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.
Thursday, September 18, 2008
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!
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