Evidence That The Pain Is Spreading
Some housing bubble news from Wall Street and Washington. BBC News, “DR Horton chief executive Donald Tomnitz told investors that the weak US housing market would continue to hit home prices during the year. ‘I don’t want to be too sophisticated here, but ‘07 is going to suck, all 12 months of the calendar year,’ he said.”
“The company’s net income for the three months to the end of December 2006 fell to $109.7m (£56.7m), from $310.1m at the same time the previous year. Mr Tomnitz warned that DR Horton may have to make further write-offs to reflect the number of unsold homes and lower land values.”
“‘I don’t think ‘08 is going to be a great year, but it’s going to be much better than ‘07,’ he added.”
From Business Week. “The canaries in the coal mine are keeling over fast. After years of easy profits, the $1.3 trillion subprime mortgage industry has taken a violent turn.”
“Now there’s evidence that the pain is spreading to a broad swath of hedge funds, commercial banks, and investment banks that buy, sell, repackage, and invest in risky subprime loans. According to Jim Grant of Grant’s Interest Rate Observer, the market is starting to wake up to the magnitude of the problem, entering what he calls the ‘recognition stage.’”
“Says Terry Wakefield, head of the Wakefield Co., a mortgage industry consulting firm: ‘This is going to be a meltdown of unparalleled proportions. Billions will be lost.’”
“BusinessWeek has learned that $700 million Carrington Capital and $3 billion Greenlight Capital may have gotten badly burned because of their intricate dealings with New Century Financial.”
“Magnetar Capital, a $4 billion hedge fund formed two years ago, may be on shaky ground, too. The question is, how many others may be suffering? ‘This is a very opaque industry, so no one really knows,’ says economist Mark M. Zandi. ‘My guess is that if you look at the top hedge funds, they’re bearing most of the risk.’”
“Among hedge funds, Greenwich (Conn.)’s Carrington seems particularly vulnerable. The fund was launched in 2003 with $25 million in seed money from New Century, which owns about a 35% equity stake. Not surprisingly, New Century is one of Carrington’s biggest suppliers. Another major supplier is Fremont General (FMT), which says it plans to exit the subprime business.”
“Other hedge funds that have feasted on mortgage-backed securities will be hit hard if rating agencies start downgrading them, as is widely expected. That would be likely to send their values plummeting.”
“‘This is indeed a stress scenario,’ says Glenn T. Costello, co-head of the residential MBS Group at Fitch Ratings. Kevin Kanouff, who heads bond surveillance for Clayton Holdings, a consulting firm for institutional investors, adds that ‘hedge funds are getting very nervous about their investments.’”
“The biggest fear is that the trouble will move up the food chain. While subprime loans accounted for 20% of mortgages originated last year, David Liu of UBS estimates that fully 40% of last year’s loans are ’showing a lot of signs of stress.’”
“One clear loser is David Einhorn, manager of hedge fund Greenlight Capital, who made a big, ill-timed gamble on the subprime sector when he fought his way onto New Century’s board last March. Einhorn’s seat on New Century’s board prohibited him from selling.”
From Reuters. “Hedge fund manager David Einhorn quit New Century Financial Corp.’s board late Wednesday. In Thursday’s SEC filing, Greenlight said it had not sold any New Century shares in the previous 60 days, a period in which the shares fell 83 percent.”
“The U.S. Federal Deposit Insurance Corporation on Wednesday issued a cease-and-desist order against Fremont General Corp. because of its subprime mortgage and commercial real estate lending practices.”
“The FDIC, a banking regulatory agency, said Fremont was operating without effective risk management policies and procedures and was marketing loans that substantially increased the likelihood of a borrower’s default.”
“‘Our concern has always been that banks make loans that borrowers are able to repay,’ FDIC Chairman Sheila Bair said.”
“The company said this week that it stopped making new home loans and would not fund home loans in the pipeline that had not yet closed.”
The Associated Press. “The FDIC said it found, among other things, that the bank was making subprime mortgage loans without having the proper criteria for assessing borrowers’ ability to repay, and that it was marketing and making the loans ‘in a way that substantially increased the likelihood of borrower default or other loss to the bank.’”
‘Now there’s evidence that the pain is spreading to a broad swath of hedge funds, commercial banks, and investment banks that buy, sell, repackage, and invest in risky subprime loans.’
Looks like the people responsible for much of the housing bubble are beginning to pay for it. Couldn’t happen to a nicer bunch of folks.
“Looks like the people responsible for much of the housing bubble are beginning to pay for it. Couldn’t happen to a nicer bunch of folks.”
AMEN to that. Burn, baby, burn is all I have to say.
The shocking part is that the fee-based middlemen (RE agents, brokers, etc) seem to have drunk their own Kool-Aid and are bewildered at the downturn. Worse, many of them are stuck with their RE ‘investments’.
No surprise really, true believers make better salesmen than liars.
I read earlier today that demand for kool-aid has fallen off a lemming like cliff. However, demand for Ramen noodles, whiskey, vodka, gin, and other sprits have gone hyperbolic!
Yes…The koolaid bubble has burst along with the housing
bubble.
Almost ALL of them drank the kool-aid…laced with vodka and roofies.
Complete and utter disregard for any kind of risk assessment…at ALL levels.
Got a new post up as well!
SoCalMtgGuy
http://www.housingbubblecasualty.com
Great post - thanks! A nice summary to send “friends and others” who don’t read here regularly.
So 60% of Countrywide loans wouldn’t go through under stricter guidelines? Well, I’m not sure even I could pay the top rate of an ARM, but still if 60% less loans go through you think that might slow the market down more?
So here we have another group of Hedge fund geninuses who are just that until the market turns.
These guys are all over paid gamblers. Glad to see the 38 yo Einhorn taking it in the a$$. I have read some stories on the guy and he thinks he his shit doesn’t stink.
Maybe we shouldn’t be so hard on FBs. Seeing all the damage the FBs are doing to the fundies, the FBs have now become my heros! You go, guys! It’s the revenge of Joe Sixpack.
“The revenge of Joe Sixpack” : beautiful quote.
Joe got the 100K cash back deal, he bought plasma and Hummer,
keeping the economy afloat. The bank got the house, fair and square.
Explain to me one more time how the hedgies failing hurts them.
They’ve made their money, the money they’ve lost is OPM (other people’s money,) and they’re sitting pretty.
Brian Hunter (who brought down Amaranth) had six (count ‘em, six) offers less than two months later.
I understand schadenfreude and morality but I don’t think this board is being “rational” (if you know what I mean.)
I don’t care what you say; I think Einhorn is REALLY cute.
“Looks like the people responsible for much of the housing bubble are beginning to pay for it. Couldn’t happen to a nicer bunch of folks.”
I couldn’t agree more!
Good…I hope these bastards rot in hell. Even after all the crap that goes down, the sad part is they’ll come out unscathed…they’ve already made their millions and have stashed their ill-gotten gains in other things I’m sure.
I have no remorse, sympathy, or empathy for either the brokers, lenders, flipping bastards, or the dumbass owners who bought homes.
As far as I’m concerned…let the misery begin.
It blows me away that’s these clowns act like there was no “warning” signs to this meltdown. Started checking Ben’s Blog about 1 year ago, to just keep things in perspective to my hyper active estate investing. Been thru 4 other up/down cycles and tried to keep up with any research that wan’t hype. Ben’s was just one of a number of daily checks to keep my head straight. Well, to all you Million Dollar Wall Street Bonus babies, because I was fully aware of the risks in my investments, I took appropriate action along the way. No, I didn’t get out at the top, but I did get out with 75% of my unreal gains, and I sleep well.
Here’s what I have to say to Wall Street, CNBC and Crammer….
“KISS MY A**”
But, David, don’t'cha know? The housing bubble was “impossible” to predict beforehand. The “experts” all said so. That’s why Ben must be some kind of psychic or super-genius.
They’re are a lot of RE types who think Mr.Jones is an evil genius, like Lex Luthor, who tryed to make a killing in real estate by shearing off the west coast of California. Come to think of it, that would make Jones a superhero in their eyes.
Sorry, should be “there are”.
Man, it should be “tried”, not tryed.
The problem is that a lot of regular investors and pension funds have invested in these hedge funds…If you remember when the Aramanth(sp?) hedge fund went tango uniform, San Diego lost 100M worth of their city’s pension fund….
San Diego “county”
San Diego county as well ….. Both are going down big time as “no one” knows all the debts they have becaused of failed audits for years and failed pension fund payments. O, well what’s new. Trust us. Everything will be ok!
“The problem is that a lot of regular investors and pension funds have invested in these hedge funds”
While we all applaud the collapse of the money behind the housing bubble we must also be aware that some retirement funds have been very aggresive and maybe your retirement is hanging in the blowing basket.
Mabie it’s time for Bush to bring back his idea of privatizing Social Security.
Hahahahaha. What’s a blowing basket?
While we all applaud the collapse of the money behind the housing bubble we must also be aware that some retirement funds have been very aggresive and maybe your retirement is hanging in the blowing basket.
———————
Absolutely! And why some of us have been warning of a possible deflationary depression which could potentially last a very long time (due to the retirement “problem”).
Going to be interesting times, indeed!
So much for the problems being “contained” to subprime, which we all knew was BS. Looks more like contagion than contained. Well, at least they got the first part of the word right - they just missed the ending. And that ending will not be pretty for a whole lot of folks (FBs, lenders, MBs, MBS bagholders, pension funds, hedge fund investors (which include lots of pension funds), Wall Street bankers, etc.).
What is really amazing is that people in Freddie Mac and Fannie Mae knew that there was widespread poor appraisals and fraud since the mid 90s and NOW they are catching on! I worked on time-space statistical models used for automatic computerized housing price estimation at that time (this research was ultimately paid for by the FMs)- my part was mainly theoretical statistics combined with code development- it was a major strain on computers at that time to simultaneously appraise hundreds of thousands of properties. I also worked on some fair-housing issues also. The reason that such programs were desired is that, as I was told more than once, the companies high up the food chain knew that appraisals were overinflated and the process in general was flawed. There was also the strong suspicion that under the table cash transfers were widespread. One thing that I noted was how many prices were disconnected from fundamentals (one idea had been to create an alternative estimate of price based on area incomes, rents and interest i.e. some concept of price-to-earnings ratio. This didn’t work very well). So, now ten years later ‘they’ finally decide that there was fraud all over the place and it might be a bubble. Uh, huh.
Too bad… so sad. Brings tears to my eyes to see these people having to pay the piper. Schadenfreud- it’s what’s for dinner!
Everyone has their poker face on, smiling, shaking hands telling everyone that things “have bottomed”. Bullshit. We’re going to see another big dump next week when the financials like Goldman Sachs report. I hope the people on the conference call ask them some hard questions about the millions of shares of sub prime lenders they own.
ROFLMAO !! Is all I have to comment here..
bwahaaa, bwahhaaa, bwahaaa, bwahaaa, bwahhaaa, bwahaaa, bwahaaa, bwahhaaa, bwahaaa, bwahaaa, bwahhaaa, bwahaaa, bwahaaa, bwahhaaa, bwahaaa
I am absolutely giddy.
The one that gets me ROTFLMAO is the quotation from the FDIC chairman: “Our concern has always been that banks make loans that borrowers are able to repay.”
Always = Since the day before yesterday.
“DR Horton chief executive Donald Tomnitz told investors that the weak US housing market would continue to hit home prices during the year. ‘I don’t want to be too sophisticated here, but ‘07 is going to suck, all 12 months of the calendar year,’ he said.”
How are the permabulls and the NAR going to spin that one?
How long will the gaping disconnect between the positions of bearish homebuilder CEOs and glib industry spokemen survive against the tsunami tide of bad news?
Donald, your level of sophistication is mind-boggling.
In a way, I think it was very sophisticated. (Brian, not sure if you were being sarcastic or not). He very clearly and succinctly stated how the market and future are shaping up. No need to parse this statement. If the Fed wants to learn how to be clearer in its pronouncements (not that I really think they do), it could look at this statement as an example of how to be succinct and very clear.
I agree with you
they love it on cnbc.. All I heard this morning was Maria Bartinom talking about the “S” word…
She can use that word in conversation with me anytime.
Let’s see. I’ll like to take Erin Burnett fast and first. Settle in for a long session with Rebecca Jarvis and then finish off with Mom (Liz Claman)
How are the permabulls and the NAR going to spin that one?
On squawk box, they had a story that basically said “Is Tomnitz stupid?” they focused only on the word “suck” and said “oh my, what would your grandma say”. They didn’t discuss WHAT he was saying at all. only that he used the word suck.
they then went on to say that shares in DR fell ONLY because he used such a potty mouth word, not necessarily because the stock should be worth less.
retarded.
They can’t dispute the message, so they hope to blunt it’s impact by shooting the messenger. I guess CEO’s are supposed to be politicians now, and telling the truth is considered a gaffe.
Broke is the new Black; Truth is the new Rude
Every hear runners use the term “sucking wind”. It isn’t a potty mouth term without the potty brained listening.
Kind of like saying NEW blows.
“One clear loser is David Einhorn, manager of hedge fund Greenlight Capital, who made a big, ill-timed gamble on the subprime sector when he fought his way onto New Century’s board last March. Einhorn’s seat on New Century’s board prohibited him from selling.”
Sounds like a rich, aggressive guy busting to the front of the line to get one of the last few berths available on the Titanic.
They all think they have the magic bullet to buffer their risk profile. Their black box, their derivative strategy, their insider knowledge, etc. That’s why I love seeing them starburst. Remember Andor back in ‘03? Tried to short technology and when that theatened their existence, tried to change direction too late and bellied up anyway.
Did you see this one?
Debt-market bomb could hurt us all
http://tinyurl.com/25cglg
In it we call that a “magic occurs here” cloud, to be shown on a whitenboard while we talk about how smart we are.
I remember reading that someone at Long Term Capital Management had predicted the firm’s chances of failure at zero, not only in the lifetime of this universe, but in the lifetime of numerous repetitions of the universe. I’m thinking of going to the bookstore to buy a copy of “When Genius Failed.”
Pick up ‘Hedge Hogging’ while you’re at it. Both give a fascinating insight into the world of hedge funds and the monstrous egos involved.
There was a BW article on him three weeks ago, pre-blow up, and they were kissing his a$$. Great timing!
LOL!!! What’s the difference between the housing market and the Titanic?
The Titanic found a bottom.
OT, but look what schools in LA are now doing to combat declining enrollment - bringing all of the suspended and expelled kids back! LOL, good luck trying to find teachers for this school….
http://www.dailybreeze.com/news/articles/6306237.html
What will they think of next?
Screw these hedge fund “geniuses.” I really have a lot of animosity toward that bunch.
LTCM got a bailout. Will others?
As long at I cash out my puts before they get bailed out.
My post on my Hegedfund genius didn’t show up. Glad to see these guys getting burned.
They are geniuses until, well, they aren’t!
Hegedfund genius *post
Having a lot of trouble getting my posts to show up. Maybe someone in Greenwich, CT is doing Ben’s post filtering - LOL.
1. Hedgefund geniuses?
2. Will Crammer be next??
What has happened to our some-time commentator on this blog, hedgefundanalyst?
Ehhh. New is 5% of Einhorn’s total portfolio. Bad, but not horrible. More of a public pasting than financial ruin.
Depends how leveredged it is.
Mortimer! Sell all our Orange Juice futures fast!
Hedgies getting burnt ! I love it.
How many times have we heard that the hedgies wouldn’t ever get burned because they are smart enough to use derivatives in such a way that they make money no matter which way the market moves ? Well, I guess not !
Everyone says hedgies are so smart. You know how the subprime game worked ? Take $10 worth of investors money. Get a $100 loan in Japan. Convert it US dollars. Buy MBSes. Leverage buying leverage ! Does it get any worse ?
The MBSes yield 5%. 5% of $100 is $5 on $10 worth of investor equity. Strip off $2 for management fees and the investor gets $3 for $10 invested or a 30% return.
Until the bank calls the loan or the yen moves the other way or Japan raises their interest rates.
This is going to be very ugly.
We still haven’t heard from individual investors getting burnt. Maybe a few of these hedge funds have to blow up first. Once the common man hear stories about getting burnt, the rout to get out of anything with MBS exposure will be on.
Its really curious how the economic news is pretty poor these days and yet the market keeps trying to mount a rally. Way too much stupid money floating around.
The way to make money on that is to short stocks at strategic times because when they are liquidated, they’ll have to sell everything and stocks are the easiest way for the public to participate in this.
Or perhaps just follow David Lereah to his next job, stay long as he boosts the next bubble and short it once it starts going down. Arguably the two best opportunities to make money in recent years have been dotcoms & residential real estate, on the way up AND the way down
I liken it to a bodybuilder hopped up on anabolic steroids. He looks like an absolute unstoppable beast, but his ticker could give out at any minute.
“Way too much stupid money foating around.”
That’s subjet to change. The “Great Wealth Distributor”, also known as the stock market, will see to that.
I really do think they paid themselves 1.5 - 2 years’ worth of bonuses in Dec.
They did. An acquaintance of the family got a million dollar bonus. Of course, it still doesn’t negate the fact he’s a miserable drunk who blacks out and pisses his pants.
But did they keep it? Or have they spent it on their own dope, which will soon be going up in smoke?
Was in NYC a few weekends back and spent time with the Wall Street friends of a good friend. They were great hosts, taking us to all the trendiest clubs and restaurants. And picking up the $5000 tabs at each place. Gracious hosts.
Of course, had we met them on the street we wouldn’t get the time of day, but as friends of someone they knew at Yale - time to buy happiness and friendship for a weekend! They were, quite frankly, miserable in every way but had all the money in the world. Which they gladly traded for the hope of a smile.
Was in NYC a few weekends back and spent time with the Wall Street friends of a good friend. They were great hosts, taking us to all the trendiest clubs and restaurants. And picking up the $5000 tabs at each place.
Can you give these people my number? Just tell them I attended Yale with their friend.
Just excellent.
“This is going to be very ugly.”
For the fundies, I sure hope so. Wonder if the managers will have to give their bonuses back? If I had money in a hedge fund and got burned, I’d be demanding the managers rebate their fees and bonuses.
Ha, read the prospectus/offering documents for any one of them. You’d better have a good lawyer.
*laughs
The bonuses were for results already accomplished ! They won’t be going back. Unfortunately, there is no bonus clawback when the funds crash !
You have to understand that giving your money to a hedgefund is like giving it to a gambler. Its not the hedge funds money, its yours. They are out to make money FOR THEMSELVES using other people’s money. They don’t really care if they lose the money in the end, they just want to make money for themselves. So they load up on the riskiest, highest yielding things they can find. If they make money, they get the big bonuses. If they lose it, well, its not their money !
That is the most accurate description of a hedge fund I’ve ever seen in print.
Having family in hedge fund country (Connecticut), I do know how the business operates somewhat. Gotta have big bux to participate in a hedge fund in the first place. And I know there’s all sorts of legalese designed to protect the managers. But since when has that ever stopped someone with enough money from bringing a suit?
Probably there’s a fund client or two with far more cash than the managers. Just for sh*ts and giggles, such a client could bleed the managers dry just by bringing a suit, manuevering and dragging it out. My money would be on the guy with more money. It could happen.
“Clawbacks” will come back into vogue. Forget about the managers giving back their base management fee. That’s not going to happen. They get paid that rain or shine. But their incentive fees? I suspect it’s different for every fund, but I’d expect numerous shareholder suits demanding that the Managers pay back in their incentive fees that were earned last year, then unearned this year.
Did we see any clawbacks after the dotcom bust ? I rest my case.
Picking up nickels in front of a steam roller.
As long as the steam roller is not moving - no problem. But when it starts going downhill - let the nickels get crushed; nickels are worth more as bullion than as currency. Apres moi le deluge.
Is anyone else seeing huge price differences in their markets?
While we were looking for a rental (hopefully our last here in LV) we found several neighborhoods with over 100K price difference for the exact same house.
Even the lower price homes are sitting, I am waiting to see what happens once these lower price homes sell and all the comps are lowered by over 100K.
IMO 2007 is going to be a bloody year here in LV.
Yes, and there are also huge quaility differences for homes listed at the same price point. This suggests a market in severe disequilibrium trying to right itself.
Definitely (inexplicable price differences). Looking at my most familiar inventory (Morro Bay
[don't know why part of comment didn't post] - Morro Bay houses priced below $600K: range from $250/sqft (a short sale) to $600/sqft (various PsOS). My guess — the $250/sf house will actually sell ! Will keep y’all posted. Stucco’s comment seems accurate.
And enter the bifurcation of the market. There will be houses that sit, and sit, and sit, and sit–being sold by people who psychologically can’t accept losing money on a housing investment and can hold on a few more months or years before they fold. And there will be houses that actually are priced to sell, and they’ll sell–people will take longer to get comfortable, but the homes will sell.
And eventually, the houses in the former category will sell too–but not by the current homeowner, but by the future homeowner (the bank), and at a MUCH reduced price.
Northern VA:
One of dozens; identical and 100K apart.
http://www.homesdatabase.com/FQ6217059
http://www.homesdatabase.com/FQ6245432
actually, the one with less land is 100k more… huge difference!
Even worse, there are two townhouses next to each other in Loudoun VA (actually, there is a unit in between) that are $100k apart. Identical units, but on is price at $400k and the other at $500k. The one price at $500k was a bought a year or two ago for ~450k, and the other was bought 3 or 4 years ago at around ~300k.
Hmmm…I wonder what the conversation is like between those neighbors?
Seems to me that Einhorn’s fund is going to get crushed in this.
6.3% of NEW, and couldn’t sell a share as they went into the toilet!
Just goes to show you there is no one at the wheel. All the “Geniuses” are just the lucky ones and for some, their luck has run out.
Government is run by the same lucky morons.
My local guys website is down:
http://www.crispandcole.com/
Not sure whats going on
Firefox says file type is “application/x-trash” - and inside it contains “php header(”Location: http://www.crispandcole.net/entrepreneur/“)”
In other words, website looks like it’s been deleted.
THANKS!!
I was hoping someone could explain what was going on.
Someone from a title company emailed me that they received a subpoena to forward files to the DRE by a Mar 23, 2007.
Does anyone know how the state agencies handle these issues?
Someone likely filed a complaint and the files will be handed over to general counsel of DRE for review.
On top of that if it got that far someone is about to get spanked. DRE doesn’t chase marginal cases.
Does that mean the condo tower project in Bakersfield is not going forward?
Umm, I already know that answer.
lol
It’s working now, Crispy. Too bad.
Hey, is this the end of Casey? I see his site’s down… now wouldn’t it piss you off to have some guy who won’t pay what he owes you basically thumbing his nose at you in front of the whole world? I’ll bet someone at CashCall got really pissed and said, “that’s enough of THAT.”
Or maybe he just forgot to pay his hosting bill.
Last I heard Casey was busting rocks .
This is going to be a meltdown of unparalleled proportions. Billions will be lost.
Correction: billions will be transferred into new hands.
Or already have been.
Billions were wasted on subdivisions of empty McMansions that will be torn down or taken over by HUD.
Why can’t the tear down fees be charged back to the developers? Oh yeah — they will be bankrupt by the time this scenario rolls around…
When HUD lets their typical customers live in those McMansions we’ll have former exclusive gated communities with graffiti spray painted on their gates. I love it!
Right, we get to witness (perhaps) the largest reallocation of capital in history. All those hard won gains from the postwar era squandered in two successive speculative adventures.
Edge, when I wear my tinfoil hat I think both these bubbles were designed to erase the massive amounts of money held by the WWII generation and keep it from being passed along to the next generation.
When you think about it, at some point a government with a paper currency has to pull the plug and reboot because eventually, with money just sitting and compounding over and over, even if you take half in taxes, you end up with the children of savers having the power and that would never do.
Waaahoo, I can’t help but see it any other way, I just can’t. Two depression era parents made sure of that. I’d love to be an optimist about all this - really I would.
Edited:
When you think about it, at some point the privately owned banks - with a paper debt currency (the Federal Reserve Note) created out of thin air with interest attached - and their employees in government (who the duped debt slaves mistakenly believe work for them) realize the end of the debt pryamid ponzi scheme is at hand. With debt money just sitting on the books and compounding over and over eventually the wall is hit and the debt can no longer be serviced.
That is when the plug is pulled and the system rebooted as the debtors - those who can no longer service the debt are also those who can no longer service the cost of their own existence - are wiped off the books and the face of the earth.
Watch for 9/11 part deux. It will be a doozy.
…and their employees in government…
Only the top dogs. The rest’ll be toast, too, along with their gold-plated benefits.
Actually we seem to have connection issues here too, Crisp - we’er in Portland, OR.
“Hedge fund manager David Einhorn quit New Century Financial Corp.’s board late Wednesday. In Thursday’s SEC filing, Greenlight said it had not sold any New Century shares in the previous 60 days, a period in which the shares fell 83 percent.”
OMG! OMG! OMG! That’s gotta leave a mark!
Unless there’s another half of a pairs trade somewhere or some matching position.
Oh, this is interesting
http://www.ft.com/cms/s/269b437c-ccca-11db-a938-000b5df10621.html
Any leverage liquidating thoughts, however?
“That’s gotta leave a mark!”
Yep, skid mark.
rug burns…..because he is going to get F#
“…a period in which the shares fell 83 percent.”
But look at the upside. NEW’s dividend yield is now 151.39%. Makes you wonder about some of those dividend-driven ETFs from Wisdom Tree.
I wonder if he is barred from buying protective puts? When he knew he couldn’t sell, he may have loaded up on puts to limit his losses.
LUV sw air reporting lower bookings
spread that
my customers are dead broke which means- sht I’m screwed too
There are fewer RE geniuses like Casey and Jeff flying around the country to manage their ‘investments’ now.
Couldn’t have anything to do with their increased prices, site redesign that made it harder to use, or their (at least for me) worse on-time situation, could it?
http://www.msnbc.msn.com/id/17503344/
Article now about weakening job market due to housing
Ah, the next shoe to drop. All those jobs linked to the RE boom…..
Amen to that. Maybe then the RE agents in town will stop selling houses to each other and proclaiming everyone wants to live here. Not to mention the Safeway checkers, bartenders, massage therapists and UPS drivers can go back to their day jobs.
So the ‘economists’ say there is a one in four chance of a recession, and Greenspan says one in three. When my wife wants fashion advice, she asks me and then does the opposite. That is how I am going to treat economists and their financial advice…
oops… ok, so maybe the checkers, bartenders, UPS drivers can go back to their day jobs if they still HAVE day jobs.
While subprime loans accounted for 20% of mortgages originated last year, David Liu of UBS estimates that fully 40% of last year’s loans are ’showing a lot of signs of stress.
And the descent of prices has just begun. Tomnitz is only half right, 2008 is going to suck even worse.
“BusinessWeek has learned that $700 million Carrington Capital and $3 billion Greenlight Capital may have gotten badly burned because of their intricate dealings with New Century Financial.”
What about the other top 10 institutional holders? Did they make it out.
URL: http://www.cnbc.com/id/15837275?q=new
My mental calculation based on that chart is Greenlight lost over $400MM on NEW in the last 60 days . . . (assuming $108MM current value, after an approximate 80% loss. In a $3B fund, that’s a huge hit. Hell, that’s a huge hit no matter which way you slice it. No bonus this year at Greenlight.
And really frustrating to see New York State (pension fund? teachers union? who knows, it cuts off) in the top ten as well.
NEW management found a way to screw me too!
They’re pretending everything is ok, probably shuffling things around as much as possible to mitigate damages before reporting next week.
I wonder if you have anything to worry about if your ex CEO is the Treasury Secretary?
It’s not directly related to this topic, but I thought I’d point out an interesting stat from the latest Fed Flow of Funds report for Q4, which was just released …
“Owners equity as a percentage of household real estate” continues to slump. The latest reading: Just 53.1%, down from 54.2% a year earlier. This stat is computed by subtracting the value of home mortgages outstanding from the value of residential real estate, and then dividing the result by the value of residential real estate. Or in plain English, it’s a rough measure of the percentage of their homes that Americans own (after any mortgage debt due).
53% may not sound bad. But that includes the value of all homes with no mortgages. It’s also the lowest equity position ever seen in 55 years of record keeping. That’s pretty amazing considering the gigantic surge in home values we’ve seen over the past few years. It means people have been “borrowing away” all that extra equity.
There’s a long-term chart up at my blog that shows the deterioration in this measure, FYI …
http://interestrateroundup.blogspot.com
One other stat: Home mortgage debt grew at an annual rate of just 6.6%, the smallest increase since 1998.
And that percentage will skyrocket as values decline. It all goes back to the fact that debt is a reality and equity is an opinion.
Is the equity capped at 0% for each single object? I hope so. Otherwise, an object with e.g. 30% negative equity could equalize the same amouint of positive equity somewhere else. According to such a statistic, the situation of the average homeowner would be worse than in reality and the situation of the lenders better: the 30% negative equity has a large chance of ending in the lenders’ lap while the other homeowner keeps his positive equity.
Interesting…Thanks again Mike!
“Other hedge funds that have feasted on mortgage-backed securities will be hit hard if rating agencies start downgrading them, as is widely expected. That would be likely to send their values plummeting.”
There is something extremely distasteful about wealthy hedge fund investors preying on unsuspecting marginally qualified subprime borrowers. The poetic justice for these hedge funds to get burned is a very sweet development.
Countrywide foreclosures are piling up. Here’s a small regex script I wrote that scrapes their website, parses out their listings and displays them on blogspot. It will update weekly. I’ll add a bar chart a little later on. Here’s the link for anyone interested: http://countrywide-foreclosures.blogspot.com/
(Total Foreclosures: 5,861
CFC Asking Price: $1,012,740,063.15)
I bet this will reach 1,500,000,000 by summer time!
cool
asking / wishing price - X?= reality
bet the spread is huge
I should title it wishing price. LOL
Ok, it’s official. I changed it to: Total Ask/Wish Price
Thanks.
Nice work!
That’s really cool, Dimitris. Thanks for sharing!
Dimitris,
Good stuff. It’s interesting to me that Florida is NOT #2 on the list. In fact, I it just barely makes it in the top 10 states for foreclosures.
After CA (obvious #1), you’ve got MI, TX, GA, NV, MA, CO, IL, and VA all with more foreclosure (dollars) than Florida. That surprises me….
Dimitris,
Thanks for the “cool tool”
Chula Vista CA ain’t lookin’ so good…hehehehehe
Bakersfried will look even worse when this train gets a little further “down-the-line”
http://seattletimes.nwsource.com/html/businesstechnology/2003606838_homesales080.html
February home sales stilll up in the Seattle area but price is flat. You all know what is the next step. Price down as homes stay on market longer. Seattle is always behind California by almost a year.
So is Portland. Actually things appear to be a bit off their peak, but listings from Dec to Jan went up 2.5X here.
Looking at the stats it looks like Portland is starting to take off again - so far inventory isn’t really rising like I expected it to this spring.
Which sucks as I’m waiting to buy a house here - but not before it makes financial sense.
Portland, Seattle and similar late-bubble cities are going to be cheated out of a full RE bust experience like FL, NV, CA… my prediction is that here the bust is going to happen a lot faster and PDX will catch up with the leading-edge bubble cities by end of this year. Inventory is less important now, getting a mortgage matters more.
Any predictions on how bad it’ll get here - prices do seem out of wack - but nowhere nearly as bad as Cali etc.
My guess is that it may decline another 10-20% - More downtown, less in the hinterlands. To give you an idea, I bought a 1375sf tract house near NW185th/West Union in 1994 for $125K, sold it in 2000 for $155K to buy land and tin can N. of Newberg. Places similar to mine were at $279K last fall - my guess is they should be at $200 or a bit less. PDX salaries are lower than SEA, and the opportunities aren’t nearly as plentiful either. So - my prediction = that place will be $200K by end next year.
Note how The Times omitted information on inventory except in a few unnamed neighborhoods “close to the job centers,” but look at the raw numbers. King county has a YOY listing increase of 28%, which far exceeds the increase in pending sales.
Thanks Deev. The Times will try to spin this in the cheeriest way possible all the way to the bottom if the past year is any indicator.
GEE, most of GE’s profits are from the debt ball
http://biz.yahoo.com/rb/070308/ge_japan_cuts.html?.v=5
how now ?
The Reuter’s story states that the FDIC has ordered Fremont General Corp to stop making risky loans.
It was very clear to many people since 2003 that Fremont, New Century and CountryWide were making bad loans to people who could not pay the loan back. The FDIC, Federal Reserve and Greenspan all knew it way back when but did nothing, and in some cases encouraged people to take out IO ARM loans.
Now the FDIC is doing something, 4 years late and 2 trillion dollars short.
The criminal fraud begins with the Feds and works its way down from there.
5 stages of a project:
1) Wild enthusiasm
2) Unmitigated disaster
3) Search for the guilty
4) Persecution of the innocent
5) Honor and Glory for the uninvolved
We’re just at the very beginning of unmitigated disaster, a stage that will take a long time to play out. Nothing will happen to the Feds, because they are guilty and the innocent must be punished.
The hedgies are a very nasty bunch, so are the big swinging dicks on Wall Street. Really only one cut above the Mafia, if even that. They are going to want a scapegoat, because they can’t stand anyone whizzing in their Wheaties by parting them from their money. The scapegoat will be the mass of average Joes, the rubes who are defaulting on their loans.
We’re already seeing this in some of the stories that Ben is reporting, about the “public” being at fault for taking on debt they shouldn’t have. “The Public” should have known better. “The Public” took away the profits of the big swinging dicks. Therefore, “The Public” must be punished. If you think the bankruptcy laws are onerous now, just wait. The misplaced contempt and anger from those at the top is going to rain down like diarrhea on a Caribbean cruise.
> The misplaced contempt and anger from those at the top is going to rain down like diarrhea on a Caribbean cruise.
Or is that “rain down like effluent from a Dave Matthew’s tour bus”?
LOL!! That’s the first thing I thought of as well.
Very true. After the home buyers are tossed on the streets the lenders will cry they have been cheated and now want all these crooks saddled with judgements to remain for the next 30 years in paying back these loans as you could have taken a 30 fixed payment but you took out a toxie loan instead. Shame on you!
Given that predicting any market turns is a stupid, fruitless, hopeless thing, nevertheless Monday has all the markings of the start of a very bad week for equities.
Hi, long time lurker here, decided to come in from the cold.
This is one of the most interesting sites Ive ever found. Im one of the “sheeple” who had no clue how this system operated even though I was looking at it everyday. I’d like to thank Ben and all the “regulars” who post here (you know who you are). Although much of what Ive learned is disturbing, I wouldn’t have it any other way.
Thanks so much and keep up the good work, Im still learning.
0/1
Welcome to the HBB!
Welcome 0/1, and I hope you continue to read what you find here and then use your brain to deduce what is happening. I don’t know if we have all the answers here, but man, at least you are hearing the truth about what is happening.
Nothing is more enlightening that reading the pap the MSM spews out about this important topic, and then reading on sites like this that you aren’t the only one thinking things are horribly askew.
I have enjoyed my year on this blog. Don’t be shy–throw your two cents into the discussion. We all learn from each other.
more inventory coming…..kinda
http://news.yahoo.com/s/ap/20070308/ap_on_re_us/fema_trailer_sale;_ylt=AkVkDLJ0pPghbJqGaMIdAphvzwcF
On a side note, I have a used dirt bike; and I always wanted to get a nicer dirt bike. I have been holding off to see If I can see an unload when people start selling luxuries to continue to pay for expenses. I am starting to see prices drop in the used toy market as some people have begun dumping their toys. Prices are definetely dropping there…
“The biggest fear is that the trouble will move up the food chain. While subprime loans accounted for 20% of mortgages originated last year, David Liu of UBS estimates that fully 40% of last year’s loans are ’showing a lot of signs of stress.’”
Hence my flyer of shorting DSL. Downey has only $62m in reserves on a $15b portfolio. Their portfolio is 90% in So, Calf, and 80% in the neg-am market, almost all prime. Ultimately as 2007 rolls along and neg am debtors start hitting the 110-115% reset clauses, this so called prime market will make subprime look like a picnic.
Who knew 620 FICO, 100% Financing, Neg-am mortgage in a declining market was “prime”. I hope this spreads!
Speaking of Downey, I’m really surprised they didn’t learn from the last downturn. I’d be really surprised if they survive this time.
Considering the recent nationwide Housing Bubble, is it fair to state that trillions of dollars have been misallocated. The fraudulent manner with which many subprime and Alt-A loans were obtained guarantees that the vast majority of these loans will eventually default. With these absurd McMansions sprouting from coast to coast, we may be looking at a severe recession/depression in the coming year. The Federal Reserve, FDIC are looking at a situation perhaps 100 times the magnitude of the S&L fiasco in the 1970’s.
I guess this explains why we wont see construction unemployment numbers.
Latinos land 2 in 3 U.S. construction jobs
WASHINGTON, March 7 (UPI) — Latinos make up 13.6 percent of the U.S. employment population, but accounted for 36.7 percent of the 2006 U.S. employment growth, a study showed Wednesday.
Most of the jobs Hispanic workers landed were in the construction industry, the Pew Hispanic Center said.
In fact, two out of every three new U.S. constriction jobs went to Hispanic workers, the center said.
Hispanic employment increased by almost 1 million from 2005 to 2006, with foreign-born Latinos who arrived since 2000 responsible for about 24 percent of the total U.S. employment increase.
Undocumented immigrants accounted for about two-thirds of the increase in recently arrived Hispanic workers, the center estimated.
The center derived its estimates from Bureau of Labor Statistics and Census Bureau data, it said.
NEW is falling off the cliff fast.
Beat me to it. Bring the pain!
Getting short again, 50%.
Boing! $4 seems to be the price.
Rumors everywhere it’s gonna take the cure after the close.
Rumors everywhere it’s gonna take the cure after the close.
How does that affect the thousands of puts in place against the stock?
You can either sell them or wait for the stock to be cancelled, which it will be. The few times I’ve been in that situation, I just sold them.
I’m thinking next week is the time when word filters out about banks like Fremont, going belly up~
We’ll see a good old fashioned run on the banking system, with their fractional cash reserves, (translation: they’ve got bubkis, in terms of cash on hand) being wiped out. Word will spread like wildfire, thanks to the 24/7 nature of the internet.
Could be the straw that broke the camel’s back, it won’t take much.
run on the banks? are you serious?
the sky is falling!
the sky is falling!
Don’t discount a run on banks. If we start to see the mortgage implosion affecting the large, national banks, you’d better believe people are going to want their cash$$$.
Gives txchick57 fishnets, black boots, a Financial Calculator and a large whip…and Runs for the Hills.
LOL, trust me, I am ALWAYS early. Except to work!
“In September the BLM said it would allow the market to drive decisions on releasing land, and that it would not sell land when the real estate market is soft. The BLM canceled an auction for 2,200 acres in Henderson in December when developers were dropping their construction plans because of the soft market.”
This is outrageous. BLM says they would allow the market to drive decisions on releasing land. Then say they won’t sell into a soft market. They are NOT allowing the market to decide. Rather, they are artificially keeping land, and home prices high. Unbelievable!
Grade Borrowers like Meat ?
Business Week makes Fresh Hamburger out of this MESS.
http://www.businessweek.com/the_thread/hotproperty/archives/2007/03/why_not_grade_b.html?ref=patrick.net
“The company’s net income for the three months to the end of December 2006 fell to $109.7m (£56.7m), from $310.1m at the same time the previous year. Mr Tomnitz warned that DR Horton may have to make further write-offs to reflect the number of unsold homes and lower land values.”
$110 million per quarter is still a nice little profit.
Things won’t really “suck” until they are taking losses.
“‘This is indeed a stress scenario,’ says Glenn T. Costello, co-head of the residential MBS Group at Fitch Ratings
“How do you feel?”
“I feel just great, everything’s fine…except for this small pain in my brain”
I’m thinking that a small, insignificant event like a “hedge fund / derivative aneurysm” is something that might put everything into perspective…
“This bulge in a blood vessel can burst and lead to death at any time, much like a bulge in an over-inflated innertube. The larger an aneurysm becomes, the more likely it is to burst.”
New grade for risky ABS: CaCa