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poway,

There are WaMu options that expire in January of 2008.

WWIMI, with a $45 strike price, trades at 5.75. Given the 9/1 stock price of 41.90, that’s an eminently reasonable premium.

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davelj,

I have a question wrt/ the supply side of shorting. Let’s hypothetically assume I own 1000 shares of WaMu, and that poway wants to short WaMu. How could I go about lending some of my shares to poway? What sort of premium should I expect for the loan (or, from a differnt perspective, what is the carrying cost of a short position?)

Thanks.

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What if gold has rushed upwards due to the liquidity bubble? What if losses in illiquid assets are offset by profit-taking in liquid assets? What if gold tanks to pre-2000 levels?

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If seems the downward slide is finally underway. It’s hard to predict where the bottom will be, but based on past cycles, we know that at some point the change in prices will start to slow and eventually level, and it usually takes a fair number of months to begin to turn back upwards. Then again, by that time, conventional wisdom will be that real estate is a lousy investment that will never again appreciate.

Doesn’t #8 eliminate just about every modern development in the greater San Diego area?

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Astounding.

Now that cash-out refis are evaporating, due to appreciation capping or even turning, what will happen to consumer spending in San Diego?

45% of income to mortgage debt service??? On average??? Wow!

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Then again, as Keith over at Housing Panic notes, the recent price chart of gold currently forms a disturbingly clear “Head and Shoulders” pattern, generally associated with a downturn.

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If you look at recent gold trends, the value of gold seems to oscillate rather strongly about the trend line. If you truly believe gold will trend up in value, this is as good a time as any to buy, as gold seems to be in a local trough. If the price of gold does not fall on Monday, it’s probably a good buy for the inflationists hereabouts.

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But hasn’t worldwide inflation been relatively tame during most of the recent gold run-up? It does seem that gold tends to follow oil (for whatever reason,) save for the past few months. Worldwide demand for gold, measured in mass, is about 83-84% of 2005 levels.

Gold has risen because interest rates had been going down and liquidity had been increasing throughout the world for the last few years.

Isn’t that tantamount to saying that gold has bubbled up?

FWIW, the chief investment strategist at Schwab suggests taking profits in more high-risk areas like commodities

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Condo conversions will be utterly crushed in the coming years. How will they compete against condos actually built to condominium standards (which themselves are currently facing serious depreciation at the leading edge of the downturn)?

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So basically the lending institution buys the house, lets the sub-600 FICO live in the house rent-free for 1 year, and then retakes possession of the house in a potentially crashing market when the tenant leaves the keys on the table. Is there at least a security deposit the institution can claim if the tenant wrecks the place?

In an appreciating market, these suicide loans make sense on the MBS market, as the banks/investors can sell and claim the appreciation once the previous debtor is bled dry (and another sap is found.) In a depreciating market, though, they make no sense at all.

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So, who will buy these Country-Fried mortgages? Will the bond ratings folks be forced to create ratings below ‘D’?

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Wikipedia has a pretty good entry on deflation, with links to concepts such as liquidity traps and the like.

A case for deflation can be made by the incredibly inflationary monetary actions of the past 5-6 years:

1) Cut interest rates to near 0.
2) Eliminate lending standards
3) When 1) and 2) inevitably lead to asset bubbles, encourage asset owners to borrow against the bubbled value of the asset, thereby expanding the bubble even further.

Despite those actions, there was limited inflation. One could argue that is indicative of a deflationary bias to the economy. Alternatively, one could suggest that the inflation occured in products not included in most inflation metrics. Perhaps the truth lies somewhere in between.

Now interest rates are much higher (even if historically low,) and lending standards appear to be growing tougher. Asset prices are no longer inflating, so (3) is removed as an input to the economy. These are all at least disinflationary stimuli, but potentially deflationary as well.

Perhaps someone with a stronger economics background can help me on this one: if credit is considered an immediate input to the economy, is debt service considered an immediate drain on the economy? Is the bill for 3, perhaps exacerbated by the “toxic loans” and rising interest rates, coming due? How do bankruptcies and defaults fit into the equation?

Classically, deflation occurs when aggregate demand falls sharply. If more and more debtors spend more and more income servicing debt, and if the appreciation credit spigot is turned off, will aggregate demand not fall for all but necessities?

On another note, if more liquid commodities have bubbled up over the past few years, would there not be a strong temptation to take profits on those commodities, thereby crashing those prices as well?

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*nm*

Thinking through this stuff makes my head hurt …

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Looks like investors were not thrilled with that 4.5% interest rate. Is it a regular occurence for the 30 year to sell at 91% of par?

Also, are there any sites that show the total amount of bonds offered at the auction, the total purchased, and the major purhasers?

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I tend to agree with VCJIM. I suspect there will be many investors that try to pick up NOD/foreclosed properties at a bargain rate, in the belief that the bottom will be in the neighborhood of the bargain price. Will those properties prove to be a bargain 2-3 years from the purchase?

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Perry/Bugs-
Were the conditions the same wrt/ ARM loans, massive speculation, was the glut as great as it appears to be now?

How is 2006 similar to 1990? How is it different?

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