patrick.net

Claire:

There is a spreadsheet at the New York Fed website that compares Alt-A to Subprimes from a 1% sample. I'm not getting into the Fed website right now or I would provide you with a link. (Hmm.. wonder what that's all about.)

The basics are, 1) the amount of Principle we're talking about is about the same: fewer Alt-As, but they are higher amounts. 2) leveraged 98% or more, just like the SPs. 3) falling into default at a rate that resembles 2 years ago on SP. 4) low/no doc percentage very high. 5) Higher percentage are ARMs

In other words, by most measures the Alt-As look almost as crappy or crappier than the SPs. And, as per point one, that means we have just as big a default to absorb from them in the next two years as we got in the last two.

And as per Fuzzy's point, with incomes and RE values going down ever faster, Alt-A will tend to implode even more spectacularly. But of course, what's left of sub-prime will also continue to go round the drain.

Principal.

D'oh!

One last point: Owner Occupied is only about 75% for Alt-A Vs. high 90%s for SP.

I am still in moderation after 8 hours?

However, what are you going to look for as signs?

Unemployment and foreclosures decrease for six straight months.

OK: Here's the site:

http://www.newyorkfed.org/regional/US_August.xls

Some modification of my numbers from above, but the upshot still the same. Roughly $4.7T in ALT-A ARMs that haven't started to reset yet, vs. $4T in SP ARMs. As of August, 75% of Alt-A Arms were current(!!!), Vs. 47% of SP ARMs. I am assuming that 25k-30k observations yield a pretty fair statistical sample. ;-)

25% of Alt-A ARMs are already delinquent before the resets!

SP, I don't know if you saw it on a prior thread but I scanned that letter from Boxer and can send it to you. Just let me know.

Ok I made a bet that may work out for me.

http://www.cnn.com/2008/POLITICS/10/13/campaign.wrap/index.html

If this 401k withdraw penalty and tax free does get written into law, I plan to take advantage of it to the max! Lucky for me I took the biggest loan out that I could 3 weeks ago before the market carnage. The best part is I took it out to add to my cash position for buying land. I don't need the money for paying my bills :)

WOW Markets up close to 12%. Yes, this is the bottom. LOL

The Results about to come out would be nasty and that should put downword pressure on stock prices. I am pretty sure there isn't much support for commodities. Paulson & Co scared the heck out of general population and froze markets. It should take a long time to unfreeze it.

I would look for Job losses over 200K+/month, add 3-6 months for a reasonable bottom. My guess is the results will start to look bad from past quarter. End of Q1 2009 would be my guess. Any case, I'll start fishing when markets are down another 25% from here.

My Predictions ( Assuming best case scenerio for US):

1) Dow rallies to 10,000 ( few months - year)
- We keep getting bad news from financials due to its anemia from the chronic toxic debt diarrhea.
- Moderately bad earnings from other sectors.
- massive consolidation of financial sector continues.
- Dow goes sideways for months to find the right values between 8K - 10.5K. Most likely settles at 9.5k
2) medium term (2-3 yers)
- Earnings keep coming less than expected which keeps hammering the stock martket's moderately. US consumer cannot support the propped up market. US keeps moving ahead with ecoonomic contraction.
Housing keeps dropping moderately. Stock market back at 8K
3) long term ( 6- 7 years)
- Stock market keeps going sideways between 7K - 8.5K
- Another bubble is brewing. This would be the final bubble if unchecked.
Dollar keeps going down the tubes.
-housing still in the price range of 1999 - 2000.

*not an investment advice *

And to answer the Blog title : Is this the bottom ?

I think , It is a bottom +/- 15% , unless our economy completely loses its ability to function. In that case , it would be a depression and nobody would even care to do bottom fishing.

This is no bottom. This is relief that our economy didn't derail completely over the weekend.

THE bottom will be when housing stabilizes. The pundits seem to forget that we have another 20% to fall. Meanwhile, our government has pulled every backstop available to solve a liquidity crisis which doesn't exist. The country is broke. No one is buying ANYTHING. Earnings disappeared starting from mid-September.

1 in 6 homeowners are underwater. In 6 months, that number will be 1 in 3. Unemployment is in route to 10%, but not likely to stop there.

Not to mention our government just sold out the only thing we kindof had left... the dollar. Who did they sell it to? The banks.

Gee, I feel so warm and fuzzy. Maybe I'll buy stock in one of those companies that makes speaker systems for ipods tomorrow.

FuzzyMath : "1 in 6 homeowners are underwater"

The only true valuation of US dollar and its financial worth can come from a depression. Sadly thats the truth. We will keep pushing the envelope till then.

How do you evaluate anything these days? The only thing that seems certain is that governments around the world will continue to undermine our efforts engage the economy in any way. One can't look to politics because both sides are advocating more and more manipulation. This massive rebound today looks like a giant manipulation, an overcorrecting swerve just before the minivan rolls over and over and over.

It's either demand for dollars or lack of alternative.

With 700B the Gov't could buy 140Million e-mini s&p futures (margin is about $5,000). Obviously they didn't over leverage as it only traded 3.5Million contracts. Hopefully they took profits at the end of the day!

What if it starts tunneling?

Oct. 13 (Bloomberg) -- The Bush administration will announce a plan to rescue frozen credit markets that includes spending about half of a total of $250 billion for stakes in nine major banks, according to people briefed on the matter.

I absolutely can not wait to hear what the valuation and terms of the investments are.

the question may be, is this the nominal bottom?

For most sectors (other than financial), maybe. It looks like all the governments are going to ignore inflation for quite a while and focus on pumping, so in the end the stock price expressed in nominal terms may have bottomed.

Oh, one thing that bothers me are those rebate checks. Why does the government want its citizens to prop up the Chinese employment by spending money on rebate? How about building and maintaining some lousy infrastructure here, making sure that the rebate effect stays home? One cannot find stupider and more short-sighted politicians than the American ones, distributing more tax money so that their people can buy more Chinese shit.

the question may be, is this the nominal bottom?

You think Dow 8000 is a nominal bottom? Or did you mean local bottom?

TOB, I once saw a book in Barnes that had a similar book. It talked about the golden ration in market movements. I don't remember the book, but I do remember the math.

Make a line segment with points a' b' & c'.

A= (a' to b') B=(b' to c') C=(a' to c')

Now solve it with the following system of equations.

A+B=C

(A/C)=(B/A)

C=1

the roots are,

[1(+/-) ((5)^.5))]/2

This is the golden ratio that is found everywhere in nature.

Well, looking at the trillions of dollars pumped into the system, and trillions more lined up, I won't be surprised that this is the nominal bottom. I am not saying one should jump in and buy more stocks, but there won't be too much nominal losses from where we were last Friday given the pumping action.

But, here is one major risk which may break all bottoms - boomers cashing out to fund their retirement, originally there could be an orderly exit, given what we are facing, orderly exit is impossible. It depends on how their auto-balancing mutual funds, pension funds, or boomer individuals cash out, the bottom may completely fall out.

What I expect to happen is we will make US stock market far more accessible to foreign investors, particularly from Asia. Boomers understand very well that they will need more than the Xers and Yers to support the current valuation for their comfortable retirement.

RE: golden ratio

It is also called Fibonacci analysis, which is half-way between technical analysis and financial astrology.

Boomers understand very well that they will need more than the Xers and Yers to support the current valuation for their comfortable retirement.

Boomers need only God to support the current valuation, which takes no less than divine intervention to sustain over mid-to-long-term.

Peter,

Don't worry about astrology. Like many boomers, I am reading some chicken bones to see my financial future.

You just made it so.

Here is a better boomer rant than surfer-X's :-)

http://www.youtube.com/watch?v=kF05oDvHPq8&feature=related

Can you guys clarify on the disorderly cashing out for retirement funds.
Will the boomers suddenly convert all thier holdings in to cash at a loss, if they believe we will somehow manage to get through this crisis?
Even if they do that, will they spend them at once ( inflation spike) ?

I Believe, we won't see all boomers suddenly deciding one fine day that they want to cash out all thier retirements and buy all the goods in the markets. I also believe that they won't be selling at bottoms and will be waiting for the rally to continue so that thier holdings reach comfortable levels.

I believe there will be significant downward pressure on stock market once it reached 10K as boomers will be selling stocks and moving thier funds in to bonds when the market looks good enough for them. Recent Bad memories will affect future asset allocation in thier portfolio's. They literally had a near death experience with the collapse.

I'd nominate George Carlin as the all time counter-boomer.

I loved his stuff when I was a kid in the 80s and I consider myself lucky that I did get to see one of his last acts in person.

Different hicks,

http://www.youtube.com/watch?v=00OUOplZ2E8

Here is an analogy of what the boomers did to themselves.

Respectfully, I see a lot of Carlin in that performance. He was the father of that sytle of comedy. Absolutely hilarious.

style

I Believe, we won’t see all boomers suddenly deciding one fine day that they want to cash out all thier retirements and buy all the goods in the markets.

Yes, on the National Boomers Pride Day.

does anyone here do serious ‘quant’ analysis?

I do casual "quant" analysis.

Observe me, do the reverse, and you may have a chance.

Not investment advice.

I do 'some' quant.
I certainly do tons of higher order math.

Is there a sufficiently reliable "quant analysis" based on all the existing boomer holdings and their stacking retirement age to predict when the stock market will hit the bottom?

Oh, perhaps we also need boomer mortgage and other asset profile, those with sufficient money are more likely to hold on to their stocks compared to those who need money yesterday to make ends meet.

Maybe boomers will be the first generation that collectively go broke in their old age.

Yes, on the National Boomers Pride Day.

Oh dear, I didn't get my flyer in the mail this year. On what date does this occur? Do we still burn Guy Fawkes and Surfer-X in effigy? :?

Actually when you think about it, it is no laughing matter that not enough population from the US or Europe will have enough money to buy up all the liquid assets from the boomers, it is simply a mathematical impossibility, unless by virtue of some kind of miracle, we all suddenly create a lot more wealth through innovation and tech breakthrough, but wealth must be materialized by the counterparty who pay enough to consume it or hoard it. That counterparty is warm body with money to pay.

The boomer were not a problem because they were thought to be the richest generation the world has ever seen, so there is no need for them to cash out everything, they just pass them down to their kids, that was always the assumption, so they will sell some to fund retirement, but it won't be a pressing need for them to liquidate like what we saw on Friday.

However, catching up on recent financial data of boomers makes one worry that if their retirement will be a financial disaster for all of us following. Housing will be worthless for another 20 years, simply because the population pyramid dictates so, and don't think legal or illegal immigration is going to help us. Illegal and legal immigrants typically come to the US in their 20s, not when they are almost 40. For them to save enough to start buying a house in a proper environment, that will take another decade no matter which route you take (illegal immigrants make lower pay, but legal immigrants need much longer study period like 6 years for PhD before making any serious money). So even if we drastically increase the number of immigrants allowed in this country, it will take another 10 years for them to pitch in the housing market.

It is in fact much easier to resolve the stock market dilemma, if the US still proves itself to be the most transparent and fair market, foreign capital will continue to pour in and we can take advantage of the benefits, but not the burden of population growth which all happen outside of the country. But after the debacle of Wall Street, how many foreigners are still looking at the US as the ultimate place to park their money?

The investment instruments that will thrive in the next 2 decades will be what the foreign population and productivity growth will consume and hoard. That is definitely not houses in the US.

Paulson quote from Sept. 23 senate banking committee testimony:

Says Paulson: "RTC was about failure. Putting capital into institutions is about failure. [my bailout proposal] is about success." He does say that in certain cases where institutions are in trouble Treasury might want to take an equity stake. But in general he wants healthy institutions to want to participate, and he doesn't think they'll want to dilute their shareholders.

Acknowledgment of failure brings a record rally? He has been wrong about everything he's said so far.

NOT the bottom.

The hope is that this will bring banks to lend again but the elephant in the room is average american that's too loaded with debt to borrow any more.

Next up at the bailout feeding trough-- the consumer.