The Process Of Inventory Adjustment Has Just Started
Some housing bubble news from Wall Street and Washington. Bloomberg, “UBS AG, Europe’s biggest bank, reported a third-quarter loss, ousted two top executives and announced 1,500 job cuts after writing down the value of fixed- income securities by more than 4 billion Swiss francs ($3.4 billion). UBS will report ’substantial losses’ in the fixed-income, rates and currencies division of its investment bank, mostly on securities backed by U.S. subprime residential mortgages, the bank said.”
“The deterioration in that market in August ‘was more sudden and more severe than in recent history,’ UBS said.”
The Associated Press. “Citigroup Inc. estimated Monday that its third-quarter profit will drop 60 percent, as the nation’s largest bank took losses of more than $3 billion after writing down securities backed by underperforming mortgages and loans tied to corporate buyouts.”
“The bank also said its profit would be dampened after boosting loan loss reserves by about $2 billion.”
From Marketplace. “Banking analyst Dick Bove with Punk Ziegel says the worst isn’t over: Dick Bove: ‘I think that Citigroup, Bank of America, JP Morgan, Wachovia, as well all the big brokers and Merrill Lynch are gonna be taking write-offs of this nature for a while.’”
The Chicago Tribune. “Allstate Corp. has about $5 billion in subprime investments in its portfolio, a stake that has been weighing on shares of the nation’s No. 2 home and auto insurer and compelling its managers to spend time assuaging investor worries about a topic far removed from selling property and casualty coverage and financial products.”
“During his presentation, Chief Financial Officer Dan Hale addressed what he called the ‘topic du jour,’ the subprime mortgage securities market.”
“As of June 30, Allstate had $4.8 billion in subprime residential mortgage-backed securities. All are investment grade, and 73 percent have AAA ratings. It also has $1.2 billion in Alt-A securities. All are investment grade, and 92 percent have AAA ratings. Alt-A mortgages serve home buyers who are slightly better credit risks.”
“But calming the nerves of one investor during the question-and-answer session required more than Allstate citing a Moody’s report. ‘I would hope that’s not the only study by Moody’s that you’re depending on to gain comfort in your position in those securities,’ the audience member said. ‘I would take it that you’ve gotten some details from somebody a little bit more in tune to the topic versus a rating agency whose credibility is undoubtedly under pressure now.’”
“Analyst Harry Fong noted in a Sept. 5 report that Allstate was confident about its subprime portfolio. But ‘they do admit that a AAA rating for subprime mortgages is not the same as AAA rating elsewhere,’ Fong wrote.”
From Fortune. “Three years after scraping together $100,000 to bootstrap a maker of athletic clothing, Ryan Oliver wanted expansion capital. He looked where thousands of entrepreneurs have found a ready source of funding, in the value his house.”
“Applying for a $25,000 home-equity loan, he figured he was a shoo-in. shoo-in. His credit score was 750 out of a possible 850, and his house was appraised for $650,000, leaving him about $100,000 in untapped equity.”
“But three banks - Great Florida, Wachovia, and Washington Mutual - shot him down without specifying why. ‘It’s almost like they’d created new formulas,’ says Oliver.”
“Britain’s housing market faces ‘very substantial’ risks as consumers are failing to save enough and have too much debt, said Morgan Stanley chief U.K. economist David Miles.”
“‘The risks in the U.K. are probably more severe than probably in other countries’ in Europe, Miles, who has advised the British Treasury on the property market, said at a conference in London today. ‘The U.K. is at one end of the spectrum of where the risks lie,’ and there are ‘very substantial risks’ facing the housing market, he said.”
“‘The U.K. housing market is heavily dependent on expectations for valuations,’ Miles said. ‘Expectations are volatile and optimism is a fragile creature. I’m relatively pessimistic about the outlook.’”
“While a shortage of homes available for sale has supported prices, this will ‘absolutely not’ prevent a drop in home values in the future, Miles said. Higher borrowing costs, record outstanding debts of 1.4 trillion pounds ($2.9 trillion) and low savings rates may all weigh on the property market, he said.”
From Reuters. “Housing equity withdrawal fell to 10.001 billion pounds in the second quarter of this year from 13.06 billion in the first three months, the Bank of England said on Monday.”
“That took housing equity withdrawal as a percentage of post tax income down to 4.5 percent in the second quarter from 6.0 percent in Q1.”
National Mortgage News. “Last week, we reported how loan brokers were getting blamed for the nation’s current mortgage mess. I received a ton of e-mails, several with epithets aimed at consumer advocate Bruce Marks of Neighborhood Assistance Corp. of America who before Congress likened brokers to a pest commonly found in several Jersey City apartments that I rented in my youth.”
“This e-mail response from ‘Lennie’ shall serve as a rebuttal to Mr. Marks’ comments: ‘In 14 years I never, nor anyone that has worked for me, crossed the line of illegal activities to get a paycheck and when those crazy ass investors came out with things like the stupid interest-only (loan) I refused to sell them and anyone that wanted one I told them no and if they went elsewhere to get it I’d say call me when you see what you got into. This type of program was stupid and greedy created by investors not brokers.’”
“When you have lemons, make lemonade. Countrywide Home Loans — whose subprime servicing portfolio has a delinquency rate north of 20% — also has $188 million in foreclosed real estate on its books. (At the end of December that figure was just $27 million.)”
“Over the past month I’ve talked to a few now-job-seeking mortgage executives who are putting together business plans to invest in delinquent loans or start lending shops to fund the purchase of REO…”
“NetBank, a $2.5 billion thrift that two years ago ranked among the top 50 residential lenders in the U.S., has gone bust. The Office of Thrift Supervision took them over on Friday.”
“This comes from an industry veteran who recently found an old e-mail from a friend and passed it on. It concerns the failure of New Century Financial Corp., once the nation’s top subprime wholesaler. When New Century filed for bankruptcy protection the friend quipped: ‘All the Lamborghini dealers in Orange County flew their flags at half-mast.’”
“And now for some good news, well sort of. According to Friedman Billings Ramsey, 89.9% of subprime loans funded in 2007 were still current as of June 30.”
“Bill Gross, manager of the world’s biggest bond fund, said falling home prices will be the main driver of U.S. monetary policy for ’several years,’ and repeated his forecast the Federal Reserve will lower the federal funds rate to at least 3.75 percent in the coming 12 months.”
“‘The downward path of home prices, however, will dominate Fed policy over the next several years as will the lingering unwind of related financial structures and derivatives that have yet to be discovered by the public, and marked to market’ by their holders, Gross wrote.”
“Events that may delay rate cuts this year, Gross wrote, include ‘false hopes of a housing bottom, fears of a dollar crisis, or misinterpreted one month’s signs of employment gains and faux economic strength.’”
“The fate of the world economy hinges on what happens to house prices in America and that may not be a good thing, former Federal Reserve chairman Alan Greenspan said on Monday.”
“Greenspan maintained the global economy was just as linked as ever, disagreeing that there had been a decoupling between the fate of the U.S. economy and that of the rest of the world. ‘The critical variable in this judgement is the price of homes in the United States,’ said Greenspan, who ran the U.S. central bank for more than 18 years until he stepped down in 2006.”
“House prices in the United States will continue to decline as new sales are still barely denting the supply overhang, former Federal Reserve Chairman Alan Greenspan said on Monday.”
“Greenspan said…speculative fever must be allowed to run its course to enable a full recovery. ‘As in similar situations of inventory excess, I would expect home price declines to continue until the rate of inventory liquidation reaches its peak,’ Greenspan told an audience at Reuters in London.”
“‘There is little relevant American history to guide us in judging the ultimate extent of home price decline or the timing of a new price recovery, or by extension, the economic impact on the rest of our trading partners,’ Greenspan said. ‘All that I conclude is that the process of inventory adjustment has just started and we have a long way to go before residential housing and mortgage markets stabilize in the U.S.’”
It isn’t even noon here and already several more billions have come out of the housing bubble, with no bail-out, no helicopters, etc.
I get feeling a lot more is coming.
“I get feeling a lot more is coming.”
This is only the beginning, and yet the markets rally on the news. There is no pity to be had for these fools. The best we can hope for is that these insipid, oblivious tsunami-watchers follow the tide out, all the way out, so the ocean of reality can swallow them whole and prevent them from ever seeing the light of day again.
DP
“…no helicopters, etc….”
Really? Why are the builder stocks so green today? Was there some bullish news for the building sector that I missed? Maybe today is the very day the sector has bottomed out, which explains the bull run…
http://www.marketwatch.com/quotes/quotes.aspx?symb=tol+kbh+len+ctx+dhi+fnm+aapl+goog+bzh+phm+sbux+peet
Er, sorry, I forgot for a moment there how omnisciently forward-looking the U.S. stock market is. All of today’s bad news was priced in even before it was announced.
Countdown to the close:115min22sec
October 1, 2007 1:04 P.M.ET
BULLETIN
Defiant bull puts Dow at 14K
Fourth quarter opens with powerful rally as investors look past Citi and UBS woes. Dow industrials reach their highest intraday level ever.
Stocks are higher today just for the sake that the 14k mark was reached. Nothing more. The more I study the market, the more I see it has nothing to do with financial health, and more to do with making investors feel good by squeezing juice out of a turnip.
There sure are a lot of people drinking the kool aid in the stock market here lately.All the bad news is just brushed off as no biggy, it is different this time.Citi stock is up on a horrible quarter. Caveat emptor!!!!!!!
why do i fell like i have my finger in the dike while huge hole’s are popping everywhere around me and everyone else has stripped down to their undies and are playing like middle school kids in an opened fire hydrant on a hot sunny day.
now i know how Noah felt. no wonder he was an alcoholic.
James A. Wells, Assistant U.S. Attorney General: “You had a leak? You call what’s goin’ on around here a leak? Boy, the last time there was a leak like this, Noah built hisself a boat.”
Absence of Malice, 1981
jetson_boy,
Shouldn’t the phrase be squeezing juice out of a tulip instead of “squeezing juice out of a turnip.”
Stocks are up because the news is so bad they think the FED will cut rates. What’s wrong with this logic?
Makes perfect sense- ‘Things are so damn bad, that someone has just GOT to come along and throw us a life preserver, so that means that things are really GREAT!’
“Stocks are up because the news is so bad they think the FED will cut rates. What’s wrong with this logic?”
Rate cuts are already priced in.
China has now funded it’s “The China Investment Corp.”.
Late Friday this news was reiterated (started hearing news on this late last year):
http://biz.yahoo.com/ap/070929/china_foreign_reserves.html?.v=1
Active Bubble Cancellation (again? … recall around 1993, right after the last housing bust, the stock market started to get strong before it went on a 7 year tear):
China has a trillion plus dollars in reserves … the best way for them to invest it is in the US stock market (US stocks are purchased in US dollars) by investing their money here they actually could create another business
cycle that could become another stock market bubble years later.
If they invested in Europe they may hurt their US dollar holdings even more (making the Euro stronger while making the dollar weaker) so I’m inclined to believe that the US will see most of those dollars. By starting another business cycle trhough investment in the US they actually create future demand for their products.
Prof, we’ve had nothing but bad news on the economic front for the past 2 months, and yet the stock market is setting records. So are you saying the coming rate cuts are finally priced in, and we will see the market drop from here? Because I’m with Tom on this one, like, WTF? The fed funds rate is dropping due to the coming recession, and aren’t recessions bad for the stock market? Or did I pull a Rip Van Winkle sometime back …
More rate cuts means weaker US dollar, which means everything priced in USD has a tendency to go up…even stocks. (Maybe even houses, but that would be a stretch.)
It’s days like today that reinforce my decision not to gamble in the stock market. There is no logic to this casino.
Life is much better just ignoring the Wall Street Gangsters and their games completely.
“Er, sorry, I forgot for a moment there how omnisciently forward-looking the U.S. stock market is. All of today’s bad news was priced in even before it was announced.”
Yeah, I figure eventually people will evolve into enlightened beings consisting of pure mind, like on the original Star Trek. We will colonize every planet in our galaxy, then move on to others. With warp drives and transporters, the GDP will be orders of magnitude higher. By this measure, stocks are extremely cheap, with fractional P/E’s and P/B’s on next milennium’s forward earnings. Buy now or be priced out forever!
DP
And the band played on…while the wealthy got into the life boats.
The new high in the Dow Industrials is not confirmed by the Transportations, Utilities or market breadth. Market highs typically top in this fashion. There may be a series of tops over the coming months with little true headway for the Dow Industrials from here. As a market technician I can tell you todays new high is not bullish for stocks.
Citigroup upgraded the sector.
‘Citigroup upgraded the sector”
One person that represents the real estate sector at Citygroup writes a little “upgrade” report on the housing stocks. Oh! did he forget to tell you about his sister moving into that brand new McMansion at a 50% discount with below market financing from a Major US Builder? The con continues, and the gullible, even on Ben’s Blog, repeat this MSM crap.
I don’t know what’s up your crawl space, but Stucco asked a question and I answered it, nothing to do with gullibility just the facts.
Don’t take the comment personally. Didn’t sound like it was directed at you…
From my vantage point it looked personal. And that is what happened. Some Citi genius called the 589th bottom of the housing sector.
I guess Stephen Kim is saying in so many words that he believes the non-recession has ended and blue skies lie in wait from here? Game indeed!
THE RATINGS GAME
Citigroup upgrade lifts home-builder stocks
Analyst sees signs of near-term bottom, boosts ratings on large-cap names
By John Spence, MarketWatch
Last Update: 12:22 PM ET Oct 1, 2007
…
“We are not trying to suggest that trends in the home-building sector are about to get much better … they have never been worse,” the analyst said. “And in this sector, with its long history of feverish booms and catastrophic busts, it is precisely when things have gotten this bad that the stocks start looking good.”
Although the industry is still wrestling with an oversupply of homes and the subprime-mortgage mess is still playing out, “it is difficult to see how the stocks are pricing in anything remotely approaching optimism in this regard,” Kim noted. He said seasonal and cyclical factors point to improving cash flows and inventories, which may offer a glimmer of hope. He predicted a trading rally in the stocks during the winter months.
http://www.marketwatch.com/News/Story/Story.aspx?column=The+Ratings+Game
Kim has been consistently wrong and Mike Morgan just blasted him again today for his bad record. Just sold my SPF for a little over half a point gain from this AM’s buy, wonder if it will keep going higher
AG is sure plain spoken these days. Who would you believe: An independent ex-Central Bank chief or a paid Citigroup analyst? It is quite remarkable to me that the market apparently prefers the latter’s version of the future.
“All that I conclude is that the process of inventory adjustment has just started and we have a long way to go before residential housing and mortgage markets stabilize in the U.S.”
“it is difficult to see how the stocks are pricing in anything remotely approaching optimism in this regard,”
—————–
I would say that any stock pricing above bankruptcy is overly optimistic at this point.
It isn’t even noon here and already several more billions have come out of the housing bubble, with no bail-out, no helicopters, etc.
The real fun is just starting, wait until 2008!
So long as the stock market keeps going up, there is nothing to worry about…
So long as the stock market keeps going up, there is nothing to worry about…
Except that there is a large amount of speculation built into the stock market right now.
“…there is a large amount of speculation built into the stock market right now.”
As opposed to…
1901?
1929?
1966?
2000?
“…there is a large amount of speculation built into the stock market right now.”
No, it is not different than in the past, just the same hype, different year.
…except maybe recession concerns, or disinflationary (not deflationary) market forces.
————————————————————————-
Recession Concern Spurs U.S. Bond Rally on Fed Ease (Update2)
By Deborah Finestone
Oct. 1 (Bloomberg) — For the first time since 1995, the U.S. bond market will rally on the assumption that the Federal Reserve has relegated inflation to a secondary concern because the central bank views a recession as a much greater threat to the economy.
The bellwether 10-year Treasury note, which depreciated as its yield climbed at least a quarter-percentage point when the Fed began lowering interest rates in 1998 and 2001, won’t be recoiling anytime soon after the Fed lowered its benchmark by half a point to 4.75 percent on Sept. 18, the first cut in four years. Instead, the 10-year yield will fall to 4.51 percent by year-end from 4.55 percent, according to the median forecast of the 21 securities firms that trade with the central bank.
“The Fed will be easing” again, said Neal Soss, chief economist at Credit Suisse in New York, who expects “some further rally in Treasuries.”
The bond market’s unusual buoyancy is a consequence of the worst U.S. housing slump in 16 years, a slowing rate of inflation and the seventh weekly decline in short-term corporate lending to companies. The sudden convergence of these disinflationary forces helped make the third quarter the best for government debt in five years.
http://www.bloomberg.com/apps/news?pid=20602007&sid=asz1S32A45u0&refer=rates
It’s all good, as proven by today’s roaring 20’s style stock market blowout. The only puzzlement is how anyone can dare to question Citi’s Prince — haven’t they heard the market is only going up from here, and Citi and all its other IB cronies will head back towards the stratosphere from now until the end of time?
Pressure mounts on Citigroup’s Prince
By David Wighton and Ben White in New York
Published: October 1 2007 12:34 | Last updated: October 2 2007 01:01
Chuck Prince, chief executive of Citigroup, faced fresh calls for his removal on Monday after the bank revealed it suffered $6bn of writedowns and losses in the third quarter after turmoil in the credit markets.
The $1.4bn writedown Citigroup has recorded on commitments to lend to private equity buy-outs is awkward for Mr Prince, who told the Financial Times in July that Citi was “still dancing” in the credit markets, just as investor demand for leveraged loans was drying up.
The remark, which one US banking regulator has privately described as “unfortunate”, infuriated some Citi executives, who were trying to persuade bankers to take on less risk.
http://www.ft.com/cms/s/0/d3bef808-700f-11dc-a6d1-0000779fd2ac.html
“UBS AG, Europe’s biggest bank, reported a third-quarter loss, ousted two top executives and announced 1,500 job cuts after writing down the value of fixed- income securities by more than 4 billion Swiss francs ($3.4 billion). UBS will report ’substantial losses’ in the fixed-income, rates and currencies division of its investment bank, mostly on securities backed by U.S. subprime residential mortgages, the bank said.”
Many of you think oh so highly of the Swiss, and perhaps the way to look at Switzerland, is to view them as being us.
Both countries were at a tremendous advantage after WW2, and prospered greatly, because the rest of the 1st world, was utterly wrecked.
That being said, I want to thank Switzerland for educating my father, where he received his degree in economics.. after the war.
Lot of end of the world talk in the press these days regarding real estate. Even though we all agree I am just wondering if the homebuilders will have a tradeable rally off the negative press
I’d rather eat broiled Brazilian bull testicles than buy anything housing related.
Don’t knock’em until you’ve tried up.! Calf fries, um good.
I will now go learn to type…… And make an offer at 35% of listing on a house.
“…And make an offer at 35% of listing on a house.”
Alternative approach. Make an offer at 40% of listing, and when it is rejected wait a month and offer 35%, then 30%, etc. You may not get the house but it will really freak the seller out.
It would be better to do a team approach, with each offer coming from someone else.
Good idea. $40%, 39%, 38%, Happy New Year! final offer 37%…..
Start out with 35%, then 36%, then 37% ….
Oh,wrong way.
What about lamb fries??
Turkey fries. Absolutely the best. No lie.
Turkeys have appreciable testicles?! (You are still on about the Brazilian bull balls and assorted similar recipes, right?)
What sort of sauce goes with these things? Once they’re cooked?
I heard they are rather chewy.
I don’t know if they’re chewy, I just had to watch them get extracted one day. It wasn’t pretty.
Am I the only one who thought “DenverLowBaller” was a real estate related name?
In the headhunting business and tired of renting with an expanding family. Just out here trying to get fair market value in the Mile High City.
Associate of mine works in the recruiting dept. @ Citi, they are still hiring like mad in th emortgage origination and serving units. Their size has convinced them they will be the survivor and biggest player out there. That theory is sound, as long as there is a definite bottom and bounce in ‘08. I have a wager with him that this doesn’t bottom and bounce.
Rocky Mtn Oysters for everyone!
And I did get your intented meaning. LowBALLer. That’s rich! LOL….
A bounce in 08? On what planet? We have a motherlode of resets that begin this month and roll right into late spring, and them another motherlode…
Omigosh, LOL!!!
‘I think that Citigroup, Bank of America, JP Morgan, Wachovia, as well all the big brokers and Merrill Lynch are gonna be taking write-offs of this nature for a while.’
No doubt such write-offs will be completely unexpected when they occur.
“Citigroup Inc., the biggest U.S. bank, said earnings fell about 60 percent from a year earlier.”
If I told my boss that my numbers were going to be off 60%…..bad things, man….bad things.
‘I think that Citigroup, Bank of America, JP Morgan, Wachovia, as well all the big brokers and Merrill Lynch are gonna be taking write-offs of this nature for a while.’
As annoying as all the bailout talk is, the sentence above is why nothing can save the housing market. No one will be able to underwrite a risky loan if the secondary market for it doesn’t exist.
We’ll be back to Prime loans only, with downpayment & cash reserves & little or no CC debt. This certainly won’t “help” the inventory adjustment process.
Write offs do not bother me, in fact that is honest accounting. It is the transfer of formerly MTMs to Portfolio that is going to impact earnings. Once in portfolio always in portfolio. Citi set up loan loss reserves of $2B which accommodates $125b moved to Portfolio.
At this point in time not one MBS has defaulted. The average MTM loss however is ~15% off par value. Once these MBS start defaulting (if you don’t think this is going to happen, then look at Countrywides mortgage default rate at 20%), the banks will be increasing loan loss reserves for the next 5 years. The banks balance sheets are going to be WAGged for years.
It is amazing, with the weekend closure of NetBank, the horrible profit report by Citi, and yet the markets are advancing into record territory again today. I feel like a heel for getting out of them, especially since the Fed will obviously do anything to protect them. Of course, if I were to jump back in, there would be an immediate 20% crash, based off all the logical arguments we on the HBB have been saying for years.
Your conundrum is my conundrum!
Same here.
Suckers rally, have patience and you will be rewarded.
Yeah, how ’bout that Dow! Boo-yah!
I’m out of patience. I am going to pursue BiM’s strategy going forward.
Up an honest $3.80, that’s the only indicator you need…
The New Golden Rule
Well, there’s always the risk of an ECB hike on Wed.
emcee,
Surely you jest.
“Of course, if I were to jump back in, there would be an immediate 20% crash,”
That’s the idea, I think. To lure good folks like yourself back in. Baiting the trap.
Come on in the water’s fine, someone said they saw crocodiles earlier but I don’t think they’ll bother you
That’s exactly how I see it, Florida Watcher. Reminds me of Paris Hilton or some porn princess pawing herself and saying “You wanna piece of this, boys?”
Or a pervert standing on the edge of the schoolyard saying “Want some candy, children?”
I hate to say those are good analogies palmetto, but they may be right on the money in this case.
Crocodile bite risk is contained…
I.E. That Bernanke dude is watching the crocs.
That Bernanke dude is
watchingfeeding the crocs.Double Ditto! I bailed out Sept 4th with no regrets. There is still a nasty wind waiting to blow….
Not sure when you bailed but when you look at the charts in a month or two your heel will be healed.
Double top.
This extreme market bearishness is getting tiresome. I can understand the cynicism brought about by the housing bubble, but these endless stabs in the dark on market valuations are totally unfounded. Unfortunately, not a lot of hard core business analysts here. Stick to the housing bubble ’cause my patience is wearing thin!
I’m sure your hand slipped and you meant to write “extreme bullishness.” We feel fortunate to have a lone troll still willing to post here, though
If you don’t think the “housing bubble” is going to impact market valuations on everything except Anheuser Busch and Kotex, you might wanna do a little “hard core business analysis” yourself.
You make my point - Kotex is made by KMB, a market underperformer. BUD has been a horrendous buy this past year. Ah, well.
Maybe if you changed your Kotex more often KMB would be performing better.
ouch…
tpg, I think you missed MY point. The coming recession (or depression) will hurt just about all sectors except the necessities of life. So drink up, and double down!
Where did you come from? Don’t you know that a new high in the Dow Industrials without breath, Transportation or Utilities confirmation is negative not positive. Most bull markets top in the manner you are witnessing.
Long ago I acknowledged that I should look at myself as a contrarian symbol, ’cause every time I’d buy, stocks took a dive.
I’m not buying, so I guess that means Dow 15,000.
Blano, you are exactly right! The small investor usually hops on board at exactly the wrong time. Thank you for the insight.
So, let’s hear your analysis. No recession? No increase in unemployment? No slow down in consumer spending due to contracting credit and/or more spending on inflating food? Exports from our robust manufacturing sector will replace all possible losses?
Don’t poke fun. Contribute something.
I think RIMM, AMZN, CROX, AAPL and all other stocks are vastly underpriced. I refused to buy overpriced houses. I refuse to buy overpriced stocks. If they go up then “good for you”. If they go down, pass me a cold one. It won’t hurt me a bit except for some 401k exposure.
dont you mean these stocks are overpriced?
I should have used a pargraph break. I was being sarcastic in the first sentence. I still had the thought of Glades needing to change the Kotex in my head.
OK, because agree AMZN is insanely overpriced, whereas the other 3 could be reasonable (if you buy the growth stories; i don’t)…
“Blano, you are exactly right! The small investor usually hops on board at exactly the wrong time. Thank you for the insight.”
Gee, thanks for the advice! I think that I’ll buy in today so this freight train can start it’s downhill slide.
Old WSJ parable: There is a small god in the trading pits who allows anyone to pick the top correctly once, pick the bottom correctly once, and be wrong as often as he or she likes.
I used up my two correct ones long ago.
C’mon Blano. Take one for the team!
Lol, I’ve already been boned up the a$$ enough the last few years, but I’d be happy to start the stock market crash with someone else’s money.
Well stated Anthony. As soon as all the little guys jump back in, the market will turn south. The big guys are hoping we will sit here and think “shoot .. I should get back in.” Don’t fall for it.
California lottery used to have a $2 winning ticket. I’ll bet the guy that came up with that idea owns the company today
On the grand scale, the little guys ran for the hills during the dot com meltdown 5 years ago. They are still away.
That’s why I don’t play the game. It is not rational, the participants are not rational, and in the end they always steal your money.
No thanks.
Don’t you dare buy at these towering levels. The upside potentail is small and shrinking. You’d have to be a maniac — a nut job — to buy at these levels. Hold firm. One prick and it will peter out.
…nut…prick…peter…small and shrinking. You trying to tell us something, mrktMaven?
You think you feel bad, I am short the banks!
re-up
“As of June 30, Allstate had $4.8 billion in subprime residential mortgage-backed securities. All are investment grade, and 73 percent have AAA ratings. It also has $1.2 billion in Alt-A securities. All are investment grade, and 92 percent have AAA ratings. Alt-A mortgages serve home buyers who are slightly better credit risks.”
Aha! Attention Floridians and other coastal states: Wanna know the REAL reason your insurance premiums are in the stratosphere? And you thought it was just the hurricanes…
“Analyst Harry Fong noted in a Sept. 5 report that Allstate was confident about its subprime portfolio. But ‘they do admit that a AAA rating for subprime mortgages is not the same as AAA rating elsewhere,’ Fong wrote.”
What do you say to a statement like that? “Actually, an AAA rating for subprime really means FFF”.
What a steaming load of crap.
‘ All are investment grade’
- I also am offering ‘Investment Grade Lotto Tickets.’ There is a ‘Limited Supply’, so hurry up and buy them.
“- I also am offering ‘Investment Grade Lotto Tickets.’ There is a ‘Limited Supply’, so hurry up and buy them.”
New Lotto slogans:
“Lotto. Hey, you never win.”
“Lotto. All you need is a dollar and another dollar. And another dollar. And another…”
Palmetto, this is exactly why the insurance industry needs to be completely scrapped. It should be run as a non-profit co-op for the benefit of the homeowners who pay the premiums. Take the billions in guaranteed profits out of it and make it affordable.
There are still plenty of operating mutuals out there (which is exactly what you are talking about). Oddly enough they aren’t generally all that much cheaper than the for profit firms, but especially in insurance YMMV.
I have not researched this much, but either the current operating mutuals you describe aren’t really non-profit, or they don’t include a large enough population to reap the benefits. If I had bigger balls, I’d quit my job and make it my life’s mission to prove it. I just can’t believe that taking billions in profits out of the system wouldn’t make a big impact on affordability.
They aren’t non-profit, but they are owned by policy holders (they couldn’t retain profits to provide future insurance if they were a non-profit). The longer you hold a policy the more shares you get.
Most P&C insurance is priced such that roughly premiums=loss payments and the insurance company makes their profit investing the premiums in between. Auto makes money and life makes money but home generally doesn’t (especially on the coasts).
Amica is a decently sized mutual.
http://www.amica.com/aboutUs/mutual_concept.html
They write about $1.3 billion in insurance a year.
Supply vs Damnedemand, econ 101
They called him “maestro”?
“House prices in the United States will continue to decline as new sales are still barely denting the supply overhang, former Federal Reserve Chairman Alan Greenspan said on Monday.”
“While a shortage of homes available for sale has supported prices….”
It is for good reason that the Brits are masters of the unspoken word. Affordability has now conveniently become a shortage of homes available for sale not a shortage of homes at the right price for the average wage earner. If my memory serves me right, they had the same shortage of homes and land in Florida and California and look at where it got them.
Where do you park your money? I’m looking at Everbank and wondering if it’s too late for Euros or precious metals.
i know this is crazy but every fracking ounce of my emerson trained rugged indivualist, anti-sheeple, dare to be different, y b normal attitude is telling me cash (and i mean cold, hard, u.s. dollars).
the only reason being is that i am literally the only fracking one i know that is my age that has any. and i mean ANY.
That’s what I’ve done too. Yes, eventually my cash (and I’m talking cash, not digital numbers in a bank account) value will disappear as the Fed inflates. But there will be a sweet spot where I can buy everything in sight with a few bucks. I sure hope I time it right…
acutally just thought of another reason:
we got the biggest and mostest guns.
Well, what IS your age? Are you 12, or something? Do you mean anyone your age who has cash, or who has sense?
What asset has over that last few years been the most unwanted and as a consequence least respected. I’d also vote for cash. Nobody has needed or wanted to hold cash. Anybody who wanted money but didn’t have cash could just drive over to any one of a hundred financial institutions and back the minivan up to the loading dock. Markets were treating cash with such disrespect that they’d give you a bunch of money without any sensible assurance that it could or would be paid back. Thanks to the fed (and Mr. Markets) keeping a pile of cash on hand was a painful and money losing proposition for a several years. Think about that for a few minutes. Keeping a pile of money was an expensive money losing thing to do and not primarily because of inflation but because a flood of liquidly washed across all markets. As Michael noted, the net effect has been that whether through easy credit, negative interest rates, or relative asset appreciation, holders of cash had to endure both market fundamentals and market psychology conspiring to squeeze cash out of weaker hands. One of the most telling sentences I have seen in one of Ben’s posts is the one above, ‘The U.K. housing market is heavily dependent on expectations for valuations,’. That my friends is the best description for everything a value investor doesn’t depend on. Swap USA for UK and credit for housing and there you have it. What have the collective “expectations” for cash been, I’d say nada, to zilch. That’s why Michael has noticed that none of his friends have any cash. Why should they have bothered to save any when over the short term it would have been mostly pain and very little reward? Now, should we experience a slowdown with a landing hard enough to be called a recession, what will nobody be able to do? I’d say that like in every recession I can think of , there will be a mad scramble for cash to pay off debts and to stay afloat until better times. That’s why during recessions, hard asset prices fall and the relative value of cash increases. Although an extreme example, during the “Great Depression” if you had cash in the bank your standard of living or more accurately your level of wealth increased dramatically. I am not out in the back yard of my rented house building a bunker and selling all of my investments but I do believe that the days of complete and total disrespect for cash may come to an end sooner than some may think.
good post, thanks
My family has had an account with EverBank for 2 years now and are very happy with them. The metals have a long way to go IMO. To get back to all time highs Gold would need to be around $2200.00 an ounce, when you factor in inflation. Of course few people do, that’s why you keep hearing them report it’s price the way they do.
“But three banks - Great Florida, Wachovia, and Washington Mutual - shot him down without specifying why. ‘It’s almost like they’d created new formulas,’ says Oliver.”
The new loan formula is simple: The value of a house as collateral is in a rapid decline.
He’s a business owner, and the lenders want to take a look at his 1040 and the companies books, instead of just letting him jot down any value he wants under “income”.
I thought about getting a loan for my corporation a few years ago. The big problem I had was they wanted me to personally guarantee the loan.
WTF?
Why do I have a corporation? I thought it was because I didn’t want to expose my personal assets.
It amazes me how many people sign those personal guarantees.
Astounding.
The family I work for did. I think most have to do that to get started, or to performance bonds. Your corporate status is to protect you from third parties, not the parties who are funding your business.
I guess I don’t see it that way. My corporation is a distinct legal entity. It is setup to protect me from all parties. But you are right, companies starting out really have no choice.
Bottom line: I don’t borrow. Growth must be funded organically.
I can live with that.
I dunno what sort of business you have, but if it’s success depends more on you than on anything else, you are it’s main asset.. and i can see where a bank loan would like to use you as collateral.
Otherwise you get hit by a truck and the business is worthless .. as are it’s liabilities.
and i like your bottom line.. a worthy idea attracts money like a magnet.
i think it can be established that the business is not making money.. probably losing money with no end in sight.. or he’d grab one of them business loans that the banks bombard the mailbox with. 15 employees and can’t spare 25K? At best, he’s spreading it dangerously thin.
750 credit score + $550,000 debt = doesn’t have $25,000
Something looks wrong with this equation….
“Greenspan maintained the global economy was just as linked as ever, disagreeing that there had been a decoupling between the fate of the U.S. economy and that of the rest of the world. ‘The critical variable in this judgement is the price of homes in the United States,’ said Greenspan, who ran the U.S. central bank for more than 18 years until he stepped down in 2006.”
One thing is for sure — U.S. stock prices have clearly decoupled from the price of homes in the U.S. — unless you consider strong negative correlation a ‘coupling.’
US housing market in freefall dive
By Ambrose Evans-Pritchard
Last Updated: 9:42pm BST 28/09/2007
US housing market in freefall dive
Sales of new homes in the US plunged in August at the fastest rate since modern records began, prompting fears the economy is sliding into a full-blown recession.
Total sales dropped 8.3pc on the month and are now down 21.2pc during the past year, a sign that the credit crunch has cut off mortgage funding for large numbers of people. JP Morgan now expects sales to fall by more than half from their peak before touching bottom well into next year.
Median house prices fell 7.5pc to $225,700 (£111,400) as distressed builders tried to clear the glut of homes.
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/28/cnushouse128.xml
PB: One thing is for sure — U.S. stock prices have clearly decoupled from the price of homes in the U.S. — unless you consider strong negative correlation a ‘coupling.’
I think what is happening now is the reverse of what happened after the dot com crash, when home prices soared. There is always a plausible reason why stock prices can soar - after all, the next big thing - mass production, railroads, cars, tv’s, telephones, et al - might lead to permanently higher levels of prosperity. I’ve never heard of a home leading to the next big thing.
Aha! Attention Floridians and other coastal states: Wanna know the REAL reason your insurance premiums are in the stratosphere? And you thought it was just the hurricanes…
The best way to answer back to the insurers like Allstate, State Farm and Nationwide who have taken advantage of the consumer is to answer back by moving your auto and home insurance policy to an insurer recommended by consumer groups. Search the internet for the worst or best insurers and look at the list.
I just read this in CNN
“Under the House bill, the bankruptcy judge would have the option of reducing what the homeowner owes the lender. Say a homeowner’s property is worth less than what he owes. The judge could reduce the principal to match the home’s current market value as well as reduce the loan’s interest rate.”
http://money.cnn.com/2007/10/01/
real_estate/subprime_bankruptcy_change/index.htm?postversion=2007100111
wow…
So if they finally pass that law, there will be two “unexpected” consequences:
1. Banks won’t give any mortgages, too risky, they will have to keep them in their books, bye, bye secondary market. Maybe with a 50% downpayment.
2. Everybody will file for bankruptcy once we reach the bottom, so they can reset their mortgages balance to the new price.
If the law passes, I will buy a huge house now, spend like crazy, live way above my means and then at the bottom I will file bankruptcy..my credit won’t matter anymore if it means much lower mortgage balance…and anyway the credit thing is only for 7 years not for 30 or 20 like a mortgage..
They can pass whatever they want, it is hard to change a contract and contract law after the fact.
They can pass whatever they want, it is hard to change a contract and contract law after the fact.
Exactly, this is taught in the first year of law school and in business law for the business major.
This is actually a very interesting bill. As I read it, what they are really doing is changing how much of the loan is secured. Fundamentally, this makes sense. If the loan is actually secured by the value of real property and that value has fallen, does the lender really deserve to cut in front of other creditors in fighting for a piece of the bankrupcy pie?
Of course, this will make lending far less attractive for the secondary market but that isn’t necessarily a bad thing.
so instead of using drano to unclog the sink they just poor cement down it.
hmmm…i think i kinda like it.
Thing is, you can’t call a bottom. These people will smarmily renegotiate their loans, then the mortgage market will seize up even more and they’ll be even more underwater a year later. Unlikely they’ll be allowed to keep renegotiating. The claim will be that they’ve already been allowed to move from an ARM to a fixed rate.
If the law passes, I will buy a huge house now, spend like crazy, live way above my means and then at the bottom I will file bankruptcy.
Nah, Nam, you won’t do that. If this law passes, mortgages will be a thing of the past. Everyone will have to come up with a huge chunk of money to buy a house just like in underdeveloped countries where there is no credit. So, this is what you will do. You will gather your hard-earned cash (if the bank hasn’t eaten it up) and pay in full or almost in full for a nice house which most folks will not be able to afford because they don’t have cash, and they don’t have credit.
OT - Since Google’s IPO in 2003, close to 30% of its entire revenue has been from mortgage lenders and mortgage brokers- they were the single largest advertising group in Google’s universe. The mortgage industry standard was to spend up to $10,000 in advertising just to get ONE loan customer. No other advertising segment came anywhere near that. Not by a mile.
Most of the easy/spectacular gains in Google’s earnings growth came directly from the housing bubble. Schmidt and his cronies have tried to hide the housing collapse over the last 2 quarters by cutting payouts to publishers up to 90%, but now there’s nothing left to cut. If Google tries to cut payouts to zero, nobody will keep running their ads. They’ve squeezed the margin as far as it can be squeezed.
“Since Google’s IPO in 2003, close to 30% of its entire revenue has been from mortgage lenders and mortgage brokers-”
Where did you find this info?
It would be interesting to see a source and would not surprise me at all if it were true.
Are any analysts from the Pig Men banks doing their job?
I posted a comment with the source URL.. appears to have been eaten: http://tinyurl.com/2z37fk
Lots of discussion on their site, it looks legit to me.
Google’s probably the most secretive organization in the country.
If what you say is true, makes me wonder what else they are hiding from shareholders.
I like Google, but have little faith in their current revenue models. Their stock is incredibly over-priced at the moment, but I suspect it will get hit hard over the next 2 years…stocks, in general, will start to slide downward very hard right through the next Presidentail election. Long-term, though, I’m bullish on Goggle, namely because they are serious about comepeting with MS, and secondly, this new bandwidth they are purchasing from the Feds will create enourmous oppurtunities. Enormous.
Google practices very little financial opacity. WYSIWYG.
Financial opacity is practiced by banks, security houses, insurance companies and other financial institutions. They write the accounting rules.
“Iris and Hector Monsegur worry about their mother’s diabetes, but they are not allowed to visit her at the Jacob Riis Houses in Manhattan. They were caught selling heroin in 1997 and sent to prison for seven years each, they said. Ms. Monsegur now runs a credit repair company out of her home on Staten Island, and her brother works for a sanitation company in New Jersey and lives in the Bronx.”
http://www.nytimes.com/2007/10/01/nyregion/01banned.html?pagewanted=1&hp
Wow - a credit repair “company” run by a junkie ex-con. guess the junkie didn’t want to stoop to working as a realtor - got to have some standards…
Heroin addicts give even me, the willies…
Her and her brother spend all their time cleaning up other people’s cr@p. Something tells me that the heroin sales were more ethical.
Yeah, really. If you’re stoned-out of your mind laying in your own feces it’s hard to get in trouble, like going out and getting an ARM to buy an over-priced POS.
Kind of like midnight backetball for wayward homedebtors. “Here, just take some heroin and clean your act up.” LOL
I have two comments:
1. And now for some good news, well sort of. According to Friedman Billings Ramsey, 89.9% of subprime loans funded in 2007 were still current as of June 30.
89.9% still current, funded IN 2007!!! This means that 10% of these folks have stopped paying less than ~6 months into the mortgage. They were either late flippers who never meant to make a payment, or total ignoramuses who fell “victim” to some two-month teaser rate. And for the other 90%, they just had 1-year teaser. Seriously, was NOBODY out there not blinded by their bonuses?
2. took losses of more than $3 billion after writing down securities backed by underperforming mortgages and loans tied to corporate buyouts.
“Loans tied to corporate buyouts”? Wait wait, so all those “private equity firm buyouts” that flooded the headlines on Nightly Business Report are going bad too? Damn, those buyouts were all that kept the stock market up for the past two years.
You want 50% off? Here ya go
http://www.foxnews.com/story/0,2933,298774,00.html
That is actually kind of funny.
I was angry with my friend
I told my wrath, my wrath did end.
I was angry with my foe:
I told it not, my wrath did grow.
Gravity is the only thing keeping the house from toppling! This guy took a chainsaw and cut around the entire house—yes, the entire house. OMG.
“So what’s keeping the top of the house on top of the bottom?
‘Gravity,’ Ward said.”
Priceless.
Gee, I was thinking he sawed it down from top to bottom until I read the link. Interesting.
I get a sneaky feeling that the upcoming fortnight will include…
The 10 Days That Shook The World
I had to double check. From Wiki:
“A fortnight is a unit of time equal to two weeks: that is 14 days, or literally 14 nights. The term is common in the British Isles and many Commonwealth countries such as Australia where many wages, salaries and most social security benefits are paid on a fortnightly basis.”
So what happens the other 4 days?
You enjoy the weekends.
There are typically 10 business days in a two-week period.
10 days can be “included” in a fortnight. It just means that the window is larger than the event.
“Greenspan said…speculative fever must be allowed to run its course to enable a full recovery. …There is little relevant American history to guide us in judging the ultimate extent of home price decline or the timing of a new price recovery, or by extension, the economic impact on the rest of our trading partners. All that I conclude is that the process of inventory adjustment has just started and we have a long way to go before residential housing and mortgage markets stabilize in the U.S.’”
I just have to admire Greenspan’s understanding of economics. If you check out what he has said at various times in his life it is clear that he really does understand what is going on (for instance he favors a gold standard in theory, but has never and probably would never try to push the government into one), but he has just always acted in the way prescribed by the market; lowering interest rates when the market said lower, and raising them when the market said higher, and keeping his statements obscure so everyone could make whatever they wanted of them. I guess he knew that the public would kick him out if he tried to go against the sentiment. I notice that he speaks more clearly more often now that he isn’t head of the Fed.
So you admire him for being a coward? For being a paid shill?
I admire him for sticking it to the old timers that saved for decades and expected the interest on those savings to help fund their golden years. (Except, of course, interest dropped to a half percent and prices kept rising)
I admire him for rewarding those who would go into debt rather than rewarding the savers.
I admire the purity of the evil that came out of the man, the knowing blocking of truth, the complete disregard for warning my parents and grandparents, and yes, my children, of the consequences of his policies.
I admire that a single man has been able to do so much wrong to so many undeserving people. And to have the audacity to try to appear charming and knowledgable while pimping his book, in a pitiable attempt to gain sympathy and respect.
This is a double top in the indices. Picking up some more January puts, prepared to take more pain if necessary. This is truly sickening to watch.
Agreed. Apple I dumped. I left some on the table but I’m fine. pigs get slaughtered.
Txchick,
You’re not alone. I bailed out before the rate cut and can’t believe it. Maybe that really is the FED’s plan: pump up stock prices so people will be encouraged to buy overpriced houses. Kill the USD so that home prices can remain more or less constant in nominal terms. Savers, as long as they are long US stocks, get rewarded, speculators can refinance at lower short-term rates, such as 5 year ARMs, even though long term fixed rates may indeed climb much higher. Savers, denominated in USD in savings accounts, get crushed.
I got totally out of the markets after the 50-bp cut Bernanke Put rally… I cleaned up there, but figured the volatility would be extraordinary from that point forward. Truth be told, I’m sad to see I guessed right.
Sorry to keep asking, but what indice?? S&P?? You’re sold something to buy back in January?? Again, sorry.
Index puts settle in cash. She is buying the put, not selling it.
It’s a triple top.
Dr. Penny Stocknbond says,
“Keep the patient alive until I get my bonus” early next year.
No one pay attention. Stocks are at an all time the economy is doing fine. Wall Street needs another high from the FED because that last hit is wearing off. Quick, another rate cut is needed.
Man, I am going to hate to see this hangover if this drug binge doesn’t kill Wall Street. They are addicted to rate cuts and high inflation.
also has $188 million in foreclosed real estate on its books. (At the end of December that figure was just $27 million.)”
Hmmm. Make you wonder exactly how much is delinquent.
Make lemonade from lemons indeed…
(Countrywide) also has $188 million in foreclosed real estate on its books. (At the end of December that figure was just $27 million.) Over the past month I’ve talked to a few now-job-seeking mortgage executives who are putting together business plans to invest in delinquent loans or start lending shops to fund the purchase of REO…
And a good plan it is, judging from the number of Foreclosure Seminars I hear advertised on the radio. In these parts, many many GFs are still angling to make their fortune in Real Estate.
Hmm, I stayed in cash instead of buying 2 years ago. So, I figure I am ahead about 10%. And, then I can add in the 8% in interest over the two years. OK, not a fortune, but enough to buy a new car.
Last time I checked this figure it was more like 1.6 billion with a B. That’s just in California.
Somebody is bending the truth a little, or maybe they are just dicounting the REO to true value?
All is good? Banks have little cash on hand,builders are laying off and can’t move dead inventory, cheap labor is being deported so cost will go way up, big three auto sales in the tubes, war at over 177 million a day, health care a train wreck, roads and briges in dire need of repair, and the best thing of all nobody on wall street even cares, the Fed did what they got intimidated to do and now it sits at above 14k, all is well gang???
Dow 14,000? Not for long. I could see where the Dow might even hit 15,000 near the end of 07, but in a year it’s likely to sink back into the 8000-8500 range. That’s about the real value of the Dow, and that’s assuming that there’s no fraud or manipulation of the stock markets (probably a ton of fraud in stocks now). Here’s a good way to get the true ‘value’ of a stock:
True Value of Stock = Annual Income / Market Capitalization / .1 x Current Stock price
This is assuming that the Annual Income is at least $0.00. If the company is losing money:
True Value of Stock = Annual Income / Market Capitalization x Previous Number x Current Value
I tried this with Ford. Look it up on MSN. Ford’s real stock value is in the $2.75 - $3.10 per share range. Does anyone think Ford is really worth 8.23 per share?
““But calming the nerves of one investor during the question-and-answer session required more than Allstate citing a Moody’s report. ‘I would hope that’s not the only study by Moody’s that you’re depending on to gain comfort in your position in those securities,’ the audience member said. ‘I would take it that you’ve gotten some details from somebody a little bit more in tune to the topic versus a rating agency whose credibility is undoubtedly under pressure now.’”
Triple A toxic, it does however make it simple to find foreclosures . Google “Series 2004-WCW2 “…I’d love to know who is holding this junk