"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 9 mins China’s Soft Power Grab May Be Bad News For Emerging Economies
  • 16 hours The Secretive Wall Street Firm Betting On Bitcoin
  • 17 hours ‘Data Is King’: The Oil Industry’s Next Most Valuable Resource
  • 18 hours Google Invests $300 Million To Combat Fake News
  • 19 hours Zuckerberg Dodges A Bullet As Facebook Loses Billions
  • 20 hours Tesla Tumbles As Investors Lose Patience
  • 21 hours Are Alt-Coins On The Verge Of A Break Out?
  • 23 hours What Should Gold Investors Expect From The New Fed Chair?
  • 1 day Who Will Pay For Trump's $60 Billion China Tariffs?
  • 2 days Vladimir Putin’s Mysterious Fortune
  • 2 days Cryptos Resist Social Media Crackdown
  • 2 days The Death Of Dodd-Frank
  • 2 days Bitcoin Bounces Back Ahead Of G20 Meeting
  • 2 days Trump's Trade War Nears Boiling Point
  • 2 days Will April Be A Turning Point For Precious Metals?
  • 2 days Economic Pressures Weigh On Banks And Borrowers
  • 2 days U.S. Political Uncertainty Keeps Stock Markets On Edge
  • 3 days Gold: The Religion Of Currency
  • 4 days Economists Polarized On Trump’s Tariff Plan
  • 5 days Why Are Investors Overlooking Gold Stocks?
Why Aren’t Millennials Investing?

Why Aren’t Millennials Investing?

After watching previous generations take…

Snap Shares Tank Over ‘Slap Rihanna’ Campaign

Snap Shares Tank Over ‘Slap Rihanna’ Campaign

Snapchat’s share prices tumbled after…

The App That Democratized Trading Is Now Worth $5B

The App That Democratized Trading Is Now Worth $5B

Investors and customers have rallied…

Greg Silberman

Greg Silberman

Greg qualified as the youngest Chartered Accountant and Chartered Financial Analyst (CFA) in South Africa in 1998 at 25 years old. After completing his traineeship…

More Info

What The Market Knows

As market practitioners we are more concerned with the markets reaction to news than the news itself. Yesterday's announcement that Variable Mortgage resets could be frozen for 5-years is telling in that regard.

During the 1980s the international community got fed up with South Africa's Apartheid policies. Their response was to punish South Africa economically through broad sweeping trade sanctions (which ultimately brought the country to its knees). One far reaching measure was to shut the South African Government and its Corporations out of the international Debt markets. No new debt could be issued internationally.

South Africa's response to the rest of the world - bugger you - and refused to pay anything on their outstanding loans (principal and interest).

In other words, the credit market shut out both lender and borrower.

This situation is not unlike the one we see unfolding today.

By announcing a potential 5 year freeze on variable interest rate mortgage resets, the Government has effectively put a moratorium on mortgage debt. No issuer in there like mind would continue extending loans on the condition they may not fully reap the rewards. Likewise borrowers have no incentive to pay off loans if the Government shows a propensity to bail them out at every step.

The Fed is the grease monkey in the wheel since it's their job to ensure smooth operation of markets. So far their efforts to lower rates have not helped an ailing credit market and have hurt the Dollar. With further rate cuts in the wings and the announcement of a de facto debt freeze you would have expected the Dollar to swoon on the prospect of even larger liquidity injections going forward.

Not so!

Figure 1 - US$ rallying on news of 5yr freeze on mortgage resets

On yesterday's news Stocks rallied hard as earnings uncertainty reduced AND an oversold Dollar rallied strongly. When markets move contrary to expectations it is time to sit up and notice.

The market is indicating a freeze on mortgage resets is likely to repair the credit markets, reduce the need for rate cuts and bolster earnings growth. A tall order indeed! This may also encourage lenders to disclose more fully the extent of their exposure. As a result, we may see a nervous market in December but first quarter '08 may see the beginning of a multi-month rally in Stocks.

International, commodities and growth themes may have a way to go yet...

More commentary and stock picks follow for subscribers...


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter