Housing Depression: 2008

Friday, November 21, 2008

Tim Geithner is named the Treasury Secretary

Obama picks Geithner as Treasury Secretary. I was hoping it was going to be Paul Volcker. It looks like we are going to continue more of the same policy.

I know he is a smart guy. But he wanted to save Lehman. I want a guy who is not worried about letting something fail.

The content contained in this blog represents the opinions of HousingDepression.
This commentary in no way constitutes investment advice. It should never be relied on in making an investment decision, ever. Nor are these comments meant to be a solicitation of business in any way - such inquiries will not be responded to. This content is intended solely for the entertainment of the reader, and the author. We may hold either long or short positions in securities of various companies discussed in the blog. The information in blog may contain misspellings and other inaccuracies. It is provided "As IS," without express or implied warranties of any kind. HD represents all rights to the information.

Technorati Tags timgeithner,treasury

Thursday, November 20, 2008

Weekly Jobless Claims

Weekly Jobless claims rose by 27,000 to 542,000 from a revised 515,000 previous week. The four week moving average rose to 506,500 from 490,750.

It is about to get worse for the job market. Especially with Citi laying off 50,000 and other financials laying off more people.

Equity futures were off on the news. Two year bonds declined below 1 percent for the first time. The three month bill is yielding .06 percent. There is a lot of fear out there.

Technorati Tags weekly,jobless,claims

Tuesday, November 18, 2008

PPI Falls by a record amount

Deflation?

The headline PPI fell by a record 2.8 percent last month. The core rate which excludes oil and food prices rose by .4 percent in October.
The headline inflation fell along with energy prices. It looks like deflation is showing up in the (headline) numbers. The only question now is, are we going to jump to the other side of hyper-inflation - especially with the fed pumping all the dollars. The only problem for the fed is the banks are not lending and individuals are too much in debt already to borrow more.

Technorati Tags PPI,INflation,deflation,Hyper-INflation

Monday, November 17, 2008

Citi Shedding 50,000 Jobs

Citi is planningto cut another 50,000 jobs. That would be on top of the 23,000 jobs it has cut already.

The banking giant, Citigroup, which a decade ago set out to rewrite the rules of American finance, announced Monday morning that it would cut 50,000 jobs in the coming quarters, largely by selling assets.
In addition, the bank said that it would trim expenses by 16 percent to 19 percent to about $50 billion in 2009.
....
The cuts would leave the bank with about 300,000 employees, down from its peak of about 375,000 in the fourth quarter of last year.

In addition, according to another report, JP Morgan may be looking to shed about 10% of it's workforce. That would be about 3,000 jobs.

http://www.msnbc.msn.com/id/27755309/

Technorati Tags Jobs,JPMorgan,Citi

Thursday, November 13, 2008

Weekly Jobloss and GM

This was yet another grim jobs report. From Bloomberg:

Initial jobless claims increased by 32,000 to a larger- than-forecast 516,000 in the week ended Nov. 8, from a revised 484,000 the prior week, the Labor Department said today in Washington. The total number of people on benefit rolls jumped to the highest level since 1983.
``The labor market is only reinforcing a very pessimistic picture,'' Linda Barrington, a labor economist at the Conference Board, said in a Bloomberg Television interview. ``When you start to see the downward pressure on wages as well as the credit crunch, that's only going to make consumers much more nervous.''

Now if GM were to declare bankruptcy, that would make the jobs number much worse. But the short term gain would probably be worth the long term benefits. If the government provides money, it is just extending the death by a few months. Might as well not waste money and get over with it.

After all, all three American companies did not innovate and just sold SUVs and other gas guzzlers with 0% financing. Now, like everyone else, it's too easy to just blame the whole thing on credit crunch and not take the blame.

Like I said previously, I don't think the government will do the right thing. It's easy for them to blow tax payer money away then take the medication.

Technorati Tags GM,weekly,jobless,claims

Wednesday, November 12, 2008

Fed to Back GE Debt

Where does all this stop? We have American Exress becoming a bank holding company so they can borrow from the Fed. We have GM begging for aid. AIG borrowing some couple of billion more. Now, the government will guarantee GE debt.

WSJ is reporting that GE will paticipate in FDIC's (Not so) Temporary Liquidity Guarantee Program.

The company says the U.S. Government will now guarantee all qualifying GE Capital debt issued from Nov. 14 until June 30, 2009. GE said the government will guarantee up to about $139 billion of long-term debt, commercial paper and other debt programs such as GE Interest Plus. "This does not mean that GE intends to issue this amount of debt," Mr. Wilkerson said

What's another couple of billing between friends? The list just goes on and on. It's so bad that $100 billion does not even seem to register anymore.

Although I know there is no chance, I hope the congress refuses the $350 billion of the TARP. But knowing our congressmen and congresswomen, they would probably offer another $700 billion for the TARP - as long as GM is eligible for it.

At this point, all these companies seem to be sinking even as they are getting more capital. May be it is better to just let them go down rather than have zombie companies.

Technorati Tags GE,Fed,TARP

Friday, November 7, 2008

Bleak Jobs Report

Employers cut 240,000 jobs in October. And August and Septemeber job loss were revised up by 179,000! That's loss off 419,000 in this job report! The unemployment rate rose to 6.5 percent. That's highest since 1994.

Despite the job loss the 10 year bond yield (as of now) rose .02 or .54%. You have to wonder if we will have a slowdown and an increase in interest rates.

We have been telling you that the how far down housing goes depends on employment and interest rates. And that it's going to get worse before it gets better. Well, this report is pretty bleak. Today I heard on Bloomberg radio (I think Goldman) economicsts are expecting the unemployment rate to rise to 8.5% by next year-end.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahUhUD7lCy7s&refer=home

Technorati Tags monthly,unemployment

Thursday, October 9, 2008

Jobless claims drop to 478,000

Jobless claims dropped by 20,000 last week to a seasonally adjusted 478,000. The four-week moving average is at 482,000. That is the highest since October 2001. And the numbers are going to get worse as the downturn begins.

All this does not bode well for consumer spending, who are already strapped with lower home prices (although I never understood why your home price should effect spending - especially your primary home. I know it's MEW, but taking out a mortgage on a mortgage free home bothers me...but that's an issue for a different time.) and lower stock-market plunge.

Technorati Tags JoblessClaims

Tuesday, October 7, 2008

Fed to Purchase Commercial Paper

From WSJ:

The Fed announced a plan to purchase commercial paper directly from issuers. The Treasury Department will make a special deposit at the Fed to back the facility.

Looks like yet more expansion of feds authority.

Technorati Tags Fed

Fed to Purchase Commercial Paper

From WSJ:

The Fed announced a plan to purchase commercial paper directly from issuers. The Treasury Department will make a special deposit at the Fed to back the facility.

Looks like yet more expansion of feds authority.

Technorati Tags Fed

Friday, October 3, 2008

Monthly Payroll

Nonfarm payrolls tumbled by 159,000 in September. That was the fastest pace in five years. The unemployment rate was unchanged at 6.1%.

Once again, there were 42,000 jobs created by the birth/death model. The model has 12,000 jobs created in construction. Not only is the next president going to inherit a horrible economy, but watch out when those adjustments come in January!

So now everyone is asking for a rate cut. But if you look at the overnight fed funds rate, you see that the feds have already had a stealth cut. While there was a worry about deflation, with the way HeliBen is operating there has to be a worry about hyperinflation. He's got low rates, he's got all the liquidity pumping, and now another $700 billion (treasury) to buy junk from banks.

In other news, Wells Fargo Buys Wachovia

Now Wells Fargo is buying Wachovia with a stock swap. So now with Wells Fargo buying Wachovia, it leaves the FDIC off the hook (well not really since they still have to worry about the deposits - which they seemed to be worried about). WF is paying $15.1 billion in stock. WF will raise up to $20 billion by issuing common shares.

Thursday, October 2, 2008

Jobless claims rise to 497,000

From WSJ:

Even accounting for the roughly 45,000 claims that the government said were related to Hurricanes Gustav and Ike, the trend remains very weak for labor markets at a time when the crisis on Wall Street threatens to pull consumer spending and the overall economy into a deeper downturn.

Initial claims for jobless benefits rose 1,000 on a seasonally-adjusted basis to 497,000 in the week ended Sept. 27, the Labor Department said in its weekly report Thursday. That's the highest since Sept. 29, 2001. Economists surveyed by Dow Jones Newswires had expected claims would fall by 18,000.

For those who think we've hit bottom in housing, we've been telling you there are still more risks out there. We have been talking about umemployment getting worse. And this report shows us it's going to get worse.

We've had pretty bad data on the economy this week. First we saw signs of stagflation on Monday. We saw a big drop in manufacturing activity. And now this weekly unemployment report. We can probably be sure we are in a recession.

In other news, the SEC extended the short sale ban. From Reuters:

The Securities and Exchange Commission said the ban would expire three business days after a $700 billion federal bailout bill was enacted, but would not last beyond October 17.

Didn't Wachovia and Wamu go down while the ban was in effect? But that doesn't matter. Once these rules are added, they are hard to undo. Just ask Ben B. He's just can't stop any of his alphabet soup lending facilities.

Technorati Tags economy,SEC,weeklyunemployment,shortsaleban

Wednesday, October 1, 2008

GE Raising $15 Billion

Nothing bothers me more than lying analysts. I am probably not as smart as most analysts, but one thing I promise is honesty. That is the whole purpose of this blog.

GE is raising $12 billion in common shares to public, and raising another $3 billion by selling preferred shares to Warren Buffett at 10% interest rate! Yet Jim cramer claims there is no problem. Hello? That's $3 billion at 10%! Remember that's what Lehman and other financial companies said when they raised capital - We are raising capital not that we need to.

“I don’t think there’s a company in the country that if they can raise cash shouldn’t do it right now,” he said.

It looks like he has it backwards. No company would want to raise cash in this environment if it didn't have to. This is absolutely the worse period to raise cash. The fact they are trying to raise $12 billion shows their desperation.

Once again this is not something I am happy about. I am just pointing out the lie that they don't need capital.

http://www.cnbc.com/id/26975872

Technorati Tags ge,JimCramer

Ford Sales drop 35%

Ford sales dropped 35% despite customer incentives. WOW! 35% drop. As credit crunch spreads, this is going to effect more people.

"Consumers and businesses are in a very fragile place," Ford marketing executive Jim Farley said in the company's press release. "An already weak economy compounded by very tight credit conditions has created an atmosphere of caution."......
"February 1993 was the last time that fewer than one million new vehicles were sold in a month, and we're coming remarkably close to that volume again," said Jesse Toprak, executive director of industry analysis at Edmunds.com. He added that October sales traditionally are worse than September.

It's going to get even worse next month!

GM's sales fell only 16%.

http://online.wsj.com/article/SB122286679412694031.html?mod=googlenews_wsj

Technorati Tags automakers,ford,gm

Credit Crunch is getting worse

WSJ is reporting that many companies like GE, Verizon, and Microsoft are lobbying congress to pass the bailout package.

Corporate-bond issuance in the quarter plunged to $76.7 billion from $337.3 billion in the second quarter, according to figures from Thomson Reuters. Companies overall were forced to reduce their borrowings on the short-term commercial paper market by $212 billion between the end of February and last Wednesday, as investors continued to back away from the corporate IOUs.
Randall Stephenson, AT&T Inc.'s chief executive, said the telecom giant's access to short-term commercial paper was limited to overnight loans for a few days last week. An AT&T spokesman said the situation has since improved and the company now has "full and ready access" to such credit for longer terms and at "reasonable rates."

You can imagine how bad it must be if the largest telecommunications company is having trouble selling short-term debt.

The finance arm of Caterpillar Inc. last week sold $1.3 billion of bonds in a two-part offering. The world's largest maker of earth-moving machinery is rated single-A, but the company said it had to offer yields upward of 6% and 7% to lure investors. In August, Caterpillar issued $300 million in bonds at a yield of 4.9%.

These are top companies that are having problems raising money.

We probably need some kind of a bill to pass. But I would rather congress take its time, have good economists give their views and then pass the bill. We need to make sure we are not just throwing away $700 billion.

http://online.wsj.com/article/SB122281874953692447.html

Technorati Tags creditcrunch,rescuebill

Tuesday, September 30, 2008

Home Prices drop 16.3%

The S&P/Case-Shiller home price index dropped 16.3 % compared to a year earlier.

The S&P/Case-Shiller home-price index dropped 16.3 percent from a year earlier, more than forecast, after a 15.9 percent decline in June. The gauge has fallen every month since January 2007, and year-over-year records began in 2001.
....
``While some cities did show some marginal improvement over last month's data, there is still very little evidence of any particular region experiencing an absolute turnaround,'' David Blitzer, chairman of the index committee at S&P, said in a statement.

Well we have been telling there are more problems with the housing including the economy (jobs) and interest rates. The key question on the interest rates is going to be how the foreign banks respond to the bailout. If they won't buy the debt, either the interest rates will have to go up or we will have to monetize the debt leading to hyperinflation.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aEyKpTpk90C0&refer=home

Technorati Tags CaseShiller,Housing

Thursday, September 25, 2008

JP Morgan to Acquire parts of Washington Mutual

WSJ is reporting that government has brokered a deal for JP Morgan to acquire deposits and some branches of Washington Mutual. It said this won't effect the FDIC insurance fund.

I wonder what JP Morgan is taking here...especially without the backing of the fed.

Technorati Tags JPMorgan,wamu

Prices in Californi Drop 41%

No that's not a Typo. Prices in California dropped 41% from August 2007! Here it is from Bloomberg

California home prices tumbled a record 41 percent in August from a year earlier as foreclosure sales pushed down values in the biggest U.S. state.

The median price of an existing, single-family detached home fell to $350,140 and will likely fall further, the Los Angeles- based California Association of Realtors said today in a report. Sales increased 56.7 percent from August 2007 and 1.8 percent from July.

People are ready to buy if the prices come down. So instead of the government inerfering, it would be better if they just let the markets correct themselves. Remember, it's not that there are no buyers, it's that prices are still too high.

Technorati Tags housing,california

Jobless Claims, Durable Goods, and GE

Filings for first time benefits increased by 32,000 to 493,000. Last weeks numbers were revised to 461,000. This is the highest since September 2001. Some of the increase probably had to do with the hurricanes.

But we have been saying look for the job markets to get weaker. And now with the bailout plan, the treasury yields should go higher. This will mean a higher interest rate.

Durable Goods

Durable goods - goods meant to last several years - bookings dropped 4.5%. Previously reported numbers were revised lower to .8%.

GE Cuts Forecast, Suspends buyback

From Bloomberg:

General Electric Co. reduced its annual profit forecast for the second time this year and suspended its stock buyback because of ``unprecedented weakness and volatility'' in financial markets.

Full-year earnings will be $1.95 to $2.10 a share instead of the earlier projection of $2.20 to $2.30, Fairfield, Connecticut- based GE said today in a statement. The world's fourth-largest company by market value fell in early New York trading.

Considering all this news, the markets would have tanked had it not been for the optimism on the bailout package. But considering the problems in the economy, I wonder if that optimism will last.

It's going to be interesting to see what happens to the price of gold with the bailout package.

Technorati Tags GE,WeeklyJobless,DurableGoods

Wednesday, September 24, 2008

Fed Bailout

I have been meaning to write about Warren Buffet and the MOAB (Mother of All Bailouts).

It seems that Buffet supports the bailout. He was on CNBC today saying there will be major consequences if there is no bailout. But he also said the securities bought should be bought at market price. So in a sense, he was not supporting Ben B's plan. They want to OVERPAY for the assets. They don't want to buy at fire-sale price and they don't want to have equity because then the capitalized institutions won't participate.

So unlike AIG, they just want to give away free dollars to these institutions.

HP wants complete authority. NO questions asked. Forget about balance of power.

Another issue here is trust. To many people this sounds like Iraq all over again. Remember WMD? Iraq acquiring Nuclear materials? Can you hand over a blank check to Paulson?

With their plan, they want to send billions of dollars worth of Christmas gifts so they are well capitalized.

I know we have to do something. But I don't want to give away free gifts to banks and put the tab on next generation.

Technorati Tags fed,MOAB

Ron Paul Testimony

Ron Paul was as good as ever. Here is a summary of what he said (Note: They are not exact quotes but my estimation of what he was saying).

Where does the money come from? Out of thin air?

Finally, someone talking about where the money is coming from. More inflation.

House prices need to comedown. Price fixing is not a solution. The fed is trying to price fix by buying securities.

Finally, someone being honest and saying something smart. Finally someone said it - House prices need to come down!

Where does this authority (for creation of unlimited amount of money) come from? I do not see anything in constitution.

Thank god someone brought this point up.

Technorati Tags Fed,RonPaul,MoneySupply

August Existing Home Sales

Existing home sales dropped 10.7% from last year and 2.2% from a revised July 2008.

Prices for homes dropped a record 9.5% from last year. Regionally, the price drop in the West was 23.9%!

With lower prices, the inventory dropped to 10.4 months which was at 11.1 just two months ago.

“However, home sales will be constrained without a freer flow of credit into the mortgage market. The faster that happens, the sooner we’ll see a broad stabilization in home prices that in turn will help the economy recover,” Yun said. “Historically, housing has led the nation out of economic doldrums – there will not be an economic recovery without a housing recovery.”

Leave it upto morons at NAR to come up with a solution that will screw things up even more. Now that the government has taken over the GSEs, looks like the NAR want the GSEs to return to NINJA loans. The only way to get out of this mess quickly is for the prices to drop so more people can afford houses - not over leveraging.

And while we have had lower mortgage rates, it is not certain they will remain low. Especially with the bailout package which may lead to hyperinflation.

“The median home price reflects more transactions related to subprime loans,” Yun said. “Fewer than 10 percent of homeowners have subprime loans, but these mortgages are accounting for a disproportionately high share of sales in the current market. On the other hand, areas that have had sharp price cuts are seeing a turnaround in sales, which are rising very fast now in parts of California, Florida and Nevada.”

Yun is complaining about Short sales lowering the price, but does not mention it when those short sales lead to an increase in home sales.

Technorati Tags NAR,ExistingHomeSales,LawerenceYUN

Tuesday, September 23, 2008

Wells Fargo Jumbo Mortgage Rate is 9.00%

Wells Fargo Mortgage rate for a 30-year fixed mortgage is 9.00%!

We have been telling you to watch the jobs market and the mortgage rate to see how far down housing goes. We were worried about the mortgage rate, but with the government bailing out Freddie and Fannie, the rates eased - at least temporarily.

The 30-year fixed is still low.

Technorati Tags housing,mortgagerates

Marcy Kaptur

THEY WANT MAMA TO MAKE IT ALL BETTER! Rep Kapture

Marcy Kaptur Let's them have it.

MSM Starting to Talk about Depression

We have been telling about the risks to the economy and the housing market. We've been saying it's pretty bad out there. Now Pointon's Nitingale says Global 'Depression' is possible. It looks like we are starting to hear analysts on MSM talk about depression.

Another point on the current crisis is that most people compare this to Japan's housing bubble. And most think America can recover quicker than Japan. But one wild card here is that the Japanese consumer had a better balance sheet than American. American's savings rate is 0%!

http://www.bloomberg.com/avp/avp.htm?N=av&T=Pointon's%20Nightingale%20Says%20Global%20%60Depression'%20Possible&clipSRC=mms://media2.bloomberg.com/cache/vbT7lOhH7Jmo.asf

Technorati Tags depression,MSM

Wednesday, September 17, 2008

Dodd and Palin

Senator Dodd says the fed has the autority to set up a debt fund. As if they haven't ruined their balance sheet ennough, you have a senator asking to take on more junk.

``Debating whether or not you're going to set up some new agency or bureaucracy in government is a nice point, but I don't think we have the luxury of waiting another year,'' Dodd said.

It's great. Instead of telling the fed to stop overstepping authority, he is telling them to do this without congress approval.

``But candidly, I want to do a lot more than 400,000 units,'' he said. ``And we have the opportunity to do more than that.''

And if that's not ennough, he wants more housing help. Where are you going to get the money? Stop robbing our future generations for a quick fix today. Let the free markets do it's work. In the long run, it's going to be better than trying to rescue each and everyone.

BTW, what about those who were smart and kept renting instead of buying a house on a interest only. I don't see him talking about the prudent.

Here is another example of how screwed up our politics are. Here is Sarah Palin saying there wont be a bailout for AIG. Of course, after the bailout, Mccain softened his position. We don't have to wait for the candidates to get into the office before they flip-flop - they do it in matter of days.

Technorati Tags SarahPalin,ChrisDodd

More Shotgun Marriages

NYT is reporting Morgan Stanely got a call from Wachovia expressing interest.

WSJ is reporting both Citigroup and Wells Fargo are interested in Washington Mutual. Doesn't Citigroup have ennough of it's own problem? It's kind of stunning to see Citi interested in Wamu.

Technorati Tags ShotgunMarriage,MorganStanely,Wachovia,Citigroup,WellsFargo

Cliff Diving

Today's Cliff diving candidates are Morgan Stanely which was down to 16.10 (more than 42%) and has recovered to 19.00.

The other cliff diver is Wachovia which was down 25% and is down 22% right now.

Technorati Tags CliffDiving

Fed Need More Money

With all the bailouts - not to mention the junk that the fed is holding - the fed is running out of money. So they are going to issue more TBills to bridge the gap.

``The Treasury Department announced today the initiation of a temporary Supplementary Financing Program at the request of the Federal Reserve,'' the department said in a statement today. ``The program will consist of a series of Treasury bills, apart from Treasury's current borrowing program.''

The new bill program ``will provide cash for use in the Federal Reserve initiatives,'' the Treasury said.

I guess they are preparing for more bailouts. Don't be surprised if the interest rates go up because of more issues. I am surprised they have already not gone up. With the treasury selling more TBills, there is going to be more supply. There better be more demand or else....

BTW you don't hear anyone in the MSM talking about a housing bottom anymore. Ofcouse you still had trolls saying Fannie and Freddie bailout marked a bottom. NOT!

I heard another analyst on Bloomberg today. Who sounded more honest than most. He was saying that we are deleveraging from a 40-year credit expansion. This is going to take at least one year to fix the problem. Now granted he did say "At least". But given it's a 40 year expansion, I doubt it's going to be resolved in a year. I would say at least two-three years before we can even think about resoving these issues.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aQ58hpS0fRH8&refer=home

Technorati Tags Fed,TBills

Tuesday, September 16, 2008

Fed Loans $85 to AIG

Fed Invokes 'Unusual and Exigent' Clause to bailout AIG. Just days after Treasury secretary said no to bailing out AIG, the fed is providing AIG with $85 billion of "loans".

It's a dramatic turnabout for the federal government, which has strongly resisted overtures from AIG for an emergency loan or some intervention that would prevent the insurer from falling into bankruptcy. Just last weekend, the government effectively pulled the plug on Lehman Brothers Holdings Inc., allowing the big investment bank to fail instead of giving it financial support.

It seems Lehman did not have ennough toxic stuff to be bailed out.

The precise details of the government's plans were still being formulated late Tuesday. The primary option being hammered out involved the Fed providing AIG with a short-term "bridge" loan of $85 billion, according to people familiar with the situation. In exchange, the government would receive warrants in AIG representing the right to buy its stock, under certain conditions. That could put the government in a position to potentially control a private insurer, a historic move, particularly considering that AIG isn't directly regulated by the federal government.

Now we know why the fed did not cut the rate. They had much bigger issues on their mind. Bailout AIG and then we can use the rate cut next time around. I was surprised when the fed held especially when the markets were pricing in more than 80% chance of a rate cut.

Sen. Richard Shelby of Alabama said he didn't receive a "satisfactory" answer from Mr. Paulson in an early conversation about the ultimate scope of government intervention. "I laid out -- where do you stop? Where do you draw the line?"

The automakers are already begging. So I guess they are next.

The AIG bailout caps a tumultuous 10 days that have remade the American financial system. In that time, the government has engineered rescues that insert it deep into the housing and insurance industries, while Wall Street has watched two of its last four big independent brokerage firms exit the scene.

http://online.wsj.com/article/SB122156561931242905.html#articleTabs%3Darticle

Technorati Tags AIG,Bankruptcy

AIG Bankruptcy

We are truly getting into scary stuff.

According to NYT, AIG is hiring a law firm to draw up bankruptcy papers.

It is not known whether the Fed would now change course and agree to provide an emergency infusion of capital to the cash-starved insurance giant, or what form such aid would take. If the Fed decides not to intervene, A.I.G. will probably file for bankruptcy by Wednesday, these people said.
.....
A.I.G.’s collapse seemed so likely on Tuesday that the company hired the law firm Weil, Gotshal & Manges — which is also handling the Lehman Brothers bankruptcy — to draw up bankruptcy papers.
Many of A.I.G.’s subsidiaries have drawn down on their credit lines, people briefed on the matter said.

In another report, the fed says it does not have the legal authority for an AIG conservatorship. So it's going to be an interesting day tomorrow.

Federal Reserve Leaves Rates Unchanged

Federal Reserve leaves rates unchanged...more to come.

Monday, September 15, 2008

Fed Buying Equities

I had to read it twice to really believe if this was true. People have been talking about PPT and Fed Manipulating the stock markets. But now, the fed is expanding it's lending program to include Equities! I am not making this up.

The Federal Reserve will expand its lending facilities in the wake of the likely demise of Lehman Brothers Holdings Inc., taking a wider array of securities, including equities, as collateral for its loans, the central bank said late Sunday.

I had to read it twice to belive it. With the prices of equities going up and down everyday, how can the fed take it as collateral?

The fed is expanding lending programs and yet the media keeps talking about fed avoiding the moral hazard.

Technorati Tags ppt,fed,moralhazard

Lehman and Merrill

Lehman Brothers is filing for Chapter 11. It is with great sadness I say this as I have many friends who are employed at Lehman. They seem to have gotten the worst possible deal as the fed did not help bail them out.

Bank of America is buying out Merrill for $50 billion. BoA will pay $29 a share - 70% more than Sept 12 price. I wonder if they needed to pay that kind of premium for Merrill. I guess Ken Lewis likes to pay premiums for "Bargains". If this was driven by fed, I don't think they needed to pay a 70% premium!
So this is where we are. A year after governement officials kept telling us subprime issues were contained, we now have Bear Stearns, Lehman Brothers, and Merrill either merged or dissappeared.

Of course, you will have ennough analysts on CNBC calling for another bottom. But we have a long way to go.

Technorati Tags Lehman,Merrill,BoA

Thursday, September 11, 2008

Lehman Sale

According to the latest report, Fed and Treasury are arranging sale of Lehman through a consortium of private investors according to Washington Post.

Before this report, there were rumors of Bank of America. But like JP Morgan & Bear Stearns deal, BoA wanted a government money.

I wonder how much tax payer dollar they are using this time for Lehman sale.

Technorati Tags Lehman

Wednesday, September 10, 2008

Fannie Still Paying Q3 Dividend

Just when you thought you had heard it all. Here are more tax dollars going to waste.

Fannie Mae has recieved consent from FHA and US Treasury to pay Q3 dividend that was announced earlier but was unpaid. Going forward the dividend will be eliminated.

Why pay the third quarter dividend? You are paying dividend to preferred shareholders from tax payer dollars.

http://www.marketwatch.com/news/story/fannie-allowed-pay-third-quarter-preferred/story.aspx?guid={B1D358BF-C343-4AF0-8861-E270F025BE46}&dateid=39701.7312979745-937637636#comments

Technorati Tags Fannie,FannieDividend

Washington Mutual Cliff diving

Washington Mutual stock's cliff diving continues this morning. The stock is down another 16% today. That is on top of the 20% drop yesterday. Since Monday's F&F Boost, the stock has gone from $5.03 to $2.75.

Technorati Tags WashingtonMutual

Lehman Reports a $3.9 billion loss

Lehman reports a bigger loss. Plans real estate spinoff.

Lehman reported a $3.9 billion third-quarter loss on $5.6 billion of writedowns. It will also spinoff it's real estate which is expected to be completed in Q1 2009.

This is one of the things we have been warning about. Remember that Lehman had a chance to raise capital earlier. But instead of raising capital, we heard Fuld saying we don't need it. Now that they need it, the capital has dried up.

Lehman gained almost 15 percent to $8.95 at 8:57 a.m. in New York trading, while the cost to protect against a default by Lehman rose to a record. Credit-default swaps on Lehman jumped 115 basis points to 590 basis points as of 8:08 a.m., according to broker Phoenix Partners Group. That surpassed a previous peak of 580 basis points in March after the collapse and emergency sale of Bear Stearns Cos. to JPMorgan Chase & Co.

Once again, there is a divergence between credit and equity. Lehman stock has been very volatile this morning.

``The opportunity has been there, but the lack of willingness to deal on Fuld's part has been huge,'' Bove said.

Didn't Bove recently say that Lehman is a buy and there will be someone to buy it out? Bove seems to be flip-flopping on Financials faster than a politician.

Standard & Poor's said yesterday it may lower its A1 long- term rating on Lehman because the ``precipitous decline'' in the share price creates uncertainty about the firm's ability to raise additional capital. S&P said Lehman's liquidity is ``sound,'' noting the firm has the ability to borrow from the Federal Reserve.

Like this agencies have the guts to downgrade anything. Remember they did not downgrade the insurers. They will not downgrade anything until after it's too late. If they were honest, we may never be in this mess in first place.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aYbnRS8fidHw&refer=home

Technorati Tags Lehman,3Q2008

Tuesday, September 9, 2008

July Pending Homes Sales down 3.2%

July pending home sales fell 3.2 percent to 86.5. June pending home sales were revised upward to 89.4. July numbers are down 6.8 percent from a year earlier.

Lawrence Yun, NAR chief economist, said home sales continue to edge up and down. “Pending home sales are oscillating month-to-month, with the long-term trend essentially flat,” he said. “Overly stringent lending criteria imposed by Fannie Mae and Freddie Mac in the past month no doubt held back contract signings.”
Even with the latest pullback, pending home sales have been fairly stable on a national basis for nearly a year, with dramatic local market differences continuing. “Contract signings have been steaming ahead, nearly doubling in activity from a year before in several California and Florida markets,” Yun said.² “The outer Washington, D.C., exurbs also are coming around very strongly. The Northeast region retreated following a robust gain in the previous month, and soft activity was observed in the broad midsection of America despite very affordable conditions.”

Affordable? The reason they are not selling is they are not affordable. Just because the prices go down does not mean they are affordable. The prices still need to come down further in order to be affordable.

It's going to be interesting to see where the interest rates go with the nationalization of Freddie and Fannie. The MBS securities yield went down 25 basis points yesterday. Will the mortgage rates go down further? Or will the nationalization pull up all the other interest rates?

Yun said there are many ambiguities in the marketplace. “The economy is producing more, yet cutting jobs. A first-time home buyer tax credit and lower interest rates on newly conforming jumbo loans favors consumers, yet buyer confidence remains low,” he said. “Even with the Treasury Department’s direct intervention in the secondary mortgage market, it is unclear if we will go back to sound normal underwriting criteria, or if it will remain overly stringent. The housing market outlook is very cloudy.”

Glad you asked. The economy is producing more because the inflation rate used for GDP calculations is 2%. Looks like Yun wants NINJA loans back. What a moron..he wants "sound" and "normal" underwriting criteria! How about let's have 20-30 percent down back?

But then again may be this is the first time I've heard NAR saying the housing market outlook is very cloudy.

http://www.realtor.org/press_room/news_releases/2008/home_sales_in_narrow_range

Technorati Tags NAR,PendingHomeSales,LawrenceYUN

Friday, September 5, 2008

Tax Dollars at Work

WSJ is reporting that the Treasury is close to finalizing plan to backstop Fannie and Freddie. Remember Paulson just "needed" to show the bazooka. Now, he is using it. Congress wrote a blank check so they are all (those who voted for the bill) are responsible for this.

More of our tax dollars at work.

The markets rebounded today - especially the financials. Do you think someone had a word on this early? Just wondering.

Technorati Tags Freddie,Fannie,Treasry,Bailouts

Unemployment Reaches 6.1%

The US unemployment rate climbed to the highest in five years to 6.1%. Payrolls fell by 84,000 in August. And remember when I thought the last one was going to be the big bad one. Well, a revision added 58,000 more job losses to prior two(not just one) months.

With more layoffs and hurricane effecting job losses, this number will get worse.

``It certainly increases the probability that we really are in a recession,'' William Poole, former president of the Federal Reserve Bank of St. Louis, said in an interview with Bloomberg Television. ``It is a weak number, including the revisions.''

....

Service industries, which include banks, insurance companies, restaurants and retailers, subtracted 27,000 workers after cutting 12,000 in July. Retail payrolls fell by 19,900 after a drop of 18,100.

``We're losing jobs in all kinds of industries now,'' Roger Kubarych, chief U.S. economist at UniCredit Global Research in New York, said in an interview with Bloomberg Radio. ``This is the clearest recessionary signal we've seen.''

So much for the housing recovery that "analysts" seem to predict everyday.

In other news, a record 9.2 percent of homeowners were either behind on their mortgage payment or in foreclosure at the end of June.

The latest quarterly snapshot by the Mortgage Bankers Association on Friday broke records for late payments, homes entering the foreclosure process and for the inventory of loans in foreclosure.

Breaking records in delinquency or foreclosure is not good news for the housing market.

The percentage of loans at least 30 days past due or in foreclosure was up from 8.8 percent in the January-March quarter, and up from 6.5 percent a year earlier.

Folks, we are just at the beginning of this downturn. We've got a long way to go. Along the way, you are going to have analysts calling bottoms. Here is Jim "Bubble" Cramer on Tuesday (From SeekingAlpha)

“The rally this morning was the real deal,” Jim Cramer told viewers. He said that market expectations have turned too negative and when companies report their earnings they should blow away those estimates. Cramer said he was buying into today's afternoon selloff for his charitable trust and said now is the time to start building positions. Cramer told viewers not to pay any attention to the Dow Jones Industrial Average, which traded as high as 230 points before closing down 26.63 points today. Instead he said they should concentrate on the KBW Bank Index and Philadelphia Housing Sector Index, which he says are the real indicators of where the market is headed. He said the markets will not see a meaningful rally with the Philadelphia Housing Sector Index in free fall. “The markets need home prices to stabilize,” he said. Cramer reiterated his views that the markets will not re-test the lows of July 15, noting his prediction of a bottom in the housing market is now just 302 days away. He said a market rally will likely precede that bottom.

Cramer cited several reasons why he feels a market rally is on the horizon.

There will be an uptick in consumer spending when gasoline hits just $3 a gallon.

The Federal Reserve won't raise interest rates as long as commodity prices continue to fall.

Any companies who raised prices due to higher commodity costs will now reap the rewards as those commodities begin to recede in price.

Cramer told viewers not to wait until next year to start buyer, as a recent Wall Street Journal article suggested, but rather to start buying now ahead of the positive news that's on its way.

Since Cramers "bottom" call, the S&P has gone from a high of 1302 to 1220. Good call Jim!

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