Monthly Archives: August 2007

Web 3.0 is Real

Whether it will evolve as some combination of a Wii and Secondlife, with Nuance voice recognition technology allowing us to get past the interface hurdle…or simply through next-generation I-phone like devices tapping into social networks like Pownce or Facebook – the next “big” thing seems to be unfolding on the horizon in the internet space.

Check out this video where Google’s CEO takes a stab at anticipating where “3.0″ is headed.

Bouncing With Beta

Since everyone else is enjoying the ride over the last few days, I figured maybe there is some space for good news.

On globalization front, it looks like DFJ is continuing to expand its global VC horizons by entering into another partnership: DFJ’s Global Offensive

This is a great for the idea that collaboration between entrepreneurs will continue to be enhanced on a global scale which should escalate the pace of innovation.

…and (not) unrelatedly, peaks tend to bring signs of the next movement in global risk premiums. Not sure whether this would ever materialize, but the fact that China is now openly recognizing that they are the 1,000 lb gorilla in the U.S. Treasury market makes one gulp just a tad…then look back to that booming ticker:

China threatens ‘nuclear option’ of dollar sales

Positive Signs?

Maybe Cramer’s cage-rattling was like BX’s IPO, in that it indicated the “top” of a market. Hopefully in this case it marked the peak of the hysteria and angst which has driven up the VIX index dramatically over the last couple of weeks as people grappled with the credit markets’ unwind.

As a friend mentioned in his comment below, NFI, one of the subprime mortgage lenders to take a plummet last winter and spring, has announced that they are going to resume issuance of subprime loans after the market has been literally frozen over the last few weeks: NovaStar Will Resume Making Subprime Loans

Apparently Novastar disagrees with Indymac, who only last week stated that the secondary markets for mortgage backed securities are illiquid

The market rallied significantly today, led by the same Financial stocks who have been hammered over the last weeks, so apparently some people agree that conditions are changing.

It will be interesting to see if this is sustainable or simply a dead cat bounce before the next round of carnage.

As I have mentioned before, I am selectively diving in on both the long and short side, but cash looks pretty good right about now.

I Hate to Quote Cramer But…

This is just an example of the angst that people feel when reality smacks them in the face. It is almost funny to see someone who as little as two weeks ago was “bullish” freaking out like this…but a little scary:

At least he recognizes that the engine driving this train is the pain being felt by homeowners who are being hammered by the ongoing mortgage-resets.

Unfortunately, I am not sure 50 bps will do much to change anything at this point.

Transparency is Sometimes Scary

IndyMac (IMB) prides itself on providing transparency to its investors, a beacon in the complex and sometimes confusing financial services sector. (For a primer on the mortgage securities industry visit their webpage’s investor relations section and read their investor presentations.)

Following this tradition and a disappointing earnings release yesterday (was anyone surprised?), their CEO went so far as to publicly release the e-mail he sent to his employees explaining the current situation:

Email from Mike Perry, Chairman and CEO: Conditions in the Private Secondary Markets and Their Implications for our Industry and Indymac

I would take a few seconds and read the e-mail if you are interested in trying to understand what is happening in the housing sector, but to quote an important piece:

“Unfortunately, the private secondary markets (excluding the GSEs and Ginnie Mae) continue to remain very panicked and illiquid. By way of example, it is currently difficult, at present, to trade even the AAA bond on any private MBS transaction. In addition, to give you an idea as to how unprecedented this market has become…I received a call from U.S. Senator Dodd this morning who seeking an understanding of “what is really going on and how can I and Congress help?””

Basically the markets are frozen and no one knows what to do. I also heard from a confidential source that there are issues in the pricing of certain non-real estate related securities in the distressed debt market that people are struggling to figure out.

As major hedge funds hit hiccups, and the market reacts, it is not surprising that illiquid markets become unpredictable. The implications of this could be dire, especially for the real estate market as challenges in securitizations mean harder home mortgage refinancings.

Remember – look at the chart in the upper right hand side of this page – ARM resets are still rising and not at the peak. In other words, at the asset level, the worst is probably still yet to come.

Now, this may not necessarily translate into drops in all markets across the board, especially now that everyone is acknowledging the elephant that has been trouncing around the room. The key question is whether Greenspan is right in that the hedge funds and other sophisticates will find a way to arbitrage away the illiquidity or whether the irrational fear that is creeping into the markets will create an ever growing snowball.

Cue the Orchestra

As if on cue, an article hit the screen today foretelling the bubble bursting…and as if responding to my post from yesterday, the author called for a pop of the Web 2.0 bubble.

Bubble 2.0 Coming Soon

I am sticking by my optimistic guns and hoping that he is just a hater and that the frenzy going on at the cross ways of media and technology will continue to boom and generate innovation and valuable new ideas. But the idea that cycles exist is surely coming back into the zeitgeist as the credit and real estate markets wake up from the greatest fiesta in history with the beginnings of an equally epic hangover.

That the party is over for many who were riding short boards along the wave of liquidity is becoming more apparent daily as banks are starting to openly claim that they are pulling back their previously generous open arms: Bank warns hedge funds of liquidity crunch

And other blue chip hedge funds are now publicly taking huge hits Tudor Raptor Fell 9% in July; Caxton’s Global Lost 3%

Although this is likely only the cresendo of the coming climax, sometimes people mistake the hillside for a mountain top, and maybe if we concentrate hard enough we can make it true.