“There are delayed triggers in many of these investment vehicles and that is delaying the recognition of losses,” Charles Peabody, founder of Portales Partners, an independent research boutique in New York, said. “I do think the unwind is just starting. The moment of truth is not yet here.”
I believed that there are delays in the housing market itself – homeowners using lump sum cash from equity withdrawal to make up for cash flow shortfall; and appraisal value going down maybe slower than the market price; etc, etc. All these means that when the problems finally come through, it’ll be bigger than first anticipated.
Also, in today’s Barron’s magazine, in Alan Abelson’s UP & DOWN Wall Street, he mentioned that:
“Paul Kasriel, Northern Trust’s crack economy watcher… points out that the massive corporate buybacks and … private equity investment, together with mortgage-equity withdrawal, they’ve helped fund the $503 billion deficit that household ran last year. Said house-holds, either directly or indirectly via mutual funds or pension funds, he reckons, were net sellers of stocks in 2006”.
This is the first time I heard that US households collectively is a net stock seller in 2006. If true, then almost for sure a recession will come soon. US households collectively basically are liquidating their assets to support their current consumption. All the financial “innovations” such as mortgage securitization just help to build this huge bubble while maintaining a seemingly safe front. This, combined with more inequality in income distribution, means that sooner or later it’ll become a political problem.
