We Support Strong Dollar!

Boo. They did it again. They have cut the rate 25 basis points. This was not unexpected. In fact, this rate cut probably was based on expectations. Amazing!!

As Jim Bianco of Bianco research said if the Feds cut rates, "we should rename Bernanke's position to Chief Investment Officer and the FOMC statement should include the board’s predictions on how high the QQQQ ETF can go before the next FOMC meeting.”

Well, there you have it. Ben is the new CIO of US.

There was a small hope in me that Helicopter Ben would stand up and not be pressured into rate cuts. At least Thomas Hoenig of Federal Reserve Bank of Kansas City dissented. And 1/2 (6 of 12) did not want to decrease the discount rate.

Note to Ben: Hey, how about saving the discount rate action for your next emergency.

Congratulations Wall St. You have pressured the Fed into another rate cut. Let's do this again at the next meeting.

Gold was down initially after the rate cut, but is on it's way up again.

Wall Street Influence

Greg Ip writes in WSJ about Ben Bernanke and how he rewrote the Fed Playbook in his first major crisis. The article talks about how Bernanke is different from his predecssors. He likes to debate issues.

Look at the article closely and you see the influence of Wall St. on the Fed. The beggars on wall St. were disapointed because the fed reiterated it's view that inflation is the main risk to economy.

One Fed governor spent hours on the phone grilling contacts on Wall Street.
Another official helped broker a deal to help mortgage lender Countrywide
Financial Corp. through a financing squeeze, aiming to avert a disruptive
unwinding of complex loan agreements.

Mr. Bernanke was no stranger to central bankers, but he was a neophyte
to the schmoozing of Washington and Wall Street. To help him make connections,
Timothy Geithner, president of the Federal Reserve Bank of New York and a
veteran of the Clinton Treasury, arranged breakfasts and lunches at the New York
Fed between Mr. Bernanke and financial "wise men." Guests included Citigroup
executive and former Treasury secretary Robert Rubin, and former J.P. Morgan
& Co. chairman Dennis Weatherstone.

And if you think the mess is over....

As the meeting ended, an attendee recalled, one of the hedge-fund
representatives said, "See you again next year." In an apparent reference to
the
still-fragile state of markets, Mr. Bernanke replied: "If not sooner."

Mortgage Mess - Worst Still to Come / Dollar Still Losing Value

Jonathan Weil in Bloomberg writes about Washington Mutual and how their mortgage mess is about to get worse. Wamu has set aside $1.3b to cover bad loans this quarter.

This is the reason it is trading at book value and it's dividend yield is 8%. The dividend is proabably unsustainable.

http://www.bloomberg.com/apps/news?pid=20601039&sid=a_tXnFCJFfNg&refer=home

The deferred interest from option ARMs also boosts Washington
Mutual's earnings, part of a process known as negative amortization, or
``neg-am.'' That's because option-ARM lenders recognize interest income when
customers postpone their interest payments, even though the lenders got no cash.

For the nine months ended Sept. 30, Washington Mutual recognized $1.05
billion in earnings as a result of neg-am within its option-ARM portfolio. That
represented 7.2 percent of Washington Mutual's $14.61 billion of total interest
income year-to-date. By comparison, neg-am contributed 1.8 percent of Washington
Mutual's interest income for all of 2005 and just 0.2 percent for 2004.

Then there's the bigger picture. While Washington Mutual's loan-loss
allowance rose 22 percent to $1.89 billion during the 12 months ended Sept. 30,
nonperforming assets rose 128 percent to $5.45 billion. So even if Washington
Mutual adds $1.3 billion in provisions next quarter, its loan-loss allowance
still won't be anywhere close to catching up.

The Next Ticking Bomb..Consumer Credit?

The Consumer Credit Outstanding has been a concern for a while. But it is the first time I have seen MSM pick this up.


Target says it's credit card receivables rise faster than sales in September.

http://money.cnn.com/2007/10/29/magazines/fortune/consumer_debt.fortune/index.htm?postversion=2007103013

Then American Express (Charts, Fortune 500) said that it too was seeing
"signs of stress" and would boost its loss reserves in its core U।S. card unit
by 44%. Capital One (Charts, Fortune 500), Bank of America (Charts, Fortune
500), and Washington Mutual (Charts, Fortune 500) all said they are bracing for
a 20% or higher increase in credit card losses over the near and medium
term।

And in Britain it looks just as bad.

It's a sign of the times that, according to one survey last month, 6% of British homeowners have been using their credit cards to pay their mortgages.

Here is a graph of Consumer Credit as of August 2007.

Click on Image for larger Image.

Home Prices Fell 4.4% in August/ Paulson says Too soon to call bottom

Values dropped 4.4 percent in the 12 months that ended August, an eighth consecutive decline, according to the S&P/Case-Shiller home-price index, which has data back to 2001.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aRbwsKS_s_ZQ&refer=home

Paulson said today it's too soon to call an end to the housing slump.

``We haven't hit the bottom yet in housing,'' Paulson said at a conference in New Delhi. Still, he added ``there is enough strength in the economy that we can grow through this.''


Oh and Have we mentioned this before? He Supports a STRONG DOLLAR. Are you listening? Mr. Paulson supports a STRONG DOLLAR even if it loses half it's value.

``I am strongly committed to a strong dollar,'' Paulson said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aadwopeYYgEs&refer=home

Here is another example of government helping Banks while shutting out the poor who really need help. Some of the banks are borrowing from government at a lower rate. These banks are saving $1 billion annually. NOte: this program was set up during the Great Depression to revive housing.

Would Countrywide be bankrupt if it had not borrowed from FHLB?

``You don't want to use the phrase `going out of business' in the press, but they would be in a much, much worse liquidity position if they didn't have the Federal Home Loan Bank system sitting out there,'' said Paul Miller, an analyst at Friedman Billings Ramsey Group Inc., a securities firm in Arlington, Virginia.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a_l2_kTFSFGU&refer=home

It's going to be interesting to see what Mr. Lawrence Yun says about housing market tomorrow (Pending Home Sales). So what do you think HDs? Should we blame the August Credit crunch again tomorrow?

Bernanke, `Reluctant' to Cut Rates???

Bloomberg has a story on how Bernanke is reluctant to cut rates. It talks about how he has talked about how "challenging" it is to make policy.

http://www.bloomberg.com/apps/news?pid=20601109&sid=aEnZejdWUzMk&refer=home

Isn't this the same thing they did last time? It seems like they want to surprise the markets to get the bigger bang for the buck. They are talking Hawkish but their policy is Dovish. Similar to the way Henry PaulSIV talks about the dollar and the administrations dollar policy.

As usual, the question of cutting rates is by how much and not whether to do it. Gold keeps going up and dollar keeps losing it's value. But it doesn't matter because rising dollar does not cause "CPInflation."

In other dollar news, the Yuan is rising .3 percent against the dollar. Mr. PaulSIV is quoted in the article as saying "They need to have the renminbi appreciate more quickly so it reflects economic fundamentals.."

Mr. PaulSIV, the chinese are helping the US by keeping dollar high. Be careful what you wish for. It seems odd to me that at time when there is no support for dollar, PaulSIV is trying to remove the biggest support the dollar has.

Hey Mr. PaulSIV, even the Maldives they don't like to accept the dollar anymore. Why is this important? According to William Pesek : the demise of the dollar!

http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_pesek&sid=ahcvx7iJ4tXM


I have a question, has there been any rate cuts in the past when the stock market was hitting new highs?

Countrywide All is Fine!

The stock Jumps 30% after the Conference call. All of a sudden, the all the mortgage issues are gone. Of course, you keep hearing more news about CDOs and defaults on the other side.

Here is a ratings cut on $33 B CDOs
http://bloomberg.com/apps/news?pid=20601087&sid=aVazjAIdronI&refer=home

California Mortgage defaults more than double.
http://bloomberg.com/apps/news?pid=20601087&sid=aUTek4K4b_uI&refer=home

I was listening to Erin Swanson from Morningstart Investment Service this morning on Bloomberg. And she thinks the stock is undervalued because "Mortgage business is essential so there is always going to be demand and their servicing portfolio is great business..."

Can't this statement be made regardless of where the stock price is?

I still don't think the Bankruptcy Risk is over for Countrywide.

Homeownership falls again

Homeownership has been falling since 2004 when it reached 69.3. It fell to 68.1 from 68.3 in prior three months.

Of course, you won't hear President Bush or Henry PaulSIV talk about the falling rate any time soon.

Fed Bank of Atlanta did a study that found that 70% increase over the decade was due to introduction of new(Dare I Say Exotic?) mortgages. Note to Fed: Please stop wasting our tax dollars on these studies. Anyone with a pulse could have told you that the increases were due to mortgages!

http://bloomberg.com/apps/news?pid=20601087&sid=a6RQFLs4H9QI&refer=home

Countrywide Results/REO

Countrywide reported a loss of $1.2 billion. But Angelo Mozilo said that the company expects to be profitable in 4th Quarter. In addition, it negotiated $18 billion in additional liquidity.

So it looks like it was not as bad as the market was expecting. And as with any stocks that are shorted so much, it 24% in early morning then came back down to 15%. I find it hard to believe that they can be profitable in 4th quater.

http://www.marketwatch.com/news/story/countrywide-financial-reports-12-billion/story.aspx?guid=%7B25A3BF10%2D7150%2D43CF%2DB497%2DAC831791064B%7D


On another note, the numbers of REO jumping from 13,000 to 196,000 was a technical glitch. I had a chance to look at one of the house locally. The house was in foreclosure in 2006 and sold in April 2007. Of course, this was one of the houses that had a broker assigned.


http://latimesblogs.latimes.com/laland/2007/10/a-huge-spike-in.html

New Home Sales - Turning UGLY numbers into Good!

We've seen this before! And they have done it once again. Making UGLY Numbers look good. If you look at MSM, you get the idea that new home sales went up! It turns out this is like everything else just Fake Numbers.

The expected number was 780K, the "real" (which will probably get revised) was 770K. 10K below expectations. But but revising the previous number downward, you get a net gain from "Previous" month. Let's add the revisions to this month and you go from 795K last month to 710K! Now that's 10.69% Drop!

I had to redo the numbers after reading that July numbers were also corrected. SO again, doing the same math (735K - 60K - 37K) would bring the current number to 673K. That is a 15% drop!!

SO There you have it folks. They have just changed a 15% Drop into 4% Gain.

A Large Coffee for MSM?

Here is part of the release

New single-family home sales rose to an annual rate of 770,000 from a revised rate of 735,000 in August, the Commerce Department said. Analysts polled by Reuters were expecting September sales to fall to an annual rate of 780,000 from the August previously reported rate of 795,000.

Here is the link to NYTimes Story
http://www.nytimes.com/reuters/business/25reutersecon.html

Disclosures: Shorting Homebuilders/CFC via Options!

Housing Depression!

It officially is here! 30% Drops in Home Sales! Mortgage Issues, Banks hiding billions of dollars in Losses! This blog is to discuss all the issues surrounding Housing Depression!