What We're Hearing

One of the most under-reported stories of the past few months is the amount of bottom fishing that hedge funds have been doing in the residential mortgage-backed securities market -- in senior tranches, that is. Back in the spring when the value of senior tranches fell off a cliff certain 'quants' (working for hedge funds, of course) saw a golden opportunity and pounced. Marathon Asset was a buyer, according to one official there. Among the banks, we know that JPMorgan Chase was an active purchaser as well. Flash forward to the present. The secret is now out and more buyers are appearing. Does that mean prices are getting frothy? Keep in mind this one thought: the Federal Reserve has been actively buying MBS -- billions worth. Does this mean that Uncle Sam is sitting on a boatload of profits -- money that belongs to the taxpayer? Think about it...