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Banned
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loquitur, when other large speculative bubbles "burst", everything was fine....new high prices attained, surpassed.....up and up and up.....fine, until it wasn't. Depending on the size of the bubble, and on the length of time that it lasted, and on the amount of money and the number of speculators it attracted,
...then the longer it declined, and the lower prices dropped from the "all time" highs.
Here are two examples, and it is amazing how both of these contemporary bubbles unwound so relentlessly, to such dramatic lows....with hopeful buying into the decline, all the way down......and the disappointment of those who bought into the long series of false recoveries, and then watch the new, lower lows, until the final lows.....to date....were put in. Both played out, in price decline and in duration, witn uncanny similarity to the 1929 Dow index crash.
That index declined from 393 to 41, in a little less than 3 years, and the recovery from the 393 high to a new high, took 24 years.
Compare the 1929 unwinding to these price movements:
Nasdaq 2000 stock index
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=02&b=01&c=2000&d=02&e=15&f=2000&g=d">10-Mar-00 open 5,060.34 high 5,132.52</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=03&b=01&c=2000&d=03&e=15&f=2000&g=d">14-Apr-00 open 3,597.44 high 3,615.64</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=11&b=01&c=2000&d=11&e=15&f=2000&g=d">15-Dec-00 open 2,688.66 high 2,697.93</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=02&b=01&c=2001&d=02&e=15&f=2001&g=d">15-Mar-01 open 2,023.79 high 2,030.73</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=03&b=01&c=2001&d=03&e=15&f=2001&g=d">4-Apr-01 open 1,668.37 high 1,698.21</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EIXIC&a=09&b=01&c=2002&d=09&e=15&f=2002&g=d">10-Oct-02 1,116.76 1,165.83 1,108.49</a>
<b>....and today, almost 7 years to the day that the Nasdaq was at 5132, it is still below half that level.....</b>
Nikkei 225 stock index
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=11&b=15&c=1989&d=11&e=31&f=1989&g=d">29-Dec-89 open 38,913.00 high 38,957.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=01&b=1&c=1990&d=01&e=28&f=1990&g=d">27-Feb-90 open 33,346.00 high 34,001.00 low 32,793.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=02&b=1&c=1990&d=02&e=31&f=1990&g=d">30-Mar-90 open 31,002.00 high 31,002.00 low 29,828.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=07&b=1&c=1990&d=07&e=31&f=1990&g=d">24-Aug-90 open 23,731.00 high 24,485.00 low 23,547.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=09&b=1&c=1990&d=09&e=15&f=1990&g=d">2-Oct-90 open 20,222.00 high 22,899.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=02&b=1&c=1992&d=03&e=30&f=1992&g=d">10-Apr-92 open 16,622.00 high 17,851.00 low 16,622.00</a>
<a href="http://finance.yahoo.com/q/hp?s=%5EN225&a=03&b=15&c=2003&d=03&e=30&f=2003&g=d">28-Apr-03 open 7,679.11 high 7,685.36 low 7,603.76</a>
<img src="http://chart.finance.yahoo.com/c/my/_/_n225">
<b>It's 17 years after the Nikkei 225 put in it's 38,957 high, and 4 years since it reached it's latest "new low" of 7603. I've shown you the effects of the three most prominent bubbles having to do with financial speculation of the general public, of the 20th century. All of my posts are filled with linked facts that support my opinions. Those who disagree with me have provided no citations to support their opinions, and indeed, don't even seem willing to consider that what I am saying is a possibility, let alone that it is actually taking place now. Given what we know about the duration, scope and the size of the residential real estate "run up", the amount of "easy", low qualification and low interest financing that it has needed to "make it happen", and to sustain it, and the fact tha almost anyone who wanted to obtain a mortgage and buy a housing unit, now has one, now is in "the market", who will the "holders" sell to, now?
If you agree that the increase in housing prices that spurred the building of huge numbers of new units, and that the overall economy benefited from the jobs that the housing construction, real estate marketing, and mortgage brokering, from the manufacture and sale of building materials and home furnishing, and from the extraction and spending of the increasing home equity of those who owned home during the price run up....wealth extraction by homeowners that reached $800 billion,</b>
<img src="http://www.safehaven.com/images/mauldin/6603_g.gif">
....in a decline like the one that we are seeing now.....in price, in the number of houses sold, and in the amount of wealth extraction that homeowners are able to get from their home values into their wallets...to be spent on second homes, home improvements, vacations, restaurant meals, consumer goods, new cars....etc., and in the decline (disappearance) of the profits of builders, realtors, mortgage brokers, and "flippers",
<b>what can you say to support your opinion that the disappearance of all of this former stimulus won't drag down the economy in the same way that, when it was there to stimulate the economy, promoted it's growth? What will take the place of consumers taking equity from their homes in an amount that exceeded, at it's high, over $200 billion, every three months, in an environment of increasing inflation and chronically flat income levels?></b>
....and my question does not even consider the negative impact of mortgage defaults and foreclosures, and the BK of home builders and the financial institutions that lent them, and the homebuyers, the money to build and buy the housing units.....
I followed this guy's writings, for the last four years, (below) on the farce of the fed lowering interest rates to one percent, in an attempt to remove the negative effect of the wealth destruction that would have been a consequence of the 2000 to 2003 crash of the Nasdaq and Dow stock indexes. He went so far as to detail a "character", a mortgage broker who worked for NEW CENTURY FINANCIAL, and he detailed the ridiculousness of New Century lending money to anyone....regardless of income, or even resident status in the US....to buy houses at inflated prices, which further inflated the housing prices, which allowed the houses to turn into an ATM, into "free money" for their owners.....money to buy whatever they wanted with.....and his first post is in Feb., 2003, and his last was yesterday, when the stock price of "NEW", finally imploded, and the NY Times wrote an article about an actual former NEW CENTURY broker, who seems describe the reality of what "Mark" had commented on for the past four years:
Quote:
http://www.capitalstool.com/forums/i...showtopic=1158
post Feb 11 2003, 08:46 PM
Post #1
From: Manhattan Beach, CA
Member No.: 184
Mark’s Market Commentary – February 11, 2003
....Never before have I experienced such an amazing period of denial, resistance, and ignorance of what is going on. A stark contrast to what we in California experienced in 1990 – 1993 where gloom was pervasive, everyone was cautious, nobody was spending, and the most popular topic of discussion was the lack of jobs.
Contrast that to today’s MTV Spring Break attitude. New cars rolling off the lots everywhere. Real estate mania in full swing. The popular topic of discussion is how to further leverage your financial position in order to upstage your own appearance of wealth and success. No fear. No concern. But can you blame them?
Why not be optimistic when all Fed members are on the rubber chicken circuit forecasting a “recovery”, crowing about the “resilient consumer”, and how there is no debt bubble.
Why not be optimistic when the Wall Street Matrix with their cheery pundits are all pounding the table to “buy stocks” to “participate” in the “2nd half v-shaped recovery”.
Picture the 28-year old female Marketing Director for Expedia.com. Biding her time at some nonsense buzzy jazzy job. Leveraging her stunning appearance to land a man who is involved in one of the fantastic growth industries in Orange County like “mortgage finance”. She’s up to her eyeballs in debt. The Nordstrom’s credit card, Victoria’s Secret credit card, and even an “emergency” credit card from Target or Sears. On top of the usual maxed out First USA and Capital One VISA. And of course, the $690/mo. payments to BMW finance for the BMW 330i convertible. But now there are some murmurings about potential layoffs.
But why worry? Her boyfriend is the top closer for New Century Mortgage. A 34-year old Italian swinger fluent in Spanish, making 6-figures pushing subprime mortgages to illegal immigrants. Driving his Lexus GS430. He’s already eyeballing the purchase of a $1.8 million house in Newport Beach. Of course, he has no money for a down payment, but that doesn’t matter. He’s in the mortgage business, headed for great success.
Is she worried about gassing up the 330 with premium gas at $2.00/gallon? No. She’s too busy honking the horn at the poor Guatamalan Gardener in front of her with his 1972 Datsun pickup. She’s in a hurry to get home to see who got nominated for the Oscars.
Is she worried about the Al Queda live interview tonight? No. She’s too busy waiting for the new Madonna video.
Is she going to Home Depot to get some duct tape, plastic sheeting, and bottled water in case of a bio attack? No. She’s wondering when the next thong sale is occurring at Victoria’s Secret.
What about him? Has he any clue about the mortgage bubble? No. He’s too busy training his boiler room operators on how to convince the Guatamalan Gardener that he can afford the KB Home “starter” property at $325,000 even though he’s not even a legal resident. And the commission checks keep rolling in, and the refinancing boom has shown no signs of slowing down yet.
These two have been living for years and years on credit. With no adverse consequences. Everyone else is doing the same. The naysayers have been warning of excessive consumer debt, but Al Green has assured everybody that its not a problem. Anyway, the 2nd half recovery hasn’t shown up yet, but after 3 years, it has to appear this year. That’s a guarantee of an acceleration of both incomes. And thanks to the productivity miracle everyone is crowing about, things are going to get really good next year. So she just continues making the payments, even though she is getting a little behind, and wait for the much heralded “recovery”.
No worries about the job market, either. After all, as a last resort, she could become an exotic dancer at any of the hundred clubs in Las Vegas, and hopefully some high roller will come along and bail her out of her debts if Mr. Closer doesn’t work out. Interesting how the shrink-wrapped skeletons with the silicon bolt-ons never have to worry about “job security”.
In the meantime, the stock market mania continues to explode with new kinds of funds sprouting up daily.
The mutual fund manager who has the honor of getting in Barron’s this week is Kevin Baum at the Oppenheimer Real Asset fund. Marketing itself as a natural resource fund. It is anything but. It is basically a money lender using huge leverage playing various financial exotica in the structured finance arena.
Run by 32-year old Kevin Baum, who was 11 years old when the bull market started and 18 years old during the 1987 crash. After working at a summer job with Edward D. Jones, Baum went to Texas Tech and started this fund at age 26.
About 33% of the fund’s assets are loans to firms such as Cargill Investors Services and ABN Amro, who in return, sign structured notes which essentially “promises” that a return equal to LIBOR + 1.4% plus a principal return equal to 3x the Goldman Sachs Commodities Index. Basically, it is a money lender to companies like Cargill who expects to produce 300% returns by Riverboating in the commodities market. The other 66% of the fund is invested in so-called “short-term investments” like Harley Davidson Trust Receivable Notes, Fannie Mae and Ford Motor Credit bonds. To minimize the interest rate risk, the fund hedges the portfolio with Treasury futures. Occasionally Baum has gone long on gold futures while shorting silver futures.....
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Quote:
http://www.capitalstool.com/forums/i...=&#entry121481
Jun 28 2003, 02:31 AM
Post #2
From: Manhattan Beach, CA
Member No.: 184
Noland <a href="http://64.29.208.119/archive_comm_article.asp?category=Credit+Bubble+Bulletin&content_idx=24351">painted a pretty dire picture</a> of California.
So far, there is no visible evidence of any trouble out here.
The 24-year old large breasted blonde bombshell employed at $175,000/year as a Marketing Assistant for Expedia is still living in The Dream World. Driving her $42,000 BMW 330ci which just had its $1,300/year license plate fee tripled to $3,900/year.
So far, she is unfazed.
Especially when her bills are being paid by her boyfriend.
As for her $325,000/year "top closer" 32-year old boyfriend working at New Century with the $82,000 BMW 745il, things don't look bad from his vantage point either. His $1.7 million starter home in Newport Beach has already appreciated $300,000 in 6 months, so what little extra taxes and fees Gray Davis hands out is really of no consequence. Another "refi" to extract another $100,000 in equity will paper over a large portion of these "financial nuisiances"
Over on the other side of the railroad tracks, the Jerry Springer contestants can still be found at the Long Beach car wash with their Ford Expeditions with the brush guards, 21" flying saucer wheels which keep rotating after the car stops, and two Kenwood DVD Plasma Screen Players. No, he doesn't have a house yet. He's still renting a 1 bedroom apartment in a stucco box for $1,200/mo., trying to work down his $55,000 in credit card debt so he can qualify for a Fannie Mae interest-only mortgage for first time homebuyers. Trouble is, with so much consumer debt, he's finding it hard to stay ahead with his $14/hr. job as a car stereo installer at Best Buy.
The San Francisco Bus Drivers are still making $90,000/year. I don't think they have a clue that their wages will be dropping to $5.50/hr. later this summer.
Driving up the I-5 freeway yesterday, it was a virtual standstill. A Yobob Paradise with every brand, make, and model camper, diesel pusher, trailer, and motor home towing a trailer full of jet skiis and motorcycles. It was difficult to find a vehicle on the road older than 5 years.
If conditions change radically, I will keep you guys informed in real time as it happens.
But for now, the state's budget problems are a mirage for most people.
And while on the subject, BobBrinker has always recommended California General Obligation bonds as "dollar good" and impervious to credit default.
We shall see.
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Quote:
http://www.capitalstool.com/forums/i...showtopic=8272
The End of The Heyday, M2M 03/05/07
post Yesterday, 06:52 PM
Post #1
From: Manhattan Beach, CA
Member No.: 184
Some of you old stoolies might remember my riffs about the normal and typical yuppie couples in Orange County.
Remember the guy featured, the "top closer" from New Century? The immigrant with limited education who became an instant millionaire?
Drove a Ferrari and purchased a giant oceanfront home?
Well, here he is, featured on today's <a href="http://www.nytimes.com/2007/03/05/business/05lender.html">New York Times</a>
By JULIE CRESWELL and VIKAS BAJAJ
Even in affluent Orange County, Calif., the growing wealth of executives and brokers in the booming mortgage industry was hard to miss.
For Kal Elsayed, a former executive at New Century Financial, a large lender based in Irvine, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges. But, he says, that was nothing compared with the private jets that executives at other companies had.
“You just lost touch with reality after a while because that’s just how people were living,” said Mr. Elsayed, 42, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. “We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.”
Orange County was the epicenter of the boom in subprime. Five of the 10 biggest providers of subprime mortgages last year had their headquarters in the region.
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[/quote]
The March 5, 2005 NY Times article described by "wndysrf" in the preceding quote box:
(Consider that the articles' description of New Century's stock price was written before the stock, trading under the synbol "NEW", closed at $4.56 per share in todays' trading.)
Quote:
http://www.nytimes.com/2007/03/05/bu.../05lender.html
March 5, 2007
Mortgage Crisis Spirals, and Casualties Mount
By JULIE CRESWELL and VIKAS BAJAJ
Even in affluent Orange County, Calif., the growing wealth of executives and brokers in the booming mortgage industry was hard to miss.
For Kal Elsayed, a former executive at New Century Financial, a large lender based in Irvine, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges. But, he says, that was nothing compared with the private jets that executives at other companies had.
“You just lost touch with reality after a while because that’s just how people were living,” said Mr. Elsayed, 42, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. “We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.”
Just as the technology boom of the late 1990s turned twenty-something programmers into dot-com billionaires, and leveraged buyouts a decade earlier turned Wall Street bankers into Masters of the Universe, the explosive growth in subprime lending turned mortgage bankers and brokers into multimillionaires seemingly overnight.
Now an escalating crisis in the market, which seemed to reach a new crescendo late last week, is threatening a wide band of people. Foremost are the poor and minority homeowners who used easy credit to buy houses that are turning out to be too expensive for them now that mortgage rates are going up, but the pain is also being felt widely throughout the business world.
Large companies that bought subprime lenders during the boom, like H&R Block and HSBC, are now scrambling to sell them or scale back their exposure. Many investors are also likely to suffer: Wall Street firms made billions in fees, commissions and trading revenue from packaging and selling subprime mortgages to them as bonds.
New Century has emerged as a poster child for the lenders that rode that boom to the top and are now in free fall. The company disclosed on Friday that federal prosecutors and securities regulators were investigating stock sales and accounting errors. The latter could jeopardize billions of dollars in financing for the company, which issued $39.4 billion in subprime loans in the first nine months of last year.
Weakening home prices and rising default rates have rocked the subprime business. But for those who cashed out before the market turned, the ride up was particularly sweet. The three founders of New Century, for example, together made more than $40.5 million in profits from selling shares in the company from 2004 to 2006, according to an analysis by Thomson Financial. They collected millions of dollars more in dividends, salaries, bonuses and perks.
The company said in a statement yesterday that the founders were “still significant shareholders,” noting that they collectively owned about 7 percent of the company at the end of last year.
New Century’s stock price, which seemed to mirror the trajectory of the subprime business, peaked at nearly $66 a share in December of 2004 and traded in the $40s most of last year; on Friday, it was trading at $11 a share after the market closed. In a series of sales from August to November, two of the company’s founders sold shares for an average price of about $40 a share, for a total profit of $21.4 million.
It is not known whether the stock sales by the founders are among the sales being examined by federal investigators. Some of them had been part of scheduled stock sales that are often used by executives to diversify their portfolios. But some of the sales occurred on the same day that the executives entered the plans. A New Century spokeswoman, Laura Oberhelman, said that executives declined further comment.
The founders’ stock also rose in the social circles of southern California, the epicenter of the boom in subprime. Five of the 10 biggest providers of subprime mortgages last year had their headquarters in the region.
Robert K. Cole, 60, a co-founder who retired as chairman and chief executive last year, lives in a 6,100-square-foot oceanfront home in Laguna Beach that is valued at tens of millions of dollars and was once owned by the chief executive of Pimco Advisors, the giant bond trading and management firm. Edward F. Gotschall, 52, another co-founder who is vice chairman of the board, donated $3 million for an expanded trauma center at Mission Hospital that will be named for him and his wife Susan.
The executives from New Century are by no means alone in cashing in on the bonanza, and they do not appear to have scored the biggest profits. That title may be claimed by Angelo R. Mozilo, the chief executive of Countrywide Financial, the nation’s largest stand-alone mortgage company and one of the largest subprime lenders last year. He reaped more than $270 million in profits from sales of stock and the exercise of stock options from 2004 to the start of this year, according to the Thompson analysis.
Of course, most of the 500,000 people who work in the mortgage industry did not cash in so grandly. The wealth was concentrated among executives, loan officers and brokers, because the greatest rewards were meted out in the form of commissions, bonuses and stock awards.
“In the hot times, it was not unusual to see a broker make a million bucks,” said Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. “You can carry that up further to people who ran the companies. The whole business revolves around personal compensation.”
The hot times are clearly over. To Read the Rest of This Article click to show
New Century’s disclosure of the federal investigations on Friday was the most serious in a string of shocks to have rocked the industry in the last three months.
A handful of lenders have sought bankruptcy protection, several have been acquired and a few have been shut down. Also on Friday, Fremont General, a top-five lender, said it planned to leave the business.
Industry officials say they are seeing an exodus of executives and salespeople as companies fold, cut jobs and push out early leaders.
“Everyone has run for the hills,” said William D. Dallas, whose company, Ownit Mortgage, filed for bankruptcy protection in December after it lost financing from Merrill Lynch and other banks.
For the borrowers of these mortgages, it may become more difficult to refinance if lending standards are tightened significantly. Many are already facing the prospect of payment shock when low, fixed-interest mortgage rates adjust to higher, variable rates.
On Wall Street, big investment banks could lose a significant source of revenue if the appetite for bonds backed by mortgages dries up.
In the last two years many skeptics began warning that the red-hot housing market and adjustable-rate loans would blend into a toxic brew. Last year, subprime loans totaled $600 billion, or about 20 percent of all mortgages, up from $120 billion and 5 percent in 2001, according to Inside Mortgage Finance. More than half of subprime loans have adjustable rates.
Many of the problems that have surfaced thus far are not tied to the resetting of rates. Rather, they stem from a sharp and early spike in the default rates among loans issued last year.
For example, about 13.8 percent of the loans in a group of mortgages New Century sold to investors in April were behind in payments or in foreclosure by January. By comparison, only 6 percent of loans in a pool sold to investors in March 2005 had met that same fate by January 2006.
Investors and regulators fear that the problems will only worsen as so many borrowers have fallen behind so quickly, especially at a time when the overall economy is healthy. The phenomenon suggests that lending standards were significantly weakened last year and that lenders were not as watchful for fraudulent transactions.
For New Century, the early payment defaults pose significant financial problems. In the first nine months of last year, Wall Street banks and investors that it does business with forced it to buy back $469 million in loans it had sold to them, up from $240 million for the same period in 2005.
The company was able to sell back about half of those loans at a discount of 26.5 percent. How it handled the remainder — about $227 million — is now under scrutiny. According to accounting rules the company should have valued the loans on its books for what they were worth today, not their previous face value. But it did not.
If it had, the company would have seen its earnings fall by about $60 million before taxes, wiping out most of its profit in the third quarter, according to Zach Gast, an analyst at the Center for Financial Research and Analysis, a forensic accounting firm.
This is important, because the company’s financing agreements require that it not lose money for any rolling six-month period. On Friday, New Century said it did not expect to make a profit in the six months that ended in December and that it was negotiating with lenders to waive the requirement but has only secured six of 11 waivers it needs.
“They had losses sitting on their balance sheets,” Mr. Gast said.
In August, the company’s chief financial officer, Patti M. Dodge, announced she was stepping down from her post to oversee investor relations, a department that typically reports to the chief financial officer. Taj S. Bindra, a former executive at Washington Mutual, replaced her in November.
For the second time in a decade, New Century finds itself fighting to survive. The firm’s roots were planted at Plaza Home Mortgage Bank where the three founders of New Century — Mr. Cole, a longtime mortgage executive; Mr. Gotschall; and a lawyer named Bradley A. Morrice — worked together. The three formed New Century in 1995 after Plaza was sold to Fleet Mortgage Group, now a part of Washington Mutual.
In the late 1990s, New Century narrowly survived accounting concerns and a scare in the bond market after Russia’ s default in 1998. It pulled through thanks to an investment by U.S. Bancorp, a bank based in Minneapolis.
With interest rates at historic lows, it quickly grabbed a big share of the fast-growing subprime market during the housing boom.
“They walked into a niche industry at a time when everything was lining up perfectly for what they did,” said W. Scott Simon, a managing director at Pimco Advisors. “In 2001, 2002 and 2003 the subprime business was just phenomenally profitable. Home prices kept appreciating and it seemed that no loans ever went bad.”
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<b>The disconnect here is obvious..... some of the same folks who take the other side of the political argument than I do, don't see the economic conditions of the last six years as an artificially contrived, unsustainable farce, as described so well in the "Mark to Market" posts above. Since they don't see "the folly".....the ridiculousness of the idea that vast numbers of folks could experience the transformation of their homes into financial "holdings" that throw out equity at them, as they refinance their mortgages annually, at ever lower terms......their homes that are ever rising in value....and not have the result be the financial failures of the lenders of those mortgage loans, and a reversal in the value of the homes, and in the ability of their owners to spend, and on the employment numbers of all of those in the realty, realty, finance, and housing industries, and then, in the economy, itself.......that disconnect....evident here.....is confirmation to me that this will end up having an even more negative impact on our economy, and on many of us in the US, than I have been considering.</b> |