Saturday, March 7, 2009

Recession or Depression?

Good Afternoon Folks!

I think its time that we seriously need to start asking ourselves this question. I was looking at some charts this weekend, and I thought all of you would find this one from Doug at Dshort pretty interesting:

My Take:

As you can see above, the S&P is dropping as fast as the DOW did during The Great Depression. In fact, the S&P is actually lower right now than the DOW was at the same time of The Great Depression.

This collapse is making the 1973/74 recession look like a walk in the park. What's amazes me most about this crash is the lack of any serious bounces. When you look at the GD there was a serious rally after the first initial crash. This was followed by a series of several smaller sharp rallies until stocks finally reached a bottom in 1932.

A lot of market technicians have been calling for a rally since the beginning of the year. Many were thinking that there would be an "Obama" bounce once the president was inaugurated. The exact opposite has happened. The DOW is down over 20% since he got into office. We have dropped 10% in the last week alone.

Its pretty obvious that Obama's policies have been firmly rejected by Wall St. I think the reason for the latest collapse is a result of the escalating war between Wall St and Washington DC. Obama's policies of raising taxes on the rich have not sat well with the pigmen. Our president's lack of clarity around a rescue plan for our financial markets has also been a huge disappointment.

As I had said earlier this week, the market is going to take the financials to zero until it gets the transparency that it wants. The only other plan that the market would accept(albeit with a lot of pain) would be for our government to take the bad assets off of the banks books. The problem with this idea is I don't think we have the fiscal ability to do it without printing. If they decide to play this card, it puts a massive inflation/hyperinflation scenario on the table and I don't think the government is ready to go down that road.

As a result, the government is stuck. I wouldn't touch any financial stocks here until this is settled(if it ever is). The other huge issue facing the government is unemployment. Unemployment rose to 8.1% last month. We are shedding jobs at a rate of 600,000 a month. The revisions to the previous two months were horrifying! If this continues we are toast folks.

The bottom line here is the heat is steadily rising on Obama to do something because things are beginning to completely collapse. Take a look at Bloomberg today:

"March 7 (Bloomberg) -- The jump in the U.S. unemployment rate to the highest level in a quarter century last month suggests the recession is deeper than the Obama administration forecasts and additional measures may be needed to restart growth.

The jobless rate rose to 8.1 percent in February as employers reduced payrolls by 651,000, the Labor Department said yesterday in Washington. Losses have now exceeded 600,000 for three straight months, the first time that’s happened since collection of the data began in 1939.

Unemployment has already reached the average rate the White House projected for the whole year. The administration needs to keep its focus on repairing the banking system and implementing the stimulus rather than get diverted by other goals such as healthcare changes, said John Ryding, chief economist at RDQ Economics LLC in New York.

“They should be focused on stabilization” of financial firms “and stimulus -- and that should not only be ‘Job one,’ that should be the only job right now,” Ryding said in an interview with Bloomberg Television. “The question is, is it recession or is it something worse than recession?”

“We’re going to have to have a lot more jobs than 3.5 million” generated to get a “serious recovery” in the economy, Harvard University professor Robert Barro said in a Bloomberg Television interview. Barro calculated a 30 percent chance the U.S. will slide into a depression, which he characterized as at least a 10 percent drop in gross domestic product."

Bottom Line:

When the pundits are starting to talk about a 30% chance that we are facing a depression be afraid be VERY afraid. Isn't it amazing that we even have to contemplate the thought of a depression? Anyone talking about such a thing 4 years ago would have ended up in a straight jacket.

Obama, its time to be a leader and make the tough decisions. If you don't there will be a 100% chance of a depression. Time is running out.


This market has been brutal to navigate. I tried to get a little constructive yesterday because I think we are overdue for a bounce. I bought some Chesapeake Energy (CHK) $15 calls. I think going long on a few energy plays makes some sense here. My thought around CHK is how much worse can it get? Natural gas is now down under $4. More importantly, CHK's stock has been holding up very well recently despite the drop. It now sits at $14 which is down from $74 back during the commodity boom.

I could get burned here but I thought it was worth a shot. I continue to hold my Apple short. This worked nicely yesterday thanks to a downgrade. The stock was at $92 When I bought my $85 PUTS. Its now down to 86. I may cover this one soon. I sold my SPY PUTS on Friday. Still holding SRS.

Overall, I am kinda neutral here short term. Stocks never go straight down and I believe we are down 13 of the last 15 trading sessions. Who knows? Maybe this is a once in a lifetime bear that goes straight to the bottom. However, I think we are WAY oversold here so i decided to hedge myself with an energy play.

This being said, if the same recycled crap continues to come out of Washington I plan on getting out of the way on the long side. If Obama fails to act boldly and stand up the pigmen, Armageddon is on the table and we will never be the same.

Lets see what happens next week!

Friday, March 6, 2009

Hope is NO Way To Invest!

Its a video Friday!

I thought this was one of the better clips that I have seen recently on CNBC. Anyone that plans on investing over the long term needs to watch this video. Stocks don't always go UP folks. The days of "buy and hold" are over:

On a lighter note:

This week so was depressing that I thought I would end the week with a few laughs. I fell outta my chair after watching this I was laughing so hard. I will never understand why anyone ever trusts "bubblevision" when it comes to investing.

Make sure you watch the whole thing. The end is the BEST.

Lets all hope thing improve next week. Have a drink tonight and try and forget about the stock market over the weekend. Thats my game plan!

I will see you all tomorrow!

Thursday, March 5, 2009

Things Will Never Be The Same

Good Evening Everyone

Just a heads up here before I start: Some of my posts are going to contain much more commentary going forward. I need to make this change because its now become almost impossible for me to highlight all of the financial news around the collapse of our economy.

The amount of negative news is rising to a level in which I can barely keep up with it. It would take a several page post in order to include everything. I am sure one page per day of me ranting is more than enough for all of you! Here is a nice recap on today's news for whoever is interested.

Folks, our "economic ship" has now sprung more leaks than the Titanic. Today alone we saw Citi go under $1/share, news of a potential GM bankruptcy, and word that AIG was bailed out in order save Europe.

Here is the Guardian link to the Reuters piece on the AIG story:

"WASHINGTON, March 5 (Reuters) - The U.S. government rescued giant insurer American International Group in part because its collapse would dramatically hurt European institutions, a senior Democratic lawmaker said on Thursday.

The U.S. government has bailed out AIG three times since Sept. 16 and committed about $180 billion to keep the insurer alive and doing business.

"One of the reasons we had to rescue AIG was the fact that it was going to bring down Europe," Pennsylvania Rep. Paul Kanjorski told reporters after his subcommittee held a hearing on systemic risk.

When asked if he was concerned that some of the money going to AIG was going to European counterparties, Kanjorski said: "I am sure it is."

Final Take:

I sit here in shock as I begin to try and digest these three headlines. My first thought here is "Wow, how the mighty have fallen". I mean these three companies(C, GM, AIG) are the USA's largest bank, automaker, and insurance company respectively. When I look at their stock prices on my computer screen, I can't believe my eyes. All three are now under $2 a share. Two of them were under $1 dollar a share at one point today.

I continue to ask myself: How on earth did this happen? How did three of the strongest companies in the world shrink to nothing? Then I think: How was this ever allowed to happen? Where was the risk management? I mean you gotta wonder: Did these companies even have a business plan?

I spoke about investors that were "blinded by the bubble" last week. I guess the CEO's of this nation were no different. What angers me here is they are paid to be different. They are supposed to avoid such catastrophes. I would love to know the answer to this question: When our CEO's dropped the ball, why didn't the CFO's of these companies or our regulators catch it?

Folks, the problem the market has right now is investors have ZERO confidence in our economic system. They don't trust the bankers, they don't trust the ratings agencies, they don't trust the SEC, and they don't trust the politicians.

I believe the market is starting to price in a new fear. They are beginning to lose faith that the system can or will be fixed. I also share this concern.

Our economy is filled with so much fraud and corruption that it may be unable to fix itself unless the system completely fails.

Lets be brutally honest here. We all know what the market needs in order to begin to recover: TRANSPARENCY. This is the root of the problem when you get right down to it. The private money that's needed in order to begin the healing process is on strike until it happens. When price discovery is established, you will see trillions of dollars immediately go right to work. This will allow us to finally begin the healing process.

Its really that easy in my eyes folks. Whats so frustrating here is you know the government has come to the same conclusion. So you gotta wonder: Since all of us know what the problem is, why is the hell don't we just fix it and get it over with? This is where the corruption and fraud come in. They refuse to do it because 1000's of companies will fail as a result, unemployment will rise to near record levels, and the risk of social/political chaos will rise dramatically.

Well guess what folks? ITS GOING TO HAPPEN ANYWAY WHETHER WE LIKE IT OR NOT! If the government refuses to allow transparency then the market is going to take things into its own hands and destroy itself until it gets what it wants. The result is going to be the SAME either way!

If this is the case than lets just do it already. I am tired of slowly peeling off this band aid. Lets just rip it off! Its much less painful this way.

Our politicians refuse to pull the plug because they are scared to bite the hand that feeds them. It was reported on CNN yesterday that Wall St spent $5 billion in DC lobbying for deregulation. 1/3 of this was in the form of campaign contributions. Folks, essentially this tells you that this housing bubble was the best bubble that money could buy!

I am sure there were more billions thrown at them by every major industry that threatens to go under if transparency is established. I mean Gee, Do you think the home builders, the auto industry, and the NAR(National Association of Realtors) threw a buck or two at the politicians.
Do I really need to answer this one?

My fear here is I don't think any of our politicians have the guts or character to stand up to the power and influence of our financial elite. I mean I haven't seen one guy in DC try to stand up to them and try to do whats right. NOT ONE PERSON! This infuriates me! Where are the LEADERS folks???? Why won't one frickin person stand up?? There is a huge void of leaership in Washington.

There is a gigantic empty platform that's just sitting here waiting for a hero who is willing to grab the bull by the horns and LEAD. America is desperate to find a leader: SOMEONE IN WASHINGTON PLEASE STAND UP AND TAKE CHARGE! AMERICA NEEDS YOU DESPERATELY!

Its obviously not going to be Obama. His agenda unfortunately is just more of the same.

Bottom Line:

The system is broken and needs to be totally overhauled. We continue to see zero transparency for two simple reasons: 1) The companies involved in this debt bubble refuse to open their books because most of them are insolvent. 2) Our politicians don't have the balls to force them to do so because they are afraid to bite the hands that fill their coffers with cash.

As a result, we all sit here and suffer as the market drops week after week. Our retirements, our economy, and our way of life are all being destroyed as a result of this fraud and corruption.

If we don't put a stop to this soon there will be no economy to save. Today was totally demoralizing. The principles that made this country so great are currently being stomped on by both political parties.

Thomas Jefferson and Benjamin Franklin would be ashamed if they were were able to see what this nation has morphed into.

Chaos is right around the corner if we don't straighten this out folks. What frightens me most is it might be too late.

Wednesday, March 4, 2009

Finally: A Bounce!

Good Evening Folks!!!

I almost fell out of my chair today. Stocks actually went up! I was starting to wonder if this was still possible.

Today's move wasn't much of a surprise. We were way overdue for a bounce off of extremely oversold conditions. I was happy to stocks actually rise for a change. The price action recently has been pretty hopeless and I think everyone needed a break.

Stocks got rolling this morning based off of news out of China:

"Wednesday's rally kicked off in Asia, with Shanghai's index jumping more than 6 percent to close at 2,198.11, amid mounting expectations that the Chinese government will unveil a big stimulus soon to boost the economy, which has come off the boil in the wake of the global economic downturn. As one of the few major economies still expanding, China is being closely watched amid hopes its demand and trade can help the world weather the most severe global slowdown in decades."

Quick Take:

This does nothing to boost the world economy long term, but I guess we will take anything we can at this point. When are the governments of the world going to realize that government stimulus is equivalent to giving a drug addict a deep hit off the crack pipe?

Stocks also got a boost on Obama's loan modification plan:

"March 4 (Bloomberg) -- The Obama administration set loan modification guidelines for its $75 billion homeowner rescue plan, agreeing to pay lenders for altering troubled mortgages while reducing borrowers’ interest rates to as low as 2 percent.

The voluntary initiative, announced on Feb. 18, would require applicants to fully document their income with pay stubs and tax returns, and sign an affidavit attesting to “financial hardship,” according to documents released by the U.S. Treasury in Washington today. The second, larger part of the plan relies on government-run Fannie Mae and Freddie Mac to refinance loans.

“This is not going to save every person’s home,” presidential Press Secretary Robert Gibbs said during a briefing. The plan offers help “for those who have played by the rules.”

President Barack Obama’s initial proposal, the biggest federal foray into real estate since the Great Depression, ignited criticism from Republican lawmakers that the government would end up subsidizing homeowners who are financially capable of surviving the economic slump on their own.

“Banks across the country will be inundated with phone calls asking how do I get a 2 percent mortgage, because 100 percent of homeowners will feel they are due now this largess from the federal government,” said Representative Scott Garrett, a New Jersey Republican. He said the plan rewards “bad behavior” and exposes taxpayers to higher risk by imposing too many policy demands on Fannie and Freddie."

Quick Take:

Can you say moral hazard? You already know how I feel about these cheap money plans. Enjoy that 2% loan: You will be living in that house the rest of your life! This agreement is like selling your sole to the devil! Why would you agree to do this? Its not like you are going to be able to sell the joint when interest rates are at 10% 3 years down the road as we fight the inevitable inflation that will be created by these massive bailouts.

Question here folks:

Say you are a potential home buyer and you are looking to buy: How in the hell are you going to be able to value a house in any neighborhood once this plan gets implemented?


Say you have a neighborhood where all of the houses sold for around 500k. Post Obama's plan lets say 30% of the people in the area qualify for the 2% loan while the other 70%(the responsible ones) are stuck paying for the same house with a 5% mortgage.

What in the hell do you now do as a buyer? If one guy is paying $4000/month while the subsidized guy is paying $1800 for the SAME house WTF do you do? How on earth do you even make an offer in this situation?

The family that is paying off the 2% loan could only qualify to buy a $250k house if they used normal lending terms from the banks.

Congratulations Obama, you have now turned thousands of neighborhoods into a total cluster**** from a home buyer's perspective.

Think of the repercussions here:

- No buyer in their right mind is going to pay more than $250k for any these houses because 30% of the neighborhood is paying off a loan that would be valued at $250k based on the current mortgage rate of 5%.

- If you are one of the 70% that got hosed, why on earth would you continue to pay a 500k mortgage on a house that's worth 50% less? Any sane individual is going to mail the keys back to the lender and walk away.

- The problem will only become more magnified when lending rates inevitably rise as treasury demand drops and rates in the bond market rise which will increase lending rates. Down the road, the rise in rates will be even WORSE once inflation hits as a result of all of this money thats been created in order to pay for all of these stupid bailouts!

The housing market is now a complete disaster as a result of this plan. The risk of moral hazard here is EXTREMELY high in my view. We may be a nation of renters before this is all said and done.


Not everything was Rosy today. The ADP jobs report was horrific:

"March 4 (Bloomberg) -- Companies cut 697,000 jobs in the U.S. in February as the recession’s grip tightened, offering no sign the pace of the decline in payrolls is easing.

The drop in the ADP Employer Services gauge, a survey based on payroll data, was larger than economists forecast and followed a revised cut of 614,000 for the prior month.

Employers are cutting staff as demand plummets in the face of strained credit and battered housing and equity markets. The Labor Department may report in two days that employers cut payrolls in February for a 14th consecutive month, putting jobs losses in the current downturn at more than 4.2 million, according to a Bloomberg survey."

Quick Take:

Flat out ugly. Is that take quick enough for ya?


GE fell again today and poses another problem for the market:

"March 4 (Bloomberg) -- General Electric Co. dropped for a fourth straight day in New York trading on investor concern that its finance unit may require more capital.

GE fell 32 cents, or 4.6 percent, to $6.69 at 4:15 p.m. in New York Stock Exchange composite trading. The Fairfield, Connecticut-based company told investors in an e-mail today that claims it needs to raise capital soon are just speculation, and the stock pared losses after earlier touching $5.73, the lowest price since December 1991."

Quick Take:

GE's problem is GE capital. This financing division got caught up in the same bubblenomics as the banks did. GE's balance sheet is now over $600 billion and the banking division could very well end up bankrupting GE. Who could have ever imagined that one of our greatest companies may not survive this debacle?

The big concerns around GE lie around their lending in two key areas: Commercial real estate and loans in Eastern Europe. The default rates on these loans will likely be staggering. These are the last two places on earth that you would want to have loans from if you were a bank right now. Both areas are on the brink of collapse.

Bottom Line:

Lets see how the rest of the week plays out. We were due for a bounce. I actually added a short position near the close today. Apple popped up over $93 on the rise and I couldn't resist so I bought a few PUTS.

I sold my SPG and grabbed a few SPY PUTS on Monday. That one hurt a little today, but the pullback on the close made it less painful.

Still short heading into the jobs number folks. All of my positions are very small because this is a brutal tape to try and trade. Keep an eye on the insurance companies this week. I see some shoes that are about to drop in this area.

Oh I almost forgot. My "short sale" story. I have a friend who joined an investment housing speculator group in 2006(I tried to talk him out of it). They paid 500k for a house in Vegas in '06. He called and told me yesterday that they sold it via a short sale.

They had a buyer come in and offer 250k on the 500k house. The group went to the bank with the offer and asked if they could work out a deal. The banks are so desperate out there that they agreed to a short sale price of 275k. Mortgage is now considered fulfilled and it did not effect their credit scores.

25k and they are out folks! If you are stuck in this type of situation please start negotiating with your bank. Use this collapse as leverage.

They have no desire to add to their foreclosure list!

Tuesday, March 3, 2009

The Pressure is Building

Good Evening Everyone

Uhhhh....I gotta admit folks, these posts are getting harder and harder to write as things continue to fall apart. Watching our financial system literally implode before my eyes makes me extremely sad.

Anyway, lets get started. AAA Credit Spreads are once again beginning to break out:

Quick Take:

AAA spreads are once again nearing the highs that were set back during the November plunge. Whats disturbing here is the government has guaranteed a lot of this paper and yet spreads still continue to rise.

Its time to ask ourselves a serious question: Are we going to wake up one day and realize that all of this paper is worthless? I am beginning to think this might be the case. Folks remember, guaranteeing something and actually putting the money behind it are two different things. I can guarantee a car salesman that I am going to buy a new car, but that doesn't mean I going to actually buy it.

The government has now guaranteed trillions of $$$ worth of toxic financial assets. Whats so pathetic here is it means they have been forced to basically guarantee a good chunk of our whole financial system. Some examples of guarantees: AIG, Citi, BofA, Fannie/Freddie MBS, and bank deposits up to 250k. These are just the ones that I can think of off the top of my head. There are several others.

What we need to ask ourselves is what do these guarantees really mean? I mean the cost of actually guaranteeing what I described above is over $10 trillion. Do you actually think the government has the money to do this? Let me answer that for ya: HA! Uhhh NO, not even close.

What scares me here is the bond market knows this and they also realize the companies that originated all of this garbage are all insolvent. I think this combination is the reason why these spreads are blowing out. The bond boys are getting worried that there is no real liquidity standing behind any of this paper.

Folks, we may be nearing a "Come to Jesus" moment where the bond market demands price transparency on all of this AAA paper. A bond market dislocation may be in the cards if we don't get it. If this dislocation occurs and price discovery then ensues, there will be blood in the streets.

When this paper finally is put up for sale, we may find out there is "no bid" on all of this AAA garbage. This immediately would put the majority of our financial firms out of business because all of them hold billions of this stuff on their balance sheets.

I think its time that we do this before the DOW goes to 1000. Will this collapse be horryfying? Of course, , but if its going to happen either way why not just get it over with? When I was a kid and I had a tooth that was just about to fall out I would always twist and pull on it until it popped out. Did it hurt? Yes, but at least I didn't have to worry about it anymore.

Bottom Line:

As I said yesterday. Time is running out folks. We need a plan from Obama that forces transparency into the system. If we continue to ignore the problem, the bond market is going to take matters into their own hands and force Obama to make a move.

This pressure is rising and this keg is about to blow. The market continues to free fall in the meantime, and will continue to do so until clarity is brought back into the system.

Jim Rogers had a great rant around all of this today. It was reported by CNBC:

"Suppose AIG goes bankrupt, it is better that AIG goes bankrupt and we have a horrible two or three years than that the whole US goes bankrupt," Rogers said. "AIG has trillions of dollars of obligations, let them fail, let the courts sort it out and start over. Otherwise we'll never start over.

Bailing out the banks is going to increase the debt spiral and finally cause the destruction of the world's biggest economy, Rogers said.

"I think it's astonishing, they're ruining the US economy, they're ruining the US government, they're ruining the US central bank and they're ruining the US dollar," he said.

"You are watching something in front of our eyes, very historically, which is basically the destruction of New York as a financial center and the destruction of America as the world's most powerful country."

Japan's economic "lost decade" was caused by trying to bail out the banks, and the West risks running out of money if it doesn't let the bad banks fail now, Rogers warned.

Systemic risk is going to be the same in 10 months, 5 years of 10 years if the fundamental problem is not solved, he added.

"The idea that you have too much debt, too much borrowing and too much consumption and you're going to solve that problem with more debt, more consumption and more borrowing? These people are nuts."

Wall Street and the City of London are going to be "disastrous" for years, like in the 1950s and 1960s, and in 30 years, finance will "dry up and wither away" as we are entering a "long period of hard times," he said.

"Power is shifting now from the money shifters, the guys who trade paper and money, to people who produce real goods. What you should do is become a farmer, or start a farming network," Rogers said."

I couldn't have said it better myself Jim. Maybe its time I learn how to start farming.

Monday, March 2, 2009

Stocks Retreat Below 1997 Levels

Good Evening All

Yuck! What else can you say about today? The DOW plunged 300 points to end the day at 6763. These levels on the DOW have not been seen since 1997. CNBC had a great stat today: Only 12 companies on the DOW are up since 1997.

How bout them apples? I thought stocks always go up? Don't stocks always come back? That's whats been driven into our heads by our financial experts on a daily basis. Millions of Americans are now down more than 50% in their 401k's as a result of the brilliant "buy and hold" strategies that were sold to them by a network of financial fools that were supposed to be professional financial advisers. I think all of these clowns need to retake their series 7 and learn what a real investment portfolio looks like!

This is why you need to plug your ears each day when you see bubblevision rolling out their slew of bottom callers every hour. The system is broken folks and the truth here is no one knows where the bottom is including myself.

Stocks run a serious risk of losing its status as THE place to invest for the long term.

I say this because this is what happens when you have a stock market that is filled with manipulation, fraud, and criminals. Investors are starting to ask themselves: Do I really want to invest my life savings into a corrupt system that's filled with a bunch of Madoffs? The answer is increasingly becoming no and until this mess is cleaned up, I think the DOW continues to fall.

What was interesting about today was there was no real catalyst that sent stocks into a tailspin. The usual quarterly AIG bailout after a $60 billion quarterly loss was about the only thing that made news today. God, I can't even count how many times this turd has been bailed out now. Whats this the third time now? Call me crazy but here is an idea: Perhaps this financial black hole needs to die?

I find it amazing that the government agrees to give a .40 stock(AIG) $30 billion dollars after already throwing them over $130 billion in the past 6 months. We need to ask ourselves: Is this company too big to fail or too big to survive? Put me in the "too big to survive" camp.

Bottom Line:

There really isn't much news to discuss here folks. The problem we have is there is zero confidence in the markets. Investors continue to be forced to sit in the dark. Our financial firms are insolvent and every investor knows it. The government still refuses to tell us how they plan on fixing it.

The DC and Wall St crew continue to "hide the sausage" from a transparency standpoint. As a result, no one knows what the rules of the game are now when it comes to investing in our capital markets. This sends investors for the hills. Until investors understand what they are buying, don't expect private money to come back into the market and buy stocks.

Transparency must return or this market is going to go down faster then a cheap hooker. I stayed mildy short into the close. I see no reason to get out of positions as long as the financial system continues to keep everyone in the dark.

We did pin and close at 700 on the S&P today. This appears to possibly be setting up as an area of possible resistance. There was a little buying after hours that ran it up to 705. This sets up an interesting day tomorrow. A bounce here is possible but I don't see it gathering any steam.

If we firmly break south through 700 tomorrow at the open, there is a good chance the next stop is 600.

Geithner and Obama had better come up with a plan or this market is in deep trouble. Its hard to believe that we have retraced all of the way back to the '97 levels.

So how ugly could this collapse get in a worse case scenario? Take a look at this chart:

How does DOW 1000 sound? Not too good I would assume. If all hell were to break loose I think DOW 1000 holds no matter how bad things get. There is major resistance at these levels. The scary thing here is when you look at that chart, there isn't really that much resistance between DOW 1000 and where we are today.

Do I think this is likely to happen? No. I am hoping that the small 1995 area of resistance holds right around DOW 4-5k. Sadly, when you look at this chart, DOW 1000 appears to have some credibility because its been a straight rocket ride up ever since and these trendlines(other than the DOW 2000 area) have never really been retested as a result.

We are in uncharted waters here folks. Anyone saying they know where the bottom is at this point should be ignored.

Sunday, March 1, 2009

Having Trouble Selling Your House?

Good Evening Folks

I thought I would hop and share a few interesting reads with you:

My hometown Baltimore Sun had two interesting reads. If any of you are having trouble selling your home I suggest you give this article a read. It describes 5 innovative ways to sell your house. None of these ideas are very appealing, but it beats being stuck in a McMansion. I wanted to highlight the effect on your credit score on each of these solutions if some of you decide to go down this route:

"Credit score implications:

Here's a look at how disposing of your unwanted home can affect your credit score, according to Barry Papergo, consumer operations manager with the Fair Isaac Corp., the company whose FICO system is the most popular credit scoring formula in the nation.

Foreclosure: Your credit score "is going to take a dive," said Papergo, of more than 100 points but less than 400 (the maximum score is 850).

Short sale: If the mortgage was reported by the lender as paid in full, you're probably OK, except for skipped mortgage payments. If it was reported as settled, that will ding your credit, probably less than a foreclosure but it depends on the debt amount.

Rent: Makes no difference as long as mortgage payments are on time.

Auction or raffle: As long as the mortgage is satisfied, the sales method is irrelevant to the score.

Deed in lieu: That's negative; same as short sale or foreclosure."

My Take:

The way I see it, the effect on your credit score with some of these options isn't as bad as I had thought. If you are stuck and live in a bubble area I would try working out a short sale with your lender. I think you might find them to be much more open at this point to negotiations as their REO's continue to pile up.

If you can find a buyer at a lower price and the bank can avoid the pain of a foreclosure, they may be willing to let you slide on the balance of the mortgage. If you are getting several lowball offers on your house, I suggest that you go to your bank with them and play "Lets make a deal" on a short sale.

You have some leverage now because the lenders are all filled up to their eyeballs in foreclosures. If you can do this and not get whacked on your credit score I think its a no brainer.

You are making a big mistake in my opinion if you are refusing to sell because you think your house is worth what it was a few years ago. The equity that you think you deserve unfortunately never really existed. It was a bubble! Get over it!

Get out now via a short sale while you still can. Once the waterfall of foreclosures hits the market, short selling is going to get much tougher.

A Sneak Peak into the Obama Housing Plan

Here is the second article from the Sun's Ken Harney around the new housing plan that Obama plans on rolling out next week:

"Using an example supplied by the White House, say you bought a house for $475,000 in 2006 with a $350,000 mortgage at 6.5 percent that was acquired by Fannie Mae. In three years, the market value of the house has dropped to $400,000, and you've paid down the principal to $337,460.

If you applied for a refinancing to take advantage of today's 5 percent rates - which would save you several hundred dollars a month in payments - you'd have difficulty because your LTV, currently at 84 percent, exceeds Fannie's 80 percent ceiling.

But under the Obama refinance plan, Fannie would essentially waive that rule - even for LTVs as high as 105 percent. In this example, you'd be able to qualify for a refinancing of about $344,000 - your present balance plus closing costs and fees - at a rate just above 5 percent.

James B. Lockhart III, director of the Federal Housing Finance Agency, spelled out several key restrictions on those refinancings:

•No "cash outs" permitted. This means the new loan balance can only total the previous balance, plus settlement costs, insurance, property taxes and association fees.

•Loans that already had mortgage insurance will likely continue to have coverage under the existing amounts and terms, thereby limiting Fannie and Freddie's exposure to loss. But loans where borrowers originally made down payments of 20 percent or higher will not require new insurance for the refinance.

•The cutoff date for the entire program is June 10, 2010."

My Take:

Oh boy, isn't this plan just dandy. Lets fix a cheap money problem by using even cheaper money. This is the equivalent of using lighter fluid to put out a fire.

If this is the only answer they could come up with we are really screwed. Ambrose Evans Pritchard from the Telegraph came up with a similar conclusion: Cheaper money is the only way out. I don't see how it solves anything: Whats going to happen to the value of these homes when inflation flares up down the road as a result of creating all of this new money for these bailouts, and we need to raise borrowing rates up to 7% or higher? Umm I'll answer that Alex: Ever seen a waterfall?

This is not the solution! I understand why they are doing this. Keeping people in their homes should continue to be the key priority. However, I would have much preferred to see them "cramdown" the mortgages to affordable levels. Cheap money is what got us here folks! This bad debt needs to be defaulted on and disappear!

The millions that take advantage of this plan will be in no better shape. They will still be stuck with an asset that's worth much less than what they paid for it. When the cost of borrowing increases down the road due to inflation from all of these ridiculous bailouts, they will be even further underwater than they are now.

The bottom line here is the consumer is still bogged down with too much debt. They are not going to resume consuming as a result of saving a few hundred dollars a month on their mortgage. This solution does nothing but kick the can a little further down the road.

Haven't we done enough of this already?