Saturday, October 06, 2007
Right on Schedule
NYPost October 6, 2007 -- Ellington Capital Management, the country's largest mortgage-backed securities hedge fund, sent a letter to investors notifying them that redemptions and withdrawals in two of its funds would be suspended because of a sharp decline in the liquidity of certain mortgage- and asset-backed markets.
This is one of those "thousand point Monday" events. First we see the huge loan loss provisions from WaMu and Merrill and Citi. Now the real big shoe; the consequences of hedge fund redemption deleveraging the credit markets. This is when the containment field starts to break down. No amount of liquidity infusions (helicopter drops) can save the credit markets. Unbfortunately we have a Fed that mistakenly thinks it is its' job to protect those markets and thus has a plan to make things worse. Phase One is nearly complete with the lowering of rates. One Shot policy. There's a bunch of people out there who are suspecting that all the financials and all the homebuilders are massively overvalued and they are begining to realize that if they don't get out -now- it will be too late. How would you feel if you were an Ellington customer above? And let's face it. Ellington is lying. There is no "liquidity" issue. They lost all the money plain and simple.