Asset Prices to Fall Further
The Multiplier Effect In Reverse...
As the amount of leverage, or borrowed money, used to boost investment returns decreases,
the yields and extra yields over borrowing costs on mortgage assets need to increase to allow buyers to earn the 15% returns they typically target.
The amount of leverage employed appears to have fallen to 10-to-1 from 20-to-1 for non-agency securities and to 2-to-1 from 10-to-1 for agency securities.
Amid the first leg of the de-leveraging, Friedman Billings analysts estimated in August that
$150 billion to $250 billion in new capital was needed to avoid further price declines.
This being the second leg down, analysts now estimate the $11 trillion U.S. home-mortgage market
needs about $1 trillion in new investment to halt the slide in prices that began last year.
Paul J. Miller Jr. of Friedman, Billings, Ramsey & Co.: "A big increase in capital isn't occurring and probably won't for months,
which is why prices of AAA rated non-agency mortgage securities have fallen to the mid 70 cents per dollar.
There is an imbalance between housing debt and the capital base and the quick way to return to equilibrium is for asset prices to adjust downward."
The Nattering One muses... a dysfunctional, dislocated market, in disarray.
The capital base is actually shrinking and the asset prices will adjust further downward, all asset prices.
Cut all you want, there isn't a bailout big enough to save this trainwreck.
Hattip to Bloomberg.
As the amount of leverage, or borrowed money, used to boost investment returns decreases,
the yields and extra yields over borrowing costs on mortgage assets need to increase to allow buyers to earn the 15% returns they typically target.
The amount of leverage employed appears to have fallen to 10-to-1 from 20-to-1 for non-agency securities and to 2-to-1 from 10-to-1 for agency securities.
Amid the first leg of the de-leveraging, Friedman Billings analysts estimated in August that
$150 billion to $250 billion in new capital was needed to avoid further price declines.
This being the second leg down, analysts now estimate the $11 trillion U.S. home-mortgage market
needs about $1 trillion in new investment to halt the slide in prices that began last year.
Paul J. Miller Jr. of Friedman, Billings, Ramsey & Co.: "A big increase in capital isn't occurring and probably won't for months,
which is why prices of AAA rated non-agency mortgage securities have fallen to the mid 70 cents per dollar.
There is an imbalance between housing debt and the capital base and the quick way to return to equilibrium is for asset prices to adjust downward."
The Nattering One muses... a dysfunctional, dislocated market, in disarray.
The capital base is actually shrinking and the asset prices will adjust further downward, all asset prices.
Cut all you want, there isn't a bailout big enough to save this trainwreck.
Hattip to Bloomberg.
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