These indicators, while unproven should give everyone a little insight to where we are going.
1) The number of hamsters up for adoption has reached epic numbers: Teddy Bear hamsters, the Cadillac of the home-rodent world, is looking for a new home in record numbers. These tiny, fuzzy creatures are now all over the classifieds-- cage, water feeder and running ball included. Until we see the uptick in NEW hamster sales, it is safe to say we won't be out of the recession.
2) Bums forced to be more creative: The CBI (creative bum index) has risen to it's highest number since the 1987 crash. Bums are finding that the traditional, 'hungry- lost job' signs are not working. In recent days, the likings of, 'Need money to fuel spaceship' and 'Took a bad loss on AIG stock' signs are popping up in all metro areas. Freddy 'big bubba' Miles, a local Detroit bum said that his sign, 'Snoop Dogg's entourage laid me off' has been 10X more lucrative than last years, 'Need money for kids Christmas presents.' Bubba also has no kids.
3) Mercedes emblem value rises in the black market: While people are looking for a safety net, cash is flowing into a once dead market of Mercedes emblems. The cost of such a commodity has risen 10 fold in the last 3 months to $10, and with the number of Mercedes models with hood emblems down 40% in the last 10 years, the supply for this high demand product is limited. One street economist was quoted saying, 'Peeps have it tough. When you can't have da whole Mercedes, showin off da emblem is a sign of success.' Sadly, soon after this interview, the reporter realized he was missing his wallet.
4) Old ass Raiders Starter jackets popping up in a city near you: A recession icon, the Raider's Starter Jacket, is in limited quantities at thrift stores all across the United States. The theory that when times are tough, people don't give a crap about fashion, seems to be holding up. While ugly Raider's Starter jackets are not as much of an eye-sore as Hoovervilles, they are surely a sign of a depressed society. It also doesn't help that the Raiders this year have only won two games, or that the majority of the US is experiencing an Indian Summer. According to one economist: 'There really is no reason, other than a recession, to see ugly Starter brand Raiders jackets. They are really gross and make me puke in my mouth just a little when I see them.' I must agree.
5) Loan Sharks becoming Loan Kittens: In South Philadelphia, a local loan Shark has become the cat's meow-- he is renegotiating the terms of the loan contracts he wrote in the last 5 years. In one instance, he is allowing a person who was facing 'death by hanging,' if they defaulted on the loan, to take a much lesser penalty of 'public beating in front of your grandmother.' Other death sentences are being traded for much less harsh penalties like, 'thrown off a bridge,' 'kicked in the back by a horse,' and 'left for near dead on a trash barge.' The loan shark recommends that all customers that are currently hiding and in default to come forth and take their lesser penalty soon, because this is just a temporary reprieve, and if you don't act now he will hunt you down with a pack of dobermans and have you shot.
... AND this is just the beginning...
Thursday, November 20, 2008
Friday, November 7, 2008
THERE WILL BE NO HOUSING BAILOUT
It is a rather warm day in Denver Colorado. An indian summer has given us the opportunity to enjoy some amazing weather before the holiday cool down. But the housing cool down is well underway, here and around the United States.
Even CNBC cheerleader Jim Cramer came out with an article screaming, honking horns and tweeting odd sounding devices about the need to save housing if we want a recovery in the economy: "Now, as the price of their homes decline, consumers have cut back spending. As the economy gets worse, employers cut jobs. And the government is then forced to rescue business after business to keep the whole system from collapsing."
While I usually find Cramer's view to be a little too bias towards his own portfolio-- on this issue I have to agree.
As homeowners are glued to the TV, in hopes that 'The New Economy' will nationalize the mortgage market-- I have to play the Devil's Advocate and say, 'There is NO housing bailout?'
It is something that needs to be addressed.
Right now, homeowners are all hoping that Obama will lift his finger and change the way you pay your mortgage. People expect that there will be major reform for current loans, reduction of interest and principle and general eutopia for homeowners that possibly should never become homeowners in the 1st place. Even with an announcement on Nov 11th, about streamlined modification programs on FNMA and FDMC mortgages, there are still some major concerns.
So what if the housing bailout never happens? There needs to be an argument put in play that states: 'The loan you are in is NOT going to change... Find a way to deal with it.'
The Government (we will call them the Super G) has already infused tons of capital into the banks. The idea behind this was to create liquidity and support for the banking system, and just maybe create some lending to homeowners. But the problem with the bank infusions is that the credit markets still have no appetite for shitty loans made to borrowers with lousy credit in underwater homes... Oh wait-- would you? This is why I feel there will be NO housing bailout anytime soon. TARP funds are needed to save the shitty auto industry, and Super G already gave most of the money to shitty insurance companies and the supposed strongest banks in the nation. Now the hand-out line forming in D.C. has the likes of Credit Card issuers turned banks (AMEX) and poorly ran consumer finance arms (GE Capitol). There is just not enough money to save Tom and Jane homeowner. And let's admit it-- with the announcement of the TARP funds being pulled away from bad assets, Super G doesn't want, nor know what to do with, these crappy home loans either.
It looks like Super G is again doing the wrong thing with it's endless supply of fiat money. I am now 100% certain that there will be a bail-out of the big auto companies. And I am 100% certain that the bail-out will have little to no positive effect on the economy, but in a matter of months or maybe a year, it will be like adding gas to the fire. What the governement needs to do is look at the poor accounting, the bloated pensions and the union contracts of the Big 3... but they won't. Instead they will give the Big 3 tons of tax payer money, slap their wrists and say, 'now make better cars,' and in another year the money will be gone, the workers will still be overpaid and the cars will still be overpriced, ugly and made poorly. For the same reason you can't fix a drunk by giving him wine instead of beer, you can't fix the Big 3 with giving them more cash with no plan. But still, we will give the auto industry the money and they will do all they know how to do... make cars... fill showrooms... try to create hype... and lastly fail miserably.
So what does this mean for Main Street housing industry U.S.A.-- What does this 'streamlined modification plan' mean for the life blood consumers of the economy??? I'm guessing it will create hype and lastly fail miserably. So here is the basics of this plan. 1) Distressed homeowner has a loan that is either a> adjusting b> underwater c> just too much for them to handle d> all the above 2) They start to default 3) They fall 90 days late 4) The super G gives them a 'modified loan,' by either a> dropping the rate for a period of time b> extending the term c> reducing principle to be paid at a later date d> all the above.
Why is it bad? #1-- it fails to address the negative equity issue. I know that people shouldn't have paid $700,000 for a home in the Inland Empire in CA, but they did. Now the home is worth $400,000. So if the government does ALL 3-- drops you to a 3% loan for five years, extends the term to 50 years and lowers the principle to 400,000 with a 'ghost' 2nd of $300,000-- are you in a 'better' situation? Hell NO you are not-- even though you are paying 3%, you have extended the TERM, which is where you pay MORE INTEREST, and you are still riddled in a mountain of debt that will never be paid off-- let's admit this. If someone is $100,000+ underwater on a home, it will NEVER be paid off! Oh, and to top it off, your credit is totally screwed. #2-- it rewards people for doing the wrong thing. Were you ever told this on owning a home-- 'go buy too much home, finance it at 100% on a teaser loan that has variable payments, cash-out all the money you can on it and then stop paying back the bank. Don't worry, the government will save you.' No... no one told you that, and those are the people that are being rewarded. This program rewards the people who deserve it the least. The person that pulled out all their equity and bought a speed boat, a Tahoe truck and took a $30,000 equity vacation to Greece is getting rewarded? Something about this is not right! #3-- It gives false hope-- instead of just letting these poor people go through foreclosure, we are extending the pain of this process. This plan is wrong on so many levels, and the emotional distress that Americans will burden due to these poorly designed modifications will most likely trickle down for at least one, maybe two generations. It will be a long time until people see the true value in owning a home again, especially in America. #4-- it is only buying time. Like all the other housing 'fixes' that we have tried, this will also fall short. Look at FHA secure, HOPE NOW, and the Bush housing bail-out. All created tons of buzz, but none did anything for the homeowner. Instead, after the hype was created, they failed miserably.
The bottom line is exactly that-- the bottom line. The banks, as well as Super G know that there is no housing bail-out. It is just to large and too out of control. With the securuitization of mortgages it is hard to pin-point the true owner of the loan. And with the number of 'bad' loans written it is near impossible to truly fix the problem. With the latest Case-Shiller numbers putting the housing bottom in 2011-ish with a national decline of 33.7% from peak to bottom, or the average home in America falling $159,908 from the 2005-2006 high, there is not much of a light at the end of the tunnel. If the predictions are correct, this will wipe-out Trillions of dollars of wealth-- and that will be felt by the banks. The banks are the one's that need to brace themselves for the write-offs. Simply put, Super G is just trying to give a little time to the banks between wave after wave of losses-- and if modifying someone for a year keeps that loss off the 2009 books and moves it to 2010, then mission accomplished.
So keep you fingers crossed America, watch the news! Feel the housing bail-out HYPE!... but in the end expect the failure.
Now don't you want to call your realtor!
Even CNBC cheerleader Jim Cramer came out with an article screaming, honking horns and tweeting odd sounding devices about the need to save housing if we want a recovery in the economy: "Now, as the price of their homes decline, consumers have cut back spending. As the economy gets worse, employers cut jobs. And the government is then forced to rescue business after business to keep the whole system from collapsing."
While I usually find Cramer's view to be a little too bias towards his own portfolio-- on this issue I have to agree.
As homeowners are glued to the TV, in hopes that 'The New Economy' will nationalize the mortgage market-- I have to play the Devil's Advocate and say, 'There is NO housing bailout?'
It is something that needs to be addressed.
Right now, homeowners are all hoping that Obama will lift his finger and change the way you pay your mortgage. People expect that there will be major reform for current loans, reduction of interest and principle and general eutopia for homeowners that possibly should never become homeowners in the 1st place. Even with an announcement on Nov 11th, about streamlined modification programs on FNMA and FDMC mortgages, there are still some major concerns.
So what if the housing bailout never happens? There needs to be an argument put in play that states: 'The loan you are in is NOT going to change... Find a way to deal with it.'
The Government (we will call them the Super G) has already infused tons of capital into the banks. The idea behind this was to create liquidity and support for the banking system, and just maybe create some lending to homeowners. But the problem with the bank infusions is that the credit markets still have no appetite for shitty loans made to borrowers with lousy credit in underwater homes... Oh wait-- would you? This is why I feel there will be NO housing bailout anytime soon. TARP funds are needed to save the shitty auto industry, and Super G already gave most of the money to shitty insurance companies and the supposed strongest banks in the nation. Now the hand-out line forming in D.C. has the likes of Credit Card issuers turned banks (AMEX) and poorly ran consumer finance arms (GE Capitol). There is just not enough money to save Tom and Jane homeowner. And let's admit it-- with the announcement of the TARP funds being pulled away from bad assets, Super G doesn't want, nor know what to do with, these crappy home loans either.
It looks like Super G is again doing the wrong thing with it's endless supply of fiat money. I am now 100% certain that there will be a bail-out of the big auto companies. And I am 100% certain that the bail-out will have little to no positive effect on the economy, but in a matter of months or maybe a year, it will be like adding gas to the fire. What the governement needs to do is look at the poor accounting, the bloated pensions and the union contracts of the Big 3... but they won't. Instead they will give the Big 3 tons of tax payer money, slap their wrists and say, 'now make better cars,' and in another year the money will be gone, the workers will still be overpaid and the cars will still be overpriced, ugly and made poorly. For the same reason you can't fix a drunk by giving him wine instead of beer, you can't fix the Big 3 with giving them more cash with no plan. But still, we will give the auto industry the money and they will do all they know how to do... make cars... fill showrooms... try to create hype... and lastly fail miserably.
So what does this mean for Main Street housing industry U.S.A.-- What does this 'streamlined modification plan' mean for the life blood consumers of the economy??? I'm guessing it will create hype and lastly fail miserably. So here is the basics of this plan. 1) Distressed homeowner has a loan that is either a> adjusting b> underwater c> just too much for them to handle d> all the above 2) They start to default 3) They fall 90 days late 4) The super G gives them a 'modified loan,' by either a> dropping the rate for a period of time b> extending the term c> reducing principle to be paid at a later date d> all the above.
*** WAIT A TRUCKING MINUTE!***
Doesn't this sound like Subprime to you? The majority of subprime loans had teaser rates, extended term loans and interest only payments-- Super G is hoping to fix housing with Suprime modification loans? This is not a rescue, this is just a temporary fix to a long term problem... And this will not fix the housing market.Why is it bad? #1-- it fails to address the negative equity issue. I know that people shouldn't have paid $700,000 for a home in the Inland Empire in CA, but they did. Now the home is worth $400,000. So if the government does ALL 3-- drops you to a 3% loan for five years, extends the term to 50 years and lowers the principle to 400,000 with a 'ghost' 2nd of $300,000-- are you in a 'better' situation? Hell NO you are not-- even though you are paying 3%, you have extended the TERM, which is where you pay MORE INTEREST, and you are still riddled in a mountain of debt that will never be paid off-- let's admit this. If someone is $100,000+ underwater on a home, it will NEVER be paid off! Oh, and to top it off, your credit is totally screwed. #2-- it rewards people for doing the wrong thing. Were you ever told this on owning a home-- 'go buy too much home, finance it at 100% on a teaser loan that has variable payments, cash-out all the money you can on it and then stop paying back the bank. Don't worry, the government will save you.' No... no one told you that, and those are the people that are being rewarded. This program rewards the people who deserve it the least. The person that pulled out all their equity and bought a speed boat, a Tahoe truck and took a $30,000 equity vacation to Greece is getting rewarded? Something about this is not right! #3-- It gives false hope-- instead of just letting these poor people go through foreclosure, we are extending the pain of this process. This plan is wrong on so many levels, and the emotional distress that Americans will burden due to these poorly designed modifications will most likely trickle down for at least one, maybe two generations. It will be a long time until people see the true value in owning a home again, especially in America. #4-- it is only buying time. Like all the other housing 'fixes' that we have tried, this will also fall short. Look at FHA secure, HOPE NOW, and the Bush housing bail-out. All created tons of buzz, but none did anything for the homeowner. Instead, after the hype was created, they failed miserably.
The bottom line is exactly that-- the bottom line. The banks, as well as Super G know that there is no housing bail-out. It is just to large and too out of control. With the securuitization of mortgages it is hard to pin-point the true owner of the loan. And with the number of 'bad' loans written it is near impossible to truly fix the problem. With the latest Case-Shiller numbers putting the housing bottom in 2011-ish with a national decline of 33.7% from peak to bottom, or the average home in America falling $159,908 from the 2005-2006 high, there is not much of a light at the end of the tunnel. If the predictions are correct, this will wipe-out Trillions of dollars of wealth-- and that will be felt by the banks. The banks are the one's that need to brace themselves for the write-offs. Simply put, Super G is just trying to give a little time to the banks between wave after wave of losses-- and if modifying someone for a year keeps that loss off the 2009 books and moves it to 2010, then mission accomplished.
So keep you fingers crossed America, watch the news! Feel the housing bail-out HYPE!... but in the end expect the failure.
Now don't you want to call your realtor!
Wednesday, October 22, 2008
California... Welcome to the Surflation
On a recent trip to San Diego, I saw the recession in full swing. Depending on what side of the street you are on in San Diego, you see many a houses for sale and many a store front empty. The local radio and TV stations host and promote real estate foreclosure auctions, and the number of people trying to get you into the high-rise open houses verges on the pressure sales of the Tahitian Village timeshare resort in Vegas. I can only imagine what what it is like for the builders that are holding huge loans that are coming due in the next 12-18 months on properties that are 100% done and 5% sold.
I also noticed the phenomenon that I will call Surflation. It is a simple idea that the easy going laid back surf type people have held for years-- when all else is bad, hit the ocean, ride some waves and trow back a few brews.
Despite the fact that the work week was in full swing and the weather was in fall and not spring fashion, the surflation was higher than I have ever seen. The beaches from PB, down Coronado and all the way to Imperial Beach were packed with bronze bodied Californians who, despite the economy, had choosen to just hang ten. Wet suits and long boards, coupled with the famous rolling coller lined the beaches of San Diego on a day that I, despite my 5280 altitude and love of snow skiing, would not get into that chilly water.
On the streets of the downtown Gas Lamp district, people huslted around in t-shirts and track pants. While many of the wireless stores and clothing boutiques were empty, the pubs, bars and eateries were in full swing. Brew after Brew was being poured to Spicoli like 'dudes' who were taking a break from the waves to injest their daily barley and hops in hopes that the afternoon tide would be worthy of a second round in the water.
All this was happeing while the rest of us refreshed our investment portfolio webpage in hopes that the -23% was an error and should be -2.3%. And while the Feds talked about bailing out another huge bank or giving capital to save off the tide of defalts, the San Diego Surflation crowd did what they do best: Chilled out.
Maybe we could learn from the Surflation crowd and chill out a little. Cause while we pull our hair out from the poor position we took on Crocs last year, the Surflation addicts are catching waves and enjoying life-- and that doesn't sound too bad!
I also noticed the phenomenon that I will call Surflation. It is a simple idea that the easy going laid back surf type people have held for years-- when all else is bad, hit the ocean, ride some waves and trow back a few brews.
Despite the fact that the work week was in full swing and the weather was in fall and not spring fashion, the surflation was higher than I have ever seen. The beaches from PB, down Coronado and all the way to Imperial Beach were packed with bronze bodied Californians who, despite the economy, had choosen to just hang ten. Wet suits and long boards, coupled with the famous rolling coller lined the beaches of San Diego on a day that I, despite my 5280 altitude and love of snow skiing, would not get into that chilly water.
On the streets of the downtown Gas Lamp district, people huslted around in t-shirts and track pants. While many of the wireless stores and clothing boutiques were empty, the pubs, bars and eateries were in full swing. Brew after Brew was being poured to Spicoli like 'dudes' who were taking a break from the waves to injest their daily barley and hops in hopes that the afternoon tide would be worthy of a second round in the water.
All this was happeing while the rest of us refreshed our investment portfolio webpage in hopes that the -23% was an error and should be -2.3%. And while the Feds talked about bailing out another huge bank or giving capital to save off the tide of defalts, the San Diego Surflation crowd did what they do best: Chilled out.
Maybe we could learn from the Surflation crowd and chill out a little. Cause while we pull our hair out from the poor position we took on Crocs last year, the Surflation addicts are catching waves and enjoying life-- and that doesn't sound too bad!
Thursday, September 18, 2008
It's all about the Housing Market
300 points. 400points. 250 points. 300 points. 150 points.
5% 3% 2% 6% 7%....
No the above is not a clever algorithm or code. The above listed numbers indicate swings you most likely saw in the Dow, and percentage changes you saw in the major US indexes this and last week-- many of them swinging up and down in these percentages each hour.
What the Phuket Thailand is going on? I've read economics papers and listened to 'professionals' that do everything from run huge hedge funds, former AIG CEO's and commodities traders, and everyone has a pretty similar answer-- short sellers and oil speculation. There was even a rant recently by a TV economist that put the blame on terrorism. Cute.
But no one really wants to get out there and say it: HOUSING IS REALLY THE REASON WE ARE IN A BIND. There I said it. But why? 1st and foremost, we are a capitalist economy (thought the Fed's socialist take overs of late don't dictate that), and the oil of capitalism is the consumer. We have essentially knocked the consumer out of the game by ALLOWING him to be drown in debt and pulling his ability to get into more debt. What? That's right-- the consumer is MAXED OUT and will not be back in the game any time soon. The consumer is like a hammered townie at a Midwest bar, who has been drunk for the last ten years... the only way he knows how to deal with life is by being all sauced up. And now we are taking his booze away, kicking him off the bar stool and saying, 'get it together.' But drunkie doesn't know any other way to live. The American only knows one thing-- debt. Debt for the car, the home... use the Visa for the movie tickets and put the kids college on the Equity line-- finance the Dillard's purchase on the Amex and put the plane tickets to Hawaii on the Master Card-- Oh, and while you are at it, can we go to Dinner tonight at the steak house on the Discover Card-- we get 1% cash back! And what will you do with the debt Mr. Consumer? Mr. Consumer... Sorry, he can't answer-- he is applying for the new Citi Card that gives him airline miles.
We have allowed the consumer to get really into trouble... and we let them do it with the house. Through rouge speculation and lax lending we allowed the average home to increase 85% in the last ten years... and in some areas of the country we let those puppies pop 150-200% in that time... and then we ENCOURAGED the consumer to rip out that equity and spend spend spend! And the consumer did. Some people would say that this is a natural phenomenon of housing, and that real estate prices are always appreciating at a rate of 4-6% yearly... tell that to someone who bought in San Diego in 2004 on a 3 year arm.
And still, amidst talks of the brightest and smartest political economists, along with Paper Tiger Paulson and Big Benny B... no one seems to realize that this whole downturn is STILL and will continue to be about the housing market. In this plan they aim to 'STOP FORECLOSURES!' by helping the consumer renegotiate the mortgage. But wait! The most common renegotiation of the mortgage includes lowering the RATE and PAYMENT so it is more affordable. This answer does NOTHING to help the negative equity, and until this is addressed, foreclosures won't stop. The way a loan works is that interest controls the 1st 12-15 years of the loan, with 85% of the payment paying back the bank-- so when someone is $100,000 upside down on a house and you lower their rate and payment so they are paying $100 less a month, it will still take them 1000 months (83 years) to recuperate the negative equity-- of course the home will be paid off by that time, or will it? Not a chance-- when someone is making principle payments of $300-$500 a month for the 1st 12 years of the loan, WHY would you stay in an upside down home EVEN if your lender gives you a 2% fixed rate loan??? Lenders already know that that home is a loss, and the $100,000 loss will come now, in a few months or a few years, but that loan will never be able to be 'cured' until someone tackles the negative equity issue in housing.
But here is another problem-- Lender loses. If a lender, say Countywide, holds a HUGE stake of mortgages in a highly depressed area, say Southern CA (down 34% from the peak), how does the lender mitigate the loss. If they have 100 thousand home loans that are $70,000 upside down (in many cases this is a LOW number) it makes it VERY hard to just forgive the Ridiculously large sum of money-- 7 Billion Dollars worth of the green backs that would just vanish? How would banks be able to 'cope' with these losses? But the question needs to be asked-- Are these losses already on their books? They should be, because as this keeps unraveling, more and more of these people are going to walk away because that home is NOT going to increase in value any time soon, and that homeowner can buy the SAME home down the street for much less, let the original home foreclose and, other than credit rating, have a better and cheaper standard of living. Shoot, $70,000 less financed saves over $400 a month-- enough money to go out and get a shiny new Escalade for the new garage! And if the borrowers do in ALL at the same time, they can get a the new home and a new car before the original lender even notices the 1st late payment on the mortgage... Why file bankruptcy when you can just let it all go! Gotta love America!
And, as the big wigs are hoping this 'magical bailout plan' will magically stop the housing collapse, they are wrong. As the economy sinks lower each month, gas rises and people move away from the suburbs-- less and less people will buy homes and less and less people will be able to get financing... and until the DEMAND returns to the housing market... there is no recovery. And until the housing market unloads the SUPPLY, there will be recovery for the broad economy...
So, as a lender, for example Countrywide, decides to lower ALL these underwater loans to 2.5% fixed in hopes that the people keep paying for their worthless asset, maybe they should consider re amortizing the loans and forgiving the $70,000 deficiany balance TODAY instead of taking a $110,000 hit on these loans in the future.
5% 3% 2% 6% 7%....
No the above is not a clever algorithm or code. The above listed numbers indicate swings you most likely saw in the Dow, and percentage changes you saw in the major US indexes this and last week-- many of them swinging up and down in these percentages each hour.
What the Phuket Thailand is going on? I've read economics papers and listened to 'professionals' that do everything from run huge hedge funds, former AIG CEO's and commodities traders, and everyone has a pretty similar answer-- short sellers and oil speculation. There was even a rant recently by a TV economist that put the blame on terrorism. Cute.
But no one really wants to get out there and say it: HOUSING IS REALLY THE REASON WE ARE IN A BIND. There I said it. But why? 1st and foremost, we are a capitalist economy (thought the Fed's socialist take overs of late don't dictate that), and the oil of capitalism is the consumer. We have essentially knocked the consumer out of the game by ALLOWING him to be drown in debt and pulling his ability to get into more debt. What? That's right-- the consumer is MAXED OUT and will not be back in the game any time soon. The consumer is like a hammered townie at a Midwest bar, who has been drunk for the last ten years... the only way he knows how to deal with life is by being all sauced up. And now we are taking his booze away, kicking him off the bar stool and saying, 'get it together.' But drunkie doesn't know any other way to live. The American only knows one thing-- debt. Debt for the car, the home... use the Visa for the movie tickets and put the kids college on the Equity line-- finance the Dillard's purchase on the Amex and put the plane tickets to Hawaii on the Master Card-- Oh, and while you are at it, can we go to Dinner tonight at the steak house on the Discover Card-- we get 1% cash back! And what will you do with the debt Mr. Consumer? Mr. Consumer... Sorry, he can't answer-- he is applying for the new Citi Card that gives him airline miles.
We have allowed the consumer to get really into trouble... and we let them do it with the house. Through rouge speculation and lax lending we allowed the average home to increase 85% in the last ten years... and in some areas of the country we let those puppies pop 150-200% in that time... and then we ENCOURAGED the consumer to rip out that equity and spend spend spend! And the consumer did. Some people would say that this is a natural phenomenon of housing, and that real estate prices are always appreciating at a rate of 4-6% yearly... tell that to someone who bought in San Diego in 2004 on a 3 year arm.
And still, amidst talks of the brightest and smartest political economists, along with Paper Tiger Paulson and Big Benny B... no one seems to realize that this whole downturn is STILL and will continue to be about the housing market. In this plan they aim to 'STOP FORECLOSURES!' by helping the consumer renegotiate the mortgage. But wait! The most common renegotiation of the mortgage includes lowering the RATE and PAYMENT so it is more affordable. This answer does NOTHING to help the negative equity, and until this is addressed, foreclosures won't stop. The way a loan works is that interest controls the 1st 12-15 years of the loan, with 85% of the payment paying back the bank-- so when someone is $100,000 upside down on a house and you lower their rate and payment so they are paying $100 less a month, it will still take them 1000 months (83 years) to recuperate the negative equity-- of course the home will be paid off by that time, or will it? Not a chance-- when someone is making principle payments of $300-$500 a month for the 1st 12 years of the loan, WHY would you stay in an upside down home EVEN if your lender gives you a 2% fixed rate loan??? Lenders already know that that home is a loss, and the $100,000 loss will come now, in a few months or a few years, but that loan will never be able to be 'cured' until someone tackles the negative equity issue in housing.
But here is another problem-- Lender loses. If a lender, say Countywide, holds a HUGE stake of mortgages in a highly depressed area, say Southern CA (down 34% from the peak), how does the lender mitigate the loss. If they have 100 thousand home loans that are $70,000 upside down (in many cases this is a LOW number) it makes it VERY hard to just forgive the Ridiculously large sum of money-- 7 Billion Dollars worth of the green backs that would just vanish? How would banks be able to 'cope' with these losses? But the question needs to be asked-- Are these losses already on their books? They should be, because as this keeps unraveling, more and more of these people are going to walk away because that home is NOT going to increase in value any time soon, and that homeowner can buy the SAME home down the street for much less, let the original home foreclose and, other than credit rating, have a better and cheaper standard of living. Shoot, $70,000 less financed saves over $400 a month-- enough money to go out and get a shiny new Escalade for the new garage! And if the borrowers do in ALL at the same time, they can get a the new home and a new car before the original lender even notices the 1st late payment on the mortgage... Why file bankruptcy when you can just let it all go! Gotta love America!
And, as the big wigs are hoping this 'magical bailout plan' will magically stop the housing collapse, they are wrong. As the economy sinks lower each month, gas rises and people move away from the suburbs-- less and less people will buy homes and less and less people will be able to get financing... and until the DEMAND returns to the housing market... there is no recovery. And until the housing market unloads the SUPPLY, there will be recovery for the broad economy...
So, as a lender, for example Countrywide, decides to lower ALL these underwater loans to 2.5% fixed in hopes that the people keep paying for their worthless asset, maybe they should consider re amortizing the loans and forgiving the $70,000 deficiany balance TODAY instead of taking a $110,000 hit on these loans in the future.
Tuesday, September 9, 2008
BIG OIL's Fall ... No Bail Out needed!
I saw two recent adds that I thought would be interesting to point out.
1. A full size Chevrolet Tahoe for sale at almost $10,000 off the list price with LOW interest financing and 'employee pricing.'
2. An add for a Chevy Tahoe Hybrid for about $46,000 also discounted.
And it really made me think, 'who the Phuket does GM think they are?' $46,000 for a Hybrid Tahoe? Really? You can get the good old base model for $28,000 right now from from CHEVY. So lets look at the figures on this.
The HYBRID gets you a super gas sipping 21city/22highway vs the 'gas hog' that slurps 14city/20highway. So, that means that you would be willing to pay almost $18,000 more for the 7 better mpg in the city and minimal highway mileage???
So, if you drive 12,000 miles a year, here is the breakdown at $3.75 a gallon.
GH:Gas Hog (Regular Tahoe) $28,000
ES:Elegant Sipper of fuel (HYBRID) $46,000
GH: 857 gallons of fuel burned = $3213.75 YEARLY
ES: 571 Gallons of fuel sipped = $2141.25
GH: 71.41 gallons a month = $267.78 MONTHLY
ES: 47.58 gallons a month = $178.42
GH: 2.38 gallons daily = $8.93 DAILY
ES: 1.59 Gallons daily = $5.96
HAIL THE SAVINGS OF THE HYBRID!
CLEANSER OF ALL THAT IS BAD!
HAIL THEE HYBRID!
SLOW SIPPER OF THE PETROL THAT DRAINS THEE WALLET!
But wait...(screeching record sound) with that savings you can't even afford to be a pack-a-day smoker in 2001. And let's not forget that the HYBRID is a whopping $18,000 more that the gas hog regular Tahoe (the hybrid also is the only model that does not come with a luggage rack). On a yearly savings, the HYBRID saves you $1072.50 in fuel costs based on ALL city driving (note the mileage is very similar on the highway). With this Sipping savings it will take you, Mr. Green in the pool room with the candlestick, over SIXTEEN YEARS to recover the cost on your truck-- and let's not even bring in the depreciation aspect of this little game. Case and point-- it you buy a HYBRID Chevrolet you are either:
1. independently wealthy
2. stupidly green.
3. Caught up into too much media hoop-la to understand the basics of money management.
And this brings up another point-- US motor companies 'WANT' 30-50 billion dollars to fix up their aging plants and help them produce 'more fuel efficient' vehicles. So will they get the bail out? Will the feds pull an old Fannie/freddie out and slap down the cheddar for these GIANTS of the auto industry?
I say NO! and you know I will tell you why:
1) Big Auto cheated. With lacking sales in the 80's and early 90's, GM and FORD turned to SUV's that were not held to the same clean air requirements as cars-- they were considered light trucks. This was the only market share that the US autos held over the last 10 years. With higher fuel costs, this market is crumbling. Why would we bail out companies that, instead of working harder to create better vehicles, looked at ways to beat the system. Are they surprised that someone would prefer a Camry or an Accord over a tired rent-a-car Malibu or Taurus? If the quality standards would have been increased in the past, they wouldn't be in this situation now.
2) Big Auto is no longer essential. It's sad, but if US big auto fails, we have other options. I understand that many will lose jobs, but how can you defend a job that costs more to pay the workers that the product you are selling. US auto has been failing for a long time, and plants keep producing a poor product with no buyers. People don't need GM, FORD or D/C for their automotive needs. Asian and European automakers have had high prices for petrol for a long time and have given us a great selection to choose from.
3) There is no guarantee that anything will work. GM, FORD and D/C have had bad business plans in the past and giving them keys to the bank would look to be a delay of the inevitable here. Poorly ran pensions and bad union contracts have left there 'big 3' looking like a bunch of little cry babies who want a suckle of Uncle Sam's tit. And to top it off, they have all become 'lenders' in the past 10 years, trying to maintain their platforms as auto giants while shoving financing arms like Ditec, GMAC, Ford Credit and Chrysler financial down investor's mouths. You know the terms: No money down and 0% financing loans on a product that loses 40% of it's value in the 1st year. Keep the money FEDS! Milk the GDP numbers with another round of stimulus checks instead.
4) Oil is a bad thing to be dependant on. Why do you think these big autos went to the SUV? They were hoping that the oil market would change-- not the auto market-- the OIL MARKET. The reason that US big auto is FAILING NOW is because they were not timely in changing their product to change with oil needs. Oil is not getting more plentiful, and the warnings on limited oil in the US and the rest of the world have been ringing in the ears of big auto since the 70's (with some reports even written in the 50's). Big auto could have created better vehicles in the past, but didn't-- they just hoped that the oil industy would keep clicking at the same pace and price as 1955.
5) Public transportation. The money to bail out big auto needs to go into what it should have gone into 50 years ago, public transportation. US cities are dependant on the cars and trucks of the world. In most cities people have to drive to the grocery store, even if it's only a mile or two away. Instead of giving these dollars to big auto, lets give each state 1 billion dollars and make them use the money for the depressed (and sometimes non-existant) public transportation systems.
History lesson: In the 1950's GM bought the rights to the majority of bus lines and locomotive contracts, turning cities away from the light rail system for diesel powered busses and taxi cabs, and converted coal and steam engines to diesel engines. This explosion in gas powered engines made it easy, and almost essential to have a car, and in turn killed the public transportation system in sprawling cities and suburbs. There are econimists that claim this action was critical in making the US 100% oil dependant, opposed to seeking alternative energy sources in the 60's and 70's. Now, more than ever, the US is depend on oil, and GM should not get more money to again block the hope that we can create an affordable, dependant and cleaner source to move the masses in our massive transport free cities.
6) The Chevy Cavilier. The Ford Tempo. The Dodge Neon. Please people, these were the attempts to get more fuel efficient cars in the past and if history repeats itself (it does) we can expect the same junk products that last a few horrible years on the road, get low marks in most safety tests and lose value faster than Micheal Vick after he went to prison.
Now I will go and drive my 4runner home-- still gets 21 mpg in the city and 24 on the highway!
1. A full size Chevrolet Tahoe for sale at almost $10,000 off the list price with LOW interest financing and 'employee pricing.'
2. An add for a Chevy Tahoe Hybrid for about $46,000 also discounted.
And it really made me think, 'who the Phuket does GM think they are?' $46,000 for a Hybrid Tahoe? Really? You can get the good old base model for $28,000 right now from from CHEVY. So lets look at the figures on this.
The HYBRID gets you a super gas sipping 21city/22highway vs the 'gas hog' that slurps 14city/20highway. So, that means that you would be willing to pay almost $18,000 more for the 7 better mpg in the city and minimal highway mileage???
So, if you drive 12,000 miles a year, here is the breakdown at $3.75 a gallon.
GH:Gas Hog (Regular Tahoe) $28,000
ES:Elegant Sipper of fuel (HYBRID) $46,000
GH: 857 gallons of fuel burned = $3213.75 YEARLY
ES: 571 Gallons of fuel sipped = $2141.25
GH: 71.41 gallons a month = $267.78 MONTHLY
ES: 47.58 gallons a month = $178.42
GH: 2.38 gallons daily = $8.93 DAILY
ES: 1.59 Gallons daily = $5.96
HAIL THE SAVINGS OF THE HYBRID!
CLEANSER OF ALL THAT IS BAD!
HAIL THEE HYBRID!
SLOW SIPPER OF THE PETROL THAT DRAINS THEE WALLET!
But wait...(screeching record sound) with that savings you can't even afford to be a pack-a-day smoker in 2001. And let's not forget that the HYBRID is a whopping $18,000 more that the gas hog regular Tahoe (the hybrid also is the only model that does not come with a luggage rack). On a yearly savings, the HYBRID saves you $1072.50 in fuel costs based on ALL city driving (note the mileage is very similar on the highway). With this Sipping savings it will take you, Mr. Green in the pool room with the candlestick, over SIXTEEN YEARS to recover the cost on your truck-- and let's not even bring in the depreciation aspect of this little game. Case and point-- it you buy a HYBRID Chevrolet you are either:
1. independently wealthy
2. stupidly green.
3. Caught up into too much media hoop-la to understand the basics of money management.
And this brings up another point-- US motor companies 'WANT' 30-50 billion dollars to fix up their aging plants and help them produce 'more fuel efficient' vehicles. So will they get the bail out? Will the feds pull an old Fannie/freddie out and slap down the cheddar for these GIANTS of the auto industry?
I say NO! and you know I will tell you why:
1) Big Auto cheated. With lacking sales in the 80's and early 90's, GM and FORD turned to SUV's that were not held to the same clean air requirements as cars-- they were considered light trucks. This was the only market share that the US autos held over the last 10 years. With higher fuel costs, this market is crumbling. Why would we bail out companies that, instead of working harder to create better vehicles, looked at ways to beat the system. Are they surprised that someone would prefer a Camry or an Accord over a tired rent-a-car Malibu or Taurus? If the quality standards would have been increased in the past, they wouldn't be in this situation now.
2) Big Auto is no longer essential. It's sad, but if US big auto fails, we have other options. I understand that many will lose jobs, but how can you defend a job that costs more to pay the workers that the product you are selling. US auto has been failing for a long time, and plants keep producing a poor product with no buyers. People don't need GM, FORD or D/C for their automotive needs. Asian and European automakers have had high prices for petrol for a long time and have given us a great selection to choose from.
3) There is no guarantee that anything will work. GM, FORD and D/C have had bad business plans in the past and giving them keys to the bank would look to be a delay of the inevitable here. Poorly ran pensions and bad union contracts have left there 'big 3' looking like a bunch of little cry babies who want a suckle of Uncle Sam's tit. And to top it off, they have all become 'lenders' in the past 10 years, trying to maintain their platforms as auto giants while shoving financing arms like Ditec, GMAC, Ford Credit and Chrysler financial down investor's mouths. You know the terms: No money down and 0% financing loans on a product that loses 40% of it's value in the 1st year. Keep the money FEDS! Milk the GDP numbers with another round of stimulus checks instead.
4) Oil is a bad thing to be dependant on. Why do you think these big autos went to the SUV? They were hoping that the oil market would change-- not the auto market-- the OIL MARKET. The reason that US big auto is FAILING NOW is because they were not timely in changing their product to change with oil needs. Oil is not getting more plentiful, and the warnings on limited oil in the US and the rest of the world have been ringing in the ears of big auto since the 70's (with some reports even written in the 50's). Big auto could have created better vehicles in the past, but didn't-- they just hoped that the oil industy would keep clicking at the same pace and price as 1955.
5) Public transportation. The money to bail out big auto needs to go into what it should have gone into 50 years ago, public transportation. US cities are dependant on the cars and trucks of the world. In most cities people have to drive to the grocery store, even if it's only a mile or two away. Instead of giving these dollars to big auto, lets give each state 1 billion dollars and make them use the money for the depressed (and sometimes non-existant) public transportation systems.
History lesson: In the 1950's GM bought the rights to the majority of bus lines and locomotive contracts, turning cities away from the light rail system for diesel powered busses and taxi cabs, and converted coal and steam engines to diesel engines. This explosion in gas powered engines made it easy, and almost essential to have a car, and in turn killed the public transportation system in sprawling cities and suburbs. There are econimists that claim this action was critical in making the US 100% oil dependant, opposed to seeking alternative energy sources in the 60's and 70's. Now, more than ever, the US is depend on oil, and GM should not get more money to again block the hope that we can create an affordable, dependant and cleaner source to move the masses in our massive transport free cities.
6) The Chevy Cavilier. The Ford Tempo. The Dodge Neon. Please people, these were the attempts to get more fuel efficient cars in the past and if history repeats itself (it does) we can expect the same junk products that last a few horrible years on the road, get low marks in most safety tests and lose value faster than Micheal Vick after he went to prison.
Now I will go and drive my 4runner home-- still gets 21 mpg in the city and 24 on the highway!
Monday, August 25, 2008
Paper Tiger Vs The Sinking Equity Tornado...
It must be August... that is what everyone watching the markets can plan on saying for the rest of the week. Data starts to be skewed each and every way, markets climb and fall in massive shifts daily, and the dog of yesterday becomes the rising star of tomorrow. No Matter which way you look at it, the markets are a half-full glass with a half-empty glass sitting right next to each other... which one do you drink from?
But one thing remains consistent-- housing stinks. That's right-- no matter how much make-up you put on the housing pig, you can't dress this one up. Data comes in today, stating that sales are up 3.1%-- the biggest single month increase in 5 months! But wait... while this seems to be good news, we are forgetting a key ingredient in this housing crunch soup-- INVENTORY.
Inventory ROSE to an 11.2 month supply (from 11.1 month in June), which is roughly twice the number of homes as a 'stable' housing market. So, regardless of the homes being sold, there are still more houses entering this tired market than leaving the market... and the prices keep falling too. We are now just over 18% off the peak prices we saw in 2006... still falling, this equity torpedo continues to sink that ever-so-amazing housing wealth that Americans depend on for retirement. And with the market shifting to a distressed sale market, with REO's and short sale's becoming more and more the norm on a daily basis, the question has to be, how do we stop the madness???
ENTER THE PAPER TIGER... The Fed's. As we all now know, the Fed is in bed with the banks. Nothing seems to matter more than saving the banks-- which makes sense right. God forbid a few of these behemoth banks crack, forcing the FDIC to print money faster Michael Phelps swims the 200 meter freestyle. That would be bad. But still, the paper tiger will have to do something to help this housing market. But what can they do?
Paper Tiger is also going to need an answer for inflation. Keeping short term rates is great for the banks-- it mitigates the loss they hold for borrowing capital (that is if anyone will lend to them), but it doesn't help inflation. And last time I checked oil is still almost 70% over the cost from last year, and seems to be leveling out. This increase in energy could cripple the US economy, as nasty 70's like funky stagflation creeps in for a few years... They say you can't have inflation with recession-- Just like Bear Stearns was adequately capitalized and just like Indymac wasn't in trouble-- it can and will happen. If they raise rates they will further crush the housing market and credit markets, but if they leave them steady or try and go lower we will be goggled up by inflation. Paper Tiger needs to be replaced.
And what does all this mean? It means the equity torpedo will continue to sink the housing wealth in America... and for what reason? We still have a weak dollar. We are experiencing the largest transfer of wealth EVER from the USA to oil producing countries. The constriction of credit and the collapse of interest for bank profits WILL create more banks to go under... and good old fashioned supply and demand. There are tons of houses (some nice, some crappy) on the market, but just not enough (qualified) buyers. The top of the market (July 06) had an estimated 24 Trillion dollars in US housing wealth. We are down over 18%, meaning that the torpedo has already blown over 4 Trillion dollars of wealth out the door... and while estimates are putting the 'bottom' of the housing market another 10% lower, plan on another 2 Trillion dollars of losses to be taken out by the tornado. But what is 6 trillion dollars between friends...
...6 Trillion Dollars has 12 zeros in it...
$6,000,000,000,000.00
Compare to your last bank statement to realize the true impact of the torpedo. Now gulp. That's right. Maybe it's time to have a drink.
Rick
But one thing remains consistent-- housing stinks. That's right-- no matter how much make-up you put on the housing pig, you can't dress this one up. Data comes in today, stating that sales are up 3.1%-- the biggest single month increase in 5 months! But wait... while this seems to be good news, we are forgetting a key ingredient in this housing crunch soup-- INVENTORY.
Inventory ROSE to an 11.2 month supply (from 11.1 month in June), which is roughly twice the number of homes as a 'stable' housing market. So, regardless of the homes being sold, there are still more houses entering this tired market than leaving the market... and the prices keep falling too. We are now just over 18% off the peak prices we saw in 2006... still falling, this equity torpedo continues to sink that ever-so-amazing housing wealth that Americans depend on for retirement. And with the market shifting to a distressed sale market, with REO's and short sale's becoming more and more the norm on a daily basis, the question has to be, how do we stop the madness???
ENTER THE PAPER TIGER... The Fed's. As we all now know, the Fed is in bed with the banks. Nothing seems to matter more than saving the banks-- which makes sense right. God forbid a few of these behemoth banks crack, forcing the FDIC to print money faster Michael Phelps swims the 200 meter freestyle. That would be bad. But still, the paper tiger will have to do something to help this housing market. But what can they do?
Watch your children!
Fannie and Freddie are bad kids. These two have been hard to discipline this year, and it's starting to look like they may need money for private school soon, as the public school system they are currently going to is not making the grade. So, how do you 'privatize' Fannie and Freddie without completely scalping the people that hold billions in investments??? Answer: You can't. Someone is going to get screwed here-- the Feds or the investors, and Paper Tiger will most likely watch his own back. 'Thank You for Screwing Me' letters can be sent to Alan Greenspan.Paper Tiger is also going to need an answer for inflation. Keeping short term rates is great for the banks-- it mitigates the loss they hold for borrowing capital (that is if anyone will lend to them), but it doesn't help inflation. And last time I checked oil is still almost 70% over the cost from last year, and seems to be leveling out. This increase in energy could cripple the US economy, as nasty 70's like funky stagflation creeps in for a few years... They say you can't have inflation with recession-- Just like Bear Stearns was adequately capitalized and just like Indymac wasn't in trouble-- it can and will happen. If they raise rates they will further crush the housing market and credit markets, but if they leave them steady or try and go lower we will be goggled up by inflation. Paper Tiger needs to be replaced.
And what does all this mean? It means the equity torpedo will continue to sink the housing wealth in America... and for what reason? We still have a weak dollar. We are experiencing the largest transfer of wealth EVER from the USA to oil producing countries. The constriction of credit and the collapse of interest for bank profits WILL create more banks to go under... and good old fashioned supply and demand. There are tons of houses (some nice, some crappy) on the market, but just not enough (qualified) buyers. The top of the market (July 06) had an estimated 24 Trillion dollars in US housing wealth. We are down over 18%, meaning that the torpedo has already blown over 4 Trillion dollars of wealth out the door... and while estimates are putting the 'bottom' of the housing market another 10% lower, plan on another 2 Trillion dollars of losses to be taken out by the tornado. But what is 6 trillion dollars between friends...
...6 Trillion Dollars has 12 zeros in it...
$6,000,000,000,000.00
Compare to your last bank statement to realize the true impact of the torpedo. Now gulp. That's right. Maybe it's time to have a drink.
Rick
Thursday, August 21, 2008
Do they make enough Drugs????
... To make you buy financials right now? I don't think so. I don't think that even if I was Jimi Hendrix high, or Sgt Pepper and the Lonely Hearts Club Band high I would buy financials. There are not enough pink and purple mind altering drugs in Juarez Mexico to make me buy financials... period.
Let's look at the hurricane that is tearing through the world that is financial right now. An estimation on the Fannie/ Freddie bail-out is at $30 billion-- which I think is a low ball shot at best. I say double that and add 10% if you want the wheels to actually turn without any issues. And that is just the tip of the iceberg. The Feds are also trying to do massive scale loan modifications on their newly acquired toxic-waste-dump Indymac portfolio of option-arms and no doc garbage loans. They will be 'fixing' the glitch by lopping off huge amounts of principle for underwater equity loans and giving fixed rate loans to late paying borrowers that have seen skyrocketing adjustments, negative amortization or job losses. And the estimation is that the rates given will be much lower than the going rate for you and I bill-payer. If this catches on, WHY would you pay your bills???? Why not just stop paying the mortgage, binge on Red Lobster and boxed wine and wait for the feds to give you 3.65% fixed with a $10,000 principle reduction. These people are being REWARDED for not paying their bills or taking out a risky loan. How will this help the current problems?
And then there is the looming bust of the commercial real estate market... uh oh-- this one could be bad. As the banks try to pick themselves up from residential mortgage losses that are thrown at them like Mike Tyson jabs, the commercial real estate upper-cut has yet to even enter the ring. Imagine a peace full neighborhood in 2005 in the middle of any state-- a happy place that is a 50 minute commute to anything, and is surrounded by McMansions that were all financed on no doc loans to 100% LTV. Bob and Mary homeowner mowed the lawn and cut the weeds back in a scary 1950's like perfection. Down the street the developer opened up a $14.8 million, 40 store strip mall/ office center that was heavily financed, and leased the space to burrito shops and flower stores, small businesses, novelty stores and mini-marts at exorbitant rent prices to cover the financing-- but that was OK! This is a good neighborhood! People will spend their money here!... Now look at the same place in 2008. Gas prices drove the commuter back to the city, and Bob and Mary couldn't make their ridiculous house payments when the loan adjusted, so they were forced to sell... but no one was going to pay the price that Bob and Mary wanted because values are down 30%. So they packed their stuff in the 2008 Tahoe they bought instead of paying the mortgage and sent the bank the keys. But Bob and Mary aren't alone... their whole neighborhood is following their lead-- and no one is cutting the grass. No one is buying $8 burritos or dining at the restaurants in the strip mall. The businesses are all leaving too. Down the Street the developer can't keep the rents in his strip mall/ office park and he is ready to foreclose... on the whole $14.8 million he borrowed for the project. Now multiply that scenario by 500 similar neighborhoods and times 50 states and you see the bitch slap wave that is about to crush the banks.
Lastly, you have the blood of the whole financial system, the consumer. And the consumer is staring into the first consumer recession since the early 90's. This time the consumer is really screwed too-- with way to much home and auto debt, a mountain of credit cards and no savings. This consumer is one missed paycheck from bankruptcy... When will the house of cards collapse? Tomorrow, 2 weeks, a year? Regardless, it's coming. And when America stops spending then we really have a problem.
So, call your drug dealer (they are listed in the yellow pages under 'doctors') and see if they have anything you can take that would have you invest in financials right now. I'm guessing they have pills to increase the strength of your trouser trout and help you with that life threatening restless leg syndrome, but unless that dealer has something you've never heard of, there shouldn't be any amount or mixture of drugs that would make you remotely interested in financials right now...
Let's look at the hurricane that is tearing through the world that is financial right now. An estimation on the Fannie/ Freddie bail-out is at $30 billion-- which I think is a low ball shot at best. I say double that and add 10% if you want the wheels to actually turn without any issues. And that is just the tip of the iceberg. The Feds are also trying to do massive scale loan modifications on their newly acquired toxic-waste-dump Indymac portfolio of option-arms and no doc garbage loans. They will be 'fixing' the glitch by lopping off huge amounts of principle for underwater equity loans and giving fixed rate loans to late paying borrowers that have seen skyrocketing adjustments, negative amortization or job losses. And the estimation is that the rates given will be much lower than the going rate for you and I bill-payer. If this catches on, WHY would you pay your bills???? Why not just stop paying the mortgage, binge on Red Lobster and boxed wine and wait for the feds to give you 3.65% fixed with a $10,000 principle reduction. These people are being REWARDED for not paying their bills or taking out a risky loan. How will this help the current problems?
And then there is the looming bust of the commercial real estate market... uh oh-- this one could be bad. As the banks try to pick themselves up from residential mortgage losses that are thrown at them like Mike Tyson jabs, the commercial real estate upper-cut has yet to even enter the ring. Imagine a peace full neighborhood in 2005 in the middle of any state-- a happy place that is a 50 minute commute to anything, and is surrounded by McMansions that were all financed on no doc loans to 100% LTV. Bob and Mary homeowner mowed the lawn and cut the weeds back in a scary 1950's like perfection. Down the street the developer opened up a $14.8 million, 40 store strip mall/ office center that was heavily financed, and leased the space to burrito shops and flower stores, small businesses, novelty stores and mini-marts at exorbitant rent prices to cover the financing-- but that was OK! This is a good neighborhood! People will spend their money here!... Now look at the same place in 2008. Gas prices drove the commuter back to the city, and Bob and Mary couldn't make their ridiculous house payments when the loan adjusted, so they were forced to sell... but no one was going to pay the price that Bob and Mary wanted because values are down 30%. So they packed their stuff in the 2008 Tahoe they bought instead of paying the mortgage and sent the bank the keys. But Bob and Mary aren't alone... their whole neighborhood is following their lead-- and no one is cutting the grass. No one is buying $8 burritos or dining at the restaurants in the strip mall. The businesses are all leaving too. Down the Street the developer can't keep the rents in his strip mall/ office park and he is ready to foreclose... on the whole $14.8 million he borrowed for the project. Now multiply that scenario by 500 similar neighborhoods and times 50 states and you see the bitch slap wave that is about to crush the banks.
Lastly, you have the blood of the whole financial system, the consumer. And the consumer is staring into the first consumer recession since the early 90's. This time the consumer is really screwed too-- with way to much home and auto debt, a mountain of credit cards and no savings. This consumer is one missed paycheck from bankruptcy... When will the house of cards collapse? Tomorrow, 2 weeks, a year? Regardless, it's coming. And when America stops spending then we really have a problem.
So, call your drug dealer (they are listed in the yellow pages under 'doctors') and see if they have anything you can take that would have you invest in financials right now. I'm guessing they have pills to increase the strength of your trouser trout and help you with that life threatening restless leg syndrome, but unless that dealer has something you've never heard of, there shouldn't be any amount or mixture of drugs that would make you remotely interested in financials right now...
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