[davelj]

I think this is an interesting strategy under the circumstances. If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. Realistically, credit and operating costs will eat up the 1.5% spread over time, but break-even under the circumstances is pretty good. And, hell, the assets and liabilities would even exhibit matched durations. Holy asset-liability management!

So, govt. debt would increase but assets would increase as well, so net debt-to-GDP would remain constant, which is a good thing. There should be no additional ongoing net costs to the taxpayer so long as the credit costs and operating costs remain in check, which is a reasonable assumption given dramatically lower home prices.

I assume they’d use Fannie and Freddie to administer the whole thing because that would be the most efficient manner of handling things – they’re already set up for this type of operation.

The issue is how to determine who gets the loans, because everyone – including folks like me who have no issues with their mortgage payment – is going to want to participate. That’s going to be a tricky issue.

But the idea itself is solid. I think the Officialdom now realizes that housing prices are going to continue trending down until they’re back to trend relative to incomes and rents. They’re resigned to that fact. I think what they’re trying to achieve now is some mechanism for not allowing prices to go too much BELOW that trend. Because we’re staring a depression in the face if proper actions aren’t taken. And this is an interesting idea that shouldn’t burden the taxpayer too heavily if administered properly.

I give it an A for ingenuity. Let’s see how the execution is.

[davelj]

I think this is an interesting strategy under the circumstances. If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. Realistically, credit and operating costs will eat up the 1.5% spread over time, but break-even under the circumstances is pretty good. And, hell, the assets and liabilities would even exhibit matched durations. Holy asset-liability management!

So, govt. debt would increase but assets would increase as well, so net debt-to-GDP would remain constant, which is a good thing. There should be no additional ongoing net costs to the taxpayer so long as the credit costs and operating costs remain in check, which is a reasonable assumption given dramatically lower home prices.

I assume they’d use Fannie and Freddie to administer the whole thing because that would be the most efficient manner of handling things – they’re already set up for this type of operation.

The issue is how to determine who gets the loans, because everyone – including folks like me who have no issues with their mortgage payment – is going to want to participate. That’s going to be a tricky issue.

But the idea itself is solid. I think the Officialdom now realizes that housing prices are going to continue trending down until they’re back to trend relative to incomes and rents. They’re resigned to that fact. I think what they’re trying to achieve now is some mechanism for not allowing prices to go too much BELOW that trend. Because we’re staring a depression in the face if proper actions aren’t taken. And this is an interesting idea that shouldn’t burden the taxpayer too heavily if administered properly.

I give it an A for ingenuity. Let’s see how the execution is.

[davelj]

I think this is an interesting strategy under the circumstances. If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. Realistically, credit and operating costs will eat up the 1.5% spread over time, but break-even under the circumstances is pretty good. And, hell, the assets and liabilities would even exhibit matched durations. Holy asset-liability management!

So, govt. debt would increase but assets would increase as well, so net debt-to-GDP would remain constant, which is a good thing. There should be no additional ongoing net costs to the taxpayer so long as the credit costs and operating costs remain in check, which is a reasonable assumption given dramatically lower home prices.

I assume they’d use Fannie and Freddie to administer the whole thing because that would be the most efficient manner of handling things – they’re already set up for this type of operation.

The issue is how to determine who gets the loans, because everyone – including folks like me who have no issues with their mortgage payment – is going to want to participate. That’s going to be a tricky issue.

But the idea itself is solid. I think the Officialdom now realizes that housing prices are going to continue trending down until they’re back to trend relative to incomes and rents. They’re resigned to that fact. I think what they’re trying to achieve now is some mechanism for not allowing prices to go too much BELOW that trend. Because we’re staring a depression in the face if proper actions aren’t taken. And this is an interesting idea that shouldn’t burden the taxpayer too heavily if administered properly.

I give it an A for ingenuity. Let’s see how the execution is.

[davelj]

I think this is an interesting strategy under the circumstances. If the Treasury can issue enough 30-year paper at 3% and turn around and collect 4.5%, that’s a positive spread of 1.5%. Realistically, credit and operating costs will eat up the 1.5% spread over time, but break-even under the circumstances is pretty good. And, hell, the assets and liabilities would even exhibit matched durations. Holy asset-liability management!

So, govt. debt would increase but assets would increase as well, so net debt-to-GDP would remain constant, which is a good thing. There should be no additional ongoing net costs to the taxpayer so long as the credit costs and operating costs remain in check, which is a reasonable assumption given dramatically lower home prices.

I assume they’d use Fannie and Freddie to administer the whole thing because that would be the most efficient manner of handling things – they’re already set up for this type of operation.

The issue is how to determine who gets the loans, because everyone – including folks like me who have no issues with their mortgage payment – is going to want to participate. That’s going to be a tricky issue.

But the idea itself is solid. I think the Officialdom now realizes that housing prices are going to continue trending down until they’re back to trend relative to incomes and rents. They’re resigned to that fact. I think what they’re trying to achieve now is some mechanism for not allowing prices to go too much BELOW that trend. Because we’re staring a depression in the face if proper actions aren’t taken. And this is an interesting idea that shouldn’t burden the taxpayer too heavily if administered properly.

I give it an A for ingenuity. Let’s see how the execution is.

[davelj]

I’d have to fire myself. And times aren’t that bad yet. But my boss is kind of an a-hole.

[davelj]

I’d have to fire myself. And times aren’t that bad yet. But my boss is kind of an a-hole.

[davelj]

I’d have to fire myself. And times aren’t that bad yet. But my boss is kind of an a-hole.

[davelj]

I’d have to fire myself. And times aren’t that bad yet. But my boss is kind of an a-hole.

[davelj]

I’d have to fire myself. And times aren’t that bad yet. But my boss is kind of an a-hole.

[davelj]

[quote=davelj]Personally, I think it will be more than 15% if we head into a recession because the current estimates are for the S&P to grow earnings both this year and next in the high-single digit to low-double digit range. If we hit a recession earnings will decline as profit margins – which are currently as high as they’ve ever been since recordkeeping began in 1954 – collapse. So, you’ll get a P/E adjustment AND a large earnings adjustment at the same time – a double whammy, if you will, on the valuation front. I think 900 on the S&P 500 and 1800 on the Nasdaq is not at all unrealistic at some point in the next two years, but they could easily stall at 1000 and 2000, respectively. I don’t have a crystal ball, but my bet is that we’re headed into a correction that’s deeper than 15%.[/quote]

I was just re-reading some of this thread and found this gem. Funny how what seemed impossibly bearish just 20 months ago seems quaintly bullish today!

[davelj]

[quote=davelj]Personally, I think it will be more than 15% if we head into a recession because the current estimates are for the S&P to grow earnings both this year and next in the high-single digit to low-double digit range. If we hit a recession earnings will decline as profit margins – which are currently as high as they’ve ever been since recordkeeping began in 1954 – collapse. So, you’ll get a P/E adjustment AND a large earnings adjustment at the same time – a double whammy, if you will, on the valuation front. I think 900 on the S&P 500 and 1800 on the Nasdaq is not at all unrealistic at some point in the next two years, but they could easily stall at 1000 and 2000, respectively. I don’t have a crystal ball, but my bet is that we’re headed into a correction that’s deeper than 15%.[/quote]

I was just re-reading some of this thread and found this gem. Funny how what seemed impossibly bearish just 20 months ago seems quaintly bullish today!

[davelj]

[quote=davelj]Personally, I think it will be more than 15% if we head into a recession because the current estimates are for the S&P to grow earnings both this year and next in the high-single digit to low-double digit range. If we hit a recession earnings will decline as profit margins – which are currently as high as they’ve ever been since recordkeeping began in 1954 – collapse. So, you’ll get a P/E adjustment AND a large earnings adjustment at the same time – a double whammy, if you will, on the valuation front. I think 900 on the S&P 500 and 1800 on the Nasdaq is not at all unrealistic at some point in the next two years, but they could easily stall at 1000 and 2000, respectively. I don’t have a crystal ball, but my bet is that we’re headed into a correction that’s deeper than 15%.[/quote]

I was just re-reading some of this thread and found this gem. Funny how what seemed impossibly bearish just 20 months ago seems quaintly bullish today!

[davelj]

[quote=davelj]Personally, I think it will be more than 15% if we head into a recession because the current estimates are for the S&P to grow earnings both this year and next in the high-single digit to low-double digit range. If we hit a recession earnings will decline as profit margins – which are currently as high as they’ve ever been since recordkeeping began in 1954 – collapse. So, you’ll get a P/E adjustment AND a large earnings adjustment at the same time – a double whammy, if you will, on the valuation front. I think 900 on the S&P 500 and 1800 on the Nasdaq is not at all unrealistic at some point in the next two years, but they could easily stall at 1000 and 2000, respectively. I don’t have a crystal ball, but my bet is that we’re headed into a correction that’s deeper than 15%.[/quote]

I was just re-reading some of this thread and found this gem. Funny how what seemed impossibly bearish just 20 months ago seems quaintly bullish today!

[davelj]

[quote=davelj]Personally, I think it will be more than 15% if we head into a recession because the current estimates are for the S&P to grow earnings both this year and next in the high-single digit to low-double digit range. If we hit a recession earnings will decline as profit margins – which are currently as high as they’ve ever been since recordkeeping began in 1954 – collapse. So, you’ll get a P/E adjustment AND a large earnings adjustment at the same time – a double whammy, if you will, on the valuation front. I think 900 on the S&P 500 and 1800 on the Nasdaq is not at all unrealistic at some point in the next two years, but they could easily stall at 1000 and 2000, respectively. I don’t have a crystal ball, but my bet is that we’re headed into a correction that’s deeper than 15%.[/quote]

I was just re-reading some of this thread and found this gem. Funny how what seemed impossibly bearish just 20 months ago seems quaintly bullish today!

[davelj]

Bottom line: If the government is going to hand out free lunches, there will be great demand for such lunches. And people will go to great lengths to try to get at such free lunches.

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