The Force tells me this:
Any additional downdraft needs a catalyst as the most recent catalysts have been exhausted, and the only catalyst left is the subprime mortgage market and its crooks.
Ok, let's take a look at the subprime mortgage crooks.
Their mortgages get sliced and diced and categorized from poor to good by the investment houses and sold as mortgage backed securities. Lots and lots of tranches of mortgages in the market, some very good and some subprime, some bigger and some smaller.
In other words, the risk of default, like in insurance, is widely spread. The risk of pain, however, is everywhere, with less pain accruing to the buyers of the better tranches and more pain to the greedy bastards who are willing to buy lesser quality stuff. Amazing, huh? The better your investment, the more secure it is and the less the return it provides. Quality is never cheap but it also doesn't deteriorate, like buying Edward Green shoes instead of el cheapos.
The subprime tranches will get hammered when they report, but they most do so only when they their rating changes, which will happen soon or is happening.
The above is 100% factual. What follows is my thinking.
Who holds these poor tranches? I am thinking that it must be lots of hedge funds looking for that extra bit of return. Some insurance companies for their reserves may have some small amounts, banks, etc.
But the bulk will be held by speculators. No pity for them.
Are they going to get hammered? Who knows. They have lots of ways of protecting themselves.
In any event, somebody will get hammered, but the risk is so diluted that I doubt that anyone will sufer too much. In other words, no catastrophes. Some incurable cancer for some speculators, acid reflux for a few, a migraine for others, a mere hiccup for many.
I think, unless I'm neglecting something, that the subprime market is the last possible catalyst for a short term continuation of the downdraft but I am not impressed with its power as its impact will be diluted severely.
What will happen is that the housing market, as has already happened in many places, will become debubblefied, will suck for a long time. Interest rates should as a result remain low, and the stock market should consequently go on its merry way, skipping and jumping until the next catalyst looms.
So, I am thinking that the day of beauty you yearn for is again going to be delayed. |
