RSS Feed
Twitter
Facebook
Email
HomeEverything’s Negotiable
Posted by Larry Doyle on December 23rd, 2008 7:15 AM |
At “Central Station” the other day, a loyal reader thought it may be useful to write about the implications of defaulting on a mortgage. Certainly nobody wants to default on a mortgage, but given the dynamics of our current housing market and economy, delinquencies and defaults are simple realities.
In thinking through this topic, it struck me that it may be just as beneficial to address what to do before defaulting as it is to know what happens after defaulting.
First and foremost, given the economic environment there should be no sense of shame or embarrassment in a deteriorating financial condition. That said, as one of my earliest mentors taught me “people in finance typically do not have problems with losses but they have big problems with surprises.” How does that piece of wisdom apply to today’s deteriorating housing market and rising foreclosures?
Economic/Market Highlights . . . 12/17: “The Golden Rule”
Posted by Larry Doyle on December 18th, 2008 7:00 AM |
For time immemorial, nations and economies have operated by the Golden Rule. Well, in this economy and this market, that Rule is strong and seemingly getting stronger. While the U.S. dollar sank to a 13yr low vs the Japanese Yen and declined another 2+% vs the Euro, gold moved higher by another 2+% and is now at a 9 week high and up 9% for the year.
In speaking with an investment advisor today, he told me that he has moved almost 20% of his fund into gold in anticipation of continued declines in the value of the dollar.
While gold is increasing in value, we are not seeing other commodities follow its lead. In fact, oil (down 7% on the day) intraday went below $40 per barrel, while copper dropped to a near 4yr low. Through the grapevine, a close friend shared with me today that Goldman is long oil in SIZE from a very large transaction with Mexico. Both commodity moves indicate to me that the market believes the economy will bump along the bottom for the foreseeable future.
What is going to get us to turn the corner on the economy? The Fed has done all it can monetarily, and will clearly utilize “quantitative easing” in buying longer maturity mortgage, consumer, and corporate assets. There is another $350 billion in TARP funds, some of which will likely be directed towards helping homeowners on the brink of foreclosure.
Beyond that, all eyes in Washington and across the country are looking toward a MASSIVE economic stimulus. Obama has already indicated the outlines of his plans with the largest component being infrastructure.
Will this be the “magic bullet” that we all hope? It would be foolhardy to think that $300 billion, if not $500 billion, and perhaps $1 trillion, would not give a serious jolt to our economy. That said, will a package of the size and type being discussed by Obama revolutionize the art of stimulus packages and lead us to a viable and sustainable economic recovery? I think not. Why? (more…)
Who and What is Cerberus….??
Posted by Larry Doyle on December 11th, 2008 9:05 PM |
While the debate in Washington over a potential rescue package of the domestic auto industry seems to be ending and a short term “bridge loan” is being arranged, I empathize with the innocent laborers and families within these companies and across the industry who have truly suffered from the imprudent management of this business model. One outfit that is heavily involved in this industry, though, deserves no sympathy. Everybody knows General Motors, Ford, and Chrysler, but not many people know of Cerberus Capital Management.
GM and Ford are publicly traded entities. Chrysler, however, is 80% owned by one of the largest private equity funds in the business. If any company understands risk, the cost of capital, business models, restructurings, leveraged buyouts, asset liquidations, return on equity, etc it is Cerberus Capital Management.
While the CEOs of GM and Ford most assuredly have extremely limited to zero means of raising capital at this juncture, to think that Cerberus does not have access to capital is ridiculous. The simple fact is Cerberus “chooses” not to put more money into Chrysler to defend their previous investment. (more…)
IT’S EASY TO FIND FAULT…especially if you’re clueless!!
Posted by Larry Doyle on December 11th, 2008 10:10 AM |
Given the pressure applied by the general public on elected officials who passed the $700bln dollar TARP (Treasury Asset Repurchase Program) it is not surprising that those very elected officials are now openly critical of Treasury. Nothing like casting a few aspersions to keep the crowd back home somewhat at bay. This statement is not to say that Treasury has not fumbled in certain aspects of this program. That said, as I have tried to highlight, there are so many holes to fill that one single, albeit massive, “tourniquet” is not going to cover an entire body riddled with life threatening wounds.
Read how “Watchdogs Chide Treasury on Bailout“…
For Congress to think that the economy would see near “immediate” positive reaction to the injection of capital into the system is both naive and ignorant. I am going to guess that most Congressmen failed Economics 101.
IMO Treasury should not have played “whack a mole” but should have proactively highlighted the areas of need throughout the system. In properly managing expectations it is always better to be as comprehensive as possible and simultaneously “under-promise and over-deliver”. Paulson and Bernanke along with Paulson’s boy wonder, Neel Kashkari, have played way too much defense and not enough offense. The risk they ran in this regard, though, is that they may have “spooked” the markets and “scared” the public. (more…)
Obama’s Economic Stimulus Plan: Big Dig Deja Vu??
Posted by Larry Doyle on December 7th, 2008 8:00 PM |
In the midst of the current economic turmoil, virtually every economist worth his salt can make valid cases for the necessity of both fiscal and monetary stimulus. I appreciate the use of PEBO’s use of the term “investment” rather than “spending” in proposing an economic stimulus program not seen in this country since the New Deal.
Read more here as to Obama’s Stimulus proposal, “Obama Outlines Stimulus Plan.”
I hope, though, that in proposing an “investment” program, that he is mindful of certain parameters that any qualified private or public investor would utilize prior to making his investment. What are those parameters?
1. With whom am I doing business?
2. As the investor (lender), what is the credit rating of the investment and of the borrower?
3. What is the “time to maturity” … that is when can I expect to generate a return on my investment dollars? (more…)
Market Highlights 12/1/08: “Space Mountain”
Posted by Larry Doyle on December 2nd, 2008 11:05 AM |
I was never one that “enjoyed” roller-coasters. In fact the last time I went on a roller-coaster at an amusement park I went on it strictly to “surprise” my son. On that ride I closed my eyes, held on for dear life and figured that within a few minutes, I’d be back on terra firma. If I did not make it, the premiums were all paid and the family would be just fine. If today’s roller-coaster were only that easy.
While I did not get overly ebullient about the 15% move upward in the equity markets from 11/21 through 11/28, I am not reading too much into today’s 8% selloff. The fact is we remain very much in a delevering process, will continue to see exceedingly weak economic reports, and are far too focused on what is coming out of Washington than what and how businesses are handling this downturn. I still believe that we will largely remain in a trading range of between 7000 and 7500 on the downside and 9500 on the upside. Overall trend lines remain negative. Be better sellers of rallies !!
In fact, please look at this graph of the price action for the Dow over the last decade. On 10/06/02 we had an an intraday low of 7177. The market got down to the low 7200- to 7500 range a few times before holding and moving higher. We have been down there once so far on 11/20th. I think it is an easy call to say that we will revisit at least once more if not a few times. Check it out…
A quick review of today’s “lowlights” and then some commentary. (more…)
Economic/Market Highlights 11/22-11/29/08: “Whack a Mole”
Posted by Larry Doyle on November 30th, 2008 3:15 PM |
The domestic equity markets rebounded by 15% over the last week which is the single strongest week since the 1930s. With that rebound the markets still ended down app 5% for the month. Despite the enormous rebound, albeit on moderate volume and in a shortened week, the overall sentiment and fundamentals to the market remain decidedly negative.
The Dow has been in a range of 9600-7500 over the last 6 months so the rebound off the lows of 11/20 bring the market back slightly above the midpoint of this short-term range. I would counsel those who trade the market to trade it against those levels with an overall negative bias.
The rebound started with the announcement of Geithner as Treasury Secretary but then received another 1.1trillion reasons to move higher in the form of the rescue package thrown to Citigroup (300bln) and 800bln in the form of more rescue money for Freddie/Fannie, more purchases of debt issues by Freddie/Fannie and Federal Home Loan Banks, and funding for a facility to facilitate increased liquidity for consumer finance markets.
With those announcements, the equity markets continued to rally as did the U.S. government bond market, and the U.S. mortgage market (each of those debt markets rallied by app 40 to 50 basis points). The corporate credit markets, the high yield markets, and the municipal markets did not rally, however. Those markets remain largely frozen for entities looking to issue debt.
What Has Meredith Whitney Got to Say?
Posted by Larry Doyle on December 11th, 2008 6:20 AM |
You have heard me sing the praises of those whom I consider to be some of the wisest minds in the financial markets. Included in this group are Nouriel Roubini, Laszlo Birinyi, Sheila Bair, and Meredith Whitney. It is not often that we have the opportunity to hear timely, insightful, and extensive analysis from these individuals. This morning we have one of those opportunities as Meredith Whitney, the TOP bank and financial services analyst on Wall St., is interviewed.
This attached video clip of her interview runs 12 minutes but it is extremely insightful on the current state and future outlook for the following:
1. Consumer Credit….it is going to get MUCH tighter, which is the very reason why we are STRONGLY encouraging people to pay down debt.
2. Outlook for large money center banks….”on life support for the next 18-36 months”
3. AIG….needs more money as they have incurred ANOTHER 10bln loss. (more…)
Tags: Meredith Whitney, Meredith Whitney commentary, Meredith Whitney speaks, Meredith Whitney speaks on banks
Posted in American Consumers, Current Affairs, Economic Stimulus, Economy, Meredith Whitney | 1 Comment »