Friday, July 25, 2008

The absolute TRUTH about the condition of GSE today:

The truth is this: that FRE/FNM 800B or so money is just pulled out of paulson ass. Why not 500B or 1T, nice round number? What does 800B correspond to? Nothing to the best of my knowledge. Just a LARGE number being thrown out there to soothe the nerve of bond holders.


What it signifies is just USA politely asking Asian people to continue rolling their debt to FRE and FNM. FRE and FNM isn't in my opinion out of cash or negative equity.
The issue is the DEBT. Imagine your bank coming to you asking you to repay your 30-yr mortgage and tell you to find another lender. You'd be immediately dead regardless to the fact that you a) have a job and b) have been paying your bills on time every month since you have the mortgage.

That is precisely the condition of the GSE today. This isn't a Wamu case where money was lost, or ABK/MBI/MTG where money wasn't even there in the first place. It is a ST debt story.
Now, Paulson wouldn't mind at all moving the request to 100B or 500B or 1 Trillion, cuz he knows he isn't gonna pay a dime of it. He doesn't need to. At the worst case of losses, it is the share holder, and perhaps preferred who will get wiped out and not anybody else. And I mean SHITKICKING BAD situation resembling the Civil War era.

It is again, politely begging the GSE investors not to cancel their debts and leave in droves.

I know this is HARD to believe, after BSC, after LEH, after WM, after ABK/MBI, after MTG/RDN/PMI. But it is what it is.

Should you buy FRE/FNM? I don't at all suggest that. The damage is now very real. Now that the government is running the lending business, you MUST NEVER expect credit expansion within the next decade. FRE and FNM makes money from expanding credit and earning spreads from that credit. How much contraction of credit should you expect? A LOT.

Think this way: Credit will be dried out like the levee in New Orleans. Then the regulations are like the sharks being thrown in the smaller, drying pond. The pond, is now crowded with monetarily misled people (inflationists) as well as people who would like to sell their Potash to you.

I wish it was just caught swimming naked when the pond is drying. You can still use your hands to cover what it is you want to cover. But, those shark teeth will leave their marks pretty good on your members too if you think PRINTING is the key to tomorrow.

I like TF for the entertainment values; I am absolutely surprised they spent that much energy in opposing the housing bill and FRE/FNM-related bill; something that absolutely confirms their lifelong belief of deflation, won't really spend any tax $ and more about jawboning, and would actually help a lot making money in the short side by sucking in yahoo message board investors into some of the bank trash out there. They even fly some dude to make a video to Florida having President Karl giving his 2c on GSE "bailout" that really isn't a bailout but more of a way to neuter the GSEs permanently. What I am saying is just focus on the credit dry-up and find opportunities in taking out over priced stocks be it in banking, commercial, commodity, or retail one by one in a focused fashion and leave the marching band to run the parade.

So long as it's free, you and I can watch.

10 comments:

Greenie said...

"The owner of that forum was really mad and this is some of his retort, I wont force you to read the entire confusing debacle:"

KD is a moron. He exposes himself, when he talks about something on which he has no clue, but still tries to show that he is the expert. Been there at the March bottom.

ARAK said...

KD and his board serve a purpose ... it got me to know guys like you.

ARAK said...

Read somewhere the 800B comes from the difference between the debt ceiling and the current issued debt. I think I read somewhere there is the provision to tie it to the national debt ceiling and they were going to increase it to $10.6T.

MTGSPY said...

I actually would make a video supporting this "purported" bailout and then short the f* out of any rally however thin that comes out of it. A couple minutes reading through it, it feels more like a judge reading prison sentence than a "bailout".

Anonymous said...

hummm

so the leverage that FNM and FRE use with all the gaurantee's etc and you think they survive a really really bad credit contraction...

hummmmm but with the common and pref gone maybe

nice take mtgspy as always really dig reading you stuff

the part about swimming in pool buying potash

LMFAO!!!!!!

alcan said...

"Credit will be dried out like the levee in New Orleans"
Still think Ben is going to increase rates due to rising inflation expectations? ;)
As I posted before, the next move by the Fed will be a 50 basis point reduction in rates late this year or early next year and many of those that complained the most about "inflation" will be begging the Fed to slash rates. And it will get worse.
As always, I enjoy yours (and Greenie's; arak, you are correct) blogs. Good sources of info in this land of confusion.

D said...

The future is somewhere between what everyone is discussing right now. It is reasonable, and has been my assumption, that the common and then preferred holders would be wiped out before the government would step in.

The structure of the bill is such that it was appropriate to oppose in form and essence.

As it pertains to Mr. KD...my impression of him was suspect from day one for openly broadcasting his identity online. The SEC must not give a shit about who is giving investment advice because a simple "educational" disclaimer shouldn't exempt you from directing the masses openly like he does.

My guess, before this is over the SEC will be on his ass about not being registered and the TF entertainment channel will be shut down.

D said...

...especially since he is taking "donations." There are people on that site sending him money that should be saving that for their gas tank!

Anonymous said...

I agree with D, my opinion on the future end game is somewhere between what KD, mtgspy, greenie and others are predicting. When playing this game everyone has been caught in giving wrong forecasts at particular points in time prior to the end game. For example, on this blog alone you can go back to the comments made by mtgspy from 04/28/2008 and see a call for the GSEs to go from $27 to $50 to help out WS when in fact it went from $27 to $6; as well as KD calling how the gov't wont backstop the GSEs when yesterday proved him wrong and I believe he mentioned playing for the Ts to moonshot, you guys can correct me on what his trading strategy on that one was.

In my opinion, if you look at the end game vision from mtgspy, greenie, KD, BW, etc., in my opinion, there are more similarities then there are contrasts, and like most of the good commentary from all, I try to add that to my own due diligence and dial in on a good short and long term trading strategy so that when we are living the results of the end game, as mtgspy has put it before, you have your covered wagon(s) stocked and ready to go, whether that be being able to work a 40 hour a week job and have a good retirement in the latter stages in life without being burden in debts, or if/when the sh#$ hits the fan in the next 2, 3, 5 or 10 yrs, not getting caught with our pants pulled down, having no house, no job, no assets, etc. and having the ability of having some form of currency that allows one to continue life similar or better to what most of us have been living for the last 8+ years all the way through to the pine box. Though the latter has been a bit more difficult for me to choose the appropriate investing instruments/vehicles, but I continue to learn from a lot of people including mtgspy.

MTGSPY said...

Well said. The hundred year waterfall may be just around the corner here.