How to End the Fear?

[Lsbcal]

...I am a little disturbed by these market gyrations. What the heck is going to happen next?

I feel more then a *little* disturbed. These gyrations over recent months make me feel like the economic equivalent of Frankenstein is brewing. It feels like we could be heading into something far worse ... or not.

Probably the dollar will recover a little ... or not. Probably oil will stop reaching new inflation adjusted highs ... or not. Probably real interest rates will get back to more normal levels ... or not.

Maybe I'll sleep better tonight ... or not .

 

[DblDoc]

Brings to mind that Chinese curse: May you live in interesting times

DD

 

[barbarus]

Heck, I have heard that some hedge funds are getting margin calls on their leveraged treasury bond positions. Care to argue there is something wrong with that asset?

That indeed appears to be the case.

Bloomberg.com: Exclusive

 

[ladelfina]

2) Non-agency MBS that is AAA rated

.. The second category is the most lilly-white private label paper with the creamiest rating. I think there is just about zero risk in that.

Is what you are referring to this kind of material?

http://www.bloomberg.com/apps/data?pid=avimage&iid=iQUy2GaasArs



haven't the ratings been deeply questionable?

I try not to think about it since it hurts my poor brain.. but I see one of two bad things possibly on the horizon:
1.) there is massive unraveling due to perception that the banking system is insolvent
2.) there is massive unraveling because the banking system is insolvent.

Brewer, could you take a peek at my question about FDIC and bank balance sheets?
http://www.early-retirement.org/forums/f28/fdic-bank-balance-sheets-how-interpret-33972.html

I'd appreciate yr. insight.

 

[brewer12345]

ladelfina, your link points to the ABX. At least in that case, price most definately does not equal value (i.e. I think the risk of actual loss on the securities that make up the index is pretty small regardless of the quote on the ABX). The ABX is also an index for subprime-backed paper. I would be surprised if anyone posts AAA subprime tranches in the new facility. Much more likely that prime jumbo AAA tranches and maybe some Alt A AAA stuff would be posted to the Fed.

 

[laurence]

Dumb question time: what's "tranches"?

 

[haha]

Dumb question time: what's "tranches"?

Tranches - Definitions from Dictionary.com

 

[ziggy29]

And as an aside, as today's market action shows, all the housing miracles in the world won't help until the speculative bubble in oil pops.

 

[haha]

And as an aside, as today's market action shows, all the housing miracles in the world won't help until the speculative bubble in oil pops.

A lot of assumptions are buried in this statement.

Ha

 

[ladelfina]

ladelfina, your link points to the ABX. At least in that case, price most definately does not equal value (i.e. I think the risk of actual loss on the securities that make up the index is pretty small regardless of the quote on the ABX). The ABX is also an index for subprime-backed paper. I would be surprised if anyone posts AAA subprime tranches in the new facility. Much more likely that prime jumbo AAA tranches and maybe some Alt A AAA stuff would be posted to the Fed.

Well, what is your real feeling about the whole situation anyway? You seem pretty sanguine!

If this is done to help liquidity.. when is the liquidity going to reappear? It sounds like this "facility" can keep rolling over and rolling over; when does it stop? When are loans going to start performing better? If housing prices still have a ways to go down (some Fannie or Freddie guy said we've only seen about 1/3 of the drop), even greater percentages will go into delinquency and default and now there are unsecured HELOCs and commercial RE loans coming on the scene. Where is the extra income going to come from in the future?

Even if the Fed is not making swaps directly for the worse loans.. those loans are still there in the entities being supported, aren't they?

Again, you know I am naif.. I guess you would have to look at how much of banks' income is through loans connected to RE.. but the naif view tells me that if 30% of nominal RE value goes away, so does 30% of banks' collateral, and even if they continue to recuperate much of that now on performing loans, won't it still be less and less for the foreseeable future?

[Plus: Is this just something to tide us over until after the election?]

 

[barbarus]

As an article said today,
"It's no longer about liquidity, it's now about solvency".

 

[twaddle]

You seem pretty sanguine!

Heh, and I thought it was battle fatigue.

I'd love to hear some behind-the-lines stories from a hedge fund credit analyst during this "dislocation." How's work, Brew?

 

[brewer12345]

I'd love to hear some behind-the-lines stories from a hedge fund credit analyst during this "dislocation." How's work, Brew?

"Interesting." As in, "may you live in interesting times." The valuations of securities make no sense, and things that are supposed to happen once in 10 years happen every week. I see bats!ht crazy things, like pre-refunded munis (defeased with treasuries) trading at a fat spread to treasuries, and the senior secured bank loans of an issuer being quoted at a lower price than the unsecured bonds of the same issuer. It is all indicative of a market where there is forced delevering going on and where the ability to dump stuff is far more important than the price at which the trade gets done.

Fortunately, history suggests that this sort of thing does not last long. I think that the Fed signalled yesterday that they will kick the credit markets in the butt until they get themselves straightened out, since the Fed knows full and well how bad the economic fallout will be if this continues.

And if worse comes to worse, think of how much call there will be for experienced distressed debt anaylsts.

 

[Nords]

Here's another analysis of the Fed's move:
The Fed's Historic Innovation

Liquidity without jump-starting inflation. Beats the heck outta helicopters.

 

[laurence]

All right, Brewer, how do we get rich off of this irrational market? I bet there are a few dozen of us who could kick in 50-100k, pool it, and have you throw it on some bargain investments! Hey, I bet there is enough money on this board to act as a shadowy hedge fund/plunge protection team!

 

[haha]

And if worse comes to worse, think of how much call there will be for experienced distressed debt anaylsts.

hey, that's the spirit!

Ha

 

[unclemick]

I'm sticking with Buffett, Bacon and Budwesier. Fixed income made my eyes glaze over even back in ancient days when Ted was explaining concave and convex.

I'll let my my lifecycle fund pick my fixed.

heh heh heh - my hat is off to you guys who know that stuff.