"the Graph Of The Year"

[ae589]

Oh dear. Too fast for you.

Clearly - I cannot tell if you are using different terminology or don't understand yourself. It's a graph of resets over time.

Do you agree with Sonic's explanation?

[House of Lords]

The mortgages rates might have huge spreads and pretty much diverge from the respective base rates. If your mortgage guarantees base rate + x% it's right it won't affect you when the base rate is low. However, people who need a new mortgage will be fc uk -ed anyway.

EDIT: That's why I think HPI died 09/08/07.

If they make money free again then prices will probably start going up - I might even buy a house! So those currently stuffed people will be un-stuffed

I think I'm just having a doubting moring...seeing a couple of Schiff videos from last week reminded me how strong the urge to keep everything together is. They will throw everything at it...

[Goldfinger]

If they make money free again then prices will probably start going up - I might even buy a house! So those currently stuffed people will be un-stuffed

I think I'm just having a doubting moring...seeing a couple of Schiff videos from last week reminded me how strong the urge to keep everything together is. They will throw everything at it...

Yes, and it won't work. They've done it once too often IMO. Sonics post summarises quite well why there is no way around the crash.

[WiseBear]

Folks

Don't bet against the Fed dropping interest rates back to 2%...that would change the impact of that graph.

I believe the game is over for the US.

Dropping rates to 2% would destroy the US dollar.

The price of imports would soar and this would hit the heavily indebted US comsumer very hard.

The US could not survive with oil at $150 a barrel and this may happen purely as a result of a declining curreny (no real increase). Gold would also soar in US dollars terms - just for Goldfinger

It is highly probable, I believe, that US property will significantly under shoot the historical mean.

UK property is harder to call because of under supply, buiding restrictions etc.

A 20% reduction would be a result for UK home owners but I expect it to go lower, potentially a lot lower.

[Realistbear]

This is the US market, would love to see the UK, suspect it is very similar or worse......

Worse. In the US the majority of loans (80%) were "conforming" and based on 15 to 30 year fixed rate loans. These have been the most popular method of financing in the US for decades. The 20% that are causing the problems are enough to tank the rest of the market. In the UK it is probably to true to say that the reverse is true here. 80% or more are not fixed for any appreciable time period which means less stability and more frequent resets. According to an article in the Mail recently they said 2,000,000 loans in the UK would begin resetting starting in September. This will follow the 2 year intro rates taken in the buying bulge in 2005.

All hell has yet to break loose in the miracle economy but when it does it will be far worse than the US.

[lets get it right]

Back to 1% interest rates again I suppose, oh well,

Not a chance. They pulled that trick once - after 9/11 when, for a while, it looked as though the global economy was going to basically stop functioning.

The yanks moved from 1% to 5.25% because, if they hadn't, the Chinese and Japanese were not going to buy their debt anymore. If they drop rates now the dollar will fall like a stone - and so will foreign purchase of their debt. Interesting thing is the US economy cannot function, quite literally the government cannot pay its bills, unless foreigners buy its debt - constantly - month in, month out.

[House of Lords]

Not a chance. They pulled that trick once - after 9/11 when, for a while, it looked as though the global economy was going to basically stop functioning.

The yanks moved from 1% to 5.25% because, if they hadn't, the Chinese and Japanese were not going to buy their debt anymore. If they drop rates now the dollar will fall like a stone - and so will foreign purchase of their debt. Interesting thing is the US economy cannot function, quite literally the government cannot pay its bills, unless foreigners buy its debt - constantly - month in, month out.

[still in reverse-doomer-mode]

Keep in mind that people have been making these predictions for years and somehow it keeps going...as much I hope it doesn't this time, you never know.

I notice Brazil has started to take up the slack from the Chinese buying US debt. There are still quite a few countries that the US can call in favours on.

[Guest Popalot]

[still in reverse-doomer-mode]

Keep in mind that people have been making these predictions for years and somehow it keeps going...as much I hope it doesn't this time, you never know.

I notice Brazil has started to take up the slack from the Chinese buying US debt. There are still quite a few countries that the US can call in favours on.

Cheer up HOL! If Bernanke cuts his reputation will crash as just another Greenspan. If he cuts a lot the US will go up in smoke and the global ecoomy will crash. Basically - either way is going to lead to disatre now, and he knows it. The BoE are setting the standard on this - he is aligned with Merv, I believe in an anti-inflationary stance as the primary goal. He did the cuts on Friday because he literally had to... History will say he went in early and tried his best - but resisted the full "put".... the problem was beyond anyone to solve, and the blame lies with the banks and Greenspan, not Ben. That's what he wants history to say.

[House of Lords]

Cheer up HOL! If Bernanke cuts his reputation will crash as just another Greenspan. If he cuts a lot the US will go up in smoke and the global ecoomy will crash. Basically - either way is going to lead to disatre now, and he knows it. The BoE are setting the standard on this - he is aligned with Merv, I believe in an anti-inflationary stance as the primary goal. He did the cuts on Friday because he literally had to... History will say he went in early and tried his best - but resisted the full "put".... the problem was beyond anyone to solve, and the blame lies with the banks and Greenspan, not Ben. That's what he wants history to say.

I hope you're right but I can imagine the pressure they will come under. Have a look at the Schiff videos that somone put up this morning...you're looking at 99% of the people out there expect cuts to be made and the other 1% are perma-bears anyway so will be ignored. Doing nothing is not even on their radar, the Fed will be linched if they do nothing and the US goes the way of the Soviet Union.

[EmpiricalBear]

I think that you guys are missing an important point.

This graph is well known to the kind of institutions that have been running into trouble over the last two months. Awareness of this is, if not fully priced in (cos no one knows how to price it), what has driven the liquidity problems over the last couple of weeks.

So, yes, there is a lot more to come, but knowledge of the scale of this is part of the reason for the current volatility.

My point is that just because we've only seen, say 5% of the resets doesn't mean we've only seen 5% of the volatility. We might have seen 50-75% of it or even more.

The volatility will continue until (if) the market works out how to price the risk. Once that is done then we'll know the extent of the rout. The question is, how many months of this have to be experienced to be able to price the risk

Currently there are too many unknown unknowns. Once these are converted into what is felt to be 'known unknowns' or pricable risk, then the scare will be over and a few funds, banks whatever will have gone into Chapter 11 or will have been aquired for a low price a la Barings/ING

The UK isn't even at the stage where people realise that there are unknown unknowns yet... basically there is still widespread denial that there could ever be a problem in the UK as we are <irony> uniquely gifted with immigration, supply shortages and high demand for property, unlike other totally different economies like the US, Australia, Ireland, Spain etc. etc. </irony>

Edited August 20, 2007 by 2MeterBear

[ae589]

I think that you guys are missing an important point.

This graph is well known to the kind of institutions that have been running into trouble over the last two months. Awareness of this is, if not fully priced in (cos no one knows how to price it), what has driven the liquidity problems over the last couple of weeks.

Good point, but are things really being priced in with 'mark to model' products on balance sheets?

[bearbullfence]

Clearly - I cannot tell if you are using different terminology or don't understand yourself. It's a graph of resets over time.

Do you agree with Sonic's explanation?

LOL. I don't understand myself? I notice with considerable mirth that you use other people's jargon, that you only use it once someone else has posted it, and has quite obviously evaded my question.

I'll ask again. Do you believe that the graph remains static over time?

[ae589]

I'll ask again. Do you believe that the graph remains static over time?

It's a snapshot of the state of the market at a particular time. If the graph was redrawn, I'm sure it would be different, but I don't see why it should be very different unless the mortgages on this graph has ceased to exist, or many more had been drawn up.

I'm glad I'm amusing you. Do you agree with Sonic's assessment?

[Disillusioned]

- The biggest values of mortgages showing a rate review is as you would expect upto 3 years out from the start of the graph.

Eh? Why would you expect that? This would only be the case if they only used mortgages beginning at the beginning of the timeline. They have not.

- The line "we are here" is very misleading. This implies that we will "travel" the value of the peaks through time. This is incorrect as the nature of the graph will keep the peak moving to the right and we will always be at the "we are here" marker.

We WILL travel the peaks through time - otherwise the y-axis wouldn't be time! I think you are misinterpreting this for the same reason as above.

"Not much to see here"

[ae589]

I think you are misinterpreting this for the same reason as above.

Ah... I see what he/she is doing...

bearbullfence - I see what you were getting at now - no I don't see it changing much over time* - I see a peak of resets that we will roll over (ie, the we are here will hit that spike). That's whats worrying - many more mortgages due to have a big rise in rates.

The way you've interpreted it is that the low numbers under 'we are here' is low because the resets have already happened - when in fact the already happened are on the graph too. It means there are many more to come.

Of course, if they drop the rate back down to 2%, then it doesn't matter.

Edited August 20, 2007 by ae589

[bearbullfence]

Eh? Why would you expect that? This would only be the case if they only used mortgages beginning at the beginning of the timeline. They have not.

We WILL travel the peaks through time - otherwise the y-axis wouldn't be time! I think you are misinterpreting this for the same reason as above.

"Not much to see here"

It soooo simple. The majority of mortgages have a 2/3 year rate review/reset whatever you want to call it. When this graph was put together, guess what... the majority of rate reveiws were in the 2/3 year time frame.

If the graph was redrawn for today the majority of rate reveiws would be in 2/3 years from now. In effect the peak would move to the right, or the timeline will shift to the left - it doesn't really matter. You don't need to use mortgages that only started at the beginning of the graph.

We wont travel the peaks becasue the peaks will move. Y axis is time, but because of the nature of the graph it will always be that shape.

[ae589]

We wont travel the peaks becasue the peaks will move. Y axis is time, but because of the nature of the graph it will always be that shape.

Nope.

The upward slope is an actual increase in the number of mortgages reseting (I assume because either more mortgages or more teaser mortgages were arranged) at each time.

If what you said were true, and there was a high number in 2-3 years that then reduced by the time it got to the left hand side, mortgages would be disappearing into the ether.

Edited August 20, 2007 by ae589

[Agentimmo]

[still in reverse-doomer-mode]

I notice Brazil has started to take up the slack from the Chinese buying US debt. There are still quite a few countries that the US can call in favours on.

Things must be really desparate in the US and Wall Street if Brazil are doing as you say

No doubt this will be tied into a deal guaranteeing a price and market for the Brazilain bio-fuels in the US and Latin America?

Or am I just a cynic

[jpidding]

Nope.

The upward slope is an actual increase in the number of mortgages reseting (I assume because either more mortgages or more teaser mortgages were arranged) at each time.

If what you said were true, and there was a high number in 2-3 years that then reduced by the time it got to the left hand side, mortgages would be disappearing into the ether.

Gotta agree with ae589....bearbullfence is misenturpreting the chart. The peak ahead shows a high number of "teaser rate" mortgages taken out around two years ago which are due to reset to higher rates over the next year or so. If, two years ago more people had opted to take out standard variable rate mortages or 5/10/30 year fixes with no reduced introductory rate then you would not see this approaching peak ahead.

James

[bearbullfence]

Nope.

The upward slope is an actual increase in the number of mortgages reseting (I assume because either more mortgages or more teaser mortgages were arranged) at each time.

If what you said were true, and there was a high number in 2-3 years that then reduced by the time it got to the left hand side, mortgages would be disappearing into the ether.

Right last attempt.

The graph is measuring a quanity that is affected by time (i.e volume of future rate reviews) so you can't just look at the snap shot and so OMG that's sooo bad without relaising how time impacts the graph. There is no previous volumetric data so there is no way to know whether data you are looking at is bad or good, also there is no reference to previous behaviour so again no way to tell whether data is bad or good. All I'm saying is that for any given moment, the graph as displayed is what should be expected - note I've not said whether this is positive or negative.

Lets try and use a different example. Instead of mortgage reviews I'll use car MOTs.

What would a graph of number of cars' next mot by month look like? It would look quite similar to the mortgage graph, between 0 to 12 months there would be a high amount and then after 12 months it would reduce up to three years (new cars). However, we are measuring a quantity that is affected by time. This relationship is less complicated than mortgage review dates but it is similar. When an MOT date comes around it gets put back 12 months after the MOT is done. (Similar to when a rate review comes around a new mortgage product is agreed and another rate reveiw date is agreed).

So roll on 12 months what does the graph look like for MOTs, well it would look very simliar to the one done 12 months previously in effect the peak of MOT renewals would have shifted in time, you will never "travel" the peak of graph because it forever moving.

This is unlike the graph on the front page of this site. This quantity is unaffected by time so any humps/bumps or dips will be traveled over.

[bearbullfence]

Gotta agree with ae589....bearbullfence is misenturpreting the chart. The peak ahead shows a high number of "teaser rate" mortgages taken out around two years ago which are due to reset to higher rates over the next year or so. If, two years ago more people had opted to take out standard variable rate mortages or 5/10/30 year fixes with no reduced introductory rate then you would not see this approaching peak ahead.

James

But you've only got half of the answer here. Ask yourself what will the people in teaser rates do when they come to the end and what will that do to the graph.

Oh, BTW please quote where I've misinterpreted and explain how that is the case.

Edited August 20, 2007 by bearbullfence

[ae589]

Right last attempt.

So roll on 12 months what does the graph look like for MOTs, well it would look very simliar to the one done 12 months previously in effect the peak of MOT renewals would have shifted in time, you will never "travel" the peak of graph because it forever moving.

THis is mine. I'm terrible at explaining things, which is why I'm going to give up (plus we'll bore everyone).

A graph of MOT's would be a straight line, maybe with a hump at special car-buying times. The number of MOT's happening today, tomorrow and in 6 months should be roughly the same. An upward sloping graph would show that there is a higher rate of MOT's happening in 6 months than is happening today, which is what this graph is showing.

[Timm]

I think the confusion might be caused because as589 sees the graph as including all mortages sold with a reset date, whereas bullbearfence sees the graph as including only those that have not yet refinanced.

Edited August 20, 2007 by Timm

[jpidding]

THis is mine. I'm terrible at explaining things, which is why I'm going to give up (plus we'll bore everyone).

A graph of MOT's would be a straight line, maybe with a hump at special car-buying times. The number of MOT's happening today, tomorrow and in 6 months should be roughly the same. An upward sloping graph would show that there is a higher rate of MOT's happening in 6 months than is happening today, which is what this graph is showing.

Thanks ae589...that was gonna be my resopnse.

Just to add....lets take the old condition when the registration changed in Aug (only once a year). Load of people used to buy then (I think the stat was that 50% of the years cars were sold in Aug, hence why they changed the system to sperad it out a bit more). Now a graph of MOT's due would be relatively flat for most of the year, but then dip as we go into june/july (people holding out for new reg's in Aug) and then peak up as the cars re'g in Aug came in. That peak would appear to move as time went on and more MOT's would be carried out in the month of Aug. The peak would not constantly sit a couple of months ahead in time!!!

Please can we stop this banter now. We have done this to death. It my thread goddamnit!

Fact...more US teaser rate mortgages will reset Jun next year than they did this year. Around $42billion worth as opposed to $26billion worth.

The only way the graph will change over time is if someone today takes out a one year teaser rate morgage now, which will reset in one years time. In this case the graph can only get worse, not better!

JP.

[ae589]

I think the confusion might be caused because as589 sees the graph as including all mortages sold with a reset date, whereas bullbearfence sees the graph as including only those that have not yet refinanced.

Yes, I think so too.