Headlines...

NEW -> Contingent Buyer Assistance Program
Kramer on Colbert, Bernanke on a helicopter, what's next?! IR outting himself, dogs and cats sleeping together, and don't forget, a "new era" of economics
 
<p><em>Banks right now are at Stage 2, anger, <a href="http://www.builderonline.com/industry-news.asp?sectionID=26&articleID=552740">blaming everyone but themselves for their foreclosure plight</a>. "But at some point, they'll move to Stage 3 - bargaining - and start discounting prices" to move their REO'd inventory. That, in turn, will inevitably produce Stage 4 - depression - and then, finally, Stage 5: acceptance. Those price reductions will probably be steeper than what's going on at auctions today. "At some point, even a 10 percent discount is not going to be enough to sell these homes," says Celia Chen, Moody's Economy.com's housing analyst.</em></p>
 
<p><a href="http://www.bloomberg.com/avp/avp.htm?clipSRC=mms://media2.bloomberg.com/cache/vINDOL2pjWeI.asf">Faber's</a> outlook. It's interesting that he hints that cash is where the action might be right now. He's sounding a bit like a deflationist, but he's careful to point out that it all depends on what the Fed does with interest rates. He suggests that if the Greenspan Put is truly dead, the dollar may strengthen.</p>

<p>(17 minute video from Doomberg)</p>
 
<p>John Burns has a great calculation on how much home prices could fall: http://www.realestateconsulting.com/local/local200706.html</p>

<p>OC needs to drop by -34% or -$245k to return to normal.</p>

<p>"The most likely scenario in these markets is that resale prices will fall, but not as much as we calculated, unless something terrible happens like mortgage rates spike or the economy enters a prolonged recession."</p>

<p>Mortgage rates for jumbo loans which you need to purchase the median priced home in OC just spiked. Matthew Padilla's most recent interview with <a href="http://mortgage.freedomblogging.com/2007/08/12/qa-on-chaos-in-market-for-mortgage-securities/">Manuel Ramirez of KBW</a> said "I believe this is likely to have a significant impact on consumers in California. With its high home prices, Jumbo loans are very common in California. The disruption in the market over the past month is likely to more negatively impact homeowners here than in any other state in the country."</p>

<p>What did John Burns say in a May 5th 1991 article? </p>

<p>"We feel the top of the real-estate market was mid-1989, and that home prices in some pockets of the county have dropped 2, 10 and 30 percent," Burns said.


He added that when home prices drop, a higher number of homeowners owe more on their mortgage than their house is worth, so they can't sell their home to pay off their debts.


"When (a long-term decline) happens to home prices, you're going to have a lot of foreclosures, and they're going to hurt." </p>

<p>He was right then and he is right now. </p>
 
<p>Major hat tip to calculated risk for this <a href="http://www.sco.ca.gov/eo/pressbox/2007/08/pr036finan10.pdf">pdf gem</a>.</p>

<p>Mmm sales taxes were down 3.5% YOY and corporate taxes were down 3.1%. But but I thought commercial RE and professional and technical jobs were going to save us? I know I should be a bit more humble but you can't say I didn't warn you.</p>
 
<p>I was with Roubini last year and his erroneous call for 0% GDP in 2006Q4. What is it that they say about economists? They always get the direction right and the timing wrong.</p>

<p>I guess we were a year early.</p>
 
Interesting little quote I got from Marc Andreessen's blog:







<p><a href="http://www.reuters.com/article/ousiv/idUSHKG13669020070812?rpc=401&">Reuters</a>, via <a href="http://paul.kedrosky.com/">Paul Kedrosky</a>:</p>



<p>Yi Xianrong, a banking and finance expert at the Chinese Academy of Social Sciences, said Chinese banks had been lax as they built up 3 trillion yuan ($396.2 billion) of mortgage lending. ...</p>

<p>"The quality of housing loans are much worse than the subprime loans in the United States," Yi was quoted as saying by the South China Morning Post.</p>

<p>"At least there has been a credit check system (in the United States) but in China anyone can borrow money to buy a house."</p>
 
<p>From <a href="http://www.dqnews.com/RRSCA0807.shtm">http://www.dqnews.com/RRSCA0807.shtm</a></p>

<p><em>"The median price paid for a Southland home was $505,000 last month, the same as the record high recorded in March, April and May. It was up 0.6 percent from $502,000 for June, and up 3.7 percent from $487,000 for July last year. </em></p>

<p><em>When adjusted for shifts in market mix (i.e. fewer lower-cost homes selling now), year-over-year price changes went negative in January and are now roughly three percent below year-ago levels. The declines are in the lower half of the market, while prices are flat or even increasing in the upper half of the market."</em></p>

<p> </p>
 
<em>``Japanese investors are sitting on huge unhedged investments that are betting on the yen falling,'' <a href="http://www.bloomberg.com/apps/news?pid=20602081&sid=aK5NlAA.L_9E&refer=benchmark_currency_rates">Redeker said</a>. ``That position can be as big as $1 trillion. If the yen keeps rising to 116 or below, retail investors will have no other choice but to hedge or liquidate short yen positions</em>
 
Stock prices on banks have been falling all night, <a href="http://www.bloomberg.com/apps/news?pid=20601085&sid=aoH0PVGkG3dk&refer=news">Bloomberg</a>. DJI Futures are sub-13k as of a few minutes ago. I think our current recession is snowballing...down a very steep slope.
 
<p>Yen at 116.84 and the almighty buck is claiming 81.74. Start watching for the unwind. And if you thought credit was getting tight the last few days? If the hedgies start unwinding ...</p>

<p>The odd thing about TMA is it is one of the more transparent of the lenders and management are straight shooters, IMO. I am short TMA, but only because odds looked like a credit crunch would hit them. If I was inclined to go long a lender and if it was a different time, TMA would be my choice.</p>
 
I think it's about $500B short for Japanese retail investors (since both sides of the trade are counted). The RBOC is in a sense short $300B on the Yen since they prefer holding far less yen than their trade balance. Instead they hold $900B of their $1.3T in foreign reserves in dollars. If they switched to a more trade balanced portfolio they would end up with substantially more yen. Foreign central banks have been big "carry trade" players by underweighting the yen systematically in their portfolios. Note this was very profitable since the yen was performing so attrociously against other currencies and central banks are often very restricted in how they can invest their funds.
 
<p>So at what point does the Yen appreciation become a positive feedback loop and start driving the markets rather than the opposite? Graphrix suggested 117 a while back, the article above suggests 116. Would Japan's central bank try to intervene to stop Yen appreciation?</p>

<p>Dumb questions, I know, but I'm a Forex dummy. </p>
 
<p>oc_flip - All great questions, most of which I have no good answers and only a few ridiculous guesses.</p>

<p>I am guessing anything under 117 will start an unwind by the hedge funds who I would guess have borrowed over a trillion in yen. The other CBs don't have to do squat, no matter what the exchange rates.</p>

<p>I would guess the JCB would try and intervene, but I would also guess they will be late to the party and the damage will have already been done. It is my observation that CBs always react and never act.</p>

<p>You and me both on the forex, but I doubt if you have to know much to munch the popcorn and enjoy.</p>
 
<p>Ah crap... I guess it's time to unwind my balance transfer arbitrage and pay off the 5% car loan.</p>

<p><a href="http://www.bloomberg.com/apps/news?pid=20601103&sid=asB8GsoJEzoY&refer=news">T-bills</a></p>

<p><strong>Text of article</strong>:<em> Aug. 15 (Bloomberg) -- U.S. three-month bill yields fell the most since October 1989 as investors sought out the safety of government debt amid a flight from risky assets. </em></p>

<p><em>The yield on the three-month Treasury bill fell 0.61 percentage point to 4.025 percent, the lowest since 2005 and the biggest single-day decline since Oct. 13, 1989. </em></p>

<p><em>The tumble in yields came after Merrill Lynch & Co. lowered its rating on Countrywide Financial Corp., the biggest U.S. mortgage lender, to ``sell'' today and raised the possibility of bankruptcy. Sydney-based Basis Capital Fund Management Ltd. said losses at one of its hedge funds may exceed 80 percent. A report showing slowing inflation also boosted debt.</em></p>

<p>Date 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr


08/15/07 4.18 4.21 4.48 4.41 4.27 4.31 4.41 4.52 4.69 5.07 5.00</p>
 
more fallout. <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=aJ192SL0ROwY&refer=home">bloomberg </a>via pmarca.blogspot.com





<em>Sentinel Management Group Inc., the Illinois-based cash-management firm that oversees $1.6 billion, froze client withdrawals after saying that credit-market turmoil made it impossible to trade without incurring losses.</em>
 
<p>NIKKEI <a href="http://www.bloomberg.com/apps/news?pid=20601087&sid=a6nH_aCjr6hQ&refer=home">bloodbath</a>, metals down, metal producers down. Yen at 116.42. Oil's hanging in there at 72 and change.</p>

<p>I don't know if I should be excited or scared. </p>
 
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