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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (102513)	9/26/2009 11:49:44 PM
From: SouthFloridaGuy	1 Recommendation Read Replies (1) \| Respond to of 116555

Possible, Mish, but I think the Japan scenario is thrown out the window if housing prices begin to rise. They've definitely stopped falling - the data is indisputable. I know the bears' arguments about option arm resets, foreclosure pipeline, etc. in 2010. I think it's overplayed as an issue, especially if the leading economic indicators are accurate in terms of assessing the recovery. And like you have pointed out on your blog in the past, stock markets fall during deflation - and they certainly don't rally 50%. One thing the Fed and US gov't did differently was to target asset prices. Flawed as that may be, it is far more effective than the Japanese strategy of giving money to the banks directly and asking them to lend. Japanese banks hoarded - I don't think US banks will...lending standards have already been relaxed and spreads are contracting just as violently as they widened. Flawed as people think the "Stress tests" were, the fact is that we are tracking the optimistic scenarios laid out by Treasury whereas the capitalization requirements were based on the Japanese experience. Yes, the workout will take some time, it always does - but the recovery could be far swifter and stronger than people think...this feels a lot like the early 90's. Extrapolation during good and bad times is the most intellectually easy thing for people to do.

To: mishedlo who wrote (102513)	9/28/2009 3:32:15 PM
From: SouthFloridaGuy	1 Recommendation Read Replies (1) \| Respond to of 116555

Somebody's been reading my posts: Message 25956738 'Toxic' rally offers hope of US asset write-ups By Aline van Duyn and Francesco Guerrera in New York Published: September 28 2009 03:00 \| Last updated: September 28 2009 03:00 The recent rally in the markets for "toxic" securities could deliver a significant boost to US banks' third-quarter earnings if financial groups decide to book accounting gains on assets that caused them billions of dollars in losses during the crisis. Wall Street executives and analysts say the noteworthy rise in prices of mortgage-backed securities and other formerly battered debt offers banks the first meaningful chance to "write up" some of the value of these distressed assets. In the past three months, the Markit ABX index, which tracks securities backed by home loans such as subprime mortgages issued to borrowers with weak credit, has gained more than 30 per cent, as investors rediscovered their risk appetite and the US government flooded the debt markets with liquidity. The extent of the write-ups is difficult to predict because of banks' complex balance sheets and uneven use of accounting rules. Some experts believe the rallying credit markets could pave the way for billions of dollars in accounting gains. A partial reversal of the $1,000bn-plus in writedowns of securities suffered by the financial system during the crisis would strengthen bankers' arguments that the industry was recovering its health. In addition to the writedowns, banks around the world have had to absorb $600bn of actual losses on soured loans. Senior US bankers say the size of the write-ups will depend on how aggressively financial institutions take advantage of the rallying credit markets. Some executives believe auditors and boards will advise banks to be cautious. They point out the market for toxic assets has been fairly thin. This suggests that the price increases could be short-lived - a reversal that would force banks to take further writedowns. "From an accounting point of view the firms have no choice but to mark up positions if an active market develops. The question is: 'what is an active market?' " a banking analyst said. "Chief financial officers will be very reluctant to mark up the assets based on simply a few trades." Bankers say many institutions have sold their bad assets as prices have risen, reducing the scope for write-ups, or have hedges on those positions, making it more difficult and expensive to book a gain. Even the riskiest kinds of bonds have rallied strongly in recent months, as investors have scrambled to find higher-yielding assets to boost returns on their portfolios. The imminent launch of US government-backed investment funds targeting assets hit most by the financial crisis, such as securities backed by residential and commercial mortgages, has also pumped up the rally in these distressed securities. The rally in these securities could mean that estimates of losses for the financial industry will be lower than thought. Chris Flanagan, who heads research of the securitised markets at JPMorgan, says that on aggregate, securities loss estimates could total just under $800bn. www.ft.com/usbanks