Elvis writes:
That is nice for the few who have option to buy right now.
Elvis | 03.20.08 - 5:12 pm | #

Kolohe writes:
Quick, everyone who got a mortgage last week, time to refinance! :)
Kolohe | 03.20.08 - 5:15 pm | #

gaius marius writes:
the ten-year yield is approaching levels last seen in the deflation scare of 2003 -- only now with the added attraction of a major housing bust, credit market turmoil and the prospect of bank failures looming.

and yet people are still talking about inflation. why? just my dumb opinion, but i think many are overestimating the fed's political will to expand its balance sheet. as the deleveraging hits commodities, it's going to become more apparent where the danger really lies in all this.
gaius marius | 03.20.08 - 5:16 pm | #

ac writes:

Eeek... I just noticed the 30-year bond closed at 4.17% today.

The most hated security in history just got a little more despicable.

ac | 03.20.08 - 5:21 pm | #

Viewing with alarm writes:
The lenders in our area are requiting six or more comps and really low balling appraisals. I wonder how many refi's will be approved even with the lower rates?
Viewing with alarm | Homepage | 03.20.08 - 5:22 pm | #

Anonymous writes:
Round and round she goes...

Where she stops...

No one knows!
Anonymous | 03.20.08 - 5:23 pm | #

Barley writes:
So the Fed is now accepting Commercial real estate paper, too. Wow!

And then Bloomberg puts this nugget in the article:

Like in the residential real estate market, prices of office buildings, shopping centers and other types of commercial properties are falling, raising concern that borrowers may not be able to pay back their mortgages. Commercial real estate prices fell 0.6 percent in January, the third straight monthly decline, Moody's Investors Service said yesterday

http://www.bloomberg.com/apps/ne...edjI& refer=home

I highly suspect in a years time those who are placing these for Ts will want to discuss settlement based on market conditions. Who knows, maybe they might walk away.
Barley | 03.20.08 - 5:24 pm | #

Elvis writes:
Viewing with alarm writes:
The lenders in our area are requiting six or more comps and really low balling appraisals. I wonder how many refi's will be approved even with the lower rates?

A very important point that suggests the only answer to this housing mess is time. Not rates. Not gov't meddling. Not even $600 checks.
Elvis | 03.20.08 - 5:26 pm | #

FFDIC writes:
Santa Cruz Sentinel
Bauer Financial service reports banks slipping in 4Q 2007
http://www.santacruzsentinel.com...m:80/ ci_8638123
FFDIC | 03.20.08 - 5:28 pm | #

Anonymous writes:
Does anyone have examples of commercial real estate jingle mail.....LOL!
Anonymous | 03.20.08 - 5:33 pm | #

Lionel writes:
My SRS got hammered today.
Lionel | 03.20.08 - 5:36 pm | #

blogenfreude writes:
Does anyone have examples of commercial real estate jingle mail.....LOL!

What do you send? The card keys?
blogenfreude | Homepage | 03.20.08 - 5:40 pm | #

cd writes:
I wonder if you can trade Cashcall notes at the fed window? I hope so or Gary Colemans going to be pissed off!

Seeing a lot of those popping up on credit reports! marked sold to another lender..aaa rated cashcall debt obligations..

Good friday and Happy Easter to ya all
cd | 03.20.08 - 5:42 pm | #

Anonymous writes:
Great stories over at Nakedcapitalism in regard to this story here and the yields in this very weird did-connect!!

Re: The explanation? A lot of Treasuries are now held by investors who aren't willing to lend them. I wonder if this has the potential to complicate the operation of the Fed's new facilities designed to unfreeze the mortgage market. The Fed may be running into constraints beyond the size of its balance sheet (note technically it can make its balance sheet larger, but those operations would be "unsterilized" or inflationary).

The scarcity of Treasuries for repos means that buying for repoing will also lead Treasury prices to rise and yields to plummet, which is one reason why three month bills traded at an 50 year low of 0.56% yesterday. Since bill prices are used as the input into other pricing models (most notably the Black-Scholes option pricing model), the distortions in the Treasure market have the potential to feed into other markets (we've already seen problems with new issue bond pricing due to sharp increases in spreads and blow-ups of correlation models in the credit default swaps market).
Anonymous | 03.20.08 - 5:50 pm | #

deuces wild writes:
This was noted on an earlier thread..here's another take.

The Fed Tosses the Market Another Bone
By Tony Crescenzi
RealMoney.com Contributor
3/20/2008 3:20 PM EDT
URL: http://www.thestreet.com/p/rmone...g/ 10408774.html

"Recall that the Federal Reserve expanded the types of collateral it would be willing to accept at the $200 billion Term Securities Lending Facility (TSLF) it announced on March 11th. At the same time, the Fed announced that the first auction for a loan of Treasury securities will total $75 billion."

"In today's announcement, the Fed said it would also accept agency collateralized-mortgage obligations (CMOs) and commercial mortgage-backed securities. This is in addition to federal agency debt, federal agency residential-mortgage-backed securities (MBS), and non-agency AAA/Aaa-rated private-label residential MBS. The decision was made after consultation with the dealer community."

"The timing of the announcement is curious. It came late in the afternoon on the final trading day of the week--when the market is up no less. The Fed may not have had an eye twoards market reaction, but it's a clear positive as it has inflicted a bit more pain on the short base and forewarned speculators that anytime, anywhere the Federal Reserve might take action that works against spec shorts...."
deuces wild | 03.20.08 - 5:50 pm | #

AsGoodAsTreasuries writes:
Anyone have a link(s) to determine treasury creation and the net buy/sell by the Fed?
AsGoodAsTreasuries | 03.20.08 - 5:52 pm | #

Bob_in_MA writes:
A lot of mortgage debt, particularly GSE debt, has been held been held by foreign institutions, like Asian central banks.

It can't come as much of a shock that they would be wary about buying anything involving American mortgage debt. Betting on spreads of GSE debt may be OK for Bill Gross, but it might be hard to defend for his counterpart in Tokyo.
Bob_in_MA | 03.20.08 - 5:53 pm | #

AsGoodAsTreasuries writes:
I'd imagine that maybe the Fed is adding to the scarcity...in that it is swapping out treasuries for all those MBS?
AsGoodAsTreasuries | 03.20.08 - 5:53 pm | #

energyecon writes:
The Treasuries hunt is on!

Treasuries' Scarcity Triggers Repo Market Failures (Update1)
By Liz Capo McCormick

March 20 (Bloomberg) -- Surging demand for U.S. Treasuries is causing failures to deliver or receive government debt in the $6.3 trillion a day market for borrowing and lending to climb to the highest level in almost four years.

Failures, an indication of scarcity, surged to $1.795 trillion in the week ended March 5, the highest since May 2004, and up from $374 billion the prior week. They have averaged $493.4 billion a week this year, compared with $359.6 billion over the last five years and $168.8 billion back through July 1990, according to Federal Reserve Bank of New York data.

[snip]
energyecon | 03.20.08 - 5:54 pm | #

Owner Earnings writes:
WTF anyone notice 3 month treasury today? .38% I think i saw it at .25% earlier!

Why is there so much demand? WHY?
Owner Earnings | 03.20.08 - 5:55 pm | #

AsGoodAsTreasuries writes:
That Tbill....he's so hot right now.
AsGoodAsTreasuries | 03.20.08 - 5:57 pm | #

FiveAcres writes:
Fed Says Securities Firms Borrow $28.8 Bln With New Financing
FiveAcres | 03.20.08 - 6:02 pm | #

cd writes:
29x60days=1.8trillion...

Got reserves?
cd | 03.20.08 - 6:04 pm | #

halpmeh writes:
oops, i actually did get a mortgage last week..guess you can't time everything just right in a single year...
halpmeh | 03.20.08 - 6:04 pm | #

Dickeylee writes:
Gaius, we're talking about inflation because;

Gas $3.23/gal
Bread $3.09/loaf
Milk $4.22/gal
Ground Chuck $3.11/lb
Cheerio's $4.00/box

You know, that stuff too volatile for "real" inflation!
Dickeylee | 03.20.08 - 6:07 pm | #

barely writes:
"My SRS got hammered today"

SRS is nothing more than a day trading vehicle. Same with all the ultra-short ETFs. They move like a rattler. You need to watch them like a hawk an how the broader market is moving. The only way to play them is to day-trade long or short.
barely | 03.20.08 - 6:13 pm | #

doom writes:
Why would soooooooooo much money be going into the t-bills?

Perhaps some powerful "insiders" have a feeling of what's to come.

"This is the time to get in. Buy at the bottom. The worst is over" Meanwhile they approach the door.

You better work your way to the door yourself. It's going to get plenty crowded coming out when our house is engulfed in flames.
doom | 03.20.08 - 6:16 pm | #

Barley writes:
Mish also has a good take on Ts

http://globaleconomicanalysis.bl...s.blogspot.com/
Barley | 03.20.08 - 6:16 pm | #

Lawyerliz writes:
Who cares what rates are?

Virtually no one is getting a mortgage.

Most of the closings I've done recently are all cash or seller financing.

I have ONE scheduled re-fi. One.
For a developers at 417,000 just under the lfkaj level.
Lawyerliz | 03.20.08 - 6:17 pm | #

Debbie Downer writes:
did it ever occur to you dickylee, that all those items you quoted are not exactly good for one's health
Debbie Downer | 03.20.08 - 6:17 pm | #

Dean writes:
FiveAcres writes:
Fed Says Securities Firms Borrow $28.8 Bln With New Financing
FiveAcres | 03.20.08 - 6:02 pm |

Excerpt from the article:

Morgan Stanley and Goldman Sachs Group Inc. said yesterday that they borrowed to ``test'' the new lending facility, while Lehman Brothers Holdings Inc.'s financial chief said the company was using the facility to ``show some leadership.''

Whew! I was worried they were going under too. All's well with the world.
Dean | 03.20.08 - 6:19 pm | #

Tom O writes:
Did the recent cut in Agency reserve requirements impact Treasury/MBS spreads?
Tom O | 03.20.08 - 6:19 pm | #

Emma Anne writes:
Can anyone recommend a good tutorial on the difference between monetary inflation and price inflation, and significance thereof? I am not finding anything that is doing it for me. Wikipedia is far too cursory.

For example, is is possible to have price inflation and monetary deflation at the same time?
Emma Anne | 03.20.08 - 6:21 pm | #

Barley writes:
"Why is there so much demand? WHY?
Owner Earnings"

This is fear. Long weekend. Uncertian times. Currencies gone nuts.

Just fear - "if I buy this even at no yield at least I will have not lost anything".

This is indeed a wild time. 13 day yield went to a 1947 low.
Barley | 03.20.08 - 6:22 pm | #

Anonymous writes:
Let me know when I can borrow from the FED like unregulated investment banks do and at the same rate and then I might get interested.
Anonymous | 03.20.08 - 6:23 pm | #

Billy Shears writes:
So the Fed is now accepting commercial mortgage backed securities...I don't think we'll ever get the mark to market value. They sure are trying hard to keep the price of these kind of securities from seeing the light of day. They are definitely fearful of price discovery.

Let's see, an economy in recession, consumers changing from spending to saving or paying off debt (if they're not already bankrupt), jobless claims in a definite uptrend, yet we have all these newly built strip malls and big boxes...I think the government just bought these.

But, I suppose this is bullish (what news isn't bullish?). As long as we all pretend these securities have full value, the party can continue.
Billy Shears | 03.20.08 - 6:24 pm | #

Emma Anne writes:
"Virtually no one is getting a mortgage. "

Now, that is interesting. Are they just super picky right now? I was thinking we might refi if rates keep dropping, but I am self employed (though DH gets a paycheck) so maybe I shouldn't bother to try.
Emma Anne | 03.20.08 - 6:25 pm | #

Dean writes:
At least with tbills in my custody, I know I can redeem them on Monday. Where do I park my cash? In an account with my broker? Not likely.
Dean | 03.20.08 - 6:26 pm | #

bZb writes:
Whew! I was worried they were going under too. All's well with the world.
Dean | 03.20.08 - 6:19 pm | #

They don't have to be going under. It's almost free money. Why shouldn't they make use of it? Santa Bernanke is showering these guys with gifts that they can't refuse!
bZb | 03.20.08 - 6:26 pm | #

Barley writes:
price inflation and monetary deflation at the same time?

I think it is. Currency becomes scarce and a perverse things happens: prices rise to attract the currency, leaving less to continue circulating because the objective is to accumulate currency. Kinda like the Irish Potatoe Famine, only upside down..

can others comment please
Barley | 03.20.08 - 6:26 pm | #

doom writes:
Hello, McFly....

People don't qualify anymore unless they TRULY QUALIFY!!!!

Game over for BS. You must qualify for the loan!!!!

This will cripple the real estate market UNLESS:
1. People start to make more money, or
2. BS programs come back (stated, no ratios, no docs, option arms, subprime, etc.)

Average home price in the community must be affordable to the average family's REAL INCOME in the community!!!!

We have a long, long way to go in home prices downward, or a long, long way to go in family incomes upward. However you want to look at it.
doom | 03.20.08 - 6:26 pm | #

m writes:
FED IS NOW LENDER OF FIRST RESORT

http://www.marketwatch.com/news/...& siteid=yahoomy

gets uglier and uglier
m | 03.20.08 - 6:27 pm | #

Dickeylee writes:
Sorry, DebbieDowner

Bud Light 20pk $11.98
Beef Jerky 8oz $2.99
Winston Menthols $4.77/pk
Dickeylee | 03.20.08 - 6:31 pm | #

Dean writes:
They don't have to be going under. It's almost free money. Why shouldn't they make use of it? Santa Bernanke is showering these guys with gifts that they can't refuse!
bZb | 03.20.08 - 6:26 pm | #

Excerpt:
Investment houses can put up a range of collateral, including investment-grade mortgage backed securities.

Are those S&P AAA rated investment-grade securities?
Dean | 03.20.08 - 6:33 pm | #

Lawyerliz writes:
Doubt it.
Lawyerliz | 03.20.08 - 6:34 pm | #

Barley writes:
Does not matter Dean. Cant wait to see the next time a pig gets put up for collateral - yes they do take pigs, too!
Barley | 03.20.08 - 6:35 pm | #

bacon dreamz writes:
if you do scatter plots of the no-point 30yr mortgage rate versus the 10yr Tsy and versus the 10yr swap, you'll notice that mortgage rates are much more correlated to swaps.

the spread between mortgage rates and swaps is generally pretty well explained by three variables: the slope of the yield curve (2s10s swaps), implied interest rate volatility, and the refinancability of of the mortgage market (3yr moving avg mtg rate minus current rate). when the curve is steepening, volatility is high, and the mortgage market is in the money, the spread always goes up.
bacon dreamz | 03.20.08 - 6:37 pm | #

Ralph Cramdown writes:
Emma Anne wrote:
[I]s is possible to have price inflation and monetary deflation at the same time?

I don't understand this monetary/price distinction either. But I suppose if a country's currency was depreciating rapidly due to loss of confidence of those awful foreigners, then the price of anything imported or commodity based (everything but domestic labour/services) would rise, notwithstanding the efforts of the central bank.
Ralph Cramdown | 03.20.08 - 6:37 pm | #

Optimistic Joe writes:
We got to cut the FED some slack here. They were successful at preventing a financial crisis and at the same time deflating the commodity bubble this week. I wonder weho of us would have been able to accomplish this at the same time. With this FED, we truly live in the best of both worlds.

O-Joe
Optimistic Joe | 03.20.08 - 6:38 pm | #

Debbie Downer writes:
that's more like it.

and if ya wanna eat real healthy...

1 pineapple $5
1 lb bluberries $9
2 large grn avocadoes $4.5
2 8 oz blacberry $4.25

total $22+

pocatello, ID
3/18/08
Debbie Downer | 03.20.08 - 6:40 pm | #

gab writes:
There's a lot of quarter end window dressing as well as a collateral grab going on in the bill market. Bills might hold in next week, but yields in the 10-30 basis point area will not remain.

My friend who does bill arbitrage made a lot of money long bills this month, but he flattened all his positions y'day and today. He also thinks these levels are unsustainable.
gab | 03.20.08 - 6:42 pm | #

Barley writes:
Interesting:

Malicious rumours circulated by speculators were blamed for the run, which saw more than £3 billion wiped off the bank's value.

Britain's financial watchdog launched a criminal investigation to hunt down "ruthless" rogue traders, including one speculator thought to have made £100m from buying and selling shares during the day.

A senior HBOS executive said: "This is the modern day version of bank robbery."

http://www.telegraph.co.uk/money.../ bcnmeet120.xml
Barley | 03.20.08 - 6:48 pm | #

3rdbillygoat writes:
Here's a fun one for would-be self-employed borrowers:

We are now actually pulling transcripts from the IRS (via the 4506T) on EVERY self-employed borrower.

If the AGI reported by the IRS doesn't match what's on the loan app, the IRS-obtained income figure is used, file re-decisioned, and if it doesn't work, app is dead.

Of course, on some deals, the file is dead as soon as the discrepency is noted.

Hmmmmmm....
3rdbillygoat | 03.20.08 - 6:49 pm | #

YLSP writes:
O-Joe,
Are you sure the Fed wasn't just successful at socializing future losses? Following the comments here are hard... I was hoping for some posting on the discount window modifications that came out... (maybe I need to go back a few threads?).

Maybe everyone in PM just figured, "the Fed has cut enough, they probably are reaching the end of cuts".
YLSP | 03.20.08 - 6:52 pm | #

tg writes:
O-joe

I agree they are doing their best but major damage has been to the real economy. We still have yet to get the bill for over-consumption and the theft of capital from productive assets. I believe it will show up in commodities. BTW good luck on your silver short. I will be on the other side. It may be stupid on my part but it won't be the first time.
tg | 03.20.08 - 6:53 pm | #

--Andrew writes:
OT - For Tanta. CNN/Money article on difficulties credit counselors are having with multiple servicers/lenders and simply organizing loan restructurings/work outs.

http://money.cnn.com/2008/03/18/ ...sion=2008032015
--Andrew | 03.20.08 - 6:54 pm | #

YLSP writes:
Barely,
Darn I was just going to predict that it's time for a few more "rogue traders" to surface!
YLSP | 03.20.08 - 6:54 pm | #

rc writes:
Low rates are nice but you also need a willing lender and property insurance.


http://tinyurl.com/3xn849
rc | 03.20.08 - 6:55 pm | #

Anonymous writes:
Barley,

That is interesting in theory:

Britain's financial watchdog launched a criminal investigation to hunt down "ruthless" rogue traders, including one speculator thought to have made £100m from buying and selling shares during the day.

A senior HBOS executive said: "This is the modern day version of bank robbery."

>> However, if the banks have exposed themselves to dropping piles of money on the street and ignoring the reality of this loot flying on the wind, then one wonders if the "crooks" are just finding opportunity versus stealing. The way the banks see it, a situation like an Enron never should have come about and the illegal accounting should not have been an issue with these self-serving self-regulated masters.
Anonymous | 03.20.08 - 6:57 pm | #

blogenfreude writes:
Slightly OT - I may have misheard (was in the kitchen) - National Business Report on PBS said some ex-Countrywide guy was starting Penny Mac - he wants to buy up "subprime mortgages". Is he insane?
blogenfreude | Homepage | 03.20.08 - 7:01 pm | #

4822 writes:
": ex-Countrywide guy was starting Penny Mac - he wants to buy up "subprime mortgages". Is he insane?"

is he using goobermint money to do it?
4822 | 03.20.08 - 7:15 pm | #

Optimistic Joe writes:
BTW good luck on your silver short. I will be on the other side. It may be stupid on my part but it won't be the first time.
tg

Long-term silver is going to raise. I just expect it to fall quite hard over the next months as a longer term cycle needs to bottom. I'm not sure if I will cover my short pretty soon or let it ride. It's going to be volatile.
O-Joe
Optimistic Joe | 03.20.08 - 7:19 pm | #

Markel writes:
I'm glad they're cracking down on the self-employed, because I am self-employed.

I've been in business for more than ten years, and I have enough documentation of income, investments, and bank accounts for some 23rd century history Ph.D. candidate to write an entire, 400-page history of material culture at the millennium.

Last time I looked into getting a mortgage, I was offered only no doc.

Screw that.
Markel | 03.20.08 - 7:19 pm | #

Andrew writes:
Why don't you look at the spread to 30-year treasuries? Wouldn't that be more comparable? The typical mortgage duration is obviously lower than 30 years, but it seems somewhat arbitrary to take the 10 year treasury yield.
Andrew | 03.20.08 - 7:21 pm | #

Justin writes:
I don't mind SO much that the fed is breaking the rules, that they are bailing out over-leveraged companies (and thus hedge funds that rely on them), and all the other socialize-the-loss actions taking place. Because apparently they protect us against the apocalypse. Apparently.
What I can't ABIDE is the ridiculous double-speak around them, such as this announcement by the prime brokers that they are "testing" the facility and "no stigma is attached" etc etc.
it makes me puke in my mouth.
Justin | 03.20.08 - 7:32 pm | #

Tom O writes:
Andrew-
They have a contract term of 30-years, but typically pay off in 6 or so, which makes them perform more like an intermediate term investment.
Tom O | 03.20.08 - 7:36 pm | #

mp writes:
Those of you watching equities are becoming lost in the noise.
mp | 03.20.08 - 7:41 pm | #

foo writes:
Players looking to buy subprime mortgages are not necessarily insane. The MBSs are not worthless (as in = $0). The crisis is occurring because past valuations of these instruments (and hence book values on balance sheets) were much too high.

I read an earlier article about players with cash looking for bargains in these markets - can't find it again. There may be opportunity, but only for those with serious cash available and an appetite for risk.
foo | 03.20.08 - 7:49 pm | #

blowncue writes:
mp,

What is the signal?
blowncue | 03.20.08 - 7:54 pm | #

mp writes:
"What is the signal?"

Blowncue, IMO, interest rates are the signal. As Krugman pointed out, we are now in liquidity trap territory which, as you may or may not recall, is something Conjure started talking about some two months ago.

If this crisis continues much longer, Fed monetary policy will become totally ineffective.
mp | 03.20.08 - 8:05 pm | #

energyecon writes:
IRX
energyecon | Homepage | 03.20.08 - 8:06 pm | #

USB Port Q's writes:
Hi,

I was looking at USB tonight: http://www.secinfo.com/dsvR3.tP9.b.htm

I am interested in opinions on the following in regard to the discussion here related to Treasury three month bills trading at a 50 year low of 0.56%. Does anyone see any issues that might be of interest in terms of how that rate might impact profit?

The Company also engages in non-lending activities that may give rise to credit risk, including interest rate swap and option contracts for balance sheet hedging purposes, foreign exchange transactions, deposit overdrafts and interest rate swap contracts for customers, and settlement risk, including Automated Clearing House transactions, and the processing of credit card transactions for merchants. These activities are also subject to credit review, analysis and approval processes.

The Company also utilizes U.S. Treasury futures, options on U.S. Treasury futures contracts, interest rate swaps and forward commitments to buy residential mortgage loans to economically hedge the change in fair value of its residential MSRs.

At December 31, 2007, investment securities, both available-for-sale and held-to-maturity, totaled $43.1 billion, compared with $40.1 billion at December 31, 2006. The $3.0 billion (7.5 percent) increase reflected securities purchases of $9.7 billion partially offset by securities sales, maturities and prepayments. Included in purchases during 2007, were approximately $3.0 billion of securities from certain money market funds managed by an affiliate of the Company. These securities primarily represent beneficial interests in structured investment vehicles or similar structures and are classified as asset-backed securities within the consolidated financial statements.
USB Port Q's | 03.20.08 - 8:14 pm | #

km4 writes:
CEO of subprime mortgage broker fined $29,000 for dropping 73 f-bombs during deposition

http://www.boingboing.net/2008/0...prime- mort.html

Aaron Wider, CEO of HTFC, a mortgage broker implicated in the subprime meltdown and embroiled in a lawsuit with GMAC Bank, was fined $29,000 after he said "fuck" 73 times during his deposition. The cowboyism of the subprime boom is only starting to come to light -- guys like Wider were part of a movement of savage rapine of the world's economies and exploitation of the poor and disenfranchised, something that went all the way up to the big trading houses and their regulators.

Q: This is your loan file. What do Mr. and Mrs. Fitzgerald do for a living?
A: I don't know. Open it up and find it.
Q: Look at your loan file and tell me.
A: Open it up and find it. I'm not your fucking bitch.
Q: Take a look at your loan application.
A: Do it yourself. Do it yourself. You want to do this in front of a judge. Would you prefer to [do] this in front of a judge? Then, shut the fuck up.
Q: Sir, take a look--
A: I'm taking a break. Fuck him. You open up the document. You want me to look at something, you get the document out. Earn your fucking money, asshole. Better get used to it. You'll retire when I'm done.
km4 | 03.20.08 - 8:17 pm | #

Bob_in_MA writes:
SRS is nothing more than a day trading vehicle. Same with all the ultra-short ETFs. They move like a rattler. You need to watch them like a hawk an how the broader market is moving. The only way to play them is to day-trade long or short.
barely

No, just the opposite. You need to pick your entry and ignore the extreme volatility. It's tough, I know.
Bob_in_MA | 03.20.08 - 8:18 pm | #

mp writes:
"Does anyone see any issues that might be of interest in terms of how that rate might impact profit?"

Yeah, how about the collapse of the U.S. financial system?

USB Port, with all due respect, fire up your Excel 2007, import some data, and start cranking. If anyone here has already done that kind of analysis on US Bancorp, they sure wouldn't be telling you--or anyone else here--about it. They'd be acting on it.

Good Luck.
mp | 03.20.08 - 8:24 pm | #

wawawa writes:
This is a good explanation of JP-Morgan, Fed and Bear Strearn deal.

http://www.paperdinero.com/BNN.a...BNN.aspx? id=516
wawawa | Homepage | 03.20.08 - 8:26 pm | #

USB Port Q's writes:
mp,

I know,I know! I was getting interested in the operating cash flow there and when I looked very fast at it, they looked to be out on a limb with 2.5B, which in this market could be gone in a night.
USB Port Q's | 03.20.08 - 8:37 pm | #

bZb writes:
Krugman on his blog has a short but interesting discussion of the present Treasury rates (~0.5%) versus the Federal Funds Rate, 2.25%.

basically the Fed can only drive Treasury rates down by about another half-point — which would still seem to leave Fed funds well above 1%.

How is it possible for the Fed funds rate to be higher than the Treasury rates? Well, one interpretation is that banks don’t trust each other — not even for overnight loans. Fed fund loans, after all, are unsecured.

In other words, the Fed funds rate may be more like LIBOR than the Treasury rate — and it may be being held up by a premium similar to the TED spread.

Am I being really stupid here? Or is it possible that the fear factor will soon make it impossible for the Fed even to achieve its target on the interest rate it supposedly controls?

Maybe someone from here can answer his question.
bZb | 03.20.08 - 8:46 pm | #

USB Port Q's writes:
Operating cash flow was the reason I came to this thread, so when I see this, the chart freaked me out:

The increase in average loans was primarily driven by commercial loan growth during 2007 offset somewhat by declining commercial real estate loan balances. The $9 million (1.0 percent) increase in noninterest income in 2007, compared with 2006, was due to increases in treasury management and commercial products revenue. These favorable increases in wholesale banking fees were partially offset by market-related valuation losses in the second half of 2007.
USB Port Q's | 03.20.08 - 8:46 pm | #

rich writes:
>SRS is nothing more than a day trading vehicle. Same with all the ultra-short ETFs. They move like a rattler. You need to watch them like a hawk an how the broader market is moving. The only way to play them is to day-trade long or short.
barely

What completely ignorant BS. SRS and the other ultra-shorts work about the same as any other ETF, especially over any multi-day period. They tend to do a good job tracking their benchmarks over multi-day periods. On any given day, and especially intra-day, they may get out of whack with benchmarks. And the bid-ask spreads can be pretty large.

Trust me. I've tried all ways to do ultra-shorts. I don't even try to day trade them any more because the transaction costs (bid-ask spreads) are just too high. If you day-trade ultra-shorts, you better plan to be right 75% of the time to make any money.

But as intermediate- to long-term holds, they are very efficient and track really well.
rich | 03.20.08 - 8:53 pm | #

Anonymous writes:
"We got to cut the FED some slack here."

Don't say "WE"! As far as I'm concerned these clowns need to be taken out and shot in the back of the head. Bang!
Anonymous | 03.20.08 - 8:54 pm | #

rich writes:
> I've been in business for more than ten years, and I have enough documentation of income, investments, and bank accounts for some 23rd century history Ph.D. candidate to write an entire, 400-page history of material culture at the millennium.

Last time I looked into getting a mortgage, I was offered only no doc.


I think I read that something like 10-15% of all Americans are self-employed. So, if they are cracking down on stated income (e.g., self-employed), they are knocking a huge number of potential buyers out of the market, and it's very negative for housing.

It's not that poor or dishonest people are self-employed. The difference is that there is no third-party verification of income. The only acceptable doc is the tax return that you file yourself. If this now isn't good enough for mortgages, then it's a big problem for moving houses.
rich | 03.20.08 - 8:57 pm | #

JoeMortgage writes:
I think I read that something like 10-15% of all Americans are self-employed.

pretty soon we'll all be self-employed just like the olden days.
JoeMortgage | 03.20.08 - 9:02 pm | #

barely writes:
rich "What completely ignorant BS. SRS and the other ultra-shorts work about the same as any other ETF"

Really? Then explain how the XLF is DOWN ~10% and SKF which is supposed to double the difference is even over the past 3 months. Pick a timeframe and an ultrashort. The ultrashorts flat out stink over any period over a day.

http://finance.yahoo.com/q/bc?s=...f&z=m&q=l& c=xlf
barely | 03.20.08 - 9:05 pm | #

mp writes:
"Or is it possible that the fear factor will soon make it impossible for the Fed even to achieve its target on the interest rate it supposedly controls?"

I would say "yes."
mp | 03.20.08 - 9:11 pm | #

Kicker writes:
Can anyone recommend a good tutorial on the difference between monetary inflation and price inflation, and significance thereof? I am not finding anything that is doing it for me. Wikipedia is far too cursory.

The words inflation/deflation has definately picked up some "religious overtones" so a precise definition is pretty much impossible...

Monetary inflation/deflation is a general increase in the overall money supply. The problem is that there is a large difference in what various people consider as "money".

If you consider the traditional measures M1-M3 the money supply has been increasing. If you expand it to include things like ARS, ABCP, etc (which people believed to be "cash equivalent) the money supply has been decreasing.

In a fractional reserve based monetary system (where most of the money is created by banks) increased bank lending increases the amount of new money in the system while debt destruction (bankruptcies) decrease the amount of money in the system.

Price inflation/deflation is a general increase or decrease in prices in the economy. When the government or the average person talks about inflation/deflation this is generally what they mean.

Of course, there is a problem depending on the "basket" of goods and services that you are looking at. A senior citizen that's mostly consuming a basket of goods consisting of energy, food, and health care would say we have high inflation. While a young couple buying the first home would say we have price deflation.

General monetary inflation/deflation is supposed to lead to general price inflation/deflation (as long as output of goods and services are stable).

Intuitively, that seems to make sense. More money chasing the same amount of goods and services and price should rise. Less money, and prices should drop.

Or, on another level "money" represents a claim on future production. Less money, less demand for future production and prices should drop.

Of course, I'm not sure that the relationship has ever been proven. For example, income or GDP is tied not only to the amount of money in the economy but also to how fast it is passed around velocity.

Less money, but higher velocity may still lead to increased incomes and higher consumption (although monetary deflation and dropping velocity seem to go hand-in-hand).

And, since we aren't talking about a closed economy a shift in preference from current to future consumption (because of pending retirement of a large percentage of the population) may lead to long periods of deflation even while the amount of money is increasing.

For example, when somebody in Latvia chooses a Yen denominated mortgage the amount of money in Japan increases but not increase the prices in Japan.

Hope this helps.
Kicker | 03.20.08 - 9:16 pm | #

12th Percentile writes:
People aren't making money on SRS and SKF? How is that possible.
12th Percentile | 03.20.08 - 9:22 pm | #

Anonymous writes:
Dumb question: With some getting out of commodities & PM's, couldn't that money be what's pressuring the Treasuries?
Anonymous | 03.20.08 - 9:24 pm | #

Nemo writes:
Emma Anne --

For example, is is possible to have price inflation and monetary deflation at the same time?

Yes, at least temporarily.

In the end, it's all about trade. Trading a dollar for a lollipop is really no different than trading a marble for a lollipop. How many marbles you need to trade for one lollipop depends on the supply and demand for both marbles and lollipops...

Suppose a huge supply of marbles just appeared. (For instance, maybe a new quarry just opened and started really cranking them out, as part of an attempt to stave off global economic collapse. But I digress.) Then the guy with lollipops will probably demand more marbles in exchange just because there are so damn many marbles around. "So damn many marbles around" is monetary inflation. If marbles are your currency.

Now suppose the number of marbles remains constant, but there is a lollipop shortage. Or 3/4 of the world's population suddenly get jobs and decide they really like lollipops. Well, then the guy with lollipops will also demand more marbles, because his supply is scarce relative to demand. That would be price inflation.

Thus monetary inflation will lead to price inflation -- all else being equal. But you can also get price inflation without monetary inflation, via good old fashioned supply and demand. Central banks tend to think of one-time price changes as being supply and demand, but sustained price increases as being the result of monetary inflation. That is, they are worried about inflation the process, not inflation the event.

But I am not an economist, which makes everything I just said more (?) likely to be complete nonsense.
Nemo | Homepage | 03.20.08 - 9:24 pm | #

mp writes:
MZM velocity is falling.
mp | 03.20.08 - 9:29 pm | #

Missed Information writes:
Equities are useless, too many players, too many games.

Inter-bank rates are more informative, they tell you exactly what the banks (insiders of the financial system) think about the risk of lending to other banks. Very little noise there.

And TED-spread is shooting through the roof. Some big fish may surface belly up any time soon. Banks and IBs are still floating, but now they are floating more like poop than like sailboats.
Missed Information | Homepage | 03.20.08 - 9:30 pm | #

stone money of yap writes:
This is the most entertaining financial crisis ever.
stone money of yap | 03.20.08 - 9:31 pm | #

Misean writes:
Nemo,

Fine job. While I was out for my walk, I was formulating a response to that question. Close to my thoughts, except less technical, which is likely better.

My only quibble is that I don't call S&D deltas "price inflation/deflation". It confuses terms. It is done deliberately by the PTB to hide the queen in their perpetual game of 3 card montey with the plebes. If inflation/deflation is used ONLY to describe money supply, then the jig is up for the PTB.

;)

Cheers,
Misean | 03.20.08 - 9:46 pm | #

Misean writes:
Kicker,

M1 is actually gently decreasing.

https://federalreserve.gov/releas...ses/h6/ current/

Cheers,
Misean | 03.20.08 - 9:48 pm | #

Lyndal writes:
I've been in business for more than ten years, and I have enough documentation of income, investments, and bank accounts for some 23rd century history Ph.D. candidate to write an entire, 400-page history of material culture at the millennium.

Last time I looked into getting a mortgage, I was offered only no doc.

Markel- it is very likely that whomever you were dealing with had absolutely no idea how to read your documentation. That requires someone with a somewhat reptilian snout.

Writing a 5 page analysis of a self employed borrower's income is fun but does require at the very least scales and possibly the ability to breathe underwater. You won't find many old dogs around that can do that.
Lyndal | 03.20.08 - 9:49 pm | #

Kicker writes:
Am I being really stupid here? Or is it possible that the fear factor will soon make it impossible for the Fed even to achieve its target on the interest rate it supposedly controls?

I'd say no....

The Federal Reserve has pretty tight control over the FFR. I can't see any way that the Federal Reserve could lose control over the FFR.

But, the purpose of the FFR rate is to influence the demand for money. While the FFR may have iron-fisted control over the FFR rate it has little control over the demand for money from banks that are capital constrained.
Kicker | 03.20.08 - 9:50 pm | #

Cobradriver writes:
"A senior citizen that's mostly consuming a basket of goods consisting of energy, food, and health care would say we have high inflation. While a young couple buying the first home would say we have price deflation."

I agree. I am hanging out to buy a home or acreage and I see deflation bigtime. The price inflation in the basket of goods effects me,but not excessively.
Commodities increasing will hurt fixed/low income but it will absolutely CRUSH people who are leveraged to the hilt...

Chris
Cobradriver | 03.20.08 - 9:53 pm | #

Misean writes:
Kicker,

How does the FED increase FFR rates that fall below target?

It sells treasuries.

What's up with treasuries?

Prices are increasing, rates are falling.

What does this FED action do?

Reduces liquidity.

Do we have a liquidity as well as a solvency problem?

Yes.

What has the FED done with it's treasuries?

Swapped them.

Hmmm...

Something of a conundrum, no?

Cheers,
Misean | 03.20.08 - 9:56 pm | #

anotherajh writes:
mp: MZM velocity is falling.

Liquidity trap on? How much? How fast? Is there a good site to find this plotted? I took a quick look, but am only finding long term plots (years).

Thanks
anotherajh | 03.20.08 - 9:56 pm | #

Misean writes:
Kicker,

Dammit, I think I got that bassackwards...gah...

Time to pull out the slide rule...I'll be back.

Cheers,
Misean | 03.20.08 - 9:57 pm | #

mp writes:
MZM (Money Zero Maturity) velocity is put out by the St. Louis Fed.

Historically, MZM velocity correlates nicely with the Federal Funds Rate.

Liquidity trap on? Maybe. We'll know soon enough.
mp | 03.20.08 - 10:02 pm | #

energyecon writes:
Slipstick is high quality nerdage! ;-)
energyecon | Homepage | 03.20.08 - 10:02 pm | #

rich writes:
>Really? Then explain how the XLF is DOWN ~10% and SKF which is supposed to double the difference is even over the past 3 months. Pick a timeframe and an ultrashort. The ultrashorts flat out stink over any period over a day.


The answer is right in your chart, if you look at it closely. XLF significantly outperformed SKF in the first few days of the period you chose. It can happen, although it usually corrects. But in this case it didn't. But ever since then, the tracking looks pretty good, although the initial difference has been somewhat magnified, as you would expect.

What isn't clear from your chart is which one of the two ETFs fell off index tracking in those days and whether it led or lagged benchmark. Check it out.

I do a lot of ETF tracking against benchmarks, and big falloffs are pretty rare. They're pretty efficient.

Also, if there are falloffs, it's illogical that short-term trading would eliminate them any better than long-term. You're just deceiving yourself.
rich | 03.20.08 - 10:03 pm | #

Misean writes:
No I was right the first time. More bonds lower price.

Cheers,
Misean | 03.20.08 - 10:05 pm | #

Emma Anne writes:
You guys, and especially Nemo and Kicker, rock. I am getting smarter by the day hanging out here.
Emma Anne | 03.20.08 - 10:07 pm | #

Misean writes:
OT but related:

"In a conference call held Thursday, Fitch Ratings said that the subprime crunch isn’t over — and is actually gaining speed,"

http://www.housingwire.com/2008/...by-a-long-shot/

Cheers,
Misean | 03.20.08 - 10:12 pm | #

Kicker writes:
M1 is actually gently decreasing.

Thanks...

The real wildcard is money market funds.

They are included in the broad measures of the money supply (M2, MZM, and M3) which are up (some sharply).

It's always these measure of the money supply that those with an inflation bent point me to.

But, is there really as much money in these money market funds as people think there is?

The increase in money market funds (especially institutional MMFs) is directly tied to investors fleeing the collapsing ABCP market.

But, there was a little bit of a slight of hand going on here.

The same debt that investors were fleeing in the ABCP market was repackaged and bought by the MMFs.

Now, maybe all the bad debt in the ABCP market was purged and only the good debt found its way into MMFs.

But, I'm having a hard time swallowing that.
Kicker | 03.20.08 - 10:27 pm | #

Anonymous writes:
Has anyone seen warsh?
Anonymous | 03.20.08 - 10:40 pm | #

bobn writes:
"In a conference call held Thursday, Fitch Ratings said that the subprime crunch isn’t over — and is actually gaining speed,"

In other news, water is wet and cosmetics sales reps are noticing a more porcine customer base lately.

And to think, Mish said they were clueless........
bobn | 03.20.08 - 10:51 pm | #

Jeff writes:
Ah, SKF. Are people waiting to see what the backlash from the Primary Dealer Credit Facility being utilized as an easy money source is before diving back in?

-Jeff
Jeff | 03.20.08 - 10:59 pm | #

Kicker writes:
How does the FED increase FFR rates that fall below target?

The Federal Reserve can sell (or simply let expire) Treasuries held in the SOMA account. It can refuse to roll-over REPO's held in TOMA. It can expire physical cash.

The only part of the monetary base the Federal Reserve would have a hard time destroying (if is choose too) would be physical cash. But, if the Federal Reserve were really bent on destroying everything but physical cash interest rates would go to the moon (thousands of percent) so there wouldn't be a lot of people willing to hold cash (other than banks that would need them for reserves).

And all other money out there is a multiple of the base. Zero base, zero everything else. In that case, people would probably switch to using Treasuries as currency (since it could be used to pay for taxes and could be swapped for physical currency) but all banks would be wiped out and we'd no longer have a fractional reserve based currency.

Even if the Federal Reserve didn't want to decrease the monetary base it could still increase interest rates by increasing reserve or capital ratios (increasing the size of the monetary base relative to banks balance sheets). This is common tactic in China where controling the monetary base is difficult because of the dollar peg.

About the only thing the Federal Reserve is really dependent on Treasuries for is to increase the amount of physical cash in circulation.

When the Federal Reserve wants to increase the amount of physical cash in the economy it orders the cash from the Treasury using Treasury Notes from the SOMA account as collateral. The US Mint then prints up the bills and coins, delivers them to the Federal Reserve, and charges them just for the printing cost since they are "on loan" and secured by Treasuries.

Hence the reason that the bills in your wallet are backed by the "full faith and credit of the US government".

So, theoretically, if the Federal Reserve was unable to buy Treasuries it would be unable to order more physical currency. But, I'm guessing if that were a problem the Treasury would be more than willing to do a "special issue".
Kicker | 03.20.08 - 11:05 pm | #

tg writes:
Warning quackpot economic theory metaphor coming.

Sam was a very rich man in his little agrarian town he had the biggest pile of grain stored in his basement the town had ever seen. It was quite common for people would come to his house when they were a bit short and get grain from him. Sam's kid were used to being rich and they grew up spoiled. In fact they borrowed from others and said, "Here is an IOU come and get grain when you need it. We promise to fill it up with our special plastic bags and for every ten bags we borrow we will give you eleven back" Sam's kids spent far more than they produced but they said to themselves, "We can always make the plastic bags smaller if too many people try to collect." For a long time people traded the IOU's in town because they knew Sam had plenty savings. However after watchinng his kids run up tabs & get into fights they began to wonder, "should I keep holding these IOU's?" Everyone realized they would not be able to get paid back if they decided to collect all at once.
Questions Will sam's kid lifestyle decline if people start collecting? Are the paper bags worth anything? Are the IOU's worth anything? Is this inflation or deflation? Should the town people keep letting Sam's kids borrow?
tg | 03.20.08 - 11:14 pm | #

homedad43 writes:
Folks (esp Kicker, Nemo, Misean and mp):

Thank you very much for the insight on the economics.

You are appreciated.
homedad43 | 03.20.08 - 11:50 pm | #

yogurt writes:
"A senior citizen that's mostly consuming a basket of goods consisting of energy, food, and health care would say we have high inflation. While a young couple buying the first home would say we have price deflation."

More precisely, we have consumer price inflation and asset price deflation at the same time.

No contradiction in either theory or practice. That's what we had in the 70's too. But then the asset deflation was in stocks, as house prices were supported by rising incomes.
yogurt | 03.21.08 - 12:21 am | #

Anonymous writes:
"A senior citizen that's mostly consuming a basket of goods consisting of energy, food, and health care would say we have high inflation."

I'm one of those old bastards and your damn right we have high inflation and my 4 kids are young between 25-35 and they say the same damn thing, might have something to do with their raising. Uh think?
Anonymous | 03.21.08 - 12:56 am | #

es writes:
i am trying to buy subprime and commercial mortgage bonds,...but my broker sucks. its like finding a needle in a haystack for them to find exactly what i am looking for.

let me know if you have any suggestions on brokers who specialize in these areas.

thanks
es | 03.21.08 - 1:02 am | #

Eric writes:
Re: Ultra ETFs....

You can't really compare any period longer than a day and expect to come out with 100% tracking. If you read the description, they're trying to track the daily move (or twice the daily move, or inverse twice...).

You can set up an Excel spreadsheet and see that even with 100% perfect daily tracking, longer periods won't track. They just can't. It's a mathmetical impossibility, by the way they're constructed.
Eric | 03.21.08 - 9:33 am | #

Sebastian writes:
This chart is actually useful, I think, although the conclusion to be drawn from it isn't bearish for housing at all.

Take a look at the chart, specifically the 30-year mortgage rate.

Note that in late 2002-early 2003 it first began to work its way below 6%.

Although the rate popped back up above 6% from time to time, it spent considerable time *below* 6%, until late 2005 when it went persistently above the 6% level.

Wasn't this the time-period when the housing "bubble" was in full swing to the upside?

Now note the chart at late-2005 to late-2007, when the 30-year fixed rate remained persistently *above* 6%.

Wasn't this the time when the housing "bubble" was unwinding?

Now, 30-year fixed rates look as though they're below 6% and headed lower (or are likely to persist below 6%.

This mortgage rate level won't make all the homeowners who bought at the peak "whole" again, but it will certainly stimulate home-buying, just like it did before.


Sebastian
Sebastian | 03.21.08 - 10:54 am | #

jult52 writes:
Just one anecdote: I recently applied for home loan pre-approval. Our credit score is high (right around 800) and we were approved quickly and painlessly.
jult52 | 03.21.08 - 12:50 pm | #

HARM writes:
This mortgage rate level won't make all the homeowners who bought at the peak "whole" again, but it will certainly stimulate home-buying, just like it did before.

You first! :-)
HARM | Homepage | 03.21.08 - 1:40 pm | #