Happy Weekend Greenprint

[Brick Stoolhouse]

I'm not watching it, so can offer their explanations, but I can understand the logic.

 

Which is in the absence of Paulson's Bailout, the global holders of GSE securitized toxerotica were all in danger of seeing their own holdings marked down by the selling of others... hiking the incentive to sell today ahead of their global neighbors.

 

While this has always been true, one can ask, "Why the bailout now?" I think you'd have to be on the inside to know that,  though there are hints that perhaps someone(s) were on the verge of causing a very global stink.

 

That's what Gross signaled Friday.

 

Had it gone an alternate route - had Treasury sat on its hands and foreign selling begat foreign selling - it may have been an ugly scene for the dollar and dollar-denominated credits. I emphasize "may," because the worst-case scenario is now too often presented as the most-likely scenario by those demanding and defending bailouts.

 

We don't know what would have happened.

 

At the risk of being contrarian to a lot of very smart people here, I would say three things. First, there's been expectations for higher Treasury rates for quite some time. I think it's fair to say months. That call's not been correct, with 10-year notes having closed below 3.70% last Friday.

 

Second, there's broad consensus here now - still - that the long end is about to get shallacked.  I'm just sayin'... I've heard this here for some time.  Maybe so this time. But maybe not, for reasons that aren't clearly apparent yet.

 

Third, if one reviews the history of Japanese public debt creation after 1992, one finds that public debt as a % of GDP went freaking skyward.  But it neither corrected persistent deflation, nor avoided the rendezvous with the nominal lower bound on long term yields.  I know... I know... 1990s Japan is not 20-naught's America... and most differentially, that average Japanese households had hoards of savings  in their postal system where Joe Sixpack is a levered mess slapping at his wallet's vein looking for his next credit-fix.

 

I know. it's different.

 

But we just don't know how it will play out.

 

Inside-Money has known for weeks that the GSEs were going to be absorbed.  Yet, the dollar's rallied, Treasuries rallied, gold got smacked, equities got smacked, commodities got smacked. Those are symptoms of American deflation, not inflation.  I think it's only fair to say that one must give those symptoms - those charts their due.

 

"Why the bailout now?"

 

We may not know the full extent of a world of hurt that's inspired this move by Treasury. It may be 10x or 100x worse than we could imagine the minimum requirement might be for them to take these actions.

 

I've got no skin in this specific game, so these are just comments from the peanut gallery. In the spirit of, "Always challenge your assumptions."

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Jimi-Intersting thoughts! After the huge smackdown in everything commodity lately

this should be good for at least an intermediate term bounce.I will watch and see.Brick

[cwd]

Here comes the next taxpayer gift to crony capitalism.

 

Battered by weak sales, declining market share and miserable credit ratings, Detroit's Big Three automakers are now turning to the US government for help.

General Motors Corp., Ford Motor Co. and Chrysler LLC will be launching a campaign in the coming days to secure at least 25 billion dollars in federal loans to help get past the current economic malaise.

 

"This isn't a bail out," said Greg Martin, Washington spokesman for GM, the largest US automaker which has been awash in speculation for months that it is running short of cash.

 

"These are direct loans that we have to pay back," added Ford spokesman Mike Moran.

 

Detroit's goal is to have new legislation in place for the aid package by the time Congress adjourns in late September or early October.

 

The combination of an economic slowdown, the credit crunch and presidential politics, have enhanced the prospects of such a plan

http://www.breitbart.com/article.php?id=08...&show_article=1

[shorty]

Aren't they in essence selling the American people and many of it's institutions into indentured servitude to the GSE bond holders, largely the Asians and Petro Sheiks.?

I agree, that sure is what it seems like has happened.

 

Those GSE bond holders took a risk in exchange for higher yield.

 

Now it turns out they get to keep pocketing the higher yields AND they have no risk.

 

Thanks to the rape of 300 million Americans by Hank Paulson.

 

But he doesn't care, because he's got his.

 

In fact, he's thoroughly enjoying this.

[cwd]

Kathy Fettke is the host of this radio show called "real wealth".

 

This morning she was positively orgasmic about learning to use Other People's Money to build your wealth using RE. I was disgusted. For her, the more leverage the better.

Maybe with the current debacle we'll see lending standards tighten to the point that all these OPM people will be out of their game for a while.

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I have a friend who just sold her home in this area. She had to give the money to the buyer to make the 3% downpayment. She jacked the price of the home up the same amount. Sounds like the same old fraud to me.

[DrStool]

Dollar just edged below Frauday's low following triple top around 79. Not much of a break though.

[astral mike]

Jimi-Intersting thoughts! After the huge smackdown in everything commodity lately

this should be good for at least an intermediate term bounce.I will watch and see.Brick

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reasons for short term market movements are notoriously complex, and often appears to contradict fundamental logic. however my understanding is that much of the recent market declines/volatility is linked to selling by hedge funds ahead of an expected spike in quarterly redemption's, together with the forced unwinding of (carry trade) positions that has resulted from deleveraging as a consequence of tighter credit. i expect that the bailing out of F&F is a longer term US$ negative that will take a while to play out...

[Sudaca]

I mean, really.... honestly... was there ever any doubt about how this would play out?

U.S. Losses on Fannie, Freddie May Be $300 Billion, Poole Says

 

By Christopher Swann and Pimm Fox

 

Sept. 7 (Bloomberg) -- William Poole, former president of the Federal Reserve Bank of St. Louis, said taxpayers may face a $300 billion bill to revive Fannie Mae and Freddie Mac, the mortgage giants being taken over by the Federal government.

 

``I would not be surprised if their total losses aggregate about 5 percent of their obligations'' of about $6 trillion, Poole said today in an interview on Bloomberg Radio. ``Five percent does not seem to me to be an outrageous guess.''

 

http://www.bloomberg.com/apps/news?pid=206...wSS0&refer=home

 

C'mon... if everyone in the U.S. is willing to foot the trillion dollar bill for a war nobody really wanted, what's a few hundred billion more to save their own arses?

 

(not that it's gonna work, mind you)

[Charmin]

Paulson

"And let me make clear what today's actions mean for Americans and their families. Fannie Mae and Freddie Mac are so large and so interwoven in our financial system that a failure of either of them would cause great turmoil in our financial markets here at home and around the globe. This turmoil would directly and negatively impact household wealth: from family budgets, to home values, to savings for college and retirement. A failure would affect the ability of Americans to get home loans, auto loans and other consumer credit and business finance. And a failure would be harmful to economic growth and job creation. That is why we have taken these actions today.

 

My Comment: Hmm. How long ago was it that Paulson said "This is the strongest global economy I have ever seen." Michael Shedlock http://seekingalpha.com/article/94318-paul...imilar_articles

[roxy]

Bush is the lame duck Fraudster/Crook-in-Chief.

 

How could anyone think he's going to listen to anything any American taxpayer has to say about this minor Freddie/Fannie fraud he helped bring about.

 

No one is going to get killed because of this fraud, unlike his bigger, more expensive frauds in the Middle East.

 

Better to spend your energy on trying to figure out how to make money on this deal than send a fax that won't be read.

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Everything that Treasuries and Feds are doing in the last 13 months is exactly the same they did in 1930s.

 

The same phase of K-wave, the same way to fight it.

[roxy]

Count me among those who thinks that the defacto nationalization of Fannie and Freddie, rather than rescuing them, will end up blowing up the government securities markets, will do nothing to influence the decline in the housing market, and will reduce everything to the lowest common denominator, i.e. US Government securities will eventually trade like the junk that they are. Sure, the Agency-Government spreads will disappear but there will be no reduction in mortgage rates, or credit market rates in general, because rates on government securities will rise.

 

Sayonara, baby. The GD II is here.

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Pretty much. But they bought another 6 months of time.

[mdporter]

I have a friend who just sold her home in this area. She had to give the money to the buyer to make the 3% downpayment. She jacked the price of the home up the same amount. Sounds like the same old fraud to me.

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It is amazing to me that those kinds of crappy loans are even still allowed.

[roxy]

Yea right. So the FCB's bought $760 billion of them over 4 years at what, 30 basis points over Treasuries, for the extra ultra safe yield?  Everyone who is anyone in the financial world knew Uncle Sam would back up the GSE's 'insurance' on that paper.  The guarantee was absolutely, totally, unambiguously a fact and had been since perhaps 93 or so when Greenspan and the financial world figured out how to make mortgages the wellspring of liquidity.  GSE paper is Treasury paper. Period.  It's just been inconvenient to say so. Bad form in the ideology of free markets. 

 

You can bet that that disclaimer will be on all future GSE prospectuses as well. There is never a good time for truth in such matters.

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It must have the volatility premium. Treasuries are not so volatile.

[4shzl]

At the risk of being contrarian to a lot of very smart people here, I would say three things. First, there's been expectations for higher Treasury rates for quite some time. I think it's fair to say months. That call's not been correct, with 10-year notes having closed below 3.70% last Friday.

 

Second, there's broad consensus here now - still - that the long end is about to get shallacked.  I'm just sayin'... I've heard this here for some time.  Maybe so this time. But maybe not, for reasons that aren't clearly apparent yet.

 

Third, if one reviews the history of Japanese public debt creation after 1992, one finds that public debt as a % of GDP went freaking skyward.  But it neither corrected persistent deflation, nor avoided the rendezvous with the nominal lower bound on long term yields.  I know... I know... 1990s Japan is not 20-naught's America... and most differentially, that average Japanese households had hoards of savings  in their postal system where Joe Sixpack is a levered mess slapping at his wallet's vein looking for his next credit-fix.

 

I know. it's different.

 

But we just don't know how it will play out.

Yes and yes on points 1 and 2. Yawn on point 3: sounds like an echo of the weimaraner vs. deflationista debate that goes on endlessly at Mish's blog. Useless from a trading standpoint, imo.

 

Chort Trashuries will quickly become a crowded trade -- which always makes me nervous. The long bond yield chart below holds out every possibility of a test of the old low @ 4.10% -- mebbe with a nice little throw-under to 4% since round numbers hold such a magical attraction for Trashury yields. My current expectation is that a visit to at least the 200dma (4.50%) is in order before new lows occur. Longer term, a test of 2006/2007 highs @ 5.3% is virtually a sure thing. This is not a forecast of inflation, but simply a recognition of the fact that prices oscillate -- always have, always will. I've found it's much easier to make money betting on oscillation than on economic forecasts.

[roxy]

It's interesting that the bondholders will now expect to get paid off in full, but because the government deficit will now explode from an already sustainable level interest rates should go through the roof. The question is where the risk is now. Who is going to step forward to finance the mushroom cloud of US government debt. The FCBs are going to have less dollars to recycle as their trade surpluses shrink. Even the smallest slowing in their rate of acquisition of Treasuries is likely to have catastrophic effects in view of the ballooning Treasury supply.

 

This is going to be very, very interesting.

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My bet is that one of the emerging market will eventually blow-up (maybe it will be Argentina) and that will trigger everything.

[DrStool]

Makes me sick. All of it. The politics, the stupidity and self serving hypocrisy of the American people, the greed and avarice of the money class, and the willingness of everybody else to emulate that. As an outside observer, chronicling the decay is fascinating. As a member of society, it's sickening. Our society is so narcissistic, no one ever dreamed that there would be consequences for this massive fraud of a life we have built for ourselves.

 

All I want to do anymore is be with my wife and our grandchildren, our kids and our extended families.

 

The rest is just a bunch of crap. Absolute total crap.

 

The US is not just busted, it's broken. Financially, ethically, morally, and spiritually broken and bankrupt. For those of us of a certain age, it's just a matter of playing out the string now. There's nowhere to go that isn't infected by this societal moral bankruptcy. You younger people that still have a moral compass, I wish you well. It will not be easy, living your lives in the twilight of this empire, surrounded by this all encompassing rot.

 

Turn inward and devote yourselves to the matters of the heart and the spirit. It's the little world that counts, the world that exists in the cocoon of family.That's the only place to find true peace and contentment. Take care of your family relationships. Don't screw that up. Because in the end, that's all you got. All this outside stuff, let go of it. 'Cause it's goin' down, and if you don't want to go down with it, you gotta nurture that cocoon and those within it, and they in turn will nurture your spirit. Let that be your protection and salvation in the dark times that lie ahead.