Comments on: Mark-to-Make Believe Rally http://www.ritholtz.com/blog/2009/04/mark-to-make-believe-rally/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 19:17:10 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: Mark E Hoffer http://www.ritholtz.com/blog/2009/04/mark-to-make-believe-rally/comment-page-1/#comment-159240 Mark E Hoffer Thu, 02 Apr 2009 21:23:36 +0000 http://www.ritholtz.com/blog/?p=23013#comment-159240 MR-- http://www.census.gov/mtis/www/current.html ”inventory to shipments ratio” also, http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=inventory+to+shipments+ratio+2009 MR–

http://www.census.gov/mtis/www/current.html

”inventory to shipments ratio”

also,
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=inventory+to+shipments+ratio+2009

]]> By: jc http://www.ritholtz.com/blog/2009/04/mark-to-make-believe-rally/comment-page-1/#comment-159235 jc Thu, 02 Apr 2009 20:53:22 +0000 http://www.ritholtz.com/blog/?p=23013#comment-159235 With the Fed underwriting below market rate mortgages there's no reason that banks can't create a model that values their assets above 100%. With the Fed underwriting enough below market mortgages that becomes the market and then the toxic mortgages become better than market, and the holders of these toxic mortgages won't be able to qualift for the cheaper Fed subsidized mortgages so that model could justify pricing above 100%, how about 120%? As a taxpayer I just hope Tim's private partners don't chase these toxic assets up using out 12:1 not recourse funding because when hyperinflation kicks in and mortgages rates zoom to double digits these toxic mortgages will go hypertoxic on the taxpayers dime. With the Fed underwriting below market rate mortgages there’s no reason that banks can’t create a model that values their assets above 100%.

With the Fed underwriting enough below market mortgages that becomes the market and then the toxic mortgages become better than market, and the holders of these toxic mortgages won’t be able to qualift for the cheaper Fed subsidized mortgages so that model could justify pricing above 100%, how about 120%?

As a taxpayer I just hope Tim’s private partners don’t chase these toxic assets up using out 12:1 not recourse funding because when hyperinflation kicks in and mortgages rates zoom to double digits these toxic mortgages will go hypertoxic on the taxpayers dime.

]]> By: bdg123 http://www.ritholtz.com/blog/2009/04/mark-to-make-believe-rally/comment-page-1/#comment-159105 bdg123 Thu, 02 Apr 2009 15:52:28 +0000 http://www.ritholtz.com/blog/?p=23013#comment-159105 I too repudiate mtm accounting. I have valued my house at a lower level to pay the appropriate taxes, have valued my outstanding debt at a level that guarantees repayment during distressed times and have marked my income to what the hell ever I wanted. I too repudiate mtm accounting. I have valued my house at a lower level to pay the appropriate taxes, have valued my outstanding debt at a level that guarantees repayment during distressed times and have marked my income to what the hell ever I wanted.

]]> By: Rajesh http://www.ritholtz.com/blog/2009/04/mark-to-make-believe-rally/comment-page-1/#comment-159099 Rajesh Thu, 02 Apr 2009 15:42:31 +0000 http://www.ritholtz.com/blog/?p=23013#comment-159099 The mark-to-market issue comes up for banks because there are two sets of rules that they follow. One set of rules is for illiquid assets: whole loans primarily, the other set of rules is for liquid assets: bonds, stocks, etc. The whole point of securitizing assets is to turn illiquid assets (mortgage loans, credit card receivables, etc.) into liquid assets (tradable securities). That works fine when the market for the securities is still liquid, because the bid reflects the markets view of the probable value of the security. However, when the market is risk adverse, the securities may become illiquid, but the rules still treat them as liquid assets. If the market for the security completely disappears (no bids), then they are level 3 assets and the rules allow them to be priced based on projected cash flows. But if the market for the security exists but the bid in the market is a lot lower than the value of the security based on projected probable cash flows, current rules require marking to the low-ball bid, even though the hold to maturity value may be higher. The market is not always right (see Dow 15000) but trying to figure out if the market is right or the bank's internal valuation is more correct is a dangerous exercise. The mark-to-market issue comes up for banks because there are two sets of rules that they follow. One set of rules is for illiquid assets: whole loans primarily, the other set of rules is for liquid assets: bonds, stocks, etc. The whole point of securitizing assets is to turn illiquid assets (mortgage loans, credit card receivables, etc.) into liquid assets (tradable securities). That works fine when the market for the securities is still liquid, because the bid reflects the markets view of the probable value of the security. However, when the market is risk adverse, the securities may become illiquid, but the rules still treat them as liquid assets. If the market for the security completely disappears (no bids), then they are level 3 assets and the rules allow them to be priced based on projected cash flows. But if the market for the security exists but the bid in the market is a lot lower than the value of the security based on projected probable cash flows, current rules require marking to the low-ball bid, even though the hold to maturity value may be higher.

The market is not always right (see Dow 15000) but trying to figure out if the market is right or the bank’s internal valuation is more correct is a dangerous exercise.

]]> By: MRegan http://www.ritholtz.com/blog/2009/04/mark-to-make-believe-rally/comment-page-1/#comment-159081 MRegan Thu, 02 Apr 2009 14:59:39 +0000 http://www.ritholtz.com/blog/?p=23013#comment-159081 Very clear-eyed assessment, thanks. You say: "That said, we should also keep an eye out on the inventory to shipments ratio which indicate that there is still an extremely high level of inventory that needs to be worked off before any progress can be made on the production front." As a layman, trying to learn, please tell me what the best source for tracking the " inventory to shipments ratio" is. Very clear-eyed assessment, thanks.

You say: “That said, we should also keep an eye out on the inventory to shipments ratio which indicate that there is still an extremely high level of inventory that needs to be worked off before any progress can be made on the production front.”

As a layman, trying to learn, please tell me what the best source for tracking the ” inventory to shipments ratio” is.

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