1992 Redux: Will "it's the economy, stupid", Be The Big Campaign Issue? - Page 2 - Tilted Forum Project Discussion Community

jorgelito · 03-10-2007, 01:54 PM

Complacency? Are you kidding me? Where do you get off host? That is terribly presumptious, pompous, and elitist of you to presume that me and Ace are being complacent. What, just because we hold a different opinion than you? Give me a break!

Competition? Is that how you see this forum as a "competition to post ideas and opinions"? What the hell? What is this, a varisty sport? Dude, this is an internet forum, NOT a junior debate league. Are you actually keeping score at home?

I'm not sure what purpose you had in mind when quoting my post from a completetly different thread (Jennifer Love Hewitt). What does that have to do with the economy discussion here?

Ace, you better make sure that your post on pawn shops and payday loan companies is backed by solid sources and quotes that take up two pages, otherwise, you may "lose the compeition".

Lighten up man, stop making this a contest.

host · 03-10-2007, 03:29 PM

Quote:

http://www.m-w.com/dictionary/complacency
Main Entry: com·pla·cen·cy
Pronunciation: -s&n(t)-sE
Function: noun
Inflected Form(s): plural -cies
1 : self-satisfaction especially when accompanied by unawareness of actual dangers or deficiencies

Apparently, it is premature to discuss such things as the US economic downturn, already well, underway. In place of actual discussion, responses to the thread OP, and subsequent posted supporting information, is answered with:

Quote:

Originally Posted by jorgelito

The economy is going great right now!! 2006 and 2007 are slated to be the best in years in terms of jobs and job growth for new graduates. The Fortune 500 are fighting heavily over new grads right now. Employers are offering more incentives and bonuses than ever. The future looks bright.

Didn't the stock market grow like 2000 something points in the past 4-years before last weeks temporary lows?

The real estate market will always ebb and flow, just like anything else. Up and down, up and down. Now and then, now and then. If houses are too expensive or rates too high, then just rent and wait for it to come down. I have missed many "booms" (dot com, stock markets, real estate) but I never panic cause I know I will get my opportunity soon enough. Deferring gratification, patience, making wise decisions will pay off in the end (in my opinion). I never had a chance to capitalize on the low interest rates of the past few years, nor did I get in on the tech boom stocks. but hey, more opportunities will arise.

By the time I will be ready to buy a house, rates will either fall again, or due to the previous frenzy, there will be lots of awesome foreclosures to be had at fantastic prices.

....and:

Quote:

Originally Posted by aceventura3

....I stand by my first post in this thread. The sub-prime definition was my way of illustrating how the term only has meaning in the "eye of the beholder". Given the worse case - what has happend in the subprime market? Some people who were renters became homeowners. Some people who were doing little or no investing bought some investment property. Given that - if they loose - their credit score goes down and the bank owns some real-estate that will be sold at below market prices. When that happens strong investors and strong buyers will benefit. Like the old saying - the rich will get richer.

So again, I ask for the economic guru who can explain what is going to happen to net demand for housing and how long-term, the market goes down. Everything else is just smoke and mirrors and a means to sell newspapers and TV ads.

P.S. Also - if you don't own stock in a subprime lender, didn't get a subprime loan and lost your ability to pay, don't own property in high risk areas what going to happen to you if the subprime market blows up - pretty much nothing. But you say there will be a chain reaction - but thats where you or the economic guru needs to make the link with long-term demand and supply and a short-term market correction. No one has done it yet, other than to say the sky is falling. Last time I checked Chicken Little is not a trained economist.

The competition that is the presentation of ideas and opinion is what the "revolution" of the mass availability of the internet brings to places like this forum. We have the ability to make well documented presentations as we attempt to share/exchange information. This privilege did not exist, during the first 2/3 of my adult lifetime.

If we can't or won't exercise this resource, and set an example of doing so, in depth, in a place like this....a place where we come to discuss politics, where will it ever happen?

We can exchange "banter" in a supermarket check out line, sitting on a barstool, or with neighbors who stroll by, as we are watering our lawn.

If we don't post in favor of a higher level of presentation here, complete with linked text in support of our points, much of the potential of the internet is reduced to just "shooting the shit" with each other. We can do that over on the Gen. Diss. forum...or in the parking lot, and next to the office watercooler.

....and nobody is required to participate in any thread that I author, so I guess that I am unable to see why my thread OP's receive responses that are not competitive and "jack" the topic and the spirit of the intent of the OP ideas and supporting references.....

It makes me feel like Al Greenspan must have....after he spoke about the potential for economic recession in the US, and this "response" came:

Quote:

http://www.foxnews.com/story/0,2933,257002,00.html
FOXNEWS.COM HOME > FOX FAN CENTRAL > COLUMNS
"Two Words Mr. Greenspan: Shut Up"

By Terry Keenan

Alan Greenspan, former Federal Reserve Chairman.

There he goes again. Just in time for his 81st birthday, former Fed Chief Alan Greenspan is showing once again who's still the boss when it comes to commanding the attention of markets, here and around the globe. And this time, he's putting odds on his predictions.....

........Which raises the question on the minds of many investors: is it unseemly for 81-year-old Greenspan to earn millions with statements that last cost investors about a trillion dollars in lost market value? Even though he is out of office, is Greenspan somehow violating the public trust, much in the way a former CIA chief might if his paid remarks warned of an impending threat from a sworn U.S. enemy?

Tough questions, but there's no doubt that there has been a bull market in outrage over Greenspan's comments. As Gary Kaltbaum of Kaltbaum Associates put it: "Two words, Mr. Greenspan: shut up."

Adding to the considerable consternation is that this isn't the first time private citizen Greenspan has been criticized, both for his remarks and for the venue in which he chose to express them. Remember the private meeting with fewer than a dozen top clients of Lehman Brothers a year ago? As word leaked out, those remarks jolted markets as well.

When Greenspan was Fed Chief, he knew all too well that even a few words taken out of context could rock world markets — think back to "irrational exuberance?" Now, with no cameras trained on his every word, Greenspan's words need to be chosen with even greater care. Not only would a little more discretion on Al's part please the markets, it would make Ben Bernanke's job a whole lot easier as well.

Is the equity market so fragile that a tepid description of forward risks by Mr. Greenspan, justifies such harsh criticism of him personally and a "STFU" title?

Would that Terry Keenan, and ace and jorgelito, exhibibit some curiousity and concern as to how Richard Syron, got the job of heading Freddie Mac, and then....only after his GSE's ridiculously lax lending policy provided the liquidity that drove housing prices to unsustainable and unreasonable valuations in the first place, sees a need to "toughen" lending rules, now that lending to unqualified and poorly documented mortgage applicants cannot be further justified on the grounds that even the massive liquidity flowing from his agency is not enough to assure that it is fine to lend to people who have poor credit and "no money down" because doing so would continue to push up the valuations of all homes.

I'm also wondering why Freddie Mac would ever purchase the mortgage loans of home buyers who were unqualified and had little or no downpayment at the time they applied, and I'm more concerned as to why Richard Syron still has his job, than I can be about any comments made by Greenspan about economic risks.

Quote:

http://www.cnbc.com/id/17359800/site...lnk&cd=3&gl=us
Freddie Mac Toughens Standards For Buying Subprime Mortgages
Companies:Freddie Mac
By CNBC.com | 27 Feb 2007 | 01:04 PM

.....In an exclusive appearance on CNBC, Richard Syron, Chairman and CEO of Freddie Mac, said he was taking the action now because borrowers have been squeezed by higher interest rates and falling housing prices.

"At a time when housing prices were going up 5% a year, and it went up 10% in two years, if someone paid 5% to get a mortgage, they were still ahead," said Syron. "But in the last few months, housing prices have softened."

Iin addition, Freddie Mac will limit the use of low-documentation loans where borrowers cannot verify their income.

The new standards won't take effect until Sept. 1, 2007 because Freddie Mac wanted a transition period.

"We don't want people that have things in the pipeline now or may be in a position that they have to refinance in the very short run to be squeezed out of the market," said Syron.

Freddie Mac has financed about 50 million homes. Syron says the company is developing new, more consumer-friendly subprime products.

I guess that our respective concerns are driven by our individual priorities....

jorgelito · 03-10-2007, 05:03 PM

No Host, you are quite wrong. It is disingenuous to presume that Ace and I don't care or are cavalier about your topics. Just because we disagree with your position does not mean we do not care.

Who says it's premature to discuss the economy? I didn't. I just offered you a different opinion. I think it is quite rude of you to dismiss my post (and Ace's) as not "actual discussion". Accusations of thread jacks and violating the "spirit of intent" are also petty and catty. People respond to your threads because they are interested in the topics or want to discuss the issues that you have put forth. Again, people have differing opinions so it really should not be a surprise when that is reflected in the responses. But to accuse us of thread jacking or not submitting valid responses or not enough sources or violating the spirit of the thread is just really low and childish.

I gave you the best source and citation of all. My own personal experience. Not some sanitized and disengaged anonymous internet source from some egg head in an ivory tower. My own personal experience. Are you trying to tell me that doesn't count? Additionally, my post that you quoted here is backed by facts. I didn't just pull them out of the blue. I find it interesting that you only take issue with peope's lack of citation of sources when their opinion disagrees with yours. I have never seen you bash or snidely attack other's posts that agreed with your position. Why is that? Double standard?

No wonder UsTwo left.

Sorry buddy, you can't have it both ways. If you want discussion and responses to your thread, you're just gonna have to accept differing opinions, you can't dictate what people write.

aceventura3 · 03-12-2007, 08:17 AM

Quote:

Originally Posted by host

If we don't post in favor of a higher level of presentation here, complete with linked text in support of our points, much of the potential of the internet is reduced to just "shooting the shit" with each other. We can do that over on the Gen. Diss. forum...or in the parking lot, and next to the office watercooler.

We can not get off of first base because of a fundemental difference in your view of economics and mine.

Example:

If widgets historically sell for $1.
$1 is the generally accepted value of a widget, given all production costs and reasonable profit.
Then speculators enter the market, and over time they bid the price up to $100. They buy, sell, finance, profit, etc. because of this speculation.
Then over a shorter period of time the value of widgets goes back to $1.

You seem to want to call the drop from $100 to $1 a crash. You seem to use the logic that the drop from $100 to $1 will have a lasting adverse impact on the market in which these widgets sell.

Since we don't see the above the same, You can post reams of material supporting your view and I can do the same, and the exchange of that data was a waste.

When I was on my highschool debate team, the first thing the coach always said was define your terms. I tried to get you to do that with subprime, but in all the material you posted, none of it defined what was actually meant by subprime. Hell, almost nobody can get a loan at prime, and almost nobody who needs a loan goes into the process as a "prime" loan candidate. Everyone has some potential re-payment risk.

Perhaps you should stop ignoring direct questions.

host · 03-12-2007, 10:24 AM

ace....I can't answer your question, because your comments aren't even on the same dimension as the OP and the posts of other members....well yeah...I guess jorgelito is commenting in your dimension....

Residential real estate valuations are built on easy availability to liquidity, and that easy availability is gone now. It drove the RE market, and it drove this country's economy, and even in it's slightly diminished level, until now....it propped up the perception of current (recent )home and current (recent) stock
valuations. Now, beginning in earnest, in the public's eye, anyway, the liguidity availability, the curret "prop" it gave to valuations, and the "mo mo" it provided until the latter part of 2005....is going away....and this has all the makings of an initial period of an absence of liquidity driven, economic depression in the US:

Quote:

http://www.nytimes.com/2007/03/11/bu...gewanted=print
March 11, 2007
News Analysis
Crisis Looms in Market for Mortgages
By GRETCHEN MORGENSON

On March 1, a Wall Street analyst at Bear Stearns wrote an upbeat report on a company that specializes in making mortgages to cash-poor homebuyers. The company, New Century Financial, had already disclosed that a growing number of borrowers were defaulting, and its stock, at around $15, had lost half its value in three weeks.

What happened next seems all too familiar to investors who bought technology stocks in 2000 at the breathless urging of Wall Street analysts. Last week, New Century said it would stop making loans and needed emergency financing to survive. The stock collapsed to $3.21.

The analyst’s untimely call, coupled with a failure among other Wall Street institutions to identify problems in the home mortgage market, isn’t the only familiar ring to investors who watched the technology stock bubble burst precisely seven years ago.

Now, as then, Wall Street firms and entrepreneurs made fortunes issuing questionable securities, in this case pools of home loans taken out by risky borrowers. Now, as then, bullish stock and credit analysts for some of those same Wall Street firms, which profited in the underwriting and rating of those investments, lulled investors with upbeat pronouncements even as loan defaults ballooned. Now, as then, regulators stood by as the mania churned, fed by lax standards and anything-goes lending.

Investment manias are nothing new, of course. But the demise of this one has been broadly viewed as troubling, as it involves the nation’s $6.5 trillion mortgage securities market, which is larger even than the United States treasury market.

Hanging in the balance is the nation’s housing market, which has been a big driver of the economy. Fewer lenders means many potential homebuyers will find it more difficult to get credit, while hundreds of thousands of homes will go up for sale as borrowers default, further swamping a stalled market.

“The regulators are trying to figure out how to work around it, but the Hill is going to be in for one big surprise,” said Josh Rosner, a managing director at Graham-Fisher & Company, an independent investment research firm in New York, and an expert on mortgage securities. “This is far more dramatic than what led to Sarbanes-Oxley,” he added, referring to the legislation that followed the WorldCom and Enron scandals, “both in conflicts and in terms of absolute economic impact.”

While real estate prices were rising, the market for home loans operated like a well-oiled machine, providing ready money to borrowers and high returns to investors like pension funds, insurance companies, hedge funds and other institutions. Now this enormous and important machine is sputtering, and the effects are reverberating throughout Main Street, Wall Street and Washington.

Already, more than two dozen mortgage lenders have failed or closed their doors, and shares of big companies in the mortgage industry have declined significantly. Delinquencies on loans made to less creditworthy borrowers — known as subprime mortgages — recently reached 12.6 percent. Some banks have reported rising problems among borrowers that were deemed more creditworthy as well.

Traders and investors who watch this world say the major participants — Wall Street firms, credit rating agencies, lenders and investors — are holding their collective breath and hoping that the spring season for home sales will reinstate what had been a go-go market for mortgage securities. Many Wall Street firms saw their own stock prices decline over their exposure to the turmoil.

“I guess we are a bit surprised at how fast this has unraveled,” said Tom Zimmerman, head of asset-backed securities research at UBS, in a recent conference call with investors.

Even now the tone accentuates the positive. In a recent presentation to investors, UBS Securities discussed the potential for losses among some mortgage securities in a variety of housing markets. None of the models showed flat or falling home prices, however.

The Bear Stearns analyst who upgraded New Century, Scott R. Coren, wrote in a research note that the company’s stock price reflected the risks in its industry, and that the downside risk was about $10 in a “rescue-sale scenario.” According to New Century, Bear Stearns is among the firms with a “longstanding” relationship financing its mortgage operation. Mr. Coren, through a spokeswoman, declined to comment.

Others who follow the industry have voiced more caution. Thomas A. Lawler, founder of Lawler Economic and Housing Consulting, said: “It’s not that the mortgage industry is collapsing, it’s just that the mortgage industry went wild and there are consequences of going wild.

“I think there is no doubt that home sales are going to be weaker than most anybody who was forecasting the market just two months ago thought. For those areas where the housing market was already not too great, where inventories were at historically high levels and it finally looked like things were stabilizing, this is going to be unpleasant.”

Like worms that surface after a torrential rain, revelations that emerge when an asset bubble bursts are often unattractive, involving dubious industry practices and even fraud. In the coming weeks, some mortgage market participants predict, investors will learn not only how lax real estate lending standards became, but also how hard to value these opaque securities are and how easy their values are to prop up.

Owners of mortgage securities that have been pooled, for example, do not have to reflect the prevailing market prices of those securities each day, as stockholders do. Only when a security is downgraded by a rating agency do investors have to mark their holdings to the market value. As a result, traders say, many investors are reporting the values of their holdings at inflated prices.

“How these things are valued for portfolio purposes is exposed to management judgment, which is potentially arbitrary,” Mr. Rosner said.

At the heart of the turmoil is the subprime mortgage market, which developed to give loans to shaky borrowers or to those with little cash to put down as collateral. Some 35 percent of all mortgage securities issued last year were in that category, up from 13 percent in 2003.

Looking to expand their reach and their profits, lenders were far too willing to lend, as evidenced by the creation of new types of mortgages — known as “affordability products” — that required little or no down payment and little or no documentation of a borrower’s income. Loans with 40-year or even 50-year terms were also popular among cash-strapped borrowers seeking low monthly payments. Exceedingly low “teaser” rates that move up rapidly in later years were another feature of the new loans.

The rapid rise in the amount borrowed against a property’s value shows how willing lenders were to stretch. In 2000, according to Banc of America Securities, the average loan to a subprime lender was 48 percent of the value of the underlying property. By 2006, that figure reached 82 percent.

Mortgages requiring little or no documentation became known colloquially as “liar loans.” An April 2006 report by the Mortgage Asset Research Institute, a consulting concern in Reston, Va., analyzed 100 loans in which the borrowers merely stated their incomes, and then looked at documents those borrowers had filed with the I.R.S. The resulting differences were significant: in 90 percent of loans, borrowers overstated their incomes 5 percent or more. But in almost 60 percent of cases, borrowers inflated their incomes by more than half.

A Deutsche Bank report said liar loans accounted for 40 percent of the subprime mortgage issuance last year, up from 25 percent in 2001.

Securities backed by home mortgages have been traded since the 1970s, but it has been only since 2002 or so that investors, including pension funds, insurance companies, hedge funds and other institutions, have shown such an appetite for them.

Wall Street, of course, was happy to help refashion mortgages from arcane and illiquid securities into ubiquitous and frequently traded ones. Its reward is that it now dominates the market. While commercial banks and savings banks had long been the biggest lenders to home buyers, by 2006, Wall Street had a commanding share — 60 percent — of the mortgage financing market, Federal Reserve data show.

The big firms in the business are Lehman Brothers, Bear Stearns, Merrill Lynch, Morgan Stanley, Deutsche Bank and UBS. They buy mortgages from issuers, put thousands of them into pools to spread out the risks and then divide them into slices, known as tranches, based on quality. Then they sell them.

The profits from packaging these securities and trading them for customers and their own accounts have been phenomenal. At Lehman Brothers, for example, mortgage-related businesses contributed directly to record revenue and income over the last three years.

The issuance of mortgage-related securities, which include those backed by home-equity loans, peaked in 2003 at more than $3 trillion, according to data from the Bond Market Association. Last year’s issuance, reflecting a slowdown in home price appreciation, was $1.93 trillion, a slight decline from 2005.

In addition to enviable growth, the mortgage securities market has undergone other changes in recent years. In the 1990s, buyers of mortgage securities spread out their risk by combining those securities with loans backed by other assets, like credit card receivables and automobile loans. But in 2001, investor preferences changed, focusing on specific types of loans. Mortgages quickly became the favorite.

Another change in the market involves its trading characteristics. Years ago, mortgage-backed securities appealed to a buy-and-hold crowd, who kept the securities on their books until the loans were paid off. “You used to think of mortgages as slow moving,” said Glenn T. Costello, managing director of structured finance residential mortgage at Fitch Ratings. “Now it has become much more of a trading market, with a mark-to-market bent.”

The average daily trading volume of mortgage securities issued by government agencies like Fannie Mae and Freddie Mac, for example, exceeded $250 billion last year. That’s up from about $60 billion in 2000.

Wall Street became so enamored of the profits in mortgages that it began to expand its reach, buying companies that make loans to consumers to supplement its packaging and sales operations. In August 2006, Morgan Stanley bought Saxon, a $6.5 billion subprime mortgage underwriter, for $706 million.

And last September, Merrill Lynch paid $1.3 billion to buy First Franklin Financial, a home lender in San Jose, Calif. At the time, Merrill said it expected First Franklin to add to its earnings in 2007. Now analysts expect Merrill to take a large loss on the purchase.

Indeed, on Feb. 28, as the first fiscal quarter ended for many big investment banks, Wall Street buzzed with speculation that the firms had slashed the value of their numerous mortgage holdings, recording significant losses.

As prevailing interest rates remained low over the last several years, the appetite for these securities only rose. In the ever-present search for high yields, buyers clamored for securities that contained subprime mortgages, which carry interest rates that are typically one to two percentage points higher than traditional loans. Mortgage securities participants say increasingly lax lending standards in these loans became almost an invitation to commit mortgage fraud. It is too early to tell how significant a role mortgage fraud played in the rocketing delinquency rates — 12.6 percent among subprime borrowers. Delinquency rates among all mortgages stood at 4.7 percent in the third quarter of 2006.

For years, investors cared little about risks in mortgage holdings. That is changing.

“I would not be surprised if between now and the end of the year at least 20 percent of BBB and BBB- bonds that are backed by subprime loans originated in 2006 will be downgraded,” Mr. Lawler said.

Still, the rating agencies have yet to downgrade large numbers of mortgage securities to reflect the market turmoil. Standard & Poor’s has put 2 percent of the subprime loans it rates on watch for a downgrade, and Moody’s said it has downgraded 1 percent to 2 percent of such mortgages that were issued in 2005 and 2006.

Fitch appears to be the most proactive, having downgraded 3.7 percent of subprime mortgages in the period.

The agencies say that they are confident that their ratings reflect reality in the mortgages they have analyzed and that they have required managers of mortgage pools with risky loans in them to increase the collateral. A spokesman for S.& P. said the firm made its ratings requirements more stringent for subprime issuers last summer and that they shored up the loans as a result.

Meeting with Wall Street analysts last week, Terry McGraw, chief executive of McGraw-Hill, the parent of S.& P., said the firm does not believe that loans made in 2006 will perform “as badly as some have suggested.”

Nevertheless, some investors wonder whether the rating agencies have the stomach to downgrade these securities because of the selling stampede that would follow. Many mortgage buyers cannot hold securities that are rated below investment grade — insurance companies are an example. So if the securities were downgraded, forced selling would ensue, further pressuring an already beleaguered market.

Another consideration is the profits in mortgage ratings. Some 6.5 percent of Moody’s 2006 revenue was related to the subprime market.

Brian Clarkson, Moody’s co-chief operating officer, denied that the company hesitates to cut ratings. “We made assumptions early on that we were going to have worse performance in subprime mortgages, which is the reason we haven’t seen that many downgrades,” he said. “If we have something that is investment grade that we need to take below investment grade, we will do it.”

Interestingly, accounting conventions in mortgage securities require an investor to mark his holdings to market only when they get downgraded. So investors may be assigning higher values to their positions than they would receive if they had to go into the market and find a buyer. That delays the reckoning, some analysts say.

“There are delayed triggers in many of these investment vehicles and that is delaying the recognition of losses,” Charles Peabody, founder of Portales Partners, an independent research boutique in New York, said. “I do think the unwind is just starting. The moment of truth is not yet here.”

On March 2, reacting to the distress in the mortgage market, a throng of regulators, including the Federal Reserve Board, asked lenders to tighten their policies on lending to those with questionable credit. Late last week, WMC Mortgage, General Electric’s subprime mortgage arm, said it would no longer make loans with no down payments.

Meanwhile, investors wait to see whether the spring home selling season will shore up the mortgage market. If home prices do not appreciate or if they fall, defaults will rise, and pension funds and others that embraced the mortgage securities market will have to record losses. And they will likely retreat from the market, analysts said, affecting consumers and the overall economy.

A paper published last month by Mr. Rosner and Joseph R. Mason, an associate professor of finance at Drexel University’s LeBow College of Business, assessed the potential problems associated with disruptions in the mortgage securities market. They wrote: “Decreased funding for residential mortgage-backed securities could set off a downward spiral in credit availability that can deprive individuals of home ownership and substantially hurt the U.S. economy.”

...two things......ace, the above NY Times article appeared on page one, above the fold.....on the front page of the most widely circulated sunday newspaper in the US.

....and check the current stock prices of the four stocks that I posted charts on, a week ago. You could have made some $$$, like I did, shortselling or buying put contracts, like I did....I gave you free advice, ace.......that you could (and still can....) profit on.....what are you giving me....or most of the other readers....besides "smoke", up where the sun "done" shine?

aceventura3 · 03-12-2007, 10:41 AM

[QUOTE=host]
Here is an article from WSJ.

http://online.wsj.com/article/SB1173..._whats_news_us

Quote:

NEW YORK -- As more financially stretched homeowners renege on their debts, and mortgage lenders go under by the dozen, economists are surprisingly sanguine about the broader economy's ability to weather the storm. But they add a big caveat: Much depends on how investors react to an increasing wave of worrying news, and how much some homeowners' difficulties aggravate the nation's deep housing slump.

By all accounts, the market for "subprime" mortgages -- home loans made to people with poor or sketchy credit histories -- has unraveled with impressive speed and intensity. In some parts of California, the proportion of seriously delinquent subprime loans has quadrupled in the past year to about one in eight, according to data provider First American LoanPerformance. In the past month, subprime lenders have run into serious trouble or shut their doors at a rate of about two a week.

The stock prices of Wall Street investment banks have gyrated amid concerns some big financial firms could find themselves exposed -- fallout that could further spook investors and trigger a new bout of selling in stock and bond markets.

So far, though, many economists -- including Federal Reserve Chairman Ben Bernanke -- haven't changed their forecasts as a result of the subprime troubles. Some see the sharp rise in defaults among riskier borrowers as a natural, albeit acute, symptom of the housing slump that began in late 2005, rather than a separate ailment in itself. With house prices falling, consumers who got no-money-down mortgages with the help of loose lending standards, have little to lose by walking away from their homes and debts.

"No doubt some of the worst practices of the housing boom are going to yield some payback," says Steve Wieting, senior U.S. economist at Citigroup in New York. "But it's not large enough to derail an otherwise healthy economy."

He expects inflation-adjusted gross domestic product, a broad measure of the nation's economic activity, to expand 2.6% this year, slower than normal but well short of a recession.

The main reason for economists' equanimity: Those who took out subprime loans tend to be less-affluent consumers who make up a relatively small share of consumer spending, the most important driver of the U.S. economy. Labor Department data show that the fifth of U.S. households with the lowest incomes account for about 8% of all consumer outlays, while the most-affluent fifth accounts for nearly 40% of spending.

Meanwhile, the unemployment rate remains relatively low and incomes have been rising, suggesting poorer people have some resources to spend, even if they can't afford their homes and can't borrow money.
[chart]

That said, the subprime mess has added some risks. The possibility economists fret about most is that investors and lenders will react to rising defaults by pulling back from all kinds of borrowers, good and bad -- the sort of "credit crunch" that has triggered recessions in the past.

"One of the things to worry about is how much markets are worrying," says Andrew Tilton, senior U.S. economist at Goldman Sachs in New York. "A contagion in the credit markets based on fear is a possibility, though we don't think that's the most likely scenario."

In the past few weeks, investors have become more wary of lending to risky borrowers. The annual cost of default insurance on $10 million in riskier bonds backed by commercial real-estate loans stands at about $9,600, up from less than $6,000 before the stock-market plunge of Feb. 27. Bonds issued by companies with shakier finances -- known as "junk" bonds -- yield nearly 2.8 percentage points more than comparable Treasury bonds. That gap stood at 2.5 percentage points Feb. 22.

Most consumers and businesses, though, still have access to money. U.S. companies have issued billions of dollars in junk bonds in the past few weeks, despite higher borrowing rates. The subprime problems haven't had a major effect on auto lenders.

"It's hard to make the argument that weakness in the subprime mortgage market will have an effect on auto subprime loans," says Hylton Heard, director of asset-backed securities for autos at Fitch Ratings, a credit-rating firm. "They're two different assets."

For one thing, it is quicker and easier to repossess a car than to foreclose a mortgage. That suggests people would be more likely to keep up their car payments so they can get to jobs that help them pay their other bills.

Still, the pullback in credit for subprime-mortgage borrowers could have a meaningful effect on its own. As some potential home buyers find it harder to get money and more bad loans beget more foreclosures, the decreased demand and increased supply of homes could depress prices, deepening the housing slump.

Ethan Harris, chief U.S. economist at Lehman Brothersin New York, estimates foreclosures in the subprime market could bring an additional 15,000 to 20,000 homes on to the U.S. market every month starting next year.

The pain could be particularly acute in frothy markets such as California and Florida, and in depressed places such as parts of Ohio and the auto-producing areas of Michigan. In some areas in and around Detroit, Cleveland and Atlanta, subprime loans make up more than half of all mortgage loans outstanding, according to First American LoanPerformance.

"In some of these regions you could have a pretty tough environment, in which a bad local economy, tightening credit and weakening home prices all kind of reinforce each other," says Mr. Harris

Now what?

Lets clarify the issue in question. Can you state your premise - in one paragraph.

host · 03-12-2007, 11:11 AM

[QUOTE=aceventura3]

Quote:

Originally Posted by host

Here is an article from WSJ.

http://online.wsj.com/article/SB1173..._whats_news_us

Now what?

Lets clarify the issue in question. Can you state your premise - in one paragraph.

ace....your WSJ article is wrapped around the same conflict of interest as this
is:

Quote:

http://www.marketwatch.com/news/stor...8EF19A722BA%7D
New Century upgraded at Bear Stearns

By Alistair Barr, MarketWatch
Last Update: 4:19 PM ET Mar 1, 2007

SAN FRANCISCO (MarketWatch) -- New Century Financial Corp. was upgraded Thursday by analysts at Bear Stearns, saying the risk of the subprime lender's shares falling further is limited by the potential for an acquisition of the struggling business.
Shares of New Century (NEW :
new century financial corp m com
News , chart , profile , more
Last: 3.21-0.66-17.05%
2:00pm 03/12/2007
Delayed quote data

NEW3.21, -0.66, -17.1% ) were lifted to peer perform from underperform by Scott Coren and Michael Nannizzi at Bear Stearns.
The shares climbed almost 3%to $15.78 during afternoon trading Thursday. They've still slumped almost 50% so far this year due to signs of a credit crunch in the subprime-mortgage industry.
Subprime mortgages are offered to home buyers who fail to meet the strictest lending standards. Companies like New Century that specialize in these types of loans have suffered as housing prices stopped rising and interest rates climbed from record lows. See full story.
New Century slashed its forecast for loan production earlier this year because early-payment defaults and loan repurchases have led to tighter underwriting guidelines. The company also said that it has to restate most of its results from 2006 because of mistakes in how it accounted for losses on repurchased loans.
Chart of NEW
If New Century is forced to sell itself or liquidate, the stock could still be worth $10 to $11, according to Coren and Nannizzi. ......

Quote:

http://www.denverpost.com/extremes/ci_5417984
Foreclosures may hit 1.5 million across U.S.
By Bob Ivry
Bloomberg News
Article Last Updated: 03/12/2007 10:00:48 AM MDT

....'Too Early to Tell'

"It's a little too early to tell how it shakes out for investment banks," said Andrew Davidson, president of New York- based Andrew Davidson & Co., which advises fixed-income investors on mortgage bonds. "If it turns out that they have large losses, the investment banks tend not to be very forgiving and usually terminate businesses that haven't worked for them." <h3>Dale Westhoff, a senior managing director at New York-based Bear Stearns Cos., the largest underwriter of mortgage bonds, said last week that failing subprime lenders "are going to be absorbed very quickly."</h3> "Hedge funds and private equity are going to play a very important role in buying distressed assets," Westhoff said. ......

ace....the markets are "rigged"....the "tell" is that the "largest underwriter of mortgage bonds is the same firm whose anal-ysts are "talking up" the stock price of one of the "top three" sub-prime lenders, "NEW", a company that fed Bear Stearns the crappy loans that it put lipstick on, and sold as "securitized" bonds. Your WSJ article is more or that "happy talk", BS propaganda from the big investment banks....because if they told the truth, the housing market would crash from a liquidity crunch, and the "bottom lines" of these "big boy" thieves, would be negatively impacted.

This "scam" came with the, at least "tacit" approval of federal regulators, and Fannie and Freddie management. The losers....the bagholders, will be every J6P who works in a home or mortgage related industry....and later....by sometime in 2008, most of the rest of us...

ace....when the "BS" anal-ysts upgrade "NEW", eleven days ago....the stock's price was above $15. Trading is halted now by NYSE...."NEW" closed friday at $3.21 per share.... my Level II screen (real time stock quotes)....shows, when and if trading in "NEW" resumes, the bid is $1.65 and the ask is $1.68....why don't the Bear Stearns shills who claimed it would be worth...worse case....above $10 per share, just ten days ago, buy "NEW" for their investment bank.....

ace.....I can lead you to it, but I can't make you see. All of the signs are there....and the thieves who run Wall Street, and the FED/Fannie/Freddie, and every real estate agent and mortgage banker who gets in front of a mic, or in print, will soft peddle this decline to depression, all the way to the bottom.....down, down, down....on a wall of (misguided) hope!

aceventura3 · 03-12-2007, 11:22 AM

[QUOTE=host][QUOTE=aceventura3]
ace....your WSJ article is wrapped around the same conflict of interest as this
is:

Quote:

ace....the markets are "rigged"....the "tell" is that the "largest underwriter of mortgage bonds is the same firm whose anal-ysts are "talking up" the stock price of one of the "top three" sub-prime lenders, "NEW", a company that fed Bear Stearns the crappy loans that it put lipstick on, and sold as "securitized" bonds.

People who invest in mortgage backed bonds don't invest in subprime lenders. Often when a subprime lender packages and sells the loans they originate, they either guarnatee or buy insurance against defaults. The subprime loans are often packaged with prime loans, dispersing the risk to the mortgage backed security investor. No matter how you slice it the mortgage backed securities are backed up by real-estate. I believe mortgage backed securities are a relatively safe investment.

Saying the market is rigged for the reason stated assumes people investing billions of dollars are fools.

Quote:

Your WSJ article is more or that "happy talk", BS propaganda from the big investment banks....because if they told the truth, the housing market would crash from a liquidity crunch, and the "bottom lines" of these "big boy" thieves, would be negatively impacted.

This "scam" came with the, at least "tacit" approval of federal regulators, and Fannie and Freddie management. The losers....the bagholders, will be every J6P who works in a home or mortgage related industry....and later....by sometime in 2008, most of the rest of us...

ace....when the "BS" anal-ysts upgrade "NEW", eleven days ago....the stock's price was above $15. Trading is halted now by NYSE...."NEW" closed friday at $3.21 per share.... my Level II screen (real time stock quotes)....shows, when and if trading in "NEW" resumes, the bid is $1.65 and the ask is $1.68....why don't the Bear Stearns shills who claimed it would be worth...worse case....above $10 per share, just ten days ago, buy "NEW" for their investment bank.....

ace.....I can lead you to it, but I can't make you see. All of the signs are there....and the thieves who run Wall Street, and the FED/Fannie/Freddie, and every real estate agent and mortgage banker who gets in front of a mic, or in print, will soft peddle this decline to depression, all the way to the bottom.....down, down, down....on a wall of (misguided) hope!

My article is "happy talk" or bullshit, and yours is o.k. since its from the New York Times. This is how you want to have a serious discussion?

jorgelito · 03-12-2007, 11:25 AM

Here you go guys (and Host

). Hopefully this post is more in line with what you prefer.

The economy is fine. It will go up at times and it will go down at times. It will be overvalued at times and be undervalued at times. Some people will lose their jobs, others will gain new jobs. Every now and then there will be a crash and the cycle will repeat. I see no reason to panic.

Deficit is down.

Quote:

http://news.yahoo.com/s/ap/20070312/...AiAd1kfAtv24cA

Federal deficit down sharply this period

By MARTIN CRUTSINGER, AP Economics Writer 29 minutes ago

The deficit for the first five months of the budget year is down sharply from a year ago as the growth in government tax collections continues to outpace growth in spending.

The Treasury Department reported that the deficit from October through February totaled $162.2 billion, down 25.5 percent from the same period last year.

That improvement came even though the deficit in February hit $120 billion, up 0.6 percent from last February's deficit of $119.2 billion.

The government had larger-than-expected surpluses in December and January.

For the budget year that began Oct. 1, revenues are up by 9.3 percent to a record $954.4 billion.

Spending for the period also set a record at $1.117 trillion, but that 2.3 percent rise was slower than the growth in revenues, resulting in a lower deficit.

The Bush administration is forecasting that the deficit for this year will total $244 billion, a slight improvement from the $248.2 billion actual deficit for the 20006.

However, the Congressional Budget Office is more optimistic, forecasting that the deficit for the current budget year should decline to $214 billion. That forecast assumes that Congress will approve President Bush's supplemental spending request for the war in Iraq.

The $248.2 billion deficit for 2006 was the smallest deficit in four years and down significantly from the all-time high, in dollar terms, of $413 billion in 2004.

The stock market has "corrected" itself.

Quote:

Stocks Turn Positive After Merger News
Monday March 12, 2:50 pm ET
By Tim Paradis, AP Business Writer
Stocks Rise As Investors Try to Look Past Subprime Lender Woes

NEW YORK (AP) -- Stocks climbed Monday as investors tried to look past widening cracks in the subprime lending sector and looked to another parade of acquisition deals as a bullish sign for stocks.

A warning from New Century Financial Corp. early Monday about its financial woes initially overshadowed the merger news with concerns that a blowup among companies making loans to consumers with poor credit will spill over into other industries.

Amid the din over subprime lenders, buyout news offered some support for stocks. Word that private-equity company Kohlberg Kravis Roberts & Co. struck a deal to acquire Dollar General Corp. pleased investors, as did news that Schering-Plough Inc. would acquire the Organon BioSciences BV pharmaceuticals business of Akzo Nobel NV, the Dutch maker of chemicals and coatings, for $14.5 billion.

Investors also appeared pleased by a report that the federal deficit for the first five months of the fiscal year is down 25.5 percent from a year earlier.

In midafternoon trading, the Dow Jones industrial average rose 52.40, or 0.43 percent, to 12,328.72.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 4.44, or 0.32 percent, to 1,407.29, and the Nasdaq composite index rose 13.28, or 0.56 percent, to 2,400.83.

http://money.cnn.com/2007/03/12/mark...ion=2007031214
CNNmoney

Quote:

Techs manage gains
By Alexandra Twin, CNNMoney.com senior writer
March 12 2007: 2:16 PM EDT

NEW YORK (CNNMoney.com) -- Technology shares rose Monday afternoon, livening up an otherwise mixed market as investors weighed a spate of merger and acquisition news with the latest problems for the subprime mortgage lenders.

The Dow Jones industrial average (up 22.52 to 12,298.84, Charts) added a few points with roughly 2 hours left in the session, while the broader S&P 500 (up 0.71 to 1,403.56, Charts) index hovered near unchanged. The tech-heavy Nasdaq (up 6.89 to 2,394.44, Charts) composite gained 0.3 percent.

Stocks rose last week, as investors recovered a bit from the previous week's selloff. But the new week started on a tentative note, as investors weighed competing influences at the start of a busy week for economic news. Reports due later in the week include retail sales, producer and consumer prices and manufacturing.

"Basically, we're in a holding pattern right now," said Peter Cardillo, chief market economist at Avalon Partners. "The impact of what happened a few weeks ago is behind us, and the market is trying to consolidate."

Cardillo said that stocks were also a little choppy because of the worries about subprime and because Friday is a quadruple witching day. The quarterly event in which stock futures and options and stock index futures and options all expire simultaneously can cause gyrations in the underlying issues.

Select technology shares gained, with Apple (up $1.58 to $89.55, Charts), Oracle (up $0.35 to $16.98, Charts), Intel (up $0.35 to $19.45, Charts) and Yahoo! (up $0.85 to $29.97, Charts) all managing gains.

Monday brought a number of merger announcements, but the news was countered by new worries about subprime mortgage lenders.

New Century Financial (Charts) said its lenders have cut off its financing, in the latest blow to the mortgage lender to people with less than top credit. The New York Stock Exchange delayed opening trading for the stock and later announced that it was considering suspending trading.

In addition, Countrywide Financial (down $1.21 to $34.89, Charts) said it expects some short-term earnings volatility due to events in the subprime mortgage lending market. Shares slumped about 3 percent.

Other financial companies exposed to subprime mortgage lending slumped as well. Accredited Home Lending (down $3.81 to $11.97, Charts) lost 21 percent, Fremont General (down $1.35 to $6.68, Charts) lost 13 percent and Novastar Financial (down $0.68 to $4.56, Charts) lost 12 percent.

Among the deals announced: Schering Plough (down $0.14 to $23.71, Charts) is buying Akzo Nobel's drug unit for $14.4 billion in cash.

Dollar General (up $4.38 to $21.16, Charts) has agreed to be taken private by Kohlberg Kravis Roberts & Co. in a $7.3 billion cash and debt deal.

UnitedHealth Group (down $0.04 to $52.96, Charts) said it was buying Sierra Health Services for $2.6 billion in cash.

In addition, Ford Motor (up $0.02 to $7.95, Charts) said it was selling its luxury Aston Martin line for $925 million.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners eight to seven on volume of 900 million shares. On the Nasdaq, winners barely topped losers as 1 billion shares traded hands.

U.S. light crude oil for April delivery fell 90 cents to $59.15 a barrel on the New York Mercantile Exchange.

COMEX gold for April delivery fell $1.50 to $650.50 an ounce.

Treasury prices rose, lowering the yield on the 10-year note to 4.55 percent from 4.58 percent late Friday. Treasury prices and yields move in opposite directions.

Find this article at:
http://money.cnn.com/2007/03/12/mark...ion=2007031214

Job growth is great

http://money.cnn.com/2007/03/08/news...ion=2007030809

Quote:

Jobless claims below expectations
328,000 filed first-time jobless claims, slightly better than 330,000 expected.
March 8 2007: 9:04 AM EST

WASHINGTON (Reuters) -- The number of U.S. workers claiming first-time jobless benefits fell 10,000 to a seasonally adjusted 328,000 last week, slightly lower than Wall Street expectations, a government report showed.

But the four-week moving average for initial claims, a better look at the underlying trend, rose to 339,000, which is the highest since the week of Oct. 29, 2005, when it was also 339,000.

There were no special factors, such as weather, affecting the data last week, the U.S. Labor Department said.

Analysts polled by Reuters had predicted initial claims would drop to 330,000 in the week ended March 3, from the prior week's unrevised 338,000.

The number of workers filing for continuing claims fell 98,000 in the week ended Feb. 24 to 2.55 million, following a 118,000 jump the prior week.

Analysts polled by Reuters had predicted this number would decline to 2.59 million.

The insured unemployment rate was 1.9 percent in the week ended Feb. 24, down from 2.0 percent the prior week.

Quote:

Found! 1 million jobs
Government revisions to payrolls are likely to show job growth has been much stronger than first thought.
By Chris Isidore, CNNMoney.com senior writer
February 5 2007: 2:49 PM EST

NEW YORK (CNNMoney.com) -- The question of why the economy hasn't added more jobs since the 2001 recession ended may get this answer Friday morning: It probably did.

The government's January employment report is due before U.S. financial markets open Friday, and economists are forecasting 150,000 new jobs were created last month, down a bit from 167,000 in December. The unemployment rate is pegged to hold steady at 4.5 percent.

But the numbers will also include the Labor Department's so-called benchmark revisions to job numbers for April 2005 through March 2006. While it's gotten very little attention, the department's Bureau of Labor Statistics (BLS) estimated last October that the revisions will add about 810,000 jobs to its count of U.S. payrolls for that 12-month period.

In addition, the BLS will make changes to its estimates for April 2006 through December 2006, and some economists say several hundred thousand additional jobs may be counted for that period, meaning the overall job gain could top 1 million. Wachovia senior economist Mark Vitner estimates a total net gain of 1.2 million from all the revisions.

Changes of that magnitude would obviously dwarf the January numbers, which will nevertheless get most of the attention on Wall Street.

The benchmark revision is the biggest going back to the 1970s, and some economists say it shows not only that the economy is doing much better than previously believed, but that the way the Labor Department calculates those on the job needs significant revisions.

If the revision for the 12 -months ending in March 2006 does produce the now expected upward revision of 810,000, that will mean that job growth in the period was about 40 percent stronger than the government's previous estimates.

"It looks as if the monthly numbers grossly undercounted the true number of jobs created," said Bernard Baumohl, managing director of the Economic Outlook Group, a Princeton, N.J. research firm.

It's not that the benchmark always revises the number of workers higher. In fact in four of the previous five revisions, the benchmark revision actually lowered the previous payroll count.

The benchmark revision is made using much harder information than used to compile the monthly report, which is based upon a survey of employers across the nation. The BLS economists will now be able to look at things such as unemployment taxes paid by employers for the April 2005 through March 2006 period.

That includes the period after Hurricane Katrina, when government number crunchers had trouble contacting employers in the Gulf Coast region. It tried to make allowances for those difficulties, but part of the large revision could be due to the peculiar problems associated with those events.

There have been other estimates that showed much stronger job growth than the BLS employer survey. A survey of households, also conducted by the BLS and used to calculate the unemployment rate, showed a 3.1 million gain in jobs for the 12 months ending in March 2006, compared to the 2 million job gain recorded in the department's payroll survey of employers.

Economists widely consider the payroll survey to be significantly more accurate of the two readings.

"The BLS says that the payroll estimate has a margin of error of 150,000 jobs, while the household survey is plus or minus 300,000 jobs," he said. "So when you see a gain of 150,000 in the payroll number, it could be zero, or 300,000. It's tough to draw any conclusions about the state of the economy from that."

Vitner said that part of the problem is that the survey is very accurate when compared to the overall number of jobs it's counting, which was 136.2 million in December. But all the attention is given to the much smaller net change in jobs.

Both agree that the BLS should be given more resources to refine and improve the accuracy of the payroll estimates.

"I know virtually all the agencies in Labor and Commerce have been pleading for more money. I can't quantify what they need," said Baumohl. "But for business managers it's problematic to make decisions based on their best guess on what's going on in the economy."

Plenty of jobs for everyone if you're willing to work for it.

http://money.cnn.com/2007/01/04/news...ion=2007010416

Quote:

Skilled worker shortage hurts U.S.
Employers would be hiring more if they could just find the skilled workers they need.
By Chris Isidore, CNNMoney.com senior writer
January 5 2007: 2:56 PM EST

NEW YORK (CNNMoney.com) -- The biggest problem with job growth right now isn't too few new jobs. It's too few skilled workers.

The Labor Department's December employment report Friday showed stronger than expected job and wage growth, with a net gain of 167,000 jobs in the month, and average hourly wages up 4.2 percent from a year ago. But even in this report, the pace of job gains was showing signs of slowing down.

The fourth quarter gain was below the third quarter and 2006 saw 143,000 fewer jobs added to payrolls than in 2005, or almost a month's worth of hiring. And that's a comparison to a year in which hurricanes Katrina and Rita took a bite out of jobs.

In addition, one survey earlier in the week from employment service ADP released Wednesday showed U.S. private sector employment shrank in December, the first decline in 3-1/2 years.

But many economists and labor market experts say that job growth and the economy overall would be significantly stronger if employers could find the skilled workers they really need.

"I'm hearing across the board, across industries, companies indicating they can't exploit market opportunity because they can't find people with the right skills," said Jeff Summer, an executive at Deloitte Consulting who leads the firm's management practice. He said that there's virtually no long-term unemployment for skilled workers.

"It's down to the nub already," he said. "Supply and demand is completely out of whack."

Some experts say part of the blame for the slowdown in the economy in last year's second half can be laid on labor constraints - companies couldn't expand as fast as they wanted due to a lack of workers with the right skills.

Anthony Chan, chief economist for JPMorgan Private Client Services, said employers are constantly citing the inability to find the workers they need as one of their top problems, if not their biggest worry.

Businesses "feel there's real [unmet] demand out there," he said, adding that "economic growth would be faster" if there wasn't this tight supply of workers.

The unemployment rate in December stayed at 4.5 percent. But the rate for college-educated workers was just 1.9 percent in December, near the rate for that group in 1998 and 1999, when the economy was white-hot. The lowest rate for college grads on record was 1.5 percent in three months during 2000.

Mark Vitner, chief economist for Wachovia, said another sign of the tight labor market is the growing number of job openings being reported by the Labor Department in a separate report, even as hiring posts modest gains.

The most recent report shows 4.2 million job openings in October, up 8.8 percent from a year earlier, while hirings rose just 1.5 percent. Meanwhile, the number of workers quitting, retiring, getting fired or laid-off grew only 0.6 percent.

"With this level of unemployment, the only way they can find the workers they need is to hire them away from someone else, hire them from someplace else, or hire someone without the necessary skills," said Vitner. "All these things cut into productivity growth."

The latest tally of announced job cuts by outplacement firm Challenger, Gray & Christmas showed a 22 percent drop from 2005 to the lowest in six years, even as the auto industry slashed thousands of hourly workers, mostly due to the problems at General Motors (Charts) and Ford Motor (Charts).

Outside the auto industry, most employers are reluctant to cut staff due to the tight supply of workers, said John Challenger, the firm's CEO. "Companies are holding onto their people. They're focusing on retention programs. Even if they're in a little slower period, they worry about being able to find the people they need if they see the business pickup."

Still, even with the employment numbers showing a tight supply, some of those college-educated job seekers say they're not seeing the supply-demand equation tip in their favor yet.

Steven Koch said he spent 25 years at IBM (Charts), the last five as a procurement engineer, in charge of buying parts to go into computers. But after Chinese computer company Lenovo bought the IBM personal computer division, his job was relocated to North Carolina from New York and he decided not to follow. He's been without a job since May, despite his masters in computer science.

"I've applied to about 150 companies within 70 miles of where we live. The opportunities are not there," said Koch. "There were about six of us from Lenovo who decided not to go to North Carolina. Not one of us has found a job in the field with a comparable salary. One decided to sell cars."

Challenger said despite the tight market, his figures show job search times are about the same as they were a couple of years ago, when the number of unemployed college-educated job seekers was almost 50 percent higher than it is today.

Part of that may be because of increased competition from job applicants who already have a job. A recent survey by the Society for Human Resource Management found three-quarters of those with jobs said they were looking for a job. But Challenger said employers are being very cautious about adding staff in the current tight market, much more cautious than in the late 1990s.

"Companies are more measured. They're looking closely at who they hire," he said.

Koch said that was his experience as well. He said several times he's gone on job interviews and been told he was a strong candidate, only to later be told the company decided not to fill the position.

"One company said, 'Even though you're the top candidate, you're not exactly what they were looking for'," he said. He suspects that what many companies are looking for is younger skilled workers with lower salary demands.

But Challenger said the inability to hire, either due to reluctance or a tight labor market, is one factor constraining economic growth.

"When the economy hits some natural barriers, it slows it down, and one of those barriers is when the pool of workers begins to dry up," he said. "The lifeblood of the economy today is skilled workers."

And most experts agreed the shortage of skilled workers is likely to persist longer than it did in the late 1990s. That earlier tightness was fed by dot.com companies burning through investors' cash to hire people. The latest round of hiring is being driven by stronger corporate balance sheets, and as more retiring Baby Boomers start leaving the work force.

Deloitte's Summer said that the current tightness will be a problem for business at least into the next decade, when demographic trends should start to help.

"We start to see some relief in 2012, but we'll probably be dealing with this through 2015, even 2020," he said. "Companies that are looking at this are saying, 'We have to re-invent what we're doing here.' Just paying people more won't be the answer. They really need to be treating the talent market as a customer market more than they ever have before."

http://www.cnn.com/2007/US/Careers/0...nds/index.html

Quote:

CNN.com

Job trends for the new year
By Matt Ferguson
CEO, CareerBuilder.com

Is finding a new job on your list of New Year's resolutions? The market may be in your favor.

Recent reports from the U.S. Labor Department indicate that while the expansion of the U.S. economy is slowing, it is doing so at a reasonable pace, and inflation has steadied.

A moderated, yet stable, job market is expected to carry over into 2007 with gains that will remain strong enough to keep the unemployment rate in check.

University of Michigan economists predict the United States will create 1.5 million jobs in the next 12 months.

According to CareerBuilder.com's annual job forecast, 40 percent of hiring managers and human resource professionals operating in the private sectorexternal link report they will increase their number of full-time, permanent employees in 2007, compared to 2006. Eight percent expect to decrease headcount while 40 percent expect no change. Twelve percent are unsure.

Employers are expected to become more competitive in their recruitment and retention efforts in the New Year as the pool of skilled labor shrinks and productivity growth plateaus. Forty percent of employers report they currently have job openings for which they can't find qualified candidates.

This bodes well for workers who are likely to benefit from more generous job offers, more promotions, more flexible work cultures and other major trends identified for 2007:
No. 1: Bigger Paychecks

To motivate top performers to join or stay with their organizations, employers plan to offer better compensation packages.

Eighty-one percent of employers report their companies will increase salaries for existing employees. Sixty-five percent will raise compensation levels by 3 percent or more while nearly one-in-five will raise compensation levels by 5 percent or more.

Nearly half of employers (49 percent) expect to increase salaries on initial offers to new employees. Thirty-five percent will raise compensation levels by 3 percent or more while 17 percent will raise compensation levels by 5 percent or more.
No. 2: Diversity Recruitment -- Hispanics Workers in Demand

Understanding the positive influence workforce diversityexternal link has on overall business performance, employers remain committed to expanding the demographics of their staffs.

With the Hispanic population accounting for half of U.S. population growth since 2000, according to the U.S. Census Bureau, and buying power growing 8 percent annually, one-in-ten employers report they will be targeting Hispanic job candidates most aggressively of all diverse segments.

Nine percent plan to step up diversity recruiting for African American job candidates while 8 percent will target female job candidates. Half of employers recruiting bilingualexternal link employees say English/Spanish-speaking candidates are most in demand in their organizations.
No. 3: More Flexible Work Arrangements

Work/life balance is a major buzzword among U.S. employers as employees struggle to balance heavy workloads and long hours with personal commitments.

Nineteen percent of employers say they are very or extremely willing to provide more flexible work arrangements for employees such as job sharing and alternate schedules. Thirty-one percent are fairly willing.
No. 4: Rehiring Retirees

Employers continue to express concern over the loss of intellectual capital as Baby Boomers retire and smaller generations of replacement workers fall short of labor quotas.

One-in-five employers plan to rehire retirees from other companies or provide incentives for workers approaching retirement age to stay on with the company longer.
No. 5: More Promotions

With the perceived lack of upper mobility within an organization being a major driver for employee turnover, employers are carving out clearer career paths.

Thirty-five percent of employers plan to provide more promotions and career advancement opportunities to their existing staff in the New Year.
No. 6: Better Training

In light of the shortage of skilled workers within their own industries, the vast majority of employers -- 86 percent -- report they are willing to recruit workers who don't have experience in their particular industry or field, but have transferable skills.

Seventy-eight percent report they are willing to recruit workers who don't have experience in their particular industry or field and provide training/certifications needed.
No. 7: Hiring Overseas

Companies continue to drive growth by entering or strengthening their presence in global markets. Thirteen percent of employers report they will expand operations and hire employees in other countries in 2007. Nine percent are considering it.

With China'sexternal link economy expanding at 10 percent annually and India'sexternal link at 8 percent, these two countries are particularly attractive to U.S. companies. Twenty-three percent of employers recruiting overseas report they will hire the most workers in China and 22 percent will hire the most in India.

Survey Methodology

This survey was conducted online by Harris Interactive on behalf of CareerBuilder.com among 2,627 hiring managers and human resource professionals (employed full-time; not self employed; with at least significant involvement in hiring decisions), ages 18 and over within the United States between November 17 and December 11, 2006.

Figures for age, sex, race/ethnicity, education, region and household income were weighted where necessary to bring them into line with their actual proportions in the population. Propensity score weighting was also used to adjust for respondents' propensity to be online.

With a pure probability sample of 2,627, one could say with a ninety-five percent probability that the overall results have a sampling error of 2 percentage points. Sampling error for data from sub-samples is higher and varies. However that does not take other sources of error into account.

This online survey is not based on a probability sample and therefore no theoretical sampling error can be calculated.

Matt Ferguson is CEO of CareerBuilder.com. He is an expert in recruitment trends and tactics, job seeker behavior and workplace issues.

I'm sorry if my post is too short but I ran out of time.

host · 03-12-2007, 11:35 AM

[QUOTE=aceventura3][QUOTE=host]

Quote:

Originally Posted by aceventura3

ace....your WSJ article is wrapped around the same conflict of interest as this
is:

People who invest in mortgage backed bonds don't invest in subprime lenders. Often when a subprime lender packages and sells the loans they originate, they either guarnatee or buy insurance against defaults. The subprime loans are often packaged with prime loans, dispersing the risk to the mortgage backed security investor. No matter how you slice it the mortgage backed securities are backed up by real-estate. I believe mortgage backed securities are a relatively safe investment.

Saying the market is rigged for the reason stated assumes people investing billions of dollars are fools.

My article is "happy talk" or bullshit, and yours is o.k. since its from the New York Times. This is how you want to have a serious discussion?

ace....the imploding stock prices, and the foreclosures are the "facts". This thread is one week old....I'll be here ace...and I'll share what I am doing, in reaction to what I think is happening. The mortgage backed securities will crash in value, and there is little or no demand for them now...in subprime, or in "Alt-A" applicant credit rating categories.

The home equity and the pension account balances of Americans who can least afford to lose, are washing out first, ace.....the folks who were in a position to buy the MSB's won't feel the pain as soon as retail realtors, home construction and building materials related workers, and back office mortgage underwriting staff, and the J6P's who walk away or are foreclosed out of their over valued homes.

I gave you an example of Bear Stearns' criminally conflicting position and the propaganda that they broadcast. Fitch, Moodys, and S&P rating houses all have similar conflicts. I truly have spelled it out for you, ace....we just went through a stock market driven decline, seven short years ago. This time it's starting with real estate financing....but it's no different this time, in the early stages...but it will be a much deeper decline, and it will last much, much longer. You can bet on it, ace....I am...and so far....so good...

aceventura3 · 03-12-2007, 11:50 AM

[QUOTE=host][QUOTE=aceventura3]

Quote:

Originally Posted by host

ace....the imploding stock prices, and the foreclosures are the "facts".

I say the stocks were overvalued due to speculation, and that the stocks are going back to normal valuations. Some companies are going out of business and out of the market, but this is an everyday occurance in financial markets. Forclosures rates are going to increase, then decrease. Bankruptcies will increase then decrease. Credit card default rates will increase, then decrease. Car reposessions will increase, then decrease, etc, etc, etc etc. Nothing new, nothing to get alarmed about at this point in time.

Quote:

This thread is one week old....I'll be here ace...and I'll share what I am doing, in reaction to what I think is happening. The mortgage backed securities will crash in value, and there is little or no demand for them now...in subprime, or in "Alt-A" applicant credit rating categories.

The home equity and the pension account balances of Americans who can least afford to lose, are washing out first, ace.....the folks who were in a position to buy the MSB's won't feel the pain as soon as retail realtors, home construction and building materials related workers, and back office mortgage underwriting staff, and the J6P's who walk away or are foreclosed out of their over valued homes.

I gave you an example of Bear Stearns' criminally conflicting position and the propaganda that they broadcast. Fitch, Moodys, and S&P rating houses all have similar conflicts. I truly have spelled it out for you, ace....we just went through a stock market driven decline, seven short years ago. This time it's starting with real estate financing....but it's no different this time, in the early stages...but it will be a much deeper decline, and it will last much, much longer. You can bet on it, ace....I am...and so far....so good...

Here is some stuff on mortgagebacked securities. Guess what many have government guarantees. I doubt the market is going to crash.

Quote:

What are GNMA funds good for? Are they suitable for the bond portion of the money you're saving for retirement?

-- Miriam Hill

Miriam,

GNMA funds are a good option for investors who are comfortable with something a little bit riskier than a Treasury bond fund, but less risky than a corporate bond fund. Over the long haul, GNMA and other mortgage-backed securities funds have outperformed Treasury and other government bond funds by an average of two-thirds of a percentage point a year.

However mortgage-backed funds don't act like regular bond funds, and it's harder to understand why they do what they do. Also, while pure Treasury funds pay income that is tax deductible at the state level, GNMA income, like corporate bond income, is fully taxable.

GNMA stands for the Government National Mortgage Association, known as Ginnie Mae. It's the federal agency that buys up mortgage loans from banks and turns them into mortgage-backed securities. As an investor in mortgage-backed securities, you become the mortgage lender. Ginnie Mae adds a guarantee to make timely interest and principal payments, even if the homeowner pays late.

The first thing you should know about mortgage-backed securities funds is that there are three types.

# Ginnie Mae funds invest primarily (at least two-thirds) in Ginnie Mae mortgage-backed securities. The balance can be pretty much anything, although many funds restrict themselves to Treasury and federal agency securities.

# General mortgage funds invest primarily in mortgage-backed securities with some sort of federal guarantee, a category that includes not only Ginnie Mae securities, but also securities packaged by Fannie Mae (FNM:NYSE - news) and Freddie Mac (FRE:NYSE - news).

(Note that Fannie and Freddie, along with the Federal Home Loan Bank and the Federal Farm Credit Bank, among others, also issue what's called federal agency debt. These are bonds rather than mortgage-backed securities, and they are a staple of government funds and some Treasury funds.)

Fannie and Freddie mortgage-backed securities are considered slightly riskier than Ginnie Mae's because while Ginnie is a government agency, Fannie and Freddie are private, government-sponsored enterprises. "Congress may be less willing to rescue a financially strapped GSE," University of Missouri professors Charles Corrado and Bradford Jordan write in their forthcoming textbook, Fundamentals of Investments. As with Ginnie Mae funds, the rest of a general mortgage fund can be just about anything.

# Finally, there are adjustable-rate mortgage funds, but they haven't really caught on. At the end of August, according to Lipper, there was just $3.5 billion in so-called ARM funds, compared to $41.1 billion in Ginnie Mae funds and $11.6 billion in general mortgage funds.

The key point here is that if you are looking to eke out a bit more yield and return than a Treasury or government fund, but without adding much credit risk, it's important to find out whether a GNMA or general mortgage fund makes a practice of holding anything but federally guaranteed mortgage-backed securities and Treasury securities. Some funds hold private mortgage-backed securities, asset-backed securities and corporate bonds. They can goose a fund's return, but the additional credit risk can also hurt it in an economic downturn.
Prepayment Factor

So why does a mortgage fund, even one whose balance is entirely in Treasury securities, act differently than a regular bond fund? As you know, if you have a mortgage you can prepay it at any time, and are more likely to do so if interest rates fall. Likewise if interest rates rise, you would be less likely to prepay.

Viewed from the perspective of an investor in mortgage-backed securities, that is an option retained by the issuer. As an investor in mortgage-backed securities, you have effectively sold an option in exchange for a higher yield. Your main risk is that interest rates will decline and the rate at which homeowners are prepaying their mortgages will go up, and you will have to reinvest at lower yields. This chart shows how Ginnie Mae and mortgage funds underperformed intermediate Treasury funds during last year's great bull market in bonds.

Mortgages vs. Treasuries
Median total return for each mutual fund category, retail funds only

Source: Lipper

But rising interest rates can also hurt the mortgage-backed investor, as they have this year. Mortgage-backed securities are valued based on an assumption about the rate at which homeowners will prepay. It's bad if they prepay more quickly than expected, but it's also bad if they prepay more slowly, since that diminishes the rate of reinvestment.

"Mortgage funds generally do best in periods with relatively stable interest rates," says Casey Colton, manager of American Century GNMA.

The share prices of mortgage funds normally fluctuate less than those of standard government bond funds, but the dividends fluctuate more as prepayment speeds change, Colton says.

If you are comfortable with these conditions and complexities, then mortgage funds are a suitable investment for your portfolio's bond allocation, particularly if you are uncomfortable with anything that doesn't carry a federal guarantee.

As for the tax issue, if you are choosing between a mortgage fund and a pure Treasury fund, you can figure out whether a mortgage fund's yield is high enough to compensate you for the state tax by multiplying it by 1 minus your state tax rate to calculate the aftertax yield. If you're comparing a mortgage fund to a fund that includes federal agency debt, the agency portion will be taxable at the state level too.

http://www.thestreet.com/funds/bondforum/787157.html

host · 03-14-2007, 07:33 AM

[QUOTE=aceventura3][QUOTE=host]

Quote:

Originally Posted by aceventura3

I say the stocks were overvalued due to speculation, and that the stocks are going back to normal valuations. Some companies are going out of business and out of the market, but this is an everyday occurance in financial markets. Forclosures rates are going to increase, then decrease. Bankruptcies will increase then decrease. Credit card default rates will increase, then decrease. Car reposessions will increase, then decrease, etc, etc, etc etc. Nothing new, nothing to get alarmed about at this point in time.

Here is some stuff on mortgagebacked securities. Guess what many have government guarantees. I doubt the market is going to crash.

http://www.thestreet.com/funds/bondforum/787157.html

Looks like at least half of mortgages don't have "government guarantees, ace:

Quote:

http://www.bloomberg.com/apps/news?p...LXo&refer=home
Bernanke Says Fannie, Freddie Need to Reduce Assets (Update4)

By James Tyson

March 6 (Bloomberg) -- Fannie Mae and Freddie Mac, the largest sources of money for U.S. home loans, should sell most of their $1.4 trillion in assets to refocus on homeownership among low-income Americans, Federal Reserve Chairman Ben S. Bernanke said. .....

..... Bernanke cited data from regulators showing that less than 30 percent of the government-chartered companies' mortgage assets, or about $420 billion, promotes affordable housing.

Congress should anchor the ``portfolios to a clear public mission'' and ``require Fannie and Freddie to focus their portfolios almost exclusively on mortgages and mortgage-backed securities that support affordable housing,'' said Bernanke, who reiterated many of the Fed's views and research on the firms since 2003. ......

..... No Recommendation

Unlike former Fed chairman Alan Greenspan, Bernanke didn't specify an optimal smaller size for the mortgage holdings. Greenspan in 2005 said each of the companies' portfolios should be cut to as little as $100 billion.

The mortgage holdings constitute one of the two biggest businesses for Washington-based Fannie Mae and McLean, Virginia- base Freddie Mac, which own or guarantee about 40 percent of the $10.5 trillion residential mortgage market. Fannie Mae's assets generated 43 percent of profits in 2004. Freddie Mac doesn't release such data. .......

"Affordable" housing???....from a GSE ("the Fed") "shill" who was part of "the Fed" when it lowered interest rates to one percent and provided all of the liquidity that launched housing prices into the stratosphere???

Incoherent, ace.....just as the "talk" that, without unemployment even rising yet....from the effects of this "mess".....everything "will be fine"......

tick....tick.....tick....one state "down".....49 to go.....?

Quote:

http://www.freep.com/apps/pbcs.dll/a...314018/0/COL10
Michigan is alone in recession, business index finds

March 14, 2007

BY ALEJANDRO BODIPO-MEMBA

FREE PRESS BUSINESS WRITER

The slashing of auto industry jobs by the thousands, a weakening housing market and slower national growth have combined to push Michigan into a “one-state recession,” according to the Michigan Business Activity Index.

The index fell 1 point in January to 101. It matches the recent low level set in November and is down 3% from a year ago.

Produced by Comerica Bank and used since 1957, the MBAI represent 10 separate measures of economic activity across Michigan. It is seasonally adjusted and corrected for inflation.

“Our index confirms that Michigan remains stuck in a one-state recession,” said Dana Johnson, chief economist for the bank. “The state economy is not likely to make much headway anytime soon given the sizable cuts in jobs at Ford and Chrysler, the ongoing steep declines in residential building permits, and the backdrop of sluggish national growth.”

and the "news" come on a day when GM announces a quarterly profit:

http://news.google.com/news?hl=en&ne...nG=Search+News

....but what's this ???:

Quote:

http://www.bloomberg.com/apps/news?p...Xxs&refer=home
Senate Weighs Aid to 2.2 Million Subprime Borrowers (Update4)

By James Tyson

March 13 (Bloomberg) -- U.S. lawmakers will have to consider providing aid to about 2.2 million subprime mortgage borrowers who are at risk of defaulting and losing their homes, Senate Banking Committee Chairman Christopher Dodd said today.

``The impact of losing 2.2 million homes I suspect will be in a lot of areas of our cities and towns that are already pretty hard hit, so we clearly want to look at that and legislate,'' Dodd, a Democrat from Connecticut, told reporters in Washington after a speech to the National League of Cities.

Foreclosures involving homeowners who took out subprime loans from 1998 until 2006 could cost $164 billion, Dodd said, citing a December study by the Center for Responsible Lending in Durham, North Carolina. The government needs to provide at-risk homeowners ``forbearance or something like that to give them a chance to work through and get a new financial instrument here that they can manage financially better,'' Dodd said.

Delinquencies among subprime mortgage borrowers hit a four- year high in the fourth quarter, the Washington-based Mortgage Bankers Association said today. The trade group said 13.33 percent of subprime borrowers were behind on payments in the quarter, the highest rate since the third quarter of 2002.

More than two dozen mortgage lenders have gone bankrupt, closed operations or sought buyers since the beginning of last year as the effect of looser lending standards, slowing home- price gains, and less wage growth left banks holding bad loans.

Looking to Help

Congress ``may need to do something much more quickly to provide some protection or you could end up with a lot of poverty and blight,'' Dodd said. Federal aid of a few billion dollars ``may be a lot less costly'' than $164 billion in lost wealth, he said.

Mortgage defaults during the next two years may rise to $225 billion, with about $170 billion tied to subprime loans, according to a report yesterday by analyst at Lehman Brothers Holdings Inc. led by Srinivas Modukuri. Subprime borrowers are those with poor or limited credit backgrounds or high debt.

Dodd didn't specify the channel through which federal aid would be offered. ``I don't want to settle on the specifics of it, but clearly we are looking at what we can do to help out.''

Any formal legislation would have to be approved by Dodd's committee, then passed by both the full Senate and the House of Representatives before being signed into law by the president.

Costly Solution

Federal aid ``would come at a cost,'' said Douglas Duncan, chief economist at the Mortgage Bankers Association. ``It has to be paid for and the question is would the 34 percent of homeowners who have no mortgage be willing to pay taxes to support the bailout of people who traditionally have not managed credit well?''

Duncan expressed doubt that 2.2 million subprime mortgage borrowers will lose their homes, noting that the association lists only 300,000 such borrowers as being in foreclosure now.

click here to read the rest.... click to show

``I am a strong advocate of subprime lending,'' Dodd said. ``I don't want that word to become a pejorative as junk bonds did.''

While not constituting a drag on the economy, defaults may increase to $300 billion if home prices fall and borrowers forgo refinancing because of stricter lending standards, Lehman said.

To contact the reporter on this story: James Tyson in Washington at jtyson@bloomberg.net
Last Updated: March 13, 2007 18:05 EDT

ace....these borrowers in distress are feeling the effects of a halt and a slight reversal, compared to what is coming, in the increasing valuations of the homes that they purchased with "no money down", "time bomb", teaser rate subprime, initially "interest only" loans.

Quote:

http://www.ocregister.com/ocregister...le_1618642.php
Wednesday, March 14, 2007
Behind the subprime crisis
Risks catch up with lenders when loans are worth more than properties and investors pull financial backing.
By JOHN GITTELSOHN and MATHEW PADILLA
The Orange County Register

Ameriquest Mortgage. ECC Capital. Fremont General Corp. Resmae Mortgage. New Century Financial Corp.

The casualty list of Orange County subprime lenders grows.

What's behind this crisis?

Easy money.....

.......Aggressive lenders

It was a deal hard to refuse: No-money-down mortgages without proof of income, where borrowers qualified at the discounted teaser interest rate. Only problem: Payments doubled or tripled in year three of 30-year plans.

Bill Spitalnick spent seven years reviewing appraisals for subprime loans, first at Ameriquest in Orange and then at Fremont Investment & Loan in Anaheim. Last year, he began to see more cases where the loans exceeded the home's values.

"The main problem was 100 percent financing and declining values," said Spitalnick of a situation that put the lender at great risk.........

Even if Tommy Dodd made foreclosure illegal, this is a system predicated on reliably increasing property values....price stagnation still removes all speculative liquidity from the housing market....the uncertainty stays, and none of this looks likes the things that make for a "healthy economy" as an atmosphere for 2008 candidates to "run in", especially for republican candidates....

....and keep on eye on the stock market indices in Japan, Hong Kong, Korea, China, and the in the US....you ain't seen nothin' yet:
http://finance.yahoo.com/intlindices?e=americas

Quote:

http://finance.yahoo.com/intlindices?e=asia

Today, Wed, Mar 14, 2007
• ^N225 FOREX-Yen keeps most gains as investors unwind riskat Reuters (Wed 6:39am)
• ^N225 U.S. subprime fears spark renewed slide in global stocksReuters (Wed 5:20am)
Tue, Mar 13, 2007
• ^HSI Asian shares slump on U.S. mortgage woesReuters (Tue 11:17pm)

aceventura3 · 03-14-2007, 08:55 AM

I read this morning in IBD that new forclosures as a percentage of total mortgages are at an all time high - 0.54%. That is about 1 in 200 homes with mortgages. Mortgage deliquency rates are at 4.5%, highest in about 4 years. Adjustable subprime loan deliquency rates are at 14.4%, again the highest in 4 years. Many think things will get worse before getting better. I think panic is going through the market. I will sit on the sidelines until the dust settles.

The irony is that once this all settles, many hard-working middle class and poor will not be able to buy homes. Small mortgage companies and banks will have to operate in an environment with increased regulation, making them less competetive with the big banks. The market will be less competetive and consumers will pay higher fees and higher interest rates. Big banks, big corporations, and the rich will win. If you think that is a good thing - keep encouraging panic.

host · 03-14-2007, 09:28 AM

Quote:

Originally Posted by aceventura3

I read this morning in IBD that new forclosures as a percentage of total mortgages are at an all time high - 0.54%. That is about 1 in 200 homes with mortgages. Mortgage deliquency rates are at 4.5%, highest in about 4 years. Adjustable subprime loan deliquency rates are at 14.4%, again the highest in 4 years. Many think things will get worse before getting better. I think panic is going through the market. I will sit on the sidelines until the dust settles.

The irony is that once this all settles, many hard-working middle class and poor will not be able to buy homes. Small mortgage companies and banks will have to operate in an environment with increased regulation, making them less competetive with the big banks. The market will be less competetive and consumers will pay higher fees and higher interest rates. Big banks, big corporations, and the rich will win. <b>If you think that is a good thing - keep encouraging panic.</b>

....should this thread be banned.....(or at least my posts....?) your post had the same effect on me as the foxnews "piece" that I posted earlier here....the writer titled it <a href="http://news.google.com/news/url?sa=t&ct=us/0-0&fp=45f8d7d3fd5c05ff&ei=Fir4Rf__Lbn6sAHmhqihAQ&url=http%3A//www.foxnews.com/story/0%2C2933%2C257002%2C00.html&cid=0">"Two Words Mr. Greenspan: Shut Up"</a>

....are you accusing me of a "not supporting the troops", "syndrome", ace....
Are those of us who see something "not right".....extraordinary....about an "injection" of $4.7 trillion into a "pool" of total outstanding mortgage debt, in just six years, that propels the total from less than $6 trillion in 2001, to the current $10.5 trillion, now....really wrong to call it as we see it?

...to "call it" when, suddenly, just since december, 36 of the top 100 subprime lenders, go under, get absorbed at near firesale prices and then become a toxic drain on their new owners, or simply cease to operate.....a start of a decline to an economic depression....

...am I really the problem, ace....or is the problem a series of aggressive Fed and US government interference in the direction of markets.....markets that you seem to see as relatively "free and unfettered"...., that is as long as the government interferes to prop them up, and inject liquidity and policies that make them only go up? It started in the current cycle with the Fed arranging a bailout for imploded hedge fund, LTCM in 1998, and that triggered the perception of the Greenspan "put", and that fueled the tech stock bubble that was capped off by a March , 2000 Nasdaq index high of 5138, followed, less than three years later, by a low in the same index of 1107, followed by the Fed lowering the overnight, interbank lending rate to one percent, triggering a speculative bubble in real estate....flamed by the low interest rate and ever more "relaxed" lending standards, and an actual bias by the Fed and the CEO of Freddie Mac....to lend at 100 percent in an environment where home valuations are increasing at 5 to 10 percent annually....lending with an official nod that was the driving force....for too long, in the 5 to 10 percent annual average appreciation....

No, ace....I'm not "talking down" the economy or the markets, anymore than folks who demand an end to the lying, self-destructive folly that is the US involvement militarily in Iraq, is "failing to support the troops". I didn't put the troops there or keep them for 4 years, after "fixing the intelligence to match the policy" to manipulate the passage of an Oct. 2002 congressional resolution that gave the executive branch the power to "send in the troops" to stop the "WMD programs" of a "friend of al-Qaeda" who was a "menace to his region",and to the United States....and he's developing missiles and nukes and can we wait until we see a mushroom cloud......

....No ace....I'm doing the same thing that I've done here since Sept., 2004, calling "it" as I see it.....in real time.....with a track record of accurate prediction that is strong enough for me to mention it....

....I've given you stock tips that, if followed, would have brought anybody who reacted to them, some quick market profits, ace....and If I influence even one or two readers to consider what I describe is happening to our economy, housing valuations, and credit availability, I'll feel some satisfaction.

In your last post, you've thrown a "straw man" argument at my, ace, but you also conceed, which you didn't, earlier in this thread, that there is cause for concern about an economy that you claimed was driven up by "tax cuts". I claimed that it was driven by deficit building federal borrowing and home owner mortgage equity extraction (MEW) and spending the extracted funds.

If the economy has the sound fundamentals and robustness that you have claimed in this thread, and in a number of others, why accuse me of anything negative by claiming that I'm "talking 'er down". Why should you even be concerned enough to post that last sentence in your preceding post, if nothing that I've posted concern about, will negatively affect your business as usual, "its' a great economy", opinion?

.....oh....and ace....they're being made to swallow their own toxic sludge....just a taste....nothing near the probable $2 trillion in MSB's foisted on "marks" and "bag holders", such as the "high returns" seeking managers of the pension funds of too many ordinary Americans.....

...and they'll drown on their most recent accumulation of subprime and Alt-A mortgage loans, but the American public....concentrated in home owners and folks with pension assets, will swallow the trillions that they already "packaged" and sold via BSC and LEH....and they won't write any new "sludge" loans, because they don't like the taste, and liquidity dries up....and down, down, down, we go....There was "panic" in October 1929, when the DOW index dropped from the 393 high, just the month before, to below 200, before rebounding for a year or more....to the upper 200's. It was quiet on July 8, 1932, when the DOW traded at the lowest level that it has since then....41 that day. "Panic" isn't what brings down the markets, fundamentals eventually do that:

Quote:

http://www.marketwatch.com/news/stor...BA45696D47C%7D
National City to keep $1.6 bln of loans that were for sale

By Chad Clinton
Last Update: 8:08 AM ET Mar 14, 2007

National City Corp. (NCC :
National City Corporation
News , chart , profile , more
Last: 35.36-0.39-1.09%
1:19pm 03/14/2007

Sponsored by:
NCC35.36, -0.39, -1.1% ) said Wednesday that its remaining $1.6 billion of non-comforming loans held for sale <b>are currently not salable at what management considers an acceptable price</b> due to "adverse market conditions."
As a result, the Cleveland financial-services company <h3>plans to retain the loans and transfer them back into their portfolio this month.</h3>

....and NCC is a shortsell stock tip ace....a long term one....and so are BSC and LEH, and GS, and probably 90 percent of everything else listed on the NYSE and on the NAZ....unless Sen. Tom Dodd and Ben Bernanke can rescue us....OHHHH!! THE HUMANITY !!

The_Jazz · 03-14-2007, 09:48 AM

How is it that the two of you can decide to agree and then fight about that?

Ace: there's no problem
Host: yes there is
Ace: well based on this new information, there might be a problem but we'll have to wait and see. You may be part of the problem, btw.
Host: thanks for acknowledging the validity of part of my arguement. WMD! Al Qaeda!

Seriously, you two are like an old married couple.

host · 03-14-2007, 09:52 AM

chuckle...."the Bickersons...."

aceventura3 · 03-14-2007, 10:07 AM

Quote:

Originally Posted by The_Jazz

How is it that the two of you can decide to agree and then fight about that?

Ace: there's no problem
Host: yes there is
Ace: well based on this new information, there might be a problem but we'll have to wait and see. You may be part of the problem, btw.
Host: thanks for acknowledging the validity of part of my arguement. WMD! Al Qaeda!

Seriously, you two are like an old married couple.

I stopped fighting with my wife years ago. However, for some reason I still have this need to get into a chest pounding contest every once in awhile. When you see it happening feel free to slap me.

host · 03-18-2007, 08:56 PM

Well...it's a new week, and some candid talk from:

Quote:

Stephen Roach
Weekly Commentary
Stephen S. Roach is a Managing Director and Chief Economist of Morgan Stanley.

http://www.morganstanley.com/views/g...tml#anchor4577

Quote:

Global
The Great Unraveling
March 16, 2007

By Stephen S. Roach | from Beijing

From bubble to bubble – it’s a painfully familiar saga. First equities, now housing. First denial, then grudging acceptance. It’s the pattern and its repetitive character that is so striking. For the second time in seven years, asset-dependent America has gone to excess. And once again, twin bubbles in a particular asset class and the real economy are in the process of bursting – most likely with greater-than-expected consequences for the US economy, a US-centric global economy, and world financial markets.

Sub-prime is today’s dot-com – the pin that pricks a much larger bubble. Seven years ago, the optimists argued that equities as a broad asset class were in reasonably good shape – that any excesses were concentrated in about 350 of the so-called Internet pure-plays that collectively accounted for only about 6% of the total capitalization of the US equity market at year-end 1999. That view turned out to be dead wrong. The dot-com bubble burst, and over the next two and a half years, the much broader S&P 500 index fell by 49% while the asset-dependent US economy slipped into a mild recession, pulling the rest of the world down with it. Fast-forward seven years, and the actors have changed but the plot is strikingly similar. This time, it’s the US housing bubble that has burst, and the immediate repercussions have been concentrated in a relatively small segment of that market – sub-prime mortgage debt, which makes up around 10% of total securitized home debt outstanding. As was the case seven years ago, I suspect that a powerful dynamic has now been set in motion by a small mispriced portion of a major asset class that will have surprisingly broad macro consequences for the US economy as a whole.

Too much attention is being focused on the narrow story – the extent of any damage to housing and mortgage finance markets. There’s a much bigger story. Yes, the US housing market is currently in a serious recession – even the optimists concede that point. To me, the real debate is about “spillovers” – whether the housing downturn will spread to the rest of the economy. In my view, the lessons of the dot-com shakeout are key in this instance. Seven years ago, the spillover effects played out with a vengeance in the corporate sector, where the dot-com mania had prompted an unsustainable binge in capital spending and hiring. The unwinding of that binge triggered the recession of 2000-01. Today, the spillover effects are likely to be concentrated in the much large consumer sector. And the loss of that pillar of support is perfectly capable of triggering yet another post-bubble recession.Is the Great Unraveling finally at hand? click to show

The spillover mechanism is hardly complex. Asset-dependent economies go to excess because they generate a burst of domestic demand that outstrips the underlying support of income generation. In the absence of rapid asset appreciation and the wealth effects they spawn, the demand overhang needs to be marked to market. The spillover is a principal characteristic of such a post-bubble shakeout. Interestingly enough, in the current situation, spillovers have first become evident in business capital spending, as underscored by outright declines in shipments of nondefense capital goods in four of the past five months. The combination of the housing recession and a sharp slowdown in capex has pushed overall GDP growth down to a 2% annual rate over the past three quarters ending 1Q07 – well below the 3.7% average gains over the previous three years. Yet this slowdown has occurred in the face of ongoing resilience in consumer demand; real personal consumption growth is still averaging 3.2% over the three quarters ending 1Q07 – only a modest downshift from the astonishing 3.7% growth trend of the past decade.

Therein lies the risk. To the extent the US economy is now flirting with “growth recession” territory – a sub-2% GDP trajectory – while consumer demand remains brisk, a pullback in personal consumption could well be the proverbial straw that breaks this camel’s back. The case for a consumer spillover is compelling, in my view. A chronic shortfall of labor income generation sets the stage – real private compensation remains over $400 billion below the trajectory of the typical business cycle expansion. At the same time, reflecting the asset-dependent mindset of the American consumer, debt and debt service obligations have surged to all-time highs whereas the income-based saving rate has dipped into negative territory for two years in a row – the first such occurrence since the early 1930s. Equity extraction from rapidly rising residential property values has squared this circle – more than tripling as a share of disposable personal income from 2.5% in 2002 to 8.5% at its peak in 2005. The bursting of the housing bubble has all but eliminated that important prop to US consumer demand. The equity-extraction effect is now going the other way – having already unwound one-third of the run-up of the past four years. In my view, that puts the income-short, saving-short, overly-indebted American consumer now very much at risk – bringing into play the biggest spillover of them all for an asset-dependent US economy. February’s surprisingly weak retail sales report – notwithstanding ever-present weather-related distortions – may well be a hint of what lies ahead.

It didn’t have to be this way. Were it not for a serious policy blunder by America’s central bank, I suspect the US economy could have been much more successful in avoiding the perils of a multi-bubble syndrome. Former Fed Chairman Alan Greenspan crossed the line, in my view, by encouraging reckless behavior in the midst of each of the last two asset bubbles. In early 2000, while NASDAQ was cresting toward 5000, he was unabashed in his enthusiastic endorsement of a once-in-a-generation increase in productivity growth that he argued justified seemingly lofty valuations of equity markets. This was tantamount to a green light for market speculators and legions of individual investors at just the point when the equity bubble was nearing its end. And then only four years later, he did it again – this time directing his counsel at the players of the property bubble. In early 2004, he urged homeowners to shift from fixed to floating rate mortgages, and in early 2005, he extolled the virtues of sub-prime borrowing – the extension of credit to unworthy borrowers. Far from the heartless central banker that is supposed to “take the punchbowl away just when the party is getting good,” Alan Greenspan turned into an unabashed cheerleader for the excesses of an increasingly asset-dependent US economy. I fear history will not judge the Maestro’s legacy kindly. And now he’s reinventing himself as a forecaster. Figure that!

Greenspan or not, downside risks are building in the US economy. The sub-prime carnage is getting all the headlines these days, but in the end, I suspect it will be only a footnote in yet another post-bubble shakeout. America got into this mess by first succumbing to the siren song of an equity bubble (see my 25 April 2005 dispatch, “Original Sin”). Fearful of a Japan-like outcome, the Federal Reserve was quick to ease aggressively in order to contain the downside. The excess liquidity that was then injected into the system after the bursting of the equity bubble set the markets up for a series of other bubbles – especially residential property, emerging markets, high-yield corporate credit, and mortgages. Meanwhile, the yen carry trade added high-octane fuel to the levered play in risky assets, and the income-based saving shortfall of America’s asset-dependent economy resulted in the mother of all current account deficits. No one in their right mind ever though this mess was sustainable – barring, of course, the fringe “new paradigmers” who always seem to show up at bubble time. It was just a question of when, and under what conditions, it would end.

Is the Great Unraveling finally at hand? It’s hard to tell. As bubble begets bubble, the asset-dependent character of the US economy has become more deeply entrenched. A similar self-reinforcing mechanism is at work in driving a still US-centric global economy. Lacking in autonomous support from private consumption, the rest of the world would be lost without the asset-dependent American consumer. All this takes us to a rather disturbing bi-modal endgame – the bursting of the proverbial Big Bubble that brings the whole house of cards down or the inflation of yet another bubble to buy more time.

The exit strategy is painfully simple: Ultimately, it is up to Ben Bernanke – and whether he has both the wisdom and the courage to break the daisy chain of the “Greenspan put.” If he doesn’t, I am convinced that this liquidity-driven era of excesses and imbalances will ultimately go down in history as the outgrowth of a huge failure for modern-day central banking.

In the meantime, prepare for the downside – spillover risks are bound to intensify as yet another post-bubble shakeout unfolds.

....and the bursting of the stock market bubble, begat the housing valuation bubble, via the swift interest rate cutting response of the federal reserve:

Quote:

http://web.archive.org/web/200605160...50207-mon.html

Feb 07, 2005

Global: Confession Time

Stephen Roach (New York)

.....At long last, Federal Reserve Chairman Alan Greenspan has owned up to the central role he has played in sparking unprecedented global imbalances. His confession came in the form of a speech innocuously entitled, “Current Account” that was given in London at the Advancing Enterprise 2005 Conference on the eve of the 5 February G-7 meeting. In the narrow world of econo-speak, his prepared text contains the functional equivalent of a “smoking gun.”

Greenspan’s admission came when he finally made the connection between the excesses of America’s property market and its gaping current account deficit. To the best of my knowledge, this was the first time he ventured into this realm of the debate with such clarity. He starts by conceding “…the growth of home mortgage debt has been the major contributor to the decline in the personal saving rate in the United States from almost 6 percent in 1993 to its current level of 1 percent.” He then goes on to admit that the rapid growth in home mortgage debt over the past five years has been “driven largely by equity extraction” -- jargon for the withdrawal of asset appreciation from the consumer’s largest portfolio holding, the home. In addition, the Chairman cites survey data suggesting, “Approximately half of equity extraction shows up in additional household expenditures, reducing savings commensurately and thereby presumably contributing to the current account deficit.” In other words, he concedes that a debt-induced consumption boom has led to a massive current account deficit. That says it all, in my view.....

Quote:

http://web.archive.org/web/200601152...20227-wed.html
Feb 27, 2002

Global: Smoking Gun

Stephen Roach (New York)

....To this very day, the Federal Reserve denies its role in nurturing the US equity bubble. Sure, Chairman Greenspan warned of "irrational exuberance" in his now infamous speech of December 5, 1996. Yet it took the central bank another three months to act on those concerns. And when it did, all the Fed was able to muster was a mere 25 bp of tightening on March 25, 1997. That action unleashed a torrent of politically inspired criticism that sent the Fed quickly running for cover. Any further assault on the bubble was promptly shelved.

Chairman Greenspan then went on to compound the problem by embracing the untested theory of the New Economy -- in effect, setting out the conditions under which the exuberance might actually be rational, when the bubble might not be a bubble. After all, sharply accelerating productivity growth was the sustenance of sustained earnings vigor, went the logic at the time. Under those conditions, maybe the markets might have had it right all along -- lofty multiples made great sense in an era of ever-expanding profit margins. In any case, the Fed sent an important signal to financial markets -- that it was willing to be unusually passive in tolerating the rapid growth of a high-productivity economy. This then set up the delicious moral hazard that speculators quickly pounced on. With the Fed out of the game, there was no stopping the equity market.

Alas, if the Federal Reserve only knew what was to come -- the dot-com implosion, the excesses of telecom debt, a massive capacity overhang, an unprecedented consumption binge, a record debt overhang, and obfuscation of underlying corporate earnings growth. Had it seen such a perilous post-bubble future, maybe the central bank would have reacted differently. Easier said than done, of course -- hindsight is the ultimate luxury.

Yet it turns out that the Fed knew a lot more than it claimed at the time. Recently released transcripts of policy meetings back in 1996 -- verbatim reports of actual conversations rather than the sanitized minutes that are published approximately 45 days after each FOMC gathering -- leave no doubt, in my mind, that Chairman Greenspan and several of his colleagues appreciated the full gravity of the rapidly emerging US equity bubble. (Note: These transcripts are released with a five-year time lag and are available on the Fed�s Web site at http://www.federalreserve.gov/). The problem was the US authorities lacked the will to act. Had the Fed taken actions based on its concerns at the time, the US economy and financial markets would undoubtedly have traveled a very different road. .....

.....the Fed took its one feeble shot at the bubble with the March 25, 1997 rate hike. And that was basically it. After having put on a tightening bias back in July 1996 and maintaining that bias through June 1998 (except for two crisis-related exceptions in December 1997 and February 1998), the Fed was astonishingly timid. <b>Then along came the full force of the Asian and LTCM crises, and yet another dose of even greater monetary accommodation was added to the equation. That set the stage for an even greater liquidity injection -- just what every asset bubble needs.

Particularly troublesome, in my view, was the Fed�s very public campaign against using margin requirements as a means to pop the asset bubble.</b> It smacked of a central bank attempting to make the case that there was really nothing it could do to address a serious problem. .......

.....A few lonely souls on Wall Street, of all places, lobbied vociferously to the contrary. Paul McCulley of PIMCO and Steve Galbraith, then an obscure financial services analyst from Sanford Bernstein, testified in front of Congress in early 2000 in favor of hiking margin requirements. I penned a piece in Barron�s around the same time making a similar argument (see "It�s a Classic Moral Hazard Dilemma," Barron�s, March 27, 2000). The Fed stonewalled this criticism, but alas, by then, it was far too late.

In the end, the lesson is painfully obvious. The asset bubble is one of the greatest hazards that any economy or financial system can face. From Tulips to Nasdaq, the record of economic history is littered with the rubble of post-bubble economies. It takes both wisdom and courage to avoid such tragic outcomes. Sadly, as the full story now comes out, we find that America�s Federal Reserve had neither.....

ace....subprime and Alt-A mortgages were the "dose of liquidity" that put real estate valuations into bubble level "tops". IMO, this is going to play out with a downward velocity that will shock many. Just as too much liquidity chased too few available housing units on the way up in price...price will be depressed by the sheer numbers of overbuilt units and foreclosures and increasing velocity of backed up "for sale" inventory that will take back the home equity that was already "withdrawn, and spent, by huge numbers of American home owners. The decline will feed on itself, ace.....consider a more defensive POV, my friend. Stephen Roach was correct in calling for increased margin lending restrictions in the March 2000 stock market, and he is calling the economic trend correctly, this time, as well......

aceventura3 · 03-19-2007, 06:12 AM

The subprime issue is more hype than substance. The fundamental value of real estate is real. True experts are not suprised by what is happening in the market today, are not paniced, and see the correction as healthy for the market.

Quote:

The performance of the residential housing market over the last ten years has been remarkable. According to the Office of Federal Housing Enterprise Oversight (OFHEO), house prices have appreciated at an annual rate of 5.4% on average (68.9% over the whole time period). Perhaps even more remarkable is that the performance was strong even when economic activity overall was weak. Average annual appreciation rates have been 7.4% (26% in total) since the collapse of the Nasdaq in 2000 and 7.1% (20% in total) since 2001:Q1, the beginning of the 2001 recession. In contrast, since the start of the 2001 recession, the S&P 500 and Nasdaq have averaged negative annual returns of –2.43% and –1.42% respectively.

These kinds of statistics have generated an enormous amount of commentary along with suspicions of a house price bubble. At first glance, housing would appear to be just the type of market that is susceptible to systematic mispricings. Most market participants have little experience, making transactions only infrequently. Asymmetric or incomplete information between buyers and sellers about demand and prices is acute. Even with the advent of new technologies, the matching of buyers with sellers remains cumbersome and slow. And unlike other markets, there are no good ways to “short” the housing market if prices get too high.

This Economic Letter describes one of the measures commonly used to gauge the fundamental value of housing—the price-rent ratio. We describe the kinds of forces that cause the ratio to move over time and document which forces appear to be most important. We document the way that the housing market typically adjusts to changes in economic fundamentals.

Fundamental value and the price-rent ratio

The price of housing is determined by the forces of supply and demand for the housing good. So, naturally, many economists try to relate prices to variables that might shift supply and demand, like interest rates and household income. Price dynamics are often described in terms of the interactions between these variables and the natural constraints on delivering new supply to the market (see McCarthy and Peach 2004).

We borrow from the finance literature to take a different approach. The finance paradigm holds that an asset has a fundamental value that equals the sum of its future payoffs, each discounted back to the present by investors using rates that reflect their preferences. For stocks, the payoffs requiring discounting are the expected dividends. This approach can extend to housing by recognizing that a house yields a dividend in the form of the roof over the head of the occupant. The fundamental value of a house is the present value of the future housing service flows that it provides to the marginal buyer. In a well-functioning market, the value of the housing service flow should be approximated by the rental value of the house.

A bubble occurs—in either the stock market or the housing market—when the current price of an asset deviates from its fundamental value. Right away we see that bubbles are difficult to detect because fundamental value is fundamentally unobservable. No one knows for sure what future dividends are going to be, or what discount rates investors will require on assets. Despite this obstacle, analysts still find it helpful to construct measures of fundamental value for comparison to actual valuations. One popular measure is the price-dividend ratio, which corresponds to a price-rent ratio for houses. The price-rent ratio for the U.S. housing market is in Figure 1. The price series is the existing home sales price index published by OFHEO; this index is a repeat sales index, meaning that index changes are compiled from the price changes on individual houses that turn over during the sample period. One of its drawbacks is that it does not fully differentiate between pure house price appreciation and price changes due to depreciation or home improvement. The rent series is the owner’s equivalent rent index published by the Bureau of Labor Statistics (BLS); this series is intended to measure changes in the service flow value of owner-occupied housing. The figure suggests that current prices are high relative to rents. More precisely, house prices have been growing faster than implied rental values for quite some time: currently, the value of the U.S. price-rent ratio is 18% higher than its long-run average.

It is tempting to identify a bubble as a large and long-lasting deviation in the price-rent ratio from its average value, just like the one that we see in Figure 1. But exactly how large and how long-lasting a deviation must be to resemble a bubble is far from obvious. There is no reason to believe that a price-dividend ratio should be constant over time, even in the absence of bubbles; in particular, Campbell and Shiller (1988) showed that the value of the ratio today can increase only if there are expected future increases in dividends, expected future decreases in returns, or both. This simple model of the price-dividend ratio is based on a simple identity and the definition of a return as the sum of a dividend yield and a capital gain/loss.

To make the implications of this simple model more concrete for our housing application, imagine a real estate market near a military base that has just been scheduled to close five years from now. The inevitable job loss associated with the closure is an adverse shock to the demand for housing. This should cause a decrease in the future value of the housing dividends on houses in the area, driving house prices down immediately. Current rental contracts, however, should be relatively unaffected because the closure is so far off in the future. Thus, the price-rent ratio should decline. Alternatively, suppose the government could credibly promise to reduce taxes on real estate and keep them low forever. This change would probably lead to a higher demand for housing; at the margin, households would have the incentive to shift savings from financial assets to housing. In addition, the elimination of uncertainty about future tax rates would imply that houses are safer assets, requiring lower future returns. In this case, the price-rent ratio should increase.

What moves the price-rent ratio?

Given a notion of the sources of variability in the price-rent ratio, it is natural to wonder which sources are most important. Cochrane (1991) conducts this exercise for the case of stocks and finds that most of the most variation comes from changes in returns.

We conduct Cochrane’s experiment for houses. To construct the price-rent ratios we use OFHEO’s existing home sales index and the owner’s equivalent rent index published by the BLS. We use quarterly data, ranging from 1982:Q4 to 2003:Q1. The constraint on the sample period is that the owner’s equivalent rent series does not begin until 1982. We could extend the rental series back further by using a pure rent series, but only at the cost of severing the link between an owner-occupied price in the numerator of our ratio and an approximation to an owner-occupied service flow value in the denominator.

The basic insight of the empirical research on price-dividend ratios is that movements in the price-dividend ratio can be decomposed into two parts: movements relative to future expected dividend growth rates, and movements relative to future expected returns. In theory, these future variables are unknown to the investors when they set prices. In this application, we set the expected future dividend growth rates and returns equal to the actual values that occurred. Also in theory, we should assume all “future” dividend growth rates and returns to mean those extended to infinity. Obviously, this is not possible, so we study how the price-rent ratio moves relative to the next 15 quarters of rental growth rates and returns. (We experimented with other horizons, and found that the results did not change much.) Note also that we are unable to incorporate the current episode of price appreciation. We run out of observations before we can say anything definitive about the recent house price appreciation.

The main result from this decomposition is that the behavior of the price-rent ratio for housing mirrors that of the price-dividend ratio for stocks. The majority of the movement of the price-rent ratio comes from future returns, not rental growth rates. This will not comfort everyone, as it implies that price-rent ratios change because prices are expected to change in the future, and seemingly out of proportion to changes in rental values. A more comforting conclusion, however, is that, despite the well-known frictions in real estate markets, the dynamics of a common valuation measure are still similar to those observed in a near-frictionless market like the stock market. It may appear that returns are quite volatile relative to changes in rental values, but this is true for stock prices as well and only serves to underscore our inability to understand how expectations and required rates of return on assets are formed.

Another result is that almost all of the movement in the aggregate U.S. price-rent ratio was accounted for by two factors—the proxy for future growth in rents and the proxy for future returns. Put another way, other factors, such as bubbles, do not appear to be empirically important for explaining the behavior of the aggregate price-rent ratio. At the same time, when applied to local real estate markets, in many cases the movement in the price-rent ratio predicted by the model is much greater than the actual movement; specifically, the results indicate that something other than our measures of future rent growth and returns explains price-rent ratios. While we do not know what this “something other” is, the more common overstatement of volatility is caused by a much stronger comovement between the price-rent ratio and future returns than the comovement between price-rent and future rent growth.

The excess of the price-rent ratio volatility (the difference between the movement predicted by the model and the actual movement) can be traced to the volatility of house prices in local markets. Most recently, local housing markets that historically have had “excess” volatility in future returns also exhibit high house prices compared to fundamentals. This is shown in Figure 2, where the vertical axis measures the excess volatility in percent terms; zero corresponds to the case in which the model and our implementation explain the actual price-rent ratio precisely. The horizontal axis measures the price-rent ratios normalized to have the value of one in 1995:Q4.

The figure shows that in some markets, such as Dallas and Chicago, the combination of future growth in rents and future returns account for most of the variation in the price-rent ratio. Price-rent ratios in these markets appear to behave as do those in the national market. Other markets, such as Boston, Los Angeles, and San Francisco, have return streams that are much more variable than the price-rent ratios they are supposed to be tied to. Perhaps not coincidentally, these markets are thought to be ones where the supply constraint on new construction is particularly tight. Also, these are markets that now appear to be most highly valued.

Conclusions

The price-rent ratio for the U.S. and many regional markets is now much higher than its historical average value. We used a model from the finance literature to describe how the price-rent ratio can move over time. We found that most of the variance in the price-rent ratio is due to changes in future returns and not to changes in rents. This is relevant because it suggests the likely future path of the ratio. If the ratio is to return to its average level, it will probably do so through slower house price appreciation.

http://www.frbsf.org/publications/ec...el2004-27.html

host · 03-19-2007, 07:01 AM

Quote:

Originally Posted by aceventura3

The subprime issue is more hype than substance. The fundamental value of real estate is real. True experts are not suprised by what is happening in the market today, are not paniced, and see the correction as healthy for the market.

http://www.frbsf.org/publications/ec...el2004-27.html

ace....the publication that you posted to support your article was published in 2004, based on pre-Oct., 2004 information. Stephen Roach debunks all of it in the three pieces of his that I posted.

The housing valuation "bubble" did not accelerate to a "bubble top" until after the data/conclusions in your posted publication was published. MEW was not "extracted" from consumer's home equity in $800 billion annual "chunks" until several quarters after Oct., 2004, and the subprime and Alt-A lending abuses that are now destroying the mortgage writing businesses and the credit ratings and financial security of the borrowers of those mortgages, were mostly created in 2005 and 2006.....

Look for valuation losses as high as 50 percent from top of bubble highs, ace,
they are coming. How can housing prices, driven up by waves of liquidity created out of thin air by our fractional reserve banking system, avoid the same decline of Nasdaq 2000 index stocks of 1999 to 2002.....driven up by the same dynamics, and then down when the liquidity driven sentiment, and the credit availability of the speculative buyers (bidders), declined.....

Quote:

http://www.reuters.com/article/newsO...70530620070314
Top investor sees U.S. property crash
Thu Mar 15, 2007 7:45 AM BST17

By Elif Kaban

MOSCOW (Reuters) - Commodities investment guru Jim Rogers stepped into the U.S. subprime fray on Wednesday, predicting a real estate crash that would trigger defaults and spread contagion to emerging markets.

"You can't believe how bad it's going to get before it gets any better," the prominent U.S. fund manager told Reuters by telephone from New York.

"It's going to be <b>a disaster for many people who don't have a clue about what happens when a real estate bubble pops.</b>

"It is going to be a huge mess," said Rogers, who has put his $15 million (8 million pound) belle epoque mansion on Manhattan's Upper West Side on the market and is planning to move to Asia.

Worries about losses in the U.S. mortgage market have sent stock prices falling in Asia and Europe, with shares in financial services companies falling the most.

Some investors fear the problems of lenders who make subprime loans to people with weak credit histories are spreading to mainstream financial firms and will worsen the U.S. housing slowdown.

"Real estate prices will go down 40-50 percent in bubble areas. There will be massive defaults. This time it'll be worse because we haven't had this kind of speculative buying in U.S. history," Rogers said.......

aceventura3 · 03-19-2007, 07:24 AM

The point of the article was to show an objective method of determining the fundamental value of real estate. Using mathematical modeling we can determine the extent of overvaluation. Then we can challenge the assumtions used in the mathematical model. When people randomly pick numbers out of the air to say what they think the impact will be is pretty much meaningless. At this point in the hype it's the people not willing to do math having their opinions publicized all over the palce.

Just like my analysis of LEND, when I do the same for real estate in my local market, there is some fat but not much. and certainly not 50%. Perhaps 50% applies to your local market, but I doubt nationally we will see a drop over 5% to 10% in year over year numbers.

Quote:

As part of its quarterly survey, the National Association of Realtors reported a 2.7 percent decline in prices in the fourth quarter compared to the fourth quarter of a year earlier. That's the biggest year-over-year drop on record.

http://money.cnn.com/2007/02/15/real...s_q4/index.htm

aceventura3 · 03-23-2007, 07:24 AM

Host,

Seen the latest housing report?

Quote:

U.S. existing-home sales unexpectedly climbed in February, but subprime-market woes could chill demand farther down the road.

Home resales rose to a 6.69 million annual rate, a 3.9% increase from January's revised 6.44 million annual pace, the National Association of Realtors said Friday. January's rate was originally estimated at 6.46 million.

Economists had expected February to come in around 6.33 million, according to a survey by Thomson Financial.

The median home price was $212,800 in February, compared with a revised $210,900 in January and a revised $215,700 in February 2006.

NAR chief economist David Lereah said some of the rise might have been due to mild weather. "But fundamentals have improved in the housing market," he said.

Delinquency rates for subprime mortgage loans rose at the end of last year. Wall Street is worried tighter lending standards for borrowers with less-than-sterling credit could slow home sales in the future.

Mr. Lereah predicts subprime problems could cost between 100,000 and 250,000 annual sales of new and existing homes over the next couple years. "Will it affect the housing market? Yes," he said. "But it's not going to lead to an economic recession."

Inventories of homes were up 5.9% at the end of February to 3.75 million available for sale, which represented a 6.7-month supply at the current sales pace. There was a 6.6-month supply at the end of January.

Regionally, existing-home sales were mixed. Sales rose 3.9% in the Midwest, 14.2% in the Northeast, and 1.6% in the South. Demand in the West was flat.

http://online.wsj.com/article/SB1174..._whats_news_us

host · 03-23-2007, 09:46 AM

Quote:

Originally Posted by aceventura3

Host,

Seen the latest housing report?

http://online.wsj.com/article/SB1174..._whats_news_us

ace, IMO David Lereah is a paid "shill" for NAR who has been right about the depth and duration of the decline in the residential housing market on zero occasions, since it began in some areas of the US in Sept., 2005.

The february "numbers" do not reflect the impact of the severe tightening in mortgage qualifying ability of more current and future "refi" and new mortgage applicants, than you can possible imagine yet, ace....but it's coming:

IMO, this is over....The "home builders", consumers, recent home buyers, those who "maxed out their home equity in serial "refis", and the US economy are "dead men walking". The "lending model" could only be sustained if residential property rose in value. Mortgage applicants who would never be approved for loans in a no or low appreciation price environment, drove the demand, along with speculators and 2nd home buyers, and initial scarcity of "for sale" inventory, drove up price and eventually an overbuilt, excess inventory.

Now, in a declining price environment, formerly credit worthy folks, enriched on "cash out refinancing" on 3 or 4 occasions in the last 5 years as their home equity, on paper, rose, speculated on second home purchases, refied their credit cards and car loans into their newest refied mortgage, extracted "MEW" of $800 billion in 2005, and spent it into an economy that grew briskly, because of this "one time", escalating stimulus.

Now, it will all unwind....the US Congress can only push for tighter terms on all borrowers, and all will be required to meet lending restrictions that will only qualify those capable of making payments at 30 year, conventional, principle and interest, with insurance and tax payments also factored.

PEOPLE!!! THIS IS NOT A "PROBLEM" CONFINED TO SUB-PRIME BORROWERS....

Quote:

http://www.bloomberg.com/apps/news?p...xMc&refer=home
Subprime Meltdown Snares Borrowers With Better Credit (Update3)

By Jody Shenn

March 22 (Bloomberg) -- The subprime credit crunch is beginning to ensnare even borrowers with better credit. ....

IT IS A LIQUIDITY TRAP THAT WILL TRIGGER A HUGE WAVE OF FORECLOSURES AND A DOWNWARD VALUATION SPIRAL THAT WILL BE INVERSELY PROPORTIONAL TO THE "UP" PRICE MOVE:

Other examples: DOW 30 Index, Sept. 1929= 393
DOW 30 Index, July 8, 1932= 41

Nasdaq 2000 Index, March 10, 2000= 5132
http://finance.yahoo.com/q/hp?s=%5EI...=15&f=2000&g=d
Nasdaq 2000 Index, Oct. 10, 2002= 1108
http://finance.yahoo.com/q/hp?s=%5EI...=15&f=2002&g=d

Nikkei 225 stock index, Dec. 29, 1989= 38957
http://finance.yahoo.com/q/hp?s=%5EN...=31&f=1989&g=d
Nikkei 225 stock index, Apr. 3, 2003= 7603
http://finance.yahoo.com/q/hp?s=%5EN...=30&f=2003&g=d

The "good news" is that residential property valuations will not revert to a low of 20 percent of their former highs, but a decline of 40 to 50 percent from the 2005-2006 prices in the areas of the country with the most intense speculative bubbles, is, IMO, a high probability event, and it will be achieved in span of the next 3 to 15 years. The Nasdaq is still less than half way back to it's high of March, 2000, the Nikkei is still below half of it's Dec., 1989 high, and the Dow 30 index did not revisit it's 1929 high again, until 1953.

YOU MIGHT THINK THAT IT IS "DIFFERENT THIS TIME", but it never is....never has been...HUGE BUBBLE...liquidity crunch..HUGE DECLINE....EVERY TIME....

Quote:

http://www.reuters.com/article/banki...00719320070322
WASHINGTON, March 22 (Reuters) - New federal mortgage guidance would slash 60 percent of Countrywide Financial's (CFC.N: Quote, Profile, Research) subprime mortgage lending business, a company executive said on Thursday.

"Sixty percent of people who do qualify for hybrid, adjustable-rate mortgages would not be able to qualify" under the new federal proposal, said Sandor Samuels, executive managing director for Countrywide.

Most subprime loans, offered to borrowers with damaged credit, have adjustable interest rates. Federal guidelines issued earlier this month ask lenders to approve only borrowers who can pay the loan after low introductory rates expire.

The chief executive officer at WMC Mortgage Company, Laurent Bossard, said his firm would lose 40 percent of its subprime business under the proposed guidelines....

Disclosure: Sold KBH short at $49.00 in AM pre-trading yesterday, before it announced that it's unsold backlog increased, and that "earnings" dropped from $2.00+ in the comparable year ago qtr, to .36 cents, last Qtr.

Stock closed at $47.25. Short sold an equal amount today at $48.32, after the "new home sales", 10:00 am report, briefly spurred up the KBH price.

Did a "cover buy" trade, out of yesterday's KBH short position....paid $46.51 today.... $249.00 gross profit on each hundred shares in that trade.

Still short today's shares, borrowed and sold at $48.32

Bought <a href="http://finance.yahoo.com/q?s=QFWPC.x&x=23&y=16">put contracts</a> on stock symbol LEND today, paid $3.40 each, and I think that this was a "gift", since they are contracts to sell LEND at $15 with
April 21, 2007 expiration, and LEND was $12.40 when I made the trade.
LEND is at $11.95 at this moment, it has traded below $4.00 in the last two weeks, and below $9.00 earlier this week. It had to pledge all of it's assets to obtain a "loan" at 13 percent interest, last week. It is selling billions of loans that it already made at .95 cents on the dollar, or less. Each billion in loans sold, costs LEND at least $50 million. LEND is BK, IMO, trading up on misguided sentiment....

Just sold CFC (Countrywide) short, as I was writing this.... at $36.65 per share. I bought (after Icahn made "noise" about a "plan" to buy at $22.00) <a href="http://finance.yahoo.com/q?s=wcire.x&x=63&y=15">put contracts</a> on WCI that expire in June at a strike price of $25.00.... I paid $3.20 and WCI trades now at $22.41 ....WCI is stuck with a huge inventory of unsold So. Fla condos....has stopped building new towers, and has laid off more than 2000 since November. The stock price is "propped up" by "noises" made by Carl Icahn...he hold a 15 percent position in WCI and sez he "might" tender an offer at $22.00 for each outstanding share. I view the current valuation at less than $10 per share....with a BK filing possible in the next 12 months:
http://wci-cancellations.com/

Quote:

http://www.marketwatch.com/news/stor...yhoo&dist=yhoo

.....Earlier this week, <b>Icahn said he plans</b> to initiate an "any and all" tender offer for WCI's common stock at $22 a share. The tender offer will not be subject to due diligence or financing, he said in a statement. WCI's stock shot up about 15% on Tuesday after Icahn's announcement.
Icahn has been accumulating WCI shares but the company has resisted his plan to run his own slate of candidates for the board, saying it's not in the best interests of shareholders. ......

Icahn issued his PR, 8 days ago, ace....so far, no followup. This will resolve by the third friday in June, and WCI will tank if Icahn is posturing. If he is willing to pay $22.00 per share for this "dog", I'll lose $320.00 (100 x $3.20) per June put contract....if he only issued the "plan", PR, so that folks who followed him into WCI could get a 4 point "bump" to sell their shares into, then I'll do okay.

The point, ace...is that I'm puttin' my money where my mouth is. They'll be tough days....like the post Fed, non-announcement "melt up" of the stock indexes,two days ago....but they were shorting opportunities....there has been no "follow up" from stock buyers, since.....

aceventura3 · 03-23-2007, 10:29 AM

You have more courage than me. With the subprime lenders being so volatile and the obsessive media and now congressional attention on the subprime issue it seems like putting new money on the table is like playing roulett. If I were you I would take the quick profits and put the money in something were the odds of long-term ppayoff is better.

I don't really care what Lereah's opinion is, I just focus on the numbers.

Many in the subprime industry are taking the position that the market forces will work this issue out, and that interference will make matters worse. I agree. If there is calm, this will be a non-issue next month.

jorgelito · 03-23-2007, 10:47 PM

This is great news. Finally the housing market is undergoing a correction. Once all the bad debts have been cleared out, there will be many great deals and foreclusures to be had by us responsible people. I would prefer it to bottom out more so that the housing prices become more reasonable.

I live in LA where the market is still redhot and way overpriced. 1st world prices for third world conditions. It's embarrassing.

Ace, I agree with your contention that this is an overblown issue and it's best not to interfere. I doubt there will be calm though. Too many people running around screaming the sky is falling egged on by the media.

host · 03-26-2007, 07:20 AM

ace, I avoid staying in a stock or an option position for more than a day or two,
for the reasons that you stated, but IMO, that will change as the scope of the unwinding of the overall economy that the decline in residential real estate valuations will be the catalyst for, picks up "mo" that is the mirror opposite of the upside "energy" that drove prices to "bubble" levels, and minimum borrowing qualification criteria to ridiculously lax levels.....

jorgelito, what makes you confident that you will have an income that will put you in a position to take advantage of lower housing prices, with news like this?
No one knows what will happen, because it says that it is "unprecedented". The clue that we do have, is that current homeowners ("bag holders"???) have never been more leveraged....more susceptible to bad consequences from even small housing price drops...

Quote:

http://www.baltimoresun.com/business...ness-headlines
...."The subprime mortgage market has taken a beating because of an unexpected surge in defaults," said Patrick Newport, an economist at Global Insight. He predicted that home prices would fall in 2007, making it the first annual decline on record....

...and, this is just out in the last hour....did anyone else know that cancellations of contracts for "new home" sales, <a href="http://www.bloomberg.com/apps/news?pid=20601039&refer=columnist_baum&sid=aFll0Y8wJuVQ">are never adjusted</a> into previously released date.....making this even more optimistic than it actually is....if that is even possible to consider:

Quote:

http://www.marketwatch.com/news/stor...B0BA246F1DE%7D
By Rex Nutting, MarketWatch
Last Update: 10:25 AM ET Mar 26, 2007

WASHINGTON (MarketWatch) -- Sales of newly constructed U.S. housing unexpectedly slowed again in February, falling 3.9% to a seasonally adjusted annual rate of 848,000, the lowest level since June 2000, the Commerce Department reported Monday.....

.....Sales are reported when a contract is signed, not at the closing of the sale. Builders have reported a large increase in cancellations in recent months. Since cancellations are not reflected in the government data, reported sales are likely overstated.......

....so....it could actually be as bad as 30 percent lower than reported, with even higher inventories...and more unsold units nearing completion....and consider that these numbers are not yet affected by new lending qualifications restrictions, or by an increase in the unemployment rate, or by a huge rise in foreclosures...it's coming....count on it....or even by sellers who have lost hope because this year's "selling season" is over.....

....and there have been no significant layoffs in the homebuilding, realty, appraisal, home inspection, landscaping, building supplies employment sectors, or even a reported downturn in their activity levels....and it will all weigh on the economy...with a delayed and then sustained ripple effect. Check out reports on morgage industry employment impact in Orange County...and, how many commercial office spaces will stop producing revenue.....as this picks up "steam"?:

Quote:

http://www.cnbc.com/id/17759945
By CNBC.com Staff | 23 Mar 2007 | 05:24 PM
CNBC's Scott Cohn reports on how the lending mess is playing out in Orange County, where the mortgage product was born.

.......CNBC's Diana Olick and Scott Cohn have more on the story.

One in five jobs in Orange County is tied to the mortgage industry. No wonder then, that unemployment has ticked up half of a percentage point recently. Foreclosures in January were up 22% from a year ago.........

host · 04-08-2007, 07:56 AM

in an effort to share with those interested in watching the US housing market and housing valuations implode....in real time.....consider this site:
http://www.countrywide.com/purchase/f_reo.asp

You'll be able to watch Coountrywde Mortgage Comany's inventory of foreclosed and unsold houses rise....and they and other mortgage companies will lower prices until the market is flooded wth this "stuff". Either that....or they pay taxes...maintenance....etc....on the houses that they eat as mortgagees walk away from loans. Fifteen percent of Calif. homes for sale are already foreclosures.

Combine this with the drying up of liqiuidty for new lending and this will work it's way UP to "prime" mortgagees. Mortgagees who put down 20 percent but who experiencee the loss of all eqiuty in their homes....and then some....will walk away too...if valuation drops low enough for long enough....now it's sprfeading from subprime to Alt-A loans....

Below:
ALT-A lender AHM waited until the start of a 3 day weekend (with the markets closed) to release it's "bad news".

inDYBank (NDE) fought off the decline in it's stock pirce by staging highly publcized insider "buys" of it's shares....and by shouting that they were Alt-A lenders not subprime. With the bad news from Alt-A lenders AHM and from M&T Bank what excuse will indybank say next?

Countrywide committed to buying back $1 billion of it's own shares....even as chairman Angelo Mozilo sold his own shares as quickly as he could....ALL are doing everything they can to take attention away from the fact that they are trapped by the declining credit quality of those who they lent money to and by the declining collateral of the mortgagees in their homes and by a smaller pool of qualified new borrrowers as loan approoval requirements further tighten as the news of the fundamentals grows worse.....

Quote:

http://calculatedrisk.blogspot.com/2...ally-well.html
Thursday, April 05, 2007
Alt-A: Another Exceptionally Well-Disguised Blessing

LoanPerformance’s December 2006 issue of its newsletter, “The Market Pulse,” is now available online. (You must subscribe (free) in order to download a copy.) It features an article by UBS’s David Liu and Shumin Li which you might not want to read if you are both 1) an owner of certain Alt-A mortgage-backed bond tranches and 2) eating.

I recommend the entire newsletter, which is full of charts and maps and things for those of you who are graphically minded. The Liu and Li article, however, is a must-read for bond geeks. The conclusion:

If [prepayment] speeds slow 20-25% as we predicted . . . [Alt-A] cumulative losses could rise an additional 25-30%, which will be ~200 bps under the weak HPA [less than 5%] scenario.

By comparison, BBB- bonds backed by Alt-A hybrids are generally designed to have credit enhancement of ~200 bps. . . On average, credit support of BBB- bonds will be erased over the life of the deal, although the losses will not hit the BBB- bonds. The bonds will most likely be downgraded due to the serious erosion of credit support. . . .

If the housing market remains flat or turns negative for a prolonged period of time (e.g., [less than] 1% annual HPA for the next 3-5 years), then we expect cumulative losses on these deals to rise another 20% (based on the limited data we have observed in the subprime ARM sector), which will wipe out the credit support of BBB bonds on these deals even without considering the distribution of losses. . . .

In summary--we project baseline prepayment speeds of low 20 CPR (for 5/1s), and therefore cumulative default rates of 12-13%, applying a loss severity of 15% on all defaulted loans - - would result in a cumulative loss of ~200 bps, which could potentially wipe out most of the credit support [of] BBB- rated bonds backed by Alt-A hybrids. And yet - we have not seen any spread movements that suggest investors are taking this into consideration. [emphasis in original]

Quote:

http://investing.reuters.co.uk/news/...8011-OISBN.XML
IndyMac CEO: Subprime Contagion Fears Overblown
Thu Mar 29, 2007 10:00 PM BST18

NEW YORK (Reuters) - IndyMac Bancorp Inc. (NDE.N: Quote, Profile , Research) said on Thursday its lending practices are far safer than those of many "subprime" lenders, calling investor fears that it will suffer heavily from rising defaults "overblown."

Shares in the California mortgage specialist rose more than 6 percent after it issued the news release.

IndyMac, which is also one of the largest U.S. savings and loans, specializes in "Alt-A" mortgages, which have risk levels ranking between "prime" and "subprime" mortgages, or which do not qualify for the lowest rates.

Its shares have lost more than one-fourth of their value this year amid fears that financial difficulties afflicting many subprime lenders, such as New Century Financial Corp. (NEWC.PK: Quote, Profile , Research) and many others in California, might spread. Subprime lenders make home loans to people with poor credit.

"Because on an objective analysis of the facts, talk of the 'subprime contagion' spreading to the Alt-A sector of the mortgage market is, in our view, overblown," Michael Perry, chief executive of Pasadena-based IndyMac, said in a statement.

IndyMac's credit quality "shines in relation to the industry, validating our lending standards and practices," he added.

Perry last week bought more than $1 million of IndyMac stock, according to regulatory filings.

IndyMac shares rose $1.98, or 6.4 percent, to $33.12 in afternoon trading on the New York Stock Exchange. They began the year at $45.16.

Quote:

http://www.labusinessjournal.com/ind...2=111643&cID=2
Los Angeles Business Journal PRINT | CLOSE WINDOW

Countrywide and IndyMac Vulnerable to Alt-A Fallout
By JABULANI LEFFALL - 3/26/2007
Los Angeles Business Journal Staff

If the subprime meltdown spreads into higher loan classes, Los Angeles-area lending giants Countrywide Financial Corp. and IndyMac Bancorp Inc. stand to get hit by what one lending expert calls the “law of reverse gravity.”

“With bad loan exposure, it’s bottom-up instead of top-down,” said Keith Corbett, executive vice president for Center for Responsible Lending.

“You got subprime on bottom and prime on top and there’s this middle that will be hit, an area where bad loans in the subprime space may lead to not only defaults but tighter underwriting standards for Alt-A loans and perhaps upward.”

So-called Alt-A loans are extended to borrowers whose credit scores fall short of prime but are above subprime. Los Angeles County is a center of the Alt-A universe, partly because of its large and diverse population of entrepreneurs, performing artists, independent contractors and others with decent but not-so-steady income. High property prices also push some borrowers who otherwise would be prime borrowers into Alt-A territory.

Both Countrywide and IndyMac are among the very biggest Alt-A lenders in the country. A small but significant portion of the outstanding loan portfolio of Calabasas-based Countrywide, the largest U.S. lender, is Alt-A. IndyMac of Pasadena, which originated $69 billion in Alt-A loans last year, has more than 70 percent of its loan portfolio designated as Alt-A.

“Over the last two years, the distinction between Alt-A and subprime has become even more blurry,” said David Liu, mortgage strategy analyst for investment bank UBS AG. “Therefore the same types of problems, such as growing delinquencies, that plagued subprime loans are going to filter into the Alt-A market to a certain extent, and if you’re a company in this area, you’ll be affected adversely.”

Don’t call us subprime!

Countrywide and IndyMac recently have seen their stocks slide 21 and 41 percent respectively off their 52-week highs and have responded vehemently to news reports linking them to the subprime market.

Both companies point out that subprime loans are a small part of their respective loan portfolios.

IndyMac has been catching so much flak for being in the “subprime business” that it released a statement March 15 clarifying its “strong position as an Alt-A lender.”

“Based on the definition of subprime established by the Office of Thrift Supervision for our regulatory filings,” the statement read, “only 3 percent of IndyMac’s $90 billion in mortgage loan production in 2006 was subprime.”

Analysts thus far have been less than impressed with these explanations.

Robert Lacoursiere, an analyst with Bank of America Securities, recently issued a “sell” rating on both Countrywide and IndyMac. He anticipates increased write-downs and loan-loss provisions.

“We expect a difficult environment going forward for Countrywide and IndyMac,” he wrote in a research note, adding that both companies would face continued increases in credit risk in 2007.

Countrywide declined specific comment but said it was watching the market to see the degree to which its Alt-A operations are affected.

Meanwhile, IndyMac Chairman and Chief Executive Michael Perry said via e-mail that it was no fun to have the current level of turmoil in the mortgage business and see IndyMac’s earnings and stock price decline, causing stress for employees and shareholders. That said, he added that he thought the industry needed a shakeup in the form of the current “firestorm” to restore rationality and discipline to the industry.

“Clearly, the mortgage market and, in particular, the secondary market for mortgages are in a state of irrational panic right now, making it virtually impossible to predict short-term loan production and sales volumes or earnings with any reasonable precision until things settle down,” he said.

Red ink in the gray area?

Alt-A loans skyrocketed from about $85 billion in 2003 to about $400 billion last year.

Default rates for Alt-A mortgages doubled in the past 14 months, partly because the so-called teaser rates – temporarily low interest rates for the first few months or years of a mortgage – have been expiring at the same time home prices have flatlined. In the past, borrowers simply refinanced or sold when their teaser rates expired, relying on sharply appreciating home prices to bail them out.

Liu of UBS AG said that cumulative losses in the Alt-A sector in the past year are 10 times that of the prime market.

Zach Gast, of the Center for Financial Research, said that if Congress pushes for tougher underwriting standards, a large percentage of borrowers whose loans have already been approved would not qualify after any new standards are put in place.

“And most of the applicants will fall into the Alt-A loan category, which is largest in California,” he said.

Before the recent upheaval, a potential borrower could’ve had a Fair Isaac Co. (FICO) credit score as low as 640 and get an Alt-A loan at a lender’s discretion. Today that number is more like 680. IndyMac’s new average requirement for Alt-A is 701. Subprime requirements are shooting up from 600 to a low of 670.

Quote:

http://www.bloomberg.com/apps/news?p...q4o&refer=home

M&T Shares Fall on Lower-Than-Expected Mortgage Bids (Update2)

By Elizabeth Hester

April 2 (Bloomberg) -- Shares of M&T Bank Corp., the New York bank partly owned by Warren Buffett's Berkshire Hathaway Inc., fell the most since 1998 after the firm cut its earnings forecast because of weaker-than-expected demand for mortgages.

The stock tumbled $9.83, or 8.5 percent, to $106 at 3:13 p.m. in New York Stock Exchange composite trading. The Buffalo, New York-based company last week cut its first-quarter profit forecast by $7 million because so-called Alt-A mortgages it tried to sell attracted lower bids than predicted. M&T also said rising defaults mean it must buy back some loans it previously sold.

Shares of mortgage lenders have dropped this year as defaults on subprime loans rose to a four-year high. Companies that offer Alt-A mortgages, a category considered at less risk of default, have said in the past month that investors are mistaking them for subprime lenders and unfairly punishing their shares.

M&T ``is among the first banks to report that recent issues in the subprime arena have, in fact, spread upward to `higher- quality' borrowers,'' wrote Joseph Fenech, managing director at Sandler O'Neill & Partners LP, in a note to investors. ``We would not be surprised to see similar-type pre-announcements from other banks.'' Fenech rates M&T stock a ``hold.''

Shares of IndyMac Bancorp Inc., another Alt-A lender, fell as much as 5.9 percent and rival Impac Mortgage Holdings Inc. fell as much as 5.6 percent. IndyMac's shares have lost almost a third of their value this year and Impac is down 46 percent. M&T Bank has fallen 13 percent in 2007. Today's decline was the biggest since Aug. 31, 1998.

New Century Bankruptcy

Surging defaults in subprime mortgages, those to borrowers with bad credit or high debt, have forced more than 30 lenders to close, cut operations or seek buyers since the start of 2006. New Century Financial Corp. today became the biggest subprime mortgage company to file for bankruptcy in the past year after being overwhelmed by customer defaults.

The loans M&T planned to sell didn't attract the offers the bank expected at auction, the company said on March 30 after the close of regular trading. M&T cut their value, resulting in after-tax costs of 7 cents a share. The loss on the loan buyback will cut profit by another $4 million, or 3 cents a share, the bank said.

``Even excluding the losses on the Alt-A portfolio, MTB still would have missed estimates by a notable margin,'' said A.G. Edwards Inc. analyst David George in a note to clients. He rates the shares ``hold.''

Alt-A mortgages, short for Alternative A, fall shy of the credit criteria of Fannie Mae and Freddie Mac, the two largest sources of mortgage money in the U.S. They often involve loans made with less proof of borrowers' income or assets, purchases of homes by investors or interest-only loans and ``option'' adjustable-rate mortgages, whose payments can fail to cover the interest owed.

M&T said it plans to keep $883 million of Alt-A home loans instead of selling them because management believes the bids don't reflect their true value.

Quote:

http://www.marketwatch.com/news/stor...yhoo&dist=yhoo
American Home Mortgage cuts profit forecast
Warning suggests subprime woes are spreading to other home loans
By Alistair Barr, MarketWatch
Last Update: 4:14 PM ET Apr 6, 2007

This update clarifies that stock markets were closed for Good Friday, with the share price given from Thursday.
SAN FRANCISCO (MarketWatch) -- American Home Mortgage Investment Corp. cut its first-quarter and full-year profit forecast by more than 25% Friday after being hit by problems in the secondary market for home loans and mortgage-backed securities.
The company also said that it's stopped offering some types of so-called Alt-A mortgages because of the high cost of delinquencies on those loans.
<b>The warning suggests that problems in the subprime-mortgage business have begun spreading to other parts of the home-loan industry.</b>

AHM ) said that first-quarter earnings will be roughly 40 cents to 60 cents a share, down from its previous view of $1.11 to $1.17 a share. For 2007, it forecast earnings of $3.75 to $4.25 a share, compared with the $5.40 to $5.70 a share it previously predicted. The company also announced that it is cutting its quarterly dividend to 70 cents from its previous level of $1.12 a share.
"During March, conditions in the secondary-mortgage and mortgage-securities markets changed sharply," said Michael Strauss, American Home's chief executive, in a statement. "While the market may recover ... our working assumption must be that current market conditions will persist."
American Home also indicated that it continues to be affected by the high cost of delinquencies, especially on Alt-A mortgages, and that it's been forced to repurchase some of these loans.
The company announced that it's stopped offering certain types of Alt-A loans that have been particularly prone to rising delinquencies and repurchases. Those are loans where the homeowner borrows a relatively high portion of the value of a property and simply states an income, rather than documenting it.
American Home also said that it plans to raise the interest rates charged on mortgages.
Shares of American Home closed at $25.84 on Thursday, down 25% so far this year. Stock markets were closed for Good Friday.

Subprime-mortgage originators like New Century Financial (NEWC
new century financial corp NEWC ) , NovaStar Financial Inc. (NFI novastar finl inc
and Accredited Home Lenders Holding Co.( LEND ) , have been hit hard this year by rising delinquencies and foreclosures. Subprime loans are offered to poorer borrowers with blemished credit records, so many experts expected trouble in this corner of the mortgage market once house prices stopped rising quickly.
<b>But American Home isn't a subprime lender. In early March, the company issued a statement to clear up any "confusion" about the type of loans it offers. Most are adjustable-rate mortgages and so-called Alt-A loans,</b> which often require less documentation. American Home even offers conventional fixed-rate home loans. Subprime mortgage are less than 1% of its total loan portfolio.
Still, American Home said Friday that earnings will be lower because investors in the secondary-mortgage market and the market for mortgage-backed securities (or MBS) offered to buy its loans at "materially lower" prices.
Lower prices for AA-, A-, BBB-rated MBS and riskier bits known as residual-mortgage securities also triggered losses in American Home's investment portfolio, the lender added.

Elphaba · 04-10-2007, 03:09 PM

Host, I hope you don't mind this personal aside, but I find it refreshing to reread these older posts without the "you just hate Bush" and "looney liberal" responses that passed for debate a year ago. Things do change in time.

aceventura3 · 04-11-2007, 07:20 AM

The data does not support an implosion in the realestate market. Alarmist simply want to make headlines, so until there is a material change in the info below, market fundementals will stay strong.

http://www.mnforsustain.org/pop_us_2...0_pyramids.htm

Projected population growth 1999 to 2020 is 57 million.

http://www.census.gov/const/newressales_200702.pdf

Quote:

NEW RESIDENTIAL SALES IN FEBRUARY 2007
Sales of new one-family houses in February 2007 were at a seasonally adjusted annual rate of 848,000, according to estimates released jointly today by the U.S. Census Bureau and the Department of Housing and Urban Development. This is 3.9 percent (±17.4%)* below the revised January rate of 882,000 and is 18.3 percent
(±12.2%) below the February 2006 estimate of 1,038,000.

Currently they are building new single family homes at a rate of 848,000 per year.

http://www.census.gov/population/www...m/cps2006.html

Average household size is 2.57

Therefore there will be about 22 million new households between 1999 and 2020, or a need for an average of 1.1 million new households per year.

Using the above numbers there is an average deficit of about 252,000 housing units per year.

What I don’t know is how many multi-family dwelling units being constructed or the rate in which existing homes are being made obsolete each year. However, no matter how I look at the numbers plugging in assumptions for apartments and obsolesence, the long-term trend for real-estate is good and we are in a short-term correction.

No implosion.

This map shows where the increase in delinquencies are, it is moderate in most of the nation except for Nv, CA and Fl. The folks in those markets should be very concerned, however most need not worry.

http://online.wsj.com/public/resourc...0704-sort.html

host · 04-18-2007, 05:54 AM

ace, none of the above matters if a massive, unrelenting stream of foreclosure sales competes with homeowner "offerings", and the glut of builders still rising inventories, month after month.....VALUATION will fall, then plummet, turning the ATM cash out refi, into a "cash back in", "re-pay", and then a "walk away". This will feed on itself, just as the uptrend in valuation, to bubble level did, fed by huge amounts of liquidity, advanced to unqualified mortgage applicants, "at the top" of the bubble, for the last several years.

To believe otherwise, is to believe in fairy tales, IMO:

"only the beginning....only just the start-" .....Chicago

Quote:

http://www.marketwatch.com/news/stor...7F291784CE9%7D
Foreclosures up 47% year-on-year in March: RealtyTrac

By Rex Nutting
Last Update: 9:11 AM ET Apr 18, 2007

WASHINGTON (MarketWatch) -- U.S. foreclosure filings increased 7% in March from February's levels and were up 47% from a year ago, according to RealtyTrac, an online real estate database. Nationally, there was one foreclosure filings for every 775 households. Five states -- California, Florida, Texas, Michigan and Ohio -- accounted for half the nation's total in March. In California, foreclosure filings increased 36% from February and were up 183% compared with a year ago. <b>Nevada had the highest foreclosure rate at one in every 183 households</b>, followed by Colorado. Six of the top 10 cities were in California, led by Stockton. The data include default notices, auction sale notices and bank repossessions

aceventura3 · 04-18-2007, 06:20 AM

Quote:

Originally Posted by host

ace, none of the above matters if a massive, unrelenting stream of foreclosure sales competes with homeowner "offerings", and the glut of builders still rising inventories, month after month.....VALUATION will fall, then plummet, turning the ATM cash out refi, into a "cash back in", "re-pay", and then a "walk away". This will feed on itself, just as the uptrend in valuation, to bubble level did, fed by huge amounts of liquidity, advanced to unqualified mortgage applicants, "at the top" of the bubble, for the last several years.

Or...about 99% of homeowners will continue paying their mortgages and live happily in their homes.

Quote:

To believe otherwise, is to believe in fairy tales, IMO:

I guess I believe in fairy tales.

Seems like this month the subprime thing isn't making headlines like it did last month.

There are indicators the housing market hit bottom and is recoverying.

Quote:

Building permits, a sign of future construction, also rose 0.8 percent. Permits for single-family homes increased 1.4 percent. Construction of single-family homes rose 2 percent, but work on multifamily structures fell 4 percent.

http://www.chicagotribune.com/busine...i-business-hed

At this point all you have to do is stop responding (I promise not to rub it in), everyone who has read this thread knows your data does not support your view that the housing market is going into free fall and will have broader ramifications throughout the economy causing further panic and doom. I am going to be able to post endless amounts of data showing market improvement - because it is real - because long-term marco indicators support strong market fundementals.

dc_dux · 04-18-2007, 07:42 AM

Ace...the housing industry doesnt share your optimism.

A press release from NAHB this week:

Quote:

BUILDER CONFIDENCE RECEDES FURTHER IN APRIL

Deepening problems in the subprime mortgage market continued to take a toll on builder confidence in April, according to the National Association of Home Builders/Wells Fargo Housing Market Index (HMI), released today. The index declined three points to 33 in April, its lowest level since December of 2006.

“The tightening of mortgage lending standards in connection with the subprime crisis has shaken the confidence of both consumers and builders, as reflected in this report,” said NAHB Chief Economist David Seiders. [“Indeed, the unfolding effects of this crisis have compelled NAHB to trim our forecasts of home sales and housing production for both 2007 and 2008,” he said. “While we still expect to see some improvements in housing market activity beginning later this year, the downside risks and uncertainties surrounding that forecast are considerable.”

full press release"
http://www.nahb.org/news_details.asp...34&newsID=4429

The NAHB/Wells Fargo Housing Market Index (for whatever its worth) has been in steady decline since 2005:
http://www.nahb.org/generic.aspx?sec...cContentID=529

Quote:

...everyone who has read this thread knows your data does not support your view that the housing market is going into free fall and will have broader ramifications throughout the economy causing further panic and doom.

Isnt a decline in the HMI from 65 in Sept 05 to 33 in April 07 sorta like a free fall...at least in terms of how builders and potential buyers perceive the market.

host · 04-18-2007, 08:59 AM

dc_dux, "the problem" is actually exacerbated by the mindset that there is "no problem".....

We see "it"....this "mindest"....in the US stock market.....the talking heads on CNBS are going "ga ga"....this week, because the DOW (DJIA) an index of just 30 stocks, is poised to set a new "record", around 12,800....while the Nasdaq 2000 index, a measure of 2000 stocks, is trading at just half of it's march, 2000 peak valuation of 5148. The DOW index is adjusted periodically, removing "laggards".....underperforming stocks that would tend to make that index average lower than it is today. For many Americans, the Dow is the stock market, so.....
<img src="http://chart.finance.yahoo.com/c/my/_/_ixic"><br>

The major Japanese stock indes, often called the "Nikkei Dow", is today trading at less than 1/2 it's 1990 level of 39,000.....but we don't dwell on that....
<img src="http://chart.finance.yahoo.com/c/my/_/_n225">

Iraq is a fucking mess, but folks like John McCain, Joe Lieberman (described recently as Bush's <a href="http://zenhuber.blogspot.com/2007/03/bush-and-rovewellians-still-going.html">"sex toy"</a>), and president Bush, himself, all see "improvement". All I see are more avoidable, "empty chairs" at the dinner tables at too many US family gatherings....and at Iraqi tables, as well:

Quote:

http://www.fox23news.com/news/world/...6-a694d5bdc910
More than 170 killed in Baghdad

Last Update: Apr 18, 2007 11:56 AM

BAGHDAD (AP) - Despite an ongoing, U.S.-led security crackdown in Baghdad, four separate bombings in the capital today have claimed more than 170 lives.....

Iraq's deadliest days since January 2006
Kansas.com, KS - 11 minutes ago
-March 6, 2007: Officials report 194 deaths, including 120 by two suicide bombers in a crowd of Shiite pilgrims in Hillah, about 60 miles south of Baghdad. ...

Quote:

http://www.defenselink.mil/news/news....aspx?id=32828

American Forces Press Service

WASHINGTON, April 17, 2007 – Three Marines and five U.S. Army soldiers died, and six soldiers were wounded, in Iraq recently, defense officials said. The Defense Department also released the identities of three soldiers killed previously in Iraq.....

so....I guess that it just depends on how you react to "the news". Everybody does have to live somewhere, ace is right about that.....and it is easier to manipulate the valuations of 30 high profile stocks than it is to "goose" the valuations of a diverse group of 2000 stocks that encompass all areas of the economy and are mostly not high profile.

I'm in the school that believes that we are only in the early morning phase of the economic disaster that many, many American families are headed for...maybe it's about 2:30 am, right now. Ace maintains that the worst is over. Dc_dux, ace will view your example of the 33 number for current builder sentiment as a "tradeable bottom". So far, the Nikkei bottom from 39,000 was
7607 in 2003.....14 years after the top, and the Dow bottomed from a 1929 top of 393, to just 41 in July, 1932. The Nasdaq top was 5148 in March, 2000, and the bottom.....so far....in late 2002 was about 1100.

I see builder sentiment dropping below 10, and....since this is the biggest housing price valuation bubble and lending excess period in US history, average valuation declines of 40 and even 50 percent are certainly expected.
Indeed....in some Florida condo markets, these levels of decline have already been reached.

I hope that you were "playing" with me, in your last post, ace. I'll worry about you if you really were serious in advising me not to post on this subject, because you say the crisis is over, or never existed.....

Quote:

http://ml-implode.com/
Latest count of major US mortgage lenders that have croaked since late 2006:

(why?)
<h3>59
lenders have now gone kaput</h3>

New: Defrauded? Check out our legal help sign-up.

Last addition: April 18, 2007. Latest imploded: Loan Center of California, Home Capital, Inc., Home 123 Mortgage, Homefield Financial, First Horizon Wholesale ...
Quote Of The Week

"... the Fed's efforts to stabilize system profits are a profoundly riskier proposition in today's environment where profits are largely dictated by financial sector expansion (as opposed to capital investment). With corporate profits, household income, asset prices and economic growth now all dependent on ongoing leveraged speculation and rampant financial sector ballooning, sophisticated market players aggressively seek their outsized share of profits with comfort knowing the Fed has no alternative than to sustain the boom." — Doug Noland, "More Minsky", in his April 13th, 2007 Credit Bubble Bulletin.....

0
When I posted here:
http://www.tfproject.org/tfp/showpos...9&postcount=48

....back on Feb, 23....less than 2 months ago.....only 23 of these lenders had imploded.....

Now that the private sector will no longer write risky loans.....putting pressure on housing valuations due to increased foreclosures of overvalued homes, purchased by unqualified buyers with no means of maintaining ownership in a climate of falling housing valuations....along comes a GSE....the government....to the rescue. They looked scared ace.....this is not a development in a healthy market, or in a healthy economy. It smells of the government propping up housing valuations because the alternative is reality.....something that you are avoiding acknowledging, ace:

Quote:

http://www.bloomberg.com/apps/news?p...Zk8&refer=home

Freddie Mac Offers to Buy $20 Billion in Home Loans (Update1)

By James Tyson

April 18 (Bloomberg) -- Freddie Mac, the second-largest source of money for U.S. home loans, is offering to buy as much as $20 billion of mortgages in an effort to maintain the financing available for subprime borrowers, Chief Executive Officer Richard Syron said today.

``To the maximum extent possible we want to approach this from a market driven kind of approach,'' Syron told reporters in Washington during a housing market summit in Washington led by Senate Banking Committee Chairman Christopher Dodd.

Subprime mortgage bond sales have slowed this year after late payments on the underlying loans reached a four-year high of 13.3 percent in the fourth quarter, according to the Mortgage Bankers Association. The sale of subprime mortgage bonds had grown to $450 billion last year from $95 billion in 2001, the Securities Industry Financial Markets Association says.

Syron's offer would effectively guarantee that there is demand from Freddie Mac for as much as $20 billion in new mortgage bonds so long as lenders refinance some of the loans outstanding into more favorable terms for subprime borrowers.

McLean, Virginia-based Freddie Mac, created by Congress to increase financing available to homebuyers, channels money into the mortgage market by buying loans from lenders. It profits by holding mortgages and mortgage bonds as investments and by charging a fee to package home loans as securities for resale. .....

....wouldn't it be easier for the government just to give billions to some of the 59 failed lenders, while telling the market that these lenders will be guaranteed not to fail, no matter how many shitty mortgages for overvalued houses they approve for unqualified applicants?

aceventura3 · 04-18-2007, 10:22 AM

Quote:

Originally Posted by dc_dux

Ace...the housing industry doesnt share your optimism.

Perhaps what they say and what they do are different. My interest is in what they do.

Quote:

Single-family housing starts in March were at a rate of 1,218,000; this is 2.0 percent (±10.5%)* above the February figure
of 1,194,000. The March rate for units in buildings with five units or more was 262,000.

http://online.wsj.com/public/resourc...ts/bbstart.pdf

Quote:

A press release from NAHB this week:

The NAHB/Wells Fargo Housing Market Index (for whatever its worth) has been in steady decline since 2005:
http://www.nahb.org/generic.aspx?sec...cContentID=529

Isnt a decline in the HMI from 65 in Sept 05 to 33 in April 07 sorta like a free fall...at least in terms of how builders and potential buyers perceive the market.

Interesting - perception vs. reality. At Disney land they have a ride that gives the perception of a free fall, I hope people who ride it don't walk away beleiving it was reality.

Quote:

Originally Posted by host

I see builder sentiment dropping below 10, and....since
When I posted here:
[uthis is the biggest housing price valuation bubble and lending excess period in US history, average valuation declines of 40 and even 50 percent are certainly expected.
Indeed....in some Florida condo markets, these levels of decline have already been reached.

If sentiment was the market driver, why hasn't new money stopped going into new land development?

There are fundemental questions that get avoided in your analysis, the above is an example. If you have an answer to that there are others.

Quote:

I hope that you were "playing" with me, in your last post, ace. I'll worry about you if you really were serious in advising me not to post on this subject, because you say the crisis is over, or never existed.....

Generally, I respond poorly when people dismiss my ananlysis as believing in "fariy tales". I think it is a desperate attempt when a responder has no logical response, and if that is the best they have, I percieve the response as conceeding. I see that you don't conceed, so we continue.

Quote:

....back on Feb, 23....less than 2 months ago.....only 23 of these lenders had imploded.....

True.

Quote:

Now that the private sector will no longer write risky loans.....putting pressure on housing valuations due to increased foreclosures of overvalued homes, purchased by unqualified buyers with no means of maintaining ownership in a climate of falling housing valuations....along comes a GSE....the government....to the rescue. They looked scared ace.....this is not a development in a healthy market, or in a healthy economy. It smells of the government propping up housing valuations because the alternative is reality.....something that you are avoiding acknowledging, ace:

Mortgage lending has tightened but people still get loans. Mortgage lending goes in cycles like most other things.

I assume you saw this:

Quote:

American consumers continued to spend steadily in March, as employment growth and wage gains helped to offset the housing slump. Still, the pace of spending growth has slackened since last year.

The Commerce Department reported yesterday that U.S. retail sales rose a seasonally adjusted 0.7% in March, following a revised 0.5% increase in February. The March gain was heavily influenced by a sharp rise in sales at gasoline stations, which reflected the rising cost of crude oil. But even excluding gasoline stations, retail sales rose a moderate 0.4% in March, the same as February.

http://online.wsj.com/article/SB1176...N=wsjie/6month

I guess "it" really won't start until the chart's trend reverses. we will see what happens next month.

dc_dux · 04-18-2007, 11:44 AM

Quote:

Interesting - perception vs. reality. At Disney land they have a ride that gives the perception of a free fall, I hope people who ride it don't walk away beleiving it was reality.

ace.....perception is and will always be a factor in the financial and/or investment community.

Could it be that you just dont but much credence in the HMI Index by the housing trade association and one of the largest mortgage lenders because it doesnt support your position?

aceventura3 · 04-18-2007, 12:29 PM

Quote:

Originally Posted by dc_dux

ace.....perception is and will always be a factor in the financial and/or investment community.

Could it be that you just dont but much credence in the HMI Index by the housing trade association and one of the largest mortgage lenders because it doesnt support your position?

Sorry for not being clear. When there are conflicting indicators, I put value on the indicator reflecting real behavior and no value on the indicator reflecting "feelings" or subjective il defined views.

As you know there are many problems with indexes like the HMI Index. During a market correction an index like this is more reflective of the past than of the future. When you look at the HMI numbers over the past two year it is clear that the index failed to predict the market correction, as the index peaked in October 2005 right at the time the market started to correct. The current number, if I would give meaning to it, would indicate, a market bottom as a contrarian indicator. The number has been in the 30's since July of 2006, the low was September of 2006 at 30.

Another factor is the psyhcology of responding to surveys like HMI. When presented with choices like "good", "poor", or "fair" what do you say after a booming period where making money was easy? Market corrections tend to eleminate the weak links and you end up with a strong core group of business people who really understand the market and are willing to do the real work. People who made the easy money and won't survive will respond accordingly.

This was in the press release also.

Quote:

“Builders are uncertain about the consequences of tightening mortgage lending standards for their home sales down the line, and some are already seeing effects of the subprime shakeout on current sales activity,” said NAHB Chief Economist David Seiders. “The fundamentals of today’s housing market still are relatively strong, including a favorable interest-rate structure, solid growth in employment and household income, lower energy prices and improving affordability in much of the single-family market – due in part to price cuts and non-price sales incentives offered by builders. NAHB continues to forecast modest improvements in home sales during the balance of 2007, although the problems in the mortgage market increase the degree of uncertainty surrounding our baseline (i.e., most probable) forecast.”

http://www.nahb.org/news_details.asp...34&newsID=4258

And the regional number in the Midwest hit a low of 16 in August and September of 2006 and then 15 in November. Can Host explain why all lending and building just did not come to a complete stop in the Midwest? Mmmmm? I did not think so.

aceventura3 · 05-24-2007, 10:26 AM

Host,

Perhaps the market has begun to turn. The data today may be a blip, according to some economist but I think otherwise. To save you the effort, I have included a link with comments from economists who think that data is problematic.

Quote:

Economists Point to Home Data Volatility
May 24, 2007 11:35 a.m.

Sales of single-family homes increased in April, the first gain in four months, rising 16% to a seasonally adjusted annual rate of 981,000, the Commerce Department said. The median estimate of 25 economists surveyed by Dow Jones Newswires was a 0.2% increase. New-home sales were 11% lower than in April 2006. The average price of a home last month was $299,100, down from $324,700 in March and $310,300 in April 2006. The median price dropped to $229,100 from $257,600 in March and $257,000 in April 2006. Economists aim to explain the surprise in the data, and point to index volatility.
* * *

We have cautioned that double-digit gains of new-home sales are VERY unreliable monthly data points. (It is mostly due to the way the builders self-report their sales to Commerce)… Whenever new-home sales jump double digits, it usually reflects a mean reversion from the prior (or subsequent) month's reportage. Indeed, over the past 15 years of data, we found that a mean regression followed nearly every double-digit monthly gains. Typically, the subsequent month's data was significantly lowered -- flat to negative in nearly every case. --Ritholtz Research & Analytics
* * *

Nearly all of the strength was in the South, and this depressed prices simply because the South is a lower-priced region. There was a modest decline in the Midwest, and modest strength in the Northeast and West. It remains to be seen if this is a one-month aberration… However, it is clear that indications of a mediocre Spring buying season have been put in some doubt with this report. --Joshua Shapiro, MFR, Inc.
* * *

Only homes priced less than $200,000 had stronger sales in April. The sharp increase in sales will help home builders shed some of the huge inventory of unsold homes and could limit further cuts in new construction… Despite the April sales surge, the median number of months that a new completed home has been on the market jumped to six months, the highest since July 1993... Builders will need to maintain aggressive pricing strategies AND lower production levels to shed these inventories. Any recovery in home-building still lies well in the future. --Nomura Economics Research
* * *

This was the biggest one-month jump in sales since April '93, but the margin of error in these numbers is massive, plus or minus 13%. One big monthly change, in either direction, does not make a trend. Note too that the sales number is at odds with the NAHB index, which fell at a steady pace in each of the three months to May, reversing all its prior gain. -- Ian Shepherdson, High Frequency Economics
* * *

We're at a loss to explain this spike in sales in light of the recent renewed gloominess among home builders… On the other hand, the Mortgage Bankers Association's survey of mortgage applications has been showing surprising recent strength. --Morgan Stanley Research
* * *

Today's data do help confirm that the current production/demand imbalance was not as severe as implied by miserable first-quarter sales figures. We greatly doubt that a new buying surge is under way. While the surge in sales reported in April should be discounted, today's data should add to confidence that some mild progress is being made on inventories at close to the current sales pace. --Steven Wieting, Citigroup Global Markets
* * *

Since this is a very volatile and revision-prone series, it is difficult to read too much into any one month's report. It appears that consumers responded to lower-priced homes in April, resulting in a sharp increase in sales and a decline in the supply of homes. --Bear Stearns U.S. Economics

http://online.wsj.com/article/SB1180...ml?mod=Economy

aceventura3 · 06-04-2007, 09:14 AM

Host,

Some may consider this piling on but, I enjoy it. Remember our exchange on the Accredited Home Lenders (LEND), I talked about the intrinsic value of the stock based on certain assumptions and said the following in#35:

Quote:

On LEND - I am not a short-term trader. I just hppened to pick LEND from your list and looked at it in more detail. It is actually not a bad stock. Once it gets through this subprime issue, it will be o.k. Also, your chart doesn't show it but the stock "gapped down in August of '06 on strong volume, it gapped down again in October '06 on strong volume and gapped down again in March. The time to sell was in August or October. Some large institutional investors were clearly getting out at that time and have continued selling. LEND was over-valued, and most likely still has about 20% fat in its price depending on what happens next in the subprime lending market. If it drops to about $13, that would be a good time to buy, assuming about a 6 PE, 6% growth and about an 8% discount rate . The estimated 5 year growth rate is about 10%, but analyst have started making reductions.

Gusess what I saw today?

Quote:

By JONATHAN VUOCOLO
June 4, 2007 11:29 a.m.

Accredited Home Lenders Holding Co., which has been buffeted by problems in the subprime lending sector, agreed to be acquired by Lone Star Fund V L.P. for about $400 million.

Shareholders of the San Diego mortgage company will be paid $15.10 a share, a 9.7% premium to its closing share price of $13.76 Monday, the last business day prior to the announcement of the deal. Accredited shares rose $1.51, or 11%, to $15.27 in premarket trading, but are off 70% from a 52-week high of $51.24 set on June 5, 2006.

http://online.wsj.com/article/SB1180..._whats_news_us

host · 06-04-2007, 09:57 AM

ace, if a private equity fund decides to buy a bankrupt company that cannot sell it's loans because of the increasing defaults of the loans it is already responsible for....a bankrupt company that recently obligated itself to a new, $213 million debt that is owed on top of the offer for outstanding shares, a bankrupt company that has delayed the filing of it's financials for more than three months, and of it's annual report for at least that long, a bankrupt company that lost it's auditor ten weeks ago, over "going concern" reservations by that auditor (concerns that the company ran a high risk of not being able to continue operations due to it's financial circumstances)....does that make a convincing case (especially since there has been no public disclosure...this year of Accredited Home's finances) that the subprime and Alt-A mortgage crisis, and the housing valuation decline that it aggravates....is somehow mitigated?
<center><img src="http://attheselevels.com/uploads/PJL051107.PNG"></center><br>

I don't think so....and we'll have to wait and see if this $400 million + $213 million debt to Farallon Capital "purchase" of Accredited Home (stock symbol LEND) actually happens, or not.....Did you read anywhere that Lone Star's offer is not contingent upon due dilligence, since Accredited Home has not filed any financial reports with the SEC for it's 1st qtr or it's annual report?

Quote:

http://www.sdbj.com/industry_article...74&aID2=113576
Posted date: 5/21/2007

Shareholders Trying to Divine the Future Course of Accredited Home Lenders

WebSideStory Changes Name to Visual Sciences

By MIKE ALLEN
San Diego Business Journal Staff

Subprime mortgage lender Accredited Home Lenders continues to stay afloat, but for how long or whether it survives is hard to decipher.

In the meantime, the business is taking a hard line on reducing expenses by cutting 1,300 workers to lower employment to 2,900.

The information was contained in a securities filing May 11 that said Accredited would not file its 10-Q first-quarter financial report on time.

Earlier this year, Accredited said it was unable to file its annual 10-K report by the deadline, and hired a new accounting firm to complete its annual audit.

Rick Howe, Accredited’s spokesman, said he couldn’t reveal where the cuts were made.

As of late February, Accredited said it had 4,200 employees, including 718 at its corporate headquarters in Carmel Mountain Ranch. Accredited also has an operations center in nearby Rancho Bernardo.

Mortgage banks that specialize in subprime lending, or to borrowers with blemished credit histories, have been in upheaval since February, when some announced steep increases in problem loans.

Accredited announced in a year-end, unaudited report in February that 8.26 percent of its portfolio was delinquent by more than 30 days, up from 5.45 percent in delinquencies as of Sept. 30.

In its May 11 filing, Accredited reported problem loans past due more than 30 days, including foreclosed and real estate owned, made up 8.96 percent of its $9.1 billion portfolio as of March 31.

That means $815.4 million in loans are delinquent.

Because the market for selling its loans on the secondary market is so poor, and margins are razor thin, Accredited is making and selling fewer loans. As a result, the company said in the filing that it “anticipates a significant loss in the quarter.”

On the positive side, Accredited said it had more than $350 million in cash as of March 31, compared with $300 million as of March 2006.

A good chunk of that came from a $230 million term loan from Farallon Capital Management, a hedge fund that also owns 8 percent of Accredited’s stock.

Quote:

http://www.bloomberg.com/apps/news?p...bC0&refer=home
Accredited Agrees to $400 Million Buyout by Lone Star (Update3)

By Bradley Keoun

June 4 (Bloomberg) -- Accredited Home Lenders Holding Co., the subprime mortgage lender that raised doubts about its survival, will be sold to private-equity firm Lone Star Funds for about $400 million in cash.

Lone Star Fund V LP agreed to pay $15.10 a share for Accredited, the companies said in a statement. The offer for San Diego-based Accredited is 9.7 percent more than the stock's closing price last week. Lone Star, which oversees $13.3 billion, often targets distressed real estate and finance companies.

The stock tumbled as low as $3.77 in March as defaults on subprime mortgages, made to borrowers with poor payment histories, saddled Accredited with losses and led its bankers to curtail credit for new home loans. Private-equity firms and hedge funds are buying subprime lenders including ResMae Mortgage Corp. at beaten-down prices and plan to sell when the market recovers.

``Of all the subprime lenders that were growing pretty quickly over the last few years, Accredited probably had the best reputation,'' said Bose George, an analyst at KBW Inc. in New York. ``Given that this industry is going to continue in a much smaller form, these guys are probably a good management team to go with.''

The shares rose $1.54, or 11 percent, to $15.30 at 11:36 a.m. New York time in Nasdaq Stock Market trading on speculation a higher bid may emerge.

``This agreement is the best alternative available to protect shareholder value,'' Chief Executive James Konrath said in the statement. ``In Lone Star, we have found a partner who has a record of helping companies like ours successfully address financial and operational challenges.''

Riding the Cycle

Lone Star, founded in 1995 and run by John Grayken, has bought entire companies as well as non-performing loans and real estate, according to its Web site. The Dallas-based fund tries to take advantage of ``the tendency of the banking system to cyclically over-finance and then under-finance the property and other sectors.''

Lone Star has agreed to buy stakes in banks and lenders in South Korea, Japan and Germany, including a $429 million purchase of Japan's Korakuen Finance Co. announced in September. It also agreed last August to pay about $620 million for Lone Star Steakhouse & Saloon Inc., a 260-restaurant chain based in Wichita, Kansas, with no previous tie to the investment company.

Accredited operates nationwide and ranked 14th last year among U.S. subprime lenders with $15.8 billion in loans and a 2.6 percent market share, according to Inside Mortgage Finance, an industry publication.

Back From the Brink

The lender had a market value of more than $1 billion a year ago before the subprime mortgage industry began its swoon. The stock had lost half its value since the start of this year, and in March, the company said its auditing firm, Grant Thornton LLP, wasn't sure Accredited would survive.

The company still hasn't filed its annual report with regulators and last month announced that its first-quarter filing also will be delayed. Grant Thornton quit in April.

Accredited said May 11 it will report a ``significant loss'' in the first quarter because it issued about half as many mortgage loans compared with a year earlier. The company originated $1.9 billion in loans in the quarter, down 47 percent from the same period last year.

The workforce was cut 31 percent to 2,900 in a bid to reduce costs, the company said last month. Accredited employed 3,164 people as of September, according to data compiled by Bloomberg.

Bad Credit

Subprime loans are made to borrowers with the worst credit records and typically have the highest default rates.

The subprime mortgage industry faltered as late payments soared to record levels. Overdue residential mortgage loans reached 1.13 percent of the total during the first quarter, the highest level in the 17 years insured lenders have reported such data, said a May 31 report by the Federal Deposit Insurance Corp.

The sale to Lone Star means Accredited will avoid the fate of rivals such as New Century Financial Corp., the biggest independent U.S. subprime home lender last year, which went bankrupt in April and now is being liquidated. At least 50 mortgage companies have halted operations, gone bankrupt or sought buyers since the start of 2006.

Hedge funds have been among the buyers, with Citadel Investment Group planning to seek approval from a bankruptcy judge tomorrow for its $180 million acquisition of ResMae.

In March, trying to stave off a cash shortfall, Accredited took out a $200 million loan from the hedge fund Farallon Capital Management LLC. The loan was secured by Accredited's assets at 13 percent interest and guaranteed the hedge fund a 7 percent premium, or $14 million, if the loan was repaid within the first year.

Bear, Stearns & Co., Friedman, Billings, Ramsey Group Inc. and Houlihan Lokey Howard & Zukin advised Accredited, today's statement said. Piper Jaffray & Co. represented Lone Star.

Last Updated: June 4, 2007 11:53 EDT

There is no good news for the housing market, or for those who finance it:
http://calculatedrisk.blogspot.com/

aceventura3 · 06-04-2007, 10:19 AM

Quote:

Originally Posted by host

ace, if a private equity fund decides to buy a bankrupt company that cannot sell it's loans because of the increasing defaults of the loans it is already responsible for....a bankrupt company that recently obligated itself to a new, $213 million debt that is owed on top of the offer for outstanding shares, a bankrupt company that has delayed the filing of it's financials for more than three months, and of it's annual report for at least that long, a bankrupt company that lost it's auditor ten weeks ago, over "going concern" reservations by that auditor (concerns that the company ran a high risk of not being able to continue operations due to it's financial circumstances)....does that make a convincing case (especially since there has been no public disclosure...this year of Accredited Home's finances) that the subprime and Alt-A mortgage crisis, and the housing valuation decline that it aggravates....is somehow mitigated?

I don't think so....and we'll have to wait and see if this $400 million + $213 million debt to Farallon Capital "purchase" of Accredited Home (stock symbol LEND) actually happens, or not.....Did you read anywhere that Lone Star's offer is not contingent upon due dilligence, since Accredited Home has not filed any financial reports with the SEC for it's 1st qtr or it's annual report?

There is no good news for the housing market, or for those who finance it:
http://calculatedrisk.blogspot.com/

You are correct that the deal may never close, time will tell. But if the past financials prove to be close to accurate and if the current situation was born out of panic, Lone Star is getting a fair deal based on intrinsic value. I point this out to support the point that when speculation is taken out of prices the market will begin to respond based on fundementals. This is going to be true in the realestate market.

People who bought LEND at $13 based on fundemental analysis (establishing a floor for the stock price) and today sell at $15, made about 15% in about 60 days. And those large institional investors who were selling when the stock was in the $40's, most likely did equally well on an annualized basis. Those reacting to headlines got burned.

Good to see you back on this topic.

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03-14-2007, 08:55 AM	#53 (permalink)
aceventura3 Junkie Location: Ventura County	I read this morning in IBD that new forclosures as a percentage of total mortgages are at an all time high - 0.54%. That is about 1 in 200 homes with mortgages. Mortgage deliquency rates are at 4.5%, highest in about 4 years. Adjustable subprime loan deliquency rates are at 14.4%, again the highest in 4 years. Many think things will get worse before getting better. I think panic is going through the market. I will sit on the sidelines until the dust settles. The irony is that once this all settles, many hard-working middle class and poor will not be able to buy homes. Small mortgage companies and banks will have to operate in an environment with increased regulation, making them less competetive with the big banks. The market will be less competetive and consumers will pay higher fees and higher interest rates. Big banks, big corporations, and the rich will win. If you think that is a good thing - keep encouraging panic. __________________ "Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers."

03-14-2007, 09:48 AM	#55 (permalink)
The_Jazz Asshole Administrator Location: Chicago	How is it that the two of you can decide to agree and then fight about that? Ace: there's no problem Host: yes there is Ace: well based on this new information, there might be a problem but we'll have to wait and see. You may be part of the problem, btw. Host: thanks for acknowledging the validity of part of my arguement. WMD! Al Qaeda! Seriously, you two are like an old married couple. __________________ "They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety." - B. Franklin "There ought to be limits to freedom." - George W. Bush "We have met the enemy and he is us." - Pogo

03-23-2007, 10:29 AM	#64 (permalink)
aceventura3 Junkie Location: Ventura County	You have more courage than me. With the subprime lenders being so volatile and the obsessive media and now congressional attention on the subprime issue it seems like putting new money on the table is like playing roulett. If I were you I would take the quick profits and put the money in something were the odds of long-term ppayoff is better. I don't really care what Lereah's opinion is, I just focus on the numbers. Many in the subprime industry are taking the position that the market forces will work this issue out, and that interference will make matters worse. I agree. If there is calm, this will be a non-issue next month. __________________ "Democracy is two wolves and a sheep voting on lunch." "It is useless for the sheep to pass resolutions on vegetarianism while the wolf is of a different opinion." "If you live among wolves you have to act like one." "A lady screams at the mouse but smiles at the wolf. A gentleman is a wolf who sends flowers."

04-10-2007, 03:09 PM	#68 (permalink)
Elphaba Deja Moo Location: Olympic Peninsula, WA	Host, I hope you don't mind this personal aside, but I find it refreshing to reread these older posts without the "you just hate Bush" and "looney liberal" responses that passed for debate a year ago. Things do change in time. __________________ "You can't ignore politics, no matter how much you'd like to." Molly Ivins - 1944-2007

03-10-2007, 01:54 PM	#41 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	Complacency? Are you kidding me? Where do you get off host? That is terribly presumptious, pompous, and elitist of you to presume that me and Ace are being complacent. What, just because we hold a different opinion than you? Give me a break! Competition? Is that how you see this forum as a "competition to post ideas and opinions"? What the hell? What is this, a varisty sport? Dude, this is an internet forum, NOT a junior debate league. Are you actually keeping score at home? I'm not sure what purpose you had in mind when quoting my post from a completetly different thread (Jennifer Love Hewitt). What does that have to do with the economy discussion here? Ace, you better make sure that your post on pawn shops and payday loan companies is backed by solid sources and quotes that take up two pages, otherwise, you may "lose the compeition". Lighten up man, stop making this a contest.

03-10-2007, 05:03 PM	#43 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	No Host, you are quite wrong. It is disingenuous to presume that Ace and I don't care or are cavalier about your topics. Just because we disagree with your position does not mean we do not care. Who says it's premature to discuss the economy? I didn't. I just offered you a different opinion. I think it is quite rude of you to dismiss my post (and Ace's) as not "actual discussion". Accusations of thread jacks and violating the "spirit of intent" are also petty and catty. People respond to your threads because they are interested in the topics or want to discuss the issues that you have put forth. Again, people have differing opinions so it really should not be a surprise when that is reflected in the responses. But to accuse us of thread jacking or not submitting valid responses or not enough sources or violating the spirit of the thread is just really low and childish. I gave you the best source and citation of all. My own personal experience. Not some sanitized and disengaged anonymous internet source from some egg head in an ivory tower. My own personal experience. Are you trying to tell me that doesn't count? Additionally, my post that you quoted here is backed by facts. I didn't just pull them out of the blue. I find it interesting that you only take issue with peope's lack of citation of sources when their opinion disagrees with yours. I have never seen you bash or snidely attack other's posts that agreed with your position. Why is that? Double standard? No wonder UsTwo left. Sorry buddy, you can't have it both ways. If you want discussion and responses to your thread, you're just gonna have to accept differing opinions, you can't dictate what people write.

03-14-2007, 09:52 AM	#56 (permalink)
host Banned	chuckle...."the Bickersons...."

03-23-2007, 10:47 PM	#65 (permalink)
jorgelito All important elusive independent swing voter... Location: People's Republic of KKKalifornia	This is great news. Finally the housing market is undergoing a correction. Once all the bad debts have been cleared out, there will be many great deals and foreclusures to be had by us responsible people. I would prefer it to bottom out more so that the housing prices become more reasonable. I live in LA where the market is still redhot and way overpriced. 1st world prices for third world conditions. It's embarrassing. Ace, I agree with your contention that this is an overblown issue and it's best not to interfere. I doubt there will be calm though. Too many people running around screaming the sky is falling egged on by the media.