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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Ramsey Su who wrote (27747)	3/3/2005 5:37:17 PM
From: russwinter	Read Replies (5) \| Respond to of 110194

Here's some mauling it over thoughts about the enormous FCB custodial transactions that have suddenly materialized over the last two weeks. Unless this is just a one or two week shot, this is big, and significant especially as it relates to agencies. They are clearly buying from FNM's portfolio. I'm just trying to figure out it's implications. Here's what I think, and I hope people kind of follow this?: 1. If it ends up driving down rates again, or keeps mortgages rates from going up enough to cool off housing, then this just shifts the housing Bubble switch right back on just as the lights were flickering a bit, and it will be very destabilizing and inflationary. Right now and until the Fed takes the next tighter step (they are sort of in no man's land right now), that's what's likely happening, witness CRB, etc. 2. However, if rates continue to move higher and the Fed continues with enough tightening to slow down housing and housing speculation, then perhaps it's gets sterilized. In otherwords rather than creating new loans (the key will be to follow credit expansion), it just shifts the deck chairs around on the Titantic so that Asians hold even more of the really crappy GSE Old Maid Cards. Then when the mortgages go bad, more of the burden is borne by the Asians, rather than US taxpayers. I would have liked to have been a fly on the wall when they gave the slide show to these Asian saps on this one. No doubt large sums of payoffs were exchanged as well? Ultimate corruption, and absolutely brilliant slash and burn economic policy. It truly makes me proud to be an American and a beneficiary of such leadership. Obviously, and to quote Woody Allen, these guys went to finishing school on a pirate ship. So here's how I think this plays out. The Fed does a few more measured rate increases, and the Asians buy a couple hundred billion more of these GSE agency Old Maid cards. That's what the foot print looks like, also explains why agency credit spreads don't ever widen in the face of scandal. Of course the problem is that all the subprime types will be in trouble even at current rates, so ultimately it blows up anyway. The only difference is that Asia gets to eat more shit, rather than it being held in FNM's portfolio. Am I close?