I know that yesterday I said I'd write about creating your own currency, but, having spent the bulk of the day poring over New york State Surrogate's Court Procedure (in my case, this is an exercise in learning how to get a house for nothing from Bank of America, but that's another matter), I haven't had time to crystalize my thinking on the topic. Suffice it to be said that anyone can create their own currency, the trick being getting others to accept it. I will make every effort to cover this enticing topic tomorrow.
As for today, the stock players didn't do well. Markets were decidedly higher in the AM, but began to unravel in pretty distinctive fashion around 2:00 pm EST. In other words, the nascent rally tanked into oblivion, leaving investors and fund managers holding a little bit less than they did yesterday. All averages were lower on the day, though the Dow performed better than the others.
As of Friday, the major indices had fallen below where they closed 2009, bring us to the first 2010 mention of the "January Barometer," which invokes the old saw, "as goes January, so goes the rest of the year." The theory, which holds true 90% of the time, is based upon the movement of the S&P 500. It was dead wrong last year as stocks sulked in January and February, but made up the lost ground and then some beginning in March.
So far this year, the S&P is down, from 1115.10 on December 31, 2009, to today's close, so, unless the market decides not to continue to scare the bejesus out of everyone, the tone will be set for a losing year on Wall Street. Hogwash! Balderdash! The nerve of some people to suggest that one could lose money investing in stocks. Unheard of!
Well, since the predictive value of this "barometer" is 90%, and it was off last year (I know, I know, that doesn't change the odds), I'd be looking for some downside movement over the next month to six months, for starters.
Dow 10,194.29, -2.57 (0.03%)
NASDAQ 2,203.73, -7.07 (0.32%)
S&P 500 1,092.17, -4.61 (0.42%)
NYSE Composite 7,028.32, -44.81 (0.63%)
Declining issues danced on the heads of advancers, 4283-2220, belying the soft headline numbers. It's just this kind of stealth movement that sets up investors for a nasty roller coaster ride. The gap between new highs and new lows narrowed to 161-78, with the lows rising to their highest level in at least a month. The turn is upon us. The market appears to have done everything but roll over, but there's every indication that it will. Volume was better than yesterday, though nowhere near as robust as the selling days of the past week, another indicator pointing towards the floor.
NYSE Volume 5,477,897,000
NASDAQ Volume 2,406,876,000
Like stocks, commodities didn't move much. Oil fell 3 cents, to $74.68. Gold was up $3.20, to close at an even $1,100.00. Silver continues to take the brunt of the selling, off another 31 cents, to $16.84. The selling in gold and silver seems to be based upon speculation that the dollar's decline is over. For much more on that topic, from a person with eminently more knowledge than myself, I direct you to commentary from Kitko's John Nadler.
Considering the massive move in gold - less so in silver - over the past decade, a correction on the back of a rising dollar makes plenty of sense. If, as I've been saying for years, and the Fed has been fighting for an even longer time, deflation continues to be the crazy aunt in the attic which nobody particularly cares to have roaming about the house in free fashion.
All one has to do these days is go food shopping at the neighborhood market to see deflation in progress. Or, head to a dollar store or witness the fast food chains pushing not prices lower, but portions higher - for the same price, a la Burger King's larger-than-McDonald's double cheeseburger (it is bigger and, yes, better) to understand the dynamics of deflation, which begs the question, if people are willing to pay to lose weight (Weight Watchers, Jenny Craig, etc.), shouldn't restaurants pay us to eat?
It may come to that.
Tuesday, January 26, 2010
Monday, January 25, 2010
Dead Cats Don't Bounce, At Least, Not Very High
All those guys in their pinstriped suits went down to lower Manhattan today wondering if the market would recover from its worst week in 9 months. A few minutes into the trading session, there were probably more sighs of relief than pictures of Brad Pitt and Angelina Jolie in today's newspapers, as stocks took off right out of the gate and posted healthy, though uninspired gains early on.
The Brangelina episode notwithstanding, the stocksters were to be found mostly standing around, wondering still. Somewhere in the deep recesses of the collective brains of these Harvard whiz kids who populate the trading desks and exchange floors must be thoughts of rebellion. Thoughts that somehow tick up in the night and are pushed back into dreams, only to resurface just under the consciousness during the daytime speak of cashing out and buying a farm, or opening a franchise business out West, or maybe just dumping it all into a sailboat in the Florida keys.
Certainly, we all have these thoughts, about the day our annual investment income becomes greater than our yearly take-home pay, about retirement and lingering, lounging and Early Bird specials with the wife. But the market is cruel, or lately, has been. We've just endured the worst decade of returns on equities since the Great Depression, and some say the 2000s weren't even as good as the 1930s. Being that you'd have to have a pretty good memory and generally be over 90 today to accurately recall what the stock market was like during the depression, there aren't many opinions like that, though charts and history offer clues.
The last ten years were by no means anything even closely resembling a depression, though we did burst two bubbles - dotcom and housing - and suffer the downdraft afterwards on both. 2010 ought to be better, we believe, but we're still unsure. Besides, there are other ways to save and invest outside of stocks, aren't there?
Coin collectors have been having field days of late, such with the prices of gold and silver up so much. Art seems to still be appreciating in certain circles, and for the rest of us, there are always baseball cards, Barbie dolls and eBay. The answer is a resounding "yes," and more and more people are discovering a world outside of IBM, Apple and Microsoft.
Certainly, some people make money in stocks. Many small investors, lacking in patience, experience and wisdom, do, however, end up with losses, sometimes larger than they'd like. It is because of those who have tried and failed that I write about money, stocks, cash, commodities and such. There are other options. You just have to know the rules, and which of those can be broken or bent enough for you to make a small - or maybe sizable - fortune.
More on that tomorrow, when I discuss the creation of your own currency, but for today, stocks were slightly higher. Everybody's indexed portfolios show a profit. Good thing, too, because they've been losing for the past few days, but they didn't make much in the end, and participation (volume) was light, so cash still looks really, really good.
Dow 10,196.86, +23.88 (0.23%)
NASDAQ 2,210.80, +5.51 (0.25%)
S&P 500 1,096.78, +5.02 (0.46%)
NYSE Composite 7,073.13, +42.52 (0.60%)
Advancers were barely ahead of decliners, 3586-2954, with new highs surpassing new lows, 145-51.
NYSE Volume 5,164,265,500
NASDAQ Volume 2,148,828,000
Commodities rebounded, with oil up 72 cents, to $75.26, gold higher by $6.70, to $1,096.40, and silver gaining 19 cents per ounce, to close at $17.12. Commodities were the place to be on Monday. While stocks gave up most of their gains late in the day, precious metals held well, and could be setting up for some spirited buying, since souring on stocks is all the fashion this Winter.
Getting yourself away from stocks isn't a bad idea. Somebody reminded me of the old rule that says to subtract your age from 110, and the result will be the percentage of your investments that should be in stocks. The concept sounds reasonable enough, until you start asking questions.
Does that include my home? Let's say you have $100,000 equity built up and you're 55, and have another $100,000 in cash. Since your number would be 55% (110-55), you'd have to take out some of your home's equity to get your stock percentage up to the proper speed, so, I say, exclude your home from your investment ideas. The equity you have in your home, you earned, and you're going to keep it. Besides, we all need a place to live, so why put it at risk?
So, adding our caveat, you've got $100,000 in equity in your home, $100,000 in cash, $55,000 of it which should be in stocks, according to the formula. The rest, I suppose, would go into CDs or bonds or both. Still, 12 years from retirement (yes, it's 67 for this age group, thank you, congress), do you really want to put $55K into stocks, and which ones? Especially after the decade from hell we've just gone through, it sounds pretty risky.
But, hey, says your broker, it's only money.
The Brangelina episode notwithstanding, the stocksters were to be found mostly standing around, wondering still. Somewhere in the deep recesses of the collective brains of these Harvard whiz kids who populate the trading desks and exchange floors must be thoughts of rebellion. Thoughts that somehow tick up in the night and are pushed back into dreams, only to resurface just under the consciousness during the daytime speak of cashing out and buying a farm, or opening a franchise business out West, or maybe just dumping it all into a sailboat in the Florida keys.
Certainly, we all have these thoughts, about the day our annual investment income becomes greater than our yearly take-home pay, about retirement and lingering, lounging and Early Bird specials with the wife. But the market is cruel, or lately, has been. We've just endured the worst decade of returns on equities since the Great Depression, and some say the 2000s weren't even as good as the 1930s. Being that you'd have to have a pretty good memory and generally be over 90 today to accurately recall what the stock market was like during the depression, there aren't many opinions like that, though charts and history offer clues.
The last ten years were by no means anything even closely resembling a depression, though we did burst two bubbles - dotcom and housing - and suffer the downdraft afterwards on both. 2010 ought to be better, we believe, but we're still unsure. Besides, there are other ways to save and invest outside of stocks, aren't there?
Coin collectors have been having field days of late, such with the prices of gold and silver up so much. Art seems to still be appreciating in certain circles, and for the rest of us, there are always baseball cards, Barbie dolls and eBay. The answer is a resounding "yes," and more and more people are discovering a world outside of IBM, Apple and Microsoft.
Certainly, some people make money in stocks. Many small investors, lacking in patience, experience and wisdom, do, however, end up with losses, sometimes larger than they'd like. It is because of those who have tried and failed that I write about money, stocks, cash, commodities and such. There are other options. You just have to know the rules, and which of those can be broken or bent enough for you to make a small - or maybe sizable - fortune.
More on that tomorrow, when I discuss the creation of your own currency, but for today, stocks were slightly higher. Everybody's indexed portfolios show a profit. Good thing, too, because they've been losing for the past few days, but they didn't make much in the end, and participation (volume) was light, so cash still looks really, really good.
Dow 10,196.86, +23.88 (0.23%)
NASDAQ 2,210.80, +5.51 (0.25%)
S&P 500 1,096.78, +5.02 (0.46%)
NYSE Composite 7,073.13, +42.52 (0.60%)
Advancers were barely ahead of decliners, 3586-2954, with new highs surpassing new lows, 145-51.
NYSE Volume 5,164,265,500
NASDAQ Volume 2,148,828,000
Commodities rebounded, with oil up 72 cents, to $75.26, gold higher by $6.70, to $1,096.40, and silver gaining 19 cents per ounce, to close at $17.12. Commodities were the place to be on Monday. While stocks gave up most of their gains late in the day, precious metals held well, and could be setting up for some spirited buying, since souring on stocks is all the fashion this Winter.
Getting yourself away from stocks isn't a bad idea. Somebody reminded me of the old rule that says to subtract your age from 110, and the result will be the percentage of your investments that should be in stocks. The concept sounds reasonable enough, until you start asking questions.
Does that include my home? Let's say you have $100,000 equity built up and you're 55, and have another $100,000 in cash. Since your number would be 55% (110-55), you'd have to take out some of your home's equity to get your stock percentage up to the proper speed, so, I say, exclude your home from your investment ideas. The equity you have in your home, you earned, and you're going to keep it. Besides, we all need a place to live, so why put it at risk?
So, adding our caveat, you've got $100,000 in equity in your home, $100,000 in cash, $55,000 of it which should be in stocks, according to the formula. The rest, I suppose, would go into CDs or bonds or both. Still, 12 years from retirement (yes, it's 67 for this age group, thank you, congress), do you really want to put $55K into stocks, and which ones? Especially after the decade from hell we've just gone through, it sounds pretty risky.
But, hey, says your broker, it's only money.
Friday, January 22, 2010
Dude, Where's My Money?
Stock investors suddenly found themselves in head-scratching mode once again, as the stock market finished up with a fickle Friday, sending the Dow down another 216 points, with other major indices in line with those losses. It was the worst overall week since the first week of March 2009, when the stock market was bottoming out.
So, is this the beginning of the "double-dip" that skeptics of the recovery have been warning about since June?
Count on it, and here's why: First, stocks had risen by an unprecedented amount - more then 50% in the major indices - over the past nine months, making stocks pricey, even in the best of times. Second, the government's threats to stamp further regulations on the banks has spread fear far and wide. Third, the re-confirmation of Ben Bernanke as Fed Chairman is less than two weeks away and there's growing concern that he will not have the votes due almost entirely to politics. Fourth, Unemployment is still extremely high and government stimulus hasn't done a thing to create new jobs, nor have the publicly-traded corporations.
There are a multitude of reasons to sell stocks, and you can bet your bottom dollar that the big money has already jumped the shark. And, by the way, I'm betting that bottom dollar, down there in your pocket, is looking pretty good right about now.
Dow 10,172.98, -216.90 (2.09%)
NASDAQ 2,205.29, -60.41 (2.67%)
S&P 500 1,091.76, -24.72 (2.21%)
NYSE Composite 7,030.61, -143.85 (2.01%)
Declining issues led advancers, 5116-1480. There were 160 new highs, the lowest number in months, and 67 new lows. Volume was strong for the second straight day, a sure sign that money in stocks is running scared. A bear is loose and is not likely to be sated until stocks drop another 8-10%, short term.
NYSE Volume 7,244,262,000
NASDAQ Volume 2,838,065,000
Commodities were also not spared. Oil was down again, for the fifth straight day, losing $1.54, to $74.54. Gold fell $11.80, to $1,092.00. Silver, which earlier this week was approaching 15-month highs, was down another 58 cents, to $16.94, a drop of more than 10% from the earlier-in-the-week highs.
If you were holding cash, cash and only cash, you had a banner week in relation to everyone else. If you were putting that cash to work in your own business, you're now taking victory laps. Money in your pocket can turn into more money in your pocket through smart purchases, small investments in your own business and strategic use.
Keep it up.
So, is this the beginning of the "double-dip" that skeptics of the recovery have been warning about since June?
Count on it, and here's why: First, stocks had risen by an unprecedented amount - more then 50% in the major indices - over the past nine months, making stocks pricey, even in the best of times. Second, the government's threats to stamp further regulations on the banks has spread fear far and wide. Third, the re-confirmation of Ben Bernanke as Fed Chairman is less than two weeks away and there's growing concern that he will not have the votes due almost entirely to politics. Fourth, Unemployment is still extremely high and government stimulus hasn't done a thing to create new jobs, nor have the publicly-traded corporations.
There are a multitude of reasons to sell stocks, and you can bet your bottom dollar that the big money has already jumped the shark. And, by the way, I'm betting that bottom dollar, down there in your pocket, is looking pretty good right about now.
Dow 10,172.98, -216.90 (2.09%)
NASDAQ 2,205.29, -60.41 (2.67%)
S&P 500 1,091.76, -24.72 (2.21%)
NYSE Composite 7,030.61, -143.85 (2.01%)
Declining issues led advancers, 5116-1480. There were 160 new highs, the lowest number in months, and 67 new lows. Volume was strong for the second straight day, a sure sign that money in stocks is running scared. A bear is loose and is not likely to be sated until stocks drop another 8-10%, short term.
NYSE Volume 7,244,262,000
NASDAQ Volume 2,838,065,000
Commodities were also not spared. Oil was down again, for the fifth straight day, losing $1.54, to $74.54. Gold fell $11.80, to $1,092.00. Silver, which earlier this week was approaching 15-month highs, was down another 58 cents, to $16.94, a drop of more than 10% from the earlier-in-the-week highs.
If you were holding cash, cash and only cash, you had a banner week in relation to everyone else. If you were putting that cash to work in your own business, you're now taking victory laps. Money in your pocket can turn into more money in your pocket through smart purchases, small investments in your own business and strategic use.
Keep it up.
Thursday, January 21, 2010
Government Greases Skids for Wall Street Sell-Off
Onerous new regulations (Actually, they're only onerous if you're a rich banker. Otherwise, they're actually sensible) limiting the kinds of risks banks may take with federally-insured deposits gave the rich and powerful the perfect opportunity to take profits and blame any market and economic fallout on the Obama administration and congress.
The 213-point slide on the Dow was probably less related to banking than it was tied to initial unemployment claims, which rocketed to 482,000 for the most recent reporting period, from a previous reading of 446,000. Continuing claims held steady at 4,599,000 slackers still collecting unemployment insurance and keeping the fragile economy from falling off a cliff. While Wall Street may deride these individuals, the companies represented by stocks traded on the various exchanges have yet to even whisper about new hiring.
It's a scenario that many have predicted and is about to come true. Without new jobs for those millions of unemployed, underemployed and discouraged workers, major companies have squeezed themselves into a box without a box cutter. As earnings for the 4th quarter of 2009 roll out, investors will be seeking top-line (revenue) growth, but are likely to get more of the same cost-cutting, belt-tightening by which companies have produced profits for the past 9 months. The economy is just churning, not growing, and the natives are getting restless.
Today's losses in the major indices erased the gains thus far in 2010. Only the S&P 500 closed above where it ended 2009, but only by a point and change.
To get an idea of the kind of mood that is just beginning to pervade Wall Street, consider the knockout numbers reported by Google (GOOG), just after the close. The search giant beat revenue and profit estimates handily. The initial reaction was a 22-point sell-off just after these dazzling results were announced. This kind of behavior was easily predictable. With stocks at nose-bleed levels, earnings will not matter to holders of stock. They've already determined to sell, either just prior to or just after a company announces, so unless the numbers are simply out-of-this-world, expect all stocks to get roughly the same treatment.
Now that Wall Street has gotten over the giddiness of a new year, the hard, cold reality of an economy unmoved by stimulus and bailouts is knocking stocks for a loop.
Overnight, China released 4th quarter GDP numbers, showing a stunning annualized growth rate of 10.7%. Investors in America are concerned that China may begin reining in its own growth in order to stave off inflation, which is a major concern. While America and Europe wallow in the aftermath of the 2008 financial meltdown, the Chinese are eating their lunch, and they're not using chop-sticks.
Dow 10,389.88, -213.27 (2.01%)
NASDAQ 2,265.70, -25.55 (1.12%)
S&P 500 1,116.48, -21.56 (1.89%)
NYSE Composite 7,174.46, -155.37 (2.12%)
Losers beat winners, 5027-1539, and new highs outnumbered new lows, 284-55. Volume was off-the-charts to the high side, an indication that the rout has just begun. Selling should continue nearly unabated through the next 3-5 weeks, unless economic data indicates the economy is growing well beyond tepid expectations. It's not, so don't get your hopes up. Bears are becoming more emboldened every day.
NYSE Volume 7,747,543,000
NASDAQ Volume 2,819,241,250
Losses were not limited to stocks. Commodities also took widespread hits as another wave of deflation distress wafts through the markets. Oil dropped $1.66, to $76.08. Gold lost $9.60, to $1,103.00. Silver followed it down, losing 29 cents, to $17.60.
Lately, I've taken to offer up alternatives to the usual Wall Street fare, the ups and downs of daily life in the dithering world of stocks, but today just seemed to legitimize my thinking, that stocks are not for everyone, especially those without the cushion necessary to take sustained losses and ride out long positions. The market was overbought and due for a turn-back, so I'm not taking any credit for soothsaying. It was pretty easy to see.
Cash in your pocket today was the big winner. Just like it was yesterday and probably will be in coming days, weeks and months because the economic drop dead party is just getting going. The system, built on bad loans and bailouts, is barely sustainable under current conditions.
Relax. Have a drink. Have a smoke. America is still a pretty good country.
The 213-point slide on the Dow was probably less related to banking than it was tied to initial unemployment claims, which rocketed to 482,000 for the most recent reporting period, from a previous reading of 446,000. Continuing claims held steady at 4,599,000 slackers still collecting unemployment insurance and keeping the fragile economy from falling off a cliff. While Wall Street may deride these individuals, the companies represented by stocks traded on the various exchanges have yet to even whisper about new hiring.
It's a scenario that many have predicted and is about to come true. Without new jobs for those millions of unemployed, underemployed and discouraged workers, major companies have squeezed themselves into a box without a box cutter. As earnings for the 4th quarter of 2009 roll out, investors will be seeking top-line (revenue) growth, but are likely to get more of the same cost-cutting, belt-tightening by which companies have produced profits for the past 9 months. The economy is just churning, not growing, and the natives are getting restless.
Today's losses in the major indices erased the gains thus far in 2010. Only the S&P 500 closed above where it ended 2009, but only by a point and change.
To get an idea of the kind of mood that is just beginning to pervade Wall Street, consider the knockout numbers reported by Google (GOOG), just after the close. The search giant beat revenue and profit estimates handily. The initial reaction was a 22-point sell-off just after these dazzling results were announced. This kind of behavior was easily predictable. With stocks at nose-bleed levels, earnings will not matter to holders of stock. They've already determined to sell, either just prior to or just after a company announces, so unless the numbers are simply out-of-this-world, expect all stocks to get roughly the same treatment.
Now that Wall Street has gotten over the giddiness of a new year, the hard, cold reality of an economy unmoved by stimulus and bailouts is knocking stocks for a loop.
Overnight, China released 4th quarter GDP numbers, showing a stunning annualized growth rate of 10.7%. Investors in America are concerned that China may begin reining in its own growth in order to stave off inflation, which is a major concern. While America and Europe wallow in the aftermath of the 2008 financial meltdown, the Chinese are eating their lunch, and they're not using chop-sticks.
Dow 10,389.88, -213.27 (2.01%)
NASDAQ 2,265.70, -25.55 (1.12%)
S&P 500 1,116.48, -21.56 (1.89%)
NYSE Composite 7,174.46, -155.37 (2.12%)
Losers beat winners, 5027-1539, and new highs outnumbered new lows, 284-55. Volume was off-the-charts to the high side, an indication that the rout has just begun. Selling should continue nearly unabated through the next 3-5 weeks, unless economic data indicates the economy is growing well beyond tepid expectations. It's not, so don't get your hopes up. Bears are becoming more emboldened every day.
NYSE Volume 7,747,543,000
NASDAQ Volume 2,819,241,250
Losses were not limited to stocks. Commodities also took widespread hits as another wave of deflation distress wafts through the markets. Oil dropped $1.66, to $76.08. Gold lost $9.60, to $1,103.00. Silver followed it down, losing 29 cents, to $17.60.
Lately, I've taken to offer up alternatives to the usual Wall Street fare, the ups and downs of daily life in the dithering world of stocks, but today just seemed to legitimize my thinking, that stocks are not for everyone, especially those without the cushion necessary to take sustained losses and ride out long positions. The market was overbought and due for a turn-back, so I'm not taking any credit for soothsaying. It was pretty easy to see.
Cash in your pocket today was the big winner. Just like it was yesterday and probably will be in coming days, weeks and months because the economic drop dead party is just getting going. The system, built on bad loans and bailouts, is barely sustainable under current conditions.
Relax. Have a drink. Have a smoke. America is still a pretty good country.
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.
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)
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