The Price Exists At The Pleasure Of The Financing
Some housing bubble news from Wall Street and Washington. MarketWatch, “Bank of America Corp.’s third-quarter net income fell 32% from a year ago as trading losses, write-downs on a wide variety of loans and soaring reserves for likely future loan losses undermined profit, financial results showed Thursday. The bank put aside $2.03 billion for loan loss provisions, which are reserves the bank takes to cover loans that are likely to go bad.”
“J.P. Morgan and Citibank, as well as several smaller regional banks, all boosted loan loss provisions dramatically this quarter. The banks also all said that they expect to see rising defaults in the consumer area, specifically with adjustable rate home equity loans.”
“‘The company also added reserves for its home equity and homebuilder loan portfolios in view of the impact of the weakened U.S. housing market,’ was how Bank of America put it in its Thursday press release.”
From Bloomberg. “Bank of America invested $2 billion in Countrywide Financial Corp., the biggest U.S. home lender, in August when the company was running short of cash. Bank of America’s share of total U.S. mortgage originations climbed to 7.1 percent as of June 30 from 5.7 percent a year earlier, Credit Suisse Group analyst Moshe Orenbuch said.”
Dow Jones Newswires. “Bank of America has about $ 2 billion in subprime mortgage loans in its warehouse awaiting securitization. Its pipeline of collateralized debt obligations stood slightly above $1 billion at Sept. 30, said Joe Price, Bank of America’s chief financial officer.”
“Bank of America said it is bracing for higher home-equity chargeoffs.”
“Washington Mutual Inc., the largest U.S. savings and loan, said third-quarter profit fell 72 percent as the company wrote off bad home loans.”
“CEO Kerry Killinger vowed in April to make WaMu’s mortgage unit profitable by year-end, a target that he now says won’t be met.”
“‘That is an unrealistic goal,’ Killinger said in an interview today. ‘Beginning in the third quarter, the whole environment changed to a severe correction, arguably some of the most difficult housing conditions we’ve seen in decades. The challenge for home loans grew much greater than what we could have seen in the second quarter.’”
“The home lending unit’s loss widened to $348 million from $23 million a year earlier. Washington Mutual lost $222 million on the sale of home loans in the third quarter.”
“The company plans to set aside as much as $2.9 billion this year to cover credit losses, up from a previous maximum of $1.7 billion. Washington Mutual may need to earmark as much as $1.3 billion in the fourth quarter to meet this level.”
“Washington Mutual ranked 11th last year among subprime lenders, according to trade publication Inside Mortgage Finance.”
The Seattle Times. “Nonperforming assets, including past-due home loans and foreclosures, grew to $5.45 billion at quarter’s end, or 1.69 percent of all assets. A year earlier, by contrast, WaMu reported $2.4 billion in nonperforming assets, representing 0.69 percent of all assets.”
“‘I have never seen housing credit conditions change so significantly over such a short period of time, nor can I remember a period when there was less clarity about near-term housing and credit trends,’ Chief Financial Officer Tom Casey said during the call.”
“PMI Group Inc., the second-largest U.S. mortgage insurer, estimated a third-quarter loss, as borrowers’ ability to repay their home loans ’significantly worsened’ in September.”
“The cost to bail out lenders is expected to increase fivefold from the same period a year earlier to about $350 million, the insurer said in a statement today. PMI also withdrew its earnings forecasts for the year.”
“‘PMI has the largest Florida exposure of the `big three’ mortgage insurers,’ said Seth Glasser, a credit analyst at Barclays Capital Inc. ‘Loss severity in that state must be accelerating quickly.’”
“Credit-default swaps tied to PMI climbed 38 basis points to 195 basis points, a two-month high, according to CMA Datavision in London. The price of the contracts, used to speculate on the company’s ability to repay its debt, means it costs $195,000 to protect $10 million in PMI bonds from default for five years.”
“Write-offs of mortgages and related home equity loans led E-Trade Financial Corp. Wednesday to report a third quarter loss of $58 million. E-Trade took $187 million one-time provisions in the quarter to cover nonperforming loans. Part of those provisions included some $53 million in charge-offs.”
“E-Trade also wrote down about $200 million in asset-backed securities.”
“E-Trade had some $29.7 billion of mortgage loans that were considered high-quality on its balance sheet by quarter’s end. ‘A lot of people think that subprime loans is where the problems center,’ said Jarrett Lilien, E-Trade’s president. ‘But that’s not our problem. Our issue is that the value of high-quality loans is underperforming.’”
The Associated Press. “Logitech International SA, a maker of computer mice and other peripherals, has become the latest victim of the crisis in U.S. subprime mortgage.”
“The company said Thursday that it will have to write off investments in credit securities of between US$55 million and US$75 million (between €39 million and €53 million) that resulted from ‘unauthorized actions and misrepresentations to management of its treasurer, whose employment has been terminated.’”
From Reuters. “Anworth Mortgage Asset Corp said it realized a loss of about $14 million from the sale of about $904 million worth of mortgage-backed securities in the third quarter.”
“The real-estate investment trust said its unit, Belvedere Trust, might not be able to obtain alternative financing to its repurchase agreement borrowings. Belvedere invests in ‘jumbo’ adjustable rate mortgages.”
“Standard & Poor’s lowered ratings on $23.4 billion of subprime and Alternative-A mortgage securities that were created as recently as June.”
“S&P’s action, in the same year as the securities were created, is its swiftest mass downgrade of mortgage bonds and the first time 2007 bonds have been cut by any company.”
“‘I would suspect that this is just the first downgrade,’ said Joshua Rosner, co-author of a study last month that said ratings companies understate the risks of subprime mortgage bonds.”
“AAA bonds from 2007 that were downgraded include bonds sold by Merrill Lynch & Co., Goldman Sachs Group Inc., Barclays Capital, Bear Stearns Cos. and RBS Greenwich Capital. The cuts were also on second-lien subprime loans, those given for second mortgages.”
“While 2007 bonds don’t have a long payment history, they are already demonstrating similar risks as 2006 securities, S&P said.”
“The downgrades show S&P ‘didn’t have an accurate model for these types of securitized asset pools,’ said John Coffee, Professor of Law at Columbia Law School.”
“Coffee said this latest ratings cut proves S&P’s methodology has been ‘flawed for some time.’”
From Fortune. “‘No one knows what anything is worth.’ Lately I’ve heard that from lots of people. We’re in one of those odd periods when things feel unmoored.”
“Six months ago you knew, or at least you thought you knew, what your house would sell for. Now you probably don’t. The bond market is quaking with fear about the credit crisis.”
“The inventory of unsold and new homes is still extremely high, which suggests that a ‘clearing price’ — a price that buyers and sellers agree upon — has yet to be found.”
“Now it turns out that Wall Street didn’t understand its own mad, tangled creations either. A Bank of England official called the tests that financial firms used to measure the risk of these new products ‘completely hopeless.’”
“In August a Morgan Stanley equity analyst recommended that investors buy the stock of insurer Ambac, which guarantees the payment on billions of dollars of bonds backed by subprime mortgages. A Morgan Stanley fixed-income trader promptly fired off an e-mail calling the recommendation ‘absurd.’”
“‘My analyst has no idea how to value’ the securities Ambac guarantees, he wrote. ‘No one in the world can put a definitive view on recovery levels’ for some of these bonds.”
“In 2004 even the Federal Reserve Bank of New York argued that a chunk of the increase in house prices was justified by the easing of lending standards. ‘The price exists at the pleasure of the financing,’ is how one hedge fund manager put it to me recently. ‘That is true for stocks and houses and bonds and buyouts.”
“But if the financing doesn’t exist, or only maybe exists, then how do you determine price?”
“For asset-backed collateralised debt obligations, no one foresees either a beneficial outcome or a market recovery. ‘There is no future for asset-backed CDOs based on subprime,’ Brian McManus, managing director of Wachovia Securities. ‘The CDO market has never gone back to any asset that has underperformed.’”
“Asked what the next asset class may be to take its place, he replied, ‘It’s unclear to me that there is a next asset.’”
From Business Week. “The megafund that the nation’s three biggest banks are hoping will resuscitate a chunk of the credit markets was initially greeted with enthusiasm. But it isn’t clear how the plan, hashed out in six weeks, will work—a weakness that could undercut its original intent.”
“Part of the problem is the inherent contradictions in the proposal. For one thing, the superfund plans to buy only the best-rated securities from the SIVs, mainly those that haven’t been tainted by subprime.”
“So the SIVs still won’t be able to unload the most troubled investments in their portfolio. It’s a bit like trying to keep a mortally wounded patient alive while harvesting the good organs for transplant.”
“Deborah A. Cunningham at Federated Investors of Pittsburgh, which was involved in the negotiations about the fund as an investor that lends money to SIVs…said the group that created the fund, which is known as the Master Liquidity Enhancement Conduit, is hoping that the fund’s mere creation will provide some comfort to investors.”
“‘The Treasury Department will consider this an extreme success,’ she said, ‘if this is never, ever funded — if it’s never needed.’”
“After a five-year boom in which housing sales climbed to record highs, demand for both new and existing homes fell last year and prices, which had been soaring at double-digit rates, have been stagnant. The National Association of Homebuilders reported this week that its index of builder confidence fell to an all-time low in October.”
“‘Builders are in a panic mode and are trying to catch up with a rapidly falling market,’ said Mark Zandi, chief economist at Moody’s Economy.com.”
“Pulte Homes Inc., the third largest U.S. homebuilder, will hold a Halloween-themed ‘Monster Sale’ this weekend in an effort to clear inventory as the housing slump continues.”
“The three-day sale in Pulte’s 51 American markets will begin Friday, 12 days ahead of the popular, ghoul-themed holiday.”
“‘It’s a weak market and you’ve got to be more aggressive to attract people,’ David Goldberg, an analyst at UBS Investment Research, said in an interview.”
“The five largest homebuilders have written down more than $4.7 billion in the value of real estate and other expenses in the most recent quarter, as customers cancel orders and homes sit unsold in the worst housing market in 16 years.”
“‘If you’ve been dreaming about the comfort of a new home but having nightmares about making the move, why not treat yourself to monstrous savings during The Monster Sale,’ reads an advertisement on the firm’s website.”
“Pulte is offering free appliances and landscaping and 5.875 per cent, 30-year fixed financing, with no closing costs to buyers at its Bailey Commons development in Phoenix, Ariz. Its website shows three houses for sale there, with prices starting at $164,880.”
“In Tampa, Fla., Pulte is reducing prices by $5,000 to $20,000. In Raleigh, N.C., the company is offering $10,000 to $40,000 off homes that close in 2007 and $5,000 to $20,000 off homes that close next year.”
“Bank of America has about $ 2 billion in subprime mortgage loans in its warehouse awaiting securitization. Its pipeline of collateralized debt obligations stood slightly above $1 billion at Sept. 30….”
That’s why they want a super siv.
SIV = massive credit entema.
They need a way to push this paper somewhere… Anywhere but on their books..
Also, remember that banks used to LIKE to hold loans? They are a structured debt, provide consistent income, and are very low risk (because of the backing asset).
Now these guys are desperate to get this stuff off the books.. What does that tell you?
The good stuff you keep. The bad stuff is supposed to be made into sausage and sold to investors as “gormet collateralized food product”.
It looks like investors finally started reading the contents description on the food labels.
US Treasury is a collector of taxes and the politicans likes sausages.
Add “mortgage securities” to the list of things one should never watch being made, along with laws and sausages.
More likely the investors started finding fingers and other body parts in the product. That’s why you don’t rush the butcher.
“Now these guys are desperate to get this stuff off the books.. What does that tell you?”
It tells me the banks and brokerage houses know full well lending standards have been AWOL the last few years.
Absolutely, a house used to be a perfectly fine asset for a bank to keep on its books. But then again, they used to fund mortgages only for qualified buyers, and then at prices they could actually afford to pay over the term of the loan.
I agree, the SIV fund is “game up.”
“They
arewere a structured debt, provided consistent income, andarewere very low risk (because of the backing asset).”Securitization changed everything.
I like this phrase:
“‘No one knows what anything is worth.’
I think a more accurate phrase would be “No one wants to admit what anything is really worth”.
Bingo.
Or, yet a further refinement.
“everyone is afraid to put these things on the market to find out what they are really worth.”
“subprime mortgage loans in its warehouse awaiting securitization”
Nothing that a good enema wouldn’t solve.
“‘That is an unrealistic goal,’ Killinger said in an interview today…. The challenge for home loans grew much greater than what we could have seen in the second quarter.’”
He’s kidding, right?
And I’m sure he gets paid pretty well for it.
We give way too much credit to people that work in the financial world. Most of them are brain-dead robots that couldn’t muster an original thought at gunpoint. There is good money to be had in being a robotic shill.
They are “Fooled by Randomness”…
And all of the market indexes go green at 2 p.m. EST. It must have been the good news from Bank of America that did it.
RE: We give way too much credit to people that work in the financial world. Most of them are brain-dead robots that couldn’t muster an original thought at gunpoint. There is good money to be had in being a robotic shill.
NYCB-You need to be copy-righting your posts and put them all in a flyer to be distributed in NAR/MBA continuing ed reality workshop.
They are made fools by randomness
Randomness alone can not account for the foolishness of statements made by shills over the past years. It must have had a Creator. Could it be, hmmmm… the DEVIL?
They are made fools by poor math skills.
RE: “CEO Kerry Killinger vowed in April to make WaMu’s mortgage unit profitable by year-end, a target that he now says won’t be met.”
How come these high flyer’s can’t get it right with their legions of info and data serfs, while the disparate hodge-podge of observers here on the HBB have been callin’ it all on the money for the last 3 years.
Let’em eat cake.
Anybody that has ever worked in the business world knows that it is full of managers that think they can bark orders and will things to happen. “G-d damn it, I told you to make this profitable by the end of the year,” was probably the response this a$$hole had to the fact that it would not be profitable. Their egos make them think their very words can part seas.
What you describe at the Corporate level is referred to as “Group Hubris” at the individual level it is referred to as “Cognitive Dissonance”. Years ago in the South both were referred to as “SH!!!!!T for Brains”.
Nowadays the individual and collective egos are something to behold.
Remember that they get paid for it so they don’t usually call it as they see it. American financial industry people managed to fool a lot of foreign investors into taking on huge amount of useless debt. But the game had to end at some point. Now it is time to see who won and who lost.
Killingers’ total comp was $14,245,859 in 2006.
http://www.sec.gov/Archives/edgar/data/933136/000095013407006129/v27488def14a.htm#111
I want to find one of these guys and marry him. I’ll dump my current husband, but keep him as a boyfriend on the side. I know exactly how to get one of them to fall for me. I’ll just tell him that he’s even more clever than he is handsome. I’ll bet these guys prefer masturbation over sex anyway.
who DOESN’T?
Chidoggg:
Do you realize your question could have two meanings?
“Bank of America has about $ 2 billion in subprime mortgage loans in its warehouse awaiting securitization. Its pipeline of collateralized debt obligations stood slightly above $1 billion at Sept. 30….”
That’s why they want a Super SIV. Is it possible some of them still have stuff on their books?
‘Bank of America’s share of total U.S. mortgage originations climbed to 7.1 percent as of June 30 from 5.7 percent a year earlier’
That Countrywide loan doesn’t look too bright now, either.
How can ABCP buyers ever trust these guys again? During all of the subprime lender blowups, they continued packaging this toxic stuff. Now, they act surprised because market conditions deteriorated and no one wants to buy their toxic waste.
That’s what I can’t figure out. Who will ever trust anybody in the real estate business again, especially the packagers of mortgages? It makes no sense that they would ever be able to sell another thing without massive changes to the way they do business.
Trust isn’t an issue with da boys and their cohorts, because they’re merely spending other people’s money.
The Journal had a decent piece this morning describing the secret SIV meetings.
It seems like Treasury was trying to facilitate (persuade) ABCP buyers to buy this new toxic stuff. But, how can Treasury reassure buyers of ABCP if the sellers of ABCP are surprised that their product is toxic?
The problem is not with the buyers. The problem is the junk product the sellers are making. It’s like trying to persuade the public to buy lead based products for their kids.
If the problem was that the market was unfairly punishing ALL MBS s because of the problems with a few subprime loans, the answer would be more transparency, not less. But the banks have become such experts had hiding ever more poo in the sausage from undiscriminating customers that their immediate answer is to start the sausage machine again.
So true.
MBSs were never a “product”. They were just another way for the PTB to fleece the unwashed masses. No increase in real wages for 7 years? No problem. GDP still went up do to the wealth affect. Increase in GDP went only to the upper 1%? “Wealth” is really just “debt”, you say? Never mind that. We always have the stock market to fall back on, and it’s full of MBSs.
What this country really needs is to redefine its perception of what a “product” really is, and then start making that.
A Mexican national infected with a highly contagious form of tuberculosis crossed the U.S. border 76 times and took multiple domestic flights in the past year, according to Customs and Border Protection interviews and documents obtained by The Washington Times.
http://www.washingtontimes.com/apps/pbcs.dll/article?AID=/20071018/NATION/110180087/1001
This must be a Bank of America customer that uses the ATM quite frequently.
Lovely. And requiring passports at Canadian/Mexican border crossings will prevent this sort of thing how?? Oh, right it - it won’t. And it won’t stop the terriosts, either, who will, of course, forge the required documents.
BofA drew a line in the sand and told illegals you can obtain bank account with the following SS # 999-99-9999. When a company chooses to get innovative with fraud it usually comes back to bite it in the A$$.
>> Lovely. And requiring passports at Canadian/Mexican border crossings will prevent this sort of thing how?
What part of: Change to ONE (method of identification rather then well above 50 types of identification and train personnel better to detect problems with that ONE (and presumably more secure) document type do you disagree with?
Ben, IMO, that was a symbolic move by BofA, nothing more.
It was part of a coordinated ba!lout, IMO.
That Countrywide loan doesn’t look too bright now, either.
I have next Friday circled on my calendar. CFC third qtr earnings report…ooops I mean loss report.
That Countrywide loan doesn’t look too bright now, either.
It has the glow of a burned out lightbulb!
Oct. 18 (Bloomberg) — U.S. asset-backed commercial paper shrank for the 10th straight week, extending the worst slump in seven years and underscoring the depth of Treasury Secretary Henry Paulson’s challenge to revive the market.
…
The announcement of the fund on Oct. 15 “reignited fears about the asset-backed sector” and may only delay marking down the assets in the SIVs, said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co.
“The real issue is this might prolong the inevitable which is eventually financial entities will have to mark to market their assets,” he said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a3A6zGSgeSx8&refer=home
I’d be scared to go to a Halloween-themed Monster Sale sponsored by any homebuilder.
There was a great line from another thread:
“I SEE DEBT PEOPLE”
Get a bunch of friends to dress like Zombies, show up at a Pulte Monster sale, and use that line.
Not to toot my own horn or anything, but this was a great line from another blog and another year (July 12th 2005):
http://patrick.net/wp/?p=35
You sure, they’ll probably have bowls of candy out? Endure their pitch for a bit and then take all their candy! It’ll be another charge they can take 4Q.
Damn!
I am getting fatigued from reading the LONG posts that Ben puts up.
I kinda miss the simpler days when housing bears were outsiders and the post lengths were manageable.
Nahh bring it on. Forget too bits buckets. A in few months we’ll need two “Washington and Wall Street” posts. Or perhaps a Beijing, London and Dubai post followed by a Washington and Wall Street post.
Too late to flee the buck? After all, other places have bubbles too.
The truth goes through three phases.
1. It is laughed at
2. It is violently opposed
3. It is regarded as having been self-evident
Now that we are getting squarely into Stage 3, I don’t know which phase was my favorite.
That’s really true. I’ve faced all three of those here at work directed at me. Mostly by the same people I’ve been warning for several years now. I also get hostility as if I personally am to blame somehow for what’s happened…
And the next phase is when people avoid you assuming you’ll be saying I told you so. Rather than admit they were wrong, it’s easier to think you magically made it all happen just to prove your point.
Caught some misdirected hostility the other day for this mess. Didn’t yuo all at HBB know that I caused this meltdown by selling in the summer of 2004, and renting. I have been educational and not smug, unless “offensive” lowball offers are smug, and now I am to blame. Countered this hostility with “How does it feel to have Enron holding your Alt-A mortgage?”
That isn’t too smug is it?
Forget all these naysayers who blam you for loving truth. It’s not your fault the bubble is popping. Rather, it is their fault that the bubble was born in the first place. This is their Frankenstein. Let them love it.
Nicely said. Love your Frankenstein, FBer!
Actually, with the incredible international stock gains and bubblicious emerging markets gains of the last few years the US seems to be a decent value bet. Everyone now knows about US housing problems so buy on gloom…inflation is taken for granted worldwide IMO.
Or perhaps a Beijing, London and Dubai post
Dubai will be “The pop heard ’round the world”
Give it to me straight, Ben. I can take it!
I’ve heard that about you.
“The company said Thursday that it will have to write off investments in credit securities of between US$55 million and US$75 million (between €39 million and €53 million) that resulted from ‘unauthorized actions and misrepresentations to management of its treasurer, whose employment has been terminated.’”
I hate it when around $55 to $75 million goes missing…
Didya check under the couch cushions?
OOOOoooooo.
I HATE it when companies fire their treasurer to cover up massive, company-wide, executive-backed fraud. While the treasurer should be the first person to notice and report suspicious numbers, this type of dishonestly simply cannot happen without collusion amongst the highest-level bosses. Such hypocrites!
Don’t be too sure about that. Fraud, misrepresentation and attempted embezzlement is not all that uncommon and I’ve had to examine a few in my career. Also, it is unlikely that you can ‘defame’ an employee in this fashion under Swiss employment law without a criminal indictment filed.
The Swiss jealously guard their reputation as the completely safe depository of client funds to the degree that they would go to great pains to show this as an isolated, one man affair and not representative of systemic financial reporting problem.
If Wa Mu was only 11th and it hurts this bad, what kind of pain is in $tore for numbers, 1 through 10?
“The company plans to set aside as much as $2.9 billion this year to cover credit losses, up from a previous maximum of $1.7 billion. Washington Mutual may need to earmark as much as $1.3 billion in the fourth quarter to meet this level.”
“Washington Mutual ranked 11th last year among subprime lenders, according to trade publication Inside Mortgage Finance.”
I like to find little one-line phrases by which I can live my life. I like to keep my life’s philosophy as simple as possible. Reading these tidbits today I thought of one more by which I can live. “Missing a boom is far less painful than having to be part of a bust.” I will continue to sit out the booms I see around me and when somebody asks me why, that is all I will need to say.
“Missing a boom is far less painful than having to be part of a bust.”
That goes hand in hand with my belief that it’s better to sell too early on the upside than too late on the downside. I pulled the trigger waaay too early during these last two bubbles, and I couldn’t be happier.
Indeed. Warren Buffet’s response to when asked what the secret of his success? “Selling too early.”
Not me…I’m getting pretty good at reading (some) of these bubbles (at least the last 2 big ones). I’m going to be the buyer of last resort at near the bottom, and the seller towards the top.
Mania happens. Might as well profit from it.
I like the way you describe that. On a personal level, when asked why I didn’t buy in 2004, I always said that the potential pain of losing $xx,xxx downpayment if the market went down far outweighed the potential pleasure of $xx,xxx in equity if the market continued to go up. Maybe that just means I’m risk averse. Plus, as with others on this blog, as soon as I ran the numbers on what it would cost me to buy verse rent, it stunk very badly of a bubble.
Oil is going through the roof, the dollar is teetering…but with news like this, it becomes more and more likely that the Fed is going to slash rates again. There’s nothing better than propping up a Ponzi scheme in its final days…
Ah, gold…sweet, tangible, inflation-hedging, climbing-and-soon-to-skyrocket gold
I think gold may end up being the next bubble (it will overcorrect on the high end). But I trust my friends here at the HBB will, like me, take their profits and run before the pop.
I’ve been taking profits already. there is no such thing as a bad profit (Fidelity gold fund has cranked). I got mostly out of stocks way too early too - missed the big run up, but like NYCityBoy said it’s best to avoid the obvious bubbles altogether.
Unlike stocks where there are profits or tangible assets to help with valuation gold is really hard to peg. Gold is basically a Federal corruption index.
I also like to avoid bubbles like the plague, but gold is such a good portfolio/inflation hedge at this point that it’s hard not to get a bit excited about it. I think there will be an eventual “gold bubble” where its price is completely disconnected from its realistic “true” value, but I don’t think we’re anywhere near that point.
Greed is a bad, baaaaaad thing. I’ll also likely leave a whole lot of $$$ on the table when I get out of gold, but I’ll be damned if I get burned in the pop.
I have some good friends that are prudent, savvy investors who made a killing on this housing bubble. They got out fairly early (late 2004), and likely left some profit on the table, but they recognized the mania for what it was and acted accordingly. I find no problem with making money off the irrational expectations of others, so long as I don’t let myself drink the same Kool-Aid.
Yes, Climber, I reallocated our retirement funds out of stocks at 13000 in February. I was a little chagrined when the Dow reached 14K, but at least I could sleep at night.
The root cause of commodities growth is emerging markets. China takes all the oil/gas it can get. India gobbles gold. Russia has mountains of oil, coal, and gold… Suddenly, 60 years of thinking about “First vs. Third World” countries is obsolete.
The US has become too frivolous in the use of commodities and cash versus much of the world. We are fat, happy, and lazy (i.e. wasting our money on oversize cars, gas, housing), and have taken on Eurosclerosis of a different color. Old line Europeans bought expensive houses, lifetime job benefits, and free healthcare with high national debt and no economic growth.
If emerging markets go down, so does the demand for gold & oil. With EM stocks up something like 350% over the last 5 years, they are either the Next Big Thing or in serious dotcom bubble territory right now. The US is just naturally shifting away from having 50% of the world’s economy at the end of WW2 down toward something closer to what the resources, population, and education levels support.
Buy gold if you like, but to me the primary goal is international diversification. Look at who is buying gold (e.g. India) and why (adoption of the US economic model).
“The US is just naturally shifting away from having 50% of the world’s economy at the end of WW2 down toward something closer to what the education levels support.”
Now, that alone should send shivers down anyone’s spine! If education is our future, we are well past the “Nation At Risk” moment.
John:
“Emerging markets” are the secretly intended consequence of globalization as invented by the US Congress. Guess what? We changed our minds. The mood has reversed, and we aren’t gonna play with the world anymore until the rules are once again squarely on our side.
Besides, even with globalization, China will fall as soon as the US consumer starts cutting back on all that cheap crap, which would right about now.
RE: We are fat, happy, and lazy
I’ll go along with the fat and lazy part…
Happy-I don’t see a whole lot of smiling faces out there at the moment-save for Cleveland Indian fans.
Rudeness and hostility are the mannerism of the day-especially in places of business.
India buys gold because thats part of adopting the US economic model? WTF have you got against making sense? The US economic model relies upon gold? Huh? You anti gold retards need to understand, gold is far less dependent on the EM boom right now, it is part of the crisis of confidence reasserting itself in western countries and as an earlier poster mentioned, an anti-corruption barometer.
True enough. Thomas’ First Law of Central Banking: When the Fed chairman is named Ben, worry.
Background — In the late 1920s, when it should have been clear to everyone that the stock market was massively overvalued and overleveraged, the Fed chairman Ben Strong topped off the tank with an interest rate cut, calling it “a little coup de whiskey to the stock market.” Which of course just stacked the teetering pyramid of debt higher, and made the crash even more colossal when it came.
Ben Bernanke and his merry men just gave the markets one “coup de whiskey” September 15. Let’s see if they drain the rest of the bottle at the end of this month. What they hey, it’s just the dollar we’re crashing. Not like it’s anything important.
Today at the Miami-Dade county Foreclosure auctions the atmosphere was dead calm. Lots of properties auctioned off, but bidders in just a handful of them. What is usually a mafia style dog eat dog game (months and months ago) is now a parody. The usual suspects are there and bid now and then, but just a handful of properties actually got taken. The rest where sold for $100 by the plaintiff, who actually announce how much debt was at stake. In other words: …”clerk- place your bids-lawyer- $100 three seventy four five hundred- clerk- 1..2..3..sold for a hundred…next”… the last amount is quickly injected to let the rest know how high he’s willing to go…
This went on and on for close to 60 properties. I left when the clerk was going through a stack of cancelations.
Commentaries in the crowd:
when a fellow nabs a property others yelled “take a picture, we haven’t seen anyone pay in a month!”…Later the fellow confesses to a friend:”the checks where about to expire” (you have to pay cash on the spot 10% or so). I won’t even go through the dreadful comments I overheard in the elevator on my way out!!!
tell us! i like to hear dreadful comments .
…The lawyers are making such killing that they’re opening another branch in Tampa…
…six months of nothingness…let’s go home; again…
…I wish I had a job at Echeverria’s, I’d save a trip with that insider knowledge…(refering to the lawyer with the most cases, and $ info on the other side of the bid)
…You think this is bad (gesticulating with his hand the shape of a peaking curve) we’re right here (pointing at the point of now return-slope
I thought those were lovely comments, Grover. Like poetry.
Fortune: The price of everything, in flux
Reality: The price of assets, to high, and thus the future rate of return, too low.
“Either U.S. economic conditions are really not that bad after all, or investors are suffering from a collective attack of wishful thinking.”
I think the wishful thinking has come from foreign investors. Americans have been partying like it’s 1999, except for those on this blog.
Poor Standards @ Standard & Poor’s
“Standard & Poor’s lowered ratings on $23.4 billion of subprime and Alternative-A mortgage securities that were created as recently as June.”
(the ghost of arthur anderson banging away at a calculator)
I just had to drop a call I laughed so hard at that…..
(The candidate had AA on their CV.)
“… which is known as the Master Liquidity Enhancement Conduit, is hoping that the fund’s mere creation will provide some comfort to investors.”
“‘The Treasury Department will consider this an extreme success,’ she said, ‘if this is never, ever funded — if it’s never needed.’”
So essentially failure would be a success … umm,okay.
“Master Liquidity Enhancement Conduit”
isnt that the power supply for a time machine?
Yes…they’re trying to move the market back to summer 2005. Good luck with that.
“power supply for a time machine”
Hook it to the occilation overthruster, shunt it through the flux capacitor, and channel the output through Jordie’s visor.
Let’s see how many semi-obscure SciFi references I can make in one post…
Henceforth, I shall call you John Yaya.
3 for 3.
Buckaroo, B2tF, and of course ST:TNG.
God, I’m a geek.
Where’s the reference to dilithium crystals?
Come on, man.
Wasn’t it Marge who said:
“Aim low, that way no one will notice when you fail.”
“Deborah A. Cunningham at Federated Investors of Pittsburgh, which was involved in the negotiations about the fund as an investor that lends money to SIVs…said the group that created the fund, which is known as the Master Liquidity Enhancement Conduit, is hoping that the fund’s mere creation will provide some comfort to investors.”
“‘The Treasury Department will consider this an extreme success,’ she said, ‘if this is never, ever funded — if it’s never needed.’”
This Deborah is amazingly honest - she’s admitting that the fund is just psychological window dressing created by Paulson et al.
–
‘The price exists at the pleasure of the financing…”
Especially, when the pleasure is of those financiers who can lend someone else’s money without concern for the return of the principal. It was a case of premeditated fraud.
Jas
‘The price exists at the pleasure of the financing…”
my gawd, that looks like a disclaimer at the bottom of a brochure for a brothel.
–
It is interesting that you brought up the brothels. My model has been pimps, whores and Johns. You can match who was who.
Jas
I think this was a self-conscious variant of that “the Attorney General serves at the pleasure of the President” line from a few months ago.
Seems like around 15 Billion Dollars have gone missing, this thread alone.
It was never there to begin with. But somehow it got spent.
And now it wants to be paid back….savers, get out your checkbooks….
Worse and worse. NYC and the teacher’s union have agreed to allow all the teachers to retire at 55. A massive exodus could be a disaster, but would be allowed.
They claim that higher pension contributions by new hires will pay for it all, but they probably assume a rather high rate of return. So those new hires, and the rest of us, will probably have to pay higher taxes as well, with the money going to Florida rather than the classroom.
That’s exactly what education systems around the country need: younger and more retirees. (I worked a little over 1/2 my life, so let’s take a breather for the next 3 decades at taxpayer’s expense. I earned it!!!)
Prediction: Many boomers will jump at the chance to retire early. A decade from now NYC will be on the brink of not affording all the retirees and will begin reneging on promises when they can’t find any teachers will to eat up 30% of their take home pay or more for someone else’s pension. (By the way, it may very well be that city planners are already having some of these thoughts and using the scheme to jettison their highest paid teachers.)
Boomer retirees in the meantime will be left facing hostility from taxpayers (most of whom do not have pensions and must work) and competition from younger workers. They may end up going back to work after “retiring” at much lower pay scales.
I retired when I got laid off two years ago. I’m living off rent money from investment properties we purchased 20 years ago and just last month burned the mortgage. Whew!
“Logitech International SA, a maker of computer mice and other peripherals, has become the latest victim of the crisis in U.S. subprime mortgage.”
This is almost too funny that a computer peripheral manufacturer is the victim of a housing securities investment debacle. I can hear it now: “Next on News 11 at 9, Construction Bob and Thomas the Train have been indicted for running a mortgage fraud racket.”
Nah, Thomas wouldn’t stoop that low. Now, James the Red Engine, he’s got a Realtor look to him. (All flash, but kinda dumb.) And Diesel’s definitely a mortgage broker.
With two preschool boys, I know whereof I speak.
I can see Big Bird doing the Perp Walk…..
‘A lot of people think that subprime loans is where the problems center,’ said Jarrett Lilien, E-Trade’s president. ‘But that’s not our problem. Our issue is that the value of high-quality loans is underperforming.’”
What does that say for the rest of the lending industry? Everyone across the board is going to get stung. There is absolutely no place to hide. As you know, we’ve been saying that for some time.
OT preferred stocks anyone have a list ?
here’s mine PKK pays 8.5% and is building big steel plant in India
“Deborah A. Cunningham at Federated Investors of Pittsburgh, which was involved in the negotiations about the fund as an investor that lends money to SIVs…said the group that created the fund, which is known as the Master Liquidity Enhancement Conduit, is hoping that the fund’s mere creation will provide some comfort to investors.”
Also Known As (a.k.a) The US Gov’t Approved variation of the “HIDE the WS DEBT Shell Game”
The shell game (also known as Thimblerig, Three shells and a pea, the old army game) is portrayed as a gambling game, but in reality, when a wager for money is made, it is an illegal confidence trick used to perpetrate fraud. In confidence trick slang, this famous swindle is referred to as a short-con because it is quick and easy to pull off.
http://en.wikipedia.org/wiki/Shell_game
time and time again people in the banking industry were rewarded over and over again for meeting and exceeding the demand for these products. it was the basis for raises, promotions, options, and general advancement. sounds like they are pretty clueless though right now of what to do.
Life is easy when you can make money by doing nothing more than making more money. The banks will be eating each others garbage for years as the lone private buyers of this filth, and regurgitating what they can’t stomach back to the FED who will sterlize it through monetization.
Yes there are rules in banking, but they don’t apply to the bankers that make the rules.
“sounds like they are pretty clueless though right now of what to do. ”
Cash in their chips and head for the exit?
Can anyone give me a line on Northern Trust? Were they the bank that chose not to contribute to the-lets call it the moneypit of pooled funds?
“In Tampa, Fla., Pulte is reducing prices by $5,000 to $20,000.
That still will not solve the affordability problem in Florida. The following information is based on a 30 year fixed at 6.2% and a salary of $65,000 with little debt on credit cards, no car payment, etc.
A conservative estimate:
Price of home: $190,774 $207,833 $275,551 $293,921
Percent down: 5.00% 10.00% 20.00% 25.00%
Down payment amount: $9,539 $20,783 $55,110 $73,48
Loan amount: $181,235 $187,049 $220,440 $220,440
Principal and interest: $1,146 $1,182 $1,393 $1,393
Taxes and insurance: $417 $417 $417 $417
Mortgage insurance: $118 $81 $0 $0
Total monthly payment: $1,680 $1,680 $1,810 $1,810
Based on this information, not a lot of the working class people in Tampa or Florida would qualify for a loan of this nature. Housing prices have a long way to fall before they become affordable again!
xtra funny comment:NEW YORK (MarketWatch) — Bank of America Corp. (BAC:bank of america corporation com
News, chart, profile, more
BAC 48.44, -1.59, -3.2%) , after suffering through a third quarter in which its investment bank dragged down the company’s profits, is planning potentially major strategic changes to the division, Chief Executive Ken Lewis said Thursday.
“What I can’t say is that we’ll stay the course,” Lewis said on a conference call with analysts. “The probability of changes and eliminations of some businesses and infrastructure…is very high.”
He added that “some scaling back” is in order. “I’ve had all of the fun I can stand in investment banking at the moment,” he said. “So to get bigger in it is not something I really want to do.”
LOL…this should be on the thestreet.com’s 5 dumbest things on wall street this week.
Pulte Homes Monster Halloween Auction. “If you’ve been having a dream about the comfort of a new home but having nightmares about moving….”
Actually the only nightmare I would have is what a lot of FB’s are having at this moment and a lot more soon-to-be FB’s will be having in the next 3 years. That is, buying a home at these STILL ridiculous prices which in some places are 50% to 70% overvalued because their valuation were made by fraudulent brokers, realtorwhores and appraisers and then watching my $700,000 over valued property investment sink to $400,000 in the next 3 to 5 years. Now THAT is a NIGHTMARE.
According to David Lereah (working as an analyst for Entertainment Tonight), I thought Britney Spears had hit bottom and was destined for a rebound. Well, her stock just dropped again!
I said it once and I’ll say it again. I FEEL SORRY FOR BRITNEY SPEARS AND HER KIDS. Her x is a loser and a scum.
Our checkout person was too quick yesterday. I didn’t get my badly needed critical news update and am likely behind on current events.
Remind me which parent has the longer rap sheet? Larger drug treatment facility bathrobe collection? Car dents? Home-wrecker notches? More just-a-joke marriages? Child endangerment photos? Nude photos? Tattoos?
SIV set up by German bank you never heard of formed in June, now broke. May be forced to sell $23 billion in assets. The current panic is over the $75 billion in such assets sold in the last two months.
http://www.bloomberg.com/apps/news?pid=20601087&sid=axyxVSKokNfI&refer=home
““So the SIVs still won’t be able to unload the most troubled investments in their portfolio. It’s a bit like trying to keep a mortally wounded patient alive while harvesting the good organs for transplant.””
Good analogy, but I’d go one step further: the patient is HIV-positive and the doctors refuse to disclose that little tidbit to the transplant recipients.
HIV = human immunodeficiency virus
SIV = simian immunodeficiency virus
So who’s the monkey?
Day-labor plan moves forward in L.A. council
http://www.dailybreeze.com/news/articles/10520692.html
Under the measure, all home-improvement stores in Los Angeles with more than 100,000 square feet will be required to set aside space for day laborers that includes plumbing facilities.
Why not just let them live in all the vacant homes in LA.?
SIV in dumper.
http://www.bloomberg.com/apps/news?pid=20601087&sid=axyxVSKokNfI&refer=home
WOW! The second one this week.
‘The price exists at the pleasure of the financing,’ is how one hedge fund manager put it to me recently. ‘That is true for stocks and houses and bonds and buyouts.”
“But if the financing doesn’t exist, or only maybe exists, then how do you determine price?
The real implications of this are profound. No financing = no sale = “no price”. Extend to cars, TVs, boats, furniture, anything.
EVERYTHING has been financed over the past few years. If loose financing really does contract, what will the real cash value of all these items be? We all talk about 50% drops in house prices, but what about 50% drops in new car prices? Electronics and computers already drop this fast on a yearly basis by themselves.
I can’t help but think that the ONLY future path for the Fed to back to 1% - if only to keep consumption from dropping to the point of no return. How many car companies stay in business if inventory is liquidated at 50%? How many furniture companies? Who will lend the money to the poor credit risks? I shudder to imagine a Federally issued “equal opportunity” credit card with very generous limits and late-payment forgiveness, in the name of “national economic security”.
Can we sell our used hummers and plasma screens abroad? Shipping should be cheap — cheaper than sending the containers back empty, which we have done for 20 years.
“No one knows what anything is worth.”
Or, are they just afraid to admit it?
jd……. Not knowing the worth of things is the exact reason why the stock market should not have a rally .When I don’t know the worth of things ,I don’t buy .
Seems more and more that MLEC is an attempt to give MMFs a chance to figure out a way to avoid dropping their NAV.
Those POSs are still FUBAR. They should tell those MFers to FOAD.
A fresh new low for these mighty find subprime bonds. How does 22 cents on the dollar sound?
Click on the ABX-HE-BBB- 07-1 graph to witness the steepness of the slide.
http://www.markit.com/information/products/abx.html
Excellent. The BBBs are going subteranean, but even the AAAs are defying all orders and doing the death march. In your face, housing optimists!
On the NYC early retirement for teachers….
My mon retired last year after 30+ years teaching special ed in the bronx. They were paying her around 90K ( not enough to go to the south bronx IMO)
They pressured her to retire so they could hire a new teacher with no experience for about 35K. Get the high cost person off the school books, retirement pay is someone elses books
I sense a connection and a theme…
Which is it? De-evolution of the species or dumbing down of the American middle class?
Plus, if the population decreases over the next 30 years, they can lay off the replacement.
why am i sitting here, investigating the connection of the 8-K filing by Santander Bank “relating” to Sovereign Bank in an “off-balance sheet” technical insolvency, and loan calling..
callling all loans…..watch the flight to treasury, and they are already too low……..this is not printing, this is new money….again.
anyway,
I got this book, CRASH PROOF, by Peter Shiff. from Carrie Ann on this very blog.
ITs a book that’s destined for Ben Jones, I had not read the book, but its spot fruckin on….if you have not read it then you should read this book. very interesting. I have been moving away from the dollar, remember, we havent printed, again, yet.
respond to: vozworth@yahoo.com