Do you think its time to buy these bad assets?

CFA General
#1

CDOs, RMBS etc? Do you think that buy side firms have got it right in that there will be a price correction for them?

#2

What do you think? Bottom line is we could have a liquidity problem in these things unlike we have seen in forever. The Fed has been nicely taking lots of this crap as collateral, but there is an absolute ton of it out there that is hard to value and toxic as heck. We have the owners of tons of it teetering on the edge of bankruptcy. Buying this stuff now is not responsible investing; it’s just betting on #16 on a roulette wheel. Is that the right bet? Who knows?

#3

RMBS and many CDO’s are incredibly difficult because you can never truely get a feel for the underlying collateral. I think the trade, in this case, is to buy the to-be-securitized large loans from the banks individually so you have the ability to take a major discount, but still do thourough due diligence. The banks are tough because they can be a bit stubborn in terms of the discount they’ll take, liquidity is non-existent so deep pockets are a must and you may end up owning the original property so real estate experience is a must, but given the discounts you can get and the leveraage that’s available (surprisingly) to buy these things, they can turn into pretty good trades.

#4

Maybe but the same ideas apply - big leveraged bets in real estate only work if you have some combination of deep enough pockets to hold for a long time or real estate markets rising relatively soon. I think that making leveraged bets in a market plummeting double digits/month doesn’t sound very palatable.

#5

ok nevermind about the mortgage backed, real estate related assets, what about just purely structured credit? I know for a fact that many institutions are still holding onto these things… so is the worst over yet? are the buy side firms ‘shrewd’ to be buying them at low prices now or do you think there will be more collapses of small hedge funds and alternative asset managers (who seem to have done ok)

#6

the right call may depend on your horizon, and liquidity requirements