I am officially calling today D-Day for housing as the president has now said he will not veto the housing bill. Rates will never be the same after this bill passes.
Rates have soared in the past week , and mortgage applications have plummeted in the last week as a result. Reports have applications down as much as 20% since rates started climbing.
A 30 year mortgage is now at 6.5% up from 6.14% a week ago. Jumbo mortgages have now hit 7.5% up from 7.1% last week. CNBC reported that this is a 5 year high for mortgage rates.
The effects of this housing bill are already forcing mortgate rates through the roof. Folks, Congress is putting the final nail in the housing coffin by passing this. The bond market is going schizo. The 10 year was sharply higher again today.
Congress will deeply regret passing this housing bill. We are less than two hours from the vote.
Sit back and enjoy the fireworks after it passes.
Wednesday, July 23, 2008
Tuesday, July 22, 2008
Bear Stearns Part 2
Just a commentary tonight
Haven't we seen this rally before? I feel like it is March all over again. The government sticksave is back.
The Paulson pump machine was in full gear again today saying the financial system is as strong as ever. Huh, really? Then why did Wachovia lose $9 billion dollars in a QUARTER.
Why did WAMU just announce a $3 billion dollar loss which was triple what analysts were expecting.
"July 22 (Bloomberg) -- Washington Mutual Inc., the biggest U.S. savings and loan, reported a $3.3 billion second-quarter loss as tumbling home prices left a record number of borrowers unable to keep up with mortgage payments. The shares surged 10 percent as the company announced it would cut costs.
The loss of $6.58 a share compared with net income of $830 million, or 92 cents a share, a year earlier, the Seattle-based company said today in a statement. The cost of uncollectible loans jumped 58 percent to $2.2 billion from the first quarter."
This is insanity at its finest. I hope the financials go up another 30%. It will create a nice shorting opportunity. Right now you simply can't fight the financial rally. The change on naked shorting combined with the stick saves has too much momo behind it. Plus, asI said before, these stocks are down 70-80%.
I am amazed that the government has somehow managed to talk everyone into believing they will bail everyone out again. Hello! Haven't we seen this before? Anyone remember Bear Stearns?
Look at what the 10 year rate has done in the bond market since Paulson announced legislation to backstop Fannie/Freddie(Image is from Karl Denninger's Market Ticker):
Haven't we seen this rally before? I feel like it is March all over again. The government sticksave is back.
The Paulson pump machine was in full gear again today saying the financial system is as strong as ever. Huh, really? Then why did Wachovia lose $9 billion dollars in a QUARTER.
Why did WAMU just announce a $3 billion dollar loss which was triple what analysts were expecting.
"July 22 (Bloomberg) -- Washington Mutual Inc., the biggest U.S. savings and loan, reported a $3.3 billion second-quarter loss as tumbling home prices left a record number of borrowers unable to keep up with mortgage payments. The shares surged 10 percent as the company announced it would cut costs.
The loss of $6.58 a share compared with net income of $830 million, or 92 cents a share, a year earlier, the Seattle-based company said today in a statement. The cost of uncollectible loans jumped 58 percent to $2.2 billion from the first quarter."
This is insanity at its finest. I hope the financials go up another 30%. It will create a nice shorting opportunity. Right now you simply can't fight the financial rally. The change on naked shorting combined with the stick saves has too much momo behind it. Plus, asI said before, these stocks are down 70-80%.
I am amazed that the government has somehow managed to talk everyone into believing they will bail everyone out again. Hello! Haven't we seen this before? Anyone remember Bear Stearns?
Look at what the 10 year rate has done in the bond market since Paulson announced legislation to backstop Fannie/Freddie(Image is from Karl Denninger's Market Ticker):
Final Take:
Wake up people! The government can't bail everyone out! Look at how the bond market has reacted even to the thought of trying to bailout the GSE's.
If this bill passes you are going to see a violent reaction in the bond market thats going to push interest rates up to levels not seen since the 1980's.
Imagine what this chart will look like if Paulson gets his way and the bill passes through Congress. If it does, 9% interest rates on mortages are right around the corner.
Bottom Line
There is only so much money to go around and the government can't save everyone. We can't print our way out of this because of the risk of severe inflation/hyperinflation. They are again sending the message that they can save everyone. There is no free lunch in life boys and girls.
If this was such a piece of cake for the government, then why is Paulson out EVERY SINGLE DAY selling this bailout to anyone who will listen?
I'll tell you why he is selling this so hard. Paulson sees the financial destruction that we are on the brink of reaching, and he is scared to death and doesn't know what else to do. Why do you think he pulled his right hand man out of Goldman Sachs this week to help him with this disaster.
Sometimes there are no good choices in life. Unfortunately, our economic mess is one of those times where you just need to bite the bullet and accept what has happened and deal with the consequences. All of this interevention is increasing the risk of an even worse event down the road.
These stocks are rallying based on a government stick save just like they were when Bear Stearns was "saved". We learned a harsh lesson about stick saves in May and June. Look at these bank losses and ask yourself if this rally makes any sense?
Buy financials at your own risk if this bill passes and its almost guaranteed to do so. "Moral Hazard" will officially be thrown out the window when it does. I would rather be late in buying financials versus being early when so much is at stake regarding our financial system.
Sometimes I am at a loss for words from what I am witnessing. Today is one of those days.
Wachovia Wipeout: $8.9 Billion Loss
All I can say about Wachovia is ouch! There is a lot going on in the markets today even though we are pretty much flat on the day. Oil is down, financials are struggling after Wachovia/Amex, and bond yields are rising.
Paulson is again out flapping his gums about Fannie and Freddie again today. Is everyone as tired of listening to this clown as I am? He realizes the economy goes down the toilet without Fannie And Freddie. As you can see below, the costs of backing these two bloated pigs are already seeping out even though Paulson refuses to admit it will cost the taxpayers anything. Yeah right.
GSE bailout $25 Billion and Counting
From Bloomberg:
"July 22 (Bloomberg) -- Treasury Secretary Henry Paulson's rescue package for Fannie Mae and Freddie Mac would probably cost taxpayers $25 billion, the Congressional Budget Office" said.
Quick Take:
I wonder what this number will look like after this housing crisis is over. I know one thing, its going to cost us a lot more than $25 billion!
Wachovia's Stunning Loss
This loss is much worse than I expected. They also slashed the dividend to .05/share. This loss rivals Merrill Lynch's $10 billion dollar hit last week. Remember folks, banks are leveraged much less than investment banks. Its hard to lose $8.9 billion in a quarter when you are a bank. You almost have to try to lose that much money.
This tells me Wachovia's underwriting had to have been horrific. Of course buying a subprime lender at the peak of the housing bubble sure didn't help these clowns.
Here is the Wachovia Story:
"July 22 (Bloomberg) -- Wachovia Corp., the U.S. bank that hired Treasury Undersecretary Robert Steel as chief executive officer two weeks ago, reported a record quarterly loss of $8.9 billion, slashed the dividend and announced 6,350 job cuts. The stock slumped as much as 10 percent in New York trading.
The second-quarter loss of $4.20 a share compared with net income of $2.3 billion, or $1.23, a year earlier, the Charlotte, North Carolina-based company said today in a statement. The loss included a $6.1 billion charge tied to declining asset values.
The writedown, job cuts and second dividend reduction in three months reflect Steel's response to the worst housing market since the Great Depression, which cost former CEO Kennedy Thompson his job after eight years. Wachovia has dropped more than 75 percent since it spent $24 billion two years ago to buy Golden West Financial Corp. just as home prices were peaking."
Quick Take:
Granted, these losses are terrible. However, you need to be careful here if you are trading financials. Many of these stocks are down 70-80%. Shorting them at these levels is a dangerous trade. You basically have to place bets that they are going to be zero's.
I would simply stay away from them at this point. There will be a time to go long on these stocks but I still think its early to be jumping in on the long side.
However, my estimation is the next trade on financials will be going long unless housing totally unwinds. This is why patience is needed here. The housing story is not played out yet as Fannie and Freddie hang in the balance.
When it is time to jump in, I would only go long by buying pools of banks because some of these dogs aren't going to make it.
Fed's Plosser: Fed needs to raise rates sooner rather than later
Plosser is out again today talking about fighting inflation. This is the second Fed president in the last few weeks warning of higher interest rates. As you can see below, the Fed is in a really tight spot:
"July 22 (Bloomberg) -- Federal Reserve Bank of Philadelphia Charles Plosser said the central bank should raise interest rates ``sooner rather than later'' to lower inflation and prevent price expectations from getting out of control.
``We will need to reverse course -- the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later,'' Plosser, who argued against cutting interest rates in two Fed decisions this year, said in a speech today in King of Prussia, Pennsylvania. ``It will likely need to begin before either the labor market or the financial markets have completely turned around.''
Plosser joins Minneapolis Fed President Gary Stern, who also votes on rate decisions this year, in making the case for raising borrowing costs, a move Fed Chairman Ben S. Bernanke avoided discussing in congressional testimony last week. Record oil prices and rising food costs this year have increased investor expectations for the Fed to raise the benchmark interest rate."
Bottom Line:
We are pretty flat today as the market digests all of the earnings reports from the last couple days. Some companies did well last quarter. Caterpillar had a blowout number and far exceeded estimates.
Where we head going forward short term will depend a lot on how the Fannie/Freddie situation is handled. The bond market will have a lot to say about this.
One thing looks pretty certian. Interest rates are about to rise, and its going to hurt the economy as well as accelerate asset deflation. This is going to hurt, but its the only way out of this mess.
Paulson is again out flapping his gums about Fannie and Freddie again today. Is everyone as tired of listening to this clown as I am? He realizes the economy goes down the toilet without Fannie And Freddie. As you can see below, the costs of backing these two bloated pigs are already seeping out even though Paulson refuses to admit it will cost the taxpayers anything. Yeah right.
GSE bailout $25 Billion and Counting
From Bloomberg:
"July 22 (Bloomberg) -- Treasury Secretary Henry Paulson's rescue package for Fannie Mae and Freddie Mac would probably cost taxpayers $25 billion, the Congressional Budget Office" said.
Quick Take:
I wonder what this number will look like after this housing crisis is over. I know one thing, its going to cost us a lot more than $25 billion!
Wachovia's Stunning Loss
This loss is much worse than I expected. They also slashed the dividend to .05/share. This loss rivals Merrill Lynch's $10 billion dollar hit last week. Remember folks, banks are leveraged much less than investment banks. Its hard to lose $8.9 billion in a quarter when you are a bank. You almost have to try to lose that much money.
This tells me Wachovia's underwriting had to have been horrific. Of course buying a subprime lender at the peak of the housing bubble sure didn't help these clowns.
Here is the Wachovia Story:
"July 22 (Bloomberg) -- Wachovia Corp., the U.S. bank that hired Treasury Undersecretary Robert Steel as chief executive officer two weeks ago, reported a record quarterly loss of $8.9 billion, slashed the dividend and announced 6,350 job cuts. The stock slumped as much as 10 percent in New York trading.
The second-quarter loss of $4.20 a share compared with net income of $2.3 billion, or $1.23, a year earlier, the Charlotte, North Carolina-based company said today in a statement. The loss included a $6.1 billion charge tied to declining asset values.
The writedown, job cuts and second dividend reduction in three months reflect Steel's response to the worst housing market since the Great Depression, which cost former CEO Kennedy Thompson his job after eight years. Wachovia has dropped more than 75 percent since it spent $24 billion two years ago to buy Golden West Financial Corp. just as home prices were peaking."
Quick Take:
Granted, these losses are terrible. However, you need to be careful here if you are trading financials. Many of these stocks are down 70-80%. Shorting them at these levels is a dangerous trade. You basically have to place bets that they are going to be zero's.
I would simply stay away from them at this point. There will be a time to go long on these stocks but I still think its early to be jumping in on the long side.
However, my estimation is the next trade on financials will be going long unless housing totally unwinds. This is why patience is needed here. The housing story is not played out yet as Fannie and Freddie hang in the balance.
When it is time to jump in, I would only go long by buying pools of banks because some of these dogs aren't going to make it.
Fed's Plosser: Fed needs to raise rates sooner rather than later
Plosser is out again today talking about fighting inflation. This is the second Fed president in the last few weeks warning of higher interest rates. As you can see below, the Fed is in a really tight spot:
"July 22 (Bloomberg) -- Federal Reserve Bank of Philadelphia Charles Plosser said the central bank should raise interest rates ``sooner rather than later'' to lower inflation and prevent price expectations from getting out of control.
``We will need to reverse course -- the exact timing depends on how the economy evolves, but I anticipate the reversal will need to be started sooner rather than later,'' Plosser, who argued against cutting interest rates in two Fed decisions this year, said in a speech today in King of Prussia, Pennsylvania. ``It will likely need to begin before either the labor market or the financial markets have completely turned around.''
Plosser joins Minneapolis Fed President Gary Stern, who also votes on rate decisions this year, in making the case for raising borrowing costs, a move Fed Chairman Ben S. Bernanke avoided discussing in congressional testimony last week. Record oil prices and rising food costs this year have increased investor expectations for the Fed to raise the benchmark interest rate."
Bottom Line:
We are pretty flat today as the market digests all of the earnings reports from the last couple days. Some companies did well last quarter. Caterpillar had a blowout number and far exceeded estimates.
Where we head going forward short term will depend a lot on how the Fannie/Freddie situation is handled. The bond market will have a lot to say about this.
One thing looks pretty certian. Interest rates are about to rise, and its going to hurt the economy as well as accelerate asset deflation. This is going to hurt, but its the only way out of this mess.
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