Friday, November 23, 2007

Perception vs. Reality

The financial press keeps talking about huge losses in subprime & CDOs and CLOs. And the major financial institutions get painted with that tar brush, as if they are holding the risky paper.

The reality is that as the subprime mortgage loans default - there are very few corporate defaults still - the real losses go to the subordinated layers of the structured debt first. And those layers are rather thick before the Aaa/AAA paper gets any.

I'm talking about real losses, not perceived market losses created by a selling panic.

So who owned the subordinated classes - the AA, A BBB and lower rated classes? The beefers - hedge funds - and some managed accounts for pension funds. That is where the "real" losses will be put.

Billions and billions of real losses go to and will go to classes owned by many beefers and they are being liquidated. That will be done by year end, or sooner.

Have you noticed how no one is talking about that paper? I haven't heard a single story in the financial press about that paper. How much of it is there? Billions and billions upon billions. And it bears the first, second, third and more layers of losses before the Aaa/AAA paper bears even $1 real loss.

When the dust settles and the actual losses show up in the trustee reports, as a group those Aaa/AAA classes are NOT going to show much, if any, real losses.

Golly, if I was paranoid, I'd think the beefers were feeding misleading stories to the financial press.

I am very long BAC, C, WB and JPM for long term. I have a trading long in CFC.

Over a long time frame, reality will rule over perception.


Bunkerman said...

GOLD MIST is in, to be picked up Monday at 3PM :-)

Frosty said...

Bunkerman...excelllent! a bottom is in...the spiddy is now 6.3% below the 50 sma, the worst reading since 3-03...oversold indeed.