Seth Chalnick

U.S. Job Losses Demystified

Hahah. Didn't anyone else get that "man in the mirror" reference... to the earlier Michael Jackson "moonwalk" one... ha!

I love this article because it gets at the incentives behind the results. Incentives are everything. Without aligning them towards policies that will lead to meaningful recovery... policy, rhetoric, commentary, etc. are futile.

Another great piece. Hopefully one of the "jobs summit" advisors will point to this post as a discussion point.

Options: How to Be Risk-Averse

To the Author: your content is killer so thanks a lot. FYI, along the lines of JOETRADER's comment, for some reason, Internet Explorer is not compatible with your posts, so I've been viewing them in google's Chrome browser, which works perfectly. Just letting you know, so that your great articles don't get skipped by viewers who would surely enjoy them.

Why Is the Market Going Up When Jobs Are Going Down?

@ rennert, aka $8.50 guy... everybody's working on your street because your neighbor's 5yr i/o hasn't adjusted to 25yr p&i yet.

Good luck with that 1% interest rate hike, which while I agree we need it to bring this crazy pyramid scheme down... will not only wipe out your home equity... but really kill consumer spending as the small business owners and svp's on your block lay employees off, get displaced themselves, and start cutting back to the good ole' fashioned $2.50 per gallon staples.

Let's not get ahead of ourselves here... first deflation... then rampant inflation.

Why Is the Market Going Up When Jobs Are Going Down?

Ricard, you write:

"What if our companies hire abroad, make profits abroad, and bring home the bacon to Uncle Sam?

That surely would be a 'Wall Street' recovery..."

You make a good point, but replacing 70% of our GDP via outsourcing in one or two quarters would be a pretty impressive trick.

U.S. Housing Market Has Likely Bottomed

You know, I was going to make some comment or other debating points the author makes, but see that pretty much, most of the counter arguments have been well said by other folks. And then I read Living4Dividends comments, which I disagree with, but give a whole hearted thumbs up to them, since at least his argument makes sense.

And while only time will tell which force will tip the scales (fundamentals or hype-confidence)... one thing I want to make clear... Mr. Ho attempted to present a fundamental argument for a housing rebound. The items he mentioned are definitively not fundamental in nature. For example, he writes, "But more fundamental is a revival in confidence"... umm... market confidence is about as whimsical as the wind.

This sort of unfounded optimism is somewhat irresponsible, and mostly just weird.

Falling Up: The New Business Model

Hi Reneeg,

In short, there are probably many reasons why banks are keeping properties off the market, though I’m not sure which is the most compelling. Actually I’m not sure anyone is… even the banks themselves.

Here are a few likely reasons:

-So they don’t flood the market with inventory thereby putting downward (spiraling) pressure on home prices.

-So they don’t publicly acknowledge the amount of non-performing assets, which would put downward pressure on their share prices (not to mention, call into question the stability of their very business model, and by extension, the world financial markets too).

-So that the public can "catch their breath" and confidence can be inspired to resume spending. (The government and banks are working together on this one.)

For more in-depth coverage of these questions and more importantly, the very importance of asking these types of questions… check out my SA article called, “Here’s a Statistic I Dare You to Challenge”.

Hope this helps,

sc

Economic Collapse Is Accelerating

Jeff, thank you for putting numbers behind the shadow inventory argument. It is refreshing to see an article succinctly isolate the problem, and make moot in one fell swoop, the ongoing debate about the way “shadow inventory” is defined, and about the reasons that drive the shadow inventory phenomena.

Bottom line: since we're only finding buyers for about 20% of the inventory, then we can't even hint at a bottom here.

To take these artificially induced low end sales statistics out of proportion the way the media has been doing… is worse than misleading… it is flat out irresponsible.

Add in the jumbo market, which is collapsing before our eyes, and the point you raised about its impact on the rest of the economy really comes into play. If a few hundred bucks per person (that we shifted from one pocket to the other) didn’t magically fix things, then what happens when the real stimulators of the economy… the folks who own the $700k to $5m homes watch their paper wealth vanish? It is probably a safe wager that spending declines further.

Since the current foreclosure problem we are (not really) dealing with right now only represents approximately 30% of the size of the impending alt-a, opt arm, and prime collapse that has not yet even come online, I would have to unequivocally agree that the idea of a housing bottom, and therefore the idea of the recession ending is absolutely absurd indeed.

It is ridiculous to see “experts” say that “the housing market correction was inevitable with all that crazy lending, etc” and then they turn around and call this the bottom.

Seriously, the only things that have changed are “mark to market” accounting relaxation, artificial pump up of demand by extending the same “zero down” philosophy in the form of 3.5% down fha, some $8k tax credits that we’ll pay for later, and the artificially limiting of supply. Not to mention the artificial suppression of interest rates. All of this hand-holding has to go away at some point. The damn is cracking.

Countrywide REOs Move Back to Early 2007 Levels

donogrp you're absolutely right about getting a better sense of healing when nod's slow down... but I respectfully disagree about the loan mod's, at least as they have been handled thus far... and we can only hope that banks get with the short sale program, but as of yet, only about 15% of short-sales ever close.

As for loan mod's, more than half of the good citizens who have received mod's... are already back in default... and this statistic... is more than 8 months old! The reason is because the mod's have been given to people who have no incentive to pay perfectly good money on a depreciating asset since they have no good credit profile left to defend.

The mod's should have been going to the folks who have never missed a payment... but these folks... the ones who played by the rules... don't qualify.

In the case of both mod's and short sales, the unfortunate truth of the matter is that individual incentives of bank managers are not in alignment with what it will take for a broader economic recovery.

Countrywide REOs Move Back to Early 2007 Levels

go rockerchic! "Note the words 'listed for sale' which make all the difference here". You are seemingly the only person in the free world to recognize this small, yet gigantic omission.

Folks... there have not been any new foreclosures in like, 18 months (in the critical states like CA, FL, etc). There was a national moratorium, then state moratoriums in effect ever since the big recession year that has been swept under the rug... until now... via moratoriums, change in mark-to-market accounting practices, subsidized rates, media spin taking out of context half baked statistics like the one posted herein, etc.

What do you guys think has been happening in the last 18 months... fewer defaults? Slowing rate of defaults? There is a dam ready burst and the funny thing is the prime loans that have not yet re-set yet are starting to come due as we speak... and this basket of toxic assets is... no joke... around three times larger than the "subprime" basket.

If a measly little subrime correction brought the financial world to its knees, then how the hell can the whole world be smoking crack in unison right now saying that it was all inevitable... all that leverage... tsk tsk... and then not see this:

That we're about to see the correction START.

The ironic thing is that the one market segment (low end housing) where it potentially makes sense to buy right now... and where there is huge demand... is the one market segment where artificial short supply is killing a golden opportunity to stabilize at least one market segment bottom, stimulate the economy, and create jobs.

56 Car Economic Pile-Up

Thanks a lot for reading my article and also for your greatly valued feedback. Lock Sang Ho, you make some good points and I look forward to reviewing your articles.

75792 and Pitching Pennies, in my ambition to make the article readable, I perhaps overlooked making the salient points sufficiently clear. Namely, I am going out of my way to not blame the entitlement crowd, or anyone else for that matter… but not placing blame about their decisions, and being ruthless about not catering to their bad decision making are two different things.

Yes, I am ruthless about not throwing good money after bad. Doing so would be fruitless, irresponsible, and stupid. But let's not overlook how greatly in favor I call for lenders to cut their losses and share in the responsibility for allowing the individual incentives of their operators to override the incentives of their industry. I just want it to be done in a way that will stop the hemorrhaging rather than add more bullet holes.

Another review of my article will show that I am not bashing the less fortunate, but rather pointing out the obvious. I do not blame anyone for doing what they thought was right at the time. But I do not feel sorry for folks who didn’t “buy” anything, but instead, merely speculated. And while Pitching Pennies makes some excellent points about innocent hard-working families getting swept up in this firestorm… I respectfully submit how the idea that most speculators are out of the market, is patently false.

On the contrary the majority of the speculators are about to be shown for what they were. The “successful” people referenced, only further highlights the myth that socio-demographic reasons were at play. The folks with sup-prime loans got hit first because they had shorter term rate re-set periods associated with their loans. If we lived in a gentler, kinder universe that offered 7yr fixed to people who could use a break then the “successful” people with their 5yr loans would have been the first to crack.

We have an over-leveraging fallout problem based on math and bad fundamentals… we do nott have a problem with a class of lazy people bringing down our financial universe.

Only the smallest percentage of these “successful” folks’ loans have even begun to re-set yet. When they do, we will begin to see the financial storm come in earnest.

This is why I draw a huge distinction between modifications and refinances as they relate to TARP. I am all for the refinancing or modifying or transferring-of-wealth or extortion or socialism or whatever you want to call it… as long as we’re focusing on helping folks who still have their credit to protect. If something is wrong with the system, then let’s fix the system, but not by rewarding folks who don’t operate within the rules of the system.

Market Prices: The Great Chasm

Clifton, thanks very much for the acknowledgement. It is such a validation to hear about making difference… in fact, you made my very long week. I greatly appreciate your comment, and as agreed back then, I look forward to building upon our long-term relationship. sc

Market Prices: The Great Chasm

Hi Carl, thanks for your comment. I agree it will take about 10 years to get back to previous highs, and eventually this too shall pass. After short-term deflation, I expect we’ll see massive inflation, followed by demographic explosion that will ultimately blow prices past previous highs.

I also see a wide gap between high and low-end market segments. As high-end falls from grace, some lower-end homes are trading below intrinsic value. I expect they will hold their own, or come up a bit to bridge the gap, as foreclosure displacement puts upward pressure on the rental market. Plus, while the historically low rates are only good for low-end purchases, it does present great buy and hold opportunities… especially now, while folks scramble to preserve their ass…ets.

Is There an End Game to the Recession?

Along with everyone else, I sure hope there is an end in sight to our current crisis, and the points you mentioned are good ones. I can’t speak so much to the asset side of the balance sheet, but I see an issue on the “interest rates” front, at least as it pertains to the real estate world. I would image the gist of my comment may apply to non-real estate markets in some way too, but even if it doesn’t, I believe the real estate spiral is enough to single-handedly curtail consumer spending… more so because the next wave of the spiral is coming to a theatre near you… where the higher priced homes of small business owners will be affected. If less spending by sub-prime folks can shake things up, less spending by the real economic stimulators won’t be pretty.

I am afraid the Fed can lower rates all they want, but ultimately supply equals demand. An investor who would otherwise look to lend out, say $50m in new mortgages right now sees 6% returns on conforming loan amounts. Why invest at 6%, when you can buy the underlying asset, trading at or below its intrinsic value, and get 5-10% net ROI by renting out the asset, while positioning for long term appreciation? On loans limits greater than conforming, say $700k-$2m (there are some agency jumbo programs that exceed $417k), an investor can get around 8%, but on the one hand, there is no demand for these loans when consumers have to pay it against inflated prices, and on the other hand the investors know… well… the prices are inflated. Nobody wants to touch a mortgage back security until debt-to-income ratios get back to <40%. We are nowhere near these levels in the upper middle class pricing tiers.

Regarding our liquidity crisis, even if everyone has their hearts set in the right place in our attempt to “bailout” the economy, lenders first need to cover their reserve requirements before they can lend money. If they lend out in a ratio of 12 :1, and then the asset of the 1 goes down to .9, then they need more money to preserve the ratio. By allocating more money to preserve the ratio, they are not lending, and this also contributes to downward pressure on the underlying asset value. Fact is, the time for action was when banks were leveraging profits by 30:1. Now we are experiencing the de-leveraging process... and it is just not as fun.