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China: Exactly Where Japan Was in the 1980s?

I think Vitaly's most basic point is that China is being over-hyped in the face of unsound fundamentals. Having only spent a short amount of time in the country I have no in-the-trenches perspective upon which to draw, but my gut-feeling tells me he's right. I believe it's reasonable to assume that they will realize their eventual potential more quickly than, say, the United States of 1910 because of tech advantages such as cell phones.

But I believe much of China's recent advance will turn out to be a mirage and that they're well on their way to another bursting bubble. Simply put, their central command has not and does not allocate resources efficiently. It spent the last decade or longer positioning the economy to cash in on a rate of Western consumption that is not ultimately sustainable. In its rush to paper over that problem it is, without a doubt, funding important infrastructure projects, but at the same time it's funding speculation, creating a lending environment that encourages "entrepreneurs" to continue to throw crap against the wall (much like our dot com phase), and, most disturblingly, spending billions to entrench the most technologically advanced spy state the world has ever known.

As they've forced the development of an export-based economy how many world-class companies have they they forged that can thrive during an economic downturn? Enough to overcome the billions wasted on coddling the cronies at state-run enterprises, or on fly-by-nights in the export economy that can't pay back their loans?

I'm in Vitaly's camp in this one. China is not immune to the boom/bust cycles related to the misallocation of resources. It's in their future to make great strides, but as people pop the celebratory champagne bottles over their arrival be on the lookout for bubbles.

Friday Was a Good Day for Starent, Yingli and Wyndham

I did the same YGE trade through my ETrade account and set my stop at $12.45. I wasn't so lucky. The final trade of the day on Thursday was $12.45 and I stopped out, only to watch the stock run the next day. I'm wondering what could account for the discrepancy between your experience and mine.

Or is it the mechanics of a stop order that explains what happened? For example, perhaps when the price hit $12.45 there was enough demand to sell mine, but not yours before the close?

If any readers understand stop order flow I would love to be educated.

The Next Leg up in Financials

I am a loan officer at a direct mortgage lender. We have ceased spending money on advertising, as Citimortgage is giving their mortgage debtors our phone number in order that they refinance through our company. Citimortgage tells their clients that they're doing this "because of the high volume of calls they're receiving". While I'm sure it's true that they've slimmed down their staff and can't handle the volume of refi applications, it's probably also true that they are depending on us to pay off loan balances and sell the mortgages to another investor. Direct lenders around the country are taking these Citimortgage calls. I'm guessing this is one way Citi is raising cash to stay afloat. ETrade is probably employing the same stategy. Just remember that you need some pretty good credit to get the best rates these days. You also have to prove a decent debt-to-income ratio with income documents, and you need at least a little home equity. For that reason I doubt it's a strategy that is ridding them of a typical "toxic" mortgage. With 30 year fixed rates down in the range of 5 year ARM rates from years past, however, companies like Citi and ETrade will be able to take a good number of ARMs off the books.

What I Would Do

Could one of the readers refresh my memory?. Why is gold uniquely qualified as a currency support? I'm not into jewelry, so I don't covet it. What makes more sense to me is to value our currency based on the value of what we produce as a country. To me that seems like a much better basis for value than a metal.

Could someone weigh in? Thanks!

Apple's Greatest Idea Yet

Earlier this year the Schwartz made a call on oil retracting to $30-50/barrel. Well, here we are. May the Schwartz be with us all!

Bust-Up, Not Bailout

Looks like a hornets nest is getting stirred. Suddenly auto industry workers are weighing in, and rather testily in most cases. Especially the engineers. The engineers are proud that they're creating cars as complex as the space shuttle. Here's a question: Why do we need cars as complex as the space shuttle? China and India don't. And who says economies of scale prevent us from spinning off brands? Can you not think of a single way that might work? What's your solution? Now that you're approaching the government trough your thinking had better become a little more nimble, or you'll see what real anger looks like. Mr. Retired Automovtive Engineer needs to keep in mind that his career was sustained by the advance of easy credit, not brilliant market innovation. Hello! People understand the need for your fat pension about as much as they understand the need for bonuses at AIG.

Should We Really Bail Out the Big Three Automakers with $73.20 Per Hour Labor?

The reason we can't switch CEO pay to $500K a year, Jeff from PA, is that most of the people with enough talent to be CEO's would leave their posts immediately and start companies that don't limit their pay. You cannot impose an artificial limit on market value without creating waste. The reason GM and Ford are teetering on the precipice is because they've been incredibly wasteful on both ends. Leadership has produced vehicles that are out of favor with the consumer (while continuing to collect excellent pay), and the auto workers have used their collective influence to inflate their wages beyond their market value.

Nobody begrudges a working man a living wage, but we don't live in a world of wishes. The market eventually asserts itself. Most of the readers of Seeking Alpha understand this, and for this reason they are against inflating the money supply to prop up the salaries of the American auto industry.

Three Areas of Opportunity for the Bold

You need to put some more thought into your real estate deal.

Your rate on an investment property will be much higher than 6%, unless you buy it down with points.

If you take out a loan your lender will require that you have a hazard insurance policy. The cost of your policy will be significant, especially if the insurer gets wind that you plan to rent it as a "horse property". You need to build insurance costs into your monthly outflow.

Banks don't just drop their pants on short sales. If you offer them 20% less than their asking price you'd better have some quality time scheduled with the individual handling their portfolio, or the only sound you'll hear from them will be silence.

I could go on. You really need to do a few of these deals before you present yourself as an authority on Seeking Alpha.

Blame Game Redux: 8 More Things to Blame for This Crisis

A comment from the trenches...
We all understand that residential mortgage underwriters relaxed their standards, making it easier for people to speculate and leverage to the hilt. I work in the industry and can assure you that, as you would expect, that particular trend has reversed itself.

I recommend two additional changes that, along with more stringent underwriting guidelines, would help prevent the type of froth we've seen in the last few years:

1) As much as possible, remove the human element from residential appraising. 90% of the data needed to determine the market value of a home is online, or in county records, or contained in existing appraisals. Outfitted with the right software, a computer could do 90% of an appraiser's job. The extent of human involvement, at least in non-rural areas, should be limited to snapping interior and exterior photos to prove that the home is whole, properly maintained, and not a risk.

A legitimization of automated appraising would not only improve a mortgage customer's experience, but it would significantly reduce the gaming of the system by corrupt appraisers and loan officers. With people involved there are as many potential appraised values for a given home as there are personalities and levels of ethics. To this day loan officers are still looking for appraisers who know how to "push value" and get away with it. Lenders increasingly use automated valuations to check an appraiser's work. We need to advance the automation to the point where it's providing the bulk of the analysis.

2) Reduce and simplify the closing documents a mortgage customer is required to sign. Most refinance signings happen in the evening at the customer's home. If you had experienced a taxing day at work and a mobile notary arrived at your door with 50-100 documents for you to sign, what are the chances that you miss one of the crucial details in the loan's terms? For example, what if your loan officer had repeatedly assured you that the loan featured no penalty for pre-payment. What if the loan Note said the same thing, but buried in the stack of documents was an Addendum to the Note that established a 3-year pre-payment penalty? What are the chances that you would notice it? I can tell you from experience that the current system allows unscrupulous loan officers to manipulate borrowers. The three-day right of rescission on all refinance loans is supposed to treat this problem, but it's not working. Most of the homeowners that called me in the last few years to refinance out of pay-option ARM loans (negative amortization) didn't truly understand their loan and weren't aware of their pre-payment penalty (usually six-months of interest or up to 3% of the unpaid balance). Many of them had been told the loan was a 30 year fixed and had been enticed out of much more stable loans with the teaser payment. At one point I was receiving at least one of these types of calls on every working day.

I recommend eliminating the signing requirement on all closing documents aside from the Note, the Deed, the estimated settlement statement, and a one or two page summary document that states, in clear, simple sentences, the terms of the loan and how it functions. I know I'm leaving out a few other key docs, but basically everything else should be put to the side for review at the borrower's leisure during the rescission period.

George Soros submitted some intriguing commentary in the Wall Street Journal suggesting that we fashion our mortgage market like the one in Denmark. Perhaps one of the "maverick" presidential candidates would like to tackle that. From what I remember George W was friends with the guy who ran Ameriquest, arguably the most crooked large-scale home lending operation the country has ever seen. I don't ol' W will have much to offer as a fix.

Don’t Blame Wall Street - At Least Not Completely

After his first big bonus check Markos was probably driving around in a Ferrari telling girls how much money he makes. Don't take the credit, Markos, if you don't want the blame.

Tuesday's Action: Sign of a Bottom?

Today's rally, and all the hooplah that went with it, was amusing. How quickly we lose track of the fundamental realities. You can't shift that much capital to unproductive investments and expect to prosper. At least during the Internet bubble we built out computing and communications infrastructure and brought half the country online. What do we have to show for this latest fiasco? A bunch of crappy cookie-cutter homes that will not be supporting new productivity anytime soon.

We're about one-fifth of the way through the fall-out from our latest misallocation of resources. We still have billions and billions of mortgage adjustments coming that, even if they don't break consumers, will severely crimp their disposable income over the next three years. Since the consumer led the last U.S. bull market, is it really time to start calling bottoms?

Slowly but surely it will be the most fundamentally sound companies adding real value that lead us out of this mess, not investment banks.