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Posts Tagged ‘hope is a lousy hedge’

JP Morgan and Jamie Dimon: A Question of Trust

Posted by Larry Doyle on May 18th, 2012 7:33 AM |

Do you engage in business with people you don’t trust?

Sometimes you may have no choice, but in doing so you likely keep your guard up or exact a higher risk premium.

For those with a choice, keeping one’s distance from those you do not fully trust is typically the preferred path. For those without a choice, a lack of trust is often offset with a lot of hope and prayers. Hope always remains a lousy hedge against a lack of trust. We see this at play currently on both sides of the pond.  (more…)

Unemployment Report July 8…U-G-L-Y!!!

Posted by Larry Doyle on July 8th, 2011 8:42 AM |

Our ‘walking pneumonia’ economy is not making any real progress in terms of an improving labor market in the United States.

Consensus estimates for the July employment report (measuring June economic activity) had an increase of 105k jobs with many economists recently revising their estimates higher to 125k.

Their ‘guesstimates’ were not close as the non-farm payroll report released at 8:30am reflected an increase of a mere 18k jobs with downward revisions to the prior two months of 44k jobs.

Were there any hidden gems in the report? Not a one. (more…)

Dollar Devaluation, Stagflation, and How “You’re Getting Screwed”

Posted by Larry Doyle on April 29th, 2011 8:12 AM |

“Remain calm, all is well!!”

Such would seem to be the message put forth this morning by The Wall Street Journal’s lead headline, Officials Unfazed by Dollar Slide,

In recent days, the nation’s top two economic policy makers—Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner—have publicly expressed their desire for a strong dollar. But there is little indication of a change in policy from either the Fed or Treasury—or in underlying economic conditions—that would alter the currency’s downward course.

When thinking of Bernanke and Geithner, who do you think of first, Abbott and Costello or Laurel and Hardy? I am more in the former camp. “Hey, Abbbbbotttttt!!”  (more…)

Is Egypt the Threshold of a New World?

Posted by Larry Doyle on February 2nd, 2011 7:33 AM |

Is the ongoing political firestorm in Egypt an individual event or part of a larger movement? Can the Egyptian turmoil be contained or might it spread to other nations in the Middle East? Are we witnessing the civil unrest of a disenfranchised populace or something truly much larger than that?

Certainly, peace loving people hope that calm can be restored in Egypt and the inevitable transfer of power happens in an orderly fashion. From that standpoint, we would hope a democratic regime ultimately gains control in Egypt. What if democracy does not carry the day, though? (more…)

Banks Are Forestalling Rather Than Foreclosing

Posted by Larry Doyle on September 3rd, 2009 12:22 PM |

What happens when a bank forecloses on a home? It has to book a loss. How are banks dealing with the rapidly increasing rates of delinquencies and subsequent foreclosures? They are forestalling the losses by allowing homeowners to remain in the home for a protracted period. Are they doing this out of generosity? Don’t be that naive. The banks are utilizing the ‘hope’ hedge. That is, they ‘hope’ the economy and housing market will rebound so the values of these homes increase and the loss is mitigated.

Over many years of trading and investing, the ‘hope’ hedge is a recipe for further losses. Why? Please refer to my Rule #1 from yesterday’s “LD’s Rules of Trading”:  The Market Goes in the Direction Which Hurts the Most People.

Homes that would otherwise be in foreclosure create a massive overhang of supply in the shadow housing inventory. Do banks believe that buyers do not appreciate this? That would be even more naive. The excess supply will keep a lid on home prices and consumer wealth which directly impacts retail sales.

High five to MC for sharing a recent report from American Banker addressing this phenomena. Kate Berry writes Postponing the Day of Reckoning, which I am able to access from Bank Investment Consultant. Ms. Berry shares some very sobering insights:

“The goal is to hold off on foreclosures and take losses as slowly as possible to keep balance sheets up,” said Deborah Voelz, the chief financial officer of National Asset Direct Inc., a New York buyer and servicer of distressed loans. “Everyone is looking at what the ultimate loss is going to be and whether it makes sense to hold off another year or two and mitigate the results.”

The foreclosure process — and it is a process — now takes, on average, 18 months to two years, up from 15 months a year ago, according to Amherst Securities Group LP. Backlogs in county courts and at servicing companies, along with local government moratoriums, have contributed to the delays. But plenty of signs indicate that the mortgage companies themselves are in no hurry to seize their collateral.

Rick Sharga, a senior vice president at RealtyTrac Inc., an Irvine, Calif., company that monitors foreclosure filings, said banks often start proceedings but then decide “they don’t want the property” and suspend the process indefinitely.

Of the 2.3 million homes that received foreclosure notices last year, one-third had been repossessed by yearend, according to RealtyTrac.

Banks also “are allowing borrowers to be delinquent for longer and longer periods of time before initiating foreclosures,” Sharga said.

These perspectives are totally consistent with those of John Lounsbury, my guest this past Sunday on NQR’s Sense on Cents with Larry Doyle. John pointedly detailed that only 10% of homes being sold currently entail ‘willing sellers.’

What are the implications for this forestalling?

>> Continued pressure on housing overall.

>> Continued pressure on bank earnings from these mortgages.

>> Continued underwhelming trends in retail sales by consumers.

>> Prospective home buyers, especially in the higher price ranges, can remain patient.

Regardless of what bank analysts or others may want to say, these forestalled homes are not going away.


The Market Speaks . . . Investors Rush for the Exits

Posted by Larry Doyle on February 17th, 2009 8:12 AM |

Equity markets around the world are sufferring significant pullbacks overnight and this morning in the United States. What are the issues? Hope is a lousy hedge!! What does that mean? If we are relying on hope, rather than well defined plans to turn our economy and banking system, then investors are headed for the exits!

Let me highlight specific situations:

1. Banks around the world facing imminent downgrades in their credit rating due to continued pressures on their earnings capabilities and expectations of increasing defaults in their loan books.

2. Auto companies in the United States were supposed to deliver restructuring plans today. The market believes this situation is likely headed to a government backed bankruptcy. 

3. Hedge funds are receiving notification that Wall Street banks are significantly pulling in, if not totally reneging on, credit lines. What does this mean? Many funds will have to find financing elsewhere or liquidate the business which means selling assets which will put further downward pressure on many sectors of the market. (more…)

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