ABX Clean Sweep All-Time Lows

Posted on November 13th, 2008 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage - News Picks of the Day!

You don’t hear much about the ABX and CMBX indices any longer. The last ruckus over these came about six months ago when the spinners tried to tell us that they really did not portray the true value of the market bla bla bla. Well, it looks as though Markit was accurate after all.

To be honest, I don’t track these every day but do go in once a week or so. I used to post ABX prices regularly because they seemed to be a leading indicator to credit market disruptions. So I went back and reviewed this yesterday to see if Paulson’s speech yesterday abandoning the buying of distressed assets for now had any impact. Why, yes it did. The ABX made a clean sweep low yesterday.

This surely does not look like a market about to be bought anytime soon. Asset prices are continuing to tumble and this market continuing its downward trajectory.  All of these prices are simply amazing.-Best, Mr Mortgage

Below are two charts of the above data. The top is second half 2007 AAA highest grade paper at 41.83 cents and and the second is BBB- lowest grade at 4.27.

Source: MarkIt

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15 Responses to “ABX Clean Sweep All-Time Lows”

  1. The trend is your friend until the end when it bends.

  2. Mr. M. I have been tracking these for quite sometime and I took a lot of heat when the AA was at 45 and the AAA was around 85 I was saying this is tracking the market and if I am correct we are spiraling downward in a hurry. Well right you are and I was, that these indicators certainly tracked along with the market. L3 anyone? Mark to Market anyone? These readings are dismal!!!

  3. “So I went back and reviewed this yesterday to see if Paulson’s speech yesterday abandoning the buying of distressed assets for now had any impact. Why, yes it did. The ABX made a clean sweep low yesterday.”

    Of course it did! The run up in sept was a few risk takers buying it up, figuring the TARP repurchase price would be even higher. It should be no surprise it runs right back down to its long term trend as soon as Paluson said, screw TARP.

  4. I still don’t quite understand the impact of Paulson’s plan change. . .does this mean he is “throwing housing under the bus?”. . .if he isn’t backing mortgage backed vehicles, then where does that leave everyone?? Banks are stuck with junk. . .does he want them to “mark to market?” Does he think credit card loans are in worse shape? There really hasn’t been a lot of good reporting and anaylsis of this. . .perhaps it is beyond analysis???

  5. watch the ABS & MBS won’t even be discussed any longer.

    The Gove Men will allow the banks to quitely sweep them under the rug at mark to model prices.

    Where they will go to die

  6. Mark in San Diego

    Well for one, If the government was buying bad assets from the bank, a house would be attached to that bad asset. The government would then be seen as the bad guy for foreclosing and crashing housing prices as they dumped houses from the 700 billion revolving credit line. Foreclosures and house dumping will now have to be done from the banks themselves verses the government.

    It also makes the credit line non revolving IMO and the government will be asking for more money. Meanwhile Bloomberg is suing to find out what the Fed did with 2 trillion in loans and who got them, potentially making the problem well over the stated amount.

    The problem I see is that there is nothing going in to inject funds into the economy. Lower interest rates don’t help, the banks are not going to lend, they need the money to shore up the balance sheets. The Fed is busy giving additional collateral to help he banks to remain solvent. In addition, I do not think there is enough money out there to sop up a flood of treasuries as evidenced by what some of our major blue chip companies have had to pay up for lately, ie Verison.

    What this means is that there will be no calvary of Federal money coming over the San Gabriel Mountains and into LA county, or whatever mountain range and into Sacramento. Nor will there be any real help coming in the way of real mortgage modification as explained by Mr. M that is required to right the listing Titanic of the housing market.

    In order for California to get any Federal Bailout money coming its way, it has to be paper classified as a bad asset. The only way to make your mortgage a bad asset is to stop making payments.

    Purported modifications to date only serve to bind the home holder to an extended black hole that keeps the consumer (the driver of the US economy) cemented into a bad deal in addition to excluding his household from participating in an economic recovery.

    It is simple math to understand that the more participants we have in the California economy, the faster we are going to be able to recover from our economic quagmire.

    We have years of time bomb mortgages built into the system that will be turning neighborhoods into minefields of foreclosures, just from bad loans themselves. What started as a housing crises though, has unfortunately ballooned into an economic one. Now not only does the time bomb features of bad loans have to be taken into consideration, but the economic reality of unemployment hardship foreclosures added into the mix.

    Deflations are only scary things if your tied to debt. If you happen to have a cash pile and no debt you are doing great. Already your money can buy twice as much oil, twice as much equities and soon twice as much house. Once people understand and deflation mentality sets in, the rule of “it will be cheaper tomorrow” takes hold. In the days of the housing bubble, the standard panic of “We have to buy now or we will be priced out!” changes. The new mantra becomes “The longer I wait, the more house I can get”.

    To be leveraged to debt in a deflation is a horrible thing. More so if your employer stuffs a wage reduction down your throat due to tough economic times. I think we will be seeing a lot of those in the first quarter, in both the public and private sectors.

  7. What does “PEN” mean? I use to go to MarkIt frequently, but from back then, I don’t remember “PEN” segments.

    TARP is just buying company “bank” stock. That’s the worst use of tax payer money ever. The DOJ better stop Paulson. He should be brought up on charges of extortion and laundering. I think it is even more urgent than bringing up the Bush administration on war crimes.

  8. We are now in phase three.
    Read carefully folks, read between the lines. They have given up!

    Above all else Bernanke and Paulson are not stupid. They see the writing on the wall: we are well and royally fucked. Hanging in the background of 100’s of comments on this blog and many others is: WTF we can’t afford this!

    Well exactly so my friends.

    Our two favorite clowns have realized they cannot save the ship. Nobody, not even the Fed can print enough money. And even if they did, that would fuck things even worse! The designer of the Titanic was on board that night, and he studied the blue prints and asserted early on: she has two hours, maybe three. And he was exactly right. Of course, none of the passengers heard any of that.

    We are now saving credit cards?!! We have given up on trying to buy toxic assets from the banks? We invested 125B, and that’s it?!? This is the sign: they have given up. They don’t have enough money to save us. They did their best, but forget it, it’s too fucked up.

    They are retrenching to save the government and treasury markets: nothing else matters now. We are in for a world of shit. They can’t save the housing market, and they aren’t even going to try. They will keep whatever powder they have dry, which is still a huge amount, and save the USA, but none of it’s businesses. Foreign governments can take a flying leap.

    They could try, and print trillions upon trillions to float everything. But I’m very glad they are smarter than that. They are going to save the only thing that really matters. The rest of us will have to fend for ourselves. Mad Max anyone?

    This sounds bleak, but it was going to happen anyway. We need to purge the system of bogus operators, and this will do it. But somehow we have entered a period where the depressiion will seem tame. This is totally global, everybody is going down the same rat hole. There is nobody left to pull any of us out.

    I’m not sure about this, but I do know the complexity of the situation is beyond anyone’s abilities to comprehend. But I see our B&H boys backing up, trying not to freak anyone out, but they think the game is up. Their job is clear, save the big stuff, because if that goes, nothing else matters.

    Tell me I’m wrong, please!

  9. Douglas Tuttle

    Your exactly right, it is too big to save. The only workout the home holder is going to get, is either by himself or through a mortgage modification company directly with the bank. It is the banks decision to decide if the sharks of the foreclosure market is a better deal than your offer.

    The credit markets are too big to save. In the last depression, totoal credit debt (consumer, business, mortgage, national) was 260% of GDP. Today total credit debt to GDP stands at 51 trillion or 358% of GDP.

    The total irony of it is, the ones who are getting the bailout are the stockholders of the Federal Reserve Bank, the institution that is responsible for a safe and sound money system and reigning in credit when it is appropriate to do so. The Fed Fails, yet its major stockholders that are the ones to reap the bailout of the problem they created. Meanwhile we all suffer for malpractice at the Fed.

    While Hoover never promised a “chicken in every pot” 1n 1928, Obama can probably lead us around with “a bowl of oatmeal” in 2009.

  10. Every time I read a story or blog entry about how the govt is going to bail out homeowners or about how the govt is going to allow the housing market to keep crashing down, it reminds me that any personal plan to get through this situation MUST NOT include any dependence on what the govt may or may not do.

    I have heard countless people talk about how they will continue to scrape by to make their mortgage payments because the govt will bring in some assistance to get them through and because they don’t want to ruin their credit. And then when that didn’t pan out, they say that they will pay until Obama gets inaugerated because he will bail them out. This is very foolish and you might as well take your savings to Vegas and try to win your own bailout at the craps table.

    The only sensible move for homeowners to make is to look at the likelihood that they will be able to pay on their mortgage five years from now. If it is likely that they can, they should continue to struggle through. If not, they need to stop delaying the inevitable and walk while they can before purchase money laws are changed to make mortgages recourse loans.

    To pay a mortgage that cannot realistically be maintained long term is just silly. I have heard/read many people say “Don’t walk away, it will trash your credit.” Well what difference does that make if making your payments lowers your credit anyways? As home values continue to plummet, even making your mortgage payments can lower your credit score because your debt to income ratio is going up. And I would venture to say that most people who are struggling to make mortgage payments also have credit card debt. How many people out there are getting notices from their CC company telling them that their credit limit is being lowered even though they are current on their payments? This is another thing which will lower your credit score without any bad behavior at all on your part. If you have a $10k limit on a card and a $2500 balance and then the CC tells you your limit has been reduced to $5k, you now have a 50% balance on a revolving account instead of a 25% balance and your FICO will go down. Sad but true.

    Right now and for the next several years, cash is and will be king. Keep as much as you can starting now. Call your lender/CC company and fight to workout a reduced balance payoff amount now. I truly feel that a low debt to income ratio will be much more valuable in a few years than a high FICO as a high FICO will be too exclusive a group to lend to. Remember, banks don’t make money unless they are lending and if there are not enough people with 700+ credit scores, the minimum required FICO will lower and debt to income will be a much more important number.

    And for those of you who will make the morality arguement about paying what you agreed to pay…I cannot disagree with that. Except to say that the families who are facing a mortgage reset in future which will make the situation hopeless are basically in an old west duel with the banks….killing is certainly not moral, but if it you or me who is going to lose, I will do everything I can to kill you first.

  11. Two things

    People will borrow the most they can now before their CC limits are lowered. Then they will default.

    The only way to “save” homeowners, the economy and the government is through massive inflation which will in turn destroy debt.

  12. Brant,

    Can you explain to me how massive inflation would destroy debt? I really don’t understand this statement. Thanks.

  13. I have another question to anyone who knows….When these proposed policies by the govt to offer assitance to troubled homeowners state that the mortgage payment must be ____ % of income, are they talking about gross or net income? And does the mortgage payment include property tax, HOA, home insurance, etc.? I would guess that it is gross income and I would assume the second part is mortgage payment, insurance and property tax. Any info or links to info would be appreciated. Thanks.

  14. Looks like we have some denial going on here…. Looks like a case of “not my house!” Wow what a shocker.

    “To stem the continued losses, some might sell their homes for a loss. But few people are doing so because they’re confident their home is still worth what they paid. Zillow produces a consumer confidence survey and for the third quarter of 2008, one-half of homeowners believed their home values had increased or stayed the same over the last year, when three-quarters of homes nationwide had dropped in value.”

    If 25% of the people are deluding themselves as to their house’s value as to not suffering a loss, then likely another chunk of the 50% that do admit to loss in value are underestimating their losses.

    I can see someone accepting a job in another state and falling off their chair when the RE agent suggests a listing price for their property. I actually know someone who was moving to Seattle a year and a half ago and waiting to sell the house first. Now they cannot afford to move. Say they are going to wait for housing prices to come back. They blame the RE agent for listing the price too high when they first tried to sell.

  15. There two other reasons the gov can’t save the housing market. Most of it is in securitized instruments, where ownership has been sliced and diced and, more importantly, sold to “things” that can’t or won’t modify loans. CDO’s are LLCs with a broad of directors who are probably just a bunch of investment bankers (if they still have jobs). They probably don’t know what they own, or they sold fractions of it to different people (who in turn sold it again). You can’t legally modify these mortgages without getting everyone to agree. It may not even be clear who those people are.

    Besides, these Wall St guys couldn’t care less, they don’t care about the home owner, and they don’t who takes the loss. There is zero incentive to revisit any of these investments, except to cash whatever checks might still be coming in.

    The drill was to buy these things, package them up and get rid of them ASAP. These comapnies hold only a what was caught in their flow when the market seized up.

    These securitized mortgages constitute such a large fraction of home loans, that saving all the rest wouldn’t really help the overall market.

    The second big reason our real estate market is deep crud, is world money supply. The Fed will help our real estate market if they can borrow the money to do it; i.e., sell treasuries to foreigners. But every country in the world needs its own TARP, and the money the Fed was going to borrow is now gone or staying home.

    This means to continue bailing out everybody, the Fed has to print money in earnest. Helecopter Ben did promise that, but I think this is beyond even his wildest nightmares. The consequences of printing trillions of dollars, perhaps even tens of trillions, are simply not acceptable to anybody.

    We have a patient (US real estate market) who is bleeding out through the femoral artery, and the doctors (government) is administering transfusions, which is only buying time. If you can’t fix the artery, the patient is going to bleed out no matter what. Worse, a few more arteries (commercial real estate, credit cards, private equity deals etc.) just popped open.

    Ben and Hank have decided we’re not giving this guy any more blood. Now they realize that they HAVE to keep the credit of the US intact, and prevent the treasury market from failed auctions and default. WIth money supplies evaporating, interest rates will have to rise just to roll what we’ve already borrowed. The debt service will become onerous.

    So far B&H have stabilized the big banks, in the sense they aren’t going to fail. I think they’ve realized the rest of it is “too big to bail”. It will simply have to unwind itself with out fed pain killers. I think that means B&H have decided the world-wide deflationary spiral currently underway, is impossible to stop, it will just have to run its course, whatever that ends up being. They are now thinking about managing the decline rather than stopping it.

    Of course I could be wrong, Maybe B&H have writer’s cramp from writing too many checks? But everything they’ve said the last few weeks points to a seismic shift in their thinking.

    Now, a global deflationary spiral is totally unacceptable to B&H, not to mention every leader in the world. So what are the alternatives?

    This may be the reason for the G-20 meeting. Perhaps they’ve decided to take radical action. It may not be strictly necessary today, but if you wait until it is, its too late.

    For one possibility see “The G-20’s Secret Debt Solution” on ml-implode.
    Retire all debts by retiring the currencies of the world. That requires reissuing new currencies at something like 10:1, hopefully with some constraints on future monetary growth.

    My thought would be to create one new gold backed super currency with managed exchange rates to all other currencies. The super currency would have to be managed very carefully to support world wide structural growth, but keep inflation at zero. With fixed (managed) exchange rates, it wouldn’t have to become the reserve currency. So they wouldn’t have to print a lot of it to support paper circulation. Gold backing is good for maintaining a rational money supply, but we’d still like the world economy to grow faster than new gold reserves, so the price of gold would need to go up or down slowly to keep everything even.

    This super currency would NOT be like the Euro, but rather a kind of an international banking and inter-governmental currency, not used in everyday transactions. Digital money is pretty easy to “print”, in case you were worried.

    All this requires standardized accounting and banking reserve requirements. An international Glass Steigall might not be a bad idea either. Obviously things like derivatives and hedges funds would have reporting requirements and limitations on leverage.

    I can’t believe I’m seriously proposing something so blatantly crazy. But things have changed so much in the last year, nothing seems too whacko anymore.

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