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The Media is To Blame for Housing


Why buy a house now?

Wednesday, May 7th, 2008 - By Ian Cooper

Why Buy Now? Media Is Wrong About Housing Slump, says Blanche Evans, senior editor of Realty Times.

Yet, she can't figure out why the real estate business shouldn't be trusted?

Why buy a house now? You've been getting bad information. Here's why, she says.

"The financial press is worried that they might have gone too far — paralyzing the nation into recession by piling on housing. So they're finally beginning to question the indexes where they get their data, and whether the news is really as bad as it seems. Slowly but surely, headlines are changing from Don't Buy A Home Now to Is It Time To Buy? Stop listening to the media. Go buy a home."

Blanche, Blanch, Blanche... Blaming the media and pretending the housing crash is non-existent is so 2007. Join the ranks of David Lereah. Come clean.

Truth is the housing slump isn't over. It'll get worse. If Blanche was so confident, she'd be out buying homes herself.

Housing Outlook is Bleak

When the nation's biggest buyer of home mortgages racks up $2 billion in quarterly losses and forecasts a steeper drop for home prices, it's not a time to buy anything. Fannie Mae lost $2.57 a share ($2.2 billion) in Q1 2008, as compared to a year earlier profit of 85 cents a share ($961 million). And if it takes on too much financial risk, as foreclosures continue to mount, the global financial system will be rocked.

Even David Lereah has put down his housing pom-poms.

Last time we heard former NAR chief economist, David Lereah, he was leaving his post, discredited by years of pumping a dying housing market, and daily blog attacks.

But has the cheerleader that declared a market bottom in September 2006 changed his tune? Yep.

"We're not at the bottom. [People] want it to be near the bottom, but we're not there yet. The leading indicators are still very bad. Pending home sales are still in bad shape. Mortgage applications are low ... There's still supply out there in abundance ... This thing is going to get worse before it gets better."

The housing boom he says, "go so out of hand, and none of us realized the magnitude of it until it was too late."

If only we could convince Lawrence Yun and Blanche Evans.


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Greenspan's Popularity Drops 64%


There's nothing like watching a bruised Fed ego get bruised even more.

Tuesday, May 6th, 2008 - By Ian Cooper

You know we're suffering economic hardship when even rich Americans won't shell out more than $16,000 for tea with Alan Greenspan and Andrea Mitchell.

That's a 64% drop from the $45,000 shelled out just one year ago.

Greenspan Bubbles

My only question... would the man whose reputation has been beaten in the wake of the housing collapse, sign a copy of "Greenspan Bubbles: The Age of Ignorance at the Federal Reserve" for me?

By comparison, tennis lessons with Agassi stand at $70,000. VIP seats for Jim Cramer's Mad Money are going for $10,000. Attend the 2009 Inauguration Ceremony and meet the new president for $60,000. Or, meet Oprah for $12,000.

Don't get me wrong. It's for a great cause. But there's nothing like watching a bruised Fed ego get bruised even more.

 

 


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500 Foreclosures a Day in California


A 327% Surge in California Foreclosures... Still no Bottom.

Tuesday, April 22nd, 2008 - By Ian Cooper

In just one year, California foreclosures have surged 327%, reaching an average of 500 homes lost everyday. 

Here's more from today's Los Angeles Times:

"DataQuick said in a report warning that the widening foreclosure problem could "spread beyond the current categories of dicey mortgages, and into mainstream home loans."

From DataQuick's report on California foreclosures in the first three months of 2008: "Trustees Deeds recorded, or the actual loss of a home to foreclosure, totaled 47,171 during the first quarter. ...  Last quarter's total rose 48.9 percent from 31,676 in the previous quarter, and jumped 327.6 percent from 11,032 in first quarter 2007."  That translates into 517 foreclosures every day in the first quarter of 2008.

DataQuick president Marshall Prentice: "The main factor behind this foreclosure surge remains the decline in home values. Additionally, a lot of the 'loans-gone-wild' activity happened in late 2005 and 2006 and that's working its way through the system. The big 'if' right now is whether or not the economy is in recession. If it is, the foreclosure problem could spread beyond the current categories of dicey mortgages, and into mainstream home loans."

More: "Homeowners received 113,676 default notices in the first quarter, up 143 percent from a year ago, La Jolla, California- based DataQuick said today in a statement. The level was the highest since at least 1992, when DataQuick's statistics begin."

Despite well publicized federal efforts to reach out to homeowners in default, the odds that they will ultimately lose their homes appear to be increasing. DataQuick reports that, of the homeowners in default, "an estimated 32 percent emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 52 percent."


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Foolish Capital One Bulls


Homes are no longer personal ATMs. Credit cards are.

Monday, April 21st, 2008 - By Ian Cooper

Capital One (COF) became a recommended buy for the naïve this morning because it has a P/E of 12 and is expected to grow earnings at more than 12% over the next few years.  It was the reason why "Capital One should be in your portfolio" said the article. 

But that's ridiculous... Housing and car loans are seeing a rise in delinquencies, and credit card companies are okay?  It doesn't work that way.  Capital One expects further credit deterioration and just increased their loan loss allowances by $310 million. 

Just because a company has a low P/E doesn't make it a buy. Homes are no longer personal ATMs.  Credit cards are. 

Meanwhile, the American Bankers Association is telling us that Q4 consumer credit delinquencies are at 16-year highs, predicting that delinquencies will continue to rise in the first half of 2008, and warning that there's "no relief for consumers in sight" thanks to higher food and gas prices, and poor income growth.

More than 2.6% of all bank loans are 30-day delinquent... and that was just in Q1 2008. It's the highest since 1992.  Home equity loan delinquencies nailed a two-year high. And delinquencies on lines of credit just hit levels not seen in 11 years.

So where's the upside for the credit lenders?  There is no upside.

Most recently, credit card write offs have reportedly soared 24% in a year.  Late payments are up a staggering 16%.  Think about this.  As of December 2007, Americans held $944 billion in revolving debt, most falling on credit cards. 

Yep, that bad news sure makes Capital One a buy... well, if you're naïve and want to lose lots of money.  But, hey, it has a P/E of 12 with a 12%+ growth rate over the next few years.  That makes it a buy, right?


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Whitney vs. Merrill, Citigroup, and Wells Fargo


My Money is on Whitney's Call

Monday, April 21st, 2008 - By Ian Cooper

Months after issuing a dire forecast for Citigroup, the stock now trades at $24, with a forecast of even more doom and gloom from Meredith Whitney. 

It was Halloween 2007 when she suggested that Citigroup was a growing train wreck since the ratio of tangible assets fell to 2.8%, the lowest in decades.  She even said Citigroup may have to cut its dividend, raise cash, or sell assets to raise more than $30 billion to raise capital.

Ten weeks later, her thesis was validated.  She absolutely nailed it.

But Citigroup doom and gloom is far from over, according to Whitney, who now believes the bank will cut its dividend for the second time this year on escalating losses.  "The company has seriously constrained earnings power," she says.  The bank may also have to "seek additional capital from outside investors."

When asked if the bank may need additional infusion, Gary Crittenden reportedly answered, "You can never say never."

Ouch.

Whitney went after Wells Fargo, too, believing that "Wells Fargo is under-reserved by at least $4.5 billion as of Monday and will need to raise capital to restore its balance sheet this year and perhaps by even more in 2009." 

She cut her Wells Fargo 2008 profit estimate to $1.20 from $2.15.  That $1.20 estimate is now the lowest estimate on the Street.  "If losses continue to accelerate past the 2Q, our well below Street estimated will prove too optimistic."

Again... ouch.

But Whitney doesn't stop there.  After Merrill Lynch's CEO shrugged off a Q1 loss, saying the company is "well capitalized," Whitney questioned his optimism, saying it may not have enough cash to weather the storm.

"We are a bit skeptical as to [Mr.] Thains' claim of no more capital raises given that [Merrill] has burned through most of the capital raised in 2007.  Given that housing fundamental have yet to improve and the state of the consumer has shown signs of stress, we believe future losses are highly probable and further capital raises will be needed."

In response, Thain assured investors that the worst was over.

But even with the Merrill Lynch song and dance, my money's on Whitney.


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Mark these Words: I agree with Cramer...


What's the worst that could happen?

Tuesday, April 8th, 2008 - By Ian Cooper

It's not often you'll hear me say that. But this time I agree with Jim Cramer.

Congress, according to Cramer, wants to give a $6 billion tax rebate to some of the United States' biggest homebuilders, a group that's partially responsible for today's housing mess. But that's what happens when homebuilders threaten to withhold political contributions after being left out of the stimulus package.

The bill, if passed, would allow homebuilders and "other firms affected by the mortgage meltdown, such as investment banks, to use losses in 2008 and 2009 to get back taxes they owed over the previous four years," costing the government between $6 billion and $28 billion in future tax revenues.

Nice, huh?

This should be interesting. Give homebuilders $6 billion. What's the worst that could happen? It's not as if they'll use the money to build more homes, add market glut, and kill off the price of your "safe" housing investment, right?

But Congress and the homebuilders aren't the only ones blowing smoke up the American tailpipe.

Our "brilliant friends" at the National Association of Realtors would have us believe Existing Home Sales to Stabilize Before Upturn in Second Half of 2008.

"The Pending Home Sales Index,* a forward-looking indicator based on contracts signed in February, slipped 1.9 percent to 84.6 from an upwardly revised reading of 86.2 in January, and was 21.4 percent lower than the February 2007 index of 107.6. "The slip in pending home sales implies we're not out of the woods yet, though an era of successive deep sales declines appears to be over," Yun said."

That's the lowest since 2001. Yeah, sure a 21.4% drop in that index is a sure sign of stability. In all honesty, could Yun even predict his way out of a paper bag?

But wait, there's more...

According to Bloomberg.com, "Boston Federal Reserve Bank President Eric Rosengren said the delay in a rebound of U.S. home sales continues to ``surprise.''

"People have been expecting a recovery in housing much sooner than it has occurred and that's continued to surprise on the downside,'' Rosengren said in a telephone interview with Bloomberg News.

Rosengren said it's ``confounding'' that housing shows little sign of recovery after the Fed's six interest-rate reductions since September. Fed officials are in the eighth month of a credit crisis that began with rising delinquencies on subprime mortgages.

``The housing market is still weaker than we would like and that has contributed to some of the financial problems as well,'' Rosengren said."

That's right. He's surprised. What surprises me is that he still has a job.

Worse...

Some one please make Greenspan go away...

The man that helped create subprime, the housing malaise, and the financial crisis that's killing ordinary hard working Americans is now saying the problem will soon be over.

"Former Federal Reserve Chairman Alan Greenspan said the drop in U.S. home prices will probably end "well before'' early next year as the number of houses on the market diminishes, aiding an economic rebound.

"It will not be until early 2009 that we will get close to having eliminated most of this'' home inventory, Greenspan told a conference in Tokyo today sponsored by Deutsche Bank AG and co-hosted by Bloomberg LP. "But it is very likely that home prices will stabilize well before that.''

Greenspan added that the extent of damage stemming from the collapse of the subprime-mortgage market won't be known for months. He described the credit crisis as the worst in 50 years, echoing the assessment of International Monetary Fund economists."

Simply amazing...

 

 

 

 

 

 

 

 

 

 

 


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Dear Greenspan, Go Away


Blame Investors, Not the Fed, he says.

Monday, April 7th, 2008 - By Ian Cooper

It was Greenspan who used to praise derivatives market growth as a boon for market stability, while ignoring calls for the regulation of the mortgage market.  Yet, he alleges that most of the blame should be put on the financial industry.

But if Greenspan hadn't dropped the ball on banking supervision or market structure, the pain wouldn't be as great as it is now.

According to FT.com:

"Alan Greenspan has hit back at critics who blame the Federal Reserve under his leadership for causing the US housing bubble by keeping interest rates too low for too long in the early 2000s, saying the evidence of any link between monetary policy and the bubble was "statistically very fragile".

Writing in the Economists' Forum on FT.com, Mr Greenspan says he is "puzzled" why so many commentators seek to explain the US housing bubble in terms of Fed actions when many other economies with different central banks and different monetary policies also saw rapid house price gains.

The former Fed chairman says the most likely cause of this global house price boom was a "dramatic fall in real long term interest rates" around the world, which he believes was caused by abundant global savings.

In any event, Mr Greenspan says, it is only with hindsight that it looks like the US economic recovery was well enough entrenched before 2004 to allow the Fed to start raising interest rates sooner than it did.

"With inflation falling to quite low levels, that was not the way the pre-2004 period was experienced at the time," he says.

In his article, Mr Greenspan reaffirms his long-held belief that central banks cannot effectively "lean against the wind" by setting monetary policy a little tighter than it would otherwise have been during asset price booms.

However, he writes "if it turns out it is feasible" to conduct monetary policy in this way, "I would become a strong supporter of leaning against the wind."

Mr Greenspan also takes issue with those who blame lax regulation by the Fed for allowing a serious deterioration in underwriting standards in the mortage industry. The problem, Mr Greenspan argues, "is not the lack of regulation, but unrealistic expectations about what regulators are able to prevent".

The former Fed chief says the core of the subprime problem "lies with the misjudgments of the investment community". The scramble to invest in what were initially highly profitable subprime loans would have overwhelmed any regulatory effort to slow the growth of this sector, he claims.

Mr. Greenspan says the "fierceness" of the retreat from risk since the crisis began in August "surprised" him and had "shaken" his view of the range of possible economic outcomes.

But he remained firmly of the view ‘that free competitive markets are the unrivalled way to organize economies'"

Worse, he doesn't believe we've entered a recession that we're already in.

When the recession started in July 1990, we heard:

"In the very near term there's little evidence that I can see to suggest the economy is tilting over [into recession]."
Chairman Greenspan, July 1990

"...those who argue that we are already in a recession I think are reasonably certain to be wrong."
Greenspan, August 1990

"... the economy has not yet slipped into recession."
Greenspan, October 1990

Nowadays, he's telling the Spanish El Pais, "The US had not yet entered the recessionary state which would be marked by sharp falls in orders, strong rises in unemployment and intensive weakening of the economy."

Go away, Greenspan. 

 



 


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Loan Delinquencies at 16-year High... I'm shocked.


Unfortunately, it'll only get worse

Friday, April 4th, 2008 - By Ian Cooper

Surprise, surprise...

The U.S. lost 80,000 jobs in March - the biggest monthly loss in about five years, as the unemployment rate jumped to a three-year high of 5.1%.

While economists had predicted a net job loss, they didn't expect it to be this bad. Unfortunately, it'll only get worse.

At the same time, U.S. loan delinquencies are at a 16-year high. I'm shocked. Really I am. According to the American Bankers Association, 2.65% of all bank loans are 30-day delinquent... and that was just in Q1 2008. It's the highest since 1992.

At the same time, home equity loan delinquencies nailed a two-year high. And delinquencies on lines of credit just hit levels not seen in 11 years.

And it's all thanks to the worst housing meltdown since the Great Depression. You don't say.

So, are we in a recession yet? Yeah, but don't tell economists, Bernanke or Bush. They still think we'll avoid it.

But we'll have to agree to disagree. Though it's tough to discount a recession when:

Listen, I'd love to sit here and be economically positive, but that'd be a stretch.

Three months into the last recession, not one economist accurately predicted a recession in a survey. Unfortunately for their credibility, later evidence pointed out that a recession had begun at the time of the survey.

The Oracle of Omaha thinks we're in a recession. The CEO of Caterpillar thinks we may be in one. George Soros believes this is the "worst market crisis in 60 years."

JP Morgan chairman and CEO Jamie Dimon thinks America's in a recession... as do 71% of the 51 respondents in a Wall Street Journal poll. Poll respondents also felt there was a 48% chance "that the 2008 downturn could be worse than what was felt in the early 1990s and in 2001."

Even Well Fargo CEO John Stumpf says, "It is now clear that the U.S. and global financial markets are experiencing their worst financial crisis since the Great Depression."

Sadly, the Fed's thinking only mirrors that of past recession ignorance from the Fed. According to "Booms, Busts, and the Role of the Federal Reserve":

When the recession started in April 1960, we heard:

"By and large, however, the economy seems quite solid."
Federal Open Market Committee, May 1960

"[Chairman Martin] was by no means convinced that the situation was serious."
Federal Open Market Committee, July 1960

"The Chairman reiterated his views ... There was a declining picture, ... but the economy was not going over a precipice by any means."
Federal Open Market Committee, October 1960

When the recession started in July 1990, we heard:

"In the very near term there's little evidence that I can see to suggest the economy is tilting over [into recession]."
Chairman Greenspan, July 1990

"...those who argue that we are already in a recession I think are reasonably certain to be wrong."
Greenspan, August 1990

"... the economy has not yet slipped into recession."
Greenspan, October 1990

 

 

 


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