Showing posts with label Mortgage Backed Securities. Show all posts
Showing posts with label Mortgage Backed Securities. Show all posts

Thursday, December 20, 2007

Currencies, SWFs and our Stock Market

Currencies, SWFs and our Stock MarketSocialTwist Tell-a-Friend
Ashraf Laidi

I pretty much agree with Frank Barbera's outlook but not necessarily as bearish on the US Dollar in 2008. I think the Greenback will continue showing resiliency vs the British Pound, Kiwi and Aussie into mid Q2 before it starts to weaken again. Euro should start recovering after Q2.

As for our Stock Market, when you consider that the main catalysts to the recent gains were 1) Abu Dhabi buying part of Citi 2) rumors/hopes of aggressive Fed cuts 3) Bush rewriting legal contracts on mortgages, all of these factors fall under the "extraordinary items" category on which the ailing market cannot always count on. Unless of course, Arab Gulf SWFs, will alternate with Far Eastern SWFs every other week to announce new buyouts. The 2002 lows in stocks should come around by next summer.

Editors' Note: Ashraf Laidi will publish his 2008 outlook very soon.

Monday, June 25, 2007

SubPrime Worries Persist

SubPrime Worries PersistSocialTwist Tell-a-Friend
Sally Limantour

Last week the main focus was on the subprime mortgage mess, hedge fund blowups and widening credit spreads. The contagion effect is making folks nervous and the S&P closed under the 50-day moving average for the first time since March. Whether this is a pause, a consolidation or the beginning of a big correction remains to be seen, but higher interest rates are definitely not supportive. As the technical analyst John Roque recently wrote when looking at the 10 year yield and seeing that it has moved above the 50 and 200-day moving average, “It’s a trite line, but if the yield were a stock we’d be getting long.” A black cloud hanging over the bond market creates a vicious circle – more subprime downgrades increased counterparty risk, potential belly up hedge funds and liquidation which can feed on itself.

Bank stocks are vulnerable as Bank of America is breaking an important trend line and has been under the 200 day moving average since May. Wells Fargo, Wachovia and JPMorgan are also technically weak and looking as if they are struggling under the 200 and 50 day moving averages. This does not bode well for the market in general. Adding to the list of negatives Friday 14 Democrats from the US House of Rep. proposed a bill that would raise taxes on “carried interest.” This would double the tax rate for this type of income and take billions away from private equity chiefs.

While everyone cheered the $4.1 billion Blackstone IPO, on Friday, Andrew Barry ponders in Barrons this weekend if it “could be a high water mark for the private equity business.” He is concerned with higher rates, more conservative lending standards, tax changes and increased competition for the buyout business.

The week coming up we will be focused on the FOMC meeting starting Wednesday and any hints as to the direction in interest rates. The bulls are hoping they will remove that annoying inflation language, but I doubt we will hear that. Friday will report the core personal consumption expenditure deflator which is an inflation gauge the Fed likes to watch and the consensus is for an advance of 0.2%.

Speaking of inflation, Pizza Hut is forced to raise its prices on our favorite American food due to a 55% increase in the price of cheese. The signs are everywhere and I am afraid that producers cannot contain price increases and it is popping up in the food you buy and the places you dine.. Now, when you go to order your large cheese pie they will charge what it costs to purchase a large cheese and pepperoni pizza, but you won’t get the pepperoni.
It will be interesting to see what ConAgra Foods and General Mills has to say about commodity prices this week as they report earnings.

The week is full of economic reports with Friday being the most active day. Traders will be watching oil prices, subprime news, hedge fund fall outs and interest rate wording from the meeting. Technicians will be paying attention to the 50-day moving average, the percentage of Dow stocks above their 50-day moving average and the number of new highs at the NYSE which has been constricting lately. We will also be monitoring volume which was large on this last downdraft. In market profile terms 1528.00 is an important level and if we are unable to capture that early the market should stay on the defensive. Trades that worked well last week were shorting opportunities as failures at the previous day’s value area low were rewarding. Once the market failed there it was typically a fast run down.

This morning we are coming in with the Shanghai market off 3.7 % and most commodities down with gold off $4.00.

Finally, A psychologist/trader I admire has this to share about a health crisis and trading lessons:

Thursday, May 17, 2007

Behind the REITs Slide

Behind the REITs SlideSocialTwist Tell-a-Friend
Fil Zucchi

As the drumbeat of falling REIT stock prices picks up steam, here is a look at the Commercial Mortgage Backed Securities' (CMBS) spreads as calculated by Morgan Stanley. The first shows AAA rated credit, the second BBB. Without getting into the underlying quality of properties for specific REITs, purely from a capital structure point of view REITs' stock prices probably correlate better to the BBBs than the AAAs credit.

I do not believe there are any "bombs" waiting to go off in REIT land. The elephant in the room however may be the large pension/insurance groups which have dumped billions and billions in private and public REIT's as a failsafe source of double digit returns. Those kind of returns are equal part greed and need, the latter as an effort to balance their returns to their long term liabilities. If these guys don't get their double digit returns on a consistent basis, they're gonna have "issues". It stands to reason that they may have a short fuse if things start moving against them, as any drawdowns would totally screw up their models. We also know that real estate is not exactly the most liquid of asset when "katie starts looking for the door".

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