Hi Jay,
<The more troubling aspect of recent originations is the growth in IO loans and MTA ARMs with a negative amortization feature.>
Just came across the above in your webblog. I think it is your post.
Imagine if we had these financing opportunities during the Great Depression? Imagine if a homeowner could go to a bank and, based on the last trade (the last home sale in the zip code) be afforded a valuation for their home upon which financing could be secured. I wonder if that would have made the depression less painful? It is certainly an interesting basis for valuing assets. I am sure there is a better was. For example, the clearing price of a country's housing stock, but is that fair? That's like trying to put a value on all the world's companies, public and private, if they all attempted to be public companies. (Hmm, PEs might drop?). That isn't fair and it won't happen either.
Perhaps we are in the midst of a depression and we have been spared the worst of it by these loans. I don't know if that is a good or bad thing, as it is probably a bad thing if the worst is yet to come. It may be unlikely these products will spare us from a worse fate, because people fail to learn in this environment.
*****
Tonight had dinner with a friend who is an engineer at Boeing. I heard some very interesting things about how planes are going to be built very differently in the near future, how Boeing did a head fake on Airbus and made them think Boeing was going after a huge airliner, so Airbus would make the 800 passenger A380, when Boeing's research from many meetings with airlines showed they wanted point to point planes, and the Dreamliner would fit this need. Amazing how they kept the Dreamliner secret until Airbus was so far along with the 380 they couldn't change course.
Considering the $300 billion in announced orders for the Dreamliner, and the billions in unannounced orders, the $300bn in orders for the 380 is significant, except that the A380 is the product of several European nations.
As the #1 US exporter, the health of Boeing is one measure of the health of the US. My take on this is that Boeing will make a decent dent in the US trade deficit with its fuel-efficient plastic Dreamliner the next few years.
It isn't all gloom and doom....
D |
