You can bet that wasn't me...I didn't like tech/internet valuations at all back then (and yes, I told clients that BEFORE the collapse), but they're pretty attractive now...
My philosophy is pretty much in the center, but I don't rule out the long-term potential of emerging markets...I think there's still a lot of money to be made there...
Just following your posts, it's fairly obvious that your clients are positioned conservatively, and you have nothing to apologize for doing so, but I like my chances over the long haul...
We have seen the DJIA drop 400 points 6 times. One week later, the S&P 500
has gone up an average of 4.00% two thirds of the time. One month later,
the S&P 500 has gone up an average of 5.00% one hundred percent of the
GO BUY SOMETHING.
Many subprime mortgages have been bundled, securitized, and then divided into tranches. These tranches have been divided into the best of the subprime all the way to the worst of the subprime.
What worries me is that some of the worst of the subprime tranches have received a AAA-rating. How, you may ask? Simply by sheer numbers of the subprime mortgages in that particular tranche and the mathematical formulas used to determine the risk of loss. It seems the greater the number of subprimes, the more predictable the potential default rate; hence, the "less" risk in holding that particular tranche. I think a lot of institutional holders of these tranches are going to be sorry.
What you say may be very true, however I don’t know much about the
structure of these tranches or how it relates to the 400 point decline in
I believe the culprit for the market adjustment on Tuesday was the
increasing Japanese Yen or more specifiacally, the Yen carry trade. The
Yen trade is being used to finance investments all over the world;
Brazilian bonds, Turkish bonds, US stocks, Russian stocks and bonds, etc.
As the yen started to rise, hedge funds took action to limit their losses.
To do that they needed to buy yen which caused the yen to rise further
which caused other funds to buy yen, pushing the yen higher which
caused…you get the picture. To pay back the yen loans, the funds then
needed to liquidate the investments they had bought with the loans. That
would be the aforementioned bonds and stocks. And we got a 400 point
loss in the Dow. In other words, a “wholesale” adjustment.
The computer related pricing of the Dow Jones averages only exacerbated
the decline. I heard today that trading curbs are now set at 1,000+
Skee - I think you heard about circuit breaker levels - when trading actually comes to a halt.
Here are the 07 first qtr numbers
This revolves mostly around % movement.
It seems the greater the number of subprimes, the more predictable the potential default rate; hence, the “less” risk in holding that particular tranche. I think a lot of institutional holders of these tranches are going to be sorry.
Doberman, that isn't how a residential mortgage securitisation works.
What happens is that you have a huge pool of mortgages, and a cashflow waterfall, which directs the distribution of cashflows (principal and interest) from the mortgages.
So first the AAA tranche gets paid, then the AA ---> BB tranche B, and Equity tranches. The non investment grade (and especially equity) tranches provide credit support for the upper tranches because over time they get written down as credit losses happen.
There are other methods of credit support as well, such as overcollateralization and constant proportion reserving.
The credit ratings are derived from modeling the cashflow waterfall under various scenarios.
[quote=doberman]I think a lot of institutional holders of these tranches are going to be sorry.
You know what my sig says.
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn :newsml:reuters.com:20070228:MTFH21376_2007-02-28_18-19-03_N 28452118&type=comktNews&rpc=44
Why don't investors realise that its alot better to hold the most subordinated debt from a investment grade obligor vs the most senior debt of a junk obligor?
Its one thing to securitise investment grade debt or even junk debt arising from subordination to investment grade debt (i.e various types of commercial mortgage related debt). But to start with trash and hope to convert it into gold just isn't a good gamble.
I expect to see some impressive blowups in the subprime RMBS, but also in CLO's that invest in junk loans. Essentially highly leveraged versions of floating rate income funds.
I'm not even going to start talking about synthetic CDO's.