From Pine View Farm

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Well over a year ago, I discussed the possibility that there was a housing bubble.

Today’s local rag had a story about a business analyst who got it right:

Throughout 2006, T. Rowe Price analyst Susan Troll watched in horror as one risky mortgage deal after another came to market. She became alarmed by a widening trend: mortgage lenders issuing home loans of poor quality – that is, subprime – that were then packaged and sold by Wall Street investment banks to investors worldwide.

Finally, in e-mails and meetings with her firm’s money managers, Troll urged T. Rowe Price to sell its portfolio of subprime-mortgage securities.

“I just was amazed at how quickly these deals were getting done when you see constant deterioration in credit quality,” she said. “It just didn’t make sense.”

Based on her warnings, the Baltimore investment firm sold some of its subprime assets in December 2006 and cleared its books of them by early February – well before the summer’s credit crisis erased the market for these types of securities.

Ya know, this stuff ain’t rocket science. That doesn’t mean it can be done as a sideline either–it takes time to do the homework.

But what it boils down to is verifying that the investments reflect real value, rather than hopes and wishful thinking.

It’s like the sign on the Antique Shop: “We buy junk. We sell antiques.”

Unfortunately, changing the label does not change the product.


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