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House Price Crash Forum

DrBob

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  1. Barclays faces hit over sub-prime loans turmoil http://www.telegraph.co.uk/money/main.jhtm...2/cnbarc122.xml http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/22/cnbarc122.xml' rel="external nofollow">Last Updated: 1:31am BST 22/06/2007 Barclays Capital is at the centre of concerns over its exposure to two Bear Stearns hedge funds facing collapse. Sources said the bank may have lent far more money to the high-risk funds than originally thought, much of it linked to the lower tier "sludge" category of sub-prime mortgages most vulnerable to rising US default rates. "This could hit Europe harder that people realise," said one banking specialist. "We understand that Barclays Capital has lent $1.2bn (£603m) to these funds." Merrill appears to be having second thoughts about the forced sale after receiving "pitiful" prices for some of the riskier tranches of debt . All the creditors are under intense pressure to avoid an auction process that could set off a chain reaction, causing a wholesale markdown in prices. The risk is of a sweeping downgrade of mid-quality debt that forces mass liquidation by institutional investors. Chris Cox, head of the US Securities and Exchange Commission, said he was keeping a close eye on the Bear Stearns crisis. "Our concerns are with any potential systemic fall-out," he said. CDO issuance exploded to $503bn last year. There is now over $1,000bn in outstanding CDO debt. Well chaps, you were all right! The banks are doing everything possible to avoid a drop in CDO prices or a downgrade in their rating. Now we need just one more large hedge fund to go under, or a bank to break rank and auction off some the dodgy CDOs. Crunch!
  2. "It definitely looks like the start of something more worrying to come," said Mehernosh Engineer, senior credit strategist at BNP Paribas. "This is just the beginning." One of the big unknowns is how much mispricing has been going on within subprime CDOs, he said. Credit derivatives such as collateralised debt obligations (CDOs) disperse default risk throughout the investment community, enabling lenders last year to loosen lending standards on the riskiest U.S. home loans. With many of those mortgages now defaulting, investors with the biggest exposures are getting hit, and the worry among investors is that the highly opaque and leveraged CDO market has never been tested in a serious downturn. "The big catalyst for us will be when the rating agencies actually wake up and start downgrading some of these subprime CDOs," Engineer said, with the main uncertainty one of timing. "That will significantly impact the entire subprime AAA/AA CDO universe to a big extent." This is my favourite part of the Reuters article. Once the CDOs are downgraded, their value will plummet and it'll be much more difficult to shift new ones in the future. Hey presto: CREDIT CRUNCH!
  3. Subprime sector hit by $1bn assets sale Last updated: June 21 2007 00:33 http://www.ft.com/cms/s/6ca1b14c-1f51-11dc...0b5df10621.html http://www.ft.com/cms/s/6ca1b14c-1f51-11dc-ac86-000b5df10621.html' rel="external nofollow">The giant market for securities backed by US subprime mortgages was thrown into turmoil on Wednesday as lenders struggled to sell more than $1bn of assets seized from two Bear Stearns hedge funds that suffered heavy losses on subprime bets. The rout highlights the risks investors take when they buy illiquid and hard-to-value securities. Fire sales in times of stress can trigger dramatic changes in pricing in such markets, perhaps leading other holders of assets to mark their values down and triggering demands for additional collateral from lenders. Kathleen Shanley, analyst at research firm Gimme Credit, said the unravelling of the Bear Stearns funds was “at best an embarrassment for Bear Stearns, and at worst it threatens to have a ripple effect on valuations across the subprime sector”. One mortgage investor said that while the CDO assets for sale carried high credit ratings, they were backed by such risky mortgages as to be “junk in investment-grade clothing”. And the relevance of this to the UK housing market is that mortgages have been packaged as CDOs here too, and we are in an international market. Although the 'subprime' market here is ostensibly smaller, huge numbers of interest-only and self-certification mortgages have been issued, which cannot be regarded as 'prime' risks. If extra risk is now priced into CDOs, mortgage providers (in the UK too) will be more reluctant to lend or will offer higher interest rates to less-than-ideal applicants. The development of a credit crunch is playing out. The most amazing factor is that subprime mortgages were successfully dressed up into CDOs with high credit ratings. Someone must have made a lot of money out of this trick. Unfortunately pension funds will have bought many of these, effectively loading their books with the debt equivalent of junk bonds.
  4. http://www.ft.com/cms/s/f92171f6-1eb7-11dc...0b5df10621.html Subprime puts Bear Stearns fund on brink Last updated: June 20 2007 00:03 A highly leveraged Bear Stearns hedge fund that made bad bets on the subprime mortgage market was on the brink of failure on Tuesday after Merrill Lynch rejected a proposed rescue plan and prepared to auction off $850m of assets that the fund had pledged as collateral. In addition to large losses for investors and lenders to the Bear Stearns fund, some analysts feared that a failure of the fund could accelerate losses in the subprime mortgage-backed securities market and perhaps trigger a loss of confidence in the wider market for complex structured finance securities. That, in turn, could lead to heavy selling and losses for investors, including Wall Street banks that hold some debt instruments before they are packaged and sold to investors. The Bear Stearns fund, which raised $600m from investors and borrowed at least $6bn more , presented a rescue plan on Tuesday to Merrill and other creditors. Merrill’s rejection could lead other creditors to seize and sell collateral held by the fund, known as the High-Grade Structured Credit Strategies Enhanced Leverage fund. That would mean the fund would likely be forced to liquidate remaining assets to repay creditors and investors. I hadn't realised the amount of leverage that these hedge funds use! The fund "raised $600m from investors and borrowed at least $6bn more". A few unexpected market moves could take a lot of hedge funds to the wire. The real fun, though, will come when a large private equity fund fails!
  5. Bubble artist tests limits 19 June 2007 Bubble artist and scientist Fan Yang creates a "house" from bubbles in an attempt to set a new world record http://uk.reuters.com/news/video?videoId=5...ATURE_snapshots http://uk.reuters.com/news/video?videoId=57483&videoChannel=4&src=062007_1054_DOUBLEFEATURE_snapshots' rel="external nofollow">How wonderfully topical
  6. As the 'chair' of the committee, the governor canvasses the opinions of the members, then always 'invites' the committee to vote on whatever the majority rate proposal is. The act of inviting the members to vote doesn't reflect his own opinion. By voting against the proposition, Merv quite clearly showed that he wanted rates to rise.
  7. Just a spot of caution with those envelope calculations: Ethanol is less 'energy-dense' than petrol (shorter hydrocarbon chain), so you get less energy out of a litre of ethanol than you do out of a litre of petrol (unless you're planning to drink it). This site gives the following energy densities: Ethanol = 23.4 MJ/liter Petrol = 35 MJ/liter Diesel = 36.4 MJ/liter
  8. Don't worry, this forum goes down every now and then as Echelon back up their databases. The New Labour Thought Police don't want to miss any scraps of evidence when they round up the HPC posters.
  9. The great NHS pay clawback is well underway. I'm a junior doctor, and we (in our department) are about to get an 11% pay CUT as the management trim and tweak our on-call shifts to fit us into lower pay bands. The same thing is on the cards for hospital consultants in the next few years. Meanwhile, the government plan for GPs (who admittedly have had a fairly sweet deal lately) seems to be to make them all salaried employees of large private healthcare firms (Boots, United Healthcare etc). Not that we expect any sympathy, as we're all a bunch of incompetent, over-paid, patronising serial killers.
  10. Great news for Ghana, though - maybe I should buy a house there!
  11. Wait until my oldest child is about 8 years old - then I'll need to settle down for the sake his/her social networks. BTW, I haven't got any children yet, and my partner and I aren't even engaged. Reckon that gives me at least 10 years to ride out the storm...
  12. Try George Formby - works for me every time: http://www.youtube.com/watch?v=zxWK9keh3XI
  13. Flooding was my first thought, too. I wonder if it's possible to get that place insured?
  14. ..is an army of frustrated HPC'ers looking for a better life abroad
  15. These guys are construction companies. The only thing they can do is build. If they have difficulty selling, they'll just price the next lot of flats lower, or better still sell them on in bulk to a major buy-to-let company or housing association at a hefty discount. Their margins might take a hit, but it's better than going out of business. HPC'ers should be supporting this sort of building wholeheartedly - once there are more properties than buyers, the prices will start tumbling (as in Spain).
  16. I absolutely agree with Renton's post. I visited some friends in Germany last month and they couldn't understand the UK obsession with buying. They all rent apartments at good prices, they generally rent the same place for many many years (often decades) so have a genuine interest in decorating and keeping the apartment in good nick (and getting on with their neighbours), and they enjoy spending their spare income on new cars and holidays (rather than fretting about building up that house deposit). I could quite easily live without buying my own home provided that I could rent securely (i.e. without fear of excessive rent rises or of eviction). From the employment/economic perspective, renting is also A Good Thing: it allows for a more mobile workforce and lessens the impact of the economic cycle on individuals. The nightmare scenario would be (or already is) allowing house prices to rise to such an extent that buying is unaffordable, and failing to improve the rights of tenants.
  17. It's quadruple/triple witching day this Friday (15th June). I'm no market expert, so I don't know whether this carries much significance other than a brief period of volatile trading. Given this week's bond yield rises and stock market jitters, would anyone like to predict what Friday will bring to the markets? I'm hoping for the perfect storm (financial I mean - wouldn't wish a hurricaine on anyone) to bring about the house price crash. In the meantime, I'm steering clear of shares!
  18. Live at home for 16 years? Whilst you might be able to buy a nice house, you'll have spent your entire youth as a mummy's boy!
  19. Today's two biggest FTSE100 losers at the moment: Northern Rock (mortgage lender) 3.74% down Wolseley (construction) 3.42% down Does anyone know if there are specific reasons for this, or is the stock market gearing up for a house price crash?
  20. http://uk.reuters.com/article/personalFina...A64537620070606 Wages and confidence point to higher rates Wed Jun 6, 2007 1:37PM BST Wages are rising at their fastest in seven years as employers scramble to fill vacancies and consumer confidence is riding high, two reports showed on Wednesday, adding to pressure for higher interest rates. The KPMG/REC report on jobs showed wages for permanent staff in May rose at their fastest rate since June 2000 when interest rates were pegged at 6 percent and the world economy was booming on the back of the dotcom bubble. "The question appears to be when, rather than will, the Bank of England raise interest rates again?" said Howard Archer, economist at Global Insight. "There is a very real possibility that the Bank of England could raise interest rates by 25 basis points for a second month running tomorrow." Come on, boys, +0.25% tomorrow! I've got 50 quid riding on it!
  21. Many of us have saved house deposits, and some have sold to rent. The housing crash/downswing/lull is likely to last at least 3 years, so we need to invest our money sensibly in the interim. This isn't so easy - pay tax on a savings account and your money depreciates once inflation is taken into account; buy shares or gold and you're gambling in a very volatile market; fail to diversify currency and you could lose out big-time on a sterling crash. So here's an idea: I have some idea what goods I will require over the next 5 years - a certain amount of energy for heating/lighting, a certain amount of food, a certain amount of oil for travel and manufacture of goods etc. Why not put my savings in basic commodities covering each of these fields? The EFT Securities funds can be traded as shares, and make it quite straightforward to invest in commodity markets. Annual charges are around 0.5%. Here's my rough-and-ready suggestion for investing 25k in commodities for the next 5 years: 8k agriculture fund (food) 5k petroleum fund (I don't drive, but have family/friends in Australasia who I will want to visit) 5k energy fund (heating/lighting - this fund is largely in natural gas, but as most electricity in UK comes from gas, seems logical to buy in) 3k industrial metals fund (manufactured goods) 1k livestock fund (meat is a luxury, but I do like it occasionally) 1k cotton fund (clothes) 1k coffee fund (I'm an addict) 1k precious metals fund (might get engaged/married over next few years) If the price of goods rises, so would these commodities (hopefully), so I won't lose out. If the price of goods falls I'll lose on the funds, but on the other hand I should be able to afford the goods. Consider this an 'insurance policy' or hedge against soaring commodity prices/inflation. What do you think?
  22. I like the view of the bowling alley car park. Looking at some of the photos people use, you really wonder whether they actually want to sell!
  23. If you zoom in and look very closely, there's a blurry two pixel dip with a nadir in mid-1992. That must have been at around the time the Sunday Times headlines read "House-price market spirals downward towards crisis". Clearly the papers were exaggerating and it wasn't such a big issue in retrospect
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