American Home Mortgage Impact?

[Sam]

Which sector(s) will be impacted? How and why?

Guess, speculation, analysis, anyone?

 

[cyclone6]

Obviously, we don't really know what the final fallout is going to be - but this is spreading quickly. We do know that Goldman Sachs holds 7% of AHM...

AHM: Major Holders for AMER HOME MTG INVT - Yahoo! Finance

So I wouldn't care to be there.

And that Bear Stearns just announced another hedge fund teetering on the edge...

UPDATE 3-Bear Stearns halts redemptions in third hedge fund | News | Market News | Reuters

Countrywide financial, who helped set off last weeks selloff called the current housing situation (paraprased!) the worst since the depression.

I think it spreads further within the investment houses,
and then to the banks. Consuming spending will then be affected materially, which accounts for 70% of GDP.

Then the FED will probably start cutting rates wildly, trying to re-inject capital that had dried up.

As mentioned in a different post, the only things I am doing are

1) Moving cash out of money market accounts where I have more than the FDIC insured 100k (especially those banks with a mortgage exposure), and

2) Not even **thinking** about buying equities until we see how this plays out.

This is serious, and the babbling heads on CNBC and Bloomberg who told us the housing market bottomed in spring were, well, obviously way off base.

 

[Webzter]

Alan Greenspan:

The sizable gains in consumer spending of recent years have been accompanied by a drop in the personal saving rate to an average of only 1 percent over 2004--a very low figure relative to the nearly 7 percent rate averaged over the previous three decades.

If you'll recall, pundits at the time were pointing out that this figure didn't include pensions and that home equity may be a reasonable alternative counter to "traditional" savings.

If we've propped up the economy with consumer spending fueled by home equity loans, and those loans are in trouble, then we're going to see some interesting times ahead.

I've been learning that it doesn't take a 100% loss to move something to be very uncomfortable. Some interesting stats on Houston's jump to 10%+ unemployment bear that out. OPEC's 25% production cut in 1973 was enough to really hurt here. Granted, 25% is still a lot, but the effect here seemed much more pronounced (but then, I'm not old enough to have been around then, history may be painting a bleak picture)

I give you three alternate predictions:

We "correct" (wildly crash) south of the mean. We enter a bear market. Hopefully tighter money will get us to refocus our values. After several dismal years we start to ramp up into a bull market again.

or, the whole house of cards comes crashing down. Foreign lenders demand that we restructure our debt. Oil is repriced in Euros. This all completely wipes out the US economic infrastructure. Then peak oil is finally realized by everyone. Much wailing and gnashing of teeth... until the bird flu pandemic comes along and suddenly there's a lot fewer of us.

Fed drops the interest rates in a hope to "engineer a soft bounce". Everything continues on as normal.

I'm not betting on anything... continue to grow cash on hand, continue to dollar cost average into index funds that I feel happy owning, and continue to sleep at night comfortable in the fact that, if I'm out on the street, I'll probably be in good company.

 

[Running_Man]

The problem, while a problem of liquidity cannot be solved quickly. Home prices escalted over the past decade at a faster rate than any time this century. This was fueled by the advance itself and the willingness to allow buyers to buy properties at the margin with no money in reality because of the belief the market will go up and the desire to earn placement fees. This has now been exposed, with the problem that pricing occurs at the margin.


The question to ask is whether it is in government's interest to refuel the purchases of homes with no money down. Otherwise the fact that interest rates are lower will have no effect on stopping the decline in housing prices, precisely the same problem Japan had when it allowed housing prices to escalate too far. Without those buyers you will have an overhang of supply depressing prices.

The major concern must be the amount of CDO's and the ilk in pension and insurance contracts. I read recently an article endorsing AIG because they only have 13% of their assets in CDO's and CLO's. Which is not very reassuring. And the biggest purchaser of these instruments have been pension funds, as they are repriced lower they will cause an underfunding and a hit on the income statement of every corporation still offering pensions (a dwindling breed).

 

[Robert the Red]

Alan Greenspan:
or, the whole house of cards comes crashing down. Foreign lenders demand that we restructure our debt. Oil is repriced in Euros. This all completely wipes out the US economic infrastructure. Then peak oil is finally realized by everyone. Much wailing and gnashing of teeth... until the bird flu pandemic comes along and suddenly there's a lot fewer of us.

You forgot the threats from alien attacks, killer comet impacts, the sun going nova, and the return of disco music.

 

[brewer12345]

I think that within 3 to 6 months, this will look like a fantastic buying opportunity that I wish I took more advantage of.

 

[uncledrz]

I think that within 3 to 6 months, this will look like a fantastic buying opportunity that I wish I took more advantage of.

Not sure if it is "fantastic" but do agree that the baby is being thrown out with the bath water in this case. My question is when to get in because I would be equally not surprise to see an jump up or a drop down from here over the next week or so.

 

[Webzter]

and the return of disco music.

Some horrors are just too bad to imagine.

 

[Webzter]

And, I'm set; My friend sent me this great article:

How to Panhandle - wikiHow

 

[teejayevans]

Not sure if it is "fantastic" but do agree that the baby is being thrown out with the bath water in this case. My question is when to get in because I would be equally not surprise to see an jump up or a drop down from here over the next week or so.

If bonds aren't doing well, if real estate is not doing well, looks to me as
if there will be a lot of cash on the sidelines waiting to jump in when the
dow drops (below 13000?, 12000?)

TJ

 

[Milton]

I think that within 3 to 6 months, this will look like a fantastic buying opportunity that I wish I took more advantage of.

I guess you're glad you didn't jump in.

 

[brewer12345]

I guess you're glad you didn't jump in.

You got some kind of problem?

 

[Milton]

I said you must be glad you didn't invest when you thought you should have. Presumably, you've avoided what would have been significant losses. Hindsight is always 20/20!

Your response seems rather aggressive ("Hey you! Yes, you! You want a piece of me? Huh?!"). Wherein is the problem?

 

[brewer12345]

I said you must be glad you didn't invest when you thought you should have: so presumably you've avoided what would have been significant losses. Hindsight is 20/20!

Wherein is the problem?

Actually, I am real glad I loaded up on some selected opportunities at that time.

I am wondering why you felt the need to dig up a short, relatively meaningless thread from last year. Looking to rub my face in something? Surely you could find better material.

So I repeat: You got some kind of problem?

You looking for one?

 

[Notmuchlonger]

Digging up a post that is around 6 months old to say that? That might be it.

 

[Milton]

You really do need to calm down. Hypertension is a major risk factor for heart disease.

 

[Martha]

Settle down guys. I am closing this discussion.