Wednesday, November 7, 2007

Suspension Of Disbelief

This blogger has been busy entertaining out of town guests, and of course the week has been a real doozy so far! I am going to try and write a post of a thought I have had during buzzing this week.

Suspension of Disbelief
The optimistic case as it relates to the mortgage and credit market implosion situation has several points which are repeated often as if they are absolute in nature. In no particular order they include:
  • The mortgage credit crunch was at its worst in early September, and is now getting better
  • Banks and lenders have already written off the losses from bad loans
  • Housing prices have or will bottom exactly in spring of 2008 and resume a steady upward climb from there
  • Demand for housing will revert back to the mania level of 2003-2005 by spring 2008
  • Countrywide Financial will be profitable next quarter, and all of next year
  • The FED cannot allow housing prices to fall, and so must cut interest rates aggressively, which in turn will save the entire sector (thanks Bill Gross!)

Sounds like an extremely wonderful turn-around scenario. The problem begins when you start to question the assumptions made and ask for any hard data to back any of it up. It puts me in mind of a term used in theater and film "Suspension Of Disbelief". Suspension Of Disbelief refers to the willingness of a person(s)to accept as true the premises of a work of fiction, even if they are fantastic or impossible.

The list above can be compared to real world, real time data. The headlines running around on Yahoo, Bloomberg, Marketwatch, etc just over the last few days speak for themselves:

Moody's cuts more SIV ratings
Ratings agency warns situation has deteriorated since early September

Banks Face $100 Billion of Writedowns on Level 3 Rule

Washington Mutual shares sink on Cuomo probe, losses

Lennar Suspends Sales at Two Major Projects
Builder is waiting out a dismal market so it can get full value for homes at Central Park West and A-Town in southern California

Morgan Stanley to Take $3.7 Billion Write-Down

I will stop there as it is enough to illustrate the point. All above headlines are from today, and can be found with commentary on Calculated Risk on the blogroll, as I am pressed for time tonight. Add to the headlines that the ratings agaencies are facing real problems, the inflated appraisal scam now being legally pursued, and the Superfund having issues getting started and there is NO WAY a turnaround in housing is going to happen in 2008. NO WAY, NO HOW. Got that? Any fool writing a column or on TV that states otherwise is not believable and an assclown on top of that. Anyone wanting to bet against me on that is encouraged to write in the comments section their contact info. Any possible scenario that will stop bank losses and raise home prices will rely heavily on another term "deus ex machina". Deus ex machina (translated: "god out of a machine") describes an unexpected, artificial, or improbable character, device, or event introduced suddenly in a work of fiction or drama to resolve a situation or untangle a plot. The only way this gets better in the next 6 months is if fairies and angels descend onto earth bearing no risk mortgages and unending liquidity. And no, the FED cannot do it.

Thanks to those that stop by here to read. I appreciate it. Loyal reader AnonG wanted to know about the metal content in US coins. I dug up this old article that sums it up:

The article is a year old even, so its worse now. I do not give investment advice here, but my opinion on metals is to be careful. I have tight stop losses on my mining shares as any major downturn in the markets is going to trash gold and silver as well. That's just my opinion. There is never a sure bet, and when the market gets nasty selling what you can means metals and metal company shares. Sorry for the short post, hopefully I will be back on schedule tomorrow.

Have a good night.

1 comment:

Anonymous said...

I am with you on this one. Housing in Florida is in a horrible state. There is a place on the way to work that is trying to sell condos at lower and lower prices. Seems like slashing prices, having auction(s), decorating with lots of balloons are having little effect. Now today a new sign is posted entailing no HOA dues and some other cuts in the overall price of the unit(s). What's got me is based on the area and what work is available, the average person couldn't afford the mortgage. Now that's sad but what's even worse is even if my wife still had her job and I was brining in what I make we still couldn't afford it! The thought that crossed my mind is how far down the krapper will the prices go until they meet with who can not only afford them but want to live there. (Mind it's not a new development!) Oil is poised for that $100 mark, gold and silver look like a pair of balls smashing everything else to bits. When the dollar keeps slipping it's no wonder other countries are just watching and waiting for the bust.

Read something about CURBS trading being taken out. Don't know exactly what that mens but what are you thoughts on total collapse? Too many things are ready to tip

-debt overload
-empty homes across the country
-job #'s that a BS!
-military over extended in another country? until when?
-etc etc


PS: Looks like I am famous now. Maybe we can have a virtual beer when it all comes crashing down. CHEERS!