101On October 23rd, Countrywide, the largest real estate mortgage institution in the United States, responded to the call of U.S. Treasury Secretary Paulson, and announced that it might provide refinancing loans with lower interest rates for1600 million dollars of arms before the end of 2008. However, compared with the arm to be reset, its scale is very small and its effect is limited. At present, the cumulative effect of remedial measures taken by the government and financial institutions is not enough to reverse the decline of the US housing market and the trend of a new high default rate. As the chairman of the Federal Reserve warned, the subprime mortgage crisis may come back.
Because the Fed cut interest rates by 50 basis points in September only to stabilize the market, it cannot bring substantial improvement to the imminent default of this part of the mortgage. The depressed housing market data and market reaction show that the probability of the Fed cutting interest rates during the year is still very high.
After the Fed cut interest rates ...
The price of subordinated debt fell sharply again.
Arm, which will enter the interest rate reset period at the end of this year, is the "sword of Damocles" hanging in the financial market. In the meantime, the U.S. government will try its best to curb the excessive rise of the default rate and take measures to ensure the normal operation of the financial market.
23.8 billion US dollars of securities, including 48 AAA bonds. 10 19 The U.S. Department of Commerce released the data on housing starts in September, which fell to the lowest value since 1993. These data rekindled investors' aversion to risk and began to sell subprime bonds. The data shows that the price index of the subprime bond market has plummeted since 10, and the price of the subprime bond with the lowest investment level even fell below the historical low in August.
Like the previous times, the decline in the price of subprime mortgage reflects investors' expectation of an increase in the default rate of mortgage loans, and will not be immediately transmitted to other financial sectors to lead to a crisis. If the financial market has fully anticipated the downturn in the housing market and the further increase in mortgage default rate, the commercial paper market and corporate bond market will be less affected. Therefore, whether the crisis will spread depends largely on whether the pricing mechanism of the market can operate normally when the default rate rises.
The market pricing mechanism has not been restored.
At present, the financial market is far from normal.
As an important means of enterprise financing, the circulation of asset-backed notes, which has the largest circulation in the commercial paper market, is still declining. From the end of June to June 10 17, the circulation of asset-backed notes has dropped by 22%. Because commercial paper is one of the main means of short-term financing for daily operation of enterprises. Before the subprime mortgage crisis, many financial institutions used low-interest commercial paper financing for "short-term financing and long-term loans", but after the crisis, the liquidity of the commercial paper market dried up, threatening the survival of these enterprises.
For example, Countrywide is on the verge of bankruptcy because it is faced with a large number of commercial bills due in August, and the funds lent to mortgage lenders cannot be recovered on time, and at the same time, it is unable to issue new commercial bills. Bernanke and several Fed officials publicly stated after the interest rate cut that the financial market has improved compared with mid-August, but investors are still uncertain about the risks they will face in the future and have no confidence in the pricing of some structured products, and the market is far from returning to normal operation.
To this end, first of all, the Federal Reserve and the Ministry of Finance will take a series of actions to ensure the normal operation of financial markets in the face of future risks. The latest bailout came from Treasury Secretary Henry Paulson on Wall Street. Under his impetus, Citigroup, Bank of America and JPMorgan Chase will set up an $80 billion fund at the end of the year to boost the asset-backed commercial paper market, thus preventing the $320 billion structured investment vehicles from selling assets cheaply (two European SIVs defaulted on more than $7 billion last week).
This is an important step for the government to restore the pricing power of the financial market, but it can not solve the crisis, but can only alleviate the spread of the crisis to other financial fields. This fund is organized by the private banking sector spontaneously, rather than the "redemption behavior" of the government paying the bill, so there is no incentive to "support the market" regardless of the cost. It will buy investment-grade securities at market prices and avoid subprime mortgage-related securities. Secondly, the fund will buy asset-backed commercial paper in the market, repackage it and sell it to the market, which may increase the pricing difficulty of already complex structured products. Finally, buying and selling these derivatives can't avoid the systemic risk that the ultimate borrower, the mortgage lender, defaults. In the process of falling house prices, the situation of default will not be limited to subprime lenders. Therefore, the lender's credit score collected at the time of lending can't measure the lender's default probability in the current poor market situation.
Of course, the joint efforts of a number of banks are conducive to concerted action to form a reasonable pricing of these structured products as soon as possible, so as to temporarily minimize the losses caused by invalid pricing for the future ARM interest rate reset.
The Fed still needs to cut interest rates.
Although the US economy recovered moderately in the second quarter, driven by net exports, domestic consumption and investment, the latest "Beige Book" of economic development shows that the economy will cool down in the second half of the year compared with the first half, and the uncertainty will increase. The negative impact of subprime mortgage crisis will not appear until at least the fourth quarter of this year. The outbreak of the crisis will accelerate the deterioration of the real estate market and economic activities will begin to be affected. For example, the sales of supplies and building materials such as house decoration have begun to decline, and the retail industry and related manufacturing enterprises are therefore worried about the future.
In September, the ISM index of Institute of Supply Management fell for the fourth consecutive month after reaching the peak of 1 in June, and the inventory index also fell sharply to the level at the beginning of the year, so the contribution of inventory increase in the third quarter to economic growth will be significantly lower than that in the second quarter. However, it is difficult for residential investment to make a positive contribution in the third and fourth quarters and even next year. Last week, the data of new housing starts in September in the United States fell to the lowest value since 14 (Figure 2), down 30.8% year-on-year. At the same time, the number of published building permits decreased by 4.2% month-on-month and also fell to a new low of 10 year. This indicates that the opening of new houses in the next few months is not optimistic. The data of new housing starts released in September reduced the growth rate of new housing starts in the third quarter to-1 1.47%. Therefore, we lowered the economic growth rate of the United States to 2% in the third quarter. Considering that the real estate market will continue to drag down the economy next year and American consumption may also slow down, it is estimated that the growth rate of American economy in 2008 may be lower than this year.
A turning point or current situation in the job market.
The minutes of the September 18 meeting showed that the crisis forced the Fed to shift its attention from curbing inflation to stimulating economic growth.
Falling house prices in the United States will reduce the wealth of households and thus affect their credit consumption. Even in August and September of the peak sales season, the data is still unsatisfactory. Low-income families are worried about rising energy and food prices, while high-income families feel the pressure of falling house prices. Fortunately, personal income has maintained a year-on-year growth rate of around 6% in the employment boom. Considering the downturn in the real estate market, consumer sentiment and consumption growth rate may not be able to return to last year's high level.
Although the current labor market is still prosperous, it is weaker than the first half of the year. First of all, after the subprime mortgage crisis broke out, many financial institutions announced layoffs, which will directly affect the employment data in the fourth quarter. Secondly, before the subprime mortgage crisis broke out in August, real estate investment had fallen sharply. The subprime mortgage crisis has intensified the pessimism of real estate developers (Figure 3), and investment will be further reduced. By then, the unemployment situation in the construction industry may rise sharply. Fortunately, at present, the profitability of other enterprises is still good, and the consumption of residents is still growing moderately, making the employment situation in manufacturing and service industries not too bad.
Inflation has no immediate worries.
Although the Fed's worries about inflation have eased, it still does not rule out the possibility of increasing inflationary pressure in the future. Inflationary pressure mainly comes from: first, the prices of resource commodities have been high again recently; Second, the continuous tension in the labor market may lead to an increase in the production costs of enterprises; Third, the depreciation of the dollar will push up the prices of imported goods, which will eventually be transmitted to American consumption.
Whether to cut interest rates this month depends on economic data and the Fed's risk control attitude.
Under the dual pressures of downside risks and inflation, the Fed has not formed a clear policy path at present, and the introduction of any key data will cause the market to substantially revise the expectations of the Fed's interest rate policy.
For example, after the release of employment data in August and September, the market's concerns about the reversal of the job market and the expectation of the Federal Reserve to cut interest rates at the end of the month also declined. However, after the release of new housing construction data, the market began to expect to cut interest rates. We believe that next year will be the peak of ARM loan interest rate reset. In order to prevent a large-scale outbreak of the subprime mortgage crisis next year, it is necessary for the Fed to cut interest rates this year. On the one hand, the specific time depends on the future economic data, on the other hand, it depends on whether there is a major financial market turmoil in the near future that makes the Fed cut interest rates again to control risks.
Judging from the current information, we tend to think that the Fed will stay put this month until more economic data are released, but we cannot completely rule out the possibility that the financial market turmoil will lead the Fed to cut interest rates again this month. No matter what the Fed decides, one thing is certain: the depreciation of the dollar is inevitable.
The pressure of appreciation of non-American currencies has increased.
In recent years, the American economy has been growing at a rate higher than the equilibrium growth rate. The strong domestic credit consumption and the strong dollar make the United States bear a huge trade deficit, which has become a major uncertain factor in the world economy. Since 2002, the dollar has entered the depreciation channel against major currencies, and the outbreak of the subprime mortgage crisis has changed the views of global investors, especially countries, on dollar assets.
Since the beginning of 2006, the dollar has depreciated by 65,438+03% against a basket of currencies. In August, US exports hit a record high for the sixth consecutive month, with a trade deficit of US$ 57.6 billion, down 2.4% from the previous month. The gradual depreciation of the US dollar plays a very significant role in promoting US exports, and the advantages outweigh the disadvantages for the US economy.
On the one hand, the surge in exports has driven the growth of domestic manufacturing in the United States, reducing import demand and deficit; On the other hand, the depreciation of the dollar will increase the inflationary pressure in the United States, which is a threat to future growth. Considering the long-term excessive consumption of the American economy, the economic growth model may trigger a currency crisis (reflected in the sharp depreciation of the US dollar), and the gradual depreciation of the US dollar will be conducive to the re-formation of the equilibrium exchange rate of the US dollar. Therefore, sacrificing some inflation to gradually transform the economic structure will do more good than harm. It can be seen from the statement of the recent G7 meeting that the US and European governments have reached a consensus on the depreciation of the US dollar.
In the medium and long term, the depreciation trend of the US dollar will increase the appreciation pressure of non-US currencies, raise the global inflation level, and urge countries to further reduce their US dollar assets in foreign exchange reserves and increase their holdings of euros and precious metals.
For commodities, the price trend will rise under the two-way force of the depreciation of the US dollar and the unstable economic outlook in the United States. If the American economy can achieve a soft landing, the world economy will achieve stable structural adjustment. Considering that the utilization efficiency of raw materials in emerging market countries is lower than that in the United States, the rapid growth of raw material demand in these countries will offset the slowdown in demand in the United States, thus forming a certain support for commodity prices.