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The Fed's Worst Enemy, The Mortgage Vigilantes, Are Back
Following up on Mr. Freeze's prior post as to the ultimate futility of the Fed's market intervention, remember what one of the side effects of inflation is? Yes, rising prices. And the expectation of a rise in rates. Alas Ben, you can't have the taxpayers' mortgage cake and have Goldman eat record bonuses at the same time for ever. Thus the mortgage vigilantes come out again. Ans if there is one thing the Fed hates more than losing control of the stock market, it is losing control of the mortgage market. In the past few days, in addition to FFIP going off the charts as Fed Fund futures traders start panicking, we have seen a gradual divergence in the 10 Year - 30 MTG spread. Will this continue? Yes, until such time as Goldman HoldCo and OpCo decide to kill equities one more time before the March expiration of QE. The rush to safety (which unfathomably still includes MBS and agencies) should collapse the spread for the last time before the hyper [deflationary/inflationary] collapse finally sets in. In the meantime equity traders, i.e., the guys who trade 3 shares amongst each other, are hoping the top is at least one more day away. But at this point who cares about a bidless market: with so many HFT programs, it just. can't. happen.
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I think they are waiting for a "trigger" event to crash the US equities.
Then, look out below!
Exactly right truont.
We can't have it look as obvious as it already is. What we need is a foil.
Who's it gonna be? Israel? .. you guys ready to roll? No? Hmm... Hey Iran, you guys ready for your first underground test yet? No? Hmm... And Greece isn't quite ready to go tits-up yet, so I guess it's going to have to be a false flag operation. Everybody try to look surprised, ok?
lol...at least one person knows how the criminals
operate...
Including you, that makes two,,,and me, thats three. Are we a criminally leaning society? What do you think?
agreed, "plausible deniability" seems about right. they need an exogenous shock to claim was "unforeseeable".
having said that, idiot long-only's not selling anything to show "winners" in their 12/31 filings are as culpable.
Just blaming GW again would probably be good enuff.
So sad, but true.
But you'd really have to worry the locals that it's their doorstep possibly getting blowed up vs. some 13th century peasant's wedding ceremony in the Afghan hills. That's so 2003. U.S. citizens need to breath a little smoke to get them to throw up more of their rights and $$.
Canada had better watch it. Canadian Bacon anyone?
That's the trillion dollar question: What will be the next trigger event?
China's stimulus will have an equal but opposite effect someday, but I don't think that will be the black swan. The end of QE without a series of direct injections to immediately replace it will allow gravity to go back to work; and this will happen sooner than later.
But what is likely to be the trigger -or- the series of events that cause sellers to return in sufficient number to overpower the computer buy programs that form today's market floor?
Identifying possible causes and or event chains would be an interesting group think event. Perhaps it could be framed as a thread and asked here. The smart people here could figure out all the angles.
I think, as many here, that HFT sets the floor. There's always another buyer and stocks are being flipped like real estate a couple of years ago. Cash, printed or otherwise, is fuel and the end of housing subsidies and Fed agency purchases in the Spring will need to be replaced by real money to prevent gravity from taking hold. The new frugality and depressed real estate prices will keep credit from growing like before.
Will a new way to say 'green shoots' appear to propel the market higher or will this be where the market resets by 20%-30%?
Personally, I think the HFT fraudsters are blowing a great opportunity. If they allowed or caused the market to fall by 30% using limited cash in the process, they could do it all over again and maybe get another allowance from Uncle Stupid in the process to bring the market back to prescribed levels. This would fund 2010 bonuses quite well.
a clue from the SEC post?
Effective Jan. 15, 2010, the Section 31 fee rate applicable to securities transactions on the exchanges and over-the-counter markets will decrease to $12.70 per million dollars.
Identifying possible causes and or event chains would be an interesting group think event. Perhaps it could be framed as a thread and asked here. The smart people here could figure out all the angles.
I like this suggestion. Please email ZH so they may do a open thread. I recall that the Yen carry trade reversed by forces that were not trigger related but other natural forces. Am I correct? Anyway, great idea brother.
Yes, an event similar to the spoon running away with the plate. When it is time to pull the plug, all it will take is for Bernanke's dog to get sick.
"should collapse the spread for the last time before the hyper [deflationary/inflationary] collapse finally sets in."
Come on, I've been waiting for the last time for the last 5 times it was supposed to be the last time.
We've got a good 3 more times, at least.
Maybe. Meredith Whitney is on record recently saying that the Fed is out of bullets.
As I mentioned when that article was up, I somewhat agree. I think there are still more bullets, but they are more insane. E.g. nationalizing the pensions in order to "save" them. Retirement accounts, too.
The current Tim and Benny show has shown that these guys are so desparate that they are just plain crazy. $23 Trillion worth of crazy. They will literally stop at nothing in order to try to restart the F.I.R.E. economy.
The only question is whether it will happen before the next leg downward. I'm cautiously betting no, but I won't underestimate their madness again, I hope.
As far as I can guess, it doesn't seem unrealistic that they can keep firing their current bullet over and over for a while. How long has Japan been fooling around with QE and borrowing unsustainably? Other countries, same story. I recon with our better reserve currency lever we can last longer than them.
In the end, I agree that I don't think it can't keep going like this. But there's plenty of others who have a headstart on us.
Maybe a hard landing collapse really is imminent, that's also realistic. But to keep insisting it is going to happen on any short term timeline, you're more likely to look like Chicken Little the longer you keep doing it.
I think Jack is on the right track here.
Whether the Fed has anymore bullets left in the arsenal or not, they will try to cycle between reflation and deflation until there just isn't anymore juice left.
What I will agree with, though, is that there is much less juice here than meets the eye. Japan at least had the benefit of a society of "over-savers"-- and ironically, had the good 'ol USofA supporting their export market. Well, at least until recently. The US doesn't have a whole lot of debt capacity to really play with, and it's been a long time since the US has been export dependent. If we continue to play the reflation game, higher sovereign debt risks and an imploding currency will eventually influence foreign investors to demand higher rates.
I can see another "one off" of "lets scare the ever living crap" of the global financial markets to induce a quality trade for the US Treasury markets. Then, perhaps, we see one more round of QE. Even then, I'm afraid it will just be one more attempt to buy time.
I try not to underestimate the creativity of people in power's ability to stay in power. theyll keep this game going longer than I think they can.
Good point... and I agree.
For the Treasury to stay in the game, they need to issue at very low interest rates.
For the Fed to stay in the game, they need to keep the USD from collapsing.
Bernanke, in particular, is likely to be very creative in keeping the shell game going forward.
From what I've seen, it appears TPTB is bracing the banks for another round of bubble popping in the form of more debt deflation. The only good news about this is that (a) rates stay low; and (b) the dollar stays strong.
Interestingly enough, if there's at least some nominal success in wringing bad debt out of the finanical system... QE 2.0 (more reflation) may be a bit of an easier sell precisely because you don't want debt deflation to go totally out of hand.
No doubt, our so-called "leaders" will try to cycle between this delicate balance as much as is possible. But there will be limits to what they can do...
a controlled demolition in slow motion limiting the collateral damage to those inside the inner circle. to those outside, oh well, shit happens
I really think so - as the song says.
Umm, who are you referring to as insisting that a hard collapse is going to happen on any short term scale? I'm of the opinion that it will take years to unwind across the economy. The Stock Market is a different story, but it's not the economy. And even there, I see the typical retrenchments taking place, but over the long term.
I also don't think they can keep up the QE. But I'd agree that they have some breathing room, with various flights to the dollar taking place over time.
+1 The size and consequences of the problem make it highly likely that extreme measures will be taken. I also tend to think to think they'll wait until the next leg down. It was getting close to pitch fork time at one point.
Have you noticed what doesn't work vis a vis pitchforks, whether Pittsburgh or Buenos Aires?
The crowd in the street faces the police line, the police line moves, tear gas is thrown, the people throw the tear gas back. Bottom line nothing changes. Taking to the streets is a waste of time. The French however went straight to the top and then to the guillotine. The police line and the people, so boring, so monotonous and so ineffective.
True. Every time I have returned from Buenos Aires in the last few years, the US has looked more like Argentina. Maybe Palin is set to become the US version of Kirchner...
5 years ago Al "ahole" Gore said that the northern ice would be gone in 5 years. NOT! "ahole" just said that in 5 years the northern will be gone in 5 years. Unlike ahole, the numbers do not lie. Collapse will be there like an exploding 4th of July. Maybe we can not time it, but it will be there. Invest in gun powder bro. :)
Waiting for the false flag warning, go short, windfall profits, before it happens.
The top has been "at least one more day away" since mid Sept.
Sept 23 , IWM high was $62.61
Maybe today is "that Day", triple top anyone?
http://stockcharts.com/h-sc/ui?s=IWM&p=D&yr=1&mn=6&dy=0&id=p47588237179
spx has a quintuple top.
Although it also has a quintuple bottom. Some may interpret it as consolidation.
just one fly in the ointment with that thought : arb guys on Street just LOVE really steep yield curves and buying GSE mbs with ability to easily lever up the spread 20x1 in repo markets gets all the more tempting as curve gets steeper .
Expand your graph to 1 month and you'll see we were at +79 just 3 weeksd ago .
It ain't mortgage 'vigilantes' , its US Treasury traders who are the vigilantes .
What is truly stunning is when all the dim bulbs on CNBC chortle how the smart money is dumping bonds to buy stocks that nobody points out higher rates is guaranteed to be bad for stocks ( i know , this time is different and we can see interest rates and SPX soar upwards together )
A 25% drop from 1200 still only gets us back to 900...If on a big downdraft we didn't break 900 then a lotta people would notice that what was previously resistance would then appear to be support.
Point being, one more speculative ramp then any parties capable and interested in crashing the market could do so while preserving major support levels.
A normal retracement in a bull market goes back to 900
A "normal" retrace is around 30% which takes us to SPX 770. I fully expect that in the coming year at minimum. For now, there is no "normal."
I'm with you, no normal and no bull market... other than gold and silver. Gold has good retracements!
"In the meantime equity traders, i.e., the guys who trade 3 shares amongst each other, are hoping the top is at least one more day away. But at this point who cares about a bidless market: with so many HFT programs, it just. can't. happen."
hilarious.
You try expanding that chart out for more than, say... 5 days?
Well, I guess if 5 days does a trend make (as TD implies with the above 'analysis') throw up a chart on gold and lets 'analyze' that.
If the audit the Fed movement gets too much traction, then a large crash could be used to persuade congress not to proceed. "The markets are nervous about Fed Independence" would be an easy headline to sell to the MSM until they get what they want.
"The markets are nervous about Fed Independence"
That is like saying the markets are nervous about becoming free markets again.... God help us if that ever happens.
Valid point. I suspect that they've beaten Audit the Fed though. RP was right, but they've marginalized him. What it's going to take is a consumer driven collapse that they can't buy their way out of. It's coming...just don't know when. We all have to remember, credit is driving the bus and credit continues to contract. Everything else is a sideshow.
The real shoe drops when China starts failing...
And it will....2010....
nope, china ain't going to be trigger again, it was the last trigger and it was inflation there which festered for at least 12 months before the ccp ordered the CB to jack rates and taxed stock transaction which finally killed the SSE. And even then the SPX took another 3 months to react to SSE collapse. Today CPI in china just turned positive in November, still no mad stampede to buy cooking oil outside carrefour stores in szechuan, so any SSE collapse is still months away.
next year will see feeble MBS supply. this year's supply was mostly securitizing and selling off FHLMC/FNMA's balance sheet holdings... in turn bought by the Fed. we'll see both supply and demand drop next year, leaving spreads unchanged to, imo, tighter...
supply in the 2004-2006 time period was very low, because no one was doing agency business, but spreads were in the 120-150 range, why would they stay at 70bps? especially as rates rise, is that enough to compensate for the negative convexity?
spreads are still low, in a "normal" (2004ish) market spreads would be 130 or so, so the current coupon agency would be 4.95, not 4.50 where it is today. spreads have much farther to widen come march.
gonna have to bring down the curve somehow if they aren't buying mortgages.
A few Trillion of supply coming will do that..
The deficit for fiscal 2010 should be close to $2 trillion, up from $1.4 trillion in 2009. The projection for the next ten years is at least $10 trillion. That means an increase of 150% to be serviced by 60% increase in tax revenue in a world where current receipts are off 30%. Even in better times recently tax revenues only increased by 12% during the biggest real estate and stock booms ever. We are about to find out that the muddle through theory does not work. Just for good measure we will add that unfunded liabilities increased by $9 trillion last year alone. That is ten years of deficits in just one year. Who in their right mine is going to fund and support such profligacy?
Int Forecaster
Guys, you all just don't think it all through:
1) You cannot have inflation when there is no demand for more or less anything. If no one wants to buy your widget, how do you increase its price? If no one wants to buy your HOUSE, how do you increase its price?
2) OIL . . . OIL . . . OIL. Wake up and smell the coffee, people. Oil is at $74 and There Is No Demand. Oil is priced $7 ABOVE its average 2007 price and demand is down about 4 million barrels a day from 2007. Mexico's production has crashed. Norway's production has crashed. The UK's production has crashed. They are pumping 8% less oil per year. They are not doing so voluntarily. People are quoting Iraq's Oil Minister as claiming,right after the auction they just held, that they will produce 14 million barrels a day by 2013. Iraq pumps 2.4 mbpd right now in 2009 and friggin Saudi Arabia has never in all history pumped more than 12 mbpd. This bozo is NOT RELIABLE. And no, I'm not long oil, particularly.
3) Think About It, People. Growth is 2.2% when it's supposed to be a V. Oil Will Not Allow Growth. Period and full stop. Without growth there will be no inflation. Oil is 2-3X the price it was for the 2003 recovery. There Will Be No V.
Ever. Forever.
get real. u live in a nominal world.
Doesn't the "remaining" 65-75% of stimulus money still need to be borrowed? Didn't the "remainder" of tarp just get earmarked for some other social experiment? Is there a stimulus and TARP vault filled with +/- $1T to be found anywhere except the fed's bank reserves? It seems likely that the woefully under capitalized, recently un-tarped mega zombie banks will come back to an empty and enraged bailout trough. Yields have no choice but to keep rising in the face of new issuance. And some of the perpetually acid hallucinating demented congress folk actually have the stones to talk about another stimulus. The equity market has gained some momentum, but unless the prospect of a 6%+ 30yr fixed mortgage is somehow the elixir for the real estate market, the rug will be yanked at any moment. I'm completely amazed at the people who just witnessed an absolute murderer of a sell off less than a year ago who think that all is well. I had a financial advisor look at me with a straight face the other day and tell me now is the time to be agressively getting long.
Joanito that was not a financial advisor just another salesman disguised as one! LOL
Agreed.
Monday, December 21, 2009
Lawsuit Against Loan Servicer
"There has been ample time for loan servicers to strengthen their efforts and start making a significant difference in preventing home foreclosures," said Ohio Attorney General Richard Cordray. "Unfortunately, many servicers have instead repeatedly chosen to aggravate the crisis through noncompliance and excuses. As I see it, for every excuse, hundreds of families become more vulnerable to losing their homes. In Ohio, we have zero tolerance for any more excuses."
http://tinyurl.com/yag8spz
Yep, this year flushed out the shorts and next year will flush out the longs - go short in 2010!
History of the yield curve & $INDU crashes simplified.
1929 crash as the yield curve rate of climb accelerated from the low
ditto SPX crashes / drops as yield curve rises/pivots from the floor
1937 (miniaturized), 1953, 1957, 1960, not 1962, 1966 (slightly early marginal example), 1969, 1973, not 1976, 1981 (complex hypervolatile period), not 1984, not 1987, 2000, 2007
~20 occurrences, 5 non-performers, fair odds.
Yield curve top in stays in place a protracted 3 yrs 1932-1935, longer than usual, w/2 black swan downspike events 1931 & 1933. Note the GBP:USD violent crash/recovery 1931-1933 w/35% swings.
1932-1933 Homestake zooms 180% right after the first yc downspike in 1932.
*** see USD pivots & rises at the top of the yield curves 1988, 1999, 2002, 2009
*** at/soon after peak curve gold/silver/xau/hui/gdx do finishing bursts, eg HS 1932 (180%), XAU 1989 (35%), 1993 (115%), 2003 (70%),,, 2010? The 70s need a separate study.
SPX/DOW action from yield curve peaks : 1938 up, 1954 up , 1958 up, 1961 up, 1967 up, 1971 up, 1975 up, 1982 up, 1984 up, 1988 up, 1993 up, 2004 up
above rudimentary study using StockCharts 100 yr DOW chart http://stockcharts.com/charts/historical/ & Paul Kasriel's yield spread chart from 1927-2007 http://seekingalpha.com/article/23870-an-80-year-yield-curve-history-and...
A noose of sorts is tightening in my corner of the real estate market. There has been a rash of bank actions against developers in the last couple of weeks in my region, which may be a signal of sorts of the end of "extend and pretend." Once one or two banks take these steps, others will be pressured to do the same.
Sales of new construction are getting walloped by the lack of mortgage financing. It is easier to get a mortgage for a modestly priced (mortgage =/< $417,000) single home on a lot (think "sprawl") than to buy a $250,000 townhouse in a dense, properly planned condominium development, as FHA, Fannie and Freddie have drastically tightened eligibility for any condominium projects. There are virtually no jumbos - that market is dead. So if you need a mortgage bigger than $417,000, forget it (that number is higher for NY, CA and some other regions of the country).
Please realize that for the first time in eons, the only mortgages are federally insured ones. All other credit availability for buyers depended upon the robust private securitization market, now dead. So no matter what you read, there are limits to how many homes can be sold that are very real and will slow the return of the housing market we once experienced, no doubt for the better, but not so good for those looking for a recovery in housing to boost the rest of the economy. Add to that the drip drip drip of foreclosures. And the favorite saying is " housing leads the recovery," but I'm thinking that rule applied in a prior paradigm. Stabilization is the best we can hope for, and repricing based on the "new normal."
I think the black swan that is coming MUST be living somewhere in the Fed's balance sheet. There are things in there that must be just a disaster. And the debt required to fund all this bailout nonsense will lead to a currency failure of one sort or another, absent an exogenous event triggering the flight to safety. War is the answer, I guess.
"War is the answer, I guess."
A very good guess. I believe that we are spending too much time thinking about what the next bull/bear market will look like, when we should be thinking about what the next war will look like.
The DOW is flat on the day and every number that came out today was lower then expected. This on the heels of the very large GDP revisions. Something aint right!!!