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Global: Moody’s/Buffett, US Home Sales, Mortgage Walkaways

David Segal over at the NYT has Questions for Moody’s and Buffett.The “Invest in what you know” advice that Buffett spews is at risk; in a hearing of the Financial Crisis Inquiry Commission, he said he didn’t know much about Moody’s, except that they were a great company. Though, Moody’s seems to have gone out of their way to tell him, for instance, that they got served a Well’s notice from the SEC in March – a material development that they chose not to reveal to rest of the world till 2 months later – and Buffett sold $6.2 million worth of Moody’s shares in March.

At Calculated Risk, Pending Home Sales Surge in April, as the first-time buyer tax advantage expires end-April and he expects a “Pending Home Sales Collapse in May” headline. Which is not a dumb forecast, he notes that Mortgage Purchase Applications are at the lowest level since April 97. (Applications on approval have contracts signed, and two months later, sales are closed, so the pipeline is screwed, distorted due to the tax credit.) Meanwhile, Distressed House Sales are creeping to the affluent, the more “prime” category; unlike what are otherwise prime, these seem to have more than one factor. (Sorry, math joke feeble attempt). At the same time, personal bankruptcy filings are up 9% year-on-year.

David Streitfeld at the New York TImes: Owners Stop Paying Mortgages to save stress. It could take two years before they get foreclosed on, so living rent free in a house you no longer pay for is the in-thing. Diana Olick: BofA: Mortgage Walkaways Have Huge Incentive.

I had this weird thought today. What if all the governments of the world decided to default on their debt – at least to the debt owned by outsiders? The biggest beneficiaries: Europe and the US. Worst hit: China, Japan and the Oil Block. It would return Europe and the US to normally fairly quickly because they can print their currency and there is simply nothing else that can replace the $ or Euro. The size economies of Japan and China are loath to open up for foreign investment big time, and India/Australia etc. are too small. At some point, this will be an alternative, if there are more trillion dollar crises that need bailouts. 

  • Harikrishna R says:

    >Say the US wanted to default on the debt owed to foreigners, how exactly would they distinguish between "outsiders" and "insiders"? Surely a secondary market where "outsiders" sell to insiders at some small discount would quickly develop. What then? Let's assume they default, period. What happens to the pension funds? They'll go broke. Where will that leave the baby-boomers? In penury. Where would that leave the government-of-the-day come mid-term elections? In the dustbin.

    Oh wait! Maybe they can ban outsiders from trading in US bonds first before the Chinese dump treasuries. They could lock up their markets, put in place FDI restrictions, copy-paste the FERA into their law books and turn the Fed into an RBI. Sweet!

  • KSBose says:

    >Good point Harikrishna.
    Another issue with default is there will be a short to medium term pain. As you all know Governments are running huge deficits and if they finance all this by printing money, inflation will go up. In the end, there is no free lunch and someone should pay for it.

  • Deepak Shenoy says:

    >Pension funds would be "insiders" 🙂 But yes, secondary markets could sell to insiders if they had time. If it was announced in the dead of a Saturday night, no time to even trade.

    I don't know if it can happen or if it will. It doesn't seem plausible right now. But should things get much worse…

  • Anonymous says:

    >Bobby Buffet hateRS going sTrong.

    No articles frOm Finance wiz MATT TABIBI FROM trading and inVesting jOurnal ROLLING STONES. No mention from BiG PiCTuRE Too. WhY? No mention of Goldmen. No Mention like we the taxpayer are getting looted ( how could a indian taxpayer suffer if US EU, african govt gives handouts ) Beats me.

    Yall keep hating bUffet while he kEEps maKing $$$, hIs call of buying caMe So tRue iN oct08 while people keEp hAting hiM he kEpT maKinG $. ObvIoUsly buying in pANic is nO no cause thErE iS marGin of saFteY in pRice bUt no MadAMes we don't do that.

    BUffet kEEPs sitting on his ass and kEEPs making money.

    Your crusade against buffet is quite amazing. Is it because of jealousy. Me personally would love to make money the way he is making the moniess.