At last it seems that some of the air is being let out of the oil bubble .
The U.S. government's Energy Information Administration said crude inventories rose by 3.0 million barrels in the week ending July 11. That confounded market expectations for a decline of 2.2 million barrels. "The inventory report essentially indicated oil demand in the US is just very poor," said Victor Shum, a Singapore-based analyst with energy consultancy Purvin and Gertz.
So it seems that $147 a barrel for oil is now the very top of the market for the time being. You can probably see gas prices start to slowly go down in the next few weeks as well. It would be interesting to see what people start to do with the extra cash that was previously going to gas prices. Will they go back to buying full sized trucks when gas comes back to $3.00?
Thursday, July 17, 2008
Wednesday, July 16, 2008
Wells Fargo Taking Over the Western Mortgage Market
And it is starting to show in their last earnings report.
Ladenburg Thalman analyst Richard X. Bove said that he was impressed by Wells Fargo’s earnings despite coming in well below results in the past year. Bove added that Wells Fargo benefited from less competition as rival Washington Mutual is shrinking, Countrywide Financial (nyse: CFC - news - people ) and Golden West (nyse: GDW - news - people ) are gone and Bank of America (nyse: BAC - news - people ) is not competing as hard for mortgage business. He also likened Wells to "a 'hot knife' in the 'butter' known as the West Coast," as community bankers across the region are suffering. "The gains are likely to continue," he noted.
It seems like the last man standing is going to get a pretty large slice of the West Coast market. Also Wells Fargo seems to be pretty tight on the underwriting so the loans they are putting on the balance sheet won't damage the company going forward. Also it seems that Warren Buffet is long this stock and adding to his position. I could be a good place to start your research if you are nibbling fincancials again.
Ladenburg Thalman analyst Richard X. Bove said that he was impressed by Wells Fargo’s earnings despite coming in well below results in the past year. Bove added that Wells Fargo benefited from less competition as rival Washington Mutual is shrinking, Countrywide Financial (nyse: CFC - news - people ) and Golden West (nyse: GDW - news - people ) are gone and Bank of America (nyse: BAC - news - people ) is not competing as hard for mortgage business. He also likened Wells to "a 'hot knife' in the 'butter' known as the West Coast," as community bankers across the region are suffering. "The gains are likely to continue," he noted.
It seems like the last man standing is going to get a pretty large slice of the West Coast market. Also Wells Fargo seems to be pretty tight on the underwriting so the loans they are putting on the balance sheet won't damage the company going forward. Also it seems that Warren Buffet is long this stock and adding to his position. I could be a good place to start your research if you are nibbling fincancials again.
Tuesday, July 15, 2008
Shortside Hedge Funds Might Cause Bank Runs?
I was reading a pretty depressing piece by Cramer about how the stocks of many different kinds of financial companies are now in the toilet and some might not ever recover. This part caught my conspiracy theory seeking eye.
Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?
Hmm, I wonder if this is an actual viable plan. They would need to hire 30 extras it would cost about a $100 per person per day. So this fund could conceivably pull $3000 out of petty cash (or some shell company) and put in a call to the Local Daily News so that they could film their extras pounding on the doors of their target bank. You just might have a panic on your hands if that Local News is the kind that loves to drum up controversy.
Hawaii newscasts are pretty laid back so it wouldn't work here. However, when I visited Seattle, I remember that KIRO made every purse snatching seem like a crime wave so they would be the perfect tool to do a "bank-run-short-attack" on someone like Washington Mutual.
Hell, this Short Side Hedge Fund could just get their employees to secretly be interviewed by the Local News. These employees would say that they are desperate to pull their money out of the target bank because they are afraid they will be the next IndyMac. I hope the SEC is watching out for a trick like this.
I think the problem is that so many banking CEOs are saying "we are well capitalized" but they go right back to the FED for cashola a few months later. There is a credibility gap with these people. They can't tap equity because their stocks are in the single digits and they can't tap debt because the market has seized up. All they can do is wait until house prices go back up and hope for the best.
I have looked at a few of the banking stocks that Cramer mentions below and it seems that waiting and hoping might just be their strategy. If they can just hold on and not have their customers rush their tellers then they can make it to a period where house prices will stabilize. So you can only be short (or don't touch them at all) until we see a Case-Shiller Home Price Index that isn't dropping anymore. I think that number may be what the market will turn on for the next several months.
No revelation that Lehman or Merrill's in the soup, although I do marvel that at no price do they seem interesting to anyone -- value guys, takeover guys, or acquirers in general. But how about Comerica (CMA - Cramer's Take - Stockpickr), Regions Financial (RF - Cramer's Take - Stockpickr), Sovereign (SOV - Cramer's Take - Stockpickr), Huntington Bancshares (HBAN - Cramer's Take - Stockpickr), Suntrust (STI - Cramer's Take - Stockpickr), Fifth Third (FITB - Cramer's Take - Stockpickr), First Horizon (FHN - Cramer's Take - Stockpickr), Marshall & Ilsley (MI - Cramer's Take - Stockpickr), Zions (ZION - Cramer's Take - Stockpickr), Key (KEY - Cramer's Take - Stockpickr), Colonial (CNB - Cramer's Take - Stockpickr) and BB&T (BBT - Cramer's Take - Stockpickr)?
Any short-selling hedge fund could hire 30 actors and have them line up at a Washington Mutual or two and get a bank run going. Then we would have to hear about a "hasty" Treasury department plan to bail out WM. Hasty? How can these guys not see it coming?
Hmm, I wonder if this is an actual viable plan. They would need to hire 30 extras it would cost about a $100 per person per day. So this fund could conceivably pull $3000 out of petty cash (or some shell company) and put in a call to the Local Daily News so that they could film their extras pounding on the doors of their target bank. You just might have a panic on your hands if that Local News is the kind that loves to drum up controversy.
Hawaii newscasts are pretty laid back so it wouldn't work here. However, when I visited Seattle, I remember that KIRO made every purse snatching seem like a crime wave so they would be the perfect tool to do a "bank-run-short-attack" on someone like Washington Mutual.
Hell, this Short Side Hedge Fund could just get their employees to secretly be interviewed by the Local News. These employees would say that they are desperate to pull their money out of the target bank because they are afraid they will be the next IndyMac. I hope the SEC is watching out for a trick like this.
I think the problem is that so many banking CEOs are saying "we are well capitalized" but they go right back to the FED for cashola a few months later. There is a credibility gap with these people. They can't tap equity because their stocks are in the single digits and they can't tap debt because the market has seized up. All they can do is wait until house prices go back up and hope for the best.
I have looked at a few of the banking stocks that Cramer mentions below and it seems that waiting and hoping might just be their strategy. If they can just hold on and not have their customers rush their tellers then they can make it to a period where house prices will stabilize. So you can only be short (or don't touch them at all) until we see a Case-Shiller Home Price Index that isn't dropping anymore. I think that number may be what the market will turn on for the next several months.
No revelation that Lehman or Merrill's in the soup, although I do marvel that at no price do they seem interesting to anyone -- value guys, takeover guys, or acquirers in general. But how about Comerica (CMA - Cramer's Take - Stockpickr), Regions Financial (RF - Cramer's Take - Stockpickr), Sovereign (SOV - Cramer's Take - Stockpickr), Huntington Bancshares (HBAN - Cramer's Take - Stockpickr), Suntrust (STI - Cramer's Take - Stockpickr), Fifth Third (FITB - Cramer's Take - Stockpickr), First Horizon (FHN - Cramer's Take - Stockpickr), Marshall & Ilsley (MI - Cramer's Take - Stockpickr), Zions (ZION - Cramer's Take - Stockpickr), Key (KEY - Cramer's Take - Stockpickr), Colonial (CNB - Cramer's Take - Stockpickr) and BB&T (BBT - Cramer's Take - Stockpickr)?
How to Check if Your Bank is About to Die
This is a very informative site that tells you several ways to tell if you need to pull all of your money above $100,000 out of your bank account or not. This information is quarter by quarter so you might need to check this information after your bank brings out their numbers.
You can look up your bank or credit union at the following links to a) make sure they are insured, and b) check their financial statements and ratio reports, which are a quick snapshot of their performance.
• FDIC bank/thrift lookup
• NCUA credit union lookup
If you can't locate your financial institution, call them and ask for their FDIC certificate number (bank or savings and loan) or their NCUA charter number (credit union). If they don't have one, you should probably be concerned. (Just ask former customers of the SIBC.)
The easiest way to check your bank's health is to use BankRate.com's Safe & Sound® ratings. They comb through the call report data to rate banks, savings and loans, and credit unions on peer performance, industry standards, and key benchmarks.
Too bad there isn't a bank run monitor system with a Webcam setup in front of your banks headquarters. Also it would be nice to have a Schumer Watch to see if he talks about your bank so you can pull your money out before it gets run on. I guess you can hang out at his site and parse whatever official letters he sends out and immediately go short anything he mentions.
You can look up your bank or credit union at the following links to a) make sure they are insured, and b) check their financial statements and ratio reports, which are a quick snapshot of their performance.
• FDIC bank/thrift lookup
• NCUA credit union lookup
If you can't locate your financial institution, call them and ask for their FDIC certificate number (bank or savings and loan) or their NCUA charter number (credit union). If they don't have one, you should probably be concerned. (Just ask former customers of the SIBC.)
The easiest way to check your bank's health is to use BankRate.com's Safe & Sound® ratings. They comb through the call report data to rate banks, savings and loans, and credit unions on peer performance, industry standards, and key benchmarks.
Too bad there isn't a bank run monitor system with a Webcam setup in front of your banks headquarters. Also it would be nice to have a Schumer Watch to see if he talks about your bank so you can pull your money out before it gets run on. I guess you can hang out at his site and parse whatever official letters he sends out and immediately go short anything he mentions.
Recession? What Recession?
Well it looks like the economists are adjusting their numbers again.
Today’s data on May international trade prompted several economists to boost their tracking estimates of second quarter GDP growth. Macroeconomic Advisers boosted its estimate to 3.3% (annual rate) from 3% as did HSBC. Morgan Stanley raised its estimate to 3.9% from 3.8%. GDP grew just 0.7% in the first quarter.
We still have not had a single quarter of negative growth. If gas prices weren't so high I think we might be already pulling out of the slowdown. I agree with Phil Gramm in saying that this is a media driven recession. Of course a few more Senate-driven bank runs and perception might become an actual reality.
Today’s data on May international trade prompted several economists to boost their tracking estimates of second quarter GDP growth. Macroeconomic Advisers boosted its estimate to 3.3% (annual rate) from 3% as did HSBC. Morgan Stanley raised its estimate to 3.9% from 3.8%. GDP grew just 0.7% in the first quarter.
We still have not had a single quarter of negative growth. If gas prices weren't so high I think we might be already pulling out of the slowdown. I agree with Phil Gramm in saying that this is a media driven recession. Of course a few more Senate-driven bank runs and perception might become an actual reality.
EPA Pushes Burying Carbon
This sounds like the start of a new generation of anti-pollution methods that might be viable revenue streams in the future.
The program would include testing and monitoring of wells to protect groundwater supplies, with rules going into effect as early as 2010.
"With proper testing and monitoring, carbon sequestration could play a major role in reducing carbon-dioxide emissions into the atmosphere," Grumbles said on a conference call with reporters.
Wells would be half a mile or more in depth, with a rock-confining zone to create a seal to prevent carbon dioxide from escaping.
I could see oil companies leasing out the land under played out wells in order to store carbon in. They might even get special treatment from the government for using the land they probably won't be using anyway. They could even get free offsets by doing this kind of thing as a side business.
Also a carbon pumping device could be a boon for a company that can make it quickly and put it in place cheaply. I'm sure that those heavy machinery companies like Mitsubishi or National Oilwell Varco could give it a try if it was profitable. The more I look into this green tech the more it looks like the dawning of the next Internet Age.
The program would include testing and monitoring of wells to protect groundwater supplies, with rules going into effect as early as 2010.
"With proper testing and monitoring, carbon sequestration could play a major role in reducing carbon-dioxide emissions into the atmosphere," Grumbles said on a conference call with reporters.
Wells would be half a mile or more in depth, with a rock-confining zone to create a seal to prevent carbon dioxide from escaping.
I could see oil companies leasing out the land under played out wells in order to store carbon in. They might even get special treatment from the government for using the land they probably won't be using anyway. They could even get free offsets by doing this kind of thing as a side business.
Also a carbon pumping device could be a boon for a company that can make it quickly and put it in place cheaply. I'm sure that those heavy machinery companies like Mitsubishi or National Oilwell Varco could give it a try if it was profitable. The more I look into this green tech the more it looks like the dawning of the next Internet Age.
Oil Gets a Haircut
And not a moment too soon.
Oil prices plummeted by the second-largest margin on record Tuesday as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.
Light, sweet crude fell $6.44 to settle at $138.74 a barrel in trading on the New York Mercantile Exchange.
The drop in oil was the largest single-day slide in dollar terms since Jan. 17, 1991, when oil fell by $10.56. On that day, President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War.
I think all of the refiners and airline companies need to send Bernanke a fruit basket or something. I'm not sure how much longer they can take $145 oil and still stay in profitable.
Oil prices plummeted by the second-largest margin on record Tuesday as investors feared a further decline in U.S. demand after hearing comments from Federal Reserve Chairman Ben Bernanke.
Light, sweet crude fell $6.44 to settle at $138.74 a barrel in trading on the New York Mercantile Exchange.
The drop in oil was the largest single-day slide in dollar terms since Jan. 17, 1991, when oil fell by $10.56. On that day, President George H.W. Bush withdrew oil from the Strategic Petroleum Reserve ahead of the first Gulf War.
I think all of the refiners and airline companies need to send Bernanke a fruit basket or something. I'm not sure how much longer they can take $145 oil and still stay in profitable.
Monday, July 14, 2008
Activison Blizzard Finds an Extra $150 Million Laying Around
I just love being in video game stocks that are pretty much recession-proof. Check out this blow-out guidance. This is without the Blizzard numbers coming over yet.
In a statement, the company said it expects first quarter revenue of $650 million, up from its previous view of $500 million. Earnings per share are estimated to range between 16 and 18 cents, a dramatic increase from its earlier expectation of 4 cents.
"Activision's first-quarter stand-alone net revenues and earnings were the highest ever for a non-holiday quarter," said Robert Kotick, President and CEO of Activision Blizzard Inc. "Activision Blizzard is well positioned to exceed the financial goals set for the combined company."
They guided higher by 12-14 cents while there was a Mortgage Crisis, $4 gas, a Credit Crunch, a Bear Market, and the threat of an impending Obama Presidency. That is just nuts!
And just wait until Guitar Hero 4: World Tour ships on October 27 of this year. That thing is going to be like Rock Band with a drums and a microphone and it allows you to make your own songs as well. This game could easily be the best seller for 2008 and it will probably take $180 of my money in order for me to buy the Band Kit with the drums, microphone, and wireless guitar.
I think Activision Blizzard could easily be the #1 video game company in time for the next generation of consoles. I mean with Guitar Hero and WarCraft alone they might have 2 of the most profitable franchises of all time.
In a statement, the company said it expects first quarter revenue of $650 million, up from its previous view of $500 million. Earnings per share are estimated to range between 16 and 18 cents, a dramatic increase from its earlier expectation of 4 cents.
"Activision's first-quarter stand-alone net revenues and earnings were the highest ever for a non-holiday quarter," said Robert Kotick, President and CEO of Activision Blizzard Inc. "Activision Blizzard is well positioned to exceed the financial goals set for the combined company."
They guided higher by 12-14 cents while there was a Mortgage Crisis, $4 gas, a Credit Crunch, a Bear Market, and the threat of an impending Obama Presidency. That is just nuts!
And just wait until Guitar Hero 4: World Tour ships on October 27 of this year. That thing is going to be like Rock Band with a drums and a microphone and it allows you to make your own songs as well. This game could easily be the best seller for 2008 and it will probably take $180 of my money in order for me to buy the Band Kit with the drums, microphone, and wireless guitar.
I think Activision Blizzard could easily be the #1 video game company in time for the next generation of consoles. I mean with Guitar Hero and WarCraft alone they might have 2 of the most profitable franchises of all time.
How to Spot a Dying Bank
This is an interesting article by Seeking Alpha that gives two ratios on how to spot a dying bank.
In order to spot banks in danger, two popular ratios are used. First, when you divide non-performing assets by all outstanding loans, you find that a ratio over 5% signals danger (see CNBC article). Using this ratio you find that other banks, in addition to BankUnited and Downey (BankUnited's ratio is 5.36%, while Downey is at 13.86%) are suspect, including Corus Bankshares (CORS) at a 13.18% ratio, Doral Financial (DRL) at 12.82%, and FirstFed Financial (FED) at 6.73%. A second commonly used ratio that compares non-performing assets divided by reserves plus common equity causes Washington Mutual (WM), with a ratio of 40.6%, to also become suspect. Any value around 40% is thought to be in the danger zone.
I have never heard of any of those banks at all. All of these stocks are in the single digits except for Doral Financial which is at $12.12. I guess you could also say that Washington Mutual may be on the borderline of the death zone. That along with Lehman's Bruce Harting's note could be part of the reason why the stock dropped by 34% today.
In order to spot banks in danger, two popular ratios are used. First, when you divide non-performing assets by all outstanding loans, you find that a ratio over 5% signals danger (see CNBC article). Using this ratio you find that other banks, in addition to BankUnited and Downey (BankUnited's ratio is 5.36%, while Downey is at 13.86%) are suspect, including Corus Bankshares (CORS) at a 13.18% ratio, Doral Financial (DRL) at 12.82%, and FirstFed Financial (FED) at 6.73%. A second commonly used ratio that compares non-performing assets divided by reserves plus common equity causes Washington Mutual (WM), with a ratio of 40.6%, to also become suspect. Any value around 40% is thought to be in the danger zone.
I have never heard of any of those banks at all. All of these stocks are in the single digits except for Doral Financial which is at $12.12. I guess you could also say that Washington Mutual may be on the borderline of the death zone. That along with Lehman's Bruce Harting's note could be part of the reason why the stock dropped by 34% today.
It looks like Schumer Caused the IndyMac Bank Run
This is exactly why Americans hates to give this country's economic stewardship over to the Democrats. Even though I have given them plaudits in the past they still end up showing us just how dangerous they are when it comes to economic issues.
The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac's collapse.
In the 11 days that followed the letter's release, depositors took out more than $1.3 billion, regulators said.
I think there should be a censure motion brought up against Schumer on behalf of all the shareholders of IndyMac as well as those people that have more then $100K in savings at the bank. It is pretty much because of the Senator's loose lips that there was a run on the bank.
It is true that IndyMac's management is to blame for things getting terminal but it was Schumer's big mouth that pulled the plug. The funny thing is that Schumer is from New York and not California where IndyMac is based. I think it may be a good idea for the SEC to see if Schumer or some of his people were short IndyMac, XLF, or financials in general to see if his loose words lined someones pockets.
It may now be a good trade to go short any bank or mortgage lender that any Senator or Congressman talks about because there might be a run on that bank. It also looks like WaMu and National City Bank may now be under the gun. I would be nice to know Senator Schumer's thoughts on those companies so I can put in my trade now.
The banking regulator said it closed IndyMac after customers began a run on the lender following the June 26 release of a letter by Sen. Charles Schumer, D-N.Y., urging several bank regulatory agencies that they take steps to prevent IndyMac's collapse.
In the 11 days that followed the letter's release, depositors took out more than $1.3 billion, regulators said.
I think there should be a censure motion brought up against Schumer on behalf of all the shareholders of IndyMac as well as those people that have more then $100K in savings at the bank. It is pretty much because of the Senator's loose lips that there was a run on the bank.
It is true that IndyMac's management is to blame for things getting terminal but it was Schumer's big mouth that pulled the plug. The funny thing is that Schumer is from New York and not California where IndyMac is based. I think it may be a good idea for the SEC to see if Schumer or some of his people were short IndyMac, XLF, or financials in general to see if his loose words lined someones pockets.
It may now be a good trade to go short any bank or mortgage lender that any Senator or Congressman talks about because there might be a run on that bank. It also looks like WaMu and National City Bank may now be under the gun. I would be nice to know Senator Schumer's thoughts on those companies so I can put in my trade now.
New Yorker Makes with the "Satire"
I thought the New Yorker was supposed to be a lefty rag but I guess they are engaging in the provocateur business to get people to read their magazine again. I would be pissed if I was Obama too. They even drew a picture of Bin Laden over their mantel.
The Obama campaign quickly condemned the rendering. Spokesman Bill Burton said in a statement: “The New Yorker may think, as one of their staff explained to us, that their cover is a satirical lampoon of the caricature Sen. Obama's right-wing critics have tried to create. But most readers will see it as tasteless and offensive. And we agree."
The Obama campaign quickly condemned the rendering. Spokesman Bill Burton said in a statement: “The New Yorker may think, as one of their staff explained to us, that their cover is a satirical lampoon of the caricature Sen. Obama's right-wing critics have tried to create. But most readers will see it as tasteless and offensive. And we agree."
Bush Passes The Ball on Drilling: Dems About to Drop It
It just seems to be the same old crap from the leadership of the Dems. I love this idiotic and overused defence as well. Pelosi just blames Big Oil and talsk about the 68 million acres of land that the oil majors "are sitting on." No mention of energy security or lowering prices at the pump.
"Once again, the oilman in the White House is echoing the demands of Big Oil," said House Speaker Nancy Pelosi. "The Bush plan is a hoax. It will neither reduce gas prices nor increase energy independence. It just gives millions more acres to the same companies that are sitting on nearly 68 million acres of public lands and coastal areas."
Obviously Nancy Pelosi has never actually run an oil company. If there was vast reserves of oil on those 68 million acres of land then the oil companies would already have hundrerds of rigs up in order to take advantage of the $145 a barrel oil. Even if the oil was hard to pull out of the ground they would still go after it since high prices justify their costs. After all I hope Pelosi knows that the oil majors actually own only 6% of the worlds oil reserves.
Opening up extra lands for drilling makes it so those lands can be checked for oil or not. It adds to world oil supply so it stays above demand and will hopefully lower prices. The Brazilians would have never found that Tupi Basin oil if they let the land sit there.
So in this case the Democratic leadership are actually standing in the way of more domestic oil production. In fact you could say that they are driving us deeper in the pocket of Saudi Arabia, Iran, and Venezuela since they refuse to let Americans have access to American oil. And they wonder why they have a 18% approval rating.
"Once again, the oilman in the White House is echoing the demands of Big Oil," said House Speaker Nancy Pelosi. "The Bush plan is a hoax. It will neither reduce gas prices nor increase energy independence. It just gives millions more acres to the same companies that are sitting on nearly 68 million acres of public lands and coastal areas."
Obviously Nancy Pelosi has never actually run an oil company. If there was vast reserves of oil on those 68 million acres of land then the oil companies would already have hundrerds of rigs up in order to take advantage of the $145 a barrel oil. Even if the oil was hard to pull out of the ground they would still go after it since high prices justify their costs. After all I hope Pelosi knows that the oil majors actually own only 6% of the worlds oil reserves.
Opening up extra lands for drilling makes it so those lands can be checked for oil or not. It adds to world oil supply so it stays above demand and will hopefully lower prices. The Brazilians would have never found that Tupi Basin oil if they let the land sit there.
So in this case the Democratic leadership are actually standing in the way of more domestic oil production. In fact you could say that they are driving us deeper in the pocket of Saudi Arabia, Iran, and Venezuela since they refuse to let Americans have access to American oil. And they wonder why they have a 18% approval rating.
Friday, July 11, 2008
Astute Prediction of the Mortgage Mess by Ryan Krueger in 2005
I think this guy needs to run for Prognosticator and Chief. He called the mortgage crisis right down to what is happening with Fannie and Freddie way back in 2005. This part caught my eye.
In my business, I think many of us overestimate voters’ desire to own their own home. Many of them don’t mind living month to month, and our calculations can’t factor in this subtle shift, nor could their parents have imagined it. How much does it cost is less important than what the payment is. Building up equity and handing off a war chest to their heirs doesn’t matter to most folks, and that might not be as dire as some would have you believe.
I have to agree with this statement 100%. I think many Americans view home ownership as just another long term credit purchase like a car, boat, or a big screen TV. That is why you see the curious phenomena of people simply walking away from a home that is underwater and just letting the bank have it.
In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the "buy and bail," in which borrowers with good credit buy a new home—often at a much lower price—then bail out of the "upside-down" mortgage on their first home.
Homeowners are able to pull off this gambit—which some lenders and real-estate agents call mortgage fraud—by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold.
Obviously this homeowner views their home as a really expensive version of Pets.com stock. They can just abandon the house and buy another similar one down the street for thousands cheaper rather then refinance their current home and wait for prices to go back up.
They obviously view their home as a stock in the red that can be dumped if things get bad and not the so-called American Dream. So maybe all the rhetoric of people feeling foreclosure pain by being kicked out of their home by cold-hearted bankers is not as true as some politicians might think.
In my business, I think many of us overestimate voters’ desire to own their own home. Many of them don’t mind living month to month, and our calculations can’t factor in this subtle shift, nor could their parents have imagined it. How much does it cost is less important than what the payment is. Building up equity and handing off a war chest to their heirs doesn’t matter to most folks, and that might not be as dire as some would have you believe.
I have to agree with this statement 100%. I think many Americans view home ownership as just another long term credit purchase like a car, boat, or a big screen TV. That is why you see the curious phenomena of people simply walking away from a home that is underwater and just letting the bank have it.
In markets hit hardest by falling home prices and rising foreclosures, lenders and brokers are discovering a new phenomenon: the "buy and bail," in which borrowers with good credit buy a new home—often at a much lower price—then bail out of the "upside-down" mortgage on their first home.
Homeowners are able to pull off this gambit—which some lenders and real-estate agents call mortgage fraud—by taking advantage of mortgage-lending practices that allow them to buy a new primary residence before their existing residence has been sold.
Obviously this homeowner views their home as a really expensive version of Pets.com stock. They can just abandon the house and buy another similar one down the street for thousands cheaper rather then refinance their current home and wait for prices to go back up.
They obviously view their home as a stock in the red that can be dumped if things get bad and not the so-called American Dream. So maybe all the rhetoric of people feeling foreclosure pain by being kicked out of their home by cold-hearted bankers is not as true as some politicians might think.
2 for 2 on Democrats Looking Good: Dodd Stands up for Fannie and Freddie
I think I am beginning to like this new Democratic Party that doesn't mill around pushing a socialist agenda but actually try to fix some things that are broken. First we have Senator Jim Webb finally understanding that regular Americans should trump environmental wackos when it comes to drilling and nuclear power. And now we have Sen. Christopher Dodd, (D-Conn.) perhaps saving Fannie Mae and Freddie Mac shareholders' bacon.
Dodd said his discussions with Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the regulators who oversee the firms and the two companies' CEOs convinced him they have more than adequate capital and that there was no need to even discuss failure or a bailout.
He also vowed quick passage of a long-debated housing bill to give greater oversight of the two companies, saying he expected it to passed and ready to be signed into law sometime next week.
"There is a sort of a panic going on," he said. "The facts don't warrant that reaction in my view. Fannie Mae and Freddie Mac were never bottom feeders in the residential mortgage markets. People ought to feel confident about them."
He pretty much stood up and quelled the fear of a government takeover sending FRE and FNM to zero. He seems to have actually worked with Paulson and Bernanke to hammer out a plan even though they are so-called "Bush" people. This all happened while Bush seemed to dither and hem and haw and almost killed the stocks in the process.
The New York Times says that senior members of the Bush administration are considering a takeover of Freddie and Fannie that would leave their shares "worth little or nothing," and where taxpayers would pay "any losses on mortgages they own or guarantee."
Yup, this death to FRE and FNA shareholders was purposed first instead of just letting the companies go to the discount window if they need some extra cashola. I mean they let Bear Stearns do it why not Government Sponsored Home Lending companies that represent several trillion dollars in home loans.
I think whoever mentioned receivership on the Bush team needs to resign because they can't read a financial statement correctly. I think it might be time to go long these stocks because they really are money machines if they are run properly. They seem to be actually backstopped by the government despite the Bush Administration's screw-ups. Maybe wait for the reforms to kick in before it is time to pull the trigger.
Dodd said his discussions with Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson, the regulators who oversee the firms and the two companies' CEOs convinced him they have more than adequate capital and that there was no need to even discuss failure or a bailout.
He also vowed quick passage of a long-debated housing bill to give greater oversight of the two companies, saying he expected it to passed and ready to be signed into law sometime next week.
"There is a sort of a panic going on," he said. "The facts don't warrant that reaction in my view. Fannie Mae and Freddie Mac were never bottom feeders in the residential mortgage markets. People ought to feel confident about them."
He pretty much stood up and quelled the fear of a government takeover sending FRE and FNM to zero. He seems to have actually worked with Paulson and Bernanke to hammer out a plan even though they are so-called "Bush" people. This all happened while Bush seemed to dither and hem and haw and almost killed the stocks in the process.
The New York Times says that senior members of the Bush administration are considering a takeover of Freddie and Fannie that would leave their shares "worth little or nothing," and where taxpayers would pay "any losses on mortgages they own or guarantee."
Yup, this death to FRE and FNA shareholders was purposed first instead of just letting the companies go to the discount window if they need some extra cashola. I mean they let Bear Stearns do it why not Government Sponsored Home Lending companies that represent several trillion dollars in home loans.
I think whoever mentioned receivership on the Bush team needs to resign because they can't read a financial statement correctly. I think it might be time to go long these stocks because they really are money machines if they are run properly. They seem to be actually backstopped by the government despite the Bush Administration's screw-ups. Maybe wait for the reforms to kick in before it is time to pull the trigger.
Thursday, July 10, 2008
Fannie Mae, Freddie Mac Stock May Go to Zero?
At least that is what might happen if they are still having trouble. Now that would be bad news to everyone who was bottom fishing these things.
The government is discussing placing them in a conservatorship, under which the companies' shares would be worth little or nothing and losses on mortgage holdings would be covered by taxpayers, the Times said, citing unidentified officials briefed on the matter. Their shares are plunging and their borrowing costs are rising as investors worry the companies will suffer losses larger than the $11 billion they have lost in recent months, the Times said.
The government is discussing placing them in a conservatorship, under which the companies' shares would be worth little or nothing and losses on mortgage holdings would be covered by taxpayers, the Times said, citing unidentified officials briefed on the matter. Their shares are plunging and their borrowing costs are rising as investors worry the companies will suffer losses larger than the $11 billion they have lost in recent months, the Times said.
Phil Gramm is Correct: We are a Nation of Whiners
I have to agree with what he is saying.
"We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline," said the former Texas senator. "You've heard of mental depression; this is a mental recession."
Gramm also said the media was responsible for fostering unnecessary anxiety over the state of the economy. "Misery sells newspapers," he said. "Thank God the economy is not as bad as you read in the newspaper every day."
I have to agree with him because things are not even close to either the 70's gas crisis and stagflation years that followed when inflation was in the double digits and unemployment was 7-8%. And we are not even ballpark of the 25% unemployment rate or the 16% interest rates during the Great Depression no matter what the media says. In fact we still don't have the 2 strait quarters of negative growth that is the classic definition of a recession. We haven't had negative GDP growth since 1991!
The "nation of whiners" part is true to a point as well. Things are not as bad as it has been in our nations history but 81% of Americans still feel that we are on the wrong track. We don't have millions of men engaged in a World Wide War, we aren't under the threat of nuclear annihilation, whole parts of the nation aren't killing each other in a Pennsylvania field, and we don't have millions of people living in tent cities or riding the rails.
I chalk this "whining" factor up to people who are actually feeling the effects of the economic slowdown. The Iraq War was over there in the Middle East somewhere, 9/11 was a scary time but we quickly got control of the situation, and the Dotcom Bust was Silicon Valley guys with nose rings losing their jobs. Couple this with the fact that too many Americans are economically illiterate and of course they will feel bad about the economy. They blame shady New York bankers, and pinstriped oil executives, and just about everyone else other then themselves for their situation.
The gas and housing crisis's are hitting Americans right where they actually feel pain. In the pocketbook. They can't drive a Full Sized SUV with heated leather seats, they can't afford the jumbo-no money down-interest only ARM on their mini-mansion, and they can't buy a new 64" Plasma TV with their Housing Line of Credit. And maybe Little Jimmy has to go to a State College instead of a fancy private school even though his grade inflated GPA and SAT tutor helped him test into one.
Line these fears up against a person in a Darfuri Refugee Camp, living under a Junta in Myanmar, or having their kid go to a madrassa that teaches her that blowing herself up in front of a blast barrier at an IDF checkpoint is top thing to do with her life. There is simply no contest who has it worse.
There are Americans who are struggling. But they have things far better then a Sudanese person who is struggling. I'm sure a refugee living in the Irrawaddy Delta would love to have trouble meeting a resetting ARM payment instead of dying of dysentery. So yeah, we are kind of a nation of whiners. We have it so much better then so many other people around the world and we almost never acknowledge it.
But luckily past generations of Americans who have faced *far* more dire times then we have currently have shown that we are a nation of doers as well. In a weird way I think Obama winning the White House, and the media starting a rosier outlook to help their man in power, would really spell the end of the gloom-and-doom that America seems to be feeling right now.
"We have sort of become a nation of whiners. You just hear this constant whining, complaining about a loss of competitiveness, America in decline," said the former Texas senator. "You've heard of mental depression; this is a mental recession."
Gramm also said the media was responsible for fostering unnecessary anxiety over the state of the economy. "Misery sells newspapers," he said. "Thank God the economy is not as bad as you read in the newspaper every day."
I have to agree with him because things are not even close to either the 70's gas crisis and stagflation years that followed when inflation was in the double digits and unemployment was 7-8%. And we are not even ballpark of the 25% unemployment rate or the 16% interest rates during the Great Depression no matter what the media says. In fact we still don't have the 2 strait quarters of negative growth that is the classic definition of a recession. We haven't had negative GDP growth since 1991!
The "nation of whiners" part is true to a point as well. Things are not as bad as it has been in our nations history but 81% of Americans still feel that we are on the wrong track. We don't have millions of men engaged in a World Wide War, we aren't under the threat of nuclear annihilation, whole parts of the nation aren't killing each other in a Pennsylvania field, and we don't have millions of people living in tent cities or riding the rails.
I chalk this "whining" factor up to people who are actually feeling the effects of the economic slowdown. The Iraq War was over there in the Middle East somewhere, 9/11 was a scary time but we quickly got control of the situation, and the Dotcom Bust was Silicon Valley guys with nose rings losing their jobs. Couple this with the fact that too many Americans are economically illiterate and of course they will feel bad about the economy. They blame shady New York bankers, and pinstriped oil executives, and just about everyone else other then themselves for their situation.
The gas and housing crisis's are hitting Americans right where they actually feel pain. In the pocketbook. They can't drive a Full Sized SUV with heated leather seats, they can't afford the jumbo-no money down-interest only ARM on their mini-mansion, and they can't buy a new 64" Plasma TV with their Housing Line of Credit. And maybe Little Jimmy has to go to a State College instead of a fancy private school even though his grade inflated GPA and SAT tutor helped him test into one.
Line these fears up against a person in a Darfuri Refugee Camp, living under a Junta in Myanmar, or having their kid go to a madrassa that teaches her that blowing herself up in front of a blast barrier at an IDF checkpoint is top thing to do with her life. There is simply no contest who has it worse.
There are Americans who are struggling. But they have things far better then a Sudanese person who is struggling. I'm sure a refugee living in the Irrawaddy Delta would love to have trouble meeting a resetting ARM payment instead of dying of dysentery. So yeah, we are kind of a nation of whiners. We have it so much better then so many other people around the world and we almost never acknowledge it.
But luckily past generations of Americans who have faced *far* more dire times then we have currently have shown that we are a nation of doers as well. In a weird way I think Obama winning the White House, and the media starting a rosier outlook to help their man in power, would really spell the end of the gloom-and-doom that America seems to be feeling right now.
Obama Tells MoveOn to Shove it With FISA Vote
I guess since he already got the millions from the the so-called Netroots he can now throw them off the boat.
The Democrats' presumptive presidential nominee Barack Obama (D-Illinois) voted for the final bill, despite intense lobbying by supporters who used Obama's own online organizing technology to try to hold him to his promise to fight any bill that included amnesty. New York Sen. Hillary Clinton, Obama's former rival for the Democratic presidential nomination, voted against the bill.
The strange thing is that this FISA bill gives Bush a huge win. But Obama still stood by his principals (or his shift to the center tactics he needs to win the Presidency if you are a cynic) and still voted for the bill. Part of me thought he would vote present or just skip the vote so he could hedge his bets with the Netroots. Instead he stepped up and voted.
Maybe he is the "so-called" post-partisan-warfare-candidate that he portrays himself as. He basically said thanks for the money MoveOn and DailyKOS now you are no longer needed. If he didn't advocate such destructive economic policies I would seriously consider voting for him because he does have the backbone to confront the zealots in his party.
The Democrats' presumptive presidential nominee Barack Obama (D-Illinois) voted for the final bill, despite intense lobbying by supporters who used Obama's own online organizing technology to try to hold him to his promise to fight any bill that included amnesty. New York Sen. Hillary Clinton, Obama's former rival for the Democratic presidential nomination, voted against the bill.
The strange thing is that this FISA bill gives Bush a huge win. But Obama still stood by his principals (or his shift to the center tactics he needs to win the Presidency if you are a cynic) and still voted for the bill. Part of me thought he would vote present or just skip the vote so he could hedge his bets with the Netroots. Instead he stepped up and voted.
Maybe he is the "so-called" post-partisan-warfare-candidate that he portrays himself as. He basically said thanks for the money MoveOn and DailyKOS now you are no longer needed. If he didn't advocate such destructive economic policies I would seriously consider voting for him because he does have the backbone to confront the zealots in his party.
It Seems Iranians Using Photoshop on Missiles
Sigh, here we go again. The Iranians are messing with the pictures to show that one of their missiles was not a dud. The sad part is the AP just ran the pictures without actually vetting them first. Here is the altered pic from Little Green Footballs site:
Jesse Jackson Wants to Castrate Obama?
Wow not this is a crazy development from the anti-Obama left. His own side now wants to see him become a castrato. I think Obama needs to start wearing a cup on the campaign trail just in case he runs into the good Reverend.
Washington Post: “Speaking near a Fox News microphone that he thought was turned off, the Rev. Jesse L. Jackson on Sunday disparaged Sen. Barack Obama’s embrace of faith-based social services, using crude language to suggest that he wanted to castrate the presumptive Democratic presidential nominee.”
Here is the video from Bill O'Reilly:
Washington Post: “Speaking near a Fox News microphone that he thought was turned off, the Rev. Jesse L. Jackson on Sunday disparaged Sen. Barack Obama’s embrace of faith-based social services, using crude language to suggest that he wanted to castrate the presumptive Democratic presidential nominee.”
Here is the video from Bill O'Reilly:
What Would The Israeli Strike Look Like?
This is a very interesting Poplular Mechanics article on what would go down if Israel bombed Iranian Nuclear sites. I think this is the part that is why the Israelis might be push up the air strike time table.
Ben-Ari and Long agree that Israel could very likely dismantle the Iranian nuclear program from the air. What comes after that—diplomatically, financially and strategically—remains open to debate. But the quality of Iran's antiaircraft equipment may drive the debate as much as the pace of any uranium enrichment project. Russia has indicated it is willing to sell its most sophisticated missile system, the S-300P (NATO designation), to Iran. If Israeli military planners see a future threat looming that they cannot counter, a near-term strike might look more attractive.
If the Iranians get the S-300P then any Israeli air strike might end up a dismal failure. So they might have to strike now while their enemy is still weak and not wait until later. I pointed out earlier that an Obama administration might hang them out to dry so this pushes up the timetable even further.
Ben-Ari and Long agree that Israel could very likely dismantle the Iranian nuclear program from the air. What comes after that—diplomatically, financially and strategically—remains open to debate. But the quality of Iran's antiaircraft equipment may drive the debate as much as the pace of any uranium enrichment project. Russia has indicated it is willing to sell its most sophisticated missile system, the S-300P (NATO designation), to Iran. If Israeli military planners see a future threat looming that they cannot counter, a near-term strike might look more attractive.
If the Iranians get the S-300P then any Israeli air strike might end up a dismal failure. So they might have to strike now while their enemy is still weak and not wait until later. I pointed out earlier that an Obama administration might hang them out to dry so this pushes up the timetable even further.
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