Todays news that the Sage of Omaha has spent $5 billion ( with a possible further $5 billion) on preferred stock in Goldman Sachs is the clearest indication yet that despite doubts of the Fed bailout, things are actually improving.
Admitedly he's getting 10% interest ( think about it - Goldman Sachs is having to pay 10%, so the rest of us will shortly have to as well) but a $5 billion bet is still serious money.
Talking to bankers in the last week, they reiterated that there was no real problem for people wanting a mortgage - the money's there. What's not there is the deposit required ie the banks believe the prices of property still have a way to fall and they want the house-buyer to shoulder that risk.
And, of course, they want to earn a profit on the mortgage itself. In simple terms their costs to get their hands on money are about 2.5% more than they were when interest rates were .75% higher. You, dear house buyer, will have to pay this, and your mind-set has not shifted enough to get enough of you doing it to make a difference - in the UK at least with reports of a mere 20 odd thousand mortgages being granted last month. When you do decide you are prepared to pay a rate nearer 10.0% than 5% you will find that the market will start to move again. Remember, within even teenage scribblers' lifetimes people were paying 15% for a mortgage.
So Warren has put his money on the line very clearly. I said some days ago we were probably within 10/15% of the bottom for US house prices and the stock market. The huge jump on Friday was largely a sideshow, but I still hold firm to my prediction. If the US gets near 9500 for the Dow and the UK Ftse 100 around 4250, fill your boots, as the expression used to be.
PS. Mr. B has suggested he would be happy to buy some of AIG's assets. Well there's a shock. I think I mentioned he would be paying 50cts on the $ for what he wants.
1 comment:
As you say, this is good news
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