AAA Bonds Plummet to New Lows

Hello everyone. Its going to be a busy couple days so I may not have a chance to get on here as often.

Just a quick note on the prices of AAA rated debt that's not government guaranteed. The prices of these assets are starting to collapse to new lows as defaults continue to rise in housing. These bonds include all of the garbage CDO's that these banks are stuck with and fail to come clean on. They were hoping that these bonds would come back. Looks like thats not gonna happen! Take a look.

Here are the highlights from Bloomberg:

"June 10 (Bloomberg) -- Some of the U.S. mortgage bonds at the center of the yearlong credit crisis are slipping toward new lows, as climbing gas prices, unemployment and interest rates deepen concern that homeowner defaults will increase.

The benchmark Markit ABX index linked to the last-to-be- repaid of originally AAA rated non-agency subprime-mortgage bonds from the first half of 2007 fell today to a mid-price of 51.75, according to a note to clients from Merrill Lynch & Co., from almost 60 on May 19. Top-rated bonds of ``option'' adjustable- rate mortgages are also down, according to RBS Greenwich Capital.

May Rally
The debt, along with other credit markets, had generally rallied through mid-May after the Fed backed the bailout of Bear Stearns Cos. and began lending directly to investment banks in March, signaling the central bank's willingness to prevent bank failures and easing a logjam in debt markets. Markets have since reversed, as banks and securities firms including Lehman Brothers Holdings Inc. report fresh losses.

Subprime Index
The ABX-HE-AAA 07-2 subprime index fell as low as 50.67 in March, suggesting similar prices for similar bonds, and remains above its end of March close. New ABX sub-indexes created last month and linked to the second-to-last-to-be-repaid AAA classes have fallen to record lows for each six-month ABX series, with the latest declining from a high of 70 to 59.25 yesterday."

My Take:

Well,there goes the bull thesis that the Fed will save the financials after the Bear Stearns stick save. The markets didn't react to this today but this is a dig deal guys and gals. I have been warning for months that the Fed could not"save" the financials.

This massive debt bubble is to big for them to blow back up. Fear is back in the financials again as these bonds plummet in value. Inflation and the economic reality that nothing can stop this bubble from bursting is again starting to be priced into the market.

Remember, the banks were hoping these bonds would bounce back so they could dump them. This is why they refuse to disclose how many billions they have in these pieces of junk.

These securitizations are starting to rot the lower they fall in value and the deeper they fall, the bigger the will be losses for all of the financials. This is why Lehman is dropping like a rock. They are up to their necks in this AAA CDO garbage.

If prices on these AAA debts do not stabilize, Lehman and many other regional banks are at risk of blowing up. I expect bank failures to begin very soon.

Whats scary is I see nothing stopping these bonds from droppingfurther in value because defaults continue to rise. Many of these bonds will end up almost worthless. Remember, this is supposed to be AAA premium debt that was sold as the safest debt over the world. UBS and others are feeling this oversees as well.

The bottom line is I expect to see a panic in the financials in the near future. Fear seems to be rising back to where it was when Bear Stearns went belly up. Interest rates are rising as a result of this mess, and this will put further pressure on the crisis because it will slow the housing market down even further forcing more defaults.

Like I have said before. The debt bubble can no longer be sustained and the crap is starting to hit the fan.

Make sure you look at your banks financial strength before you deposit money there. If you are in a bank like National City or Washington Mutual, find another bank!!

The way the financials are starting to look, buying a safe might be our best option!