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Wednesday, January 31, 2007

Not Having A Good Time Yet

Things just seem to be getting worse and worse. Part of the problem is that my mother did so much for so many people that I now have several other families to take care of. Another part of the problem is that unless the laws of physics have suddenly changed, the story we are getting about the accident is quite untrue.

In any case, let me share the essence of this experience with you:
One Liners About Colonoscopies
  • Doc, you are boldly going where no man has gone before.
  • Can you hear me now?
  • Are we there yet?
  • You know, in Arkansas we are now legally married.
  • Now I know how a muppet feels.
  • If your glove does not fit, you must quit!
  • Let me know if you find my dignity.
  • You used to be an executive at Enron didn't you?
  • Could you write a note to my wife saying my head isn't up there?
Have a good day, and remember to laugh no matter how bad it gets.

Sunday, January 21, 2007

I'll Be Gone For A While

I'll be away for a while. If you are interested in US economics, Calculated Risk is great site with meaningful debate.

I got word this morning that my mother was killed in a car accident. No one else was hurt, and we were very relieved to hear that. We all have our griefs, and if you are suffering from one of your own losses, may I suggest this post by The Anchoress, not to mention this one (scroll down to the end for the definition of sin)?

My mother will be greatly missed by the vulnerable, not to mention her relatives. Last year she became very irked when she started getting piles of the local Catholic church's mail; I laughed pretty hard when I heard that. "Checks and everything," she said indignantly. "So you opened it?" I asked. "I didn't realize at first," she answered. Of course she didn't. She gave to so many Catholic charities and got so much mail from them that she wouldn't have known the difference, and I guess the post office got confused as well. Literally, she had to pick up her mail in a special cart because she got so much she couldn't carry it, and she went to the post office quite often.

The Papal office had started sending her nice notes, and a rather nice crucifix arrived from Pope Benedict. She wasn't Catholic - she was a dedicated old-school Episcopalian - but my mother knew what "One Holy and Apostolic Church" MEANT. When I decided to turn Catholic she dug through her chest of things that all these charities were sending her and came up triumphantly with a nice rosary blessed by Franciscans. I know she was giving large amounts of money to several religious orders who had an overbalance of aging religious, some of them were Catholic and some not. She gave to an incredible number of charities of all types (including multiple veteran's groups, animal rescue and conservation/wildlife reserves), and if someone in the family or in the community was in need, she'd think about it and show up. She really resented it when her local property taxes (she lived up north) were jacked up so high, because it literally did take money from those who desperately needed it. Literally, it did.

It wasn't just money, either. She was always there in a way that few people try to be. She was a kind, generous, intelligent and perceptive woman who tolerated no nonsense and stood for no nonsense. She bought just about nothing for herself and spent a good chunk of her income on others. She lived a life of service. She didn't just give to veterans, she volunteered at the veterans hospital. She visited the sick and the sorrowing. She watched over people.

We have already talked to the hospital, the police and her doctor, and we will handle the funeral just fine. What will be hardest is trying to remember all those she helped and to make sure that we forget no one as we try to pick up her burdens. The number and extent of people she was helping was incredible. Last summer when she was so sick I warned her that at her funeral I was going to take that chest of all the things various charities had sent her in thanks for her donations, dump them all in a bowl, and tell those who attended to pick one and follow through. I think I will do just that.

There is a passage in the Gospels that deeply impressed me (Matthew 25):
[31] "When the Son of man comes in his glory, and all the angels with him, then he will sit on his glorious throne.
[32] Before him will be gathered all the nations, and he will separate them one from another as a shepherd separates the sheep from the goats,
[33] and he will place the sheep at his right hand, but the goats at the left.
[34] Then the King will say to those at his right hand, `Come, O blessed of my Father, inherit the kingdom prepared for you from the foundation of the world;
[35] for I was hungry and you gave me food, I was thirsty and you gave me drink, I was a stranger and you welcomed me,
[36] I was naked and you clothed me, I was sick and you visited me, I was in prison and you came to me.'
[37] Then the righteous will answer him, `Lord, when did we see thee hungry and feed thee, or thirsty and give thee drink?
[38] And when did we see thee a stranger and welcome thee, or naked and clothe thee?
[39] And when did we see thee sick or in prison and visit thee?'
[40] And the King will answer them, `Truly, I say to you, as you did it to one of the least of these my brethren, you did it to me.'
Well, I have no fear that he will tell her to depart from him, because she fulfulled these words, quietly and unannounced, while feeling nothing but worry that she could not do enough. My mother saw people as they are for what they were and cared for them regardless, and if That Which Is will do the same, there is nothing to fear for all us who do not reject the needs of the other.

I wish you all well while I'm gone.


Check your email. Please call me. Bad news, and no one can get in touch with you.

Saturday, January 20, 2007

Whoa - I'm In!!

I apologize for not posting recently, but I haven't been able to get in.

A lot of interesting stuff is going on. For one thing, Coast Financial in Florida filed a material impairment with the SEC. Yahoo SEC Filings for CFHI. Herald Tribune article, which is excellent:
"It's an alarming amount," said George Huhn, a Venice-based commercial Realtor and foreclosure specialist. "One hundred and ten million in loans represents 25 percent of the bank's entire loan portfolio. Hello, has anyone got a flare gun?"

For Huhn, the problems at Coast, which had $676 million in assets and $568 million in loans as of the end of September, are just one more example of how hard the downturn in the residential real estate market is hitting the local economy.

The region already has witnessed the collapse of Avalon Homes and Jade Homes and a string of multimillion-dollar foreclosures on property owned by Neil Mohamad Husani's former partner Michael Tringali.
The bottom line is that the homeowners are well and truly screwed, and the bank will take a big hit as well. It probably will end up being sold. This wouldn't have happened if the housing market hadn't cratered, but when an area is experiencing over 30% appreciation, sooner or later that will stop. It's all very well to write about global liquidity, but liquidity doesn't mean a thing if the pumps that circulate liquidity throughout the economy are broken. This is an excellent case study, and banks in Texas, NJ, AZ, NV and CA are likely to be experiencing similar situations in the next couple of years.

Science: This Democratic Underground thread regarding the fight over whether weathermen who don't believe in anthropogenic major global warming should lose their certifications shows how our culture doesn't respect scientific freedom of speech. A couple of voices are raised in defense of science and reason, but the great majority supports the idea that "global warming deniers" (on DU, this is a much worse thought crime than denying the Holocaust) should be silenced:
3. Inhoff is a fox guarding the henhouse.

He's been one of the booming voices of evil insanity in my state for decades. Every time he opens his mouth, he embarrasses and enrages anyone with a little common sense or a true concern for the environment.

When Mother Earth finally starts killing off her human inhabitants due to their own toxic despoiling of her once-splendid bounty, I hope people all across the nation remember what that SOB Inhoff did to harm our planet and every one of us when he was in a position to do so much good....
Very scientific, that worldview. To continue:
6. I certainly hope so

I really hope this shuts these ignorant right-wing motherfuckers up for good. Anyone who denies global warming should not only be stripped of their certification, but should also not be allowed to teach.
An ardent support of the First Amendment and academic freedom, I suppose. A voice of reason erupts:
40. Good suppression of opposing points-of-view post
If you think that suppression of alternate arguments advances science, then let me tell you a little story about Galileo....

Any argument that relies on suppression and name-calling seems to me to not be able to punch on its own. Prolly seems that way to a lot of other people. Let the process work. No one argues about the sun rising tomorrow, because the evidence is manifest. Soon it will be so with climate change, too. (Already is, AFAIC.)

He who establishes his argument by noise and command, shows that his reason is weak.
- Michel De Montaigne

I'm sure you now think I am, to use your term, a denier. Actually, I'm emphatically the opposite. What I'm saying has nothing to do with climate change and everything to do with toleration of opposing points of view in the interests of good science. Skepticism is an indispensable element of the process. Squelch it at your (and our) peril.
To crush your enemy, to drive him before you, and to hear the lamentations of his women and children:
24. It's high time we had some accountability in this country

These people are like Holocaust Deniers- or more like tobacco company "scientists" who for decades were paid off to deny the connection with lung cancer.

I might even go one step further, and start reviewing broadcast licenses. After a few were yanked, I suspect that upper management and senior editors might actually start to police themselves and take serial liars like John Srossel off our public airwaves.
I think all of those running around worrying about creationists need to deal with a broader cultural reality. We are a technological society, and we rely upon science. If we permit it to become a priesthood, or try to turn it into one, our society will collapse.

Wednesday, January 17, 2007

Worst Global Warming EVAH!!!!

According to DU, that is. They seem to have reached a consensus that the freeze in California is proving Al Gore's global warming thesis. In response to an article posted regarding the citrus losses:
9. Damn global warming n/t
43. GW >>>>> widespread climate change/destabilization >>>>>
recordbreaking weather of all sorts: highs and lows, drought and flood.

But I think you knew that.
On DU, it's a given.
34. Way to go, Bush!
There were some very bad freezes in CA in the 1940s (see this article for first paragraph reference), but DU's collective mind dismisses that as irrelevant. There were also a series of hard southern freezes and bad ice storms when I was a kid (1970's). Back then the NY Times got all excited about the next Ice Age, but I suppose now the same weather is proof of Global Warming. Since I like it a bit warmer, here's hoping that the oncoming Global Warming looks about like the Ice Age of my young adulthood did. Thank heavens that I have the NY Times to explain to me which it is, because I really can't tell the difference by myself.

I'm glad the DU'rs are enjoying the weather, because they've had a rough time lately. For instance, this one person turned on the news and received a fearful shock when the newscaster was wearing a cross, especially considering the newscaster's past bias crime (referring to the "Democrat party"):
41. Not an easy question because everyone wants to support freedom of expression.

But the bottom line to me is that the cross has now become a political statement. It is not just an expression of Christianity--it is undeniably linked with conservative politics. The Christian cross now symbolizes a whole body of narrow thinking that many of us have come to reject, similar to the Confederate flag in that sense. The cross as a religious symbol has been abused--used for gaining political power and starting wars--not something Jesus would have gone along with.

So for that reason, a newscaster should not wear one. Nor should a teacher in public schools, and people in public service jobs should also be discreet with it. I don't think anyone objects to a small cross worn on a chain. But if it is big enough to be the first thing you notice, it's become a display of one's political affiliations. It's just not smart to risk offending a lot of viewers when you are in a "neutral" capacity in your job.
? I doubt very much that wearing a cross is a political statement to most people! Apparently DU has also formed a consensus that "Democrat party" is a slur. Why? I always considered it a sloppy usage.

Regardless of whether the current weather is a sign of a new Ice Age or Global Warming or just Same Old Same Old, I think this chimp has the right answer. Everything does seem better if you just tidy up and have a snack, even if you have to break out of the Little Rock zoo to do so:
As keepers tried to woo Judy back into her cage, she rummaged through a refrigerator where chimp snacks are stored. She opened kitchen cupboards, pulled out juice and soft drinks and took a swig from bottles she managed to open.

Keeper Ann Rademacher says Judy went into the bathroom, picked up a toilet brush and cleaned the toilet. ... Judy wrung out a sponge and scrubbed down the fridge.

It took a couple of tries, but the zoo sedated the chimp, who fell asleep on top of the refrigerator with half a loaf of cinnamon-raisin bread she had pulled out of the freezer.
The zookeepers claimed that it's because Judy was a house pet in an earlier life. I think Judy found the zookeepers' kitchen lacking in hygiene, so she decided to clean it up before eating! Maybe the handles of the freezer and the refrigerator were just to gross for a refined person like Judy to touch?

Tanta's Brush With Reporterage

Over at Calculated Risk Tanta guest-posted about a WaPo article on bad RE loans. I had read the article before I read Tanta's post, and I had the same confusions and questions as Tanta. I also thought the article was worse than useless. It left financially inexpert readers with no idea how to avoid problems with a new mortgage, and it left financially versed readers with no idea about how to help the man who claims he accidentally got an interest-only mortgage. Worse yet, the description of the problem mortgage contradicts itself.

In the comments, numerous readers chimed in with anecdotes about sloppy reporting. Further hilarity ensued when Tanta's long post stimulated one Holden Lewis to arrive to defend the honor of the fair Kirstin (the reporter who wrote the WaPo article). This is worth a read, although neither the post nor the ninety-three comments are a quick read. I'd say Tanta is winning on points.

Holden Lewis (his blog Mortgage Matters):
I don't reject the criticisms of Kirstin's article. I object to the self-righteous tone of the criticism. Sometimes I make mistakes in articles that I write, and sometimes I leave big gaping holes in stories, and it feels terrible when someone slashes me to ribbons over it. From that perspective, I feel sympathy for Kirstin Downey.

Based on this post, I have a hunch that if Tanta were a Red Sox fan, and she ran into Bill Buckner at the grocery store, she would scream invective at him instead of treating him kindly.

I occasionally have worked for people who talk like Tanta. They start out by telling you a long story from the distant past about how stupid a colleague was, then they tell a long, long complaint about how stupid a current colleague is. I think most of us have had to deal with self-aggrandizing bores such as this. That's how Tanta comes off in this post. Most likely this is an unfair characterization. But that was my visceral reaction to Tanta's rant, because for several years I had an editor like that, and I'm sensitive to that sort of person.

Frankly, I think there are more worthy targets -- such as anyone who works for the National Association of Realtors -- than a well-meaning reporter who had a bad day. I met Kirstin Downey last year at an FTC hearing on exotic mortgages -- had lunch with her, in fact -- and I think she understands the subject. I find the holes in this article inexplicable. I don't like to see her demonized, when there are plenty of people out there who are more deserving of vituperation.
Demonized? Either the criticisms are valid or they are not. They are valid. As for why Tanta is angry, it's because it is her job (and her ethical duty) to protect people such as the subject of the original article and the people who invest in those mortgages. It may be a forgotten principle, but you don't make money by lending to borrowers who will then be driven into default - not in the long term.

Tanta, apparently, takes her duties a lot more seriously than the reporter takes the duty of writing informative articles for the public. It's not about self-righteousness - it's about the rights of the public reading the article and whether the subject of this controversy has an easy, simple way to fix his stated problem that will cost him nothing! It's not enough to be incompetent with the best intentions. None of us accept that from a doctor, an engineer, and architect or an auto mechanic, so why should we accept it from a newspaper reporter? The reporter didn't do her job.

Maybe Holden is a sensitive type of guy, but people who get stuck in bad mortgages are dealing with a lot more than hurt feelings, and they need either knowledge or help based on facts. All the "poor you" stuff won't help them a bit.

The Anchoress also writes passionately about good and bad reporting, and that is because she too believes that it is important.

Tuesday, January 16, 2007

Well, Oil Has Established A Direction

The direction isn't to the taste of Chavez, but it sure is good for the American consumer! Gas prices have come down about 20 cents in my area since December:
A rapid drop in the cost of oil from above $60 per barrel to near $51 per barrel in the last two weeks has begun to push the cost of gasoline lower at the pump, according to AAA’s daily, on-line Fuel Gauge Report (www.aaafuelgaugereport.com).

AAA said today the national average price of self-serve regular gasoline has dropped about 5 cents in the last week to $2.229 per gallon, and prospects look good for even lower prices in the weeks ahead, AAA said today.

The key to lower prices will be an oil price that remains near its present level or moves even lower in the days and weeks ahead, AAA said. Oil and gasoline inventories have been growing for months, and attempts by oil producing countries to scale back production in an effort keep prices up do not appear to be working.

They Shot A Rocket In The Sky....

Granted, Russia wants the money for the anti-aircraft missiles it is selling to Iran. If you look at the closing to yesterday's post, however, a secondary motive might exist. Iran is the most likely candidate to jack up crude oil prices this year, and Russia's deliveries are declining so it desperately needs those high prices. It's not going to make it up on volume! Coincidentally, Iran also needs those high oil prices.

Crude seems to be going lower. OPEC (Saudi) commented that it had no plans for an emergency meeting.

In other news, Centex predicted a net loss of $2.00 a share for the quarter ending in December. Net sales dropped 24% year over year. It's interesting that everyone keeps talking about a stabilizing housing market while the situation of these homebuilding firms keeps getting worse and worse.

David of Photon Courier recently wrote of his surprise in learning that the New Home Sale index was quite distorted by the way the index is compiled. Sales are recorded when the contract is signed, but cancellations aren't reported. With cancellation rates running an average of at least double the historical norm, this produces a sizeable overstatement for new home sales. The overestimate may be much greater than the guess of 20% cited in the article to which he links.

Consider a homebuilder with 400 houses in all stages of construction from pulled permit to move-in ready at the beginning of the year and pretend that the homebuilder is only building out the current inventory (i.e., no net product added to inventory through the course of the year, even though the homebuilder continues to build on homes not yet completed or even started). In the first quarter, they record 100 sales. Of those 35 fall through. Reported sales = 100, reported inventory = 300. Actual sales = 65 and actual inventory = 335. In the second quarter, closed contracts = 70, of which 30 fall through. Of those 70 sales, 15 are houses that were previously under contract. Those will not be reported sales, but the other 55 sales will be. So now the Census Bureau has inventory of 300 - 55 or 245 and the actual inventory is (gasp) 335 - 40 or 295 ... You can see how the error accumulates over time in a market such as this. Here's the Census Bureau's explanation to prove I am not making this up. They track from permit on, and they drop the permit after it has been reported as being sold once. The homebuilder, however, does not have that option!

There's another very obvious implication, and that is that the sale prices for new homes are overstated as well. In order to curb cancellations, many of the new homebuilders are now negotiating with buyers who want to cancel. For instance, if the buyer has to drop their old home's price by $40,000 in order to sell it, the builder will often agree to drop the new home price by at least half of that in order to close the sale, but this is not picked up in the data. Given the incentives, interest rate buydowns, etc, those contract prices were overstated already, but failing to correct for post-signing modifications introduces another level of overstatement. So both contract pricing and sales/inventory as reported in the New Home Sales report is quite unreliable at this point. Eventually this situation will correct itself, but for now these figures are not comparable to those of even 2 years ago. This is why I haven't been writing much on these releases.

I do laugh hard when I read news articles announcing that the housing market is stabilizing based on a reported marginal increase in new home sales. They cannot possibly know that from the data. It's likely that cancellations will drop somewhat, but the offsetting factor is that contract pricing will be more overreported. After you have signed a contract on the same home multiple times in one year, it's likely that you are going to fight pretty hard to get the contract through a closing. Next year some of these homebuilders will be hit hard in the pocketbook by those incentives that helped them sell this year.

We will know when the new home market is stabilizing by looking at the quarterly financials of the homebuilders. It's unlikely that we will know before those start stabilizing that the new home market is correcting. Another indication of recovery would be four months running in which the completed homes for sale total didn't rise on Census Bureau reporting. We haven't seen one month yet. Remember, there are a lot more completed homes for sale not shown on the report because of the failure to pick up cancellations!

As for months of inventory, obviously if sales are over-reported and inventory is under-reported it is greater than the 6.3 months shown on the latest report. Real inventory could be 8 or 9 months. It's certainly over 7 months given the reported cancellation rates by major homebuilders.

Sunday, January 14, 2007

Well, Crap

I don't think OPEC is moving oil. I think the petty dictator coalition is moving oil. Russia failed last week; this week the rats have been deployed. Needless to say, this will affect some energy stocks:
President Hugo Chavez said on Saturday the country's entire energy sector had to be nationalized, reinforcing his socialist revolution.

He said Venezuela was "almost ready" to take over the foreign-run oil projects of the Orinoco Belt run by heavyweights such as Chevron, Conoco Phillips and Exxon Mobil, that produce about 600,000 barrels per day.
I think oil futures could go to $56-57 this week, and I think if they move big Chavez may try to take action rather than just squealing about it.

As for gas prices, I think the drop in demand in the US is probably deeper-seated than most people realize. For one thing, people are switching to smaller cars, and that trend will hold for a long while. The move is partly economic, and partly patriotic. Chief No-Nag, for instance, got angry last year and parked the big truck. He bought two old Hondas and built one good one from them. The total cost was less than $2,000, and he had a lot of fun doing it. Now I realize that Chief No-Nag's solutions tend to involve metal or wood construction of one sort of another, and that most people won't do this. But most households will tend to trade off one big vehicle for one small one, and multiplying that by millions gives you a hefty drop in consumption over a year. We have not seen a significant drop in retail gas prices in most areas though, and now we probably won't this week. China dropped.

Gas prices rose 3% in December. If you strip out gas/auto prices, retail sales gains were much more restrained. The National Retail Federation is projecting "subdued" growth to continue through the first half of 2007. If gas prices were to drop, though, this projection would have been adjusted higher.

TWIP is a good read. It sure looks to me like someone took an opportunity to shake up the oil barrel. The draw on inventory of crude presents a good opportunity to move the market this week, but gas and distallate (diesel & heating oil) supplies are high, especially in comparison to last year. However, when that red line starts heading into average territory, the market can move:

Now to EIA's short-term forecast for 2007. In 2006, oil demand in the US dropped. For 2007, it is projected to rise. China is projected to account for one-third of the world growth in demand:

I have some questions about the accuracy of the growth projection for the US. The switch to more efficient vehicles should be a cumulative effect, and construction is projected to be flat-to-slower. That's a hefty swing for manufacturing alone in one year! Note the sharp rise in 2004, which I believe is primarily due to new construction - construction which is now on the downward path, and was on that path in 2006. Construction is an extremely energy-intensive industry.

Now to growth in world oil supply projection. The most important thing to keep in mind is that OPEC is projected to have only a 29% share and non-OPEC increase in supply is projected to be around 1.1 million barrels a day (Venezuela is OPEC):

I do not see a shortage in these numbers. OPEC is restricting supply for a reason. As you can see, Russia is under pressure. It desperately needs high prices.

Friday, January 12, 2007

Retail And Gas

Sorry for not posting; the ISP has been down again! If low oil prices bores you, maybe you'll enjoy this collection of church bulletin bloopers. Work safe, and for some reason these make me howl:
The retail report confused me a bit - October and November's numbers were revised downward significantly. December's numbers were strong, but will December's numbers also be revised downward? Hopefully not, but in general I tend to mentally pencil in some revision if the revision trend has been consistent lately.

Crude oil is going low, even for February now. This morning Brent and light sweet were under $53. I assume OPEC will be meeting again, but the lower it goes the less impact further supply cuts will have. If gas prices were to fall significantly the economy could get a significant boost. Broader stimuli at this point is what we need.

What really concerns me is that the latest consumer credit report showed a huge jump in revolving credit. The split between revolving and non-revolving is also very high, and if we really are financing spending from credit cards, that surge will fade quickly.
Growth in Consumer Non-Revolving:
Sep: 0.5; Oct: -3.4; Nov: 3.0
Growth in Consumer Revolving:
Sep: 4.3; Oct: 4.2; Nov: 11.9
Total Consumer Credit Growth:
Sep: 1.9; Oct: -.06; Nov: 6.2
Hopefully December numbers won't look like this. If they do, the expectation would be that consumers would get the bills and begin to pull back on spending in the first quarter. That would be unfortunate, because the first quarter is when the new home building should start to tail off. Over the last few months starts have been strong, but new building permits are down very substantially.

On the other hand, if gas prices do fall significantly, perhaps the broad level of stimulus would offset the pullbacks and keep us in growth territory. There's no doubt that we are taking a whack in residential fixed investment, and resets will continue to hurt some households and constrain their spending, now that the rapid appreciation in home values doesn't allow those households to refi en masse again into initial low rates and low payments. This will hurt consumption. Financing spending by rolling the debt into neg-am, teaser rate mortgages and interest-only mortgages provides for lower debt repayments on consumer spending than if the balances remained on the credit cards. What controls consumer spending is the monthly ding (if anything controls it), not the overall total, which is why we have ended up with negative savings for over a year and a half.

But the number of households affected by resets is much, much lower than the number of households affected by lower gas prices. So far gas hasn't dropped much at the pump, but there's a good supply and with crude prices this low, these prices should come down significantly. I sure hope to see the gas wars begin!!!

This is the first time I have seen a set of circumstances that could offer hope to sustain real growth through the first quarter, and the first quarter is crucial. If 1stQ GDP is negative or under .8%, it is likely that a set of reinforcing downward trends will control the second quarter.

I have seen many very optimistic GDP predictions for the fourth quarter. We'll see. I have my fingers crossed.

Wednesday, January 10, 2007


Oil is going lower and lower .... If gas prices don't fall soon, I bet Congress will be holding hearings on that, too.

But for something completely different, how 'bout this UK story:
A judge has called on police to take action after a court was unable to prosecute a man who entered a woman's house in Lancashire.

Dean Marie, 40, went into the house in Padiham, put on women's clothing and performed a sex act on the woman's bed, Burnley Crown Court heard on Tuesday.
He said the defendant had "intruded appallingly on someone's privacy" but the only power he had was to bind him over for the sum of £100 to be of good behaviour for a year.
So is breaking and entering for these purposes good behavior or not? I would be really, really perturbed if I were that woman. I'd take to carrying something for self-defense in my own home.

According to the story the guy who broke in was carrying a piece of pipe, which sounds a little ominous, doesn't it? According to the prosecutor, there's no charge he can present which will result in a significant penalty. The article said that the woman who lived there was concerned for her own safety and her eight year old's safety. Who wants to worry about your eight year old encountering a pipe-carrying pervert in his own home? I'd be worried too!

Tuesday, January 09, 2007


Oil went below $55 this morning. The hedge funds are now potentially in play; if during the next two weeks it manages to go through a closing/opening cycle at $53 this may get rough quickly. Regardless, there is ice on the road ahead for equities (as I have warned before).

Yesterday's consumer credit report showed very high borrowing for November, and it was in revolving debt (most credit cards). The significance of this is that it confirms the MEW theory, which claimed that consumers have been financing spending by borrowing against home equity, and that this source of funds would dry up and force a consumer spending slowdown. The reason why consumers simply cannot shift borrowing to credit cards is that the "affordability" mortgages were offering consumers a way not to repay credit at all in some cases, and to repay it at extremely low interest rates in others. Credit cards carry higher repayment obligations than mortgages, thus less spending can be financed off them.

Consumers have been tapped out and have extremely high debt levels. A great deal of consumer spending has been financed through mortgage equity extraction, and yesterday's G.19 confirmed that it is coming to an end. DSR/FOR for the third quarter also showed the early signs. Defaults and chargeoffs at banks are also showing some elevation. The credit contraction is also occurring in the form of tightened lending terms for riskier loans; this will continue to reduce demand for housing in 2007 by at least 8%. However, this will cause further defaults, forced sales and foreclosures, which in turn will force prices lower and probably require further tightening of lending standards, which will then also constrain demand. Housing will continue to drop, although the rate of decline in 2007 will be slower than it was in 2006.

Relatively weak retail sales in the holiday season will cause the Street to watch corporate profits closely, and it will react strongly to any suggestion of weakness. This will cause electronics stocks to be very volatile, and will force these companies to tighten employment and control spending in an attempt to keep profits steadily high. The same has already happened in retail....

Whether it's a slow slide or a fast slide, we are seeing the first signs of a consumer-led recession in 2007, and it is going to impact the stock market and employment more rapidly than most have been willing to concede. The hedge funds are an unknown, unquantifiable danger.

Calculated Risk has written extensively on MEW and other developing economic trends.

Bro, I hope you sold that Motorola!

Sunday, January 07, 2007

Well, Let's See What The Ladies Are Saying

I have been consciously trying to avoid writing about politics, largely because I genuinely hope that the Democratic Congressional leadership can do better than the last Congress. It's going to be hard for them to switch from ranting about every awful program instituted in the next six years to governing, especially because many of those programs have had about as much success as one can expect in politics. So, they are now forced into a massive internal revolution of their own, and I'm rooting for them to have at least reasonable success. Anyone who is prepared to tackle the tough questions and the difficult issues will get support from me for that effort.

So, instead of writing about politics, I've been trying to write about what is really happening on the ground - because the economic position we are in will control most of the political map for the next two years. We all ought to understand what that position is, before we decide to raise taxes going into a recession, or hand out more loans to people who won't be able to repay them. The damage done to the borrower is the same whether the motive is profit or generosity.

But politics will not leave me alone; I endured a gleeful phone call from one of my brothers last week. He had to interject Pelosi's name into every other sentence, in the attempt to get a rise out of me. He knows I don't like her, and don't respect her machinations and misrepresentations. So, back to politics. No, I am not overjoyed because a woman is now Speaker of the House. Maybe I might consider possibly contemplating whether to ponder if this was a step forward for women if:
What's a real woman? Well, real women have a wider range of interests. For example, Zendo Deb is a real woman, and she's pondering electric vehicles. Real women work on their closets and drive trucks. Real women know the difference between unreasonable searches and warrantless searches. Real women are a variegated species, but they have one commonality - they are in contact with reality. They see through BS. No amount of arm-pumping is going to convince me that Nancy Pelosi, the woman who believes in a fictional Social Security trust fund, is in contact with reality. I don't think this did anything for real women.

Beth of MVRWC has Pelosi videos which should not be missed, and I guess SondraK believes the Pelosi belongs in outer space, in orbit around the planet Vulcan. Raven of And Rightly So! aptly expresses what I fear - that politics will win over governance.

Dr. Sanity posted regarding Nazanin of Iran, who is now getting a new trial. It doesn't sound very hopeful to me, but plenty of publicity can only increase her chances of getting a fair hearing. This is the girl who fought off her would-be rapists in a park, killing one of them in the process. For that act of self-defense, she was condemned to death. Tell me again how Islam respects women's rights? (That's culture, and not the Koran, btw.)

The Anchoress has written often and well about the press. She's more hopeful than I am about it. In her latest, she reiterates some error-checking, and goes on to write:
Credible news reports matter because the press possesses the public trust and therefore they have a charge - a duty - to do all they can to ascertain that the information they pass on to the nation is as accurate as it can be.
The credibility of reports - of reporters, newservices, papers and networks - matters because honest journalism is all that stands between any people and tyranny.
Oh, dear. The Anchoress used that bad word, "duty". This will inspire her journalistic foes to even more disparagement, I'm afraid. I couldn't agree with her more; I just have lost hope for most of the journalists of the mainstream press. It has fallen to bloggers to be the fact checkers, and the MSM wrath the bloggers are inspiring is a testament to how far mainstream journalism has fallen. Along with other elements of our culture, it's debased itself and needs a reformation badly.

Speaking of debasement, Fausta writes with horror of the new concept of libraries - throw out Aristotle, and make it a meet-and-greet place with large-screen TVs. No, I'm not exaggerating. You have to read this, and even then, you'll have trouble believing it. Our post-enlightenment culture is really, really unenlightened.

If you want to know what real women think about, the Cotillion's Bloglines site is a great way to start.

Friday, January 05, 2007

Very, Very Hedged Fund

Well, it was risk protection for the guy who thought it up, anyway:
A former college student who posed as a Turkish heir and persuaded sophisticated investors to pour millions into a nonexistent hedge fund was released on bond Friday.

Hakan Yalincak's release on $1.1 million bond until his Feb. 14 sentencing followed three unsuccessful bond requests.
"This has been a learning experience," said Yalincak, who pleaded guilty in June to bank and wire fraud and faces up to 50 years in prison.
The article is hilarious. Read it. Is it that the richer they are, the dumber they get? Anyone who knows anything about Turkish finance scandals should have thought twice, even if they believed Hakan was genuinely rich.

Poor ol' Hakan is just "failing forward" Casey style, I suppose. "It's all good!" "Mistakes are only sins when not admitted!" Have we bred an entire generation of pablum-spouting scammers?

What A Beautiful Morning!

It's dark, wet, and contains very good economic news. Crude oil is way down. (Ethanol isn't going to do it - we need to capitalize on this breathing room with domestic energy production.) Excellent employment report.

If this big drop in oil prices is sustained, it means lower gas prices (see Oraculations on gas/crude), which means contained inflation, which gives absolutely everyone more room to maneuver while dealing with the housing/bad mortgage shakeout.

Some points about the employment report (table B-1, which has the breakdown, is here):
Over the year, health care employment increased by 324,000, with gains spread throughout the component industries.
In the past 12 months, food services added 304,000 jobs, accounting for most of the over-the-year increase in leisure and hospitality employment.
Employment in financial activities was up by 153,000 over the year; job gains occurred in insurance (46,000) and in credit intermediation (62,000), which includes commercial banking.
Employment in transportation and warehousing continued to trend up in December. Over the year, the industry added 106,000 jobs.
After increasing by 295,000 in 2005, construction employment was little changed in 2006. Over the year, gains in non-residential speciality trades and in heavy construction were largely offset by a decline in residential specialty trades.
Over the year, manufacturing employment fell by 72,000 with declines widespread throughout the component industries.
Retail employment showed a net loss for the year, but hotels, restaurants and catering was up big. Workforce participation is up to 66.5%:
About 1.3 million persons (not seasonally adjusted) were marginally attached to the labor force in December, 337,000 fewer than a year earlier.
That's a very important statistic that shows a real gain in economic strength over the year.

There are clear negative trends - manufacturing, retail and construction are all trending down - but this report still shows that we are starting to deal with the housing employment recession from a relatively healthy starting point. The bottom line is that we are seeing a slow down in consumption, but hopefully also a pickup in hard investment. That is, if we can refrain from overbuilding ethanol plants.

If you look at the manufacturing section of table B-1, you clearly see the effect of the housing recession. SA manufacturing lost 12,000 jobs Nov-Dec (NSA was 18,000). Segments:
Seasonally adjusted retail lost 9,200 jobs. Professional and business services was very, very strong (50,000 net jobs in December).

Thursday, January 04, 2007

Can Casey Serin Go BK?

I don't think so. According to what he has written on his blog, he got his loans with:
He got the cashouts with at least 7 of the 8 houses, and I bet he did stated income on all of them. I don't think he can get away with it. On Broker Outpost, they are warning more and more not to get involved in things like this:
One of the first things that a new LO gets asked to do is to do a stated income deal where it is obvious that the borrower does not make that income. Many brokers will do whatever they can to get a loan done and make their commissions, and will often encourage their LO's to do that and sign off on the deal. Typically, the broker will look at the borrower's debts and then determine what the income needs to be to support the loan. The deal gets submitted and approved, and the Lo makes his or her commission.

Now, suppose that the loan goes south in the first year, which often happens if the income can not support the loan and other debts. If the borrower files a BK to discharge other debt, the loan gets looked at, and the borrower's tax returns are requested by the court. They also request a copy of the 1003 package, and compare incomes. If there is an obvious difference, the borrower gets investigated for loan fraud, which is punishable by jail time. The loan officer and the broker also can and do get prosecuted, and if the borrower says that the loan officer told him what to put down for the income, the LO can also go to jail. How do I know this? I have watched I know buy a house going "stated" and then filed a BK within the first year. The trustees requested her tax returns and her 1003 and noticed the big discrepancy in incomes. She is now facing prosecution and the loan officer and mortgage broker have been called in by the prosecutor as well. As it stands now, all three are looking at being charged with committing loan fraud, and all three are looking at jail time.

The moral of this story is to think twice before signing off on a stated income deal when you know the income is not there. This is a felony offense and nothing that you want to get involved with.
I cannot imagine that a bankruptcy filing with all his debt isn't going to show a number of red flags, and if he tries to lie about what he did, he'll just be getting himself deeper in the hole with perjury charges. He has no plausible deniability left. There's also a huge question as to how he managed to rack up all that debt so quickly when he seems to have scammed over $100,000 out of those mortgages. Add that to his credit lines, his credit cards, and his wife's credit cards, and I find it hard to figure out where the money went in so short a time. How did he run out of funds by July?

A lot of people think the blog is a scam, but I found the foreclosure papers in Texas, and the mortgages and the NOD's on several of the houses in CA. There is someone named Casey Serin who did buy these houses and is getting foreclosed upon, and I cannot imagine that the real Casey Serin wouldn't have showed up to counter all of the admissions of guilt if this kid were an imposter milking the story. I did find a business license on Finch (Serin = Finch) Properties in Placer County, and I found a number of business licenses for Casey Serin in Sacramento County, including a vending machine one. It kind of looks like there is no get-rich scheme that this kid won't try except working for a living. In this case, he's outsmarted himself. Did he do this all by himself? I doubt it. I bet he'll be singing like a bird soon.

My guess is that the litigation over mortgage practices is going to become overwhelming, because while most don't blog about it, such practices have become common. I don't find it surprising that subprime lenders are running into trouble - I find it surprising that so many still have their doors open. If people can't clear debt with bankruptcy, what's going to be left? We have a rather unique situation here, and yes, it is doomed to get uglier.

November Pendings

Pending Home Sales for November are out, and you can get the release at this page.
NSA numbers:
Nationally: Oct: 103.0; Nov: 89.5; Nov 05: 96.8; YoY: -9.4%
Northeast: Oct: 88.4; Nov: 70.2; Nov 05: 76.9; YoY: -8.7%
Midwest: Oct: 92.4; Nov: 81.5; Nov 05: 90.8; YoY: -10.3%
South: Oct: 115.0; Nov: 99.5; Nov 05: 107.4; YoY: -7.4%
West: Oct: 106.7; Nov: 97.1; Nov 05: 110.7; YoY: -12.2%
A number of 100 would correlate to sales in the base year 2001. Pending sales are signed contracts instead of actual sales. A word of caution: the rise in contingency provisions may indicate that less of these sales close than in recent years.

The bottom line? NAR will claim that its seasonally adjusted figures, which hit a low of 105.6 in July of 2006 compared to the current seasonally adjusted figure of 107.0 show a "stabilizing" trend. I don't see it, but they do. Their seasonal adjustment gives them a lower -0.5% month-over-month loss but a higher year-over-year loss of -11.4%, in which I don't believe.

It look like mortgage rates bottomed out in early December, so we should see a more positive pending home sales report for December. Purchase mortgage apps should correlate well with pending sales, because an app is submitted when the property is identified. I am expecting a YoY increase in the next pending sales report, because December of 2005 was poor.

Through almost all of 2006, the new factor affecting the housing market was first the halt in investment purchases and then the attempt to unload investment purchases. We now proceed to the next phase, in which the market has to reach an equilibrium somehow. This next phase is very dependent upon mortgage rates, the underlying economy and underwriting standards. Relatively to late 2004-2006, underwriting standards for the worst borrowers are tightening somewhat.

I don't think anyone can say much meaningful about this market until the middle of March. We need to find out what's sitting out there first, and see what effect the construction slowdown will really have on the larger economy. Beginning in September, the dominant new force driving the change in the housing market will be employment, so the range of possibilities is quite high going that far out.

There are a lot of bad loans out there. Probably 15% of the mortgages outstanding shouldn't have been written under the contract terms. The bottom 5% are already toast, IMO. What happens to the other 10% will depend on market forces, and underwriting standards in the last half of 2007 will be heavily influenced by those outcomes in the first half of 2007.

Rates Up, Appraisals Down, Stated???

These are reality links:

1) Who has folded? (They missed HMIC, and yes, Secured Funding is shutting down their wholesale operation.)

2) What's with these high appraisals from two years ago?

3) Will 100% financing on stated income go the way of the T Rex? Will the brokers get the blame?
I agree with mf***** in principal that banks shouldn't offer stated loans to wage earners, but especially here in Cali, it's damn near impossible to qualify someone for a purchase or a refi if they're wage earners. It's kind of either that or no market for lenders.
I'm just saying out here in California. The home values are sky-high for any stated W-2's.
d1 please clarify.... how do home value and doc type correlate ? I am going to sell my house to you for more because you are going stated
no, he is saying what has already been echoed here, and is a legitimate problem

home prices in San Diego are out of whack compared to median income
so if all stated wage earners in San Diego have to go FULL DOC, there won't be enough apartments for all the new renters...
4) Mortgage rates are at a 7 week high, but maybe economic news for the rest of the week will interrupt this trend. Maybe not.

Over at Calculated Risk they place great reliance on the states implementing the lending guidelines, but heck, if you don't verify income anyone can qualify a borrower for anything. Until the payments come due, that is.

The last I heard, Fieldstone had renegotiated covenants and was on short-term financing. We'll see.

A bunch of economic news is due out today and tomorrow, but at this point, I don't know how much it matters. What matters is what occurs in the next couple of months. Ohio has tightened to the point that some FNMA qualifications wouldn't meet its standards, but CA, FL, AZ and other such offenders can't tighten much. If they do, they bring their lending to a screeching halt.

I think that reality has not showed its ugly face yet.

Tuesday, January 02, 2007

2007's Breathless Pause

Wall Street is closed today, so we have time for a little sober reflection.

Calculated Risk has an interesting dialogue going on upon the discrepancy between the financial pundits and the homebuilding company executives. The Streeters claim that's all bright and rosy, with a new dawn for the housing industry visible over the horizon. The homebuilders are saying otherwise, and Lennar is the latest to chime in:
Lennar (Charts) also said it has "not yet seen tangible evidence of a market recovery." And it announced it would sell much of its interest in a joint venture known as LandSource, which owns a major amount of undeveloped property near Los Angeles.

The ongoing weakness in the home building market will cause Lennar to take a pretax impairment charges of $400 million to $500 million due to the revaluation of some of its assets.
Including those value adjustments and write-offs, Lennar said it will post a net loss per share between 88 cents to $1.28, compared to the net income of $3.54 a share a year earlier.
Someone's confused. It is the homebuilding executives who face legal penalties for misrepresentations, so I tend to rely on their statements. YMMV.

In other news, MLN USA is not funding loans, but there are rumors of buyouts. It appears that their account executives are being furloughed for two weeks. I think there may be competition for the servicing arm, but I doubt the burned brokers are going to be easily swayed to submit loans to MLN again after being left in the lurch. Never mess with a salesman's money.

Orange County is headed for a rough housing year; this OCRegister blog entry points out the problem:
Us: How do you think O.C. will differ from the nation or state market?
Leslie: Because of the greater-than-average inventory of unsold homes on the market, sellers in Orange County will need to be especially motivated and realistic if they are really interested in selling in today’s market. There is a lot of competition, so only those homes that are priced to sell and are in excellent condition will sell quickly.

Us: What events might change your outlook, pro or con?
Leslie: A recession or spike in mortgage rates is the most obvious negative scenario for housing.
I don't agree with the overall positive forecast of only minimal price drops in OC, however. Take a look at the HousingTracker's listing prices since October, 2005, and DQNews' reports of sales. There's a bad year ahead. List prices are down for the 25th, 50th and 75th percentiles:
25th percentile:
Oct 1, 2005: $514,900.
Jan 1, 2006: $499,900
Jan 1, 2007: $496,000
50th percentile:
Oct 1, 2005: $629,900
Jan 1, 2006: $629,000
Jan 1, 2007: $605,000
75th percentile:
Oct 1, 2005: $780,000
Jan 1, 2006: $775,000
Jan 1, 2007: $735,000
The downward trend is clear, and the subprime weakness is going to start to accelerate that trend. Prices have outstripped incomes in a big way in Orange County, CA, and now they are going to start to slowly converge again.

Right now it looks like mortgage rates are still going up. For the last three weeks, purchase money apps have been dropping and rates have been rising.

The existing home sales report for November was widely reported as being favorable. If you look at the non-seasonally adjusted numbers, it looked awful. The west and south have sprung leaks now. I guess I should post separately about that, because when you are into the second year of a multi-year downturn the valid comparisons get a bit more complicated.

Pending home sales for December will be out on the 4th, but any hope of a real semi-recovery is really pinned on mortgage rates going effectively lower (because subprime rates are going higher, and therefore to get the same overall sales we need lower prime rates), and that seems quite unlikely at the present time.

Bottom line? I cannot find the "bottom", the "recovery" or much optimism for housing in the current numbers. The big effects of the housing downturn will start to radiate through the overall economy in the first quarter as actual building follow permits down the tubes, the weakness in the construction sector impacts incomes, and the refi cashouts are constrained. The consumer can no longer be bailed out of the negative savings rate by extracting home equity increases, so it is going to be hard to sustain growth in the economy overall in 2007. Everything else would have to happen exactly right, and that is unlikely. A drop in gas prices to about $1.80-$1.90 a gallon would do it, but this I don't expect. Unfortunately, the consumer is going to be further squeezed by increases in property taxes due to revaluations in many areas, and gas prices are increasing around the country.

I think the economy will start to contract in the first quarter. We won't have official confirmation of recession until late in the year. A better indication of how things are really going for consumers is going to be fast food prices. Watch for those value-priced menus in late summer!

Monday, January 01, 2007

It's 2007!!

Fer sure. It sure is. 2007.

Seems a lot like 2006, to a bleary bulldog eye. Raining. Chilly. (Ms. Bullhardt is currently walking around the house while carefully keeping her blanket draped over her back. It's hilarious. ) The pile of rawhide packages under the Christmas tree is diminishing at an alarming rate, no matter how carefully she guards it. Last night she was cruelly harassed by a bombardment; why and how we suddenly ended up in a war zone she did not know. It appears that peace on earth has returned this morning, but her sleep deficit is not improving her mood. She's trying to catch up, but her snores are intermittently interrupted by startled grunts as another batch of loudly honking goose refugees arrives.

I conducted a brief interview with the resident prognosticator, Ms. Bullhardt, to get her prediction of what the new year holds for us. She was staring woefully at the rawhide under the Christmas tree at the time, and predicted imminent famine, followed by the weigh-in in March, followed by disrespectful comments from rude white-coated people. She also speculated on a range of environmental disasters ranging from the rain today, to the development of scorching heat later in the year, accompanied by thunderstorms, all of which would be enlivened by the reappearance of pond monsters.

Her general theme was that it will be a long time until the sacred festival of rawhide shows up again. She thinks we should all make a point of sticking together under these dire circumstances. I think she's quite serious, because there are several chunks of rawhide deposited on her bed outside, and there are suspicious lumps under the covers of her bed inside. She appears to be in a saving, conservative mood.

Dave Barry's yearly reviews are always worth reading, and I think he captured the essence of 2006:
... there are many things about 2006 that we will not want to remember. This was the year in which the members of the United States Congress, who do not bother to read the actual bills they pass, spent weeks poring over instant messages sent by a pervert. This was the year in which the vice president of the United States shot a lawyer, which turned out to be totally legal in Texas.

Also there were many pesky problems left over from 2005 that refused to go away in 2006, including Iraq, immigration, high gas prices, terrorism, global warming, avian flu, Iran, North Korea and Paris Hilton. Future generations are going to look back at this era and ask us how we could have allowed Paris Hilton to happen, and we are not going to have a good answer.
True, we won't. There can be no good answer for Paris Hilton, nor for our too-close acquaintance with Britney Spear's nether regions. The Anchoress takes a somewhat Bullhardt-ish gander at 2007, and refuses to make predictions:
2007…no predictions. The world is too crazed. Anything can happen.
For a more sprightly take on the New Year, see Dr. M, whose vacation did her good. SC&A smugly reports success in the prognostication game for 2006 but omits to make any for 2007. In a prior post, SC&A illustrates the craziness of the world, thus reinforcing The Anchoress' point.

If you want to read a very frightening set of predictions for 2007, try this article about an Iranian website hoping for the reappearance of the twelfth imam by the spring equinox. Then read MEMRI's summary of Iran's activity. This excerpt from an Iranian sci-fi series is fascinating and appalling. Pity all the sane people trapped in the craziness of our world.

There's another kind of mania haunting the western world, and Kobayashi Maru has something to say about it.

My prediction is that public sanity will be in short supply in 2007.

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