as such there are probably no such things as black swan events. I mean, until there is. Its more like Schrödinger's swan.
>The future is now in the hands of political forces. We can't predict that from fundamentals. So we have no further predictions at this time.
So diversifying ones portfolio based on ones portfolio exposure to "political risks"? Usually you see people trade on that in currency markets? If most of ones portfolio is dominated by a single currency (and hard to liquidate to another asset?) one will have the most exposure to the political risks in that particular locale?
Through all that neither the dollar nor the Euro moved all that much compared to other markets. Housing, oil, stocks, and gold all moved more.
To back up your point, the US federal government guarantees the vast majority of the student loan market: https://fred.stlouisfed.org/series/FGCCSAQ027S
I believe the total student debt market is estimated somewhere between $1.3-1.4 trillion these days, so at least 77.5% backed by US taxpayers. I don't know what TARP topped out at, but I doubt it was 75% of banking assets.
B) the government owned the mortgage debt, given that they paid it.
- Find out who has exposure to student loans portfolios and what percent is non performing?
- Find out what other assets A) is holding that will have liquidation pressure if *-swan occurs?
- What extent is B) tied to A)?
- What pressures B) would face long term due to non performance of student loans that would influence A) and the larger market of assets under the jurisdiction of B)?
- How much could be made from theoretically capitalizing on the downside risks of A) vs other assets in the mean time?
Another thing is that no one is wildly pricing cars; the fact that lots of subprime people are buying cars does not drive up the price of cars for everyone else. Thus, if a whole bunch of subprime borrowers default, the rest of us aren't sitting there with a car that's actually worth a quarter of what we thought it would be worth.
We also don't keep an enormous share of our equity in cars the way that we do in housing.
Maybe you only meant your comment as snark, but if not it's important to understand the difference between simple risky investments and potential structural flaws in the finance system, like the ones we saw in the financial crisis.
This is a measure of whether people can make their mortgage payments. When that ratio gets too high, foreclosures rise.
The Economist has an interactive chart, but, annoyingly, they don't let you see the absolute ratio number, just its trend.[2]
[1] http://www.freddiemac.com/research/insight/20160531_how_to_w... [2] https://www.economist.com/blogs/graphicdetail/2016/08/daily-...
The next crash looks to be housing-related. Fannie Mae is in trouble. But not because of their accounting irregularities. The problem is more fundamental. They borrow short, lend long, and paper over the resulting interest rate risk with derivatives. In a credit crunch, the counterparties will be squeezed hard. The numbers are huge. And there's no public record of who those counterparties are.
Derivatives allow the creation of securities with a low probability of loss coupled with a very high but unlikely loss. When unlikely events are uncorrected (I meant uncorrelated), as with domestic fire insurance, this is a viable model. When unlikely events are correlated, as with interest rate risk, everything breaks at once. Remember "portfolio insurance"? Same problem.
Mortgage financing is so tied to public policy that predictions based on fundamentals are not possible. All we can do is to point out that huge stresses are accumulating in that sector. At some point, as interest rates increase, something will break in a big way. The result may look like the 1980s S&L debacle.
It took longer than I expected for that to kick in, but it happened.
[1] http://downside.com/news.html#comingmortgagecrunch