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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 (48760)	1/4/2006 7:36:51 PM
From: russwinter	Read Replies (1) \| Respond to of 110194

Any of the big portfolios suffering from this flattened yield curve, which I am told is different from previous ones?> I would divide the time bombs into two basic groups: 1. The Humpties who depend on the repo market to borrow at Libor rates. Within that set are 1a: have been aggressive loaning at teaser rates and slow resets 2,3, and 5 year ARMs, or neg ams, or IO. They can't cover their costs, so classic disintermediation. 1b: are those who loan at earlier resets, and get costs passed through to Joe Six. Of course those will be clobbered even quicker by deliquencies and then defaults. 2. Better capitalized outfits whose cost of funds are lower because Joe Six is clueless or lazy about his bank returns, and thinks a six month CD at 3.75% is as good as a six month Treasury bill at 4.42%. So these Humpties have a little more time and edge than the first group. The difference: COFI: Jan, 05: 2.18% Nov. 2005: 3.19% 3 month Libor: Jan, 05: 2.74% Nov. 05: 4.42% wallstreetexaminer.com However, depending on how aggressive their loan policies were, a and b above are repeated to some or the full degree.