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| User Info | Friday Financial Roof Fire in forum [Ticker] | |||
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Genesis Posts: 71432 Incept: 2007-06-26 
KD^2 
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http://market-ticker.denninger.net/2007/....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-08-03 21:04:12
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Jshojayi Posts: 269 Incept: 2007-07-02 
Kansas City
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Another one bookmarked...Thank you for sharing your insight.
2007-08-03 21:17:06
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Themarvin Posts: 616 Incept: 2007-07-13 NYC
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Karl - Best one -ever-. Did you catch the guys on fast money vying your option '3' for monday...? One of the bastards actually said that he went long at the close in anticipation of that. Why exactly should the Fed bail out the markets when we're off 7% from historic highs... Did he do anything when we were trading at 12000 6-7 months ago? People are just horrified of the possibility that the party might be -over- for a bit. Pure greed speaking. ---------- 10 print "recession" 20 goto 10 run
2007-08-03 21:33:57
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Mortgagefreakshow Posts: 1842 Incept: 2007-06-26
Northern NJ
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Well done as usual. Another long weekend ahead.
---------- "Someone has to do something, and it's incredibly pathetic it has to be us." Jerry Garcia
2007-08-03 21:36:56
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Aeriswind Posts: 59 Incept: 2007-07-16 
Seattle
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I have a question, if Fed do cut rate, then will it also cause Dollar to further weaken (Such as panic sell off of US bonds)? Which in turn cause USD/JPY more likely to drop below the current level, which eventually, more likely to unwind the carry trade?
2007-08-03 21:44:54
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Event_horizon Posts: 1789 Incept: 2007-07-23
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Ironically, if a Fed rate cut causes the dollar index to fall, you'll see more dumping of US bonds by foreign governments. What happens when bond prices fall? Yep, the yields go up. Makes you wonder what affect a rate cut would actually have on market interest rates. After a short-term euphoria, I think the reality of it making the situation worse would set in. ---------- "Do you like what you see? No? Well, bloody look harder. Strain your eyes!"
2007-08-03 21:51:14
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Bw8472 Posts: 6446 Incept: 2007-06-28
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The best analogy I've heard is that the fed is trying to drive a greyhound bus from a car towed behind it with a kite string. It's pretty marginalized in what it can do, if it was a game of checkers it's sitting there with one black piece and red has 5 kings. The only winning move is not to play the game. ---------- At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide. ~Abraham Lincoln Last modified:
2007-08-03 22:03:54 by bw8472
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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That's why I said you'd get a violent whipsaw if they did that. It would likely result in an instant spike, but it would also result in the destruction of the dollar below 80 almost as fast, and as soon as that sunk in and the Yen spiked stronger the carry would be force-unwound with horrifying impact. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-08-03 22:04:07
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Wisc-xc Posts: 4828 Incept: 2007-07-14
outside chicago
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Best ticker yet, Karl. If you didn't exist I'd have to invent you. If we get even an inkling of a Black Monday (500 plus down in the Dow) then the Fed cuts Tuesday--up to 100bp. How do I know? Cramer's trial balloons for one.
2007-08-03 22:05:32
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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Don't bet the house on that. If the Fed cuts rates really ugly things will happen in very short order. I believe Bernanke knows this, which greatly reduces the odds he would act. Remember, even if we were down 1500 points Monday we would still be ABOVE year-ago levels in the Dow. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-08-03 22:07:26
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Shado Posts: 197 Incept: 2007-07-08
Idaho
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If today was any guide, it would seem that if we are down significantly on Monday that their would be a flight from the dollar that could cause the carry to unwind anyhow could it not? It seems that anything short of a rate hike (which won't happen) that the dollar is toast. What's the best play to protect our newly generated wealth in this case? Garner as much as we can during the downturn and then move to metals/foreign currencies and or stable foreign investments?
2007-08-03 22:12:51
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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That's about it. Make as much as you can and then get it into something stable in value. As long as you can outrun the dollar going to ****, its ok for you. Those people who are net long the market here are going to get murdered. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2007-08-03 22:15:02 by genesis
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Rmonical Posts: 2155 Incept: 2007-07-04
Omaha
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The good news is we will get decent warning about a Monday meltdown from Asia and Europe, right?
---------- The truth is out there
2007-08-03 22:22:01
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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Probably. Unless it starts like it did today.....  (Ok, who was trying to trade the expected "bounce" today. You know they were out there...... ouch!) ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-08-03 22:23:33
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Event_horizon Posts: 1789 Incept: 2007-07-23
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Although usually a bad idea, I'm glad my PUTs were filled in the first half-hour this morning. :)
---------- "Do you like what you see? No? Well, bloody look harder. Strain your eyes!"
2007-08-03 22:34:57
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Peace Posts: 688 Incept: 2007-07-09
San Diego
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I am not as optimistic about the conforming mortgage market as you are, Genesis. China was one of our largest purchasers of mortgage bonds, and they stopped buying in May. Fannie and Freddie can only issue conforming loans to the extent they can resell them in the secondary market to foreign central banks, fixed income funds, pension funds, banks, etc. GSE bonds are considered safe, but may not be any more. The buyers of GSE bonds may be losing money already, we just don't know, and the demand for those bonds is down. How much? Fannie and Freddie also own MBS and bought subprime loans. I heard Freddie's CEO on Bloomberg this spring, saying they would no longer buy subprime loans after 9/1/07. I was shocked they were doing it before, that they would continue doing it So there is a lot of bad debt on their portfolios, meaning they, or their purchasers, are also losing money. Let's assume that the demand for Fannie and Freddie paper goes down 60% with China and other buyers gone. So now we have no subprime, no Alt-A, and 60% of conforming loans gone. I just don't see who will step up to the plate to buy those conforming loans. Will the Federal Reserve just print money for this? And let's remember, we have Mozilo begging for assistance to get Fannie to buy his loans (I have this from a direct source that he begged to, hoping to get this person to recommend to the GSEs that they give support to Countrywide). Mozilo is trying all he can, to get some relief from his constipated loans. The US does not have the savings to support our own mortgage market. Our productivity is less than our consumption, our wages are less than our spending, there is a huge imbalance. How do you think GSEs can raise money to keep liquidity in the mortgage market? Alphonso Jackson of HUD already begged China to buy more HUD MBS a couple weeks ago, and I think they told him to take a hike. So where will the money come from for conforming loans? Of course, there will be some demand for it, but I'd guess just a tiny tiny fraction of last month's volume. Is there any place to check the monthly sales of GSE bonds? That would be interesting to follow. Well, we'll see soon enough, in the number of sales. So CA is down 30-40% year over year in sales. And the summer buying season is done, we are going into the slow part of the year now that school is starting. People are discouraged and have pulled their homes off the market waiting for that rebound next year. Flippers are sacrificing to make those higher payments, with the rosy idea that their sacrifice will pay off because real estate only goes up, and after this blip it will resume its rise. We are 10% into a multi year decline.
2007-08-03 22:41:19
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Peace Posts: 688 Incept: 2007-07-09
San Diego
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Questions 1. do you guys think that Japan and US could intervene in the currency markets, to support the carry trade? 2. Fed is a private bank, so maybe they don't care about investment banks and mortgage lenders, maybe they are glad to lose the competition. Just as long as their own banks are not damaged. So maybe they do not lower rates until the heat is on for their own member banks? 3. Does Cramer really expect central bankers to call mortgage CEOs to ask, "how may we assist your struggling business today?", is he nuts?
2007-08-03 22:49:03
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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Peace, conforming loans are marketable. They've been safe for 100+ years, and will be in the future. Yes, a few default. But not the sort of thing we're seeing in liars loans and subprime. The problem is affordability and that was CAUSED by the Greenspan PUT. Now we're gonna pay for it, like it or not. The ABS marketplace for stupidity will not return; **** me once, no second shots. But that's not the deal here. Fannie and Freddie may indeed get in trouble. Rates will rise. But at 2% over Treasuries of the same maturity for quite-safe paper, there are buyers and always will be. What can't be sold is the stupid ****. That will not come back and nobody is going to believe the "slice and dice" model again. You can TRY to intervene in the currency markets and for SMALL moves you can make a difference. If something really snaps though all you will do is **** down a singularity. Realize that the FX market moves two trillion plus a DAY. There is no government - or even collection of governments - that can change the path on this if it wants to go a certain way. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2007-08-03 22:59:22 by genesis
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Bw8472 Posts: 6446 Incept: 2007-06-28
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Actually here's my take on Freddie and Fannie. The hairy part is something Peace alluded to but is only off by some timing here. The scary part of what he's saying is that yes it's entirely possible they could literally implode at a LATER DATE. If you look at the Depression there were waves of foreclosures two years out after the crash because that's when complete exhaustion took hold. Now it won't take that long IMO for these to crumple if we get a severe recession because the first to go would be Radian, MTG and PMI, etc, crushed by claims on shaky PMI they wrote. Once they go, then Fannie and Freddie are completely naked to the losses, just like the tranches in the CDO's and it's not a far fetched idea to think they will in fact go after the MI insurers bite the dust. The exposure is rather massive, if the downturn last just long enough, say two more years, they're going to rack up losses in the Trillions. I'm suddenly not feeling well at all. ---------- At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide. ~Abraham Lincoln
2007-08-03 23:28:57
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Rmonical Posts: 2155 Incept: 2007-07-04
Omaha
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How about playing the upside explosion possibility by buying far OTM calls on SPY and QQQQ?
---------- The truth is out there
2007-08-03 23:29:44
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Genesis Posts: 71432 Incept: 2007-06-26
KD^2
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If you want to. But what's that probability? See, that's the problem - I'd rather set tight stops over anything short and just end up out in cash, because an explosion won't hold and I want to short with both hands and feet on the turn if it happens - announcing a recession will destroy the market, although the instant reaction may be for it run like crazy. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-08-03 23:31:50
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Sg Posts: 132 Incept: 2007-06-29
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Problem I see with conforming mortgages is what happens if someone loses their job and/or the equity in the home evaporates. Things become highly suspect thereafter. I suspect we are going to see the following events take place simultaneously next week: 1) collapse in Global stock Markets 2) Collapse in US Dollar 3) Spike in 10 year interest rates 4) Vertical rise in gold/silver around the world. Problem isn't liquidity. Problem is trillions of bad debts in the system and associated derivatives that no one knows how to value.
2007-08-03 23:32:07
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Bw8472 Posts: 6446 Incept: 2007-06-28
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Um, it occurs to me about now and I'm not an alarmist by the way, that things could get rather out of hand rather quickly in every direction at once. The one thing different about today from former eras is the speed with which things unfold. I wouldn't lounge around after any great winnings, I think it gives new meaning to take the money and run. ---------- At what point then is the approach of danger to be expected? I answer, if it ever reach us, it must spring up amongst us. It cannot come from abroad. If destruction be our lot, we must ourselves be its author and finisher. As a nation of freemen, we must live through all time, or die by suicide. ~Abraham Lincoln
2007-08-03 23:41:20
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Sondergaard Posts: 512 Incept: 2007-07-13
Big Trees
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Karl, thank you from the bottom of my heart for the great work you are doing here. I have learned so much from this site. I can't believe how generous you are with your time and advice and am so grateful. Bw, I wouldn't say that Doug Noland at Prudent Bear is really an alarmist either, but here is what he wrote this evening (http://www.prudentbear.com/articles/show.... "I mostly downplayed the marketplace liquidity and economic impact of the housing downturn last fall and the subprime implosion this past February. My view of current developments is markedly different. I cannot this evening overstate the dire ramifications for the unfolding Credit System Dislocation. There is today serious risk of U.S. financial markets “seizing up.” A system so highly leveraged is acutely vulnerable to speculative de-leveraging and a catastrophic “run” from risk markets. At the same time, the Bubble Economy and inflated asset markets – by their nature – require uninterrupted abundant liquidity. The backdrop could not be more conducive to a historic crisis, yet most maintain unwavering confidence that underlying fundamentals are sound." ---------- And it won't make one bit of difference if I answer right or wrong; when you're rich, they think you really know. --Fiddler on the Roof
2007-08-03 23:47:42
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Guydaley Posts: 10915 Incept: 2007-07-10
Missouri & Wyoming
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This is all so incredibly exciting. If it wasn't for the internet, I wouldn't get to witness this firsthand, real time. Might as well be trying to do this with bear skins and stone knives. Such a collection of talented and interesting people I've never met before. I feel privleged to share this historic event with everybody on this blog. I think for the first time in my life I am in the right place at the right time. Cheers Karl, here's to you for pulling it together. ---------- 2/17/09 = Hogzilla bill was signed = THE POINT OF NO RETURN = Cheers to the Reset, LONG LIVE THE UNDERGROUND ECONOMY! STARVE the BEAST! Adopt a J6P.
2007-08-03 23:55:04
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