[LA_Renter]

US Dollar index just broke through 78 into the 77’s. How low can she go?? Europe is really going to get hit hard with dollar over 1.42. The ECB and BOE will eventually have to cut IMO.

[LA_Renter]

I did some research about previous housing downturns as I began observing this market, so I was mentally prepared to watch ice cream melt. The slow process did not surprise me. As many posters have pointed out the credit crunch was probably the most profound event that resembled a true POP. To me that’s the point that it really hit home this was a credit bubble, housing just happened to be the asset of the day. I knew that people couldn’t make these mortgage payments but I hadn’t connected in my mind exactly what that would look like in the financial markets. In that regard the credit bubble is far worse with greater reaching consequences than I had anticipated. We are not at a post mortem on this event just yet.

[LA_Renter]

“Eurozone suffers ‘worst’ jolt since 9/11
By Ralph Atkins in Frankfurt
Published: September 21 2007 11:20 | Last updated: September 21 2007 17:27
The eurozone economy has this month suffered its biggest jolt since the aftermath of the September 2001 terrorist attacks, with global financial turmoil hitting the services sector particularly hard, according to a closely watched survey.”

http://www.ft.com/cms/s/0/d42aed9c-6826-11dc-b475-0000779fd2ac.html

They are going to have to cut IMO. I am getting a feeling that deflation is what the FED is worried about.

[LA_Renter]

“if raising the conforming limits doesn’t work because the underwriting is too tight to allow home prices to stay high, then they will loosen the underwriting criteria. Investors buying the mortgages won’t do anything to stop this because they know payments on the loans are guaranteed by taxpayers, so it makes little difference to them if FNMA/Freddie mortgages go bust or not.”

That will simply not happen and your last sentence explains why not “FNMA/Freddie mortgages go bust”. Don’t think so. They are already under the gun. Besides once home prices begin falling such as they are now very few will be willing to take out a mortgage without the confidence that home price appreciation is certain. Loosening the underwriting criteria in a falling home market guarantees Fannie and Freddie will go bust.

[LA_Renter]

I am thoroughly confused as everyone else. Does anybody think rather than focusing on inflation which the markets are currently screaming at us, the FED is actually concerned about deflation starting in 2008 into 2009. The credit bubble that just popped was to say the least gargantuan, the largest bubble in history, global in scope. The housing bubbles are now popping in the 30 to 40 countries where they existed, the run on Northern Rock in the UK was a defining moment in their housing bubble which is actually bigger than the USA’s. Greenspan recently went across the pond and told their central banks that they are basically f*&ked and should rethink further tightening. Once those economies begin to feel the negative impact of the housing bust the global economy will slow muting inflation and easing pressure on the dollar. The 50 bps cut won’t be felt in the economy until next year, right when the full effects of the popping global credit bubble will be felt around the globe. A large global credit contraction precedes a large consumer spending contraction. Thus the FED decision to lower the hammer in the Fed Funds rate. They know the front end will be volatile with the dollar getting hammered and oil and commodities going higher but they see the magnitude of the slowdown coming our way and are gambling that will mute inflation. Ben indicated the Great Depression could have been avoided if more liquidity had been available in the system. I am not saying this is right or wrong and there are plenty of holes here. I am just trying to make sense of the move our FED made that on the surface seems idiotic.

[LA_Renter]

“Sept. 20 (Bloomberg) — The U.S. commercial paper market shrank for a sixth week, extending the biggest slump in at least seven years and signaling Federal Reserve interest rate cuts haven’t yet drawn investors back to short-term debt.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=a4qdfKzkKHX4&refer=home

So far not so good. The bond markets are kind of giving Benny the finger right now.

I read this article a few weeks ago in the Asian Times about a potential rate cut;

“On the surface, the global financial system is in the midst of a liquidity crisis – but it is really in the throes of a confidence crisis. The lack of confidence in the rating and derivative systems led to the seizing up of the financial system. No one knows how to price the trillions of dollars in collateralized derivative structures.

As a result, no one can move the paper off their books. Last week, a European financial institution sold a AAA tranche at a price of 78, forcing it to assume a huge writeoff. This means that lower-rated tranches will result in even larger discounts. With billions of US dollars in open derivative contracts, much of it in the form of collateralized obligations, the global financial system is bracing for massive writeoffs. It is for this reason that credit evaporated.

Banks are slashing lines of credit, paring back trading positions and refusing to roll over commercial-paper obligations because they must husband their cash. That is why a 50-basis-point cut or a 400-basis-point reduction in Fed Funds will not do anything to restore confidence. It is also the reason the markets will panic the day after the Fed’s hand is forced on September 18, when they realize that financial institutions will still be unable to move the collateralized derivative structures off their books.”

http://www.atimes.com/atimes/Global_Economy/IH29Dj01.html

I guess the term “markets will panic the day after” is more of a metaphor here but it makes you wonder how the markets are going to react when they see CP is still plummeting. IMO we are really seeing exactly how stuck in between a rock and a hard place we truly are.

[LA_Renter]

Gold is up over $730, oil is still rising, the dollar is hovering in the low 79’s and the long end of bonds are down pushing yields up. A quick look a Bankrate show mortgage rates going up including the Jumbo. The rate cut could exacerbate the housing slump if it sustains market fears of inflation. It is too early to tell but early indications are not looking good.

This was a risky move by the FED. If we see an increase in measured inflation what are they going to do then?? Keep an eye on oil if it stays elevated the markets will react especially as we get closer to big heating bills in the midwest and east coast.

[LA_Renter]

The US Dollar index is now marching towards 79, oil has broken out north of 80, gold is north of $720, the yield on the 10 yr actually went up after the announcement. I hope these guys know what they are doing.

[LA_Renter]

Yep! I’m surprised.

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Herewego I’m with you on that one. The futures are showing only a 40% chance of 50 bps cut. The FED is going to use the discount window as its primary tool for the credit crunch. Greenspan gave Bennie some cover indicating that we have more inflationary pressures today that limits the FED’s ability to cut the FED funds rate. I don’t know how the market will react but you can be sure the next debt bomb to go off after this FED meeting will have a significant impact on the market. I am not getting the feeling that anything has truly stabilized.

[LA_Renter]

When the rubber meets the road home builders can lower their price. They are at the point of do or die. This is a very essential part of the correction. I imagine this event will allow other home builders to follow suit or go out of business. Things like this are a nightmare to the existing home market at least from the sellers point of view. It’s music to my ears.

[LA_Renter]

This was discussed on CNBC today and they indicated that HOV really dropped their pants on this sale. They priced according to prevailing market / credit realities and moved product. Go figure.

[LA_Renter]

duplicate

[LA_Renter]

Here is a little historical perspective regarding the Fed Funds rate during the last housing correction in the late 80’s to mid 90’s. The Fed funds rate in Feb 1989 was 9.75, by Sept 1992 it had fallen to 3.00. So during the last housing recession the Fed lowered 675 bps which is more than the 5.25 rate today. Nominal home prices in S. California fell over 30% in the early 90’s as the FED was cutting away. The metrics of the peak home prices of today i.e. home price to income, and home price to rent are twice as high as the peak in the late 80’s. If you watched Greenspan’s interview tonight he pointed out the FED today does not have the ability to lower rates as easily as they did in Greenspan’s era due to today’s inflationary risk. The days of the Greenspan put are pretty much over and that is according to Greenspan himself. I am sure Ben Bernanke is glad he said that. So no the upcoming rate cuts will not help that much, it’s kind of like shooting down a grizzly bear with a BB gun.

[LA_Renter]

Well it’s definitely going to be a challenge for the NAR to spin this thing positive this winter with that hanging out there. LOL

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