Silicon Investor (SI) -- The First Internet Community

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

To: russwinter who wrote (27751)	3/3/2005 7:45:28 PM
From: mishedlo	Read Replies (3) \| Respond to of 110194

No one else is biting so I will. 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. IMO the FED is trying to talk long rates UP to protect a FNM implosion. Seriously. I do not think FNM could take another big whipsaw in treasuries without blowing up. I sent the following post to Minyanville today. People were refinancing 3 times or more in a single year. Those of us who always did zero cost refis, and I do mean zero cost (no title insurance, no appraisal, no closing costs etc) could and did repeatedly refinance for as little as 1/8 point. Our only concern was “was it worth the hassle for 1/8 point?” This is all part of the huge set of problems at FNM. No only did they lose on the closing costs (someone ate those costs and it was not me) but if my loan was sold back to FNM which I am sure it was, FNM lost on repeatedly paying closing costs for the same customer. FNM then had to suffer with getting lower interest rates for their trouble. As I see it, essentially they were paying huge fees to a mortgage broker just to get a loan back that they already had. Add in the additional problems of buying treasuries or swaps on breakdowns in yield and shorting treasuries at the top in yields and I am surprised that the damage has not been worse given the repeated whipsaws in treasuries that we have seen. My question now is: Just how complicated can their books be? How can it possibly take over a year to figure out for sure how much they are ahead or behind in the derivative mess they are in? IMO nothing can be that complicated. Am I missing something? I am not a conspiracy buff by any stretch of the imagination but I have a suspicion that their books are being purposely hidden while this “investigation” is taking place just to give FNM time to unwind their hedges in an orderly fashion as well as to prevent a stock price collapse. No doubt they can keep “finding things” in their books and address them little bit by little bit without having to report anther $9B disaster straight up. I also have a belief that I can not prove, that one more massive round of refis would have caused them great, great pain. When the 10-yr last broke 4 not too long ago perhaps we are right on the cusp. Was that not when Greenspan was in a “quandary” and tried to talk long rates up? I also wonder about his advice to get ARMS right at the very bottom in rates. Certainly getting people to shift to ARMS would remove some of the worry about repeated refis. Loans float up and down and some of the risk has been shifted from FNM to the customer. Isn’t that the case? As the song goes: “There’s something happening here. What it is ain’t exactly clear.” Whatever it is, it can not be very good. Mish =========================================================== If that analysis is correct, Greenspan will attempt to walk a fine line between letting housing blow up and FNM blow up. He might have to err in favor of preventing the latter because the latter might cause the former anyway. Take that into consideration if you find it of merit and then repost your best ideas for further comments. Note - eventually I went into a libor based loan but I did a couple of refis first Mish

To: russwinter who wrote (27751)	3/3/2005 8:57:26 PM
From: Wyätt Gwyön	Read Replies (2) \| Respond to of 110194

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 sorry, but there's no farking way the govt is going to let the GSEs default. FNM equity may go to the Crapper (Yay!), but they HAVE to back the bonds. if not, US housing market is burnt toast and we have another Great Depression. that is just axiomatic and the Wizards realize it. therefore, there's no way they let it happen. imo.

To: russwinter who wrote (27751)	3/3/2005 9:14:56 PM
From: Ramsey Su	Read Replies (2) \| Respond to of 110194

Russ, I think you cannot confuse the Chinese or Japanese CBs with Bill Gross. The latter is purely profit motivated while the CBs has a lot of other issues to worry about. Let me put it this way. If your economic strategy results in your getting a pile of US dollars month after month, what are your choices? So you buy treasuries or agency papers because they are about the safest things out there and count on holding them to maturity, accepting the coupon rate as the best possible return. Sounds logical? Ramsey

To: russwinter who wrote (27751)	3/3/2005 9:57:05 PM
From: regli	Respond to of 110194

Russ, in your second scenario there is a follow on sequel. What the Asians lose from their dollar holdings will have a deflationary impact on their own economies. As they are the manufacturing and production sector today and into the foreseeable future, this deflationary impact will only make them more competitive as they have the production capacity already in place but will be able to produce more efficiently assuming that the deflationary contraction does not result in significant unrest. I actually think that the present inflationary game though likely leading to a series of boom and bust cycles causes significant inflation on their turf and wage reductions on ours and therefore an accelerated lowering of their production advantages.