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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 (61609)	5/22/2006 12:06:38 PM
From: yard_man	Read Replies (1) \| Respond to of 110194

[sic] last to go down ... nothing's really happened yet. I agree with Russ's post -- flow to bonds is NOT a reason to buy interest rate sensitive issues ... some kind of Enron lurks around the corner.

To: mishedlo who wrote (61609)	5/22/2006 12:35:24 PM
From: russwinter	Read Replies (3) \| Respond to of 110194

I can't understand how the big Risklove trades can come unravelled but just be applied to commodities, cyclicals, emerging markets and RUT, while US credit spreads barely budge? In fact trash debt like agencies and MBS actually rallies (). Looks like a successful Ministry of Truth, Pig Man sting operation so far. rbsgc.com () Danielle DiMartino: Housing troubles? Bank on it 08:20 AM CDT on Monday, May 22, 2006 dallasnews.com Lo and behold, housing is a concern on Wall Street. Even the stock market's cheerleaders have had to acquiesce. The fact is, any economist worth his salt has been concerned for 15 months. That's how long new-home inventories have been hitting record highs. The number of new homes on the market is 555,000, a record high and 65 percent above the 10-year average. Experts debate whether a better gauge is months' supply, which considers the number of homes on the market relative to monthly sales levels. By that measure, at 5.5 months, we are still in a seller's market, which is considered anything south of six months' supply. Maybe what we should be asking is how inventories – of both new and existing homes – grew to their current records. The answer gets to the root cause of the housing bubble – the credit binge. Consider that only one of the 53 banks surveyed by the Federal Reserve through the three months ended in April said it had tightened lending standards. About 10 percent had the gumption to loosen standards further. With no lending standards to speak of, it's been almost impossible to corral the speculation that drove sales and home prices to their bubbly heights. While this week's new- and existing-home sales reports on Wednesday and Thursday will shed more light on the inventory build, the jury is still out on what it will take to rein in the lending community. Nontraditional loans In the meantime, the holes in the bubble continue to grow. A recent report by Moody's Investors Service said home equity delinquencies had risen for a second straight quarter, coming in at 6.7 percent in the fourth quarter, up from 6 percent in the third quarter. And this is just the beginning of the trend, something Fed officials recognize. On Thursday, both Chairman Ben Bernanke and Chicago Fed President Michael Moskow voiced concerns about the potential for lax lending standards to harm the economy. At issue are nontraditional mortgages that carry adjustable rates or allow the balances to grow with time. (Hint to lenders: Loans are actually supposed to be paid down.) The fact that such nontraditional terms now account for one in five mortgages outstanding suggests someone's let the fox into the chicken house. The good news is Mr. Bernanke assured his audience that a more in-depth set of guidelines for making these loans would soon be released. The bad news is that the banks have a tendency to ignore the Fed's guidelines. Inflation troubles As an aside, the Fed's current dilemma will be exacerbated if housing continues to slow in the face of accelerating inflation – the unraveling housing market is screaming for a pause in the Fed's rate-hiking campaign next month; the inflation data all but mandates another hike. One of last week's ironies was that the recent pickup in rental pricing, spurred by a drop in demand for homes, was largely to blame for the hotter-than-expected inflation figures that spooked the markets. You may be wondering just what's landed the economy in this precarious position. It all comes down to financial ingenuity and the American way