EJ's Short Report - Nov. 1, 2007

[FRED]

Nov. 1, 2007:

Gold $788.60 spot

Oil $93.88 spot

Euro $1.44

Q3 GDP 3.9%

Better than expected Q4 GDP yet Bernanke Fed cuts Fed Funds 0.25%

What did he see? It's all about housing.

Goldman Sachs sez:

ARM Reset Hammer has yet to fall


Residential Real Estate sector of the FIRE Economy crashing


$2 Trillion in fictitious value gone, $11 trillion to go!


Q3 GDP will be revised down

May get economic crash anyway, but we'll get inflation for certain.

Thank your Congress, President, Federal Reserve, and Treasury.

[jk]

Re: EJ's Short Report - Nov. 1, 2007

the q3 gdp number was bogus, based on nominal gdp with a 4 handle and a deflator the likes of which hasn't been seen since 1963. [yes! that's the last time the deflator was .8 or lower] the real problem is with the low nominal number. bill gross has written that we need nominal gdp's in the 5's at least to keep the wheels from falling off.

[Uncle Jack]

Re: EJ's Short Report - Nov. 1, 2007

I read yesterday (I didn't save the link) somewhere that all the force in that GDP number came in the month of July, and that August and September were slowing down. Just based on that comment alone I'd say EJ's call for Q4 being the start of the recession is spot on.

And all this excitement about a rate cut being good for stocks is just about as annoying as it can get.

[WDCRob]

Re: EJ's Short Report - Nov. 1, 2007

Tanta over at Calculated Risk had an interesting post recently about the timing of those ARM resets being brought forward due to clauses in the contracts that are triggered if the LTV exceeds a certain percentage (110%? 115?%).

The discussion that followed suggested many of those triggers would be hit well before 2010, speeding things along in the housing market/economy sooner than it appears looking at the wave of ARM resets in EJ's chart above.

[SeanO]

Re: EJ's Short Report - Nov. 1, 2007

Tanta over at Calculated Risk had an interesting post recently about the timing of those ARM resets being brought forward due to clauses in the contracts that are triggered if the LTV exceeds a certain percentage (110%? 115?%).

The discussion that followed suggested many of those triggers would be hit well before 2010, speeding things along in the housing market/economy sooner than it appears looking at the wave of ARM resets in EJ's chart above.

While those triggers exist and likely will be hit, it is hard for me to see any appetite on the banks part to exercise them on performing loans. And they simply don't matter on defaulted loans as it won't change the fact the bank will end up owning those properties anyway. So probably a non-issue.

[WDCRob]

Re: EJ's Short Report - Nov. 1, 2007

Thanks Sean. Will the banks be able to NOT exercise the triggers if the loans have been used to issue debt? Do the bond(?) holders have a say?

[SeanO]

Re: EJ's Short Report - Nov. 1, 2007

Thanks Sean. Will the banks be able to NOT exercise the triggers if the loans have been used to issue debt? Do the bond(?) holders have a say?

Much like the current efforts to mitigate ARM resets I expect the servicers and the underlying collateral holders to work together on this. If the asset is performing (payments being received), it is pretty easy to argue that it is better to continue taking the payments and wait for the underlying LTV to eventually improve then force a foreclosure.

[EJ]

Re: EJ's Short Report - Nov. 1, 2007

Much like the current efforts to mitigate ARM resets I expect the servicers and the underlying collateral holders to work together on this. If the asset is performing (payments being received), it is pretty easy to argue that it is better to continue taking the payments and wait for the underlying LTV to eventually improve then force a foreclosure.

As they say on Wall Street, a rolling loan gathers no loss.