MonkeyBusinessBlog

The Housing Doggie Just Peed All Over Our Green Shoots!

Here is the ONLY thing that you should be concerned with right now with regard to your economic outlook.  Delinquencies Double on Least Risky Mortgages

Delinquency rates on the least risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.

Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, the Office of the Comptroller of the Currency and the Office of Thrift Supervision said today in a report. First-time foreclosure filings on the loans rose 22 percent from the fourth quarter, the report said.

“I’m very concerned about the rise in delinquent mortgages and foreclosure actions,” Comptroller of the Currency John Dugan said in a statement released with the quarterly report. President Barack Obama’s plan to create “sustainable, payment- reducing modifications is a positive step that should show significant benefits in the coming months,” Dugan said.

Obama’s program, unveiled Feb. 18, aims to help as many as 4 million borrowers by modifying loans and calls for Fannie Mae and Freddie Mac to refinance mortgages for as many as 5 million borrowers who owe more than their homes are worth. Foreclosure filings surpassed 300,000 for a third straight month in May, according to RealtyTrac Inc., and the U.S. economy has shed about 6 million jobs since the recession began in 2007.  

President Obama's loan modification plan, the one we fell out of our chairs laughing (and crying) when he said it was going to modify up to 4 million mortgages.....?  Mr. Dugan says we should see significant benefits in the coming months.  I challenge that.  What's been going on the last 4 months?  Bubkis.  If they were even able to modify 50,000 loans under the program you would have heard about it every night on MSNBC every other hour.  The truth is that if they were able to modify 500,000 mortgages in a year it would be a hell of a achievement.  We've written a lot about this on the blog back in February when the plan was first announced.  It takes people, all unified in mind and spirit sitting practically in the same room to accomplish these modifications and none of the major players are unified or in the same room.

Job losses are growing at a alarming rate.  The BLS numbers do not tell half the story.  The stock market and the government may not get it but the people who actually do things in this country, the ones who run companies are cutting headcount, cutting back hours, cutting back benefits and "retooling" for a future where consumer spending, 70% of our GDP is going to change dramatically for the foreseeable future.  Everyone who comes through this disaster will be saving a lot more and spending a lot less.  Additionally, they will be able to borrow a lot less.  Americans disposable incomes will be going down and they will be saving more of that lower disposable income.  That is reality.

You can't modify or refinance a loan when the borrower can't pay....anything.  Maybe in 2006, but not now.  Maybe the lower priced part of the housing market in the bust-boom states is starting to find a bottom.  However, the  middle to upper priced housing delinquency and default disaster is just getting started.  In New York, those type houses are just starting to hit the market and the bid is not exactly "robust". 

Things are gonna get real ugly.....again.  Big bank second quarter earnings (the JPM's and BofA's and Goldman's etc..) are going to post big positive numbers due to underwriting (bonds and equities) and liquid trading volumes.  I think we are going to see a muted reaction to these good numbers and that will be the sign that the party is over.  The regional and smaller banks?  They are going to get clobbered.  Like a sick joke, every Friday after 4pm the FDIC announces the seizure of about 5 banks....EVERY FRIDAY.  Soon that weekly number is going to be a lot more than 5.  Like Richie said earlier, we are getting ready to play the financials from the short side in the third quarter.

The 2nd Quarter? A Happy Recap. For Now.

What a splendid quarter it's been for stock markets! We here at Monkey Business have gotten our "beaks wet" too by playing since early April. We've sold a few things too and took profits. With all the euphoria, you have to look and see that year to date the S+P 500 is up less than 3%. That's off a drop in 2008 of 38%. Not exactly setting the world on fire. But hey, as Billy Joel once sang, "the good ol' days weren't always good, and tomorrow ain't as bad as it seems."

Now don't count us in that dopey camp of blindly going "all-in" on stock purchases. We study. Watch trends. Take the pulse. What I don't like as the new quarter begins tomorrow (traditionally the worst quarter by FAR of any other quarter), is the shape of the technical charts. They ain't too stellar. Sure banks are printing money by just borrowing at almost 0% short term and buying say 10 year assets at about 3.75%. But as we've said the commercial mortgage loans they have on the books are about to go pear shaped (technical term). As are a lot of the credit card loans they have outstanding. And remember, since the FASB (the federal accounting board) said banks can basically mark assets wherever they want, they are as Fredo was to Michael Corleone, "dead to me. They're not a brother. Not a friend." So you won't see us recommending banks anytime soon.

There are other stocks that can be appealing but we are just a bit more cautious now. Sure, take a bow if you made some nice money in quarter 2. Let's try to keep it going in quarter 3. I'm gonna make a wild guess and say it's going to be tougher. Unless of course you short the market. Hmmm. Happy June 30.

"It's Good to be the Dictator!" Will Russia's Problems Produce a Flood of Oil and Natural Gas Supply?

A quick post here as I am off to do www.foxnews.com "The Strategy Room".  I will be on around 9:20 to 10 as opposed to the usual 9-10. Ms.Dana Perino gets special one-on-one time this morning.  Ms. Perino was President Bush's last press secretary.  I can see why she may not want to be on the same panel as the guy from "Monkey Business"!

Anywhoo, this is what caught my eye this morning from the Financial Times No Holidays Until You Raise Lending, Putin Tells Banks.

That's awesome!  Check it out;

Vladimir Putin yesterday told the heads of Russia's leading banks not to plan any summer holidays but to help overcome the steep recession by lending more - even as the country braces itself for a surge in bad loans. The prime minister called on state banks to boost lending by up to $16bn (€11.4bn, £9.7bn).

VTB, the state-controlled second-biggest lender, said bad loans had already surged three times this year to 6 per cent of the total, and gave warning that it would face losses in 2009.

"I am asking the heads of financial institutions to control this situation and not to plan any summer holidays until the moment that this has been dealt with as it should," Mr Putin told officials at a government meeting.

He said banks needed to lend more in order to break a cycle of fear that was threatening to paralyse the economy. "I know the fear . . . about the growth in bad loans. But I suggest that the less lending goes on, the greater the risk is that loans won't be returned, because by ceasing to credit, you are strangling the real economy," the -premier said.

NICE!  There's a plan that always works well.  One has the feeling that if Congress or The President had these autocratic powers in the United States they would have said and done the same thing a few months ago.  Russia is taking a page out of the Western play book by starting their own version of federal loan guarantees on new loans (about $16 billion) and a bank recapitalization plan of about $32 billion.

The central bank has said bad loans could climb as high as 12 per cent of portfolios - a level that would wipe out bank profits. But bankers and analysts have warned that they could climb past 20 per cent. Pavel Medvedev, deputy head of the banking committee in parliament, said the government and the central bank were working on measures to "salvage the situation if it really deteriorates".

He added: "Nobody really knows how bad it is."

Oh my!  The question I have for you oil and gas barons out there is, will Russia flood the market with gas and oil to gain reserve currency (USD) as its banking system collapses, or will it try to reduce supply and try to drive up price?  My bet is flooding.  If that's the case then isn't black gold too high right now at $71 a barrel?  What do you think?

Here's to You Bernie....Leaving You Far Behind!!!!

So long Bernie!

Ruth Madoff = Connie Corleone? Maybe Fredo??

Ah, now Ruth Madoff has broken her "silence" on that no-good husband of hers. She is sorry and ashamed. For some reason when I think Ruth I think of Connie Corleone, sister of Michael.  Remember at the beginning of Godfather II on Lake Tahoe where Connie brazenly busts in on Michael with her boy-toy Merle?  She tells Mike that she and Merle are getting married, she's going to continue to ignore her children and party with the likes of Merle 24/7.  When Mike objects, Connie says, "You're not my father!"  So Mike says, "So why do you come to me then?"  Connie's answer, "Because I neeeeeed moneeeeeeeeeeey!!"

Well I couldn't find that exact clip, but I did find this one which may actually be better.  It's after Momma Corleone dies and Connie comes back to Mike on bended knee and kisses the ring.  Connie was no dope. She realized that with Momma gone, there was no more restraint on Michael.  He would cut her off at the knees. Then of course, there's Fredo, who is now a dead man with Momma's passing.  Watch Mike look at Al Neri as he embraces Fredo.  Fredo's time has run out.  Ruth and her sons may be Fredo too! You make the call.

Bernie: "150 Years? I Can Do That Standing On My Head!"

I've been watching CNBC all morning as they covered the Bernie Madoff sentencing.  During the phase where the victims get to air it out to their tormentor, I kept hearing different commentators saying over and over again, "He (Bernie) is just staring straight ahead at the judge, showing no emotion, no sense of remorse."  I kept saying to the TV, "He is a sociopath! He has no remorse because he feels he did nothing wrong.  He regards us all with scorn and revels in the fact that he was able to rape and pillage for DECADES while the financial and social community lauded him for his brilliance and elbowed one another out of the way for the privilege of giving him their money!  Anything he says to the judge or to the court is a lie like anything else!"

Then he got his 150 years and it made think of a Sopranos episode, the one where Christopher was dead for a few minutes and he thinks he went to Hell.  Check out this scene with Chris and Paulie (Both fantastic sociopaths!).  Bernie of course is Paulie;

James Lockhart Sees Housing Bottom.....Maybe.

From Bloomberg News;

Fannie Mae and Freddie Mac’s federal regulator said home prices may be “bottoming” in the U.S. as government efforts to bolster the market gain traction.

“We’re in a process where we may be seeing some bottoming,” James Lockhart, director of the Federal Housing Finance Agency, said in an interview on CNBC. “Certainly mortgage rates being down where they were, was helpful,” he said. “At 5.4 percent, they’re higher, but they’re still in a range that I think does achieve affordability.”

Fannie Mae and Freddie Mac own or guarantee 56 percent of all residential mortgage loans in the U.S.

Lockhart was head of OFHEO and then the FHFA since June 2006.  Why does this man still have his job?  Between the phony-baloney accounting, the excessive risk taking and the pressure he put on Freddie Mac  this year not to disclose potential HUGE losses they are now taking as part of their new mission to suck up as many freakazoid mortgages as they can with our money (as part of the President's great housing rescue plan) without having to tell us through Congress, shouldn't he be sitting at home by now?  Listening to him talk about housing is a lot like this;

It's Bernie's Big Day! Have We Learned Anything?

Today Bernard Madoff faces the music.  Today one of history's greatest psychopaths faces some of his thousands of victims and gets sent to the big house, probably for the rest of his natural life.  Bernie is hoping for a twelve year sentence, most probably because anything over thirty years means that he will likely spend his remaining years in the hell of a maximum security prison.  Wherever he goes I have no doubt that Bernie should start bamboozling his fellow inmates out of their canteen money inside of three months.  So look on the bright side Bernie, it will be a whole new challenge for you!  Ripping off honest, hard working people that considered you their friend and benefactor had to become old-hat at least twenty years ago.  Fleecing the WASPs was probably becoming boring too.  This new group of suckers will be like trading advance crossword puzzles for expert level Suduko.  Enjoy!

Seriously though, I was looking through our "Bernie Madoff" category on the blog to see what we were thinking back when this first went down.  The piece that caught my eye was this one from December 14 Not Sure if We've Hit the Bottom for Stocks But Maybe We Can Call the Top of the B.S. Market.  It's a good piece (in my humble opinion), check it out.  Here is how I ended it;

Anyway, maybe this is it.  Maybe this is the event that finally brings an end to a three-decade run of advancement through bull-sh*t.  Maybe the "Madoff Fiasco" will finally reorient our senses and enable us to dig our way out of this mess.

Now we are almost in July and I ask the question, "Did we hit the top of the B.S. market back in December?  Have we reoriented ourselves?"  I'm afraid the answer is a across the board....no.

• Unrealistic and naive housing rescue plan - B.S.
• Delusional bank recapitalization Plan - B.S.
• Financial Regulatory Reform - B.S.
• Fiscal Stimulus Plan - B.S.
• Detroit Rescue - B.S.
• Administration Appointments to key government financial posts - B.S.
• Cap and Trade - Gonna be B.S.
• Health care Reform - On its way to B.S.
• Monetary Policy of Quantitative Easing - DANGEROUS B.S.
• Assigning costs to firms who have greatly benefited from tax-payer bailout money - Un-Godly B.S.

I can go on but you get the point.  If you read this blog for a while, I think we have been pretty good at putting forth our own prescriptions for each of these points (except Cap and Trade, which I only found out what it means three weeks ago.....and I guess Health care too because all I really know about that is....I need it.).  Maybe our popularity ratings would be in the 40's as opposed to President Obama's 70's, but we would be on the right path.  Unfortunately, it seems like the only thing we are doing is trying to get ourselves back on the same destructive path that violently threw us into the ditch in the first place.

Governor Sanford Compares Himself to King David! Time For A Lesson From Our Uncle George

Ah, my new Twitter Tweets are already bearing fruit!  From the AP Wire;

Meanwhile, Sanford was back at work today, telling his state agency chiefs that he's sorry for keeping them in the dark when he went to see Argentina to see his mistress. 

The Republican on Friday held his typical public meeting with the agency chiefs, but started with apologies and likening his confession and future to the biblical plight of King David. 

Sanford says King David fell mightily but picked up the pieces and built from there.

I can't get enough of these guys, I really can't!  In fact this guy may really take the cake.  He's the governor of a state, a job which requires 24/7 knowledge of his whereabouts.  He lies to his whole staff, leaves the country (not the county but the COUNTRY) to see his mistress, and then he is stunned that he got caught.  Finally, after the obligatory weepy press conference (the one where the politician takes "full responsibility" for his mistakes..as if it might be someone else's fault!) he compares himself to KING DAVID!!!!! 

Ah George, thank God we still have you on YouTube.  You would have loved this story.

Treasury to Sell Warrants On Ex-TARP Institutions "Quickly" .

From Bloomberg News;

The Treasury plans to sell warrants obtained as part of the financial bailout “quickly” after banks repay government shares.

In guidance issued today, the department said banks will have 15 days after retiring government stakes to propose a “fair market value” for the securities. If the Treasury objects to the determination, up to three “independent appraisers” will be selected to help set a price. For lenders that don’t want to repurchase the warrants, the Treasury said it will sell them at auctions.

Monkey Business, after exhaustive research, has uncovered the identities of the three "independent appraisers."  There are as follows;

BlackRock, BlackRock  and BlackRock.  In the event there is a tie, the tie-breaker will be......BlackRock.

That is all.  All sheep.....Excuse us....Citizens, please return to your normal activities. 
 

I Think Bernanke Threatened Ken Lewis.

I really wonder about Ben Bernanke.  I wonder;

• Is he the gentle, humble, academically-minded central banker that he appears to be when seen in public or;
• Is he a quiet "Original Gangsta"?

To this day, we still really do not know what Chairman Bernanke knew about Bear Stearns and when he knew it in those dark days of March 2008.  We highlighted these concerns in a piece we wrote last May "Hi Fellas, What Are You All Talking About?  Meetings were held with all the major heads of Wall Street, EXCEPT Bear Stearns, and Ben Bernanke and Tim Geithner on Tuesday, March 11, 2008.  The Fed has never explained what was discussed at those meetings but the next day, Bear Stearns had their funding lines clipped by every firm at that meeting that did business with Bear.  While that, in and of itself is troubling, what is even more troubling is Ben Bernanke testified to Congress after Bear went down that he did not know the gravity of Bear's liquidity crisis until Thursday afternoon.  By that time the Bear was morte.  Chairman Bernanke has never explained what was said at that Tuesday meeting, but as we have said since last May, it's highly improbable that a meeting taking place that week with every major Wall Street player, except Bear Stearns, wasn't about Bear's liquidity squeeze.  It is my opinion that Bear was shot at that meeting and Chairman Bernanke had something to do with it.

Now we come to Ken Lewis, BofA and Merrill Lynch.  Yesterday, Chairman Bernanke was grilled on Capital Hill as to whether he threatened Ken Lewis with his job if he invoked the Material Adverse Change ("MAC") clause and canceled the planned purchase of Merrill Lynch last December.  From the Financial Times;

Mr Bernanke said there had been no threat but if BofA had pulled out and then needed a bail-out there should have been repercussions. "I think if somebody makes a decision that results in their company failing and being rescued by the government, I think there should be consequences for them," he said. Darrell Issa, senior Republican member on the committee, accused Mr Bernanke of a "cover up" and of shutting out other regulators such as the Securities and Exchange Commission.

I don't know about you but that sounds a lot like the threat a smart and slick extortion artist would make to a small business owner.  "Hey listen, things are okay now but you never know.  A fire could start, some kids may break your windows, maybe the trucks that bring you your deliveries may not show up.....stuff happens."

There was only one way Ken Lewis could read what Bernanke said.  If he didn't go through with the Merrill deal and Merrill was left to die, the whole shebang (big technical term) could very well go down.  At that point, the Fed is going to have to save everybody, including BofA.....and they would insist on Ken Lewis and the board of BofA being gone before they got their lifeline.  When BofA realized that Merrill Lynch was going to drop another $15 billion in Q4 2008, Ken Lewis would have had no problem invoking the MAC.  Merrill CEO John Thain had a very recent history of lying about Merrill's financial position (see Q2 2008 when he said they were adequately capitalized.....and then less than two weeks later shocked the world with nearly a $6 billion loss on the sale of CDOs).  It would have been EASY to prove that Thain was disingenuous with BofA about their financial position at the time of the purchase in September 2008.  No honest judge would have stood in BofA's way.  I am certain of this.

Chairman Bernanke wasn't making the idle threat like, "Hey, if you invoke the MAC and then later on your bank, without Merrill, runs into trouble, you personally have used up all your brownie points."  Chairman Bernanke was saying that WHEN the world goes up in flames as Merrill fails YOU will be the roadblock to your bank being saved and YOU will pay the price.

That's what I think anyway.

Friday Morning Musings

What a day yesterday eh?  I was on a train yesterday when our dear friend Axel notified me that Farrah Fawcett had passed.  As Axel said, "For all us kids in the 70's, she brought us all a little closer to manhood."  Yes she most certainly did.  How many of us had this poster on the ceiling, over the bed?

 

And then to try to keep Mom in the dark (Dad knew what was going on and just probably chuckled quietly to himself) you put these guys on the ceiling too.....just so Mom wouldn't think it was out of the ordinary to put a poster on the ceiling!

                 

Everybody had a poster of Paul Volcker right?  Good, just making sure.

 

 

"Ahh.... Ben, Play Your Little Games!"

I've been watching Ben Bernanke up on the Hill defending his position that he did nothing to force Ken Lewis and BofA to take Merrill.......or else!  I do not need to watch any of this because anyone with a brain in their head knows that this deal stunk from the minute it got done.  I am sure some biblical sh*t went down between that wonderful late summer day in September and the cold winter day in December.  We may never know what was said.  However, all I need to know is something we posted last September 18th.  Does anyone remember that just days before the merger, BofA was ready to cut Merrill's trading lines?  I remember! Here is our post from back last summer;

I'm just putting this one in the "comedy" category right away!  This is from Bloomberg News;

     Sept. 18 (Bloomberg) -- Merrill Lynch & Co. Chief Executive
Officer John Thain told employees that Bank of America Corp.``cut our trading lines'' in the days before it bought the firm,signaling a loss of confidence in the brokerage's ability to pay.  Thain made the comments while explaining his decision to sell Merrill, according to five employees who attended the event at the company's New York headquarters. The Sept. 15 remarks were rebroadcast on an internal system to all 60,000 employees.``Before the trade was done Bank of America cut our trading lines,'' Thain said at the meeting, according to the people, who declined to be named because they weren't authorized to discuss the internal meeting. ``We did get them to put it back.''

How would you like to be a Bank of America stockholder and hear that!  Like Richie said a couple of days ago, these guys still think that the "collective we" are as dumb as a bag of rocks!  They had that press conference on Sunday with Lewis and Thain, all smiles, talking about how this was a match made in heaven, etc, and meanwhile, Lewis cut Thain's trading lines three or four days before!  If they ask Lewis he should say;

"The reason I cut the trading lines is because I told John, "If I can't have all of you, I want nothing at all!" At first John played coy with me, but eventually he had to admit he loved me as much as I loved him and sold himself to me."
    
You really, really, really can't make this sh*t up!

Sure Ben, you didn't exert any pressure.

Sell Time!

I am selling ConocoPhillips (ticker: COP) out of the "Monkey Business Roth IRA" right now. Things certainly have changed for this stock. The high while we owned it was on June 2 when it hit 48.71. We sold it at 41.441 just now.

Goldman Sachs cut the stock to "neutral" from "buy" this morning but that isn't why we sold it. We sold it because our charts told us to. And unfortunately its looking that way for a lot of stocks these days. If we don't get some rally soon, we are gonna be dumping EVERYTHING and shorting the market.

We replaced the stock with nothing right now so it just sits in cash. For those of you scoring at home, the "Monkey Business Roth IRA" started with $5,000 on April 15. It has $5,149.81 now. That's a 3% gain. Sure it was better a few weeks ago but as the wiseman once said, "no one ever went broke taking profits". And that's what we just did. We will live to fight another day. Sell COP if you own it. Now.

When is Enough.....Enough?

There's a great scene from the TV show M*A*S*H* (I feel I have to say it was a TV show for our younger readers) where Hawkeye and Trapper John are getting chewed out by Colonel Blake for some stunt they pulled.  Here's the dialog from memory;

Colonel Blake:  "Ok, this does it!  This time you've gone too far!  What were you thinking??"

Hawkeye :  "I don't know, we were too busy going too far!"

This is how I feel about this article from Bloomberg News Wall Street Begins Campaign to Thwart 'Populist Overreaction'

Wall Street’s largest trade group has started a campaign to counter the “populist” backlash against bankers, enlisting two former aides to Treasury Secretary Henry Paulson to spearhead the effort.

In memos of confidential meetings with top financial executives, the Securities Industry and Financial Markets Association said it began this month the “execution phase” of the operation, which pledges to “embrace change” and accountability. The plan targets policy makers and the media in New York, London, Washington and Brussels and calls for a “city-by-city, grass roots” approach.

Have a read.  SIFMA is doing some sneaky stuff like using smaller regional dealers to grease Congress since these smaller dealers are under the radar, but that isn't what really bothers me (maybe I should be really bothered that that doesn't really bother me).  What should be poking all of us in the eye is two of Hank Paulson's deputies are getting a $70,000 monthly retainer to "craft the message".  Jim Wilkinson was Hapless Hank's Chief of Staff and Michele Davis was his spokesperson. 

As soon as the jig was up in January, these two signed on with The Brunswick Group.  You think it's just random that the Street decided to start a Congressional petting session and they just happened to find these two working at The Brunswick Group?  No?  Neither do I.  Ms. Davis knows exactly how to "get the message across" and Wilkinson knows who to "get it across to."  This was probably in the works when they were both sitting at Treasury.

This sh*t just has to stop....now!  You want to work for the government and then go and work in the industry you were either regulating or doing business with, fine....unless it has to do with using your Rolodex of Congressional and government contacts to peddle influence.  If that's the case then NO YOU CAN'T!  When is enough enough?

It's Gonna be a Real Bitch When They Have to Come Back For Their TARP Money!

Stick this in your "Stress Test".  From the Financial Times. Banks Rush to Rescue Credit Card Trusts in Wake of Record Defaults .

Record credit card losses are pushing big US banks to come to the rescue of off-balance sheet vehicles they use to transform hundreds of billions of dollars in consumer loans into securities sold to investors.

The support provided by Citigroup, Bank of America, JPMorgan Chase and American Express underscores how the deteriorating health of the US consumer is opening new fronts in the financial crisis.

See, this is why guys like me just shook their heads and sucked it up when the financials went on their 40% tear this spring.  Credit card receivables are not only defaulting at a record pace, but the rate of these defaults is picking up speed.

Losses on US credit cards as measured by Moody's Credit Card Index rose beyond 10 per cent of total loans outstanding in May, a new high in the 20-year history of the index and the sixth consecutive monthly record.

I have serious concerns for the level of credit enhancement in the hundreds of billions of these deals.  As you can see from this article, so do the banks!  I can't wait to see what kind of Frankenstein monster Treasury and the Fed come up with to "combat" this problem.  Somehow I see TALF coming into play and taxpayers getting sore tushies.

It's summer time, the time where nice words, fancy plans and "stress tests" go away and reality comes back to kick a little ass.

Quantitative Easing - Part V

Oh dear;

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. As previously announced, to provide support to mortgage lending and housing markets, and to improve overall conditions in private credit markets, the Federal Reserve will purchase a total of up to $1.25 trillion of agency mortgage- backed securities and up to $200 billion of agency debt by the end of the year. In addition, the Federal Reserve will buy up to $300 billion of Treasury securities by autumn. The Committee will continue to evaluate the timing and overall amounts of its purchases of securities in light of the evolving economic outlook and conditions in financial markets. The Federal Reserve is monitoring the size and composition of its balance sheet and will make adjustments to its credit and liquidity programs as warranted.

Enough With Roubini Already!

A quick post here.  Do we really need to see Nouriel Roubini on the TV EVERY FREAKING DAY giving us up to the minute updates on the global economy?  He's made his point already, he's done good.  Now it's time to perhaps turn down an interview or two no?  Roubini is talking about big, structural things.  I feel like it's equivalent to having a geologist give up to the minute reports on the shifting of tectonic plates! If the global economy was in the crapper last week, there's a good chance it's still in the crapper...unless of course you have the attention span of CNBC.

Good Lord man....ENOUGH!  The only person on the tube more is Obama and I had enough of seeing him on my screen in February.  It's time for all you media outlets and economic associations to stop asking Roubini for an interview or a speech on a daily basis because he obviously can't say, "No".  I hate getting sick of seeing someone I like!

Community Reinvestment Act to Blame For Credit Crisis?

John Carney over at www.clusterstock.com has been leading a spirited debate as to whether or not the Community Reinvestment Act ("CRA") is at least partially to blame for the degrading of underwriting standards that led to the mortgage meltdown.  Here is his piece from today Why I Changed My Mind on The Community Reinvestment Act.

Some quick back round first.  The CRA was designed in the 1970's to deal with a troubling situation. Large, or larger banks were either taking over smaller banks that serviced poor neighborhoods, or they were taking over branches in the poorer neighborhoods.  The complaint, which was legitimate, was that the banks were set up as the only bank in the neighborhood that took insured deposits.  The banks took in these very valuable retail deposits for funding and then did not recycle any of the funds back into the community in the form of loans.  We called this "Red-Lining".  The Community Reinvestment Act sought to address this problem by making the banks lend a certain amount to the "Red-lined" neighborhoods.

Personally, I am very skeptical of this argument that CRA is much to blame.  I was a bank regulator many years ago and as part of the examination process we not only reviewed institutional compliance with the CRA, but we also reviewed the actual loans made as part of CRA.  As far as I remember, the underwriting was fine and there was no abnormality with regard to delinquencies or defaults. However, that was in the late 1980's so perhaps things changed.

Here's something however, that most people do not know about.  One way banks fulfill their CRA requirement is by buying "CRA Bonds".  If a bank could buy a Freddie or Fannie mortgage backed security (MBS) who's underlying pools were centered in an area that was in a particular bank's CRA area they could fulfill their requirement.  A lot of dealers had programs that incented mortgage bankers to make loans, conforming to Freddie and Fannie underlying guidelines, in a potential "Red-Lined" area.  We would pay perhaps a quarter-point premium for the loans, put them into a Freddie or Fannie MBS and then sell them to the banks that needed them for a premium anywhere from one to two points!

This activity has gone on for a long time, certainly during the last decade.  As far as I know, these pools have not exhibited any abnormal prepayment behavior.  I say "prepayment" because a default in a pool of loans securitized by Freddie or Fannie shows up to the bond holder as a prepayment.  The credit risk part of the equation was Freddie and Fannie's problem.  If any of you playahs out there know different please let me know....seriously.  If the loans were meeting Freddie and Fannie underwriting guidelines then the lending criteria afforded to these borrowers was not lax thus, countering the argument that CRA is partially to blame for the mortgage meltdown.  Personally, I believe that it is not and the claim it is is based on circumstantial evidence.

**Here is an update from one of my former colleagues who did a ton of CRA bond trading (and it ain't from some lefty!)**

Most of the CRA loans that are put into agency mbs are lower loan size.  The size of the problem loans were much bigger.  Also, the bulk of what is done is in 30yr production, not in pay option arms or other type of non standard products where borrowers got into trouble.  Also, the ltvs on the agency mbs are mostly 80% and lower.  There have been lots of studies done, and it shows that the bulk of the problem loans came from those that didn’t have CRA regulatory requirements. CRA is not the cause.  The big offenders of the mortgage crisis didn’t have any CRA regulatory requirements.  The weren’t really regulated at all.  Right now the state of Massachusetts is aiming to make mortgage origination companies have CRA requirements.  I hate the argument that is thrown out there about CRA.  If you just look at agency mortgage pipeline, the loan sizes aren’t big and the ltv’s aren’t outrageous.  The OCC and Fed did studies to say that CRA wasn’t the cause.

 

The Rules of Engagement on House Buying

Our good man David Reilly from bloomberg.com just wrote a fine article (per usual), "Mortgage Bombs, Quiet For Now, Await Next Boom". He talks about how Congress screwed up way back in the early 1990s, when the last housing slump was, for not creating a law to require potential homebuyers to put up something like 20% to buy a home. And I say Amen brother.

Now this lead to all kinds of hijinx and tomfoolery in the mid 2000s when it came to lending and borrowing and got us right where we are are today. Flat on our rumps. Eric has told you how he voted for Obama and is sorry, well I'm here to tell you I DIDN'T vote for Obama and I am still sorry. Sorry because this "20% down or no mortgage assclown" law would be PERFECT right now. I mean the banks are already instituting the policy to some extent but why not make it a law RIGHT now so that when things do turn around it NEVER gets crazy again. I'm sorry because there is NO way in hell this administration passes such a bill. Or even brings it to the Senate floor. I'm sorry because if the 20% down prevents you from buying a house, too #&%$&*$*$* bad (technical term). I'm sorry because people when they don't have any money invested in houses just walk away when things get bad and give the keys to the banks. I'm sorry because these asshat banks DON'T want this "20% down" law because it could prevent them from lending more in the future. Hello?!? Most of you banks would be gone right now if you didn't get some form of a bailout so just shut up.

Maybe we can make a difference. To quote Frank Pentangelli from the Godfather II, "let's get 'em now while we got the muscle." Call your congressperson and ask them to draft a bill now that would require future homeowners to put 20% down if they want to buy. It ain't a right to own a home. It's a responsibility and a privilege and although that feeling is coming back, it had been forgotten. Let's not forget again.

Don't Think Twice It's Alright.

Let me ask you a question.  If you became the leader of your country and the country was under the threat of imminent attack by a ferocious enemy would you;

• Immediately find the most qualified generals in the land and allow them to pick the best officers and enlisted units in order to meet the crisis head on or;
• Would you find the generals that put the country at risk in the first place, put forward senior officers with spotty backrounds, and re-organize the military in such a way that it may take months before you could actually USE the military?

I assume most of you would pick the former.  President Obama, on the other hand, gives every indication that he would pick the latter.  I say this because the latter example is exactly what he has done with our financial regulatory system to meet our financial crisis. 

When the Obama Administration came to power they inherited the mother of all financial crises.  I don't question that in the least.  However, rather than than order a immediate mobilization of the regulatory agencies at his disposal and task key subordinates to quickly assess what each agency was capable of, the President hired bad generals like Larry Summers and Tim Geithner, allowed good generals like Paul Volcker to be shunted aside, appointed bad senior officers that couldn't pass the confirmation process and sent a strong public message that he was going to completely overhaul our regulatory system in the future.

The time to publicly mull over a vast reorganization of the regulatory system is not when the crisis is raging all around us. All this did was paralyze each agency with regard to strategy and staffing and motivate senior officials to spend most of their time playing politics and covering their asses instead of dealing head on with the crisis.  It's tough to hire or fire people if you don't have any idea what the role of your agency is going to be or if it is even going to exist in the future.  As a leader in a crisis you make people perform, see who steps up to the plate.  In times of crisis, people can surprise you as to what they are really capable of.  This allows you to move out incompetent senior officials and find those who know how to fight.  Trust me, within many of these agencies there are folks who actually know what they are doing.  Unfortunately, most of them are not at the senior leadership level. 

Instead, we have numerous regulatory agencies doing..... I'm not sure what.  It doesn't seem like anyone is being hired, which makes sense considering the alteration of the regulatory framework will now be debated for months.  How do you know who and how many to hire if you aren't even sure what your agency is going to be tasked to do going forward?  The answer is you don't.  What you will do however, is spend the next months playing politics and not regulating.

This is the last of my "President Obama - Complaints and Grievances" series!  I voted for the man and I am indeed an idiot.  I thought he was competent and he has shown me that he is not.  Here's a song that best epitomizes our "breakup"!  Only good things happen when you combine Bob Dylan and Mike Ness!

News Flash! National Association of Realtors Makes Blogger Choke on Coffee and Fall Out of Chair!

One of our favorite contributors alerted me to this article in Bloomberg News today Home-Price Recovery in U.S. May Be Undermined by Appraisals

There may be another culprit scuttling a U.S. housing recovery: low home appraisals.

Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined 17 percent in May from a year earlier.

“It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”

Holy crap!  You have to be one obtuse "mo-fo" (yet another technical term) to actually let that inane thought move from your thinking voice to your speaking voice!  Did you ever wonder why, from the years 2004 to 2007, the appraisal made on a home you were either buying or selling almost always equaled the purchase price??  That's because just like in the 1980s Savings & Loan crisis, appraisers either greased the wheels of the mortgage machine or they got told to go sit in the corner and hold themselves!  If there was a text book on "How to Create a Real Estate Crisis" the elimination of appraiser independence would be at the top of the list with "Let's flip this pig back and forth six times in the next three months and take it up 50%!!"

This unfortunate "log jam" was caused by the actual enforcement of rules that should have been enforced in the first place.  From Bloomberg;

Appraisal rules that went into effect on May 1 require lenders that sell loans to Fannie Mae or Freddie Mac to set up a firewall between appraisers and loan officers to prevent improper influence. The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders.

The agreement mandates that banks order a second appraisal on 10 percent of the loans they sell to Fannie Mae and Freddie Mac, and warns against accepting the higher of any two valuations. The guidelines have led to more conservative valuations by many appraisers and a “chill” in lending, according to John Brennan, research director at the Appraisal Foundation, a Washington-based trade group.

Anyway, all this inanity prompted this response from "The Appraisal Institute"  Again from Bloomberg;

When home values come in below the sales price, that’s not the appraiser’s fault, it’s a reflection of the market, the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers, said in a statement yesterday.

“We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” the group said. “That mentality helped cause the mortgage meltdown to begin with.”

Amen brothers.  I can't wait for two things;

1. How Treasury responds to this "log jam" and;
2. What happens when we start trying to bring sanity back to commercial real estate appraisals!

Follow the Charts Luke.......Luke. The Charts

Not exactly a resounding recovery this morning to the blasting that occured in the stock markets yesterday. They call it a "muted" response. "Muted" responses don't make you rich. New Home Sales didn't exactly set the world on fire either. There might be a "muted" response to this whole economy recovering too. Which also ain't gonna make you rich if you aren't in the right investments. But I guess that's why you are here, right?

Still no change on the existing portfolio but if we don't get some "UNmuted" responses soon to some of our stocks, we will get out. You see, as we have been saying, to paraphrase Fletch, "come on fellas its ALL charts these days. Whaddya need a refresher course?!" Some of these charts have started to turn violently to the danger zone. We don't lose sleep about that though. We remove the emotion completely and just sell when we see the charts cross down. It serves us well. You too, if you listen. And after all it is the summertime. NO rich guy's favorite time to be in the stock market. To be at the beach or at the track, yes. Stocks? Not so much.  

Funny....In a Sad Sort of Way.

Rotten to the Core

One of our favorite readers sent this piece on former Clinton director of HUD, Henry Cisneros.  I remember this story from early last year.  In light of all that has happened I think it deserves to be 

"rehashed".  Enjoy;

HUD Secretary Henry Cisneros Modifications to Deregulate Lending in '93 and ‘94 
Did HUD Secretary Cisneros Deregulation Contribute to Predatory Lending and the Foreclosure Crisis? 
February 18, 2008 
By Janet Ahmad 
On January 7, 1993 HUD issued Mortgagee Letter 93-2, Mandatory Direct Endorsement Processing gave authority to the Homebuilder owned lenders like KB Mortgage and affiliate lenders like Countrywide independence to approve their own loans. Without oversight of the industry by HUD, loan approval for single family direct endorsement, Cisneros officially put the foxes in charge of the henhouse.

Then on November 7, 1994 HUD Secretary Henry Cisneros approved Mortgagee Letter 94-54 that allowed lenders to select their own appraisers. As stated: “The Department (HUD) will rely upon lenders to assure that only knowledgeable appraisers are chosen to perform HUD appraisals and will rely on the integrity of each individual appraiser.”

As Secretary of HUD Cisneros also approved the infamous KB Home Mirasol, HOPE VI project that was to become one of the biggest HUD homeownership scandals ever perpetrated on those who could least afford it.

Then after leaving HUD Cisneros became a KB Home board member as well as a Countrywide board member. He created American City Vista, an affordable housing joint venture with KB Home, as KB Home began construction on the disastrous Mirasol project that cost taxpayers millions, of which $5M is still missing.

and countrywide?

http://www.mysanantonio.com/news/MYSA021708_01A_Cisneros-Countrywide_3584118_html19567.html 
When Henry Cisneros joined the board of directors of Countrywide Financial Corp. in 2001, the real estate industry was poised for a spectacular ride.

All-time records for home sales started to fall like confetti. Mortgage interest rates dropped, prompting a surge in home buying and refinancing.

Countrywide, the nation's largest mortgage lender, boomed.

Cisneros' financial fortunes would soar, too. He was granted — and sold — more than $5 million in company stock as prices climbed from around $10 per share in 2001 to more than $40 per share in late 2006 and early 2007.

Additionally, he earned a base salary of $70,000 per year and received $1,500 for each board meeting attended, $750 for each phone meeting and health insurance. Overall, Countrywide's directors were among the country's best compensated.

When is enough enough?

 

We Are Marching To No Europhia

There was an old British wartune that went like this, "We are marching to Pretoria, Pretoria, Pretoria. We are marching to Pretoria. Preeeee-torrrrrr-eeeee-ahhhhhhhh Hurrah!" So back when the Brits ran the globe (they don't anymore, contrary to some beliefs), they used to have these catchy tunes to explain smashing their opponents. Kinda like a "Father Knows Best" show for war.

Well anyhoo, we've been selectively picking stocks that have gone up a lot the last 3 months. And not being shy about cheering them on in these very pages. There certainly was some euphoria. Well the last few weeks have shown a lot of what looks to be tiredness in the markets. Maybe the more rosy (i.e. less bad) economic reports are going to be coming less and less. As I write this, the Russian stock market (MICEX) has dropped 20% since June 1. That's a definition of a bear market. No "green shoots" in Moscow y'all. 

We look at charts here as well as how the economy is doing. The stocks we've told you about, while off their highs, are still up pretty nicely. We haven't decided to sell any of them yet either. We aren't adding to them though. Just standing pat and watching the graphs. One nice bit of news is our stock Annaly Capital Management (ticker NLY). The company RAISED its dividend last week to 60 cents a share from 50 cents. That's a bump of 20%! It yields close to 16% and the stock seems to be stable. May not be a bad place to park your cash. We've been doing just that.

So stocks are down a lot today. Maybe put on "the" golf and not keep watching the ticker. We'll keep you posted if we change anything from what we've been recommending.

Former Federal Reserve Bank President Bill Poole Aiming at Goldman Partnership!

I had to read this at least three times to make sure I wasn't hallucinating.  AIG Trading Partners Put Squeeze On Issuer Before Bailout The article is obvious. Of course AIG's counterparties put the squeeze on to get as much collateral as they could before, as Jim Morrison of The Doors would have said, "The whole sh*t-house goes up in flames!"  We all know that Goldman Sachs, being AIG's largest counterparty would have extracted a sizeable chunk pre-bailout.  Standard business practice.  However, as we know DURING the bailout which has gone on since last September, Uncle Sam has been making sure that Goldman, among others, has been getting theirs, by federalizing Goldman's counterparty risk to AIG as well as to Goldman's counterparty risk to entities that sold Goldman protection on AIG.

This story has been laid out in gruesome detail by this blog and others (Matt Taibbi is coming out with a Goldman piece in Rolling Stone this week that should put dah cappah on this sordid affair).  I'm not going to repeat it again.  However check out this quote from former Federal Reserve Bank President Bill Poole;

“Goldman is to be congratulated for seeing the problem ahead of others and protecting itself from the impending failure of AIG,” said William Poole, former president of the St. Louis Fed, in an interview last week. “It’s not the responsibility of any private firm to determine what the public interest is -- that’s why we have a government.”

"That's why we have a government."  Holy crap!!!  I bet even Lloyd Blankfein must have fallen out of his chair when he read that!  Talk about sticking us in the eye with a sharp stick!  This is just another example of how our regulators and guardians of the financial system failed us.  These guys are either too stupid or too "wanting" (as in "wanting" a nice corner office at a big Wall Street bank with a big fat paycheck with their responsibility being to show up at client conferences and "make a few phone calls".)

What a jackass.

New Regulatory Framework Taking Shape!

Oh yeah!! This was too easy.

Who Is Gonna Clean the Toilets at JP Morgan London, NOW?

Well you knew this was gonna happen someday soon. Bloomberg.com is reporting that Simon Halabi's Buckingham Securities Holdings Plc is going bust. Halabi is a billionaire from Syria who hangs in London these days and went on a nice buying spree of London office buildings about 3 years ago. Yep at the top. Well one of the buildings he owns is 60 Victoria Embankment where JP Morgan's London offices are. Funnily enough, he took out a bunch of debt to buy 9 buildings, and whoops, the properties have dropped 50% since he bought 'em. Oh the debt was packaged into bonds sold to unsuspecting buyers who are waking up this morning a little grumpy.

Earlier this week the rating agencies said they might downgrade the bonds because there was a rumor that JPM was going to leave! Now that the landlord is bust do you think the cleaning staff is getting paid on time? The blue blooded JP Morgan types must be bringing in there own maids and butlers to clean the place! I think they will definitely be leaving now, too.

Today's lesson of the day folks is no matter how "rich" or "smart" you are, you take on a lot of debt and things go pear shaped (technical term), you end up in the crapper (technical term). Now I'm sure this guy Halabi didn't have much skin in the game but he won't be as big a hit at the Savoy Hotel in London drinking martinis, I can tell you that.

Dad's Lose Out to Mom's!

Check this out from Bloomberg News;

U.S. consumers may spend 27 percent less for Father’s Day than for Mother’s Day as neckties and cookouts fail to command as much cash as flowers and restaurant dinners.

The CHART OF THE DAY shows the average amount spent on gifts for the respective holidays since 2002. It shows a similar level of spending on dads and a jump for moms starting in 2004, when electronics became a larger part of the mix, according to Kathy Grannis, a spokeswoman for the National Retail Federation.

U.S. shoppers plan to spend $90.89 for Father’s Day on June 21 this year, compared with $123.89 for Mother’s Day on May 10, according to surveys for the NRF, a trade group based in Washington. Average spending on dads may fall 3.9 percent, compared with an 11 percent drop for moms as consumers grapple with higher unemployment and lower home values.

“If you’re looking to trim dollars, mentally it’s easier to do that for dad,” Pam Goodfellow, a senior analyst at BIGresearch in Worthington, Ohio, said in a telephone interview. The firm conducted the survey for the NRF. “Dads understand we can do a cookout as opposed to mom or grandma, who you’ve always taken out to dinner or brunch.”

That's funny!  Until I read this article I forgot this weekend WAS Father's Day!  I think my Dad used to forget too.  

Today looks like it's going to be a snoozer.  In the bond market, half the participants were at Russ Middleton's "Refi-Rock" last night (there's a rumor they serve booze at these functions) and I imagine a lot of participants are either at, or watching the Open today at Bethpage.  So barring any big news it should be quiet.  Have a great Father's Day weekend all you dads out there and don't forget your dad whether he's in this life or the next.  Here's a song I love, sorry the video is horrible.