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solarbirdSo, where are we economically today?
I have an unspecific (and accordingly difficult to validate) sense that we are approaching or at a significant acceleration event in the markets. That's just a sense, not a prediction, tho' there's plenty of environment priming for it. It's had me chasing around the net a lot tonight, trying to see if I can find what's going on. Sure, the stock market was in the tank today (down 3%ish), and the Japanese markets are down almost 5%, now, and Hong Kong down well over 5%, and sure, that's a lot, but, you know, whatever.
So instead of trying to figure that out, here's today's context. The new CMBX data is very bad (remember, up is bad in these graphs), which means commercial real-estate lending is falling over and may be about to implode in ways similar to the still-essentially-frozen CDO market. I'm hearing from financial chat boards that the only mortgages anybody is seeing move are top-grade fully-conforming loans that can go to FreddieMac and FannieMae, and that if you can get a nonconforming loan, it's probably because the lender has decided it's worth holding as a portfolio loan, at least for a couple of years. If true - and while it fits observable market conditions, that doesn't confirm it - then this should get very interesting fairly soon.
Similarly, corporate debt is similarly becoming extremely difficult to move, thus making all sorts of investment deals more difficult. Lending standards continue to be jacked way up as the Fed tries desperately to keep the banks afloat and stop a complete credit seizure. The CMBX data above rather show that that market ate the two major rate cuts in about a week - that's not real good. Genesis over at Market Ticker also noted in a video post that the Fed overnight funds rates showed some really strange action last night, including a low loan rate of 0.01%, indicating that the Fed may already be virtually out of ammunition.
In terms of general psychology, things have gotten fairly grim, with Marketwatch posting articles on the FDIC gearing up for a large bank failure. And Nouriel Roubini is describing what happens if Mr. Bernanke falls off that slackrope, and how you get to a long, hard, and deflationary recession from here. (See also here, and here.)
Finally, today's surprising tidbit: did you know second mortgages and HELOCs - even "secured" ones - become automatically unsecured if a house's value drops below the value of the first mortgage? And did you know that these loans can then be discharged with zero repayment under current bankruptcy law? I didn't know that either! But apparently:
So, clearly, key elements in the economy are on the crash cart and not responding, but that's been true for a couple of months now. Maybe it's just something in the air. Who knows?
I have an unspecific (and accordingly difficult to validate) sense that we are approaching or at a significant acceleration event in the markets. That's just a sense, not a prediction, tho' there's plenty of environment priming for it. It's had me chasing around the net a lot tonight, trying to see if I can find what's going on. Sure, the stock market was in the tank today (down 3%ish), and the Japanese markets are down almost 5%, now, and Hong Kong down well over 5%, and sure, that's a lot, but, you know, whatever.
So instead of trying to figure that out, here's today's context. The new CMBX data is very bad (remember, up is bad in these graphs), which means commercial real-estate lending is falling over and may be about to implode in ways similar to the still-essentially-frozen CDO market. I'm hearing from financial chat boards that the only mortgages anybody is seeing move are top-grade fully-conforming loans that can go to FreddieMac and FannieMae, and that if you can get a nonconforming loan, it's probably because the lender has decided it's worth holding as a portfolio loan, at least for a couple of years. If true - and while it fits observable market conditions, that doesn't confirm it - then this should get very interesting fairly soon.
Similarly, corporate debt is similarly becoming extremely difficult to move, thus making all sorts of investment deals more difficult. Lending standards continue to be jacked way up as the Fed tries desperately to keep the banks afloat and stop a complete credit seizure. The CMBX data above rather show that that market ate the two major rate cuts in about a week - that's not real good. Genesis over at Market Ticker also noted in a video post that the Fed overnight funds rates showed some really strange action last night, including a low loan rate of 0.01%, indicating that the Fed may already be virtually out of ammunition.
In terms of general psychology, things have gotten fairly grim, with Marketwatch posting articles on the FDIC gearing up for a large bank failure. And Nouriel Roubini is describing what happens if Mr. Bernanke falls off that slackrope, and how you get to a long, hard, and deflationary recession from here. (See also here, and here.)
Finally, today's surprising tidbit: did you know second mortgages and HELOCs - even "secured" ones - become automatically unsecured if a house's value drops below the value of the first mortgage? And did you know that these loans can then be discharged with zero repayment under current bankruptcy law? I didn't know that either! But apparently:
The Tenth Circuit United States Bankruptcy Appellate Panel issued a ruling in December 2005 clarifying that second and third mortgages that are wholly unsecured can indeed be stripped off in a Chapter 13 bankruptcy -- leaving homeowners with only the first mortgage to pay on the house.In a falling-values market, as we are in, I would now suspect that the value of HELOC and second-mortgage CDOs and SIVs as a rule is simply going to be zero.
So, clearly, key elements in the economy are on the crash cart and not responding, but that's been true for a couple of months now. Maybe it's just something in the air. Who knows?
