Tuesday, July 29, 2008

It's a long hard slog.

Thank god the financial storm is over. At least, that's what the financials seem to be telling us.

If I were looking at a graph of mortgage resets vs time, I might worry that there is more pain in front of us. Let's take a quick look (click on graph for a bigger view):

August '08 is marked by "You are here" on the graph. Strangely, the financial stocks are acting as though most of this has been written down. As of today, about $350B has been written down by financials, which would account for a complete wipeout of the first year of this graph. So why worry?

1. The first year of resets on the graph caused the present damage to housing prices. Resets do not finish until 2012.

2. The agency debt (shown in red) that has caused great distress is increasing substantially in the future. Perhaps the great financial minds have already discounted that increase, or perhaps they have kicked it to a future generation to deal with.

3. Commercial real estate is about to be the next nose dive. Credit cards and autos are on deck.

It's quite doubtful that the financials are done with their pain.


Anonymous said...

ANy reason for thinking that commercial RE is coming up?

JP said...

Take a look at the latest quarter from Grubb and Ellis (CBG). It's a doozy. Over the next week, we should see a bunch more CRE reports.

Since CRE is sizeable, I suspect the media will soon start focusing there, once the first CMBX blowup occurs.