Posted tagged ‘rational’

Bold Statement: Time to Start Partying

September 10, 2008

I’m making a bold statement here: We’ve turned a corner. The Worst is over. Our evidence?

1. The Fannie and Freddie issue was always odd because, for as long as I can remember, there was an implicit guarentee that was unquestioned in all ways. It was a bullet point on every presentation about agency debt. It was a sub–bullet point on every presentation about agency M.B.S. Well, if Fannie and Freddie were always meant to be supported by the government, then why would people doubt that was the case? If the government guarntee was always pre-supoposed, why doubt it? Well, finally, the common sense statement that everyone doubted has been made explicit–which shouldn’t have needed to happen. However, I would claim, when you start doubting the obvious it’s a sign of a bottom. Especially now that the doubt has been quashed and the market is back to “pricing to reality.”

2. Lehman is resolved. As the rumors and estimates piled up Lehman has gotten crushed. Clearly this firm was the last big unknown as it dominated the news constantly. We knew every gyration and hiccup of the Korean Development Bank and their flirting and courtship with Lehman. Amazing. Well, with their announcement today, we know their losses, their plans for selling stakes in their businesses, and the extent of their real estate woes. Coupled with the mortgage market recovering slightly and stabilizing (see #1 above) the losses from mark to market aren’t likely to spiral far from here.

So, with these two very recent events, it seems reasonable to assume we’re out of the woods… I’ll be bold and predict, then, the reasonable assumption matches reality.

Update: Quite a tizzy over at Seeking Alpha about this post. I’m not calling a bottom here. I left a comment there if you would like to see it.

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