tag:blogger.com,1999:blog-34323687.post5136720779040648736..comments2024-03-29T03:19:56.674+00:00Comments on Macro Man: Who? What? Where? Why?Macro Manhttp://www.blogger.com/profile/12324967552369915949noreply@blogger.comBlogger61125tag:blogger.com,1999:blog-34323687.post-47632534817084898072009-12-01T09:37:16.938+00:002009-12-01T09:37:16.938+00:00Dubai..goodbye..the markets have said small proble...Dubai..goodbye..the markets have said small problem let's leave it with those effected whilst the rest of us march on reflating.<br />Dubai's last weeks news and the markets appears to have absorbed it and moved on.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-46397113825749572512009-12-01T04:51:00.893+00:002009-12-01T04:51:00.893+00:00A less hawkish RBA today?
I found it interesting...A less hawkish RBA today? <br /><br />I found it interesting to describe 75bp of policy tightening "material" when rates are still well below neutral. Perhaps it is - in a global context?Skippynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-91226549907899865632009-12-01T03:14:42.129+00:002009-12-01T03:14:42.129+00:00Sorry Nic, I missed your point.
I guess it may s...Sorry Nic, I missed your point. <br /><br />I guess it may slow appetite for debt and therefore future development may occur out of oil revenue. <br /><br />However it is important to differentiate between the haves and the have notsSkippynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-45360645937749408842009-12-01T03:04:37.359+00:002009-12-01T03:04:37.359+00:00For example ...
http://www.bloomberg.com/apps/news...For example ...<br />http://www.bloomberg.com/apps/news?pid=20601110&sid=ayTU0nDpuRMcNicnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-40892766793628603812009-12-01T03:03:22.503+00:002009-12-01T03:03:22.503+00:00Yeah I don't mean Dubai, I mean the other Arab...Yeah I don't mean Dubai, I mean the other Arab States, they all seem to have been issuing bonds ... I guess it really depends on how much of a chill this puts on the bond market in that part of the world.Nicnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-6834727749164858332009-12-01T02:55:42.780+00:002009-12-01T02:55:42.780+00:00Nic,
Interesting point. Dubai World may indeed b...Nic, <br /><br />Interesting point. Dubai World may indeed be forced to sell assets (real estate). But Dubai does not have the oil, Abu Dahbi does and their annual oil revenue is around $50bn p.a. (along with $400bn in the sovereign wealth fund) which can easily cover the losses (if they chose to). <br /><br />If the losses are a lot larger than currently reported, perhaps there may be an incentive to sell (supply) a lot more oil?Skippynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-40731803460237045642009-12-01T02:43:01.443+00:002009-12-01T02:43:01.443+00:00Does anyone think that the Dubai problems would pu...Does anyone think that the Dubai problems would put enough of a chill on debt issuance in Gulf and Arab states that they might start selling a lot more of their stored oil instead? To raise money they either have to issue bonds or sell assets, right? Crude is still at pretty lofty price levels ...<br />Maybe I am just fantasizing about it ...Nicnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-35900347287100852362009-12-01T02:24:18.818+00:002009-12-01T02:24:18.818+00:00And Australia looks like its going to vote down it...And Australia looks like its going to vote down its emissions trading deal.Nemo Incognitohttps://www.blogger.com/profile/07345185457108156269noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-61951909891396671532009-12-01T02:14:24.186+00:002009-12-01T02:14:24.186+00:00For those that missed it, the Bank of Japan has ca...For those that missed it, the Bank of Japan has called an emergency meeting at 2pm. Has the pain threashold been reached?Skippynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-34517674683685245952009-12-01T02:13:34.727+00:002009-12-01T02:13:34.727+00:00Yes indeed Gary, and now due to the wonders of str...Yes indeed Gary, and now due to the wonders of structured finance and government intervention homebuyers can get a free call AND a free put. It's Options-A-Go-Go.Stevenoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-31686827242087380412009-12-01T00:29:10.978+00:002009-12-01T00:29:10.978+00:00Gary -- Brilliant, I laughed out loud!Gary -- Brilliant, I laughed out loud!Our Man in NYChttps://www.blogger.com/profile/05354882944509890790noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-43833107938514838372009-11-30T22:17:12.854+00:002009-11-30T22:17:12.854+00:00Steve:
Declaring yourself a victim and getting &q...Steve:<br /><br />Declaring yourself a victim and getting "free" money from the taxpayer is God's work (and very profitable).<br /><br /><br />Actually earning money is hard work, and is taxable.Garynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-30408862699437184672009-11-30T21:56:53.634+00:002009-11-30T21:56:53.634+00:00Funny, this talk of resets, there was a small arti...Funny, this talk of resets, there was a small article buried in the WSJ a few days ago about whether to keep paying the mortgage, or just walk.<br /><br />It was one of those anecdotal things where the guy, who came across as midstream, was sitting on a $650k mortgage and a (now) $400k house. He was making the payments but they were stressing him out, so he was getting closer to walking, because he didn't "want to be the victim of this mess."<br /><br />Say what? <br /><br />So now that we are giving $8k to first-time home buyers and cash for clunkers, even ordinary upstanding sorts feel like victims. Victims of what? Lower home prices?<br /><br />This recession (to use the popular description) is so much worse than anything in my lifetime. I doubt a 20-25% decline in RE would have been a major ordeal 30 years ago, but now we've added a layer of second mortgages (this guy had one) and turned the public into the "getters" and the "not-getters" and suddenly we have 300 million "victims."<br /><br />And the S&P is at 1094? I don't think so...Stevenoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-19689757232586973152009-11-30T21:51:15.550+00:002009-11-30T21:51:15.550+00:00Jill,
In the short term, there are still loads of...Jill,<br /><br />In the short term, there are still loads of structured deals that rely on swaps for functioning (including the early 2000s favorite of hedge funds, swapping 30yr munis into synthetic money markets). The natural swap payors (mortgage hedgers) are basically out of business.<br /><br />Long term, there is an "option play" you aren't considering: while the US Treasury will presumably give you $1 million dollars for your bonds (however worthless those dollars turn out to be) -- the same cannot be said for swap obgligations.<br /><br />No one does a 30yr swap with itsy bitsy bank -- they are (were) done with the big money center banks that are now, directly or indirectly, nationalized.<br /><br />After the Chrysler and GM fiasco, no one has any confidence in how the politicians will handle claims if (when!) these banks are recognized as insolvent. Your "senior" claim can be arbitrarily nullified by executive decree, by an inept/corrupt Treasury Secretary, a state attorney general, etc. The swap market is supposed to be between AAA institutions -- not between insolvent banks run at the whim of politicians.<br /><br />Hence, the liquidity in long dated swaps has really dried up. Its pretty much insolvent bank "A" trading with insolvent bank "B", using swap spreads determined by the Treasury/Federal Reserve, which owns both banks anyway.<br /><br />A pension fund isn't going to defease long term liabilities using a contract with an insolvent institution. In most states, doing so is a prima facie breach of fiduciary duty.<br /><br />Further, if you can defease said liabilities cheaper using actual US Treasuries, why would you take the risk?<br /><br />Long dated swaps are essentially illiquid. Yes, I know there is whatever daily volume -- but if you subtract out unwinds of earlier trades and interbank trading to get "market priced" trades, the market is essentially dead.<br /><br />There are no "true" AAA institutions with which to trade swaps, hence no marketGarynoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-3026934097947262762009-11-30T21:06:35.698+00:002009-11-30T21:06:35.698+00:00Deniz/Anon 5:46pm
Thankyou for your response.
I...Deniz/Anon 5:46pm<br /><br />Thankyou for your response.<br /><br /><br />I have brainstormed this issue today and listened to other interesting theories...<br /><br />Currency Risk?<br /><br />It can’t be currency risk, because both are quoted in US Dollars for all payments, both principal and interest. One thing I’m sure the Treasury will always have is access to Dollars to pay its debts. I’m not saying anything about what those Dollars will be worth when you get them, but I’m comfortable assuming the Treasury will definitely pay me $1 million US Dollars for my million-dollar Treasury Bond when it comes due.<br /><br />How about option risk?<br /><br />It can’t be option risk, because neither one is callable or extendable. Is the market saying the Treasury will decide to force investors to take a ten-year extension when the Long Bond comes due? Is it saying that the Treasury will force borrowers to take their principal early? Is the market simultaneously saying that private market counterparties like banks wouldn’t do the same if some strange circumstances brought about these actions?<br /><br />Credit Risk?<br /><br />It can’t be credit risk, at least the way I look at it. If Treasury Bonds were denominated in Yen or Euros, I might be able to swallow the idea that some bank counterparty could more easily pay the interest and principal than the Treasury. But these aren’t in another currency. The Treasury has the printing press, so Dollar debt simply can’t be safer from a credit perspective when it’s issued by some bank or brokerage firm.<br /><br />Liquidity Risk?<br /><br />Perhaps the market is remembering the October Surprise of 2001, when the Treasury announced they would stop issuing the 30-year maturity. Of course that announcement came when there was a budget surplus, and the operating cash for the Federal budget did not include as much as $400 billion a year borrowed off budget.<br /><br />Still, the staggering size of the swap market for interest rate derivatives gives some credence to this theory. Put simply, the Treasury doesn’t borrow enough to satisfy the demand for non-callable long term investments, so the swap market has to step in. The fact of lower rates on swaps says that even that market can’t satisfy the demand.<br /><br />While not a more liquid market on a daily basis (though nobody knows for sure), one might say that there are far more 30-year swaps than there are 30-year Treasury Bonds.<br /><br />Still, if a company or a strong bank or insurance company can get 30-year funding cheaper than the US Government, why aren’t they doing it? Seems like they’d do it until the yields went up (at least until they couldn’t turn around and buy Treasuries to lock in a 30-year profit).<br /><br />More about the credit issue. Given the fact that nobody is willing to take a counterparty risk for 30 years these days in the private market, I am sure virtually all of the 30-year swap market includes collateral posting agreements to maintain credit standards. So all you have to depend on with your 30-year swaps is that your counterparty will actually post collateral when they have to (the mechanism by which AIG counterparties got so many tens of billions of bailout dollars).<br /><br />Thankyou again for the responses. Time for more research.jillnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-45155638383461783022009-11-30T21:00:15.356+00:002009-11-30T21:00:15.356+00:00JLHS: Too true!
Gregor: true, though that hasn...JLHS: Too true!<br /><br />Gregor: true, though that hasn't helped DLAR much!Our Man in NYChttps://www.blogger.com/profile/05354882944509890790noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-20174205029373313102009-11-30T20:52:43.212+00:002009-11-30T20:52:43.212+00:00Steve, I was away from keyboard, other than that I...Steve, I was away from keyboard, other than that I am trying to read between the lines, like everyone else.<br /><br />This Japan bashing might just be wishful thinking again. No one's ever come up with a convincing reason why the US aren't the ones stuck in the deepest pile of shit. I wouldn't want to bet any money either way.<br />I do still think Europe is better off than the US, because when Europe was on the verge of following the US into the structured turd mess, the crisis hit before we were in to deep.<br /><br />Don't see any worthwile equity upside anywhere on the globe, once the US uptrend breaks, it will pull all the other markets along.<br /><br />There's at least one industry not suffering from the crisis: Giesecke & Devrient brought a new paper mill online last week. From the press release:<br /><br />"The number of banknotes in circulation around the world is constantly growing, and with it the demand for high-grade banknote paper."Gregor Samsanoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-71432794887198053212009-11-30T20:42:51.058+00:002009-11-30T20:42:51.058+00:00In the spirit of recent Youtube-isms and concerns ...In the spirit of recent Youtube-isms and concerns of U, V, W and whoknowswhat, please allow me to link to this one by Chief Economist of Handelsbanken, Norway:<br />http://www.youtube.com/watch?v=dJoNM7AlYw0Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-34184167236309148592009-11-30T20:35:50.091+00:002009-11-30T20:35:50.091+00:00Our Man in NYC:
While I agree with you 100% that ...Our Man in NYC:<br /><br />While I agree with you 100% that mortgage recasts **should** be a problem, we should never underestimate the willingness of crony bankers to pretend like the problem doesn't exist<br /><br />And never underestimate the willingness of inept and corrupt politicians to change the accounting rules by diktat to delay recognition of the problemJust Like High Schoolnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-81701096186860987522009-11-30T20:03:25.361+00:002009-11-30T20:03:25.361+00:00LB -- agreed.
Anon -- I think we're making th...LB -- agreed.<br /><br />Anon -- I think we're making the same point; it's the reset/recast confusion I was referring to.<br /><br />- Reset: Date when the interest rate changes.<br />- Recast: Date when the payment changes (i.e. you have to start paying down principal not just interest). <br /><br />The situation you describe is the recasts, which happen either at the reset date OR when the balance of the loan hits a predetermined amount (normally 125% of initial loan balance). <br /><br />With the significant majority of people with Option Arms negatively amortising, the recast date will be before the reset date & their payments change to include principal payments. This change will be far bigger than any change in interest rate.Our Man in NYChttps://www.blogger.com/profile/05354882944509890790noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-38078214341121722642009-11-30T19:39:54.072+00:002009-11-30T19:39:54.072+00:00Ian / Our Man in NYC:
This is admittedly based on...Ian / Our Man in NYC:<br /><br />This is admittedly based on a lot of anecdotal evidence, but rate resets on ARMs doesn't really matter.<br /><br />Most ARMs have annual and lifetime caps / floors -- so even if the 1yr CMT rate is 0.3% and the mortgage costs 1yr CMT + 2.75% (a common spread) ... the mortgagee is paying more like 5% if not more.<br /><br />Many mortgages hit their lifetime floors 200-300bp ago, so they cannot go any lower.<br /><br />If Bernanke raised Fed Funds to say 2% (which would still be VERY stimulative), it wouldn't effect most ARMs at all, as they would still be paying the lifetime floor rate.<br /><br />The issue with mortgages isn't rate resets, it is minimum amortization amounts. With many loans "underwater", and many OptionARMs paying less than the minimum required to amortize the loan -- when these loans hit a reset date, the ARM **rate** probably won't change, but the minimum payment is likely to reset much higher anyway<br /><br />And if the home owner lost their job to boot -- even an unchanged monthly payment is a problem.<br /><br />Assuming housing inventory is about "normal" (not overbuilt as it likely is) ... home prices have historically oscillated around 3x annual income (assuming one has annual income).<br /><br />Until inventory levels are worked off, and annual incomes stabilize -- mortgages will continue to fail.<br /><br />Having the President announce that the most reckless / speculative mortgagees in society will have their mortgages subsidized by taxpayers isn't likely to make anyone feel bad about defaulting to a government owned bank<br /><br />It will take several more years to work through this messAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-27917389580124981492009-11-30T19:32:20.254+00:002009-11-30T19:32:20.254+00:00Options ARMs are a big reason why we are not going...Options ARMs are a big reason why we are not going to see the FED raising rates any time soon, and why there will therefore have to be a limit on any future stimulus packages. Get used to low rates, they are here to stay for a long time, because if rates were to rise quickly, the FED's attempts to save the big banks would be undone, and its efforts would be in vain.<br /><br />Meanwhile we get to watch Japan cope with increasing debt/GDP and deflation as a glimpse into our future.leftbacknoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-13678486669772797952009-11-30T19:20:24.240+00:002009-11-30T19:20:24.240+00:00money printing only ever benefits those that are c...money printing only ever benefits those that are closest to the printing presshear today guanno tommorrowhttps://www.blogger.com/profile/06381479272862902814noreply@blogger.comtag:blogger.com,1999:blog-34323687.post-30633948740394353262009-11-30T18:57:40.180+00:002009-11-30T18:57:40.180+00:00While I don't agree with Bill's exact phra...While I don't agree with Bill's exact phrasing, I have to agree with him and earlier commenters that this whole Dubai episode feels very similar to the subprime crisis.<br /><br />At this stage of the game, there is little excuse not to know that real estate is over-built. Iceland, Spain, Ireland, UK, USA, Japan, Shanghai -- why is a country where camels outnumber people building a skyscraper and man made islands? And how is the financial world caught in surprise that this set-up is failing?<br /><br />I think the subprime crisis came about after a rampant rise in cronyism. Smart people shifted over to buy side firms, and (ahem) ethically challenged CEOs put cronies into their place. If the CEOs had used merit (not cronyism), the new traders would have pointed out the rewards of subprime did not come close to the risks. But cronies don't ask questions.<br /><br />One of the unfortunate results of Bernanke/Geithner/King/Trichet propping up politically connected (but failed) banks is that this culture of cronyism remains.<br /><br />So the same yes-men who signed off on subprime loans are still hoping that loans for empty sky scrapers in the middle of the desert will work.<br /><br />The same yes-men are also hoping all the empty office buildings in the USA won't effect their CMBS holdings... no need to write those down.<br /><br />And with official US unemployment surpassing 10% (and unofficial numbers more like 17-18%) ... the same crony yes men are going to be shocked, just shocked, when they learn that consumers are not buying more Christmas presents than they did last year<br /><br />It turns out that Bernanke is making those 0% loans only to politically connected banks -- consumers have to pay more like 8% if they are lucky to still have a home equity loan, or more like 21% on their credit card.<br /><br />ZIRP is only for politically connected people, as it is in Japan. Cronies win, masses of voters lose.Just Like High Schoolnoreply@blogger.comtag:blogger.com,1999:blog-34323687.post-77377282880738208632009-11-30T18:54:55.128+00:002009-11-30T18:54:55.128+00:00Ian: It's hard to say (given the confusion ov...Ian: It's hard to say (given the confusion over recast/reset and -ve amort means recast occurs earlier than the scheduled date) but these 2 graphs (both taken from a CS presentation in April) are pretty indicative.<br /><br />Specifically on option arms, the more bullish folk argue that the heights of the bars are smaller (due to pre-recast default levels) and the bears argue that everything is shifted to the left (due to significant -ve amortisation leading to earlier recast dates vs. those scheduled). <br /><br />Personally, I think they're both right...the problem hits earlier but isn't as bad as the doomsday scenarios.<br /><br /><br />http://images.businessweek.com/story/09/popup/0416_option_arm.jpg<br /><br />http://4.bp.blogspot.com/_pMscxxELHEg/SgSw4hszaMI/AAAAAAAAFNo/DNjcQ8ypQO4/s1600-h/CreditSuisse.jpgOur Man in NYChttps://www.blogger.com/profile/05354882944509890790noreply@blogger.com