Gary Kramer

http://www.effor.com/blog/

4 Comments

    • How Much Are Goldman's Level 3 Assets Worth? [view article]
      Let me clear up a few things.

      1) I have no position) long or short) in GS or any other financial stocks. SeekingAlpha requires a disclosure when you post here, and my disclosure for this post said "None".

      2) According to the Fed website at:
      www.newyorkfed.org/mar...
      What collateral is eligible for pledging?
      Eligible collateral will be determined by the Federal Reserve and presently includes all collateral eligible for tri-party repurchase agreements arranged by the Open Market Trading Desk (“Schedule 1”) and AAA/Aaa-rated private-label residential mortgage-based securities (MBS) and commercial MBS, as well as agency collateralized mortgage obligations (CMO) that are not on review for downgrade (“Schedule 2”). Schedule 2 also includes everything in Schedule 1.

      I may be wrong on this, but it looks to me like they're taking almost anything as collateral.

      3) I have zero inside knowledge of the terms of any Fed transaction.

      4) General clarification to some comments:
      Let's say you have $1 million equity in your house, and you take it out in a HELOC. You take that $1 million and put 10% down on 10 other $1 million properties - and you depend on the renters to make your payments. You with me so far?

      What happens when just one renter doesn't pay?
      You suddenly can't make the payments on $9 million worth of debt. That's called leverage, and that's what the banks and investment houses are facing.

      At this point the assets are worth what someone will pay for them at auction. How much is that? Who knows - they have some value, but (as you said) know one knows how much they are worth. I wouldn't pay 50 cents on the dollar for them. And since NO ONE will buy them AT ANY PRICE right now - they're worthless as assets.

      That's the problem these banks have today. And some big names will not be around 1 year from now. If I knew which names would be gone, I'd be on an island somewhere in the Carribean.

      5) User 129099: See #2 above. Level 3 assets can be rated AAA - they're level 3 because no one cares about the rating, they're toxic piles of paper that no one will buy. So they're "mark to model".

      6) Other than 20% of a 401k being in a S&P 500 index fund right now, and about $3k long in Novagold (NG) I have no position in the US stock market. The rest of my money is long in money market accounts, bond funds, and international growth stock funds.

      See my blog at:
      www.effor.com/blog/ for more of how I view things.

      Gary Kramer
      Apr 13 09:56 PM
    • And So It Begins: A Look Into Earnings Season [view article]
      I've been working on a post to show how 2008 earnings estimates are still way higher than what we'll end up with, but you've already done everything I was going to do. Excellent post! Apr 09 08:54 PM
    • Why Yesterday's Optimism Wasn't Warranted [view article]
      "so your point is don't trust NY Times?"

      I used the NY Times as a source because evryone knows who they are, and their stories are normally factually correct. You are welcome to Google other sources for the dates above and pick your favorite source - they all say pretty much the same thing, and they all quote pretty much the same sources.

      As I've said over and over - I don't know what prices will be next week or next month - but financial stocks (and the broad market) are not at the bottom yet. My best guess (and it's only a guess) is that we won't see a true bottom until late this year at the earliest.

      As long as stocks skyrocket when more losses are taken, we're not at the botton. It'll take one or two quarters of no writedowns before people will trust the statements made by the financial sector.

      They've lied for the past 6 months about the extent of the potential and real losses, so they've cried wolf too many times. At some point these lies will be reflected in stock prices. When the "forward looking statements" start to match the actual quarterly results, I'll move back into the market.

      Until then, I'm looking at bear market rally's just like 2001 through 2003.

      Of course I'm not a pro at this, and I don't know what's going to happen - but my money is 90% in cash at this point. I may be right about the stock market, and I may be wrong - but I'm not going to sit by and watch my portfolio lose 50% like so many people did from 2000 through 2003.

      As Will Rogers once said "I'm more interested in the return OF my investment than I am the return ON my investment."

      But there are two sides to every trade.... Which side are you betting on?

      gk       Apr 03 01:17 AM
    • Why Yesterday's Optimism Wasn't Warranted [view article]
      "I don't understand all of the worry about resets on the 2005-2007 vintage of hybrid mortgage paper. Most of the teasers are at 150 - 200 b.p. Because of Fed easings, LIBOR has moved down 300 b.p. Most of the resets will be LOWER, not higher in rate yet people keep bringing up resets as a negative. DO YOUR HOMEWORK."

      I've done my homework - do yours....

      I have a brother who took out a 3/1 Option ARM in 2005 (I told him not to do it) at a 3.785% rate. He put 5% down. His mortgage will be resetting in August, and his payments will almost double when his loan resets - because he's been paying the minimum.

      He will not be able to keep the house, and he is NOT alone. The headlines are full of people like him (read a post from last week at
      www.effor.com/blog/ind...
      who will owe more than their house is worth. He will default on his loan - alond with thousands of others.

      Your argurment would be correct if we were talking about people who took out traditional ARM's, but millions didn't. Interest only and Option ARM's made up close to half of all mortgages in 2005 through the first half of 2007. The majority of these home squatters will default when rates reset.

      Do your homework.

      Any questions?
      gk
      Apr 03 12:53 AM
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