The Housing Bubble

There has been a noticable drop in housing inventory lately reported on numerous blogs like Piggingtons. Additionally, I noticed the REO listings nationwide at Countryfried have been cut in half. Thus, the big question arises of when does the true firesale begin when all this shadow inventory is dumped on the market? For one more Spring, the Pigmen are drawing the dwindling pool of suckers into the vanishing game.

What bank scam will they try to pawn off on us today?

Hussman dissects “stress test”:

Banks Pass Stress Test - Regulators Fail Ethics Test

Last week, financial stocks enjoyed a powerful advance and short squeeze on the announcement of the results of the “stress test” of major banks. It is important to begin by noting that this was not a regulatory procedure with teeth. It was initially a response to Congressional demands to introduce greater objectivity into the use of public capital for these bailouts, and gradually morphed into nothing more than a “confidence building” exercise. And keeping with the emphasis on keeping the numbers happy, as opposed to providing full and fair disclosure, the Wall Street Journal reported on Saturday, “The Federal Reserve significantly scaled back the size of the capital hole facing some of the nation’s biggest banks shortly before concluding its stress tests, following two weeks of intense bargaining. In addition, according to bank and government officials, the Fed used a different measurement of bank-capital levels than analysts and investors had been expecting, resulting in much smaller capital deficits.”

To some extent, it is not possible to get full and fair disclosure using the method that regulators used in the first place, since it relied on banks’ self-estimates of their potential losses in a further economic downturn. These of course being the same banks that made the bad loans, and have already proved themselves vastly incapable of loss estimation and risk management. Moreover, the Fed only asked for loss estimates for 2009 and 2010, not beyond – “Each participating firm was instructed to project potential losses on its loan, investment, and trading securities portfolios, including off-balance sheet commitments and contingent liabilities and exposures over the two-year horizon beginning with year-end 2008 financial statement data.” This period specifically excludes the window where we can expect the majority of “second wave” mortgage losses to be taken, as it does not capture any losses that will emerge as a result of mortgage resets from mid-2010, through 2011, and into 2012.

The “stress test” procedure also conveniently excludes any potential mark-to-market losses during 2009 and 2010, as banks “were instructed to estimate forward-looking, undiscounted credit losses, that is, losses due to failure to pay obligations (‘cash flow losses’) rather than discounts related to mark-to-market values.”

Now, just think of this for a minute. Even if you assume that the “risk-weighted assets” of the banks are about two-thirds of their total assets (as the stress-test does), we’re still looking at $7.8 trillion in total assets at risk in these banks, and despite being on the edge of insolvency only weeks ago, we are asked to believe that they will need less than 1% of this amount – $74.6 billion – of additional capital even in a worst case scenario. How do the stress tests arrive at this conclusion? 1) They underestimate potential losses by minimizing the horizon over which the losses would have to occur, excluding potential mark-to-market losses and restricting the loan losses to “cash flow” losses only; 2) They define capital well beyond tangible sources, to include about double what is available as Tier-1 common; 3) They include $362.9 billion in “resources other than capital” – essentially pre-provision net revenue expected to be earned by the banks over the coming two years to absorb potential losses; 4) They report the capital buffer that would be required after massive dilution in the common stock of these banks has already occurred.

Had a long talk with the fellow buying this place on a short sale. He made quite a bit of money in real estate because he knew it was all a house of cards and got out in time. Through the rental agency, I heard that there was a problem with the title insurance company, but not so, just concern about the well that is shared by four homes that may be low on production. The well does produce 7200 gallons per day. I think he wants to have a large garden. One person uses about 100 gallons per day.

“Many voters who are dissatisfied with Congress have been calling for a Constitutional amendment to provide term limits.

“What these voters don’t understand is that the Constitution already provides for term limits, but voters are too stupid to step up and do their constitutional duty by turning out the Congress every two and six years for the House and Senate respectively.

“Albert Einstein had it right when he said that ‘There are only two truly infinite things: the universe and stupidity. And I am unsure about the universe.’ ”

Thomas J. Miranda

“Here’s a news flash folks: Money you do NOT borrow does not constitute ’savings.’ But this elementary fact does not prevent politicians, professional investors or journalists from utilizing the vernacular of thrift to describe one of the most reckless credit binges in the history of mankind.” ~Eric Fry

Mr. Fry is not fooled by President Obama’s announcement about “saving” $17 billion by eliminating 121 federal programs in the budget. The fact is the projected budget deficit in 2010 is $1.38 trillion – a figure that is 82 times greater than the $17 billion savings that Obama triumphantly proclaimed.

Experts say GM bankruptcy almost inevitable

DETROIT (AP) — For General Motors Corp., the task at hand is so difficult that experts say a Chapter 11 bankruptcy filing is all but inevitable.

To remake itself outside of court, GM must persuade bondholders to swap $27 billion in debt for 10 percent of its risky stock. On top of that, the automaker must work out deals with its union, announce factory closures, cut or sell brands and force hundreds of dealers out of business - all in three weeks.

“I just don’t see how it’s possible, given all of the pieces,” said Stephen J. Lubben, a professor at Seton Hall University School of Law who specializes in bankruptcy.

We traveled up to Long Beach on the southern
Washington coast to visit friends this weekend. The boat harbor on the southern end is as close as you can
get to the mouth of the Columbia River and some of the best fishing in the world, both commercial and
sport.
Two years ago every slip was filled and if you were late in your payments, lost the slip immediately.
Probably 75% of the slips are empty and some of the storefronts on the pier are shuttered. Long time
residents have never seen it this bad.

Older job applicants uses plastic surgery to get ahead:

A new wrinkle in job hunting
Older workers find plastic surgery gives them an edge in a tough market
Monday, May 11, 2009
BY SUSAN TODD

In this dog-eat-dog job market, wrinkles can be costly.

Lou Capolino, an out-of-work sales executive, said he got passed up for several positions before he opted to have a plastic surgeon remove the telltale signs of age around his neck and eyes.

For Capolino, the surgery was as much a part of his job-searching strategy as the résumé he had crafted so carefully to boast of his management experience.

“I’m a man of about 60. I’m competing against people who are younger, and I’m being interviewed by people who are younger,” Capo lino said. “I don’t tell my age for fear of turning employers off.”

As they compete against candidates who are younger by a decade or more, some seasoned job-seekers like Capolino are resorting to surgery to tighten jowls and erase wrinkles and frown lines wrought by age — and formerly demanding careers.

“People who never thought they would ever have fillers (to treat frown and worry lines) are coming in for Botox injections or laser treatments,” said Valerie Ablaza, a plastic surgeon in Montclair. “They’re looking for any little thing that will give them an edge.”

Good morning, all! Interesting headlines & links at Yahoo Finance this morning.

First-class postage increases 2 cents today. Sigh. Time for another trip to the P.O. to buy 2-cent stamps. This really P’s me O.

Merrill’s David Rosenberg, in his swan song as he departs for greener pastures, agrees with HBBers that we’ve been having a sucker’s rally since March. (OK, he didn’t actually say he agrees with HBBers, but it’s still true!).

And…Nouriel Roubini is Turbo Tax Timmy Geithner’s favorite economist. Quelle surprise!

Is anyone interested in renting $1.2m homes for $800/mo? The only problem: You are basically required to maintain the property to immaculate standards, and to be willing to vacate on one week’s notice.

My question: Are prospective buyers provided full disclosure about the pretend owner-occupant?

The new housesitter
Renters, their furnishings being used to sell vacant high-end homes
By Roger Showley
Union-Tribune Staff Writer
2:00 a.m. May 11, 2009

Johnna Clavin won the bid to be a temporary resident in a $1.2 million Oceanside home, which means she pays $800 a month and provides her own furnishings. She has to be ready to move out when the house sells. - JOHN GASTALDO / Union-Tribune
…
Operating as QualityFirst Home Marketing, a division of McCarthy Holthus Real Estate Corp., Heineke began visiting local real estate offices this year and advertising for guest residents.

The first to settle in was Johnna Clavin, 45, who moved into a new, 2,600-square-foot Oceanside home with a view in March. She had returned from New York City, where after six weeks managing a large estate, she was dismissed. The FBI had indicted the owner on fraud charges.

Clavin responded to Heineke’s ad, as did 45 other hopefuls, and she won the bid to live in a $1.2 million home for $800 a month, surrounded by her stuff. She had one advantage over the other applicants: an article on her organizational skills that she submitted to Oprah Winfrey’s O magazine.

“I’m not required to do anything other than be immaculate,” she said.

The Mexico City Times?

“Mexican billionaire Carlos Slim, who this year bailed out the Times with a high-interest $250 million loan that also threatens family control.”

“The Ochs-Sulzberger family, which has run the venerable paper since 1896, may also face unusual pressure from about two dozen descendants to cash out and restore their comfortable lifestyles snatched away suddenly by hard times.

Until this year, the family had been living on wealth valued as high as $425 million. But today the family is down in their Times’ annual income to a paltry $4.5 million, which could shrink even more in the recession.”

By PAUL THARP New York Post Monday May 11th

I am confused by what adjusts when quantitative easing is used to buy down l-t T-bond yields. The market smells inflation, which drives up l-t yields, then the Fed prints money (at least figuratively) to fund its T-bond purchases, which is naturally perceived as inflationary. Something about this plan does not seem sustainable, but I don’t have my brain around the equilibrating mechanism.

Wall Street Journal

* CREDIT MARKETS
* MAY 11, 2009

Rising Government Bond Yields Frustrate Central Banks
By MIN ZENG

Rising long-term yields in major government-bond markets are challenging central banks’ actions to heal credit markets and revive economies, raising the odds of more aggressive interventions.

The rise in yields, mainly from an increase in bond supply in major economies to fund budget shortfalls and economic-stimulus plans, also reflects reduced safe-haven demand for government securities amid optimism that the worst of the recession is over and conditions in the money and credit markets have improved.

Still, many market participants caution that further rises in yields may jeopardize the progress as the recovery remains tentative. The 10-year U.S. Treasury yield, for example, anchors the mortgage rates and also serves as benchmark for many corporate-bond yields.
[Treasury Yields]

“We are very close to the peak in bond yields,” said Marco Annunziata, chief economist and global head of fixed-income and foreign-exchange research at UniCredit in London. “If yield closes on 3.5%, it is almost certain the Federal Reserve will step up purchases of government bonds.”

NEW YORK (Reuters) – Four big U.S. banks on Monday announced plans to sell more than $6 billion of common stock, in an effort to raise capital and repay funds received under the government’s bank bailout program.

U.S. Bancorp (USB.N) plans to sell $2.5 billion of stock, and is also selling $1 billion of debt. Capital One Financial Corp (COF.N) sold $1.55 billion of stock, while BB&T Corp (BBT.N) is selling $1.5 billion and KeyCorp (KEY.N) $750 million.

BB&T also reduced its quarterly dividend 68 percent to 15 cents per share from 47 cents, saving $725 million a year, following 37 straight years of dividend increases.

The offerings were announced three days after Wells Fargo & Co (WFC.N) and Morgan Stanley (MS.N) sold a combined $12.6 billion of stock. Morgan Stanley also sold $4 billion of debt.

Is there any doubt that this rally was intended for these secondary offerings. I’d like to know who is buying, my guess is a lot of retirement funds controlled by said banks.

Combo, I looked up that guy you suggested. $5k –> $15MM

That’s sorta what I was thinking

http://news.yahoo.com/s/nm/20090511/pl_nm/us_obama_budget_7

The White House Forecasts Higher Deficit. 1.8 TTTTrillion?

Whodathunkit.

I guess team Barry figure if they keep pumping sunshine, fantasy will over come reality!

White House Sees 3.5% Growth by Year-End, Exceeding Forecasts
By Brendan Murray

May 11 (Bloomberg) — The Obama administration projected that the U.S. economy will expand at a 3.5 percent annual rate by year-end, a rebound that would be almost twice as strong as private forecasters expect.

In the economic assumptions of its 2010 budget request, President Barack Obama’s economic team didn’t change its 2009 predictions for a 1.2 percent drop in gross domestic product this year, slower inflation, higher unemployment and lower market interest rates than a year ago.

As early as the end of this year, GDP may rise at a 3.5 percent annual rate, the same pace projected for all of next year, helped by a $787 billion stimulus package, the administration said in the report today. That’s more optimistic than the 1.8 percent fourth-quarter growth estimate in the monthly Blue Chip Economic Indicators survey released May 10.

“Although the economic downturn so far in 2009 has been more severe than the administration expected when the forecast was finalized, if the financial system begins to function more normally, there is every reason to expect a somewhat stronger recovery given the depth of the current recession,” the White House said today.

The administration expects “housing starts to reach bottom this year and to begin a robust recovery as relative housing prices stabilize,” today’s report said.

The Federal Reserve’s “novel” policies of extending funds to banks to boost liquidity and purchasing short- and long-term Treasuries also will help underpin the recovery, the White House said. Still, a doubling of the Fed’s balance sheet to about $2 trillion “holds the potential for an explosive increase in the nation’s money supply,” it said.

“So far that has not occurred, because much of the increase in Federal Reserve liabilities has gone into idle reserves of the banks,” the administration said. The central bank “is prepared to reduce the assets on its balance sheet promptly as the economy recovers from the current recession and the crisis in the financial sector eases.”

The report also said “inflation is expected to remain subdued over the next few years.”

Sweet! One can only hope that we can breeze past 12.9% of the GDP…

White House forecasts higher U.S. budget deficit…
By Caren Bohan and Richard Cowan

WASHINGTON (Reuters) - The White House on Monday pushed up its forecast for the U.S. budget deficit for this year by $89 billion, reflecting the recession, a raft of new unemployment claims and corporate bailouts.

A fresh estimate of the deficit showed it coming in at $1.84 trillion — representing a massive 12.9 percent of gross domestic product — in the current 2009 fiscal year that ends on September 30. A prior White House forecast released in February projected a deficit of $1.75 trillion, or 12.3 percent of GDP.

The report may add to the political challenges facing President Barack Obama as he seeks to push through a new healthcare plan and other big domestic initiatives.

A White House official said the gloomier deficit picture reflected weaker tax receipts as the economy declined and higher costs for social safety-net programs such as unemployment insurance. Spending on the government rescues for the financial and automobile industries was also a factor in the higher deficit, said the official, who spoke to reporters on condition of anonymity.

While the Democratic-led Congress has given its approval to the broad outline of Obama’s proposed budget for the 2010 fiscal year that includes initiatives on healthcare, education and other items, some moderate Democrats and a number of Republicans have expressed wariness about the deficit outlook.

Republicans contend that Obama’s agenda would sharply increase the size of government and add to a mountain of debt but Democrat Obama counters that the enormous deficits are a legacy of President George W. Bush, a Republican.

The higher deficits “are driven in large part by the economic crisis inherited by this administration,” White House budget director Peter Orszag wrote in his blog on Monday.

This is a great example of how messed up living in Florida can be: these three held women as slaves, but were renting a waterfront house.

http://www.tampabay.com/news/publicsafety/crime/article999813.ece

Safety-wise, having a nice house in a good location means nothing in Florida. Absolutely nothing.

So, here I am in the midst of water line replacement. The plumbers are outside, finishing the trench so they can lay a new copper water line.

However, some of my neighbors aren’t too happy.

The problem lies with the fact that the trench between the meter and my house traverses two other properties. And they are rental properties owned by, ahem, investors.

Seems that they too have properties that are served via elderly galvanized water lines. Just like mine. And all of those lines are on their last legs. Just like mine.

The plumbers and I are pretty sure that the inspector from the City of Tucson Development Services will have something to say to the owners of the other properties. As in, “These are rental properties, and you’d better replace these lines so that your tenants have reliable water service. If they don’t have it, they can withhold their rent.”

[Gee, and to think that I can't withhold a mortgage payment for the same reason.]

I can speak from personal experience when I say that replacing a water line isn’t cheap. But, from the time that I moved in here, I knew that my own line was living on borrowed time, and that I’d best keep a cash stash handy to pay for the replacement. And that’s what I’ve done.

However, I suspect that the two investors behind me are from the “get rich in real estate” school. One of the two has already tried (and failed) to flip his property. The other one had to evict the tenants previous to his current tenants.

And, alas, they’re about to learn another lesson about real estate: That you’re responsible for all of the repairs and replacements. Even the expensive ones.

I have a question that I think is relevant. To date I have asked it several times, mostly on Mish and Calculated Risk and have as of yet not received a quantifiable answer. At least not one that my feeble mind can get around.

How are they going to get Inflation into the system this time, without Wage inflation? (Employment Anyone?)

We are seeing retrenchment on wages across most industries. The worldwide debt bubble that for the most part manifested itself in Houseing was the perfect vehicle for circulation of cash/debt. With any semblance of lending standards it would seem un-reinflatable.

So where, how, what is the vehicle to get the money in peoples hands to re-inflate assets?

Stock and Commodity inflation due to the closeness of Banks and Wall Street for cheap money has opposite effects. What I mean by that is that Stocks could cause some re-inflation, but they are down so much from the peak it would seem a long way off for trickle down. Commoditiy prices rising on the other hand will simply pull more income away from the consumer to buy Houses, Cars and Toys. Inflation in everything you need- Food and Energy - deflation in the rest. Just to pile on, Tax’s would appear to have an upward trend with that lil defecit they anounced (1.8Trillion? Whatever. Nice DC real nice.)

I know I must be missing something, or just know too many people over exteneded and haveing job worries.

I value many opinions here. Have at it.

Did a raft trip down the Green, then turned around and did a quick trip to Glenwood Springs, CO. to see family.

Last fall, I noticed maybe 30 oil/gas rigs visible from the freeway between Parachute and Rife, CO. Yesterday, I counted 3.

The freeway traffic was about half of what it would’ve been a year ago. Maybe less. I’m probably more aware of this kind of thing than the average bear cause I don’t drive it much so have a good mental comparison. Still anecdotal, though.

The rental list on CL is getting longer every day for W. Colorado, the prices are coming down, but very very slowly. More and more places allow pets. The oil/gas bust is becoming more and more noticeable, including more stories in the local papers about people having hard times. Rio Blanco Store, on the main route for the oil people into Piceance Basin, is up for sale.

OTOH, Moab, UT, had one of the busiest tourist seasons I’ve ever seen. Things are quieting down now, thankfully.

When I was in Green River, UT, getting ready for the raft trip, I talked to some friends about how quiet town seemed, they say it’s dead in the water from the oil people leaving.

Glenwood Springs’ RE seems to be softening, lots of reduced ads in the paper, but still WAY too high.

And I wonder how my friend in Price, UT, who cashed out his retirement to buy into an oilfield water service is doing…

Update on my parents: They have an offer on their house. Quick recap - listed for $450K…dropped after 7 months to $440K…dropped a couple of months after that to $420K. Been on the market about a year now with few lookers and no offers. I had encouraged them long ago to drop just under $400K and be happy with anything from $350K to $400K.

Well the one and only offer that was made is $375K. My opinion? Take it and don’t counter. Parents new house has a move in date in July. Couple making the offer have sold their house and their settlement date is July 24. It sounds pretty ideal to me for all parties involved.

LOL! Go Barry…

STIMULUS WATCH: Early road aid leaves out neediest
By MATT APUZZO and BRETT J. BLACKLEDGE

WASHINGTON (AP) — Counties suffering the most from job losses stand to receive the least help from President Barack Obama’s plan to spend billions of stimulus dollars on roads and bridges, an Associated Press analysis has found.

Although the intent of the money is to put people back to work, AP’s review of more than 5,500 planned transportation projects nationwide reveals that states are planning to spend the stimulus in communities where jobless rates are already lower.

One result among many: Elk County, Pa., isn’t receiving any road money despite its 13.8 percent unemployment rate. Yet the military and college community of Riley County, Kan., with its 3.4 percent unemployment, will benefit from about $56 million to build a highway, improve an intersection and restore a historic farmhouse.

Altogether, the government is set to spend 50 percent more per person in areas with the lowest unemployment than it will in communities with the highest.

The AP reviewed $18.9 billion in projects, the most complete picture available of where states plan to spend the first wave of highway money. The projects account for about half of the $38 billion set aside for states and local governments to spend on roads, bridges and infrastructure in the stimulus plan.

The very promise that Obama made, to spend money quickly and create jobs, is locking out many struggling communities needing those jobs.

The gubmint cheese leaves an after taste, and the boyz don’t like it…

Bank shares flood market, firms eye TARP payback
By MarketWatch
Last update: 9:37 a.m. EDT May 11, 2009

NEW YORK (MarketWatch) — A handful of big U.S. banks on Monday unveiled plans to sell common shares in the open market to raise money they want to use to repay the federal government to free themselves from restrictions on salaries and other items.
The news follows Thursday’s results of government-mandated stress tests on the nation’s largest banks to determine how much capital they would be required to raise. The results generally showed that they would require less new capital than had been expected.
Video: Hot Stocks: Financials
The U.S. financial sector slips in Monday trading after several banks announce common-stock offerings designed to help pay back the funds they’ve borrowed from the government. MarketWatch’s Greg Morcroft reports.
Investors’ relief over the stress tests fueled a “meltup” in the banking sector on Friday, helping some of the nation’s largest lenders raise more than $12 billion in new equity capital. See full story.
While the banks that received Troubled Asset Relief Program investments in the form of preferred shares could have converted those into common stock to cover their capital requirements, most would rather raise capital in the public markets as able, and pay back the government quickly. See full story.
The banks are looking to get out from under the conditions of the TARP investments, which include restriction on executive pay and employee bonuses.

My bum hurts because I spent all day yesterday sitting on a rocky shore watching big fat tubes of noisy blubber as they splashed around disporting themselves in the chilly gray waves.
Man, they were beautiful! (sea-lions)
There were about 12-15 of them, more than I have ever seen in one place at one time, all shouting and carrying on and frisky-like. Jumping in the air like Flipper, except not so aerodynamic, but not from lack of trying. At one point there appeared to be some synchronized water-ballet going on, with graceful flipper waving and everything. All that was lacking was the flowered swim-caps!
Also, I know a laugh when I hear one, even if it comes out of a tube of blubber, and there was just nothing but laughing and barking and shouting and calls of ‘Hey, watch me do this! Huh huh, didja see that?’
There was one freakin’ ENORMOUS one, I imagine that was the male. He was really showing off for the hot babes.

Anyway, I didn’t get on until late and therefore didn’t get to tell Polly, awaiting wipeout, Exeter, blu that I’m sorry yer mom’s are dingles. If any of you were my kids I’d be prancing around telling everyone about what an obviously superior mother I was and sticking gold stars on my forehead and everything.
Here, I have an idea: next Mother’s Day how about you each deliver a brisk slap to your mom and then say: ‘That there’s straight from Olympiagal.’
Okay? Okay.

“The price of a first-class stamp for mailing a letter — or paying a bill — climbed to 44 cents today, although folks who planned ahead and stocked up on Forever stamps will still be paying the lower rate. The Postal Service is struggling. It lost $2.8 billion last year and is already $2.3 billion in the hole just halfway through this year”.

Home sold off for $20,000 after credit card debt
Article from: The Sunday Mail (Qld)

Kay Dibben

May 10, 2009 12:00am

A BRISBANE couple lost their $315,000 home over a credit card debt of $8000, only finding out after the home was sold for $20,000 at a bailiff’s auction.

The first they knew about it was when the new owner, who had to pay the couple’s outstanding $220,000 mortgage, phoned them and said: “Get out.”

Legal Aid Queensland lawyer Catherine Uhr said the couple were not given notice of the auction in January.

“All this married couple got back from the $20,000 that was paid for their house was a cheque for less than $5000, because of costs,” said Ms Uhr, of the Consumer Protection Unit.

Legal Aid Queensland says it is just one of several cases of debt collection companies moving to sell Queenslanders’ homes at bailiffs’ auctions to recover credit card debts of less than $10,000.

LAQ says debt collection companies buy small credit card debts off lenders, often obtaining judgment for payment of the debt in a New South Wales court, then getting enforcement warrants for bailiffs’ auctions in Queensland courts.

Merrill’s Rosenberg: Goodbye, Thank You, Yes It’s Just a Sucker’s Rally
Posted May 11, 2009 09:29am EDT by Henry Blodget in Investing, Recession, Banking
From The Business Insider, May 11, 2009:

Merrill’s economist David Rosenberg left the firm Friday, May 8 (planned for several months). And he went out swinging. David has maintained from the beginning that the recent rocket rally off the lows is just a suckers’ rally, and he reiterated that view as he walked through the doors.

Some excerpts from his swan song, which was published Thursday:

Market likely to peak the end of the week [Friday]. Just as the clock is winding down on my tenure at Merrill Lynch, the equity market is winding up with an impressive near-40% rally in just nine weeks. For those that were still long the equity market back at the March 9 lows, a good ‘devil’s advocate’ exercise would be to ask yourself the question whether you would have taken the opportunity, if the offer had been presented, to have sold out your position with a 40% premium at the time. What do you think you would have said back then, as fears of financial Armageddon were setting in? We haven’t conducted a poll, but we are sure at least 90% of the longs at that point would have screamed “hit the bid!”

Are we at risk of missing the turn? Fast forward to today, and within two months optimism seems to have yet again replaced fear. Are we at risk of missing the turn? What if this is the real deal — a
new bull market? This is the question that economists, strategists and market analysts must answer.

Risk is much higher now than it was 18 weeks ago. The nine-week S&P 500 surge from 666 at the March lows to 920 as of yesterday has all but retraced the prior nine-week decline from the 2009 peak of 945 on January 6 to the lows on March 9. We believe it is appropriate to put the last nine weeks in the perspective of the previous nine weeks. To the casual observer, it really looks like nothing at all has happened this year, with the market relatively unchanged. But something very big has happened because the risk in the market, in our view, is much higher than it was the last time we were close to current market prices back in early January, for the simple reason that we believe professional investors have covered their shorts, lifted their hedges and lowered their cash positions in favor of being long the market.

Employment, output, income, sales still in a downtrend.

“On the 73rd day I will rest.” Does Obama think he is God now?

They will file bankruptcy soon and stiff the general public of it’s funds. Going to be fun watching gubmint run the auto business, perhaps they’ll get someone from the postal service to show them how it’s done!

GM says open to moving from Detroit headquarters…

DETROIT (Reuters) - General Motors Corp is open to considering moving its headquarters from Detroit, selling off U.S. plants and even renegotiating parts of its restructuring plan with its major union, the new chief executive said on Monday.

CEO Fritz Henderson, on a conference call with reporters, said it was more probable that GM was headed for bankruptcy by June 1 - the U.S. government-imposed deadline for the automaker to restructure or face bankruptcy.

“It’s more probable that we would need to accomplish our goals in a bankruptcy,” Henderson said. “There’s still a chance for it to be done outside a court proceeding.”

A move by GM to leave Detroit would represent another blow for the economy of a region already reeling from the bankruptcy of Chrysler LLC and the sharp downturn in auto manufacturing.

GM purchased its glass-towered headquarter building known as Detroit’s Renaissance Center last year for $625 million. The 100-year-old automaker has been based there since 1996.

“As we look at the structure, look at the business, we’re looking at everything, particularly as we slim,” Henderson said. “At this point, I don’t have anything to report. We don’t have any such plans, but if we did it would be motivated by business rationale, which would be cost-efficiency and speed.

GM has until June 1 to reach deals that would slash debt owed to bondholders and the United Auto Workers union and to win concessions from the union that would cut operating costs for its remaining U.S. plants under terms set by the Obama administration’s autos task force.

It has already told bondholders that it would miss a June 1 debt payment of $1 billion.

From NY Magazine:

Bigfoot of the Hamptons
Who’s the mystery buyer said to be scooping up handfuls of houses with lowball offers? An investigation.
By S.Jhoanna Robledo Published May 10, 2009

Have you heard? There’s a monster stalking the Hamptons. He’s a Bank of America executive, a hedge-funder, or a builder. He’s buying property, they all say, the way the rest of us go to Costco. He’s filling his cart with houses priced between $3 million and $4 million, and he’s offering something like half-price, or even less, up to $1.5 million apiece. He makes one offer, nonnegotiable, and he’s simply planning to park his $100 million, or whatever the total is, in East End real estate for a couple of years, until prices go back up and he can double it. Some say he wants to buy 30 houses, or fifteen, or twelve, and he’s been successful with three so far. Also, depending on who’s telling the story, he’s either in Bridgehampton or scouring the entire South Fork.

Let’s call him Bigfoot, after the mythical woodland creature, because he (and his bankroll) fall exactly between plausible and unbelievable. If he exists, he certainly is larger than life. Long-timers, weekenders, buyers, sellers—everyone has heard of him. (Several agents brought up the story to me unprompted, and a couple of weeks ago, New York reporter Andrew Rice even turned up a similar tale about a mysterious Manhattan apartment-buyer.)

The thing is, like the other Bigfoot, this guy does not exist. Or if he does, he hasn’t bought a thing. The Long Island Real Estate Report, a database that tracks the local market sale by sale, lists no two deeds filed since January from the same buyer in the East End. (The exceptions are a local firm that bought a bunch of condos from a Michigan developer exiting the scene, plus a few buyers who’ve assembled adjoining lots. The only way someone could be hiding would be if he had set up a separate shell corporation for each purchase, a highly unlikely scenario.) Of nearly a dozen brokers whom I interviewed, none has met Bigfoot or received an offer from him. Veteran broker Diane Saatchi had looked into the story herself, informally surveying East End agents, and says this: “Almost all respondents reported hearing some variation of this story and said it was not true, a rumor, or could not be verified.” Corcoran’s Ana O’Byrne says she’s had buyers ask “to keep an eye out” for great deals, but no one quite so aggressive.

This story has all the criteria of a budding urban legend. Elizabeth Tucker, a folklore specialist at SUNY Binghamton, rattled off the hallmarks: “It’s told by a friend of a friend, it’s about something of tremendous interest, the numbers almost always are a multiple of three.” She adds that stories like this tend to gain traction in times of stress. And in fact, a monstrous turn in the narrative right now almost makes sense. Bigfoot is a kind of hero for buyers—“It gives them hope, possibly, that you can get something at 50 cents on the dollar,” says O’Byrne—and embodies disaster porn for local sellers. “[People think,] if houses could be sold at 50 or 60 percent of their value, then that brings down the value of my home,” says Patricia A. Turner, a UC–Davis urban-legend expert who grew up in Sag Harbor and owns a house in Bridgehampton.

Where does this story come from, anyway? Urban legends tend to arise from the conflation of two or three events that happen around the same time. (For example, the widely repeated canard about Walt Disney—that he was frozen after his death—has been traced to an unrelated story about cryopreservation that appeared in the press just after Disney’s obituaries did.) As it happens, Prudential Douglas Elliman’s Enzo Morabito says hedge-funders with plans to buy distressed properties in the South Fork approached him last fall, but nothing came of it. Another broker claims to have had two bottom-fishing buyers, one of whom sent out seven lowball bids for $2 million–to–$3 million properties all at once. (Both were planning to make deals only with whichever seller took the bait first.) It’s entirely plausible that a game of telephone conflated these stories and turned a few opportunists into one big hairy ogre. An ogre that personifies the anxiety that the big-money days are gone forever. As one longtime broker says, “What are we going to do with all the houses that were built? We should turn south of the highway into Colonial Williamsburg and say, People used to live like this.”

Looks like Miss California is getting the boiot. Too bad other people who left out some facts are not paying the price.

NYT

Even the government’s grim projections may vastly understate the size of the banks’ credit card troubles. According to estimates by Oliver Wyman, a management consulting firm, card losses at the nation’s biggest banks could reach $141.5 billion by 2010 if the regulators’ loss rate was applied to their entire credit card business. It could top $186 billion for the entire credit card industry.

In the official stress test results, regulators published losses only on credit cards held on bank balance sheets. The $82.4 billion figure did not reflect another element in their analysis: tens of billions of dollars in losses tied to credit card loans that the banks packaged into bonds and held off their balance sheets. A portion of those losses, however, will be absorbed by outside investors.

What is more, the peak unemployment level that regulators used to drive their loss estimates is roughly what current rates are on track to reach. That suggests that if the unemployment rate gets much worse, credit card losses could be worse than what regulators projected.

And many economists expect the number of job losses to climb even higher. On Friday, the unemployment rate reached 8.9 percent as the economy shed 539,000 jobs. The unemployment rate and the rate of credit card charge-offs, or uncollectible balances, have been aligned because consumers who lose their jobs are more likely to miss payments.

Banks wrote off an average of 5.5 percent of their credit card balances in 2008, while the average unemployment rate was 5.8 percent. By the end of the year, the rate of credit-card write-offs was 6.3 percent; more recent data was not available.

Experts predict that the rate of credit-card losses could eventually surpass the jobless rate because of the compounding effects of the housing crisis and lackluster consumer confidence. Shortly after the technology bubble burst in 2001, credit card loss rates peaked at 7.9 percent.

“We will blow right through it,” said Inderpreet Batra, a consultant at Oliver Wyman, which specializes in financial services.

Unlike in prior recessions, cardholders who recently lost their jobs are unlikely to be able to extract equity from their homes or draw down retirement accounts to help pay off their debts. That means borrowers who fall behind on their bills are more likely to default, leading to higher losses.

I was looking at this Time Mag, and suddenly thought - somewhere, there’s a newspaper executive rubbing his hands in joyful schadenfreude watching the real estate market implode after seeing large chunks of RE advertising move to places like Craigslist and their own (non-print) web offerings.

Could it be possible that the MSM (the print MSM, anyway) could turn (or are turning) on their former masters?

“Unlike in prior recessions, cardholders who recently lost their jobs are unlikely to be able to extract equity from their homes or draw down retirement accounts to help pay off their debts”.

No doubt credit card delinquencies and defaults will be gaining speed. The numbers are huge and it’s going to get harder to sweep them under the rug.

Anyone catch that CNBC Meredith Whitney interview before the close? I was mesmerized. She really knows how to call a spade a spade. The hosts noticed a deceleration in the indices into the close and wondered aloud if her comments were responsible.

http://www.cnbc.com/id/15840232?video=1120084432&play=1

JOHN HEMPTON, a former Platinum Asset Management banking analyst-turned-financial blogger living in Bronte, would at first glance appear an unlikely candidate to uncover a financial scandal linking US Ponzi schemes to the offices of a hedge fund owned by the son and brother of the US Vice-President, Joe Biden.

Bronte sleuth finds Ponzi link to Biden’s son.

http://business.smh.com.au/business/bronte-sleuth-finds-ponzi-link-to-biden-20090511-b0le.html

Hempton is at pains both online and in conversation to say he is not alleging the Bidens are crooks. Though he says their due diligence - before buying the fund and in its oversight of sales staff afterward - was sloppy. “There is no question that they housed within their doors a Ponzi, a fraud,” Hempton says.

Paradigm’s links to Ponte Negra have received relatively little attention by the mainstream media, save a series on the Financial Times website.

Hempton says he can understand that, since in one sense there is no evidence to suggest that Joe Biden has had any involvement with Paradigm.

But he adds that in another sense, it is a story that typifies the economic situation.

I noticed a bunch of REO listings have been sold(fannie and freddy). I wonder if these are retail/end user sales or more scumbag “investors” buying wholesale thinking they’re going to make a killing.

I opened a trading account. Everybody outta the pool!

Financial Times
China cuts lending amid asset bubble fears
By Jamil Anderlini in Beijing
Published: May 11 2009 18:12 | Last updated: May 11 2009 18:12

Chinese bank lending slowed dramatically in April because of fears that loan growth in the first quarter had been excessive and could pave the way for loans of deteriorating quality, so possibly creating a new round of asset bubbles.

China’s state-dominated banks gave out Rmb591.8bn ($85.2bn, €62.5bn, £56.3bn) in new loans last month, less than a third of the Rmb1,891bn in new loans extended in March, but still well above the monthly levels of recent years.

In the first quarter, Chinese lenders answered the government’s call to open the credit taps and get the economy moving again, extending more than Rmb4,600bn in new loans – more than the entire amount of new lending in 2007.

That led to fears among regulators that money was being funnelled illegally into the stock market and handed out to state-sponsored stimulus projects of dubious commercial value that could become non-performing assets.

Some regulators also worried about the potential for rampant inflation. Those fears were somewhat eased by price measurements released on Monday showing China remained in deflationary territory in April for the third consecutive month.

The consumer price index fell 1.5 per cent from a year earlier in April, compared with a fall of 1.2 per cent in March, while the producer price index fell 6.6 per cent after falling 6.0 per cent in March.

Chrysler, Obama take the truth about plant closings for a spin — Stephen Koff

http://www.cleveland.com/news/plaindealer/index.ssf?/base/news/1241857982257280.xml&coll=2

Several unemployment graphs in link:

More Thoughts on Unemployment

http://finance.yahoo.com/news/More-Thoughts-on-zacks-15205912.html?.v=1

Lawyer Dreier Pleads Guilty in $700 Million Fraud (Update2)
By Bob Van Voris

May 11 (Bloomberg) — Marc Dreier, the New York law firm founder accused of defrauding hedge funds by selling $700 million in phony promissory notes, pleaded guilty to charges that could bring him life in prison.

Dreier, who turns 59 tomorrow, pleaded guilty today in federal court in New York to charges of money laundering, conspiracy, securities fraud and wire fraud. Victims of Dreier’s Ponzi scheme lost more than $400 million, according to prosecutors.

“I engineered a scheme to issue and sell fictitious promissory notes purportedly issued by companies in the United States and Canada,” Dreier told U.S. District Judge Jed Rakoff, reading from a prepared text.

Dreier’s lawyer, Gerald Shargel, has said he will seek leniency for Dreier at his sentencing. Dreier has cooperated with court-appointed bankruptcy trustees to identify assets that can be used to pay victims and creditors, according to Shargel. Rakoff set a sentencing date of July 13.

Shargel said in an interview April 28 that his client planned to plead guilty to the charges against him and didn’t have a plea agreement with prosecutors.

Dreier has been confined to his Manhattan luxury apartment, watched around the clock by armed guards paid for by friends and relatives, a condition of his $10 million bail. Dreier’s former firm, the 250-lawyer Dreier LLP, is being liquidated in U.S. Bankruptcy Court.

Arrested in Canada

Dreier was arrested in Toronto Dec. 2 and charged with impersonating a lawyer with the Ontario Teachers’ Pension Plan. He was released on bail and arrested again Dec. 7 on his return to New York.

Prosecutors claimed Dreier sold more than 85 phony promissory notes to at least 13 hedge funds and three individuals from 2004 to 2008. Dreier falsely told investors many of the fake notes were issued by New York developer Sheldon Solow, a client of his firm.

A court-appointed receiver in the Dreier LLP bankruptcy reported that Dreier used the money to subsidize the money- losing firm, to pay off some of the victims of the scam and to buy luxuries for himself, including a 121-foot yacht, vacation homes in the Hamptons and a $39 million contemporary-art collection.

The government claims he laundered the money through the accounts of the law firm, of which Dreier was the sole equity partner.

According to prosecutors, victims of the fraud included Amaranth Group Inc., Perella Weinberg Partners, Eton Park Capital Management LP, Concordia Advisors LLC, Novator, Meyer Ventures LLC, Blackstone Group LP’s GSO Capital Partners and Elliott Management Corp.

The case is U.S. v. Dreier, 09-cr-85, U.S. District Court, Southern District of New York (Manhattan).

CNBC’s Maria Bartiromo discusses big banks’ plans to sell common shares in order to repay TARP funds, with Meredith Whitney, Meredith Whitney Advisory Group founder & CEO.

http://www.cnbc.com/id/15840232?video=1120084432&play=1

The world economy will bottom out any day now, as central bankers everywhere are noting signs of green shoots sprouting up out of the rubble of the financial collapse.

Downturn bottomed out, Trichet signals
By Chris Giles and Daniel Pimlott in London and Ralph Atkins in Frankfurt
Published: May 11 2009 14:35 | Last updated: May 11 2009 20:36

Jean-Claude Trichet signalled on Monday that the global downturn had bottomed out with some large economies already able to put the recession behind them and look forward to renewed growth.

The European Central Bank president’s comments on Monday in Basel, Switzerland, had added weight because he was speaking on behalf of the world’s leading central bankers, not just for the eurozone.

His remarks came as the Organisation for Economic Co-operation and Development said there were signs of a “pause” in the economic slowdown in France, Italy, the UK and China.

The tentative signs of green shoots across the global economy have already led to a 40 per cent increase in global equity prices since the trough in March, according to the FTSE All World ex Japan index.

There has also been a rise in business and consumer sentiment in recent weeks, as orders have begun to return and levels of unsold stock have begun to subside.

As recently as late April, the world’s central bankers and finance ministers were still extremely cautious when they gathered in Washington and the International Monetary Fund said the global economy would contract sharply this year and recover only sluggishly in 2010.

Anyone know of a site like this one that talks about commercial REITs? Some have failed (GGP–chapter 11), other have fallen hard (90-95%), but appear to be fixing their balance sheets after making some tough choices (PLD), and others have fallen significantly (+/- 50%), but I find it hard to believe that they won’t fall further (SPG).

Seems like a ripe hunting ground for investing today–I’d like to find some smart guys to talk to about the opportunities (or lack thereof).

When what is bad for the individual (debt) is good for the economy, it seems to me that the system is broken.

Wanda Sykes had some good material at the White House Correspondence Dinner. Be sure to check out AG at 8:42 for some late evening HBB adult entertainment.

http://www.youtube.com/watch?v=lJR-WzMjCGA&feature=popular

The realtors ought to name a foreclosure bus the “REO Speedwagon”.

I wore my HBB tee shirt onto the racquetball court tonight. Not only did I beat my hapless partner two games straight, but then I added insult to injury by discussing the free racquetball court time that I get with my rent payment. Next we got onto the subject of his underwater mortgage — I really did not mean to steer the conversation that way, but it just kinda drifted there. I feel terrible now. I guess I will have to let him win next time we play, just to make it up to him…

There’s a 3/2 SFH approx 1600 sq/ft on my corner (94087) that’s been for sale for about 3 months. This weekend it was open, so we did a lookie-lou. There’s a new “REDUCED” sign on the for-sale sign.

The price? $998,000!

There’s still a big disconnect in the minds of some sellers between reality and fantasy.

The Office of Management and Budget released a report yesterday on the budgets and proposed overhauls of Fannie Mae and Freddie Mac that included the possibility of liquidating their assets. But don’t get your hopes up.

The two government run mortgage finance companies have been scandalously costly for tax-payers, costing Americans far more in bailout money than they ever saved in cheaper mortgages. The OMB says that the two companies will need at least $92.2 billion more in fiscal 2010. This is on top of the $78.2 billion in aid they’ve received since they were taken over by the government in September.

The entire point of having Fannie and Freddie operate as government sponsored entities was that they could borrow at lower rates than purely private companies. This savings enabled them to make mortgage loans at lower rates, and allowed them to buy up or guarantee mortgages from private lenders at rates that would otherwise have been uneconomical. Over the years, Fannie and Freddie may have saved Americans as much as $100 billion in mortgage payments. Now the OMB says they’ll need that much just to get through next year.

Oh yes they saved us money, on overpriced realestate. Now they will cost all taxpayers and those who bought overpriced realestate trillions.