August 31, 2007

A rousing day in the markets to cap a tumultuous month!

There will be some kind of assistance – not a bailout, honest – for delinquent mortgagees:

Under Bush’s plan, the FHA during the fiscal year beginning Oct. 1 would help in 80,000 more refinancings than under current programs, FHA Commissioner Brian Montgomery said in a conference call with reporters. The agency plans to help 240,000 homeowners refinance during the period, compared to about 100,000 during the fiscal year ending Sept. 30, he said. FHA intends to increase refinancings to more than 600,000 within the next three years.

In the first quarter of this year, the FHA serviced about 3 million mortgages, 12 percent of which were delinquent or in foreclosure. Nationwide, the Washington-based Mortgage Bankers Association reported about 44 million mortgages in existence with an overall delinquency rate of 4.8 percent.

I’ll admit, I’m not entirely sure how much difference this will make … but one can be sure that the Democrats will find some way of trumping it as the Primary and Presidential cycle continues.

At the conference at Jackson Hole, Bernanke made it clear that the Fed would give some kind of assistance – not a bail-out, honest – to the financial system:

“The Federal Reserve stands ready to take additional actions as needed to provide liquidity and promote the orderly functioning of markets,” Bernanke said. He also made clear he won’t rescue investors from bad decisions.

Bloomberg has published the full text of the speech, complete with references. The WSJ has published some reactions to the remarks. In the meantime, inflation news is also good which may provide a veneer of respectability to a rate cut at the next FOMC meeting.

James Hamilton at Econbrowser has reported on the conference but, in my mind, was trumped by one of the commenters, a reader with the sobriquet “Constantine”:

If memory serves, the 1st edition of Shiller’s Irrational Exuberance came out in March 2000. The 2nd edition with expanded coverage of the housing market followed in 2005.

As soon I get word of a 3rd edition going to press, I’m going to fuckin’ liquidate everything I own.

Thanks, Constantine! It’s been a long month – I needed that.

The WSJ is reporting on the conference and has provided more detailed reviews of today’s papers: Should the Fed Target Housing; The Tension between Traditional Economics and Bubbles; and After the Mortgage Revolution the Terror – the last of which highlighting the authors’ view that:

the revolution has still been positive: “mortgage markets that are linked to capital markets are better for consumers and investors, than mortgage systems where the price and allocation of mortgages is determined by the government.”

Thank heavens … it hasn’t been often lately that I’ve seen an endorsement of the free market. I was also heartened to see that The Economist and I are in agreement:

But what look like incredibly sophisticated strategies on the surface can still be very simple at heart. Investors have been doing what banks have done over the centuries, borrowing short and lending long. Or, to put it another way, they have borrowed in liquid form and invested the proceeds in illiquid assets.

They also provide a link to what looks – at a very quick glance – to be a fascinating paper:Market Liquidity and Funding Liquidity, which I may review here … sometime …

Creative destruction in the mortgage business is continuing:

Citigroup Inc., the largest U.S. bank, agreed to buy the wholesale mortgage origination and servicing businesses of ACC Capital Holdings, operator of Ameriquest Mortgage Company and once the nation’s biggest subprime home lender.

Truly, one of the greatest pleasures in life must be access to cash in a buyers’ market!

US equities rose to the point where they were actually up on the month – which I will admit I find shocking. I’m glad, sometimes, that I’m not an equity guy. Canadian equities also rose but are down on the month.

Treasuries finished August’s wild ride with an upwards shift of 4-5 bp, but the big story is the month’s massive steepening of about 18bp.  Will it continue or reverse? Place yer bets, gents, place yer bets … the wheel spins again starting Tuesday.

Mutual funds’ retail cash flows show a move into junk bonds and a slackening of the move out of investment-grade. together with the equity data, it would appear that greed is beginning to triumph over fear!

It was another light day for preferreds – there seems to be some interest in BAM.PR.N at the current price, since it has been in the volume leaders table very often lately.

Note that these indices are experimental; the absolute and relative daily values are expected to change in the final version. In this version, index values are based at 1,000.0 on 2006-6-30
Index Mean Current Yield (at bid) Mean YTW Mean Average Trading Value Mean Mod Dur (YTW) Issues Day’s Perf. Index Value
Ratchet 4.85% 4.88% 21,583 15.81 1 +0.0000% 1,044.5
Fixed-Floater 4.98% 4.79% 112,116 15.85 8 +0.0053% 1,023.6
Floater 4.93% -0.59% 74,442 7.94 4 +0.1397% 1,038.0
Op. Retract 4.84% 3.98% 79,816 3.04 15 -0.0608% 1,024.7
Split-Share 5.08% 4.78% 93,566 3.96 15 +0.0145% 1,044.6
Interest Bearing 6.23% 6.70% 67,665 4.60 3 +0.1041% 1,040.9
Perpetual-Premium 5.51% 5.09% 92,721 5.34 24 +0.1513% 1,029.4
Perpetual-Discount 5.10% 5.13% 263,527 15.28 39 +0.2453% 975.7
Major Price Changes
Issue Index Change Notes
GWO.PR.E SoftMaturity -1.0285% Now with a pre-tax bid-YTW of 4.60% based on a bid of 25.02 and a call 2011-4-30 at 25.00.
BMO.PR.J PerpetualDiscount +1.0245% Now with a pre-tax bid-YTW of 4.99% based on a bid of 22.68 and a limitMaturity.
RY.PR.A PerpetualDiscount +1.0634% Now with a pre-tax bid-YTW of 4.90% based on a bid of 22.81 and a limitMaturity.
CIU.PR.A PerpetualDiscount +1.1111% Now with a pre-tax bid-YTW of 5.08% based on a bid of 22.75 and a limitMaturity.
BMO.PR.H PerpetualPremium +1.3027% Now with a pre-tax bid-YTW of 4.16% based on a bid of 26.44 and a call 2013-3-27 at 25.00
BAM.PR.K Floater +1.4226%  
IAG.PR.A PerpetualDiscount +1.5521% Now with a pre-tax bid-YTW of 5.02% based on a bid of 22.90 and a limitMaturity.
GWO.PR.I PerpetualDiscount +1.8519% Now with a pre-tax bid-YTW of 4.99% based on a bid of 22.55 and a limitMaturity
Volume Highlights
Issue Index Volume Notes
BAM.PR.H OpRet 41,051 Now with a pre-tax bid-YTW of 3.69% based on a bid of 26.55 and a call 2008-10-30 at 25.75.
BMO.PR.J PerpetualDiscount 19,850 Now with a pre-tax bid-YTW of 4.99% based on a bid of 22.68 and a limitMaturity.
BAM.PR.N PerpetualDiscount 15,500 Now with a pre-tax bid-YTW of 5.97% based on a bid of 20.27 and a limitMaturity.
BNS.PR.M PerpetualDiscount 13,205 Now with a pre-tax bid-YTW of 4.91% based on a bid of 23.15 and a limitMaturity.
BAM.PR.B Floater 12,500  

There were two other $25-equivalent index-included issues trading over 10,000 shares today.

One Response to “August 31, 2007”

  1. […] Asset-price targetting by Central Banks (a recurring theme discussed at the Jackson Hole conference and reported here August 31) […]

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