Credit crunch: what to watch next week « The Theroxylandr in Flame

What happened this week:

Panic continues at the credit markets
Moody’s said issuers are “rating shopping”
Earning season is not as great as before (not a surprise to this blog readers)
I wrote a page about my investment principles
Lawyers eye raters, underwriters in subprime cases
“The dollar is the responsibility of the Treasury.”
- Helicopter Ben, Just now in response to a question
- Ambiguous Treasury and Federal Reserve Dollar Relations. In addition to ambiguous policy objectives and non-transparent intervention practices, institutional relations between the Treasury and the Federal Reserve regarding foreign exchange responsibilities are unclear and contradictory in a number of ways. In short, these relations are not transparent. This raises a number of questions about a subordinate role of Federal Reserve intervention activity as well as the obscure, non-transparent (and legally questionable) way in which Treasury foreign exchange operations can be financed.The Division of Responsibility is Unclear and Ambiguous.
Google finally got in trouble
Bad earnings from Caterpillar

What to watch next week:

The action heats up, I don’t know from where the next surprise will come, but I have no doubt that it will. The rule sais “There is never just one cockroach”
Most important is credit markets, stock market is not that important

Darth Toll Says:

July 21, 2007 at 12:22 am

theroxylandr,

I keep thinking that the CMBX spreads blowing out will mean a spectacular NEW death spiral for someone in the commercial space, and ultimately that may be what happens. Just have to figure out who, right? LOL!

One thing I’d like your opinion on: We’ve seen the LBX and the CMBX basically disintegrate in front of our eyes, yet mortgage rates are still very low and there are still many ads on radio and TV for all sort of mortgage financing. It seems to me that if it becomes very expensive to insure these mortgage pools, this should at some point translate to higher mortgage rates and less overall credit available, no? I’m sure FCB purchases of MBS have something to do with this.

I asked this on CR a while back and I didn’t get many good responses so I thought I’d ask your opinion on it.

theroxylandr Says:

July 21, 2007 at 8:11 am

Darth Toll, I think everything has and is happening in the orderly fashion. The mortgages are related only to ABX index, and it is dead in the dust. Which translates into 100 companies on implode-o-meter. Those companies that remain are facing only a fraction of old competition. They can afford to reject any suspicious application and still have some business.

The credit line is a contract, and some of them are signed a while ago. If the mortgage lender is meeting all margin calls, carefully select applicants, cut costs and has some dumb warehouse lender who just forgot to pull the credit – he is still on TV. I think the no-doc apps are already gone, that’s a lot of help when you know that the borrower actually do earn money.