Jim Sinclair`s Commentary
The last humanoid here is known as the "Virtual Value to Maturity OTC Derivative Manufacturing and Distributing Clan, " the clan who ended the economic world thinking it was in their personal best interest.
Jim Sinclair’s Commentary
Yra, my former partner, makes two extremely important points.
The first is the nationalization of the mortgage market which has already occurred covertly by accident, and vote buying potential herein this October.
When has any government successfully operated a business? How is the Postal Service doing?
Notes From Underground: Bill Gross calls for “full nationalization” of the mortgage finance system
By Yra
The housing confab was the big story Tuesday as the Obama administration was trying to figure out how to put the biggest slush fund to work. Last Christmas Eve, the U.S.Treasury–under the spell of eggnog and mistletoe–nationalized Fannie Mae and Freddie Mac by removing the caps on the losses that the twoGSEs would be allowed to absorb.We don’t know where“PIMCO’s” Bill Gross was but we had assumed that the removal of loss caps was nationaliztion by stealth. Now as the largest holders of MBSs next to the FED, he is openly calling for outight government control of the mortgage market because Gross doesn’t believe there is room for the private sector. Yes, he is correct if the mortgage market reverts to NINJA loans and other zero-down types of nonsense. However, if the originate-to-distribute model were to be restructured so that only deserving loans were made, private lenders would be lining up to get into that business. We caution our readers to understand that today’s conference on GSEs was meant to give some type of cover to an already conceived plan of how Fannie and Freddie can absorb more losses and for the Obama team to gain some political advantage.
Our conjecture is that the two behemoth GSEs are going to force a rewrite of existing mortgages so that as many borrowers as possible will be locked in at much lower rates than their credit ratings would allow. A 30-year fixed rate that was close to the Treasury’s borrowing rate would be similar to a giant tax cut for all of those eligible. This, we believe, will be the October surprise and the result will be that the Democrats are working for Main Street. The result will be positive for the housing market because it will stem foreclosures in the near term and the government will absorb the hit as will some bond holders will be forced to accept a lower rate of interest (see GM and Chrysler for bond holders rights). The Obama administration has not gotten the bump in employment and they know that they will lose control of Congress if they do not appear to be doing something dynamic for Main Street. The biggest problem is who is going to absorb the haircut on the lowered rates besides Treasury. Hmm … it may be the Chinese who also hold a great deal of GSE paper. Wow, lifting the spirits of Main Street while causing mild pain to the Chinese. The only question is how it will affect the U.S. image in global capital markets? Otherwise, we are sure it will play in Peoria.
A MINOR NOTE: It seems that in the usual legislative fashion there was more to FinReg than meets the eye. U.S manufacturers are up in arms regarding the inclusion of provision termed “conflict minerals.” The provision that was slipped into the 2300-page bill requires companies to declare if its products contain minerals from the Democratic Republic of Congo. Many of the raw materials used to make the guts of modern technology emanate from the Congo, where much blood is being spilt over who will control the profits on these exotic elements. This goes back to the “blood diamond ” issue that plagued Mozambique and Angola, but the ramifications of this proviso are far greater. We are not making a political statement about the Congo but just pointing out the irrationality of our own legislative process and the problems caused for U.S.-based business. We wonder if the Politburo in Beijing has tied the hands of Chinese high-tech producers. And you wonder why 2+2=5.
China Doubles Korea Bond Holdings as Asia Switches From Dollar
CIGA Eric
The quiet transition from West (support of the dollar and dollar denominated debt) to East while the media interpretations about gold doesn’t go much beyond agnostic.
China more than doubled South Korean debt holdings this year, spurring the notes’ longest rally in more than three years, as policy makers shifted part of the world’s largest foreign-exchange reserves out of dollars.
Source: bloomberg.com
