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

To: mishedlo who wrote (46541)	12/4/2005 9:16:18 AM
From: Ramsey Su	Read Replies (8) \| Respond to of 110194

Mish, as a matter of fact, I do consider the 10 yr or so slide in Japan a soft landing. If that can somehow be duplicated here, we should consider ourselves lucky. However, it is worthless trying to compare two societies at extreme ends of savings habits. The G.R.E.B. (Greenspan real estate bubble) is a credit event. The more I think about it, the less I believe it has anything to do with real estate. The bubble started with Fed accommodation at a time that rates were already relatively low and the real estate market quite healthy. The expansion of the ABS markets just added extra hydrogen to the Hindenburg. Then all the unsound underwriting guidelines are like starting some B-B-Qs inside the zeppelin. I have been trying to time the explosion, actually believing that it is possible given the data available. Here is another example. library.corporate-ir.net This link is from LEND, a subprime lender. You can see from the tables the performance of the loans on a month by month basis after origination. There are a few pieces of excellent information: Look at the two charts on page one. You can see that while delinquencies rose fairly uniformly, the losses started to mount after the 24th month. That is most likely attributable to the 2-28 loans. Look at the tables on page two, specifically across the 20th payment (seasoning). You can see how these loans behaved under normal circumstances (pre 2002/2003 G.R.E.B.). Then you can see how the free money era provided easy outs for the defaulting borrowers evidenced by the Cumulative Loss tables for the same period. Finally on page 5, LEND has chosen the perfect time frame to illustrate the effects of GREB, clearly demonstrating how the defaults/losses dipped in 2003 refimania year and 2004 real estate bubble year. As you can see, we are once again approaching the 24th month for the Vintage 2004 loans. The data presented above was as of end of Sept qtr, 2005 so two more critical payment periods have already gone by. How many of these borrowers are christmas shopping today instead of sitting down and seriously think about their finances? So on this Sunday morning, I am going to stick my neck out and not be wishy washy for a change. Here is my bold prediction of the credit event: FEB 1, 2006 That is when the recasts hit in earnest just in time for the christmas bills to arrive. Joe6pak cannot handle this one two combo. (there is more ..... to be continued .....)

To: mishedlo who wrote (46541)	12/4/2005 10:29:24 AM
From: russwinter	Read Replies (2) \| Respond to of 110194

We are at an interesting juncture, and nobody should have preconcieved notions, just follow what they actually do. Central banks move to mop up excess cash 01.12.05 1.00pm WASHINGTON - Years of super-cheap credit are coming to an end as the world's major central banks begin to act in unison to drain excess cash that many fear could have severe repercussions for economic and price stability. As heads of the US Federal Reserve, European Central Bank and Bank of Japan meet in London this weekend with finance ministers and bankers from the Group of Seven economic powers, they are likely to conclude there is still much to do. By the middle of next year, all three of these central banks may be withdrawing cash from the global economy -- via higher Fed and ECB interest rates or, in the case of Japan, by ceasing to pump even more cash into the system. Whether this is concerted or just coincidence is unclear. The differing pace of central bank action -- the Fed is almost 18 months into its series of gradual rate hikes, the ECB is about to start on Thursday and the Bank of Japan is mulling its first move -- shows how national priorities still dictate. But what is clear to many experts is Fed tightening alone has not been sufficient to dampen what many see as high levels of risk-taking in world markets, buoyant private credit growth everywhere and bubble-like behaviour in housing and equity markets. Financial markets, they argue, have become so sophisticated and global in nature that they can leverage off cheap credit in Europe and Japan as much as they can in the United States. To the extent there is a collective desire to drain global liquidity, it will require tightening from all three regions. "There's clearly concern in Washington and Frankfurt that financial conditions are still too loose," said Jim O'Neill, chief global economist at Goldman Sachs. He added that Japan may lag, but will also need to mop up abundant global cash. The global tightening cycle seems to have picked up since the G7 last met in Washington in September as economies in all regions brushed off this year's energy price spike. Accelerating output alongside sky-high oil prices has left central banks with a potential headache of accelerating credit growth, rising headline inflation, low long-term borrowing rates, buoyant equity markets and regional housing booms. The fact core inflation rates, which exclude volatile energy prices, remain low -- due largely to the effects of supply shocks such as cut-price Chinese goods and technology-related productivity gains -- only complicates the policy analysis. Some say there is a gnawing anxiety that core consumer price inflation is not telling the full story. If interest rates remain so low, the risk is financial excess, more bubbles and even deep deflation down the line. When the G7 met in September, a central feature of that meeting was a presentation by Fed Vice Chairman Roger Ferguson on how cheap money was allowing global markets to indulge in a very high level of risk taking. G7 officials said this was a thinly veiled warning of the risks that a sudden shock could undermine increasingly indebted borrowers and undercompensated creditors alike. One measure of this risk-taking is the interest rate premium on a basket of emerging market sovereign debt over relatively safer US Treasury debt. In the past year, this spread dropped by almost 30 per cent, to 2.5 percentage points. This month Ferguson urged policy-makers to pay more attention to asset prices. "We need to be more attentive now to financial markets because asset prices affect spending to a greater degree than before and because asset prices provide us with a greater amount of timely information to guide policy," he said. So-called "global liquidity" has proven notoriously difficult to monitor. Yet, most "guesstimates" show that as global economic growth has boomed at well above historical averages for two years, world liquidity has boomed too. The Bank for International Settlements, the Basel-based international central banking forum, has long been concerned about this rising sea of liquidity, which it monitors via private credit growth data and foreign currency reserves. On those measures, data from national central banks and the International Monetary fund show global private sector credit growth ebbed from about 10 per cent at the height of the Wall Street stock market bubble in 2000 to about 7 per cent in 2002. But it has jumped back sharply since, to about 9 per cent this year. Currency reserves have jumped almost 30 per cent over the past two years, although this breakneck reserve building has slowed significantly in recent months and may provide some comfort. Another method of gauging liquidity is used by Goldman Sachs, which compiles a financial conditions index for the major economies based on debt, equity and currency prices. The index has declined steadily -- indicating cheaper money -- even as Fed tightening has been in full swing over the past 18 months, and plumbed new lows in this summer. It popped higher in September, but resumed its decline in November. So, if there was collective G7 concern last September that global liquidity was too high -- it will not have gone away. "I'd say relatively little progress has been made -- debt spreads are still very narrow, asset prices are still very high and real and nominal long yields are very low," said Larry Kantor, head of global economic research at Barclays Capital. "It's not the whole story, but to some extent that must be contributing to the decision of the ECB to start tightening and the Bank of Japan to consider its options too." - REUTERS