Don't worry, its contained.

http://money.cnn.com/2007/08/16/markets/bank_of_america.reut/index.htm?postversion=2007081615


or

http://tinyurl.com/2ybxsc

The quote:
"A Bank of America hedge fund Thursday offered $250-$300 million of municipal bonds for sale, pushing secondary market prices lower, according to sources familiar with the list."

later in the article:
"A far bigger worry is the risk that tender-option-bond programs now will unwind their positions, financial analysts say. This could damage muni bond prices because the programs are so large and because they all tend to act in unison.

Tender-option-bond programs were often fat money-makers until the summer subprime mortgage debacle forced a brutal reassessment of risk and sent investors scurrying to Treasurys."

Ok... lets see...
Muni's are now dropping in price as they were overvalued as a side effect of investments that are tied to sub-prime bonds.

Oh... so contained. This didn't raise any hairs on the back of my neck... oh no... This isn't done. Not even close. What other hedge funds are going to have no choice but to duck and run?

Got popcorn?
Neil

I'm boring

I'm on the same topic again, the state of the mortgage backed security market as represented by the ABX indices. Ok, I missed the stock market prediction last week. Oops.

But look at the A rated ABX index. Please note, a new Y axis versus last week. The close was 69.35 (not updated on the graph headings until the next day). My last post had this at 81.5 cents on the dollar. In round numbers, A rated CMBS bonds dropped 15% in one week. OUCH!

http://www.markit.com/information/affiliations/abx

Every tranch of CMBS is falling fast. AAA rated went from 97.31 to 95.53 today. (OUCH! Those bonds have poor yields due to their "safety.") BBB and BBB- are trading below 50 cents on the dollar. Must suck to have an investment like that hedged. Let's see... 6 times a 50% loss is... Ummm... officer, *that* Mr. Smith is over there (broker bolts for exit).

Anyone who says we haven't seen the darkest days hasn't contemplated what it will be like to get a mortgage come September 1st. Oh... the impact will be less than I imagine... The implode-o-meter will not stay stuck at 99 for very long. ;)

Got popcorn?
Neil

Bonds continue to dive

Look at A rated ABX index. At 81.5 cents on the dollar.

I've always heard 82.5 cents on the dollar is the bottom of the normal trading range...

Sound the dive alarm

Got popcorn?
Neil

Update:
The bond market is tanking and this Friday is Friday the 13th.
I'm thinking the stock market is in for a world of pain.

What would a crash of Friday the 13th be called?

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