A few news stories and a question
Apr. 30th, 2008 08:48 am![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
solarbirdQuick 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.
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.
![[identity profile]](https://www.dreamwidth.org/img/silk/identity/openid.png){kind=small}
no subject
Date: 2008-04-30 05:32 pm (UTC)I don't seriously credit the Whistler Olympics with having much of an impact on anything other than the already insanely-high land/building prices in the Lower Mainland of British Columbia, John Furlong notwithstanding.
Sorry that I haven't had any other answers/comments/etc. of late -- let's just take the short form and say it's been "interesting" the past few days.
[edited for atrocious typos.... ^_^]
no subject
Date: 2008-04-30 06:34 pm (UTC)(Yeah, I meant that ironically.)
no subject
Date: 2008-04-30 07:07 pm (UTC)no subject
Date: 2008-04-30 06:58 pm (UTC)no subject
Date: 2008-04-30 07:09 pm (UTC)no subject
Date: 2008-04-30 11:38 pm (UTC)no subject
Date: 2008-05-01 12:04 am (UTC)no subject
Date: 2008-05-01 12:12 am (UTC)Systems have their level at which they operate, and then at some point, they reach a tipping point, or enough energy is fed in that a state change occurs.
And this is what people count on being Awesome, or alternately being Horrible. But both sides miss that the energized state is temporary, and it's what happens afterwards that gets interesting. Lots of stuff survives terrible extinction events, and lots of people get ground up under the wheels of Fabulous Progress.
Everything has a silver lining that may or may not be radioactive.
no subject
Date: 2008-05-01 01:47 pm (UTC)Figured out that such a crash was the likely worst case some years ago and have been working away to write down the bones and leave useful little archaeological gifts in places that people will eventually find them. By now there probably are several more-or-less organised movements trying to accomplish such a legacy; I'm only aware of one such movement and it's a bit paranoiac in my opinion.
no subject
Date: 2008-05-01 03:18 pm (UTC)no subject
Date: 2008-05-01 03:14 pm (UTC)In economics, this is referred to as "things continue until they can't."
Everything has a silver lining that may or may not be radioactive.
I like that. ^_^
no subject
Date: 2008-05-04 12:57 am (UTC)You know economics far better than I do. How do you know so much about economics anyway, is it just a hobby or have you studied or worked with it?
no subject
Date: 2008-05-04 03:12 am (UTC)If it doesn't, there will be a combination of higher rates moving forward and lower availability. If it does, then ... well, the credit-market fundamentals are still pointing at higher rates than over the last few years, but with all the stuff flying around...
How do you know so much about economics anyway, is it just a hobby or have you studied or worked with it?
Some formal study, some general world knowledge, some self-study, a lot of observation.
no subject
Date: 2008-05-14 08:13 pm (UTC)Neat, thanks for the observations, it makes me feel like I actually know what's going on. :P