Personal Spending Up .1%

US personal spending was up only .1% in February. "Inflation" was also up .1% for February and 2.0% YOY. 2% sounds really odd considering food and energy prices were skyrocketing (and that has to flow to other items at some point).

Adjusted for inflation, spending was flat.

Personal income was up at a seasonally adjusted rate of .5%. Considering all the layoffs and problems in the labor market, I thought income would have gone down.

http://online.wsj.com/article/SB120670656497671569.html?mod=hps_us_whats_news

Morning News

The Economy grew only at .6% in 4th Quarter 2007.  The economy for the whole year grew at just 2.2%.  

The U.S. Corporate profits fell 3.3% in 4th Quarter!  That is much bigger than the expected .1%.  If profits fell 3.3% in 2007, you can guess where they went in Q1 of 2008.

Write-downs

Oppenheimer analyst Meredith Whitney says Merrill and UBS may lose money this quarter and write-downs could be $6 billion and $11.1 billion, respectively!  Seems like there is only one smart (or honest) analyst out there.  She is usually leading the pack.  Unlike others who come out with their estimates after the write-downs.

She also said yesterday that Citi's writedowns could total $13.12 billion.  

http://www.cnbc.com/id/23823780

Job-less claims

Initial job-less claims fell by 9,000 to 366,000.  

Paulson Says US Shouldn't Prop Up Housing Prices

Wow! Finally a statement from Paulson that I agree with! Thank god some politician finally said this. Listening to other politicians you would think this is the worse thing ever.

The government can not control the home prices in the longer term. And a lower price means more people can afford homes. With lower home prices people will be able to buy homes with overextending themselves as has been happenning over last few years. The prices will have to come down to where median income family can afford a house!

"A correction was inevitable and the sooner we work through it, with a minimum of disorder, the sooner we will see home values stabilize, more buyers return to the housing market, and housing will again contribute to economic growth," he said on prepared remarks for delivery to the U.S. Chamber of Commerce.

Still, he said that if homeowners who are "underwater" on their mortgages walk away from them, they are no more than speculators and don't deserve special help.

A simple 20% downpayment will make people think twice about walking away. The banks that lended Ninja loans deserve what they get if people are going to walk away.

http://www.cnbc.com/id/23809831

Have we hit the bottom?

The stock market, many analysts, and Barron's seem to think last week was the bottom. There was an article in Barrons about how Bear Stearns going down was the bottom and you have heard the same thing from many analysts. Maria Bartilomo said the same thing on Meet the Press this Sunday. Bob Doll was on CNBC this morning about touting all the "good news."

How can we be at the bottom if the credit issues that started this are still there? The Euribor (Euro-Libor Rate) is at it's highest this year to 4.70%. Banks are still waiting for other banks to go down.

People are still flocking to treasuries. Remember last week the treasuries were yielding about .5%! Safety first.

Remember that even Ben Bernanke said we will have more bank failures going forward. So far we've had none. So this mess is not over by any stretch of imagination. The equities will at somepoint catch up with the credit markets.

Pending Home Sales

Pending Home Sales were up 2.9% in February.  But they were down 23.4% YOY.  Also, the median prices were down by 8.2% from last year!  Pending Home sales were down by 29.2% and 26.4% in the West and Northeast.

The MSM is going to blow the 3% gain as a recovery.  But remember that in 2006, there was also a gain in Feb.  This is the start of the spring season.  So home sales should go up.  It's going to see the cancellation rate on those home sales.

Jobless Claims Up 22,000!

The number of US workers applying for unemployment benefits climbed 22,000 last week to 378,000, government data showed on Thursday, but part of the larger-than-expected increase may have been due to layoffs caused by an auto industry strike.

The four-week moving average of initial claims, which gives a better underlying signal on the state of the labor market, rose to 365,250, the highest level since October 2005 in the aftermath of Hurricane Katrina.

Oh Oh. If unemployment increases then look out below. We've been saying this for a long time. Even with a strong labor market, housing will continue to decline. But with unemployment rising, it may get much worse.

So now I don't think there are any economists claiming we are not in a recession (if there are, then I don't consider them an economist). Now, the argument is whether it's going to be a long recession or short recession.

For the first time, I heard an analyst on Bloomberg radio talking about a Soft Depression. Let's just hope for the best because this is getting scary.

http://www.cnbc.com/id/23723011

Fannie, Freddie Cap Reduction

OFTHEO said it is reducing loan requirements for Fannie and Freddie to 20% from 30%! Freddie and Fannie will be raising additional capital.

The ailing U.S. mortgage market should get a boost from the decision, U.S. Treasury Secretary Henry Paulson said. "Additional capital will enable the companies to help more homeowners and will strengthen the underlying fundamentals of the mortgage market," Mr. Paulson said in a statement.

He added that with Fannie Mae and Freddie Mac being significant participants in the mortgage market, he is "encouraged" by the announcement, which should make more financing available and provide additional support to the market.

This sounds funny because just few months ago the administration was against it.

I will say this again. We are raising the limits at the precise time we should be lowering them. If house prices go down as predicted by most banks then they will need additional capital. By lowering the ratio now, we are removing the safety net. They will need to raise even more capital later on.

How long before the fed starts buying subprime and other junk from everyone!   

http://online.wsj.com/article/SB120593069669648325.html?mod=hpp_us_whats_news

Japan of the 90's?

The US has become the Japan of the 90's.  Bear Stearns sell to JP Morgan is reminiscient of "convoy system" employed by Japanese banks.  BOA taking over Countrywide.

 

On top of the Bear Stearns price of $2, the feds gave JP Morgan $30 Billion money-back guarantee!

 

Only time will tell if losses there are more loses than $30 billion on Bear Stearns balance sheet.

As with Japan in the 1990s, delay in finding a true clearing price for mortgage-backed securities and similar assets could keep uncertainty hovering over the market like a toxic cloud. Banks will stay more interested in fending off potential disasters than in lending money and keeping the economy growing.

It looks like this is one of the things everyone is avoiding at all costs.  No one wants to sell any assets and find the real price.  as the old saying goes - if you are quiet people will think you are stupid, but if you talk, people will know you are stupid. 

That's not to say the Fed should stop cutting rates. Avoiding a prolonged and painful recession is, and probably should be, Ben Bernanke's top priority. As a student of economic meltdowns, from the Great Depression to Japan, he knows that central-bank reluctance to cut rates quickly and aggressively only made things worse.

I disagree.  Rate cuts have only made things worse.  The dollar is in the dumps, mortgage rates are at the pre-October level.  If people loose confidence in dollar, it will mean a higher mortgage and other loan rates.

 

But if rate cuts aren't enough to inspire heavily indebted consumers to spend and shell-shocked banks to lend, then another ugly feature of the Japanese experience becomes possible: something economists call a liquidity trap, in which easy money does nothing to stimulate economic growth.

Deflation!

 

http://online.wsj.com/article/SB120580267422043929.html?mod=hpp_us_inside_today&apl=y&r=828511

Stock Manipulation?

We've got Dow in Positive Territory! S&P 500 Down only .37!

So far, I have not seen anyone who can explain what is going on. Here is a stock chart of S&P 500. Who are the buyers coming in? Is it PPT? You decide.

Stock Manipulation?

We've got Dow in Positive Territory! S&P 500 Down only .37!

So far, I have not seen anyone who can explain what is going on. Here is a stock chart of S&P 500. Who are the buyers coming in? Is it PPT? You decide.

New York Manufacturing Weak

The New York Fed's Manufacturing index level was at -22.13 in March, it was at -11.72 in February.  This is the lowest for the index.  The previous low was -19.6 in November 2001.  Yes, lower than 2001!

Are there any "economists" left out there who think we are not in a recession?  

Fed Cuts Discount Rates and Takes Wider Junk Collateral

The Fed has cut the discount rate to 3.25 from 3.50.  The fed will take wider range of "Investment Grade" collateral.

 

The dollar is dropping Fast!  Yen is at 97.22!  Gold futures up at 1017!

 

It's going to be an interesting day tomorrow.

JP Morgan Buys Bear Stearns

JP Morgan bought Bear Stearns for $2 a share.  Bear Stearns stock closed at $30 on March 14.  So JP Morgan gets a nice discount.

 

Bear Stearns's sale to JPMorgan caps an eight-month slide in the company's fortunes that began last July with the collapse of two of its hedge funds. Those failures sparked a wider market concern that called into doubt the value of any asset linked to the mortgage market, Bear Stearns's biggest business.

 

Without a resolution this weekend, the situation would probably have continued to deteriorate when markets resumed trading tomorrow, according to analysts and investors including Cambiar Investors LLC's Brian Barish.

Bear Stearns's profit exceeded $2 billion in 2006, yet the price JPMorgan is paying is about one quarter the value of the securities firm's headquarters building in midtown Manhattan. The 1.2 million-square-foot, 45-story structure built in 2001 is worth about $1.2 billion, based on the average $1,000 per- square-foot that comparable office space in the city is currently fetching.

``If you're buying equity for free and the liabilities are pretty well capped, it sounds like it's good for JPMorgan shareholders,'' said Ben Wallace, who helps manage $800 million, including shares of JPMorgan, at Grimes & Co. in Westborough, Massachusetts. ``The thing that everybody's been worried about has been the counterparty risk and if this gives people more confidence, that will be good for the markets.''

Seems like a great bargain for JP Morgan. 

 

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

 

 

JP Morgan & NY Fed Providing Funding for Bear Streans

More details soon...

CPI Unchanged from Last Month - YOY 4%

CPI was unchanged from last month.  Both Core and Energy were unchanged from last month.  Economists were expecting a gain.

I wonder what "basket" they used to keep inflation unchanged.

S&P Sees End to Subprime Mortgage Writedowns!

S&P moves from pumping CDOs to Stock Market?  Or are they trying to be funny?  April Fools is still 2 weeks away.

"The positive news is that, in our opinion, the global financial sector appears to have already disclosed the majority of valuation write-downs of subprime asset-backed securities," S&P credit analyst Scott Bugie said in a report.

More write-downs could be in store outside the subprime sector, however, S&P cautioned.

I guess this means we are moving to Alt-A and prime write-offs.  Other than that, I am not sure what kool-aid these people are drinking.  And stocks pared loses on these remarks?  

But then again what do you expect from an agency that has AAA on Ambac which is paying 14% interest rate!

"What was surprising to me in the report was that S&P said that we may be near the end for write-downs on subprime mortgages," said Mike Kagawa, portfolio manager at Payden & Rygel in Los Angeles. "They must be seeing something I'm not. I just don't see it."  

Same here.  I don't see what S&P is looking at.  I guess we can now officially call them Standard & Pumpers!

http://www.cnbc.com/id/23611885

Carlyle Group, The Dollar Tanking and More

Carlyle Group Collapsing
Carlyle's lenders demanded more than $400 million to meet margin calls.   The fund defaulated on $16 billion of debt yesterday.  

``If Carlyle's lenders want their money right away, they'll liquidate the fund,'' said Hank Calenti, a London-based analyst at RBC Capital Markets. ``That will put pressure on already stressed credit markets.''

The question is are you going to find buyers and at what price?

``The basis on which lenders are willing to provide financing against the company's collateral has changed so substantially that a successful refinancing is not possible,'' Carlyle said in the statement. It expects additional margin calls today of $97.5 million.

It's almost like some one trying to refinance their mortgage, but can not because the home is worth less than the mortgage owed.

"This is not only a problem for Carlyle,'' Jochen Felsenheimer, the Munich-based head of credit strategy at UniCredit SpA, wrote in a note to clients today. ``We expect a further flood of downgrades especially of higher-rated securities, putting enormous pressure on the system.''

That's assuming the rating agencies, specifically Moody's and S&P, would downgrade them.  It looks like they have been MIA.  I don't see them changing at this point.

"Carlyle won't be the end of it,'' said Greg Bundy, executive chairman of Sydney-based merger advisory firm InterFinancial Ltd. and a former head of Merrill Lynch & Co.'s Australian unit. "There's more to come. The problem is no one can give you an educated guess about how much.''

That is truly scary.

Dollar Diving

Most economists told us this wouldn't happen.  Now we are seeing a collapse of the US Dollar.  The dollar fell to below 100 Yen for first time since 1995.  It approached parity with Swiss Franc.  

If as we wrote yesterday, the Middle East countries start dumping the dollar, it could get even uglier.  

``Sentiment for the dollar continues to deteriorate very, very rapidly and if we're not careful this will turn into a dollar crash,'' said Mitul Kotecha, head of foreign-exchange research in London at Calyon, the securities unit of Credit Agricole SA, France's second-biggest bank. ``The risk is that we see a fairly aggressive move sharply lower towards 95 yen, and that could really perk up the interest of the Bank of Japan.''

Let's hope this is the bottom for the dollar.  Otherwise, the gas prices will keep going up.  What a mess!

U.S. Retail Sales

The US Retail sales did not help the dollar as they declined .6% vs. an expected increase of .2%.  I wonder if there is anyone out there still saying we are not in a recession.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aDRmYse1_2Pk&refer=home

Morning Briefs

Freddie Mac sees home prices falling further

When you tell people that house prices have further to fall, many think you are scaremongering. But now the industry people are saying the things we have told you.

Speaking to analysts on a conference call, CEO Richard Syron estimated that housing prices, from peak to trough, have dropped only a third as far as he thinks they're going to. The McLean, Va.-based company's expecting a peak-to-trough decline of 15% in all.

The declines are going to be more than 15% if CEO of Freddie Mac telling you about a 15% decline. As we have said, we have a long way to go before we bottom out.



Dollar Falls

The stock market was up by 3% yesterday on the fed news. But looking at the currency markets, you get the picture that most people don't think the move is going to succeed.

The dollar fell to $1.5504 per euro, weakes since Euro's 1999 debut! It went down to 102.32 Yen.

Euro gains were limited after Luxembourg Finance Minister Jean-Claude Juncker said he is ``very vigilant'' on the euro in current circumstances and that exchange rates should reflect fundamentals. He spoke to reporters in Brussels.

Looks like the foreign governments are holding the only thing holding the dollar as they are nervous about their own trade balance.

Forward contracts to buy United Arab Emirates dirhams rose the most in two weeks after Economy Minister Sultan Bin Saeed Al Mansouri said the dirham's dollar peg is ``contributing'' to record inflation.

The US is exporting inflation to world. This is our biggest export now. There are many of those who think a lower dollar is good for exports. While it may be good for exports, since commodities are priced in dollar, it is going to cost more to buy imports. Also, there are very few 100% export items (ie. totally made in America). Many exporters import materials. Again when the dollar goes lower, you are paying more for the import.

Fed Taking "AAA" as collateral

With the fed giving away dollars to anyone oops any bank that needs it, you might have missed this story. Moody's, S&P defer cuts on AAA subprime securities.

None of the 80 AAA securities in ABX indexes that track subprime bonds meet the criteria S&P had even before it toughened ratings standards in February, according to data compiled by Bloomberg. A bond sold by Deutsche Bank AG in May 2006 is AAA at both companies even though 43 percent of the underlying mortgages are delinquent.

That's right AAA with 43% of mortgages delinquent. But this should not come as surprise to anyone who has been following the mono insurers. We've seen this too often.

Sticking to the rules would strip at least $120 billion in bonds of their AAA status, extending the pain of a mortgage crisis that's triggered $188 billion in writedowns for the world's largest financial firms. AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.

``The fact that they've kept those ratings where they are is laughable,'' said Kyle Bass, chief executive officer of Hayman Capital Partners, a Dallas-based hedge fund that amade $500 million last year betting lower-rated subprime-mortgage bonds would decline in value. ``Downgrades of AAA and AA bonds are imminent, and they're going to be significant.''

The rating cuts would make the value of debt to 26 cents! Add the fed news and this together and you get the picture. It looks like the fed is working with the agencies to not downgrade them so that the banks can use them as collateral. 26 cents worth of collateral for one dollar. This whole situation would be funny if it was not tax payers dollars.

S&P and Moody's, both based in New York, failed to anticipate the record foreclosures on home loans and slumping house prices. New foreclosures jumped to 0.83 percent of all home loans in the fourth quarter, up from 0.54 percent a year earlier, the Mortgage Bankers Association said March 6. Home prices fell 9 percent, the biggest decline in 20 years of record-keeping, according to the S&P/Case-Shiller home-price index.

Failed to anticipate?  This guys are a joke.  They not only failed to anticipate, but they are still failing to see them.  Should they be rating anything?

``If the 800-pound gorilla moves, it's going to crush someone, so it's not going to want to move,'' Partnoy said. ``They know they will trigger a price collapse. They are understandably reluctant.''

Let's not sell so we can have the mark-to-model prices. Why even bother getting the price if it's 20 cents on the dollar!

Fed Will Lend up to $200 Billion to Primary Lenders

In another attempt to ease the liquidity problems, the fed says it will lend upto $200 billion directly to primary dealers.

The $200 billion of Treasury securities to primary dealers will be secured for a term of 28 days rather than overnight as in the existing program by a pledge of other securities, including federal agency debt, federal agency residential -mortgage backed securities and nonagency AAA/Aaa-rated private-label residential mortgage backed securities, the Fed said.

Just bring any garbage as collateral.  We'll take the risk off your balance sheet.  Hey Countrywide, you got $20 billion (Marked-to-model) junk loans?  No problem, we'll take it.

Other banks around the world are also adding liquidity.

As in December, three European central banks cooperated with the Fed in a coordinated global effort to calm markets. The European Central Bank offered up to $15 billion in U.S. dollars through a renewed currency swap agreement with the Fed, following similar moves in December and January. The Bank of England renewed expanded loan terms it announced in December, widening the range of collateral that U.K. financial institutions can submit for £10 billion ($20 billion) in three-month funds. The Swiss National Bank boosted the amount of dollar funds it announced with its December swap from to $6 billion from $4 billion.

Ahead of the announcement, the Reserve Bank of Australia injected a net 721 million Australian dollars (US$661.6 million) into the financial system, its largest net injection since mid-December.

Fiat-money at it's finest.

Morning Roundup

Over the weekend, there was a story about FBI investigating Countrywide for possible securities fraud.  Remeber back in October 2007, we told you that they should be investigated by the feds.  At the time, they were taking mortgages they could not sell and keeping them on their books.  But instead of taking a write-off, they priced the securities by mark-to-model.  So it just keeps on getting worse for Countrywide.

Goldman Sachs is floating the idea that the feds might cut the rates today in response to weak job numbers.  If the feds to cut today, I would imagine it would lead to a panic.  Remember that the scheduled fed meeting is only one week away.  

Bye Bye Good Times?

Finally, the "economists" seem to realize what we have been saying for a while.  We are in a recession.  The recession is unavoidable.

 

After the jobs report, almost everyone is saying we are in a recession.  Just about a week ago, many analysts were saying we will avoid a recession.  Now they are changing their tunes and fast.

 

The dismal jobs report released Friday showed overall employment to be lower than it was three months ago. Every time such a slump has occurred since the early 1970s, a recession has followed — or already been under way.

 

And if the good times have really ended, they were never that good to begin with. Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a new record.

 

This is the point I try to make all the time.  The incomes have not gone up since 1999.  Home price increases should be correlated to income and mortgage rates.  While the mortgage rates might have gone down from 1999, it does not justify 100% or 200% increases in home prices.  The only reason housing has gone up is because of debt! 

 

For months, policy makers and Wall Street economists have been predicting, and hoping, that the aggressive series of interest rate cuts by the Federal Reserve would keep the economy growing, despite the housing bust. But the possibility seemed to diminish almost by the hour on Friday.

 

Once again, we did not think the lowering the interest rates would work.  Even before the rate cuts, the dollar was in the dumps.  The cuts have made it only worse.  Now, inflation is picking up.  You have to feel sorry for the seniors who are getting hit from both sides.  Their inflation is going up and can't get even a decent return on their savings. 

 

....Almost immediately, the economists at JPMorgan Chase — who only last week had told clients they thought the economy was still growing — reversed course and said a recession appeared to have started earlier this year.

 

Some times I wonder what these guys get paid to do?  They tell us there is a recession after everyone knows.  They downgrade stocks after it has been beaten down (ie. Countrywide, Thornburg mortgage, Ambac, etc....).  They upgrade stocks when it does not make any sense (housing stocks!  Twice now.  First from Citi analyst who upgraded them in Dec and now Bofa analyst Daniel oppenheim).

 

Of course, the Bush administration still does not think we are in a recession! 

 

The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It now looks as if a full decade may pass before most Americans receive a raise.

 

Median income after a decade has actually gone down, not up!  Now imagine that 48K number with inflation adjusted and you get a true picture of what is happening.  The median picture gives you an idea of how poorer an average family is compared to last decade.  Add to this the fact the rich might be earning more, and it's a bleak picture for the lower income families.

 

http://www.nytimes.com/2008/03/08/business/08recession.html?_r=1&hp&oref=slogin

Hedge Funds and Margin Calls

Many hedge funds use margins (borrowing money usually from banks) to amplify their returns. Now banks are asking hedge funds to return some of the money.


This could be another vicsious cycle. Banks ask for money back. Hedge funds have to liquidate some of the positions. Which brings down the price of their holdings. Which leads to more margin calls.

So far, the turbulence touched off last summer hasn't resulted in many big
hedge-fund blowups. If that changes, banks and other financial firms could end up holding even more hard-to-sell securities. Already, their troubled investments, especially in securities tied to mortgages, have cost them some $140 billion in write-downs.

Let's just hope any big hedge funds don't have to unwind. Otherwise it's going to get UGLY!

"The appetite for risk is dropping sharply," said Steven Abrahams, chief interest-rate strategist at Bear Stearns Cos. in New York.

This is the great unwind. Until now, everyone invested/lent and asked questions later. Now, it is exactly opposite.

The issue came to the forefront yesterday as Carlyle Capital Corp. said it failed to meet margin calls on loans backing part of its $21.7 billion portfolio of highly rated securities issued by Fannie and Freddie. Carlyle Capital, whose shares are listed in Europe, is managed by a unit of Washington, D.C., private-equity firm Carlyle Group.

Fannie and Freddie are perceived as having the backing of the U.S. government, so they're usually seen as a safe haven.

"The fact that this is happening in top-quality agency paper is really worrying," said Tim Bond, a strategist at Barclays Capital in London. "It's marking an extension of this stress into the group of players who only invest in the safest mortgage-backed stuff."

Losing confidence in US or the mortgage markets? Either way, the mortgage rates are probably going to be significantly higher in coming months.

First Peloton, then Thornburg, and now Carlyle have had margin calls in last week. As they unload some of the holdings, many financial firms are going to be left with their holding.

Amid waves of selling, bonds backed by home loans that are guaranteed by Fannie Mae and Freddie Mac were yielding 3.51 percentage points more than ultrasafe five-year Treasury securities. That spread is a record. A year ago it was 1.23 percentage points, and a month ago it was 2.48 percentage points.

February Payroll Tanks

Nonfarm payroll fell 63,000 in February. That is on top of the 22,000 decline in January.

The job market is pretty bad. How bad? The unemployment rate actually went down! The reason for it going down was not gain in jobs, but people actually stopped looking for jobs.

FHA - Taking Risks With Your Tax Dollars?

With the housing struggling, the FHA is looking to step in to fill the void.  The FHA provides insurance for loans and does not make the loans.

Over the past four months, Fannie and Freddie have imposed fees that lenders have to pay upfront so that loans can be guaranteed by the two companies. Those fees are passed on to borrowers and typically result in slightly higher interest rates. Fannie and Freddie also have increased down-payment requirements in areas where house prices are falling. The FHA hasn't changed its terms and allows down payments as small as about 3% nationwide.

More reckless than Fannie and Freddie?  The officials in Washington will do anything to prop up the market.  In the end, it's the tax payers taking the risk. 

The FHA's broader role exposes it to more risks, stirring fears that taxpayers ultimately may have to bail out the agency. The FHA is "underpricing for the risk that they are taking on," says Thomas Lawler, a housing economist in Leesburg, Va., who formerly worked for Fannie Mae.

FHA officials counter that the FHA requires borrowers to document their ability to repay loans and has never needed a bailout for its single-family mortgage program. "The FHA is playing exactly the role it's supposed to play," maintaining the flow of mortgage credit, says Meg Burns, a senior official at the agency. "We need to be there as a backstop."

I wonder if Meg would be saying the same thing if this was her money instead of FHA. 

Ashley Jones, a 23-year-old who works for an urban-redevelopment organization in Kansas City, Mo., was delighted with that backstop. On Monday, she locked in a fixed interest rate of 5.5% on a 30-year mortgage to be insured by the FHA. "It's just a fantastic deal," says Kerry Thomas of mortgage bank James B. Nutter & Co., who is arranging the loan. Ms. Jones would have paid about 5.75% for a conventional loan and would have needed to put down 5% of the home value, instead of the 3% she will need for the FHA loan, says Ms. Thomas.

I am glad Ashley Jones was able to finance her home.  But if you can not put down 20%, you should not be buying a house!  And if you can not put down 5%, you should not be allowed to even think about buying a house.

Yesterday, the Department of Housing and Urban Development, which runs the FHA, announced the new temporary loan ceilings in California. Details for the rest of the country are due to be announced this week, perhaps today. The California loan caps range from $271,050 in lower-cost areas such as Lassen and Trinity counties to $729,750 in high-cost counties in the Los Angeles and San Francisco areas.

Tax payer dollars to help someone buy a $700,000 house!

Dollar Damage?

Fed's rate cuts may do long-term dollar damage?  May?  As if it hasn't already?  Dollar is at it's lowest since 1973!  Gold is reaching new highs.  Oil is reaching new highs.  May? 

I love the MSM for reporting the obvious.  We've been saying this since the rate cuts began.  The rate cuts are not going to help those who need it most.  In fact, as inflation is rising and now most bond investors are expecting a better return.  So most of the rates are going up.

More troubling is the fear that whatever success the central bank achieves will have been bought at the expense of future inflation, shattering confidence in the dollar.

Unlike the past, most other central bankers are not cutting as the fed.  In fact, Australia has raised rates. 

Still, there are plenty of investors and economists who are not ready to sound the alarms.

There are always these economists who are not ready to sound alarm until everything has burned down.  Just look at subprime and housing issues.  Most of them told us that in the worse case for housing, there would be no gains. 

We may not be in a dollar crisis as too many economies are dependent on the US.  But as time goes by, more and more are becoming less dependent on the US.  Just check oil prices.  Most economists told you that as US slows down, the prices will go down. 

"Well, you have to put yourself in an oil exporter's shoes," Merrill Lynch's Englander said. "You have all this capital to invest, so why would you invest it in a country where the two-year note is yielding 1.54 percent?"

 

1.54 percent and the currency is falling!  You have to feel sorry for the seniors in this country.  Not only do they have to deal with inflation, but also their savings get no return.  Their real returns on their savings is negative!

 

 

How many times can Ambac save the stock market?

First there was the Warrent Buffet rumor.  Warrent Buffet was going to buy the munies.  Never mind that munis are the safe investments (atleast so far).  Never mind that there was no solution for the subprime CDOs, which were the problem in first place.  It's almost like Daimler-Chrysler selling of the Mercedes division and keeping Chrysler!

Then there were the rumors that the banks will bailout Ambac.  Again, the news lifted the stock market.  If recapitalizing by $2-3 billion would have fixed the problem, why didn't the banks do this earlier?

Then the Rating Agencies hold AAA ratings on the insurers.  So the stocks go up again.  Don't worry about the fact that the ratings agencies have no credibility.  They are giving AAA ratings to companies that pay 14% in interest!   But all that does not matter and the markets go up.

Yesterday(March 4, 2008), just as stock market was about hit it's lows, we get the rumors (exactly at 3:00 pm) about Ambac getting bailout from the banks.  Again, do not worry that Dubai International Capital is saying that Citi itself needs more capita!  Blind leading the blind.

Is Ambac worth more in this state to the stock market then it would be with an actual bailout!  Whenever market needs a jolt, just bring out the rumor card.

 

 

Bank of America's Risk-free CD - Stealing your money

Becareful when opening up a CD with Bank of America Corp.(NYSE:BAC). The experience is even worse than my already low expectations with banks. They are learning quickly from Countrywide.

I opened a CD with Bank of America on Jan 31, 2008. The rate they advertised on the web-site were for 3.75% for a four month CD.

They took a initial deposit on Feb 08, 2008. I got a CD Deposit reciept. It said the term was 4-months, but they cut the rate down to 3.30%. When I looked on-line, the CD said the term was for 9-months. So now, instead of a 4-month 3.75% CD, they opened a 3.30% 9-month CD. Now this is a risk-free cd but why would they change the terms around?

So I called them up. After waiting 30 minutes, they transferred me to consumer department. After waiting another 30 mintues, the consumer department tells me that the CD department is closed and there I would have to call back tomorrow. Waste of One-Hour.

The next day, I called the phone number on the CD Deposit Receipt. I spent 30 minutes waiting and then trying to explain what had happened. They told me I signed up for a 9-month CD. I told them I have a letter from BOA showing it's a 4-month term. She told me that she did not have access to all the information that on-line CD people have!!! Two departments for CDs!! This is what I call a China Wall!

So I got transferred again. I then talked to another associate in "Internet" CD department. She had no clue of what to do. So I told her I wanted to talk to her manager.

I again went through the whole ordeal again. She is telling me that I must have clicked on the wrong option and other crap. She also acknolwedged there was a 4-month 3.75% CD. When I told her I had a paper with 4-month term, she told me to fax it to her.

I have faxed it to her. It has been 5-hours and still no phone call from her. When I call the number she gave me, they give a different excuse everytime.

I am going to wait a few more hours and then try back again.

Bankruptcy Filings Surge Among US Consumers

Bankruptcy filings jumped 15% in February. 

"February's bankruptcy spike -- the highest single month since the 2005 (bankruptcy) law changes -- forecasts the start of more to come for the balance of 2008," said Samuel Gerdano, ABI executive director.

"It is probably too early to attribute the current trend to the mortgage crisis. But if it continues -- as it is certainly expected to with adjustable rate mortgages resetting -- it could add to the bankruptcy rate," Gerdano said in an interview.

The institute is forecasting more than 1 million consumer bankruptcies in 2008, compared with about 800,000 in 2007, due mostly to heavy household debt. But the 2008 estimate could go
even higher "if this contagion affecting the home mortgage market continues," Gerdano said.

As things have gotten tougher, people have been loading up on credit cards.  Another day, yet another problem. 

http://www.cnbc.com/id/23454160

 

Morning News

 

Dollar Dives again

 

Dollar fell to its worst level against a blanket of currencies since 1973!  We need another rate cut!  Dollar is down to 103.07 against the Yen.  The dollar index is down to 73.642. 

 

http://online.wsj.com/article/SB120454384724107357.html?mod=hps_us_whats_news

 

Countrywide's Mortgage Woes Deepen

 

It's hard to believe Mozillo had predicted Countrywide will be profitable in the next quarter.  It's even harder to believe he is getting away with all the lying.  Mr. "I had to sell over $100 million Countrywide stocks for my grand kids education" Mozillo!

 

At end of 2007, paymets were at least 90 days overday on 5.4% of option ARM held as investments by Countrywide, up from .6% a year earlier.  This is the junk stuff we told you about.  It's worthless piece of junk that nobody wants to buy.  Countrywide wants to keep it on it's book so it does not have to mark to market.

 

The company said 71% of the borrowers were making minimal payments.  This is a great deal for the borrowers.  Keep making the minimum payments then just walk away.

 

Countrywide disclosed that half of the $87.04 billion of mortgage loans held by its bank are backed by homes in California and Florida, two of the states hit hardest by falling home prices.

 

Further losses may lie ahead. Borrowers can pay down these lines of credit and then draw new funds later, Countrywide said. As a result, it said, the company's "maximum obligation cannot be defined."

 

Countrywide officials have said they didn't expect these losses in late October, when Chief Executive Angelo Mozilo forecast a profit for the fourth quarter. The company ended up reporting a loss of $422 million for that quarter.

 

Did not expect them?   Next time, please read our blog to get a better understanding of your company:)

 

http://online.wsj.com/article/SB120451272111406901.html?mod=hps_us_whats_news