January 15, 2008

It’s Normal To Have An Ongoing Conversation About Pricing

Some housing bubble news from Wall Street and Washington. Bloomberg, “Citigroup Inc. posted the biggest loss in the U.S. bank’s 196-year history as surging defaults on home loans forced it to write down the value of subprime-mortgage investments by $18 billion. The markdown on subprime securities is the biggest so far, exceeding the $14 billion reported by Zurich-based UBS AG, Europe’s biggest bank.”

“‘They’ve got themselves in a deep, desperate hole and it’s going to take them all of 2008 to work their way out of it,’ Jon Fisher, who helps manage $22 billion at Fifth Third Asset Management, said in an interview on Bloomberg TV. Fifth Third owns shares of Citigroup. ‘There are probably issues on their balance sheet that the management team, who’s only really been running the company for about a month, doesn’t even know about.’”

From Dealbreaker. “As they just discussed on the conference call, Citi still had $37.3 billion in direct and indirect subprime exposure at the end of the quarter. That’s still a lot of risk on in asset classes that no-one can confidently value. Even Citigroup admits that it is just looking at the ABX and making intelligent guesses.”

“Our high level quant skills tell us this leaves Citi with $29.3 billion in CDO exposure. What’s worse, Citi’s chief financial officer is stressing that there is no market against which to mark these asset backed CDOs. So these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.”

From The Star. “Canadian Imperial Bank of Commerce, already reeling from its exposure to America’s subprime meltdown, confirmed yesterday it will record another $2.46 billion (U.S.) in pre-tax writedowns.”

“The lion’s share of the bank’s new subprime-related writedowns – some $2 billion (U.S.) worth – relate to counterparty hedge protection it bought from American bond insurer ACA Financial Guaranty Corp. Questions continue to swirl about the financial health of ACA after its credit rating was slashed by Standard & Poor’s late last year.”

“The remaining $462 million charge relates to CIBC’s unhedged exposure to the subprime market.”

The National Post. “Four months into the Canadian $35-billion ABCP fiasco and still investors have no idea about the status of their holdings. They may be sitting on the equivalent of AAA-rate securities, as suggested the other day by Purdy Crawford, chairman of the grandly named Pan Canadian Committee of Third Party ABCP Investors.”

“Or, as some critics suggest, their investment values may have more in common with subprime mortages. Since no real information is coming out of the committee, who can tell?”

“What we also learned yesterday, however, is that a private underground market in ABCP paper is alive and kicking. Westaim Corp. of Calgary has agreed to sell 50% of its holdings in ABCP units. Originally valued at $17-million, the assets were written down to $14-million earlier, and now Westaim is selling half its ABCP portfolio for $6-million, off a book value of $7-million.”

“The Westaim sale implies a writedown of up to 30%, which doesn’t sound like AAA-rated material.”

“If Westaim were not a public company, the deal would have remained a secret trading transaction in a $35-billion asset class that a vast cabal of major corporations, from the Caisse de depot et placement to major banks, have systematically conspired to keep out of any public market.”

“Many ABCP owners need the cash to carry on business. Many transactions are believed to have closed, with some sellers accepting 80¢ on the dollar. Another story is that major investment houses are buying back the ABCP assets they sold at 100¢ on the dollar to keep their clients happy, and then unloading the assets into the underground market and quietly taking a loss.”

The Pioneer Press. “Exposure to the subprime mortgage mess will cost St. Louis Park-based MoneyGram International Inc. more than $1 billion, the money transfer company said late Monday night.”

“In October, MoneyGram said it would lose $230 million on mortgage-related investments, but warned that total losses could be higher. Those losses, yet to be incurred, now stand at $960 million, the company said in a press release issued Monday evening.”

“The company spent another $200 million this month liquidating some of its problem securities.”

The Orange County Business Journal. “Newport Beach-based Downey Financial Corp. says it has more bad loans than it stated earlier after reclassifying its balance sheet. Shares of Downey fell 13% on Monday, bringing its market value to about $680 million.”

“Nearly $100 million of the company’s loans that were part of a refinancing program for troubled borrowers were reclassified as nonperforming assets, according to Downey.”

“The loans were part of a ‘borrower retention program,’ which in December the company’s accountant KPMG LLP said should be considered nonperforming after initially saying in September that they were being accounted for correctly, according to a press release.”

“In November Downey said nonperforming loans were 5.77% of its total assets. In October it said it had $323 million in nonperforming loans.”

The Insurance Journal. “More than $170 billion has evaporated from the balance sheets of companies around the world as the result of the meltdown of the U.S. subprime mortgage market, reports Advisen Ltd., a provider of technology and data to the global commercial insurance industry.”

“However, the $170 billion of writedowns may be only the tip of the iceberg, the research firm suggests in a special report…that tracks writedowns reported to date and the related lawsuits filed against those companies.”

“Advisen estimates the 112 companies reporting writedowns may have as much as $1.2 trillion in collateralized debt obligations and other securities backed by subprime mortgages on their balance sheets. The crisis in the subprime mortgage market also has triggered an avalanche of lawsuits.”

From MarketWatch. “Fewer people will be obtaining mortgages this year than in 2007, with total mortgage production expected to drop 16% to $1.96 trillion in 2008, the Mortgage Bankers Association said Monday.”

“If the projections hold, it would be the first time since 2000 that total mortgage originations fall below $2 trillion, the group said.”

“‘The principal concern of the current credit crisis lies in the possibility that banks will eventually run out of capital,’ said Doug Duncan, MBA’s chief economist. ‘Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed.’”

“After total mortgage production decreases 16% in 2008, it will drop another 4% in 2009 to $1.88 trillion, the MBA predicts.”

The Guardian. “Two of Britain’s biggest mortgage lenders, Alliance & Leicester and Britannia building society, have doubled the minimum deposit demanded from first-time buyers in the latest sign that banks are anticipating a downturn in house prices.”

“Borrowers will have to pay a minimum deposit of 10% on the price of a property compared with 5% before. According to Moneyfacts, 11 mortgage lenders have reduced the maximum loan-to-value ratios on some or all of their mortgage range since the beginning of December.”

“This marked an about-turn from the position before the onset of the credit crunch, when lenders pushed loan-to-value ratios to highs of 130%, with 95% the norm.”

“A spokeswoman for Britannia said: ‘At the end of December, Britannia took the decision to impose a maximum loan-to-value limit on all products of 90%. This is due to the current external environment, with house prices falling over the last few months and the Council of Mortgage Lenders forecast that house prices will continue to fall in 2008.’”

“Taylor Wimpey Plc, the U.K.’s largest homebuilder, said orders fell 19 percent as of the end of last year as falling prices and tighter credit markets deterred buyers.”

“Cancellation rates rose to more than 30 percent in the final quarter of 2007 from an average of about 20 percent, while reservations fell about 25 percent, Redfern said.”

“Taylor Wimpey builds houses and apartments in the U.S. states of Arizona, Georgia, Texas, California and Florida, where it’s the leading golf-course developer.”

The Telegraph. “Fewer Brits are splashing out on holiday homes in the sun as higher mortgage repayments and concerns about the economy bite.”

“The trend, which is further evidence that Brits are reining in their spending habits, emerged when Taylor Wimpey gave a trading update to the market this morning. The housebuilder warned that profits from its mainland Spain business would be ‘well below’ those achieved in 2006.”

“In 2007, Taylor Wimpey sold 47 pc or 167 fewer homes in Spain and Gibraltar compared with 2006.”

“CEO Peter Redfern said that the US market remained ‘exceptionally challenging’ and he expected that to continue throughout 2008. Completions in its North American business, which includes Canada, fell 24pc from 8,839 to 6,740, and prices fell 19pc from an average of £212,000 to £172,000.”

“It emerged last week that Taylor Wimpey has told suppliers it intends to pay them 5pc less as the credit crunch bites into housebuilder profits. A letter was sent to its subcontractors, suppliers and consultants, which warned of imminent cuts and blamed them on a difficult 2007 which looked likely to continue in 2008.”

“Mr Redfern played down the letter today: ‘In any industry at any time it is normal to have an ongoing conversation about pricing. We don’t see it as anything out of the ordinary.’”

The Orange County Register. “In a Securities and Exchange Commission filing, Newport Beach-based William Lyon Homes says…’On December 26, 2007 and January 7, 2008, William Lyon Homes, Inc., a California corporation, entered into ten separate purchase and sale agreements with various affiliates of Resmark Equity Partners, LLC.’”

“‘Pursuant to the Resmark Agreements, Lyon California agreed to sell…604 residential lots and 5 model homes in 10 communities in Orange County, San Diego County, and Ventura County, California for an aggregate purchase price of $90.6 million in cash.’”

“‘Prior to the sale, the collective net book value of these lots (as reflected in WLH’s financial statements) was approximately $210.7 million.’”

“By our math, that’s 43 cents on the dollar.”




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153 Comments »

Comment by Ben Jones
2008-01-15 10:51:03

‘If the projections hold, it would be the first time since 2000 that total mortgage originations fall below $2 trillion, the group said. After total mortgage production decreases 16% in 2008, it will drop another 4% in 2009 to $1.88 trillion, the MBA predicts.’

As I recall, this would be roughly half of the 2003 peak.

Comment by Remain calm. All\\\'s well
2008-01-15 12:12:39

I don;t know, Ben. MBA may be following the NAR in vaporizing its credibility. We are in uncharted territory, so I wouldn’t put much trust in MBA’s forecasts.

Comment by Flatlander
2008-01-15 14:07:33

If mortgage production falls by 16% in 2008, doesn’t it stand to reason that home sales will fall by a similar number? The NAR is not projecting that big of a decline IIRC. Don’t know the exact numbers, but I’m sure the MBA missed 2007 by a ton . . . but still, their projections have to be much more credible than NAR.

And since the golden rule applies here: it’s thems that have the gold, makes the rules . . . I would suspect if mortgage bankers are not lending (or projecting to lend much less), houses will not be selling at roughly the same rate.

Comment by Wilson
2008-01-15 15:23:54

Hmmm…I’m thinking aloud here.

There was close to $15 trillion in mortgage origination during the last period of irrational exuberance–2003 to 2006. How much of that has to be upside-down? I would bet the majority will be by the end of the year. So let’s say there’s $4 trillion in mortgages in 2008 and 2009. That’s a lot of homes that will be dropping prices significantly to get into that Sold category.

I’m guessing there has to be an unbelievable level of depreciation if there is only $4 trillion in mortgages in the next two years…

Does that make sense? Would love to hear you guys chime in…

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Comment by Ziggy
2008-01-15 16:40:44

Falling prices can lead to flat sales, but lower amount of mortgage originations.

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Comment by seymourpansick
2008-01-15 10:53:05

2015…if you are lucky.
They’re still clueless as to the extent and magnitude.
D-E-N-I-A-L.
Millions to billion to trillions.

Comment by hd74man
2008-01-15 11:38:07

RE: They’re still clueless as to the extent and magnitude.
D-E-N-I-A-L.
Millions to billion to trillions.

Not only is the paper bad-but so is the asset backing the note.

A lot of the housing stock serving as collateral for the paper is heavily depreciated; functionally obsolescent; worn out garbage in decaying neighborhoods.

You know this if you’ve been out on the street inspecting this shit.

The corner office, VIP sports box crowd hasn’t a clue.

What no bread? Why not let them eat cake?

WE ARE SUBPRIME NATION

Comment by exeter
2008-01-15 12:15:03

“Not only is the paper bad-but so is the asset backing the note.”

Shouldn’t your observation be self-evident even to the novice? But I tell you, it isn’t. We’ve seen blurbs about Lehmans mortgage backed crap wrap trading at 5 cents on the dollar but that implication isn’t thought through by anyone. Not to say that the value of the asset is or should be valued at 5 cents per but the assets value is far lower than anyone is willing to admit.

Comment by hd74man
2008-01-15 15:12:18

RE: value is far lower than anyone is willing to admit.

E~

Much of the older housing stock in this country is literally toxic waste, ie., asbestos shingles & insulation, lead paint contaminated wood surfaces, et. el.

Demolition and debris disposal done to current environmental standards is enormously costly. Throw in some back yard waste oil dumping because the homeowner was runnin’ an outlaw garage and you got one mighty big negative valued property.

Negative value being the cost to demo & clean-up is more than the residual lot value.

I’ve heard of residental waste oil clean-ups running into the hundreds of thousands if not millions.

In a normal and above board context a diligent and knowledgeable appraiser would make note of all this in his report to the lender.

But as we all know-the appraiser who reports accurately and truthfully is soon run out of business.

But the point is-if you the mortgage holder are caught with one of these toxic properties in your portfolio, your losses accruing to adverse environmental factors may be a lot different than simply a discounted foreclosure value
from the original faulty appraisal report.

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Comment by Kid Clu
2008-01-15 18:12:46

How about the ones built in the last few years, with siding that burglars can walk right through to rob the house, built by subs who can’t even tie their ladders onto the top of their trucks right, and are always dropping them onto the freeways ?

 
Comment by AKron
2008-01-15 18:30:13

“Much of the older housing stock in this country is literally toxic waste, ie., asbestos shingles & insulation, lead paint contaminated wood surfaces, et. el.”

Two comments. First, it is interesting that most service contracts (i.e. Countrywide collecting payments and organizing foreclosures for property ‘owned’ by a securitizer such as Lehman) allow the servicer to REFUSE to take title to a property even after non-payment of PITI, if said property has negative value due to environmental problems. In that case, they will happily leave the property in the FBs name.

Secondly, the most serious environmental hazard (and financial hazard) IMHO is underground oil tanks. They have a lifetime of about 15 years before they start to leak. Nothing like having lots of heating oil percolating into the water column to trigger a really expensive cleanup. Not that it would not be justified- do you want number three heating oil in YOUR drinking water?

 
 
 
Comment by Blano
2008-01-15 12:20:20

“The corner office, VIP sports box crowd hasn’t a clue.”

How true. As an example, local papers have reported that Detroit Red Wings managment and ownership can’t figure out why the arena has only been about 2/3 full this year despite their success. They think marketing will fix it. Never mind that it’s a days pay or more for most in total for the privilege of watching millionaires sliding around on frozen water for a couple hours.

Comment by Arizona Slim
2008-01-15 12:26:48

Yup, marketing will fix it. No truer words were spoken, Blano.

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Comment by CarrieAnn
2008-01-15 13:00:01

I wonder if Super Bowl ticket scalpers were notice a downtrend.

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Comment by rally monkey
2008-01-15 13:33:03

I don’t follow Hockey enough to know the Red Wings situation, but the Tigers are doing incredibly well, they are considering shutting down season ticket sales because they want to keep a few seats available for making gameday decisions.

Despite a poor regional economy, they are having no trouble finding plenty of working Joes willing to spend lots of money to watch millionaires running around the bases.

Lots of the credit goes to their decision to bring in more star players like Miguel Cabrera and Dontrelle Willis. If the Red Wings are not selling despite a successful team, maybe people in the area just like baseball better.

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Comment by SaladSD
2008-01-15 22:21:28

“Bread and Circuses”, from the latin quote:

… iam pridem, ex quo suffragia nulli
uendimus, effudit curas; nam qui dabat olim
imperium, fasces, legiones, omnia, nunc se
continet atque duas tantum res anxius optat,
panem et circenses. …
(Juvenal, Satire 10.77-81)

Translation:

… Already long ago, from when we sold our vote to no man,
the People have abdicated our duties; for the People who once upon a time handed out military command, high civil office, legions - everything, now restrains itself and anxiously hopes for just two things:
bread and circuses

Per Wikipeida, this phrase originates in Satire X of the Roman poet Juvenal of the late 1st and early 2nd centuries. In context, the Latin phrase panem et circenses (bread and circuses) is given as the only remaining cares of a Roman populace which has given up its birthright of political freedom:

Juvenal here makes reference to the elite Roman practice of providing free wheat to some poor Romans as well as costly circus games and other forms of entertainment as a means of gaining political power through popularity.

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Comment by CA renter
2008-01-16 04:43:04

Thanks for the interesting post. :)

 
 
 
 
 
Comment by WantsOut
2008-01-15 10:55:52

I’m no chartmeister but aren’t we threatening some pretty significant support levels? Are we near a point where the machines could get involved in a big way?

Some interesting charts for those of us who are amateur investors.

Note first stab at tinyurl.

http://tinyurl.com/3dabux

Comment by txchick57
2008-01-15 11:00:10

Yep. Very close.

Comment by txchick57
2008-01-15 11:04:38

Sept/Oct rally following the “shock and awe” rate cut seems like a long time ago, doesn’t it?

Comment by NYCityBoy
2008-01-15 11:34:21

I’m in shock that anybody was awed. I know you weren’t Chick but the sheep sure were.

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Comment by Arizona Slim
2008-01-15 11:44:00

Can’t say that the rate cuts inspired cheap ole Slim to spend any more money or take out any new loans. In fact, I paid off a loan last month.

 
Comment by AK-LA
2008-01-15 13:51:31

Why did you pay off that loan? Do you hate America? Terrorist.

 
 
Comment by Michael Fink
2008-01-15 12:38:31

The talking heads at CNBC continue to scream for an emergency 50bps cut, follwed by another 25 at the scheduled meeting. Are these people totally out of their minds? Do they see the price of gold?

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Comment by CarrieAnn
2008-01-15 13:16:55

I was actually wondering why PMs are down when stocks are down. Gold down 8.1 at this posttime w/44 min till 4:00 market bell.

 
Comment by CarrieAnn
2008-01-15 13:18:33

Is it about margin calls?

 
Comment by dude
2008-01-15 14:32:30

Monthly cycle. The correction for this month was called for between last Friday and this Wednesday. I went short miners Friday noon and had to sweat it for a couple of days. Today it started paying off.
I think it was a couple days late this month due to all the screaming about rate cuts late last week. I don’t like to play the short side of this. The long is much easier. I expect I’ll be long again by Wed. or Thurs.

 
Comment by dude
2008-01-15 14:33:44

Forgive me, I didn’t answer your question. It’s not margin calls, it’s profit taking on one of the easiest cycles around.

 
 
Comment by WantsOut
2008-01-15 13:34:12

Sept/Oct rally following the “shock and awe” rate cut seems like a long time ago, doesn’t it?

Yeah, but the feeling of swallowing a golf ball is hard to forget.

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Comment by hllnwlz
2008-01-15 14:05:55

I know nothing, so I’m asking:

Can you elaborate on what these supports are? I will google it, but your reputation Tx is, to me, much more reliable than that info. engine.

 
 
Comment by abuismail
2008-01-15 17:08:49

How does one go about becoming a chartmeister? I’m an electrical engineer, and my eyes glaze over when I see charts with resistance annotations and no voltages or currents in sight. Can you suggest some introductory reading material for the budding econometrist? Thanks.

Comment by dude
2008-01-15 17:52:47

HBB baby!!!

 
 
 
Comment by devildog
2008-01-15 10:57:12

“…these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.”

When did making stuff up out of thin air become an “educated guess”? I sure wouldn’t dignify what’s been going on the last several years as anything other than a pack of scoundrels lying through their teeth in an attempt to induce a herd stampede of borrowing in order to line their own pockets. They lied on the way up to serve their own interests, and they’re lying on the way down trying to save themsleves. There’s no education or guesswork involved.

Comment by Blue Skye
2008-01-15 11:50:39

It’s polite talk for WFG.

Comment by Arizona Slim
2008-01-15 12:27:33

As in, Wild (eff)ing Guess?

Comment by packman
2008-01-15 13:09:10

I was thinking “We’re F’ed Gomer”.

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Comment by SDGreg
2008-01-15 14:44:20

An “educated guess” at what it would take to lure unsophisticated investors. Going in, one could charitably say the models had overly optimistic assumptions, but perhaps were otherwise legitimate models.

As for now, whatever basis is being used for the numbers is probably being driven increasingly more by fear and less by greed. Not “how am I going to scam people out of more money”, but “how am I going to keep from losing my a$$.”

 
 
Comment by aladinsane
2008-01-15 10:59:07

Nothing like on the job training, with a fresh batch of know nothings at the helm…

“‘They’ve got themselves in a deep, desperate hole and it’s going to take them all of 2008 to work their way out of it,’ Jon Fisher, who helps manage $22 billion at Fifth Third Asset Management, said in an interview on Bloomberg TV. Fifth Third owns shares of Citigroup. ‘There are probably issues on their balance sheet that the management team, who’s only really been running the company for about a month, doesn’t even know about.’”

 
Comment by aladinsane
2008-01-15 11:08:23

My educated guess is, they’ve financially Darwined themselves out of business, for all intents and purposes…

“As they just discussed on the conference call, Citi still had $37.3 billion in direct and indirect subprime exposure at the end of the quarter. That’s still a lot of risk on in asset classes that no-one can confidently value. Even Citigroup admits that it is just looking at the ABX and making intelligent guesses.”

“Our high level quant skills tell us this leaves Citi with $29.3 billion in CDO exposure. What’s worse, Citi’s chief financial officer is stressing that there is no market against which to mark these asset backed CDOs. So these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.”

Comment by flatffplan
2008-01-15 11:29:05

dude, it’s 26 cents on the dollar as established on HBB board, but that was a month ago

 
Comment by Pete
2008-01-15 11:38:25

Where were those “high level quant skills” when Citi was buying up mortgages given out to deadbeats? Those skills obviously weren’t enough to make up for the complete lack of common sense during the boom years.

Comment by bluprint
2008-01-15 12:31:33

…nunchuck skills, bow skills, quant skills…

They were working on the nunchuck skills at that point.

Comment by Former FB
2008-01-15 15:34:58

Lucky! Chicks like guys with skills.

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Comment by Dennis
2008-01-15 20:27:49

Chicks like guys with skills in the DARK and boy were these guys in the dark. So far IN that they could not get out as they had little skills in reverse.

 
 
 
 
 
Comment by AUA
2008-01-15 11:17:10

In the face of all of this, I no longer take solace in being able to say “We told you so.”

 
Comment by flatffplan
2008-01-15 11:18:56

OT BDI baltic dry index saying world “growth” may not bail us out

Comment by bluprint
2008-01-15 12:32:23

Why would world growth bail us out? We don’t produce and sell anything.

 
 
Comment by WT Economist
2008-01-15 11:20:27

‘Banks are running up against capital limits as they write down the value of assets at the same time they are putting loans on their balance sheets because the markets for securitized products are essentially closed.’

Or is the market for low-yield crap closed?

Give me a Fannie or Freddie issue backed by conforming mortgages with 20% down (real saved cash), 3 times income, 28% for the mortgage payment, fixed-rate self-amortizing loans, and give me 7.5%. I’ll buy some.

Comment by Arizona Slim
2008-01-15 11:28:46

Me too.

 
Comment by Blue Skye
2008-01-15 12:07:53

I do wonder how to gauge the possibility that these Freddie/Fannie issues could default, or what an early warning might be. I have some exposure in the 401. Still looking better than the “growth stock” alternative my peers are riding to the bottom.

What a scam it is to not allow lower risk options for the 401K. I feel like such a dairy cow when I look at it.

Comment by Not_In_Montana
2008-01-15 13:30:40

Same here. Everything’s in the mmkt and that doesn’t look good either. Safer in foreign/world stocks?

 
Comment by Groundhogday
2008-01-15 13:50:34

I second that opinion. I’ve written to TIAA-CREF many times, but no response. Would it be THAT hard to start a fund focused on cash-flow positive firms with a long history of steady dividends? THe value of the stock might go up or down, but I’d still be getting cash returns on my investment every year.

Comment by CA renter
2008-01-16 05:01:51

A business plan?

IMO, there might be an opportunity to start a fund/entity that loans money at a true market rate, and all loans would have very strict underwriting guidelines.

Going to bring this up on the Bits Bucket.

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Comment by Bill
2008-01-15 19:01:19

I feel your pain - after losing more than half of my 401K in the tech meltdown I have focused closely on my 401K. In October, I pulled all of my my money out of growth stocks and bond funds that are all heavily invested in mortgage CDO’s.

However my only “safe” options were gov’t securities primarily invested in FMae and SMae. How safe is this? The money market option looks terrible. I have mitigated a short term loss that I can value at more than $75,000 in the past couple of months but what is my exposure now that it’s all sitting in that single fund?

Comment by Will
2008-01-16 03:41:55

I don’t know about other 401ks, but Vanguard offers a Treasury money fund without even the (bogus) government agency paper in it. Be nice to have one with just insured bank CDs and Treasury paper, but this is quite conservative at a cost of less than 100bp.

Will

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Comment by az_lender
2008-01-15 12:14:57

Being distrustful of Fannie and Freddie’s bookkeeping, I’m still happier lending to individual mobile-home park residents at 9% (provided I have a lien on the lot, not just the MH). Guess we all continue to do what has worked for us in the past

Comment by Neil
2008-01-15 12:21:27

az_lender,

What sort of down payment do you require? I know you’ve posted it before, but I’ve forgotten.

Got popcorn?
Neil

Comment by Brandon
2008-01-15 12:47:17

Do you hold the trailer axles as collateral?

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Comment by Isabel
2008-01-15 16:27:04

“Do you hold the trailer axles as collateral? ”
I bet AZ lender has a trunk full of Denver boots for just such an event. :-)

 
 
 
Comment by Blano
2008-01-15 12:28:32

Nice and easy, nothing fancy. That’s the way to do it.

Comment by edgewaterjohn
2008-01-15 13:01:57

Now, now, that attitude will never get him an interview with Bubblevision. LOL

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Comment by are they crazy
2008-01-15 11:25:15

Guy I work with worked for company bought up by Citi so his 401K is all in stock options that were transferred to citi stock. He’s now lost 1/2 his 401K.

Comment by aladinsane
2008-01-15 11:38:56

Sounds so enron…

Utility workers in Oregon had their stock switched to enron, just in time to lose everything.

I recommend the movie “enron, the smartest guys in the room”

Comment by bluprint
2008-01-15 12:34:33

I watched that movie and was disappointed. It lacked substance.

Comment by Kim
2008-01-15 14:36:43

The book was better. The movie dumbed it down for the sheeple.

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Comment by Arizona Slim
2008-01-15 11:42:28

A college friend started a company that he and his partners later sold to Cisco Systems. Part of the sale was handled in Cisco stock options, which went down, down, down in the early part of this decade.

So, he and his buds created a program called Sharp Stick to track the descent of their stock options. They named the program after that sentiment that often follows bad news:, “Well, it’s better than a sharp stick in the eye.”

Comment by Bill in Carolina
2008-01-15 11:53:58

My old tech company hit a peak of about $150 in second half of 2000 (if memory serves). Dropped to TWO DOLLARS within a year, and is still bumping along at about $4 a share. A lot of my co-workers never exercised and sold because they didn’t want the big tax bill! Now they’ll never have to worry about that again.

 
Comment by ET-Chicago
2008-01-15 12:37:46

Ah, the Valueless Stock Option.

I remember those days well. Had a bunch of them myself.

 
 
 
Comment by Lip
2008-01-15 11:30:57

“‘Pursuant to the Resmark Agreements, Lyon California agreed to sell…604 residential lots and 5 model homes in 10 communities in Orange County, San Diego County, and Ventura County, California for an aggregate purchase price of $90.6 million in cash.’”

“‘Prior to the sale, the collective net book value of these lots (as reflected in WLH’s financial statements) was approximately $210.7 million.’”

“By our math, that’s 43 cents on the dollar.”

It should be noted that these areas would seem to be highly desirable properties when compared to the IE, AZ, & NV. Holy cow, what are they going to get in these outlying bubble areas???

Comment by az_lender
2008-01-15 12:06:36

Well, but various PARTS of SD Co, Orange Co & Ventura Co should rightfully count as part of the IE. Not so FAR from the beach, but still practically impossible to get there except on a winter weekday. Some parts of AZ & NV arguably better than SOME parts of the three counties just named.

 
 
Comment by arroyogrande
2008-01-15 11:40:04

Goldilocks, where are youuuuuuuuuuuuu?

Comment by NYCityBoy
2008-01-15 11:52:25

Have you ever seen the movie “The Accused”? Goldilocks is on the glass.

 
Comment by michael
2008-01-15 11:53:34

somone said on this blog once before (sorry i forget who) but “goldilocks is biting the pillow”.

 
 
Comment by Socrates11
2008-01-15 11:47:48

I wish I was a smarter man so I could figure out how the oncoming financial meltdown is going to affect day to day living. I have 2 small children I would gladly give up my life for and I’m not sure what I should do to protect them and weather the storm. I’m already saving what I can, but it’s in a bank and what if I lose access to that money? Is it time to stock up on canned goods and bottled water? I say this partly in jest, but another part of me wonders where’s the joke?

Comment by daver
2008-01-15 11:53:47

You had best be getting out of the US dollar. Save in silver and gold.

Comment by Bellevue Ave
2008-01-15 12:16:29

thats stupid. gold is already at an all time high. this would be buying gold at the top.

Comment by exeter
2008-01-15 12:25:33

Spot on bellevue.

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Comment by az_owner
2008-01-15 12:37:03

I agree completely. Why buy gold NOW, when it is up 200% over a few years?

As much as I respect the opinions of most on this board, I do have to wonder about those that recommend buying gold or silver now - isn’t such advice just like saying “buy a house - it can only go up!” in 2005?

Unfortunately, if you didn’t buy gold at $600, you’ve missed the boat for now. For the regular guy with children like the poster above, the best protection is some cash, low monthly debt service, and flexible employment skills - hands-on trades in addition to “desk job” abilities.

 
Comment by bluprint
2008-01-15 12:42:17

One could argue that given the increase of all commodities and the general weakness of the dollar, the increase in the price of gold is not driven by speculative behavior (which would indicate now is a good time to sell gold) but rather by inflation. If that is the case then buying gold would be a decent savings vehicle.

Gold is pretty liquid and if the price is driven by inflation and/or general dollar weakness, then a future drop in the price of gold would only be a loss in nominal terms, not in real buying power. While it’s true in such an event you would lose dollars, the dollars you got back would be more valuable such that the entire event would be a wash (excepting transaction costs of buying and selling the gold).

I personally subscribe to this. Others may not, but just because the price of gold is high doesn’t mean much by itself. You have to consider that fact in a larger context.

 
Comment by packman
2008-01-15 13:20:50

I agree completely. Why buy gold NOW, when it is up 200% over a few years?

As much as I respect the opinions of most on this board, I do have to wonder about those that recommend buying gold or silver now - isn’t such advice just like saying “buy a house - it can only go up!” in 2005?

Unfortunately, if you didn’t buy gold at $600, you’ve missed the boat for now.

By that same argument - the dollar is a really good investment right now, since it’s down so much.

Gold isn’t like houses, with an inherent base value. Gold by it’s very nature is *pure* speculation. However it’s a more a reverse speculation with respect to other investments (stocks, housing, etc), in that when the economy is booming it’s low, when the economy’s tanking it’s high. This is due to its safe-haven nature.

When (if) we get done with this recession/depression - gold will then be a horrible investment. How good an investment it is now totally depends on how deep and wide you think this recession/depression is going to be. If the dung really hits the fan (e.g. total collapse of the dollar), I could see gold being worth $10,000 easily.

I could just as easily see $910 being the peak :-).

(doubt it though)

 
Comment by dwkunkel
2008-01-15 13:23:41

Physical gold is easy to sell when the price is rising, but surprisingly difficult to sell when the price is falling.

 
Comment by Blue Skye
2008-01-15 13:34:44

blueprint,

Perhaps you noticed the commodity metals have already turned. Copper, Aluminum, Lead, Zinc.

Personally, i think it is foolish for anyone to pretend they know what will happen. Place your bets.

 
Comment by bluprint
2008-01-15 14:07:55

I don’t have to predict the future, I only need to try and understand current prices (possibly just as difficult I admit). If the nominally high price of gold is because of speculation, then gold probably not a great idea.

If, however, gold isn’t expensive, but rather the dollar is losing value (an important distinction) then gold become a better option for storing wealth. Even if the dollar regains strength in the future, the wealth stored in gold would remain.

I believe the overall weakening of the dollar by every other measure (commodities, currency, countries depegging from the dollar or changing their peg rate, overall perception of the U.S. from other people/places) indicates the nominal rise in the price of gold results more from the latter condition than the former described above. I could be wrong and I’m not really suggesting anyone buy gold.

I mainly wanted to point out that you can’t just say the nominal price of gold is at an all-time high and stop there, you have to put that into context. At the very least adjust the price for inflation (I mean, that’s just 101 stuff, c’mon).

I’m talking about saving, not investing/speculating. If you wanted to speculate, then you have to start trying to predict/project the future.

 
Comment by watcher
2008-01-15 14:20:30

Quite right bluprint. Gold is undervalued or fairly valued using historical measures, or measured against real goods. The price of gold in dollars is not rising; the price of dollars in gold is falling.

 
Comment by jcclimber
2008-01-15 15:26:18

Doing technical analysis on gold and precious metals, they are high, but inflation adjusted, are still early in the impulsive phase of appreciation.

Think of it as real estate. 1996, bottom. 2000- overpriced. 2003 - way overpriced. 2006 - are you insane?

Gold is somewhere are 1999 levels for housing.

 
Comment by MMG
2008-01-15 17:57:45

that’s like saying it’s different here :mrgreen:

 
Comment by aladinsane
2008-01-15 18:28:08

dwkunkel:

“Physical gold is easy to sell when the price is rising, but surprisingly difficult to sell when the price is falling.”

Not true….

Gold bullion is traded on the basis of buy-sell spreads, which haven’t changed much in the 30 years i’ve been involved.

A genuine 2-way market, much more so than any stocks.

If you sell a stock, it will take 5 working days for the trade to clear, walk into a coin shop with Gold and you’ll walk out with a check or cash.

 
 
Comment by bluprint
2008-01-15 12:37:03

Not in real terms.

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Comment by New Zealand Renter
2008-01-15 13:59:49

The average ratio of gold/S&P 500 is 1.2. The current ratio is less than 0.65. Gold is still undervalued compared to real estate or stocks. Come inflation or deflation,the buying power of gold is going up, conservatively double the current level.

 
 
Comment by watcher
2008-01-15 13:41:31

What is the value of a lifeboat on the Titanic? Because the dollar is going down hard.

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Comment by wmbz
2008-01-15 16:24:09

Not ever close to an all time high!!!

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Comment by Blue Skye
2008-01-15 12:01:35

Is it time for this week’s survival thread?

I wonder how best to prepare as well. I am the kind that doesn’t take a car trip without walking clothes or an overnight bag.

As for the canned food, I can tell you that those in my family who went through the GD kept quite a cellar stash of canned food even sixty years after the experience.

 
Comment by Houstonstan
2008-01-15 12:10:48

Socrates : Depends on what your occupation is and how your finances are. For the bank thing, open up a few savings accounts to spread your risk.

 
Comment by Al
2008-01-15 12:15:55

Don’t forget the guns and ammo.

 
Comment by no mo So Cal
2008-01-15 12:36:37

Plant a nice big vegetable garden and a rain collection system.

Comment by oxide
2008-01-15 12:45:34

Not easy plant a garden if you’re a bitter renter like me. We’re not allowed, and there are a lot of deer and other critters in my area. I do have a very small stock of stuff in a closet — like three days worth…maybe I’ll add to it tonight.

 
 
Comment by bluprint
2008-01-15 12:48:51

Personally, my wife and I are planning on buying some land/house in the next year (once I find something fitting my needs). In my case, it isn’t so much a reactionary “survival” issue as it is more of a general interest. I have wanted to get back out in the country for some time now and spend more time doing “earthy” things like learning to raise/store my own food (cured meat, root cellar, etc) and continue to persue some hobbies I have developed, namely cheese making, wine making and…other interesting things.

Anyway, I think it’s generally a good idea to have the ability to do this type of stuff. Everyone should have a garden and know how to raise some food. Sometimes you may fall on hard times and a good garden can really help to alleviate that. And if it all helps in a severe recession, all the better.

 
Comment by combotechie
2008-01-15 13:52:20

I’d begin to stockpile cash; cash seems to be what so many people desperately need right about now.

This suggestion goes against the grain of so many posters here, a fact that gives me comfort.

Comment by FutureVulture
2008-01-15 15:48:57

You want to be contrary to a bunch of contrarians?

Comment by combotechie
2008-01-15 16:04:19

I want to be contrary to a bunch of EXTREME contrarians.

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Comment by aladinsane
2008-01-15 18:40:00

Any trarian can rathole cash.

 
Comment by cactus
2008-01-15 18:55:45

We seem to have entered a new Gold phase where I hear about it every day. I would not buy now but also I am not selling. maybe right before the FED meets I will sell ? Buy on rumor sell on news. Long term I think Gold is a good bet as are most commodities. The dollar looks to go lower on interest rate cuts and a costly war.

 
Comment by combotechie
2008-01-15 21:10:09

“Any trarian can rathole cash.”

Only if they can get hold of it. Getting hold of cash seems to be the problem of the FBs.
Get the cash and the “FB” gets to lose the “F”.

 
 
 
 
 
Comment by Mormon_Tea
2008-01-15 11:57:03

Imminent collapse of the consumer/borrower/mortgage economic system ahead. As we now know, the theorem that “Real estate always goes up, so there is no long term risk in mortgage securitization” reveals itself as the “gusset plates” of the failed construction:
http://tinyurl.com/2ju7mj

 
 
Comment by are they crazy
2008-01-15 12:03:20

I need to open a Roth IRA - does anyone have any advice for where or how to invest,please.

Comment by still_waiting
2008-01-15 12:11:34

I’m glad you asked because I have the same question. I have a friend who has been buying IRA’s from Fidelity for years. He has nothing but good things to say about Fidelity. They advertise “no fees” purchases, but I’m not at all sure if there are, in fact, no fees at all.

Comment by Arizona Slim
2008-01-15 12:30:11

I’ve had a Vanguard account for several years. Been good so far…

 
Comment by mgnyc99
2008-01-15 12:43:54

fidelity does in fact have no fees

i have been using them for years never been charged a dime
unless i bought common stock (under $10 a trade)

Comment by cactus
2008-01-15 18:50:45

Compare the expense ratio of the funds. Vangard is usually the lowest. Index funds always get the lowest expense ratio. Active managed funds get a good manager with a long track record.

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Comment by alambka
2008-01-15 14:49:33

Vangard or Fidelity

 
 
Comment by Tom
2008-01-15 12:07:05

I apologize if this has already been posted.

http://tinyurl.com/yuncq7

This is not your father’s recession. This is a pretty good read.

Comment by Arizona Slim
2008-01-15 12:31:35

Agreed. Irwin Kellner rocks.

 
 
Comment by Tom
2008-01-15 12:09:36

Apple and Steve Jobs laid an egg. Stock down bigtime.

Comment by txchick57
2008-01-15 12:21:33

I want that Airbook. It’s cool.

Comment by Tom
2008-01-15 12:25:19

Wait 2-3 months and you will see it online in the Apple Store for several hundred less if you buy the refurb model.

 
Comment by kc76013
2008-01-15 13:53:16

I could use a light laptop like that, decent if not revolutionary

 
 
Comment by ET-Chicago
2008-01-15 12:35:58

Way down today, way up in the past year.

Macworld is a dog and pony show, anyway.

Comment by jetson_boy
2008-01-15 13:09:33

Let’s see… the ipod… the iphone… and the airbook: a thin laptop. Something tells me that this is incredibly anticlimactic.

Comment by ET-Chicago
2008-01-15 13:25:11

It’s a nice piece of technological derring-do, but not enough to hang a corporation’s hat on. They build these dang tradeshows around the whiz-bang announcements, though, so they have to have something to show off.

The first adopters of the Airbook will pay to do a lot of bug testing. (I say this as a 15-year Apple user and fan.)

The real value in Apple resides in less exciting (to the general public) but farsighted hardware, OS, and marketing decisions. They’ve been on a roll since OS X stabilized and the iPod became ubiquitous.

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Comment by txchick57
2008-01-15 13:36:52

I know, I know . . . I’m always an early adopter (sucker) for all new Apple products.

 
 
 
 
 
Comment by potential buyer
2008-01-15 12:11:27

Let me get this straight. We are in a total credit mess - people being so far in debt that they HAVE to stop spending. Yet the Feds are going to lower interest rates, so those people who can no longer spend, will spend.
Did I get that right?

Comment by exeter
2008-01-15 12:23:13

The spendthrifts are maxed. The prudent and frugile will never borrow so who are the new victims? They don’t exist.

Comment by Blano
2008-01-15 13:26:43

I nominate the guy in the story txchick linked below.

 
 
Comment by bluprint
2008-01-15 13:08:02

You got it right. GDP is the magic number, we want that to be positive, especially in an election year. This is true even if the GDP is comprised of iPods and Hummers (the kind with wheels) which produce nothing instead of capital investments that work to expand the economy and produce cheaper/better consumer goods in the future.

 
Comment by michael
2008-01-15 14:11:10

“they” will pass a “temporary” suspension of early withdrawal penalties from 401k’s to stimulate the econcomy.

“they” will say that if “they” do not take such measures, the “terrorists” will win.

Comment by exeter
2008-01-15 15:17:45

Mike, you just hate america. lmao.

 
 
 
Comment by Neil
2008-01-15 12:15:30

“In October, MoneyGram said it would lose $230 million on mortgage-related investments, but warned that total losses could be higher. Those losses, yet to be incurred, now stand at $960 million, the company said in a press release issued Monday evening.”

Oops. Losses are only 350% of expectations. Nothing to see here. Everything is contained. Move along… nothing to see here. Move along.

Got popcorn?
Neil

 
Comment by txchick57
Comment by JP
2008-01-15 13:18:16

He adds, in a telephone interview from his 145-foot yacht: “I tend to be pretty conservative in the way I spend money.”

LOL.

 
 
Comment by simplesimon
2008-01-15 12:32:21

you know you would think that CITI would have it all figured out after their bailout in 89-90….so i am guessing we are going to see another LTCM again sometime soon. wow-i never thought in my lifetime i would see history repeat itself. its scary.

Comment by Ben Jones
2008-01-15 12:39:54

More baseless speculation. I had so many articles reporting the IBs raising tens of $billions, through dozens of channels that I couldn’t begin to link them all. The Asians and the Arabs appear to be the GFs this time, IMO.

Comment by Tom
2008-01-15 13:02:55

More like the government’s of other countries are the ones doing the bailing out. They know they need to keep us afloat so that we can keep buying their goods and oil. They are flush with our dollars and have nowhere to put it but here.

Comment by bluprint
2008-01-15 13:17:34

At some point, you would think they will realize they are not getting a good deal selling us their goods for useless dollars.

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Comment by mathguy
2008-01-15 18:42:47

Well, not exactly useless, since you can still buy an ounce of gold for 900 of those dollars, or a luxury yacht, or even the banks our country has founded (by purchasing stock). Citibank springs to mind as one of the companies oil dollars have been traded for. Maybe we should be charging the Saudis more for the goods we produce???

 
 
 
Comment by michael
2008-01-15 14:01:41

what else are they gonna spend all those dollar reserves on?

 
Comment by tuxedo_junction
2008-01-15 15:13:32

They’re just gambling with surplus dollars. Treasury yields are low, the Euro is shaky, and there aren’t that many other very liquid markets. Why not bet those depreciating dollars on US, money center banks? If they lose, so what - there’s plenty more where it came from. If they win it means more political influence and they get a big piece of the international finance mechanism. Also, there’s no US political opposition to foreigners buying up financial firms. If foreigners tried to buy up forests, ag land, mines, specialty manufacturing firms, etc. they may be blocked politically.

 
 
 
Comment by mgnyc99
2008-01-15 12:53:32

bought this last week @ 115 sold @ 120.50 and got out friday late

boy i am happy about that http://finance.yahoo.com/q?s=NMX

this sucker has been to 120-135 about 5-7 times in the last year or so but now it is really going down

 
Comment by Arizona Slim
2008-01-15 12:58:24

This just in from Tucson: Vultures are circling…

http://regulus2.azstarnet.com/blogs/clockingin/7356/

 
Comment by jetson_boy
2008-01-15 13:04:35

All I can say is that the investment show I listen to every morning has about the smartest guy on the air- Rob Black- and he started the show by mentioning that he was glad 50% of his wealth was in cash. This is from a person who in my opinion gives some of the best advice I’ve heard. If he says something like this… then we’re sort of in deep doo-doo.

Me worried? Nah…

 
Comment by mgnyc99
2008-01-15 13:17:14

dow sub 12500 look out below

Comment by Sekar
2008-01-15 21:45:46

11,500 unless ben acts soon!

http://stockcharts.com/h-sc/ui?s=INDU&p=D&yr=2&mn=0&dy=0&id=p41153513138

triple bottom break

 
 
Comment by Blano
2008-01-15 13:22:22

I’m starting to worry about an investor friend of mine. She went to a foreclosure seminar last Saturday and was just crowing about how great it was.

From what I gathered, this local real estate guru is signing people up to go buy into some sort of condo/casino complex down in Biloxi, Mississippi. Seems to me that would be bad enough. But the part she was most excited about (and most concerned me) is that they’re also buying and/or signing people up to buy condos in south Florida, because “so many foreigners are going to be coming in from all over the world to buy there.” She challenged me when I voiced my skepticism, saying “what, you been reading something about that area”?? I’ve tried introducing her to the HBB, with no luck so far.

For those in that area or in the know, is Biloxi still “different” right now?? Thanks.

 
Comment by Blano
2008-01-15 13:42:27

My posts keep disappearing.

I had a question about Biloxi, Mississippi….if anyone could tell me what’s going on there, if maybe it’s still “different.” An investor friend of mine went to a seminar this past Saturday, and I’m starting to worry about her.

Comment by Blano
2008-01-15 14:10:43

Oops, there they are.

Comment by M Nair
2008-01-15 14:17:53

where is Mississippi?

Comment by exeter
2008-01-15 15:38:02

The place where the movie Deliverance was filmed.

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Comment by Frank Berlin
2008-01-15 14:31:48

Hypo Real Estate, Germany’s largest mortgage lender, down 35%

In November, the CEO said the company was not exposed to the subprime mess in the US. Today, he announced 300m Euros losses on CDOs. After that, investors lost all trust, shares fell from a cliff. 2bn EUR lost in market capitalization within 10 minutes.

The managers then used the low prices to buy more shares.

Don’t trust any (bank) executives?

 
Comment by michael
2008-01-15 15:32:34

i’m sure yall are all aware of this by now but intel missed.

Comment by RoundSparrow
2008-01-15 16:38:56

As a long-term tech industry guy..
I think Intel is a good buy after the beating down. Ultimatly I think they are one of the USA’s great companies.

Cisco has always seemed like overpriced crap to me, Intel really makes a product with a quality level that will take a long time to match. They actually had good competition (Sun, DEC Alpha) and beat them. The P4 + RAMBUS was not a good path… but they ultimately turned it to their advantage (and the laptop CPU line saved their butt, turning it into the P4 replacement).

Assuming we don’t have a major economic meltdown…. I have a hard time seeing Intel not be a good investment.

 
 
Comment by martin cohen
2008-01-15 16:50:14

Re: “This marked an about-turn from the position before the onset of the credit crunch, when lenders pushed loan-to-value ratios to highs of 130%, with 95% the norm.”

LTV of 130%!!!!!

 
Comment by Dennis
2008-01-15 18:17:58

“Our high level quant skills tell us this leaves Citi with $29.3 billion in CDO exposure. What’s worse, Citi’s chief financial officer is stressing that there is no market against which to mark these asset backed CDOs. So these write downs are just mark-to-model. Educated guesses by the folks whose educated guesses got us into this mess in the first place.”

Ah yes! It is the price of higher education that gets people into trouble. Just because one has a degree and stands behing a large corporation ,people tend to believe this $hit! What ever happend to real numbers and common sense?

 
Comment by AKron
2008-01-15 18:37:27

Bush’s Voodoo Stimulus Package: A $250 rebate for every taxpayer
Economic Policy
by Mike Whitney

http://www.smirkingchimp.com/thread/12162

A sample of the contents (read it and weep):

“The Bush “Stimulus Package” is the biggest and most obscene hyper-inflationary swindle ever perpetrated on the American people. It’s a $100 billion, taxpayer-funded, bailout that is being slapped together at breakneck-speed to forestall a collapse in consumer spending, an exodus of foreign capital, and a painful slide into recession. And, guess what? Both political parties are on board. It is an act of utter desperation designed to address the catastrophe that was created by the Federal Reserve; the housing meltdown. Greenspan’s subprime boondoggle is now in full-crisis mode and threatening to deliver a knockout punch to the global economy. That’s why the the lights are blinking red at 1600 Pennsylvania Ave. And, that’s why the whole 435 member army of lacquer-haired political jacklegs who run the Congress are racing around in circles trying to find solutions.”

“Former Treasury Secretary Larry Summers has recommended a “timely, targeted and temporary” tax rebate “of $250 per tax-filer, and $500 per couple for families with taxable income of less than $100,000.” (WSJ) Some variation of Summer’s plan will undoubtedly be implemented in the near future….”

 
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