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ABX And CMBX Update: A False Bid?
With the market now down for the year, and high beta HY bonds getting blown up left and right, not every risk asset is following through in the liquidation race. Case in point: ABX and CMBX, which one can say are the worst of the worst in risk assets. The charts below of the AAA-rated tranche of the various vintages of ABX Subprime (incidentally, are any readers aware of ABX Prime markets yet? It appears after much hoopla by MarkIt, nobody is trading in the Prime version as of yet) and CMBX indicate that while there has been a notable swoon in closing prices of both ABX and CMBX, there is long way to go before either of these hit not only early 2010 levels, but their fair values, somewhere about 50% lower from current prices, which are based on nothing but continued hope of government bailouts of holders of these assets, the bulk of which are the TBTF banks themselves. Should this last recourse of the Bernanke Put mentality crash, and with even permabulls like Goldman once again turning bearish on housing, look for the broader market to start purchasing Dow 9,000 hats very soon.
ABX:
CMBX:
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Bernanke is now seriously thinking his last strategy.
He is very fond of his glock 40. It is loaded, close and ready to go.
As I have predicted before, it will be at 2:30 am on a Tuesday.
His only viable option.
Let's hope we don't have to wait to long to get there.
I always wanted to put on the 9000 boxershorts back on :)
Are those the ones with the extra absorbent gusset?
Don't you have a pair with "too big to fail?"
Well this is what I was asking cheeky, I do not see a 20% correction in a month here.
By the was TD, if housing corrects 50% to 1997 levels +- then DOW 5000 hats are needed
If reversion to the mean happens you can expect a nice overshot on the top of the 50%, a 65% maybe?
And if financial armageddon hits try 80% to 90%
Muir; I do not know will you read this or not; but here it goes [I have also left you a response in the original thread]. What Tyler presented here are AAA ABS, MBS, RMBS of different vintages [07-1, 07-2, 06-1, 06-2] and that is a significantly different metric than the one I used to bash on GS analysis.
What I used was the HE.AAA and HE.PENAAA meta-indexes, not any particular sub-index of said family [which clearly shows that the values of the family are averages of price movements in the sub-indexes, but HE.AAA is compromised of the most liquid ABS, MBS, RMBS of the same rating [meaning the issuance vintage is of no meaning here since the only measure of what goes into, say, HE.AAA is liquidity [which, theoretically, means that the entire family can solely be compromised of, say, 06-1 collateral and not take any other collateral of other vintages into account due to comparable lack of necessary liquidity] of the constitutive collateral].
Therefore what you are referring to and what my metric was are two different metrics. Mine is the generality of the most liquid AAA collateral [no matter the issue date], while yours are sub-indexes which are structrued solely of the most liquid collateral of defined vintage.
DTCC warehouse data clearly shows the values [deltas only] for different vintages of equally rated constitutive index collateral, vintage families [06, 07] and meta-indexes which are compromised of the most liquid equally rated collateral [no matter the vintage, both semi-annual or annual].
True; all meta-indexes are off-the-run by now, but that is of no significance when/if you trade them. Also, theoretically, arbitrage opportunities are present here since price exploitation can be conducted by arbitraging between sub-indexes, families and meta-indexes [mostly arbitraging collateral underlying or different vintages]. Due to different structure [as described above] of liquidity which compromises said indexes; price exploitation and arbitrage are just one of the few trading ideas one can implement in this market. Last liquidity figures for HE.AAA meta-index put the net notional amount of 5 billion dollars to HE.AAA index. I do not know about what are the amounts for sub-indexes and families, but I opine they are also being traded in a highly liquid market.
I hope this makes things a bit clearer, since it appears we have entered into an argument based solely on misunderstanding the metrics we used.
ZH could never understand how one could advocate a "market rally while at the same time saying fixed income is going to get clobbered." Of course I was wrong about fixed income and for that I am truly, TRULY, sorry.
The Boyz will do anything to keep this zombie party going 5 more months ; even if it means letting us weewees get dry humped by the banksters with more extend/pretend backdoor financing. Thus, I refuse to mothball my Dow 10k hat just yet.
But......once the polls close, shit will definetely be introduced to fan. Until then, I expect to see ballsout skulduggery from the crew.
Didn't some idiot Pension funds dabble in this arena because they were assured the Fed would back them? I'm trying to remember which states said they would buy, but my memory is failing me....
TD: not a good idea to opine on ABX prices without being able to properly analyze the collateral; this is so CNBCish! I agree that some of the indexes may be overvalued, others, however, are undervalued (that's in a low rate environment with further significant deteriorations in the property market).
Good point:
Here is Realpoint on latest delinquency data: https://www.realpoint.com/PublicDocDisplay.aspx?i=xkVM02ieKtQ%3d&m=i0Pyc%2bx7qZZ4%2bsXnymazBA%3d%3d&s=LviRtUKXqs8kml5dHt7FTeE2SZmY0Fvqd4iX49Mk%2f9UapyiFTEO6TA%3d%3d
And here is the latest BarCap remittance report:
April Remit BarCAp
We have re-read each looking for any news of collateral improvement. So far nothing. Will keep you posted if this changes.
btw, no disagreement on CMBX. But ABX is a different story. Just cause everyone defaults does't mean all houses will be worth $0.0 (some are, though!). As long as severities are <100% on average, liquidation may actually be a good thing for some tranches. And don't forget that the government is giving money away via various modification programs (most benefit some tranches and hit others).
Sure, there are risk that we end up in a scenario with no liquidations and forever falling property prices but we're not there yet.
And don't forget, there's no liquidity in that market anymore (not that there ever was much...), so treat prices with a large grain of salt.
I would think ABX is fairly representative since the collateral in it is picked solely based on liquidity [meaning it is the best representation of the broad market picture as defined by the market participants].
If anything that should maybe skew the price up, not down [it can be manipulated or better said wrongly represented by volatility in liquidity which may or may not be somewhat artificial].
Also bi-annual roll-overs should insure the price is always constant [ one would think that the volatility in liquidity is not alway 0 or close to 0] in representation and not a series of movements in a static structure of constitutive collateral.
It gets more detailed for different index strucutures but the idea is basically the same.
Now, CMBX is mostly propped up by churning between the banks and the use of mark-to-model evaluation [think HFT, but on 20 most liquid CMBS] and its price is in no way representative of the market as a whole. Collateral deterioration in CMBX is somewhat different than the collateral deterioration in ABX or MCDX or even LCDX [which is the worst of all the indexes out there].
I mean we could write tomes of books about this, but this is information is probably enough for now.
To start with, ABX only contains subprime bonds and is thus not representative of the mortgage or housing market but just one segment of it.
Also, if you actually look at the delinquency history for deals included in ABX and compare it with all subprime loans included in public deals (LoanPerformance has the data), you will find that ABX is a pretty bad selection of deals. It was designed that way and it turned out that way. Anyone involved in the synthetic ABS market know this. That's way dealers had such a hard time when the market started to tank as they were long protection on single mames (usually average and above average quality) and long ABX (i.e. long risk). The basis has later gone away in BBB space, as everything has defaulted. But it caused a lot of pnl volatility for a number of shops.
As most loans have either defaulted or are delinquent in subprime space these days, it's become rather boring. The main uncertainties are no longer defaults but recoveries and more importantly the timing of liquidations.
A Parody: Management Consultant vs. Investment Banker
http://www.youtube.com/watch?v=zxcvsBheENI
Remember the 2nd leg down in ABX subprime? Around oct/nov 08... Ya, it 'was' trading, but apparently it was so hard to catch a bid on that shit you'd have to be offering at a ridiculous spread.
How are the spreads looking on ABX prime?
Oh, and take a look at the ARM CDSs on prime...ridiculous!
And always appreciate the posts on subprime, good stuff.
Updated DOW charts:
http://stockmarket618.wordpress.com
http://www.zerohedge.com/forum/latest-market-outlook-1
The noise on CMBS might be over done. Yes their will be losses but many of the big losers are the equity tranche holders who were the specials. They are all going BK and getting bought for pennies, the losses will be absorbed. It is not the end for CMBS.
Can whomever posted the Realpoint stuff post the Trepp delinquency report, too?