Monday, March 12, 2007

Kass: Subprime's Siren Call

kass was right like fleckenstein! a little bit early but the latest events should have rewarded them ......

kass lag genau wie fleckenstein die ganze zeit richtig. das timining war etwas früh aber die letzten wochen dürften dafür entschädigt haben.....

Maybe Jim "El Capitan" Cramer is right when he writes, Get Over Subprime's Collapse and in his view that the brokerage companies will be relatively immune from the subprime carnage. ( or waiting with cramer and friends....)

But I doubt it.

It is far too easy and convenient to dismiss the subprime woes based on the notion that because it is on the cover of The New York Times or on the tongue of many market commentators, it is either discounted or not as bad as it seems. Rather than listen to the comments of others on the Street and in the media, I prefer to deal in facts as opposed to simple and glib sound bites.

Here is a tidbit from Page 132 (yes, I do read every page in these filings!) of Goldman Sachs' 10-K dated Nov. 24, 2006.
....During the years ended November 2006 and November 2005, the firm securitized $103.92 billion and $92.00 billion, respectively, of financial assets, including $67.73 billion and $65.18 billion, respectively, of residential mortgage loans and securities. Cash flows received on retained interests were approximately $801 million and $908 million for the years ended November 2006 and November 2005, respectively. As of November 2006 and November 2005, the firm held $7.08 billion and $6.07 billion of retained interests, respectively, including $5.18 billion and $5.62 billion, respectively, held in QSPEs.

Note to Cramer: El Capitan: I am officially ordering a Code Red!

The Subprime Fungus
"I guess we are a bit surprised at how fast this (subprime) has unraveled." -- Tom Zimmerman, head of Asset-Backed Securities research at UBS, in a recent conference call for institutional investors. ( he should be "ex-head" of ubs...der sollte bald ex chef sein....)

The fungus of subprime credits has grown in scope and in economic consequence over the last three months. We are now beginning to experience a full-blown bursting of the latest asset bubble, which could prove even more devastating than the piercing of the Nasdaqstock bubble in 2000. The impact of the subprime collapse on the availability of mortgage credit -- and, in turn, consumer spending -- is the primary reason why I believe the U.S. economy and corporate profits will materially disappoint most observers, and why the equity markets remain vulnerable.
Many like Cramer, Larry Kudlow and others, readily dismiss the potential spending consequences of substantially less capacity in the subprime mortgage-lending market and the emerging trend by mainstream originators and lenders to reduce lending in the primary mortgage market and for refinancing cashouts.

Indeed, Jim takes the subprime issue one step further, noting that the mortgage house of pain will have a salutary market and economic result, as it will hasten the Federal Reserve's path toward monetary ease. ( cramer´s mana )

thanks to

Shockingly (at least to me), many others can't comprehend the link between mortgage availability and consumer spending, claiming that the correlation between the two variables is unclear. (this chart is really confusing.....dieser chart ist in der tat nicht einfach zu deuten....)

I have not touched on the outlook for considerably higher credit losses at the financial intermediaries that address the housing market, which I will reserve for a future time. (read more at the label loan loss reserves, skip the first/this )
However, I will underscore the perfunctory conference calls and the generally disingenuous role of Wall Street rating agencies, which continue to hide the damage for owners of collateralized product paper as it relates to the collapse of the subprime market.
It seems that at the end of every cycle's excesses, the investment community rationalizes the indefensible, owing to the enormous profitability of the products that are being peddled. The higher a market surges, the easier the product is to sell, but the less straightforward the pitch becomes.

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Anonymous Anonymous said...

Looks like LEND may be about to bite the big one:

11:13 PM  
Blogger jmf said...

thanks for the link.

more to come.....

funny how the sp500 has closed in the green.

11:28 PM  

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