40 replies to this topic

[U.F.O.]

10/4 on the derivatives dasein. U.F.O.

[zoropb]

"The single, biggest reason for the economic crisis we have at hand is the demise of the housing market. " - NOT
the single biggest reason is the derivtives market and 50+ leverage - the worst offender being housing derivatives, which were then sold to investors al over the world.

I also agree that all of this will not help in the incipient unemployment crisis, as per pedro and my comments elsewhere. there are over 60 trillion in derivatives that the government is trying to keep afloat - the wil not be able to, they wil only delay the mess. there is no way to solve a situation caused by spending 20+ years of extrapolated growth rate future earnings, which is where we stand now. in that i agree, in most other times of history such bankruptcy was solved by war - we shall see.

Well lets not stop there lets go to 1971 when Nixon took us off the Gold standard. Let the games begin....or perhaps when we stopped making goodies for others on the plus side and became a *would you like some fries with that shake* economy in the 50's.

Take your pick we are correcting all this in the decades to come...now everyone knows the king really is naked.

Z

[pedro]

Its not easy to untangle cause and effects here. But the underlying 'problem' is a massive dislocation from globalization. Namely, wage arbitrage between the West and the newer market economies that moved faster than we could adjust. That's why we have no mfg base left and not enough exports of other stuff to keep it going. The whole derivatives mess was 'built' by design I'm sure, by our WS architects and DC, who realized that the US had to find SOMETHING to export (in the way of paper claims on assets) in exchange for all the stuff that China etc wanted us to import. So they got creative. We were already in trouble during the Reagan years, but a peace dividend and the first waves of financial innovation (junk bonds) got the ball rolling. Clinton and Rubin sat down and extended the credit machine forward on falling rates and declining govt deficit financing needs. I think the whole derivatives monster simply grew out of hedging requirements needed by WS while it was wholesaling all the clever new securitized crap off on the rest of the globe. When the appetite dropped off, game turned to Old Maid. But to finish, no the RE market will NOT .. anytime soon .. return to what we've seen. That was a bubble of epic proportions and we will not be going back to anything like that for a generation at least. I think the task we face is figuring out what PRODUCTS and SERVICES the US and other western economies can sell abroad to earn ourselves a living. Exporting claims on our supposed assets is dead.

[zoropb]

Its not easy to untangle cause and effects here.

But the underlying 'problem' is a massive dislocation from globalization. Namely, wage arbitrage between the West and the newer market economies that moved faster than we could adjust. That's why we have no mfg base left and not enough exports of other stuff to keep it going.

The whole derivatives mess was 'built' by design I'm sure, by our WS architects and DC, who realized that the US had to find SOMETHING to export (in the way of paper claims on assets) in exchange for all the stuff that China etc wanted us to import. So they got creative.

We were already in trouble during the Reagan years, but a peace dividend and the first waves of financial innovation (junk bonds) got the ball rolling. Clinton and Rubin sat down and extended the credit machine forward on falling rates and declining govt deficit financing needs.

I think the whole derivatives monster simply grew out of hedging requirements needed by WS while it was wholesaling all the clever new securitized crap off on the rest of the globe. When the appetite dropped off, game turned to Old Maid.

But to finish, no the RE market will NOT .. anytime soon .. return to what we've seen. That was a bubble of epic proportions and we will not be going back to anything like that for a generation at least. I think the task we face is figuring out what PRODUCTS and SERVICES the US and other western economies can sell abroad to earn ourselves a living. Exporting claims on our supposed assets is dead.

Agree on the RE back to 05/06 levels for anytime soon. I just mentioned price stability from a southern course it is on.
Pedro We could not afford Vietnam so Nixon did what he did to "help" the economy and fast forward to now as Obama will do the same song and dance. It is taking way more bullets to get one inch of growth. At one point down the yellow brick road inflation will kick in after the need for $ is over. This time likely Game over. I wonder if Obama will pull an FDR since he likes the Pres so much and devalues the currency from one day to the next by 67%. Hmmm Hey as long as we are all long CRB that day all is good lol

Z

[MaryAM]

I'd consider the recent spike up in mortgage rates as a correction before the real business at hand gets underway. The FED has committed to buy some 500+ billion dollars of mortgage-backed securities in the 1st half of 2009, starting in the next couple of weeks. This will have a profound effect on interest rates charged on newly originated loans. Their purchases will be to the tune of approximately 1/2 of all monthly mortgage originations, which is an incredibly large amount. If I was considering the question of when to refi I'd wait a few weeks. IMHO you'll be able to get a 4.00% (or lower) 30yr fixed loan before the snow melts from your driveway.

U.F.O.

Will someone please inform them that they have to go around the country and record the USA as the first lien holder on all deeds. The sale of all these mortgages WAS NOT RECORDED ON THE DEEDS IN THE FIRST PLACE. People do not have clear titles - and many don't even know where their mortgage paper is located.

[U.F.O.]

MaryAM, in some cases that's correct, but your sweeping generalization won't cause a problem in getting a refi for 99 44/100% of the U.S. borrowers. (My Ivory Soap SWAG) U.F.O.

Edited by U.F.O., 03 January 2009 - 10:58 PM.

[pdx5]

"The single, biggest reason for the economic crisis we have at hand is the demise of the housing market. " - NOT
the single biggest reason is the derivtives market and 50+ leverage - the worst offender being housing derivatives, which were then sold to investors al over the world.

I also agree that all of this will not help in the incipient unemployment crisis, as per pedro and my comments elsewhere. there are over 60 trillion in derivatives that the government is trying to keep afloat - the wil not be able to, they wil only delay the mess. there is no way to solve a situation caused by spending 20+ years of extrapolated growth rate future earnings, which is where we stand now. in that i agree, in most other times of history such bankruptcy was solved by war - we shall see.

Thanks for injecting some 'reality' in this thread. All previous histories of housing debacles attest to the fact
that recovery is always proportional to the magnitude of bubble. And we had a historic bubble in housing.
And it will REQUIRE RECORD AMOUNT OF TIME FOR RECOVERY. There is no snake oil available!

I am looking at properties right now which have been discounted 40% to 50% and still languishing
with no offers.

If it was this easy to solve the bubble, no country in the world should ever have experienced a recession
much less a deflation. The US Treasury is more bankrupt than all the GM's of the world combined. Can some
one please explain where this $500 Billion is coming from to buy up MBS and refi's? Does Fed have a money tree
in the basement? Will printing more dollars pave the road to prosperity? Then how come Zimbabwe is not doing
so well? They are printing humongous amounts of currency. Same thing with the Wiemar Republic before Nazi's
came to power.

Nope! Schiff is right again....it can only lead to bigger implosions ahead.

But then again few more shots of Johny Walker Black label and I may join the party of Hope or Change
or whatever the Messiah will bring to us on Jan 20th.

[IYB]

Just to be clear, while I believe that 4% rates will be a VERY huge deal in terms of macro economic benefit (cushioning effect to the recession/depression)- I am with the group here that believes that the problems in the RE market will overhang the economy for at least another 1 1/2 years, and probably longer. I continue to believe that people will shun debt no matter what the rates- for years to come. And this will mean renting rather than owning, or one home rather than 2 or 3, and an aversion to own rental properties as investments. A generation has overplayed its hand with debt/leverage, and it may be decades before they will want to venture into those waters again.

[arbman]

I don't mean to rain on anyone's parade here... But Fed can not just print more and more to buy mortgages, there is a cost associated with that. The default risk of the US Treasuries has been going up for sometime. I told here in early 2008 that the Fed was going to be the next bubble that might slow down the historical deleveraging. The Treasuries will rapidly reverse their uptrend and the 4% rate on the mortgages will actually be a blip on the charts, if it happens.

Fed already swapped a ton of bad paper with Treasuries from its reserves. This is why the GSEs had to be nationalized in the second half, then the commercial paper market collapsed. So, these will only provide a temporary bounce until the Treasuries start to go down the last as well. The gov't Treasuries are the last bubble out there now.

We may see a bounce from April through September in 2009 with the rising rates, but it will probably end abruptly as soon as the flight to safety (Treasuries) end due to the increasing default risk of the United States...

Default risk of Treasuries = country unable to generate enough tax revenue in return to the debt created.

Some historical perspective, we are still coming down a multi-generational debt mountain here. The current debt commitments of the gov't is now either exceeding or matching the 1930s...



Happy new year everyone...
- arb

[hiker]

for the recent history of Mark Young's comments, on December 8th I consolidated together Mark's comments made in one TT thread on Dec 8th (these observations and ideas by Mark have served me well and been very useful to my thinking/trading/strategy since Dec 8th ... Mark's comment about an artificial price low has been for me the most useful provoking idea, and has inspired much creative and fun chart work on my part)

consolidation of Mark Young's Dec 8th post at TT ..why he is now bullish ...he is on the public record having a bullish bias in an interview with Ike I. :

The cushion is going to be spent and saved, both good. The base we're at is artificially low and appears worse than it is. The psychological set up here is very constructive. Savings aren't going to be entirely squandered so while we're in for a surge of demand, we're also in for a dramatic and ongoing improvement in the balance sheets of America. Also, most small businesses are started out of pocket or by borrowing against one's home. With rates where they are and are headed, there's going to be a surge in small business formation. What drives employment growth in this country?

Is it Big Auto? laugh.gif

Remember, folks have been getting a break every week at the pump for a while now. That may be beginning to bite. Next up is mortgages.

Mark

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Oh, I have a strong case. I've been outlining it.

But here's the thing: I've got a 100% accuracy rate on my "grand predictions" and 26 years worth of background. I've got my battle scars on top of battle scars.

Sure, use good trading discipline. Don't throw caution to the wind. Defer to technicals. What do THEY say?

But if you're waiting for "hard evidence", well, the market will be up 50% before you get your hard evidence.

I'm saying that the primary gloom and doom scenario is so wrong as to be laughable. Things may get really complex soon, but deflationary depression is no longer a remote concern.

Mark
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Hiker, my personal specialty is investor psychology. I speak of the economic and psychological base that we're at. It's artificially low, in my view, based upon a confluence of cautionary reactions not a true and utter disappearance of demand and business.

Now, it COULD still turn into that, but my view is that the massive actions that are being undertaken have already begun reversing the "lock up". If I'm right, then we've got a TON of up side.

Now, technically, you don't need to think about such things as fundamentals. Look at the sentiment. Historically high levels of pessimism all over the place. The weekly trend turned a week ago. The daily is up and confirmed by breadth. The Relative VIX gave a repeat buy a week or two ago, too.

I'd say that if one isn't long (or looking long), one's looking at fundamentals instead of technicals and frankly, getting that wrong too (i.e. looking over one's shoulder instead of forward).

And, btw, I'm pretty sure we get a pullback this week, but I have no idea how to play for it.

Mark

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Any "jobs creation" program is already unnecessary. The recovery is baked in (IF we can drop mortgage rates a bit further and hold them there for a while).

Organic jobs growth will be dramatic.

Mark

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Carl makes some very good points, but I can tell you that it's tough finding any sort of historical analog here. I don't deny the possibility of a long consolidation phase, either. There's lots of room for that.

I'm thinking that the cap on the massive rally might come from over-stimulation driven inflation, OR, a huge increase in taxation and regulation which will constrain the stock market out in a few years.

We'll just have to see. Near term, however, there's money coming to consumers and the market and it's going to have to find a home.

Mark

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I suspect that what will stop this thing is too much government "help" and then then need to tax for it.

But a run up to 1400 is plenty to call a Bull. Cyclical or otherwise.

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Dec 16th - Mark reminds folks he continues to have a very bullish view -

http://www.traders-t...showtopic=99195

Edited by hiker, 04 January 2009 - 10:43 AM.