All Forum Posts by: Jack Ryan

Supposedly mortgage refis are down because a lot of consumers are anticipating the FED buying GSE debt and trying to push mortgage rates down to the 4.5% target. Personally I think there's still so room to drop I would wait for a few months to refi.

That said it is important to watch the economy very carefully - if we enter Japan 1990 scenario (and it looks like we are) things will change. In Japan housing did not recover for 15+ years (and has never recovered) and mortgage rates were 3%

Buying treasuries will work until someday foreign central banks decide they don't want anymore...

Bernanke is doing the best he can. He's a brilliant man that decided to take the Japan 1990 route to the bursting of a 30 year asset bubble. Whether or not his strategy pays off only time will tell.

Just keep in mind that every few weeks Bernanke / Paulson are "doubling down". If they lose we may see systemic failure of our entire banking system and the fallout will take-out the entire global economy...

Watch out for the deflation / inflation inflection point - it might be viscious. If deflation gets to bad the fed's actions may spark a devaluing of the US currency. This may cause inflation in some assets / commodities, and if applied incorrectly may spark hyper-inflation (loss of faith of currency). Be very careful planning your portfolios for '09!

Problem is letting them fail = economic collapse. If mark to market / transperancy was possible I think the FED would have employed that strategy (like Sweden 1990). However they didn't probably because ALL the banks are insolvent.

Keep in mind in a fractional banking system lending creates money. When lending stops and the velocity of money stops money is destroyed. This is heavily deflationary... So in a sense we really do need our banks (unfortunately).

Wait until all this "bailout" spending really starts to snowball. We're already at over $8 trillion in all of the FED's alphabet soup lending facilities, at some point the US Dollar will price in a default (or at least severe inflation). When this occurs your oil is not going up by just 6%, it's going up by 600%.

Same issue with California. Unemployment is broke, and Calpers (once a $250 billion retirement pension fund for state / county employees) is also just about broke...

By definition banks tightening up lending standards IS banks being way tight...

How tight?

1. 3 month LIBOR at 215bps while 3 month treasures is at 1bps - a 214bps TED spread -historically very high

2. Non-conforming 30yr fixed at 750+bps versus conforming at 600bps - historically very high and indication that banks are being VERY tight

3. Fed's alphabet soup of lending facilities (such as commercial paper). If banks were lending the FED would not be the lender of last resort.

Anecdotally I have heard many many stories of deals falling out of escrow because of funding issues.

Furthermore I know for a fact that a certain investment bank cut a certain $200 mil line not because of the numbers but because of "excessive exposure to the US auto industry".

I also know for a fact that WAMU balked at a certain $100 mil real estate project 72 hours before it was set to fund - if it was good 72 hours ago it is still good, but the money just isn't there...

Lending is tight - I have yet to hear any anecdotal examples of banks being "loose"....

About time with DSL, zombie bank for the last 12 months hehe

I must point out that if you have followed Schiff's investment advice you have absolutely been destroyed in the last 12 months.

Schiff absolutely missed the deflationary part of the collapse and believed very strong in decoupling which has not happened. Furthermore, he completely missed the USD strength in the last 3 months which has been caused by USD purchases to service USD denominated debt.

Schiff may ultimately be right in the long run. I personally believe in USD debasement as well as the hyper-inflationary scenario, and I am long commodities and am bearish on the dollar, but if you have traded Schiff's thesis for the last 6-12 months you have been crushed....

Just something to think about...

Like Jon said, CDs are backed by the FDIC, the FDIC is backed by the "full faith of the US govt" (despite only have ~50bil of reserves)

You are buying US treasuries at a 350bps premium.

My personal opinion is there is a greater than 0% chance US treasuries are defaulted on but they are still about as safe as you can get.

I have money at Indymac. The FDIC conservatorship was a bit bumpy as we were over the FDIC 100k (it was a joint account) but that was all resolved within a few weeks.

Very safe IMO