Mind on Money

On the Other Hand

In my attempt to be taken seriously by the legion of economist-groupies out there, I just had to use the phrase that drove Harry Truman bonkers.

Having spent several recent posts on discussions of the similarities between the Greek/PIIGs sovereign debt issue and the subprime MBS issue of ’07 and ’08, I think it’s only fair that I give my readers a thin ray of hope that things won’t play out to an inevitable world wide collapse.

Since the web has induced a kind of one-click requirement for some researchers, here are the “anniversary” (both forgotten and lesson) and “contagion” posts that lead to today’s comment of the sort that made Truman wish economists were born with only one arm.

Big events vs. grains of sand

or, as economists might say Continue Reading On the Other Hand…

Contagion

Today I saw that Martin Armstrong has dusted off this oft-used word to describe the European debt situation.  Certainly I agree, though Martin made the mistake that most “stock jocks” make — they think the process is some kind of disease that passes through contact rather than a step by step cause-and-effect process that can be stopped, or not, depending on how the market participants, central bankers, lenders, borrowers and politicians behave.

I pulled out my 2008 manuscript again, because the parallels are frightening.  El Erian at Pimco sounded the warning today, that conditions are like 2007/2008 again in many ways.  I think most of us in the global credit markets are getting that feeling these days.

Continue Reading Contagion…

I Thought I’d Never See

I got a letter today that certainly wasn’t expected.  It came from a credit card issuer.

In fact, I have to wonder how bad it might have been, for them to send this.

“After reviewing your account listed above, we found that we may have applied an incorrect APR (Annual Percentage Rate) to the account when it was opened.  We apologize that this happened.

To correct our mistake, we have credit the account for the excess interest (and any related charges) that resulted from the incorrect APR.”

You could have knocked me over with a feather. Continue Reading I Thought I’d Never See…

Anniversary Lesson

I bet some of you wonder why I went through that whole long rehash of the three-year and four-year anniversaries of the financial crisis.

Here’s why:

For some reason, the BS about “contained” exposure to Greek debt, PIIGs debt, Euro bank CP, etcetera and the subsequent “contagion” discussions is going on right now, and it’s just another chorus of the same sad song we heard about subprime mortgage bonds in 2007.

Once again, we are not looking at the ice beneath the water line as we merrily steam into the ice field.

Don’t we ever learn?

The real problem when Greece defaults isn’t going to be that some northern European monster banks hold 2% or 3% exposures to that debt in their investment portfolios.  It won’t even be that they have CP they are having trouble rolling over, at least not directly.

Continue Reading Anniversary Lesson…

Forgotten Anniversary

No, I’m not talking about the second most expensive mistake a married man can make.

I’m talking about the real beginning of the government’s failed attempt to deal with the mortgage market meltdown (nice book title!) four years ago.

Chances are, you don’t remember it.

I do, in part because I sent out an alert to my colleagues at the time.  It was a major shift in policy that sent Treasury Secretary Hank Paulson to Wall Street and the Money Center banks to suggest that the Government wanted to help them unload their exposure to SIVs.  The stillborn bailout was called “Super SIV” and it was one of the first signs that Washington had noticed there was a financial Love Canal situation developing, and that they had to do something.  Just a few months earlier (April, 2007), Secretary Paulson was saying the subprime mortgage problem was both “contained” and at or near its bottom.

Continue Reading Forgotten Anniversary…

Echoes of Chubby

It’s been 50 years since Chubby Checker did the first very successful “echo” of his surprise hit, The Twist.  It’s also 50 years since the Fed tried to “twist” the yield curve.

What made Chubby’s version a surprise hit was that the group who recorded the song in 1958 (Hank Ballard and the Midnighters) weren’t available to play it on Dick Clark’s American Bandstand, so Chubby and his group, The Fat Boys, did a live cover on Dick’s afternoon TV show.

Continue Reading Echoes of Chubby…

Getcher MBS Rally Hats Here!

To me, the most significant Fed action today was the decision to roll Agency debenture payoffs into new investments into MBS.  That, in addition to reinvesting all the principal payments on the current portfolio of MBS will probably trim about 5 basis points off the Treasury/MBS basis, IMO.

These last few weeks the Treasury market has been positioning itself for “Operation Twist,” the extension of duration in the Fed’s Treasury portfolio.  That blew our ten-year Note yield right through the 2% yield “barrier” that seemed to be the limit of the anti-European trade.

1.86% yield on the 10-year as I type.  The Long Bond (30 yr) is now yielding just over 3%.

Welcome to 1930′s yields.

Too bad we can’t just take all the “free” money the bond market is offering us, and do something useful with it.

hh

PS My buds on the MBS trading desks tell me that the immediate effect has been a whopping 15 basis points of tightening.  That is most likely due to surprise, and people caught “offsides” by the announcement are scrambling to readjust their hedges.  I don’t expect the full 15 basis point tightening to be there a week from now.

De-Levering for a Lifetime

When I was working on the last post about Cypress Sharpridge and their forward purchase strategy, I chose not to get too far down “into the weeds” about the mechanics of paydowns and leverage, but there was one idea that needed saying:

One of the few benefits of the American depression of the 1930′s was the introduction of long-term, fixed-rate, self-amortizing mortgages.

That introduction came through (horrors!) a government program that even a Fellow of the American Enterprise Institute could learn to love.

Continue Reading De-Levering for a Lifetime…

Forward Settlement – of Ideas

I’ve recently taken on an assignment for Financial Planning magazine, a monthly that goes to – you guessed it – financial planners.  I’ll be writing about mortgage REITs, a topic I’ve been “up” on for more than twenty years.

Given the mREIT coverage by the entire main stream of the financial press (Forbes online has a piece today, and the Wall Street Journal gave them a full half page earlier this week), the challenge is to say something now that will still be relevant when the magazine comes out on December 1st.

It’s not unlike the problem Cypress Sharpridge (CYS) had trying to explain its strategy of forward purchases for its MBS, and how they could actually make a profit on something they didn’t own yet.

Continue Reading Forward Settlement – of Ideas…

Auto-Refi Hysteria, Plus SEC

The mortgage REIT blue light sale is on this morning.  For any lucky (or foolhardy) shoppers in the aisles right now, there was yet another morning downdraft in stock prices this morning, and it was once again across the entire sector.  A scary sounding announcement from the SEC was probably today’s source of fear, but the bigger (real) issue is whether there will be relief for borrowers “trapped” in high-rate loans these past few years.

Since the auto-refi concept has gotten the most press and even a fair number of requests for my opinion, I’ll add my voice to the cacophony.  I don’t intend to scream bloody murder, but you can get that plenty of other places.

Here’s one take on it from a blogger who, like me, can’t seem to give up his fascination with the markets even while being technically “outside” the system these days.  Here’s another from a key player inside the system (President of GNMA) that speaks to the level of hype flying around the internet and the media.

Continue Reading Auto-Refi Hysteria, Plus SEC…