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To: GVTucker who wrote (171182)	9/23/2002 5:58:14 PM
From: Jim McMannis	Read Replies (1) \| Respond to of 186894

RE:"The CPI includes a rather significant factor for housing rental, including the rental equivalent of owning a house" Obviously rents haven't gone up with prices. Also with low rates, the monthly mortgage cost has been dampened a bit but here it's gotten way past the point where you can buy and then rent it out and cover your costs. Also there are a lot more rent signs here than there used to be. Another sign of a top. Jim

To: GVTucker who wrote (171182)	9/24/2002 7:48:38 AM
From: Amy J	Read Replies (1) \| Respond to of 186894

Hi GV, then what would explain what appears to be a discrepancy between CPI-SF and the Bay Area historical increase in housing and rentals? data.bls.gov CPI-SF Increase YOY for several historical years: 1.6% 2.0% 2.3% 3.4% 3.2% 4.2% 4.5% 6.0% Meanwhile, housing increased substantially more than the above figures. At first glance, it doesn't appear as if housing/rents were accurately included into CPI-SF. Good to see you posting again. Regards, Amy J

To: GVTucker who wrote (171182)	9/25/2002 5:01:49 AM
From: Amy J	Read Replies (2) \| Respond to of 186894

Hi GV, a wee-bit over leveraged would you say? Message 18023433 of http://hsgfx:reciprocal@www.hussman.com/hussman/members/upda... "Importantly, duration measures not only the "average" date at which a bond makes its payments; it also measures the price sensitivity of a bond to interest rate changes. So now things get interesting. To an approximation, a bond with a duration of 10 years will fluctuate about 10% in price based on a 1% (100 basis point) change in interest rates, while a bond with a duration of say 4 years will fluctuate only about 4% in price on that same 1% change in rates. So here's the payoff. The duration gap of a financial company is equal to the duration of assets minus the duration of liabilities. For Fannie Mae to have a duration gap of -14 months means that the duration of liabilities exceeds the duration of their assets by 14 months. This is because Fannie Mae makes mortgage loans, and as interest rates have declined, more and more individuals have refinanced or shortened their borrowing horizons. So these mortgages (assets of Fannie Mae) are now substantially shorter in duration than Fannie's liabilities. Since -14 months is -1.17 years, this means that a 1% drop in interest rates would cause Fannie Mae's loan portfolio to lose about 1.17% in value. Now, that doesn't sound like a lot. Until you realize that Fannie Mae has leveraged its equity 40-to-1 (the highest leverage ratio in its history), and that its annual return on this portfolio is just 0.65%. In short, a further drop in interest rates of even 0.50% here would cause an overall portfolio loss equal to about (1.17 x .50 x a leverage factor of 40 =) 23% of Fannie Mae's book value, or equivalently, about (1.17 x .50 / .65 = ) 90% of Fannie Mae's annual earnings. Accordingly, Fannie Mae appears to be scrambling to buy long-term Treasury bonds (thereby lengthening the duration of its assets) in an attempt to shore up its duration gap. This is no small problem, and is behind the substantial plunge in long-term Treasury interest rates we've seen in recent weeks. ... Thus explaining my comment last year that I don't understand why Fannie Mae trades without a substantial haircut for risk. As I've written many times, there are three features common to nearly every financial debacle: 1) extreme leverage, 2) a mismatch between assets and liabilities, and 3) lack of disclosure." ============================================= If FNM were to have issues, would the gov't bail it out and what could be the impact - how much $ are we talking in the hypothetical worse case and which firms working with FNM could be at risk? Could companies such as NYLIC with $7.5B of mortgage loans on their books as assets be impacted? (Side comment, I was considering purchasing an annuity contract with them to pay for my insurance. They are at the top of Weiss' financial rating.) Regarding the big picture, what's the impact to the economy if FNM stumbles and which firms could be impacted? FNM mortgage bonds aren't FDIC'ed, probably a good thing too given the apparently over-extendedness behavior of FNM, but since we're on a dreary topic, how exactly does this FDIC thing work in terms of where the funds are. I've always been curious about that. One other curiosity question, if a person owns some stock in street name at a bank and if that bank stumbles, what happens to that person's stock? Does that cover all the worst case questions? Regards, Amy J PS I saw your Ireland post, you usually don't seem to pick up news from there? They should extend that policy to the USA too.