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US Subprime mortgage market


JohnHoward

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Just a few thoughts; The current selloff is mainly due to the US subprime and housing.

 

Do aussie banks, and for that matter our funds and Super funds have exposure, and thereby risk losing big $$$?

 

If they don't have exposure is the current ramp up in mortgage foreclosures in the ble collar areas of our capital cities an indication of trouble for our banks, similar to the current US problems?

 

If housing is suddenly made "more affordable", will we exasperate the mortgage problems?

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In reply to: JohnHoward on Friday 27/07/07 03:43pm

I ask the question again, (I hate sounding like a school teacher, hate em); How much exposure do our illustrious institutions have? And for all you "grey nomads", how much do you really have to spend of the kids inheritence. As an extra, how much of other currencies are there in this? Maybe its time to pull money out of the stock market, and well, put it in bricks and morter. An oxymoron perhaps ... but...well...think kiddies

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I am sure some of you out there are researching extensively, how bad is it, and what are the implications?

 

I haven't looked into it too much, but a few rough facts I know. US consumer's spending accounts for a huge amount of global trade, 20%+ ish?? I seem to recall. Obviously housing concerns will impact their spending. How much of the market in the US is subprime... is this enough to send the US into recession? forgetting the rest of their problems such as debt everywhere!

 

I guess the flow on for us is less US consumer demand = less China production = less commodity demand = less profits in Australia.... obviously also direct links for Co's with major sales in US but not as major as the China one?

 

 

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In reply to: bailej03 on Thursday 02/08/07 01:17am

unfortunately, the problem has now extended beyond sub-prime with credit risk now being repriced as a consequence of the housing problems. you may have notice that a number of lbo are also now having problems obtaining financing. hedge funds are being hit with investors wanting out regardless of the funds exposure to housing (macquarie is a classic example).

 

this is going to get a whole lot uglier before we see good times again.

 

 

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In reply to: bailej03 on Thursday 02/08/07 01:17am

You ask how much in the US is subprime, read one report in the paper last week. that said it was only a tiny 1%. A small amount indeed. No doubt the market will overact and papers will try to make us think the world is coming to an end. Maybe as Paul Keating said its the correction we had to have. But its already 7% on the ASX and would expext a good bounce today. Shorters on Wall St must have been hit bad with that very late surge which took the Dow up 150 points wipeing out all the losses of the day before.

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In reply to: albion on Thursday 02/08/07 07:06am

I agree Albion, the Subprime market is a very small percentage of the overall mortgage market in the US something like 1 or 2% but given the population of the US this translates into a sizeable chunk of cash which is "at risk". Having said that there are 98% of loans which are not subprime and not at risk but reporting this isn't sensational and doesn't sell newspapers.

 

I would be interested to know what percentage of subprime loans are in default at the moment, 5%, 10%, 50%? This would give a clearer picture of the scale of the problem.

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In reply to: JohnHoward on Wednesday 01/08/07 08:08pm

Little Johnny,

 

For what it's worth,

 

1. I remember the NAB traders fiasco from a couple of years back where a couple of traders apparently lost a few $mill in deriviatives trading. I always wondered whose money were they trading with? deposits? shareholders?

 

2. If you look at the composure of most balanced super/managed fund options, they will have a certain % in cash, fixed interest, shares & property. Cash is usually money market securities etc. Then you have the fixed interest component, usualy being a mix of government debt, corporate debt & private markets. (every one would be different though - would need to read up). This would be where you may see some exposure to sub-prime & the like. I am not exactly sure, you would have to check a companies prospectus.

 

Perhaps you should call one of the larger retail super funds and ask them to send you their personal super prospectus and check it out? If you do, compare returns between cash & fixed interest options over last few years - is the risk/return scenario playing out properly here?

 

I remember reading in one of the newsletters I regularly recieve about how CDO's were being packaged up & being sold to some of the pension/retirement funds in the USA. Apparently they were itching to get their hands on these investments.

 

Interesting times, but it pays to do some research, especially where you may have your super invested and what they are doing with it?

 

DYOR - SMSF for me.

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In reply to: krk004 on Thursday 02/08/07 07:57am

All good points. I remember the NAB trader fiasco too. But what I am trying to get a "feel" for is how much of aussie institutions, be they banks, super funds insurers are at "risk", directly or indirectly. I think we are only seeing the tip of the iceberg so to speak.

 

The other point I am trying to gage is interest rates. If the keep rising then more people start to default, then housing may get cheaper, but not necessarily affordable. So if this is on the cards then cash is perhaps king. You can then buy real estate at good prices, and rents should be high.

 

I bought my first house back in 1978, interest rate was 17.5%, I sold it 18 months later for a gain of 200%. If it wasn't for three divorces, being a single parent, (yep she got the $$$ and I got the kids), I would be very comfortable, but hey thats life. The current climate is reminiscent of the mid seventies.

 

Anyway, thats my two bobs worth.

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In reply to: JohnHoward on Thursday 02/08/07 04:50pm

Hi all, interesting thread really. The full implications of the subprime mortgage fiasco are yet to be felt.... it takes months upon months to filter through. It will only get worse IMO.

 

Heres one article I thought you guys may find interesting http://www.sharescene.com/html/emoticons/smile.gif Short but sweet.

 

http://www.marketoracle.co.uk/Article1694.html

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In reply to: Sav on Thursday 02/08/07 05:32pm

Thanks sav, Good article. reading it reinforced my, and perhaps many others view, that the fiat, paper money is not that good an idea. So perhaps rather than converting to cash we may be better off with the standard that cash replaced; gold. Lets face it, you cannot print gold.

 

 

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