Bits Bucket And Craigslist Finds For August 14, 2007
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David Walker has been sounding the alarm bell for years now. Of course the circus clowns in D.C. pay him no heed.
http://www.ft.com/cms/s/80fa0a2c-49ef-11dc-9ffe-0000779fd2ac.html
Drawing parallels with the end of the Roman empire, Mr Walker warned there were “striking similarities” between America’s current situation and the factors that brought down Rome, including “declining moral values and political civility at home, an over-confident and over-extended military in foreign lands and fiscal irresponsibility by the central government”.
Empires always fail and Americans are especially bad at running an empire.
Unlike the Romans or the British, Americans want all the benefits of empire without any of the work.
Unlike the Romans or the British, Americans want all the benefits of empire without any of the work.
Well put, Toast…
“Work” being defined as killing masses of people. We’ve got nothing on the Romans, or even the Brits, that way.
I believe that the USA should adopt a lower profile foreign policy and start worrying about making and producing stuff again. But all of this ‘neo-colonialism’ rhetoric is just a bunch of crapola spouted by socialists who are hostile to American capitalism in any form.
American capitalism IS socialism. It certainly ain’t laissez-faire.
Emprire without tears.
I was lucky enough to take a class by Warren Cohen.
This brings to mind one of Robert Ringer’s books. “How you can find Happiness During the Collapse of Western Civilization”
http://www.amazon.com/Happiness-During-Collapse-Western-Civilization/dp/0068596065/ref=sr_1_10/104-0174318-2866347?ie=UTF8&s=books&qid=1187103443&sr=1-10
Note it was written in 1983.
Gloom and doom was postponed. Doom books are nothing new to the constantly depressed.
Were the ancient Romans depressed? Or the Mongols or the Turks? I have no idea, but in the end their empires did collapse. Postponed for how long Bill?
Note it was written in 1983.
I’d say it started a little earlier than this, probably in the 60’s or so (moral decline allows for political and economic decline).
Rome didn’t fall in a day, it took a few hundred years. Gloom and doom will only get more popular, so capitalize and write a book!
Yawn. Another goof who knows nothing about the Roman Empire making dubious parallels. The western half of the Roman Empire was crushed in the 5th Century AD by endless waves of nomadic Germanic barbarians. At no period in its history could the Roman state likely have survived such an onslaught, and there was nothing particularly fiscally or socially unhealthy about the Western Empire at the end. The eastern half of the empire thrived until the 12th Century and survived until 1453.
The U.S. is NOT an empire, but a bumbling superstate. If we were an empire on the model of Rome, the small surviving populations in our new Middle Eastern oil colonies would be busy toiling away in the oil fields for our benefit.
To extend ChrisO’s comments, I believe that the US is a Republic, not an empire. Correct?
We haven’t been a republic for decades. If you want to know whether we are an empire, ask someone in a country whose despotic tyrant we support, at least until we depose them.
Thank you. It’s nice when the facts trump rhetoric…as we have all seen over the last month or so.
Oh, and BTW, I am not “socialist” (whatever that might mean anymore,) nor am I a supporter of capitalist colonialism abetted by military force. Perhaps we should strive to avoid making silly generalizations in public?
Perhaps I was a bit rash in my other comment, but I have noticed that many of the ‘neo-colonialism’ types seem to espouse collectivist theories and throw loving gazes at lefty tyrants.
That said, one of the little known aspects of the British Empire was how much of an economic failure it was. Britain did not become an economic powerhouse by conquering foreign territories, the way Rome did, but by developing native industries that were fostered by legal reforms that ended the feudal system by and technological breakthroughs. Britain’s empire was largely a product of its economic prowess, not a cause of it. Britain acquired sources of raw materials, especially cotton, from its colonies, but the cost in blood and money to do that was so high that it would have been cheaper for the Brits to just buy the materials from the native inhabitants.
The British Empire was basically a subsidy for the aristocracy, who were allowed to go around the world playing conquerer and rajah, and to own monopoly sources of raw material to sell to British industry. Who paid the taxes to support the Redcoats necessary to maintain this empire? Not the rich (at least until the 20th Century), but the “lesser sorts.” In effect, the Empire was a form of welfare payment from the lower and middle classes to the very rich.
Bottom line: Britain would be an economic powerhouse today if it hadn’t embarked on its imperial adventure.
Partially true. Rome also collapsed economically from within due to excessive taxation, massive debasement of currencies, and a sprawling oppressive state.
Hmm, why does that ring a bell?
They not only pay Mr. Walker no heed, they work to create the illusion that everything is “just fine.” Here is what John Crudele of the New York Post said in his article:
“The President’s Working Group has been nicknamed the Plunge Protection Team. And that organization’s antics crossed a lot of Wall Street people’s minds on Aug. 1 - a week ago yesterday - when the Dow Jones industrial average made a suspicious 150-point gain in the final 20 minutes of trading.
To refresh your memory, the stock market had been getting drubbed in the days before that rally mainly because of worries over subprime mortgage delinquencies and the effect these problems would have on Wall Street and the economy as a whole.
The day after the mysterious 150-point gain, The Wall Street Journal - which is soon to be the kin of this newspaper - headlined the Dow’s rise as “out of nowhere.”
“Wall Street traders and analysts couldn’t cite a specific catalyst for the quick rally, although a wave of pre-placed electronic orders to buy and an earlier pullback in crude oil prices seemed to help,” the paper said.
Sure enough, those electronic orders first came from Goldman Sachs (where Treasury Secretary Hank Paulson had been chairman) and was quickly followed by orders to buy stock index futures contracts from Merrill Lynch, Deutsche Bank and Citigroup.
That’s what you’d call a concerted effort - like what the President’s Working Group (aka the Plunge Protectors) would do. “
“I know how much people care about housing. But I would be quite hopeful that through 401(k) plans, pension plans, and elsewhere that the average American is feeling an uplift from the appreciation of the equity market that would be very offsetting to any potential decline in housing.”
- Hank Paulson, Nov. 2006
I would be hopeful too, if I didn’t believe (and hear) that individuals were raiding their retirement portfolios to get into real estate. I think sheeple saw real estate as creating an instant million-dollar retirement portfolio and were willing to bet all of their money on a “sure thing”. I really believe that the home was the last piece of significant assets “owned” by most Americans. Now that a good chunk of that is gone and with no other significant assets, we are riding a slow moving train headed for the precipice.
That’s what my landlord did
That’s what my landlord did
That’s what my in-laws did, too.
My real estate agent in 2005 (all retirement gone) and my neighbor.
That’s what my old ll did. She’s sitting on 4 houses she bought within 6 months in late ‘05.
Albanian Pyramid Scheme-American Pyramid Scheme
http://www.imf.org/external/pubs/ft/fandd/2000/03/jarvis.htm
That’s what my LL did too.
“HEY, HANK, LET’S SIT DOWN AND CHAT ABOUT THINGS
By JOHN CRUDELE
August 9, 2007 — THERE’S news in my fight to get secret information from the U.S. Treasury Department.
Hold onto your seats.
Last week, the Treasury acknowledged that it got my latest letter. Yep, that’s it.
It only took a month and a half to process this extraordinary bit of news but the Treasury - the folks with whom we entrust the nation’s bank accounts - now acknowledges that its mail system works (though not so well.)
Well, break out the Cristal. And throw some dogs on the grill (and no, I don’t mean that in a Michael Vick way). We’re gonna have a party, ’cause the Treasury is alive and barely functioning.
In case you are wondering what has got me so “Cramered-up” - translation: irrationally giddy and morose at the same time - it’s the fact that more than a year ago The Post requested some very specific details about an organization called the President’s Working Group on Financial Markets.
This covert group operates out of the Treasury, which wants people to know that it exists but doesn’t want us to know much more.
Granted, this is very delicate stuff because I suspect this organization - hidden in plain sight inside the Treasury - is the fixer in times of financial crisis. And that’s okay with me, except that I believe any organization with such extraordinary powers needs to be monitored.
The President’s Working Group has been nicknamed the Plunge Protection Team. And that organization’s antics crossed a lot of Wall Street people’s minds on Aug. 1 - a week ago yesterday - when the Dow Jones industrial average made a suspicious 150-point gain in the final 20 minutes of trading.”
http://www.nypost.com/seven/08092007/business/hey__hank__lets_sit_down_and_chat_about_things_business_john_crudele.htm
Oh, Keeriiist. Here we go again. There is no Plunge Protection Team. The President’s Working Group is advisory in nature and has no budget to buy or sell anything on the open market.
Simple market principles and trading tactics can explain low-volume price swings. Say, for example, that you are one of the big traders. Say you wanted to rake in some profits by taking short positions because you expect certain stocks to take a big fall next week. This week, they’re already falling, but there are two problems with that: 1) you can’t short unless the stock ticks upward at least once; and 2) you want to maximize your return on a short. The solution is simple. You take a huge sum of cash, say, from a Fed repo agreement, for which you offer collateral of a bunch of over-valued garbage, then dump that huge sum of cash into purchase of a basket of X, Y and Z stocks in lots of 5,000 to 10,000 recurring over and over again until the price not only stabilizes, but begins to rise again. This leads others to think that there is a recovery or some unusual interest in X, Y and Z stocks, so they pile on the train in an attempt to realize some profits in an otherwise down market. Once those stocks have been pumped to a sufficiently high price, however, you, as mega-corp, go short with everything you have, dump your holdings (incidentally making some money from the earliest prices), and X, Y and Z free-fall. Next week, after the expected fall occurs, you cash in again for even more profits.
There is nothing in the foregoing scenario other than a more elaborate pump-and-dump by a big-money private player. No PPT, no secret cabal of interventionists. While the charts look like the market is having an irrational moment, it’s actually being manipulated in a very rational fashion.
isn’t this scheme illegal? something like stock manipulation.
Thanks for your description of the PPT operations…
KIA,
No more “uptick rule” as of July 6th, IIRC.
http://usmarket.seekingalpha.com/article/44485
From moneycentral.msn.com, this is one of the problems with the market I think. See if you notice the contradiction.
http://moneycentral.msn.com/home.asp
“Wal-Mart posts higher profit
NEW YORK (Reuters) - Wal-Mart Stores Inc. , the world’s largest retailer, on Tuesday reported a lower-than-expected quarterly profit and cut its full-year earnings forecast, saying its customers remain under economic pressure.
8/14/2007 7:07 AM
I should comment I understand how it’s possible, it’s just very conflicting on the face of it. Sort of like yesterday how a headline said stocks rebounded yesterday and then in the article said they had a marginal loss of 3 points.
I’ve stopped trying to make sense of any of this. I’m thinking of the article that luvs_footie posted yesterday about the con game begun by the Fed and played by Wall Street and the banks. From here on out, I’ll snort with laughter anytime anyone talks about “free markets”. Rigged markets is what it is and anyone who talks about “free markets” is really talking about the “rights” that financial fraudsters want to steal money from taxpayers, to privatize the profits and socialize the losses. That’s why Cramer is in such a tizzy. Free markets, my patootie.
You’re absolutely right — the “free market” doesn’t exist.
(I would argue that it really CAN’T exist except on a small scale, but I don’t feel like typing all day.)
However, I also think the current market manipulations are in place to benefit the few at the expense of the many …
Up from last year’s “write off reduced” earnings.
Remember “pro forma earnings statements” that were so popular back in the .dot days? Sure, we lost $10 million, but if you ignore $12 million of the loss we made $2 million.
This is the opposite. THEY’RE UP, but only because we’re not ignoring the write off.
Continuing operations are down.
I think the real problem is that analysts always guide earnings lower so they can be beat. When the corp can’t beat the low ball estimates, it ain’t good.
Anecdotally, Wal-Mart used to have a regular store not far from me and it had been there for many years and did rather well, always full of customers. In April, they shut it down and moved operations to a “Super Center” further way. I had to go to the Super Center to pick up an international payment and you could swing an elephant by the tail and not hit anyone. It was like this huge cavern fulla crap. Like everyone else, Wal Mart had its own bubble and expanded way beyond what it should have, IMHO. I understand they locate their stores according to county development data within the states, so the laugh’s kind of on them, because I have a feeling they’ve relocated to a lot of ghost development areas.
Palmetto — wonder if, like city planners and the school boards they feed, Wal-Mart based their population estimates on just building permits. That could cause the over-capacity you describe, IMO.
The problem with Wall Mart is simple. They are spending a lot of money trying to break into the high profit “teen fashion” business. Lots of T-shirts with graphics, jokes, etc.
The fundamental problem is that teen fashion is about image and Wall Mart has the image of being cheap… where poor people shop… so NOT the image teens are interested in wearing.
Imagine showing up at high school in a Wall Mart shirt, and EVERYONE knows you got it at Wall Mart and starts calling you trailer trash. OMG!!!!
You can buy shoes and socks and other non-discript things at Wall Mart since there is no proof you got them there. But logo or graphic t-shirts, or other fashion that can be identified as from Wall Mart? No way!
NOrdstrom and neiman marcus know how to run a big luxury goods store where the stores are larger than wal marts
Wal Mart needs to stop competing with them and make a small mall based store or a series of mall based stores with different niches to break into the high end
That is a good point.
Maybe Wal-Mart can build up their high end clothing business slowly?
I’ve noticed that Wal-Mart has started carrying decent electronics lately. You can get an Ipod, a Sony TV, a Dell computer, etc. Wal-Mart used to carry only nameless junk, but today they have some pretty decent stuff. If the price is competitive, why wouldn’t someone buy their TV at Wal-Mart as opposed to someplace like Best Buy or Circuit City? I certainly would.
Also, maybe Wal-Mart can tailor its product mix to the demographics of each individual store. Macy’s seems to be really, really good at this. My wife shops at two different Macy’s, one in a rich neighborhood and another in a neighborhood largely populated by working-class immigrants. The inventory carried by each store is almost completely different. The Macy’s in the rich neighborhood carries all sorts of high-end clothing, the one in the poor neighborhood carries mainly ghetto fashions. Only the cosmetics are the same. The two Macy’s are only six or seven miles apart but they are essentially two different stores. Maybe Wal-Mart could do something similar?
Anyway, I’m sure this Retailing 101 stuff is not news to Wal-Mart, I’m sure they’ve undoubtedly considered all of the above ideas and many, many more.
It will be interested to see if Wal-Mart has anticipated the forthcoming bubble blight. Here in CA, many of the LA new construction exurbs will deteriorate from generic lower-middle-class neighborhoods to section 8 slums once the foreclosures hit en masse, since all of the lower-middle-class current residents paid $500,000 for their houses. I bet a lot of retailers built stores with the current demographics in mind, but 5 years from now things will change a lot. Do they know this? It will be interesting to see.
Wal-Mart is not built on this model. Their model is to be homogeneous across all their locations. Their store managers have little to no say in planning or merchandising, and are merely relegated to hiring the cheapest nimwit to run a cash register who hopefully won’t rip the company off.
I worked in store mgmt for a while and some buyer would screw up and order backpacks and a couple pallets would show up in September after back to school, and we had to sell them, and take the hit on the store P&L statement, reducing bonuses for everyone because some buyer had to meet a quota.
Wal Mart is gearing up on electronics. They nosedived on clothing, with some stores way overbuying. My nephew was a district manager for them and this is what he told me. He switched to Sam’s because he said since a couple of the heirs have died the overall upper management is really screwed up. He said they keep hiring these overseeing companies to straighen everything out and when one doesn’t work they switch. As a result they have a screwed up mess. Sam’s, although under the same umbrella, is structured entirely different. Plus running 24 hours is ridiculous. He said it’s a lot of overhead with hardly any customers for about 8 hours of the night.
Atleast don’t try to compete under the walmart name brand, sorta like Target and marshall fields used to be. Same stuff different brand names.
I doubt Wal*Mart makes most of their profits off clothing. I readily admit I shop there because it is the most affordable place in town for everything from toiletries to food to other household items and more. No, my wardrobe doesn’t come from there, but a lot of other things in my life do. I personally think they’ll continue to do well once everyone’s budget tightens up sharply and people start realizing it’s the most economical place for most everyday items.
i used to shop walmart for toiletries and what not when i was in jersey, but if you go to target they have all the stuff i was buying at walmart and the prices are pretty close.
not to mention it is a much better enviorment to shop in
Our target is way more expensive than Walmarts. I couldn’t wait to get a Target in our area, and one finally came about 4 years ago. I bet I could count on one hand the number of times I’ve been in there. Prices are way out of sight. I might as well shop at the Mall.
Aren’t you worried about all the contaminated Chinese products that Wal-Mart will fob off on you? What about the low quality? Supporting our nation’s misguided policy toward off-shoring? The health care scandal?
IMHO, there’s more to a store than it’s prices.
Reminds me of a story about K-Mart. When they sold appliances, many consumers were skeptical to buy from them because neighbors would see the K-Mart trucks delivering to their homes. K-mart was forced to paint the trucks all white so their customers wouldn’t be embarrassed.
My ex-companies products sold out in one chain. In a significantly larger deal with K-Mart, however, we sold 7 of 25000 units in the first month (in 1250 or so stores, IIRC). Something suggests that perhaps the chapter 11 employees didn’t even bother to display our products. The resulting cash flow crisis was pretty much responsible for sinking our small company.
Like Eastcoaster, I also shop there for the toiletries other houshold goods. For a while I bought groceries there, but the quality seems to have slipped, plus I am concerned with who is picking fruit, etc. So now I buy groceries at Sprouts and WholeFoods. I have never been embarrassed to shop at WalMart, however, 6 yr old daughter is starting to really be influenced by the Scottsdale wannabee’s and is now giving such advice as: “dad you need a new car”, and two days ago “mom if you have a headache just take Advil” - so I am sure that she will soon figure out that we shouldn’t buy her underwear and shorts at WalMart but at Nordstrom or Children’s Place - where she gets most other clothes. It is tough to keep society from tainting your kid, but it is a battle I am still waging…
I have a friend who owns a pharmacy with her husband and is worth millions. She always told her kids you can buy 6 pieces of clothing at the mall for back to school or you can buy 15 pieces at Value City, take your pick. It’s all in what you allow your kids to get away with. It’s so wasteful to buy designer and expensive clothes for kids who are out of them the next season. Save money for college & retirement, pay down your mortgage, and instead give them security. They’re going to need it in this new economy coming up.
Thanks for the advice. I keep reminding myself that most here are living on borrowed time and credit.
By the way, my daughter’s spending limit for clothes for the new school year was $200, which in our income level, I thought was very reasonable. Most of her stuff in closet still fits her.
Chrisusc:
Your daughter is 6, but she hasn’t grown out of last year’s clothes yet? Is she being fed?
Yes, once every day…LOL
Chris,
Not sure what you & your wife do for a living, but you might want to consider homeschooling.
One of our daughters just finished kindergarten last year, and we noticed a lot of undesirable traits once she started school (which abated every vacation, coincidentally).
We’ll be HS’ing our kids as long as possible, in an attempt to keep them family-centered instead of peer-centered.
Who knows???? It’s worth thinking about, though, IMHO.
Good luck!
Watch out with that home schooling. You really need to take this warning seriously.
Without the expertise of the teachers who’ve had training on education, your child will wind up loving to learn, reading far above grade level, and able to intellectually engage people in any age group.
Imagine, putting all that extra work in, and in the end, you only have a bright, well adjusted kid, full of the real self-esteem that comes from meeting challenges and succeeding (not the common prison type of self esteem). They’ll ask your real questions, and be able to call you on it when you try to BS them.
Too much parental meddling in the education of children only results in well-adjusted, competent little people. Do you really think we need to take such risks with the little building blocks of society?
Paul
Absolutely correct. Walmart is the AOL of retail.
That’s funny, because CNBC (same network) says
Wal-Mart Profit Falls Short of Expectations, Cuts Year Forecast
By CNBC.com | 14 Aug 2007 | 07:27 AM ET
Wal-Mart Stores Tuesday posted quarterly sales and profit that fell short of expectations, and lowered its earnings forecast, saying that customers remain under economic pressure.
http://www.cnbc.com/id/20257856
Yeah, read three different stories on WM and HD today and got three different takes - the MSM’s credibility is collapsing in tandem with the consumer economy. The way they make it sound, if everyone buys exclusively from WM, HD, and GM there will never ever be another recession again. Onwards and upwards!
Jeff from SDCIA raising funds?
http://tinyurl.com/2guy8t
Do you think that Jeff really was a manager at Taco bell? I figured he was a BS artist and smart ass.
Well, campers, what’s in store from Da Boyz today, do you think?
Today or tomorrow - another big plunge is my guess. But hey, what do I know? Nothing is connected to fundamentals anymore…
Following a failed rally, you get a succesful decline, eh?
I’m a believer in the price-earnings ratio. But which earnings? Last year’s earnings? Next year’s earnings?
How about typical earnings? And recent earnings have not been typical, especially in finance, and we are heading for below typical earnings. Once the write offs are done, I’ll settle for a PE of 12-14 on the S&P and a going-forward return of 7-8 percent. Til then, t-bills look good.
anyone have a p/e chart w yield of S&P vs 10 yr bond ?
the p/e 15 mantra is getting old
Good chart of P/E since 1920 showing peak in 1929, smaller but more robust peak in mid-60s, and bubble peak in 99-00. Although chart doesn’t go past ‘04, note the similarity between today and the early 70s.
http://www.investopedia.com/articles/technical/04/020404.asp
Since the stock market essentially reflects where the economy is predicted to be somewhere in the neighborhood of six months into the future, that’s where focus on P/E should be.
I like P/E, too. It tells plenty about the current state of things. Right now, S&P has a P/E of 14, which means it is not overvalued.
In fact, it’s very possibly oversold.
You should be careful when listening to brokers.
First, “forward PE” is bullcrap. Second, even PEs based on the past year’s earnings don’t predict future returns very well, because earnings are volatile. Past ten year’s earnings works pretty well, and based on that, stocks’ returns will be pretty poor over the next decade if you buy now. Recent earnings have been highly skewed by all the financial mumbo jumbo which is now in the process of falling apart.
Current P/E is 15-16, based on S&P in mid-1400s. Hard to say if that is cheap or expensive. As recently as the market bottom in August 1982, the P/E was 8, and those were not off strong earnings. (See chart referenced in my post just above - just toggle down one page.) If earnings falter, the P/E will likely hold steady or fall. Only earnings above expectations (like we’ve had the last couple years) can move market higher, IMO. There will be no magical P/E expansion from here.
Eudemon:
The only problem with P/E is that it assumes the “E” part of the equation is sustainable. In this case, corporate profits have been remarkable high over the last few years. My (completely unprofessional) analysis is that corporate profits have been inflated for the same reasons that real estate values have been inflated, and that’s all unwinding now. So a reasonable expectation is that E’s should go down, sending P/E’s up, which means P’s should go down to compensate.
The Aegis Mortgage Corporation, a subprime lender based in Houston, filed for bankruptcy protection yesterday, joining a growing list of companies hurt by investors’ unwillingness to finance home loans for borrowers with poor repayment histories.
http://tinyurl.com/yqj7q7
A co-worker has never been late with his mortgage payment to AHMI (now bk), but they let his last envelope languish until it was past the late date. Now they have leveled extra charges, and apparently he’s not alone. A service economy?
Do we need to use the Certified Mail now?
They should have to go by the same standards as the IRS. The postmark is the deciding factor.
I pay by automatic deduction from my checking account, and check right after the 1st to make sure it has gone through. That prevents this particular type of chicanery.
Comptroller: U.S. may follow ancient Rome’s folly:
http://www.ft.com/cms/s/80fa0a2c-49ef-11dc-9ffe-0000779fd2ac.html
And isn’t it kind brings home the fiddling point when all of the media blathers on about how important it is to examine and rehash what a good job Rove did of manipulating them and distracting them from reality, while all around, the problems Rove and co. sought to distract us from grow ever more threatening.
Need to get more coffee, sorry - “And doesn’t it kind of bring home the fiddling point”
REALLY need more coffee - blew right past wmbz’s link at top of post. Well, here is another to make up:
Thornburg downgraded to underperform:
http://www.streetinsider.com/Downgrades/Piper+Jaffray+Downgrades+Thornburg+Mortgage+(TMA)+to+Underperform/2873955.html
entertaining reading
http://www.safehaven.com/article-8176.htm
and if you check Yahoo finance or any other finance website, Home Depot just reported earnings on lower revenue
Nice crisp article about US banks’ derivatives exposure including quantifying the exposure for the top banks from CommonSense.
Looks like its high time to BAC up the truck for some puts…
“In the past few weeks we’ve all been ‘peppered’ with reports about CDO’s and growing contagion associated with sub-prime mortgages.
For clarity’s sake – everyone should first understand that these instruments are – for the most part – all broadly defined as OTC derivatives.
What now appears to be ‘systemic problems’ in the Financial System all began with revelations by Bear Stearns….”
http://www.financialsense.com/Market/daily/monday.htm
Wasn’t it derivatives that did in OC 13 years ago?
Is the PPT the Black Swan?
One thought that has been going through my head is that the hedge fund black box strategy which backfired (long subprime, cdo, etc. and short equities or US treasurys) is due to the “black box” not accounting for market interference by the PPT.
Statistically their hedges should have worked under “normal market” conditions however if the PPT is interfering with the market (as we have seen lately with liquidity injections) than obviously conditions are not “normal”. The hedgies were counting on falling equities or falling treasurys and this just has not been the case as we saw last week due to the liquidity injections. Obviously there are other factors at play and it doesn’t help the situation that everyone is executing from the same playbook simultanously but I keep coming back to the idea the PPT is the Black Swan.
How do you model PPT intervention?
Beautiful theory! It is indeed difficult to model the chaotic role of govt market intervention.
“…difficult to model the chaotic role of govt market intervention.”
Well, think for a moment…how efficient is gov’t… when it intervene’s into anything?
The “Market fox” is far quicker to react, than the overfed gov’t dawg… the chickens will be dead & the eggs all gone…when old clever Chris Cox get’s around to loading his trusty old shot gun.
I kind of thought you’d like that theory.
“difficult to model the chaotic role of govt”
I thought that the stochastic calculus/modeling that some of us have been talking about would have caught this…after all, stochastic calculus is “used to model systems that behave randomly”:
http://en.wikipedia.org/wiki/Stochastic_calculus
I would assume that even (or *especially*) if a “plunge protection team” was operating randomly during the time period that they used to feed into the stochastic models, that that behavior would have been “captured” by said models. Again, someone more versed in stochastic modeling would have to comment on this, but that’s my take.
For a view of markets from the perspective of mathematical modeling of probability, try Mandelbrot. Markets exhibit “wild” randomness such that clever analysis techniques tend to be only a distraction. This is what has been throwing all the quants so far off. What they are measuring and modeling does not actually exist, and in some cases that turns out to be a problem.
Popper — late to post — really, really interesting theory. It is logical, so I like it a lot. What a hoot — banskters screwed by secret “benefactors” simply because they were sneaky about it. That would be wonderful justice.
How to handle foreclosure:
http://louminatti.blogspot.com/2007/08/how-to-handle-foreclosure.html
Nice large “sky light” in the second image. Also, quite the curb appeal for the vision impaired.
we can and will continue to see more plunge protection, as all stops are pulled out to forestall the inevitable. but at the end of the day, there’s nowhere left to go. pumping the housing market was the last gasp desperation heave to stave off a failed economy, a failed geopolitical course, and a failed globalization strategy. when you have no real jobs producing no real value, net net net you have no real economy. we simply have nothing left to offer but our voracious appetite for accumulating debt. and while a couple hundred megamillionaires make out like bandits, life for most of us will more and more resemble third world ain’t got shit mode. and if history is any judge, we’ll do what we’ve always done: find a new boogeman……any terrorist, illegal, political radical will do; anything but to admit that our system has failed.
Agreed. We sold our economy, sent it overseas, put it any terms you like. It’s gone and the only way to maintain artificially high standards of living (the manner to which we have grown accustomed) is to pump bubbles. Now we seem to have run out of bubbles to blow; the dollar will never be strong again, housing is deflating…so they turn back to a stock market bubble. The stock market never really recovered from the last bubble though and it is loudly hissing air despite all the pumping. There are no more options; our standard of living is going to adjust down, people will have to survive on their incomes, and there is nothing anyone can do about it.
I have a very naive question regarding your comment that the dollar will never be strong again. Why not?
Thinking along the lines of what the Fed did in the early ’80’s, if they raised their base rate to say 7% to 8%, would that not perhaps be the best case scenario? It would probably crash the economy (a la the early 80’s) but at the end of the day wouldn’t we be better off?
The dollar is strengthening against the Euro. Paste the long address below into your browser.
Dollar gains as traders shrug off U.S. data:
https://www.etrade.wallst.com/v1/news/marketnews/news_story.asp?docKey=5018-745E9271792C46C981C53BA3537079CD-2A2I6CKKPDG5TJIPDE7EL7VM6E&DMSourceID=CBSMW&Source=MarketWatch%20Databased%20News&docDate=2007-08-14%2021:35:00&headline=Dollar%20gains%20as%20traders%20shrug%20off%20U.S.%20data&refSymbols=&
“…and while a couple hundred megamillionaires make out like bandits,…”
For good measure, they are forming their own stock market (as if the hedge fund entry qualification hurdle plus negative savings were not enough of a barrier to entry for J6P to get into the high-end investing game). Will the PPT use Main Street’s tax dollars to ensure that Richistan’s new stock market always goes up?
Stock market caters to the super-wealthy
Nasdaq launching platform tomorrow
By David Cho
THE WASHINGTON POST
August 14, 2007
Nasdaq is set to launch tomorrow what its executives are calling one of the most significant developments on Wall Street in decades – a private stock market for super-wealthy investors.
Minimum requirement for traders: $100 million in assets.
http://www.signonsandiego.com/uniontrib/20070814/news_1b14nasdaq.html
Interesting that this is happening on the day that hedge fund redemptions must be placed (Aug 15th).
Beware The Ides of August…
Stock market caters to the super-wealthy
“Nasdaq launching platform tomorrow
By David Cho
THE WASHINGTON POST
August 14, 2007 ”
Scary if you think of the implications. Company pension plans investing only to find that years down the road the money is gone up in thin air. The super rich will soon be the uber rich.
Last post for me for today, (not feeling physically well).
Salinasron, my friend, IMHO the super rich will not invest in this market (although some may), the reasons are ‘lack of liquidity’. To point to the recent turmoils in the world wide markets, the ones least affected (Chinas) also have the greatest number of shareholders and active traders (yes the PE ratios may be excessive and it may be in a bubble, but there were buyers to match the sellers). The FTSE is excessively dominated by funds. On the NYSE 65% of all trades are Hedge Funds. When something goes wrong, when the small traders are not an active part of the market, financial traffic jam. So even in an open exchange there was lack of liquidity. A closed exchange has the potential to freeze solid.
The one sure thing in the stock markets is that something always goes awry.
Hoz: Feel Better
Wall Street: Fall Better
Hope you feel better soon, Hoz!
But what’s the benefit for the super-rich investor? They can choose to give their money to a company that is bound by laws to protect the investor, or they can give their money to a company that can do whatever it wants and get away with it. I can see why the company would like it, but it’s the investor that makes the decision.
Boy, does that suck. I have $75 million in liquid assets, plus maybe another $5–10 million that I lent to buddies to buy toys, so their wives wouldn’t know, and I can’t play? Those guys have their heads up their a– if they think I’m gonna’ just suck hind tit and put my millions in the NYSE like all the riff-raff out there.
So true. The only “business news” that appears in the Fort Collins paper is that someone opened a new donut shop. You never hear about hiring at the few remaining quality employers. The sad thing is that adults are trying to survive on jobs that should be filled by teen agers.
The main problem I see with sending the jobs overseas to places where the labor is cheap, is that they (cheap labor) can’t afford to buy these businesses’ products, and pretty soon none of us will be able to buy them. So who do they sell to and what does that do to their stock.
Believe it or not, Big Business has plans for that,
An example: Third Worlders are too poor to buy a bottle of shampoo made by your favorite multinational. So how do you sell shampoo over there? You sell it in little packets (think fast food ketchup packets), that way Mr Third World buys a packet for 10 cents to take his weekly bath.
What a glorious future!
Your ignorance is baffling. This is yet another reason for America’s downfall. “Weekly bath”? Let me tell you a story - back in undergrad we had very limited access to water for a whole year. There was concern that the water situation was so bad that they might have to shut down the college and transfer us out. We would get around 10-12 gallons a day - that was it. But we did ok - it was enough for the toilet, to wash our clothes and for a daily bath. This situation was resolved over time.
You may hold people in contempt because they don’t buy shampoo in 2l bottles from Costco. Selling products in single-use packets has been recognized as a marketing genius (and btw, this was first done by a 3rd world company). It’s the mirror image of super-sizing and overconsumption that is part of your consumerist lifestyle.
I take it you are looking for a convenient scapegoat rather than facing the truth that *your* system is dysfunctional.
You may hold people in contempt because they don’t buy shampoo in 2l bottles from Costco.
Who said anything about contempt (or even buying shampoo by the gallon)? If anyone is showing contempt pal, its you.
I take it you are looking for a convenient scapegoat rather than facing the truth that *your* system is dysfunctional.
Scapegoating? Boy, did you get ever get up on the wrong side of the bed!
Oh, and for your information, I have lived in the 3rd world pal.
Dear Yensoy:
I’m in a particulary argumentative mood today, so I will chime in here.
If you were going to college in a 3rd-world country, then you must be a member of the elite class, no? So your perspective on the “functionality” of your home-country’s system is scewed. You may be fine, you may detest our extravagence, but the vast majority of the very poor people in the 3rd world are NOT fine, and they would appreciated it if their “leading class” would make a few changes to decrease the difference between the rich and the poor (one of the great accomplishments of the US).
Best I recall, Yensoy is a “she.”
My only addition to this fracas is that the pollution resulting from zillions of little plastic shampoo packet-casings being discarded — 99.999% of which would never find their way into recycling bins, should merit some negative offset relative to the more easily recyclable large containers mentioned.
Why worry about the macro economy? Worry about the micro economy - your own and your family’s. You are residents of earth first, not American citizens. There is a big marketplace in the world. So what if we outsourced a lot of good jobs? Invest overseas and bring that money back by being the bosses of those overseas employees!
If I was 22 years old today I would realize I have 40 or 50 years of work ahead of me for one. Secondly, I would recognize that I’m not going to get paid the income of a 45 year old right away but I will have more job security - my labor is cheap. So I can use this to my advantage and invest some of my income over the years. My job gets shipped out? I’ll go to a different field.
One thing that is constant, and which doom and gloomers do not want to acknowledge, is that the human mind is unlimited in its creativity. This is why businesses profit and why new technological marvels come out every 5 years or so. This is also why doom and gloomer predictions usually fail to come true. They extrapolate the conditions of today to tomorrow and do not factor in new variables that they do not know about.
I’m no Pollyanna and I’m certainly not banking on good times in the next 5 to 10 years, but I have my money on equities for the 20 year period - we will have better years in the long haul, and most of us here (I hope) will be around to see them.
Any reading on what Goldman is trying to do by pouring 3 billion into a failed fund? Any chance they see a worthwhile business model for the fund going forward, or are they just protecting the brand name by covering for inexcusably stupid actions as fiduciaries?
What shame is there in a a subprime-investing hedge fund failing - that should have been an expected risk for investors, right? Or were investors sold a bill of goods?
“…or are they just protecting the brand name”
Three investors sailing around Nantucket on a recent Sunday afternoon:
Rich investor #1..”I lost $500,000 at Bear Stearns”
Rich investor #2..”I lost $500,000 at Goldman Sachs”
Rich investor #3..”I made $50,000 at Merrill Lynch”
This was very confusing to me yesterday. I cant believe that they thought it was good value - what was the scam?
Global Alpha is the internal fund for Goldman Sachs and their employees. It’s managed on a deceptively simple strategy that boils down to essentially equity valuation mean reversion (it’s much, much more complicated than that). Over the last week or so, low valuation stocks have fallen very dramatically, while high valuation stocks have generally risen exactly the opposite of Global Alpha’s (and several other big, successful funds’ bets leading to forced unwinding). The $3 billion in fresh capital is essentially doubling down on their bet.
This isn’t a mortgage based hedge fund (or they’d already have failed). The investors are the firm and its employees, hopefully they grasp the risks.
I’ve posted this before, but at the end of a thread so I never got any feedback. There’s been some discussion about banks sitting on REOs and it got me to thinking (yes, that was the burning smell).
Banks have minimized their risk in this mess by keeping stricter standards on whom they loan to, and they unloaded much of the riskier loans to Wallstreet specuvesters. But where they still have considerable risk is the debt they issued to builders, and now REOs are beginning to pile up.
The builders can undercut any FB and still turn a profit, the only thing they can’t compete with are foreclosures (real ones, not the 20% off BS that we hear about). Could the banks be sitting on REOs until the builders make good their debt, and then they’ll dump the REOs on the market all at once?
If I remember my history correctly, banks did just that with commercial real estate in the late 80s, until regulators made them sell the REOs. At that point there were no buyers at any price for 3/4 empty strip malls, thus the RTC was created.
Maybe some sort of SFH RTC will be needed to hold, and eventually clear, the backlog this time.
I think you are on to something. The banks may sit on their REO until the walls fall down if they choose, waiting all the while for another RTC-style bailout to be crafted by D-ratic pols who don’t want the poor banksters to lose their shirts. Thanks to the RTC precedent, the bankers have formed a cargo cult.
http://en.wikipedia.org/wiki/Cargo_cult
we’ve had posters show evidence of banks dragging their feet and not issuing 1099’s after the short sales- where’s Palledin ?
I believe the bank regulators do an audit of non-performing assets (REO)the last week in Jan. and that’s when they will be foreced to sell at any price. Countrywide has over 500 foreclosed homes in Las Vegas on their REO website page, but only about 25 listed in the MLS. Repeat 500+ homes in REO inventory, all assigned with agents names and phone numbers, but only 25 in the MLS.
So the agents have done their market comps, are monitoring maintenance and security on these vacant homes, but have not begun actively selling them thru MLS. When these little piggy’s reach the market, watch for prices to tumble. Jan 31, 2008 is my projection for capitulation day
“So the agents have done their market comps”
Plus, there was story recently where the BPOs (Broker Price Opinions) were being outsourced to India…hence the wishing prices on REOs right now.
Plus, there was story recently where the BPOs (Broker Price Opinions) were being outsourced to India…hence the wishing prices on REOs right now.
Well that’s how we got into this mess in the first place. Bankers not sending people out to check to see % of work done before releasing draws. Houses being appraised with no physical drive-bys. BPO’s in our area, used to require drive-bys and pictures of the comps, plus properties to be appraised.
Let’s see how well those “comps” work out for them when 500 REOs hit the market all at once!
I realize that it’s probably too late for me to get an answer now, but can you please tell me why they have to do it all in the last week of January? Is there a law or something?
from yesterday’s discussion, a Quant fund is supposed to be emotionless investing. you have math and physics phd’s create models based on how gas molecules move or astrophysics or whatever. they look for historic returns and look at conditions on stocks or whatever just before they began big moves. program it into the model and let the computer do the trading
like hedge funds it’s a generic term since most of them have their own investment styles depending on the manager. they can invest in anything, buy options, hedge or whatever they want. a lot like LTCM look for securities that are outside the historical bounds and buy or short them to bet on the reversion to the mean.
in many cases they use leverage since the investments only pay tiny returns like in LTCM’s case. this is why a normal bond mortgage fund may be down 3% year over year but a quant or hedge fund is down 30%. 10 to 1 leverage magnifies your losses
“they look for historic returns and look at conditions on stocks or whatever just before they began big moves.”
And as was said yesterday, if the historic data that is fed into the models is incomplete, you can have some spectacular failures. Say, for instance, using data that only includes positive HPA (house price appreciation)…
And there’s also Heisenberg’s principle: Observing a particle changes the behavior of a particle. The historic data doesn’t include quant funds participating in a market.
“The historic data doesn’t include quant funds participating in a market.”
I was thinking the exact same thing earlier today…especially as they grow larger and increase in number.
‘All models are wrong, some are useful’
George Box
http://www.skymark.com/resources/leaders/box.asp
Tin Foil Hat Recommendation of the Day:
Beat the rush and get thyself a safe deposit box while supplies last!
No good…
“All safe deposit boxes in banks or financial institutions have been sealed… and may only be opened in the presence of an agent of the I.R.S.”
- President F.D. Roosevelt, 1933
In the digital age, don’t you think observant people will be able to perceive when the deterioration starts to accellerate, scoot on down to the bank, and clean out the safe deposit box?
They only took the gold they didn’t take the cash.
They have big guns. They can take whatever it pleases them to take. Of course, they can also devalue the dollar so much that your gold will be the only thing worth taking.
Gold was the only thing worth taking.
A stomach churning fact indeed.
Which is why you see the little trick on the Schedules of the Long Form 1040 if you want to deduct your safe deposit box fee…if you do…gotcha…we know you have one then and so does the I.R.S.
Maybe easier to just stuff the mattress.
For sake of discussion, many SDB are free if depositor
maintains a minimum balance. (Thus, no deduction
of SDB fee to alert IRS)
Is anyone aware of any banking regulation(s) that would
force a bank to disclose a list of depostors to the IRS
or other government agency?
TIA
Wouldn’t the bank discolse that info willingly in the case that said disclosure would benefit the banking system?
“Is anyone aware of any banking regulation(s) that would
force a bank to disclose a list of depostors to the IRS
or other government agency?”
Answer: no. Answer to unasked question, would the gummint bellow and banks fork over the information: yes. What’s in it for the bank to try toprotect your ass in such a situation? Zero.
A possible new real estate venture. Private vault companies with deposit boxes?
and gun turrets…
They already exist.
WHOA!…This is a critical topic for many of us lurkers as I suspect there are many gold bugs on this forum. Is talk of confiscation too premature, or is the situation evolving so rapidly that some feel we cold see another edict like FDR’s again soon?
This is what I can’t figure out about having gold, in times of economic crisis…..
How do you use it, if the government has outlawed private possession? True, there is the “under the table” market, but as long as the government has the means/ability/motivation for throwing people in the hoozgow for using it, won’t the hazards offset some of the value?
I’m thinking about a run-of-the-mill economic catastrophe, not The Economic Chernobyl/Mad Max/dogs living with cats/Total Global Meltdown type of crisis. (For that, I have my Glock and M-1 Garand…..something old and something new…..:)…)
Come on Falconsitter. How do you use gold coins? First, I strongly doubt there will be confiscation: One: A small percentage of Americans own gold, compared to during the Great Depression. The government has bigger targets to grab wealth from. Also, 300 million people now, compared to, say, 130,000 people in the U.S. in 1930s. How in the world will they confiscate your gold?
I don’t think there will be any rioting in the streets like the 90% of the bloggers here are implying. I think we will be in for rough times in the next 5 to 10 years, but it won’t be any more severe than the 1970s. Glock and M1! Funny! Camouflaged survivalists were interviewed on television talk shows (Phil Donohue, etc.) in the 1970s. We have not even reached that stage of paranoia.
I buy gold bullion and have several safe areas where I put it. I am not worried about confiscation.
I worked for the federal government 11 years in the 1980s and 1990s. I know there are many federal employees who, ironically, understand the Constitution and are pro-gold, pro-capitalism and vote Libertarian! They are probably less socialistic than you! Many of them have families, attend church, and get goosebumps at 4th of July parades. They are human too.
I want to add this: Gold is easy to buy and sell. I’ve been buying bullion over the years (silver, gold, and platinum). I have never sold any, but a friend of mine who has a lower regard for gold (and is a real estate evangelical LOL) bought ten ounces at one time, and sold all of it the same year and profited - merely by taking it to the same dealer he bought the gold from in 2005. It was a ten minute transaction, no paperwork, and he was gone and had his profit.
Hypothetically, if SHTF, most businesses won’t accept gold but continue to accept fiat money. But there could, in that dark, unlikely scenario, be a transition period where businesses will demand gold and charge a higher price if you use paper money.
I diversify into various investments. That way if they do confiscate gold, I have my series I savings bonds to fall back on. I’ll probably keep my gold. Remember, if they issue an edict like Roosevelt in 1933, they will catch you only if you use gold for transactions. They won’t catch you if they don’t know you have gold.
M1 Gerand. How many people even know what that is?
My father, a Korean vet, bought one from the VFW after the LA riots. Showed his militar ID, paid $35 and was ready to protect his family.
But not we are more protected and have more freedom.
We’ve been talking about that on this blog for quite some time now.
The thing is, at the time of the gold confiscation, the dollar was still backed by gold, so Roosevelt had much more reason to keep people from hoarding gold. Such behavior had an uncontrollabe negative effect on US currency.
Yeah, it’s true they could do it again, but I have a feeling that if another depression hits (maybe not so likely), then our new government will invent entirely new tricks.
Speaking of tin foil hats:
http://people.csail.mit.edu/rahimi/helmet/
What Goldman is doing with $3 billion injection is to keep the fund alive and deleverage without having to fire-sell assets. In today’s Financial Times, it said they have deleveraged from 6 times to 3.5 times. There is massive deleveraging going on across hedge funds, at the same time hedge fund redemptions and failures are starting to snowball. Since hedge funds in aggregate are more net long now than ever before, it means a lot of money will be draining out of global equities in the weeks ahead. It wouldn’t surprise me to see smart hedge funds with “dry powder” move heavily to the short side to take advantage of the deleverage/redemption weakness of other hedge funds. It’s the financial equivalent of dog fighting, with survival of the fittest and meanest dogs.
I am very short, and will stay short, until the dog fighting commences. This is the event I’ve been waiting two years to see.
forgot where i read it, but i think tomorrow is when all hedge funds report performance. in 1987 it was the friday before the huge drop on Monday and Tuesday. 1998 things got so bad Cramer almost lost his fund.
over the weekend there was a story that the short interest ratio on the NYSE was huge and no bear market ever started with a short ratio like that. maybe everyone is trying to short now and a mini rally will kill them since at some time you have to close out your short and buy back the stock
I am very short, and will stay short, until the dog fighting commences. This is the event I’ve been waiting two years to see.
Wow! This could be a whole new career for Michael Vic!
“…at the same time hedge fund redemptions and failures are starting to snowball”
“when rain turns to hail…run!”
New Growth Industry - Anthem Times
While walking Ms. Jetta (4 mo old Aussie) this morning I came upon a Repo Man stalking his next victim. The repo industry is going to be very busy in the near future.
I’m just wondering who’s going to buy all these repo’d vehicles. How many people with excellent credit or a wad of cash want to buy someone else’s used Hummer?
Imagine buying toys in 3 years - i.e. a boat. I might actually pry open my wallet for the right price
I am already kind of seeing this. I buy 2-3 motorcycles a month for my business…have you looked at how cheap luxury cars are on eBay right now….
Read an article about how beach houses on the East coast with docks are worth and extra million or something because docks can no longer be built due to environmental regulation. Yet here in Texas, Tiki Island off the end of the Galveston bridge seems to have every other house (all-with-dock) for sale.
When the time comes you need moorage, throw your carpet bag in the boat
With a 4 mo. old Aussie, how do you have enough spare attention to notice a lurking repo man?
Beautiful dogs, but way too smart and inquisitive for my taste.
Yes, beautiful and very smart. We’ve had many different types of Herding dogs, Belgian Sheepdogs, Belgian Tervurens, German Shepherds, and this dog is the smartest so far. Of course the fetching Mrs Lip picked her out, making sure to get the smartest she could find. We train her daily, are consistant, and make sure to exercise her every morning. Taking a bit of the energy out of her does wonders.
Also, ever heard of the TV show “Dog Whisperer”? A guy name Caesar goes around the LA area teaching people how to train their dogs. This show is highly recommended to any dog owner.
I should add that the problem with Goldman’s strategy is that it doesn’t make the current investors whole in any way. Their capital accounts aren’t affected by the cash infusion. They are still down about 30% YDT and 40% past 12 months. A large number will be bailing out, so either Goldman will become a liquidator to meet redemptions or else Goldman will have to keep finding new investors or injecting their own capital.
I believe this announcement yesterday was just a face-saving move to ride out the storm and try to dampen redemptions. If it doesn’t work, they will probably wind down the fund later. I believe the fund A) is heavily on the sidelines now; B) will not come back into the market heavily soon. It’s still a volatile market and Goldman’s rep is too valuable to risk further loss while the spotlight is on.
Remember when Bear Stearns made a $1.6 billion loan to its hedge fund? Well, no money actaully went into the fund. It was purely an attempt to restore faith and stop redemptions.
I have a fealing this GS one is something similar. Put the money in hoping to restore confidence, then be out before you lock the doors on everyone else once it doesn’t work.
Would it be wrong to characterise what Goldman did as responding to a $3 billion dollar margin call?
It is comforting to know all those empty new homes I pass every day on the way to work are not just a figment of my imagination. Note that this news of the ongoing slow-motion San Diego slide represents data from before the credit crunch became common knowledge (which only happened over the last two weeks, believe it or not). The slide should pick up speed going forward, especially with the approaching end of the red hot summer sales season.
More Business news
San Diego new-home sales hit lowest point in five years
Getting a loan grows much more difficult
By Roger Showley and Emmet Pierce
UNION-TRIBUNE STAFF WRITERS
August 14, 2007
San Diego County home prices and sales continued their downward slide last month as home buyers found it increasingly difficult to navigate the volatile mortgage market.
http://www.signonsandiego.com/news/business/20070814-9999-1n14prices.html
“Most of the declines in San Diego have happened,” Karevoll said. “Now it appears to be re-establishing a balance that we have yet to see for the (Southern California) region.”
—-This guy Karevoll - can we trust his data if he is always so biased.
“This guy Karevoll - can we trust his data if he is always so biased”
I don’t think so, take this quote:
“In the first half of 2007, 35.6 percent of all primary mortgage loans in San Diego County were jumbo loans, said DataQuick’s Karevoll.”
Unless everybody has started to make 30-40% downpayment, then he’s quoting the TOTAL mortgage inventory (i.e. old and new loans). Owners who have been in their houses for 8-10 years or more have conforming loans. He makes is sound like 65% of new loans are conforming.
“San Diego new-home sales hit lowest point in five years”
“Getting a loan grows much more difficult”
Please… make interest rates @ 14%, that way, when I ride my bicycle around these $650,000 3 bdrm / 2 bath houses…I know that they won’t sell for… quite some time.
No, it’s all good, look:
“In another sign viewed as positive, the San Diego Association of Realtors said there were 20,533 homes for sale as of yesterday, 10.7 percent fewer than at this time last year and the third straight month showing a year-over-year inventory decline.”
(Never mind sales are down 13.3%)
Of course the other 2000 homes that used to be for sale probably dropped down the REO black hole. But it’s all good.
It’s interesting to note that the trade balance is being ignored this morning. Down what 5%? That has recession written all over it. It is, however good for the dollar. I expect Gold to plunge today.
There isn’t a lot of Rocket Science required in figuring this one out…simply watch Consumer Spending. As credit tightens, the party ends, cuz the consumer was partying on borrowed money…and as we should all know…this is a consumer driven economy!!! And that’s all I have to say about that!
Gold has gone nowhere but wheat is pushing $7. Another reason the trade balance might stay under $60 billion for a while.
Not sure whether that will help the balance of payments. We’re already so deep in the hole that rising interest rates are likely to eat up any improvment in goods & keep on chewing.
It’s not true (in this weird new age) that investors have to cover shorts at some point in time. I’m sitting on shorts that I never have to cover. They are ProShares short ETFs. I will tell you that it’s a much more relaxing experience than shorting individual stocks, that you do have to cover. I can just sit here and wait for the bear market, as long as it takes, without too much worry about short squeezes. With the explosion of derivatives, futures, options, short ETFs, etc., a lot of short investors are in the same position — somewhat immune to the classic squeeze. All of these instruments, however, do contribute to the reported “short interest.” Don’t ask me to explain how. Like I said, it’s a weird financial world.
LEND wants a shot gun marriage.
Lender sues ex-suitor for quitting deal
Accredited hoping to force acquisition
By Mike Freeman
STAFF WRITER
August 14, 2007
Troubled subprime mortgage firm Accredited Home Lenders said yesterday that it has filed a lawsuit against Texas-based Lone Star Funds in an attempt to force it to complete a $400 million acquisition of Accredited.
Lone Star reneged on the proposed deal late Friday, citing “drastic deterioration in the financial and operational condition of the company.”
At issue: Takeover deal
Lone Star Funds offered in June to pay $15.10 a share, or about $400 million, for San Diego-based Accredited Home Lenders. Since then, conditions in the subprime mortgage industry have deteriorated significantly.
LONE STAR: The one-time suitor backed out of the deal Friday, citing drastic deterioration in Accredited’s condition.
ACCREDITED: The company fired back with a lawsuit that says it will meet all required conditions and expects Lone Star to close the deal.
But San Diego-based Accredited said in its suit, filed in a Delaware court, that it expects to meet all the conditions of the deal by today’s deadline.
“Accredited is doing the only thing it can do, which is to do whatever it takes to hold Lone Star to the deal,” said Bud Leedom, publisher of the California Stock Report. “I’m sure there is some breakup fee associated with this. But I would be surprised if Lone Star was not able to back out.”
http://www.signonsandiego.com/uniontrib/20070814/news_1b14lend.html
Lone Star: “Wham! Bam! Thank you, Mam!”
Accredited: “But, but, I’ve got a bun in the oven! Daddy!!!”
Accredited: “I can’t quit you…”
LMAO
Cramer’s tongue and cheek advice yesterday morning said when interviewed maybe it’s time to start bulldozing some of this housing down so that we can raise home values. He still does not get the relationship to wages and debt load.
Brilliant idea: Since the overbuilt residential housing stock that represents the collateral on bad debt is so devalued anyway, let’s knock some down and drop the collateral value from low to $0.
So long as core inflation stays low, who cares about pesky volatile items like energy (and food, in the CPI case)?
BTW, a one-month 0.6% increase represents a (current) 7.2% annualized PPI inflation rate. The Wall Street cargo cult can kiss their rate cut hopes good bye.
ECONOMIC REPORT
PPI jumps 0.6% in July, while core rises 0.1%
Higher energy costs offset third straight decline in food prices
By Rex Nutting, MarketWatch
Last Update: 8:55 AM ET Aug 14, 2007
WASHINGTON (MarketWatch) — Led by a 2.5% increase in energy prices, wholesale prices increased a larger-than-expected 0.6% in July, the Labor Department reported Tuesday.
http://www.marketwatch.com/news/story/ppi-jumps-06-july-while/story.aspx?guid=%7B84F9F90B%2DCE48%2D4B32%2D91D1%2D949001391C81%7D
PPT has stopped the early selloff on “higher than expected” PPI…
http://www.marketwatch.com/tools/marketsummary/
this is beginning to support my “unconventional move” theory, continue to report inflation pressure, talk about raising rates, and pump liquidity…
I think many here know that inflation is running very hot, but no move by the fed to dampen it due to the no bid on new debt signals that inflation is key to limping through the problem. Ultimately resulting in higher interest rates down the road.
This is the tightrope strategy. Almost like a straddle in terms of not knowing which way the stock is gonna move, but knowing its gonna move.
Oh John Frum, where are you?!!!
Hey guys check this out. This past Saturday BIP, Hoz, and myself had a little exchange about some prime banks which I have pasted in below. Then yesterday/today Minyanville has an article that is almost a copy of our exchange.
Ben, you need to call those dude’s up at Minyanville and get some royalties!! Fricken hilarious!!!
Our banter on August 11:
Comment by P’cola Popper
2007-08-11 11:16:41
What do you think about Citigroup (C)? Do you consider it to be a good stock to own?
I bought a bunch of puts on it last week. If we get a pop up this week on a rate cut or more cash infusion nonsense I’m planning to do the DCA thing and acquire some more puts. C tanked about 50% along with the other financials the last time there was a serious liquidity crunch over a three month period from August 1998 to October 1998. It presently also has very low IV compared to other financials.
Reply to this comment
Comment by bill in Phoenix
2007-08-11 11:42:10
I compared C with BAC. C actually looks a little better than BAC except for the dividends. I looked at cash per share, cash, debt, and book value per share for each. C is in a better position. With a P/E of 10.73, C can weather a few storms.
On the downside, C racked up $700 million in credit losses in recent weeks. Uh oh!
BAC got out of the subprime business a few years back.
(Comments wont nest below this level)
Comment by bill in Phoenix
2007-08-11 11:55:17
I’m going to put a small amount in DNA (Genentech) one of these days. It’s a growth stock I know, but I think Biotech will be good to get into. I have been adding to my Pfizer holdings and will alway have more money in Pfizer than Genentec. DNA is at its 2 year low. I’m going to wait until the chart of DNA shows some inflection point has been reached.
Comment by P’cola Popper
2007-08-11 13:40:17
I looked at BAC also but for me it didn’t look as good a candidate as C. BAC also dropped in excess of 50% in 1998 but didn’t swoon in early 2002. C dropped both times dramatically. I don’t particularly think anyone will lose money shorting/putting BAC its just that I think there is more to be made with C.
Reply here
Comment by Hoz
2007-08-11 13:22:24
There are better banks available than BAC or CITI. Banks with better growth, just as large and fuller disclosure. And that have yields as good as BAC.
BAC has had to rewrite its earnings statements 3X in the last 4 years as a result of derivative transactions. This months quarterly statement “Further, in late July and early August, market uncertainty increased dramatically and further expanded to other markets (e.g., leveraged finance, collateralized debt obligations and other structured products). These conditions resulted in less liquidity, greater volatility, widening of credit spreads and a lack of price transparency. The Corporation’s GCIB segment operates in these markets, either directly or indirectly, through exposures in securities, loans, derivatives and other commitments. While it is difficult to predict how long these conditions will exist and which markets, products or other businesses of the Corporation will ultimately be affected, these factors could adversely impact the Corporation’s results of operations.” suggests they will be rewriting their earnings down again.
Banks are either incredibly cheap here or incredibly risky. IMHO the risk/reward ratios do not justify any investment in Banks at this time.
Excerpt from the article at Minyanville dated August 13th:
“The heated debate among market pundits seems to be surrounding the recent drop in financial stocks, most notably favorites such as Bank of America (BAC), Citigroup (C) or even investment banking powerhouse Goldman Sachs (GS). To buy or not to buy seems like the common question and makes sense considering the aforementioned stocks have all fallen 12%, 18%, and 19% respectively from recent highs…
While I don’t fall into the camp of those anticipating a 1987-like crash, one could put things into perspective by studying past declines and understanding that Citigroup plunged over 50% from top to bottom in 1987 and 55% from top to bottom in 1990. Furthermore, during 1998 Citigroup fell over 60%, all of which makes the decline from 2006 highs of 18% look quite mild and hardly an attractive bargain…”
http://www.minyanville.com/articles/BAC-C-GS-TOL-BZH/index/a/13686
Good one about C falling dramatically in 1990. However, note the graph from 1990 to present:
http://finance.yahoo.com/q/bc?s=C&t=my
You are always pointing out that nobody posting on the blog has any references nor anything in print–you know like Jim Cramer–so here’s an article based on commentary that you participated.
How many bolts of lightning does the good Lord need to send your way in order for you to modify your heathenous DCA investing strategy? LOL.
Quite a lot of bolts, I suppose. Everything fine here, since my basis is far lower than my NAV in the funds in my 401ks and IRAs.
Sunny days (except for the FBs of Real Estate in the last 2 years).
If you want to convince BIP, you’ll need to get an article in Kiplinger’s, P’cola. Which I think you can do for about a $19.95 fee these days.
I’m a 401k and IRA investor. Obviously if you are against DCA, you must not have a 401k.
I’m not “against” dollar cost averaging. If you know little about investing, or don’t want to know, it’s probably the best strategy. That’s the crowd Kiplinger’s caters to. But there are people, even on this blog believe it or not, who are savvier (and far less biased) than the salespeople who write for Kiplinger’s. P’cola is one of them. You should pay attention to him.
Right, but my point is there are young investors on this blog right out of college who are asking for advice and no one ever tells them to maximize their 401k and IRA first, then do daytrading or whatever market timing pie-in-the-sky hocus pocus you “professionals” are suggesting, for the extra money they have left to invest. That is like malpractice.
I guess whatever I say is wrong unless someone you respect says the same thing:
http://biz.yahoo.com/ap/070814/berkshire_investments.html?.v=2
This is just me, being bully bill, rubbing a genius’s face in the mud. But someone did some name-calling against me anyway so I can get some mileage out of this.
When I look to buy a stock in a company this is the type of news that causes me to bookmark the stock and all news items related to it. I am not advocating buying! It is interesting news that merits a look.
Countrywide
http://tinyurl.com/2s8d3x
45 minutes into trading and things aren’t looking so hot. i’m sure hank and his ppt posse will come to the rescue soon.
Ain’t working yet…dropped almost 100 points in ten minutes….maybe PPT folks ran out of money and took their ball home (we can hope).
Down 150 since this morning. Marketwatch is reporting on their homepage that United Bank of Switzerland is having some funny “hedgie” problems, too, mixed with profits!? How can someone be losing money and making money at the same time….apparently big banks do it all the time.
this is a realtor’s advise to another realtor. I actually like this guy’s site but he really doesn’t believe that prices are going to fall.
http://bostonreb.com/blog/2007/08/14/no-one-cries-for-the-confused-real-estate-agent/
The posters to his blog are smacking him around a little bit.
No surprise to anyone here but investors in FIG are losing their azz:
Fortress loss widens to $55 million, but assets rise
By David Weidner, MarketWatch
Last Update: 10:29 AM ET Aug 14, 2007
NEW YORK (MarketWatch) — Fortress Investment Group LLC on Tuesday reported a second quarter loss of $55.1 million, but that total assets rose 70% from the same period last year. Fortress
(FIG19.67, -0.90, -4.4%) , the holding company for several hedge funds, said the loss amounted to 66 cents a share compared to a 12 cents a share loss for the same period in 2006, using pro forma results. Revenue fell to $268.1 million from $328.3 million
Pretax distributable earnings were $143 million, or 33 cents a share, up 57% from the year-ago period. Assets under management rose 70% to $43.3 billion, up from $25.5 billion.
Analysts were anticipating a profit of 27 cents a share, according to the mean estimate as measured by Thomson Financial.
Shares fell 4.2% in morning trading.
During the quarter, Fortress said it closed two funds, Closed Fortress Investment Fund V and Fortress Coinvestment Fund V. The funds have $5 billion in assets combined. Fortress also closed a $275 million principal co-investment through an affiliated fund in Florida East Coast Industries Inc.
Fortress declared a quarterly dividend of 22.5 cents a share
Every few months I start looking at real estate again, and all I see is overpriced crap.
I try bringing up housing prices to my homeowning friends, and they tell me there’s absolutely no way central Denver real estate is going to crash. Limited supply, everybody wants to move downtown, etc etc.
I’m no economist, and I don’t know as much about financial matters as a lot of posters on this blog. But I do know that something is off when you can rent a nice apartment for $750/month, and the building next door offers condos (the same size) for $190K+. The people who live in the bungalow houses in my neighborhood seem to have a middle-class existence (lots of teachers, some techies like me, etc), but they have fancier cars (his and her Land Rovers, for example), etc. The average house price in my neighborhood is about $350K. You could probably rent that same house for $1500 - $1700 per month.
It’s also discouraging to go over to a coworker’s, and see their beautiful new house, with all new furniture, pool table, 2 new fancy cars, boat, etc. I knew I was slightly underpaid, but I didn’t think I was by *that* much. Again, something doesn’t smell right.
Have ex-acquaintances who bought two homes at over $550,000 each. Had allthe trappings you mentioned above plus the Navigator and Towncar. Made fun of me for my 10yr old purple car. Today I still have purple car and rent, but by myself I make more than the two of them combined; they on the other hand are renting from a mutual friend, driving another couples’ used car and hiding from creditors due to two repo’s and two foreclosures (with recourse).
DON’T BELIEVE THE HYPE.
Glad to hear there are many kindred souls on this blog.
Besides, every time I’m bicycling in Cherry Creek North, and some idiot in a BMW tries to cut me off, I can at least think:
Hey, I have enough money to buy your car, new, in cash. But then again, why would I want to do that?
O.K., I’ve been cooking noddles on the propane Coleman…
Professor Bear, were you Get Stucco in another blog life?
Get Stucco graduated. Now he’s Professor Getstucco Bear. We’re coming out with a stuffed version in 2010.
When the Dow broke 13,000 CNBC’s On The Money show practically threw a party with ballons, cake & ice cream. If it closes below 13,000 today will they run that show backwards?
“When the Dow broke 13,000 CNBC’s On The Money show practically threw a party with ballons, cake & ice cream. If it closes below 13,000 today will they run that show backwards?”
LOL…!
“If it closes below 13,000 today will they run that show backwards?”
Bugs: “eh, hey Foghorn…Daffy could not get the straight jacket on Taz yesterday, I think we need to try something else…”
Foghorn: “Well, what ideas do you have in that furry brain of yours Son? …give it to me boy, speak up I say…”
Bugs: “eh, here’s what we’ll do…”(whispering in Foghorn’s ear)
Foghorn: “Say what? you what me to spin Taz in the opposite direction?…It’ll make him dizzy and fall down?… well, I say Son…that’s a heck’va idea…you’re quite the rascally varmint aren’t ya boy…oh, Taz…come here boy…we have something new to try in the barn yard today.”
Daffy Duck’s…. DDD index:
Dow
Down
Done!
NYSE Volume: 4,000,000,000 + again today?
I expected the dow to close below 13k by Aug 15th, but hey I’m just guessing like everyone else.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml
China threatens ‘nuclear option’ of dollar sales
By Ambrose Evans-Pritchard
Last Updated: 8:39pm BST 10/08/2007
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.
Blog - Dollar to collapse?
Fistful of dollars - China’s trade surplus reached $26.9bn in June
Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress.
Shifts in Chinese policy are often announced through key think tanks and academies.
Described as China’s “nuclear option” in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.
It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
Xia Bin, finance chief at the Development Research Centre (which has cabinet rank), kicked off what now appears to be government policy with a comment last week that Beijing’s foreign reserves should be used as a “bargaining chip” in talks with the US.
“Of course, China doesn’t want any undesirable phenomenon in the global financial order,” he added.
He Fan, an official at the Chinese Academy of Social Sciences, went even further today, letting it be known that Beijing had the power to set off a dollar collapse if it choose to do so.
“China has accumulated a large sum of US dollars. Such a big sum, of which a considerable portion is in US treasury bonds, contributes a great deal to maintaining the position of the dollar as a reserve currency. Russia, Switzerland, and several other countries have reduced the their dollar holdings.
“China is unlikely to follow suit as long as the yuan’s exchange rate is stable against the dollar. The Chinese central bank will be forced to sell dollars once the yuan appreciated dramatically, which might lead to a mass depreciation of the dollar,” he told China Daily.
The threats play into the presidential electoral campaign of Hillary Clinton, who has called for restrictive legislation to prevent America being “held hostage to economic decicions being made in Beijing, Shanghai, or Tokyo”.
She said foreign control over 44pc of the US national debt had left America acutely vulnerable.
Simon Derrick, a currency strategist at the Bank of New York Mellon, said the comments were a message to the US Senate as Capitol Hill prepares legislation for the Autumn session.
“The words are alarming and unambiguous. This carries a clear political threat and could have very serious consequences at a time when the credit markets are already afraid of contagion from the subprime troubles,” he said.
A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation.
The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China’s trade surplus, which reached $26.9bn in June.
Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and “could trigger a global cycle of protectionist legislation”.
Mr Paulson is a China expert from his days as head of Goldman Sachs. He has opted for a softer form of diplomacy, but appeared to win few concession from Beijing on a unscheduled trip to China last week aimed at calming the waters.
The Chinese *could* do that…if they wanted to blow up their own economy also. Who are they going to sell all of that cheapo crap to if we can’t afford it anymore? No, I think the Chinese leaders are a little shrewder than that.
–
“The Chinese *could* do that…if they wanted to blow up their own economy also. Who are they going to sell all of that cheapo crap to if we can’t afford it anymore? No, I think the Chinese leaders are a little shrewder than that.”
We agree on the last part, “the Chinese leaders are a little shrewder…”
Anyone who is in a war is willing to take a hit for victory. And Chinese would take a much less of a hit than their rival, the US.
We Americans forgot that the world war today is economic in nature and who our enemies are and who our allies are (we few).
Jas
don’t bet on it. it is a lot cheaper than going to war.
The things I get in my spam account:
From the http://www.fineliving.com website
Are you a house hunting pro or real estate bait?
http://tinyurl.com/2mhynl
From Briefing.Com 11:12 EDT
Sentinel Group (not a lot of information on available on this fund), issued a letter to clients halting redemptions from money market accounts, saying “we are concerned that we cannot meet any significant redemption requests without selling securities at deep discounts to their fair value and therefore causing unnecessary losses to our clients.” While we don’t have much information on Sentinel, these are some of the first headlines we’ve seen regarding money-market problems, and the headlines are being picked up by major media outlets as further escalation of the recent credit/liquidity issues… Additionally, we’ve heard some vague chatter regarding mounting subprime-related losses at a couple of US investment banks.
Soliciting opinions on the following:
80/20 mortgage vs. mortgage insurance
I know the brilliant minds here at HBB can help me develop a cogent argument against a real estate agent who thinks the 80/20 is a positive market influence.
I had PMI and hated it and worked as hard as I could to get rid of it. 80/20 is desperation to find buyers that won’t walk out on their loans. At least for a while.
If the risk on the 20% seconds were priced appropriately, they would not necessarily have been bad. You’d just have 15-20% rates, and they wouldn’t have been offered at any price to a whole lot of people. That’s what you are seeing right now– those pops in defaults on A paper are 2nds.
If you are offering everyone 8% 20s when everyone is expecting 20% appreciation at least… that leads only to an increasingly inflated bubble. But that’s the lenders’ fault, not the borrowers. Borrowers were just taking free money, if things go bad the 20 is toast– buh bye Mr Lender.
Any taxpayer who purchases a home with a mortgage loan originated this & thereafter with a PMI payment will be eligible to have the PMI taken as a tax deduction thus reducing the cost of PMI by there tax bracket (~1/4-1/3 of the PMI payment). Doesn’t take it all away but makes incentivizes keeping PMI to cover the loan balance instead of getting a 2nd at a higher rate that more likely that not costs more than the PMI even after you take the mortgage interest deduction on the second and it prevents loss in the system if in the event of foreclosure there is no money left to cover the 2nd which then gets converted into a personal debt the FB must now pay!!
Redhead — hopefully this is just a sporting conversation, for your entertainment. You’re not considering buying right now, are you?
Oh no…this is just me baiting a know-it-all agent. Thanks for the concern, though.
Apparently a money market fund is having problems meeting redemptions. This is scary, scary stuff or just really poor management. Do MM funds invest in subprime?
[BRIEFING.COM] The market continues to deteriorate as speculation about a letter to clients from a money market fund halting redemptions is confirmed. Within the last 10 minutes, CNBC reported that Sentinel Management Group has asked permission from the CFTC to halt money market redemptions.
Sentinel’s inability to meet significant redemption requests has exacerbated the liquidity concerns that have led many to believe a real credit crunch is forthcoming. As a result, the Financial sector has edged even lower and is now down 1.5% to act as the bottom continues to fall out of the brokers and banks.
http://www.reuters.com/article/stockTickerBriefing/idUSSI2007081411023120070814
They just came out with the statement that Sentinel is now contained (CBS talking heads).
The virus is spreading into commercial paper and money markets. Yesterday the first symptoms emerged in Commerical Paer (Coventree of Canada) and today its in the MoneyMarket (Sentinal).
Contained to subprime my azz. Somebody better alert the CDC in Atlanta–we got a pandemic breakout on our hands!!!
Yep, that contained call had all the veracity of shouting ” the building is not on fire. I repeat, the build is NOT on fire” while smoke filters into the hallway >; )
A few years ago I might even have believed them.
Reminds me of “Towering Inferno” where everyone is told, “we have a slight emergency and everyone needs to in an orderly fashion take the elevators back down - don’t be alarmed”.
This started with AXA’s German fixed income fund losing 25% a couple of weeks ago. Keep in mind money market or fixed income FUNDS can invest in real estate CDOs because real estate was in the “low risk” category for many of these funds and used to generate good returns for income funds during the boom. Now that the party is over, it will be interesting to see what happens to money market and fixed income funds. IMO, the definition of what assets are risky as how they got pooled is going to become a huge issue for so called low risk money market and fixed income funds.
Someone mentioned derivatives on one of the financial sites. I heard that there are over $415 trillion in derivatives all over the planet. In 1998, when this housing bubble first started to take shape, there was only $80 trillion. Might we have a problem if the global derivatives market sinks back to around $80 trillion in value? That’s a 80% decline. Imagine that with gas prices or national home prices. A fairly small decline if you ask me.
EZB president Trichet has announced that normalcy has returned to the markets. French Paribas Bank (the one in the doodoo) is offering 5% interest rates for 12 month deposits up to 100K in Germany.
Sign me up!
The Pittsburgh Tribune-Review is looking for hard luck mortgage stories from the good folk of Southwestern PA.
http://www.pittsburghlive.com/x/pittsburghtrib/business/s_521025.html
“Lenders such as Washington Mutual and National City Bank have stopped funding zero-down loans, abruptly ending the hopes of thousands of potential buyers, especially those shopping for their first homes. ”
Awwwww. Let’s have a pity party.
Best thing that could have ever happened to them!!
So I want to open a brokerage account and HBBers are the only investors I trust to give me good advice.
So: Ameritrade, ETrade, Scottrade, or other?
About me: mid-20s, never invested before, only have a few thousand to invest - thus, I am fee-sensitive.
Used to use ScotTrade before I figured out that I need to stick to r.e. LMAO
I dunno if this is much help, but if you check out Kiplinger.com, they have a questionnaire to help you decide which online broker may be best:
http://kiplinger.com/tools/online_brokers/
Etrade does mortgages and apparently second loans in their banking division. I have a brokerage account there and they’ve treated me well but I wonder what kind of exposure their money market accounts have to the housing mess.
I’m most comfortable with Fidelity as a place to park cash but their brokerage side is so-so for the trading platform and speed of execution.
Thanks, all three of you.
Things hitting a little closer to home this week. My wife took the call of the week for me. Our friends, who purchased a home in a Circle G subdivision in Gilbert, AZ (Seville) for just over $1M in Sept. 06 are in trouble and will not be able to meet the higher payment once the reset hits in Nov. 07.
My advice to them was to not make another payment on that house since it doesn’t matter if you owe 1,000,000 or 999,999. Wait until the sheriff comes to kick you out and leave peacefully. With the rate of forclosures skyrocketing, they make get at leaset 6 months of free housing if not more.
They have spoken to others in their subdivision and it seems that they have found plenty of company of folks in the same dilemna. Things are getting interesting indeed.
Of course to add insult to injury, they work in the mortgage industry and their pay has been cut $40% this year. That is why they will be unable to make the higher payment. Hey, it is not their fault that the bank lent them the money and that their employer cut the pay 40%.
BTW, the wife was never in favor of doing this, but the husband kept telling her it would be OK.
Thankfully, they were never able to sell their other home they lived in prior to moving into the big one so they will have a place to return to. Don’t know how that all plays out with forclosures on the big one they can’t afford. I think that they should do all they can to get rid of all the houses to forclosures and just start from scratch - bad credit and all.
Hope they understand the loan comes with recourse, and thus wage garnishment, etc. Once lenders get hits of this size (say $400,000 to $600,000) they won’t be very forgiving. Also hard to get a “good” job when credit score is 500, and even harder to keep once the garnishment hits HR.
If anything will lead to riots this might be it. There will be millions of FB’s stuck with recourse payments and garnishments.
I envision foreign born FB’s packing their bags and going home as opposed to getting stuck facing such a night mare.
> I envision foreign born FB’s packing their bags and going home as opposed to getting stuck facing such a night mare.
It already happens. I know a family with 4 children who went back to Italy. (The husband is an engeener who got tired of working in US as a salesmans technical assistant).
But the best example is a good friend of mine, who bought a house in Palo Alto for $1.2mil. in the beginning of 2006. ( No down, ARM, neg. appreciation.) He used to be a software engeneer fo Yahoo. (Quite a good income). Two months ago he left to Russia to work for Internet search company (Yandex) there.
His wife just rented the house out, she is going to leave now with their junior son. Rent will hardly cover 50% of the expences. The rest will come from his russian salary. (He has a 6 months contract to hire there, the contract says, they will hire him permanently if they see a proven enhancement in the efficiency of their searches. When I talked to him, he said he decided to keep the house, mostly because he beleaves the Fed will pump in so much money, and $ will loose value so fast that in 6 month his debt will be practically insignificant. If this happens, his russian salary translated to $$$ will rise quickly and he will easily afford this house.
Isn’t it nice?
Chrisusc,
Your words remind me how glad I am not be in this type of mess.
The recourse issue is something that I had mentioned, but didn’t know all the details. I told them about possibly getting a 1099 statement for the difference between what is owed and what the house eventually sells at.
I don’t know, fortunately, what would be the best course to take in this situation. My initial thought was maybe expore bankruptcy and try and get rid of all debts possible including the other home that is mortgaged to the hilt. Others on this blog have a better understanding and I need to review past posts relating to this.
I suppose it depends on how much they owe on the new place but it kinda sounds like they didn’t put a lot down. I’m a bit surprised that you could spend that much in AZ for a house - must be a pretty nice place.
In the trading world, the term is bagholder but even in the trading world, you can sell the bag when it hurts too much. Must be pretty tough when this happens to close friends.
micheal,
There are several Circle-G Ranch subdivisions in Gilbert. The older ones (20 years old or so) are very nice with block and brick construction, 1 acre+ lots, no HOAs. The newer ones (like the AZ’s friend has) are nothing but huge stucco boxes. They don’t all look alike like you’d find in a cookie-cutter neighborhood, but they are all built just like each other.
The guy I know in Seville has a tract home (an admittedly BIG tract home, but still a tract home), so he’s in even worse shape than AZ’s friend. No one’s going to buy his house for a million bucks.
85249 is toast,
Great job explaining part of the dilema at hand. I believe my friend’s home was built by Shea. Just like you said, tract home.
The Circle G near Riggs and Gilbert is a nice subdivision due to the non-tract homes that have been constructed there. However, I have 2 friends in that subdivision who bought and built in 2005 and 2006 who now have $800,000 and $1,000,000 mortgages. Of course, in my friend’s minds the homes are worth “at least” double their mortgages. Unfortunately, they are becoming less valuable each day. Homes in the subdivision where going for $500k in 2002.
Tract housing.
Heaven. Or not.
http://upload.wikimedia.org/wikipedia/en/1/14/Markham-suburbs.id.jpg.jpg
“Resistance Is Futile. You Will Be Assimilated.”
The house was purchased for like $1.02m and the first mortgage on the house is $972,000 (option ARM of course) The line of credit on the house is for $195,000. The initial payment on the first mortgage is ~$3100. (Think of how big the loan grows every month as only min. payment is sent)
Yes, as things go bust, it is hard to imagine paying $1M for the house and and that is without the landscaping, pool, etc. As history is written about this bust, it will look even more foolish than it does today. Hey, but at least the granite counters were nice.
This is a probably at 4500 s/f home on a 1 acre lot in a gated community. It does have the seperate casita. But, I didn’t like the home anymore than my 5400 s/f Beazer that I paid $440,000 for in 2004. My home was only on a 1/2 acre though.
Unfortunately, I was unable to keep up with all my friend’s more expensive houses and had to sell and move away due to the shame.
Shame is a lot cheaper.
You friends have a million-dollar shell with no equity. Unreal. And someone else is stucking holding the paper.
“I’m a bit surprised that you could spend that much in AZ for a house”
no sh*t, I was saying the same thing when I moved here (AZ)… I thought I left Newport Beach back in CA. LOL
AZ,
I have an acquaintance who purchased a golf-course lot in Seville last year in hopes of flipping for a profit. It’s been on the market for four months at nearly $1M. No bites whatsoever. He’s on the hook for nearly $750,000 in an I/O ARM. No hope for him.
Hey, it is not their fault that the bank lent them the money and that their employer cut the pay 40%.
“BTW, the wife was never in favor of doing this, but the husband kept telling her it would be OK. ”
WHO is at fault!
Maybe the bank will take a short sale.
Looks like another shoe just hit the floor in Canada:
Coventree Inc., the Canadian firm that failed to sell asset-backed commercial paper because of a credit crunch, said some lenders balked at providing emergency funding for C$700 million ($661 million) of maturing debt.
“Coventree, the largest non-bank issuer of commercial paper in Canada, requested funding because it was unable to refinance debt that matured yesterday. Coventree’s funds are among 17 asset-backed commercial paper issuers in Canada seeking emergency funding, said rating company DBRS.
“Certain liquidity providers have advanced funding, some have disagreed that they have an obligation to fund, some are in discussions with the company, and some have not responded,” the Toronto-based company said in a Canada NewsWire release today.
Shares in Coventree plunged as much as 63 percent, dragging Canadian bank stocks lower, on concern that some its C$16 billion in funds will be forced to default if they can’t get financing. A slump in U.S. subprime mortgages has prompted banks to restrict lending, forcing central banks to inject money into financial markets.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=ad0_5eC8PlAk&refer=home
Oh, Canada…
And especially when $16 Billion Canadian, actually amounts to something~
Is this just rolling over expiring CP? Pretty surprising as that sort of thing was pretty routine until very recently.
Presumably the actual loan portfolio is mostly the kind of stuff the real estate maniacs have been using for financing “long term” real estate assets or inventory with, so one has to think that the other side of this will lead to another round of asset pricing dislocation event markdowns together with growing illiquidity there as well. Cashed in my Canadian money market stuff today in exchange for 30 day Govt of Canada T-Bills. Didn’t even ask what the rate was as any interest is a bonus when one is only concerned about safety of capital.
Below is some info that I just got from an acquaintance who has been looking for a house for about a year. Do you guys think that the broker is trying to keep it a secret from her that her mortgage application didn’t go through?
“We’re working on getting a house now, not a foreclosure. We were supposed to close escrow today but we found out yesterday that our loan docs never made it to the title company last Friday like they were supposed to. Hopefully we’ll close some time this week.”
” [With] with all this stock market fall out you’re going to see money going back into RE.”
This was an e-mail I got from a buddy of mine who has 2 condo rentals in Florida, land in the midwest, and a house being built in the Carribean.
My reply was:
What money? Why would it go to an investment where prices doubled already in 4 years while incomes went up 2-3% per year that same period? Rents far cheaper than a house, tighter credit, which takes a lot of potential buyers out of the market anyway.
I think you are right. A grand total of $100,000 will go back into RE in the entire U.S. with the stock market fall.
The price to earnings ratio of a house is very important. Right now, too high in all the coastal places. You must be talking about home prices in flyover country if you think the great pumpkin of money flow in Real Estate is to appear, Linus.
Pffft. I wouldn’t say I said “prices won’t fall”. My line has always been they haven’t fallen … yet. I don’t predict the future.
I like to be honest, and I like to debunk popular perceptions by poking holes in them.
I don’t try to talk all positive about the real estate market, I only write what I know and what I think. Others think it’s too positive, but it’s not because I’m a real estate agent. It’s just how I see things. I’m liberal in some ways, conservative in others. I like to think I see things as they really are, not influenced by personal (financial) gain.
Huh?
http://biz.yahoo.com/rb/070814/financial_openplatform.html?.v=1
From the OCR.
Mortgage Insider: ‘07 foreclosures top total for housing boom years 2002-2006
http://tinyurl.com/37y97r
What, pray tell…will tomorrow bring?
“The U.S. Federal Reserve took the unusual step of refraining from undertaking an open market operation on Tuesday, in the aftermath of last week’s substantial infusions of liquidity into the banking system.”
“Tuesday was the first working day in three months that the Fed had not undertaken an open market operation.”
But, but, but… I thought that they said this earlier:
“The Fed’s statement said: “In addition, the Desk stands ready to conduct additional operations later in the day as needed.”
“On Friday, the Fed added a hefty $38 billion of liquidity — the biggest temporary addition to the banking system the U.S. central bank had made in a single day since September 19, 2001, in the aftermath of the September 11 attacks.”
“On Thursday, the Fed pumped $24 billion into the U.S. banking system — its biggest single-day cash injection in nearly four months. But that infusion paled in comparison to the ECB’s action earlier in the day, when it provided a record 94.8 billion euros ($130 billion) in extra liquidity.
Fed refrains from injecting cash into market”
http://www.reuters.com/article/ousiv/idUSN1441753120070814?sp=true
Hwy50 — I’m very surprised no one else has brought up tomorrow in particular. I’m not into stocks like so many here, but I pay close attention to everything written here and on other blogs. Seems to me that tomorrow, or Thursday, should be Armageddon Day. Tomorrow those who wish to pull out their hedge fund investments on September 30 must declare their intent. I don’t care how smarmy all the talk is about “Let’s hang together in this and we’ll weather the storm.” People and institutions with big bucks at risk act in their own self interest and will be sliding toward the exit doors before the first shout of “Fire!” I think so many will cut and run that it will be a PPT nightmare. Gotta reiterate, though, that I know nothing more about this stuff than what I read on the NET, and on this date I don’t own a single share of stock. I own gold, cash, reliable guns, and ammo.
“Hey, it is not their fault that the bank lent them the money and that their employer cut the pay 40%.
BTW, the wife was never in favor of doing this, but the husband kept telling her it would be OK.”
Who is at fault?
WE ARE! It can’t be their faults, can it? They’re victims!
Well, I’ll be danged! This 1.4 Million dollar ~2000 sq/ft 4 bedroom ranch on a 115×100′ lot sold in a WEEK!
http://www.flickr.com/photos/tppllc/1010978067/
NPR’s Marketplace program is now openly quoting individuals who describe the current economic status quo as a ‘panic.’
Kai Ryssdal: Mattel shares gave up about 2.5 percent today. Could have been worse, given the rout on Wall Street. Investors threw in the towel early this morning after disappointing earnings news from Wal-Mart and Home Depot. That sowed fears consumer spending might be slowing down. Never a good thing, the analysts will tell you.
For the most part, though, it was the financial sector people were keeping an eye on. The big investment banks like Goldman Sachs and Bear Stearns. Everybody’s waiting for the next shoe to drop as credit keeps getting tighter and tighter. And they didn’t have to wait long today.
Although that thudding sound you might have heard came from an unlikely source. Sentinel Management Group, out of Northbrook, Ill. runs funds that handle trades out of the commodities futures markets. Or at least it did run those funds.
The group said today it’s going to stop letting investors redeem their shares until what it called “the panic” is over. Echoing the news from BNP Paribas of last week, Sentinel’s having trouble figuring out exactly what those shares might be worth.
http://marketplace.publicradio.org/shows/2007/08/14/PM200708142.html
Last post!