Wednesday, January 31, 2007

Secondary Mortgage market tanking

First, a hat-tip (again!) to CR:
http://calculatedrisk.blogspot.com/

She pointed out how Fleck's newsletter is predicting an immenant meltdown in the mortgage market. Why? Lack of buyer interest in the MBS sector.

We'll look here from the below link, we see that BBB rated mortgage securities are plumetting in value. Instead of getting par (or even a little better) of their value, this debt is trading at 92 cents on the dollar.



http://www.eurobondonline.com/abx-HE-BBB-06-2.Htm

This is so called "scratched and dented" mortgage debt is now continually declining in value towards lower value debt's traditional range (pease read CR's article on this, I felt that I learned quite a bit). See the drop off? Looks like a bad Nasdaq stock, eh? On a $400,000 mortage, that's a loss of 8 cents on the dollar since September. In other words that $400,000 mortgage now trades for ~$368,000. Sucks to be the bagholder.

Consequences? This is possibly the start of a 2 to 3 year deflationary cycle. Think about it, if Joe and Jane six-pack cannot HELOC their way to prosperity, they'll bargain shop more. That's going to force retailers to put the screws on their vendors. Due to the drop in value of the dollar I predict will happen, its going to pressure certain wages...

Ouch.

But I still only predict a bad recession.

Got popcorn?
Neil

11 comments:

phillygal said...

Good reading on your blog.

I don't have popcorn - yet.
Waiting 'til after the Super Bowl!!!

Ha.

wannabuy said...

Looking at the inventory, I cannot wait until the traditional start of the listing/selling season!

Got popcorn?
Neil

TJ & The Bear said...

But I still only predict a bad recession.

IOW, "North Korea just launched a nuke at my backyard, but I still only predict a bad sunburn."

Neil, check out the demographic data in Russ Winter's Monday & Thursday posts.

Lander said...

May I suggest you change your blog name to Got Popcorn? or Bubble Pop Secret ;)

wannabuy said...

Lander,

ROTFL!

I just might.

TJ:
Part of what is required for a depression is no FDIC, another stupid Smoot-Hawley tariff act (we closed our borders to their trade, so they closed their border to our trade... funny thing, no trade, no jobs.) So I'm still predicting a recession.

And yes, I read Russ Winter too. :)

Got popcorn?
Neil

TJ & The Bear said...

Neil,

Not so. FDIC? Toast! Smoot-Hawley? An issue then, not now; bigger problems elsewhere. How do you explain Japan's 15+ year contraction???

BTW, did you check out the new ContraryInvestor post?

p.s.: Lander, I think he's trying to attract a popcorn sponsor! ;-)

TJ & The Bear said...

Check out this too.

wannabuy said...

TJ,

Thanks for the links.

Again, I don't disagree its going to be bad (really bad in some localities).

But with the S&L crisis, the government did a bunch of "off book" transactions to boost the banking system. They'll do it again. Liquidity will not be cut off this time. Credit tightened? Oh yes! (Very overdue, one has the view the implode-o-meter at least once a week.)

Thanks for the links to Aaron's forums. I've bookmarked them. :)

Boy would I love a sponsor! But this won't ever be that level of blog.

Got popcorn?
Neil

TJ & The Bear said...

Obviously we'll have to keep working on you. I've got the data...

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