The Housing Bubble

Got a question about insurance companies. Not sure who all noticed (there was one brief post from jeff saturday), but Met Life had problems yesterday - announcing fairly bad quarterly results (still a decent profit), but withdrew their next quarter’s guidance, stating that all this was due to poor investment performance. As a result their stock was down 27% or so, and they’re down about 60% just the last couple of weeks. I didn’t notice this until I was checking out Prudential (holder of my 401k) who’s also down about 50%.

Seems since the AIG crash there are lots of worries about the insurance companies in general, and rightly so. However the other main companies - Met, Prudential, Hartford, Lincoln, etc. didn’t have the massive investments in CDS’s that AIG did. Question is - how much exposure do they have? Anyone have any good info?

Coincidentally, since I just got laid off recently, I’m going to be rolling out of my Prudential 401k into an IRA (probably*). I was thinking of staying with Prudential since they seem to be solid, but now I’m not so sure. FWIW - I found that their IRA’s are not FDIC insured - so that’s a problem. So I’m checking into other IRA’s like Fidelity etc. (hard to tell from their website).

* I’m actually thinking about just taking a lump-sum payout, for the risk reasons. Since I lost my job I think I can do it without penalty, though I’ll need to pay the one-time taxes, which will really kill me actually since it’ll all be high tax bracket.

As a total aside - seems to me that PRU and MET may be good stock buys right now. Unlike AIG they seem to have fairly solid balance sheets, and are still making a significant profit. The main question is how much exposure to risky investments they have (not too many investments that aren’t risky these days). Thoughts on that?

Wouldn’t you love to be a fly on the wall in President Paulson’s office, right about now?

He was nervous as a fly caught in a web of deceit yesterday, and having staved off financial armageddon for a fortnight is about all we are going to get for our last-minute, last-chance* bailout of big business, aren’t we?

* NOW with $140 Billion worth of pork!

Unlike what some of us predicted, it looks like the US dollar is strengthening (for now anyways) as the global economy unravels. The euro may not survive. Some Latin American countries are selling reserves to support currencies. And, we all know what happened to the Icelandic kronur. What gives? Is this temporary? Will the dollar reign?

How Far Will Housing Prices Fall?
“…For the 10 years prior to Jan 2000, both the Case-Shiller price index and the OFHEO price index indicate that housing prices increased about at the rate of inflation. If real housing prices had followed inflation since then, they would have been 47% below their actual peak in summer 2006, according to Case-Shiller.[1] If real housing prices had followed inflation through July 2008, they would have been 27% below their actual values in July 2008. In other words, as of July 2008 housing prices had 27% more to fall in order to reach the real value they had for several years prior to the “bubble.” To put it yet another way, as of July 2008, the house price decline was not yet even half way complete.

Capital theory suggests that housing prices have a long run relationship to construction costs, not necessarily relative to the overall CPI. The PPI for residential construction increased about 10% (depending on which components are considered) relative to the CPI over the years 2000-2008, after decreasing somewhat relative the CPI over the prior 10 years. If today’s construction costs are expected to remain, then July 2008 housing prices had only 20% more to fall. On the other hand, it can be argued that construction costs themselves will fall once the energy price spike recedes. To a rough approximation, this means that, as of July 2008, housing prices had fallen about half way from their peak to their ultimate real value. This process is closer to completion (more precisely, closer to being evident in actual housing market transactions) in some regions than in others, but perhaps by summer 2009 it would be complete in most of the nation.

The basic logic of this approach implies that these basic trends – namely that housing prices had increased much more than construction costs – were readily discernible in 2006, and before. So where was I with the warnings? First of all, it is perfectly consistent with capital theory that housing prices would temporarily exceed construction costs because, in the short run, there is a limited supply of houses until the construction industry can catch up with demand. Persons who insist on purchasing a house when prices exceeded construction costs were, in effect, (probabilistically) paying for the privilege of owning a house earlier rather than later (when the construction industry would have produced all of the houses that were demanded). Second, no one knew for sure when supply would catch up with demand. In, say, 2005, market participants might have rationally forecast that prices would remain above construction costs through 2010 (by which time the persons purchasing houses then would either have grown into their mortgages or have sold their house without a significant capital loss) even while they understood that eventually house prices would fall back to construction costs. That forecast was ultimately wrong, but hindsight is 20-20….”

Mr. Casey B. Mulligan

How much further does it have to fall if you use a baseline of 1994?

Bloomberg just reported that consumer credit “unexpectedly” dropped in August. I guess that depends on who is doing the “expecting”

Will the bulls make a stand today? All this selling is exhausting.

Star space engineer is now U.S. ‘bailout czar’
By Allen G. Breed
ASSOCIATED PRESS

October 9, 2008

WASHINGTON – In a way, Neel Kashkari’s job has always been to keep it together.

Today he’s known as the 35-year-old whiz kid appointed czar of the Treasury Department’s $700 billion financial bailout. But in an earlier phase of his life, Kashkari was a young engineer working on the James Webb Space Telescope, planned as the even-more-intricate successor to the iconic Hubble.

Neel Kashkari has made the transition from aerospace engineering to the world of high finance.

Even then, Kashkari’s job was about maintaining stability and confidence.
—————————————————————————–
Mars ain’t the kind of place to raise your kids
In fact it’s cold as hell
And there’s no one there to raise them if you did
And all this science I don’t understand
It’s just my job five days a week
A rocket man, a rocket man

Dear Investor
Posted by Bess Levin, Oct 03, 2008, 10:07pm

We’ve got good news and bad news. Mostly bad news….
TPG Axon Investor Letter

Tontine Investor Letter

Cerberus Investor Letter

Greenlight Capital Investor Letter

And…”

http://dealbreaker.com/2008/10/dear-investor.php

Not one apology for being stupid. The list of Hedge Funds and losses YTD makes Vanguard 500 index fund look like geniuses.

$7 trillion vanishes
No end in sight for year-old bear market
By Dave Carpenter
ASSOCIATED PRESS

October 9, 2008

The bear market that is ravaging investor portfolios is now one of the worst in modern U.S. history and has wiped out more than $7 trillion in shareholder value, with no bottom clearly in sight.

When it stops and how far it drops, no one can predict with any accuracy – a painful uncertainty underscored by Wall Street’s giddy mood at the moment the steep descent began.

A year ago today, Wall Street was celebrating the fifth anniversary of a bull market that had created $10 trillion in shareholder wealth since 2002. The Dow Jones industrial average and the Standard & Poor’s 500 index hit all-time highs on Oct. 9, 2007.

is a 6 acre farm big enough for a nuke and a wind farm >>>

Make it go away mummy, make it go away.

UK house prices registered a 1.3% fall in September, according to the Halifax.

The lender said the drop meant the annual fall now stood at 12.4%, with the cost of the average home in the UK now at £172,108.

http://news.bbc.co.uk/1/hi/business/7660695.stm

Sounds like we need a global solution. Beware the dialectic. Obama, Medvedev, Brown, Sarkozy all calling for a “global solution”.

Wall Street Journal, p. A1
OCTOBER 9, 2008
First Into Recession, California Shows Possible Future for U.S.
By CONOR DOUGHERTY, RHONDA L. RUNDLE and JUSTIN LAHART

Here’s the latest trend that started in California and is spreading to the rest of the country: recession.

It’s all but certain the U.S. economy is in a recession, as falling home prices and Wall Street turmoil have put the brakes on consumer spending and stoked unemployment. But California got there first. Now, the state provides a template of how a broad U.S. downturn could look.

With its export businesses, manufacturing sector, professional services and big retail employers, California looks like many other U.S. states, only more so. California’s $1.8 trillion economy — twice the size of India’s and accounting for about 15% of the U.S. gross domestic product — is powerful enough to have ripple effects nationally. It is home to Hollywood, five of 30 Major League Baseball franchises and the largest farming sector in the nation.

California was also at the leading edge of the nation’s recent housing bubble, which is where its current problems started. Home prices in California rose higher and faster than in most of the U.S., and started weakening earlier, in 2005. Some mortgage-holders defaulted. Others struggle along under a mountain of debt. The problems spread to the state’s financial sector, which was heavily exposed to local real estate. As Californians cut their spending, job losses spread from the housing sector to retail stores and auto dealers. Now the state’s unemployment rate is 7.7%, among the highest in the nation.

Further decline in UK house prices

“It joined the Nationwide in claiming that the rate of decline was starting to stabilise when looking at three-month comparison figures”

Reaching terminal velocity is now considered good news.

UK councils fear for Icelandic cash

turns out local govt were yield sluts

So if the greenback is still doomed … what is more likely to hold up? Any fans of the Swiss franc? Got to admit, and no doubt I’m simple, but I can’t quite get my head around putting my money into something worth less than a penny, like the yen.

Dutch bubble update:

cracks in the Dutch housingbubble have been spreading rapidly this week. Dutch realtor organisation NVM reports today the first quarterly pricedrop for Dutch homes in 18 years. Just 0.3% down compared to 2nd quarter, but it’s a start.

After pricegains of around 1000% the potential downside is huge, although the ‘experts’ are still in complete denial. TVNews reported yesterday that the bottom fell out of the lowest part of the market, our variety of ’subprime’ buyers who normally buy the cheapest homes. Inventory keeps increasing strongly (sellers hang on to wishing prices) and sales numbers were down strongly again.

Next shoe to drop is probably the National Mortgage Insurance fund that faces heavy losses on foreclosures (partly related to fraud). Number of foreclosures is still small, but the fund could run out of money soon if the downturn accelerates and need a government bailout. This whole mortgage insurance scam is based on the premise that homeprices never decline (which was true from 1981-2008).

Realtors are now starting to blame (local) government (who controls landprices in most areas) for the downturn in sales. Landprices for an average home have increased more than 5-fold from the early nineties, while the area size has declined strongly. For starter homes the cost of the land has increased to 50-75% of total cost; just another bubble of course.

Thursday, October 9, 2008
Can Treasury ownership help banks?

The Treasury Department is considering going further to help the credit markets by taking ownership stakes in many U.S. banks. Marketplace’s Bill Radke talks to Jeremy Hobson about why that could be a risky move.

Does anyone have any predictions about how much longer Wall Street’s going-out-of-business sale will last, or about how deep the price discounts will go before it ends?

DAVID CALLAWAY
Is California too big to fail?
Commentary: Let’s hope they don’t put it to a vote
By David Callaway, MarketWatch
Last update: 12:20 a.m. EDT Oct. 9, 2008

SAN FRANCISCO (MarketWatch) — You’ve got to give California Gov. Arnold Schwarzenegger credit for being the first to stick his hand out.

Even before the vote on the $700 billion bailout bill last week, the wily Terminator of fiscal discipline had a letter on the desk of Treasury Secretary Henry Paulson making the case for a $7 billion loan to keep the nation’s most populous state running past October. Arguing that California — and many other states — have been frozen out of the credit markets like a subprime homebuyer, Schwarzenegger said the state needs the money to pay teachers, cops, firefighters, nurses, and other state-funded enterprises of some importance.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYSYBqZHENF8

From the article:

“To see little or no reaction in the fixings is very disappointing and reinforces the fact that Libor is broken and the transmission mechanism from central banks isn’t working,” said Barry Moran, a currency trader in Dublin at Bank of Ireland, the country’s second-biggest bank. “Things are still very stressed and we don’t know what’s going to fix it.”

The London interbank offered rate, or Libor, for three-month loans rose to 4.75 percent today, the highest level since Dec. 28. The Libor-OIS spread, a measure of cash scarcity, widened to a record. The overnight rate fell to 5.09 percent, still 359 basis points more than the Fed’s 1.5 percent target rate.

The European Central Bank today offered banks as much cash as they need for six days at its benchmark rate of 3.75 percent, bringing forward new measures to soothe money markets. It also loaned banks a record $100 billion in overnight dollar funds, allotting most of the cash at 5 percent, down from 9.5 percent yesterday.

Comment by hoz
2008-10-08 17:53:16
Surely you jest.

The article I read had the same headline, but when you read down further, it looks like they structured it so that the Fed was borrowing securities from AIG and giving AIG cash collateral.

That also mirrors the way NPR described it. First they said the Fed gives AIG 37 billion (presented as a sort of headline) then went on to say the Fed borrowed securities and gave AIG 37B in collateral. I had to go home to verify it (really, I thought NPR may have misspoke at first), which is when I read it online the same way.

I’m happy to get confirmation either way, but if it’s structured as a loan of securities to the Fed, I’m interested in the terms. Also goes to show how croooked the whole thing is.

When does the government get around to accepting the fact that AIG has to be shut down?

http://www.washingtonpost.com/wp-dyn/content/article/2008/10/08/AR2008100803539.html

“Turns out the $85 billion bailout loan for AIG wasn’t enough. The company’s survival apparently requires another $38 billion in cash, and yesterday the Federal Reserve authorized loaning that much more to the struggling insurance giant. The government will hold as collateral $38 billion of investment-grade securities owned by AIG.”

“This new program will allow AIG to replenish liquidity . . . while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities,” according to the announcement from the Federal Reserve Board

OPINION OCTOBER 9, 2008
There’s No Easy Way Out of the Bubble
Treasury doesn’t know much about running a ‘reverse auction.’
By VERNON L. SMITH

Since 2006 the U.S. economy has exhibited the features of a crash following a classic bubble.

But the bulge was not precipitated by general stock-market excesses nor by an economy-wide bubble-crash. The excesses were focused in the housing and related financial markets — banks, mortgage, and insurance companies — starting in 1998 and accelerating to 2006. This created the mother of all housing bubbles.
…
Mr. Smith, a professor of economics and law at Chapman University, received the Nobel Prize in economics in 2002.

Hey Look!

I’m up early enough to get a post in the first 100 in the Bits Bucket!

Yawn… Did anyone make coffee?

You are all done, BIG MAC.

Like I’m gonna vote for an idiot who advocates that my tax money cover for the lost value of the properties financed by legions of FB’ers who ran to their nearest sleazebag L/O; lied on their mortgage ap; and acquiesced to a bogus appraisal, all to purchase a property they couldn’t afford.

You didn’t get it on the amnesty for illegals and you sure the fook don’t get it now.

Adios, MF…All Hail O’Bama Boy!

http://www.boston.com/news/nation/articles/2008/10/09/mccain_plan_would_buy_bad_mortgages

The NY Times piece about the foreclosure halt in Cook County (http://www.nytimes.com/2008/10/09/us/09chicago.html?ref=business) mentions a new Chicago law that gives renters a 90-day grace period, starting at the completion of the foreclosure sale, before they can be forced out.

This definitely makes life easier for the renters, but I am surprised that this is the first I’ve heard of this law.

Simplicio: Well, Professor, where will be the next bubble?

Professor: Silver is the new bubble.

Now, that’s the kind of stuff you just don’t FIND in the New York Times.

coming soon

Great Depression 2: The Greatest Depression

Followed by

the Greatest Generation II: Generate Harder

test

From the Chicago Sun-Time today:
October 8, 2008
Sun-Times staff, wire reports

Residents of foreclosed properties in Chicago and other parts of Cook County don’t have to worry about deputies forcing them out. Sheriff Tom Dart says that starting Thursday his office won’t take part in evictions.

Dart says he’s concerned that many of the people being evicted are renters who were unaware that their landlords have been failing to pay their mortgages. He says his deputies have no way of knowing whether they’re removing someone who has defaulted on a loan or someone who has been faithfully paying rent.

Dart says he thinks he’s the first sheriff in a major metropolitan area to stop such evictions during the ongoing foreclosure crisis. Dart says the number of mortgage foreclosures in Cook County has skyrocketed and will probably keep rising.

Some HBB poster recently noted how Helicopter Ben has receded into the background, with Paulson now the man at the podium.

Seems the Fed went bankrupt on Sept. 17th.

Goldman Sacs is runnin’ the show now.

http://www.kitco.com/ind/Szabo/oct082008.html

I love the smell of gap down SKF in the morning!

Problem is, it just doesn’t happen very often anymore. Is this trade going to disappear?

Our next REPUBLICAN President & Vice President:

McDame / McVague : Fear the halfbreed African American male he will & ruin baseball & the Nation…McSame / McFear: Fear Hussein…. listen to Haninsanity… listen to Rash Limpbaughs…Vote out fear America!…FEAR! FEAR! FEAR!…lynch Hussein, kill him, he’s a Chicago Domestic Terrorist!

I’m McSame..and I really don’t approved of this hatred…but if it gets me Sarah “The Barracuda” elected…We’ll say we were just kidding!

The latest well-known conservative Palin basher is David Brooks, one of the very few remotely conservative voices on The New York Times opinion pages.

In a Monday speech, Brooks said Palin “represents a fatal cancer to the Republican Party.”

“Do I think she’s ready to be president or vice president? No, she’s not even close to that.”

Specifically, Brooks has written that Palin “has not been engaged in national issues, does not have a repertoire of historic patterns and, like President Bush, she seems to compensate for her lack of experience with brashness and excessive decisiveness.”

Sarah Palin’s incompetence stuns media’s conservatives:

http://voices.kansascity.com/node/2373

Also,

Old silver certificates? Collectors item? Worth their weight in silver? For a friend…

Retailers stunned by September sales loses
Double-digit drop-offs even hit luxury chains
By Stephanie Rosenbloom
NEW YORK TIMES NEWS SERVICE

October 9, 2008

Sales at some of the nation’s best-known retailers fell by double digits in September, highlighting the rapid deterioration of the economy and raising fresh questions about how many of those chains can survive.

Retail analysts and executives said they had not seen such a rapid slowdown in consumer spending since the nation’s last deep recession in the early 1980s. Retail executives, though braced for bad news, were stunned at the magnitude of the drop-offs reported yesterday. Retailers high and low – such as Nordstrom, J.C. Penney and Kohl’s – lowered their earnings projections.

That was a very short PPT-inspired rally. I guess the bulls will have to wait now for the 2:45p kicker to get long again.

The mini rally in gold seems to have fizzled. It couldn’t make the breakthrough of the sliding sideways 200DMA. What financial bad news could be bigger than that of the last week or so?

The story that silver is telling is discouraging, lost two years gains already and in full retreat. Support at 2005 price is an abysmal 50% down from here.

It is curious for me to have J6P rush into the market for PM coins just now, six months after the apparent peak. It is interesting to observe mob psychology. I wonder how this would play out on the other side of the trade, if prices collapse, at what price will J6P loose faith? Six months later will be an interesting time. I doubt the dealers will be eager to take the inventory back. Premiums to melt would go far in the dealer’s favor (like last time).

The six month thing is interesting. It is also the length of time the average person suffers euphoria with a new girlfriend or boyfriend. Then you wake up and look at them and wonder what in the world you were thinking. I think it is brain chemistry. Lust is a mental illness, God’s trink on us to make us procreate.

We invest the same way.

Why Henry Paulson must be “contained”

http://michellemalkin.com/2008/09/22/why-henry-paulson-must-be-contained/

Ok! One quick post before I walk to Shul! (It’s Yom Kippur! I hope God doesn’t read this blog.)

In this month’s Vanity Fair, Nobel Laurette “Joeseph Stiglitz” has an article called “Reversal of Fortune” about our current situation. I was shocked that he doesn’t seem to understand that we can’t prop up house prices. (Go to Vanity Fair’s web site, the article is there, too.)

I certainly agree with him that greedy, sleazy banks took advantage of people. And some things are worth trying: for example, lenders could be compelled to rework the loans for people who would be able to afford their house if their interest rate was set to the prevailing fixed rate (6.25%?) instead of the crazy rate their adjustable mortgage went to. (But I wonder how many people are in this situation?)

Among the half-truths he repeats are:

1. “For many [debtors], their home is their only asset and when they lose it, they lose their life savings.”

Fact: We know that, at least for the first few waves of foreclosures, most of the people in trouble put no money down. And the reason they could no longer afford their payment was their “teaser period” had expired. What, in fact had they lost? They were simply renting a house from a bank for a few years. And if they got in trouble because they HELOC’d, then they got a pile of cash they won’t have to pay back. Hardly a loss.

2. “Remember, too, that we already give big homeowner subsidies, through the tax system, to affluent families”

I never liked the home mortgage deduction. It just raises house prices. (In fact, I don’t like any of these social-engineering tax deductions)

But here’s the FACT: The mortgage interest deduction starts to phase out for incomes over $150K. For “Affluent Families” (like the people who earn $250K or more–the group that Obama hates so much), they don’t benefit from it at all. I told this Nobel prize-winner in an email that he should ask an accountant to explain this to him.

3. He thinks that we should have the government keep people in “their” homes rather than letting house prices drop so a median wage earner can afford a median-priced house. (Remember the $11,500 Levittown Houses in 1955 when median salary was $5500? That was about right!)

He said “Throwing the poor out of their homes because they can’t pay their mortgages is not only tragic–it is pointless. [...][W]e should have an expedited special bankruptcy procedure allowing people to keep their homes and restructure their finances”

I can’t even begin to refute this. (Of course, if we get to a situation with 30% unemployment, it may be worth it for banks to work out deals where people can stay in homes that they were current on for years before the crash, but that’s a different story. That’s just a cheaper way of warehousing houses.)

Blue,

I definitely agree with you here. Yesterday, I visited my local coin shop and it really was pandemonium in there. Almost like a subtle panic. While I was in there, I could hear one of the workers talking with someone on the telephone from New York (the coin shop is in the San Gabriel Valley) about trying to move 50K from the bank to buy gold bars. Funny part is the person on the phone was trying to give their PIN number to the coin shop to do the transaction because they didn’t want to spend the $20 to do the wire transfer. Totally irrational (or a scam).

Another call came in from Texas looking for gold coins, said they couldn’t find any physical anywhere. I heard all this as the girl working the phone would give a summary of the phone calls to her dad (owner) after she got off the phone.

The owner was also mentioning to a customer (who appeared to be a long-time friend/customer) that last week an Asian guy comes in and wires 1.5MM to move all of his cash into kilo gold bars.

I’ve recently bought some coins here and there, but all of this seems like very familiar territory (fear of being priced out, limited supply, people at work talking up Gold etc.). Wondering if the rug is going to be pulled out anytime soon.

So here’s an interesting one. Shows the value of research (and in my case the pain of lack of research).

Some time back I put a good chunk of my IRA into the Fidelity fund “FINPX”, the “Fidelity Inflation-Protection Bond Fund”. I figured hey - it’s bond-based, with 99.3% in U.S. Treasuries, and it’s inflation protected. It’ll be a good safe hedge, and couldn’t possibly go down.

Well, lo and behold, it’s now gone down 7% in the last month!!.

WTF?

Well turns out - even though it has 99.3% in U.S. Treasuries, it also has 2.4% in “MBS passthrough”. Oooo….Kay…… Guess I’m no expert but I can guess now what that means -
- even though the fund was invested in “ultra-safe” investments, it was still leveraged (at last check 99.3% plus 2.4% plus some other stuff is more than 100%), meaning the fund as a whole isn’t ultra-safe
- that 2.4% of “MBS passthrough” must have gotten hammered, since presumably the U.S. treasuries part isn’t actually declining in value.

Or - might that “MBS passthrough” be something recently introduced, as a way for Fidelity to pass on MBS losses even to their most conservative investors? If so then I’m majorly pissed. Phone call forthcoming…

I’m watching this interesting progression….

So defense contractors… we are always on the govt dime

GM/Ford… oh they need more loans… props up the companies to keep doing a bad job… so more on the govt dime

banks… bailouts have been authorized but the goverments considering euity stake so they are on the goverment payroll too and this also puts housing on the govt dime and builders

Farms have been on the government payroll for decades

Education is in the hands of the government

A good bit of healthcare is in the hands of the government with a left leaning president likely to push for more. Oh and that includes drug companies that rely on medicade for their profits and hmo doctors to perscribe their junk.

Doesn’t sound like we have many independent industries left. Do we really need more government in this?

Honestly don’t know what to make of all this.

We are the USSR. What a roll reversal!

McSame / McFlame: “We don’t need new ideas…we just take them from the Democrat’s…aren’t we clever!”

“And two McCain aides who were trumpeting the plan, under which the Treasury Department would spend $300 billion to buy up mortgages and renegotiate their terms, volunteered that it was modeled on a similar plan proposed by Senator Hillary Clinton in the Democratic primaries.”

Losing female support, McCain alters approach:

http://www.boston.com/news/politics/2008/articles/2008/10/09/losing_female_support_mccain_alters_approach/?p1=Well_MostPop_Emailed3

“Prime Minister Stephen Harper has maintained that Canada will avoid the mortgage meltdown and banking crisis that are hitting the United States and Europe hard.”

Any thoughts on this from our Canadian friends?

10 states running out of money in their unemployment funds: Some state unemployment funds drying up.

The group, which tracks legislation and activity related to state and federal unemployment benefits, says that California, Michigan, Missouri, New York, Ohio, South Carolina, Wisconsin, Indiana, Kentucky and Arkansas have less than six months’ worth of unemployment trust fund reserves, putting the funds at high risk of insolvency.

Talk me out of it…..

I’m thinking of investing some “walking around money” in Ford (F), mainly because.

-It can’t go down much more……

-The government WILL intervene to keep Ford or GM from going down the tubes (too many jobs directly or indirectly affected….their so-called “bloated” dealership networks will help, in this regard)

-Between GM and Ford, I think it more likely that Ford will still be in business 3 years from now….IMO, GM is putting two many eggs in the “Chevy Volt” basket, and their track record for introducing new technologies (Corvair, aluminum engine blocks, V-8-6-4 engines, etc.) isn’t very good. That, and the car will be unaffordable (reportedly $35-40K) without subsidies/tax credits.
Ford seems to be addressing the high mileage vehicle problem in their lineup by importing Euro models, where the engineering money to develop them has already been spent.

On paper, buying Ford sucks for any number of reasons, but as we all have seen, reason and “on paper” has nothing to do with Wall Street stock prices. Similar situation as Chrysler stock in 1980-81.

Flashback — on Oct. 9, 2007, the Dow hit its all-time high of 14164.53.

That’s quite a shave, eh?

Looks like the bulls are making their stand on quicksand.

This article is not for the timid. Gold-bugs might enjoy, however. If you scare easily, don’t read it and then accuse me of fear-mongering.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEQI8fdjiAJU&refer=home

So, here’s the market strategy for today:

Buy at -$108 and sell at -$87?

The Viper economy.

Most have been bitten.
Many didn’t see it before hit bit them.
Some people did see it.
Some people listened to the warnings.
Others didn’t want to listen.
A few thought they were wearing bite-proof pants.
Everyone has to sleep, everyone is vulnerable.
You cannot pretend it does not exist, the effects.

In a movie, Yule Brenner standinng in a city comes to mind for some reason.

The Viper economy has many different colors, is not easy to see or describe and difficult to understand when set loose. The young, old, ignorant and inept should avoid contact. Even the experts take caution or avoid …

Now then, what was that I was supposed to be positive about?
1.) The mad doctors are somewhat benevolent at this time.
2.) The neighbors seem nice.

There hope yet in America!

Note to self: Get pork ribs to go with single malt Scotch…

“We believe in him. He’s the best person for the job,” Viessman, a former state trooper from Rolla, said of Obama, who met the pair briefly on that July day in Union, Missouri.

The candidate bounded off his bus and jogged back towards a roadside crowd to shake hands with the men holding the banner.

“He said ‘This is incredible’,” Spencer recalled.

It’s been an unexpectedly gratifying run, Viessman said.

Rednecks4obama.com claims more than 800,000 online visits. In Denver, Colorado, Viessman and Spencer drew crowds at the Democratic convention, and at Washington University last Thursday they were two of the most popular senior citizens on campus.

“I’m shocked, actually, but excited” that such a demographic would be organizing support for Obama, said student Naia Ferguson, 18, said after hamming it up for pictures behind the banner.

“When most people think ‘redneck,’ they think conservatives, anti-change, even anti-integration,” she said. “But America’s changing, breaking stereotypes.”

A southern comedian, Jeff Foxworthy, defines the stereotype as a “glorious lack of sophistication”.

Philistines or not, he said, most rural southerners are no longer proponents of the Old South’s most abhorrent ideology — racism — and that workaday issues such as the economy are dominating this year’s election.

“We need to build the economy from the bottom up, none of this trickle down business,” Spencer said. “Just because you’re white and southern don’t mean you have to vote Republican.”

‘Rednecks for Obama’ want to bridge yawning culture gap:

http://news.yahoo.com/s/afp/20081009/pl_afp/usvoteobamarednecks

Thanks for the memories - Bob Hope

Tanks are my memories - George Patton

Thanks for the mammaries - Dolly Parton

You can hear the bulkheads giving in, as the ship goes under 9,000.

Libor Dollar Rate Jumps to Highest in Year; Credit Stays Frozen
By Anchalee Worrachate and Gavin Finch

Oct. 9 (Bloomberg) — The cost of borrowing in dollars for three months in London soared to the highest level this year as coordinated interest-rate reductions worldwide failed to revive lending among banks for any longer than a day.

Attempts by policy makers to restore confidence to money markets are being stymied by almost daily crises among financial institutions. Iceland’s government took over the nation’s biggest lender today to keep the country’s banking system working. American International Group Inc., the insurer taken over by the U.S. government, may need $37.8 billion of extra funds, the Federal Reserve Bank of New York said yesterday.

“To see little or no reaction in the fixings is very disappointing and reinforces the fact that Libor is broken and the transmission mechanism from central banks isn’t working,” said Barry Moran, a currency trader in Dublin at Bank of Ireland, the country’s second-biggest bank. “Things are still very stressed and we don’t know what’s going to fix it.”

U.S. Treasury May Buy Stakes in Banks Within Weeks
By Robert Schmidt and Rebecca Christie
Oct. 9 (Bloomberg) — The government is planning to buy stakes in a wide range of banks within weeks as the credit freeze increasingly threatens to tip the U.S. economy into a deep recession.
Treasury Secretary Henry Paulson and top aides are still considering options on how the purchases would work, including having the government acquire preferred stock, two officials informed of the matter said.
The move would be a shift in emphasis in Paulson’s original intention for the $700 billion bailout package passed by Congress last week. While the Treasury still aims to buy troubled mortgage-backed securities from financial institutions, a direct capital injection would offer more immediate relief.
“The Treasury is no longer looking for one silver bullet,” said Steve Bartlett, president of the Financial Services Roundtable, which represents 100 of the biggest firms in the industry. “They have to proceed on all fronts.”
The Treasury aide named to run the office that will implement the rescue package, Neel Kashkari, is scheduled to speak Oct. 13 in Washington on progress in putting plans together.
$200 Billion
Bartlett said that buying into the banks would be “a major piece of the puzzle” and that an infusion of $200 billion would be “plenty adequate” to kick start the plan.
A $200 billion to $300 billion figure would probably pay for 2 percent to 5 percent stakes in U.S. banks not on the brink of failure, according to estimates by Duke University finance professor Campbell Harvey in North Carolina.
Paulson is “actively considering” cash infusions for banks, White House press secretary Dana Perino said earlier today. Treasury spokeswoman Michele Davis said “we are examining all the tools available to us to strengthen the financial system.”

http://www.bloomberg.com/apps/news?pid=20601087&sid=aL9LzoMeYVUY&refer=home

Is any thing the BB and HP doing working? Me thinks they are just throwing spaghetti against the wall and hoping one of their schemes will stick. Every day, every hour a new plan emerges. They need to give it a little time and rest. The public has not had time to digest one plan and they keep coming out with another. I wonder how bright these guys and the associates they have around them are.

DJIA = 9K and barely holding on the 1-year anniversary of the market’s all-time high…

MarketWatch
Countdown to the close:52min44sec
October 9, 2008 3:06 P.M.ET
BULLETIN
STOCK LOSSES DEEPEN, DOW SLIDES ALMOST 300; CRUDE AT ONE-YEAR LOW
Stocks hop, drop, and flop
Direction uncertain on anniversary of Dow industrials’ all-time high

so long DOW 9000 we hardly knew you….

Today’s share price falls were “obviously” due to the return of the shorts. But what explains the 1000 point fall in the DJIA earlier in the week? Passage of the bailout? It couldn’t have been the shorts, as they were sidelined…

Financial Times
Share price falls blamed on short selling return
By Joanna Chung, Francesco Guerrera, Julie MacIntosh and Anuj Gangahar in New York and Bernard Simon in Toronto
Published: October 9 2008 19:05 | Last updated: October 9 2008 19:05

The return of short sellers to the US market after a near-three-week ban was blamed for a sharp drop in prices on Thursday as General Motors and Morgan Stanley led stock markets sharply lower.

In another rollercoaster trading day, shares in Morgan Stanley were 16 per cent lower at $14.09 at midday in New York, while GM shares had lost 15 per cent of their value shortly before noon, falling to $5.87, their lowest level since the early 1950s.

The share price declines coincided with the lifting of a ban on traders who aim to profit from share price declines. The ban had prevented short selling on nearly 1,000 companies, including financial firms and industrial groups such as GM. The ban was lifted by the US Securities and Exchange Commission late on Wednesday night.

BULLETIN
DOW INDUSTRIALS DOWN 400 POINTS AS CLOSING BELL NEARS

This downturn has just begun
Commentary: A market stabilization will be short-lived
By Thomas Kee
Last update: 12:01 a.m. EDT Oct. 1, 2008

LA JOLLA, Calif. (MarketWatch) — Last month, in anticipation of a volatile September, I recommended a proactive risk controlled trading strategy designed to make money during volatile market conditions.

So why the massive sell off any triggers today?

The Axis of See No Evil (until it’s too late) comes through for us again…

Imagine what would have happened to the market if they hadn’t given themselves $840 Billion last week?

Black swans are covering the Earth after all. Whatever happens, save the jelly doughnut.

Any chance the markets will be closed tomorrow?

TED Spread 4.20, or how I gave up worrying and learned to love the bong.

Look on the bright side: Uncle Buck is riding tall through the turmoil so far.

With equities down 40% from peak and still in freefall, any idea what the secondary home market will look like next year? Anyone in the market for 3 million dollar ski shack? Anyone? What about those retirement luxury homes on our waterways? As for the rich being immune, the number of millionaires shrunk substantially in just the last few weeks.

Gold really spiked in the last hour or so of trading too.

Down 700 points?!? Somebody please tell me this is an overshoot. Yes, some companies disappear — GM will be cut in half, maybe Ford and a few banks will disappear — but those companies were already ailing. But people are still buying Coca-Cola and getting gas and shopping at Wal-mart, and looking at ads on Google. They can’t all be suddenly worth 1/2 of what they were a year ago.

To reference Warren Buffet, was the entire world swimming naked? and I wonder if this is the “capitulation” that Hillary Kramer (commentator on Nightly Business Report) was hounding on all last summer.

Press Release:

The Submarine USS 401k foundered in heavy seize, off the Barbary Coast, with heavy loss of equity.

More news as it comes in…

Gold surpasses S&P index.

Biden: McCain plan would reward greedy bankers
By DAVID A. LIEB – 33 minutes ago

ST. JOSEPH, Mo. (AP) — Democratic vice presidential candidate Joe Biden said Thursday that Republican John McCain keeps switching responses to the economic crisis and now advocates a plan for troubled mortgages that would “reward banks and lenders for their greedy behavior.”

Biden has increasingly tried to paint McCain as “lurching” from one position to another in a bid to convince voters that he would be incapable as president of addressing the nation’s economic woes.

“Now he’s gone to the point of actually wanting to reward banks and lenders for their greedy behavior,” Biden said. “Ladies and gentlemen, this is not a steady hand.”

Glad to hear the panic has ended…

US government may take part ownership in banks
By MARTIN CRUTSINGER and JEANNINE AVERSA,
AP Economics Writers
Thu Oct 9, 2:06 PM ET

WASHINGTON - News that the Bush administration is considering taking part ownership in a number of U.S. banks helped restore a relative calm over global financial markets Thursday.

No Mad Money today? did Mr. Cramer give up?

Don’t fight the FED?????????????
So far FED nothing reality 10

Some say twas a Shell-shocking shellacking.

For what it’s worth…

We blew out our stocks in mid 2007, it was a margin account and today’s action would have been our coup de grâce, as we would have lost everything, had we held on.

Bad call on my part to cover some of my shorts in the US yesterday, caused me to scramble - ever seen a fat man scramble? Being long in Brazil worked out OK, but tonight I may (probably will) get pummeled in China and Korea. At least my short US Treasuries are paying off - slowly but surely. Until China opens, it looks like I had a good day.

I have only seen 2 currency crashes and they were both saved by the US flooding dollars into the currency. Who is going to save the dollar?

Kiss Scandinavia good bye. So Long Swedbank, been nice to be short you.

It was a fraud. AIG never any capital to back up the insurance it sold. And the profits it booked never materialized. The default rate on mortgage securities underwritten in 2005, 2006, and 2007 turned out to be multiples higher than expected. And they continue to increase. In some cases, the securities the banks claimed were triple-A have ended up being worth less than $0.15 on the dollar.

Even so, it all worked for years. Banks leveraged deposits to the hilt. Wall Street packaged and sold dumb mortgages as securities. And AIG sold credit default swaps without bothering to collateralize the risk. An enormous amount of capital was created out of thin air and tossed into global real estate markets.

On September 15, all of the major credit rating agencies downgraded AIG – the world’s largest insurance company. At issue were the soaring losses in its credit default swaps. The first big writeoff came in the fourth quarter of 2007, when AIG reported an $11 billion charge. It was able to raise capital once, to repair the damage. But the losses kept growing. The moment the downgrade came, AIG was forced to come up with tens of billions of additional collateral, immediately. This was on top of the billions it owed to its trading partners. It didn’t have the money. The world’s largest insurance company was bankrupt.

The dominoes fell over immediately. Lehman Brothers failed on the same day. Merrill was sold to Bank of America. The Fed stepped in and agreed to lend AIG $85 billion to facilitate an orderly sell off of its assets in exchange for essentially all the company’s equity.

Most people never understood how AIG was the linchpin to the entire system. And there’s one more secret yet to come out…

AIG’s largest trading partner wasn’t a nameless European bank. It was Goldman Sachs.

I’d wondered for years how Goldman avoided the kind of huge mortgage-related writedowns that plagued all the other investment banks. And now we know: Goldman hedged its exposure via credit default swaps with AIG. Sources inside Goldman say the company’s exposure to AIG exceeded $20 billion, meaning the moment AIG was downgraded, Goldman had to begin marking down the value of its assets. And the moment AIG went bankrupt, Goldman lost $20 billion. Goldman immediately sought out Warren Buffett to raise $5 billion of additional capital, which also helped it raise another $5 billion via a public offering.

The collapse of the credit default swap market also meant the investment banks – all of them – had no way to borrow money, because no one would insure their obligations.

To fund their daily operations, they’ve become totally reliant on the Federal Reserve, which has allowed them to formally become commercial banks. To date, banks, insurance firms, and investment banks have borrowed $348 billion from the Federal Reserve – nearly all of this lending took place following AIG’s failure. Things are so bad at the investment banks, the Fed had to change the rules to allow Merrill, Morgan Stanley, and Goldman the ability to use equities as collateral for these loans, an unprecedented step.

The mainstream press hasn’t reported this either: A provision in the $700 billion bailout bill permits the Fed to pay interest on the collateral it’s holding, which is simply a way to funnel taxpayer dollars directly into the investment banks.

Why do you need to know all of these details? First, you must understand that without the government’s actions, the collapse of AIG could have caused every major bank in the world to fail.

Second, without the credit default swap market, there’s no way banks can report the true state of their assets – they’d all be in default of Basel II. That’s why the government will push through a measure that requires the suspension of mark-to-market accounting. Essentially, banks will be allowed to pretend they have far higher-quality loans than they actually do. AIG can’t cover for them anymore.

And third, and most importantly, without the huge fraud perpetrated by AIG, the mortgage bubble could have never grown as large as it did. Yes, other factors contributed, like the role of Fannie and Freddie in particular. But the key to enabling the huge global growth in credit during the last decade can be tied directly to AIG’s sale of credit default swaps without collateral.

Hey aladinsane,

Let us not forget the buy SLV before the open at 11.51 today, nor the close at 11.95, O.K.

That’s the kind of dangerous living I LOVE 41500 times!

$18,260 in gains, which you mocked as impossible.

The silver in SLV is in audited vaults in England, replete with serial numbers. That is REAL silver.

Works for me. I used to be a floor broker on the COMEX. Now THAT is paper silver.

I don’t touch that $!@*%#

So the Keating Five candidate wants to solve the crisis by propping up home prices? Could someone please remind me again how many houses he owns? Sounds like he wants to save Cindy’s infestments from (likely) falling knifedom.

Housing prices are rapidly approaching a bottom, from which the economic recovery can begin off the floor with a firm foundation. Why is McCain so interested in making us go Japanese?

Wall Street Journal
* REVIEW & OUTLOOK
* OCTOBER 9, 2008
The Next $300 Billion
John McCain wants your mortgage.

John McCain got the diagnosis right in Tuesday night’s debate with Barack Obama — the economy won’t recover until home prices find a bottom. We’re less convinced that his plan to buy underwater mortgages at taxpayer expense is the cure this patient needs.

The principle that underlies the idea is not new: If there were some way to halt the tide of foreclosures and distressed sales, the supply of unsold homes should fall and prices should stabilize. If that could be accomplished, investors and lenders alike would have a much clearer idea what the losses would be on mortgages and mortgage securities. That, in turn, would bring buyers back into the market for the mortgage securities and related products that are crippling credit markets.

In my opinion, Shiller is much too easy on Moody’s latter-day followers. He tries to sweep too much financial deception and/or stupidity under the mania rug. If a bunch of tinfoil-hat wearing bloggers could see this from a mile away, then how could Wall Street’s top ratings agencies have been blind to it?

Wall Street Journal
* OPINION
* OCTOBER 9, 2008
Good Financial Information Matters More Than Ever
From John Moody to Suze Orman, financial writers deserve our thanks.
By ROBERT J. SHILLER

The subprime crisis along with its associated financial and economic problems is due, in good measure, to some failures of democracy — financial democracy, that is. Many working-class people and first-time home buyers who took out high loan-to-value mortgages with adjustable rates did not have ready access to information about what they were doing — the kind of information easily available to wealthier people — and so made serious mistakes. By the same token, many people who bought securitized mortgages had little access to financial advice that might have warned them how risky these instruments really were.

Fortunately, this country has a history of financial democratizers who have made the financial system work for the people as well as it does, and who have made the U.S. financial system, despite its flaws, the envy of the world. Now, deep into a financial crisis and awash in a newfound culture of financial complexity from 401K plans through reverse mortgages, it is worth reflecting on their past achievements, and considering what lessons they carry for the resolution of the current crisis.

John Moody, along with John M. Bradstreet and Henry Varnum Poor, democratized finance by inventing credit ratings to be made available to the general public. When Moody published a statistical manual in 1900, followed by a system of rating securities with categories Aaa, Baa etc, and a series of investor-advice books, he provided reams of information to everyone, for just the price of a few books. These beginnings led to the development of Moody’s Investor Services and other rating agencies. The securities rating system has now spread from the United States to the whole world, and helped make possible the capitalist explosion of growth and prosperity.

Moody left behind an autobiography, “The Long Road Home,” 1933, and so we can glean some of his motivations.

Nikkei 225 down 9.5% so far…

Is all the wailing and gnashing of teeth from Wall Street about credit just Sound And Fury ™?

Mortgages are still available, despite talk of a credit crunch.

Qualified borrowers can find conforming and FHA-insured mortgages easily. Jumbo mortgages are more scarce, but available. Rates went up in the last week, which is another way of saying that credit is tighter. But the mortgage marketplace isn’t frozen, at least in part because of federal intervention.

“There’s almost no difference in the availability of money compared to a year ago, with the exception of jumbos,” says Jim Sahnger, mortgage consultant with Palm Beach Financial Network in Stuart, Fla. “The main difference is that you have to provide documentation, such as W-2s, tax returns and bank statements. Welcome to the full-doc world.”

http://www.bankrate.com/brm/news/mortgages/20080925-credit-crunch-mortgages-a1.asp

There should be a law or a constitutional amendment forcing a president to get congressional approval before launching a war.

Based on the alacrity with which Congress acted to funnel 700 billion dollars to Wall Street, surely, if the situation warrants deadly force in which the “little people” (J6P and colored folk) get killed - really important stuff to real people - surely if the situation is urgent enough, Congress will act to get it done.

Some will spin visions of doom if the president cannot wield his private army as he sees fit, but it’s not his private army. If it’s important enough, Congress will act, based on the speed and focus of the bailout.

Oct. 10 (Bloomberg) — Asian stocks tumbled, driving Japan’s Nikkei 225 Stock Average down as much 11 percent, and U.S. futures fell on concern the deepening credit crisis will push the global economy into recession.

“It’s a financial panic,” said Choi Min Jai, who oversees the equivalent of $2.1 billion at KTB Asset Management Co. in Seoul. “The recession can only get worse. You can’t find the link that will break the vicious cycle.”

And just a year ago it was only a housing bust. Feels like a blow off in the stock market 3/4 done ? The price for living large has come due.

Oct. 9 (Bloomberg) — President George W. Bush will address the nation tomorrow to tell Americans they should remain “confident” amid falling stock markets and a worldwide credit crisis, administration spokeswoman Dana Perino said.

The president wants to “assure” the country that Treasury Secretary Henry Paulson and other administration officials are making “every effort to stabilize our financial system,” Perino said.

Oh good I feel better already

Sounds like the selloff may be more due to deleveraging longs dumping assets than to shorts, who have been recently sidelined until just today.

Panic sends Dow to its worst crash in 21 years

US stocks slump 7 per cent on more banking misery and fears over General Motors

By Stephen Foley in New York and David Prosser
Friday, 10 October 2008
* History lessons: Galbraith’s ‘The Great Crash 1929′ is still essential reading today
Independent.co.uk Web

The global stock market sell-off turned into a full-blown crash in the US last night, as panicked investors dumped shares on fears that the world is heading into a dangerous recession.

The Dow Jones Industrial Average suffered its worst one-day percentage fall since 1987 amid the ongoing instability of the banking system, miserable sales figures from US retailers, and new suggestions that the giant car maker General Motors could go bankrupt.

A year to the day after the Dow hit its all-time record, it plunged 679 points – 7.3 per cent – to 8,579, with some 450 points of the decline coming in a chaotic final hour of trading.

The plunge takes the Dow down to a level 39 per cent below the peak on 9 October 2007, and it has now lost 21 per cent in just the past seven sessions.