It's really no different than one making up their mind about the direction of the market over the next 10 minutes, or hour or day. And that's what each of us do when we take a position, regardless of the time frame, we make up our mind as to the direction we have decided is the most likely one going forward. As for me, I have yet to see anyone put forth a cogent argument for how the "worst is behind us" in the big picture, given the facts that we have been doing all the same things that were done before in the First GD and by Japan for the last 20 years (and we know how those turned out), and that the next waves of mortgage and debt resets are now upon us that equal or surpass those that caused the subprime crisis and got the whole ball unraveling. To wit:
I got no idea either but here's a potential way of that happening, with irrationality, have you factored that one in because the market has a lot of it No Heat
The market is not agreeing with your views. You expect weakness due to "the worst crisis since 1930", yet the market is going up. It is telling you something. (Hint: It's not weak.)
Sure. I don't presume to know the exact date or level at which the markets will top out and begin to turn back down as reality sets in. All I have is history as a guide. And recent history has shown us that when the subprime debt started blowing up, a collapse followed soon after. So I'll choose to use history to tell me that as these next waves of prime, alt-A, option ARM and commercial debt are resetting and blowing up and financial institutions once again go into severe distress, the markets will once again turn down sharply. And as we can see from the above mortgage reset charts, that time is growing near. Now, personally I couldn't tell you exactly at what point next year this may happen. But then again, all the short positions I'm beginning to establish have time frames of 2 years or so, so I'm not all that concerned about exact timing.
I'm reminded of a Dilbert strip, where Dogbert says "The Latin word for close your eyes and open your mouth is prospectus."
These charts are meaningless. They are based on data before mortgage modifications + obama HARP etc refi boom. Not to mention that many of these underwater borrowers may have preemptively walked away -already-. Oh one more thing ... Just count the aggregate values of those #s ... something like 10B/month avg = $100B of mortgages gone bad. Lets say average loss is 50% (very pessimistic). This is a piddly $50B in losses. BAC raised that much in a day. Non issue. I'd be more concerned about a sovereign default. Not this.
If there is another real estate boom between now and 2012, or another multi-trillion dollar bailout of some kind. That graph would become sort of useless/distorted.
You are assuming the people who hold those mortgages will not be able to pay the reset amount. Remember, they are a higher grade borrower and many of them probably bought the house with the increase in a mortgage payment factored in so the default rate will probably be much lower. And the banks that do face losses as a result of the defaults have the Fed's zero percent borrowing plan. They have guaranteed profits by having the ability to borrow for nothing. The next crisis isn't going to come from real estate. It's going to come from too much government debt.