If it's any comfort, the smartest guys in the room don't understand risk either

Great post in The Capital Spectator, which I found by way of the WSJ's MarketBeat about the current wooliness in the CDO market, and the underlying subtext, which is ultimately "What the hell were they thinking?"

The Capital Spectator: ANOTHER LESSON IN RISK

Turning assets into securities is nothing new, of course. From credit card debt to commodities, the boom in securitization has been percolating in the financial industry for 20 years. Arguably the difference this time around is that the underlying asset was thought to be impervious to the bears.
It's understandable how someone might think so. Looking at year-over-year prices for housing on a national basis, for instance, shows no losses for decades. Indeed, you have to go back to the 1960s to find red ink by this standard, and even then the dip was slight and brief. If we stop there, housing as an asset class exhibits the stuff of legend: enduring and virtually uninterrupted gain.
There's just one problem with that conviction: it's wrong.

For those of you just tuning in, I'll draw your attention to a post I made last spring about where people go wrong when they think about things like risk vs. return. To recap: risk doesn't go away, no matter how much wishful thinking you do.

**The content contained in this blog represents the opinions of Mr. Distad. This commentary may contain forward looking statements and definetely contains sarcasm and rude sentiments. This commentary in no way constitutes a solicitation of business or investment advice. If you're looking for stock picks from me, look somewhere else. Really, what were you thinking? If you came here because you were trolling Google looking for someone to help you get rich in only twenty minutes a month, you need to seriously re-evaluate your worldview. This blog is intended solely for the entertainment of the reader, and the author, and not neccessarily in that order.

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Pundits calling for a weak Christmas, blame it on subprime

iSuppli: Credit Crunch May Hinder Holiday Season for LCD-TVs and Monitors

The gloom and doom in the housing market may have a major impact on consumer purchasing of LCD televisions and computer monitors during the holiday season, according to new data from iSuppli Corp.Concerns are rising regarding the sub prime mess, the turmoil surrounding the financial markets and how these issues will impact business and consumer spending in the United States. The credit crunch the United States is now facing as a result of rising defaults on home loans may limit consumers’ disposable spending during the holiday period of this year.
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As the holiday season approaches, OEMs and retailers are gearing up by offering new models with support for 1080 progressive (1080p) and/or LED backlights, features that yield an improved viewing experience. These new models caused overall television prices to increase in July and to remain steady in August. However, because of the factors mentioned above, overall television prices more than likely will resume their pricing decline in the fourth quarter as OEMs start to boost holiday sales with promotions and special offers.

Personally, I think it's extreme to call for a Chicken Little scenario in retail, and blame it all on the subprime mess. After all, the only people who won't be able to buy a great big flat panel television this Christmas are the idiots people who shoehorned themselves into homes that they couldn't afford, are carrying half a mil in credit card debt, and/or the people who work used to work at subprime lenders and mortgage brokers.

For the rest of us, the holidays will be merry and bright!

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Quote of the Day

WC Varones will doubtless get a kick out this:

"In a hot market, half the misfits and ne'er do wells you know go get their realtor licence. The other half become mortgage brokers. This time around it included like 2/3 of my wife's divorced women friends. I kept hearing how low my mortgage was and how I was wasting all that equity. Now I'm the one that looks smart." - one of my regular correspondents from California.

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WC Varones hits one out of the park again.

Prominent member of the West Coast Commentariat WC Varones' primary hobby horse in the last several months has been the subprime meltdown and the deepening housing crisis in the USA. His post last Saturday about the pickle that Countrywide Financial, a distressed lender, finds themselves in proves once more that satire is dead.

WC Varones Blog: New REIT

Thanks to the miracle of really stupid lending, Countrywide Financial is rapidly morphing from a mortgage lender to a residential real estate investment trust.

CFC now has $2.1 billion in foreclosed houses for sale. That's getting up there near the nation's largest home builders, whose business is to sell houses. They each carry $5 - $10 billion in inventory.

Will CFC surpass the home builders to become the nation's largest residential real estate owner? Time will tell -- if CFC can stay liquid that long.

Really, you can't make stuff like this up!

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