Forum Replies Created
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AuthorPosts
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gdcox
ParticipantAmazing letter. Impressive.All should read even if there a few mistakes in it.
Some new things in there I did not know, eg:
‘All credit instruments must be subject to “Regulation FD” disclosure requirements. It is outrageous that bond
rating agencies are given details on the mortgages and other instruments inside “CDOs” that are not available in
the prospectus to buyers.’The author and a poster above are wrong on why the rating agencies got it wrong. The truth is that they had not adjusted their models for the new paradigm of US mortgage lending in the the last five years: eg all those option mortgages, teaser rates with ratchets, prevalent fraud and above all the sudden dominance of mortgages that got packaged with accompanying ‘who cares’ attitude of those who passed the parcel. They were crassly incompetent, but more than that, I don’t think so.
The recommendation of the Denninger’s letter that ‘mark to market’ be enforced for all these mortgage and other packaged securities so we can see the true situation is a bit a Pandora’s box. Why? Because the values on the market for these securities is increasingly being generated by forced sales in a situation where many the usual investors , as Denninger himself observes, have taken their ball and gone home (or rather invested in two year Treasuries, commodities and index-linked bonds) , the bid price in the market can be well below the underlying value of such bonds and other instruments
*** even if such value were determined in a forward looking way by someone like Rich Toscano***.
It would be foolish to force institutions into bankruptcy if the long term/underlying value of these assets (securities such as mortgage backed bonds) is higher than the market price whenever that is recorded. In other words it is healthy for house prices to come down to sustainable levels , but not for the rest of the system to be forced to adjust to a worse situation than that implied a worse outcome in housing than that.
I will make that comment on Denninger’s web site.
Graham
ParticipantAmazing letter. Impressive.All should read even if there a few mistakes in it.
Some new things in there I did not know, eg:
‘All credit instruments must be subject to “Regulation FD” disclosure requirements. It is outrageous that bond
rating agencies are given details on the mortgages and other instruments inside “CDOs” that are not available in
the prospectus to buyers.’The author and a poster above are wrong on why the rating agencies got it wrong. The truth is that they had not adjusted their models for the new paradigm of US mortgage lending in the the last five years: eg all those option mortgages, teaser rates with ratchets, prevalent fraud and above all the sudden dominance of mortgages that got packaged with accompanying ‘who cares’ attitude of those who passed the parcel. They were crassly incompetent, but more than that, I don’t think so.
The recommendation of the Denninger’s letter that ‘mark to market’ be enforced for all these mortgage and other packaged securities so we can see the true situation is a bit a Pandora’s box. Why? Because the values on the market for these securities is increasingly being generated by forced sales in a situation where many the usual investors , as Denninger himself observes, have taken their ball and gone home (or rather invested in two year Treasuries, commodities and index-linked bonds) , the bid price in the market can be well below the underlying value of such bonds and other instruments
*** even if such value were determined in a forward looking way by someone like Rich Toscano***.
It would be foolish to force institutions into bankruptcy if the long term/underlying value of these assets (securities such as mortgage backed bonds) is higher than the market price whenever that is recorded. In other words it is healthy for house prices to come down to sustainable levels , but not for the rest of the system to be forced to adjust to a worse situation than that implied a worse outcome in housing than that.
I will make that comment on Denninger’s web site.
Graham
ParticipantAmazing letter. Impressive.All should read even if there a few mistakes in it.
Some new things in there I did not know, eg:
‘All credit instruments must be subject to “Regulation FD” disclosure requirements. It is outrageous that bond
rating agencies are given details on the mortgages and other instruments inside “CDOs” that are not available in
the prospectus to buyers.’The author and a poster above are wrong on why the rating agencies got it wrong. The truth is that they had not adjusted their models for the new paradigm of US mortgage lending in the the last five years: eg all those option mortgages, teaser rates with ratchets, prevalent fraud and above all the sudden dominance of mortgages that got packaged with accompanying ‘who cares’ attitude of those who passed the parcel. They were crassly incompetent, but more than that, I don’t think so.
The recommendation of the Denninger’s letter that ‘mark to market’ be enforced for all these mortgage and other packaged securities so we can see the true situation is a bit a Pandora’s box. Why? Because the values on the market for these securities is increasingly being generated by forced sales in a situation where many the usual investors , as Denninger himself observes, have taken their ball and gone home (or rather invested in two year Treasuries, commodities and index-linked bonds) , the bid price in the market can be well below the underlying value of such bonds and other instruments
*** even if such value were determined in a forward looking way by someone like Rich Toscano***.
It would be foolish to force institutions into bankruptcy if the long term/underlying value of these assets (securities such as mortgage backed bonds) is higher than the market price whenever that is recorded. In other words it is healthy for house prices to come down to sustainable levels , but not for the rest of the system to be forced to adjust to a worse situation than that implied a worse outcome in housing than that.
I will make that comment on Denninger’s web site.
Graham
ParticipantAmazing letter. Impressive.All should read even if there a few mistakes in it.
Some new things in there I did not know, eg:
‘All credit instruments must be subject to “Regulation FD” disclosure requirements. It is outrageous that bond
rating agencies are given details on the mortgages and other instruments inside “CDOs” that are not available in
the prospectus to buyers.’The author and a poster above are wrong on why the rating agencies got it wrong. The truth is that they had not adjusted their models for the new paradigm of US mortgage lending in the the last five years: eg all those option mortgages, teaser rates with ratchets, prevalent fraud and above all the sudden dominance of mortgages that got packaged with accompanying ‘who cares’ attitude of those who passed the parcel. They were crassly incompetent, but more than that, I don’t think so.
The recommendation of the Denninger’s letter that ‘mark to market’ be enforced for all these mortgage and other packaged securities so we can see the true situation is a bit a Pandora’s box. Why? Because the values on the market for these securities is increasingly being generated by forced sales in a situation where many the usual investors , as Denninger himself observes, have taken their ball and gone home (or rather invested in two year Treasuries, commodities and index-linked bonds) , the bid price in the market can be well below the underlying value of such bonds and other instruments
*** even if such value were determined in a forward looking way by someone like Rich Toscano***.
It would be foolish to force institutions into bankruptcy if the long term/underlying value of these assets (securities such as mortgage backed bonds) is higher than the market price whenever that is recorded. In other words it is healthy for house prices to come down to sustainable levels , but not for the rest of the system to be forced to adjust to a worse situation than that implied a worse outcome in housing than that.
I will make that comment on Denninger’s web site.
Graham
ParticipantGraham
Just one more Rich..
‘Wealth soared for the average Zimbabwean as the stock market was the best performing in the world: up 12,000 per cent over 12 months.
Sure, there were a few negatives in the report such as GDP per capita having fallen back by more than 40 per cent and something called hyper-inflation but there was also plenty of good news……………….’.
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(FT derived.ParticipantGraham
Just one more Rich..
‘Wealth soared for the average Zimbabwean as the stock market was the best performing in the world: up 12,000 per cent over 12 months.
Sure, there were a few negatives in the report such as GDP per capita having fallen back by more than 40 per cent and something called hyper-inflation but there was also plenty of good news……………….’.
———————————————————-
(FT derived.ParticipantGraham
Just one more Rich..
‘Wealth soared for the average Zimbabwean as the stock market was the best performing in the world: up 12,000 per cent over 12 months.
Sure, there were a few negatives in the report such as GDP per capita having fallen back by more than 40 per cent and something called hyper-inflation but there was also plenty of good news……………….’.
———————————————————-
(FT derived.ParticipantGraham
Just one more Rich..
‘Wealth soared for the average Zimbabwean as the stock market was the best performing in the world: up 12,000 per cent over 12 months.
Sure, there were a few negatives in the report such as GDP per capita having fallen back by more than 40 per cent and something called hyper-inflation but there was also plenty of good news……………….’.
———————————————————-
(FT derived.ParticipantGraham
Just one more Rich..
‘Wealth soared for the average Zimbabwean as the stock market was the best performing in the world: up 12,000 per cent over 12 months.
Sure, there were a few negatives in the report such as GDP per capita having fallen back by more than 40 per cent and something called hyper-inflation but there was also plenty of good news……………….’.
———————————————————-
(FT derived.March 7, 2008 at 10:21 PM in reply to: Dr. Thornburg presentation : 2008 – economic forecast #165911ParticipantGraham
As an economist , I found their presentation/forecasts unobjectionable and very insightful in places. Ideally one would want to see more detailed forecasts, but that requires and economic model of SD and that probably does not exist. In short, this PDF should be read by all.
Being non-local , I did not realise from reading this forum that the SD unemployment rate has already risen so much during 06 and 07 (and unemployment is a lagging indicator!) and that sales of goods (‘taxable goods’) has been weak. In that respect , SD seems to have been having an economic decline before the rest of the US and this may explain why SD house prices started coming off the top so early and the housing boom carried on for much longer elsewhere (eg LA). BUT was the weakness just caused by the the first stage of the popping of the housing bubble . Slide 18 is weak. The scatter diagram does not show necessarily that sales of goods declined in recent years because of events in the housing market(ie it does not show which direction causality was), although that could be the case. Rich may be able to shed light on that . Were there other negative drivers at the time or was housing the only one: in which case causation must have been from bubble-popping.
It is very worrying to see from the state’s financial figures that Cal is coming out from a boom time with such a a large deficit . Had everyone in charge forgotten the tale of seven years of plenty and what you are supposed to do in that period. The obvious fear is that there may be a special Cal kicker to the recession as taxes are raised or public services cut back: perhaps on a large scale. What do you think Rich? For now I notice that big time bottom pickers are now investing in bombed out California muni bonds so they expect the state to pull itself together in some way.
One little extension of the presentation worth making concerns exports. Yes an export surge will occur due to the weak dollar and strength left in some parts of the world. But note that an export boom generated by a weak currency implies a loss of living standards (via cuts in inflation adjusted earnings) for the inhabitants of the country on average; even if the export-intensive areas do well. In other words it is perfectly possible to have a export boom, preventing a worsening of the recession and keeping more jobs than you might expect , but people overall will feel poorer and this of course is consistent with the general housing market correction proceeding uninterrupted .
Did you see the commercial real estate price and rent chart by the way? That market looks exactly as overblown as the residential real estate market has been.
March 7, 2008 at 10:21 PM in reply to: Dr. Thornburg presentation : 2008 – economic forecast #166229ParticipantGraham
As an economist , I found their presentation/forecasts unobjectionable and very insightful in places. Ideally one would want to see more detailed forecasts, but that requires and economic model of SD and that probably does not exist. In short, this PDF should be read by all.
Being non-local , I did not realise from reading this forum that the SD unemployment rate has already risen so much during 06 and 07 (and unemployment is a lagging indicator!) and that sales of goods (‘taxable goods’) has been weak. In that respect , SD seems to have been having an economic decline before the rest of the US and this may explain why SD house prices started coming off the top so early and the housing boom carried on for much longer elsewhere (eg LA). BUT was the weakness just caused by the the first stage of the popping of the housing bubble . Slide 18 is weak. The scatter diagram does not show necessarily that sales of goods declined in recent years because of events in the housing market(ie it does not show which direction causality was), although that could be the case. Rich may be able to shed light on that . Were there other negative drivers at the time or was housing the only one: in which case causation must have been from bubble-popping.
It is very worrying to see from the state’s financial figures that Cal is coming out from a boom time with such a a large deficit . Had everyone in charge forgotten the tale of seven years of plenty and what you are supposed to do in that period. The obvious fear is that there may be a special Cal kicker to the recession as taxes are raised or public services cut back: perhaps on a large scale. What do you think Rich? For now I notice that big time bottom pickers are now investing in bombed out California muni bonds so they expect the state to pull itself together in some way.
One little extension of the presentation worth making concerns exports. Yes an export surge will occur due to the weak dollar and strength left in some parts of the world. But note that an export boom generated by a weak currency implies a loss of living standards (via cuts in inflation adjusted earnings) for the inhabitants of the country on average; even if the export-intensive areas do well. In other words it is perfectly possible to have a export boom, preventing a worsening of the recession and keeping more jobs than you might expect , but people overall will feel poorer and this of course is consistent with the general housing market correction proceeding uninterrupted .
Did you see the commercial real estate price and rent chart by the way? That market looks exactly as overblown as the residential real estate market has been.
March 7, 2008 at 10:21 PM in reply to: Dr. Thornburg presentation : 2008 – economic forecast #166236ParticipantGraham
As an economist , I found their presentation/forecasts unobjectionable and very insightful in places. Ideally one would want to see more detailed forecasts, but that requires and economic model of SD and that probably does not exist. In short, this PDF should be read by all.
Being non-local , I did not realise from reading this forum that the SD unemployment rate has already risen so much during 06 and 07 (and unemployment is a lagging indicator!) and that sales of goods (‘taxable goods’) has been weak. In that respect , SD seems to have been having an economic decline before the rest of the US and this may explain why SD house prices started coming off the top so early and the housing boom carried on for much longer elsewhere (eg LA). BUT was the weakness just caused by the the first stage of the popping of the housing bubble . Slide 18 is weak. The scatter diagram does not show necessarily that sales of goods declined in recent years because of events in the housing market(ie it does not show which direction causality was), although that could be the case. Rich may be able to shed light on that . Were there other negative drivers at the time or was housing the only one: in which case causation must have been from bubble-popping.
It is very worrying to see from the state’s financial figures that Cal is coming out from a boom time with such a a large deficit . Had everyone in charge forgotten the tale of seven years of plenty and what you are supposed to do in that period. The obvious fear is that there may be a special Cal kicker to the recession as taxes are raised or public services cut back: perhaps on a large scale. What do you think Rich? For now I notice that big time bottom pickers are now investing in bombed out California muni bonds so they expect the state to pull itself together in some way.
One little extension of the presentation worth making concerns exports. Yes an export surge will occur due to the weak dollar and strength left in some parts of the world. But note that an export boom generated by a weak currency implies a loss of living standards (via cuts in inflation adjusted earnings) for the inhabitants of the country on average; even if the export-intensive areas do well. In other words it is perfectly possible to have a export boom, preventing a worsening of the recession and keeping more jobs than you might expect , but people overall will feel poorer and this of course is consistent with the general housing market correction proceeding uninterrupted .
Did you see the commercial real estate price and rent chart by the way? That market looks exactly as overblown as the residential real estate market has been.
March 7, 2008 at 10:21 PM in reply to: Dr. Thornburg presentation : 2008 – economic forecast #166240ParticipantGraham
As an economist , I found their presentation/forecasts unobjectionable and very insightful in places. Ideally one would want to see more detailed forecasts, but that requires and economic model of SD and that probably does not exist. In short, this PDF should be read by all.
Being non-local , I did not realise from reading this forum that the SD unemployment rate has already risen so much during 06 and 07 (and unemployment is a lagging indicator!) and that sales of goods (‘taxable goods’) has been weak. In that respect , SD seems to have been having an economic decline before the rest of the US and this may explain why SD house prices started coming off the top so early and the housing boom carried on for much longer elsewhere (eg LA). BUT was the weakness just caused by the the first stage of the popping of the housing bubble . Slide 18 is weak. The scatter diagram does not show necessarily that sales of goods declined in recent years because of events in the housing market(ie it does not show which direction causality was), although that could be the case. Rich may be able to shed light on that . Were there other negative drivers at the time or was housing the only one: in which case causation must have been from bubble-popping.
It is very worrying to see from the state’s financial figures that Cal is coming out from a boom time with such a a large deficit . Had everyone in charge forgotten the tale of seven years of plenty and what you are supposed to do in that period. The obvious fear is that there may be a special Cal kicker to the recession as taxes are raised or public services cut back: perhaps on a large scale. What do you think Rich? For now I notice that big time bottom pickers are now investing in bombed out California muni bonds so they expect the state to pull itself together in some way.
One little extension of the presentation worth making concerns exports. Yes an export surge will occur due to the weak dollar and strength left in some parts of the world. But note that an export boom generated by a weak currency implies a loss of living standards (via cuts in inflation adjusted earnings) for the inhabitants of the country on average; even if the export-intensive areas do well. In other words it is perfectly possible to have a export boom, preventing a worsening of the recession and keeping more jobs than you might expect , but people overall will feel poorer and this of course is consistent with the general housing market correction proceeding uninterrupted .
Did you see the commercial real estate price and rent chart by the way? That market looks exactly as overblown as the residential real estate market has been.
March 7, 2008 at 10:21 PM in reply to: Dr. Thornburg presentation : 2008 – economic forecast #166327ParticipantGraham
As an economist , I found their presentation/forecasts unobjectionable and very insightful in places. Ideally one would want to see more detailed forecasts, but that requires and economic model of SD and that probably does not exist. In short, this PDF should be read by all.
Being non-local , I did not realise from reading this forum that the SD unemployment rate has already risen so much during 06 and 07 (and unemployment is a lagging indicator!) and that sales of goods (‘taxable goods’) has been weak. In that respect , SD seems to have been having an economic decline before the rest of the US and this may explain why SD house prices started coming off the top so early and the housing boom carried on for much longer elsewhere (eg LA). BUT was the weakness just caused by the the first stage of the popping of the housing bubble . Slide 18 is weak. The scatter diagram does not show necessarily that sales of goods declined in recent years because of events in the housing market(ie it does not show which direction causality was), although that could be the case. Rich may be able to shed light on that . Were there other negative drivers at the time or was housing the only one: in which case causation must have been from bubble-popping.
It is very worrying to see from the state’s financial figures that Cal is coming out from a boom time with such a a large deficit . Had everyone in charge forgotten the tale of seven years of plenty and what you are supposed to do in that period. The obvious fear is that there may be a special Cal kicker to the recession as taxes are raised or public services cut back: perhaps on a large scale. What do you think Rich? For now I notice that big time bottom pickers are now investing in bombed out California muni bonds so they expect the state to pull itself together in some way.
One little extension of the presentation worth making concerns exports. Yes an export surge will occur due to the weak dollar and strength left in some parts of the world. But note that an export boom generated by a weak currency implies a loss of living standards (via cuts in inflation adjusted earnings) for the inhabitants of the country on average; even if the export-intensive areas do well. In other words it is perfectly possible to have a export boom, preventing a worsening of the recession and keeping more jobs than you might expect , but people overall will feel poorer and this of course is consistent with the general housing market correction proceeding uninterrupted .
Did you see the commercial real estate price and rent chart by the way? That market looks exactly as overblown as the residential real estate market has been.
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