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.
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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.
33 comments:
I'm beginning to tire of being first...
Well Nigel take heart if Casey is really back we'll be forced into the 1000 posts per day territory again. In the mean time enjoy the very high signal to noise ratio while it lasts. I think the Ellington excuse is a bigger deal than the 50bp Fed funds drop.
Hopefully PV and FCB will stop in and give suggestions on how to profit because to me this looks like a step away from the carnage and pick up the pieces moment. Oh, and the Mozillo structred stock divestiture is gonna just push some people over the edge. 5 blocks one each day M-F. Does it trigger a BofA provision?
@ Alpha Dawg,
You are right and in the words of the great and angry Mogambo, It is not an issue of liquidity but an issue of solvency.
Simple yet terrifying, but I am ready.
Except in Casey's financial world where debt-as-money is all encompassing.
Well Nigel take heart if Casey is really back we'll be forced into the 1000 posts per day territory again.
I'm not sure that many people care any more. That's a concept Casey has failed to grasp (among others).
I know I don't care. Casey traffic is not good traffic for me or my business. It's interesting to put up a post here and there where its relevant, but there are much more interesting things to blog about.
Besides, we all lived this summer without Casey. Bloggers survived the lower traffic. Many who only blogged about Casey simply stopped posting. Steph, Aspeth and so forth.
Casey's zenith was the whole "most hated blogger" title. He hasn't learned anything and his claim to fame is meaningless. Fame is fleeting and there are much bigger train wrecks to watch now.
If the FDIC has its way, there won't be any foreclosures to save people from, so his "business" concept is moot. The only people facing foreclosure will be failed flippers and exposed scam artists.
Easy come, easy go.
If the FDIC has its way, there won't be any foreclosures to save people from, so his "business" concept is moot. The only people facing foreclosure will be failed flippers and exposed scam artistS.
************
You talk/type like the mortgage brokers and the mortgage industry has no blood on their hands.
Just an observation.
THe FDIC appears to have just been "firing a shot across the bow." If the banks look like they are dragging their feet cleaning up the mess even after we took the hit with the damn 50bp cut then they might find themselves stuck with a bunch of worthless loans to worthless individuals and no recourse.
I think that no matter what happens at Ellington or other hedge funds there are folks who will profit from the mortgage mess. Remember at the end of the movie "Trading Places", when orange futures crash.
"Looking good Louis!" "Feeling good Billy Ray!"
I'm wonder out loud but the way I figure it there's an additional $3-6 trillion of housing related phantom wealth that needs to evaporate. That "money" is cross indemnified and leveraged many times over. The Ellington redemption problem is a lot worse than George Bailey's run on the bank. Baliey Savings & Loan had a liquidity problem because they made conservative loans to reliable borrowers against correctly valued assets. Ellington "doubled down" on the most speculative loans to the least reliable borrowers on poorly appraised assets with historicaly high leverage for borrowers who also used historically high leverage. Ellington has a solvency problem.
For people to actually care about what Casey is doing, he has to top his own stupidity. For example, moving to Phoenix - who cares. Moving to Phoenix sfter the FBI tells him to stay put - mildly interesting. Foreclosure book - who cares. Foreclosure book that details organized crimes and names some mobsters - I am interested. Casey changing his name - I am annoyed. Casey changing his name and flees after the FBI issues an arrest warrant and he continues to blog - I am enthralled.
but the way I figure it there's an additional $3-6 trillion of housing related phantom wealth that needs to evaporate.
And when is it going to be written down? I'm not sure about Monday's market, but we're creating a situation where one big piece of news will tank the market. When? Sometime this month. The day? I don't really care. But you simply cannot have this brittle of a market. It amazes me that the sheeple do not realize that volatility is a danger sign. Sigh...
Now when will the FDIC get the banks to clear the books? I hope in November... but will they? Probably not. But soon they will have no choice.
Got popcorn?
Neil
@serinitis: "For example, moving to Phoenix - who cares. Moving to Phoenix sfter the FBI tells him to stay put - mildly interesting. "
The FBI didn't tell him anything. That was all an obvious troll, either played on Casey or made by Casey.
The FBI doesn't do courtesy calls to people that it's investigating.
Thousand-point Monday = bargain day Tuesday! "Buy when there's blood on the streets."
The judge in chambers is the one that told Casey he was under investigation. Casey confirmed this.
The fishnet is more enjoyable than Casey - thanks Akubi.
You talk/type like the mortgage brokers and the mortgage industry has no blood on their hands.
Some of them do. The most guilty have already gone out of business.
I'm honest in my dealings because I'm selfish...I like to sleep at night.
As many have accurately pointed out, including Rob Dawg, this run up was caused by many, many factors.
dawg, let's get a new Casey post up. maybe make the blog all Casey, all the time! 24-7-365 Casey!!! Cause this time's it's different!
Not only has Casey returned... but MOCHA has as well!
Check it out here: http://tinyurl.com/3cks7r
In a related story out of Sacramento a local realtor known only as "sac re" was found in a coma today. Officals suspect an accidental overdose of internet sarcasm self-inflicted while attempt to make a very dangerous blog comment. Nevertheless suspicions abound that foul play may be involved because of the approximately 64 petabytes of hate mail in his inbox.
At 4:44 PM, wannabuy said...
It amazes me that the sheeple do not realize that volatility is a danger sign.
I view volatility as an opportunity.
And on the other topic, I've grown tired of Casey and his antics. He was entertaining for awhile but his time has past.
I pledge to ignore any future Casey related posts or information about his activities. It is time to move on.
Other than the 6 Degrees of Casey Serin game, I find him boring as well (rather like the housing/mortgage market in general these days - ran it's predictable course) yet MOCHA's return seemed promising until it was a Caseypedia rehash. That's not MOCHA, Mr. Plow! I have a certain image of MOCHA to prove as much, so there!
I highly suspect this is the real MOCHA in fishnets!
CNN is now talking 20 Billion in write-offs.
@Akubi: your Mocha link doesn't work.
I expect it wants to point to something along the lines of this
@Akubi: your Mocha link doesn't work
Thank God
Dear Casey,
Thank you for the EN and HP updates. I wondered how you were doing.
A question for you.
Don’t you have a non compete agreement with Aaron Krowne?
Just Askin.
FMW
______________________________
@ Dawg,
I am Not interested in 'All Casey all the time" , but 'some Casey, some of the time' would be welcome.
BTW, my above question was deleted AFTER it cleared moderation on the new KC forclosurebook blog.
Must have hit a legal nerve.
Do you think he will blog about his legal battles???
IANAL
It's a miracle Rob! A miracle!
Now that The University of Oregon Ducks look like a top 10 team again, let's forget about KC and his crazy antics. Any lesson that he might be able to give is one I do not need to learn.
So how 'bout a post about what financial benefits a professional sports team brings to a city.
The letter emphasizes that the redemption suspension was not a function of losses or investor withdrawals. The two funds, according to the letter, have a minimal amount of withdrawal requests and any that came in easily could have been handled out of available cash.
So, WTF, we've decided you just can't have any of your money.
UK,
Exactly! You hit the key point of the article.
I mean come on. How stupid do they think we are? They are insolvent and they are lying. They have minimal requests and they have cash. Bull. They don't have enough cash without liquidating a few assets. The moment they liquidate any little asset they will be forced to mark to market the rest.
Sac RE,
Good to see you feeling better. Yes, I'll do a sports teams as urban ego trip post tomorrow. Duck huh? Let's see. Oregon is not suffering yet in the housing bust and their team is winning. UCLA & USC both get upset. Coincidence?
@wagga,
Your MOCHA link doesn't seem to work either.
@serinitis,
Sorry but MOCHA in fishnets has been preserved for posterity here.
Is an octopus a fish like koi? I'm not sure, but it has been an intriguing Zillow Book diversion of late. As far as I'm concerned, anything that shows up on my sushi and isn't an avocado is a fish of sorts.
Speaking of koi and avocadoes...
Dawg,
What's the latest on that sweet koi farm property on Avocado?
Avocado update this week.
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