Ya know, I read some real reports by real economists and I think to myself - those are some smart dudes.
Then I read reports from the NAR's Chief Economist, the corrupt David Lereah, and I wonder why the other real economists don't track him down and give him a wedgie.
Here's a note from bond house PIMCO's really smart guys, who basically are saying that the dummies buying these nifty new commoditized mortgage backed securities are gonna eventually get slaughtered. Conservatism will be rewarded, just like during the NASDAQ tom foolery.
Innovation is playing a huge role in both the mortgage industry and the corporate bond market, bringing lenders and borrowers together and providing easier access to credit than ever before.
As the housing market slows, mortgage lenders are beginning to tighten credit in recognition that innovative loans are fine in a bull market but perhaps less so in an increasingly bearish market.
We suspect the corporate bond market will eventually follow a similar path toward tighter credit, particularly as the slowdown in housing leads to slower economic growth.
Innovation is a wonderful thing, but it can also lead to excesses that separate asset prices from their underlying value, whether we are talking about houses, corporate bonds, credit default swaps or pets.com.
That’s why PIMCO continues to focus on value in corporate bonds, researching our credit investments from the bottom up and taking advantage of value opportunities like negative basis trades when they present themselves. In today’s corporate bond market, our focus on value, while not innovative, may be the most sensible approach of all.
November 24, 2006
Posted by blogger at 11/24/2006