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Thursday, September 23, 2010

September 23

legendary investor Seth Klarman calls market a "Hostess Twinkie". via Pragmatic Capitalist.

John Hussman explains why the economy is weak and deteriorating
the whole thing is worth reading, as always, but what I'd most like to excerpt is:
My view remains that the underlying condition of the U.S. housing market is one of deep insolvency. The Treasury, Fed and the FASB have effectively made a policy out of opaque disclosure, so that at least the deterioration in the housing market is slow to appear on the balance sheets of major banks and financials. At present, the FASB allows "substantial discretion" in the valuation of mortgage-backed securities, which I suspect are being carried at a higher level than the value that the underlying cash flows (mortgage repayments) can actually support. Given that there is little pressure to disclose losses, and that mechanisms are in place (at least until the end of 2012) for the Treasury to bail out the entire flow of bad mortgages that funnel through Fannie Mae and Freddie Mac, it's not clear whether the growing mountain of delinquent and unforeclosed mortgages will provoke an abrupt crisis. My own expectation is that fresh economic pressure would provoke contagious pressure on the housing market to an extent that would be difficult to obscure.


Uniqueness or similarity? Japan’s post-bubble experience in monetary policy studies. Masaaki Shirakawa, BIS.

The lastest Z.1 Flow of Funds report was released last Friday; total credit market debt expanded slightly to $52.1Trillion. this is worth watching due to how debt growth has historically been a leading indicator of GDP growth, as shown by Annaly Capital:

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