“Money market fund managers are panicking out of the commercial paper market,” Dan Amoss tells us, “fearing that these securities may contain subprime CDOs -- and are piling into 3-month Treasury bills at an alarming, unprecedented rate. The 3-month T-bill yield has plummeted all the way to 2.85%, down from 4.8% just one month ago.
“This is the market’s way of screaming that the Fed needs to cut the target for their fed funds rate quickly and aggressively, perhaps before their next meeting in early September.”
And lest you think the Fed could paper over the CDO crackup, here’s news: Fitch Ratings warned they’re placing $92.1 billion of securities backed by subprime residential mortgages “under analysis” this morning. That’s their first step toward rating downgrades.
Fitch has already hinted that at least $4.2 billion of these bonds are sure to be downgraded, bringing the total this year to over $17 billion in CDO downgrades from Fitch alone. Even if the Fed does accommodate Wall Street ne’er-do-wells, the source of this panic runs deep.
“This is the market’s way of screaming that the Fed needs to cut the target for their fed funds rate quickly and aggressively, perhaps before their next meeting in early September.”
And lest you think the Fed could paper over the CDO crackup, here’s news: Fitch Ratings warned they’re placing $92.1 billion of securities backed by subprime residential mortgages “under analysis” this morning. That’s their first step toward rating downgrades.
Fitch has already hinted that at least $4.2 billion of these bonds are sure to be downgraded, bringing the total this year to over $17 billion in CDO downgrades from Fitch alone. Even if the Fed does accommodate Wall Street ne’er-do-wells, the source of this panic runs deep.
The underlying asset for those damaged CDOs isn’t getting healthier any time soon. Take a look at this chart from our colleagues John Mauldin and RBS Greenwich:
RBS Greenwich anticipates that $27 billion per month of subprime loans will hit their first reset over the next 12 months. That’s $27 billion -- per month. Ay yi yi. Financial stocks all over the globe are going to be reeling from this mess for years.
RBS Greenwich anticipates that $27 billion per month of subprime loans will hit their first reset over the next 12 months. That’s $27 billion -- per month. Ay yi yi. Financial stocks all over the globe are going to be reeling from this mess for years.
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