Bits Bucket And Craigslist Finds For June 27, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Really getting excited about the possibility of a good market crash.
I think I just saw Noah’s Ark float past my window. Over and out.
bby =cheap tricks
all these stock buy backs at high prices
guess I’m stupid
It’s all good, as the buybacks are financed with other people’s money.
I thought about during the news last night, don’t drive through any large puddles please.
It must be close to the top when aspiring actors choose wall street jobs instead. http://www.bloomberg.com/apps/news?pid=20601109&sid=aJ5z5JLM4JP8&refer=news
I remember at the top of the Internet bubble, how some kids with barely any knowledge at all, were commanding 120K jobs…. a friend of mine got hired by cambridge consulting straight out of college, and paid close to 90K just for sitting around waiting for a call. Indeed we are at the top, and these will join the ranks of failed mortgage brokers, real estate agents, and pretty soon stock brokers in the pile of broken dreams.
My former boss, who is a major housing cheerleader, has a brother that used to be a mortgage broker. The guy had his own gig, but closed shop last year. He is still looking for a job.
Those same new hires came around after the bomb looking confused when they could make a 3rd of that amount. Sounds parallel to an inflated home price.
I recall those days - if you could fog a mirror and say ‘JAVA’ you were qualified to be a senior software developer making $90k. Unfortunately, I worked with a bunch of those asshats as I joined a firm in 2001 that attracted many laid off employees. The stories were all the same “was making 90k then got laid off first round, now I’m at 65k and can’t wait for the economy to rebound, etc”.
That company folded in 2004 and sometimes I run into the same people complaining they can’t get a job in IT and becamse mortage brokers, but are once again out of work.
With the surge in mergers and acquisitions, leveraged buyouts and hedge fund investing, U.S. securities firms are struggling to fill all of the empty spots at their investment banks, in trading rooms and on quantitative finance desks. Employment in financial services grew 37 percent to 830,000 people in the decade ended in 2006, according to the New York- based Securities Industry & Financial Markets Association, an industry lobbying group.
This is the graph that caught my attention. How many of those jobs are going to evaporate? And that is a serious question. They won’t all go, but some of them sure will.
With CDO issuing grinding to an abrupt halt in the last few weeks, I expect a HUGE number of finance/quant layoffs on Wall Street. Same for IB/M&A and banking in general.
MBA recruiting this Fall will not be pretty. This tide is already on its way out.
From Reuters:
Only $3 billion of new high-grade CDOs were marketed to investors in the latest week, down dramatically from just one month ago when the pipeline stood at over $20 billion, according to J.P. Morgan Securities Inc.
Pipeline?
http://www.youtube.com/watch?v=Fl4eI8-z8NQ
In the spring of 1986 my high school English teacher left to pursue a career in finance.
I was replying to pdxrenter’s comment about aspiring actors choosing finance instead.
Really? In 1982 or so, mine left to back to active duty in the army.
Highly trained, highly indebted indentured servants.
This is always an interesting read for alternative news in case you want to add it to your favorites and he goes into the rain you guys have been getting down in Texas.
http://www.independencejournal.com/
manraygun posted this in last nights thread, I thought it needed
another look.
“Standard and Poor’s sees a dramatic rise in Alt-A delinquencies”. Perhaps this isn’t contained?
http://www.inman.com/inmannews.aspx?ID=63661
I am with you, Chick. Bring it on!
Here’s a flash update from john Williams’ Shadow Government Statistics:
Fed Remains Hamstrung Despite Mounting Dollar and Systemic Liquidity Risks
Sporadic and irregular “positive” economic reports of the last month are proving fleeting, as I suggested, with some numbers revising sharply to the weak side. The housing numbers, for example, look again like they are in the middle of deepening recession.
The best of the leading housing indicators is housing starts, where May’s seasonally-adjusted starts fell by 2.1% (down 3.5% net of revisions) for the month, following April’s 1.0% gain, previously reported as a 2.5% gain. Year-to-year change in May was a contraction of 24.2%, compared with April’s milder 17.3% decline (previously a 16.1% drop). On a three-month moving-average basis, May’s annual sales were down by 22.0% against April’s 24.1% decline.
Last month, headlines were made by April’s soaring new home sales. The housing downturn was over, trumpeted Wall Street. Unfortunately, the data released today confirmed the re-softening environment. May’s seasonally-adjusted new home sales declined by 1.6% (a 6.7% drop net of revisions), following a 12.5% revised April gain (initially reported at 16.2%). May’s year-to-year decline stood at 15.8%, against April’s revised 15.2% contraction, which originally was reported at 10.6%.
May’s seasonally-adjusted existing new home sales declined by 0.3% for the month, following April’s 2.3% monthly drop, and were down by 10.3% for the year.
Although a lagging economic indicator, declining consumer confidence generally is not viewed as a positive sign for housing. June’s Conference Board measure turned negative on both a monthly and annual basis, down 4.2% from May, which was up 2.1% in revision, and June was down 1.4% from the year before, after a 3.6% gain in May.
The counterbalancing concerns of inflation and a softening economy are likely to keep the Fed’s hands tied come Thursday’s FOMC policy announcement. Despite mounting risks of a major dollar sell-off, and despite increasing concerns of a liquidity crisis tied to the sub-prime mortgage debacle, nothing actionable in formal policy has come before the U.S. central bank, yet. Upside risks to Fed rate action remain tied to the greenback’s likely sell-off, while downside risk remains tied to any systemic liquidity crisis.
http://www.shadowstats.com/cgi-bin/sgs?
Got that 1987 feeling. Remember “relative valuation” in late 1990s? As in “buy stock X because it is less overvalued compared with other stocks?” I think the market has been going up because it looks good compared with bonds and real estate, but as in 2000, that can only go on for so long.
When I can get a fair price for ANYTHING I’ll buy.
“When I can get a fair price for ANYTHING I’ll buy.”
To include art (paintings), jewelry, old cars, new cars, baseball cards, etc.
Comic books, used books, nice glassware or ceramics, vintage wood furniture, music CDs (won’t pay $30 for $1.50 in printing, packaging, distributing, and artist’s payments)…
Melody — are you out there, today? I remember that during the Thai and Japanese busts, great quantities of very fine wines were sold for fire-sale prices. The best deals were if you would buy an entire cellar. My weakness is fine old Port. What a way to go — sipping a ‘45 Dow after delivering the rent check.
May get your wish txchick57, market open a minute ago and down 60 points in one minute on NYSE. Durable goods orders way down, consumer “sentiment” (whatever that is) is off from what I heard yesterday.
wow chick…..5 minutes into the session and i think you’re going to need a gladbag of neil’s popcorn….and some diet coke of course
If you want the hairs to stand-up on the back of your neck, look at the current DJIA, Nasdaq, S&P stock graphs for year-to-date, and then compare them to the periods before 1987, 1929, and 2000 crashes. Repent, the end is at hand!!!!
Oh ya, my new license plate: GRATDP2
And the frame: FINANCIAL ARMAGEDDON
GOT SOUP LINES?
Fresno, where do you find stock graphs for 1929, 1987 and such? Thanks, Matt
hope so…there’ve been many many headfakes before that has sapped the Bear’s appetite….
I’m ready for a market crash too. My brokerages are 50% in money market fund (VMMXX), which yields 5.14%! So no problem being 50% in cash!
Actually, the other good thing about the hopeful “peak” is that the chickens scatter away from stocks when the best buys are at hand. The chickens scattered away between 2000 and 2004 and into real estate. But the best buys in stocks were during those years.
Is the time to buy the dips (the really big ones) close at hand? Or is it more like the Nikkei in 1989, when those who bought the dips had the chance to catch a fifteen-year-plus falling knife? Or the DJIA in 1929, when it took over 15 years for the DJIA to right itself? Or 1966, when my parents got into the U.S. stock market just before it began a series of ongoing corrections that did not bottom out until 1982?
Ha Ha! Good questions! All the individual stocks I buy are large companies paying dividends. Stock prices fall? Okay then my yields go up. And my stocks have a history of gradually increasing dividends anyway. It’s foolish to ignore all stocks with yields above 5%. I’m going to add more Pengrowth this fall. Currently 14.8% yield, but this is a seasonal high for the stock right now.
When the price falls, your yield goes up ONLY IF YOU BUY A LOT MORE STOCK AT THE NEW LOW PRICE. And sometimes a weak company with a high dividend will see the dividend yield approach infinity as the value of the stock approaches zero.
What if the price keeps on falling for years?
So, I’ve been giving this some thought. If the market is really going to crash, who is going to get hit the hardest, the fastest? Where is the money to be made here?
Part of me thinks that in spite of the news, the kool aid has been strong, and the risk is really not yet priced in to the builder sector yet, such that that maybe going with the builder ETF (I think it’s ITB? Are there others - a builder index?) would be the way to go…?
But in the alternative, perhaps consumer goods, the folks who will suffer a la Circuit City as the housing ATM shuts down? This seems like a slower bet though.
Or Banking? Who is going to get royally screwed when the mark-to-market comes and they’re left holding the paper? Seems like the hedge funds, but we can’t short most of those, so who else? Maybe some of the banks, like Countrywide, that were issuing the loans and may be subject to buy-back requirements, but will these guys be cushioned in any seriously offsetting way by rising interest rates?
txchick, curious about your thoughts here… what will you be holding, or shorting, on the first big down day?
When the price falls, your yield goes up ONLY IF YOU BUY A LOT MORE STOCK AT THE NEW LOW PRICE.
But Bill only has to wait for other people to buy a lot more stock at the new price, and they are what hold up the price of the stock that he bought earlier. That’s why reliable dividends can stabilise the share price.
Though… you are technically correct that Bill’s own dividend when measured against his basis indeed does not go up in such a case; he needs an explicit dividend increase. But in the meantime, he can enjoy “price support”, you could almost say.
The problem arises in hard times when the firm cannot maintain the dividend payout. If the share price is indeed being propped up by dividend yield, a dividend-cut announcement leads to a very immediate and very nasty price crash.
So even with dividend-paying stocks, you still can’t rest like you can with a CD; you still have to keep a continual and very close eye on the company financials.
Check out FED, DSL, and BKUNA: regional banks with lots of alt-A and negative amortization exposure. Perhaps the next shoe to drop as they keep reporting earnings on negative amortization loans even though they may never actually see the cash; i.e., the report earnings as interest accrues even if the interest is added to the balance of the loan. If the borrower cannot pay the interest now, how likely is it he will pay in the future?
Lat I heard CFC hold about 40% of their own paper, that’s enough to take a big bite right out of Mozillo’s arse.
I will never be ready for a crash! I will just do the best that my limited abilities allow. I do not cheer over other peoples miseries.
In terms of investments there are too many options outside of the US to justify any investments in US stocks or bonds. Commodities appear to be a decent investment.
Why buy a 5.25% US T Bond when you can buy a 3% RMB Bond and get the upward appreciation of the bond to the dollar. And with a size of 5B Yuan that should handle any large investor.
“China Development Bank (CDB) will sell the first-ever renminbi -denominated bonds in Hong Kong today, demonstrating the central government’s effort to strengthen the special administrative region’s status as an international financial hub and broaden the yuan market.
The one-week offer beginning today is available to both institutional and retail investors. The two-year bonds, with a maximum size of 5 billion yuan, including a minimum of 1 billion yuan for retail investors, carry a coupon rate of 3 percent per annum, CDB said in a statement. “
Was Steve Carrell the coxswain?
Stay dry, txchick. I hear you’re getting a real “frog strangler” out there in my home state.
Here’s some news for lainvestorgirl.
Gotta love the graphic and the time frames below it.
http://latimesblogs.latimes.com/laland/2007/06/tuesday-morning.html
no footie…..i’m sure he’s talking about those morons that live in the ie and the sfv. surely, the westside uber elite are not a part of his graph. bwahahahahaha can’t wait to see a little capitulation in brentwood….;)
My problem with the “crash is good” messages on Ben’s Blog, is that you are repeating the same crap the Main Stream Media does. All headlines and no substance.
You throw me tidbits to justify your position, but you don’t tell me how you are taking advantage of the situation. And putting cash in a 5% money market fund in a 10% inflation enviornment is economic suicide.
If you really believe in your position, Buy PUT options in Lennair or Pulte of KBH? You can go 1 year out and get in for as little as $1000 bucks and watch your investment move +100% or more.
I am short CFC, AHM and DSL. My rationale is
Building short position in CFC WM FMT over the last month.
100% return on $1000 isn’t worth my time and effort. GLD is a nice cyclical on amonthly basis as well, or miners like CDE or HL for amplification, though I’m not in now. The more sure part of the cycle is the up, and the market is really acting screwy so I demure. Maybe next month.
5% on savings earmarked for a down payment in 2010 is not economic suicide if house prices are falling in nominal terms. I simply don’t trust the stock market, when up is the new down and markets are reacting to news that comes out 3 days later.
Personally, I just wish I knew the best way to hedge against the US Dollar (besides gold, thanks GS). Like currencies in economies that don’t rely on exports to the US. Sadly, I’m too crippled by uncertainty to do anything worthwhile, and the savings account just keeps growing.
“Sadly, I’m too crippled by uncertainty to do anything worthwhile, and the savings account just keeps growing.”
Have you looked at Norwegian krona? They have an export-based economy (oil and fish) with a trade surplus — not a bad combination when the world is awash in a sea of fiat money printed in some cases by nations running large trade deficits (not to mention any names…).
Nice try, but how many new Lennar homes have been built in LA?
Hm, just checked Lennar’s website, almost all those houses are in Valencia or Castaic. No westside uber elite there, sorry.
What about?
HELOCywood
MEWrina del ray
2 bedroom condos or townhomes “starting” at 7-800K? Doesn’t sound like Lennar is hurting too badly there.
I do not appreciate the skewed timeline.. makes it look like this will fall off a cliff.
New Paradigm event should be centered in the 14 year total.
The graphic was pulled off the following brilliant post in the Irvine Housing Blog (who, in turn, got the graph from Jean-Paul Rodrigue, a professor at Hofstra):
http://tinyurl.com/38omop
Check out the post; it’s really good.
yeah..good article.
Now i understand why the graph timeline appeared skewed: The author of the graph is not the same person who assigned specific dates to the various data points.
Who also happens to be a regular reader of this blog…
Hmmmn, a poster with the username “ecojpr” referring to an Economist with the name Jean-Paul Rodrigue.
Glad to see you’re a regular reader; your graph is getting play all over the place; I’ve seen it now on four different boards.
Was the graph part of another, larger work, a paper by any chance? How did the Irvine Housing Blog find it?
FBI raid on Countrywide?
http://tinyurl.com/32doez
“One market rumor had the FBI raiding offices of Calabasas-based mortgage giant Countrywide Financial Corp. The company called the reports “unfounded,” but its stock slid 2.6%.”
“– Countrywide Financial, the largest U.S. mortgage lender, saw its stock tumble amid vague market chatter that it was the target of a government investigation into sub-prime lending. One rumor hitting the newswires was that investigators were raiding Countrywide’s offices.”
“In an e-mailed statement the company said: “Countrywide has become aware of reports today that federal investigators have raided one or more of our offices. We are unaware of any such activity taking place and at this time we believe these rumors to be unfounded.”"
“Countrywide’s stock dropped 96 cents, or 2.6%, to $36.31. It has fallen 12% since mid-May amid renewed worries about the outlook for the housing and mortgage sectors.”
I remember Hunter S. Thompson talking about small time politicians making accusations about their opponents. It doesn’t matter if they do or don’t f*@! pigs, you make them have to go on record that they are not pigf#@!ers. (of course in the case of CFC).
Weren’t a couple of former execs just convicted (or pled guilty) to charges of insider trading? Maybe the FBI is doing more “research?”
Found nothing at that link — maybe the story was pulled.
Saw this on craigslist last night. Most rediculous Ad I have sen yet. http://washingtondc.craigslist.org/nva/rfs/360881848.html
Someone in Northen Va trying to get out a contract on a new condo. The funny part is they are asking $620,000 for a 2BDR/2BA Condo with one parking spot that hasnt been built yet. I know the area and its near to some questionable streets. I emailed the lister asking if they made a typo. No response yet. If they were smart they would cut and run, forget the deposit. For $620,000 around here you can buy much nicer places (which are also overpriced).
1100 sqft for $620k!! Ouch! Now if that roof top garden were all yours and private, maybe so. But no, you’re basically paying for a nice apartment with granite countertops.
And at that price, they (or anyone fool enough to buy from them) won’t even come close to paying half the mortgage and costs if they end up having to rent it out. Ba news.
What were they thinking when they plunked down their deposit?? I wonder what their deposit is, come to think of it. The poor fools.
I live pretty close to these — the downside is that the building is nestled on Route 1 — a pretty busy thoroughfare — and that there is a LOT of new condo inventory coming online in Alexandria (as well as Arlington and the district).
I wonder if this seller was planning a pure speculation/flip deal, or if they actually were planning on living there. (There is no way they were buying it as an invest and hold deal — rents would not come anywhere near supporting monthly costs).
It’s fun to watch these places get completed and then see how many buyers immediately put them on the market.
“It’s fun to watch these places get completed and then see how many buyers immediately put them on the market.”
Went through that here in Florida. There are condo buildings that had close to 100% speculator/flipper purchasing. Many are still in the “denial” phase. Those who rent out generally are getting enough to pay taxes, insurance and condo fees IF they are lucky. Not a cent toward all that interest and depreciation.
Moin from Germany,
wanted to update something from the Lennar/Homebuilder call (via Minyanville)
And what about those sales incentives?
The company reported higher sales incentives offered to homebuyers of 9.6% in the first quarter of 2007, compared to 4.9% in 2006.
In this quarter the company reported sales incentives surged to $43,700 per home delivered, compared to “just” $24,700 per home delivered a year ago.
Incentives…
The tricky art of looking like you aren’t discounting the price, whilst giving away the equivilent of a showcase winner’s bounty, from “the price Is right”
I wonder why are the lenders so complacent? This bubble trully started as a liquidity glut. They have to be totally insensitive to the fact that they are giving away money they’re never going to see again, since the value of these incentives is essentially zero.
That is not your new incentivized in ground pool, it is a clever mirage…
They still don’t realize that with the deteriorating bond market they may actually have to HOLD (or take back) these loans. As long as they’re playing with OPM there’s no REASON for them to care.
Yup. That’s why automakers play the rebate game, instead of adjusting MSRP’s and “invoice” prices.
They do it to capture the moron who doesn’t mind paying MSRP.
Anyone have access to the entire Barron’s article below…?
$] It’s Not Just in Your Head: Housing is on its Rear - at Barron’s Online - 1 hour, 54 minutes ago
Perceptions aside, the reality of the housing market is even worse.
ANOTHER DAY, ANOTHER DOLLOP of bad news on the housing front.
New home sales resumed their decline in May; the slide in home prices continued; the SEC said it is investigating a dozen credit derivatives backed by subprime loans; a derivative index tracking subprime loans hovered around historic lows as delinquencies on the constituent mortgages rose; a major home builder reported a quarterly loss of nearly a quarter billion dollars, and shares of the biggest mortgage lender fell to a two-month low on rumors — later proven false — that the FBI had raided its headquarters.
Given all that, it …
• THE FULL BARRON’S ARTICLE IS ONLY AVAILABLE TO SUBSCRIBERS.
“THE FULL BARRON’S ARTICLE IS ONLY AVAILABLE TO SUBSCRIBERS.”
If you can wait a few days, sometimes you can get articles like this from one of the periodicals databases that your public library subscribes to. Sometimes you can even access them from home.
Correct.
For instance if you have a library account at the Sacramento Library, you can access a lot of it on-line. After about a week, or so. (Really good articles are still valid after that time. Should be a no-brainer, but is not so obvious these days…).
As promised, graphs on the
1) Median New Home Price/CPI
2) Median New Home Price/Median Wage
3) Median Wage/CPI
Both with ratios and normalized to year of data first available, along with the following (normalized only)
4) Median New Home Price Per Square Foot/CPI
Made a cheesy one-entry only blog for this:
http://theendofandanada.blogspot.com/
I think the graphs help to explain things - The difference between price/wage and price/cpi shows how the affordability issues well. What I learned from the graph was how the cost per square foot/cpi has not gone up that much. That indicates to me that much of the affordability problem in new homes comes from the houses being much larger than they need to be.
Thus, the problem is more of a suitability problem than an affordability problem. Speculators and foolish would-be homeowners are buying more than they can afford, and much more than most people need. The market should clean them out pretty efficiently, given time.
The sq ft of new homes might be a result of McMansions. But existing homes have also jumped in price (over 200% here in Queens, NY) So the price/sq.ft. is much higher.
I think that stat from new homes has to do with the numbers from the very, very big homes skewing the math.
Good stuff. Thanks! I think the price/sqft trend masks deflation in the building materials and labor costs over time. Would be interesting to check the trends for those two items if anyone has the data.
Thanks for the positive results. I’ve pulled in construction worker average weekly wages and lumber costs, and am in the process of doing a few comparisons to see what is interesting. Will also toss in a few fun construction item prices such as the price of cement and bathroom fixtures.
Thanks again for the encouragement and commentary: as I mentioned before, take from the graphs what you will.
Thanks again to all of you at the Housing Bubble Blog, and espically Ben. In a world without Ben, I’d be in a world of hurt. A special thanks to Ben for allowing me to post my link, and check back tomorrow or Friday for the link on the Bits Bucket (will be at my same blog address) for the construction labor and material cost relationship charts.
Very good stuff. Thanks for posting it.
Looks to me like the long-term trend is driven my square footage: for whatever reason, people these days are more willing to spend a larger chunk of their income for more house.
Having said that, there is definitely a local uptick in prices from 2002-now.
Wonder if someone could do a regession analysis to pull out the different factors, and perhaps break it down into different metro areas?
My take is that price to wages implies price levels at bottoms (1991 and 2001 - pre rate cut) are about 20 - 25 % lower than todays level……volume preceeds price…….volumes are down, price are sticky but trickling lower……my sense is that in 18-36 months I can expect to buy at 20 - 25 % lower price…..maybe lower with foreclosure scenarios…….thank you for your diligent work…….Sideliner.
Kiyosaki’s post on yahoo yesterday had the following quote regarding the Chinese:
“They’ve never trusted banks, but have always trusted gold. Maybe it’s time we started doing the same.”
The entire article was purged (maybe just on my computer?). This is the kind of thing that drives goldbugs crazy.
http://finance.yahoo.com/expert/article/richricher/37414
and gold tanked= bob kamikazi
exactly when did he say to sell housing ?
gold tanked? Last time I checked it was $641 per ounce, below the $732 price of May 2006, but still up from $609 per ounce in early January. Tanked?
You don’t consider a 12% drop “tanked”?
I guess that would depend on when you bought in.
Nope. 12% is not “tanked.” Try 30%.
When you’ve been waiting years for the desired result…
A paper cut or 2 does no damage.
it’s back.
Interesting, it disappeared yesterdayon a screen refresh, and back today. Wondering if HBB’ers crashed a Yahoo server for a bit.
This may be why yahoo is loosing market share to everyone.
Can someone tell me why Philadelphia, the nation’s 6th largest city, is always ignored in the “top 20 markets” lists?
I’m feeling unloved here. Also I have to contend with real estate people who loudly tout “no news is good news” and “Philadelphia is different because we’re the 6th borough.”
I noticed Houston, 4th largest, also was missing.
“Yes, I’d like to see Paris before I die. (pause) Philadelphia will do.”
William Claude Dukenfield
Wow, we are looking ripe for a market crash.
IMHO, If you’re still in the market you’re playing with fire. All the signs are there. The market is looking positively terrifying right now.
It’s truly amazing to me how this Bear Stearns fiasco is being swept under the carpet like it’s ‘no big deal’. It’s an *extremely* big deal. It’s the biggest bailout in a decade. It’s also hilarious how the media is saying “the fund almost went under”. LOL. It *did* go under, except Bear Stearns bailed it out. What’s the difference? BILLIONS were still lost on a mortgage backed security play. There are hundreds of similar funds out there. This is just beginning. Think every bank will bail out their foolhardy investors? Think again. This is u.g.l.y.
I’m watching the markets like a hawk right now… I smell crash.
Came across this yesterday, and found it hilarious. Scroll down for “Homeownership: The American Dream.”
http://tinyurl.com/32du2os
Wonder if they’ve thought about changing it to “The American Right”?
http://money.cnn.com/2007/06/26/real_estate/appraisal_fraud/index.htm?postversion=2007062616
All appraisals should be ordered out of a state agency clearinghouse for all home loans. The buyer, broker, lender, and seller should not have access to appraiser. It is the only way to clean up this “hit the target number” appraisal mess.
Shares underwater, Blackstone CEO cancels. Bwahaha…
” Chairman and CEO Stephen Schwarzman will not speak at a Wall Street conference as scheduled on Wednesday. Schwarzman was slated to speak in a question-and-answer session at a conference sponsored by The Wall Street Journal, but will not attend, organizers said. No reason was immediately given. Shares of Blackstone closed at $30.75 on Tuesday. ”
http://www.marketwatch.com/news/story/blackstones-schwarzman-cancels-wall-street/story.aspx?guid=%7BD6B21287%2D847E%2D4759%2D8C98%2D5751B7F0FF72%7D
ask me no questions, i’ll tell you no lies…
Lots of unsettling news on money dot cnn dot com this morning:
Stocks Stumble at the Start
Durable goods orders sink more than expected
PIMCO’s Gross: Subprime crisis not ‘isolated’
U.S. Foodservice yanks financing | Buyout bust?
Attack of the mutant rice
Blackstone pulls out of $16.7B supermarket bid
YIKES!! is it time to head for the hills yet??
“PIMCO’s Gross: Subprime crisis not ‘isolated’”
Of course it’s not isolated; rather it’s ‘contained’!
I heard a lot of doom ‘n’ gloom on Nightly Business Report last night. Was at the gym, and had quite a dialog going with the teevee until some other people came in.
Since I’d gotten to the gym first, the teevee stayed tuned to PBS. The other people were clearly uncomfortable with my choice of programming, but too bad. I think it’s time for people to wake up and take charge of their own financial education, and if a little force-feeding of NBR is what it takes, so be it.
As we’re finding out during the end of this latest bubble, the financial industry certainly is NOT going to look out for our best interests. We have to do that ourselves.
See, just like Paulson said, the economy is strong, no worries.
“Demand for U.S.-made investment goods dropped 3% in May, halting a brief rebound in businesses’ capital spending, the Commerce Department reported Wednesday.
Orders for all durable goods fell 2.8% in May, led by a hefty 22.7% drop in orders for civilian aircraft. Orders for all sorts of durable goods were weak in May. Only electronic and defense goods recorded an increase.
The 2.8% drop in total orders was weaker than the 1.7% decline expected by economists surveyed by MarketWatch. It was the biggest drop in orders since January.
http://www.marketwatch.com/news/story/demand-business-investment-goods-falls/story.aspx?guid=%7B7A072527%2D0328%2D407A%2DA155%2DA7DAAC97F040%7D
Yet another mortgage fraud story…
http://www.nj.com/starledger/stories/index.ssf?/base/news-2/1182918778307490.xml&coll=1
Clusters of foreclosures can destabilize fragile neighborhoods - the vacant houses can attract squatters, drug dealers and scavengers - and send them on downward spirals.
As long as prices were quickly appreciating up, many of these problems didn’t surface but with the housing slump, they’re bubbling up.
I love how it it’s only a housing slump yet the problems bubble up!
Gonna need lots of popcorn!
If the banks won’t sell the REO’s then how can stability begin? The banks are playing a game with earnings and write-offs while collecting REOs. Somebody is going to cut and run pretty soon I suspect.
I can hardly wait for the day when the collective conciousness of the masses finally figures out that they are going to get bent over and “case-shiller’d” to death!
Taking a long view of things, the current REO’s by the banks are the subprime junk that was unable to sell before. The real gems come out when the alt-a start defaulting. Those are the nicer houses in nicer areas that people related to the REIC bought counting on appreciation. Right now the junk is coming out, but generally it is not stuff that you want to hold unless you are thinking about subdividing it and renting it out by rooms, as that is what the neighborhood supports….
The real gems come out when the alt-a start defaulting.
Seeing increasing listings here at the L.A. beaches that are asking a 10-15% above, or even a little below selling price in 04-05. We’ve been wondering how much speculation has played a part in the $ run up here. This is beginning to be answered as the inventory is increasing. The current asking price uptick sometimes doesn’t even cover commissions. Is it all being bought and sold by the realtwhores themselves? If so, what evil collusion… well, I guess they’ll get theirs. We’re sure seeing fewer paper plates on cars around here.
some new stuff is hitting at 5-750/sq ft in so-redondo. i think the builders bought the land at the top and need these prices to make their targeted profit. I dont know how long Dick Hill from Vinyard Bank can wait for his money from all these guys.
“The real gems come out when the alt-a start defaulting.”
Pinch — I agree, if only based on instinct and deduction.
I think if you look at history, you will find many, many examples of situations where people made decisions based upon short-term concerns which turned out to be disasters over the medium- and long-term. The banks are doing this now. They (still) have a bellyfull of REOs and are not dumping them because they are desperately trying to get their remaining ARM loans refinanced into interest-only loans to stave off even more enormous defaults. They cannot get these refis accomplished if the property values drop much more, so they hang on to the REOs trying to stave off the inevitable. This should tell an inquiring mind two things: first, if the banks are willing to risk massive price-losses on the REOs they already have, then doesn’t it seem likely the looming ARM problem is much larger than one might have thought? If the potential losses from the ARM adjusts were less than the potential REO losses, they would have dumped the REO already. Second, as with most events which may have been similar in the past, doesn’t it seem likely that the lenders will fail at both tasks, thereby sustaining even greater losses than they might have if they picked one area to salvage and let the market adjust naturally?
Very good points KIA. My personal point of view as to why the banks dont just bite the bullet and let things play out is because: a) lots of the players on the mortgage and business banking side have no clue and jsut got there because of connections; b) greed in that all the upper execs are trying to make as much as they can because they know that the house of cards will crash soon.
My personal experience tells me that probably some of the banks that we think are strong, will probably fold before all is said and done, due to a lack of upper and middle mgt leadership.
The best path for management is to do exactly what they’re doing. Equity ownership is a call option on the firm, so if it fails by a lot it’s not better or worse than if it fails by a little. Silly to cut your bonus now (by taking a small loss), if you might be bailed out by stupidity, if there’s no recovery, you won’t be any worse off (and you can blame it on a lousy market when several of your competitors are also failing.
Chris, I agree with you on the intelligence thing. We really need to remember that most of the “smart” people on this blog are WAYYYY smarter than most people working in the banks.
I believe we’re seeing both denial in the form of wishing prices for REO and fear that marking them to market would cause share value to crash. Both those reasons will be deadly to many lenders, that’s why I make my bets by figuring out which lenders have the most to lose, especially when it comes to REO.
It’s a housing slump that won’t stop slumping.
The negative appreciation won’t stop improving.
“Would you like to roll your negative equity into your new house?” Tom’s realtor asked invertedly.
Stop it you guys…Uncle! …ROTFLMAO
Just like concrete, all that liquidity leads to alot of slumping.
I’ve seen this in Cleveland. The New York Times had an article about it. My grandmother lives near the woman profiled in the article, and the house next to her has been vacant for 2 years. My aunt lives in a nice part of Cleveland Heights, and at least 4 houses on her (short) street are vacant.
Subprime is contained. Oops, no, now it’s “reasonably contained”.
“Merrill Lynch & Co. CEO Stanley O’Neal said today in London that risks are “reasonably well contained” in the subprime mortgage market.
`There have been no clear signs it’s spilling over into other subsets of the bond market, the fixed-income market and the credit market,” said O’Neal, who was speaking at a conference organized by Euromoney Institutional Investors. “There are risks in some of the structures, in some of the complexities of CDOs, mortgage-backed securities and particularly prime brokerage, but there’s no clear sign that there’s contagion developing.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=a2WB90LK9zAY&refer=home
“I don’t think the heavy stuff is going to come down for a while” (probably a paraphrase, Bill Murray-Caddyshack)
Is subprime containment anything like wild fire containment? For example, by what percent is subprime currently contained? And what about that gale-force wind that threatens to rekindle the subprime conflagration?
National news
June 27, 2007, 8:18AM
More strong wind could drive Tahoe fire
By AMANDA FEHD Associated Press Writer
© 2007 The Associated Press
MEYERS, Calif. — Firefighters worried Wednesday about a threatened resurgence of the stiff wind that has stoked the turbulent wildfire near Lake Tahoe, where a flare-up a day earlier forced thousands more residents to flee.
…
At one point Tuesday, authorities said the danger to homes had diminished as the wind abated, but by Tuesday evening the blaze that started Sunday had charred more than 3,000 acres — about 4.7 square miles — and was only 44 percent contained, fire officials said.
Containment is not expected before next Tuesday, said Rich Hawkins, a Forest Service fire commander.
http://www.chron.com/disp/story.mpl/ap/nation/4924200.html
Mortgage Lender Implode-O-Meter is up to 89. I think I need to revise my “100″ date estimate (that’s fair right, I mean how often has the NAR changed their bottom/upswing estimate)… I think someone already chose Sept. 7th, so I’ll take Sept. 10th.
I’ll take Aug 10th.
I say August 9th.
I bid one cent Bob, I could not resist.
July 24 for me. A large number of earnings reports will have come in, stocks and market capitalization will have sagged, credit lines will have been called, and a major credit contraction will be well underway. In fact, I’d say sooner, but nothing much will happen over the week of July 4, then people will hold their breaths hoping that the 2q reports and earnings will somehow pull the bacon out of the fire. Once the writing is on the wall, then look out below.
“then people will hold their breaths hoping that the 2q reports and earnings”
Are you suggesting these earning reports are anything more than “pulp fiction” I thought the Enron fiasco would put an end to the notion that you can rely on any figures from the quarterly reports, but I guess the world forgives and forgets.
Of course not. They are like incantations, designed to awe and impress the ignorant. Sometimes they actually work. Sometimes… not so much.
Why not July 4th?
Happy Revoltionary Day…
Sept 11th…seems disaster likes company.
Crazy. This person needs to cut and run. I asked if the price was a typo (I know it wasnt), no response yet. $620,000 for an unbuilt 2BDR/2BA Condo…riight. Much other better stuff available around here.
You probably made the person realize what an idiot s/he is…..
Bubble Lit for Children:
Last night I stumbled across Leo Lionni’s fable “The Biggest House in the World.” Basically the tale of a snail with a McMansion of a shell. He eventually starves to death when the cabbage leaf he lives on is all eaten up. Everyone else is able to move to a new leaf except for him. Eventually his beautiful house crumbles too.
Interesting. Would-be authors should get a jump on the competition and start writing books with those kinds of lessons today. (Amazon says that book was reissued in 1973.)
Sorry If I posted something repeatedly guys. Its taking 20+ min for a post to show up so I then think it didnt work and I try agian.
Anything I need to know about posting on this blog (i.e. is it normal for it to take 20 min to show up?) Thanks.
5-10 mins for me
5 seconds to 8 hours for me.
If you are going to hit “add comment” a second time, make sure you haven’t changed a single character of your text. For me, at least, that generates a “Looks like you’re posting the same thing twice” message and that solves the problem. The only correlation I’ve noted is that the longer the text, the longer it takes to appear, all else being equal.
one you missed- maybe that p/e of 1400 worried you
let’s rock
http://finance.yahoo.com/q?s=GTRC
Ok I’m 100% in stable capital fund for a while. Wish I bailed when SP was 1550 but 1488 is still pretty high.
We’ll see what happens over the next few months.
This is a good article:
http://finance.yahoo.com/expert/article/richricher/37414
And so is this one:
http://www.johntreed.com/Kiyosaki.html
Subprime kingpins like Lehman Brothers are proud of their role in creating the biggest U.S. housing market disaster since the 1930s. Some people are above shame.
And by the way, how is the Congress’s effort to turn the FHA into a government-sponsored subprime lender coming along? Since subprime lending has been such a roaring success in the private sector, I guess it makes sense that the government should want to jump on the band wagon?
How Wall Street Stoked The Mortgage Meltdown
By Michael Hudson
Word Count: 2,829 | Companies Featured in This Article: Lehman Brothers Holdings, Bear Stearns
Twelve years ago, Lehman Brothers Holdings Inc. sent a vice president to California to check out First Alliance Mortgage Co. Lehman was thinking about tapping into First Alliance’s lucrative business of making “subprime” home loans to consumers with sketchy credit.
The vice president, Eric Hibbert, wrote a memo describing First Alliance as a financial “sweat shop” specializing in “high pressure sales for people who are in a weak state.” At First Alliance, he said, employees leave their “ethics at the door.”
&$#@$*!!!
The big Wall Street investment bank decided First Alliance wasn’t breaking any laws. Lehman went on to lend the mortgage company roughly $500 million and helped sell more than $700 million n bonds backed by First Alliance customers’ loans. But First Alliance later collapsed. Lehman landed in court, where a federal jury found the firm helped First Alliance defraud customers.
Today, Lehman is a prime example of how Wall Street’s money and expertise have helped transform subprime lending into a major force in the U.S. financial markets. Lehman said it is proud of its role in helping provide credit to customers who might otherwise have been unable to buy a home, and proud of the controls it has brought to a sometimes-unruly business.
Now, however, that business is in deep trouble, and some consumer advocates and policy makers are pointing the finger at Wall Street. Roughly 13% of subprime loans stand in or near foreclosure, bringing turmoil and sometimes eviction to tens of thousands of homeowners. Dozens of lenders have gone out of business. Bear Stearns Cos. is trying to bail out a hedge fund it manages that was hurt by subprime mortgage losses.
http://online.wsj.com/article/SB118288752469648903.html?mod=hpp_us_pageone
U.S. Subprime Mortgages: Boom and Bust; Politics and Regulation
By Alex J. Pollock
Posted: Wednesday, June 20, 2007
International Union for Housing Finance Newsletter (June 2007)
Publication Date: June 1, 2007
The great American house price inflation which opened the 21st century has topped out, and the unsustainable expansion of subprime mortgage credit which accompanied it has now shifted distinctly into reverse.
The subprime market is contracting sharply and rapidly, if belatedly. The subprime boom is over; the bust is here. Former enthusiasm has been replaced by large financial losses, the bankruptcy of subprime lenders, layoffs, accelerating defaults and foreclosures, fear, a liquidity squeeze–and of course political recriminations, some deserved, as well as proposals for increased regulation. Committees in both the US Senate and House of Representatives are holding hearings on the issue.
A single page of the April 23, 2007 issue of the trade publication, National Mortgage News, contained the following items:
• “Four of the top 25 subprime lenders have gone bust in the past four months”
• “Several others are trying to sell themselves to avoid liquidity crunches”
• Subprime lending volume in 2007 is anticipated to fall to half of its 2005 peak
• A top subprime lender, WMC Mortgage, “last week laid off 50% of its workforce”
• Washington Mutual, by far the largest savings and loan, announced a $113 million loss in its home loan business for the first quarter of 2007 due to subprime problems
• Fremont General, another large subprime lender, announced a $100 million loss on the sale of subprime loans
• Fraud in the mortgage industry is “skyrocketing”
• The Senate Banking Committee leadership “ruled out any government bailout for delinquent subprime borrowers”
…
Another idea discussed in Congress and elsewhere is the possibility of some kind of government fund to refinance defaulted subprime mortgages. The Federal Housing Agency (FHA) is often suggested in this context, although it is a credit insurer, not a mortgage investor. Moreover, the FHA’s own delinquency rate is at the same level as the subprime sector, which suggests that loosening its credit standards further is probably not a good idea. Naturally, no one wants to bail out subprime lenders and investors, who should be on their own for whatever losses are in store.
http://www.aei.org/publications/filter.all,pubID.26376/pub_detail.asp
Sorry to be so disagreeable with a Wharton School professor’s opinion, but the idea of the using the FHA to fill the subprime sector’s shoes is a terrible one. There is no fairness whatsoever in putting the U.S. taxpayer on the hook for the financial disaster Wall Street subprime-lending kingpins have delivered.
Can FHA step in to fill subprime’s shoes?
Published Mon, 18 Jun 2007 12:00:00 GMT
Part 5 of 5: Upheaval in the subprime market
Jack Guttentag
Inman News
(This is Part 5 of a five-part series. See Part 1, Part 2, Part 3 and Part 4.)
Previous articles in this series emphasized that the subprime market remains open for business, with more realistic underwriting rules than before the house-price bubble broke. Hopefully, ill-advised actions by government won’t shut it down before something better is in place.
The Federal Housing Administration, or FHA, is the only plausible substitute. But converting FHA into a viable substitute for the subprime market requires a number of far-reaching changes.
http://www.upstatehouse.com/rss-display.php?id=inmannews63559
FHA always was the place to go for 1st time home buyers who could not come up w/ 10-20% down but had solid credit & income. FHA should not be watered down to take poor credit & questionable income. It should stay pat and serve as the bottom rung of the ladder from which honest, hard working people who desire home ownership to reach for and pull themselves up.
The only “substitute” for sup-prime lending is renting, period!! It should not exist, its way too risky.
Beautifully stated, Joe!
FHA/VA always has and always should be a mechanism by which hard working, honest people with solid credit & income but who cannot muster 10-20% down & closing costs can avail themselves to for home ownership.
The only substitute for “sub-prime” is renting, as folks in the sub-prime zone do not have solid credit nor stable income.
SEC Probes CDOs and Bear Funds
By Kara Scannell and Siobhan Hughes in Washington and David Reilly in New York
Word Count: 604 | Companies Featured in This Article: Bear Stearns
The Securities and Exchange Commission has opened about a dozen investigations involving complex bundled financial products, as well as the related near-collapse of two Bear Stearns Cos. hedge funds that invested in the subprime-mortgage market.
Responding to a question at a House committee hearing, SEC Chairman Christopher Cox said the agency’s enforcement division has “about 12 investigations” involving collateralized debt obligations, or CDOs, and collateralized loan obligations, or CLOs. Such bundles of debt or loans, which are sold off in smaller segments, have become very popular in recent years and are core drivers behind the surge in leveraged buyouts.
http://online.wsj.com/article/SB118290219726149262.html?mod=home_whats_news_us
SEC Chairman Christopher Cox… is to the wealthy…what Gandhi was to the poor…forever useful.
I’m surprised we haven’t heard about any shareholder lawsuits yet. If Bear’s hedge funds were collecting their 2 and 20 share for management fees, while keeping assets marked way above any semblance of true market value, it seems like there should be some very pissed off shareholders somewhere.
(You can find a great chart detailing Wall Street’s subprime lending kingpins on wsj.com . Scroll down to where it says TODAY’S NEWSPAPER PAGE ONE. )
Building a Subprime Giant
Lehman Brothers has become one of Wall Street’s top banks in the subprime mortgage business since its first foray in the field a little more than a decade ago. (See related article.)
Top Subprime Underwriters
Leading performers by subprime mortgage-backed securities packaged and sold (dollars in billions)
I’m in the midwest and it’s differnet here. Yeah, no earthquakes, hurricanes, beaches or Winter SUN.
But between the stagnant market with record inventories, taxes. credit crunch and high holding costs of investment homes in the snowbelt, I’m betting a WHOLE lot of owners will SEE the LIGHT of REALITY before the 1st SNOWFLAKE ARRIVES.
Ho ho ho
“no earthquakes”
Until the next big one, at least…
http://en.wikipedia.org/wiki/New_Madrid_Earthquake
What do you mean no hurricanes?
Hurricane Audrey 1957 came up the Mississippi and flattened the midwest.
from NOAA
“The cyclone turned northeastward after landfall, becoming extratropical over northern Mississippi on June 28 and merging with another low over the Great Lakes the next day. The combined system was responsible for strong winds and heavy rains over portions of the eastern United States and Canada.”
And this hurricane also did a number on Louisiana. It was the Katrina of its day.
The midwest has the occassional nasty storms coming up from tornado alley , blizzards and some spring and summer flooding, but the current hurricane and earthquake risk isn’t quite as high as Tampa and San Francico today
What? San Francisco has an earthquake risk!
Ho ho ho
By Christmas… its going to suck.
This market requires fresh funds to be contributed every week. (Daily doesn’t matter so much…) But if there is a net pull out of funds from stocks, hedge funds, bonds, or real estate… sound the dive alarm.
Only commodities, due to Indian and Chinese demand, have a natural floor. Notice I didn’t say they won’t go down… just that due to wise infrastructure development, commodity markets have an inherent source of funds.
Of course if this gets really bad…
Got popcorn?
Neil
The PPT is doing a great job of keeping the stock market from taking a major dump this morning…
http://www.marketwatch.com/tools/marketsummary/
Repeat after me: there is no plunge protection team. Recognizing you have a problem is the first step toward recovery!
Put up or shut up.
http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm
http://www.archives.gov/federal-register/codification/executive-order/12631.html
http://en.wikipedia.org/wiki/Working_Group_on_Financial_Markets
http://en.wikipedia.org/wiki/Plunge_Protection_Team
http://www.treas.gov/press/releases/hp272.htm
From the wikipedia entry on the Plunge Protection Team:
Founded in 1988 after the 1987 stock market crash, it theoretically ensures the stability of the financial markets, prevents liquidity problems, and ensures that stock market hiccups do not cause bank runs. Some Wall Street bears believe that it buys stock index futures or uses other methods to help keep the American stock markets afloat.
Upon that suspicion, Plunge Protection Team or PPT for short, has become a catch phrase among those who warn about the danger of monetary inflation being used as a tool to more or less directly support stock market prices.
Disclaimer about the source of information put into the Wickipedia though…
Does this mean that you believe there is a PPT?
From that one link http://www.archives.gov/federal-register/codification/executive-order/12631.html
I now believe it. Thanks GS.
Does your disclaimer extend to the web sites of the Washington Post, the U.S. National Archives and the Treasury Department?
Washington Post, yes. Treasury dept. No. See my post right above yours (2 seconds earlier).
You … You … you’re serious, aren’t you? Look, using your own link to the Federal Register, the Working Group consists of the following:
1) the Secretary of the Treasury, or his designee;
(2) the Chairman of the Board of Governors of the Federal Reserve System, or his designee;
(3) the Chairman of the Securities and Exchange Commission, or his designee; and
(4) the Chairman of the Commodity Futures Trading Commission, or her designee.
Collectively, these folks can do exactly *nothing* about a stock market crash. They do not buy stocks. They do not sell stocks. They certainly do not suddenly dump federal money into the stock market whenever there is a problem. There. Is. No. Plunge. Protection. Team. There is a working group which is focused upon, and only permitted to work upon, “enhancing the integrity, efficiency, orderliness, and competitiveness of our Nation’s financial markets and maintaining investor confidence.” It does not say anything about intervening in the market nor does it provide any mechanism wherein they might actually do so. If they maintain investor confidence, they do so by helping to protect and preserve the integrity and efficiency of the market. A conclusion that they meddle with, interfere with, or resort to cash infusions to support the market is absolutely unfounded in reality.
The observable phenomenon of sudden retracements following sharp drops (wrongly attributed to a nonexistent PPT) is because of the widespread use of automated stock trading platforms used by every major trading house in existence. This is a purely private sector practice. It is based upon pseudo-rules established by market traders over many years. As long as everybody more or less adheres to those rules, everybody profits. Drops only go so far, then recover. Sudden spikes retrace to a point, and level out. This way, the big houses and major players all make a profit.
Now which, I ask you, is more sinister? An advisory group with no real-world clout or a banking cabal which uses its own rules and practices to assure itself of unending profits?
“Now which, I ask you, is more sinister? An advisory group with no real-world clout or a banking cabal which uses its own rules and practices to assure itself of unending profits?”
I would say the most sinister situation would be a Central Bank under the Executive Branch’s thumb, which secretly used stock market price manipulation as an instrument of monetizing the debt.
Is there financial intervention or not? Are you implying they can intervene only in currency markets?
(I vote for GS’s theory — absolutely there is manipulation, IMHO, & it’s very likely the players in the “Working Group” are involved.)
—————————-
“China came under increased pressure to revalue its currency on Wednesday as a bipartisan group of US senators introduced legislation designed to push the Bush administration towards a full-blown trade dispute with Beijing.”
“The bill requires the Treasury to co-ordinate with the Federal Reserve and other central banks to intervene in currency markets when the exchange rates of other countries have become distorted.”
http://www.ft.com/cms/s/38787b24-196d-11dc-99c5-000b5df10621.html
Sounds alot like the “organized Support” mechanism used by the private sector in an attempt to stave off the 1929 crash by concerted effort to buy up all the overvalued stock shares to set a “reasonable price”. The market always sets the price, its a force that can only be distorted in the short term, in the long term any organized support or PPT efforts is fruitless.
“in the long term any organized support or PPT efforts is fruitless.”
correct. And the PPT (President’s Working Group on Financial Markets) knows and understands this well.
Many misunderstand how to best manipulate a market. It is NOT best to constantly intervene and keep the market from falling. Instead, it is best to intervene intelligently and with leverage.
I guess it’s sort of like a pogo stick. The person on the pogo stick allows the pogo stick to push against resistance, and then exerts a short and massive push which catapults them upwards. Then later, they don’t fight falling down again… instead they allow themselves to fall until they hit resistance again… and then exert pressure at exactly the right time again, catapulting even higher… doing this, over time the pogo stick master can pogo up a hill… going up and down, but general trend strikingly higher.
if you get on a pogo stick, and continually try to jump up without allowing yourself to fall against resistance, you simply fall down.
In the same way, the PPT doesn’t need to constantly intervene with every dip. It’s not necessary. Instead, they can time (covertly) exactly when to intervene, and how…
in this case, why bother trying to bump up the equities market by direct buying, when you can simply increase money supply (so increased nominal equities market due to monetary inflation) and covertly bail out underperforming systemic-risk hedge funds.
If you read up on what happened to that organized support in 1929, you’ll see that after an initial intervention, they spiked the prices upward slightly, then all took short positions and profited from the crash thereafter.
“If you read up on what happened to that organized support in 1929, you’ll see that after an initial intervention, they spiked the prices upward slightly, then all took short positions and profited from the crash thereafter.”
I’m quite certain many hedges will do the same over the next few years. It’s in the bag.
“It is NOT best to constantly intervene and keep the market from falling. Instead, it is best to intervene intelligently and with leverage.”
This is indeed the case. But it is also inconsistent with Uncle Sam’s modus operandi. Why would they not intervene constantly if they had the means to do so?
GetStucco: Please identify all stock positions taken and held by the US government or the alleged PPT. I think most readers here would love to know where that kind of “safe” money was parking itself.
“Please identify all stock positions taken and held by the US government or the alleged PPT.”
I am not an insider, so I am not the one to document how their operation works. All I know is that the U.S. stock market always goes up, especially on days when fundamentals suggest it should tank. It is different now than it was pre-1988.
“Does this mean that you believe there is a PPT?”
Tweedy Bird: “it’s twrue, it’s twrue…I did see a ppt”
Granny: “Why do those nice gentlemen from the ppt need soooo much toilet paper?”
Porky the Pig: “ahhh….thaaaattts all folks!”
The PPT already did their work. They covertly helped Bear Stearns to bailout their hedge fund, restoring confidence. That’s now last week’s story… it’s “over”.
No need to do anything this morning… the market can easily handle a 2-5% intraday decline… in fact many are expecting it (including many bulls)
Now let’s see if the Bear bailout was enough. There are a lot of other hedgies and IBs out there with similar toxic waste
Clouseau, The PPT nor the NY Fed had assistance with the BS hedge fund. They NY Federal Reserve questioned the participants and I suspect the SEC questioned Bear about guaranteeing the fund out of its asset market account, but since the lenders are satisfied with the financial arrangement, the only ones that should be upset are the Bear Stearns shareholders since the arrangement knocks ~7% off Bears earnings for the year.
What puzzles me is that posters like KIA still question the existence of the PPT, despite a preponderance of supporting evidence.
See above. It is not a plunge protection team.
PPT recipe to make sure “stock market always goes up”:
1) Hammer gold.
2) Suppress evidence of inflation by focusing on core CPI.
3) Suppress l-t T-bond yields.
4) Supply ample liquidity to the stock market.
5) Shore up headline stock market indexes on the first sign of weakness.
6) Keep telling the world “Subprime is contained” until the prediction comes true.
“Supply ample liquidity to the stock market.”
Bugs: “How can you be broke…if you never run out of cash?”
Daffy: “I’m sooooooo… cornfused”
Just saw a 2 bedroom 2 bath 1400 - 1600 square foot condo for sale in my former neighborhood in central Phoenix. It was built in 2004, just when I moved into that area. It was never lived in. Yes, 3 years old and never lived in. $278,000 is the price tag. I’ll wait. It’s a good neighborhood and I think Phoenix prices will drop another 20%. Besides, the current price is more than 1/6 of my net worth, so out of my price range.
TxChick — Care to comment? (I am not versed in the technical analyst’s art of tea leave reading…)
————————————————————————————-
THE TECHNICAL INDICATOR
Unsettling chart pattern may be taking shape
Focus: Integrated Oil, WNR, HOC, JCG, ELN, EK, FMC, FTEK, PGIC
By Michael Ashbaugh, MarketWatch
Last Update: 11:39 AM ET Jun 26, 2007
http://tinyurl.com/39hbw2
16 tons and what do you get?
It is the safest of times, it is the riskiest of times…. What the Dickens is going on here? ~Denton Morrison
Pimco sees subprime impact on homes, consumers
Founder Gross expects the Fed to cut rates within the next six months
By Leslie Wines, MarketWatch
Last Update: 11:37 AM ET Jun 26, 2007
NEW YORK (MarketWatch) — Pimco Chief Investment Officer and founder Bill Gross Tuesday predicted that the subprime mortgage crisis’s impact will spread beyond the housing sector and prompt the Federal Reserve to cut rates to stir a flagging economy.
Gross, in an outlook for July posted on the Pimco Web site, said the mortgage-sector crisis will impact consumption and new home building over the next year to year and a half.
The crisis “may be just what the Fed has been looking for: easy credit becoming less easy, excessive liquidity returning to more rational levels.”
The bond guru predicted that the Fed will reduce the fed funds rate, which is now at 5.25%, over the next six months.
http://tinyurl.com/2tykj3
Bill Gross is out of control.
For over a year he forecast a FFR drop, which never happened.
He recently (within the last 1-2 weeks) capitulated and acknowledged that the Fed won’t drop rates. now he’s back to the “drop rates” theme again.
He’s one of the smartest guys out there… but his forecasts on the FFR are abysmal.
The Fed will do exactly as they have been doing. They are going to hold rates as long as humanly possible. Another drop and they risk an immediate 3rd major bubble (who knows where-probably in LBOs and Stock Market and Commodities) not to mention the collapse of the dollar. If they raise they are blamed for housing crash and forcing us into recession. If they hold, they can pretend to be hawkish while looking prudent.
Besides, are they going to drop rates while the Eurozone CBs are raising theirs and the dollar is at its weakest versus almost EVERY worldwide currency and gold? not to mention the price of oil? and when the Foreign CBs are purchasing less Treasurys?
I agree with Gross that the next Fed action will be a drop. But timing is difficult. it depends on HOW LONG the Fed and Govt can pretend that our economy is doing well.
“For over a year he forecast a FFR drop, which never happened.”
If he is persistent, destiny will prove his stopped-clock prediction to be correct.
Checked MINI Cooper prices again. They’re insane. If anything, they’ve gone up, despite the ‘07 remodel and greater supply.
It can’t be the gas mileage, because it really isn’t that great. And if you have trouble parking, the three-door Yaris is available new for less.
WTF, I want a MINI. Capitulate already!! *whine*
No, it is the fact that the dollar collapsed by 17% against the Euro and 21% against the Pound. Sorry, the Mini is a beautiful German engineered POS. If the Yen appreciates to parity, the Japanese imports will rise by ~30%. Welcome to dollar depreciation.
I need help with something. I’m supposed to go to a meeting tomorrow in Ohio to hear someone talk about county-wide instead of separate school districts. I know Florida and I think W Virginia have this system. From what I’ve heard it’s not very effective. How does it work and are the county-wide school systems effective? How does it help or hurt house prices? Thanks. I need armed with some stats.
Are they talking about implementing this statewide, or only in certain counties? I have family in Cleveland, and considering the wide range in school quality there, this would definitely not go over well in Cuyahoga county.
The Charlotte-Mecklenberg school system is talking about breaking up. Part of it has to do with Charlotte’s explosive growth. Race also plays a factor.
This is 3 counties on the PA line in Ohio. If this goes over, though, I’m sure it will spread throughout the state. But we have the same problem here. Rich communities, inner city schools, and smaller rural schools. I think they want one superintendent and one treasurer per county. My husband works for an inner city school and many nights at 10pm the superintendent calls here for him, and she’s still at the office. Don’t see how one superintendent and one treasurer could oversee 11 or 12 districts and keep all the finances separate, let alone report to 11 or 12 different boards. They want to keep separate boards for each district. Plus some districts have income tax for schools and some don’t, and every district has different millage.
With county wide districts your administration costs are much less. Think about one 75K administrator rather than several 60K administrators. Think about cost savings by larger book purchases.
Note that you can’t really compare effectiveness unless you look at standardized scores and other factors. House prices only come into play if they fund education through RE taxes. If they do it through lotteries, income tax, sales tax, etc. then there is little to no relationship.
As an aside - does anyone have any idea how real estate in Panama is doing?
I know a guy who was buying off-plan, telling me what I great deal it all is. He’s greedy..but I’m curious…is he right…is Panama still a real estate hotspot..?
Thanks….
Is this the norm for Vancouver?
http://vancouver.craigslist.org/rfs/361458887.html
http://realtytimes.com/rtcpages/20070627_treatbankrupt.htm
“Treat Bankruptcy Symptoms Early
Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), with its new counseling requirements and stiff rules helped reduce bankruptcies by 70 percent from a record high level in 2005.
Some of the decrease was due to the end of unusually high number of bankruptcies filed to beat the deadline on the newer, tougher rules, but some of the decrease also came from the counseling requirements.”
Some of the decrease… let me guess: a few percent? I think the new rules can take credit for the remaining 98%…
No wait, only 95%:
“AICCCA says of 400,000 consumers it counseled since the new law went into effect in October of 2005, more than 95 percent of them went on to file for bankruptcy.
That’s often because by the time consumers make it into counseling, their potential for bankruptcy already critical.
“If consumers recognized earlier the warning signs of serious financial problems, they would have more choices for a successful solution,” said David Jones, president, AICCCA.” ”
Why spend all that effort on counseling? Why not just let prospective buyers watch the SNL skit “Don’t buy stuff you can’t afford”.
advising others: “Don’t buy stuff you can’t afford”
Pinko communist throw-back!
Brought to you “buy”:
Neil’s “All American Buttered Debt Derivative” Popcorn!
munch munch munch…”buy” as much as you want…instant credit limit increases in 30 seconds, Call today! 1-800-ineeditnow
“China’s government unveiled plans Wednesday to inject US$200 billion into a company meant to invest part of its foreign reserves abroad, giving the first official sign of the size of what will be one of the world’s richest investment funds…..
Even before its formal launch, the fund made its first investment in May, committing US$3 billion to the initial public stock offering of US investment fund Blackstone Group LP.
The fund is expected to avoid politically sensitive deals by taking minority stakes in companies instead of pursuing corporate takeovers, an official involved in the Blackstone investment, Jesse Wang, told The Associated Press in May.
Chinese companies have been uneasy about foreign acquisitions since the uproar in 2005 over state-owned oil company CNOOC Ltd.’s attempt to acquire US oil and gas producer Unocal Corp. CNOOC dropped its bid after American critics said it might endanger energy security.
Financial analysts say the company also is expected to entrust money to other private equity funds or securities firms to invest in foreign stocks and other assets.
Chinese authorities say the investment company is modeled in part on Singapore’s state-owned Temasek Holdings, which invests in banks, real estate, shipping, energy and other industries in Singapore, India, China, South Korea and elsewhere.”
Blackstone has access to a lot of moneys now! Time to cover the shorts.
http://dealbook.blogs.nytimes.com/2007/06/27/despite-blackstone-dip-carlyle-still-ponders-going-public/
Looks like the smart money is getting out. Time to find the final bag-holders:
The Carlyle Group is apparently evaluating an option to go public, despite speculation that the private equity industry’s boom may be close to hitting a wall and the news that the Blackstone Group’s stock closed below its offering price Tuesday.
“The Blackstone I.P.O. was highly successful. We are certainly evaluating that option as well,” Jason Lee, Carlyle’s managing director and head of the group’s real-estate division in Asia, told Dow Jones Newswires on the sidelines of a real-estate conference in Singapore.
“Chinese inspectors have seized shipments of US-made orange pulp and dried apricots containing high levels of bacteria and preservatives, the government said Tuesday.
Local departments have been ordered “to strengthen quarantine and inspections on food imports from America,” according to a notice announcing the seizures posted on the Web site of the General Administration of Quality Supervision, Inspection and Quarantine, China’s main food safety monitor.
Importers have been asked to “make sure that food safety requirements are met in contracts when importing US food so that trade risks are lowered,” the notice said. “
Finally a war this administration has the mental capacity to run: A food fight! We throw rotten oranges, They shoot back with radiator-fluid toothpaste.
A Chinese take on the Goldilocks story
“…Moreover, one of the major drivers of consumption in developed economies has been the ability of households to finance consumption through credit, or debt. This is a dynamic that is simply not present in the Chinese economy. Whereas the US consumer is able to spend more than his or her income through the use of sophisticated credit markets, this institutional framework has not developed in China.
Even if it were available it is questionable how many households would actually avail themselves of debt. Chinese households save nearly 40 percent of their income, given the lack of a government-funded social security net. The creation of a deep social security net will take decades to develop and will largely have to be funded by higher personal tax payments.
China’s vast population will one day represent a vast consumer base. At this time, however, the number of people on incomes high enough to be able to afford anything other than subsistence spending is quite small. …”
http://tinyurl.com/2ulutq
Just how far down do you all think the stock market will go once this whole credit debacle collapses? And how will this play out? Will it be from a huge decline in corporate profits once consumers stop spending?
I am a new investor deciding whether to pull out my hard-earned money from the market when I see no reason for it to go up. I have a little over a quarter of my non-retirement funds in Vanguard S&P, large value and mid cap index funds which I put in at the end of 2006. The rest is in cash getting 5% and TIPS. I don’t anticipate needing the stock market money over the next year (I’m 26 and unmarried), but I will not be too thrilled at losing more than 20% of it especially if I saw it coming, with no chance for a rebound in the next couple years. Any advice would be very much appreciated.
There has been some excellent advice from many posters on this blog. The investments from many depend on how YOU think this market will behave. I am very pessimistic on the US for the next decade and have based my decisions on 2 things 1) I do not wish to make money - I just do not want to lose what I have made and 2) I believe that the world is undergoing massive inflation and the US will be caught in this spiraling inflation - my investments are (for the most part) out of the US. Others believe this will be a minor glitch - real estate aside - and that “Goldilocks” is fine with maybe a 10% stock market correction and dividends staying strong.
p.s. At 26 if the stock market sinks, you still have your job and your income is more stable (also lower) than those of us who are older and higher paid. You can easily find other jobs in case you lose your current one. We older ones have a harder time finding jobs because we demand higher pay. Employers are looking for more younger people because they are lower paid. You can weather the stock market cycles for the next 25 years or so. For us older types, we have to have money in cash (T-bills) on the side to fall back on in case we lose our jobs. It’s harder for 40-somethings on up to find a job than for someone your age.
Keep mostly in stocks but build up an emergency fund in cash.
oops! You double posted. The above 12:19:53 post was supposed to go below!
You might want to look into defensive types of mutual funds that hold not only stocks but also a mix of cash and bonds. My favorite one is T. Rowe Price Capital Appreciation ticker PRWCX. Right now they are holding about 20% cash with the stock portion stressing undervalued dividend paying stocks. This makes the fund less volitile during market turbulence. The 10 year return has been good too at a little better than 12 per cent annually.
You might want to focus on what experts like Yale finance professor Robert Shiller are doing with their money and discount the advice of the Bills in Phoenix of the world.
P.S. Like Hoz, Robert Shiller would advise you to diversify internationally. While Bill in Phoenix is right to think about using dollar cost averaging to diversify through time, anyone following his strategy would find they were inadequately diversified if U.S. Inc. hit an extended soft patch.
I think we really agree. I have large company stocks and they do business internationally. Their HQ’s just happen to be in the U.S.
Remember also alternative investments can/have been manipulated. The Hunt brothers and the silver manipulation is the one that comes quick to mind. I don’t mind manipulation like this “PPT” is doing. But if it is to generate wild market changes, as opposed to prevent economic catastrophe, then I don’t like it.
Just how far down do you all think the stock market will go once this whole credit debacle collapses? And how will this play out? Will it be from a huge decline in corporate profits once consumers stop spending?
I am a new investor deciding whether to pull out my hard-earned money from the market when I see no reason for it to go up. I have a little over a quarter of my non-retirement funds in Vanguard S&P, large value and mid cap index funds which I put in at the end of 2006. The rest is in cash getting 5% and TIPS. I don’t anticipate needing the stock market money over the next year (I’m 26 and unmarried), but I will not be too thrilled at losing more than 15-20% of it especially if I saw it coming, with no chance for a rebound in the next couple years. Any advice would be very much appreciated.
Rachel,
you put money in stock funds at the end of 2006. Also you say you are 26. The third statement bothers me, that you don’t anticipate needing the stock market money over the next year. An alarm goes off in my head. If you said over the next ten years, then okay.
But never ever should you invest in stocks if you need the entire principle (plus some gain geared to inflation and taxes) in the short term!
You are young enough to just not touch those equities AT ALL until you are at least 36.
Vanguard 500 Index fund is what I also invest in. Since inception in August of 1976 the annual rate of return in that fund has been 12.36%! That is huge! You have to be very patient.
You should have emergency cash for 3 to 6 months in T-bills or a money market fund.
Another word of advice: Many people on this board are much older than you. There are some who are using scary scenarios about Plunge Protection Team artificially propping up stocks. There is lots of talk about hedge funds. In reality, there are big corporations and mid cap corporations that have been doing well on earnings and have overseas business. I would not be alarmed by what they say. They have their own built in biases that they do not mention - like how many years left before they retire. The older ones would be the most negative on stocks. Naturally. I have 60% of my net worth in equities. If I was your age, I would have over 80% in equities.
“There are some who are using scary scenarios about Plunge Protection Team artificially propping up stocks.”
Are you suggesting that this is some kind of urban legend? Because it is not documented as such on the Urban Legends web page ( http://www.snopes.com ), possibly because there is documentary evidence that there is a PPT which is continuing to execute the Greenspan put policy in the wake of its creator’s retirement.
I’m talking history. The major indices increased in value an annualized 10% per year since 85 years ago. Combine that with economic freedom and man’s capacity to create wealth and you get (voila!) growth. Granted, there are manipulators, but there is real productivity gain out there. There are real profits in the long run.
Once again I encounter extremists. Just as extreme as a FB who bought 3 or more houses in 2003. But this time it’s applied in a negative fashion to all growth investments. Talk about throw the baby out with the bathwater!
The American way: extreme investing. All or nothing. Super size and so forth. And I thought you and I were laughing at stupid buyers in Real Estate. I’ll laugh at stupid sellers of all stocks because there are some government entities trying to prop up wall street.
And how do they prop up the rest of the markets in the world? Let’s talk Nikkei. Let’s talk Hang Seng!
Oh yes, I think we all better hide our money under the mattress because there is a Presidential executive order to “assist” the market to keep 1987 (and 1929) from happening again.
Rachel, don’t listen to the chicken littles.
“The major indices increased in value an annualized 10% per year since 85 years ago.”
Somewhat true, but when adjusted for inflation (as reported by the federal government) - it is a far different story showing an annual appreciation of 1.64%
“The plot of Real Dow since 1/24 is dramatically very far from being a steady trend. It is in fact replete with big increases and big decreases — the Real Dow value of 12.4 in 6/82 is less than that 56.6 yr earlier in 11/25 (see plot)!
The plot is judged dominated by three “big peaks”, each an all-time record high at the time: 31.6 in 9/29, 46.4 in 1/66, and 100 in 1/00. Each of the first two of these peak values was not again reached for nearly 30 yr (see plot). From 10/29 to “recovery” in 4/59, the Real Dow averaged 49% of the 31.6 in 9/29; from 2/66 to “recovery” in 11/95, the Real Dow averaged 60% of the 46.4 in 1/66.
It is really amazing how unindicative of the future both of these first two peak values were. The average of the Real Dow values from 10/29 to any later time has never reached the 31.6 value of the 9/29 peak! At 5/07, 77.7 yr post-peak, the average is 31.5 = 99.8% of 31.6. And the average of the Real Dow values from 2/66 to any later time has never reached the 46.4 value of the 1/66 peak! At 5/07, 41.3 yr post-peak, the average is 42.2 = 91.0% of 46.4.
Remember!
“The plot shows the history of the market price of a stocks-holding. For every timely trade one stocks-holder made, there was the other side of that trade … . The plot reflects the composite market price experience of all market participants = of the average stocks-holder.”….
“A Quantitation obtains the rate of increase +1.64%/yr compounded annually as the long-term past performance of the Real Dow.”
http://tinyurl.com/2nzt8q
Do your homework before spewing about growth rates that are bogus.
And by the way the appreciation of the Dow is less than 5.3% not taking into account inflation.
“Between Dec. 31, 1899, and Dec. 31, 1999, to give a really long-term example, the Dow rose from 66 to 11,497. (Guess what annual growth rate is required to produce this result; the surprising answer is at the end of this piece.)…
Here’s the answer to the question posed at the beginning of this piece: To get very specific, the Dow increased from 65.73 to 11,497.12 in the 20th century, and that amounts to a gain of 5.3 percent compounded annually. (Investors would also have received dividends, of course.) To achieve an equal rate of gain in the 21st century, the Dow will have to rise by Dec. 31, 2099, to — brace yourself — precisely 2,011,011.23. But I’m willing to settle for 2,000,000; six years into this century, the Dow has gained not at all.”
Mr Buffett also had a cautionary note in the above referenced item: Buying into the stock market funds also costs an average investor 1.25% per year.
Berkshire Hathaway’s 2005 annual report
Feb 28, 2006
http://tinyurl.com/ekelj
You might enjoy reading from pg 11 - 22; with particular emphasis on pgs 18 - 19
Hoz wrote:
Somewhat true, but when adjusted for inflation (as reported by the federal government) - it is a far different story showing an annual appreciation of 1.64%
Yes if you are referring to real estate. 7% if you are referring to stocks. The average annual inflation rate over 75 years has been 3% and stocks about 10% (large company). The real rate of return is 7% on large companies. Do it in an index fund. Follow the big indices and sit back.
Oh guess what? There is such thing as productivity gains, inventions, and the like. Some of you think only PPT is the reason for the stock boom between 1987 and 2007. Sheesh!
And some of us believe it was the great unleashing of credit in the early 80s that has caused the run-up in the stock market between 1982 and 2007.
As I said there are many good investment advice from many different people. If instead of investing in the Vanguard fund and had invested all in Berkshire Hathaway, the return is greater than 14%. Vanguard is decent but not spectacular. But neither fund did as well as as a straight investment in US Treasuries over the last 30 years. That there was an unprecedented run in Bonds and Stocks from 1981 on does not mean it will continue and Mr. Buffett predicted in 1999 that he could not envision a 4% return over the next 17 years. Since his famous prediction, the net annual return in the stock market over the last 7 years has been 0%. To achieve a 4% annual rate of return for the 17 years predicted would require an appreciation in the next 10 years of greater than 8.5%.
Since 2000 almost any investment in the US has lost money compared to dollar decline and inflation.
At your age, as Bill in Phoenix wrote, if you do not need the money soon, invest. Someway the US will muddle its way through this fiasco, it just may take a decade or two. But as opposed to Bill in Phoenix that is invested in the US, as the US becomes less and less economically important, you are going to be better off diversifying internationally.
Of my stock portfolio and stock mutual funds, 20% are international. However, a huge percentage of my equities are large caps which do business overseas.
Of my stock portfolio and stock mutual funds, 20% are international. However, a huge percentage of my equities are large caps which do business overseas.
Anyone with an 80% net equity position in 1929 would have gotten wiped out.
Who are you Stucco to argue with the resident dollar cost averaging genius, as he so often reminds us?
Be nice to GS, remember he doesn’t have a problem with meth anymore!
I will confess however that I am still skeptical of the PPT and based on my limited experience with the NY Federal Reserve, CFTC and the SEC - I have never seen untoward trading that was caused by an anonymous source. It does not mean that it does not occur, I just have never seen it. What PPT believers have to remember is that the George Soros’ of the world will jump on a position that is being artificially supported. The Bank of England learned that the hard way.
“What PPT believers have to remember is that the George Soros’ of the world will jump on a position that is being artificially supported.”
Have you noticed the thicket of hedges which has sprouted up in NE U.S. cities since the 1998 LTCM bailout? I would argue that many, many have jumped on the Greenspan put bandwagon.
The American Myth About Home Ownership
(A look back at the 1920s advertising of the NAR and a rant about today’s Exburbs and Suburbs)
http://rocktrueblood.blogspot.com/2007/06/american-myth-about-home-ownership.html
Love the article; you are so right on so many different aspects I won’t even begin to comment on them.
“Now be a good little consumer and go buy a house”
Nicely put - that is, after all, the greatest role anyone can really play anymore in this society - that of a consumer. We should all just keep putting our hard earned dollars into the hands of others - through interest, taxes, and bogus “investments”.
The American Myth About Home Ownership
(A look back at the 1920s advertising of the NAR and a rant about today’s Exburbs and Suburbs)
http://rocktrueblood.blogspot.com/2007/06/american-myth-about-home-ownership.html
When China steps in they stake giant steps.
“A $5-billion fund was launched yesterday to finance Chinese companies’ investment in Africa.
The China-Africa Development Fund (CADF) has drawn first-phase funding of $1 billion from China Development Bank (CDB), one of the three State-owned banks which finance policy-related projects.
The fund will rise to $3 billion in the second phase before finally reaching $5 billion, said Gao Jian, vice-president of CDB and chairman of the new fund.
The launch of the CADF, one of the measures promised by President Hu Jintao last year to support African development, was approved by the central government in March.
More investors may join the fund, Gao said. “The fund will invest in equities and bonds of Chinese enterprises and projects operating in Africa to help them access capital.”
People’s daily
http://tinyurl.com/2gzevp
Quick questions 2007 : What percentage of the world’s steel manufacturing is done in China? What percentage of the world’s steel manufacturing is done in the US?
Has anyone heard of Unique Realty? They have ads on Craigslist a lot for preforeclosures, etc.
Meanwhile… Venezuela nationalized the oil company holdings. ExxonMobil, ConocoPhilips, Petro-Canada all forced to pull out and abandon their investments. They say negotiations are ongoing, but how many divisions do they have?
http://www.ft.com/cms/s/776105b8-2417-11dc-8ee2-000b5df10621.html
True, but the difference is that the US oil companies pulled out in a legal maneuver to seize Venezuela assets in the US.
What do you call 99 CEO’s in orange jump suits?
A slow start…
http://biz.yahoo.com/ap/070627/adelphia_fraud.html?.v=7
“…Prosecutors at the trial said the Rigases had concealed nearly $2.3 billion in Adelphia debt from stockholders, making the company look good even though its finances had became dangerously overextended.
…They also accused the family of using the company as their personal ATM machine, withdrawing millions of dollars to buy everything from 100 pairs of bedroom slippers for Timothy Rigas to more than $3 million to produce a film by John Rigas’ daughter. Prosecutors said John Rigas used expensive jets to fly eggs, paper towels, and two Christmas trees to his daughter in New York.
…Its stock value was nearly entirely erased after the company disclosed its off-balance-sheet debt.
…They have asked the appeals court to reconsider the case, and also plan to ask the Supreme Court to intervene, but such requests are rarely granted.
From Investors Insights “What we Know Now”, which in this case could be renamed “what we all knew, deep down”:
http://www.investorsinsight.com/wwnk_print.aspx
“You’re bombarded with all those statistics that pour out of Washington, the ones that appear to show how unemployment and inflation are low, GDP is expanding, and so on. They may not square with your personal experience, but after all, the government pays a lot of people with fancy degrees a lot of money to carefully track economic statistics. So you figure the numbers must be somewhat accurate.
But now a man has come out of the woodwork who’s done the real math and properly crunched all the numbers. His conclusion: “If the numbers don’t seem real to the man in the street–they probably aren’t.”
Our new friend is Walter J. (John) Williams, with a B.A. in Economics and an M.B.A., both from Dartmouth. He serves as an economic consultant, both to private individuals and Fortune 500 companies.
“For more than 20 years,” he writes on his website (www.shadowstats.com), “I have been a private consulting economist and, out of necessity, had to become a specialist in government economic reporting.”
Has he ever. What Williams does (and few others bother to do) is read the fine print. The government, he notes in a recent interview with Kathryn Welling of the welling@weeden investment newsletter, “is very honest in terms of disclosing what it does. It always footnotes the changes and provides all the fine details.” It is in those details–no surprise–that the devil lies.
“What has happened over time,” Williams says, “is that the methodologies employed to create the widely followed series, such as [...] the GDP, the CPI, the employment numbers, all have had biases built into them that result in overstating economic growth and understating inflation.”
“Real unemployment right now–figured the way that the average person thinks of unemployment, meaning figured the way it was estimated back during the Great Depression–is running about 12%. Real CPI right now is running at about 8%. And the real GDP is probably in contraction. I venture that if you talked about those numbers now with the average person, they would say that they seem reasonable [...] my work shows that the economic perceptions of non-professionals actually have some real validity; there are in fact reasons for the disconnect between official statistics and what the populace is feeling.”
Consumer Price Index? Since Jimmy Carter, every administration has messed with it. In order to make it look decent, Alan Greenspan and Michael Boskin, former head of the Council of Economic Advisors, came up with the “substitution” concept. Williams: “The whole purpose of the CPI [was] to measure the change in the cost of a fixed basket of goods over time [...] What Boskin and Greenspan argued was, ‘We should allow for substitution because people can buy hamburger instead of steak when steak goes up.’ The problem is that if you allow substitutions, you aren’t measuring a constant standard of living. You’re measuring the cost of survival.”
An adjunct to substitution is “weighting,” adopted under Clinton, whereby the Bureau of Labor Statistics changed from a straightforward arithmetic to a reality-challenged geometric method, a move Williams calls “a pure mathematical game.” The gist of the change is this: now, if something goes up in price, it gets a lower weighting in the CPI, and vice versa. Voilà. Down comes inflation.
There’s also hedonics, which we covered in an earlier WWNK article. Simply summarized, this means that if a product is “improved,” then it is deemed to have come down in price, even if you’re paying more for it.
Gross Domestic Product? “If you adjust the real GDP numbers that the government releases for the myriad revisions and redefinitions that have been applied to the measure with increasing frequency since the mid-1980s, you find that there’s a happy overstatement of growth of about 3% on a year-over-year basis [...] it’s important to realize that if inflation is understated, then reported ‘real’ growth will be overstated.”
Yet “manipulations of the CPI [...] pale next to the impact of imputations in the GDP.” Talk about insidious. To the government, “[any] benefit a person receives has an imputed income component.” Thus, for example, if you’re a homeowner, forget that backbreaking monthly mortgage payment, you’re considered to be paying yourself rental income on your home! No kidding. It’s called “imputed interest income,” and it’s the fastest-growing segment of citizens’ personal income.
Not only does this phantom cash jack up GDP, it also inflates average household income, which is actually dropping. This we can all see in the explosion of personal debt because, as Williams says, “without growth in income you just can’t support growth in personal consumption on a healthy basis, so you do it on an unhealthy basis. You borrow money.”
“…What Boskin and Greenspan argued was, ‘We should allow for substitution because people can buy hamburger instead of steak when steak goes up.’
I guess the “folks” At Cape Cod (who might “they” be?)…”never ate squirrel”
Please don’t ask me what I think… Andrea Mitchell “ate”…I’m in withdrawals form a lack of a Sir Greenspent sound “bites”…pun intended!
Not criticizing Mr. Williams methodology or results, but the easiest way for mopes like me to come to the same conclusions is to look at the IMF’s annual report and see that the US percentage of world GDP drops every year. In 2000 it was 31%, it is now 28% and projections are for the US to produce less than 20% of world GDP in 7 years. It does not take a genius to recognize that 36% of the steel manufacturing in the world now comes out of China or roughly 6X what the US produces. The Federal Reserve now believes that optimum growth in the US is 2.5% and no longer 3% or higher. When adjusted by Mr. Williams’ (and the former government’s) calculations, the “true” US GDP has been negative for a decade. These numbers just happen to coincide with the IMF GDP releases.
“…A year ago, most economists said the potential economic growth rate was about 3 percent. It may now be 2.5 percent, according to Lehman Brothers Holdings Inc. and JPMorgan.
Recent papers by Fed economists imply that the central bank staff sees potential growth of about 2.5 percent a year, said Kasman’s colleague Michael Feroli. Feroli worked at the Fed from 2003 to 2005. ”
http://tinyurl.com/32qjk4
Bloomberg Economy
2.5% growth rate, rising inflation and a falling standard of living.
Oftentimes the truth is hidden in plain sight…
To think…not 1 gas station was “boycotted” when gas hit $3.59…I think people in the good old US of A…just don’t have what it takes to protest “dissent” anymore…or… if it requires actual participation…it’s to burdensome.
“…fuel rations spark anger, pump stations burn”
http://www.reuters.com/article/worldNews/idUSDAH72595420070627?pageNumber=1
“We are swimming in oil and all they do is just put pressure on people,” said taxi driver Hasan Mohammadi, 44. “I’m using my last drop of gasoline.”
Despite its huge energy reserves, Iran lacks refining capacity and must import about 40 percent of its gasoline,
Seeking to rein in soaring consumption and costly imports, the government on May 22 raised the liter price by 25 percent to 1,000 rials (11 U.S. cents) - still among the cheapest in the world - but rationing was delayed.
“…a step opposed by the government which fears this would stoke inflation, already at 17 percent.”
Motorists still faced long lines on Wednesday in a country where many see abundant and cheap fuel as a national right.
The United States, which is leading efforts to isolate Iran over its nuclear plans, has said Iran’s gasoline imports are a point of “leverage.”
America….”pay” attention to this “fact” …coming soon to all gas stations in your city:
“All drivers need electronic “smart” cards to buy fuel.”
How can you protest a law of nature - shortages when supply lines are disrupted by hurricanes? When Ghawar runs out are you going to carry a picket sign in front of the white house and say “unfair that we all used up our oil! Bwaaaaaaa!” ? Good grief! How can people protest natural law of supply and demand? It’s like being mad at reality.
Reality bites! Mature people realize that and don’t complain.
“Twilight in the Desert” by Matthew Simmons. No we are not swimming in oil. You would wish. Oh, you say they are making more oil?
“How can you protest a law of nature”…”It’s like being mad at reality”
Bill, your not just smart…you’re a prophet… you see things that are and ask…why not? Some folks, see things as they are …and ask… why?
“WASHINGTON (Reuters) - Insecurity, “malignant narcissism” and the need for adulation are driving Vice President Dick Cheney confrontation with the Democrats in United States, according to a new psychological profile.”
Just Kidding…
The real story:
http://www.reuters.com/article/worldNews/idUSN2635327020070627
“All Oil is local”
Bloomberg.com has a great piece on why the everyday person (even folks like me, whose eye glaze over at the mention of CDOs) should care about the Bear Stears debacle.
Potential homeowners should care. First-time buyers may have greater difficulty getting a mortgage, which means owners of starter homes may have trouble selling theirs, and so on up the food chain.
The man on the street should care. It gets tiresome reading primers on structured finance on the front page day after day when Paris Hilton is achieving new levels of self-awareness. The sooner newspapers can get back to what sells, the better.
http://www.larouchepub.com/other/2007/3426toxic_waste_banks.html
The Bear Stearn’s Crisis: Wall Street’s Toxic Waste.