Tuesday, September 16, 2008

Another Shoe


Gosh, it is fast becoming "I told you so" week around here. This latest from Bloomberg:
U.S. Mortgage Rates May Wreak Havoc After Libor Gain

Sept. 16 (Bloomberg) -- The biggest jump in the London interbank lending rate in at least seven years could wreak further havoc on the U.S. housing market and there's nothing the Federal Reserve can do about it.

About 6 million U.S. mortgages, including almost all subprime home loans and 41 percent of prime ARMs, are linked to the London Interbank Offered Rate, or Libor, according to First American CoreLogic in Santa Ana, California. Today's daily rate more than doubled, with smaller gains in the one-week and one-month rates, as lenders demanded higher compensation for risk after Lehman Brothers Holdings Inc. collapsed and the value of American International Group Inc. fell 84 percent in a week.

Daily Libor rates are used to calculate monthly adjusting mortgage resets, including some so-called ``option ARMs'' that allow borrowers to defer payments by increasing mortgage balances...


2% Fed Funds Rate ain't gonna save these poor homemoaners. I'm fixed at under 5% and my HELOC is tied to the FFR at Prime.

Those interested can get the key rates snapshot here.

Those 41 percenters are overwhelmingly in California and most are entering into their reset periods. Time to drag out another acronym; FRD, first reset default.

26 comments:

tk said...

I thought this article was going to be about the AIG deal. How many shoes are there that can drop, by the way?

Lost Cause said...

Do the workers own the means of production yet?

Northern Renter said...

Ah, but which team won the FA cup in 1954?

NR

Agent #777 said...

How many shoes are there that can drop, by the way?

We are dealing with a millipede here, tk - many more to come.

NHSteph said...

Hey, that looks like a Storyland shoe...

Exurban Nation:Housing Bubble, credit bubble, public planning, land use, zoning and northern NH tourism

Jean ValJean said...

West Brom.

And really, how many other shoes are there?

Property Flopper said...

Rob, how about First UK Defaults? FUKD is such a nice, accurate acronym for the ARM'd fools.

TK / 24601 - There are a whole lot more shoes hanging up in the air with little supporting them. The AIG bailout was a true sign of desperation - this isn't something the gov't WANTED to do, it was necessity to avoid a world wide meltdown.

US has a lot of option ARMs that are still resetting, Europe is just starting it's housing down turn... I'm waiting for Asia to have a problem - Japan and China just need something to go 'boom' and it'll get messy. Not following the news over there enough to know what is brewing though.

w said...

The pop that gold is getting should scare people. Confidence is getting thin.

Aaron said...

Here is Meredith Whitney's take on housing's future. If you recall she was spot on last year about Citi and has been spot on throughout the carnage.

'The magnitude of houseprice declines in the next few years could likely exceed expectations of both the markets and the companies, she wrote in a note issued late Monday.'



http://www.reuters.com/article/businessNews/idUSBNG18492120080916?feedType=RSS&feedName=businessNews

Peripheral Visionary said...

Yikes. I guess I'm glad I didn't panic and drop my glod holdings a few weeks ago. This is Real Panic, not the usual "overdue correction" business.

Lost Cause said...

9000 Dow, 1900 Nasdaq, 900 SP -- all soon?

w said...

S&P down to 500 according to Societe Generale.

w said...

Has anyone else noticed how poorly BEARX has performed in a once in a generation opportunity?

Akubi said...

Maybe we should just halt trading like Russia and pretend itsallgood.
This is getting pretty scary.

Jean ValJean said...

You're telling me...

I used to work for a giant company. One of those that, if you said the name to anyone on the street anywhere in the world, they'd immediately recognize it.
And I loved working there, till I got a new boss.
I eventually told him to go fuck himself, and walked out. He never thought I'd do it. Actually, that was one of the reasons he was such a prick, because he was convinced that no one would leave since the pay was so insanely good and the perks were also excellent.

but I walked out on him, started working for a small company that was going places. Been here for 3 years. I really believe in the product, and I really believe in the people.

We were all set to go public at the beginning of this year.

Then the markets tanked. No environment for an IPO. Now Commercial Lending is drying up. Now ALL credit is drying up. It's our lifeline at this point... and it's getting more and more expensive to keep "fueling the fire"...

We have great products in the pipeline, but I wonder if they'll ever see the light of day.

I've put off buying a car once again, and make do with my (still more than capable) 11 yr. old Saturn... because, who knows if I or someone in my family is going to need some bailing out in the next 12 months?

Scary times indeed...

w said...

Tell us the truth Jean...you stole the bosses silver.

Is this one of the products in the pipeline?

http://www.ecogeek.org/content/view/713/83/

Peripheral Visionary said...

w, BEARX is very conservative, and unlike a straight contrarian fund, is designed to hold together through bull markets, which at the same time means it has more modest upsides during bear markets. Still, it's not doing too badly.

BEARX vs S&P500 2 Yr

w said...

pv, Their supposed strength is knowing which companies are good targets for shorting. Then they hold gold too. Yesterday the market fell 500 points and gold shot up and they lost 1.5%. Is there something in the way they structure their positions that hurts them during big moves?

Property Flopper said...

So, after a 500 pt drop, isn't today supposed to be the rebound day? Isn't it supposed to pop back up about 200 pts?

Down 300 at mid day, could end up a second -500 day in a row. Lovely.


W - Yes, he stole the silver, but he did use it for a good cause, he became an honest man.

Aaron said...

prop flopper,
yesterday was an up day in the market. not that it matters much. just a temporary up for the big guys to continue to unwind. GS and MS are down big. what the hell is keeping WM from cratering?

Property Flopper said...

Yeah... sorry, deep in "issues" for a client, forgetting what day of the week it is. Thought it was Tuesday... that's a bad sign. :(

Rob Dawg said...

In response to the extraordinary conditions in order to restore confidence all the major financial businesses have announced a maximum gross compensation cap of $1 million for all employees and $1 annual recompense for board members. As a show of faith currently serving corporate officers have placed all of last years' bonuses in escrow accounts subject to shareholder claims.

-500? Looks like a near thing.

segfault said...

On Sunday and Monday, the Feds said "no bailout for Lehman--they're not too big or important to fail." And the market took it well.

Today, the Feds said, "just kidding! We'll bail out Lehman after all," and all hell broke loose in the market.

I thought the Republicans were against flip-flopping policies?

w said...

Like their Democrat brethren are so pure? Everyone has their hand in the cookie jar. Most of them are reactionary hacks. McCain and Palin are gonna whip Obama with their clean up Washington act. Obama is starting to look like a 30 year Washington political hack himself. McCain is fortunate he has always been branded a maverick outside the establishment so he has real reputation to lean on. The times we are in were made for a McCain canidacy. Especially, with the war in the background.

Aaron said...

we're screwed with either candidate. Their whole term will be the economy. They won't have time to implement any of their promises. wait...that's a good!

Actually I think Obama is better for the economy. He at least thinks about consequences of actions. Mcsame and clinton both were for a gas tax reprieve. Obama was against it. All economists were against it. Obama will do what is right. McSame is the worst possible person under the current conditions. He chairs the commerce committee and is against government meddling in business affairs. Now all of a sudden he is for it? and he wants to limit what CEO's make? Last I heard they are private companies and the government has no business in salaries. Nope McSame is the wrong guy for the job. This is coming from someone who considers himself a republican. Lately I don't see much of that in the 'Republican' party. Don't even get me started on Palin. Christ we would be screwed if Mcsame killed over.

Rant off.

PS. This is going to get much uglier then I imagined just 3 months ago. As I said doesn't matter which candidate...we're screwed.

Lou Minatti said...

Hey, that looks like a Storyland shoe...

Yep, I remember that shoe from when I was a kid.

Rob, I assume you went to the Flume? The thing about the White Mountains is just on the other side is boring low-rolling nothingness stretching into Quebec. Some Granite Staters like to pretend they are rugged frontiersmen, when in reality there are boring suburbs on the other side of the border. The only truly rugged area up there is in northern Maine.