Bits Bucket And Craigslist Finds For November 14, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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HSBC takes $3.4B charge on U.S. mortgages.
It’s still all contained
http://money.cnn.com/2007/11/14/news/international/hsbc.ap/index.htm
The key to admitting losses seems to be, keeping it in the $3 Billion range, per admission.
This has to be coordinated (at a minimum by gentleman’s agreement). There just cannot possibly be this many coincidental $3 bn losses happening at major banks around the planet at the same time!
Making more money for GOldman since they shorted mortgages.
“Let us borrow that and sell it to Merrill, HSBC : )”
It is called “hedging your book”. (Uncle Vinnie)
LOL
I’m surprised that HSBC makes any money at all, to be quite frank. They’re knowning for lending money to virtually anyone who could fog a mirror. I’m defending a case brought by HSBC against a client right now: my client went to a major big box retail store to buy a nice $1,200 tv or stereo or dvd player, it doesn’t matter what she bought. She filled out the application for a credit decision on the spot. She was 20 years old, she said she was unemployed, she said she had $0 in the savings account, she said that she had no money at all. I’m not making this up. I have the credit application in the file.
Of course, She was approved for $2,200 limit despite the fact that she bought only $1,200 in goods. Well, surprise surprise, the case is on my shelf because she never made a single payment on that account. I’m defending the client for free as a benefit of her membership in a Union. I’ll make no predictions about the future of the case. This debt however, dates back to 2003, along with countless others filed in the circuit courts around the country, but it has taken until now, the 4th quarter or 2007, to recognize these losses. Go figure.
The big box retailer got to log a $1,200 sale onto their books and also won points for opening a credit card account, and HSBC increased their outstanding loans by $1,200.
It’s all good (for a while, then suddenly it isn’t).
These banks wanted to produce loans. They can’t make any money unless they’re lending. Lend lend lend. The lax lending policy has come back to bite them in the proverbial a$$. They’re not getting paid. At all. It’s taken years for them to book the losses.
Funny thing, I once represented a guy who was a land baron (I’m joking) but he was the sort of guy who was easily taken advantage of. He wasn’t a very bright guy and I felt bad for him.
Back in 2002, he was sort of duped into buying three overpriced rental buildings with no money down, etc. He really did try to rent the units but of course the tenants don’t pay, the city fines were overwhelming, and like I said, he’s not very bright. Think Forest Gump.
Back to the story, he took out three mortgages totalling over $600,000. The banks were: IndyMac, Wells Fargo and First Franklin.
In ‘04 and ‘05, the mortgages went into foreclosure. Two of the properties were REO’s. The third property he was able to sell before he lost it to foreclosure.
He was supposed to use my firm for the real estate closing on the third property but he didn’t. He said that he thought we were going to be there. His scumbag predator mortgage broker pressured him to sign. His broker lied to him and said all these nasty things about us.
We got really pissed at the situation and starting looking into it. Turns out that my client was again duped into a selling the property at an inflated price to another ‘investor’ who got cash back….and missed the first payment. I researched the investor and he took out 6 mortgages on 3 different properties on the same day. I’m sure you can figure out where this is going.
My client got duped. He didn’t get any money at the closing. Which is probably to his benefit, b/c it shows that he wasn’t aware of the fraud. Which I truly believe he wasn’t.
I’ve got a million stories for this board, and I’ll tell them only if I feel that I can protect my client’s confidentiality. Which I think I do a very good job of.
“I’ve got a million stories for this board …”
Great! Keep ‘em coming; I love this board’s anecdotes.
http://www.dqnews.com/RRSCA1107.shtm
LA County down 3.8% yoy per October dataquick!
SCal down 8% YOY.
Lets Party In LA!!
Here is another amazing coincidence! While the headline of the SD Union Tribune Business pages reads, “Stocks climb amid upbeat forecasts,” I found this article buried on p. C4:
Bank of America to write down $3 billion in fourth quarter
ASSOCIATED PRESS
November 14, 2007
CHARLOTTE, N.C. – Bank of America Corp. said yesterday that it will take a $3 billion, debt-related write-down in the fourth quarter and warned that its losses could grow, adding to fears that the nation’s housing and mortgage-lending slump might exact a greater toll than in the wretched third quarter, when industrywide write-downs topped $40 billion.
http://www.signonsandiego.com/uniontrib/20071114/news_1b14bofa.html
Bank of America is in its usual position - wading in crap. However as long as the China stock market remains elevated BofA should be OK. If the China market tanks, so will BofA. The only reason the BAC is not trading at $20/share is because of its holdings in China Construction Bank (up 1000%). Bank of America is going to recognize this in the Q4 to cover the losses from its additional writedowns.
The banks are making profits on other operations. If the losses come slowly enough, they stay solvent, because gains offset losses. If the losses come all at once, they are insolvent.
Their problem is that although the defaults, foreclosures and losses on sale will occur over time, buyers of mortgage-backed securities see it coming, so the losses are being priced in on an accelerated basis. So I guess “mark to market” doesn’t help them after all.
If things Financial were a heavyweight boxer, plodding back to his corner, at the end of the 2nd of 12 scheduled rounds with Honesty, one can only imagine his cornerman whispering to his aides de camp about the beating their pugilist was taking, and so early in the fight…
Cut me Mick!, whispered Financial
But what is so special about $3bn losses? There are a virtually infinite number of different loss sizes they could report.
Well…
It has been a “Pyramid” scheme, you have to go with what got you there.
In the ’80s the rule of thumb for home electronics was $300.00. if a stereo set cost $299, it was saleable; if it was $301, it would languish on the shelf.
$3B is the price pressure point in corporate finance. It was what a reasonably well run company could borrow with a phone call.
probably 3 billion is going to be the smallest unit of exchange in the dollar, once B-52 Ben is done ;-(
$3 billion, your stock price goes up.
$5 billion or $8 billion and you find yourself out of work (with a $100 million golden parachute).
What happens if the golden parachute’s credit lines tangle?
LOL!
The key to admitting losses seems to be, keeping it in the $3 Billion range, per admission.
…per admission, …per admission. The double post seems appropriate here, I’m even getting a little Westworld vibe.
Make mine a double, barkeep.
An admission fee, perhaps?
How many $3bn charges does it take before you are talking about real money?
There is no such thing as “real money” any more.
Bingo!
Too bad there IS such a thing as real prices. Good thing our salaries are keeping up with inflation and… oh, wait… that’s right… they aren’t! But hey, the banks are happy, and $3 Billion a week can’t be that bad, right?
These are the same people who send me checks with the loan terms (24%!!!) on the back under the endorsement. Those slimeballs will make up their losses on the idiots that cash those stupid checks.
Just cross out the loan terms and cash it. Why should the bank care, they are not contract enforcers.
Here is some good news on the writedown front: Bear Stearns will “only” take a $1.2 bn writedown for the fourth quarter, not $3 bn. I am sure the entire U.S. stock market will party today on this news in a relief rally.
Bear Stearns to Take $1.2 Billion Subprime Writedown, CFO Says
By Yalman Onaran
Nov. 14 (Bloomberg) — Bear Stearns Cos., the second largest underwriter of mortgage-backed bonds in the U.S., will write down the value of its subprime-related assets by $1.2 billion in the fourth quarter, Chief Financial Officer Sam Molinaro said.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a0BT88TspTPo&refer=home
November 14, 2007 9:08 A.M.EST
BULLETIN
Futures ready for Tuesday carryover
Street to resume rally party
Data on retail sales and PPI inflation meet with Wall Street’s approval, and investors breathe sigh of relief over Bear Stearns write-downs.
http://www.marketwatch.com
I’ve got my rally cap on and i’m preying on you to come through…
Are rally caps made out of tinfoil these days?
mine’s teflon.
If you think about it, a tinfoil cap is more of a hemisphere than a sphere, so therefore it would tend to focus any of these rays….
Filings up…
http://biz.yahoo.com/ap/071114/apfn_foreclosure_rates.html?.v=1
Are these record levels are from the resets that kicked in 6-9 months ago? What is it going to look like 6-9 months from now when this month’s resets are the ones that have reached forclosure?
Right-o. And the foreclosures are not going to stop, either. An acquaintance is in favor of a bailout. “If we can only keep people in their home just a little longer…” How long? I asked, the next 28 years? Because that’s how long they have on those higher payments. Even if interest rates go down, they’ll still be underwater so no refinance. And principle will will overtake interest eventually, regardless of rates.
They can’t sell either. There’s no demand for five years, ten years if down payments become the norm. The only way is for HeliBen to inflate the dollar to Wiemar proportions.
“The only way is for HeliBen to inflate the dollar to Wiemar proportions.”
Won’t work unless he can inflate wages by quite a lot more than house prices.
Oh, you know he wants to hyperinflate so badly… just dreaming of adding a few more zeroes on the end of everything to “fix” the problem…
I can’t wait until the Fed meeting where they say something like: “Inflation is under control, the future looks great, and we are starting a government backed investment fund for wheelbarrows to be used to transport cash.”
Hey, but in today’s electronic world, we don’t even need to carry the cash around. Just add some more zeroes, HeliBen! Ah, but there’s that wage inflation problem… what to do, what to do…
“If we can only keep people in their home just a little longer…”
Such a sentiment undoubtedly depends on the enduring assumption that real wages (and standard of living) must go up during the next 30 years. Such a sentiment, I will argue, is outdated as it ignores globalization. The primary goal of globalization is to close the wage gap between nations - some will go up (and that will be touted as progress) - but others will go down.
Guess who’s going down?
Next elevator stop:
2nd World
Dang Shittee.
http://www.guardian.co.uk/feedarticle?id=7076149
Citigroup Inc. on Wednesday amended a share-swap ….
See no evil, hear no evil, speak no evil.
Good night Irene…make him go away!
http://www.chicagotribune.com/business/chi-wed_housing1114nov14,0,5418919.story
“In my view, we are hitting the low right now,” said Lawrence Yun, chief economist for the National Association of Realtors.
Lwrence Yun also told Realtors not to walk away from the profession and to keep paying their dues. “There is no reason to quit now when the housing market rebound is right around the corner,” Lawrence Yun said.
Amazing reproductions of model houses have been built out of shrubbery, sticks, mud and weeds…
In the hope that Larry’s Cargo Cult buyers, show up on the rebound, right around the corner.
“In attempts to get cargo to fall by parachute or land in planes or ships again, islanders imitated the same practices they had seen the soldiers, sailors and airmen use. They carved headphones from wood, and wore them while sitting in fabricated control towers. They waved the landing signals while standing on the runways. They lit signal fires and torches to light up runways and lighthouses. The cultists thought that the foreigners had some special connection to their own ancestors, who were the only beings powerful enough to produce such riches.”
http://en.wikipedia.org/wiki/Cargo_cult
The hordes of cargo cultists on Wall Street and in the real estate sales busineess are indeed staggering.
Yun = serial bottom caller, who took over DL’s job after DL called one bottom too many too soon!
This is starting to sound like a college drinking game.
“In my view, we are hitting the low right now.”
Not inconceivable if actual current values are vastly lower than those they report.
Are you suggesting their reports are dishonest, or just that their statistics are misleading (e.g., the median price does not accurately reflect the overall change in market value)?
Lwrence Yun also told Realtors not to walk away from the profession and to keep paying their dues.
We see your truuuu colors
Shining thruuu
We see your trooooooo colors
That’s why we despise you…
This might shake realtors out of their stupor. *sob* they only wanted me for my money! *sob*
…“There is no reason to quit now when the housing market rebound is right around the corner,” Lawrence Yun said….
Right on Lawrence, and let’s keep the landing lights
on for Amelia Erhart!
Again I say, WHERE is all this pent up demand??? Somebody should be able to provide proof somewhere it seems with some kind of statistics. As usual though no one is called to account.
I’ve got a lot of pent up demand….for a house that 30-40% less than the current scam prices…..
That’s the thing, alot of the first time homebuyer demand in ‘04-’06 was stolen from the demand in ‘07-’09. These young buyers who will be busy trying to avoid foreclosure WON’T be in the market to buy next year.
I’d like to beat his ass.
Hit The Skids…
http://online.wsj.com/article/SB119499896076692014.html?mod=todays_us_personal_journal
Great article.
Jeff Benes and Maggie Byrne paid $269,000 for a four-bedroom Neumann home in Antioch, Ill., in 2003.
Oops!
Now they are wondering what the company’s bankruptcy filing will mean for property values — not to mention who will plow the development’s unfinished streets this winter…
Hope you have a shovel or four, Jeff. Fun for the whole family.
Yeah, that’s your health plan from now on.
The first time I heard or read the phrase ‘McMansion’, it was Ruth Simon in 1998, the WSJ housing writer. She coined the phrase, I believe. She’s been objective all the way through this mess. I’m a fan.
Hi wmbs,
You know, hubby and I designed a built a home in 92/3. I’m admittedly a financial idiot. No way on God’s green earth would I sign off on the any of the construction draws if the work was not completed to my satisfaction! I’m what you call a builder’s worst nightmare!
I guess I’m not an idiot…people in that article make me look like a genius!
Drive by a couple times a week? I was in his face daily–Christ–I thought we were married! I spent more time with him than my hubby! (In hubby’s defense, he was deployed in operations with Air Force at the time).
Another reason my hubby loves me so! I’m mean!
“Another reason my hubby loves me so! I’m mean!”
Ahh, that’s why we all love you.
“Many builders, including Levitt, also have stopped paying their vendors. Those vendors, in turn, have placed leins on the homes of people living in the communities. Some Levitt homeowners have as many as 20 different leins on their homes …”
These people are really screwed.
On the AZ Republic site awhile back, a lady that lives in one of the half-built communites on the edge of town was lamenting that the builder kept building….
So I tell her that she WANTS the builder to keep building. If they stop, they are bankrupt, then a lien is put on your house for the money the builder borrowed to buythe land, put in the infrastructure, etc.
When I moved to CO in ‘93 I went looking for a home. Some neighborhoods had CHEAP, cheap houses, BUT the Realtor wouldn’t even show them to me. They were still neighborhoods that were half-built since ‘89-’90.
When the builder went under, liens got placed on the land and all the houses that were built. Owners begged the city to do something, so the city sold bonds to pay off the debts to lift the liens… and put a special assessment on the neighborhoods to pay back the bonds. Property taxes in those neighborhoods was an extra $500 a month, MORE than making up the difference in savings by buying the house for half-price.
This lady told me it could never happen in her neighborhood. I sent her some links to stories about it ahppening…. a few days later, she’d changed her mind and no longer believed it would be good if the builders stop building.
Uh, isn’t this what title insurance is for?
Yet one more reason not to buy a house any less than 10 years old. And even the incomplete developments have HOA fees and restrictions. I remember fondly when houses were built, the builder went away, and amemities like pools and plowing were paid for by the “town.” I’d rather live in a semi-fixer-upper first.
I hate when these MSM-quoted experts sugar coat the situation.
And the situation is likely to worsen in the first half of next year, says Ivy Zelman, an independent housing analyst. “We’re in the first or second inning,” Ms. Zelman says. “There are going to be a significant number of insolvent builders.”
And somebody had to live with a RELATIVE while their million dollar house was worked on…..the horror!!!
there we go: BOE hints it will lower rates in 2008 ‘to reach its inflation targets’. I don’t believe for a minute that UK inflation will ever get below the official 2% target rate, but maybe they meant to say that they will open the floodgates when home prices inflation falls below 2%…
I’m expecting to hear similar garbage policty from the ECB soon. Despite a surging economy (in Netherlands GDP growth is the highest in seven years, there even is significant wage inflation in some parts of the economy - just like in Germany and some other countries) and inflation that is way above ECB target, the ECB does nothing except some empty ‘hawkish’ talk. I guess they will increase their inflation target soon, just like the ECB. All thanks to the idiots from the FED and IMF who, without any doubt, are very influential in these decisions and are leading the competitive currency devaluation.
It’s more good news for precious metals.
This is why Peter Schiff is wrong in his outlook. Foreigners were never going to let us depreciate the dollar without doing the same to their currencies. It’s a race to the bottom with US and Japan in the lead.
yes, I agree; Schiff has some good analysis but he is choosing the wrong solution.
I just wonder how this will work out in the EU housing markets, because it will certainly lower rates again and respike the housing punchbowl. The ECB did that in 2001 when introducing the euro and it was extremely effective, despite the fact that housing was already extremely overvalued in many EU countries. Mortgage rates and rates on savings accounts have clearly started a new decline in my country, everything looks set for more expansion of the EU housing bubble.
It’s difficult to get a grasp on rates, because with the increased default risk and surging inflation everywhere, rates should be increasing instead of decreasing. Looks like the central banks are still extremely effective in manipulating the market. We need some BIG bank failures (or maybe even some countries going bankrupt) otherwise this will end up in Weimar style
On the Fed lowering and raising their rates, it’s been mentioned here a couple of times about how the short term rates have had little effect on the long term rates. For the last three years we’ve had some big changes in short term rates, but the 10 year has hardly moved.
What does it take to get that 10 year to move in a significant way?
remove the caps.
I jest of course, capping the longer end of the yield curve would be something that an “activist FED” might consider after all the powder in the overnight target has been spent.
I agree. The overnight rate can only be flogged so many times before everyone realizes there’s other work to be done.
MIAMI (Reuters) - At first glance, the 43-story building in Miami’s international banking district seems little different from other high-rise condominiums overlooking the turquoise waters of Biscayne Bay.
But the 643-unit condo known as the Club at Brickell is a leader in mortgage foreclosures and it appears also to stand at ground zero in a blizzard of fraud that may lie behind many of the failed loans threatening to bury the U.S. property market.
http://tinyurl.com/33mdsk
“Florida leads the nation when it comes to mortgage fraud, according to the Virginia-based Mortgage Asset Research Institute, a group that works closely with the U.S. Mortgage Bankers Association.”
There we go! We’re number 1! And that’s what we’re paying for with our taxes, inflated fraudulent appraisals that affect all properties.
All the other #1 titles moved there; no reason this should be different.
A poster on another forum has reported that the Internet and Cable at this building has just been turned off because the association failed to pay it’s bills.
The association is trying special assessments, etc. but are apparently failing to raise enough money through these methods to continue financing the amenities. Ouch! Bet those association meetings are pretty fun!
$264,000 haircut: Short sale by Countrywide in Cocoa Beach. 2300 sq.ft. 3/3 direct Banana River condo across the street from the ocean. Never lived in. Owner paid $699,000 in Dec. 2005. Countrywide is asking $435,000. Counting mortgage interest, condo fees, property tax and depreciation, this “investment” has been losing around $15,000 a month for the last 2 years.
NO………
The BANK paid $699,000 in Dec. 2005…..
Wait a minute, BONDHOLDERS paid $699,000 in Dec. 2005…..
Errr…Uhhhh…maybe SEVERAL FOREIGN BANKS paid $699,000 in Dec. 2005…..
Then again, maybe…..
..
Correction: $264,000 headcut:
Gang, I do short sales for a living. We are forgetting about the greedy realtor fees (7% if you want any attention to your house) plus other closing costs, cash to seller to incentivise them to do the short sale rather than ride the foreclosure out and BK 13 to live rent free for another 6 months. Also If they are asking $435k and its still on the market…its priced too high, they will end up accepting 400k. We see these all day long, likley haircut $340,000 ish….if they get an offer now.
Ha! Sounds like they’ll need Major Nelson’s Genie to fix this mess!
Investor Safe Haven Becomes a Concern
In another sign of turmoil in the credit markets, large investment firms, having sought out the high yields for their money market funds, are being forced to protect the funds from losses brought on by investments that no longer seem safe.
The moves have cost the firms hundreds of millions of dollars, a price that could climb if credit market problems worsen.
http://tinyurl.com/38xzws
A house loan divided against itself, cannot stand.
OK. Millions to solve Trillions of problems?
As Neil would say–whiskey tango foxtrot!
You are on a roll!
Got my report from Vanguard the other day. Looks like the new head man suddenly got a dose of former boss Bogles attitude.
The report basically said that other money market funds are charged excessive costs by their management companies. So to make that up and not look that bad, they sought more risky investments that paid more yield.
Vanguard, he said, would never invest in these CDOs and SIVs. Good to know that, but much of our savings are in U.S. Treasury money market funds just in case, awaiting a fair price on any long-term asset.
“Good to know that …”
Very good to know that, from my perspective. I have a bunch of $$$ in Vanguard Prime Reserve that’s been concerning me lately.
Good to know that Boogle’s legacy is still alive at Vanguard.
Vanguard Prime MM fund *used* to hold this SIV garbage, approximately 10% of assets, but it all appears gone now. You can check them out by looking it up on the Vanguard web site, Prime MM fund, annual report, dated 8/21/07. They have cleaned up their act as far as I can tell. Betcha there were some really terrified money manager types at Vanguard when this credit crunch happened back in August.
“Betcha there were some really terrified money manager types at Vanguard …”
With Fidelity laying off, it is only a short matter of time before Vanguard starts the layoffs. Vanguard has never had mass layoffs before. Curb expenses where necessary.
Here we go folks… The first admission that I’ve observed that public govt. pensions are taking a hit on subslime— 25 years of a hollowed out economy unwinding….
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=atbSi8cfIy_c
Florida again. What a shock. Do they administer brain destroying drugs when you cross the state line?
I’ve been waiting for this milestone. Private interests already began washing their dirty laundry as evidenced by financials taking a beating, now begins the real ugly stuff.
Any bets on the next critical path milestone?
No drugs required, just too much time in the sun will do it.
“Florida’s short-term holdings include $400 million of Axon Financial Funding LLC debt, which was cut to junk status by Standard & Poor’s on Nov 9. The others rated below investment grade are $850 million of KKR Atlantic Funding Trust, which was cut to default by Fitch last month; $577 million of KKR Pacific Funding Trust debt, cut by Fitch to default last month; and $319 million of debt issued by Ottimo Funding Ltd., cut to default by S&P on Nov. 9.”
KKR, LMAO, I hope the Floridian gov workers are delighted to have contributed to Henry Kravis’s art collection and his so-called charitable works.
Anyone read “Barbarians at the gate”?
I meant, anyone in Fl.
Someone gave me that book as a Valentine gift instead of flowers or candy. LOL.
Think it’s the swamp gas.
expect the first admissions from big Dutch pension funds (they have about 1 trillion invested and always had a huge appetite for US mortgage debt and RE) somewhere in the second half of 2008. But maybe I’m too optimistic; they might never admit the losses, and simply have government raise taxes (many of their pensioners are government workers), because the fund is getting less returns than expected. Even a few months ago a Dutch pension fund was boasting about their gains on US real estate investments …
Love and marriage–I seem to have a theme this morning
http://news.independent.co.uk/uk/legal/article3157786.ece
Yikes! What a horrible law. I’m glad I don’t live in the U.K. I am not a divorce lawyer, but in the U.S., I’m pretty sure only the IRS can come after you for property awarded to you in a divorce, and only then if you filed a joint tax return with your ex that was later proved to be fraudulent. You are not liable for any other of his (or her) debts, after your divorce is final. Which IMO is The Way Life Should Be.
I’ve heard otherwise.
FL bond investors- maybe some gov workers will actually lose their jobs- or get promoted
In the past, hyperinflation has always come via printing ever more currency, but that was then and this is now…
Fluttering brand new $20’s, $50’s and $100’s down to the hoi polloi, as manna from heaven, might work in the bible belt, but everywhere else, it might look a little funny.
Unseen action involving a mouse clique operation, seems like the way i’d do it, if I didn’t want anybody else to know. Computer blips representing wealth, scurrying across cyberspace.
But where is the money going?, and by necessity it has to be in big chunks, and only to a precious few concerns, of size to handle it.
we can be sure that a lot of it is ending up in the year-end bonuses on Wall Street, despite some performance problems for this year. I guess that - compared to Weimar - it now takes more time for the new money to work its way through the economy. So probably by the time every J6P is convinced that inflation is increasing, it will be totally out of control.
Strange you should mention new $100 bills. Expected to arrive in late 2008.
Rather than post the link, (because the website itself might be found to be offensive to some), I’m posting the rant, which is very enlightening as to the actions of the Pig Men and traders. For those of us like myself who are “mentally challenged” by the arcane ins and outs of DaBoyz, it really puts things in perspective. The housing market is dead. Fill ‘er up!
“OIL prices aren’t rising - the US dollar is plummeting!
I don’t like cursing. But, this is f*cking ridiculous.
Oil traders increased BETS that December futures will reach $125 a barrel because of possible disruptions to Middle East supplies and rising demand.
Here we are (us, Americans), day after day, listening to the media tell us all about how “traders” are “trading” oil at ever higher prices because they’re a-scared of this shortage or that disruption, or this crisis, or that air strike.
And all the while we watch anxiously, preparing to cut back on our gasoline or dish out more dollars for our commutes.
Well, I have news for you.
When someone “BETS” that something is or is not going to happen and then, based on that bet, buys or sells IOUs for other people’s tangible goods, they’re not “traders,” they’re f*cking bookies.
They call themselves “traders” because they want to be admired, not despised.
But, two-bit bookies is all they are.
Didn’t any of you see the movie “Trading Places” with Eddie Murphy and Dan Akroyd??? Billy Ray will tell you!
We pay higher prices not because of REAL crises or REAL shortages but BECAUSE of IMAGINED shortages, and ANTICIPATED disruptions, many of which NEVER HAPPEN.
In short, we PAY for their rampant hysteria and insatiable GREED.
Traders held call options to buy 2,526 contracts, each representing the right to buy 1,000 barrels, of December oil at $125 in New York as of Oct. 29, from 1 lot on June 29, New York Mercantile Exchange data show. BETS on $100 oil are also surging: Traders held options to buy 49.7 million barrels of December oil at that price on Oct. 30, up from 30 million barrels on Jan. 2.
Crude oil for December delivery rose to a record $96.24 a barrel in New York today, the highest since the futures began trading in 1983. Prices have soared 19 percent the past month as demand pared inventories, a weaker dollar spurred investors to switch into commodities, and political tension in Iran and Iraq attracted speculative buying.
“A few years ago, when triple-digit oil was talked about, it was tempered by negative responses,” said Anthony Nunan, deputy general manager of risk management at Mitsubishi Corp. in Tokyo. “Slowly, it’s becoming a reality. It’s not crazy anymore, it’s a reasonable target.”
The fact is, these insane spikes in the price of oil have far less to do with supply and demand of OIL than they have to do with the supply and demand of DOLLARS.
With the dollar plummeting down to the pits of hell, people are dumping it left and right.
All that money has to go somewhere - after all, MONEY WAS NOT MADE TO STORE UNDER YOUR COUCH!
These traders know that! So, instead of storing it under their couch, where it just sits there without “appreciating,” they “store” it by “buying” something of value (anything but the dollar, which is worthless).
Since the real estate market is officially DEAD and BURIED (because people can defer buying a house), they choose to “invest” their “money” in the types of commodities that they know that people CANNOT LIVE WITHOUT - thus, oil (and food) is perfect (last I checked a gallon of milk was $4).
So, that’s what it all boils down to - the price of oil is skyrocketing not because oil is getting more “expensive,” but because the dollar is becoming WORTHLESS.
Next time someone tries to convince you that they’re “traders,” tell them you know better.
They’re f*cking bookies and it’s not the oil, it’s the funny money.”
___________________________
Tell us how you really feel.
Can someone please tell me why it is news that Wall Street is really nothing better than a Vegas casino?
It’s not news to most on this board, but here’s the rub: a lot of people out there DO NOT understand the pitfalls of having an economy at the mercy of a bunch of turds playing craps with the lives of the everyday folks who are just trying to feed and raise families. Myself, I’m not as sophisticated as many on this board and can’t play the game and come out ahead, so I don’t. But I DO have to pay for the gas and the food. When someone drops a million or so on the tables in Vegas, it doesn’t affect the broader economy, but this sort of crap does and it should be stopped. I don’t want to hear it about “free markets”. No such thing and I resent having to pay more for gas so a bunch of traders can buy a Koons and hang it on the wall.
But “free markets” are good for the economy….. sure there will be dislocations and jobs going overseas but that too is good for the economy. /sarcasm off
IMHO free markets are good for the economy, but we haven’t had one in decades.
“Just because the deck is rigged doesn’t mean you don’t sit down at the poker table.” anonymous
Here’s a thought: They aren’t trading oil, they are trading futures. There’s no reason these futures contracts have to be enforced by our government. All the speculation would end if the person buying oil had to provide a place to store it. How many barrels of oil can you fit in a Manhattan condo?
It does not work quite that way. There is a real value to hedging operations for grains, oils, and any other commodity. If it were not for hedging, oil would be a couple of hundred dollars per bbl. Some companies (airlines mostly) buy the futures to know future cost of flying. Large trucking firms, refiners all buy futures. The producers sell futures to lock in profits. Without the orderly market, prices would skyrocket.
Well arguably, dividends mean that YOU get the house odds. Wait, you say that the Dividends are set so low that T-Bills would give you better returns? Well T-Bills it is.
Can someone please tell me why it is news that Wall Street is really nothing better than a Vegas casino?
I would guess that colleges and business schools are still teaching the traditional theories and aspects of economics and finance; they don’t teach the casino theory. You learn about the casino once you’re in it; well, some do, but many long-timers are still surprised and incensed when they find out that the slot machines are pre-programmed to make a payout.
The trading floor is the new sports book and the mercentile exchange the new off track betting venue. Didn’t you get the Memo?
I should be spanked for having no discipline but it’s too tempting not to short here in the premarket with Bernanke on deck before the open.
I hear you. After a 320 point run up just because of “LACK” of bad news… you almost have to short now that bad news is returning from the dead… although it was only a brief hiatus.
Wall Street did have a wonderful miracle rally yesterday after a bad selloff late Monday. Have late-day selloffs always presaged miraculous dead cat bounces the following day, or is this a recently-arrived phenomenon?
Yesterday was a sucker rally, there was a lot of horrible news out. The trading style advocated by the Mr. Cramer of the US (”Buy on weakness”) has resulted in a whole lotta suckers buying on small breaks. Now a huge transfer of wealth will occur as the shorts that covered make no moneys and the longs ride their losses even further down. Fewer shorts means bigger declines.
Got a super entry on that futures pop. Would like to exchange for January puts after the open.
Always expect a large short squeeze after 4-5 days of down days.
One of the press conferences he’s gonna blow it bigtime, I get a sneaky feeling…
He’s always so uncomfortable looking.
How would you feel if you were in his shoes?
Size 7 feet, swimming in size 13 shoes.
Think he cares? Nah, he doesn’t give two craps in a bucket, unless of course he’s getting pressured by DaBoyz. I’ve had it with the Fed. Pull the plug on its mainframe.
Maybe they should sic Maria on him at dinner again. It worked the first time…
Completely agree Chick - as they say in baseball, momentum lasts only as long as tomorrow’s starting pitchers!
It’s off to the races, again. PPI came in ‘benign”, no such thing as inflation.
apparently they managed to export all the inflation to the rest of the world
As mentioned yesterday, too many Nov. puts in the money.
http://www.minyanville.com/articles/rally-WMT-stocks/index/a/14869
Moin,
“beningn” indeed…..nice spin…..
core yoy 2,5
overall 6,5 yoy
It seems like the official word is that the credit market panic began and ended in August. Does this have anything to do with why I need to hunt through the bowels of the business pages to find any news of the latest $3bn writedown at a major bank?
Fed may face policy bind as Dec meeting approaches
Tue Nov 13, 2007 3:41pm EST
By Ros Krasny -Analysis
CHICAGO (Reuters) - Federal Reserve Chairman Ben Bernanke will face his toughest policy test to date in December as economic growth starts to slow just as inflation threatens to rear its head again.
Federal Reserve officials seem keen to keep their options open on interest rates ahead of the next meeting of the policy-setting Federal Open Market Committee on Dec 11, and have tried to put the focus on economic indicators and not on credit and liquidity problems in financial markets.
http://www.reuters.com/article/companyNewsAndPR/idUSN1355845720071113
Does the Fed inject a little bit of “insurance liquidity” into the stock market on days when Bernanke speaks?
a slump in Charlotte:
CHARLOTTE — There is bad news in the real estate market in the Charlotte region. For years, the area seemed almost immune to the national housing slump. That immunity appears to be wearing off as fewer homes are selling and the ones that are selling are doing so for less money.
http://tinyurl.com/2yvy7f
My Winston-Salem relative has pretty much given up all hope of selling the house. In his words: “there are no buyers”.
Is it overpriced?
He says its competitive for the neighborhood (there are 5 other houses for sale on hist street). I told him to undercut everyone, but he “doesn’t want to give it away”. I told him that he will be giving it away for even less next year, but he won’t listen. He paid about 120K around 1998 and is now asking 175K. He has cut the price twice, 5K each time, but so far no sale. I’ll bet he’ll be lucky to get 145K next year.
The CalSTRS Newsletter has this to say
“As we celbrated one of our most profitable years (July 1, 2006-June 30, 2007), the market began a series of sharp ups and downs. On July 19, 2007, we hit an all-time high of $175 billion, followed by a decline to $169 billion by the end of August, 2007.
The decline in the financial markets has been fueled by the sub-prime mortgage crisis. Due to the careful policies guiding our portfolio management, CalSTRS has not been directly affected by this problem. Our exposure to this investment vehicle is extremely low, less than 1/10 of 1 percent of the total portfolio.”
These guys got caught up in Enron big time. Do you think they were more prudent this go around?
Non-reccurring Writedown
http://www.stockmania.com/index.php?showimage=92
Lots of subprime writedowns these days. Gotta wonder how long it will last. Is it all out on the table or are these just the first of many?
That is so on target! What is so special about $3 bn writedowns? Why not, say, $30 m or $300 m or $30 bn or $300 bn writedowns?
probably just the start
these things will come in batches as people default and foreclosure proceedings make their way through the system
We predicted here many moons ago that HD would see its shares slide when the bubble burst. Chalk it up to “worse-than-expected” conditions in the housing market once again!
EARNINGS ROUNDUP
Home Depot scales back after 26.8% profit drop
STAFF AND NEWS SERVICES
November 14, 2007
A persistently bleak housing environment forced The Home Depot Inc. to cut its financial outlook yesterday as the nation’s largest home-improvement-store chain posted a 26.8 percent drop in third-quarter profit.
“We started the year with a more pessimistic view of the housing and home-improvement markets than many,” Chairman and CEO Frank Blake told analysts yesterday. “It turns out we were not pessimistic enough.”
http://www.signonsandiego.com/uniontrib/20071114/news_1b14earns.html
Is the “Peak Oil” bubble bursting, or just taking a breather? A growing supply glut suggests we are not running out of oil, just yet, even though they aren’t making any more oil.
Oil prices hit slump on outlook for demand
Forecasts scaled back, supplies said to be rising
By John Wilen
ASSOCIATED PRESS
November 14, 2007
NEW YORK – Oil prices, which last week seemed on an inexorable path toward $100 a barrel, slid more than $3 to the $91 level yesterday after the International Energy Agency cut its demand forecasts and said crude supplies are rising.
http://www.signonsandiego.com/uniontrib/20071114/news_1b14oil.html
Nobody is taking that 1.4 mmbpd supply increase too seriously. To the extent it exists at all (which isn’t clear) it’s Russians unleading inventory before an export duty goes into effect.
http://biz.yahoo.com/brn/071108/23668.html?.v=1&.pf=loans
Good news from Yun home prices will go back up in 2008!!
——————————————————————————
He says that many people may have been priced out of the market but haven’t yet entered due to a lack of confidence and a plethora of bad news.
—————————————————————————–
Or because they have been priced out and or can’t get a suicide loan. What a clown.
Or because they are here and know better.
—————————————-
Feels like we’ve pulled clear of the “Robertson” Line, i.e. $700 Club…
PAUL B. FARRELL
Brazilian supermodel’s wake-up call to U.S.
‘Pay me in euros’ underlines ills of our ‘happy conspiracy’ of greed
By Paul B. Farrell, MarketWatch
Last Update: 7:49 PM ET Nov 13, 2007
ARROYO GRANDE, Calif. (MarketWatch) — The “American Gangster” movie has a great line that tells me why the bull market’s peaking: “Getting out at the top ain’t the same as quitting,” a friend advises the drug lord at the heart of the film. But he can’t hear. Greed is too good. Like so many leaders “more is never enough.”
It’s the same with markets. They never “top” naturally. Nobody wants to be a “quitter.” Investors keep pushing up, up way over the top. Greed drives cycles. Bubbles pop. Crashes happen. We get warnings years in advance. So what? Greed blinds us.
…
A former Federal Reserve governor, Ed Gramlich, started warning Alan Greenspan as early as 2000 about the coming subprime problems. The New York Times’ Paul Krugman says Gramlich wrote that: “Increased subprime lending has been associated with high levels of delinquencies, foreclosure and, in some cases, abusive lending practices.” But he was ignored.
Why can’t the best and the brightest hear early warnings? As recently as August both Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson were saying the subprime problem was “contained.” Now it’s an unavoidable “contagion” rippling through the economy and markets, raising fears of a global recession. Billions of write-offs. Top leaders fired.
http://www.marketwatch.com/news/story/how-brazilian-supermodel-may-crack/story.aspx?guid=%7BD005D668%2D1986%2D4E60%2D8993%2D640C3341EBA6%7D
Good passage from the above-linked article:
In his recent monthly Insight report, economist Gary Shilling says: “Housing is not the only area of heavy risk-taking, but just the most vulnerable. A ‘Great Disconnect’ between the real economy and the speculative financial world has existed since the late 1990s … a bear market and recession lie ahead.”
NEW YORK (AP) — Wall Street was expected to surge higher at the opening Wednesday amid a growing belief that the worst of the credit crisis is over. Economic data showing tame inflation added momentum to stock futures’ upward track.
tame inflation ? How does that work with 90 dollar oil?
Yes, inflation is tame. This means another rate cut!
BooooYaaaaa! It’s baked into the cake now. If the FED doesn’t give the market what it wants then stocks will crash.
Ben Bernanke just said they will publish overall inflation (including food, energy, and housing) and CPI is for short term.
Am I believing this? is this true?
Now that housing is falling, well the overall inflation might show “oh inflation isn’t so bad”.
Of course inflation isn’t bad Tom. Tax cuts and free markets are the answer to everything.
Is he trying to justify future rate hikes? If so, this is a good thing?
He’s just trying to put some fear into the dollar shorts. It’s an empty bluff and everyone knows it.
Apologies if this shows up twice (something strange happened last try)
PAUL B. FARRELL
Brazilian supermodel’s wake-up call to U.S.
‘Pay me in euros’ underlines ills of our ‘happy conspiracy’ of greed
By Paul B. Farrell, MarketWatch
Last Update: 7:49 PM ET Nov 13, 2007
ARROYO GRANDE, Calif. (MarketWatch) — The “American Gangster” movie has a great line that tells me why the bull market’s peaking: “Getting out at the top ain’t the same as quitting,” a friend advises the drug lord at the heart of the film. But he can’t hear. Greed is too good. Like so many leaders “more is never enough.”
It’s the same with markets. They never “top” naturally. Nobody wants to be a “quitter.” Investors keep pushing up, up way over the top. Greed drives cycles. Bubbles pop. Crashes happen. We get warnings years in advance. So what? Greed blinds us.
…
A former Federal Reserve governor, Ed Gramlich, started warning Alan Greenspan as early as 2000 about the coming subprime problems. The New York Times’ Paul Krugman says Gramlich wrote that: “Increased subprime lending has been associated with high levels of delinquencies, foreclosure and, in some cases, abusive lending practices.” But he was ignored.
Why can’t the best and the brightest hear early warnings? As recently as August both Fed Chairman Ben Bernanke and Treasury Secretary Hank Paulson were saying the subprime problem was “contained.” Now it’s an unavoidable “contagion” rippling through the economy and markets, raising fears of a global recession. Billions of write-offs. Top leaders fired.
Were all those Wall Street geniuses blind to the collapse ahead?
http://www.marketwatch.com/news/story/how-brazilian-supermodel-may-crack/story.aspx?guid=%7BD005D668%2D1986%2D4E60%2D8993%2D640C3341EBA6%7D
” And it’ll ripple around the globe: The dollar’s already lost 34% of its value since 2001. Can it get worse? Yes says Giselle Bundchen, a $30 million-a-year Brazilian supermodel who is demanding Pantene, an American cosmetic company, pay her in euros not dollars.”
Why? As Bloomberg News put it, the dollar can “only depreciate because Americans … are living beyond their means.” What irony, a model delivers an economic policy warning with more punch than all the currency threats from Iran, Venezuela and China. Gisele’s lucky. She’s bailing out of the “happy conspiracy.”
Supermodel/Economist
My kind of hottie.
At least this model provides full value as opposed to Wall Street models.
Mark to supermodel?
If she is being up fronty then this demand is silly, and probably just a publicity stunt. What’s to stop her from converting her lump sum into something else?
Now if she has a long term contract with future payments, then I can see the logic in demanding a Euro based contract.
Why is she being silly, she should be running the Federal Reserve. She has a better grasp of economics than Mssrs. Bernanke and Paulson.
Would you accept Zimbabwe dollars for pay?
C’mon. You can eaily convert USD to Euro’s today. And we are (not yet) in the dumpster. Like I said, if she has a multiyear contract with payments in the future, then she should avoid a USD based contract.
Try to convert dollars into local currency in:
Columbia
Peru
Ecuador
Nigeria
Thailand
Philippines
These are just a few countries that have put currency curbs on the dollar in place. The dollar is not yet in the dumpster, but it is in the garbage bag.
Korea has requested that contracts are to be priced in Won. Dollars are no longer acceptable.
An interesting collection of countries. I suspect that their actions (especially the South American nations) are based more on politics than economics.
As for contracts not being in dollars, I have already agreed that is wise and makes sense, as I expect the dollar to continue declining for some time.
It is a political problem, a US political problem. The problem is the collapse of the dollar causes inflation in countries with trade surpluses (South America, Africa, Asia). These countries do not want inflation. They lived with it, have it under control and feel that the US is shoving it back on them. Now Americans, drug dealers, etc. are trying to convert US dollars into the Sucre. These countries do not want any more dollars.
For Ecuador this is particularly painful as they have been a staunch US supporter with the US dollar as the official currency reserve. South America regards the US political actions as US interference.
From Bloomberg, the end of Empire.
“American Gangster’s Wad of Euros Signals Losing U.S. Confidence”
Nov. 14 (Bloomberg) — “It may be our currency, but it’s your problem” was Treasury Secretary John Connally’s taunt when the U.S. unhooked the dollar from the gold standard in 1971, unilaterally rewriting the rules of world business in America’s favor.
Now the world is taunting back. Almost four decades after the U.S. tore up the monetary arrangements that governed the post-World War II international economy, the dollar’s fall from grace amounts to a tectonic shift in the global hierarchy. This time, the U.S. currency and the capitalism it represents are on the losing side.
After declining in five of the last six years, the weakest dollar in the era of floating currencies reflects a period of diminished U.S. political and economic hegemony. Whoever wins the White House next year will confront two unpopular choices: Accept the fall in U.S. clout and the rise of new rivals, or rein in record public and consumer debt that the rest of the world no longer wants to bankroll.”
Side note: “Tectonic shift” = journalist cliche. In Jr High journalism I would get points off for this.
Well, we’re in 50% January index puts. Incredible you get these chances over and over.
You are right, rally faded awful quick. Volume in the dow and s&p yesterday wasn’t that great.
Have you looked the OI interest for Nov in the SPY, QQQ, etc.? I haven’t but figure we could get squeezed a bit over 1500 if its high enuf
In the s$p 1500 puts oi is 176500.
Some are biting the bullet today, CPI might be good for a pop over 1500.
http://www.cboe.com/delayedQuote/SimpleQuote.aspx?ticker=SXM+WT-E
Yeah, I’d say it’s about 60-40 we see that.
Got gravity?
http://www.marketwatch.com/quotes/nasdaq
I love it when the marketwatch.com headlines are violently contradicted by the stock charts just to the right side of the home page…
November 14, 2007 9:51 A.M.EST
BULLETIN
Indexes bask in further rise
Data on retail sales and PPI inflation meet with Wall Street’s approval, and investors breathe sigh of relief over Bear Stearns write-downs.
That’s why I short futures in the premarket and then exchange for puts. Sometimes these gaps don’t even last long enough for the option market to open.
How about a more accurate headline: “Bears Maul Wall Street Revelers”
In retrospect, it appears that gold really started to shine around the onset of the credit panic this August…
http://www.marketwatch.com/quotes/gc07z?sid=1349404
“The Funds Of August”
Glorious! I’m stealing that one.
And, Gold is coming back, and Silver even stronger!
The PPT seems to be engaged in a Sisyphean struggle to keep stocks going up today…
Nah, we just closed out a nice +15 points on short ES and puts doing very well. It looks to me now like all bounce attempts are being sold.
Wow, the bottom dropped out after I covered that futures short! Oy vey! At least I have my puts to keep me warm.
I need an intervention, ya’ll. I can’t even make myself look at the left side of the options tables any more.
They had to get as many suckers long as possible, force the shorts into covering and then transfer wealth. A very nice predictable day.
The sucker is “the type that thinks he has cut his wisdom teeth because he loves to buy on declines. He waits for them. He measures his bargains by the number of points it has sold off from the top.” Jesse Livermore
Tx, young lady - I was not referring to you! Apologies in advance if it reads like that.
I don’t buy declines generally unless there’s a good technical or fundamental reason and then I always sell them too soon. I could have had another $40/share on BIDU.
LOL. Just as long as you realize my comment was directed at the Cramer types that are to lazy to do an hours worth of research a week. It was not directed at knowledgeable scalpers. :>)
Foreclosure filings: No slowdown yet
Hardest hit cities are on coasts and in Rust Belt, according to a new survey.
http://money.cnn.com/2007/11/13/real_estate/no_abatement_in_foreclosures/index.htm?postversion=2007111405
For those who are interested in Boston and the Providence RI/New Bedford MA area (my area), this was quite interesting:
Several Massachusetts cities experienced huge delinquency jumps during the quarter. Boston filings soared 146 percent to one per every 220 households, Springfield’s increased 151 percent (one per 172) and Worchester 122 percent (one per 150).
Filings in the Providence, R.I./ New Bedford, Mass. area climbed a whopping 295 percent, albeit from a low base, to one for every 549 households.
FL Panhandle
http://pensacola.craigslist.org/rfs/478496442.html
Beach properties auction.
Sorry, I’m only interested in no reserve auctions. My idea of low reserve is likely very different than the sellers.
I don’t usually read books like this, but I couldn’t resist picking up the #1 “Buisness” best-seller “The Four Hour Work Week” (Timothy Ferris)
It was enlightening because it summarizes the sentiment of today’s FB! You want everything without working/saving for it. The book basically advises you to do as little as possible so you can enjoy yourself.
I’ve been penciling out scenarios to see if, even if RE prices *did* increase forever, does the logic of getting a “teaser rate” (often they don’t even last a year!) to get yourself into a home you can’t otherwise afford so you can get a low-interest fixed mortgage after a year EVER work out. It doesn’t. There’s simply no way someone who can’t afford a 30-year fixed on a 600K house can suddenly afford one if they had a teaser rate and could “refinance” after a year.
The borrowers and lenders just wave their hands over that “refinance” part of it. Of course if the house is “worth” more, you may have sufficient equity to qualify for a better loan, and avoid PMI, but houses would have to appriciate 20% in the first year for that to happen dependably.
At 20%/year, a 600K house would be worth $100,000,000 in 30 years. If the Mortgage Brokers *really* beleived what they were selling, they’d each buy 10 houses, rent them out, and know they could retire in 30 years as a BILLIONAIRE.
So back to the “4-hour-work-week”. We’d like to think that the FBs meant no harm and were just stupid. I disagree. I think most of them knew they were participating (with brokers, R-E agents, and lenders who would sell their debt) in a massive scam to steal from the “taxpaying class” (the 1% of wage earners who pay 40% of the taxes).
http://www.fundmasteryblog.com/2007/10/08/1-of-taxpayers-pay-nearly-40-of-all-income-taxes/
4 hours! That’s too many!
What are you supposed to do to achieve this status?
My guess is that you write a book telling people that they can be rich while working only 4 hours a week.
Comment by jim A
2007-11-14 05:55:16
‘…per admission, …per admission. The double post seems appropriate here, I’m even getting a little Westworld vibe.’
I watched that show when I was a very wee lass. It was great! My mom shouted at my uncle Dan for letting me watch it with him, not because it alarmed a toddler, but because I kept demanding a black cowboy hat for weeks after. I knew style when I saw it.
Now that I think of it, I never did get one. Better go quick. Then I can hang it next to the pretty tinfoil hat.
I also wanted to be a shark, after seeing ‘Jaws’. But they don’t have hats, alas. Now I have both movies, and I can watch them whenever I want, and I can wear a black cowboy hat, if I get one. But I guess I still can’t be a shark. And for this I blame baby Jeebus. And my mom.
Olympiagal-
I was caught off guard at a funeral after event, where we were talking Macro Econ (have we no shame), and used your ‘baby jeebus’ humor to the horror of a few. Thanks!
The Real Reason for Yesterday’s Rally
Mr Practical Nov 14, 2007 9:00 am
The rally we saw yesterday was a phenomenon of high option prices.
As TV announced the end to all economic problems with the stock market rally yesterday, I caution Minyans to stay tuned.
The rally was apparently precipitated by Wal-Mart (WMT) not guiding down (as the recession deepens more people will shop at Wal-Mart) and banks writing down less than was feared (until the next time). Of course this is hogwash.
http://www.minyanville.com/articles/rally-WMT-stocks/index/a/14869
Yun is just taking his marching orders from our fearless leader:
“We have a strong dollar policy, and it’s important for the world to know that,” Bush said in an interview on the Fox Business Network. “We also believe it’s important for the market to set the value of the dollar relative to other currencies. And if people would look at the strength of our economy, they’d realize why, you know, I believe that the dollar will be stronger.”
Speaking of retailers, there’s actually a wonderful new source of income that they invented a few years ago. It’s called “Breakage”.
I work as a consultant for the nebulous “Entertainment Industry” (mostly theme parks) and sometimes my work touches on retailing.
Gift Cards are huge! And retailers like them because of “Breakage”. That’s the number of unclaimed and unredeemed gift-card dollars. Depending on your state, it’s possible to expire the cards in a relatively short amout of time. And even if you try to use the card, there’s often some $$$ left over.
The other type of “breakage” is pre-selling items, esp. Extended Warranties. Often the Extended Warranty is a bad bet. And “breakage” factors in here because, after two years, most people will opt for a new gadget than deal with the complicated procedure to obtain warranty services through one of those third-party warranty fulfillment terms. Unused warranties == pure profit.
I’d venture to guess that if you took away gift card breakage and extended warranty sales, few retailers would show a profit.
I’ve often wondered if anyone really falls for that extended warranty scam.
Rant Topic: Why does your credit score get dinged for inquiries?
I was reading something on HousingDoom this a.m. and this occurred to me as a problem for the nth time, vis-a-vis all these reports of people getting screwed on the terms of their mortgages.
The fact that your score gets downgraded for inquiries keeps you from shopping around for credit on good terms because if 10 different lenders run your credit score, your score drops like a rock between the 1st and the 10th, and then you can’t get new credit on decent terms if at all! Is it any wonder the media is now filled with reports of people who would have been prime borrowers ending up with subprime loan terms? The whole credit system is deliberately set up to keep you from shopping for loan terms!
It seems like the credit scoring companies are in bed with the banks and each other to accomplish this goal. Not that I’m usually the first to say this, but maybe the law should be changed to prevent it - it should not reflect badly on your credit score that you are shopping for better terms, and for agencies to downgrade you on this basis is distinctly anti-consumer.
Retorts?
I think all the inquiries count as one if you have then within a period of a week or so.
Really? This wouldn’t make any sense though - what if you buy a car an a house in the same week? I’d be curious to know if this is true, but in any case, why should I have to apply for a mortgage at every bank within a week?
I guess I’d stand on the fundamental precept that for you to shop around shows financial prudence (even if you’re taking your time and taking more than week), and that to penalize people for taking their time and looking at available terms from different lenders is anti-consumer.
That issue is discussed on Creditboards (google it)
They have gamed every nuance of the credit system there.
Statement Before the Joint Economic Committee
Ron Paul
Mr. Chairman, our economy finds itself in a precarious state. Oil prices are rising, gold is nearing all-time highs, and the dollar is nearing all-time lows. The root of this crisis, as with past financial and economic crises, results from federal government intervention into the economy, not to anything endemic to the market, nor to the the actions of market participants.
The collapse of the housing market has served as a catalyst for the economy’s latest bust. For years the federal government has made it one of its prime aims to encourage homeownership among people who otherwise would not be able to afford homes. Various federal mortgage programs through the FHA, Fannie Mae, and Freddie Mac have distorted the normal workings of the housing market.
The implicit government backing of Fannie Mae and Freddie Mac provides investors an incentive to provide funds to Fannie and Freddie that otherwise would have been put to use in other sectors of the economy. It was this flood of investor capital that helped to fuel the housing bubble.
Legislation such as the Zero Downpayment Act and the misnamed American Dream Downpayment Act made it possible for people who could not afford down payments on houses to receive assistance from the federal government, or even to pay no down payment at all, courtesy of the taxpayers.
The requirement of a down payment has always helped to ascertain the ability of a buyer to pay off a mortgage. It requires the buyer to show hard work and thrift, the ability to delay present consumption in order to make a larger acquisition in the future.
When this requirement is minimized or eliminated, you introduce a new class of homebuyers, people who are unable to budget and save for the purchase of a home, or who should wait for a few years until they have saved enough to purchase a home. Federal policies have encouraged investors, lenders, and brokers to cater to these people, so it is no surprise that market actors came up with ever more sophisticated means of bringing these people into the real estate market.
Finally, the Federal Reserve’s loose monetary policy and lowering of interest rates were a major spur to the housing boom. Low interest rates influence marginal buyers, those who are sitting on the fence, and encourage them to take on a mortgage that they otherwise would not. Even when interest rates are raised, no one expects them to stay high for long, as there is always pressure from politicians and investors to keep rates low, as no one wants the cheap credit to end.
Thinking that interest rates will cycle from low to higher, back to low, lenders begin to offer adjustable rate mortgages, 2/28’s, 3/27’s, and other sophisticated mortgages that may trap many unsavvy buyers. Buyers go short, lenders go long, and many people have been burned as a result.
It is time that the federal government get out of the housing business. Through our interventionist legislation we have caused the boom and bust, and any attempts at reform that fail to address the causes of our current problem will only sow the seeds for the next bubble.
Ron Paul is right.
I wonder if we’ll hear another Prez candidate use the term “housing bubble” before the election.
I guess I’ll get off the fence and register to vote, only so I can keep my record going of only voting for candiates named “Ron.”
I had no idea there was a “Zero Downpayment Act” (BTW: legistation introduced by a Republican!)
The biggest problem with the US, that Ron Paul doesn’t like to address either, is the majority of the American Voting Public pays little or no taxes. 40% of the federal income tax is paid by the top 1% of wage earners!
We need to start taxing EVERYONE–even welfare moms on SSDI–25% minimum. And get rid of tax deductions, too.
I used to doubt the “Laffer Curve” theory, but now I think it’s true. And if Pres. Hillary decides to tax the top 1% at 70% instead of the currrent 40%, then they simply will take a 4-year vacation until the next president comes in and reverses the situation. Or leave the country, move their operations offshore, etc.
I can’t see anything good happening in the US in the near future!
This “Zero Downpayment Act” was probably a signficant cause of this mess. You gave the right to occupy a home to indigent people with nothing to lose.
40% of the federal income tax is paid by the top 1% of wage earners!
Nevermind that they own the bulk of the wealth and get the lions share of the income. I recall reading once the Bill Gates net worth was greater than the bottom 3rd of all US residents.
Do you think it’s fair that nearly 50% of American wage earners pay no taxes at all? The Bottom 50% of wage earners pay about 3% of all income taxes. Their average tax rate is 2.98%.
The top 1% of wage earners (that’s above $364,657 in 2005) pay 39.38% of taxes, with an average tax rate of 23.13%.
This country talks about “Chr*stian Values”. How about just taxing EVERYONE 10%, like the biblical tithe. Jewish Law, which I’m more familiar with, stipulates that everyone give 10% back the the poor and the community. Even the poorest beggar is required to.
The danger when you have a society when the MAJORITY pays little or no taxes is that they’d gladly go to the voting booths to make the “taxpaying class” pay for their mistakes. That’s not fair! If everyone paid taxes, we’d have a better democracy.
The income tax data is summarized here http://www.taxfoundation.org/files/ff104.pdf You can go back to the IRS data they cite if you doubt their calculations.
Are you counting the 15.3% that self-emplyed people pay from the beginning that surpasses Bill Gates’ 15% on LTCG? He has so little “earned income” and so much capital gain that his rate is basically 15%. True of most of the mega wealthy. Meanwhile, as a business owner, I pay the 15.3% and a yearly tax on all the equipment in my office.
So if I make $1,000 I am in a higher effective tax bracket than Bill Gates. Yeah, no problems there. (And I consider Soc. Security/Medicare a tax since I will receive little benefit from it and the government spends it on non-Soc. Sec. items.)
Unless you prepare taxes and see how little your wealthy clients pay from their investments versus the small business owners who get screwed in CA don’t whine to me about how little the rich pay. I’ll take 15% on a billion dollars over 15.3% on a dollar.
In the Netherlands it’s even worse - small business owners pay about 45% tax minimum, while the mega-wealthy pay just a 1.2% yearly tax (30% tax on a presumed 4% yearly gain) on their financial assets (home and some other assets are excluded). And because the current Finance Minister (with Labour background) thinks this is unfair for the rich, he is working on a new system where ueber-wealthy citizens (like those more than 20M euro capital) will pay just 0.15% yearly tax - irrespective of real gains.
NO! You’re missing the point of those statistics! The TAX RATE of the top 1% of wage earners is around 25% while the TAX RATE of the bottom 50% is under 4%.
Once you factor in all the deductions that the bottom half gets–tax deductions for pumping out children, mortgage interest, (and now deductable PMI), they pay VERY LITTLE TAXES.
The group in the united states that has the highest ACTUAL TAX RATE is the top 1%.
“Months ahead of schedule, Lighthouse Development Group–a joint venture of developer Charles Wang and RexCorp Realty L.L.C.–have filed plans with Long Island’s Town of Hempstead for the approximately $2 billion, 5.5 million-square-foot Lighthouse at Long Island mixed-used development.
The filing and rezoning of the site marks the start of the official public review and approval process of the project, which will revitalize the Nassau Veterans Memorial Coliseum (pictured) and the surrounding area into a 24/7 suburban center through a 150-acre planned development district. Lighthouse will include various housing projects, office space, complementary retail, conference and exhibition space and Long Island’s first five-star hotel….”
Commercial Property News
Nov 14, 2007
http://tinyurl.com/34qro5
Just when I thought the silly projects were through. LOL
“Paul Kasriel, chief economist with Northern Trust in Chicago, also anticipates further weakening in the housing market because of growing inventories. He also believes that the wave of foreclosures isn’t over and points to the $683 billion in subprime mortgages that are due to reset between now and the end of 2008. Those foreclosures will put even more homes on the market that will likely be sold at a discount by creditors that take possession of the homes.
“I think you’ll see an increase in auctions with prices being slashed. I think prices are still going to be weakening for a while and it looks as though we’re only in the early stages of homeowners capitulating in terms of their asking prices,” says Kasriel…”
http://tinyurl.com/2sryeh
Yahoo personal Finance
The US may be headed for a slowdown or a recessionary phase.
Thank heavens we are not headed for an outright recession!
Insight: All signals are pointing in the direction of a US slowdown
By David Rosenberg, chief North American economist for Merrill Lynch
Published: November 14 2007 19:00 | Last updated: November 14 2007 19:00
The US consumer is on the precipice of experiencing the first recessionary phase since 1991 – the last time we had the combination of punishingly high energy prices, weakening employment, real estate deflation and tightening credit conditions.
The consumer slowdown is expected to drag US gross domestic product growth to below 1 per cent (annualised) in the current quarter from the 3.9 per cent rebound in the third quarter.
http://www.ft.com/cms/s/81875b02-92e2-11dc-ad39-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F81875b02-92e2-11dc-ad39-0000779fd2ac.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fhome%2Fus
What a concept! Actual laws to protect consumers from predatory subprime lending — but four years too late.
Barn door wide open
All the horses ran away
Hurry, shut the door
Thursday, November 15, 2007
House bill targets subprime lending
In an effort to make sure the subprime mortgage meltdown doesn’t happen again, the House was set to vote today on a bill that would lay down rules for lending. Stacey Vanek-Smith reports.
…
The House bill would make it illegal for lenders to reward brokers for giving out subprime loans, and require that borrowers meet minimum standards. It would also prevent things like prepayment penalties that punish people for paying loans back early. The thing is, a lot of the organizations doling out the shadiest loans were not banks, and they won’t have to follow federal rules. David Lereah is the former chief economist for the National Association of Realtors.
DAVID LEREAH: It was the mortgage brokerage companies that were out there trying to sell a lot of these irresponsible type loans.
Still, Lereah says reigning in the banks will make a big difference. That’s because there won’t be many organizations left to buy up risky loans from lenders like Countrywide.
Lereah says the bill is also an important feel-good measure. He says Wall Street is watching Capitol Hill, and Congress needs to act.
DAVID LEREAH: If there isn’t any legislation, it’s going to prolong the contraction that we’re currently experiencing in real estate. So any type of legislation that’s going in a positive direction for the real estate industry is good legislation at this juncture.
http://marketplace.publicradio.org/display/web/2007/11/15/subprime/
If anyone tries to interest you in a financial vehicle with the word enhanced as part of the description, don’t ask questions; just turn around and run away!
Master Liquidity Enhancement Conduit
High-Grade Structured Credit Strategies Enhanced Leveraged Fund
“enhanced cash fund”
Thursday, November 15, 2007
GE fund reports ‘breaking the buck’
A bond fund managed by General Electric has had its value fall below 100 cents on the investor’s dollar, setting off some alarm bells. Amy Scott reports.
KAI RYSSDAL: If you want to scare the bejeesus out of a Wall Street money market fund manager, all you have to do is mention this phrase, “breaking the buck.” It’s kind of an insider’s reference to the value of a fund falling below $1 a share. Which is all but officially verboten. But it has apparently happened to a bond fund managed by General Electric. It’s not a money market fund, per se. But it’s pretty close. So the news set off some alarm bells in the financial press today.
From New York, Marketplace’s Amy Scott reports.
AMY SCOTT: Last week GE Asset Management sent an email to investors in its “enhanced cash fund.” The message offered them a chance to get their money back, at least most of it. The fund had lost money on mortgage-backed securities. And given the potential for further losses, GE spokesman Russell Wilkerson says all investors outside GE took the offer.
RUSSELL WILKERSON: We wanted to make them aware of the current market conditions and give them the option of taking out 96 cents on the dollar. They looked at the market and evaluated it from their perspective, and thought that was the right option for them.
http://marketplace.publicradio.org/display/web/2007/11/15/ge_bonds/