John Pitera's Market Laboratory Message Board

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : John Pitera's Market Laboratory

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next

To: Hawkmoon who wrote (8631)	1/7/2008 10:53:12 PM
From: robert b furman	Read Replies (1) of 33421

Hi Hawk, Here's what I've been told by a rep from a large bank that has a lot of CDO's out. The CDO's have sliced and diced many loans - ranging from motgages sub prime and better to credit card debt. They have a porfolio yield to the bank.The bank guarantees a yield to the buyer. The higher the yield the riskier the portfolio. Ultimatley these CDO's have expiration dates and up till recently most people roll them over. Now every one has had the beejesus scared out of them,that maybe they'll not get a return and or loss of principle. In the end game these CDO's have in effect been cashed in and banks are putting them on their books and paying out their capital (deposits). When you've sold them for years(big fees) and they all come home to roost - you run out of capital pretty quick. That's where the fed is auctioning cash for CDO's. The first 20 billion dollar auction was over subscribed 3 times. The second was oversubscribed as well. The next 2 auctions will be for 30 billion. If I'm not mistken the rate they bid for was about half way between the discount rate and the fed funds rate (smaller penalty by 50 %). This has provided liquidity and commercial paper actully increased this week for the firast week in 13?? It has been a successful approach that has extracted a premium from those banks that are involved and it has not hurt the conservative banks who ,for a fee,dabbled in risk that didn't charge enough. The banks that held onto the loans they made and are happy with the portfolios performance don't pay a penalty and the fed funds rate is still high which bolsters their yield. It has rewarde the good consrvative local banker and is now extracting a sterilyzed penaly price to those who took risks,charged fees and now have imprudent loans coming home to roost. I'm no expert that is not far off from the common mans crib notes on what is happening. What is important is - this has very little to do with your non financial stock,but the illiquidity that it has caused can killa stock price for a short term. This IMO greatly parallels the Asian Contagion of 1998.The fact that Thai Bot collapse had little to do with my tech stocks,but it did cause a collpse in liquidity that went around the world. Soon after central banks got the global liquidity out of the control of Zoros like huge currency speculators - we went into one of the greatest equity bull markets in history. It has many parallels and I for one am hoping to catch close oe the bottom and close to the top in 08/09. Time will tell and JMHO Bob

Report TOU Violation

Share This Post

Public Reply Prvt Reply Mark as Last Read File

Previous 10 Next 10 Previous Next