Sunday, August 19, 2007

Who moved my loan officer?

This is a weekly chart of three month treasury bill yields (courtesy of ). obviously the past week was a bit unusual. The longer term credit markets were also moving but not nearly to the same extent. The sharp move down in ultra short US Treasury securities reflected a flight to safety away from short term commercial paper by banks and money market funds. Those lenders of short term money withdrew from the markets leaving a vacuum that was going to put some companies like Countrywide Mortgage into bankruptcy. The Fed acted to relieve some of these constraints as specifically as possible, rather than just lower rates slightly for the entire economy. The comparison is to using a rifle instead of a shotgun. Will it work? I don't know long term but they definitely got a big psychological sigh of relief from the stock market.

Significant problems remain in place. Dennis Gartman of the Gartman Letter included an ominous chart in his Friday issue. ( I am unable to find a copy to reproduce here) The chart illustrated the number of mortgage teaser loan rate rollovers that will occur over the period Dec 2006 through Dec 2011. The number is rising very fast right now but the peak is still a couple of months away and almost 40% higher than at present. Do not let the talking heads on business television convince you the crisis is over. The panic may be over but the problem is growing larger and will for some time. At least the issue is on the front page now. As Donald Coxe likes to point out the scary stuff is on the front page but the dangerous stuff is still on page 16 where no one is paying attention.

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