Apr. 30th, 2008

solarbird: (Default)
Quick check-in post again, really; here are things I've been thinking about.

Half, yes, half, of Alt-A and subprime loans made after 2005 are going underwater, which means the loan value will be higher than the property value. Of the oldest of these, which are the least affected, 33% of alt-A and 60% of subprime are 60 days late or greater. We're talking about US$800B exposure, with about half of that probable losses at these rates. S&P, about which I have other bad things to say, is lowering their estimation of recovery rates on the CDOs built from these things, putting AAA-rated at 60% recovery (40% loss of principal), AA-rated at 5% recovery (95% loss of principal), and everything below that (A, BBB, BBB-) at zero.

That's more or less what the CDO market, such as it it, has been saying - modulo people willing to buy trash hoping for a surprise home run.

Oh, and one of the bad things I have to say about the ratings agencies - that they're basically engaged in mass denial - is directly fueled by a massive and intrinsic conflict of interest documented here. In short form, the ratings agencies are paid by the issuers, and if the issuers don't get the ratings they hope for, they don't pay the agency. And go trying again at one of the other two charted agencies. But they insist that everything is just fine, of course, despite train-wrecks like the above.

In other news Russian oil production may have reached its second (and this time non-Soviet-ineptness-produced) peak. Russia has been one of the few oil success stories in recent years, having recovered from a previous, Soviet-era peak-and-fall that was driven in large part by the usual incompetence. This appears to be more akin to what we're seeing in other areas; existing superfields drying up, new fields expensive, difficult to find, and smaller.

Finally, the rumours flying around continue to be super-crazy, but one of them has me wondering: What's interesting about 2010? Other than the Vancouver Olympics. I also know that some less-than-crazy observers are charting possible total liquids peak (as opposed to conventional crude peak, which, so far, remains a couple of years behind us) for around then. But what else happening then might, say, push a large trading house to bet everything it has towards accumulating as much capital as possible before 2010, and not care what happens after?

It's just a rumour, but it's a curious one, so there it is.

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