Investing General Discussion
- Thread starter Furious
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Frenzied Wombat
Potato del Grande
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Big Phoenix
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Japan's Abe vows unprecedented stimulus as Tokyo coronavirus cases rise
Japan's Prime Minister Shinzo Abe on Saturday promised an unprecedented package of steps to cushion the world's third-biggest economy from the coronavirus pandemic, saying the country was close to a national emergency as infections surged.
www.reuters.com
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Blazin
Creative Title
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Institutional rebalancing could keep us in this range for two more days (month and qtr end). There is no way to know how much mandatory buying is left in real time. Some of the major firms have data to guess and JPM stated Friday that there is still more buying that need to be done.
For those not familiar, this is buying that occurs for pensions and other fund that have mandated diversification levels to maintain ( like a 50% stock 50% bond fund) When an asset class moves 30% in a short period and at the end of a quarter it creates billions in rebalancing to maintain ratios.
They may have finished most of that buying last week and it’s also possible to overwhelm that buying with new selling, but it definitely has an affect on the market. Same thing happens in December 18 but in that case it was followed up by a several week period of strong inflows into the market , I just don’t see that happening right now given outlook.
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Sanrith Descartes
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I read something from Goldman saying that 225 billion still needed spent to rebalance by the pensions. That was middle of last week. Also, just about all quarterly distribution iShares ETFs will be buying Monday to cover dividend reinvestments.
Weds April 1st is the day that really scares me. That will be the true test of this rally in my opinion.
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Sanrith Descartes
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Yeah its still early. I am actually happier when I see the futures operating in what for now is a "normal" range ie.. 1-2 % up or down. Seeing it automatically limit up or limit down is madness. It needs to show some semblance of controlled up or down.
Pops
Avatar of War Slayer
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The end of the quarter may provide support, as Blaze noted. The algo's run this market by headline, so who knows. I'd be careful. Truth is besides the sick and dying, there is untold suffering from the shutdown. I'm afraid of rioting. All this texts and tweets by the police are fuel to the fire. I saw it in LA during the Rodney King riots. Good news, they can kiss their gun control goodbye.
Sanrith Descartes
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Furry
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Not a fan of short term guesses, but looking at the stats in the market and with this virus, I think some optimism will cling on. Numbers came in a little light today, especially in italy. Strangely, that happened last sunday as well I believe? Looking at everything, I think we're going to be rather middle of the ground for the start of the week. Toward the end I think we'll take a good kick to the nuts.
The week after is where I expect thing will get spicier again.
The week after is where I expect thing will get spicier again.
TJT
Mr. Poopybutthole
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Being WSB aside, this is a good post about what is about to happen to mortgages and relates to the coming cashflow crunch.
TL;DR while this is not remotely the same as the 2008 mortgage crisis, mortgage servicers and banks simply losing mortgage income for month(s) can have a very similar effect at least in the short term.
This is compounded with the rate cuts that incentivize many people to refinance their mortgage ASAP. Which thereby dramatically increases the need for liquidity.
Sanrith Descartes
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Multiple big mortgage lenders in UK and Canada have canceled all mortgage apps unless the LTV is below 60% (so 40% down or more). Without physical inspections of the properties 60% LTV is the number they feel safe with without an inspection.
TJT
Mr. Poopybutthole
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Hard to say I guess. The stark difference between today and 2008 is that the mortgages in and of themselves are not the issue. Compounded by that in 2008, if you had an underwater mortgage you could just walk away from it and the bank can only seize the property as the collateral. So it was more of the bank's problem. Which yes you could still do now sure. But these aren't generally loans of $500k to dudes making $30k a year or anything batshit like that either.
With 15M unemployed (guessing here but we'll know on Thursday. I'm expecting anywhere from 10-20M unemployment).
But everyone is beginning to stockpile cash right now. I posted this in politics but GM cut 20% pay across the company for 1 year. They are not alone in doing that either.
Shelter in order for Texas just got extended too so who knows when it will end.
Gravel
Mr. Poopybutthole
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I only read half of it before giving up. Sounds like just another person trying to make everyone think the world is going to end because their job got tougher.
2008 happened because of credit default swaps, not just because of bad mortgages. Had it just been a mortgage crisis, it would've been a recession. The credit default swaps are what took down the finance industry. Big difference.
2008 happened because of credit default swaps, not just because of bad mortgages. Had it just been a mortgage crisis, it would've been a recession. The credit default swaps are what took down the finance industry. Big difference.
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Furry
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Yea, this was the analysis that made me post about illiquid reits being a likely strong contagion in the market. The big thing that that post fails to mention is that a lot of REITs and some other mortgages have already theoretically imploded to the point that they should have their assets auctioned off, but banks are declining to execute this action for the most part because of the extraordinary environment.
As soon as banks realize things are not coming back to normal anytime soon, there is going to be a bomb that goes off.
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Sanrith Descartes
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I will try to distill down the mortgage issue going on now. So mortgage lenders hedge against downside. They do this by shorting MBS (mortgage backed securities). Those instruments don't move much at all in terms of price (a handful of basis points).
An unintended consequence of the Fed buying truckloads of bonds is they are driving up the prices of those same MBSs the mortgage lenders shorted as a hedge. Instead of the prices fluctuating a few basis points, they are rising a full percent or two. This is causing large scale margin calls on those short positions. They have reached out to FINRA, the SEC and the FED to address this unintended consequence. This in effect can cascade to a mortgage crisis that would do the same type of damage to the market's health that the oil war is doing. There are only so many major shocks the market can take and continue to function.
Blazin
did I explain that correctly?
An unintended consequence of the Fed buying truckloads of bonds is they are driving up the prices of those same MBSs the mortgage lenders shorted as a hedge. Instead of the prices fluctuating a few basis points, they are rising a full percent or two. This is causing large scale margin calls on those short positions. They have reached out to FINRA, the SEC and the FED to address this unintended consequence. This in effect can cascade to a mortgage crisis that would do the same type of damage to the market's health that the oil war is doing. There are only so many major shocks the market can take and continue to function.
Blazin
did I explain that correctly?
Sanrith Descartes
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I decided to bet against real estate. Bought some puts on XLRE. Aug expiry and I believe we will see the shockwaves in real estate long before that.