S&P Rates CDN Banks NEGATIVE due to High House Prices

[vanpro]

So much for the myth of rock solid Canadian banks based on the other myth that they are lending on "prudent" mortgage underwriting:

S&P Drops Rating to Negative on 7 CDN Banks due to High CDN House Prices!

http://www.theglobeandmail.com/globe-in ... le4445550/

[jesse1]

Rut roh when has S&P ever been wrong I ask.

[vanpro]

Rut roh when has S&P ever been wrong I ask.

How about we say they have always been a little late to the reality check?

[ArthurFonzarelli]

Rut roh when has S&P ever been wrong I ask.

How about we say they have always been a little late to the reality check?

And when they are wrong it's usually because they have failed to downgrade the credit rating of entities... I think this is significant.

[vanpro]

Rut roh when has S&P ever been wrong I ask.

How about we say they have always been a little late to the reality check?

And when they are wrong it's usually because they have failed to downgrade the credit rating of entities... I think this is significant.

Yes, exactly.

[jesse1]

And when they are wrong it's usually because they have failed to downgrade the credit rating of entities

Remember when S&P downgraded the US government's long term outlook and long bonds proceeded to rally 20%?

That was awesome.

[vanpro]

And when they are wrong it's usually because they have failed to downgrade the credit rating of entities

Remember when S&P downgraded the US government's long term outlook and long bonds proceeded to rally 20%?

That was awesome.

That was a NON-market event: i.e. the Fed (i.e. a NON-market, NON-profit maximizing, NON-risk minimizing entity) has been buying major portion of US Treasuries (i.e. QEI and QEII) thereby lowering the yields. And, EVEN THEN, the Fed (and other irrational market buyers of treasuries still left in the market) was only able to move the market by 20% as you stated even though the Fed has limitless available money that it can print....

[jimtan]

Yawnnnnn!

So, hide your money under the mattress?

[jesse1]

vanpro, you better check out implied inflation spreads to UST. The market told S&P they got it wrong. Not to say S&P has it wrong with Canadian banks, likely they're looking at places like Australia as a prequel. I think Canada has some overpriced houses and low liquidity that tends to follow asset price runups is bad for loan originations. So I can buy that S&P has it about right.

[vanpro]

vanpro, you better check out implied inflation spreads to UST. The market told S&P they got it wrong. Not to say S&P has it wrong with Canadian banks, likely they're looking at places like Australia as a prequel. I think Canada has some overpriced houses and low liquidity that tends to follow asset price runups is bad for loan originations. So I can buy that S&P has it about right.

I was just replying to your statement that there was a 20% increase in bond prices (i.e. in nominal US treasury bond prices) after the S&P downgrade. The Federal Reserve was the major buyer of treasuries during that period that caused that price increase....and it still is....So the "market" that told S&P it got it wrong was not a free "market" but a non-market participant (i.e. Bernanke's Fed)...

[jesse1]

So the "market" that told S&P it got it wrong was not a free "market" but a non-market participant

I know a few people who would disagree with you on this. As I mentioned, it's not T purchases that tell the story, it's implied inflation measures that use other methods, i.e. TIPS spreads etc.

[vanpro]

So the "market" that told S&P it got it wrong was not a free "market" but a non-market participant

I know a few people who would disagree with you on this. As I mentioned, it's not T purchases that tell the story, it's implied inflation measures that use other methods, i.e. TIPS spreads etc.

Once you have the Fed taking a huge portion of Treasury purchases in their QE programs, you can no longer use TIPS vs. nominal treasuries to measure "market" expectations of inflation or even risk premia - because the Fed is a non-market buyer buying with sole purpose to get price up, yield down w/o any consideration for returns (real or nominal)....

As to evidence that the Fed is the major treasury buyer via QE programs, see PIMCO's Bill Gross articles including this one on the Fed creating "artificially low" yields and "financial repression":

http://media.pimco.com/Documents/PIMCO% ... 1%20US.pdf

And Sprott Asset Management's Eric Sprott on the massive magnitude of the Fed's purchases of US treasuries (he also details how ALL major world central banks are doing the same thing in their respective countires) - and he provides detailed data and other referances/sources:

http://www.sprott.com/markets-at-a-glan ... sequences/

"Granted, extended zero percent interest rates is not nearly as satisfying as a proper QE program, but who needs traditional QE when the Fed already buys 91 percent of all 20-30 year maturity US Treasury bonds?"