A little commentary tonight folks!
I wanted to just send out a warning tonight after listening to bubblevision today. The pigmen were on all day pumping equities.
Some common themes from the bubble boys as they pumped:
1 The US will be the first one out of the global recession so you need to get in now and buy.
2 The instability in Georgia makes the US a safer place to invest.
3 Oil/gold are dropping which is pushing investors back into equities. Don't be the last one in!
4 Inflation has peaked and we have seen the worst of it.(yeah right)
Lets take a reality check on each of these points:
Lets start with #1. The US may be the first one out but it might be a decade from now. The pigmen always want you to think that a new bull is about to begin. The reality is we still haven't taken the credit losses from the last bull run. until this happens, equities aren't going anywhere.
Point 2. I am still trying to figure out why this is a good reason to buy equities. If you are looking for safety then why wouldn't you just come over to the US and buy treasuries?
Point 3. Oil is dropping because the bottom is falling out from under the economy. This is an easy spin job for the pigmen: Gas is cheaper so the consumer is back. I say yes, gas is cheaper, but its still 4 fold higher than it was 5 years ago. Never mind the fact that people are starting to choke on their debt.
Point 4. Yeah ok, then why was inflation double expectations this month. Note that the biggest reason for the increase in inflation this month were prices on consumer items not gas.
My Take:
These idiots are all rotating out of gold and oil back into the equity markets. The problem with this move is they got out of oil/dollar trade and rotated into a hornets nest(US equities). The fundamentals are as bad as I have ever seen them. You know my argument so I won't repeat it again.
When the pigmen realize what they rotated into has zero earnings power, they are going to get crushed. There will be an inflection point at which they all realize this. When this inflection point occurs, you are going to see a drop in equities that will be a once in a lifetime event.
Look at the stocks that are rising during this "denial bounce". Financials, homebuilders, and retail all had huge days today. Each of these sectors all reported horrific news this week. There is no fundamental reason to be in these stocks right now.
What the bulls will soon realize is they are WAY too early and they will all head to the exits at once. I believe you are going to start seeing a lot of this speculator money start to dry up.
I say this because each rotation will reduce the amount of liquidity that these clowns have, because most of them get too greedy and end up taking losses. Imagine the billions that have been lost since oil and gold have plummeted. Now were some of these traders smart enough to get out before the big dump? Of course! However, the majority stay in the trade too long and got creamed because this is how speculative bubbles blow up.
When the speculators make money on a trade like long oil, they continue to leverage more and more into the trade until it unravels violently. When the margin calls hit they are forced to sell more gold and oil in order to raise cash and cover. This makes the reversal even more violent and painful
Bottom Line:
Expect a huge equity pump from the pigmen in the coming weeks. They realize if this pump doesn't work the game is over. There is nowhere else left to speculate and they know it.
The problem they face is the earnings are not there to get the game going.
Stay on the sidelines and let these speculators burn themselves out. Each bounce will be smaller than the last one until reality sets in. Notice that this weeks bounce was achieved with extremely low volume.
Remember, bottoms are never seen until no one wants to own stocks anymore. The debt/financial markets are falling apart, housing is a mess, and the consumer continues to tank. This is completely being ignored by the pigmen because they have nowhere else to play other than the stock market.
I expect that you will see a strong reversal to the downside next week. The rally today looked extremely tired.
Friday, August 15, 2008
Thursday, August 14, 2008
The Housing Crisis Deepens
Good evening everyone!
Well guys the markets bounced today. I have no idea why given the horrifying housing news that was released today. Take a look at the data on Bloomberg:
"Aug. 14 (Bloomberg) -- Existing U.S. home sales fell to a 10- year low in the second quarter and the median price for a single- family house dropped 7.6 percent as the real estate recession deepened.
The median price tumbled to $206,500 from $223,500 a year earlier, the Chicago-based National Association of Realtors said today. Sales of single-family houses and condominiums fell 16 percent to 4.913 million at an annualized pace.
``It's getting worse,'' Rick Sharga, RealtyTrac's executive vice president for marketing, said in an interview. ``The number of properties that have been foreclosed on by the banks and still haven't sold is the highest we've ever seen.''
Bank seizures of properties in default rose 184 percent to 77,295 in July, according to RealtyTrac. That was the steepest increase since the Irvine, California-based company began reporting data in January 2005.
There were 4.49 million U.S. homes for sale at the end of June, the highest in a year, according the Realtors' association. At the current sales pace, that represented 11.1 months' worth, up from 10.8 months' worth at the end of May, the trade group said in a July 24 report.
Default notices in July increased 53 percent from a year earlier and auction notices rose 11 percent, RealtyTrac said.
Foreclosures could put 8.4 percent of total U.S. homeowners, or 12.7 percent of homeowners with mortgages, out of their homes, according to New York-based analysts at Credit Suisse. About 53 percent of subprime borrowers, those with poor or incomplete credit histories, will have negative equity in their homes this year, and that percentage will rise to 63 percent next year, the analysts said in an April 23 report."
My take:
I don't even know where to begin. Stephen King never wrote anything as scary as this housing article.
Lets start with the bank seizures: 184% increase! Banks are going to start aggresively dumping these homes as these REO's #'s continue to soar. Reuters reported today that Fannie/Freddie are setting up offices in California and are going to start selling their bank seizures in bulk to investors. Can you imagine the price cuts that will be seen if they start doing deals like this?
The REO's obviously will continue to push prices down.
Bloomberg also reported that inventories rose to over 11 months! The bulls keep trying to spin the fact that home sales are up significantly in distressed areas because many buyers are gobbling up foreclosed homes.
The problem is there are more homes being dumped on the market than are being bought. This bullish arguement is pure silliness! The higher inventory rises, the lower the prices in the long run. I still say its too early to be buying foreclosures. If Fannie plans on bulk selling properties, you need to at least wait and see what price they puke them out at.
When these sales occur, you may start to see what the bottom in housing might look like. The only way I would buy a home right now is if I could pick it up at at a distressed price.
In my opinion, this housing crisis is the perfect storm. You have inventories rising, bank seizures soaring to all time highs, free falling prices, and rising interest rates with tougher lending standards.
This is all occurring as unemployment continues to rise and inflation soars. Note the inflation numbers today:
"Aug. 14 (Bloomberg) -- U.S. consumer prices rose at the fastest pace in 17 years in July, limiting the ability of the Federal Reserve to lower interest rates as economic growth slows.
The cost of living climbed 5.6 percent in the year ended in July, the Labor Department said today in Washington. It was up 0.8 percent from the previous month, twice as much as anticipated. So-called core prices, which exclude food and energy, also advanced more than projected.
The surge last month reflected energy prices that have since declined, signaling July may represent the peak in inflation. Still, increases went beyond food and fuel, including gains in clothing, airline fares and education, likely intensifying discussions among Fed policy makers about how quickly to shift toward raising rates."
Bottom Line:
I continue to be amazed at how the market reacts to such bad news. I guess denial is a powerful emotion!
The housing data released today tells us that there are no signs of bottoming, and things are getting much worse. What concerns me even more is as prices drop, people who can afford their homes may decide to walk away because they are overpaying on an asset that might never be worth what they paid for it.
The fact that Credit Swiss expects 13% of homeowners with mortgages to be thrown out of their houses via foreclosure is astonishing. Just stop and think about that for a second. If you live in a suburb, chances are a handful of your neighbors will be tossed out of their homes. At the same time, you get to sit there and watch your home drop in value month after month as the inventory gets cleaned out.
The psychological effect of this crisis will be dramatic as potential homebuyers see families torn apart via the foreclosure process. They will also hear the disaster stories of families that paid twice what their home is worth. When this all starts to hit they may ask themselves: Do I really want to risk buying a home?
The stigma of being a renter will be gone by the time this crisis passes.
Owning a house is no longer the American Dream. It has become the American Nightmare.
Well guys the markets bounced today. I have no idea why given the horrifying housing news that was released today. Take a look at the data on Bloomberg:
"Aug. 14 (Bloomberg) -- Existing U.S. home sales fell to a 10- year low in the second quarter and the median price for a single- family house dropped 7.6 percent as the real estate recession deepened.
The median price tumbled to $206,500 from $223,500 a year earlier, the Chicago-based National Association of Realtors said today. Sales of single-family houses and condominiums fell 16 percent to 4.913 million at an annualized pace.
``It's getting worse,'' Rick Sharga, RealtyTrac's executive vice president for marketing, said in an interview. ``The number of properties that have been foreclosed on by the banks and still haven't sold is the highest we've ever seen.''
Bank seizures of properties in default rose 184 percent to 77,295 in July, according to RealtyTrac. That was the steepest increase since the Irvine, California-based company began reporting data in January 2005.
There were 4.49 million U.S. homes for sale at the end of June, the highest in a year, according the Realtors' association. At the current sales pace, that represented 11.1 months' worth, up from 10.8 months' worth at the end of May, the trade group said in a July 24 report.
Default notices in July increased 53 percent from a year earlier and auction notices rose 11 percent, RealtyTrac said.
Foreclosures could put 8.4 percent of total U.S. homeowners, or 12.7 percent of homeowners with mortgages, out of their homes, according to New York-based analysts at Credit Suisse. About 53 percent of subprime borrowers, those with poor or incomplete credit histories, will have negative equity in their homes this year, and that percentage will rise to 63 percent next year, the analysts said in an April 23 report."
My take:
I don't even know where to begin. Stephen King never wrote anything as scary as this housing article.
Lets start with the bank seizures: 184% increase! Banks are going to start aggresively dumping these homes as these REO's #'s continue to soar. Reuters reported today that Fannie/Freddie are setting up offices in California and are going to start selling their bank seizures in bulk to investors. Can you imagine the price cuts that will be seen if they start doing deals like this?
The REO's obviously will continue to push prices down.
Bloomberg also reported that inventories rose to over 11 months! The bulls keep trying to spin the fact that home sales are up significantly in distressed areas because many buyers are gobbling up foreclosed homes.
The problem is there are more homes being dumped on the market than are being bought. This bullish arguement is pure silliness! The higher inventory rises, the lower the prices in the long run. I still say its too early to be buying foreclosures. If Fannie plans on bulk selling properties, you need to at least wait and see what price they puke them out at.
When these sales occur, you may start to see what the bottom in housing might look like. The only way I would buy a home right now is if I could pick it up at at a distressed price.
In my opinion, this housing crisis is the perfect storm. You have inventories rising, bank seizures soaring to all time highs, free falling prices, and rising interest rates with tougher lending standards.
This is all occurring as unemployment continues to rise and inflation soars. Note the inflation numbers today:
"Aug. 14 (Bloomberg) -- U.S. consumer prices rose at the fastest pace in 17 years in July, limiting the ability of the Federal Reserve to lower interest rates as economic growth slows.
The cost of living climbed 5.6 percent in the year ended in July, the Labor Department said today in Washington. It was up 0.8 percent from the previous month, twice as much as anticipated. So-called core prices, which exclude food and energy, also advanced more than projected.
The surge last month reflected energy prices that have since declined, signaling July may represent the peak in inflation. Still, increases went beyond food and fuel, including gains in clothing, airline fares and education, likely intensifying discussions among Fed policy makers about how quickly to shift toward raising rates."
Bottom Line:
I continue to be amazed at how the market reacts to such bad news. I guess denial is a powerful emotion!
The housing data released today tells us that there are no signs of bottoming, and things are getting much worse. What concerns me even more is as prices drop, people who can afford their homes may decide to walk away because they are overpaying on an asset that might never be worth what they paid for it.
The fact that Credit Swiss expects 13% of homeowners with mortgages to be thrown out of their houses via foreclosure is astonishing. Just stop and think about that for a second. If you live in a suburb, chances are a handful of your neighbors will be tossed out of their homes. At the same time, you get to sit there and watch your home drop in value month after month as the inventory gets cleaned out.
The psychological effect of this crisis will be dramatic as potential homebuyers see families torn apart via the foreclosure process. They will also hear the disaster stories of families that paid twice what their home is worth. When this all starts to hit they may ask themselves: Do I really want to risk buying a home?
The stigma of being a renter will be gone by the time this crisis passes.
Owning a house is no longer the American Dream. It has become the American Nightmare.
Wednesday, August 13, 2008
"AAA" Spreads Surge...Risk is Back!
Hello All!
Take a look at the chart below. I talked about the widening in spreads yesterday, but I thought a chart would help.
Take a look at the chart below. I talked about the widening in spreads yesterday, but I thought a chart would help.
My Take:
Ok guys, this is the spread for "AAA' paper. To simplify things, the higher the spread, the more it costs to borrow money. Right now based on the borrowing spreads, you need a return on investment of about 10% just to break even if you spread your risk out properly as an IB or hedge fund.
This means throwing "BBB" paper in with your "AAA" paper in order to get the best ROI as an investment bank. This is the toxic crap that the bond market is avoiding which is why you are seeing spreads open up.
Bottom Line:
As I explained yesterday, the cost of borrowing money is surging for everyone including banks! The bond market is going into treasuries which is forcing the borrowing of money to be more expensive as the spreads rise in order to attract money.
Keep in mind, a lot of this "AAA" toilet paper was levered by the IB's by ridiculous multiples. This will make the losses on this paper that much worse .
This data is horrific! I have no idea how the market trades this information short term, but I know what the long term implications are.
When borrowing "AAA" paper risk rises, its time to take notice. the market has still not priced this in IMO. Once they "wake up", equities are in trouble.
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