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
