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Strategies & Market Trends : Portfolio Construction -- Ignore unavailable to you. Want to Upgrade?

To: Paul Chiu who wrote (581)	8/23/2007 2:37:56 PM
From: Keith Feral	Read Replies (1) \| Respond to of 1964

I agree that Gross's image has been tarnished by his rambling commentary. Nontheless, he was right about being at the short end of yield curve with all of his investments. I appreciate his sincerity about coming up with a plan to do something to bail out 2 million subprime homeowners. However, you have to let the financial markets work through this crisis with monetary adjustments to keep more mortgage rates from resetting. Trying to have FHA agencies buy out the bad loans is totally ludicrous. Personally, I decided to take out a new 30 year fixed mortgage since my interest only loan were no longer functioning properly with an inverted yield curve. I'm glad that I took one out early this Spring to take advantage of the old system. It would have been much tougher to get the loan in this new environment. The FED still needs to protect the homeowners. The whole Treasury yield curve looks pretty normal to me now with 1 month rates at 3.1 % and 10 year notes at 4.6%. The only problem in the financial system now is the FED funds rate at 4.77%. HOW can anyone justify interest rates that are higher than the yield on the 10 year bond? All the things the FED wanted to see are now coming true - lower home prices, higher unemployment, and less inflation. My question is why they want to see this kind of a negative result. Had they left rates at 3.5%, we wouldn't be having this big or a problem in the first place. I didn't see the point in any one of the last 7 rate hikes. If the government wants to stop hurting it's people, they will stop trying to diminish economic growth. As I pointed out before, these corrections wipe out competition in the market and forces consolidation. There has been an unbelievable number of lenders and jobs that have been lost. Today, only the big money centers have survived and more pricing power is in the hands of the remaining interests of big business. Now that all of the dedicated mortgage lenders (with the exception of CFC) are ruined, big banks will be able to charge enourmous spreads for 30 year fixed products. Maybe not right now, but they will be able to act with far less competition in 12 to 24 months when no one is looking. They will point back to this crisis and complain that they need compensated for the risk. Anyways, I think that all the people breathing easy because the market is back up are misjudging the fact that we still need interest rate cuts. The problems in the mortgage market never had anything to do with the stocks in the first place, except the profits had to be liquidated to pay for the systemic losses that were being created in the fixed income market.