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Tuesday, December 18, 2007

The Worst Centeral Banker in History?

Now everyone is asking questions about Alan Greenspan.  Where was he when the whole housing boom was going on?  The article in NYT looks at how the Greenspan, Bush and the whole goverenment were missing-in-action while the housing boom was going on. 

But when Mr. Gramlich privately urged Fed examiners to investigate mortgage lenders affiliated with national banks, he was rebuffed by Alan Greenspan, the Fed chairman.
 
Don't tell us there was no housing bubble and there was nothing you could do about it.
 

John C. Gamboa and Robert L. Gnaizda of the Greenlining Institute implored Mr. Greenspan to use his bully pulpit and press for a voluntary code of conduct.

"He never gave us a good reason, but he didn't want to do it," Mr. Gnaizda said last week. "He just wasn't interested."

MIA
An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry's excesses. Both the Fed and the Bush administration placed a higher priority on promoting " financial innovation" and what President Bush has called the "ownership society."
 
More worried about Wall Street than Main Street!
 
The Federal Reserve could have stopped this problem dead in its tracks," said Martin Eakes, chief executive of the center. "If the Fed had done its job, we would not have had the abusive lending and we would not have a foreclosure crisis in virtually every community across America."
 
The Fed sleep at the wheels
 
Mr. Greenspan, hailed as perhaps the best central banker in history when he left the Fed in early 2006, is now feeling defensive. In an extensive interview last week, he adamantly disputed the assertion that he could have prevented the mortgage bust.

And now the Worst Central Banker ever?  Calling the biggest housing bubble ever just froth?

Mr. Greenspan and other Fed officials repeatedly dismissed warnings about a speculative bubble in housing prices. In December 2004, the New York Fed issued a report bluntly declaring that "no bubble exists." Mr. Greenspan predicted several times — incorrectly, it turned out — that housing declines would be local but almost certainly not nationwide.
 
In 2000, Mr. Gramlich privately urged the Fed chairman to send examiners into the mortgage-lending affiliates of nationally chartered banks. Many of them, like Bank of America 's affiliate, had already come under fire from state regulators and consumer groups. Fed examiners, Mr. Gramlich argued, could clean up those practices from the inside.
 
Easy Al has been busy replacing one bubble with a bigger bubble.  His easy money policies have led to the spend like there is no tommorow culture.  When the fed chairman says ARMs would have been a better choice for last decade, he is basically recommending the ARMs vs. fixed rate mortgages (Financial Innovations.)
 

 

 

Monday, December 17, 2007

Out of Country

Hello All,
 
I will be out of the country over the next month.  So there will be less frequent posts.  I will try to post as much as possible.
 
Sandy

Friday, December 14, 2007

Inflation and Citigroup SIV

Inflation rose .8% in November.  That's a 9.6% YOY jump in inflation.  But don't worry because the "Core" inflation was only .3%. 

While inflation was up, the treasuries yields are going down as investors are opting for safety.  The yield on 10-year note dropeed to 4.169% yesterday.  That means the real return on the treasuries is -5%!

I feel sorry for all the seniors and savers.  If you are a senior, this is hurting you from both sides.  On one side your yields are going down and inflation is going up.  If you rely on social security, your costs are going up 9.6%, but the government will increase your payment by only .3%!  So if you are finding it hard to make ends meet, it's only going get worse.

While we have inflation sky-rocketing, our fed is busy lowering rates. 
 

Citigroup - Citigroup today announced plans to bring $49 billion worth of SIVs onto it's balance sheet.  This was a  move that was long overdue.  It's going to hit their already depleted capital base.  Congratulations to Vikram Pandit for bringing all the issues out into the open.  I guess now we can say goodbye to Mr. Paulsons MLEC fund.

This leads to antoher point.  This morning on Bloomberg radio, an analyst thought Citi taking SIVs on it's balance sheet means this is the bottom.  I may not be as smart as the analyst, but I would think there is a long way to go before this whole mess is resolved.  Remember that this whole mess was created by easy credit mostly in housing.  I would think there is a long way to go before housing has bottomed out.

 http://online.wsj.com/article/SB119759010104328237.html?mod=hpp_us_whats_news

Thursday, December 13, 2007

Countrywide's November oan funding drops 40 percent

Countrywide reported Thursday that mortgage loand funding tumbled 40 percent to $23 billion in November. 

November daily mortgage applications fell 32% to $1.9 billion.  The mortgage loan pipeline was $43 billion in November compared to $62 billion last year.

Subprime mortgages fell to $17 million from $3.06 billion last year.  Adjustable-rate fundings fell to $3.33 billion from $14.3 billion.

With higher rates on their deposits, their retail deposits increased from $29 billion to $31 billion in November.  Thank god for FDIC.  And also FHLB!

 

 

Wednesday, December 12, 2007

Fed Providing Liquidity

What a  timing for providing additional liquidity.  The fed is working with other central banks to provide more liquidity. 

So even as there are more write-downs, the markets are up.  And so is gold.  I guess you can inflate your way of this crisis.

The Fed also said it had created reciprocal "swap" lines with the European Central Bank, for $20 billion, and the Swiss National Bank, for $4 billion. These will enable the ECB and SNB to make dollar loans to banks in their jurisdiction, in hopes of putting downward pressure on interbank dollar rates in the offshore markets, principally the London Interbank Offered Rate, or Libor, market. The inability of foreign central banks to inject funds in anything other than their own currency has been a factor creating the squeeze on bank funding in those markets.

The new loans will be auctioned off with a minimum rate linked to the expected actual federal funds rate over the duration of the loan. Since the federal funds rate is expected to decline over the next two months, when the loans will be outstanding, the loan rate could end up being close to or even below the current federal funds rate.

Nonetheless, its potential importance has grown given Wall Street's negative reaction to the quarter-point cuts the Fed announced Tuesday in the federal funds rate target and discount rate, to 4.25% and 4.75%, respectively. Blue chip stocks tumbled 2% and treasury yields plunged as investors bet the Fed would ultimately have to cut rates far more to catch up with a sinking economy.

It remains unclear whether the new operation will do the trick. But the early reaction was favorable: Treasury bond prices plunged and their yields shot up in early trading, a sign that investors are abandoning the relative safety of Treasurys and preparing to bid up riskier debt. Futures markets suggested stocks would rise at the opening.

 

Rate Cuts not Helping Many Borrowers


Although the fed has been cutting rates, many of the loans are tied to the Libor.  Libor has gone from 5.36% in June to 5.11%.  At the same time, the treasuries have gone from 4.8% to 2.95%.

The fed is finding it's helpless when it comes to the Libor rate.  So far, the spread has remained stubbornly high because banks are reluctant to lend to each other. 

Libor is frequently used to set rates for ARMs made to subprime borrowers -- mainly people with scuffed credit -- as well as many ARMs that fall into the "jumbo loan" category, which currently refers to most mortgages for $417,000 or more, says Keith Gumbinger, vice president of mortgage-tracker HSH Associates. Also, roughly half of non-subprime ARMs that were originated in recent years are tied to Libor, he estimates.

The higher Libor rates complicate the Fed's efforts to assist troubled borrowers and prevent problems related to the housing crisis from spreading further through the economy....

A recent report from the Federal Reserve Bank of New York shows that the six-month Libor rate will determine the reset rates for an estimated 99% of subprime ARMs and 38% of Alt-A ARMs in the U.S. that have been securitized. A further 1% of subprime ARMs and 22% of Alt-A ARMs will reset based on the one-year Libor rate. Alt-A is a category between prime and subprime that often involves borrowers who don't fully document their income or assets.

Tuesday, December 11, 2007

Fed Cuts by 25 basis points

As expected, fed cut the rate by 25 basis points.  The fed also cut the discount rate by 25 basis points.  Many analysts were calling for a 50 basis points cut for discount window. 
 
It finally looks like fed has woken up the inflation threat (Atleast they did not cut by 50 basis points)!
 
 

Hitting Prudent Borrower

So you have been a prudent borrower.  You have paid your bills on time.  You have a great credit score.  What do you get for being a prudent borrower?  More fees!
 
Fannie has already added a fee and soon Freddie will be adding fees for insurance on all borrowers.  Fannie added .25% up-front charge on all mortgages. 
 
These while the FHLBs are bailing out Countrywide.  Why is the federal government giving loans of $51 billion to Countyrwide?  Shouldn't the fed be charging a fee for the risk it takes just as the GSEs are charging us the fees?
 
Fannie is also raising down-payment requirements for some loans.  My question is why didn't they do this before?
 
We are finally seeing some sanity in the mortgage business.  Had the fed been awake, this would have stopped long ago.  Thank you Mr. Greenspan for the mess.
 
 
 
Loan applications have been so slow lately, says Lou Barnes, a mortgage banker in Boulder, Colo., that it feels like "our client base today is limited to people who don't read the newspaper or watch television."
 
 
In a statement, Fannie said the new fee is needed "to ensure that what we charge aligns with the risk we bear." The National Association of Home Builders labeled the fee "a broad tax on homeownership." More than 40% of all mortgages outstanding are owned or guaranteed by Fannie or Freddie.

The fee is the latest in a series of moves by Fannie and Freddie that raise the cost of credit for some borrowers. Late last month, they imposed surcharges that affect mortgage borrowers who have credit scores below 680, on a standard scale of 300 to 850, and who are borrowing more than 70% of a property's value. For example, someone with a credit score of 650 would pay a surcharge of 1.25% of the loan amount for a mortgage to be sold to Fannie. On a $300,000 loan, that would mean extra fees of $3,750. The fee could be paid in cash or in the form of a higher interest rate than would normally apply.
 
Triad Guaranty Insurance Corp., Winston-Salem, N.C., this month stopped providing mortgage insurance on option adjustable-rate mortgages, which carry low introductory rates but can lead to a rising loan balance. Triad also said it would no longer provide mortgage insurance for loans that exceed 97% of a home's value. It set a 90% threshold for loans in four states where home prices have been dropping fast: Arizona, California, Florida and Nevada. "We want to look for people who have more equity rather than less equity" in their homes, says Triad Vice President Jerry Schwartz.
 

 

 
 

Monday, December 10, 2007

Bank of America freezing Money Market Accounts

Bank of America has frozen it's money market account for Institutional Investors.  CNBC says the fund is called Columbia Strategic Cash Portfolio and has assets of $12 billion.
 
 

Pending Home Sales

The pending home sales rose .6% vs. last month but declined 18.4% vs. last year.
 
More on home sales later...

Sunday, December 9, 2007

Profit Slump and Recession Worries

Yet in another WSJ article warns of slumping profits increases recession worries. 
 
Worries about profits are spreading to businesses other than financials. 
 
"The recession in reported earnings has already begun," says David Rosenberg, chief U.S. economist at Merrill Lynch & Co. "The underlying cause is a combination of painfully high energy prices and the general lack of pricing power in many businesses, which is starting to crimp margins."
.....
 
Most economists expect things to get worse before they get better. "We're facing a tsunami of earnings downgrades next year," says
Mr. Rosenberg.
 
We have heard the warning from FedEx already.  
 
Richard Berner, chief U.S. economist at Morgan Stanley, expects a "significant and lengthy" contraction in earnings, even if the U.S. economy avoids a recession next year. That's because U.S. companies have far more operating leverage now than at any time in the past.
 
Of course all these stuff doesn't matter to the stock market.  It should be up..up and away as it these should add to the case for a bigger rate cut.

Saturday, December 8, 2007

Consumers Pulling Back

In conversations with my friends who are dentists, they all have seen their practices slow for last three months. 
 
Yet again, we see more evidence of consumers pulling back.  The article in WSJ talks about slowdown in cosmetic surgeries.
  
Now these story confirms there is a slow down in breast-implants, plastic surgeries, and vision-corrections.
 
With food and energy inflating, they are becoming bigger part of consumer expenditures.  On top of that, we have house prices declining.  This is leading consumers to pull back.  Even the consumer index is at it's lowest since 1992.
 
On top of all these issues, we have increses in auto loan delinquencies and also in student loan delinquencies.
 
Credit card companies are raising rates even for those who pay on time.
 

The slowdown was a hot topic at the meeting of the American Society of Plastic Surgeons in Baltimore this fall. One breast-implant maker sees hints of a slowdown in demand. The number of vision-correction surgeries appears to be falling as well. "This whole mortgage credit crisis is making people think twice," said J. Peter Rubin, a Pittsburgh plastic surgeon. "It's something I've noticed and some colleagues have noticed as well."

Brad Tober of Buffalo, N.Y., recently got a notice that Capital One Financial Corp. was replacing the 9.9% fixed rate on his credit card with a variable rate of about 19%. The 21-year-old college student said he hadn't paid a bill late or done anything that he anticipated would lead to a higher rate. A spokeswoman for Capital One attributed the change to "business and economic" factors

Breast jobs and tummy tucks aren't covered by insurance, so patients need a chunk of cash -- or a healthy credit line. So far, the slowdown in some plastic surgeons' offices appears to be affecting big-ticket surgeries rather than less costly procedures such as anti-wrinkle facial injections.

Care Credit has, however, noticed a downturn in another popular procedure -- laser vision-correction surgery. Volume dropped 10% in October, the sharpest decline the firm has ever seen in such procedures, Mr. Testa said.

Friday, December 7, 2007

It's a buyers market..NOT


The Real Estate morons er agents think this is a great time to buy.  In a article article in Newsday the morons have advice for home buyers.  Although there might be a recession ahead, and prices will drop further, it's a great time to buy because the mortgage rates are at historical lows.

"Now that the prices have flattened, it's a great time to buy," says Dottie Herman, president and and chief executive of Prudential Douglas Elliman Real Estate.

Seriously, is there is any time that is not "a great time to buy?"  Oh yeah, all the real estate is local.
But while advising caution, many real estate experts say the time may finally be right for buyers who have been waiting to jump into the market. "In my 25 years in the business, this is by far the best buyers' market I've seen," says Steve Harney, a former owner of a large Long Island real estate firm who now specializes in negotiation and sales training.
 
There are no buyers because prices have a long way to go.  The sub-prime borrowers are out and the speculators/builders are out.  Builders used to create a floor on prices because they would buy a house in bad condition and renovate it.  Now with the prices going down, and many of them stuck with houses they can not sell, they are getting out of that business. 
 
Just because homes don't sell does not make it a "buyers market." The prices need to come down more before it becomes a buyers market.

There are six tips for buyesr.  Second tip is Buy when price is right.  I agree with that!  And it will be a while before the prices are right.

Third tip - Look at new construction.  Oh, but don't expect a big discount?  Buyers need to look for big discounts, especially new construction.

Fifth Tip - Seek 'motivated' sellers.  Duh!  I personally see the sellers motivation by their price, not by priting the word motivated seller.  There are many "motivated" sellers in LI who have been hanging onto their house for a long time.  They are not motivated sellers, they are motivated to sell at their price.


http://www.newsday.com/business/ny-bzspdn5489549dec07,0,1901551.story?page=2

 

Countrywide Isn't Out of Woods Yet

The article in WSJ says Countrywide still has many issues.  It's bonds are still treated like junk bonds.  It's bond yields 13.16%. 

It is increasing borrowings from FHLB and $2billion it recieved from BOA are the reasons for it's survival.  We have been telling you that the FHLB has been recklessly lending to Countrywide.  

It's collateral backing the $83.56 billion has been losing value.  And it's going to get worse as the housing slump gets worse.  Housing is so bad, Tan-Man is not considering even taking a guess as to when it turns.

"I don't know where we are in the cycle," Mr. Mozilo said at the conference. "I wish I did."

Countrywide needs to repay a total of $26.38 billion in borrowings over the 12 months ending Sept. 30, according to the latest quarterly filing. Countrywide officials have said they can meet these payments -- a point that Moody's Investors Service affirmed -- but may have to sell some mortgages or related securities to do so. Investors are so wary of mortgages that it is impossible to know how much of a discount Countrywide would have to offer to find buyers for these assets.

Remember that E-Trade sold mortgages for 27 cents on the dollar. 

 http://online.wsj.com/article/SB119699651215616733.html?mod=todays_us_money_and_investing

Thursday, December 6, 2007

U.S. Mortgage Foreclosures, Delinquencies at Record, MBA Says

Mortgage Bankers Association said mortgages with payments more than 30 days late, including Prime and Fixed-rate loans, rose to seasonally adjusted 5.59.  Remember these are prime and fixed-rate.  The "freeze" plan is not going to help here. 

In addition, 20% of adjustable-rate subprime loans were delinquent.  In addition to that, 10% are already in foreclosure.
 

Housing Prices to Drop 30%

This is not us telling you.  We have been telling you for a long time that house prices are going down. 

Now Moody's Economy.com said on Thursday that some housing markets will crash and suffer price drops of more than 30%.  They also said it will not be until 2010 before a measurable improvement in sales, construction and pricing will emerge.

What does all these mean?  People who bought at the top, will have to wait 5-15 years just to see their homes reach their current prices again!

Remember, this is not a subprime issue anymore.  This has little to do with ARM resets.  More and more people bought houses they could not afford and with house prices going down, it's better to simply return the key and walk away.

Again, housing is declining even as the job market is in decent shape.  What happens when the job market takes a turn for worse?  It should be something that keeps you up at night.
 

How about more bailouts?

WSJ is reporting that there is a surge in Auto-Loan delinquencies.  4.5% of auto loans made in 2006 to top-rated borrowers were at least 30 days delinquent.  And 12% of subprime borrowers were dlinquent on their 2006 auto loans.

If nothing else, more delinquencies means more problems for US Car makers as they rely more on cheap financing.  Although, according to the article, Ford and GM problems were less severe because they do not lend to sub-prime borrowers.

I wonder if this will lead to a new bail out from Washington.  How about lowering the rate of all people who bought a gas-guzzeling SUV in last two years? 

In another article, Student-loans are hit by higher default rates.

How about another bailout there?  Anyone with an average below C will not have to pay anything for next five years?

United Bailouts of America
 
 

Wednesday, December 5, 2007

Begging for Fannie and Freddie

In today's commentary in WSJ, Countrywide Financial Corp CEO Angelo Mozilo is now begging to raise Fannie and Freddie loan limits to $625,000.

First give out bad loans, then sell all your stock holdings, then borrow from FHLB's like there is no tom morrow. Then dump the current junk onto the GSEs.

We have a current mess in housing because loans were given to people who could not afford them. Raising the limit is just going to make things worse.

Even if they raised the limits, I am not sure that would help right now. Freddie and Fannie seem to have their own capital issues right now. These are the same agencies whose accounting evokes shades of Enron according to Bloomberg's Jonathan Weil.

But that does not matter because let's just dump the junk on tax payers. Let's go further into the black hole by giving out bigger more irresponsible loans.

http://online.wsj.com/article/SB119682399988414066.html?mod=todays_us_opinion

Fannie Mae Raises Home Price Decline Forecast to 5%

Now Fannie Mae is saying that home prices will decline 5%.  That's on top of the 3% through end of the year.  The drop is going to be nationwide. 

No wonder Fannie is cutting is dividend and planning a $7billion sale of preferred stock.

It said single-family serious deliquincy rates are increasing.  This will increase pressure on the pricing. 

If you ask the morons at NAR, they will tell you it's still a great time to buy. 

http://www.bloomberg.com/apps/news?pid=20601087&sid=azX1YZtWO_ns&refer=home

Tuesday, December 4, 2007

Fed Rate Cut Expections

WSJ has this on what the Fed is going to do at the next meeting. A 25 basis point cut is already expected. Since all fed officials have been openly talking about a rate, I would expect a 50 basis points cut. The fed like to surprise the market and they can only surprise with a 50 basis point cut. Also, remember they have been talking about "Equity" prices. If the market is down again, they will cut it 50 basis points.

Some analysts have also been talking about cutting the Discount rate or by lenghtening the loans.

http://online.wsj.com/article/SB119681606229313739.html?mod=hps_us_whats_news

How big a cut and what to say in the accompanying statement are likely again to be difficult decisions, as they were on Oct. 31 when the Fed cut its short-term interest-rate target to 4.5% and issued a statement suggesting no more rate cuts were likely.

Futures markets expect at least a quarter-percentage-point rate cut and see a two-thirds probability of a half-point cut. Fed officials will likely consider the larger cut, but some might find it hard to justify when just a few weeks ago they thought they were finished cutting rates.

Some analysts say the Fed is more likely to deliver a quarter-point rate cut and drop from its statement last month's characterization of risks of weaker growth and higher inflation as equally balanced. That would implicitly leave the door open to additional easing, without leading investors to presume further cuts were coming.

An alternative option would be to auction off credit at its discount window, as the Bank of England has done. Another would be to extend the term of discount-window loans to 90 days from 30 days.

Alt-A losses climb

Expected loses for loans originated in 2006 may climb to 20%.  Unlike what the fed and PaulSivReeze have been telling us, this thing is not contained.  This is just the beginning.

Alt-A loans are loans made to people with better credit score than Sub Prime but without income verification.  Yes, a janitor making $150,000 is fine.  How much mortgage do you want?
 

Fannie Mae to Cut Quarterly Dividend by 30% to Conserve Capital

Fannie Mae to Cut Quarterly Dividend by 30% to Conserve Capital. 
 
And Angelo Mozilo wanted the GSEs Freddie and Fannie to help Countrywide!  Yeah right!
 
He is already getting help from FHLB who is loaning Countrywide $51 billion with junk collateral.  Now he wants the GSEs to help Countrywide while he dumps the shares. 
 
Time to cut Countrywide Dividend!

Unfreezing Florida Funds

Florida's state-run cash management fund is supposed to be safe and liquid. Instead, they have been investing in SIVs. With the credit turmoil, even the prime stuff is hard to sell. The fund has as much as 14% in "distressed" fund.

The schools which had the money in the fund don't have the money to pay salaries or pay for the electricity.

They might split securities and sell the prime securities first. But even the prime securities would have to be at a loss.

http://online.wsj.com/article/SB119673985690712810.html?mod=todays_us_money_and_investing

Solutions won't come easily. BlackRock officials said the fund could have trouble selling even its best-quality assets, given recent turmoil in bond markets. They proposed splitting the fund's $14 billion in assets into a "high-quality" fund and a "distressed" fund. The latter would include about 14% of the fund's total assets.

"I'm hoping that the electric company won't cut off the lights to our school," says Hal Wilson, chief financial officer for the Jefferson County school district, which had money in the fund. "We'd really be in a bind."

"We're starting to realize how pervasive these assets were," says David Watts, an analyst for CreditSights, an independent research firm. "When you package these securities they end up in all sorts of places you wouldn't have expected."

"We relied on the continued assurances from state officials that the fund was safe," Mr. Wilson says. "We're a small county; we can't call on outside money managers to assess the situation."

These officials also said they were looking for a creditor that might offer loans to government and school officials and use the fund's high-quality holdings as collateral. Some investors urged them to turn to the state's $137 billion pension fund to be that lender. But BlackRock officials suggested the pension fund wasn't an appropriate vehicle for that role.

Monday, December 3, 2007

Details of the Freeze Plan

Now we are getting more details on the bail out plan.  It looks like his MLEC plan.  It's not going to do much.
 
In order to qualify for the freeze, you would have to be current on the payments.  So if you are behind, you don't qualify.  And you have to be able to keep making payments at the introductory rates. 
 
In California, a similar plan will help only about 12% of the borrowers with ARMs.
 
There are also talks about investors suing if they are forced to freeze the rates.  As we have said before, this plan makes very little sense without government subsidy.  It's too little too late. 
 
 
 

Sunday, December 2, 2007

Where are the market heading?

In order to see where the markets are heading, WSJ article compares to other similar situations.  Here are the conclusions:
 
There will be a lot more write downs.  We have seen E-Trade sell Prime securities for 27 cents on the dollar.  MS has $5.7 billion more writedowns.  So there is a lot more writedowns to come.  According to the article, it takes about 2 years for the price discovery.  So if you thought the crunch is over, it's far from over.
 
Cheap does not equal value!  We've heard this many times.  Just because Citi or Countrywide stock is depressed, it does not mean it's cheap. 
 
Watch Lawmakers and Enforcers.  They are the last ones to arrive.  So I guess this means when Angelo Mozillo is in jail, we will know the bottom:). 
 

Lennar & Morgan Stanely Deal

WSJ is reporting that Lennar Corp. has sold lots for 40 cents on the dollar.  They sold the lots for $525 million that was valued at $1.3 billion in September.  Lennar will have 20% stake with option to buy back lots.
 
Hedge funds and bankers want builders to have stake as they have the knoweldge.  So don't expect this from builders that are close to bankruptcy.

The deal, which closed with little fanfare Friday night, could be a catalyst for other "vulture" investors to swoop in and grab discounted land from other troubled builders. A wide range of investors have been raising money from pension funds and private-equity firms to acquire land.

"It's a good deal for Morgan Stanley" says Ivy Zelman, chief executive of Zelman & Associates, an independent housing research firm. "They are getting the lots at 40 cents on the dollar and Lennar will manage the venture and provide their home-building expertise for a fee." A Morgan Stanley spokeswoman declined to comment.

http://online.wsj.com/article/SB119664527659511255.html?mod=hpp_us_whats_news&apl=y&r=712196
 
 

Things are different this time

We keep hearing analysts who try to pick the bottoms.  People think that the financials are so low that they are a bargain. 

Remember that when trying to pick a bottom, you could be cought with a falling knife.  To me, trying to pick a bottom in housing and financials is like catching a falling knife.

An article in Barrons this week by Jacqueline Doherty discusses the same point.  Because in terms of Finacials, we are only at the beginning of the downturn.  Remember we have discussed in past about Credit Cards or auto loans and rising defaults.  There will also be rising corporate defaults.

Doug Krass is another analyst who thinks this is a dead cat bounce.
 
 
 
THE BOND MARKET is certainly signaling that all's not well. The London Interbank Offered Rate -- or Libor -- is what banks charge each other to borrow money. Last week marked the first time that a bank could borrow one-month money through the turn of the year. The rate on one-month Libor jumped from 4.82% Wednesday to 5.22% Thursday. Such stress hasn't been seen since 2000, when investors were worried about Y2K, and the Fed had to provide massive infusions of liquidity

As the banks and brokers deleverage, it's unlikely they'll be able to boost earnings. "This is the epitome of a dead-cat bounce," warns Doug Kass, the head of Seabreeze Partners, who has long been bearish on the financials. "People don't recognize how far bank and broker earnings will fall."

So, yes, there will be a time to buy bank and brokerage stocks... but it's certainly not right

Disclosures: Short Countrywide through puts.

Goldman Sachs newsletter and it's bets

Ben Stein has an article in New York Times talking about Goldman Sachs.  The article is mainly about two topics.  The first is about the newsletter that Jan Hatzius wrote about the economic disaster.  We discussed it here earlier in our blog.  The second topic is about Goldman shorting many of the CDOs they were creating.  He is comparing this to Henry Blodget and how he was pumping stocks that Merrill was dumping. 

 
He disagrees with Mr. Hatzius's newsletter that there is a economic disaster looming ahead.  He does not think the housing will go down 15 percent.  He believes there will be government intervention, which the newsletter failed to recognize.  The downturn in housing will lead to more CDO losses and the banks will be forced to curb lending. 
 
He also insinuates that the newsletter may be to help Goldman with it's bearish bets. 
 
It looks to me like Ben is missing the point.  This housing is alot worse than he thinks.  15 percent is just the beginning.  It's going to be alot worse than 15 percent.  He seems to think the fed can fix everything.  If the fed could fix everything, Citibank would not have gone begging to Middle Eastern countries for more capital.  The size of this mess is enormous and unlike anything we have seen before.
 
To me, MSM and Wall Street sells more good news than bad news.  We have seen this over and over again with Housing reports and how they make bad news into good news.  If MSM and Wall Street were more negative, the housing and credit downturn would not have been this bad.
 
In the second part, he argues if selling the product and shorting them are as illegal.  Goldman says it has disclosed everything it needs to.