On March 28, 2008 - about the time Bears Stearns was blowing up and before just about anyone was predicting a crisis - the Dollar Index bottomed out at 71.585.
Today, after the FOMC re-confirmed (for about the 16th time) that the federal funds rate would remain at "near" zero per cent, that very same index hit a three-year low at 73.26, closing just a touch above that level, at 73.317.
Some not suffering from the all-American malaise of short-term memory loss will recall that 2008 was not a very pretty time to be in stocks. Nor was it particularly good to be working for a Fortune 500 or other large corporation, as, by the end of the year, employees were being shed light so much dead weight off a beached ocean cruiser.
Comparing today to that sorry state of affairs is rather simple. Then, we were just heading into what would turn out to be one of the most devastating recession/depressions of modern times. Today, we are still not recovered from it.
Back in 2008, Ben Bernanke was saying that everything was OK, and soon he would glibly announce that the sub-prime crisis had been contained (insert laugh track here).
Today, the Bernanke delivered the very first of what we hope will be a short-lived experiment - a press conference following the announcement of the FOMC rate policy (no change). Once again, the Bernanke assured us that everything was just peachy, except that the economy was "recovering" a little bit slower than he'd like. We can all join him in that sentiment.
Today, Mr. Bernanke read some prepared remarks, bored us to tears and took questions from the assembled press corps, boring us even more. Today, Mr. Bernanke wants us to believe that core inflation is running at about a 1.6 to 2.2% rate, and while that may be true, core inflation leaves out food and energy, so with those included, real inflation is running at about 6-8%.
The Chairman also assured us that inflation risks were contained, just like he said the sub-prime situation was contained back in 2008. Many of us in the blogosphere didn't believe him then, and we don't believe him now, except this time we have proof.
All one has to do is go shopping, which means getting in a vehicle and driving somewhere and maybe buying some gas, which is more expensive than it was last week, and the week before that and the week before that...
Once one is over the shock of $4.00/gallon gasoline, one can go shopping for some food maybe, and find that prices are higher on fruits, vegetables, canned goods, meats, just about everything.
So, no, Mr. Bernanke, you and your Federal Reserve buddies, whose mandate is to provide price and wage stability and full employment, have failed on all accounts and your pronouncements to the press and the public are falling on deaf ears. Many don't bother to pay any attention to you at all, and even more don't even know who you are (that may come in handy when the pitchforks and torches come out). Another group believes you are lying and that you are ruining the economy and the nation with your mindless inflation-building, dollar-destroying policies.
And don't forget, we have proof. This time, we won't be fooled again.
On this day that the Fed reiterated its Zero Interest Rate Policy (ZIRP), everything went up while the dollar crashed and burned. Stocks were up. Interest rates were up. Gold was up, so too silver, oil, live cattle, cocoa and oil. The few commodities that did go down were already way up, and will likely go up more in the not-too-distant future.
The Fed is killing us, which it why is so refreshing to learn that Ron Paul is running for president. The Texas firebrand, if elected, will run Bernanke and his crew out of town.
Dow 12,690.96, +95.59 (0.76%)
NASDAQ 2,869.88, +22.34 (0.78%)
S&P 500 1,355.66, +8.42 (0.62%)
NYSE Composite 8,609.28, +54.29 (0.63%)
On the major stock indices, advancers pummeled declining issues, 4233-2315. NASDAQ pumped out 148 new highs and 25 new lows. The NYSE produced 290 stocks which hit new highs and 10 which made new lows. Volume was in line with expectations, which is a polite way of saying it was low, again, as usual.
NASDAQ Volume 2,083,155,500
NYSE Volume 4,525,766,000
Crude oil closed up 55 cents, to $112.76. The average price for a gallon of unleaded regular in the USA is now $3.88. Nine states are already averaging over $4/gallon, and West Virginia and Wisconsin are at $3.96 and $3.97, respectively. Soon that number will be 15, then 25 then 45. In time, even those states closest to the Gulf of Mexico - Alabama, Mississippi, South Carolina, Louisiana, Georgia, where prices are among the lowest in the nation, will be hovering near the $4 mark, the point at which the nation surrenders what little is left of its dignity - and money - to the global oil cartel.
Those adding to their stash of gold and/or silver yesterday on the rare pull-back, received instant gratification as both metals popped on the FOMC and Bernanke's policy announcement. It seems the gold bugs and silver liners also appreciate Bernanke's policies, except that theywish he'd take a break now and again to give them time to buy more precious metals before the prices go absolutely hyperbolic.
Gold hit another all-time record, currently trading at $1527.20, up a whopping $20.10 from Tuesday's close. Silver also regained its mojo, picking up $2.16, to $47.76, closing in on the magical Hunt brothers high of $50.25, achieved in 1980. Silver is expected to go right on past that point as long as Bernanke keeps interest rates at zero and the dollar continues to slide into oblivion.
Therefore, if you're feeling a bit squeezed, thank the Bernanke. He's our guy.
Showing posts with label sub-prime. Show all posts
Showing posts with label sub-prime. Show all posts
Wednesday, April 27, 2011
Wednesday, March 24, 2010
BofA's Write-down Gambit
Bank of America, allegedly holding 1.5 million loans that are 60 days or more behind on mortgage payments, today announced a new plan designed to write down principal values on a variety of loans to their most troubled homeowners.
The most affected groups will be those who took loans that were largely responsible for the meltdown in the mortgage securities market and eventually, the larger economy, over the past two years: sub-prime, interest-only and other variable rate products.
Prompted by lawsuits which alleged that Bank of America "strung out, delayed and otherwise hindered" efforts to resolve mortgage issues on homeowners in the state of Washington, the nation's largest mortgage servicer outlined the new program, which at first glance appears to have some value, though the gamble is that by lowering principal on loans in which the property values are lower than the original purchase price - often called "underwater" - the bank will further depress real estate values amid a market that is already under considerable strain.
The bank's plan is somewhat crafty, in that it works down principal balances over a period of five years and is tied to homeowners continuing to make mortgage payments. While it sounds hopeful on the surface, the plan may only prove to drive home prices down further, especially if economic conditions remain subdued or worsen.
In practice, principal write-downs are usually a last resort for lenders, who routinely hold out for the original, agree-upon value at the time of purchase. However, such as are conditions across a wide swath of the US real estate landscape, the bank seemingly is agreeing to take a "haircut" on its investment. Under BofA's plan, investors in mortgages would not suffer actual principal losses, but they would not make as much as originally planned.
No matter what, a haircut is still a haircut, so the very next thing to expect are lawsuits by mortgage investors. Some have already commenced. The bank is in a box because of its lending practices back in the boom days from 200-2007, when regulators looked askance at all manner of exotic mortgage products and real estate prices skyrocketed because of the lax standards.
In effect, this just buys the zombie bank more leverage and time to sort through the incredible mortgage morass. Within weeks or months, expect to see more banks offering more exotic plans to remediate troubled mortgage loans. All of them will be met with skepticism, most of them won't go far enough, the end result being a further breakdown in prices for residential real estate.
Most of the major mortgage lenders - Citigroup, JP Morgan, Wells Fargo - in addition to BofA, are in an untenable situation between foreclosure and principal write-downs. Both solutions are wrought with conflict and offer no guarantee of a positive outcome. The best most of the banks can hope for now is that they aren't damaged too badly, though they have nobody but themselves to blame.
News of the bank's most recent maneuver was met with mostly positive reaction, though the real effects will not be known probably for years, if ever.
Adding to the real estate woes was a Commerce Department report on new home sales for February, which fell 2.2% to an annual pace of 308,000. That was the lowest figure since data has been monitored: 1963, when the price of a middle-class suburban home was close to $30,000. The number of new homes being built underscores the actual depth of the real estate collapse and augers for even further declines in home values. With median household incomes virtually stagnant since the 1980s, home values should not have appreciated as much as they did, nor as quickly.
A reversion to a level more in line with actual economic conditions now seems absolute. With household income struggling to keep pace with expenses, the correct path is toward lower prices, not just on real estate, but tangentially, on everything from garden gnomes to restaurant dinners.
The deflationary spiral the Fed, the government and Wall Street most want to avoid now seems to be what it always was: unavoidable. Efforts to stem the flow have only served to buy time, temporarily propping up prices on stocks, gold and assorted other assets, but now, as evidenced by the non-ending housing crisis and associated unemployment condition (at multi-year highs), the death dance can engage in earnest.
Truth be told, economists are grasping at straws when seeking solutions to stem deflation and depression. No good solution has ever been made available at any time, other than the traditional - and painful - exercise of writing down or writing off bad assets and bad debts. Be prepared for another three to four years of dismal conditions, though, as readers of this missive already know, there are a wide variety of ways to mitigate the damage and actually come away less-damaged than your neighbors.
Bank of America has now stepped over a critical line and will not be able to step back. Cries of "foul" from homeowners diligently paying on their mortgage obligations will be loud and resonant. In a relentless search for the bottom, prices will proceed downward at an accelerating pace over the next 18-36 months.
Governments and financial wizards can only distort the truth to varying degrees. eventually, Actions like Bank of America's and data like the February new home sales reveal the true condition and it is far from pretty.
As for Wall Street, reality may be setting in that the overall economy is being kept floating by bailout money, productivity gains and government debt purchases rather than real, productive enterprises. Stocks slipped early in the day and remained lower throughout the session.
Dow 10,836.15, -52.68 (0.48%)
NASDAQ 2,398.76, -16.48 (0.68%)
S&P 500 1,167.72, -6.45 (0.55%)
NYSE Composite 7,408.20, -70.56 (0.94%)
Declining issues outpaced advancers by a wide margin, 4471-2033. New highs came down precipitously, to 417, though there were still only 40 new lows. Volume was about normal, though slightly elevated off some of the low-volume days of gains lately.
NYSE Volume 5,284,420,000
NASDAQ Volume 2,309,833,750
Commodities were also feeling the sting of reality. Off a report of higher crude inventory, oil fell $1.30, to $80.61. Gold was whipsawed $14.90 lower, to $1,088.60. Silver plummeted 39 cents, to $16.63.
If any of this activity looks like selling, you may have it nailed. Stocks and commodities have been driven up by hope and market insiders, and their values are highly inflated. Another downturn in the economy is already underway. The media, government and especially YOUR BROKER - all co-conspirators in the worst deceit in the long history of finance - simply refuse to own up to the truth.
Be certain you fully understand the frail condition of not only the US economy, but the entire world to some degree, and weigh the implications as they relate to your specific conditions. Only then can you devise a workable plan of action that will save you from desperation and ruin.
The most affected groups will be those who took loans that were largely responsible for the meltdown in the mortgage securities market and eventually, the larger economy, over the past two years: sub-prime, interest-only and other variable rate products.
Prompted by lawsuits which alleged that Bank of America "strung out, delayed and otherwise hindered" efforts to resolve mortgage issues on homeowners in the state of Washington, the nation's largest mortgage servicer outlined the new program, which at first glance appears to have some value, though the gamble is that by lowering principal on loans in which the property values are lower than the original purchase price - often called "underwater" - the bank will further depress real estate values amid a market that is already under considerable strain.
The bank's plan is somewhat crafty, in that it works down principal balances over a period of five years and is tied to homeowners continuing to make mortgage payments. While it sounds hopeful on the surface, the plan may only prove to drive home prices down further, especially if economic conditions remain subdued or worsen.
In practice, principal write-downs are usually a last resort for lenders, who routinely hold out for the original, agree-upon value at the time of purchase. However, such as are conditions across a wide swath of the US real estate landscape, the bank seemingly is agreeing to take a "haircut" on its investment. Under BofA's plan, investors in mortgages would not suffer actual principal losses, but they would not make as much as originally planned.
No matter what, a haircut is still a haircut, so the very next thing to expect are lawsuits by mortgage investors. Some have already commenced. The bank is in a box because of its lending practices back in the boom days from 200-2007, when regulators looked askance at all manner of exotic mortgage products and real estate prices skyrocketed because of the lax standards.
In effect, this just buys the zombie bank more leverage and time to sort through the incredible mortgage morass. Within weeks or months, expect to see more banks offering more exotic plans to remediate troubled mortgage loans. All of them will be met with skepticism, most of them won't go far enough, the end result being a further breakdown in prices for residential real estate.
Most of the major mortgage lenders - Citigroup, JP Morgan, Wells Fargo - in addition to BofA, are in an untenable situation between foreclosure and principal write-downs. Both solutions are wrought with conflict and offer no guarantee of a positive outcome. The best most of the banks can hope for now is that they aren't damaged too badly, though they have nobody but themselves to blame.
News of the bank's most recent maneuver was met with mostly positive reaction, though the real effects will not be known probably for years, if ever.
Adding to the real estate woes was a Commerce Department report on new home sales for February, which fell 2.2% to an annual pace of 308,000. That was the lowest figure since data has been monitored: 1963, when the price of a middle-class suburban home was close to $30,000. The number of new homes being built underscores the actual depth of the real estate collapse and augers for even further declines in home values. With median household incomes virtually stagnant since the 1980s, home values should not have appreciated as much as they did, nor as quickly.
A reversion to a level more in line with actual economic conditions now seems absolute. With household income struggling to keep pace with expenses, the correct path is toward lower prices, not just on real estate, but tangentially, on everything from garden gnomes to restaurant dinners.
The deflationary spiral the Fed, the government and Wall Street most want to avoid now seems to be what it always was: unavoidable. Efforts to stem the flow have only served to buy time, temporarily propping up prices on stocks, gold and assorted other assets, but now, as evidenced by the non-ending housing crisis and associated unemployment condition (at multi-year highs), the death dance can engage in earnest.
Truth be told, economists are grasping at straws when seeking solutions to stem deflation and depression. No good solution has ever been made available at any time, other than the traditional - and painful - exercise of writing down or writing off bad assets and bad debts. Be prepared for another three to four years of dismal conditions, though, as readers of this missive already know, there are a wide variety of ways to mitigate the damage and actually come away less-damaged than your neighbors.
Bank of America has now stepped over a critical line and will not be able to step back. Cries of "foul" from homeowners diligently paying on their mortgage obligations will be loud and resonant. In a relentless search for the bottom, prices will proceed downward at an accelerating pace over the next 18-36 months.
Governments and financial wizards can only distort the truth to varying degrees. eventually, Actions like Bank of America's and data like the February new home sales reveal the true condition and it is far from pretty.
As for Wall Street, reality may be setting in that the overall economy is being kept floating by bailout money, productivity gains and government debt purchases rather than real, productive enterprises. Stocks slipped early in the day and remained lower throughout the session.
Dow 10,836.15, -52.68 (0.48%)
NASDAQ 2,398.76, -16.48 (0.68%)
S&P 500 1,167.72, -6.45 (0.55%)
NYSE Composite 7,408.20, -70.56 (0.94%)
Declining issues outpaced advancers by a wide margin, 4471-2033. New highs came down precipitously, to 417, though there were still only 40 new lows. Volume was about normal, though slightly elevated off some of the low-volume days of gains lately.
NYSE Volume 5,284,420,000
NASDAQ Volume 2,309,833,750
Commodities were also feeling the sting of reality. Off a report of higher crude inventory, oil fell $1.30, to $80.61. Gold was whipsawed $14.90 lower, to $1,088.60. Silver plummeted 39 cents, to $16.63.
If any of this activity looks like selling, you may have it nailed. Stocks and commodities have been driven up by hope and market insiders, and their values are highly inflated. Another downturn in the economy is already underway. The media, government and especially YOUR BROKER - all co-conspirators in the worst deceit in the long history of finance - simply refuse to own up to the truth.
Be certain you fully understand the frail condition of not only the US economy, but the entire world to some degree, and weigh the implications as they relate to your specific conditions. Only then can you devise a workable plan of action that will save you from desperation and ruin.
Friday, October 12, 2007
Countrywide "PROTECT OUR HOUSE" Wrist Band on eBay
With the current malaise in the mortgage and credit industry, Countrywide Financial, the nation's largest mortgage lender (and sub-prime abuser), recently initiated a PR campaign designed to improve employee morale and boost the company's image.
The plan included a pledge, to be signed by loyal employees and a cheap rubber wristband with the Protect Our House slogan.
Some employees are taking advantage of the public's fascination with the sleazy, rah-rah tactics by Countrywide management and have decided to auction their wristbands on eBay. This one has already rung up bids of $165.00 and nearly 10,000 hits and ends on Saturday. There are at least 6 more available on the popular auction site.
The plan included a pledge, to be signed by loyal employees and a cheap rubber wristband with the Protect Our House slogan.
Some employees are taking advantage of the public's fascination with the sleazy, rah-rah tactics by Countrywide management and have decided to auction their wristbands on eBay. This one has already rung up bids of $165.00 and nearly 10,000 hits and ends on Saturday. There are at least 6 more available on the popular auction site.
Friday, August 10, 2007
The Fix Is In
As investors - and guys who wear pinstripe suits but really haven't a clue - nervously watched the Dow Jones Industrials plummet by another 200 points this morning, the intrepid manipulators from the Federal Reserve Bank (working, no doubt, in concert with the Plunge Protection Team) pumped two injections of "liquidity" into the markets in the morning and added a smaller boost in the afternoon.
In other words, the Fed bought stocks from brokers who, as part of the so-called "repo" deal, agreed to deposit the funds in Federally-insured member banks.
When the fed buys stocks, they aren't just fishing nor fiddling. Today's double dose was a total of $34 billion, designed to keep order in the face of an imminent sell-off. Late in the session, with the markets still down smartly, the Fed added another $3 billion.
Apparently, it worked, because the markets failed to melt down as many feared they would. However, these measures are little more than band-aids in a market that is hemorrhaging on multiple fronts.
Due to the blow-up of sub-prime mortgage loans, note holders find themselves stuck with much worthless paper. The spill-over into derivative, insurance, M&A and other credit markets has been stoking fears of financial calamity.
Without a doubt, this is a big mess that's not going to end soon or resolve in a pretty way. Billions of dollars are going to be lost, credit markets will become frighteningly tight and even the Fed's money won't be enough to secure liquidity and order in the equity markets. What's especially frightening about the situation is that the Fed was forced to take such extraordinary measures to shore up markets.
The "repo" swaps are not new. They've been used during other stressful periods, such as in the winter after 9/11, but their effect is marginal. The announcement that the Fed is taking the action is actually much more of a salve on the nerves of traders than the actual money making trades.
Dow 13,239.54 -31.14; NASDAQ 2,544.89 -11.60; S&P 500 1,453.64 +0.55; NYSE Composite 9,435.04 -14.27
The downside of such action, however, is that the Fed eventually has to balance its own books, and buying up stocks in a sliding market - catching the proverbial falling knife - is poor investment strategy, to say the least. When the Fed unloads these stocks, often at a loss, it creates a glut on the market and costs the Fed money. Of course, the Fed can just print up more, and they do, making all those dollars in your pockets worth a little less.
Again, it's nothing more than a stop-gap measure and far from a solution. The real solution would be to allow the market to take its own course, and let the losers lose and the winners win. For all the talk of "free markets" by Fed governors and other high government officials, they certainly act like they have little to no faith in what they preach.
The crash is upon us. With the Fed's help, it will be worse than it has to be. Tighten your belts, we're headed for recession-land.
Market internals allow for a much better understanding of what really happened on Wall Street this Friday. Declining issues rolled over advancers by a 9-5 margin. New lows swamped new highs, 736-82. Even with the Fed's helping hand, there were plenty of casualties on the day.
Oil continued to slip, down 12 cents to $71.47, but still far from it's bottom, which is just a matter of time. Gold perked up $8.80 to $681.60; silver rose 17 cents to $12.87. These are still screaming buys and now would be a good time to stock up.
The coming weeks and months hold still more intrigue and downside. The bulk of the sub-prime loans which are subject to repricing and therefore, default, have yet to do so. October through next March will bear witness to an avalanche of mortgage defaults and a share of bank and financial concern failings.
Cash is king for now, especially if it's in Euros or gold.
In other words, the Fed bought stocks from brokers who, as part of the so-called "repo" deal, agreed to deposit the funds in Federally-insured member banks.
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Thus, a mammoth crash and thud was averted.Forex Foreign Currency Exchange Trading Beginner's Resource Center.
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When the fed buys stocks, they aren't just fishing nor fiddling. Today's double dose was a total of $34 billion, designed to keep order in the face of an imminent sell-off. Late in the session, with the markets still down smartly, the Fed added another $3 billion.
Apparently, it worked, because the markets failed to melt down as many feared they would. However, these measures are little more than band-aids in a market that is hemorrhaging on multiple fronts.
Due to the blow-up of sub-prime mortgage loans, note holders find themselves stuck with much worthless paper. The spill-over into derivative, insurance, M&A and other credit markets has been stoking fears of financial calamity.
Without a doubt, this is a big mess that's not going to end soon or resolve in a pretty way. Billions of dollars are going to be lost, credit markets will become frighteningly tight and even the Fed's money won't be enough to secure liquidity and order in the equity markets. What's especially frightening about the situation is that the Fed was forced to take such extraordinary measures to shore up markets.
The "repo" swaps are not new. They've been used during other stressful periods, such as in the winter after 9/11, but their effect is marginal. The announcement that the Fed is taking the action is actually much more of a salve on the nerves of traders than the actual money making trades.
Dow 13,239.54 -31.14; NASDAQ 2,544.89 -11.60; S&P 500 1,453.64 +0.55; NYSE Composite 9,435.04 -14.27
The downside of such action, however, is that the Fed eventually has to balance its own books, and buying up stocks in a sliding market - catching the proverbial falling knife - is poor investment strategy, to say the least. When the Fed unloads these stocks, often at a loss, it creates a glut on the market and costs the Fed money. Of course, the Fed can just print up more, and they do, making all those dollars in your pockets worth a little less.
Again, it's nothing more than a stop-gap measure and far from a solution. The real solution would be to allow the market to take its own course, and let the losers lose and the winners win. For all the talk of "free markets" by Fed governors and other high government officials, they certainly act like they have little to no faith in what they preach.
The crash is upon us. With the Fed's help, it will be worse than it has to be. Tighten your belts, we're headed for recession-land.
Market internals allow for a much better understanding of what really happened on Wall Street this Friday. Declining issues rolled over advancers by a 9-5 margin. New lows swamped new highs, 736-82. Even with the Fed's helping hand, there were plenty of casualties on the day.
Oil continued to slip, down 12 cents to $71.47, but still far from it's bottom, which is just a matter of time. Gold perked up $8.80 to $681.60; silver rose 17 cents to $12.87. These are still screaming buys and now would be a good time to stock up.
The coming weeks and months hold still more intrigue and downside. The bulk of the sub-prime loans which are subject to repricing and therefore, default, have yet to do so. October through next March will bear witness to an avalanche of mortgage defaults and a share of bank and financial concern failings.
Cash is king for now, especially if it's in Euros or gold.
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