Excessive Risks Were Taken & Losses Have To Be Accepted
Some housing bubble news from Wall Street and Washington. The Street.com, “Hovnanian Enterprises’ three-day fire sale over the weekend was billed as the ‘deal of the century,’ but it may just spark a pricing war among all homebuilders. Imagine having bought a home a month ago and now seeing these price cuts. The fear is that this campaign may raise Hovnanian’s cancellation rate. At the end of the day, a surge in gross orders means little if cancellations also jump.”
“‘If a buyer is in their backlog currently, he is not going to be happy with this,’ says one homebuilding analyst who follows the company.”
“‘With all of the negative publicity about the housing market, many homebuyers were hesitant to buy because they worried that even lower prices might be offered later,’ said CEO Ara Hovnanian.”
“This sentence is particularly intriguing, since Hovnanian’s campaign may have just forced the entire country to the sidelines waiting for the next builder fire sale.”
From Reuters. “The mortgage lending crisis deepened on Tuesday, as Impac Mortgage Holdings Inc said it will quit most lending activities. Impac said it will stop making ‘Alt-A’ home loans, its main business, citing ‘market disruptions and illiquidity.’ Such loans often go to people who cannot document income or assets.”
“‘Given the severe dislocation of the marketplace, which included unprecedented margin calls, we are left with no other alternative but to downsize our company to better operate and navigate through this difficult and unrelenting environment,’ CEOJoseph Tomkinson said. He called the credit crisis was the worst in his 25 years in the business.”
“‘We cannot assure you that we will continue to operate as a going concern,’ it said in its quarterly report.”
The Associated Press. “Subprime mortgage lender Accredited Home Lenders Holding Co. said Tuesday it swung to a loss in the quarter ending March 31 almost entirely due losses on the sale of mortgages in the secondary market.”
“Accredited reported a loss of $260.2 million for the quarter ending March 31. Accredited also reserved $25.3 million to pay for defaulted loans in the quarter, up from $16.5 million reserved for losses during the same period last year.”
The Kansas City Star. “NovaStar Financial lost about a fifth of its value Monday after deciding to stop paying dividends to investors. The Kansas City-based subprime mortgage lender said its inability to pay the dividend would cost the company its status as a real estate investment trust. The action also could lead to its delisting by the New York Stock Exchange.”
“The company has gotten out of the retail and wholesale lending business and is now confining itself to managing its investment portfolio and servicing existing loans.”
“‘We continue to take steps to preserve liquidity, mitigate risks and manage our portfolio in the midst of a difficult environment for the mortgage industry and capital markets,’ Scott Hartman, NovaStar’s CEO said. ‘Clearly, we did not anticipate the drop in market value or the level of demands on liquidity caused by the market turmoil this summer.’”
“Lehman Brothers Holdings Inc. posted a decline in quarterly earnings on Tuesday as the U.S. investment bank wrote down mortgage and leveraged loan assets. Lehman said it wrote down some $700 million of residential mortgage positions and loan commitments.”
“In recent weeks, Lehman has said it is cutting more than 2,000 jobs as it scales back its mortgage lending efforts globally, in a sign that the investment bank does not anticipate the subprime mortgage market returning to its recent peaks anytime soon.”
The LA Times. “Mortgage woes dealt a double whammy to the securities industry Monday as online broker E-Trade Financial Corp. slashed its 2007 profit forecast, citing losses on home-equity loans, and Merrill Lynch & Co. said it was cutting jobs at its sub-prime lending operation.”
“The disclosures show how the New York-based financial firms miscalculated in trying to benefit from home loans, a sector outside the companies’ core businesses.”
“E-Trade said it would add $245 million to its accounting allowance for loan losses in the second half of the year. It also might be forced to write off as much as $100 million in its securities portfolio, largely because of troubled bonds backed by home-equity loans.”
“Merrill became the latest investment bank to pare its sub-prime operation when it said it was cutting an undisclosed number of jobs. The cutback is further evidence that Wall Street’s mad dash to buy sub-prime lenders in recent years has backfired badly, analysts said.”
“Merrill bought First Franklin Financial Corp. and a companion loan-servicing operation for $1.3 billion in December. The servicing unit is worth less than $300 million and First Franklin itself is ‘essentially worthless’ — meaning Merrill overpaid by more than $1 billion, said Matthew Howlett, a mortgage-industry analyst.”
“‘That is a textbook business-school study of a company overpaying for something at the top of the market,’ Howlett said.”
“The British government is scrambling to try to contain a run on the country’s fifth-largest mortgage lender amid fears that a sustained panic could damage the national economy.
” “‘People can continue to take their money out of the Northern Rock bank, but if they choose to leave their money in the bank, it will be guaranteed safe and secure,’ treasury chief Alistair Darling said at a Downing Street news conference.”
“Even as Darling spoke, customers lined up at bank branches around Britain to withdraw all or some deposit money. Spooked consumers have removed £2 billion since early Friday.”
“The surprise of Northern Rock PLC’s plight and the speed with which problems surfaced have raised questions about how the potential impact of the collapse of the U.S. subprime-mortgage market on Britain was so underrated.”
From Bloomberg. “A residential real estate slump in Spain, where prices have almost tripled since 1997, is ‘unthinkable,’ the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said.”
“The solvency of the banking system and of real estate developers, as well as the unmet demand for new homes, will prevent any meaningful price erosion, David Taguas, head of the prime minister’s economic research unit, said in an interview yesterday at his office at the presidential palace in Madrid.”
“‘To talk about severe adjustments or a meltdown in prices is ridiculous,’ Taguas said in response to reports pointing to an end of the Spanish real estate boom. ‘That sort of crisis is unthinkable.’”
“A run on mortgage lenders such as Newcastle, U.K.-based Northern Rock Plc or funding difficulties like those at Countrywide Financial Corp. in the U.S. is ‘unthinkable’ in Spain, Taguas said. Such a situation ‘is completely out of the question’ in Spain, Taguas said.”
“The fallout from the U.S. housing market has pushed up the money markets rates that determine mortgage payments. More than 90 percent of Spanish mortgages are variable-rate loans linked to market rates.”
“‘Spain is like the U.S. on speed when it comes to the housing market,’ Diana Choyleva, an economist at Lombard Street Research in London, said. ‘It’s highly likely that there will be falls in nominal prices.’”
“For now, the biggest threat to the Spanish housing market comes from excess supply. About 700,000 new housing units will go on sale this year, 300,000 more than projected demand, says Fernando Rodriguez de Acuna, president of a real estate research firm in Madrid.”
“Central banks’ injections of cash into money markets have merely served to stabilise market rates and should not be seen as bailing out speculators, European Central Bank Governing Council member Christian Noyer said on Tuesday.”
“‘Excessive risks were taken and losses will have to be accepted. It is important that monetary and financial authorities take no action that would prevent this process from running its course, let alone be seen to be condoning past or future excesses,’ he said.”
The News Journal. “Alan Greenspan, former chairman of the Federal Reserve, did not end the 2001 recession. He deferred it. The result may be a far more severe downturn than if the Federal Reserve had been more prudent with interest rates. Yet here is Greenspan in his new memoir, shifting all blame for current economic troubles, including the consequences of the housing bubble.”
“Critics also say ultra-low interest rates on Greenspan’s watch are partly to blame for getting the economy into its current predicament, in which a deflating housing bubble has raised the risk of a recession.”
“‘I’m fully aware of the fact that everyone thinks that the Federal Reserve, back when I was chairman, inflated the economy. Well, we didn’t,’ he told the cable channel CNBC.”
“Critics argue, and have done so for years, that Greenspan was a serial bubble blower, who championed asymmetric monetary policy that slashed credit costs when U.S. markets or growth stumbled, but who was tardy in raising them when the economy was strong.”
“‘When there was anticipation of deflation, the Greenspan Fed was very pro-active. When there was evidence of actual inflation, or other signs of overheating, the Fed was usually a little more dismissive,’ said Gregory Hess, an economics professor at Claremont McKenna College in Claremont, California.”
The International Herald Tribune. “In recent interviews to plug his new memoir, Alan Greenspan has, surprise, surprise, obscured more than he has clarified. He has engaged, seemingly with verve, the question of whether he caused the housing bubble and subsequent bust by keeping interest rates too low for too long.”
“One thing is sure. As long as Greenspan is defining the terms of the debate, there will never be an illuminating discussion of what went wrong to land the economy in the place it is today. The important issue now is not whether, or to what extent, low rates caused the bubble. Easy money, wherever it came from, led to lax, dubious and even fraudulent mortgage lending on a broad scale.”
“The issue is what the Fed did, under Greenspan’s leadership, to rein in that lending. The answer is nothing.”
“To the contrary, putting a stop to bad lending practices is precisely what the Federal Reserve has the power and obligation to do. Greenspan was not inclined to use that power.”
“It’s not important how Greenspan sizes up his tenure at the Fed. What’s important is that Congress learn the right lessons from the bubble and the bust.”
From MarketWatch. “The number of foreclosure filings has more than doubled in the past year, according to a monthly report released Tuesday by RealtyTrac. Nearly a quarter of a million foreclosure filings were reported in August, up 115% from a year ago and up 36% from July.”
“‘The jump in foreclosure filings this month might be the beginning of the next wave of increased foreclosure activity, as a large number of subprime adjustable-rate loans are beginning to reset,’ said CEO James Saccacio.”
From CNN Money. “If Federal Reserve Chairman Ben Bernanke announces a 0.25 percent drop in the Fed fund rate Tuesday afternoon, the impact on housing may be very slight.”
“According to Richard DeKaser, chief economist for National City Corp., a quarter point drop has already been priced into the market for Treasury bills and other instruments tied to mortgage rates. Only a half point rise would have a strong impact on mortgage rates and, by extension, housing markets.”
“Mark Zandi, chief economist for Moody’s Economy.com, said a cut should boost consumer confidence but the ‘mortgage financing plumbing is broken right now. Lower rates will not work the same magic as they did in the past.’”
“According to Keith Gumbinger, a VP at a mortgage industry publisher, the issue right now isn’t the price of money, but the perception of creditworthiness and a broken trust between buyers and sellers of debt.”
“In addition, home prices in many parts of the country remain out of reach for average Americans. That has led to slow sales and lengthening inventories of houses on the market. Also adding to listings is a flood of new foreclosures hitting the market.”
“It didn’t help market confidence that venerated ex-Fed head Alan Greenspan came out and opined on the possibility of double-digit housing price declines, according to economist Dean Baker.”
“‘That has to be very worrisome for anyone lending into these markets,’ said Baker. ‘Lowering the rate [a quarter point] can’t have too much impact.’”
So what is this today, another $2 billion wiped off of balance sheets? I can find that much on almost any business day right now. IMO the housing bubble is bursting right now, and there is no bailout.
“…there is no bailout.”
Ben — Not clear what you mean by this, but it looks to me like politicians are stumbling all over themselves in the rush to cobble together an ad hoc bailout, involving some combination of (taxpayer-funded) mortgage guarantees and a higher conforming loan limit. I predict this will be announced and baked into the cake by this time next week.
Well, you’ve been predicting a BO for a while now. Meanwhile I find bubble billions evaporating everyday.
Ben — I am not predicting; merely repeating what I read in the MSM.
(I guess I did predict — sorry for the slip
.)
They can lower the rate, raise the conforming loan limit, and up the mortgage guarantee all they want, but the fact still remains that there’s very few people already in trouble, that will qualify for a loan. They won’t meet credit guidelines, house appraisals, downpayment qualifications or income guidelines. This housing market is on it’s way down and there’s nothing that’s going to stop it.
RE: This housing market is on it’s way down and there’s nothing that’s going to stop it.
If Greenspam saw none of this coming, imagine what the dolts on Capital Hill know.
When the real numbers for this debacle start crossing desks, our honorable elective body will have a collective coronary.
LMAO…Where is Joe Gobbels when you need him.
No way to stop this monster tsunami.
Agreed! Only a few fools (okay,maybe more than that) are willing to buy at the prices we saw the last several years. Even those that want to commit mortgage suicide can’t qualify. The boneheads on the hill have to realize that it doesn’t matter if they raise what used to be called the “jumbo” loan amount to a million.
PEOPLE CAN’T AFFORD THE PRICES.
Take for example the most liberal amounts available to work with and you see how ridiculous this whole bubble is.
Family with a gross income of 100K a year (again, I said the most liberal amounts). Now these people are looking to buy a 700K house in Orange County.
Figure, you put down 100K, so you have a 600K loan for 30 years. That means a tidy monthly sum of 3,600/month on the loan. Now add another 300 for HOA and 600 for taxes and another 250 a month for upkeep/improvements/etc. That home is going to run you $4,750/month for 360 months. OUCH!
Now using a conservative amount again you should make 3X, but I’ll go 4X your income, which means that you should be bringing in $19,500 a FREGGIN” MONTH, or just under 240K a year.
Therefore, a family making 100K a year should NOT BE BUYING, or HAVE TO fight a market where homes are ON average going for more than 300-400K!
This 600, 700, 800+ BS has to stop.
It is unsustainable! No bailout, other than a full or 50% writeoff of the original purchase price and reworking of the new amount will do. My fear is that when I hear the word grant, that might just be in the works.
However, forgive my diatribe here, the problem with that is people will be stuck in their overpriced homes because no one will buy them in the future. Second, banks will automatically shut the windows on any new loans, except if you have 40-50% down and 1-2 years reserves, AND are spendingf no more than 2-3X income! In other words, the entire market will come to a halt.
The affluent lifestyles that are portrayed in the media and sought after by the average joe cannot be sustained. I see people here in my community living in these 600, 700, 800K + homes, dining out, driving hummers, dressing to the 9’s and I wonder, where do they work that they can earn enough money to support themselves to this level? My husband makes a damn decent wage and we certainly can’t! They have to be digging themselves into debt to keep up these fashionable appearances, and yet, there doesn’t seem an end to it. I just don’t get it.
400K is too much for a family making 100K/year. If they put down 80K (good luck with that if house prices aren’t rising) they would have a mortgage payment of ~ 2000/month. If you add 620 for taxes (taxes for a 400k house in my area), 100 for insurance, 200 for upkeep and no HOA the monthly nut will now be ~3000.
3x income should be a MAX unless your sitting on a pile of $$$
Agree that $2,000/mo is the UPPER end of what a $100K earner should pay in monthly housing costs (total PITI, might not include some maintenance). Oh, and that’s without any other debts!
People have been smoking crack with their dreams of $3K housing costs for an “average” family. Not sustainable.
Wittbelle, Those affluent lifestyles are paid by the VISA card. Most families carry a huge amount of debt - getting by with the minimum CC payment. They have no savings, except of course, the 30% off when they purchased the item “on sale” (such a good deal, they just couldn’t pass it up). Credit cards are the money of last resort. Welcome to Debtor’s Prison Planet.
They are stumbling all over themselves as usual, but they will come up with to little to late IMHO. The word “grant” is bound to start popping up as the media starts really piling on the heart wrenching stories, were the not to bright are hitting the skids en mass.
we all know that bailout is not possible due to the massive amount involved. beside, it’s just mostly the poor and middle class anyway; the elites are still sitting pretty.
Not according to the most recent FL post here at HBB. Looks like several “rich elites” have home on the auction bloc as well.
Obama just proposed an 80billion tax cut, to be paid for by raising taxes on investors.
Another guy without a clue about the economy.
But spike…. how do you reconcile that with the half trillion tax cut by Bush for the wealthiest of wealthys? The money was and is borrowed and to be paid back by average folks like us.
Politicians can’t help but make things worse - it’s what they do.
Bush and the Fed are determined to make the US just another Argentina. We have corrupt politicians, collapsing currency, secret, end runs around the constitution, and a widening gap between rich and poor and a disappearing middle class. Now we have candidates announcing they are economic imbeciles. What a happy day.
Exeter,
First, stop with the liberal ten second sound bites about only the rich this or rch that.
Second, How do you cut taxes for someone who DOESN”T pay any taxes? The tax reform included the child care CREDIT so people who pay no taxes now GET money from the gov’t.
third, cap gains reduction helps J6P by allowing him to keep more when he sells his house and when the mutual fund sells stock in his 401(k).
Fourth, gov’t revenues are UP, just like when FK cut taxes.
So, Ex, please stop the with the DNC talking points.
Jayinmd
Look at a wage earners paycheck someday - even poor working folks pay taxes, Social Security, Medicare - even if they pay little in actual income taxes.
I’m not sure how cap gains reductions help J6P and his 401K -
since taxes are deferred until withdrawal at which point he’ll likely be in a much lower tax bracket.
Besides the definition of J6P is no 401K.
Since everyone is entitled to 250k-1/2 mil in tax free proceeds from a house sale J6P’s covered on that account.
What J6P is on the hook for is paying a huge percentage of his taxes for decades to cover the interest on the deficit that financed tax cuts that went into the pockets of the wealthiest Americans, who aren’t paying their fair share back because… they got huge tax cuts.
It isn’t complicated
We need some government - enough regulation/enforcement to make the playing field level, and to keep folks honest.
It costs money to do and we all need to chip in our fair share to pay for it.
A “tax cut” that results in a defect isn’t a tax cut at all, it’s a loan. As far as I’m concerned if your hollering for a tax cut before you’ve cut the the budget to free up excess dollars you’re not a fiscal conservative - you’re just greedy and full of shit
mossypete in Cali
Why should I have to pay more in income taxes than some trust fund baby sitting on his ass? Part of the original reason for this housing bubble is precisely the 15% capital gains rate. Restoring the capital gains tax to either parity with income tax levels or rasing it a bit higher is only fair and would do a heck of a lot more to control future speculative bubbles than fiddling with the federal funds rate.
Our tax code really needs to be looked at. I still can picture my daughter’s face when she opened the envelope with her grant check for grad school and saw that a quarter of it was missing — due to income tax. It was a GRANT, for god sakes, and it was just WRONG.
Depends on your definition…
In default on massive, overpriced mortgage debt “rich elite”
With all the recent bad press and constant questions about causing the housing bubble, rumors are that Greenspan is mulling changing his new book title to ‘If I Did It (started housing bubble), What’s The Big Whoop, Senior Moment Maybe’, in a brilliant classic ‘Maestro’ bad press reversal attempt to boost sluggish sales. He is said to be annoyed by recent competitor’s (not guilty Maestro) book sales taking off, and the cheesy Las Vegas stunt grabbing headlines. Also rumored that competitor in jail cell is writing a new book titled ‘ If I Wrote That Book’, in which competitor claims he never wrote that 1st book, and is counter suing Goldman for 30 mil. This would allow him to keep all profit from his ‘new’ book, while canceling out his 30 mil owed to Goldman, and prevent (kill sales seemed inappropriate here) any profit from that 1st book that he ‘did not’ write. Some have advised Greeny that using the new book title could be a severe legal and personal safety issue down the road. It’s ‘not nice’ to anger other ‘Maestros’. Golly, this book writing isn’t what it used to be.
LOL. Nice.
Funny, BottomFisher!
Speaking of confidence…
bulletin
U.S. RESIDENTIAL-BUILDER-CONFIDENCE INDEX FALLS TO LOWEST LEVEL EVER
Builders’ confidence falls to lowest level ever in September
By Rex Nutting
Last Update: 1:00 PM ET Sep 18, 2007
WASHINGTON (MarketWatch) - U.S. home builders are as pessimistic as they’ve ever been over the past 22 years, the National Association of Home Builders reported Tuesday. The NAHB/Wells Fargo housing market index fell two points in September to 20, matching the all-time low for the index set in January 1991. The index dates back to 1985. The index has fallen by 16 points in the past six months. At 20, the index indicates that about one fifth of the builders say the housing market is good. All three components of the home builders’ index were at cyclical lows in September, with two of them at all-time lows. Confidence fell to cyclical lows in all four regions of the country, with the biggest decline coming in the West.
http://www.marketwatch.com/news/story/us-residential-builder-confidence-index-falls-lowest/story.aspx?guid=%7B97F5A848%2DFAF5%2D443C%2D9B9D%2D44FCA7351DFC%7D&dist=
Some more thoughts on the NAHB numbers, if you’re interested:
* The overall NAHB index dropped 2 points to 20 in September. That matched economists’ forecasts. It also ties the all-time low of 20 in January 1991 (for perspective’s sake, the cycle peak for this measure was 72 in June 2005)
* Two out of three sub-indices declined. The index tracking present single-family home sales dropped to 20 from 22 in August. And the index tracking estimates of future SFH sales fell to 26 from 31. Meanwhile, the index measuring prospective buyer traffic held steady at 16.
* Regionally, buyer traffic declined in all four areas — the Northeast (-3 points), Midwest (-1), South (-2), and West (-4).
These figures aren’t much of a surprise given the mortgage market turmoil we’ve been seeing. It has become harder to obtain home financing, and more recently, job growth has deteriorated. The end result is weaker housing market conditions. Builders are starting to respond to these troubled times by holding “fire sales,” like Hovnanian’s recent “Deal of the Century” program. Those price cuts will eventually succeed in bringing inventory levels down, but it’s going to take a long time given the magnitude of the supply glut.
Must be time to redefine the index!
“It also ties the all-time low of 20 in January 1991 (for perspective’s sake, the cycle peak for this measure was 72 in June 2005)”
The early-1990s U.S. recession was dated (by the NBER) to last from July 1990-March 1991. So we are currently at a level of builder confidence that matches the depth at the middle of the last substantial recession…
You’ve got that right, Ben
The day is not far off when a billion dollars will seem like a lot again, or Heliben will need stealth fighter planes and not just helicopters.
well, at least judging from the 28-year high in the gold price and a new low for the US dollar, Heli Ben is already hugely effective with just his helicopters …
“For now, the biggest threat to the Spanish housing market comes from excess supply. About 700,000 new housing units will go on sale this year, 300,000 more than projected demand, says Fernando Rodriguez de Acuna, president of a real estate research firm in Madrid.”
By my own calculations, U.S. builders were recently building at a pace in excess of over 500,000 per year above the recent absorption rate. But 300,000 is certainly larger as a share of the number of Spanish households than 500,000 is as a share of the number of U.S. households (114m in the latter case). We are only building one extra home per 228 households per year — no big deal I guess, as long as second home demand is running strong.
Had a friend from Spain just visited the States last week. Went to Yellowstone and Yosemite and did all the park tours. Said his adjustable rate mortgage went up and his payment went from 700 euro to 900 euro. He was absolutely shock when I told him people here in America are getting 6.5% APR, while he was seeing his APR increase to ~4.75%. I think Spain housing price makes the Bay Area price looks reasonble.
Cinch
I struck up a conversation with a visiting economics graduate from Italy last night. He is a broker for a bank in the north. I asked him what were good investment stocks in his county right now. In his halting english, he told there were no good investments currently, due to the subprime mess.
We went to Spain in early 2004 and did some driving within the country. We stayed a night outside Valencia (pretty fair distance from town) in a new golf course resort community. I couldn’t believe what they were asking (over the equivant of $400K) for some pretty ugly new houses there. This was in the middle of nowhere - just a ho-hum village up the road and about 20 minutes from Valencia.
and I can assure you that the Netherlands and parts of the UK and Ireland are even more expensive. Current US home prices look extremely low to me, even without taking the exchange rate into consideration.
Hey nhz,
ecver thought of picking up a nice apt. in nyc or a beach place in florida. with the dollar collapsing, you could probably get one with your spare change.
with the current US government I would not think for a second about moving to the US, not even for a vacation. But current RE prices sure sound attractive (except probably for NYC en some parts of CA).
that’s the funny part of this bubble: I keep reading the complaints about housing that is way too expensive, but in Europe despite much lower incomes housing is FAR more expensive than in 95% of the US. So I’m a bit surprised that the EU speculators are not buying in the US on a massive scale, and buy more expensive properties in or near EU instead. Must be a psychological thing …
su casa es chingada
lol
I’ve always wondered what percentage of houses become unihabitable every year, due to flood, fire, rezoning, falling apart, etc. It would seem that the removal of 1% of houses per year would feed to continuing need for new houses. I can see the 1920’s shack being condemed, and everyone moving up the food chain when the occupants must find a new place to live. I guess there is a sustainable level of new home building at all times.
I have noticed that with housing, the lifespan of a building goes like this:
1) New construction (based on current standards)
2) 15-20 years - Updates, HVAC replacement, new roof
3) 40-50 years - Decision point: tear down or complete rehab (up to current standards)
4) 65-75 years - Updates again (If done, it moves toward historical status at 100 years)
There are many neighborhoods on the east coast over 75 years old which are pretty nice. (See brownstone and areas of Philadelphia) Many other at 50 years old are being torn down (see large areas of Baltimore City, older suburban areas)
In the suburban areas, many of the “over 50″ houses were torn down for McMansions during the last boom. I suspect that many of the houses built during the post WW-II period will be torn down after the elderly move away and this bubble makes the newer houses cheaper. (Also land values will decline in the older areas making it cheaper for “suburban renewal” to occur)
The cost of ownership, or should I said the hidden cost of ownership that few talks about. Don’t forget to add in property tax and insurance, and then the house becomes a money pit in the long run.
A well built house with aesthetics and in a good location will have a longer functional life span, but it too goes through the phases you stated above.
In terms of life span from short to very long (human idea of long that is).
1. poorly constructed modern spec house
2. a generation ago of fairly constructed spec house
3. well built craftsman house built in the 20’s, 30’s, 40’s etc
4. well built brownstone in Manhatten with particular attention to details and craftsmanship
5. aesthetically very pleasing stone structures (flats and houses) in old Europe think Venice
6. the pyraminds of Egypt
However, all have lifespans and require upkeep, you know like property tax, mowing the grass, HOA fees and in the case of the pyramids hiring guards guarding treasures. LOL
Cinch
“A residential real estate slump in Spain, where prices have almost tripled since 1997, is ‘unthinkable,’ the top economic adviser of Prime Minister Jose Luis Rodriguez Zapatero said.”
Wishful thinking at this point, I suspect. The Spanish property market has all the hallmarks of an unsustainable bubble, which I expect to burst sooner or later.
“By my own calculations, U.S. builders were recently building at a pace in excess of over 500,000 per year above the recent absorption rate. But 300,000 is certainly larger as a share of the number of Spanish households than 500,000 is as a share of the number of U.S. households (114m in the latter case). We are only building one extra home per 228 households per year — no big deal I guess, as long as second home demand is running strong. ”
The inventory is currently running around 7%, that’s 7 million homes, so adding another 500,000 is exacerbating an already enormous problem. When the Spanish turn off the tap, which they inevitably will, their problem will be that much worse.
More than 90 percent of Spanish mortgages are variable-rate loans linked to market rates.”
Sounds like the U.S. of A. circa 1920s.
they were expecting to get paid ?
“NovaStar Financial lost about a fifth of its value Monday after deciding to stop paying dividends to investors.
Yeah, well just wait until everyone expects to get paid or be paid back.
Got Debt (I hope NOT!)?
PB:
I’m not trying to put words in Ben’s mouth but I think he means that in total, the non-marked to market debt cannot be aborbed by inflating a stock market bubble or CBs liquidity injections.
I’m still clueless as to how rallying the market could possibly 1: reinflate the housing market given affordability issues or 2: rally the market to somehow absorb or spread around all of that bad debt?
I’m really not sure what the rah-rah, cut the rate cheerleaders think is going to happen? When they say it will loosen up the banks what does that mean?
nova
To me (and I’m far from a pro) it means it will facilitate unwinding with less ‘friction’. I believe that - although we will probably get some kind of equities bounce - anything the Fed does at this point will just facilitate the lowering of asset class values. Im hopefull that by the end of the year we will have an S&P in the mid 13’s.
“I’m really not sure what the rah-rah, cut the rate cheerleaders think is going to happen?”
Imagine a bunch of alcoholics at a wild party when a surprise delivery of another keg of beer arrives, and you will get the idea.
Got a funnel?
Boy, does that bring back some memories……
Man, all this talk of liquidity has got me thirsty. I know, I know, it’s only half past noon but somewhere that equals beer-thirty.
Half past noon means I’m at least 30 minutes late for that first brewsky.
I think what it means is lenders with this crap on the books can continue to keep it on the books with a lower rate being charged to them as long as the lender itself can carry the il-liquid assets and continue operating. Yes?
I was thinking that, with the rate low, the lenders could get rid of a small number of their underperforming assets (foreclosures) during this dead cat bounce. They can sell for small discounts before they have to sell for big ones. But this assumes that the banks will be forward-thinking.
We’re all screwed.
Taguas said in response to reports pointing to an end of the Spanish real estate boom. ‘That sort of crisis is unthinkable.’”
This joker needs to start whistling OJ’s favorite tune “if I only had a brain”.
Now that a bureaucrat has said that, I think the Spaniards are in for a world of hurt.
Having to deny it means there is fear of it. And fear of it means it will happen.
Is there a Case-Shiller index equivalent for Spain? I think I know the answer (no) but thought I’d ask anyway.
No-one expects the Spanish Inquisition!
(apologies to Monty Python)
Just met with a Trex (wood-composite decking manufacturer) representative, he alerted me to the closure of their Mississippi plant (they have two other plants, but the MS plant is the newest).
The plant shut down this week, the 115 employees will receiving pay through November. The direct reason was the slowdown in the building and remodeling industry.
http://www.manufacturing.net/Trex-Shuttering-Miss-Plant.aspx
wow, this is going to sck
wasn’t trex mostly a remodel product ?
Thanks for that update. Wood manufacturing is historically a leading indicator of an economic turndown. Oh, I keep forgetting, it’s different this time.
Not just different this time, but DIFFERENT HERE!
“Mark Zandi, chief economist for Moody’s Economy.com, said a cut should boost consumer confidence but the ‘mortgage financing plumbing is broken right now. Lower rates will not work the same magic as they did in the past.’”
I have to laugh when I read that a rate cut will “boost consumer confidence”. Tell me how that works in the real world.
Consumer confidence in credit cards and home (non)equity? People are freakin’ BROKE. How does a rate cut translate to a miraculous improvement in some consuming sap’s bottom line?
The only time I feel “consumer confident” is when I have no debt.
Seems like “consumer confidence” is a misnomer.
Slim’s a confident consumer. That’s because I don’t go into debt to buy things.
Hey Slim,
What’s shakin’ in Tucson? Was there a couple of wknds ago and was astounded at the inventory….wow.
Glad you asked, Catherine!
I’m finding that a lot of new inventory is joining the old-moldy inventory. And prices are still at ridiculous levels. Take, for example, these $600,000 condos just east of the oh-so-desirable Sam Hughes neighborhood:
http://www.sanctuaryshadows.com/
I guess we’re supposed to be impressed because they’re LOFT condos, but puh-leaze! $600k and you still have to touch walls with your neighbor?
Further down East Third Street, we have:
http://www.indigomodern.com/
More condos with music that’s interfering with my iTunes player. There. I just shut down the browser showing the Indigo site. Much better.
Heard that the Indigos are being offered at $200k, but the project appears to be stalled. I haven’t seen much change since the middle of the summer. And summer in Tucson lasts a long time.
Oh, that dang dog from across the street is barking again. Last month, I saw a lot of fixup activity on that property. (It’s a case of “Daddy bought it for daughter to live in while she goes to the university.” However, daughter vacated the premises in March, so now it’s just another student rental. Daughter left her noisy dogs there, much to the chagrin of me and other neighbors.)
Any-hoo, the dog has stopped barking, so back to my story about the fixup activity. They were really going to town on redoing the yard and making much-needed repairs to the house. But all of this came to a screeching halt after mom lost her job at First Magnus. (Mom and Dad are divorced, but Dad probably hit her up for a First Magnus HELOC. Wonder how that’s working out now.
Meanwhile, the number of vacant properties in my immediate vicinity is up to nine. Three of them have signs out front, and I expect that another one soon will. (That was a case of Daddy buying a rundown house and fixing it up for his daughter and her boyfriend. Then daughter dropped out of school and ran off to Hawaii. No Tucson house for her…)
Five of the other vacant houses are rentals, and four of those rentals are on lot-splits where one house was joined by a quickly-built cheapo house in back. They haven’t turned out to be the tenant magnets that their investor-owners were hoping for.
And that’s the Arizona Slim report from Tucson!
I’m confident, but not much of a consumer. Can I get partial credit?
I also wonder exactly what takes place inside the mind of the average (in debt up to their eyeballs) consumer as his/her so called “confidence” is boosted by a fraction of a point rate cut.
Is it a sequenced thought process that the thinker is actually aware of when doing this thinking?
Or is it some kind of primative feeling that originates in the lower part of the brain that is triggered by a percieved “positive” stimulus such as hearing the words “rate cut”, which in turn effects the “confidence boosted consumer” in such a way as to conclude “I need to buy more stuff”.
Catherine, you raise an excellent question. You have to realize that with all the debt this country has, confidence is all that is left in this (hallowed-out) shell game/Ponzi scheme of a 13Trillion dollar paper-shuffling, back rub, poetry, feel-good snake oil selling economy that we have. Yeah, I know we still produce stuff and good stuff at that. But manufacturing is way down since WWII. If the sheeple ever woke up and stopped spending, even for a day, it would worry the Banksters to no end.
In fact, if we stopped for a week, we might kill the ameriKon economy!
The OCDan family is a bunch of deadbeats. Why? We have no CC debt or any other debt, for that matter, thank you very much! In fact, one of my cards is overpaid. Not by a alot, but still not sure whether I want to keep it on the account or just use it. The amount would pay for our Netflix the next several months, at any rate. Therefore, my confidence is very high. I sleep sound at night. Very sound! When I buy using cash or debit I know it is paid for, at least by me. Of course the actual fiat money is a debt to be repaid, but at least I will not be getting a BofA bill with 87.54645% interest compounded every other day it is sunny with a prepayment penalty of 107% and an usage charge of 32.4567%, which would make the Sopranos blush.
I know we get on the sheeple and J6P alot on this board. However, I think that most of these people do what they do because it is the only coping mechanism they have. For many of these people the thought of working 50 years, probably with no pension or SS, is distressing. Therefore, live it up. Who the Heck cares? 100K in CC debt. Declare BK and start over.
I had an uncle, before he died, who not once, but twice declared BK. And this was a man who fought in WW2, so he understood hardship and grew up with parents who lived through a depression. However, he always wanted to be the big guy, but he didn’t want to work his way up. Thought being a janitor and linoleum layer meant he could buy cadillacs. There is nothing wrong whatsoever with those jobs. However, living within your means was always a problem for him. He also wanted to live it up and show off a little.
OcDan,
I am also officially a deadbeat. Never pay interest, haven’t in years. Owe nothing. I am one disillusioned American. Besides, food and rent, I’m not buying anything. I’m on strike. Screw the consumer economy.
I had an econ teacher in HS who said his goal was to die $1M in debt, net Assets-Liabilities. He was single. That was the early 70’s.
It also might be forced to write off as much as $100 million in its securities portfolio, largely because of troubled bonds backed by home-equity loans.”
$100 million. Is that enough?
where are all the records that should be broken? foreclosures, NODs etc.
i believe that this bust will set the records for foreclosures. i’m hearing “worst in 15 years” etc. but i’m waiting to hear “worst ever recorded” or “smashed all records” or something like that.
worst in 15 or twenty years just doesn’t impress me..
Check the graph of rate of Notice of Defaults. We’re quickly approaching “worst ever”, but the line is NO WHERE near starting to level off. We’re still at the point where the rate of increase is still increasing. We’re 2nd direvitive from flat line.
Link? And is this population adjusted?
“It didn’t help market confidence that venerated ex-Fed head Alan Greenspan came out and opined on the possibility of double-digit housing price declines, according to economist Dean Baker.”
Will history pin the blame for igniting the panic on AG’s recent comments, even though the panic has been playing out for a month already?
from street.com Interesting commentary, and perhaps astute prediction.
Imagine having bought a home a month ago and now seeing these price cuts. The fear is that this campaign may raise Hovnanian’s cancellation rate. At the end of the day, a surge in gross orders means little if cancellations also jump.
“If a buyer is in their backlog currently, he is not going to be happy with this,” says one homebuilding analyst who follows the company.
Of course, if you listen to Ara Hovnanian, the company’s chief executive, the sales promotion exceeded expectations.
uhoh.
HOV is only doing what the car manufacturers did several yrs ago. 0%, $0 down, rd tag blow out, blah, blah blah. All they did was pull sales several yrs forward and set the stage for the only way to sell a car now is with a “sale of the century” People expect it. Just like at Xmas time now, people wait until the last minute sales as Wally world and others scramble to make profits.
The future will be that prices will come down and people will expect “freebies” galore. HOV is only setting them selves up for long term problems. Look at the autos, did the big deal sales events save them? No, things only got worse, later. And HOV is now doing the same, trying to stay afloat and hoping that the future will be better. WRONG!!!
It didn’t work for autos and even Wally World now has to cut cut cut in order to sell their cheap chinese made crap.
Actually, Hovnanian is the genius among homebuilders because they are running for the exits first. The other homebuilders will be forced to follow suit, only in even worse market conditions.
Yep, the Prisoner’s Dilema.
Yeah, I see your point.
The first guy to eat the “sandwich” gets more bread and less crap
“Merrill bought First Franklin Financial Corp. and a companion loan-servicing operation for $1.3 billion in December. The servicing unit is worth less than $300 million and First Franklin itself is ‘essentially worthless’ — meaning Merrill overpaid by more than $1 billion, said Matthew Howlett, a mortgage-industry analyst.”
Some of these statements are truly mind boggling.
Got assets?
So Merrill, just like a neophyte investor, buys a lemon at the top of the market. So, just how smart are these Wall Street players.
Judging by hedgefundanalyst, they are pretty dumb. I remember an exchange wherein he didn’t think the demographic makeup of third world countries was an important risk factor. I guess they are all momentum investors, and genius is a bull market.
Well, since they own the Fed, they can be pretty stupid and still make out like bandits. Free-market capitalism–please let me know if there is a country that still has a market economy.
sure, the investment banks must have made out like bandits again on FED day. I’m sure they were in the know about this 0.5% cut, and also in Europe the market action from the previous day suggests that the big players knew what was coming (or maybe it is just that they know that big speculators will always be bailed out, so they prefer maximum risk anyway?).
” At 20, the index indicates that about one fifth of the builders say the housing market is good.”
Are you kidding me? one fifth of the builders in America still think the housing market is GOOD! And we make fun of Joe 6 Pack. Where are these idiot builders? Who is financing these idiot builders? Or is this just another Moody’s type survey that rated all the Sub Prime market bonds “AAA” and claims they wer fooled by the banks and lenders. These surveys are hazardous to my wealth
They are in markets all over the country that haven’t declined a penny.
And where might those markets be?
I know some markets in Alabama that have not yet contracted. They were late to the bubble, have hit peak but haven’t contracted yet. Prices still up. (though sales have slowed, so only a matter of time before you here the big hissing sound)
sorry “hear” not ‘here’. Or is that hear the sound here?
birmingham- and drill rig areas
also new auto plant areas
Hmmm. Maybe those builders working in the areas laid waste by Hurricane Katrina? At least they didn’t have any costs for demoing–Mother Nature did it for them!
They’re like that one dentist in five that recommends sugary gum.
you got that wrong - that fifth dentist recommended chewing tobacco.
“Hovnanian Enterprises’ three-day fire sale over the weekend was billed as the ‘deal of the century,’ but it may just spark a pricing war among all homebuilders.”
I’m confused. Wasn’t it last month when some homebuilder yahoo said they all needed to just start raising prices to screw over buyers and get everyone in a buying panic again?
How’s that working for ya?
In this weakened state what would happen if there were a circumstance or occurence in the US that would push it over the edge? Like earthquake, storm, or some other thing that would disrupt the economy, society? Things could get real interesting then would they not?
Just as Mr Greenjeans opined about “irrational exuberance” it is also easy to have irrational doomerism but no doubt we are in uncharted territory here.
Don’t be doggin’ Mr. Greenjeans!! I grew up with him, Bunny rabbit and Captain Kangaroo, so no doggin’ them either!!
“Central banks’ injections of cash into money markets have merely served to stabilise market rates and should not be seen as bailing out speculators, European Central Bank Governing Council member Christian Noyer said on Tuesday.”
How should these cash injections be viewed, then? From here, they look an awful lot like a dilution of the currency to bail out fools at the price of a stealth tax on innocent third parties (anyone who is forced by fiat to hold the currency in question as a store of value).
I believe they are short term loans.
That remains to be seen whether it is a short term loan or monetization of debt. In the event of bank failures, it is clearly monetization. If the short term loan becomes ‘evergreen’, I would consider that monetization of debt. If any CB accepts worthless paper as collateral it becomes a source for monetization.
to me the ECB injections look an awful lot like monetization. The loans have been extended to three months (minimum) now and that is all we are allowed to know. The ECB doesn’t even tell which banks it made these loans to and what the conditions are; probably they are accepting all junk mortgages at face value. If some of these banks fail within the next few months, EU taxpayers will get stuck with the bill. And unlike all the easy words about not bailing out the speculators from all these burocrats, that is exactly what the ECB is doing and the moment.
Here is a bank in trouble, this, from today’s NYT:
EverBank, which is privately held, agreed in May to buy some of NetBank’s consumer and brokerage deposits, as well as its business finance unit and other assets.
The deal was expected to close in early summer, but EverBank said “it became clear” that NetBank could not meet conditions required to close and to win regulatory approval.
On July 1, EverBank, based in Jacksonville, Fla., did complete the purchase of NetBank’s mortgage servicing portfolio.
NetBank, based in Alpharetta, Ga., has struggled with mounting operating losses amid a tough interest-rate environment and lower mortgage originations.
It was not immediately clear what options NetBank still had for its remaining operations.
Maria Bartiromo’s interview with Greenspan was quite disappointing. Instead of using this opportunity to ask some hard questions, her behavior seemed childish : she was happy and content to get done with the interview and gloat over the viewership ratings.
She seems like an over rated TV journalist.
She has the job because her tiny little skull make her eyes and mouth look HUGE in comparison. You expect her to be hard-hitting and serious journalist? Hello, Greenspin is trying to sell books, not let people know what is going on. If they hit him hard, how would they get future guests?
Adding…
Sometimes I think they should run those “this is paid programming and we’re not responsible for the content” before their “Millionaire Inside” and “Big Idea” type programs that they run in the evenings!
She probably had her mind on that Citigroup private client group dude she’s been sleeping with.
Don’t even get me started with that sorry-A$$ excuse of a journalist. She might as well don the HS cheerleading oufit for all the happy thoughts she has. Besides, the only reason she has that job is because of who she knows and what she looks like. While not a perfect 10, she has that kind of look that TV types like.
It’s not who you know but who you blow.
She always has been. If she wasn’t halfway cute she’d probably be busing tables (no offense to restaurant workers, been there, done that).
I was looking forward to Greenspan’s 60 minute interview, but I too was disappointed. I wanted her to ask, “what did you know and when did you know what your financial decisions would do to the mortgage industry. It was a “cotton candy” interview: sweet, no substance. 60 minutes blew it.
they will ,but they get to keep the deposit
he fear is that this campaign may raise Hovnanian’s cancellation rate. At the end of the day, a surge in gross orders means little if cancellations also jump.”
Flash: Mervyn King shreds speech. Eats words.
Flash: Fed cuts target rate by 50 basis points.
Also, cuts 50 at discount window.
Bears cover shorts. Markets rally.
KOOLAIDE ALL AROUND
HORRAY!!!
GUESS WHAT AMERICA YOUR STILL BROKE, LAP UP WHAT THEY GIVE YA.
Truer words never spoke JungleMan!
Party like it’s 1999?
Sept. 18 (Bloomberg) — The following is the full text of the statement released today by the Federal Reserve:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 50 basis points to 4 3/4 percent.
Economic growth was moderate during the first half of the year, but the tightening of credit conditions has the potential to intensify the housing correction and to restrain economic growth more generally. Today’s action is intended to help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets and to promote moderate growth over time.
Readings on core inflation have improved modestly this year. However, the Committee judges that some inflation risks remain, and it will continue to monitor inflation developments carefully.
Developments in financial markets since the Committee’s last regular meeting have increased the uncertainty surrounding the economic outlook. The Committee will continue to assess the effects of these and other developments on economic prospects and will act as needed to foster price stability and sustainable economic growth.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Thomas M. Hoenig; Donald L. Kohn; Randall S. Kroszner; Frederic S. Mishkin; Charles L. Evans; William Poole; Eric S. Rosengren; and Kevin M. Warsh.
In a related action, the Board of Governors unanimously approved a 50 basis point decrease in the discount rate to 5 1/4 percent. In taking this action, the Board approved the requests submitted by the Boards of Directors of the Federal Reserve banks of Boston, New York, Cleveland, St. Louis, Minneapolis, Kansas City and San Francisco.
somebody get Skilling’s attorney in here, we need to go over some “govt. Docs.”
The insane run the asylum.
I just opened my wallet to find that my Benjamins (Franklin) turned into Bernankes.
Damn. Bendover Bernacke indeed.
Total panic move. Oil to 90 this year
Gosh….time to get another ARM. Yippee!
Wait a minute…I thought that we were in a “Goldilocks” economy…why do we need a rate cut?
And why punish prospective savers with lower rates, and reward HELOCers with lower payments?
Drives me crazy…
“The economy is as strong as I have seen it at any time in my 32 year business career.” -Hank Paulson, treasury secretary.
Helicopters airborne!
This is getting ridiculous. At the FOMC meeting, they must have decided to make the patient sicker.
I hope LT rates go to the moon.
Your wish is being granted as we speak…..
Surprise! Surprise!
BB was a whore! BB is a whore! BB will continue to be a whore!
I made a frickin’ killing off this rate cut! Ahahahaha! Woot, baby!!!
I will give you one peso for 100 of your ‘dollars’.
So did I, as I am 50-50 stocks and treasuries…however, I’m starting to look for the exits for most of the remaining stock money. Remember that Credit Suisse arm reset chart? Whoa, Nelly!
Oh yeah, I’m totally out of my longs now, in a holding pattern. I haven’t the slightest clue where the market is going now, although the future direction of dollar is pretty obvious.
The irony is those dollars will be worthless everywhere but in the US and maybe Zimbabwe!
50 base rate cut.
Yeah I see. Kiss the dollar goodbye.
This rally will happen for a week or two till people realize, this sh*t ain’t working and the market will crash more.
They just buried the dollar. It’s over.
http://finance.yahoo.com/charts#chart1:symbol=usdeur=x;range=1d;charttype=line;crosshair=on;logscale=on;source=undefined
Off a cliff!
Nice post. I knew I should have bet the Euro. Could have made a small killing in 1 day!
holy sh!t!
Get your bicycle greased up and ready. Gas will hit $5 a gallon by end of September.
Oil Hits New Record Ahead of Fed Meeting
http://biz.yahoo.com/ap/070918/oil_prices.html?.v=20
“Oil futures jumped to new records Tuesday as traders bet that a Federal Reserve interest rate cut could stimulate economic growth and increase demand at a time when crude oil and gasoline inventories are tight.”
…
“Moreover, many analysts see a weaker dollar as a natural side effect of lower rates, and that could promote buying of oil contracts by foreign investors.”
Good thing that rising gas prices aren’t really part of “inflation”, right?
I believe that crude is still denominated in US dollars world-wide. If that’s the case, then $100/bbl oil by end of the month.
Having said a FFR cut is “in the bag” about a month ago, I wonder if I can make it two-for-two.
Good Lord. Tell me he didn’t slash 1/2%. BB is nuts. OPEC is surely going to raise oil prices. I am glad that I live within walking (if I had to) and at least biking distance. Man, the pain of $5-7 a gallon gas is so going to put a crimp in the economy.
Candy Christmas?
I don’t think we’ll see $5 gas. Demand destruction is ahead of oil prices. All plastic products will increase in price though.
Man: “Honey, the Fed cut the rate by 0.5% today!”
Wife: “Oh good, now our ARM won’t go up anymore!”
Man: “Let me log into our account at Countrywide to check out our mortgage intrest rate status, and see how much we owe this month”
.
.
.
.
.
Man (solemnly): “Honey, what’s the LIBOR?”
We just moved to a new place where there is city bus service less than a block from here. The bus costs 25 cents for regular riders and 15 cents for seniors and school kids. Guess who will be happy to ride the bus to the mall?!
Demand destruction? So you are going to quit driving to work? More likely you will cut back on something else…food, medicine, etc.
“Man: “Honey, the Fed cut the rate by 0.5% today!”
Wife: “Oh good, now our ARM won’t go up anymore!”
Man: “Let me log into our account at Countrywide to check out our mortgage intrest rate status, and see how much we owe this month”
Man (solemnly): “Honey, what’s the LIBOR?””
ROTFLMAO. I’ve been try to explain that to people all week - even mortgage brokers who should know better. This is a nice summary, but alas, you still have to have some knowledge to get it. Even so, as I have the basic knowledge I am very glad I was not drinking at the time I read it.
My bikes are alway greased up and ready.
Arizona Slim is bicycling as Forest Gump is running.
We’ll soon be eating Chinese rooster testicle soup.
LMFAO!
Because we won’t be able to afford the chicken feet?
It takes something pretty funny for me to laugh out loud. Nice work
Its probably cheaper than Top Ramen with wheat prices going up! LMFAO!
I see a dollar index of under 70 in the future. Well, what do you expect from a Fed made up of Sleepy Beauty and the 7 dwarves?
Dollar decimated!
http://quotes.ino.com/chart/?s=NYBOT_DX&v=s
Then the cry will be that it was not enough. The momentum will grow. THen BB will cut it another half. And again. And then again….
Looks like The Fed is going to make my prediction of “stagflation” an easy one. I think that at this point, The Fed runs the danger of trying to turn the oil tanker economy with quick and extreme movements of the helm…starting a new course correction long before the old one works it’s way through the system. They’ll tend to over correct, which will just add even more chaos to the system, until they won’t be able to predict which course the oil tanker is ultimately taking.
Get out your paper and pencils boys and girls, it’s time for another round of historical note-taking time.
And the ten year bond interest rates are rising.
I suspect that the Dow will be up less than 100 by the close and the S&P500 less than 8.
Mr. Bernanke and the rest of the voting member of the Federal Reserve had to do 2 things, the first was to save the banks. The second and more important one is that since September 3, there have been over 1,000 companies laying off 50+ personnel. This is not including federal, state or county or city personnel laid off. When the rumors of IBM laying off 100,000 persisted, even after denials, the Federal Reserve was placed in the unfortunate position of trying to start a failed economy. the 0.50 cut. Another non event, that saved a few banks.
Looks like quite a bit of momentum. I’m glad I stepped back. I’ll be looking for a double top or rolling over before I short this bump.
FED just cut everything 50 basis points. Kiss the dollar goodbye.
I knew BB would not have any balls, but 50, wow-what a weasel
yeah, euro politicians will wake up with some bad numbers on their desk tomorrow. They have told the ECB several times that the euro/dollar rate can not rise over 1.40 where it is now. I guess we will see an ‘unexpected’ ECB rate cut very soon, and probably some major manipulation of the gold market to go with it.
Oil and Gold just took off. Get ready to pay more at the grocery store.
I hate this, the Fed decided to piss on my savings. I guess its going to be buy now or be priced out forever for the next 2 years.
Oh, Brahma, don’t be so negative. Now you can put those savings in the stock market!
LOL!!!
Screw the markets. You now what? Everyone on this board should cash everything out and take the money home for several months. Seriously, boycott the whole damn system for 3 months. We could kill the fractional lending monster and wipe out entire banks. I know it would mean people go jobless, but if enough people did this we might actually be heard. I know this sounds a little tinfoil, but remember money talks, erverything else walks. I also realize we would lose some interest/gains, etc. However, it is high time we make some noise in this country. Obviously the PTB could give a rip about savers. Therefore, do something about it.
What do we do now?
Txchick: If you’re out there, what do you think? You seem to have a good grasp on this type of thing.
Said earlier she’s going short at the top of the rally.
I will worship TXChick from afar as a financial goddess if she can call a top to this market within +/- 5 percent.
She’s tiptop. Don’t underestimate her.
I totally agree… However, I’m sure she would be the first to also agree that it will be incredibly difficult to call a top on this rally given its psychology base and lack of fundamental drivers.
Personally, I prefer being a little too early in getting out of a rally than too late. If nothing else, I don’t mentally kick myself in the butt so much.
Just butting in, but if you didn’t take a position before today, it’s probably too late to do so now. The PPI manipulation and today’s rate cut were foreseeable, as was the rally, but market expectations and psychology will likely rule henceforth in a very unpredictable fashion. Volatility will be king, and portfolio decimations will occur on a day’s move.
It’s gonna get ugly now, for a variety of reasons. Got bunkers?
Good comment.
Yep. Well said. Still a lot more news to come this week.
Got Vitamin D?
You mean Vitamin B and C ? You might want to throw in a tranquilizer in as well.
I’m not a stock guy but, this may be the start of what I’ve heard called ” a bull trap”?
“if you didn’t take a position before today, it’s probably too late to do so now. ”
Are you trying to say this will eliminate volatility going forward? There is always a position to be taken. I see this as increasing volatility, not decreasing it. If you are talking about invested longs vs. spec shorts, I don’t have any.
From: a former Helo driver
To: Helicopter Ben
Thanks dude. My xle, fxa and fxc took off just as I hoped!!
LOL!!! We did not know there exist mortgage fraud.
http://www.cnn.com/2007/US/09/18/mortgage.fraud.heroes/index.html
If you want to watch something depressing, head to a real time currency trading site/currency price monitoring site (even http://www.xe.com does the trick). You can watch the dollar fall in real time.
Or you can watch your C$, A$, oil/gas trades rise in real time!
Buy YEN right now
It is going opposite direction for no real long-term reason.
Yen carry trade. Yen v. dollar. Dollar down means yen up.
But the YEN carry trade is as unsustainable as wall street rally is. Today is a good day to buy yen, 116.15 right now. I expect it to see 109 by year end.
sorry forgot to add that Japanese economy is mired in recession. If it turns around at all, yen will get stronger, so that’s why the “long term” play on the yen.
“5. There can be a credit crunch because of a run on the currency. This source is actually the same as that of 4., the only difference being that there is panic liquidation of financial assets in one currency, in exchange for cash in another currency. This happened in October 1998 as the yen rose in value from Yen 131/dollar to Yen 111/dollar in less than two days (Oct. 7-8). The dollar had become less attractive relative to the yen: the Fed cut the discount rate, hedge funds unwound short yen positions, and Japanese banks and other financial institutions dumped dollar securities because they needed the capital at home (especially after the Nikkei 225 dipped below 13,000). Normally this degree of price movement is only seen under fixed exchange rates, at a time when a fixed rate breaks down. However, in this instance, the common expectation that the yen would continue to depreciate to Yen 160/dollar acted as an anchor to fix the yen’s value at a relatively low level. Borrowing in yen at extremely low interest rates was considered a free lunch. Then one day the free lunch disappeared. Tiger Management, a hedge fund which had been borrowing in yen to buy dollar assets, suffered a loss of almost $2 billion on Oct. 7 due to the surge in the Japanese yen against the U.S. dollar. That was about 9 percent of the fund’s value.”
from
The Credit Crunch
by J. Orlin Grabbe
Oct 11, 1998
Laissez Faire City Times
http://tinyurl.com/33cqa8
Watch US Treasuries
SOB (potty mouth) He did it–.5 point. Dang.
From what I’ve read so far there was clear consensus for a .5 point cut, inspite of the fact that there are a few inflation hawks on the board. Seems to me, things are much worse than whats being projected.
yep
precisely why I am still all in near-cash waiting for the slow fall (I hope)
“Seems to me, things are much worse than whats being projected.”
Yes and didn’t this cut just project that sentiment to the world.
Keep blowing those liquidity bubbles…unfortunately, The Fed can’t direct where that liquidity goes…what’s the next get-rich-quick scheme? Housing, at least, is still doomed. 1/2% won’t cut it, and that 1/2% doesn’t affect a lot of (most?) homeowners.
Yeah, but I think the also “implied” that they would cut more. Ugh.
“what’s the next get-rich-quick scheme?”
Gold.
And/or alternative energy, at least until the very generous Federal production tax credits expire.
Tech. For over a month, since the mortgage issue first hit Wall Street - they keep dumping money into techs at every opportunity and everyone keeps saying “invest in tech”.
Invest more in China
?
Cisco and Apple don’t produce their hardware in the USA, and Microsoft growth phrase has ended.
Trying to prevent hackers+unlocking of the Xbox 360 and iPhone is an expense, not a money maker feature.
“what’s the next get-rich-quick scheme?”
This is the million dollar question. Here’s my take. We had the stock bubble which involved billions in capital and effected millions of investors. This time around we have a real estate credit bubble that is vaporizing trillions in capital and ruining billions of investors. (OK, maybe not billions, but a significantly larger slice of the population worldwide.)
Is there an asset class big enough to absorb even a significant portion of the losses of this current deflation? I can’t think of one.
Next bubble? Depression.
Theyre trying real hard to do it again in commodities, especially corn for ethanol, but the bloom seems to already be off that rose. So, I don’t know where the next bubble is yet either.
Well, I should kiss my savings goodbye.
What is the point? why saving in current times? better to consume like there is no tomorrow, anyway my savings won’t be able to buy anything better tomorrow than today, they will actually be less tomorrow because inflation is lower than savings rates. If I don’t have money for emergencies or retirement I can always ask for a bailout. Why not? the US has officially become a socialist country. I’m so angry and frustrated. Is there any way I can send e-mails to the Federal Reserve just to give them a piece of my mind?
I bet in ten years Bernanke will say that he didn’t know cutting rates would create inflation…
I will no go back to making low ball offers to seriously F’ed FBers as opposed to sitting out the last 5 months, with plans to go a year more. Thoughts? Is it time to get in the game at as good a home price as you can get?
I will now go back……
The bleating sheep got what they wanted: a WHOPPING 0.50% cut. Boy o boy… that simply makes the 650k houses around me so much more affordable!
This rate cut will do NOTHING except maybe give Wall Street a few ‘good’ days before plummeting downward once more bad news hits the fan.
The Fed is playing the only card they have. Once this fails what is left?
IMO the Fed was better off doing nothing and acting like they could step in and save the day, instead of trying to save the day and failing.
But as I have said, the Fed is nothing but a WS whore. They do as they are told.
The FED still has a long way to go. Helicopter Ben has openly written about negative rates some years ago (like a 1% monthly tax on all savings accounts). From today we know for sure he is dead serious when he says things like that.
I don’t think he could get away with that one. But I fully expect rates to go to near zero.
“like a 1% monthly tax on all savings accounts”
Wouldn’t that only result in people pulling the cash out? Wouldn’t that make things worse? Like a bank run.
“Wouldn’t that only result in people pulling the cash out? Wouldn’t that make things worse? Like a bank run” — Not if the gov’t froze savings accounts, so that the $ could not be withdrawn. It has happened in other countries.
If he does that, game over. All money will be removed from all banks and the dollar will simply cease to exist except as something to burn.
Of course, I could see him doing it - the man is a dang fool.
why wouldn’t he do it? With some help from the Paulson gang all money that is left will flow into stocks, US treasuries and real estate again (I’m sure they will prevent the little guy from moving into other currencies/overseas accounts).
Oil hits a new high. Maria Bartoromo is happy the Fed cut rates, she is happy.
So who does a FED cut really help out? Maria’s buddies on Wall Street or the middle class? I see the Middle Class diminishing more now since their dollar will be worthless.
Consumers get little relief from Fed cuts
By Jennifer Waters, MarketWatch
Last Update: 2:47 PM ET Sep 18, 2007
CHICAGO (MarketWatch) — For debt-weary consumers, the Federal Reserve’s decision to shave interest rates on Tuesday is welcome news for their stock holdings but won’t do much for their mortgage payments or savings accounts.
Responding to fears that a credit crunch — exacerbated by a sagging job market, a housing-market pullback and the related crisis among subprime mortgage holders — is squelching economic growth, the Federal Reserve took 0.50 percentage point off the target Fed funds rate, marking the first cut in that benchmark since 2003, and 0.50 percentage point off the discount rate. See full story.
For those on the brink of foreclosure, that’s not the life preserver they need to keep them from falling in. And for those who also are subprime mortgage borrowers — there’s an estimated 1.5 million to 2 million out there — the Fed move is of little consequence.
“It will help those who need it the least,” said Richard Hastings, an analyst at Bernard Sands LLC. “But for those who need the most help, this does nothing for them. The Fed cannot help them at all.”
http://www.marketwatch.com/news/story/feds-rate-cut-wont-help/story.aspx?guid=%7BC145DF27%2D59EB%2D4F70%2DB60A%2D7307C642E1BA%7D
This cut takes the money away from the little guy (inflation… aka, $4+ gas and McD moving from Dollar meal to Two-Dollar meal), and gives it to the the big guys (investors, speculestors).
Robin-Hood in reverse.
Ugh.
Look on the bright side $4 gas will be good for the environment and helping the big guys will be great for Manhattan real estate.
“It will help those who need it the least,”
Yes! God bless the USA!
(said in disgust btw)
I can’t bear to turn on CNBC. Maria is probably groaning like she is taking a 350 point schlong.
is that 350 points long or 350 points wide?
Maria is a bimbo and nothing more than an MSM shill. Too bad people actually listen to her.
AG&BB Joined at the hip.
thanks for the visual. I am offically nauseous.
The sheeple will fall for it and think all is well now. They will march out in formation to catch falling knives. Upside is that it won’t help the millions that are already in trouble because most arms are tied to LIBOR. It will probably promote people that were waiting for house prices to fall further to get in, particularly because the MSM is making it sound like there’s been huge custs in prices. I just knew BB wasn’t going to let his friends lose out on their big bonuses. Next will be the baby boom. The real words to the song - “the rich get rich and the poor get children.
Greenspan is on WBUR.org a Boston NPR radio station.
Zandi was overly optimistic a year ago. And now he’s overly pessimistic:
“We have a very soft economy and if the Fed doesn’t lower rates then the economy could fall into a recession,” said Mark Zandi, chief economist at Economy.com.
Could he have a conflict of interest if some of his corporate clients stand to benefit from a bail out (in the form of lowered short-term interest rates)? I’m not happy that the Fed has bowed to pressure from the whiners at Wall Street (and their consultants, like Zandi).
I remember now that Economy.com was purchased by Moody’s some time back. Moody’s is responsible for giving AAA ratings to MBS (essentially junk), that many pension funds, and other institutional investors, ended up buying. It turned out that Moody’s, like S&P, had a tremendous incentive to give prime ratings to junk bonds.
And now Mark joins the chorus of whiners asking for (and getting!) a bailout. Disgusting.
invest in gold,energy,US tourism,railroad,tech
Funny about railroad…took road trip up to N WI lake property this weekend. There are NEW rails everywhere…somethings up.
yeah, gas prices
Not bad advice. Don’t invest in the consumer, financials, bonds.
“…invest in gold,energy,US tourism,railroad,tech…”
US tourism- OK as long as there are no riots.
#1. What the .50 Fed cut means as far as property is concerned. In a word: Nothing because .50 does nada to rescue the many thousands (millions) who obtained fraud mortgages and have incomes which are waaaay below the affordability of owning property at these prices.
#2. What the underlying message means when all the Fed members agreed to a .50 cut: Fear. If they wanted to be smart, they would have cut .25 and announced that they might drop another .25 if the cut need more stimulus. A straight cut of .50 means they are crapping their pants.
What does it mean to the US economy. Basically, very bad. There are plenty of countries out there who are offering a better reward for foreign investment and the US has to bring in billions of $$ every day to function AND service it’s monster debt. This is another nail in the coffin of the dollar being the reserve currency. Next up as reserve currency is the Euro. Frankly, it’s the old, old story. The powers attempting to manipulate which they always screw up. This is just more fuel to stoke a highly dangerous financial system. Don’t get suckered in by the euphoria coming out of The CNBC Comedy Show with cheer leaders like Maria Bimbolini saying joyfully, “This is the second best day of 2007!” B.S. .25 would have sent a non-panic message but .50 is a pure panic message. Also -if the builders stocks start moving higher, be careful! It’s a fake move.
The .5 cut won’t even go where it was intended. The u.s. consumer is screwed, get ready for $5 a gallon gasoline.
Wow, Mike. Right on schedule! I’m impressed.
Housing Stocks Jump After Fed Sharply Cuts Key Interest Rate
NEW YORK (AP) — Housing stocks rose along with the broader market Tuesday after the U.S. central bank sharply cut its target interest rate for the first time in four years.
The Federal Reserve cut the federal funds rate by half a percentage point to 4.75 percent, exceeding expectations on Wall Street for a quarter-point cut. The bank said it made the move to prevent the housing market turmoil from causing more widespread economic problems.
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The housing sector is in the third year of its worst contraction in 16 years. Earlier Tuesday, a reading of business sentiment among homebuilders matched its lowest level ever in September, primarily because builders are seeing record-low numbers of potential buyers.
The Fed’s move makes it less expensive for mortgage lenders to borrow money to finance loans to home buyers, which should lower consumer borrowing rates. Investors expect that to boost demand among potential home buyers who had become priced out of the market for a home loan.
Here’s a look at how shares of some major homebuilders fared in afternoon trading Tuesday .
OT HOV- how many people are pending w big deposits? not many, otherwise if the deposit is less than ?$100k than you walk
Gear up everyone - all the people are going to be saying in six months “We never foresaw a 45% drop in the stock market. Nobody saw it coming!”
Just like the Housing Bubble, the stock market bubble people just don’t get it. You can’t go UP, UP, UP, slight down, UP, UP, UP, UP, slight down, UP UP UP UP UPPPUPPPUPPPUPPPUUPPP forever.
Im betting you’re right…. hopefully it will move lower before my resolve does.
With the dollar falling by 1% don’t all stocks automatically go up by 1% to preserve the “real” value? So if the dollar crashes then would stock prices still climb in nominal terms even if they decrease by 45% in real terms?
Eric Janszen was saying in a video of an interview on Canadian television (found on his itulip web site) that the market might not fall nominally but instead because of hyperinflation, its actual value would cut in 1/2. (Correct me if I’m wrong but I thought that statement might have been a reversal of some of his earlier opinions)
A once great power has now capitulated. A declaration has been made to the world by BB and friends: we are more concerned with a shot of andrenaline than we are with monetary responsibility.
Having spent a mere 2 months reading this blog, I sincerely believe there is more wisdom here than in a Fed meeting.
I’m with TxChic that this gives an opportunity for an entry point for playing further declines. I’m standing ready to buy some Jan2010 puts on anything she suggests–but I see some fairly inexpensive far-out-of-the-money ones on companies I expect will go the way of LEND. HOV, CFC, DSL, FED…any thoughts? How are you all going to play this rate cut rally? It can’t really help all that much in the long-run, I think we all agree.
Who can wait ’till Jan 2010? Now that Bear-Trap Bernanke has made clear his intentions, I suspect the interest rates will follow yet another bubblicious decline ala Easy Al Greedspin.
It seems the PTB are determined to keep us stoked up on this heroine until either we or they just outright die from it.
puts look very dangerous to me now that BB has made it clear that they will hyperinflate to keep the stock market going up (at least in nominal terms). Bears have been predicting an end to this rally without real fundamentals for some years already, but it just keeps going thanks to the sliding dollar. And in Europe things are not much different either, it’s inflate-away or die for the central banksters.
What about this new bailout? http://news.yahoo.com/s/ap/20070918/ap_on_bi_ge/congress_mortgages
Correct me if I am wrong, but doesn’t this just mean that some loans are insured so that the bank still gets their money when the borrower defaults?
How does this bode for near-future mortgage rates? I am at 6.5% - 5 years into a conventional 30 year fixed (w/ 20% down — and I’ve even paid off extra principal to the tune of $100 or $200 a month usually).
I’m not going anywhere for a while — but I would be tempted to refinance at something like 5.5% or perhaps 5% for a 15-year. (And yes, I promise not to take any cash out on the refi). Is this rate cut going to make these kind of rates available?
I think the rate cut is counter-productive — but I wouldn’t mind taking advantage of it if it made financial sense.
Your 15-year fixed rate mortgage is likely going to be tied to an interpolated 15-year treasury. Since the 10-year and 30-year yields went up with the cut today, I’d say that long rates are moving in the direction that we would expect in an inflationary environment–up.
Rates on the 15-year would seem therefore to be moving up with this rate cut, not down.
“In addition, home prices in many parts of the country remain out of reach for average Americans.
That is the problem in Florida and it won’t matter if the Fed lowers the rate back to 1%. The fact that the Fed lowered the rate by 50 basis points will not change the affordability issue.
And affordable homes - or affordable ANYTHING - is exactly what the Fed and our masters want to prevent. If they could force us to buy our very food on credit because we can’t afford to buy it, they would.
(sorry to be a complete moron but) I have 150k cash that I have been saving for a house with the idea of not buying for another 2-3 years. Any investment advice would be great (sorry again, but I am a dorky biology professor who doesnt know anything about money)
(another 2-3 years.)
That’s short term money. Even in normal times, T-bills is the right move. You could miss a big upside in something, but if you really plan to spend the money in 2-3 years its more important to miss the downside.
I wouldn’t have anything in stocks that might be needed in less than 5-6 years. As for bonds, who knows what is going to happen to inflation?
thanks much WT!
So… how does Fed cut help the US again? Let’ see: oil and gold at record highs, and the dollar touching record lows. Yep, looks like we need to devaluate the dollar some more! Blasted idiots…
Screw the savers and fixed income people and try to prop up the Bubble or inflate a new one. Of course, lots of ARMS are tied to LIBOR, but I am sure the rest of the world will join us in the race to Monopoly Money. Gotta keep housing unaffordable, wages low, and people in debt, or how else will our beloved Leaders get to buy their second weekend yachts? Oh, the horror!
Time to leave the dollar for the green-colored tissue paper that it is, I guess. Too bad…
Heh heh… green-colored tissue paper. Even if worth nothing, could come in quite handy with my nasty allergies. If the dollar keeps falling, suppose that I could keep a roll of $ handy in the loo for other purposes.
Seriously folks, what was that today, a percent or two drop in the $? Just the beginning of a very sad erosion in our savings/wealth. Yeah, there are plays like foreign currencies, gld, etc. but the tax man eats you up just trying to stay even.