Housing Depression

Wednesday, December 15, 2010

David Stockman on Dylan Ratigan

David Stockman is one of the voice of honesty. Should be a required video for anyone in Washington DC.

Visit msnbc.com for breaking news, world news, and news about the economy

Thursday, November 18, 2010

Thank you Uncle Warren

Dear Uncle Warren,

Thank you for the thank you letter to Uncle Sam. Thank you for acknowledging generosity of Uncle Sam - unlike other financial firms who have ~~stolen~~ received billions.

Here are some suggestions/comments I have on the letter.

First you forgot to mention how much you and the banks have benefited from Uncle Sam's generosity. It would have been great if you mentioned the Goldman Sachs Options you got for doing nothing (or at least that's what we are lead to believe). It probably also helped you because you owned many of the Financial WMDs specifically the put Options you wrote.

You forgot to mention how bailing out AIG indirectly helped your call option gifts from Goldman Sachs. And the fact that Uncle Sam paid 100 cents on the dollar when Goldman had already agreed to receive 50 cents on the dollar.

How would it have affected \ holdings of Wells Fargo?

You forgot to mention how the bailout of the banks have continued since September 2008. Let's not forget that the QE along with the 0 interest rates by fed is directly to support the banks - and taking money away from elderly retired, savers, and tax payers.

You mentioned how 300 million Americans might have been affected, but forgot to mention how the crisis would have affected you - how much money would you have lost if the banks were allowed to fail? And how you benefited the most while many of the Americans are still looking for a Job. How the bailouts have allowed the banks to payout record bonuses.

You also did not mention the cost to tax payers and the future generations. And the fact that Uncle Sam has taken on the risk on behalf of you and the banks.

Btw congratulations on your medal of freedom. The timing could not have been any better.

Regards,

HD

Monday, March 30, 2009

Pension Insurer Shifted to Stocks

Just when you thought you had seen ennough shoes had dropped, here comes another big one. From boston.com

Just months before the start of last year's stock market collapse, the federal agency that insures the retirement funds of 44 million Americans departed from its conservative investment strategy and decided to put much of its $64 billion insurance fund into stocks.

The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent - and all of its stock-related investments were down 23 percent - as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.

Yes folks, the agency put billions of dollars into stock market before the crash! The agency already has deficits. Now with more companies going bankrupt, it's going to make things worse.

Instead of being conservative, Charles E.F. Millard - the director of strategy during the Bush administration, decided to invest in stock market. These casino players are the once who have ruined America - believing prices just can't go down and everything is a bargain. Why would an insurer be in stocks is beyond my comprehension - let alone at a dangerous time as we have now.

"The truth is, this could be huge," said Zvi Bodie, a Boston University finance professor who in 2002 advised the agency to rely almost entirely on bonds. "This has the potential to be another several hundred billion dollars. If the auto companies go under, they have huge unfunded liabilities" in pension plans that would be passed on to the agency....

However, Charles E.F. Millard, the former agency director who implemented the strategy until the Bush administration departed on Jan. 20, dismissed such concerns. Millard, a former managing director of Lehman Brothers, said flatly that "the new investment policy is not riskier than the old one."

I would like to know more about how he thinks stocks are not riskier than bonds.

He said the previous strategy of relying mostly on bonds would never garner enough money to eliminate the agency's deficit. "The prior policy virtually guaranteed that some day a multibillion-dollar bailout would be required from Congress," Millard said.

Sounds like someone sitting at a poker table trying to double down. Either this guy should be admitted to gamblers anonymous or be prosecuted for putting tax payer dollar at risk. But most likely nothing will happen to him. He will walks away the way Angelo "Tan-man" Mozilo and Dick Fuld did. The congress held hearings to show Americans that they were taking action.

....Bodie once likened the agency's strategy to a company that insures against hurricane damage and then invests the premiums in beachfront property.

Since he issued that warning, he said, the agency has gone even more aggressively into stocks, which he called "totally crazy."

...Now, they warn about a "perfect storm" scenario in which the agency's fund plummets in value just as more companies go into bankruptcy and pass their pension responsibilities onto the insurance fund. Many analysts say it is inevitable that the agency will face significantly increased liabilities in coming months.

"The worst case scenario is coming to pass," said Mark Ruloff, a fellow at the Pension Finance Institute, an independent group that monitors pensions. He said the agency leaders "fail to realize that they are an insurer of pension plans and therefore should be investing differently than the risk their participants are taking.

Another gift from the Bush Administration.

http://www.boston.com/news/nation/washington/articles/2009/03/30/pension_insurer_shifted_to_stocks/?page=2

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.

Rick Wagoner Out as GM CEO

Oama administration has forced out GM CEO Rick Wagoner. From WSJ:

The Obama administration used the threat of withholding more bailout money to force out General Motors Corp. Chief Executive Rick Wagoner and administer harsh medicine to Chrysler LLC, marking one of the most dramatic government interventions in private industry since the economic crisis began last year.

The administration's auto team announced the departure of Mr. Wagoner on Sunday. In a summary of its findings, the task force added that it doesn't believe Chrysler is viable as a stand-alone company, and suggested that the best chance for success for both GM and Chrysler "may well require utilizing the bankruptcy code in a quick and surgical way."

I have nothing against Rick Wagoner. But I fail to see how he could have remained there for so long after running the company down the ditch. Yes I am aware that the Unions are a big part of the problem.

I am also glad to see the Obama administration finally use bankruptcy to their advantage. After a bankruptcy, the company will evolve much stronger rather than providing a band-aid.

This will also hurt the bondholders - it's worth remembering that bonds are risky also - for a bigger yield.

And the best news here is that they wont be helping a private equity fund by helping Chrysler. I failed to see how anyone can justify bailing out Chrysler as it is owned by Cerebrus - by bailing out Chrysler, you are helping the private equity firm.

So let's hope the administration follows this strategy for the banks also. Rather than keep putting unlimited amounts into banks - and by extenstion it's bondholders and stock owners - they just let the weakest banks go down.

Thursday, March 26, 2009

Treasury Auctions

We wrote about the lack of demand for British bonds yesterday. No sooner did we write the article, US auction for 5-year treasuries yields were higher than expected.

Today, we will be watching the 7-year auction very closely.

The 10-year yield, which was down to almost 2.50%, is now back up to 2.82% today.

Wednesday, March 25, 2009

British Bond Auction Failure

In an earlier post, we had written about Quantative Easing and governemnt keeping rates artificially low. We had worried whether the there will be ennough investors out there to buy the bonds.

The 40-year UK auction did not have ennough demand.

Bank of England Governor Mervyn King told a U.K. parliamentary committee Tuesday that the government needs to be "cautious" about further fiscal stimulus.

This is the kind of news that scares you. Just imagine UK/US unable to sell their record bonds at the time they need the most. This is why the government spending an enormous amount may come back to haunt later.

This auction will also determine how successful the governments are in QE.

Mr. King spooked the market Tuesday by saying that the central bank wouldn't necessarily need to buy the full 75 billion pounds of gilts it first announced. That came on a day when consumer price inflation was shown to have risen in the year to February, raising questions about the extent of further quantitative easing required

http://online.wsj.com/article/SB123799043956938621.html

Wednesday, March 18, 2009

Fed buying upto $1.3 trillion in bonds

The fed is buying upto $750 billion in mortgage-backed securities and upto $300 billion in longer term treasuries. They are putting additional 1.05 Trillion to buy bonds and further expanding their balance sheets.

With fed being about 25% of the mortgage market, how is there going to be price discovery? This will keep the bond yields artificially low.

It's going to be interesting how China reacts to this. On one hand, they already own a big chunk of treasuries whose prices just went up. But the yields are going to be artificially low on the new treasuries they are going to be buying.

If you are a regular investor, would you buy the treasuries? As the yields on these bonds are artificially low. So it's going to be interesting to see if there is less demand for the bonds. Remember Warren Buffett said last week that there was a bubble in treasury. Now it's a bigger bubble.

Thursday, March 5, 2009

CNBC Gives Financial Advice

This is a hillarious video from the Daily SHow about CNBC giving financial advice.

I like Rick Santelli who has been against every bailout and been honest every step of the way.

The Daily Show With Jon StewartM - Th 11p / 10c

CNBC Gives Financial Advice

Daily Show Full Episodes
Important Things With Demetri Martin

Political Humor
Joke of the Day

$1.9 Trillion and No Accountability

While we are fighting over couple of billions, the fed has loaned $1.9 TRILLION. That's trillion with a capital T!

And we do not even know who that money went to and what they are buying.
The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma” on recipients of more than $1.9 trillion of emergency credit from U.S. taxpayers and the assets the central bank is accepting as collateral....

In a time when we need transparency, the fed is try to be more secretive.

“I would assume that information would be shared by the Fed and the New York Fed,” said U.S. Representative Scott Garrett, a New Jersey Republican. “At some point, the demand for transparency is paramount to any demand that they have for secrecy.”

I am surprised more people are not outraged at the amount and secrecy.

On Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It sued Nov. 7.
In response to Bloomberg’s request, the Fed said the U.S. is facing “an unprecedented crisis” in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

We are not going to have more confidence by the fed being secretive. Of course, they know what they have lent out against (lower tranches of securities). In which case, tax payers are going to be footing the bill.

Banks oppose any release of information because that might signal weakness and spur short-selling or a run by depositors, the Fed argued in its response.
“You could make everything a trade secret,” said Lucy Dalglish, executive director of the Arlington, Virginia-based Reporters Committee for Freedom of the Press.

I guess you could be worried about bank run, but short-selling? Citibank stock is already at the $1 level. There is not much to gain by short-selling.

http://www.bloomberg.com/apps/news?pid=email_en&refer=&sid=aG0_2ZIA96TI

Thursday, February 26, 2009

New Home Sales in Fall 48%

New home sales in January fell 48.2% from January 2008. This is the slowest rate Census Bureau has recorded.

Seasonally adjusted, there were 309K new homes sold compared to 597K last year. With the jobs report like the one this morning, it's going to be harder for families to buy a new home.

Meanwhile, the inventory for new homes rose to a record 13.3 monts from 12.2 months last month and 9.8 months in January 2008.

It's getting worse for the housing market. But it's better to let the market find the equilibrium rather than have the government intervene and try to prop up the market artificially. Affordability is the key to solving the housing crises and we still have a long way to go before we stabalize.

Technorati Tags new,sales,home

Fed Creating Another Japan

Fed Creating Another Japan?

From WSJ:

Research papers by Douglas Diamond and Raghuram Rajan of the University of Chicago show that the fed may be making the same mistakes Japan had. Japan kept it's zombie banks running instead of taking the losses, which elongated the downturn. Fed seems intent on doing the same thing.

To me, the only right decision they made was to let Lehman Brothers go down. Of course, most analyst will tell you that this is the biggest mistake they made (The same analysts who thought our economy was fine). But it is better to get over with the problems sooner so we can have a recovery quicker.

As fresh data from the Fed will show Thursday, the central bank's balance sheet has more than doubled since August 2007. Some Fed programs have helped loosen the credit logjam, including the Term Securities Lending Facility, which lets banks borrow money using mortgage-backed securities and other hard-to-sell assets as collateral.

Not only are we keeping bad companies alive, but also the talks of susupension of Mark-To-Market rules are another step in that direction. Just imagine if we could mark-to-fantasy our home prices!

"Central bank intervention to lend against all manner of collateral may not be an unmitigated blessing," Messrs. Diamond and Rajan wrote.

I hope Uncle ben is reading this.

http://online.wsj.com/article/SB123560389732776681.html#articleTabs=article

Friday, February 20, 2009

Gold Futures Hit $999

From WSJ:

April gold futures are expected to open floor trading in New York around $16 an ounce higher Friday, based on electronic activity ahead of the pit session at the Comex division of the New York Mercantile Exchange. March silver is expected to be up 40 cents an ounce.

Gold seems to be going through the roof. I wonder if gold is going to be last year's oil. I have been selling some of my gold since we are in time of deflation. And it should bring gold prices lower also.

Investors continue to buy gold on a "fear factor," with the metal now back above $990 an ounce, said George Gero, vice president with RBC Capital Markets Global Futures. This is occurring amid ongoing worries about the banking sector and a continued sell-off in equities, he said.
"Unprecedented" investor demand is fueling the rally, as the "traditional" drivers of gold such as jewelry and fabrication demand, combined with dollar strength and mine supply, otherwise would be consistent with a "considerably lower" price, said J.P. Morgan analyst Michael Jansen.

Much of the buying is due to the fear of a collapse in the financial system. If this keeps up, how long before gold is banned? If you think this can't happen in the US, there is already a precedent. President Roosevelt signed executive order 6102 - "forbidding the Hoarding of Gold Coin, Gold Bullion, and Gold Certificates."

http://online.wsj.com/article/SB123513686761333121.html

Technorati Tags Gold,6102

Thursday, February 12, 2009

700 Millionaires at Merrill Lynch

The give aways from the government are ennough to drive the tax payers angry. But add things like this and you realize why there is so much outrage over all the bailouts.

Merrill Lynch gave 700 employees bonuses of $1 million. This while the company was losing $27 billion. They paid the bonus in December - much earlier than it's usually paid - so they can get away with it before the Bank of America merger.

The fed and the treasury, which strong handed Bank of America to merge with Merrill does not seem to have any issues with these bonuses. It seems even Ken Lewis, Bank of America CEO, seems to have signed off - implicitly if not explicitly. But he fired John Thain so all the blame goes on John Thain.

Amid all this, Tim Geithner does not want any conditions imposed on the banks for taking the bailout. Not pay limits, no lending limits (This is one place where I agree with him. People are so debted right now and with the economy getting worse, it does not make sense to have lending limits), and no penalty for share holders! How do you give a bail out to bank and not penalize the share holders?

http://www.nytimes.com/2009/02/12/business/12merrill.html?_r=1

Technorati Tags boa,merrill,lynch,bonuses

Wednesday, February 11, 2009

Mortgage Applications Down 24.5%

From Marketwatch.com:

The mortgage applications were down 24.5% from last week.

Overall, application volume for the week ended Feb. 6 contracted by an unadjusted 43.9% from the same week in 2008, the MBA said.

That's half the mortages from last year. The fed and everyone else in the government seems to be concerned about mortgage rates. But until the debt-to-income ratio improves, lower rates are not going to help much. It does not matter what the rate is, if you lose a job, you won't be able to afford a mortgage.

So the government focusing on mortgage rates and bank lending seems misguided. But everyone these days seem to be throwing money at something to see if it sticks. I disagree with Obama that a not-so-great stimulus plan is better than none at all. We are spending $1 trillion dolloar! We better make sure it's not a wasted like TARP 1.

Meanwhile, applications for home-purchase mortgages also dropped, down a seasonally adjusted 9.8% -- pushing the MBA's purchase index to its lowest level since the end of 2000

The MBA purchase index shows that there is more refinancing activity than purchasing.

Technorati Tags MBA,weekly,mortgage

Tuesday, February 10, 2009

Run on Money Market Funds

Rep. Paul Kanjorski C-Span tells us why there was a need for the TARP and why they could not tell what the "abyss" that they kept referring to.

Here is an excerpt from the video.

On Thursday at about 11:00 am, the federal reserve notead a tremendous draw down of money market account to the tune of $550 billion was drawn out in a matter of hour or two. The treasury opened it's window to help. They pumped $105 billion into system and quickly realized they could not stem the tide. We were having a electronic run on the bank.......
It would have been the end of our polictical system and economic system as we know it...."

Technorati Tags Bank,Run,Kanjorski

Friday, February 6, 2009

Payrolls Down by 598,000 unemployment up to 7.6

Jobless rates rose to 7.6 from 7.2 in December. There were 598,000 jobs lost. But this is only half of the story. To see the real story, we need to look at U6 number and beyond.

U6 includes persons "discouraged" from working. i.e. People so discouraged by not finding a job, that they have stopped looking.

The U6 number (not seasonally adjusted) is 15.4 and seasonally adjusted to 13.9. That means even looking at the better number, we have reached 13.9 number. Only 12 away from 25 of great depression.

According to ShadowStatistics.com, the real unemployment number is 18. Here is a chart from ShadowStatistics.com.

Technorati Tags monthly,payroll

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.

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

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