Maniac in Motion

Gas and Home Prices: What a Difference Two Years Can Make

So funny, I was just thinking about that! Very cool chart.

Bespoke's U.S. Sector Snapshot (4/25/08)

Energy stocks are moving directly in line with energy prices, and will only pull back once oil prices do. They are hardly following underlying fundamentals, but why would I complain.

I also think a Fed rate hold will reduce commodities prices, which will bring materials back in line.

The Market Domino Effect: Staying Ahead of the Curve

It's true. V and MA are slowing down because US consumer spending is slowing down. Granted they are multinational companies, but if the US economy slows down and stops spending by $160 billion, that can't be made up by developing nations like South Africa. They just don't consume enough to offset such change. They're great companies, but are unattractive on a valuation.

COF will take losses on its credit portfolio, and may likely be a distressed assets takeover candidate once investors panic about the losses they continue to incur as more homeowners lose their homes. FYI, it's estimated 1 in every 6 homes will go to foreclosure by the time this is done. That is a definitive negative wealth effect, and a 10% market correction doesn't fully price in what that really means.

It's cliche, although it really does appear like investors are riding on a slope of hope.

Arch Coal's Earnings Signal a Silent Bull Market

This is right on track.

3 Reasons Why the U.S. Will Avoid a Recession: I'm Skeptical

You bring up good points. We don't have savings to absorb any more shocks. Foreigners are evidently not inclined to buy more US assets, and we should be fearful that we begin seeing outflows of T-bill securities.

Moreover, the guy writing that article misses the point. The rally recently compensated for passing over the crisis. What's still priced into the market is decelerating cash flows from losses of jobs. Less jobs available, less income, less cash flow to pay debt.

The expansionary forces assume we still are irrationally exuberant to buy more Garmin GPS units for all out friends. With the news tossing out the R-word and the F-bomb (foreclosure, people) on a nightly basis, it's pretty safe to say consumers are more carefully watching how they spend their money right now.

The affordability index naturally assumes current incomes and cash flows. And you know what happens when you assume. If jobs are declining, overall incomes are declining, and the affordability index rises. We evidently won't see that change until the National Association of Realtors stops saying, "It's always a good time to buy a house," and revise the median income they use to calculate their indices.

Explaining the Mortgage Meltdown

Oh right... I forgot the most important part: the consequence if they don't.

If Congress doesn't fix the home pricing problem...

Everyone who bought a house from 2005-to-2008 will be upside-down. Anyone who is upside down and is on ARM CAN NOT refinance. Banks will rather let a foreclosure occur than refinance a mortgage with a borrower owing more than the home value.

If a borrower can't refinance, she will go to foreclosure.

These foreclosures will reduce property values, which will encourage homeowners to stop making mortgage payments since their house, too, is now upside down. And let's not forget those who opened home equity lines of credit to fully the furnish vacation home's Arizona room.

This would be a... material... downward... spiral.

Explaining the Mortgage Meltdown

With the Fed Funds rate cuts, the 1 year Treasury has sunk to considecerable lows, luckily saving thousands upon thousands this year from foreclosure unlike 2007.

The big question is if government can cultivate a plan to encourage homebuyers to buy up the glut of foreclosure growth to offset deflating prices. If it's only a tax credit of $8,000... it's not going to save the neighbors who bought a home at $400,000, and is now worth $280,000. Why should anyone buy that? I know they're gonna foreclose too because who in the right mind would pay $400,000 in debt on a home worth $280,000? And that would further deflate prices. This is the US Picture.

Gov't needs to offer a tax credit carry-over to allow homebuyers to write off any depreciation experienced from their home purchase. That will encourage homebuyers to buy today. Until then, homebuyers will just sit on the sidelines.

Payrolls Drop - And You Ain't Seen Nothin' Yet

It's the reality of the economy. It's easier to embrace it, and choose stocks accordingly.

Why buy GRMN when you know everyone needs to buy groceries from WMT before they buy an overpriced electronic map.

Closer Look At The ARMs Reset Problem

I think the article is right on with the 2 major problems: ARM Resets and "Limited or No Doc" liar loans. However, I think liar loans will go to foreclosure now and ARM resets will go to foreclosure slowly through 2011. Here's why.

Buyers of liar loans were predominantly speculative investors or self-employed business types who were after one thing: ROI. With a keen understanding they are upside down, and the likelihood they've likely already done well with previous trades, they have no incentive to hang on to a property where they might be 30, 40, 50,000 in the hole in an immediate time horizon. These types will likely make a conscious decision to stop making moretgage payments on a house they can't flip to cut their losses.

Meanwhile, some folks with ARM'a resetting were unfortunately duped to buy their home with an ARM instead of a fixed rate mortgage, and will likely slowly fall to foreclosure. They will try their best to keep the one home they dreamed of buying, but if house prices don't recover in time, will fall to foreclosure.

Sooner or later, one thing will have to give. The Fed will either see no choice but to raise rates, or we'll see the greatest hyperinflation in American history by keeping rates low like Japan did in the 90's. I imagine Bernanke is VERY AWARE of what repercussions would be experienced by keeping rates too low for too long AGAIN. I think we may likely see Fed hikes immediately following the election.

With Fed rate hikes, we'll see the 1 year Treasury rise, once again hiking up mortgage rates on folks with ARM's. Homeowners will likely have no choice but to foreclose if they are still upside down on the home, which they likely will be upside down. The consensus is it would take 10 years to see home prices recover. This will further deflate values from the 2006 highs.

To sum up, I think the article's right on the 2 major housing problems. But I think it's backwards. Liar loans are the immediate problem today, and folks with ARM's resetting will be the lingering problem tomorrow.

Apple: Street Getting More Bullish on March Quarter

AAPL does carry quite a few good-looking prospects. I'd look at the trade on any macro-market dips.

Behind the Curve of Potash Prices

The drop today were institutionals unloading some of the position for end of 1Q'08. Watch for MOS earnings. It'll be very nice.

The biggest problem with just following analyst comments is they're never bullish enough in a strong sector like Raw Materials, and never bearish enough in a weak sector like Financials.

Morgan Stanley: Maintaining the USD's Reserve Currency Status

Not only will another country or a currency area need to significantly surpass the US, both economically and financially, we believe that the US will need to make some serious policy mistakes for it to relinquish the dollar’s lead.

The US only 10 years ago accounted for 30% of global GDP. We now only represent 12%, losing GDP share to China. In only 10 years. And at a time, when we're facing inlationary pressures, the Fed further cuts the rate? By 225+ bps? How dire do the mistakes need to be?

Foreign central banks are already paring down their US reserves for gold. Meanwhile, both Russia and India are months away from opening domestic commodity exchanges, further decentralizing commodity prices.

What else do we need to hear until we understand the US is no longer #1 by a landslide?

Global Credit Crisis: $1.2 Trillion and Counting

Wow... it almost seems like the next shoe to drop doesn't even have to be actual writedowns, it only has to be a forecast by the #1 of "one of us" Goldman Sachs to strike fear. Why would they do that? Are their trading desks themselves shorting financials? Why would they sabotage when a few lovely Spring bulls were starting to see new life? DJIA futures already down already down 60 points.

Goldman Sachs forecasts global credit losses stemming from the current market turmoil will reach $1.2 trillion, with Wall Street accounting for nearly 40 percent of the losses???

U.S. leveraged institutions, which include banks, brokers-dealers, hedge funds and government-sponsored enterprises, will suffer roughly $460 billion in credit losses after loan loss provisions, Goldman Sachs economists wrote in a research note released late on Monday.

They're shorting something and leveraging their reputation to drive it down. What was it? Are they trying to drive down their own price to buy back shares? What's the INCENTIVE to disclose?

Market Sentiment: Eye-Poppingly Bearish

We continue to see W curves moving to lower lows. Until we see some sign of recovery and resolve with financials by the Fed, i.e. swallow the MBS pill, the threat of meaningful US asset class deflation still remains.

How Bad Is the Dollar's Fall?

We're reaching a bottom for the dollar. Coming from the biggest dollar bear, that's saying a lot.

Central banks are now intervening to keep the dollar decline moving further. The dollar weakness is threatening how global companies do business. Foreign companies have already complained to government that revenues and profits are being hurt because the revenues earned from America convert to weaker profits in their home countries. Weaker profits make for weaker earnings per share, damping down stock price. On the flip side, the dollar weakness inflates earnings for US companies because of the currency exchange, which is why I'm getting slightly more bearish on US equities.

As a result, central banks are making coordinated efforts to buy more Treasurys, which keeps a further dip in the dollar in check. People's Bank of China, Bank of Japan, Bank of Israel, Bank of England, and the European Central Bank are all accumulating treasurys at these price levels. For instance, if the European Central Bank buys more US treasurys, then it keeps the Euro/USD ratio from rising further, which would hurt profits for companies in the EU. Plus, when the dollar goes up in value, they have an awesome accumulation of treasurys they bought on the cheap.

Thinking an entire country will go belly up is ridiculuous. It's foolish to think we'd go back to a gold standard. We are a global, fiat currency system. One developed country's currency weakness will not undermine every developed country's currency. What next? Are we going to start jumping on horses and stagecoaches because gas is too expensive in the short-term? Yes, there is some doom + gloom being circulated, but don't fall for the gold conspiracy like so many others. Gold is not an inflation play, and it's definitely not a currency play at these levels either.

If you wanna protect, just buy another currency. Although with meaningful central bank interventions around these levels, it may already be too late.