Monday, December 22, 2008

2009 is not going to be a year of surprise. I can tell you all of it right here, right now.

1. There's a lot of liquidity (read: free money) out there. In the fixed income parlance you either go long duration or long credit.

1a. If you want to go long credit there is no place to invest.
1b. If you want to go long duration, well... check your 10-yr rates.

Conclusion: banks will in early January rush to buy all the short term credit paper they are going to get, and probably some more treasury and that will give a signal as if credit is thawing when the case was just people drowning in liquidity.

2. In case you are thinking of carry trade, please note that you would need to have the growth in both income and productivity RIGHT here in the US. I know, you say China this and China that will grow but not gonna be enough by any stretch of imagination. (Hint: check the GDP sizes).

3. Low mortgage rates from Dec - Feb have helped TRAPPED the housing market further. How?

3a. Most who took the rates were refinancers - these made the case further given that about $5-10k equity was stripped in exchange for lower rates that the probability of moving is even lower after than before refinancing.

3b. The guys who didn't refinance have lost both the opportunity to do so (as the market marches back up) and proved they couldn't do so in the first place when they had the chance. In the parlance: they are burnt out 100%.

3c. The unlucky few picking up houses would find out that indeed affordability is a function of mortgage interest rate, and that does not mean very good for them after artificial treasury prices were lifted.

4. Remind yourself everyday that everybody else in the world will cut rates to zero. There is no currency for which you can hope to make money beyond speculative spurts.

5. Two large banks, currently viewed as a bullwark of the remaining financial industry, will collapse H2 2009 or H1 2010. Cause of death: drowning.


gler said...

Why not gold?

MTGSPY said...

I dunno. I kinda hope there will be volunteers buying gold and then report to the rest of us how it feels next year. Kinda remind me of the part in B-grade horror movies when someone said "let's split up"?

Anyway, gold is the LAST one that hasn't gone down the way of aluminum, oil, copper, platinum, molybdenum, coal, and even water. Down 60-90% each. Still loading the bus I think.

qadi said...

Heh, you get it: speculative capital impatient for returns will close spreads, front-running the Fed.

For like a month or so...