Freeplay Energy Share Discussion Threads

[energyi] 21/7/2005 22:18

"if their risk-based capital were raised to the level of where commercial banks are that would assuage a good deal of the problem"

If implemented,
they would have to SELL alot more equity... at a lower price

[energyi] 21/7/2005 22:13

Greenspan Warns China Of 'Serious' Threats
Greg Levine, 07.20.05, 4:40 PM ET
Related Quotes
FNM 58.52 - 0.74
FRE 65.53 - 1.20

Chinese roulette?
Alan Greenspan had some strong words for Beijing Wednesday. Speaking to the House Financial Services Committee, he said the teeming Asian nation faces "very serious" dangers to its economy if it persists in holding its currency's value down. The U.S. Federal Reserve chairman explicated his view, saying that China's financial engineering required amassing "very large" amounts of U.S. Treasury securities. He maintained, "Unless they sterilize that very substantial inflow, they create significant distortions in their financial system and ultimately could be very serious for the Chinese economy."

However, the Fed chief reiterated his view that the U.S. ought not to impose tariffs as a means of forcing China to revalue the yuan. He argued that such force was unlikely to lead to an increase in U.S. employment and could have unintended consequences. "Anything that we do which restricts world globalization, at the end of the day rebounds to our disadvantage," Greenspan was quoted as saying in various reports.

On the home front, the chairman cautioned, "The significant rise in purchases of homes for investment since 2001 seems to have charged some regional markets with speculative fever." As scrutiny of mortgage giants Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) intensifies, Greenspan opined that greater use of such instruments as interest-only mortgages were of "particular concern." He said these types of mortgages left home buyers "vulnerable to adverse events" if home prices begin to fall. The chairman called for the Fed to continue gradual interest-rate increases

@:

[energyi] 21/7/2005 21:59

WITH THE LINK to the Dollar History,
China has less reason to hold Dollar reserves. The more they hold,
the more their wealth is at risk from a slide in the Dollar.

As the market wakes up to this reality, watch for a slide in the Dollar,
and a BIG rise in Gold and Silver

[geoffo1] 12/3/2005 19:24

Great product. Good website. Watch and wonder

[advaita] 09/3/2005 12:01

Sounds like a co. with a good future but I'll wait to see if I can get in a bit cheaper in a few days/weeks time.

[littlepuppi] 09/3/2005 08:42

Someones buying these.

[mohamed99] 09/3/2005 08:39

uuuuppppppppppppppppppppppppppppppppppppppppppppppppppppppp

[chapman123] 02/3/2005 10:37

floated today @ 52p now 62 bit of volume great product any ideas short term ??

[energyi] 02/8/2003 14:20

Posted by Faith Witryol at July 22, 2003 04:12 PM
A good background paper on convexity is here:

How credible was (or is) the Fed claim to be able to meaningfully intervene as a purchaser of long term securities? It seems to me to be meaningful as talk (so-called jawboning) to bring long term real interest rates lower, temporarily - but could it actually do what it repeatedly claimed to be able to do? If not, then what?

Posted by Eric Glynn at July 22, 2003 05:07 PM
Sorry - that convexity link is:

[brainclamp] 31/7/2003 19:46

Fantastic Thread Geo.
People rave about the stock market, and do not focus much attention on the action in the bond market other than to dully look at the yield of the 10Yr. The bond market is so collosal that the housing market is but a symptom!
I well remember the action of the 10Yr yields falling and falling alarmingly, bewildering market particpants as to why...

There is a great srticle from Bill Gross (PIMCO) - Bill Gross estimated 1 yr ago that the REFI engine would start to run out of fuel about now. He convincing claimed that there is a duration gap issue. (i.e. CONVEXITY)

From PIMCO's Bill Gross...
"Our economic version of Smokey The Bear goes by the name of the refinancable mortgage. No other country really has it and it has saved our fannies up to this point by lowering interest costs and "creating" wealth where no other wealth was to be found. Remember the point about fixed rate debt being a deflationary villain? That applies primarily to companies and in some cases, strangely enough, to consumers via floating, yet somehow, permanently high interest rates in the credit card arena. American style mortgages are another story and because of them, most American homeowners (70% of U.S. households) have been able to keep on consuming via reduced monthly payments, increased equity takeouts, or both. The Queen of England mistakenly knighted Alan Greenspan as the saviour of the global economy. She should have instead tapped the originator of the refinancable mortgage.

But there are limits dear reader, there are limits. And every sophisticated money manager and financial observer is keenly aware of these limits. They half whisper them over the phone or in their nightmares as if to recognize that the margin of error is now very, very slim. Because we are certainly within 1 3/4% of zero as Ed Yardeni might express it and we are therefore within perhaps 50 basis points of the lowest possible 15 and 30-year mortgage rate that Americans are going to be able to refinance into.

Mortgage rates will not follow the Fed Funds rate basis point for basis point lower because the extension risk and the negative "convexity" risk to the buyer (PIMCO) becomes outrageous if it does.

There will never be much less than a 5% 30-year GNMA, Freddie Mac, or FNMA mortgage issued in size no matter what Greenspan does - and that's a forecast you can take to the bank, with a high probability outcome."

"How long do we have? Twelve months at the most, even if Greenspan drives rates toward zero."

Mr Gross wrote this piece in October 2002.
(Entitled "Knock, Knock, Knockin' on Heaven's Door")

It certainly lays out pretty much where we are now. Being July (10 months from when he wrote this) its now fairly creditable that its over, or by Gross's forecast we have only 3 months left at most.

REFI's are alreadly backing up. Perhaps house prices may not start to fall straight away as people continue to surge to REFI and release "wealth" but the negative effects of a tightening of this spigot are going to focus more and more going forward as yields start to back up...

[yf23_1] 31/7/2003 12:54

I'm sure I remember reading an article on this, may have been in the IC.
I'll try to find the ref.
Anyway, nice article GeoLogic.

Would it be vexing if the yield curve were to go from concave to convex - how very perplexing !

[geologic] 30/7/2003 19:58

ARTICLE: Fannie Mae and Freddie Mac are two of the most highly leveraged...

A story in the March 6th American Banker led with the following sentence: "Fannie Mae and Freddie Mac are among the safest and soundest financial institutions on the planet, according to an analyst at Moody's Investors Service."

That doesn't say much for our planet (or Moody's, but that's another story).

Fannie and Freddie do have indisputable strong points. Due to the implied backing of the United States government, they enjoy virtually unlimited access to the capital markets at funding costs that are below market. Together they dominate their market-their combined book of business of $2.6 trillion at March 31, 2002 constitutes 46% of the $5.5 trillion in home mortgage debt outstanding, up from 35% in 1996. They pay no local taxes, only national. Their credit experience has been terrific. They are adept and public and governmental relations. They each have great websites. Because of all these, each has enjoyed tremendous growth and profitability, with 2001 ROEs of 23.1% (Freddie) and 25.4% (Fannie), and 2001 net margins of 56% (Freddie) and 63% (Fannie).

If we were writing that American Banker article, however, we would have led with "Fannie Mae and Freddie Mac are two of the most highly leveraged, least diversified, under-reserved and over-politicized financial institutions on Earth.&rdquo What are the risks to Fannie and Freddie?

@

[geologic] 30/7/2003 18:27

CONVEXITY?
A Strange Sounding WORD? What does it mean?
By the end of the year, you will be hearing alot more about this.
This risk, may/has put Freddie & Fannie into a Financial Crisis

First, a look at some charts:

: FRE ............. : FNM ............. : TNX ............. : SPX


CONVEXITY has to do with...
The "Duration" (or time risk) within a portfolio.
In the case of FRE & FNM, it arises because of a feature of the US Mortgage
market: many US borrowers enjoy Fixed Rate loans, and the lenders that
provide those loans, have to deal with the risk of early repayment.

In practice, the loans get repaid early (get "refinanced") when rates drop.
Maybe not all the loans, but a substantial proportion get repaid when there
is a sharp drop in rates. This creates a problem for FRE & FNM because
they aim to match the Duration of their assets with the duration of their
liabilities. So when loans are repaid early, the liability remains, and this
leaves a potential mismatch. If they do nothing to restore the match,
they can lose money in the way the Amerucan S&L's did some years ago.
If the Lend Long, and Borrow Short, and rates rise, they can go bust.
How? Rising rates would mean that they could wind up paying a higher
interest rate on their liabilities than they receive on their loans. They can
alos get hurt if rates drop, because their high earning assets melt away as
mortgages get refinance. But they are left with the more expensive debt.

To minimise this risk, they frequently "rebalance" their durations, to avoid
being left with mismatched time frames. But there is another more complex
risk they are stuck with, and this rates to volatility. More on that later.

How do these lenders deal with this? The funds they receive from early
repayment, they invest in 10Year or longer duration bonds, and this serves
to increase the duration of their portfolios, helping to keep it in match with
their liabilities.

ACCELERATORS
As rates fall, there is an "acceleration effect". To rebalance their portfolios, they
must add bonds. So this happens: when yields fall, and bonds are rising in price,
FRE/FNM expect to see refinancings, so they BUY BONDS to lengthen their
duratiosn, putting MORE UPWARD PRESSURE on Bonds (and downward pressure
on rates.) They are so large, that their buying matters to the market, and thus
a slight push by the Fed is accelerated by the actions of these two. Of course,
it acts in reverse too. When rates increase, and refinancing pressures ease,
they sell bonds, and this puts upward pressure on rates. Small moves are thereby
exaggerated and enhanced by these two. Overall volatility in the rate market
rises.

Have a look at the recent movements in 10year rates (TNX):


You can see HUGE VOLATILITY: First, a drop from about 4.0% in late April, to
a low of 3.1% in early June. Followed by the shapest move in Bond history, from
the 3.1% important Low to 4.4% in recent days (late July.)

How does this effect the GRE's (FRE & FMN)?
The acceleration and huge reversal meant that they were aggressively buying
bonds into early June (when prices were pushing up to historical highs), as they
anticipated a jump in refinancing activity. As rates reversed, and bonds fell sharply,
they have been forced to sell those bonds (at much lower prices) as bond prices
showed one of their most rapid collapses in history.

...BIG LOSSES in their portfolios...


# # # # #
Convexity Class:

[energyi] 08/11/2002 20:31

weaker than FNM for some reason

[limpsfield chartist] 08/11/2002 20:22

Finally broken the support - looks good for $54 again

[bones] 27/10/2002 12:52

OK, stoner, although $64 has just been rejected heftily once again this week. Will it have the legs again?

[stoner] 27/10/2002 00:02

im long on these now, will close at 63 and go short at 64

[bones] 25/10/2002 20:45

Short again $61.44

[bones] 25/10/2002 18:11

Covered at $60.96 for now.

[bones] 23/10/2002 19:21

LC - joined you short at $62.21

[limpsfield chartist] 23/10/2002 15:20

Freddie Mac Announces Record Earnings for Third Quarter 2002