Comments on: The Worst Trade of 2007 – Morgan Stanley correct but lose $9 Billion http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/ Jesse Livermore Blog Wed, 04 Jun 2008 23:02:40 -0400 hourly 1 http://wordpress.org/?v=3.0 By: insider http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/comment-page-1/#comment-216 insider Wed, 09 Apr 2008 08:23:38 +0000 http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/#comment-216 BBB debt can be transformed to AAA debt by tranching an issue into different risk categories by means of securitization. The lowest rated tranches take the first losses and so on, but investors are rewarded for taking this risk through a higher coupon. So when there is enough subordination the highest rated tranches will less likely be affected. Diversity is less of an issue in this case. BBB debt can be transformed to AAA debt by tranching an issue into different risk categories by means of securitization. The lowest rated tranches take the first losses and so on, but investors are rewarded for taking this risk through a higher coupon. So when there is enough subordination the highest rated tranches will less likely be affected. Diversity is less of an issue in this case.

]]> By: DJ Lamb http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/comment-page-1/#comment-131 DJ Lamb Sat, 12 Jan 2008 12:15:11 +0000 http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/#comment-131 Thanks for your comment DB. I like something George Soros said a while back: "I don't play the game by a particular set of rules; I look for changes in the rules of the game." Certainly for years the economy has worked on the basis that debt has been a good thing and big debt has been a wonderful thing. Anyone who saved money to buy their home was punished by real estate prices accelerating faster than they could save while people who took on imprudent levels of debt were rewarded. We've got the makings of inflation in food and energy prices and there's a good chance China’s going to export inflation in the year ahead. If the Fed keeps cutting interest rates, we'll definitely see inflation rising and a further slide in the value of the US$. The best response to rising inflation and low interest rates is to borrow as much money as you can and buy assets. In general, this should still be true but, as you say, if you're in a hole you need to stop digging. I have a slight feeling that some of the rules of the game might slide a bit in the months ahead. Thanks for your comment DB. I like something George Soros said a while back: “I don’t play the game by a particular set of rules; I look for changes in the rules of the game.”

Certainly for years the economy has worked on the basis that debt has been a good thing and big debt has been a wonderful thing. Anyone who saved money to buy their home was punished by real estate prices accelerating faster than they could save while people who took on imprudent levels of debt were rewarded. We’ve got the makings of inflation in food and energy prices and there’s a good chance China’s going to export inflation in the year ahead. If the Fed keeps cutting interest rates, we’ll definitely see inflation rising and a further slide in the value of the US$.

The best response to rising inflation and low interest rates is to borrow as much money as you can and buy assets.

In general, this should still be true but, as you say, if you’re in a hole you need to stop digging. I have a slight feeling that some of the rules of the game might slide a bit in the months ahead.

]]> By: Daddy Bear http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/comment-page-1/#comment-130 Daddy Bear Sat, 12 Jan 2008 03:39:00 +0000 http://www.jesse-livermore.com/blog/the-worst-trade-of-2007-morgan-stanley-are-right-but-lose-9-billion/#comment-130 You hit the nail on the head here. If the banks marked their assets to market they'd be on the brink of insolvency. The financiers are demanding lower interest rates but if recent history is anything to go by more cheap credit will mean more cockamamie loans and spiraling inflation. Low interest rates have dug the economy into a hole. When you're in a hole, you need to stop digging. You hit the nail on the head here.

If the banks marked their assets to market they’d be on the brink of insolvency. The financiers are demanding lower interest rates but if recent history is anything to go by more cheap credit will mean more cockamamie loans and spiraling inflation. Low interest rates have dug the economy into a hole. When you’re in a hole, you need to stop digging.

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