Wednesday, May 12, 2010

A simply amazing day

Asian markets were up over 1-3%
European especially Spanish and French financials up 18-20+% 
The reason was a shift of risk from companies to governments due to new legislation and program of bond purchase from European financial institutions providing up to US 1 trillion.

Is it me or Mr. market is having yet again having his crazy bouts.
The US1 trillion will come from taxpayers which eventually affects corporations.
Is it also my bad memory that US just had a bailout worth US$700 billion? This versus US$1 tr?

Even now, Freddie mac is asking for another US$ 10.6 bn (Think MASSIVE charities). 
Canda Finance minister Jim Flaherty mentioned concerns on Eu crisis affecing others? 
Now why a country with strong fiscal position and miraculously avoided the sub prime crisis be worried?

CMHC (Canada mortgage and housing corp) is learning from the US and China the bad tricks.
Guaranteeing the bad loans through government and hiding bad loans in asset management firms.
So lets say Mr. Wannabe wants to buy a house worth US$ 500,000 in Canada.  
Check indicative prices HERE

Source: HERE Montreal Chamber of commerce

Low dispensable income of US$ 25,000 per annum but want to own a dream home, no problem...CMHC will solve your worries. Just put 0 - 5% or US$0-25,000 and pay the rest US$ 475,000 - 500,000 over 35 years or approx US$ 13,000 a year with no effect from time value. 

Firstly 0 - 5% is really low, almost sub prime. Do you buy a car if you are jobless with no deposits?
Secondly 35 years, thats long. Who claims in event the debtor dies? Health issues? Job losses?
Thirdly even at US$13,000, thats over half of you average disposable income. 
Do not forget the dynamics of employment in Canada.

Surprisingly, approval rates were estimated to be around 40-50% for sub prime borrowers. 
Now does that sound familiar to you? 
Only difference - MBS are 100% guaranteed by the government, approx USD$ 813 bn as a min.
From 2007/8 figures, government will have insured estimated well over $500 billion in securitized mortgages and lines of credit by the end of 2010 and issued over $600 billion in outstanding mortgage insurance.



Have a nice day.

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