See what LEHMAN BROS thinks in 2005 about BB mortgage bond. Enjoy:
The right enemy
12 years ago
Friday, August 29, 2008
Read this:
BBB- is now close to $2, or 98 points. Fair guess, a BB will be around $0.25-0.50, a loss of 99.75 points.
See what LEHMAN BROS thinks in 2005 about BB mortgage bond. Enjoy:
See what LEHMAN BROS thinks in 2005 about BB mortgage bond. Enjoy:
Tuesday, August 26, 2008
More than Mozillo:
Stories from local mortgage Dukes and Barons. Then ask yourself what has the emperor Moz accumulated or done over the years in Calabasas. Hint: A lot more. Your wealth has been transferred over the years to these guys, and right now it's about complete.
=======================
Story #1:
By David Mildenberg
Aug. 26 (Bloomberg) -- Carteret Mortgage Corp., a closely
held mortgage broker that originated more than $4 billion in
loans in 2006, plans to close in several weeks, said Chief
Executive Officer Eric Weinstein.
``We ran out of money,'' Weinstein, 49, said in an interview
today. ``We're not technically out of business yet, but we're
winding it down and trying to do the best we can for everybody.''
More than 100 lenders that have halted loans, closed or sold
themselves over the past 18 months amid the worst housing market
since the Great Depression. Weinstein said the Centreville,
Virginia-based company has about 800 employees, including 40 at
headquarters.
``You should definitely seek other employment immediately,''
Weinstein said in an e-mail today to the employees. ``I would
expect that you have about 30 days to close your loans before it
starts getting bad,'' he said, signing the note ``Eric `Shut the
Lights' Weinstein.''
Foreclosures are expected to hit a record 2.5 million this
year and next, according to the Mortgage Bankers Association,
cutting demand from investors who buy mortgage-backed assets.
Weinstein founded the company in 1995 and expanded to more
than 4,500 employees by 2003 when annual loan volume peaked at
more than $4.7 billion. The company's business model allowed
employees to work from home and earn income by recruiting and
managing other workers, Weinstein said.
Story #2:
By JULIE B. HAIRSTONThe Atlanta Journal-ConstitutionPublished on: 03/19/08
The most expensive real estate listing in Georgia has hit the market. Le Reve, a 90-acre estate on Trammel Road near Cumming, is for sale for a cool $45 million. James Simons, a Realtor with Jenny Pruitt & Associates’s Buckhead office, is handling the sale of Le Reve. He said he will use the brokerage’s affiliation with Christie’s to market the property globally. “We’re going to throw a wide net to see if we can capture someone from around the world,” Simons said.
He also plans to showcase the property locally with a series of events later in the year.Owners Hubert and Norma Humphrey — who are not related to the late vice president — are looking to downsize from the 82-room, 47,000-square-foot home on the property. The couple started building the complex in 2004 after the city of Atlanta denied them a permit to expand their former home on Garman Road. Construction took three years.
Hubert Humphrey is the founder of World Leadership Group, a marketing and mortgage brokerage company.
=======================
Story #1:
By David Mildenberg
Aug. 26 (Bloomberg) -- Carteret Mortgage Corp., a closely
held mortgage broker that originated more than $4 billion in
loans in 2006, plans to close in several weeks, said Chief
Executive Officer Eric Weinstein.
``We ran out of money,'' Weinstein, 49, said in an interview
today. ``We're not technically out of business yet, but we're
winding it down and trying to do the best we can for everybody.''
More than 100 lenders that have halted loans, closed or sold
themselves over the past 18 months amid the worst housing market
since the Great Depression. Weinstein said the Centreville,
Virginia-based company has about 800 employees, including 40 at
headquarters.
``You should definitely seek other employment immediately,''
Weinstein said in an e-mail today to the employees. ``I would
expect that you have about 30 days to close your loans before it
starts getting bad,'' he said, signing the note ``Eric `Shut the
Lights' Weinstein.''
Foreclosures are expected to hit a record 2.5 million this
year and next, according to the Mortgage Bankers Association,
cutting demand from investors who buy mortgage-backed assets.
Weinstein founded the company in 1995 and expanded to more
than 4,500 employees by 2003 when annual loan volume peaked at
more than $4.7 billion. The company's business model allowed
employees to work from home and earn income by recruiting and
managing other workers, Weinstein said.
Story #2:
By JULIE B. HAIRSTONThe Atlanta Journal-ConstitutionPublished on: 03/19/08
The most expensive real estate listing in Georgia has hit the market. Le Reve, a 90-acre estate on Trammel Road near Cumming, is for sale for a cool $45 million. James Simons, a Realtor with Jenny Pruitt & Associates’s Buckhead office, is handling the sale of Le Reve. He said he will use the brokerage’s affiliation with Christie’s to market the property globally. “We’re going to throw a wide net to see if we can capture someone from around the world,” Simons said.
He also plans to showcase the property locally with a series of events later in the year.Owners Hubert and Norma Humphrey — who are not related to the late vice president — are looking to downsize from the 82-room, 47,000-square-foot home on the property. The couple started building the complex in 2004 after the city of Atlanta denied them a permit to expand their former home on Garman Road. Construction took three years.
Hubert Humphrey is the founder of World Leadership Group, a marketing and mortgage brokerage company.
I said it all along: Better Pegleg than wheelchair.
One leg is better than none. Very important acknowledgment.
=====================================
Fed Policy Makers Agree Next Move on Rates Will Be an Increase
2008-08-26 18:00:49.60 GMT
By Craig Torres
Aug. 26 (Bloomberg) -- Federal Reserve policy makers agreed
this month that their next change in interest rates will be to
raise them, while reaching no conclusion on the timing of such a
decision.
``A number of participants worried about the possibility
that core inflation might fail to moderate next year unless the
stance of monetary policy was tightened sooner than currently
anticipated by financial markets,'' according to minutes of the
Federal Open Market Committee meeting released today. At the
same time, officials agreed that the timing of any move will
depend on economic and financial developments.
The minutes show a debate between Fed officials concerned
about inflation, which accelerated last month to the fastest 12-
month pace in 17 years, and those who say price gains will ease
in response to the economic slowdown and drop in commodities.
The Fed left the benchmark lending rate unchanged at 2
percent on Aug. 5 and signaled that weak employment and
financial instability will delay an increase in short-term
borrowing costs.
``Many participants noted that the financial system
remained fragile, with some expressing continued concern about
the possibility of an adverse feedback loop'' where tighter
credit conditions push the housing market even lower, the
minutes of the meeting said.
``In contrast, several other participants suggested that
the risks to the financial system had receded' and said that
credit conditions were ``broadly consistent'' with periods of
weak growth or recession,'' the minutes said.
=====================================
Fed Policy Makers Agree Next Move on Rates Will Be an Increase
2008-08-26 18:00:49.60 GMT
By Craig Torres
Aug. 26 (Bloomberg) -- Federal Reserve policy makers agreed
this month that their next change in interest rates will be to
raise them, while reaching no conclusion on the timing of such a
decision.
``A number of participants worried about the possibility
that core inflation might fail to moderate next year unless the
stance of monetary policy was tightened sooner than currently
anticipated by financial markets,'' according to minutes of the
Federal Open Market Committee meeting released today. At the
same time, officials agreed that the timing of any move will
depend on economic and financial developments.
The minutes show a debate between Fed officials concerned
about inflation, which accelerated last month to the fastest 12-
month pace in 17 years, and those who say price gains will ease
in response to the economic slowdown and drop in commodities.
The Fed left the benchmark lending rate unchanged at 2
percent on Aug. 5 and signaled that weak employment and
financial instability will delay an increase in short-term
borrowing costs.
``Many participants noted that the financial system
remained fragile, with some expressing continued concern about
the possibility of an adverse feedback loop'' where tighter
credit conditions push the housing market even lower, the
minutes of the meeting said.
``In contrast, several other participants suggested that
the risks to the financial system had receded' and said that
credit conditions were ``broadly consistent'' with periods of
weak growth or recession,'' the minutes said.
Wednesday, August 20, 2008
New trends in the mortgage business:
is loan modification.
This is from the Barron's now-famous article of FRE/FNM. Do you think someone with 100% option ARM book like FED and DSL will think this is beneath them? :D
=====================
"The companies also appear to have boosted their capital ratios by sharply curtailing their repurchase of soured mortgages out of the securitizations they've guaranteed. In the fourth quarter of last year, for instance, Freddie Mac took a loss of $736 million on loans repurchased. In this year's first quarter that figure dropped to $51 million -- a stunning decline in view of the continued deterioration of the housing and mortgage markets. Instead, the company made the interest payments to bring the mortgages current -- a much smaller outlay, but a tactic that only pushes an inevitable loss forward into future quarters. In Fannie's case, by postponing the buyback of bad loans the company avoided more than $1 billion in second-quarter charge-offs and a hit to its net worth."
This is from the Barron's now-famous article of FRE/FNM. Do you think someone with 100% option ARM book like FED and DSL will think this is beneath them? :D
=====================
"The companies also appear to have boosted their capital ratios by sharply curtailing their repurchase of soured mortgages out of the securitizations they've guaranteed. In the fourth quarter of last year, for instance, Freddie Mac took a loss of $736 million on loans repurchased. In this year's first quarter that figure dropped to $51 million -- a stunning decline in view of the continued deterioration of the housing and mortgage markets. Instead, the company made the interest payments to bring the mortgages current -- a much smaller outlay, but a tactic that only pushes an inevitable loss forward into future quarters. In Fannie's case, by postponing the buyback of bad loans the company avoided more than $1 billion in second-quarter charge-offs and a hit to its net worth."
Tuesday, August 19, 2008
Your greatest source of info on FRE:
Yahoo message board. If these are your fellow investors either long or short, get ready to flip positions every half a buck up or down.
Friday, August 15, 2008
Sunday Sermon comes early: Parable_of_the_Prodigal_Son
http://en.wikipedia.org/wiki/Parable_of_the_Prodigal_Son
now if you scale the problem up - the prodigal kid's debt/losses to be equal TWICE what the daddy's farm is worth ....
and by the way while waiting for you to suggest a few solutions for the family feud, here are a sampling of several stone age tools that the old jeepers may have owned at the time:
now if you scale the problem up - the prodigal kid's debt/losses to be equal TWICE what the daddy's farm is worth ....
and by the way while waiting for you to suggest a few solutions for the family feud, here are a sampling of several stone age tools that the old jeepers may have owned at the time:
Educational Friday: Home-crafted timer to GSE explosion.
The GSEs share publicly what the overall credit performance was (like the % serious delinquency), but they don't "itemize" or show what's under the rug. And it's a month or two delayed, and hardly real time.
Here's a snapshot of loans behind GSE prime MBS, and I circled the 3-month avg annual rate of repayment of such prime mortgages.
Remember this, a loan that hangs around longer signals what? Ok, class dismissed.
Here's a snapshot of loans behind GSE prime MBS, and I circled the 3-month avg annual rate of repayment of such prime mortgages.
Remember this, a loan that hangs around longer signals what? Ok, class dismissed.
FRE/FNM debt spreads are widening steadily.
Over the past 10 days EVEN as everyone's buying financials stocks.
Today it could break the high it sets at 7/17 when the issue first came out about who's paying for what at the event of takeover by government.
Chart:
Today it could break the high it sets at 7/17 when the issue first came out about who's paying for what at the event of takeover by government.
Chart:
Thursday, August 14, 2008
Signs of time.....
PMI is up because they're closing offices and said they may now have a bit more cash to pay for the hook waiting for them in the homeland (like a quarter of FNM business is insured with them?)
ABK and MBI rally HARD in AUGUST 2008!! AUGUST 2008!!! People what is this? Some kind of a prank? What do you do when you have a paper will only pay interest for about, err, 3 more months? Yeah, you pay $2 for it. ABK paid $100 for those with what capital again, like $10? So what will be left of even the SENIOR bond of that company? And this is what the "investors" are thinking about the equity value this evening?
The GSE marked to market about $2B of the combined $300B of Subprime/Alt-A securities? Really? You want my subprime bond for $99.33? Do you want fries with that?
I am too old for this shit ... :D
ABK and MBI rally HARD in AUGUST 2008!! AUGUST 2008!!! People what is this? Some kind of a prank? What do you do when you have a paper will only pay interest for about, err, 3 more months? Yeah, you pay $2 for it. ABK paid $100 for those with what capital again, like $10? So what will be left of even the SENIOR bond of that company? And this is what the "investors" are thinking about the equity value this evening?
The GSE marked to market about $2B of the combined $300B of Subprime/Alt-A securities? Really? You want my subprime bond for $99.33? Do you want fries with that?
I am too old for this shit ... :D
Wednesday, August 13, 2008
Who bought Potash today?
Hong Kong's Economic Growth Likely Slowed on Exports, Spending
By Nipa Piboontanasawat
Aug. 14 (Bloomberg) -- Hong Kong's economic growth probably slowed for the first time in more than a year as exports and household consumption cooled.
Gross domestic product rose 5.9 percent in the second quarter from a year earlier, according to the median estimate of 15 economists surveyed by Bloomberg News, after gaining 7.1 percent in the previous three months. The government is due to release the figures at 4:30 p.m. tomorrow.
A global slowdown and a more expensive yuan have curbed demand for Chinese-made exports shipped through Hong Kong, a trade hub for China. Also, higher inflation and a stock-market decline have damped consumer spending.
Pat at TF says rumors are breaking out of HOT CPI tomorrow.
I am telling you, it's not about the beginning of each month that I should preach about moving the rate expectation up, and up fast before the price increases AND their expectation STICKS. Time is soooo running out.
Economy is like the Titanic, by the time it turns left u should have had the wheel on neutral or right. Additionally, CPI is a NEUTERED, IMPOTENT INDICATOR and yet IF IT STILL SHOWS HOT CPI you know which way it points, RIGHT?
Economy is like the Titanic, by the time it turns left u should have had the wheel on neutral or right. Additionally, CPI is a NEUTERED, IMPOTENT INDICATOR and yet IF IT STILL SHOWS HOT CPI you know which way it points, RIGHT?
what did I tell u about these pair trades?
Well too f*in bad the theatre is still on fire, doofuses. Thanks for coming back in.
PS: Just thinking out loud here, supposing some time later the fire in the theatre is out, was there any reason to hang around and sit on top of the rubles? Or maybe the real entertainment is you - yes, I can see YOU wearing no pants emulating a gorilla, jumping up and down on all four on top of a pile of blackened rock.
===========
By Eric Martin
Aug. 13 (Bloomberg) -- U.S. stocks pulled ahead of Brazil,
Russia, India and China this week for the first time in 2008,
spurred by the Federal Reserve's efforts to cut borrowing costs
even as the biggest developing countries are raising theirs.
The CHART OF THE DAY shows the S&P 500's 12 percent loss
this year leaves it ahead of Brazil's Bovespa Index, whose drop
through last week had been the smallest of the five countries.
The U.S. equity benchmark claimed the lead after banks rallied
22 percent and the steepest monthly retreat in commodity prices
sent the Bovespa into a bear market.
``You have the money on the move,'' said Michael Shaoul, chief executive officer of Oscar Gruss & Son Inc., a New York- based brokerage. ``So many people had cut their allocations to the United States that there was nowhere else to go. It's like a fire in an empty theater. If there's no audience, you're not going to find a stampede to the exit.''
PS: Just thinking out loud here, supposing some time later the fire in the theatre is out, was there any reason to hang around and sit on top of the rubles? Or maybe the real entertainment is you - yes, I can see YOU wearing no pants emulating a gorilla, jumping up and down on all four on top of a pile of blackened rock.
===========
By Eric Martin
Aug. 13 (Bloomberg) -- U.S. stocks pulled ahead of Brazil,
Russia, India and China this week for the first time in 2008,
spurred by the Federal Reserve's efforts to cut borrowing costs
even as the biggest developing countries are raising theirs.
The CHART OF THE DAY shows the S&P 500's 12 percent loss
this year leaves it ahead of Brazil's Bovespa Index, whose drop
through last week had been the smallest of the five countries.
The U.S. equity benchmark claimed the lead after banks rallied
22 percent and the steepest monthly retreat in commodity prices
sent the Bovespa into a bear market.
``You have the money on the move,'' said Michael Shaoul, chief executive officer of Oscar Gruss & Son Inc., a New York- based brokerage. ``So many people had cut their allocations to the United States that there was nowhere else to go. It's like a fire in an empty theater. If there's no audience, you're not going to find a stampede to the exit.''
Suggestions to some "Entities" acting as TRASHCAN for others:
At least dont tell the guys you know are dumping on you 3 months in advance about your insurance premium hikes. That way you don't have a 10-fold surge in deliveries just before the premium increases. Dumbass.
Tuesday, August 12, 2008
Time to build up shorts in financials, CRE, and retail
is now. Better early than sorry. See you at the end of the tunnel.
The end for mortgages?
I really am not asking the question in idle.
( Apparently the primitive survival basic instinct even in dumbed down n***** companies like FRE and FNM are still present. )
The implication of this announcement is far reaching because
1. NY is present in all subprime deals out there. In securitized products, there simply is no mechanism other than outright dump of the security to adhere to the new policy. There is no resecuritization avenue of loans out of the Trusts - None.
For example see the snapshot of a deal from Indymac (a Californian bank) with a bunch of NY loans in it.
2. The legal protection in NYC is only for subprime? Well, define prime vs. subprime. And even if you could, what would be the odds in NYC the law is going to be inclusive for everyone in the very near future? THAT'S WHAT I THOUGHT.
3. And what other states are offering "legal protection" for "home owners" who default? What would happen to loans from those places? Different from those of NY? I didn't think so.
Enjoy:
Aug. 12 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage finance company, will stop buying subprime loans issued in New York state as a new law takes effect that holds investors accountable for mortgage fraud. Freddie won't buy loans dated on or after Sept. 1 that meet the state's subprime definition, the McLean, Virginia-based company said today in a lender bulletin on its Web site.
New York Governor David Paterson last week signed new foreclosure and lending laws that tighten legal protections for borrowers. The legislation holds mortgage buyers like Freddie liable in ways that ``we have no way of monitoring and preventing,'' company spokesman Brad German said in a telephone interview. Government-chartered Freddie and Fannie Mae, which together own or guarantee 42 percent of the $12 trillion U.S. home loan market, are both slowing their mortgage purchases after last week posting bigger-than-expected losses for the second quarter.
The companies have been battered by record delinquencies and rising losses as they struggle to shore up their weakened balance sheets amid the worst housing slump since the Great Depression. The state law may disproportionately affect borrowers looking to use state and federal mortgage rescue programs to refinance out of unaffordable subprime loans, German said. It will affect a ``very, very small number'' of loans, he said. (See the above writeup from me to see what really will happen).
`Compounds the Situation' A group that advocates affordable housing, the National Community Reinvestment Coalition, is ``very troubled by Freddie Mac's announcement,'' said David Berenbaum, executive vice president. ``In a market that doesn't have liquidity right now, it compounds the situation because it forces consumers to go to less responsible third parties,'' said Berenbaum, whose Washington- based group represents more than 600 housing nonprofits in the U.S. ``Fannie and Freddie have a responsibility to lead us out of this crisis as public chartered institutions.'' Fannie spokesman Brian Faith declined to comment on Freddie's announcement.
Paterson spokeswoman Erin Duggan didn't have an immediate comment. Freddie rose 1 cent, or 0.2 percent, to $5.61 as of 1:33 p.m. in New York Stock Exchange composite trading. Washington- based Fannie fell 23 cents to $8.17. Shares of both companies have dropped about 90 percent in the past year. Subprime loans are issued to borrowers with poor credit or high levels of debt. To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net
( Apparently the primitive survival basic instinct even in dumbed down n***** companies like FRE and FNM are still present. )
The implication of this announcement is far reaching because
1. NY is present in all subprime deals out there. In securitized products, there simply is no mechanism other than outright dump of the security to adhere to the new policy. There is no resecuritization avenue of loans out of the Trusts - None.
For example see the snapshot of a deal from Indymac (a Californian bank) with a bunch of NY loans in it.
2. The legal protection in NYC is only for subprime? Well, define prime vs. subprime. And even if you could, what would be the odds in NYC the law is going to be inclusive for everyone in the very near future? THAT'S WHAT I THOUGHT.
3. And what other states are offering "legal protection" for "home owners" who default? What would happen to loans from those places? Different from those of NY? I didn't think so.
Enjoy:
Aug. 12 (Bloomberg) -- Freddie Mac, the second-largest U.S. mortgage finance company, will stop buying subprime loans issued in New York state as a new law takes effect that holds investors accountable for mortgage fraud. Freddie won't buy loans dated on or after Sept. 1 that meet the state's subprime definition, the McLean, Virginia-based company said today in a lender bulletin on its Web site.
New York Governor David Paterson last week signed new foreclosure and lending laws that tighten legal protections for borrowers. The legislation holds mortgage buyers like Freddie liable in ways that ``we have no way of monitoring and preventing,'' company spokesman Brad German said in a telephone interview. Government-chartered Freddie and Fannie Mae, which together own or guarantee 42 percent of the $12 trillion U.S. home loan market, are both slowing their mortgage purchases after last week posting bigger-than-expected losses for the second quarter.
The companies have been battered by record delinquencies and rising losses as they struggle to shore up their weakened balance sheets amid the worst housing slump since the Great Depression. The state law may disproportionately affect borrowers looking to use state and federal mortgage rescue programs to refinance out of unaffordable subprime loans, German said. It will affect a ``very, very small number'' of loans, he said. (See the above writeup from me to see what really will happen).
`Compounds the Situation' A group that advocates affordable housing, the National Community Reinvestment Coalition, is ``very troubled by Freddie Mac's announcement,'' said David Berenbaum, executive vice president. ``In a market that doesn't have liquidity right now, it compounds the situation because it forces consumers to go to less responsible third parties,'' said Berenbaum, whose Washington- based group represents more than 600 housing nonprofits in the U.S. ``Fannie and Freddie have a responsibility to lead us out of this crisis as public chartered institutions.'' Fannie spokesman Brian Faith declined to comment on Freddie's announcement.
Paterson spokeswoman Erin Duggan didn't have an immediate comment. Freddie rose 1 cent, or 0.2 percent, to $5.61 as of 1:33 p.m. in New York Stock Exchange composite trading. Washington- based Fannie fell 23 cents to $8.17. Shares of both companies have dropped about 90 percent in the past year. Subprime loans are issued to borrowers with poor credit or high levels of debt. To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net
Saturday, August 9, 2008
Friday, August 8, 2008
Greenie: More analysis about possible hedge funds margin calls today....
think greenie, think calmly and look for suckers to fade no more.
these series of trades are what hedgefunds were doing because their logical appeals:
1. short financials
2. long cmdtys
3. short $ vs. euro
4. short high P/E nasdaq stocks
The problem with long-short trade is just that you can be right fundamentally about 3 out of the 4 trades.
But just one of them could be wrong and as you cover, you also cover the existing position and this clearly triggers a feedback loop.
The one that is wrong was the idea that USA will print like Zimb, and thus long commodities indiscriminately. These would prove disastrous as they force unwind the otherwise "correct" trades.
So far from my trades I anticipated #1 - 3 correctly (deffering financials short while continuing to sell cmdtys).
I underestimated the extent to which the hedgefunds do #4 though, and as a result took a bit of a hit although not much as I just scaled in 2 days ago.
From Amaranth's experience, once the margin call is over prices quickly adjust to where they were and in this case I am just salivating over the potentials in financials.
By the way, the CRE lack of participation in this rally is perfectly explained by the LACK of shorting in that sector as opposed to financials. There's no immediate comparison of ABK/MBI/FRE in CRE space, ... well maybe GGP who seems to have a refinance schedule every other weeks.
As a final reminder, in a margin call, the lender's goal is not to maximize profit but to minimize losses and thus prices could be unpredictable as the need to cover quickly outweighs EVERY other consideration. Thus the strong incentive for everyone to stay away from this runaway trainwreck just purely from technical reason. One week is about as good as historically true in the unwindings of such event, but the larger the trade typically it takes longer periods to clear. Think back on how crazy people were in the past 3 months on commodities and decoupling theories to help quantify that last statement.
PS: Greenie observed astutely by saying:
""There were correlations between completely unrelated sectors (like the above one, or QID - gold shown yesterday)"
= SMOKING GUN OF PAIR TRADES WE WERE SUSPECTING.
Now we know the disease, the winner is the one who guesses correctly the end of the episode AND identify the most mispriced stock.
Let the game begins.
these series of trades are what hedgefunds were doing because their logical appeals:
1. short financials
2. long cmdtys
3. short $ vs. euro
4. short high P/E nasdaq stocks
The problem with long-short trade is just that you can be right fundamentally about 3 out of the 4 trades.
But just one of them could be wrong and as you cover, you also cover the existing position and this clearly triggers a feedback loop.
The one that is wrong was the idea that USA will print like Zimb, and thus long commodities indiscriminately. These would prove disastrous as they force unwind the otherwise "correct" trades.
So far from my trades I anticipated #1 - 3 correctly (deffering financials short while continuing to sell cmdtys).
I underestimated the extent to which the hedgefunds do #4 though, and as a result took a bit of a hit although not much as I just scaled in 2 days ago.
From Amaranth's experience, once the margin call is over prices quickly adjust to where they were and in this case I am just salivating over the potentials in financials.
By the way, the CRE lack of participation in this rally is perfectly explained by the LACK of shorting in that sector as opposed to financials. There's no immediate comparison of ABK/MBI/FRE in CRE space, ... well maybe GGP who seems to have a refinance schedule every other weeks.
As a final reminder, in a margin call, the lender's goal is not to maximize profit but to minimize losses and thus prices could be unpredictable as the need to cover quickly outweighs EVERY other consideration. Thus the strong incentive for everyone to stay away from this runaway trainwreck just purely from technical reason. One week is about as good as historically true in the unwindings of such event, but the larger the trade typically it takes longer periods to clear. Think back on how crazy people were in the past 3 months on commodities and decoupling theories to help quantify that last statement.
PS: Greenie observed astutely by saying:
""There were correlations between completely unrelated sectors (like the above one, or QID - gold shown yesterday)"
= SMOKING GUN OF PAIR TRADES WE WERE SUSPECTING.
Now we know the disease, the winner is the one who guesses correctly the end of the episode AND identify the most mispriced stock.
Let the game begins.
Decoupling pair trades are decoupling big time.
When I see some kind of rushed trades buying junk financials the first thing that comes to mind is not why ( I know it's short covering) but what else happened?
The popular hedgefunds trades were:
1. short financials
2. long BRIC
3. long momo-basic material/metals/oil
4. short dollar
While indiscriminate buying happens in #1 because hedgefunds are in liquidation mode from misguided bets from #2-#4, the best one can do is move in gradually to short position in financials.
Don't get me wrong though, it is a bitch trying to time this correctly because who the hell knows which other one(s) will get margin call next. And when unwinding of bad bets happen, such as Amaranth's, we get to hear the news a couple of weeks after the facts (maybe a week for some).
Which brings me to the point of this conjectures, that could this sort of thinking be applied to today's situation assuming some hedgefunds did cover their pair trades this week and next?
Also the other thing to improve timing, maybe the one to watch is #2-#4 and spend less time analyzing the movement in #1, which is like analyzing why Joseph Stalin ordered the executions of this farmer or that plumber because its indiscriminate nature.
The popular hedgefunds trades were:
1. short financials
2. long BRIC
3. long momo-basic material/metals/oil
4. short dollar
While indiscriminate buying happens in #1 because hedgefunds are in liquidation mode from misguided bets from #2-#4, the best one can do is move in gradually to short position in financials.
Don't get me wrong though, it is a bitch trying to time this correctly because who the hell knows which other one(s) will get margin call next. And when unwinding of bad bets happen, such as Amaranth's, we get to hear the news a couple of weeks after the facts (maybe a week for some).
Which brings me to the point of this conjectures, that could this sort of thinking be applied to today's situation assuming some hedgefunds did cover their pair trades this week and next?
Also the other thing to improve timing, maybe the one to watch is #2-#4 and spend less time analyzing the movement in #1, which is like analyzing why Joseph Stalin ordered the executions of this farmer or that plumber because its indiscriminate nature.
Thursday, August 7, 2008
GTT asked me to repost this GSE secret ....
so I hear and obey. Pillage at your own leisure fellas.
============================================
I will share one more secret with you all.
Do you remember 2002-2005?
When refinancing was heavy? When rates were low?
A mortgage investor like Freddie and Fannie would lose a lot of money from mortgages prepaying EARLY (due to incessant repeat cashouts and declining rates) if they don't hedge.
So they hedge using CHEAP options on interest rates. in other words, OUT OF THE MONEY options.
Including these and still Not-marking to market, Freddie Mac already in their own words, negative capital.
There's 1 - 2 yrs life left on these options, and they're still out of the money for both FRE, and more so for FNM.
Combined, these are "valued" at $20B+ when by admission, their book value is negative including that +$20B.
How much confidence do you have, that these options will be in the money and realize the value of that $20B, given your own experience trading out of the money option?
Given that house prices are not controllable variables, do you think the government would relinguish the last thing they control, interest rate?
Or even if they do, have you seen that mortgage rates are taking a life on their own, that they continually going up just from risk based pricing.
Hehehehheh. $20B just from NON-MORTGAGE book in these GSEs, going poof in a year or so.
And how's the prime book losses pal? I really want to keep the story about prime defaults as a turkey for y'all before I go for winter vacation.
============================================
I will share one more secret with you all.
Do you remember 2002-2005?
When refinancing was heavy? When rates were low?
A mortgage investor like Freddie and Fannie would lose a lot of money from mortgages prepaying EARLY (due to incessant repeat cashouts and declining rates) if they don't hedge.
So they hedge using CHEAP options on interest rates. in other words, OUT OF THE MONEY options.
Including these and still Not-marking to market, Freddie Mac already in their own words, negative capital.
There's 1 - 2 yrs life left on these options, and they're still out of the money for both FRE, and more so for FNM.
Combined, these are "valued" at $20B+ when by admission, their book value is negative including that +$20B.
How much confidence do you have, that these options will be in the money and realize the value of that $20B, given your own experience trading out of the money option?
Given that house prices are not controllable variables, do you think the government would relinguish the last thing they control, interest rate?
Or even if they do, have you seen that mortgage rates are taking a life on their own, that they continually going up just from risk based pricing.
Hehehehheh. $20B just from NON-MORTGAGE book in these GSEs, going poof in a year or so.
And how's the prime book losses pal? I really want to keep the story about prime defaults as a turkey for y'all before I go for winter vacation.
Cobb Douglas
told us the basic relation of input - output of production.
The 3 inputs are
1. technology
2. capital
3. humans
We failed to use #1 to inflate production in 2001.
We failed to use #2 to inflate wealth via shadow capital in 2006 and from lack of savings the past 20 yrs.
I think we should focus our efforts on #3.
America, I set new goals for thee, beat Chinese population by 2025.
I can help rewrite sex-ed for schools, this can potentially reverse the tide of deflation. ( I think in addition to outlawing contraceptives, I would also outlaw anal and oral sex, only allowed is good old pregnancy inducing activities.).
The 3 inputs are
1. technology
2. capital
3. humans
We failed to use #1 to inflate production in 2001.
We failed to use #2 to inflate wealth via shadow capital in 2006 and from lack of savings the past 20 yrs.
I think we should focus our efforts on #3.
America, I set new goals for thee, beat Chinese population by 2025.
I can help rewrite sex-ed for schools, this can potentially reverse the tide of deflation. ( I think in addition to outlawing contraceptives, I would also outlaw anal and oral sex, only allowed is good old pregnancy inducing activities.).
Wednesday, August 6, 2008
The Fed needs to get their act together REAL FAST.
The battle against inflation has reached a critical juncture - basically the point at which initial victories if not followed up, or worse, lost, will absolutely lead to unsolveable predicaments you have seen in other parts of the world (Zimbs came to mind for me).
This is the TRUE face of Mad Max. Not the solemn, melancholic face of defaulted fraudsters, waiting for the next taxpayers handouts, no. The rule is still the same: GET AHEAD of the price actions or else, that means AT LEAST creating a 50-75bps MORE FUTURE Rate increases in the expectation, if immediate action was foregone. This is gonna get ugly or uglier.
This is the TRUE face of Mad Max. Not the solemn, melancholic face of defaulted fraudsters, waiting for the next taxpayers handouts, no. The rule is still the same: GET AHEAD of the price actions or else, that means AT LEAST creating a 50-75bps MORE FUTURE Rate increases in the expectation, if immediate action was foregone. This is gonna get ugly or uglier.
Tuesday, August 5, 2008
SPX P/E ratio tracking from April:
I knew I wrote something about this before and now it's time to look at where we are:
http://mtgspy.blogspot.com/2008/04/three-indices-doing-air-walk.html
To recap, in April SP500 index was earning at the rate of $63 per share per annum, compared with an "analyst expectation" of $90 at the time. Pretty wild eh?
Today, in AUGUST, SP500 index is earning at the rate of, get this, $50 per share per annum, compared with "analyst expectation" of $87.
In April, the P/E was 21x. Today we are clocking 25-26x easy. However dramatic the selloff you have seen, the fact remains that valuation simply has not kept up at all with reality.
None of these was intentional - no such thing as manipulation in the largest index in the face of the planet, no.
How to use this information?
Whenever the expectation and actual #s are pretty close to each other, that is when you say a bottoming process can occur. It is gonna be southward from here.
http://mtgspy.blogspot.com/2008/04/three-indices-doing-air-walk.html
To recap, in April SP500 index was earning at the rate of $63 per share per annum, compared with an "analyst expectation" of $90 at the time. Pretty wild eh?
Today, in AUGUST, SP500 index is earning at the rate of, get this, $50 per share per annum, compared with "analyst expectation" of $87.
In April, the P/E was 21x. Today we are clocking 25-26x easy. However dramatic the selloff you have seen, the fact remains that valuation simply has not kept up at all with reality.
None of these was intentional - no such thing as manipulation in the largest index in the face of the planet, no.
How to use this information?
Whenever the expectation and actual #s are pretty close to each other, that is when you say a bottoming process can occur. It is gonna be southward from here.
This is a common problem for banks these days:
.... or worse actually.
=========================
What's the value added of World Bank?
"The bank thought it financed an electric power station, but in fact financed a brothel."
- Paul Rosenstein-Rodan, 1961 (source: The Rise and Fall of the World Bank Economic Department)
=========================
What's the value added of World Bank?
"The bank thought it financed an electric power station, but in fact financed a brothel."
- Paul Rosenstein-Rodan, 1961 (source: The Rise and Fall of the World Bank Economic Department)
I am starting to like USA
By Christine Harper
Aug. 5 (Bloomberg) -- Morgan Stanley, the second-biggest
U.S. securities firm, told several thousand clients this week that they won't be allowed to withdraw money on their home- equity credit lines, said a person familiar with the situation.
By Jody Shenn
Aug. 5 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage-
finance company, will raise a fee it charges lenders to buy their
mortgages or guarantee home-loan securities, a move that may
increase costs for borrowers.
Fannie Mae's ``adverse market delivery charge,'' introduced
earlier this year for all mortgages that the company helps finance, will rise to 0.50 percentage point on Oct. 1, from 0.25 percentage point, according to a letter to lenders posted on the Washington-based company's Web site.
Aug. 5 (Bloomberg) -- Morgan Stanley, the second-biggest
U.S. securities firm, told several thousand clients this week that they won't be allowed to withdraw money on their home- equity credit lines, said a person familiar with the situation.
By Jody Shenn
Aug. 5 (Bloomberg) -- Fannie Mae, the largest U.S. mortgage-
finance company, will raise a fee it charges lenders to buy their
mortgages or guarantee home-loan securities, a move that may
increase costs for borrowers.
Fannie Mae's ``adverse market delivery charge,'' introduced
earlier this year for all mortgages that the company helps finance, will rise to 0.50 percentage point on Oct. 1, from 0.25 percentage point, according to a letter to lenders posted on the Washington-based company's Web site.
The THIRD battle of 1280.
This is the 3rd battle of 1280 within the past 3 weeks, No-holds-barred Bears vs. Bull. Would it break this time when the CRE cavalry finally come to SPX' aid? If so then see u at 1320.
I took 25% of my "budget" for QQQQ related trade and went short QLD at $75 (was I the last trade?) . This topping action is very reminiscent in the past 3 weeks in all the angles I could think of.
* final note: I am very tired waiting for the CRE rally or perhaps people seem to understand it's not the gold mine it claims to be? Very unimpressive and nothing to write home about. Please fund managers let your ego rules and prove me wrong by buying these names? GGP, KRC, KIM, and SPG.
** Hmm, more mortgage numbers are in. I guess the smallish decline in house price during May-June was indeed, seasonal. heheheheh. Time to go to the gym.
I took 25% of my "budget" for QQQQ related trade and went short QLD at $75 (was I the last trade?) . This topping action is very reminiscent in the past 3 weeks in all the angles I could think of.
* final note: I am very tired waiting for the CRE rally or perhaps people seem to understand it's not the gold mine it claims to be? Very unimpressive and nothing to write home about. Please fund managers let your ego rules and prove me wrong by buying these names? GGP, KRC, KIM, and SPG.
** Hmm, more mortgage numbers are in. I guess the smallish decline in house price during May-June was indeed, seasonal. heheheheh. Time to go to the gym.
Commercial REIT on the move
Commercial REIT finally rallying after lagging regionals, IBs, GSEs, and a host of other unsafe financial highway pileups in the past 3 weeks.
Monday, August 4, 2008
I know I can trust u with a few secrets
1. that FRE and FNM will beat earnings.
1b. FRE and FNM will say house price decline is less negative and may bottom out in 6 to 12 months.
2. that it won't matter because I tell you right here and now, mortgage losses ACCELERATE AFTER housing flattened.
3. A fact nobody mentioned, is that in years past unemployment caused house price declines. Now we have a house price increases, which reduced unemployment, and then house price declined significantly while unemployment LAGGED and APPEARED to HAVE STAYED STRONG. Now the cracks show on employment, finally. When the CLASSIC tale of unemployment driving house price declines show up, I know you will be ready, won't you?
With all the above under consideration, I am very close to declaring an all out jihad to i) GROWTH stocks and ii) FINANCIALS (regionals, IB, GSE, and commercial REITs) and iii) END/LEISURE CONSUMER stocks.
As an added bonus, we may get an excellent entry price, our patience will finally pay off in spade, because of the added "technicals" such as hedgefunds liquidating financials short in the next few days as their commodity bet went sour ( which is exactly what would happen in a deflationary economy, as I recalled mentioning several weeks back, no actually last week, see the last article in this page. Very timely, I'd say. ).
Stay strong, this is like 8 pm on Jun 5, 1944. Pack the parachutes, bring extra ammos and grenades cuz we're hunting those Nazi sonofbitzes down like the swine they are. Or like the GS employees they are. Heheheh.
1b. FRE and FNM will say house price decline is less negative and may bottom out in 6 to 12 months.
2. that it won't matter because I tell you right here and now, mortgage losses ACCELERATE AFTER housing flattened.
3. A fact nobody mentioned, is that in years past unemployment caused house price declines. Now we have a house price increases, which reduced unemployment, and then house price declined significantly while unemployment LAGGED and APPEARED to HAVE STAYED STRONG. Now the cracks show on employment, finally. When the CLASSIC tale of unemployment driving house price declines show up, I know you will be ready, won't you?
With all the above under consideration, I am very close to declaring an all out jihad to i) GROWTH stocks and ii) FINANCIALS (regionals, IB, GSE, and commercial REITs) and iii) END/LEISURE CONSUMER stocks.
As an added bonus, we may get an excellent entry price, our patience will finally pay off in spade, because of the added "technicals" such as hedgefunds liquidating financials short in the next few days as their commodity bet went sour ( which is exactly what would happen in a deflationary economy, as I recalled mentioning several weeks back, no actually last week, see the last article in this page. Very timely, I'd say. ).
Stay strong, this is like 8 pm on Jun 5, 1944. Pack the parachutes, bring extra ammos and grenades cuz we're hunting those Nazi sonofbitzes down like the swine they are. Or like the GS employees they are. Heheheh.
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