November 24, 2006

A note from the smartest guys in the room - the REAL economists at PIMCO

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

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.


Anonymous said...

I love it. I can see totally now, the new SOX (Sarbannes-Oxley) additions where mortgages have to comlpy with a new stack of rules, just like financial companies do. can you spell "Employment Opportunity for IT and data junkies".

Anonymous said...

commoditized mortgage backed securities
This is another "derivative" product of which the banking system is holding over $200 trillion in off balance sheet derivatives. Now who's a smart economist if you allow an unregulated banking system to go broke via these "side bets" called "derivatives"?
There isnt any smart economist either at PIMCO or anywhere else.

Paul E. Math said...

Clinical, dispassionate, objective and understated. Those are the hallmarks of a credible economist. As opposed to the dogmatic and biased spin employed by David Lereah.

Even after this guy has finished describing a very strong fundamentals-based argument for a significant home price decline, his concluding prognosis remains a cautious "Asset prices will be challenged". That is an understatement.

Anonymous said...

Wow, success through fundamentals. Who would have thought it?