better means of valuing the securities which are the basis of those markets. So there is greater transparency - which will lead to more accurate pricing. Markets can't be liquid in the absence of transparency and at least something resembling accurate pricing (give or take 5% is ok - give or take 50% isn't). I am somewhat familiar with people who are trying to do just that. Won't be an easy job. But the data is there for the asking and the organizing.
As for commodities prices - remember what I said a while back. It is a crowded leveraged trade. When the elephants stampede - the ants get trampled. So like I said before - CYA.
Also - bubble markets don't tend to behave very rationally. If you're looking at the futures traders in the SP500 - we hit a low - went to the top of a range - everyone expected a retest of the lows - and we got that today. Now everyone will wait and see if it holds. Blah - blah - blah. The traders pretty much go on predictable auto-pilot. With this recently born generation of cowboys in the commodities pits - they probably wouldn't know the differnece between a moving average and a moving van. Roby
Is the question not whether there will be inflation or deflation but what to save in? If we have deflation is Ben going to be working 24/7 to devalue our currency until there is positive inflation?
"By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." BB
mp-
I think there's greater danger in allowing the commodity speculators to profit enormously while the entire world screams about inflation. Crush the commodity speculators, and the rest of the world might be more willing to play ball wrt interest rates.
That said, if you're in foreign currencies, or emerging markers, or heaven forfend a commodity horder, then such a move by the Fed would be very bad indeed.
OT - but really interesting. My Congressman has just called me and other people in my part of his district to participate in a live town hall meeting conference call with him in Washington. We can ask questions - and he is answering real time on the phone. Amazing! Roby
Re: It might be an interesting thought that, if commodities and oil begin a retreat now, the Fed played the game correctly as prices on these retreat as the downturn takes hold. That means their view of inflationary pressures was correct and the problem was (and is) the financial markets.
Wake up Sonnyboy, the 3rd qrt and pumpkin harvest time are a long way away and as $500 billion in resets has time to set in (then), The Fed will look every bit as dumb as they look today! Count on it!
TG, if I were a Fed governor, I just might be thinking along these lines - the greatest threat right now is the condition of the credit markets. There is a slowdown, and it will deepen. The dollar is falling, but at some point will cause pain to other currencies and there is no such thing as decoupling. A SYMPTOM of inflation is a rise in prices, but it isn't the definition.
So I slice rates. Why? It's the credit markets stupid, to paraphrase. And capital is being destroyed faster than it is being created now. That's deflation. As we slow down, the commodities will pop, easing pricing pressures. As we catch the flu, Europe will sneeze and cut rates. That will take pressure off the dollar. So these items will work themselves out by exogenous forces.
At some point you raise rates, just as the others have to lower and as the credit markets unseize. The dollar begins ascent, inflation is nipped (more importantly deflation is stopped), and commodities come back in line as money flows again to the credit markets.
So the real question about BB and the Fed is, do they got rhythm?
lol..oh I am very wide awake. And I agree with mp: commodities will work themselves out. The Fed is counting on that, which is why they will keep dropping rates until the credit markets unstick. The ECB is going to take care of the dollar slide shortly as it has no choice but to drop.
The problem now is correcting capital destruction.
"The ECB is going to take care of the dollar slide shortly as it has no choice but to drop."
Yes, we agree there as well.
The financials remain my principal concern. The Fed continues to ease while lending rates continue to rise and we know what the banks are doing. They already have massive lending commitments and are running out of capital.
Also, I find TG's comment above interesting: "If" we have deflation.
TG, Americans are already facing deflation. Their single most valuable asset is deflating before their eyes.
That is my fear also. I imagine that is why the Fed is trying very hard to inject liquidity via all the auctions processes. Although I do think they are trying to destroy most of the shadow banking system that is responsible for a lot of this mess.
I would think at some point the lending rates will start to come down as that flow picks up. The current disparity in the lending rates could be the banks using the opportunity to re-capitalize for a bit. The danger is if this capital flow picks up too slowly...you get the liquidity trap. That's why I wonder if they have rhythm. There isn't much room on this dancefloor.
It appears that the "Estimated Valuation" utilized in the "Historical Data" calculation is 3X increase from the base of 1985 to 2007. That seemed kinda high to me. So, based on a back of the envelope tally I come up with roughly a 10% YOY appreciation for the base value. It also appears that this value was utilized across the board (with minor deviations).
Just this seem to lack credibility to any of you? Just wondering...
Paul Kasriel has weighed in on the Bernanke proposal and his thoughts echo those of many here: there is more going on here than is being acknowledged by the Fed in their forecasts.
Fair Economist writes:
The National City graphic uses a regression over time to determine appropriate values. The recent bubble which resulted in excessively high values also results in overestimating the increase in value with time, so recent predicted prices are too high. Additionally, "fairly valued" includes overpriced up to 15%, which is actually pretty overpriced - more than the current average downpayment.
Ahh.. I see the reason for the disconnect now. I read the 'methodology' explanation but I failed to see how it skewed the value over the time projections. From what I could put together they utilized what worked out to be around a 10% (more or less) YOY uplift to establish the "Estimated Valuation" base line when something closer to 4% would have been more appropriate for most purposes (historic average increase YOY based on decades of existing data).
I actually sequenced the value of a $280K home I bought (and later sold) in the Manchester NH area using their baseline uplift. Starting in 1989 I uplifted $280K @10% YOY appreciation and ended up at $600K. NFW! Maybe in mid-2006 asking price might have hit that mark but as of today a similar home listed by a motivated owner (in the same development) is priced @395K. Meanwhile the measured value curve seemed to closely follow actual pricing variations (the area experienced a serious home value contraction beginning in late 1989 and housing prices didn't fully recover to 1989 highs til 2000.
Not to beat a dead horse here but I'm on a roll... I sequenced the NC "Housing Valuation Analysis" starting value of a "medium home value" for the Manchester NH area ($70K in 1985) at 4% YOY and arrived at ~$110K for 2007. Based on this admittedly rough calculation I arrive at a price that is still a 50% delta from the reported $225K value for 2007 valuation. Note: The NC calculations indicate that housing is 'fairly priced ' for this area with a 2.3% positive delta.
If this sort of 'creative statical exercise' on the part of NationalCity is indicative of current asset valuation methodologies in the financial sector as a whole then true price discovery will be a long time coming.
Hillary's husband was reasonably biz-friendly, but I am not convinced she is. Evidence suggests that at heart she is a central-planning socialist in the finest Soviet tradition
What evidence? Like being on the board of Wal-Mart? Like her union-busting work at the Rose Law Firm?
I never was a great fan of HRC, but anyone who can drive Angry White Males completely batty has to be admired.
Um.... okay, go on admiring Billary. I am sure after she's done ramming socialism down our throats, we'll be very happy working for Ameros, peso/dollars, etc, assuming we still have jobs, of course.
Could you, please, define what you mean by socialism? It appears, that you use the term in some sense, which is very far from common, i.e. political science, definition of socialism.
Seen from Europe, Hillary is very far from any kind of socialism. As a matter of fact, Bush is closer to socialism, at least in of the Soviet Union/30s Germany style: the military-industrial complex is doing so fine now in the USA. It is nothing but socialism in practice.
Re: the National City Housing Graphic:
When I saw my SF Bay Area as "Fairly Valued" I totally choked. Then I took a closer look: they show values as already dropped by 20%, and values from 1997 as 25% undervalued. If we achieve a 25% "undervalue" again we've got a peak to bottom of something approaching 40%. Whoa!
Theres a lot of sellers listing homes that haven't got the message yet.
Holy crap, have you guys seen the CMBX, ABX today?!?!?!
credibility?
Products and Services Overview
ouch
purge
yep - ABX all but one new all time low, CMBX all but one new all time high...booyah!
Most housing markets are less overvalued - Mar. 4, 2008
There bust is over, no more problems, go buy houses...so says CNN
Similarly, been watching the 30 day spreads opening up on commercial paper...back up to 77 bps yesterday
Wow, even the 06-1 vintage on the ABX is crashing.
My gut feeling today is that somebody big is unwinding something.
That's an economist from National City, another product of the company's decades-long human/baboon mating experiment.
Later in the interview, the economist was able to point to a banana, but the discussion was cut short when he flung poo at the reporter.
What are we seeing here with this, e.g:
Securitized Asset Backed Receivables LLC Trust 2006-HE2
E.g: Certificateholder Distribution Summary or the reasons why the ABX is continuing to melt; anyone have a simple way to look at this in terms of how the ABX impacts this type of trust?
SEC Info - Securitized Asset Backed Receivables LLC Trust 2006-HE2 - 10-D - For 11/27/06
"mike writes:
CNNMoney.com: 404 Page Not Found? cnn=yes
There bust is over, no more problems, go buy houses...so says CNN"
what if I don't want to buy a house in Texas or Louisiana?
The Ambac BS was needed. The crooks that are very, very, very afraid of OBAMA are aware that "Hill the banker shill" will be done tonight. That leaves the bought politicians that will work on the bankers' behalf all losers.
They are waiting for the results, then when Hill the Banker shill loses and is considered gone for good, THEN AND ONLY THEN will the markets be allowed to tank, in an attempt to scare the masses about their stocks under an Obama presidency.
Too late, scumbag bankers. You're done.
Tomorrow the markets will tank.
I still dont see exactly whats going on here?
WaMu Asset-Backed Certificates WaMu Series 2007-HE2^ABX-HE-BBB 07-2
Re: Metropolitan West Funds · N-CSRS · For 9/30/07
We are pleased to provide the following September 30, 2007 Semi-Annual Report for the Metropolitan West Funds. Thank you for your continued investment with us. With the beginning of the second quarter of 2007, we moved into the second decade of managing the Total Return and Low Duration Funds, and in the middle part of 2007 celebrated the 5-Year Anniversaries of the Intermediate and High Yield Funds. Participation in the Funds grew to more than $6.5 billion at September month-end, with the combined share classes of the flagship Total Return Fund approaching $4 billion in assets.
http://www.secinfo.com/d14D5a.u7Vqf.htm
Receive a fixed rate equal to 5.00% and the Fund will pay to the counterparty at par including interest accrued in the event of default of ABX-HE-BBB 07-2, due 01/25/38. Counterparty: Lehman Brothers Holdings, Inc
Here's the Housing Valuation Analysis by National City .....
https://www.nationalcity.com/main/micro-site/economics/commentary-analysis/pages/housing-valuation-analysis.asp?WT.vanity=HouseValuatio
"heckuva job, Bernie"
Markel, thanks for the laugh. I don't know if this particular economist is a monkey. But your imagery was priceless.
Anon @44:46 -
First - you're living in a fantasy world if you really believe there is a significant difference in the funding sources of the three remaining (until tonight) candidates. Saint Obama is just smart enough to make sure the Lobbying firm employees donate in their own names as "private citizens".
Second - I have to give you kudos for the most batshit crazy conspiracy theory I've ever heard on here. I guess this means that CR has really "arrived" now.
For some reason as I look as the crumbling housing prices and real estate market vs. the idiotic "everything only goes up!" mindset of a few years ago, I am left thinking of this Halo 2 quote:
Prophet of Truth: "There are those who said this day would never come. What are they to say now?"
We are hearing of more and more comparisons to the Great Depression of the 30's. Unfortunately, the comparisons are quite correct. The stock market crash of '29 is widely blamed BUT in the 1920's there was massive speculation in real estate in Florida (this is where the saying "swampland in Florida" comes from). Miami was booming and 1/3 of the population there were employed as real estate agents. A hurricane in '25 shut down the port and the market tanked followed by a stock market boom that was over leveraged. Reg T did not exist and margin was 10% to trade stocks. Today it is 50%.
This is similar to the conditions that have existed in this decade. We have had massive spec in real estate in the "sunshine states" as well to do baby boomers and other speculators trying to get in on the action, causing distortions in the market to the upside and now the downside.
The securitization of loans basically mirrored the stock market over-leveraging of the 1920's but w/ debt securities, not equities.
Be concerned. Very concerned 'cause this is quite serious. Negative bias only feeds the self defeating process that will become a self-fullfilling prophecy if we let it.
The excesses need to be corrected but we don't have to slip into utter depression if we play the cards correctly.
We have nothing to fear but fear itself.
Why would anyone be afraid of Obama?
I'm surprised he was so forthright about it. When you compare a statement like this to those of the NAR's Lawrence Yun, it's almost like, I don't know - honesty, or something.
I hate to go into some OT madness, but it looks like the ABX implosion is a result of swap imbalances, i.e, these boys flip coins, using other peoples coins, and they take bets that all go the wrong way. This is the casino game where the speculator continues to bet until they exhaust the cash, and then the casino gives them free drinks, then they grasp the butt of a waitress and get the hell kicked out of them.
Sorry if this has already been posted:
The value of the reference obligation received by the seller, coupled with the periodic payments previously received may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Fund. Credit default swaps involve greater risks than if the Fund had invested in the reference obligation directly. In addition to general market risks, credit default swaps are subject to illiquidity risk, counter-party risk and credit risk.
The Funds may write (sell) and purchase put and call swaptions. Swaption contracts written by the Funds represent an option that gives the purchaser the right, but not the obligation, to enter into a new swap agreement, or to shorten, extend, cancel or modify an existing swap agreement, on a future date on specified terms. Depending on the terms of the particular option agreement, a Fund will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption. When a Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option expire unexercised. However, when a Fund writes a swaption, upon exercise of the option the Fund will become obligated according to the terms of the underlying agreement.
The Funds also may enter into total return swap agreements. Total Return Swap is the generic name for any non-traditional swap where one party agrees to pay the other the total return of a defined underlying asset, usually in return for receiving a stream of LIBOR based cashflows. The Total Return Swap may be applied to any underlying asset but is most commonly used with equity indices, single stocks, bonds and defined portfolios of loans and mortgages. The Total Return Swap is a mechanism for the user to accept the economic benefits of asset ownership without utilizing the balance sheet. The other leg of the swap, usually LIBOR, is spread to reflect the non-balance sheet nature of the product. Total Return Swaps can be designed with any underlying asset agreed between two parties. No notional amounts are exchanged with Total Return Swaps.
As a result, unrealized gains are reported as an asset and unrealized losses are reported as a liability on the Statements of Assets and Liabilities. The change in the value of the swaps, including periodic amounts of interest paid or received on swaps is reported as unrealized gains or losses in the Statements of Operations. A realized gain or loss is recorded upon payment or termination of swap agreements. Swap agreements are stated at fair value. Notional principal amounts are used upon payment or receipt of a periodic payment or termination of swap agreements to express the extent of involvement in these transactions, but the amounts subject to credit risk are much smaller. At September 30, 2007, the Funds had outstanding swap agreements as listed in the Funds Schedules of Portfolio Investments. Swap transactions present risk of loss in excess of the related amounts in the Statements of Assets and Liabilities.
what if I don't want to buy a house in Texas or Louisiana?
Kevin |
Do it anyway, Kevin. It's for your country.
[
what if I don't want to buy a house in Texas or Louisiana?
]
Texas is full.
Besides it's too far from anywhere.
Louisiana is great this time of year, I hear.
wheat designer:
one thing at a time. SABR 06-HE2 is a home equity backed deal which is part of ABX index 2007-1. I can't read the info as posted on the SEC site and do not need to. Instead, I got the remittance report from the trustee, Wells Fargo. From that, I
can tell that as of Feb. 08, 28.1% of the collateral is 60 days delinquent or worse. Other deals in ABX have similar horrible delinquency levels, which accounts for the miserable state of ABX.
the other thing you posted was on someone's credit default swap.
orma,
Hmmm...nice map. It shows San Diego as fairly valued. I don't think so.
Cheers,
There it is again...the "D" word. A year ago it was the
"S" word- Slow growth(no chance of recession);
six months later we encountered the
"R" word- Recession(but only a mild one);
and now the proliferating use of the
"D" word- Depression.
I believe in six months from now we will be hearing the
"C" word- Complete systemic breakdown.
I mean, is there anything else that could come after the "D" word?
Oh, almost forgot. Bush is still in office.
The "W" word.
"Second - I have to give you kudos for the most batshit crazy conspiracy theory I've ever heard on here. I guess this means that CR has really "arrived" now.
Scott"
Watch it happen. AIPAC is very afraid of Obama. They own Hill the banker shill. But the massive discontented voting is preventing the old crony networks from scoring. Rockefeller was a little late to be a believable endorsement. It came because the elite network sees the writing on the walls.
And it says President Obama.
Obama: Good for the Jews? | Newsweek Politics: Campaign 2008 | Newsweek.com
Why would anyone be afraid of Obama?
Yes We Can take your money!
Three reasons. First, he has no background in economics and no real history of ties with Washington or Wall Street powerbrokers. He would need to build a new economic team from scratch, and it's possible many big players on it could be outsiders. Out with the old and in with the new is scary change for Wall Street.
Second, he's got a hefty social agenda plus war cost that needs to be financed, and there would probably be heavy new taxes on wealthy and biz.
Third, if Obama really got rolling, he could sweep in wholesale change in Congress across both parties, and all those lobbyist connections and goodwill would vanish.
I'm not convinced Obama will win tonight or that he has legs. He could go straight down from here. But there's no doubt his strength is bad news for markets and corporate profits. Much worse than the two other remaining choices, both of which are known biz-friendly.
Yeah, at least the guy was honest, or sounded so. Beware, he'll expect something in return for his candor, like say, cramming down a bunch of mortgages on houses they sold last year in order to keep the comps in the new development floating...oops, Uncle Ben covered that already.
crabs,
Thanks,
Re: remittance report from the trustee for collateral.
So, whats up with the collateral? Is it not there or substituted? Just curious really.
How bad is this?
http://www.securitieslink.com:80/GetDoc.do?Selector=SeriesDocument%2CSTATICPOOL%2CMBS%2CWFMBS%2C200801%2CWFMBS_200801_PR30R_PSPR%2CPDF
OT - Zarley - I think you mean the Great Hurricane of 1926. The history of Florida in the 20's is interesting IMO - and people might want to read about that storm. BTW - lots of property titles got totally screwed up in Florida as a result of the building crash in the 20's and the Great Depression in the 30's. The problems only started to get sorted after the Marketable Record Title Act was passed in the 1960's. Roby
I'm glad you enjoyed the monkey business.
Thought I'd point out, the actual Global Insight press release was not half so shilly:
Jeannine Cataldi, Senior Economist and Manager of the Global Insight Regional Real Estate Service, added that, "Along with the tighter credit market, weakness in overall economic conditions will keep housing below historical trends for the near future."
IHS Global Insight // Single Family Home Price Declines Pervasive in Q4 2007
Oh, and Obama? Please. The bankers have nothing in particular to fear from him, though they'd certainly prefer their "maverick" lapdog, "Keating Five" McCain. Edwards was the real nemesis; he threatened to push America from financial capitalism back to industrial capitalism by force. He wasn't allowed traction.
Anyway, in general, the stock market does well under Democratic White Houses, not so much under Republicans.
Re President Obama, you're forgetting something: the power of the presidency has been effectively trashed.
30 years of Reagan, Clinton and the Bushes have seen to that.
Come now: the only reason they'd ever let a woman or a black guy have the presidency, is if it wasn't worth anything any more.
CNBC interviewed Lawrence Yun, he of NAR, in he was standing outside the Billy Goat Tavern.
Thank explains a lot.
McCain 58 Obama 42
Three reasons. First, he has no background in economics and no real history of ties with Washington or Wall Street powerbrokers. He would need to build a new economic team from scratch, and it's possible many big players on it could be outsiders. Out with the old and in with the new is scary change for Wall Street.
Second, he's got a hefty social agenda plus war cost that needs to be financed, and there would probably be heavy new taxes on wealthy and biz.
Third, if Obama really got rolling, he could sweep in wholesale change in Congress across both parties, and all those lobbyist connections and goodwill would vanish.
I'm not convinced Obama will win tonight or that he has legs. He could go straight down from here. But there's no doubt his strength is bad news for markets and corporate profits. Much worse than the two other remaining choices, both of which are known biz-friendly.
rich | 03.04.08 - 5:25 pm | #
Obama would put Edwards as Attorney General.
Eat THAT, Wall Street slimebags.
Rich, your expertise in politics is matched only by O-Joe's market savvy
CR- Seiders quoted a number of 2 million vacant homes for sale. Your charts indicate around 550k new homes for sale and you estimated another "excess" 825k vacant homes in the existing inventory. Any idea where the other 500k of vacant inventory he is talking about is coming from?
Robyn,
I am going from memory so you are likely correct that the event involving the hurricane was in '26. Thanx for the further insight.
I am one of those crazies who thinks that history repeats itself...
But can we talk more about Obama and silly ABX derivatives? Obama could be the next Pres. And watch your counter-parties if you have the balls for those ABX deals.
(Sorry for joining the political discussion. And this used to be such a nice neighborhood...)
rich --
But there's no doubt his strength is bad news for markets and corporate profits. Much worse than the two other remaining choices, both of which are known biz-friendly.
Hillary's husband was reasonably biz-friendly, but I am not convinced she is. Evidence suggests that at heart she is a central-planning socialist in the finest Soviet tradition.
Mankiw seems to like Obama
"whereas Mr Obamas economist is Austan Goolsbee, a brilliant Massachusetts Institute of Technology PhD at Chicago Business School and a valuable source of free-trade advice over almost a decade, Mrs Clintons campaign boasts of no professional economist of high repute. Instead, her trade advisers are reputed to be largely from the pro-union, anti-globalisation Economic Policy Institute and the AFL-CIO union federation."
And do not forget Volcker's endorsement.
I suspect that President Obama would be like Brazil's Lula: Talk like a communist, but fairly sane and market-oriented policies.
But then, I believe the Clintons will ultimately win the nomination and the Presidency.
Gee, some of you folks sound like you think the market would do so much better under "more of the same McCain". 8 years of Bush is more than enough. Add 4 years of McCain and the U.S. economy would sink below that of Argentina. More war, keep the crazy bush tax cuts, etc. Yeah he stands up against earmarks, but BFD, some earmarks are actually useful, some are outrageous wastes of money, but from a macro standpoint they are damm near totally irrelevant. All the earmarks in 2007 combined made up a grand total of 0.6% of the federal budget. Assume half were worthwhile and the waste is 0.3%. Is it a good idea to get rid of 0.3% waste, of course it is. Will it make a real difference, of course not. Either Obama or Hillary would also tend to have advisors with above room temperature IQ's, the same can not be said of McCain.
sales 55% under the peak reached in late 2005. Housing starts are predicted to tumble 31% in 2008
What was it again that CR said about construction being persistently above sales and reported "sales" being persistently above closings in a down market.
FT.com / Global Economy - Bank crises ‘increase heart attacks’
The Cambridge researchers say that in Britain between 1,300 and 5,100 people could die if a significant proportion of banks suffered crises similar to that at Northern Rock.
"The SEC said that from March through August 2007, Thompson Consulting embarked on progressively riskier trading strategies without disclosing the change to the hedge funds' investors. The investors had been promised returns of 3 percent per month, or more than 36 percent per year."
U.S. fund accused of $60 mln fraud linked to subprime
| Reuters
"Either Obama or Hillary would also tend to have advisors with above room temperature IQ's..."
Celsius or Fahrenheit?
Markel, I was eating dinner when I read your comment. I am now in the process of removing food from my PC screen.
Thompson Consulting? New Century Financial?
Could it be that Sebastian was a client or a principal?
Inquiring minds want to know.
Could it be that Sebastian was a client or a principal?
I think it was o-joe, mp
How about that nice little turn in commodities and AU today? That ought to catch some by surprise.
It bears repeating: if you think what is playing out starts with an I then you'd better think again. It starts with a D. And it isn't depression, although if you are unprepared xanax may help with the results.
That National City/Global Insight report is a pretty good read (for laughs). I took Providence as an example city since there hasn't really been any big drivers of economic change there in the last decade or so. In Q4 2005, the median was 281.1. In Q4 2007, the median was 268.4 (4.5% drop). Yet, the "overvaluation" has gone from 29.4% to 11.8%. Mob salaries must have skyrocketed.
They seem to assume everything was seriously undervalued about 15 years before the recent runup and somehow the underlying funadmentals have jumped since the slowdown began.
"It bears repeating: if you think what is playing out starts with an I then you'd better think again. It starts with a D."
Conjure and I are in 100% agreement with you.
Why are the banksters afraid of Obama ...
One of his economic advisors is Paul Volcher (sp).
I think that's Vulchure...
The Ambac BS was needed.
ROFL!!!
I've been stating that the last few days!!! I was wondering what happened to the good old Ambac rumor mill!
the only thing missing now:
another Buffett saves the market rumor!
The National City graphic uses a regression over time to determine appropriate values. The recent bubble which resulted in excessively high values also results in overestimating the increase in value with time, so recent predicted prices are too high. Additionally, "fairly valued" includes overpriced up to 15%, which is actually pretty overpriced - more than the current average downpayment.
Also there is a nifty little chart in the NYT that plots the price of oil from the 1940's to now. It is interesting to note that, since the 70's the peak in the price of oil has occured just prior to or at the advent of recession.
What do you think is going to happen to inflationary pressures as the economy slows? As the price of oil drops? As asset prices drop?
What is the definition of asset price drop? Of contraction of credit? Of contraction of the money supply?
Now, given all of this, do you think that China will decouple? How about the rest of Asia? When Wal-Mart cuts it's orders where is the manufacturing base now? How about Home Depot? Best Buy?
So many questions, but all one answer.
"So many questions, but all one answer."
Yes. With so much capital being destroyed now, and on a daily basis, there is mounting downside pressure on asset and commodity prices.
Conjure and I are seeing it. The action in commodities today, particularly gold, was genuinely un-nerving and spooky.
Conjure and I are in 100% agreement with you.
mp since you have Conjure (who must be bouncing up and down at the prospect of repprochement with Cuba and Cohibas at the local tobacconist!), I'm sure that you are taking advantage of the under-valuation of some of these assets...at the right time.
The screaming doom and gloomers should be rubbing their hands at the chance to pick up the seriously undervalued things...not at the bottom, but near to it. And dump the seriously over-valued.
Anonymous: "The Ambac BS was needed. "
I think this time it's real. Ambac is back to the original plan (no split) so it should move along quickly. Speaking as a shareholder, I think we'll hear something by the end of this week (probably tomorrow).
It's amazing to see short-term players trip over themselves on a well-known rumour... never thought the same rumour can move the major markets three times...
Re: /dev/null writes:
"Either Obama or Hillary would also tend to have advisors with above room temperature IQ's..."
Celsius or Fahrenheit?
Kelvin:)
(i.e., REALLY smart)
The action in commodities today, particularly gold, was genuinely un-nerving and spooky.
It was. I didn't expect any break at this time. I can't determine if we've reached a pause, or this marks the turn. All I know is, after today, I'd be taking profits...
It might be an interesting thought that, if commodities and oil begin a retreat now, the Fed played the game correctly as prices on these retreat as the downturn takes hold. That means their view of inflationary pressures was correct and the problem was (and is) the financial markets.
Siv, what they are grasping at is a glimmer of hope in a darkening field.
What I see is the usual pump and dump of wall street. They are pumping and dumping a dead stock for maximum gain on the way to the slaughterhouse.
why not- it is more efficient to spread the losses to folks buying hope instead of selling doom.
Whenever I see a bunch of wall street folks charging down a street, I run the other way- because at the end there is a very crowded trade arranged by the folks who operate the ride.
Nice to see someone so trusting in a bailout. Buffett has already tried to cherrypick the best assets, and instead has organized a new competitor instead. Long term (over the next several years) it is all but guaranteed that companies saddled with current handicaps will be gone compared to undamaged competitors.
As for housing, well someday the bottom will arrive, and we all will be looking for further drops, but history teaches that a whole bunch of false dawns occur before that truly darkest hour.
Someday this war's gonna end...when it does, the commodity bubble will too. But for right now...just a false dawn...
Ipodius, twice now in the last six months my son and I have been offered businesses at liquidation prices by tearful owners. I derive no satisfaction in reporting this, but relate it as a warning.
The two men I'm referring to were responsible businessmen and I respect them. They were not highly leveraged. The leverage they did have sank them.
We have nothing to fear but fear itself.
That's what scares me.
It might be an interesting thought that, if commodities and oil begin a retreat now, the Fed played the game correctly as prices on these retreat as the downturn takes hold.
Barring a massive selloff, would the Fed hold in March, just to give commodities a swift kick in the pants down the other side of the parabola?
High input costs cannot possibly be helpful to any kind of recovery can they?
AllenM: "Nice to see someone so trusting in a bailout. Buffett has already tried to cherrypick the best assets, and instead has organized a new competitor instead. Long term (over the next several years) it is all but guaranteed that companies saddled with current handicaps will be gone compared to undamaged competitors."
We shall see (recall that I'm long Ambac so I have a different view from you).
Buffett's operation is overrated. He capitalized it initially with around $100 million, which will let Berkshire write around $10 billion (if we assume a 100-to-1 leverage). Ambac alone historically wrote around $20b so you are looking at Berkshire with maybe 10% market share at best. Already it seems many municipalites are balking at Buffett's high rates (many are forgoing Berkshire's wraps).
Who knows if he added more capital but it doesn't seem like it. He is also charging higher premiums so there will be an opportunity for others to undercut his operations. One other note is that Berkshire likely won't enter the international market or structured products. I'm in the minority, given the debacle with the ABS of subprime RMBS, but I really feel that the most potential in the future is structured products (although CDS-type insurance written by monolines compete against plain CDS written by non-insurance investors/funds/etc).
As far as I'm concerned, if Ambac can maintain AAA rating, the real threat (ignoring MBIA) is Assured Guaranty. Berkshire won't be a big competitor for many years, if ever. Berkshire won't have the infrastructure and expertise for years. It also seems like Buffett is positioning Berkshire Hathaway Assurance as a niche player that enters and leaves the market (kind of like what he does with mega-catastrophe insurance). If Buffett was more serious, he would have put more money into the business. I mean, even Wilbur Ross, a late entrant, put more into the industry than Buffett.
As MBIA's CEO recently remarked, the muni market wants someone who is there permanently and we'll see if Berkshire fits that bill. I think Berkshire will leave the market if premiums decline...
"Barring a massive selloff, would the Fed hold in March, just to give commodities a swift kick in the pants down the other side of the parabola?"
IMO, that would be a very dangerous thing to do, but it would depend on events in the credit markets. If the economy and the credit markets continue to deteriorate, which is likely, the easing will continue.
Once the economy is brought back along with credit, Bernanke can deal with any incipient inflation, but it's going to take more than a few months to do it.
The "bottom line" is this: inflation isn't the problem now, deflation is the problem.
People who are betting that commodities only go up in value need to remember the distant past in say, real estate.
If this recession gets worse than the Great Depression, what will it be called? The Super Duper Depression?
Anonymous - I am curious about your remarks about AIPAC. Why do you think what you said? As a Jew - I am frankly puzzled about the Jewish establishment not challenging anything about Obama at any turn. Most major Jewish organizations seem to be going out of their way to say he's ok - although he has (at least according to him) religiously and fervantly attended church services at a church where love of Jews doesn't seem to be the first order of business.
Zarley - The mention of Obama is above. The only thing I know about the ABX is that it it a way to gamble. I don't think it has anything to do with unfreezing frozen credit markets. The best - perhaps only - way to unfreeze those markets is to develop better means of valuing the securities which are the basis of those markets. So there is greater transparency - which will lead to more accurate pricing. Markets can't be liquid in the absence of transparency and at least something resembling accurate pricing (give or take 5% is ok - give or take 50% isn't). I am somewhat familiar with people who are trying to do just that. Won't be an easy job. But the data is there for the asking and the organizing.
As for commodities prices - remember what I said a while back. It is a crowded leveraged trade. When the elephants stampede - the ants get trampled. So like I said before - CYA.
Also - bubble markets don't tend to behave very rationally. If you're looking at the futures traders in the SP500 - we hit a low - went to the top of a range - everyone expected a retest of the lows - and we got that today. Now everyone will wait and see if it holds. Blah - blah - blah. The traders pretty much go on predictable auto-pilot. With this recently born generation of cowboys in the commodities pits - they probably wouldn't know the differnece between a moving average and a moving van. Roby
Ipodius
Is the question not whether there will be inflation or deflation but what to save in? If we have deflation is Ben going to be working 24/7 to devalue our currency until there is positive inflation?
"By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation." BB
mp-
I think there's greater danger in allowing the commodity speculators to profit enormously while the entire world screams about inflation. Crush the commodity speculators, and the rest of the world might be more willing to play ball wrt interest rates.
That said, if you're in foreign currencies, or emerging markers, or heaven forfend a commodity horder, then such a move by the Fed would be very bad indeed.
OT - but really interesting. My Congressman has just called me and other people in my part of his district to participate in a live town hall meeting conference call with him in Washington. We can ask questions - and he is answering real time on the phone. Amazing! Roby
Re: It might be an interesting thought that, if commodities and oil begin a retreat now, the Fed played the game correctly as prices on these retreat as the downturn takes hold. That means their view of inflationary pressures was correct and the problem was (and is) the financial markets.
MarkS, in all likelihood, Mr. Market and the economy will crush commodities without Bernanke's help.
TG, if I were a Fed governor, I just might be thinking along these lines - the greatest threat right now is the condition of the credit markets. There is a slowdown, and it will deepen. The dollar is falling, but at some point will cause pain to other currencies and there is no such thing as decoupling. A SYMPTOM of inflation is a rise in prices, but it isn't the definition.
So I slice rates. Why? It's the credit markets stupid, to paraphrase. And capital is being destroyed faster than it is being created now. That's deflation. As we slow down, the commodities will pop, easing pricing pressures. As we catch the flu, Europe will sneeze and cut rates. That will take pressure off the dollar. So these items will work themselves out by exogenous forces.
At some point you raise rates, just as the others have to lower and as the credit markets unseize. The dollar begins ascent, inflation is nipped (more importantly deflation is stopped), and commodities come back in line as money flows again to the credit markets.
So the real question about BB and the Fed is, do they got rhythm?
Wake up Sonnyboy
lol..oh I am very wide awake. And I agree with mp: commodities will work themselves out. The Fed is counting on that, which is why they will keep dropping rates until the credit markets unstick. The ECB is going to take care of the dollar slide shortly as it has no choice but to drop.
The problem now is correcting capital destruction.
It bears repeating: if you think what is playing out starts with an I then you'd better think again. It starts with a D.
Bernanke may try to prove you wrong.
"The ECB is going to take care of the dollar slide shortly as it has no choice but to drop."
Yes, we agree there as well.
The financials remain my principal concern. The Fed continues to ease while lending rates continue to rise and we know what the banks are doing. They already have massive lending commitments and are running out of capital.
Also, I find TG's comment above interesting: "If" we have deflation.
TG, Americans are already facing deflation. Their single most valuable asset is deflating before their eyes.
I fear we're sinking in a liquidity trap.
I fear we're sinking in a liquidity trap.
That is my fear also. I imagine that is why the Fed is trying very hard to inject liquidity via all the auctions processes. Although I do think they are trying to destroy most of the shadow banking system that is responsible for a lot of this mess.
I would think at some point the lending rates will start to come down as that flow picks up. The current disparity in the lending rates could be the banks using the opportunity to re-capitalize for a bit. The danger is if this capital flow picks up too slowly...you get the liquidity trap. That's why I wonder if they have rhythm. There isn't much room on this dancefloor.
Re: NC Housing Valuation Chart...
It appears that the "Estimated Valuation" utilized in the "Historical Data" calculation is 3X increase from the base of 1985 to 2007. That seemed kinda high to me. So, based on a back of the envelope tally I come up with roughly a 10% YOY appreciation for the base value. It also appears that this value was utilized across the board (with minor deviations).
Just this seem to lack credibility to any of you? Just wondering...
Paul Kasriel has weighed in on the Bernanke proposal and his thoughts echo those of many here: there is more going on here than is being acknowledged by the Fed in their forecasts.
http://web-xp2a-pws.ntrs.com/content//media/attachment/data/econ_research/0803/document/dd030408.pdf
Fair Economist writes:
The National City graphic uses a regression over time to determine appropriate values. The recent bubble which resulted in excessively high values also results in overestimating the increase in value with time, so recent predicted prices are too high. Additionally, "fairly valued" includes overpriced up to 15%, which is actually pretty overpriced - more than the current average downpayment.
Ahh.. I see the reason for the disconnect now. I read the 'methodology' explanation but I failed to see how it skewed the value over the time projections. From what I could put together they utilized what worked out to be around a 10% (more or less) YOY uplift to establish the "Estimated Valuation" base line when something closer to 4% would have been more appropriate for most purposes (historic average increase YOY based on decades of existing data).
I actually sequenced the value of a $280K home I bought (and later sold) in the Manchester NH area using their baseline uplift. Starting in 1989 I uplifted $280K @10% YOY appreciation and ended up at $600K. NFW! Maybe in mid-2006 asking price might have hit that mark but as of today a similar home listed by a motivated owner (in the same development) is priced @395K. Meanwhile the measured value curve seemed to closely follow actual pricing variations (the area experienced a serious home value contraction beginning in late 1989 and housing prices didn't fully recover to 1989 highs til 2000.
Thanks for the insight.
Not to beat a dead horse here but I'm on a roll... I sequenced the NC "Housing Valuation Analysis" starting value of a "medium home value" for the Manchester NH area ($70K in 1985) at 4% YOY and arrived at ~$110K for 2007. Based on this admittedly rough calculation I arrive at a price that is still a 50% delta from the reported $225K value for 2007 valuation. Note: The NC calculations indicate that housing is 'fairly priced ' for this area with a 2.3% positive delta.
If this sort of 'creative statical exercise' on the part of NationalCity is indicative of current asset valuation methodologies in the financial sector as a whole then true price discovery will be a long time coming.
Hillary's husband was reasonably biz-friendly, but I am not convinced she is. Evidence suggests that at heart she is a central-planning socialist in the finest Soviet tradition
What evidence? Like being on the board of Wal-Mart? Like her union-busting work at the Rose Law Firm?
I never was a great fan of HRC, but anyone who can drive Angry White Males completely batty has to be admired.
Um.... okay, go on admiring Billary. I am sure after she's done ramming socialism down our throats, we'll be very happy working for Ameros, peso/dollars, etc, assuming we still have jobs, of course.
@pondering the mess
Could you, please, define what you mean by socialism? It appears, that you use the term in some sense, which is very far from common, i.e. political science, definition of socialism.
Seen from Europe, Hillary is very far from any kind of socialism. As a matter of fact, Bush is closer to socialism, at least in of the Soviet Union/30s Germany style: the military-industrial complex is doing so fine now in the USA. It is nothing but socialism in practice.
Re: the National City Housing Graphic:
When I saw my SF Bay Area as "Fairly Valued" I totally choked. Then I took a closer look: they show values as already dropped by 20%, and values from 1997 as 25% undervalued. If we achieve a 25% "undervalue" again we've got a peak to bottom of something approaching 40%. Whoa!
Theres a lot of sellers listing homes that haven't got the message yet.