Friday, November 30, 2007

Day 4

I heard two significant comments.

First from Bill Seidman: he oversaw the clean-up and resolution of the commercial real estate mess of the early 1990s. He said that (1) banks are probably overstating write-downs for their mortgage backed securities and CDOs, and (2) the losses on the Aaa/AAA classes of mortgage backed securities are not going to be large, or any. The fact that there is a house as collateral for the loan supports that. These are not junk bonds - subordinated debt. They have solid collateral that reduces the loss realized upon default.

If a home first mortgage loan had 80% LTV and the Aaa/AAA classes are 80% of the pool, then the average losses on the entire pool would need to be 1 - 80% x 80% = 1 - 64% = 36%. That is not going to happen, except for rare cases. So most of these bank holdings will eventually suffer no losses. Most of the write-offs will be reversed unless they sell now.

Second, Bernanke: He definitely signaled more rate cuts overnight.

We get the PCE inflation numbers today. Those are important. We need to core inflation number to stay low.

Be patient. Buy dips.
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10 comments:

  1. BunkermanNovember 30, 2007 at 4:32 AM

    I figured out how to put "DOW 15,000" onto the helmets. I think they'll look great. hehe now we need the event.

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  2. BunkermanNovember 30, 2007 at 6:19 AM

    Core PCE was OK - 0.1% uptick in the core, but still in the comfort zone at 1.9% year over year.

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  3. FrostyNovember 30, 2007 at 6:45 AM

    CFC atta boy bunky...ridem' cowboy...virtual indeed...well done.

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  4. BunkermanNovember 30, 2007 at 7:32 AM

    The close will be interesting. I suspect the beefers are shorting this AM gap bigtime, especially in the XLF.

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  5. FrostyNovember 30, 2007 at 8:33 AM

    Bunkerman...starting a position in KO today 62.50, would luv to add down to 60...think this is a must own for funds and new money next month will find it's way into KO...hard to find something that acts much better, 70 next year could well be a lock...it is coiled and think it resolves upward soon.

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  6. BunkermanNovember 30, 2007 at 8:49 AM

    I like that one, frosty. Mrs. B has PEP from 65, by the way, in her Sky Fund. Those type of stocks really performed in the 1980s disinflation

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  7. BunkermanNovember 30, 2007 at 8:52 AM

    it looks very undervalued in a low inflation, moderate growth trajectory.

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  8. BunkermanNovember 30, 2007 at 9:04 AM

    If C can hold this gain, that will break the downtrend line.

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  9. FrostyNovember 30, 2007 at 11:40 AM

    Bunkerman...hell of a week young man...GOLD MIST INDEED...CFC very virtual beefer of you, you make us proud...have a good week end and enjoy an 007 cocktail :)

    I was hoping to kick Bud around the blog today, but I think he's scared of you now.

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  10. BunkermanNovember 30, 2007 at 12:35 PM

    True frosty. My scintillating logic can be intimidating ;-)

    Thanks - I am looing forward to my modified Bondini ;-)

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