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#301 The brown one

The brown one

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Posted 27 October 2003 - 09:02 AM

Not only is this market untradeable while open,its even more untradeable when closed.

It turns on a dime at the whim of some Matrix agent,whilst everyone sleeps.

#302 Basho

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Posted 27 October 2003 - 10:10 AM

Hiding Bear: No argument from me. I'm not for a moment suggesting that the GSEs are capable of doing anything other than magnifying the size of the eventual catastophe. Just acknowledging that they've upped their stroke rate pretty impressively.

Like you and Doc -- and no doubt many others -- I also think the downturn in the monetary aggregates is crucially important. My guess would be that the GSEs are grabbing a larger and larger share of a market that is finally starting to slow. By doing so in such an aggressive fashion they are, for the moment, probably holding things above stall speed, liquifying more marginal players and keeping spreads way down from their natural market level. As I've said before, the GSEs have been doing the real heavy lifting for the Fed for at least 5 years. Compared to them, the FOMC is a piker.

Mjkst27: I think you nailed it. There's a huge disconnect afoot between the market's seeming complacency about underlying government guarantees and the increasingly prickly comments coming from Uncle Sam. Nor do I think a lot of thought has been given to the mind boggling sums involved in attempting to honour such a guarantee.

Although I don't expect the government to literally wash their hands of the implied guarantee, any perception of uncertainty would almost certainly throw the markets into turmoil. After all, when an illusion finally looks like being unmasked, most players tend to shoot first and ask questions later.

Perhaps also worth remembering that this "guarantee" is most unlikely to extend to FNM and FRE stockholders. And yes, I am short. ;)

regards

Basho





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