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Credit markets seem to be slowly healing
Old 04-23-2008, 04:25 PM   #1
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Credit markets seem to be slowly healing

This is all JMHO, no more, no less. In the last few weeks, it appears to me that the credit markets are slowly starting to crawl out of the gutter. There are lots of signs:

- Bank loan funds seem to be doing better. Take a look at just about any bank loan closed end fund in the past two weeks and see (PPR as an example).
- High yield bonds seem to be stabilizing and drifting upward (see HYG)
- Good quality mortgage backed securities are beginning to be issued again. This is currently restricted to prime loans and the terms are pretty draconian, but its starting up.
- I saw a subprime auto securitization get done, albeit at punitive terms (CPSS was the issuer, you can see it in their news releases)
- Finally, I have heard reports of several CLOs getting done, many of which are being used to soak up the LBO loans (at a discount) languishing on investment bank balance sheets.

This is all still pretty tentative and could easily be knocked down for the 37th time by something bad happening, but I am cautiously optimistic.

Naturally opinions will vary, but I pay very close attention to this stuff and thought it might be of interest.
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Old 04-23-2008, 04:30 PM   #2
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Brewer, thanks for a peek under the sheets...
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Old 04-23-2008, 05:26 PM   #3
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This is a nice positive post. Now don't none of you tinfoil wearers come screw it up .

Thanks for the insight.
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Old 04-23-2008, 07:19 PM   #4
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This is a nice positive post. Now don't none of you tinfoil wearers come screw it up .

Thanks for the insight.
I've been making money daily on my bank loan funds (PPR is one), maybe I should/should have bought a lot more.
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Old 04-23-2008, 07:45 PM   #5
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so why are the technicals for XLF and KRE so bad?
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Old 04-23-2008, 07:47 PM   #6
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so why are the technicals for XLF and KRE so bad?
Bad cloud patterns over Uranus?
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Old 04-23-2008, 08:18 PM   #7
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Actually, having given it some thought for a change, I hope it doesn't recover too fast. I want to buy into a few more dips. Looking at BofA still near lows, Ambak tankng today, and seeing no movement in the ABX index yet, I might get another chance or two.

Do you think the new distressed security fund money will be soon be cherry picking the best deals and things will move up?
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Old 04-23-2008, 08:38 PM   #8
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Do you think the new distressed security fund money will be soon be cherry picking the best deals and things will move up?
Will be? They already are. the large private equity shops have been hitting up existing clients hard for new money in the last couple weeks. Many of them have already got the funds up and going.
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Old 04-25-2008, 12:08 PM   #9
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the word in the media is that all is well which makes me very paranoid

i remember over the last few years every 15% to 20% correction we had stories of doom on CNBC until the market shoots up 30% in a recovery and then the same talking heads start hyping stocks again because they need to sell what they bought cheap.
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Old 04-25-2008, 12:24 PM   #10
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Bad cloud patterns over Uranus?
what's your prediction on interest rates? looked at 2 and 5 year charts of the 10 and 30 year t-bills and some of the technicals point to a rise in rates
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Old 04-25-2008, 12:25 PM   #11
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what's your prediction on interest rates? looked at 2 and 5 year charts of the 10 and 30 year t-bills and some of the technicals point to a rise in rates

They will fluctuate.

Seriously, I can't get excited about treasuries even after rates have backed up a bit. Prefer to float with something with a credit spread. Barring that, I think agency MBS is cheap.
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Old 04-25-2008, 12:30 PM   #12
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One of the things I was saying about 1-2 months ago is that it might be time to start looking at junk bonds soon. They usually suffer in a bad economy but rebound as the markets sense the worst is in the rear-view mirror. And by the middle of the downturn, yields on junk become mighty enticing as the perceived risk of default declines.

But it looks like junk is already improving. It could be just a head fake, but if it's not, it came a little sooner than I expected.
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Old 04-25-2008, 12:42 PM   #13
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They will fluctuate.

Seriously, I can't get excited about treasuries even after rates have backed up a bit. Prefer to float with something with a credit spread. Barring that, I think agency MBS is cheap.
do you think that 10 year t-bills will go back to 7% or more if this infaltion think keeps on going?

i remember looking at a chart of t-bills from the mid-1960's to the mid 1980's and after the late 1960's crash they didn't go up. only in the early 1970's after everyone realized inflation was here to stay did they start to shoot up.

we now have Costco and Sam's Club rationing rice because of high prices and corn seems to keep going up and up
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Old 04-25-2008, 12:43 PM   #14
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do you think that 10 year t-bills will go back to 7% or more if this infaltion think keeps on going?

I have no idea, and neither do you. You pays your money and you take your chances. But a 3.XX% yield for 10 years doesn't exactly turn my crank.
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Old 04-26-2008, 08:31 AM   #15
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I feel your pain Brewer. I'm watching my 5.5% CD ladder maturing every quarter and the reinvestment is barely over 3%. I'm not willing to look out past 12 months at this point. The yield spread isn't very appealing unless you believe we really are going into a 10 year depression.

I expect that as the credit crunch unwinds we will see the Fed raise rates pretty aggressively and soak up the massive amount of liquidity that's killing the dollar. I think this will not happen until the Euro Central Bank gives into the reality that their economy is tanking and they cut rates. Inflation is important but the central banks will ultimately come down on the side of trying to keep some economic growth going.

I still haven't seen anything to make me believe that we are even going into a recession. Granted, life isn't pretty if you bought a house in the last few years in a few market areas or are trying to sell one. The whole problem that I've seen is the unwillingness of banks to maintain the "normal" flow of money between them. It has been a crisis of confidence that the Fed has finally started to fix. Lowering the interest rates really weren't all that necessary except for the statement it sent -- That they will do "whatever it takes."
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Old 04-26-2008, 08:55 AM   #16
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I expect that as the credit crunch unwinds we will see the Fed raise rates pretty aggressively and soak up the massive amount of liquidity that's killing the dollar. I think this will not happen until the Euro Central Bank gives into the reality that their economy is tanking and they cut rates. Inflation is important but the central banks will ultimately come down on the side of trying to keep some economic growth going.
That is pretty much what I think is going to happen, although I think the Fed will gradually raise rates. Means I want out of foreign bond funds in the near term, but I feel real good about risk assets like bank loan funds (even leveraged), portfolio lenders that did a good job of underwriting, and even junk bonds.
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Old 04-26-2008, 07:53 PM   #17
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I feel your pain Brewer. I'm watching my 5.5% CD ladder maturing every quarter and the reinvestment is barely over 3%. I'm not willing to look out past 12 months at this point. The yield spread isn't very appealing unless you believe we really are going into a 10 year depression.

I expect that as the credit crunch unwinds we will see the Fed raise rates pretty aggressively and soak up the massive amount of liquidity that's killing the dollar. I think this will not happen until the Euro Central Bank gives into the reality that their economy is tanking and they cut rates. Inflation is important but the central banks will ultimately come down on the side of trying to keep some economic growth going.

I still haven't seen anything to make me believe that we are even going into a recession. Granted, life isn't pretty if you bought a house in the last few years in a few market areas or are trying to sell one. The whole problem that I've seen is the unwillingness of banks to maintain the "normal" flow of money between them. It has been a crisis of confidence that the Fed has finally started to fix. Lowering the interest rates really weren't all that necessary except for the statement it sent -- That they will do "whatever it takes."
the last GDP number i heard was .6%. factor in inflation and you have a negative growth rate. but the numbers you hear hyped are all advance numbers. lately they've been revised downward months after the fact.

if you look at the prices of things like food that people buy and use that as an inflation number than we've had negative growth for years now
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Old 04-26-2008, 08:41 PM   #18
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what's your prediction on interest rates? looked at 2 and 5 year charts of the 10 and 30 year t-bills and some of the technicals point to a rise in rates
I think it's pretty safe to predict that rates will rise since we are near historic lows. As for when and whether they will go down a little more first, that I cannot tell you.

I had occasion to talk to a couple banks about extending credit for real estate (HELOC) where there is good credit and plenty of equity. They were much more cautious than I expected and generally wary of entering into any transaction that involved making a loan. I suspect that recent pain is still too recent and if this is "healing" it's not much of an improvement yet.
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Old 04-26-2008, 08:55 PM   #19
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the last GDP number i heard was .6%. factor in inflation and you have a negative growth rate.
I'm guessing you flunked Econ 101? Reported GDP is always a "real" number, with inflation stripped out.
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Old 04-26-2008, 09:02 PM   #20
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I had occasion to talk to a couple banks about extending credit for real estate (HELOC) where there is good credit and plenty of equity. They were much more cautious than I expected and generally wary of entering into any transaction that involved making a loan. I suspect that recent pain is still too recent and if this is "healing" it's not much of an improvement yet.
That's interesting. I have no formal knowledge of the difficulty of obtaining helocs, mortgages, etc. here in the Chicago area in general. But I did receive two advertising fliers in the mail today, one from the CU I belong to and one from a local bank, boasting of low rates and asking people to come in and apply.
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