Showing posts with label mortgage defaults. Show all posts
Showing posts with label mortgage defaults. Show all posts

Wednesday, February 9, 2011

Miracle Rally Sends Dow to 8th Straight Gain

Over the past two days, I've tried to make the case that I am optimistic instead of pessimistic and that the recovery we've been told over and over and over again ad nauseum is actually real and not fully backed by the free printing of money.

Oddly enough, we have in America a free press, but it is largely the one used by the Treasury and the Fed to create money, not the one that enlightens opinion with words of wisdom. I have tried my best to drink the Kool-aid that says all is well, the Fed has the economy under control and that unemployment really is only 9%, when all along I know there are dangers lurking everywhere, the Fed is actually out of control (lost all control when they dropped interest rates to ZERO), and that unemployment in America is much closer to 20% (maybe even above that) than 10% when factoring in all the part-time jobs, heuristic and hedonic measurements and adjustments made by the BLS and other government statistic-throwers.

I simply cannot profess to any kind of fundamental economic theory that would have me believe that the best way to solve a debt and solvency crisis is with more debt and by keeping insolvent companies (banks, GM, Chrysler) afloat with taxpayer dollars. Neither can I avow to any belief in the Federal Reserve, knowledgeable in the fact that the Fed, since 1913, has reduced the buying power of the US dollar by 97% and that since 1971 - when Nixon closed the gold window - the world has been operating with a fantasy reserve currency, backed only by the good faith and credit of the United States of America, the world's biggest borrower and instigator of costly wars for the national "good."

Label me a pessimist if you must, but not before reading this somewhat over-the-top (but not by much) article on why small businesses aren't hiring.

Then read the comments, including this one:

I am a self employed business owner, and my brother is also a small business owner. Neither of us will hire an employee under any circumstance, even if the economy was improving or even just steady. Here is why; the local, state, and Fed governments are out of their f---ing minds with rules, regulations, fines, direct and indirect ( hidden ) taxes. Hiring an employee is almost a form of self destruction where you are forced to provide guarantees to the employee and the state to provide for their well being. OSHA, Labor dept, DOT, Workers Comp., Unemployment, Health Care rules for Cobra, retirement , EPA, Dept. of Environmental Conservation, IRS, State Taxation, etc. etc. and f--k all of that bull---t. Been there, done that, will not do it again. This article describes myself and almost all the self employed people that I know to perfection. When help is needed, hire other self employed guys and gals, 1099 them and you are done. Keep overhead to an absolute minimum.
Maybe then, you'll begin to understand my anti-corporate, anti-government opinions.

Some of the biggest news today was that concerning the proposed merger of the NYSE/Euronext and the Deutsche Boerse. As it turns out, merger is an incorrect term by which to identify this transaction. Rather, the NYSE is selling itself to the Deutsche Boerse, meaning that even though there will be co-headquarters in New York and Berlin, the Germans will hold the controlling interest - about 60% - meaning one of our most basic institutions, the venerable New York Stock Exchange, will be largely owned by foreigners.

While this is not new nor novel - recall the Japanese buying up most of Manhattan's expensive real estate in the 70s (at inflated prices) - the precedent it sets is troubling. What will we sell next? The Empire State Building, the Statue of Liberty, the Capitol, the White House?

Some may argue that the latter two edifices are already foreign-owned, the title is still officially held by the US government, for now, though, as economics becomes more and more a dark science, that is subject to change. As it is, I am writing from a home heated by fuel supplied by a company based in Spain - a deal backed fully some years ago by Senator Charles (Sellout) Schumer - so, if our energy resources are to be parceled out to foreigners, why not the rest of the country. After all, there's no security risk in that, no?

Maybe having a bunch of rich German bankers running the NYSE is a good thing in disguise. The low volume of trading (Tuesday was the lowest of 2011 so far) is a signal that the exchange may not even be worth what the Germans are supposedly offering, which is about a 10% premium from where the stock (NYX) closed on Tuesday. Maybe it's time for Americans to throw up he white cloth en masse and surrender to the economic forces of the rest of the planet, put up big "for sale" signs in all the harbors and ports, and say goodnight. The party is officially over. Call it a day. Stop pretending that we're "exceptional" and sell us off for parts.

Maybe some of us could actually get a job in the deal. Of course, it would be a wages more commensurate with those in Thailand or Nigreia, but, hey, it's a buyer's market. Maybe the banks can sell off all that unsold REO for pennies on the dollar and retire their debt, along with their businesses. Let's be honest. America is for sale and the parceling out of the NYSE is just one, big, obvious example of just how broke we really are.

Speaking of broke, one thing that the crooks and manipulators on Wall Street simply could not see happen was breaking the string of positive closes by the Dow, which managed, miraculously, devoid of any news, to shake out of its dolorous decline of more than 40 points around 2:45 pm, and close slightly positive for the 8th day in a row. Now I know that America is bankrupt, financially as well as morally.

Strange as it may seem, only the Dow ended in plus territory and it was the only one riding a winning streak. Somebody at Goldman Sachs must have a bet, heavily-leveraged, that the Dow will continue going up for ten straight days. Only two left!

Dow 12,239.89, +6.74 (0.06%)
NASDAQ 2,789.07, -7.98 (0.29%)
S&P 500 1,320.89, -3.68 (0.28%)
NYSE Composite 8,343.84, -36.01 (0.43%)

Declining issues still stomped all over advancers, 4089-2399. New highs outnumbered new lows on the NASDAQ, 162-20; and on the NYSE, 196-13. Volume was down in the pits again, just barely above Tuesday's 2011-low level.

NASDAQ Volume 1,898,219,125.00
NYSE Volume 4,424,957,000

Oil futures finished slightly lower, down 23 cents, to $86.71, as OPEC production reached its highest level in two years and gasoline supplies in the US were at their highest levels in 21 years, due to diminishing demand.

Gold gained $1.40, to $1,365.50, while silver was flat, at $30.28.

In Washington, our comedy channel, otherwise know as congress, proposed some "big" spending cuts in the 2011 budget, which, by the way, is already five months down the road. These cuts of anywhere between $35 billion and $74 billion, are minuscule compared to the overall size of the proposed federal budget ($3.8 trillion) and less than 3% of the proposed deficit.

These aren't cuts, they're a mockery of the American public and the laws of economics.

Lastly, the video not to be missed, in which the difference between homeowners who don't pay mortgages and bankers who cheat at every turn is discussed:

Bankster vs. Deadbeat

Tuesday, October 5, 2010

Title, Standing at Heart of Foreclosure Disaster; Stocks Don't Care, Rally

Finally, the truth about affidavits which are at the heart of the "robo-signing" scandal comes to light, courtesy of a must-read, NY Times front page story by Gretchen Morgenson.

The key passage:
"The byzantine mortgage securitization process that helped inflate the housing bubble allowed home loans to change hands so many times before they were eventually pooled and sold to investors that it is now extremely difficult to track exactly which lenders have claims to a home.

Many lenders or loan servicers that begin the foreclosure process after a borrower defaults do not produce documentation proving that they have the legal right to foreclosure, known as standing.

As a substitute, the banks usually present affidavits attesting to ownership of the note signed by an employee of a legal services firm acting as an agent for the lender or loan servicer."

Now we know that what mid-level employees at GMAC (now Ally Bank), JP Morgan Chase, and Bank of America were signing off on were attestations of mortgage assignments between banks and securitization trusts, i.e., the supposed note-holding investors. The sad truth is that the original notes have been lost, misplaced, trashed or somehow dispossessed, and the servicing banks - which have no standing to foreclose - have been scrambling for alternatives. In light of the fraudulent manner in which the banks have been handling real estate business for the past five to ten years, it's entirely possible that even the information in the robo-signed affidavits is faulty, incorrect or woven entirely from unwholesome cloth.

This issue has not escaped the notice of some quick-draw attorneys in Kentucky, who have filed a class-action RICO lawsuit on behalf of all Kentucky homeowners in foreclosure, against Citigroup, Ally Bank and MERS (Mortgage Electronic Registration System), claiming that through MERS the banks are foreclosing on homes even when they don’t hold titles to the properties.

Lender Processing Services (LPS), one of the foreclosure mills at the heart of the controversy and unfolding legal drama, traded as high as 44 within the last year, but has been in decline lately. Over just the past three trading sessions, the company's stock - which went public just two years ago - has fallen from a high of 33.50 on Friday to a low of 25.50 today. Company executives were busy explaining discrepancies in signatures on various foreclosure documents.

The issue was discussed in a heated segment on CNBC's "The Kudlow Report" Monday night, with host Larry Kudlow calling the situation "chaos." Note Kudlow's shocked and animated appearance during the segment below. Obviously, he's aware of the potential long-term ramifications of these developments.

At issue is nothing less than the credibility of the banks and the legal system. In Florida, where foreclosure cases are being heard in courtroom hallways and by retired judges due to the overwhelming volume of cases, the "rocket docket" has given the banks the benefit of the doubt when the reality may be that many servicing banks didn't actually have standing to foreclose and may have used forged, fraudulent documents to take homes from unsuspecting owners.

None of this was worthwhile news on Wall Street, however, as investors took advantage of a weak US dollar and hints of more QE by the Federal Reserve to boost stocks in a day-long rally.

Dow 10,944.72, +193.45 (1.80%)
NASDAQ 2,399.83, +55.31 (2.36%)
S&P 500 1,160.75, +23.72 (2.09%)
NYSE Composite 7,434.18, +161.65 (2.22%)

Advancers buried decliners on the day, 4682-1078. New highs towered over new lows, 550-32. For a change, volume was actually quite robust.

NASDAQ Volume 2,234,181,500
NYSE Volume 4,932,642,500

Commodities made enormous moves on the back of the declining dollar. Crude oil for November delivery soared $1.35, to $82.82 on the NYMEX. Gold advanced $23.50, to $1,340.30 another all-time high, while silver rose an astonishing 70 cents, to $22.74, a 3.18% move.

The moves in the stock market may be fleeting however, as investors brace for the release of key jobs data. At 8:15 am Wednesday the ADP Employment Change will hit the wires. Expectations are for a feeble number of just 20,000 private sector jobs created in September.

On Friday, the Bureau of Labor Statistics reports on non-farm payrolls for the prior month with expectations for a loss of 18,000 jobs overall and an unemployment rate of 9.7%. The figures are distressing to most people but seem to have little effect on Wall Street as continued high unemployment simply doesn't seem to be a metric most traders wish to look at with any kind of fundamental analysis.

With earnings beginning to take center stage, employment data may be simply overlooked, something investors will do at their own peril. With the true unemployment rate hovering around 18-20%, one has to wonder how long Wall Street can remain in denial as the underlying US economy continues to deteriorate.

As we've learned from the dotcom explosion, the subprime disaster and the general market malaise of 2008, denial can be an ongoing condition until well after the crisis has become severe. As elections loom ever closer, stocks seem to be in a highly volatile state, with valuations not reflective of economic realities.

Today, stocks seem like no-lose investments. The key question is how long will they remain floating on a bubble of cheap or free money when the underlying debt conditions appear to be creaking and groaning for relief.

Thursday, September 30, 2010

Should American Homeowners Stop Paying Mortgages?

Since Wall Street is essentially lined with Zombie traders trading Zombie stocks, there are more interesting developments on the financial landscape that deserve attention.

We'll get to the title of this post in a moment, but first, here's how the day went for those six or seven individual investors still trading stocks.

Initial claims came in better than expected, at 453,000, after last week's upwardly-revised 467,000. Everyone cheered. Stocks started the day on a positive note. At 9:45, the Chicago PMI came out, showing a dramatic ramp-up, to 60.4, after an August reading of 56.7, and far better than the expectation of 55.0. More cheering. CNBC's Mark Haines nearly wet himself, giddy that the Dow was closing in on 11,000, though that's expected from such an utter moron cheerleader.

The Fed executed another POMO, which was not accompanied by cheers, but rather jeers, worth only $2.2 billion. Stocks soured on the news. The Dow, which had been up more than 110 points, dropped to a 90-point loss shortly after noon, with the other indices registering similar declines.

The rest of the day was spent trying to ignore bad news and prop up stocks. The insiders did a fair job, bringing the indices back to show only marginal declines.

Dow 10,788.05, -47.23 (0.44%)
NASDAQ 2,368.62, -7.94 (0.33%)
S&P 500 1,141.20, -3.53 (0.31%)
NYSE Composite 7,281.07, -18.24 (0.25%)
NASDAQ Volume 2,198,369,250
NYSE Volume 4,673,228,500

Declining issues nosed out advancers, 2878-2812. New Highs beat New Lows, 478-36. Volume was at its normal, reduced pace.

Crude oil gained $2.11, to $79.97. Gold fell $1.20, to $1308.70. Silver also lost ground, down 15 cents, to $21.75.

Now, on to the question of whether or not American homeowners should stop paying their mortgages. This question became relevant a few years ago, when many subprime lenders defaulted on what have come to be known as liar loans, no doc loans and NINJA (No Income, No Job and no Assets) loans. The subprime catastrophe began in 2007, and some of the borrowers are probably still living in their homes without making either mortgage or tax payments.

Even more homeowners defaulted during the recession of 2008-2009, cratering the housing markets in Nevada, California, Florida and Michigan primarily, but spreading nationwide as foreclosures soared and millions were kicked out of their homes and onto the street.

Recently, however, the sad saga of the residential housing collapse took an even more severe turn, when it was discovered that thousands of affidavits used by banks in foreclosures were invalid. The signers of the affidavits were employees of Ally Bank, formerly GMAC, whohad neither read the contents of the affidavits nor had any knowledge of the events described therein.

Ally Bank responded by halting all foreclosures, evictions and repossessions in 23 states.

Also, implicated was JP Morgan Chase, one of the largest holders of mortgage paper. The bank responded by halting 56,000 foreclosures in their respective tracks. With an average value of $200,000 (probably worth something closer to $125,000 today), that's more than $11 billion in mortgage loans facing foreclosure that are just going to have to sit and wait while the bank and the courts sort all of this out.

In response, today, the Attorney General of Ohio, Richard Cordray, has referred the GMAC foreclosure fiasco to the Justice Department as a possible criminal matter.

And, not to be left out, late Wednesday, Ambac Assurance sued Bank of America for $16.7 billion, saying the bank's Countrywide unit fraudulently induced Ambac to insure bonds backed by improperly made loans.

On top of all of that, savvy homeowners with underwater loans have been strategically defaulting in droves, choosing to fight the banks rather than spend hard-earned money on a home which may never be worth what they paid for it. That only adds to the hundreds of thousands of strapped homeowners who defaulted due to job loss or other personal calamity.

With word out now that the bank paperwork may be in tatters, with titles clouded on homes across America, the banks - who started the whole mess by making mortgage loans to anybody with a pulse during the mid-2000s - are looking more and more like the eventual fall guys in all of this.

For background, this interview on King World with Institutional Risk Analytics Co-Founder Chris Whalen gives a very concise and scary view of where the banks stand and what may come next.

In essence, the banks have reams of paperwork on mortgages all over the country, though nobody is really certain which parts are real, which are forgeries and how this is all going to play out in the courts. What is known is that the banks face extremely expensive litigation for years to come, courts are overwhelmed with foreclosure cases and meanwhile, many non-paying homeowners are living in the houses rent-and-mortgage-free, most not paying property taxes either.

Banks may choose to "walk away" rather than litigate on many mortgage loans, especially those with known defects (so-called "putbacks") that have been returned by the GSEs (Fannie and Freddie) or the trusts of MBS.

With scads of homeowners living the good life, those stuck with mortgage payments may get the idea that they too might like to take their mortgage payment and sock it away or spend it rather than give it to the bank, who may or may not have legal title and thus the right to foreclose in the first place.

It's a calculated risk, depending upon the state in which you live and the pertinent laws. Most states are judicial foreclosure states, in which the only way for the bank to repossess is through the courts, while others are non-judicial. Even in those states, faulty paperwork would prevent foreclosure, should the homeowner hire a capable attorney or handle the proceedings on one's own.

With the outlook for the economy generally glum over the coming five to ten years, there are for certain more than a few people considering the strategic default route, foregoing the mortgage payment, and thus risking being kicked out of your home, and weighing the risk with the distinct possibility that the litigation could take anywhere from nine months to three years and that the bank may not have the proper paperwork, anyway.

In such a case, the homeowner may receive a windfall in the form of a free house, though he or she may not be able to ever sell it, due to defects in the title. The scenario is cloudy for most people, but still worth consideration.

One thing is for sure. The more people who openly default, the more the idea gains traction and at some point the flood of defaults could reach critical mass, wherein the banks and the courts are so completely overwhelmed - and the economy suffers severely as a result - that it makes complete sense NOT to pay.

That condition almost certainly already exists in Detroit, Las Vegas, Miami and parts of California and Arizona, the epicenters of mortgage default. The municipal authorities have to be under severe pressure in these cities, as property tax revenues have likely fallen to depression levels. When the government begins to take significant hits because of the calamity in home-ownership, squatting and vandalism become rampant. This is already the case in the aforementioned areas. The question is whether or not it is coming to your town or city and whether or not your local mayor or supervisor has enough vision - and money - to keep the municipality operational.

And that's the ultimate fear: anarchy, as debt becomes the brunt of jokes, homes are lived in without regard to legal ownership and the government cracks under fiscal pressure. If the onslaught of defaults isn't handled properly and quickly enough, America's cities could turn into seething, decaying cesspools of debt, default and doubt, with the suburbs soon to follow suit.

In such a scenario, guns and metal doors may serve occupants better than clear title and paying off a mortgage would move to the bottom of the list after safety, security, food, water and utilities.

So, the next time you're about to write that check for the monthly mortgage payment, consider that moral hazard has already been slain by the actions of the banks and the government and your next move could be the most critical, life-changing action you'll ever undertake.

Borrowing a line from Clint Eastwood's "Dirty Harry", you have to ask yourself, "do you feel lucky?"

Thursday, March 11, 2010

No Change Must Be Good

Nothing much of importance happened today, giving market participants yet another opportunity to do what they've been doing for nine of the last twelve sessions: bid stocks higher.

There must be something quite enticing about owning stocks nowadays because there seems to be no shortage of buyers. Whatever the reasons, stocks continue to add to gains, day after day after day. It's becoming something of a bore.

Suppose the congress went home for a month, two months, six months, or just simply hung around and enacted no new legislation. Suppose the Fed kept short term interest rates permanently at zero. Suppose government debt was paid for with more government debt and that banks could continue to keep poisoned, rotten assets off their balance sheets.

Add in real unemployment at about 16%, 15% of all homeowners either behind on mortgage payments or already in foreclosure.

We'd have exactly the conditions we have today, though how all of that relates to being positive for stocks or the more general economy is a quizzer.

As for that final piece of the puzzle, the 15% of the "better off" homeowners in America falling behind, that info comes via the Mortgage Bankers Association, a group which should know the reality of homeownership, in this Washington Post article from February 20, 2010. Maybe you missed it.

The key passages are these:

"About 9.47 percent of all borrowers were delinquent on mortgages during the fourth quarter, according to a survey. The number is down slightly from the previous quarter, the highest on record, but was the second-highest level ever seen. An additional 4.58 percent of homeowners were somewhere in the foreclosure process.

This means that about 15 percent, or 7.9 million mortgages, were in trouble during the quarter, according to the industry group. It is the highest level recorded by the survey, which has been conducted since 1972, and up from 11 percent, or 6.4 million loans, during the corresponding period in 2008."

That is simply not encouraging.

As for unemployment, the weekly initial claims data was released early today, showing another 462,000 people filed new claims in the most recent reporting period. There were also more than 4,500,000 people still collecting unemployment benefits and congress just approved another extension. There are people out there who have been receiving benefits since March, 2008. Maybe you know some of them.

The 9.7% unemployment rate the government likes to tout is a neat fabrication which doesn't include "discouraged" workers or those who have taken lower-paying part-time jobs. As claimed earlier, real unemployment is about 16% of the available labor pool. It's much higher for specific groups, such as teens and minorities.

Somehow, all of this makes stocks good investments. Sorry, but some of us disagree. Anybody buying stocks with real money these days is simply gambling, and much of what's out there appear to be bad bets.

Dow 10,611.84, +44.51 (0.42%)
NASDAQ 2,368.46, +9.51 (0.40%)
S&P 500 1,150.24, +4.63 (0.40%)
NYSE Composite 7,353.21, +25.54 (0.35%)

Advancers beat down decliners, 3690-2702. New highs beat new lows, 563-51. That gap will begin to slowly decline. By August or September, possibly sooner, new lows should retake the advantage. Volume continued at a trickle. Goldman Sachs alone is probably responsible for 30% off all the trading volume on the exchanges, possibly as much as 45%.

NYSE Volume 5,093,085,000
NASDAQ Volume 2,093,398,875

Commodity prices moderated. Oil only gained 16 cents, but is priced now at $82.25 per barrel. Gold was absolutely flat, at $1108.10. Silver gained 15 cents, to $17.17.

There will be a reckoning for the current rallying folly. And it really is foolishness of a high degree. Stocks are close to recent highs, so when were we supposed to buy stocks? When they were high? We all know the answer to that question.

Friday will bring some economic data. Retail sales for February, along with the Michigan Sentiment survey for March and January business inventories will cumulatively tell us that nothing is going on in one way or another.

Stocks will rise again.

Tuesday, February 16, 2010

Tough to be a Bear

Days like today, when one feels like a lonely whisper in the wilderness, test the courage of one's convictions.

After carefully weighing all the evidence, poring over tracts and texts from sources far-flung across the internet and the spheres of influence in global economics, one cannot escape the thinking that the entire structure of capitalism, the integrity of institutions so revered as the Federal Reserve and market disciplines such as balanced budgets have been flung out the window by nefarious forces which seek only to obfuscate and delay the inevitability of mass defaults on everything from sovereign debt to credit cards in the coming months and years.

On Wall Street, ready for business after a three-day holiday, everything was bright and cheery and on the way up. Market participants acted as though stocks were difficult to find and hold at decent prices. Right off the opening bell, the Dow gapped up roughly 70 points and continued on a day-long trek to higher ground.

Unease over credit issues in Greece, Portugal and Ireland were treated as though they were old news, even though nothing but words have passed between the Euro nations. Unemployment, forecast by the Obama administration to be officially above 8% though 2012 (though unofficial, and probably closer-to-the-truth estimates say it's currently about 18%) only received passing glances. The ungodly mess that is the US housing market continues to crater into a morass of default, foreclosure, clouded titles and ruined families. None of this made one bit of difference to the titans of finance who lord over the markets. Stocks would rise; the economy be damned!

It's tough to keep a smile or a straight face through days like today. All anyone can effuse over are a couple of corporate earnings reports from some marginal players and one or two major ones, Kraft and Merck, both of which released 4th quarter earnings befor the bell. Merck did better, Kraft about the same. Meanwhile, the fates of millions of Americans are blowing in the wind, as corporations show not the least bit of interest in creating new jobs by expanding their businesses. No, the status quo will have to suffice for what we are forced into believing is a recovery.

Meanwhile, banks continue hoarding vast sums of money instead of lending it, congress bickers, stalls and does nothing, and middle America is supposed to sit back, watch the olympics and be content. Welcome to the fascist oligarchy.

Almost completely unnoticed was the announcement last week that Fannie Mae and Freddie Mac are going to buy back delinquent mortgages from investors, in effect, making the note-holders whole. This should come as no surprise - and even less surprise that it's not being widely reported - as the entire real estate boom and bust runs full circle. The banks got their TARP money, now the investors in all that worthless paper known as mortgage-backed securities (MBS) are getting theirs, and a whole lot sooner than anticipated. Though the investors will not reap the benefits of compound interest over many years has the mortgages been maintained, they will get their principal back, and probably some small gain, thanks to the friendly folks at Fannie and Freddie, two wholly-owned branches of the federal government, financed by taxpayer debt.

It will likely take a decade for the government to work out all the details of foreclosing on millions of homeowners, or they will claim the homes under eminent domain or through some other underhanded scheme that only the most corrupt government in the history of the world can devise. Clouding the picture further for homeowners in default is the risk of foreclosure by the wrong party, namely the mortgage servicer - the Bank of Americas, Chases and Citigroups of the world. Since the investors have been paid, the servicing banks are essentially out of the loop, having no standing in a foreclosure proceeding.

The important point is that, for the majority of mortgages in default, the only proper party to entertain a foreclosure proceeding would be Fannie or Freddie. The two have underwritten - or insured and subsequently paid for - about 9 out of 10 mortgages in the United States over the past thirty years. When Fannie or Freddie come calling, homeowners should expect to be out of their homes in record time. The government will probably have little patience with loiterers. They'll also likely not forgive the balances, either, especially in states which allow for deficiency judgments. It should prove to be a lovely decade for housing in America.

Dow 10,268.81, +169.67 (1.68%)
NASDAQ 2,214.19, +30.66 (1.40%)
S&P 500 1,094.87, +19.36 (1.80%)
NYSE Composite 7,013.35, +138.79 (2.02%)

Advancing issued trampled decliners, 4994-1564. There were 250 new highs to 54 new lows, a gap that's likely to widen in coming days as we approach the one-year anniversary of the market bottom on March 9. Expect the new lows to take away the edge by June at the latest as the market gyrates up and down. Volume was about as pathetic as ever. There's no impetus for this rally and it is probably going to be a one or two-day event. Economic reality will make an appearance before the week is out, though it should be mentioned that the same pattern has been playing out fairly steadily for weeks: On Monday, the dollar drops, free money is put into stocks and then gradually withdrawn - at a profit - as the week unfold and the dollar gains. That's the current game: week-to-week, day-to-day, hand-to-mouth.

NYSE Volume 4,737,764,500
NASDAQ Volume 1,954,910,875

Commodities rose without any compelling stimulus. Crude oil shot up to $77.01. Gold struck $1,120.00, a gain of $30. Silver rose 64 cents, to $16.09.

Sell the rally. It won't last.

Thursday, January 21, 2010

On CNBC, Robert Weissman Proposes that "Under Water" Mortgages Stop Paying!

Stemming originally from loose lending standards that sent property values soaring from 2000-2007, a strategic default strategy for people with "under water" mortgages - the mortgage is for more than the fair market value of the home - is beginning to go mainstream.

Exacerbated by the $700 billion TARP bailout of the major banks which caused most of the problems in the first place, and now, executive bonuses to the same banks' top people, more and more Americans are seeking relief by just "walking away" or simply not paying their mortgages.

Here, in this video clip aired around 10:00 am EST on CNBC, Robert Weissman, President of the consumer advocacy group, Public Citizen, advocates that people who are "upside down" or "under water" should stop paying their mortgages. The comment comes at about the 4 minute mark in this discussion of executive bonuses, but despite the shock and awe - especially by Wall Street shill Mark Haines - Weissman doesn't retract or relent.

Pretty amazing.

As unbelievable as not paying your mortgage may sound, it gets even more interesting. Having researched this topic extensively, it appears that the banks which made all of the sub-prime, 20/80, interest-only, balloon payment, ARM, and prime loans - especially between 2003 and 2007 - were the same ones which, a. sliced and diced and "securitized" the notes, and, b. received TARP bailout funds.

While those two magnificent events are separate, they are conjoined. Because the banks went about the unthinkable business of separating the mortgage from the note (the common practice for hundreds of years had been for the bank to hold both the mortgage and the promissory note (promise to repay)), and then packaging these notes for sale to private investors, when the first big wave of defaults hit in 2007 and accelerated in 2008, the banks were caught with significant egg on their collective faces, as the SDOs (Securitzed Debt Obligations) began to default, eventually prompting the bailout, now better known as TARP, the $700 billion swindle which kept the banks solvent - for now.

However, because the mortgage and note on many mortgages (some sources say as many as 60 million of them) were separated, when homeowners stop paying, the normal route for the bank is to foreclose, except that the mortgage holder, or loan servicer, has no standing in a foreclosure, only the note-holder does. Those notes have been sold, traded, lost or are otherwise missing in action, the actual holder of the note unknown or is some obscure trust set up to sell interest in the note to investors in exchange for regular payments.

The financial and legal boondoggle this situation has created generally leaves homeowners with some good options: if the servicer brings a foreclosure action, they are in violation of federal and in most locales, state law, and, widely interpreted, also have no standing to foreclose. The mortgagor (homeowner) can then choose between filing a motion for dismissal on grounds that the servicing bank has no standing, or demand that the bank produce the note. In either instance, the foreclosure process is delayed and/or halted, sometimes permanently.

Recent decisions have ruled in favor of homeowners and against the banks. The media generally doesn't want this idea to gain traction, and the general public doesn't understand the issues, especially the key one that if the note and note-holder cannot be determined, or if the note-holder doesn't initiate foreclosure, the homeowner may be sitting on property, free and clear, even though title to the property will be clouded, at best.

It's difficult to believe that the banks who devised the entire scheme of mortgage fraud and securitzation didn't know exactly what they were doing. Once property values fall so dramatically that mortgagors stop paying en masse, the game is over. Bank income will fall so dramatically they'll be forced to close their doors. The government will have to step in again, though this time, not with money, but with guns and tanks to protect the banks' remaining assets (buildings and property), employees, and especially, executives.

The calamitous situation that would occur - clogging the judicial system (which is largely broken anyway) with far too many cases than it can handle - with homeowner, landowner, title and lien disputes rampant, no reliable banking system, and virtually no laws governing property ownership, conditions would deteriorate quickly. Municipalities, whose entire existence depends on property tax revenues, would be in line to fail, as would, naturally, the usurious issuers of credit cards, which debt is unsecured.

In such a scenario, the financial system would completely break down, along with the judiciary. Law enforcement would be overwhelmed, the likely outcome being the imposition of martial law in the hardest-hit areas, probably most of California, Florida, Nevada, Arizona and most major cities. Naturally, the stock market would implode, as bloated as it already is.

If you think the financial meltdown of 2008 was close to the edge, imagine just 10 million mortgages going unpaid and the resultant calamity. The bright side may be that you get to own your home free and clear, the downside being that you may have to arm yourself to defend it, and, in the end, you probably couldn't transfer clean title, so you couldn't sell it or take out a home equity mortgage against it.

The choice is there. Personally, I have no respect for anyone who knowingly purchased a home at inflated prices over the past 5 or 6 years and now wants to screw the bank because property values have fallen. Stop paying, and they'll fall some more. At least most people will have a place to live.

America is now sailing in uncharted waters. The chance of the system breaking down to a point of widespread civil unrest is probably greater now than it has ever been, even moreso than during the financial breakdown. Middle and lower class Americans have watched banks being bailed out (with taxpayer money), bankers hauling down huge bonuses and Wall Street partying like it's New Year's Eve, while most of their neighbors are losing their jobs, their homes, their families and their self-respect. The unfairness of the nation's financial condition (to say nothing of the welfare state) has reached a boiling point at which more than just a few people are considering the option of strategic default, hoarding cash and letting the chips fall where they may.

We certainly do live in interesting times.

(I'll be editing this later to include some links)

Tuesday, August 14, 2007

Pick a number

This market is hellish, though some will tell you that it's technically not a Bear... yet. Those people will soon be revising their estimates and advising their clientele differently. With nearly 1000-points lost on the Dow since its peak on July 19 (remember 14,000?), this is about as clear an indication that the 4 1/2 year party that was recently Wall Street is quickly turning into Skid Row.

With another 200+ point decline, not only the US equity markets, but economies worldwide are on high alert. The entire fractional-reserve fiat money banking system is about to blow sky high, so pick a number and see how close you come to calling the market bottom.

I'll venture a guess at 9380 and a date of maybe February, 2010. Crashing through various psychological barriers like 13,000, 12,000, 11,000 on the way down, there are certain to be a number of times in which the markets look to have turned a corner, but they will be, sadly, false fronts. Only after disposing of the 10,000 level will psyches be truly mushy enough for a stable rebound.

Dow 13,028.92 -207.61; NASDAQ 2,499.12 -43.12; S&P 500 1,426.54 -26.38; NYSE Composite 9,254.27 -174.59

A fall to 9680 would be a 33% pullback from the 14,000 high, and that may be somewhat optimistic. Off the October 2002 low of 7286.27, such a decline would be a retracement of 69%. Fibonacci adherents take note.

Today's selling was the result of a complete lack of repo lending by the Fed and - who knew? - more credit-related issues, especially that of Sentinel Management Group, which oversees about $1.6 billion in assets, who told clients that it may block redemptions from the fund to avoid forced liquidation. That and more concerns about over the exposure of brokerages Bear Stearns and Lehman Brothers to mortgage-backed issues set the sellers afire.

Additionally, 17 Canadian trusts have sought help from banks to repay loans that are due.

Could this be the beginning of a dark chapter in global finance? It certainly appears so. Central bankers have been nervous for weeks and the credit and liquidity woes once thought to be contained are beginning to spread to foreign investments and money market funds. What's worse is that the re-pricing of roughly $1.3 trillion in so-called 2/28 ARMs has yet to occur. The bulk of these loans - $1.7 trillion - were made in 2005 and 2006, so we're are just seeing the proverbial tip of the financial iceberg.

2/28 ARMs are mortgage loans in which only interest is paid during the first two years. Upon repricing, interest and principal is calculated over the remaining 28 years of the loan. Monthly mortgage payments typically skyrocket and homeowners default. California, Ohio and the tri-state region of New York, Connecticut and New Jersey have been the hardest hit to date, with more than 500,000 defaults recorded during the first six months of 2007.

This is a snowball rolling downhill, as defaults escalate, homes will be lost, many billions of dollars worth of notes will become worthless paper and consumer spending, by sheer weight of numbers, will gradually falter.

Already, Wal-Mart, the nation's largest retailer, has revised estimates lower for the remainder of 2007. Subsequent revisions are to be expected from other retail concerns.

Once spending is curtailed, job cuts will follow in all manner of industries. Non-essential positions will go first, such as clerical and support staff, but the cuts could cripple many going concerns. On top of all this, many states have initiated mandatory minimum wage requirements above national standards. At just this point in time, many businesses will choose not to hire rather than commit to labor costs they feel are too high.

One positive note is that inflation will become a thing of the past. Businesses will cut prices in an effort to remain afloat. Many will not survive.

This is, of course, the nightmare scenario similar to that of the Great Depression, which was a worldwide phenomenon. Ruined lives, fortunes lost, displacement of people and separation of families were the outcomes. The parallels are there: overpriced stocks, easy credit, lack of regulatory control.

Today's internals were some of the worst to date. Declining issues beat advancers by a 9-2 margin. New lows swamped new highs, 614-54.

Of the 30 Dow stocks, only one, ExxonMobil, traded higher, and that was only by a mere 21 cents.

Oil for September delivery on the NYMerc rose 76 cents to $72.38. Some people are simply out of touch with reality.

Oddly enough, the precious metals have yet to respond to the ongoing calamity. Gold lost $1.20 to close at $679.70; silver lost 11 cents to $12.75. These are absolutely shrieking buys, though there's a belief that the markets are being contained by big money, notably the world's central banks.

Once the lid is lifted off these commodities, prices are sure to soar 15-25% in a very short span.

Tomorrow's another day... another day closer to a date with financial destiny.