Expect plenty of bad new to be reported in the financial sector today.
UBS financial reported losses of 19 billion associated with sub-prime, it's stock price rallied 10%. Deutsche Bank reported a write-down of 3.9 billion, it's stock rallied. Pardus Capital hedge fund announced it is suspending redemption's, Lehman Bros. announces it will seek 3 billion in new capital to resupply it's liquidity reserves, Legg Mason injects 195 million to help money market fund, and last but not least, Thornburgh announces plans to raise 1.35 billion to stave off bankruptcy.
The early call for U.S. equities is for the markets to open higher. Folks, if the market refuses to go down, there are only two other options. One, is for sideways action, or two, the markets will rally.
My bet is that the equity markets are going to rally, substantially. Remember, stock investor's are forward looking. That means, that large institutional investor's, insurance companies, pension funds, etc. etc. have discounted the bad news we will be hearing in the next couple of weeks. Additionally, huge pools of money have been on the sidelines invested in treasury securities, money market funds and the like. Tons of cash is sitting around waiting to re-invest into equities.
The mid-January and early March lows are the crucial support levels. If I am wrong, the market will fall below those levels, if I am right, look for new all time highs in the S&P 500 index, the Dow Jones Industrial average and a major rally in the NASDAQ, sooner rather than later.
Tuesday, April 1, 2008
Monday, March 31, 2008
CFTC +SEC
One of the proposals in updating the regulation of the financial system is merging the CFTC (commodity futures trading commission) and the SEC (securities exchange commission). I might be more than a little biased, but I believe this is a bad idea.
Historically, New York (home of a majority of stock trading) and Chicago (home of the worlds largest futures exchanges) have been bitter rivals. New Yorker's won't say it, but, basically, they believe us mid-westerner's have mud stuck between our toe's when it comes to financial pedigree.
Chicago, on the other hand, has been the home of innovation for the diversification of asset classes. e.g. futures on treasuries, currencies & stock index futures.
As an example, on black Monday in 1987, it is a little known fact that futures on stock indexes, saved the American financial system from collapse. How did this happen? Simple really.
Back in "the day", the NYSE (New York Stock Exchange) operated under a rule called the "uptick rule". In order to be a market maker on the exchange trading floor, you had to agree to this rule. Basically, what it meant is that a market maker could not get "short", or sell a stock (in the expectation that the market maker could buy it back at a lower price later) unless there was an uptick in the stock price.
Well, on black Monday, there were no upticks, so the only thing market maker's could do was to buy what everyone else was selling. Eventually (around 11:30 a.m. cst), the market maker's ran out of money and the system was on the threshold of collapse. Phone calls were made the SEC and the Federal Reserve to inform them that "we're out of money". What is a capitalist market system to do?
The Chicago Mercantile Exchange, by the way, had suspended trading. The Chicago Board of Trade, never closed down on black Monday. The CME has a contract on the S& P500, the CBOT, had a little known contract called the "Blue Chip Index".
In, steps the CFTC, and in the first time in the history of commodities trading increased the margin (money needed to trade) requirements for equity index futures by a factor of 10X. Effectively what this did was to raise margin requirements on "winning" positions. Investor's had to meet this new margin requirement immediately, or face forced liquidation of their positions. On black Monday, everyone was "short" or expecting prices to drop. The margin requirement forced market participants to go "long", or buy equity index futures. Basically, this action by the CFTC stopped the market decline dead in it's tracks, and the bottom of the stock bear market was made. This action occured in the CBOT Blue Chip Index and then the CME re-opened it's doors.
Many market pundits point to last years elimination of the up-tick rule as a major contributor to the economic situation we find ourselves in currently. Do you really want the SEC and CFTC under the same roof? When that roof is going to be located in New York?
Historically, New York (home of a majority of stock trading) and Chicago (home of the worlds largest futures exchanges) have been bitter rivals. New Yorker's won't say it, but, basically, they believe us mid-westerner's have mud stuck between our toe's when it comes to financial pedigree.
Chicago, on the other hand, has been the home of innovation for the diversification of asset classes. e.g. futures on treasuries, currencies & stock index futures.
As an example, on black Monday in 1987, it is a little known fact that futures on stock indexes, saved the American financial system from collapse. How did this happen? Simple really.
Back in "the day", the NYSE (New York Stock Exchange) operated under a rule called the "uptick rule". In order to be a market maker on the exchange trading floor, you had to agree to this rule. Basically, what it meant is that a market maker could not get "short", or sell a stock (in the expectation that the market maker could buy it back at a lower price later) unless there was an uptick in the stock price.
Well, on black Monday, there were no upticks, so the only thing market maker's could do was to buy what everyone else was selling. Eventually (around 11:30 a.m. cst), the market maker's ran out of money and the system was on the threshold of collapse. Phone calls were made the SEC and the Federal Reserve to inform them that "we're out of money". What is a capitalist market system to do?
The Chicago Mercantile Exchange, by the way, had suspended trading. The Chicago Board of Trade, never closed down on black Monday. The CME has a contract on the S& P500, the CBOT, had a little known contract called the "Blue Chip Index".
In, steps the CFTC, and in the first time in the history of commodities trading increased the margin (money needed to trade) requirements for equity index futures by a factor of 10X. Effectively what this did was to raise margin requirements on "winning" positions. Investor's had to meet this new margin requirement immediately, or face forced liquidation of their positions. On black Monday, everyone was "short" or expecting prices to drop. The margin requirement forced market participants to go "long", or buy equity index futures. Basically, this action by the CFTC stopped the market decline dead in it's tracks, and the bottom of the stock bear market was made. This action occured in the CBOT Blue Chip Index and then the CME re-opened it's doors.
Many market pundits point to last years elimination of the up-tick rule as a major contributor to the economic situation we find ourselves in currently. Do you really want the SEC and CFTC under the same roof? When that roof is going to be located in New York?
Monday, March 17, 2008
When we are Grandparents
They will recall the history of when Bear Stearns lost 99.9999% of it's value in the brutal banking bear market of 2008.
But somehow, the market managed to rally today from a 200 point deficit, what gives?
On my March 7th entry, I stated how I could see a situation where there was a run on the banking system, but the equity markets would refuse to go lower. Can anyone deny there is a calamity in the American banking system currently?
I've spent plenty of time analyzing the psychological reasons why I feel we are near a bottom in this sell-off, let's spend some time analyzing the technical situation now facing the bears. (people who expect the market to go lower)
I am a big fan of divergences, a divergence is when (in this situation), the market makes a low, followed by a minor rally. Technical indicator's, MACD, Stochastics, whatever you might be familiar with, head lower and confirm the low and then rally's in conjuction with the minor rally in stocks.
The market then resumes it's downtrend making a new low, your technical indicator (see above), also moves lower, but fails to move below it's previous low and does not confirm the new low in the equity you are following. That, is a divergence.
Currently, there is a potential for a bullish divergence on a 60 minute and daily chart of the djia. In conjuction with that signal, the weekly and monthly charts of the djia are both oversold.
Tommorrow, there is a high probability that the equity markets will rally, a cut in interest rates by the Federal Reserve, couple with the IPO of Visa Corp. and a potentially bullish report by the bellweather Goldman Sachs, could act as a pressure relief valve for equities. (causing the djia to rally)
If my presumptions are correct, the MACD or Stocastics would move higher, confirming the bullish divergence on the 60 min and daily charts. A possibility of reversing the over-sold conditions on the weekly and monthly charts might also be in the cards.
Do not, under estimate what a bullish divergence would signal for the djia, they don't happen very often and are readily recognizable by a multitude of investors.
The psychological indicators, couple with the technical indicators, offer the possibility that a significant rally in equities could take place in the very near future. (hours or days) In addition, the inability of the djia to move to my first level of significant support 11,300 indicates that something is going on that is preventing stocks from heading lower.
11,300, would be a logical place to have a stop loss order on any aggressive position someone might put on. (risking a few percentage points in potential losses)
For the more passive, I expect a rally that will be met with plenty of skepticism, followed by a break in prices that will provide a nice entry point.
But somehow, the market managed to rally today from a 200 point deficit, what gives?
On my March 7th entry, I stated how I could see a situation where there was a run on the banking system, but the equity markets would refuse to go lower. Can anyone deny there is a calamity in the American banking system currently?
I've spent plenty of time analyzing the psychological reasons why I feel we are near a bottom in this sell-off, let's spend some time analyzing the technical situation now facing the bears. (people who expect the market to go lower)
I am a big fan of divergences, a divergence is when (in this situation), the market makes a low, followed by a minor rally. Technical indicator's, MACD, Stochastics, whatever you might be familiar with, head lower and confirm the low and then rally's in conjuction with the minor rally in stocks.
The market then resumes it's downtrend making a new low, your technical indicator (see above), also moves lower, but fails to move below it's previous low and does not confirm the new low in the equity you are following. That, is a divergence.
Currently, there is a potential for a bullish divergence on a 60 minute and daily chart of the djia. In conjuction with that signal, the weekly and monthly charts of the djia are both oversold.
Tommorrow, there is a high probability that the equity markets will rally, a cut in interest rates by the Federal Reserve, couple with the IPO of Visa Corp. and a potentially bullish report by the bellweather Goldman Sachs, could act as a pressure relief valve for equities. (causing the djia to rally)
If my presumptions are correct, the MACD or Stocastics would move higher, confirming the bullish divergence on the 60 min and daily charts. A possibility of reversing the over-sold conditions on the weekly and monthly charts might also be in the cards.
Do not, under estimate what a bullish divergence would signal for the djia, they don't happen very often and are readily recognizable by a multitude of investors.
The psychological indicators, couple with the technical indicators, offer the possibility that a significant rally in equities could take place in the very near future. (hours or days) In addition, the inability of the djia to move to my first level of significant support 11,300 indicates that something is going on that is preventing stocks from heading lower.
11,300, would be a logical place to have a stop loss order on any aggressive position someone might put on. (risking a few percentage points in potential losses)
For the more passive, I expect a rally that will be met with plenty of skepticism, followed by a break in prices that will provide a nice entry point.
Sunday, March 16, 2008
Midnight Phone Calls
Bear Stearns CEO, Alan Schwartz, was interviewed on CNBC Wednesday afternoon, and stated that his company didn't have liquidity issues.
Less than 24 hours later, late night calls were being made to the NY Federal Reserve Chairman stating that Bear could not get financial institutions to deal with it and that they would have to default on Friday without intervention.
J.P. Morgan and the New York Fed arranged a package that will keep Bear afloat for at least the next 28 days. On March 27th, the 200 billion promised by the Federal Reserve to exchange "stinky cheese", will become available. Market players expect J.P. Morgan to acquire Bear sometime this week.
It's a legitimate question to ask, why don't they let Bear default? The answer in relatively easy, if officials allow that to happen, all of Bears toxic obligations will have to hit the market and be priced. Nobody, wants that to happen because then there would be a benchmark to value the rest of sub-prime debt. That, would have the possibility of tanking the entire system.
The whole debacle started back in the summer of 2007 when two Bear Stearns hedge funds collapsed. Could karma be so complete that Bear will be the beginning and end of the sub-prime crisis? Is it not scary that liquidity could evaporate so quickly? Watch out for Lehman Bros. and Merrill Lynch, put activity below their current prices (respectively) are beginning to heat up.
To the best of my knowledge, Bear Stearns has 470 billion of highly toxic obligations, with 260 billion of marketable securities. Not a bad ratio, but that 470b is the worst of the worst.
Back in the early 90's Drexel Burnham Lambert, a privately held entity collapsed and was able to pay 100% of obligations. Bear has money and assets, so if it goes under, it will be able to pay off a large portion of it's obligations, maybe that's why J.P. was so willing to step in.
This is the market test I've been waiting for, I expect more bad news to hit soon and how the market reacts to this news is going to be most telling.
It's going to be a crazy week, the Fed meets on Tuesday with a high probability of a 100 basis point cut in interest rates. Visa, comes out with it's IPO (initial public offering). Financial institutions will begin quarterly reporting. (watch for further write-downs) In addition, quadruple witching hour in futures and options is this week. Goldman Saks, the creme' de la creme' of Wall St. reports. They have the best analysts on the street, if they followed their own advice, it should be killer on the upside and could bail out the market on it's own.
Back in July and August of 2007 nobody said the market was at a serious top and to bail. Except Matt Lapointe and I. Now in late March of 2008, the doom and gloom in palatable. This bear market is gasping it's last breath IMO, I still stand by my assertion that one of these three levels will signal the end of the bear. 11,300 - 10,600 - 10,000 based on the djia.
Less than 24 hours later, late night calls were being made to the NY Federal Reserve Chairman stating that Bear could not get financial institutions to deal with it and that they would have to default on Friday without intervention.
J.P. Morgan and the New York Fed arranged a package that will keep Bear afloat for at least the next 28 days. On March 27th, the 200 billion promised by the Federal Reserve to exchange "stinky cheese", will become available. Market players expect J.P. Morgan to acquire Bear sometime this week.
It's a legitimate question to ask, why don't they let Bear default? The answer in relatively easy, if officials allow that to happen, all of Bears toxic obligations will have to hit the market and be priced. Nobody, wants that to happen because then there would be a benchmark to value the rest of sub-prime debt. That, would have the possibility of tanking the entire system.
The whole debacle started back in the summer of 2007 when two Bear Stearns hedge funds collapsed. Could karma be so complete that Bear will be the beginning and end of the sub-prime crisis? Is it not scary that liquidity could evaporate so quickly? Watch out for Lehman Bros. and Merrill Lynch, put activity below their current prices (respectively) are beginning to heat up.
To the best of my knowledge, Bear Stearns has 470 billion of highly toxic obligations, with 260 billion of marketable securities. Not a bad ratio, but that 470b is the worst of the worst.
Back in the early 90's Drexel Burnham Lambert, a privately held entity collapsed and was able to pay 100% of obligations. Bear has money and assets, so if it goes under, it will be able to pay off a large portion of it's obligations, maybe that's why J.P. was so willing to step in.
This is the market test I've been waiting for, I expect more bad news to hit soon and how the market reacts to this news is going to be most telling.
It's going to be a crazy week, the Fed meets on Tuesday with a high probability of a 100 basis point cut in interest rates. Visa, comes out with it's IPO (initial public offering). Financial institutions will begin quarterly reporting. (watch for further write-downs) In addition, quadruple witching hour in futures and options is this week. Goldman Saks, the creme' de la creme' of Wall St. reports. They have the best analysts on the street, if they followed their own advice, it should be killer on the upside and could bail out the market on it's own.
Back in July and August of 2007 nobody said the market was at a serious top and to bail. Except Matt Lapointe and I. Now in late March of 2008, the doom and gloom in palatable. This bear market is gasping it's last breath IMO, I still stand by my assertion that one of these three levels will signal the end of the bear. 11,300 - 10,600 - 10,000 based on the djia.
Thursday, March 13, 2008
Conflicting Signals
Carlyle Financial defaults. Perfect example of the over leverage that caused sub-prime to occur. This company has 650 million of capital to cover 23 billion in exposure. Just off the top of my head, that's about $25 dollars of debt for each dollar of cash on hand.
Chrysler Corp. to shut down entirely for two weeks over the summer in a cost saving move.
Pretty bad news huh? What happened in the stock market today? It rallied.
On the plus side, Standard and Poors Corp. announces write downs at large financial institutions are just about done. In addition, write downs might exceed actual losses. Could we call that a potential cushion to soften the blow?
Don't take the headlines at face value, rather, consider the headlines in the context of what is happening overall. The talking heads on CNBC trumpeted the top in July and August of 2007 and they are trumpeting the bottom in March and April of 2008.
Consider the possibility that this might not be THE bottom, but on an intermediate basis (at least), there is the potential for a rally the average investor might be able to participate in.
The key right now, is the low in the DJIA for Monday's trade. I fully expect the bears to regroup and attempt to force the market lower. If their attempt to take out Monday's low fails, it will be a compelling argument to invest a percentage of your portfolio back into the market.
If anyone reads this good luck and don't get greedy, an old adage of the market is that bulls and bears make money while pigs get slaughtered.
Chrysler Corp. to shut down entirely for two weeks over the summer in a cost saving move.
Pretty bad news huh? What happened in the stock market today? It rallied.
On the plus side, Standard and Poors Corp. announces write downs at large financial institutions are just about done. In addition, write downs might exceed actual losses. Could we call that a potential cushion to soften the blow?
Don't take the headlines at face value, rather, consider the headlines in the context of what is happening overall. The talking heads on CNBC trumpeted the top in July and August of 2007 and they are trumpeting the bottom in March and April of 2008.
Consider the possibility that this might not be THE bottom, but on an intermediate basis (at least), there is the potential for a rally the average investor might be able to participate in.
The key right now, is the low in the DJIA for Monday's trade. I fully expect the bears to regroup and attempt to force the market lower. If their attempt to take out Monday's low fails, it will be a compelling argument to invest a percentage of your portfolio back into the market.
If anyone reads this good luck and don't get greedy, an old adage of the market is that bulls and bears make money while pigs get slaughtered.
Tuesday, March 11, 2008
Stinky Cheese
Today's action by the Federal Reserve may be the beginning of solving the problem of how to deal with large scale holders of CDO's (collateral debt obligations).
Regular readers know this issue is the last man standing in solving the sub-prime crisis. Basically, what the Federal Reserve is saying is "we will allow you to sell us your bad debt, and in exchange we will sell you treasury securities).
Treasury securities happen to be the safest investment on the planet, so I am sure there will be no shortage of takers' for this offer.
These actions should go a long way in thawing the credit freeze between banks while at the same time allowing banks to begin lending to consumers again.
In regards to the stock market, there is a possibility that yesterday was the end of the bear market. If that is the case, the action in the next two to three weeks will tell quite a bit.
After the euphoria of today wears off (probably after a few more days of upside action), the bears will attempt to regain the advantage. If at that time, the bears cannot move the market below yesterday's lows, it would be a compelling reason to re-enter the market.
If the bears are able to take out yesterday's lows, I stand by my assertion that we are near a significant low and would again look to the previously stated support levels.
Regular readers know this issue is the last man standing in solving the sub-prime crisis. Basically, what the Federal Reserve is saying is "we will allow you to sell us your bad debt, and in exchange we will sell you treasury securities).
Treasury securities happen to be the safest investment on the planet, so I am sure there will be no shortage of takers' for this offer.
These actions should go a long way in thawing the credit freeze between banks while at the same time allowing banks to begin lending to consumers again.
In regards to the stock market, there is a possibility that yesterday was the end of the bear market. If that is the case, the action in the next two to three weeks will tell quite a bit.
After the euphoria of today wears off (probably after a few more days of upside action), the bears will attempt to regain the advantage. If at that time, the bears cannot move the market below yesterday's lows, it would be a compelling reason to re-enter the market.
If the bears are able to take out yesterday's lows, I stand by my assertion that we are near a significant low and would again look to the previously stated support levels.
Friday, March 7, 2008
The Crying Game
I have to admit, I found it amusing today as I watched Cramer & Kudlow from CNBC throwing in the towel on the stock market and economy.
All the way down these individuals have offered the eternal ray of sunshine. Now, after a 2,700 point drop in the DJIA, it is suddenly no good anymore. This my friends is a classic case of capitulation which leads me to believe a substantial bottom is near.
Everyone, and I mean everyone is aware of the dangers sub-prime has caused the economy, where do we go now?
I can see a scenario where there is a run on the banking system and the equity markets refuse to go lower, it might sound crazy, but I would ask, why have investor's and money managers fought this bear market during the entire decline? Hope, denial, disbelief?
Now, I'm not saying someone should try to catch a dagger dropped from the tenth floor, but, shouldn't the possibility that the smart money exited the market long ago and is looking for a buying opportunity be considered?
I have several support levels in mind, 11,300, lowest probability of being the bottom, 10,600 and 10,000 (on the djia), any one of these levels could provide substantial support. The bear market is nearing six months old and is growing long in the tooth.
http://www.msnbc.msn.com/id/23518599
All the way down these individuals have offered the eternal ray of sunshine. Now, after a 2,700 point drop in the DJIA, it is suddenly no good anymore. This my friends is a classic case of capitulation which leads me to believe a substantial bottom is near.
Everyone, and I mean everyone is aware of the dangers sub-prime has caused the economy, where do we go now?
I can see a scenario where there is a run on the banking system and the equity markets refuse to go lower, it might sound crazy, but I would ask, why have investor's and money managers fought this bear market during the entire decline? Hope, denial, disbelief?
Now, I'm not saying someone should try to catch a dagger dropped from the tenth floor, but, shouldn't the possibility that the smart money exited the market long ago and is looking for a buying opportunity be considered?
I have several support levels in mind, 11,300, lowest probability of being the bottom, 10,600 and 10,000 (on the djia), any one of these levels could provide substantial support. The bear market is nearing six months old and is growing long in the tooth.
http://www.msnbc.msn.com/id/23518599
Wednesday, February 13, 2008
Rising from the Ashes, or Handcuffed?
As if another curve in the road was needed, the ECB is not going along with the plan of world wide cuts in interest rates. Inflation in China was 11%, last month! Crude oil at $100 a barrel, with predictions of prices to the $120's along with other signs of inflations may give the Federal Reserve pause before its cuts rates again.
That is the last thing the housing and financial institutions want to hear. A major premise of their collective position is that low interest rates, easy monetary conditions and time will cure most of the problem. The spread is widening between short and long term treasury securities, indicating a concern about inflation moving into the future.
Lowering interest rates may have negative long term consequences that the Fed must overlook due to short term conditions. Is this really the type of enviornment you want to be a basic investor of equity shares in corportate America?
The fear about the economy has reached the state level, just look at the latest discussions about stalling property tax relief because of predictions revenue streams will be down in 2008.
Obama and McCain are both populist politicians, what type of investment climate might they foster? Many uncertainties lie directly ahead, the markets hate uncertanties. The path of least resistance is down.
http://www.msnbc.msn.com/id/23129556/
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080213&id=8024968
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/HousingMessTooBigForAQuickFix.aspx
That is the last thing the housing and financial institutions want to hear. A major premise of their collective position is that low interest rates, easy monetary conditions and time will cure most of the problem. The spread is widening between short and long term treasury securities, indicating a concern about inflation moving into the future.
Lowering interest rates may have negative long term consequences that the Fed must overlook due to short term conditions. Is this really the type of enviornment you want to be a basic investor of equity shares in corportate America?
The fear about the economy has reached the state level, just look at the latest discussions about stalling property tax relief because of predictions revenue streams will be down in 2008.
Obama and McCain are both populist politicians, what type of investment climate might they foster? Many uncertainties lie directly ahead, the markets hate uncertanties. The path of least resistance is down.
http://www.msnbc.msn.com/id/23129556/
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080213&id=8024968
http://articles.moneycentral.msn.com/Investing/ContrarianChronicles/HousingMessTooBigForAQuickFix.aspx
Tuesday, February 12, 2008
The Bottom?
Sub-prime is being attacked from many different directions. The issue of property owner's is near completion, even homeowners not exposed to sub-prime, but nonetheless affected with the threat of foreclosure have help available.
The tail end of dealing with this issue is near, the remaining obstacle is how to deal with the investor's who bought the bundled mortages as securities on the open market. Once this facet of the problem is resolved, the process of putting sub-prime in the rear view mirror will begin.
The bears in the market are waiting in the weeds somewhere along the line, they will be heard from one last time. Interest rates will be cut at least one more time, the 3rd and 4th quarter of 2008 should be the turning point for financial institutions exposed to sub-prime.
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080212&id=8175887
http://blogs.moneycentral.msn.com/smartspending/archive/2008/02/08/rebate-or-bonus-the-semantics-of-spending.aspx
http://money.cnn.com/2008/02/12/news/newsmakers/warren_buffett.fortune/index.htm
The tail end of dealing with this issue is near, the remaining obstacle is how to deal with the investor's who bought the bundled mortages as securities on the open market. Once this facet of the problem is resolved, the process of putting sub-prime in the rear view mirror will begin.
The bears in the market are waiting in the weeds somewhere along the line, they will be heard from one last time. Interest rates will be cut at least one more time, the 3rd and 4th quarter of 2008 should be the turning point for financial institutions exposed to sub-prime.
http://news.moneycentral.msn.com/provider/providerarticle.aspx?feed=AP&date=20080212&id=8175887
http://blogs.moneycentral.msn.com/smartspending/archive/2008/02/08/rebate-or-bonus-the-semantics-of-spending.aspx
http://money.cnn.com/2008/02/12/news/newsmakers/warren_buffett.fortune/index.htm
Thursday, February 7, 2008
Confusion Reigns
The talking heads on cnbc are funny. Funny in the sense they have to say something, but are confused, because no one has seen anything like this before.
Sub-prime, it's everywhere and it's acting like a case of aggressive cancer. It is eating the financial system from the inside out.
Cutting interest rates is like pushing on a string, there are calls from so-called "free market" types, crying for a government bail-out of the entire situation. Best guess, is that's a couple trillion dollar proposition.
The FBI is investigation numerous institutions for fraud, let's not even discuss AMBAC or MBIA, which are insurance entities for municipal and corportate debt. They are required to be rated AAA, but as of right now, they are, but in name only. Can anyone say "shell game".
Ugly, ugly, ugly. Keep your powder dry, the investment opportunity of a life time is somewhere down the road. O.k., let's talk about AMBAC and MBIA, see the link below
http://articles.moneycentral.msn.com/Investing/SuperModels/TheBigThreatOfMuniDebt.aspx
Sub-prime, it's everywhere and it's acting like a case of aggressive cancer. It is eating the financial system from the inside out.
Cutting interest rates is like pushing on a string, there are calls from so-called "free market" types, crying for a government bail-out of the entire situation. Best guess, is that's a couple trillion dollar proposition.
The FBI is investigation numerous institutions for fraud, let's not even discuss AMBAC or MBIA, which are insurance entities for municipal and corportate debt. They are required to be rated AAA, but as of right now, they are, but in name only. Can anyone say "shell game".
Ugly, ugly, ugly. Keep your powder dry, the investment opportunity of a life time is somewhere down the road. O.k., let's talk about AMBAC and MBIA, see the link below
http://articles.moneycentral.msn.com/Investing/SuperModels/TheBigThreatOfMuniDebt.aspx
Tuesday, February 5, 2008
Super Tuesday
Sometime later this evening, it should be clear who the presidential candidates for the November election will be.
The press, is in love with Obama and McCain. Populists both, big business and big money managers are becoming nervous.
Clinton and Romney make these entites much more comfortable. Clinton, because of the fond memories of her husbands Presidency, and Romney, because he is one of them, a money guy.
The thought of one of the former being President, means the end of the gravy train. Obama is all feel good rhetoric, but there are signs he is assembling a good economic team. Paul Volker endorsing Obama will not go unnoticed. McCain, does not have a love fest going on with his own party, so lot's of uncertainty there.
The press, is in love with Obama and McCain. Populists both, big business and big money managers are becoming nervous.
Clinton and Romney make these entites much more comfortable. Clinton, because of the fond memories of her husbands Presidency, and Romney, because he is one of them, a money guy.
The thought of one of the former being President, means the end of the gravy train. Obama is all feel good rhetoric, but there are signs he is assembling a good economic team. Paul Volker endorsing Obama will not go unnoticed. McCain, does not have a love fest going on with his own party, so lot's of uncertainty there.
Sunday, February 3, 2008
Why they play the game
Giants win!! Who would have thought?
If your a regular reader, I apologize for not posting recently. I've been a little under the weather this past week.
Most of my posts have been in regards to Hammond property & taxation. This one won't be any different, except for the fact I'd like to move the discussion in a different direction.
Change is often met with skepticism, but ready or not, change is coming. As I stated in a previous post, rental property owners will benefit greatly if the Govenor's proposals are adopted.
I have also posted previously that I believe rental property is an intergral part of the housing options for city residents. However, I do not believe houses cut up into multiple rental units is beneficial to the fabric of the city.
An old victorian made into a two or three flat is one thing, cutting up a garage into a three unit rental is another entirely. People, are not cattle to be herded into a convienent location to maximize profit.
What type of people would want to live in such an enviornment? I would imagine the poor, who are most vulnerable to being taken advantage of. Perhaps illegal immigrants, who probably wouldn't cause a fuss if they were unhappy with the living conditions.
The city, for it's part, appears ready to attack the problem. A litmus test will be how the case of the garage cut-up turns out. Besides the issue of whether permits were drawn to do the work, I would imagine the city somewhere must have an ordinance concerning square footage and density of population inhabitating that footage. Beyond that, was the work done up to standard. Judge Harkins docket, might be filling up in the not too distant future.
So while legitimate rental property owners are about to see the bottom line improve, the clock is running on those who are not. I do not begrudge anyone making money, but it's hard to raise the profile of the city when too many view it as a holding pen for livestock
If your a regular reader, I apologize for not posting recently. I've been a little under the weather this past week.
Most of my posts have been in regards to Hammond property & taxation. This one won't be any different, except for the fact I'd like to move the discussion in a different direction.
Change is often met with skepticism, but ready or not, change is coming. As I stated in a previous post, rental property owners will benefit greatly if the Govenor's proposals are adopted.
I have also posted previously that I believe rental property is an intergral part of the housing options for city residents. However, I do not believe houses cut up into multiple rental units is beneficial to the fabric of the city.
An old victorian made into a two or three flat is one thing, cutting up a garage into a three unit rental is another entirely. People, are not cattle to be herded into a convienent location to maximize profit.
What type of people would want to live in such an enviornment? I would imagine the poor, who are most vulnerable to being taken advantage of. Perhaps illegal immigrants, who probably wouldn't cause a fuss if they were unhappy with the living conditions.
The city, for it's part, appears ready to attack the problem. A litmus test will be how the case of the garage cut-up turns out. Besides the issue of whether permits were drawn to do the work, I would imagine the city somewhere must have an ordinance concerning square footage and density of population inhabitating that footage. Beyond that, was the work done up to standard. Judge Harkins docket, might be filling up in the not too distant future.
So while legitimate rental property owners are about to see the bottom line improve, the clock is running on those who are not. I do not begrudge anyone making money, but it's hard to raise the profile of the city when too many view it as a holding pen for livestock
Wednesday, January 30, 2008
0.6
0.6% thats how much the national economy expanded in the 4th quarter of 2007. This is the slowest rate of growth since 2002. Expect contraction in the first quarter of 2008.
The Federal Reserve cut interest rates an additional 50 basis points. After a sharp rally on the news, the Dow Jones Industrial average ended the day down 35 points. Now the waiting game begins again. It is unlikely the Fed will cut interest rates in the near future, there is a need to assess the impact of these latest cuts.
The FBI has launched an investigation into 14 different financial entities in regards to fraud commited against consumers of sub-prime home loans. The ball of yarn continues to unravel and the counter trend rally off of last weeks lows, might be running out of steam. Companies reporting quarterly earnings over the next week to ten days should be a major influence in equity markets.
I would love to say the low is in and the time to buy stocks is at hand, but I can't. That doesn't mean I'm right, but if the low was made last week, there should be an opportunity to revisit that level before the next bull run begins.
The Federal Reserve cut interest rates an additional 50 basis points. After a sharp rally on the news, the Dow Jones Industrial average ended the day down 35 points. Now the waiting game begins again. It is unlikely the Fed will cut interest rates in the near future, there is a need to assess the impact of these latest cuts.
The FBI has launched an investigation into 14 different financial entities in regards to fraud commited against consumers of sub-prime home loans. The ball of yarn continues to unravel and the counter trend rally off of last weeks lows, might be running out of steam. Companies reporting quarterly earnings over the next week to ten days should be a major influence in equity markets.
I would love to say the low is in and the time to buy stocks is at hand, but I can't. That doesn't mean I'm right, but if the low was made last week, there should be an opportunity to revisit that level before the next bull run begins.
Monday, January 28, 2008
How do you lose 7 billion?
The attempts to pin last weeks worldwide securities losses on a single trader at a French firm, raises red flags, if not outright security alarms. Attempting to gain a reputation as an elite securities dealer in the firm, he placed huge leveraged positions that initially worked to his advantage, but turned against him during some stage of last weeks turmoil.
The drop in new home sales in 2007 is the largest since they started keeping records. This is the worst overall housing slump in over two decades. Billions upon billions of dollars of dubious home loans were bundled as securities, and a 20 something hot shot caused the whole mess in last weeks financial markets?
I don't know about all that, there is a verifiable paper trail that records trades, so more than a couple of individuals should have noticed. Seven billion, is not just going to fall through the cracks.
It is a convenient diversion at just the right time, maybe even a scapegoat? The season of cover your a** has begun, the first lawsuits concerning sub-prime have been filed. Over the next several months, the truth about sub-prime will be exposed, just like Enron and steroids in baseball.
Federal Reserve meets Wednesday, expect a cut in interst rates, probably 50 basis points. After that, it will turn into a game of who blinks first, again.
The drop in new home sales in 2007 is the largest since they started keeping records. This is the worst overall housing slump in over two decades. Billions upon billions of dollars of dubious home loans were bundled as securities, and a 20 something hot shot caused the whole mess in last weeks financial markets?
I don't know about all that, there is a verifiable paper trail that records trades, so more than a couple of individuals should have noticed. Seven billion, is not just going to fall through the cracks.
It is a convenient diversion at just the right time, maybe even a scapegoat? The season of cover your a** has begun, the first lawsuits concerning sub-prime have been filed. Over the next several months, the truth about sub-prime will be exposed, just like Enron and steroids in baseball.
Federal Reserve meets Wednesday, expect a cut in interst rates, probably 50 basis points. After that, it will turn into a game of who blinks first, again.
Sunday, January 27, 2008
Supply/Demand & Cut-Ups
A domestic disturbance call, turned into crack drug bust, has cast a spotlight on the cut-up house phenomenon. It is alleged this multi-unit property was registered with a homestead exemption.
Without focusing on this particular instance, it could be beneficial to understand the implications of how situations like this effect the entire city.
Let's start with the social considerations. Crack, is a devastating drug, crimes like muggings and break-ins become more common, users, need money to finance the next purchase. Crimes like these, sometimes unbelievably brazen, strike at the heart of the community fabric.
Leaving the community becomes an option, people spend less time interacting with their neighbors and become isolated from one another. Quality of life suffers.
Now think of the economic impact. Business, will be hard pressed to invest in areas where they feel. (but might not admit) uncomfortable about the prospects of being burglarized. Insurance premiums will be higher, shrinkage of inventory and store theft will be concerns. That's all before you start talking about the tax consequences.
But what if you attacked to supply side? For starter's, let me state, that as a guy who has been through a large portion of the city, there are some houses in Hammond that are huge. Way beyond the means of the average family and easily convertible into a two or three flat. I have seen buildings in Hammond like the one mentioned above with eight mail boxes by the front door, so there are extreme examples out there.
The phase out of cut-ups, or the process of turning them into safe, accounted for entities should be a top priority of city officials and landlords. Resolving the cut-up house problem, will lower the overall number of rental units and provide additional benefits for the entire city. It is unfair that the owner of a multi-unit building should gain the benefit of a homestead exemption.
Reducing the overall number of rental units, will provide price stability for the remaining units and create incremental price appreciation in all properties. The ability to increase rent, will be enhanced.
If economic conditions I've mentioned in other posts become reality, foreclosed, abandoned, etc. property in Hammond might be one of the first places bargain hunters look. If this was true, it would create incremental price appreciation in Hammond property values. Rental property owners would participate in this positive development, and their ability to increase rent would be enhanced.....................hhmmn
Without focusing on this particular instance, it could be beneficial to understand the implications of how situations like this effect the entire city.
Let's start with the social considerations. Crack, is a devastating drug, crimes like muggings and break-ins become more common, users, need money to finance the next purchase. Crimes like these, sometimes unbelievably brazen, strike at the heart of the community fabric.
Leaving the community becomes an option, people spend less time interacting with their neighbors and become isolated from one another. Quality of life suffers.
Now think of the economic impact. Business, will be hard pressed to invest in areas where they feel. (but might not admit) uncomfortable about the prospects of being burglarized. Insurance premiums will be higher, shrinkage of inventory and store theft will be concerns. That's all before you start talking about the tax consequences.
But what if you attacked to supply side? For starter's, let me state, that as a guy who has been through a large portion of the city, there are some houses in Hammond that are huge. Way beyond the means of the average family and easily convertible into a two or three flat. I have seen buildings in Hammond like the one mentioned above with eight mail boxes by the front door, so there are extreme examples out there.
The phase out of cut-ups, or the process of turning them into safe, accounted for entities should be a top priority of city officials and landlords. Resolving the cut-up house problem, will lower the overall number of rental units and provide additional benefits for the entire city. It is unfair that the owner of a multi-unit building should gain the benefit of a homestead exemption.
Reducing the overall number of rental units, will provide price stability for the remaining units and create incremental price appreciation in all properties. The ability to increase rent, will be enhanced.
If economic conditions I've mentioned in other posts become reality, foreclosed, abandoned, etc. property in Hammond might be one of the first places bargain hunters look. If this was true, it would create incremental price appreciation in Hammond property values. Rental property owners would participate in this positive development, and their ability to increase rent would be enhanced.....................hhmmn
Thursday, January 24, 2008
So it begins
The dramatic action by the Federal Reserve Bank on Tuesday morning, prior to the opening of domestic stock markets, has provided a glimpse behind the curtain on how sub-prime might be resolved.
The immediate purpose of the rate cuts, was to alleviate a panic mentality that was gripping equity and financial markets worldwide. A secondary, but still important benefit, is that banks immediately become more profitable with the drop in interest rates. The drop in rates, will also allow banks to reliquefy, or replace capital lost in write-offs due to sub-prime. With another rate cut expected in the immediate future, this process, will only accelerate.
Low interest rates heading into spring, combined with the government (Federal) putting some money into every one's pocket, is going to equate into a lot of happy home refinancing for currently nervous loan holders come summertime. Heading into the fall, banks will be reporting some impressive profits on their quarterly reports. Any property owner in Hammond who loses their property due to foreclosure in 2008, is likely doing so unnecessarily.
The only thing that remains is how investors in CDO's (collateralized debt obligations), and similarly named exotic derivatives will be treated. If this last piece of the puzzle can be figured out, I believe the "fever" could be broken. If this theory is close to what actually happens, in six to eight months, the light at the end of the tunnel should be pretty large.
A resolution of sub-prime would set in place the second leg of my three legged stool. The first leg being the continued decline in interest rates. The third leg being property tax reform. This last leg, looks like it will be the hardest to "fit".
If a way to finance government (taxation), which is equitable to homeowners, property owners and business owners can be achieved, the value of Hammonds strategic location could be more readily realized. Creating an increase in value and jobs that would dwarf the loss of municiple employment incurred through the stream-lining of government. Over the course of time, quality of life would increase, median family and household incomes would rise, as would property values.
Do we have anyone on the other side of the valley checking to see if "prospects are good", or do we have a bunch of malcontents circulating in the crowd saying "this sucks"?
The immediate purpose of the rate cuts, was to alleviate a panic mentality that was gripping equity and financial markets worldwide. A secondary, but still important benefit, is that banks immediately become more profitable with the drop in interest rates. The drop in rates, will also allow banks to reliquefy, or replace capital lost in write-offs due to sub-prime. With another rate cut expected in the immediate future, this process, will only accelerate.
Low interest rates heading into spring, combined with the government (Federal) putting some money into every one's pocket, is going to equate into a lot of happy home refinancing for currently nervous loan holders come summertime. Heading into the fall, banks will be reporting some impressive profits on their quarterly reports. Any property owner in Hammond who loses their property due to foreclosure in 2008, is likely doing so unnecessarily.
The only thing that remains is how investors in CDO's (collateralized debt obligations), and similarly named exotic derivatives will be treated. If this last piece of the puzzle can be figured out, I believe the "fever" could be broken. If this theory is close to what actually happens, in six to eight months, the light at the end of the tunnel should be pretty large.
A resolution of sub-prime would set in place the second leg of my three legged stool. The first leg being the continued decline in interest rates. The third leg being property tax reform. This last leg, looks like it will be the hardest to "fit".
If a way to finance government (taxation), which is equitable to homeowners, property owners and business owners can be achieved, the value of Hammonds strategic location could be more readily realized. Creating an increase in value and jobs that would dwarf the loss of municiple employment incurred through the stream-lining of government. Over the course of time, quality of life would increase, median family and household incomes would rise, as would property values.
Do we have anyone on the other side of the valley checking to see if "prospects are good", or do we have a bunch of malcontents circulating in the crowd saying "this sucks"?
Consequences of Stagnation
My near term bearishness in equity markets has been short-circuited, momentarily. U.S. Stock traders and fund managers returned from a three day weekend, facing a dramatic sell-off in worldwide stock markets.
A 75 basis point cut in key U.S. interest rates, a event last seen in 1984, with the promise of further cuts, combined with assurances an economic "stimulus" package was practically "guaranteed", stabilized markets after a rocky opening Tuesday morning.
This dramatic action has bought the governments around the globe some time, time, to figure out a game plan on how to deal with the inevitable consequences of reckless American property lending, distributed throughout the global financial system.
Say what you will about government policies or institutions, the only outcome more important to the Federal Reserve than economic stability, is economic survival.
Compare the example above, with the backwards thinking of Lake County politicians. The corpse that was the defeat of the 1% county income tax, wasn't even cold, before an apparently successful attempt to resuscitate it was initiated. The democrats can punt on this one, but they have just as big a stake in this tax as the state does in trying to initiate it.
As if that mind set wasn't bad enough, region democratic leaders quickly latched onto the idea of an additional .25% increase on the county tax for police and fire protection. That puts that total at 1.25% on the county tax, which less than a month ago, we all thought was dead.
At the same time, law makers want to spread out the beneficial effects of property tax reform. Phased in over the course of a couple years, it's intent is to reduce the stress on local government during the transition, while ultimately denying property owners the relief, many desperately need.
This would all be good and well, except for the disturbing fact there has been no discussion of cutting expenses or consolidating services. Is the mind set of the alleged patronage army in the city of Hammond (or Lake County) so provincial, that they don't believe they could compete and benefit in a revitalized Hammond?
Is there no stomach for dramatic action?
A 75 basis point cut in key U.S. interest rates, a event last seen in 1984, with the promise of further cuts, combined with assurances an economic "stimulus" package was practically "guaranteed", stabilized markets after a rocky opening Tuesday morning.
This dramatic action has bought the governments around the globe some time, time, to figure out a game plan on how to deal with the inevitable consequences of reckless American property lending, distributed throughout the global financial system.
Say what you will about government policies or institutions, the only outcome more important to the Federal Reserve than economic stability, is economic survival.
Compare the example above, with the backwards thinking of Lake County politicians. The corpse that was the defeat of the 1% county income tax, wasn't even cold, before an apparently successful attempt to resuscitate it was initiated. The democrats can punt on this one, but they have just as big a stake in this tax as the state does in trying to initiate it.
As if that mind set wasn't bad enough, region democratic leaders quickly latched onto the idea of an additional .25% increase on the county tax for police and fire protection. That puts that total at 1.25% on the county tax, which less than a month ago, we all thought was dead.
At the same time, law makers want to spread out the beneficial effects of property tax reform. Phased in over the course of a couple years, it's intent is to reduce the stress on local government during the transition, while ultimately denying property owners the relief, many desperately need.
This would all be good and well, except for the disturbing fact there has been no discussion of cutting expenses or consolidating services. Is the mind set of the alleged patronage army in the city of Hammond (or Lake County) so provincial, that they don't believe they could compete and benefit in a revitalized Hammond?
Is there no stomach for dramatic action?
Wednesday, January 23, 2008
Managing Change
Part of the requirements in full filling the duties associated with my job, was mandatory training to increase management skills, and reinforce existing skills. An awesome teacher and mentor, had a theory that I've found very useful over the years.
An organization or business that faces significant change, is inevitably going to reach a stage he called, "the valley of despair". During this stage, a decision will be made, that will alter the group to such a degree, that it will have reinvented itself.
Imagine the stress and anxiety of being in such a situation, jobs and levels of income might be at stake. The fear of adopting previously unknown business practices and the ever present threat of competition makes it impossible to remain in your comfort zone. The possibility of failure, has the ability to drag morale, to unacceptable levels.
The pain of the known, becomes preferable to the thoughts of the unknown. Talks of a better future, are met with barely concealed disdain. Does any of this sound familiar?
The loss of jobs associated with the decline of our historical economic base? The exodus of family's that has frayed the community fabric? Taxed excessively and dismissed far too easily by a large percentage of our elected leaders? Could it be we have reached the near edge of the valley?
In the valley of despair theory, there will be the initial brave souls, who attempt to cross the valley and explore the other side, to see if prospects are good. Some will make it, others won't. Successful participants in this initial group will encourage others, some, will be convinced. Many in this second group will be scared, but encouraged by the leaders, will continue to the other side. A third group exists, this group, had to be convinced to leave initially, seeing the difficulty in crossing, they won't even contemplate the journey.
I guess the purpose of this post is to ask the reader, which group are you in? Hammond, is at a cross-roads. The decisions made in the next couple of years are going to affect the region for the next couple of decades. These decisions are difficult, and they are going to be expensive on many different levels, not just monetarily. I would only ask the reader to resist the feeling of disdain when a brighter future is discussed. Weigh the choices overall, be inquisitive and let your opinion be heard.
An organization or business that faces significant change, is inevitably going to reach a stage he called, "the valley of despair". During this stage, a decision will be made, that will alter the group to such a degree, that it will have reinvented itself.
Imagine the stress and anxiety of being in such a situation, jobs and levels of income might be at stake. The fear of adopting previously unknown business practices and the ever present threat of competition makes it impossible to remain in your comfort zone. The possibility of failure, has the ability to drag morale, to unacceptable levels.
The pain of the known, becomes preferable to the thoughts of the unknown. Talks of a better future, are met with barely concealed disdain. Does any of this sound familiar?
The loss of jobs associated with the decline of our historical economic base? The exodus of family's that has frayed the community fabric? Taxed excessively and dismissed far too easily by a large percentage of our elected leaders? Could it be we have reached the near edge of the valley?
In the valley of despair theory, there will be the initial brave souls, who attempt to cross the valley and explore the other side, to see if prospects are good. Some will make it, others won't. Successful participants in this initial group will encourage others, some, will be convinced. Many in this second group will be scared, but encouraged by the leaders, will continue to the other side. A third group exists, this group, had to be convinced to leave initially, seeing the difficulty in crossing, they won't even contemplate the journey.
I guess the purpose of this post is to ask the reader, which group are you in? Hammond, is at a cross-roads. The decisions made in the next couple of years are going to affect the region for the next couple of decades. These decisions are difficult, and they are going to be expensive on many different levels, not just monetarily. I would only ask the reader to resist the feeling of disdain when a brighter future is discussed. Weigh the choices overall, be inquisitive and let your opinion be heard.
Tuesday, January 22, 2008
Capitulation?
Prepare yourself for a wild ride today in the financial markets. The pre-opening in the Dow Jones and S&P 500 index markets is down over 5%.
Today, you will see fear and maybe even some panic. Mostly, you'll hear for Bernackes head on a platter. This man will go down in history as a putz, but in my opinion, he inherited many problems from Chairman Greenspan. Greenspan, thought sub-prime loans (they weren't called that back in the day), were a great tool for more Americans to achieve the American dream, home ownership. He also, never grew a backbone. Throughout his term as Fed Chairman, he allowed no pain in the financial markets. Every time there was brush fire (economically), he doused it with easy money. This allowed asset class after asset class to experience it's own speculative bubble, with the investment community knowing Greenspan would bail them out. The financial markets are clamoring for the Fed to lower interest rates by 75 basis points today, which if Greenspan was still the Chairman would be guaranteed. Does Bernacke have the fortitude to tell the market no?
While the wealth destruction that will occur today is very real, it is also very necessary. The seeds of this destruction will sprout into the next sustained recovery. Reality, will move back to the fore-front. Opportunity, albeit in a different form will present itself.
Now, is the time to be a super contrarian, the best buying opportunity in a decade for stocks is just around the corner. Now, I would never recommend someone step in front of a freight train, but, it appears stocks are set to wash-out. Historically, some of the worst bear markets are in the 30% to 35% range. The Dow is already down 15% from it's all-time high, and is scheduled to open over 5% lower on today's opening. To me, that says we're going to bottom sometime relatively soon. A 30% bear market in the Dow Jones would put it in the 10,000 range.
One of the worst things to happen would be for stocks to rally today after a bad opening. It would relieve the pressure, short-term, but, would revive hope. Let it crash IMO.
Today, you will see fear and maybe even some panic. Mostly, you'll hear for Bernackes head on a platter. This man will go down in history as a putz, but in my opinion, he inherited many problems from Chairman Greenspan. Greenspan, thought sub-prime loans (they weren't called that back in the day), were a great tool for more Americans to achieve the American dream, home ownership. He also, never grew a backbone. Throughout his term as Fed Chairman, he allowed no pain in the financial markets. Every time there was brush fire (economically), he doused it with easy money. This allowed asset class after asset class to experience it's own speculative bubble, with the investment community knowing Greenspan would bail them out. The financial markets are clamoring for the Fed to lower interest rates by 75 basis points today, which if Greenspan was still the Chairman would be guaranteed. Does Bernacke have the fortitude to tell the market no?
While the wealth destruction that will occur today is very real, it is also very necessary. The seeds of this destruction will sprout into the next sustained recovery. Reality, will move back to the fore-front. Opportunity, albeit in a different form will present itself.
Now, is the time to be a super contrarian, the best buying opportunity in a decade for stocks is just around the corner. Now, I would never recommend someone step in front of a freight train, but, it appears stocks are set to wash-out. Historically, some of the worst bear markets are in the 30% to 35% range. The Dow is already down 15% from it's all-time high, and is scheduled to open over 5% lower on today's opening. To me, that says we're going to bottom sometime relatively soon. A 30% bear market in the Dow Jones would put it in the 10,000 range.
One of the worst things to happen would be for stocks to rally today after a bad opening. It would relieve the pressure, short-term, but, would revive hope. Let it crash IMO.
Friday, January 18, 2008
The Courtship of Landlords and City Government
Of course, the black widow cannibalizes her lover after the mating ritual is complete.
After all these years of upheaval, Governor Daniels proposed property tax legislation might force these reluctant participants together. Beyond the taunts of slum lord and corruption, is the steady undercurrent of money.
Back in the good old days when Wes Miller was cutting his teeth on Harrison Park, it was indeed a run-down, blighted area in need of redevelopment. Economic conditions weren't so good either, interest rates were at historical highs and property values were at much lower levels than they are currently. Taxes, were still based on the depreciation model.
Individuals with the capital to invest in such an environment, no doubt found the ability to make a profit. Nothing wrong with that, it's the American way. Local government didn't care much, they had heavy industry footing the bill. The advent of the "cut-up", however, was not a positive addition to the housing stock of Hammond.
The onset of reassessment, has changed the landscape dramatically. Not only has the tax burden been shifted from big business to the residential property owner, but interest rates have dropped to generational lows. At the same time property values have skyrocketed, North Lake County Indiana being one of the exceptions. Local government, cares very much about where it's revenue stream is being generated now days.
Governor Daniels 1-2-3% property tax proposal is a god-send for residential and small rental unit property owners. For local government, it's a disaster waiting in the wings. Reducing homeowners property taxes to 1% is a 50% savings for that group. For rental property owners, who are paying approximately 5% of the value of their property, going down to 2% is a 60% savings on their tax bills. Even with the proposed savings from the state taking over welfare payments and opportunity for further savings on the expense side, the loss of revenue for the city will be devastating.
True, a resolution of the property tax mess will release some "latent" price appreciation in Hammond property values, and quite possibly will generate an increase in business interest in locating in Hammond. These would be positive developments, no doubt, but in the immediate aftermath of property tax realignment, they would not provide enough boost to make up the difference.
It is obvious that an alternative source of revenue will be required in conjunction with property tax relief. Something to talk about?
After all these years of upheaval, Governor Daniels proposed property tax legislation might force these reluctant participants together. Beyond the taunts of slum lord and corruption, is the steady undercurrent of money.
Back in the good old days when Wes Miller was cutting his teeth on Harrison Park, it was indeed a run-down, blighted area in need of redevelopment. Economic conditions weren't so good either, interest rates were at historical highs and property values were at much lower levels than they are currently. Taxes, were still based on the depreciation model.
Individuals with the capital to invest in such an environment, no doubt found the ability to make a profit. Nothing wrong with that, it's the American way. Local government didn't care much, they had heavy industry footing the bill. The advent of the "cut-up", however, was not a positive addition to the housing stock of Hammond.
The onset of reassessment, has changed the landscape dramatically. Not only has the tax burden been shifted from big business to the residential property owner, but interest rates have dropped to generational lows. At the same time property values have skyrocketed, North Lake County Indiana being one of the exceptions. Local government, cares very much about where it's revenue stream is being generated now days.
Governor Daniels 1-2-3% property tax proposal is a god-send for residential and small rental unit property owners. For local government, it's a disaster waiting in the wings. Reducing homeowners property taxes to 1% is a 50% savings for that group. For rental property owners, who are paying approximately 5% of the value of their property, going down to 2% is a 60% savings on their tax bills. Even with the proposed savings from the state taking over welfare payments and opportunity for further savings on the expense side, the loss of revenue for the city will be devastating.
True, a resolution of the property tax mess will release some "latent" price appreciation in Hammond property values, and quite possibly will generate an increase in business interest in locating in Hammond. These would be positive developments, no doubt, but in the immediate aftermath of property tax realignment, they would not provide enough boost to make up the difference.
It is obvious that an alternative source of revenue will be required in conjunction with property tax relief. Something to talk about?
Thursday, January 17, 2008
Band of Bloggers
Now that Joe McCarthy has the mother ship operational, I'd like to welcome you, and my fellow bloggers to Hammond First.
Joe McCarthy, Matt Saliga, Bill Bahus and I look forward to sharing our thoughts and insights on where Hammond is and where we believe it should be headed.
Looking forward to the additions of Matt LaPointe and Amy Wigsmoen as they launch their blogs. As a group, we anticipate future interviews with local elected leaders, business interests and community activists. Sharing this information with readers and voters to provide a balanced assessment of our common interests will be a top priority.
Hammond First, is privately funded, it's intent is to provide public information for the benefit of Hammond residents. Ease of use, is a top priority of the site. Comments or suggestions are appreciated. Periodically, a hard copy of Hammond First will be produced for registered Republicans in Hammond who may not have computer access.
Thank you for visiting our site..
Ken Jakubczak
Joe McCarthy, Matt Saliga, Bill Bahus and I look forward to sharing our thoughts and insights on where Hammond is and where we believe it should be headed.
Looking forward to the additions of Matt LaPointe and Amy Wigsmoen as they launch their blogs. As a group, we anticipate future interviews with local elected leaders, business interests and community activists. Sharing this information with readers and voters to provide a balanced assessment of our common interests will be a top priority.
Hammond First, is privately funded, it's intent is to provide public information for the benefit of Hammond residents. Ease of use, is a top priority of the site. Comments or suggestions are appreciated. Periodically, a hard copy of Hammond First will be produced for registered Republicans in Hammond who may not have computer access.
Thank you for visiting our site..
Ken Jakubczak
Tuesday, January 15, 2008
Buying America on the Cheap
I was going to title this post "wealth destruction", but the consequences of sub-prime will extend deeper than our collective pocket books.
The financial markets had a tough day (dow down 277) with reported quarterly losses of Merrill Lynch and Citigroup topping $32 Billion (yes, billion) dollars. More bad action expected tomorrow, Intel down 16% (yes, 16%) in after hours trading, on a bad earnings report.
We might be in the beginning of the "capitulation" phase of sub-prime. The hope, is that the financial institutions exposed to sub-prime will come clean, so that the true extent of the problem becomes known. If this is capitulation, it could get ugly over a short period of time. If financial institutions don't come clean, it could turn into a prolonged battle with action to the downside predominant. Hedge funds, with requirements that are not as strict, don't report nearly as often as a publicly held company.
Anyway, buying America on the cheap. As I commented in an earlier post, Bank of America purchased Country Wide Financial for about 4 billion dollars. Not sure what CWF stock is right now ($6 or $7), but in the spring of 07, is was about $45. So BofA, if it can make it work, got a great deal.
It's not so great that in order for Merrill Lynch to ensure it's survival, Kuwait Investment Authority, was able buy a 6.6 Billion stake in the company on the cheap. Citigroup cut it's dividend 41%, is eliminating in excess of 21,000 jobs and still had to sell a $10 billion stake to the Government Investment corp. of Singapore, Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal, combined.
Over the span of a generation we have exported our industrial base to foreign countries. The capital raised by these foreign enterprises, is in part, funding the acquisition of our financial base. It this trend was to continue, we might become "spectators" to the wealth of our nation.
Not a good turn of events IMO.
The financial markets had a tough day (dow down 277) with reported quarterly losses of Merrill Lynch and Citigroup topping $32 Billion (yes, billion) dollars. More bad action expected tomorrow, Intel down 16% (yes, 16%) in after hours trading, on a bad earnings report.
We might be in the beginning of the "capitulation" phase of sub-prime. The hope, is that the financial institutions exposed to sub-prime will come clean, so that the true extent of the problem becomes known. If this is capitulation, it could get ugly over a short period of time. If financial institutions don't come clean, it could turn into a prolonged battle with action to the downside predominant. Hedge funds, with requirements that are not as strict, don't report nearly as often as a publicly held company.
Anyway, buying America on the cheap. As I commented in an earlier post, Bank of America purchased Country Wide Financial for about 4 billion dollars. Not sure what CWF stock is right now ($6 or $7), but in the spring of 07, is was about $45. So BofA, if it can make it work, got a great deal.
It's not so great that in order for Merrill Lynch to ensure it's survival, Kuwait Investment Authority, was able buy a 6.6 Billion stake in the company on the cheap. Citigroup cut it's dividend 41%, is eliminating in excess of 21,000 jobs and still had to sell a $10 billion stake to the Government Investment corp. of Singapore, Kuwait Investment Authority and Saudi Prince Alwaleed bin Talal, combined.
Over the span of a generation we have exported our industrial base to foreign countries. The capital raised by these foreign enterprises, is in part, funding the acquisition of our financial base. It this trend was to continue, we might become "spectators" to the wealth of our nation.
Not a good turn of events IMO.
Monday, January 14, 2008
Property Tax Reform & Casino Revenue
Apparently, one of the "unintended consequences" of Governor Mitch Daniels property tax reform is that casino revenues will no longer be required to support the 2% property tax cap for property owners with homestead exemptions. It is estimated that 14 million in casino revenue is used annually to fund the cap.
If our elected leaders can preserve that morsel, it would be a significant event for the city of Hammond. To be fair, the 3% proposed cap for business would probably extend to BP, that would put a hit on the revenue side of the ledger for the city.
Also in play, The states relentless pursuit of the 1% county income tax (would BP have to pay?) and the possibility of saving approx. 40% on the School City portion of your tax bill if the Governor's proposals are adopted.
These are complex issues, with real consequences for the city's residents. There is an opportunity for the city to end up with a revenue source to fund the repair of the sewer system so that flooding is truly a thing of the past.
There are no "free lunches", revenue will be generated somewhere. A possible 1% increase in the sales tax, a proposed STIF for the expansion of the South Shore. Gary Airport will have moved the rail lines soon and work will begin on the runway. How long until they attempt to fund their projects at our expense.
How our revenues are generated and how they are spent are crucial for the long term success of our city, now more than ever.
If our elected leaders can preserve that morsel, it would be a significant event for the city of Hammond. To be fair, the 3% proposed cap for business would probably extend to BP, that would put a hit on the revenue side of the ledger for the city.
Also in play, The states relentless pursuit of the 1% county income tax (would BP have to pay?) and the possibility of saving approx. 40% on the School City portion of your tax bill if the Governor's proposals are adopted.
These are complex issues, with real consequences for the city's residents. There is an opportunity for the city to end up with a revenue source to fund the repair of the sewer system so that flooding is truly a thing of the past.
There are no "free lunches", revenue will be generated somewhere. A possible 1% increase in the sales tax, a proposed STIF for the expansion of the South Shore. Gary Airport will have moved the rail lines soon and work will begin on the runway. How long until they attempt to fund their projects at our expense.
How our revenues are generated and how they are spent are crucial for the long term success of our city, now more than ever.
Sunday, January 13, 2008
Sub-Prime & Hammond Property Values
Zero money down, interest only loans, teaser rates, CDO's? All of this terminology is code for sub-prime. Legislation, designed to increase home ownership, was twisted in an orgy of profits generated by the FEES collected in connection with the home ownership process, and the bundling of these mortgages called CDO's (collateralized debt obligations) into tradeable securities.
With no benchmark to price these exotic securities, combined with the fact they seldom traded, price discovery was left in the hands of the issuer's. To add fuel to the fire, these securities in turn were used as capital to leverage other investments. As a result, it is estimated that a dollar of actual capital might have supported thirty dollars worth of debt.
It wasn't necessarily even the local bank, a whole "cottage industry", sprang up to meet the demand as first time buyers stepped into the market, while others, "upgraded", or tapped into their equity. As long as borrowers could make their house payments, the chain would remain unbroken and handsome profits would continue to roll in.
As in any bubble, the process had to reach lower and lower to keep the pump primed. In this instance, at the end, people who would never have been considered for a home loan, were getting approved without income verification! Then the storm clouds appeared.
Prior to the Federal Reserve finding "religion", and beginning the current trend of cutting interest rates, they had raised raised rates steadily and consistently for approximately two years. The initial recipients of these sub-prime mortgages, were in the re-set mode after their required two year wait (before they could refinance). The resulting increase in their mortgage payments was a shock to their personal financial situation. Multiply these shocks, by the thousands, if not the tens of thousands nation wide, and then you know how Country Wide Financial ended up staring bankruptcy in the face. Realize also, that the further down the road we go, the worst examples of credit worthiness will be exposed to the reset.
With a low family and household median income, Hammond, no doubt has some percentage (currently unknown) of property owners exposed to sub-prime mortgages. Local government is limited in it's options, but it does have an obligation to consider all of them in attempting to minimize the damage from this problem. Don't be suprised if a Republican proposal is initiated by the freshman councilwoman.
With no benchmark to price these exotic securities, combined with the fact they seldom traded, price discovery was left in the hands of the issuer's. To add fuel to the fire, these securities in turn were used as capital to leverage other investments. As a result, it is estimated that a dollar of actual capital might have supported thirty dollars worth of debt.
It wasn't necessarily even the local bank, a whole "cottage industry", sprang up to meet the demand as first time buyers stepped into the market, while others, "upgraded", or tapped into their equity. As long as borrowers could make their house payments, the chain would remain unbroken and handsome profits would continue to roll in.
As in any bubble, the process had to reach lower and lower to keep the pump primed. In this instance, at the end, people who would never have been considered for a home loan, were getting approved without income verification! Then the storm clouds appeared.
Prior to the Federal Reserve finding "religion", and beginning the current trend of cutting interest rates, they had raised raised rates steadily and consistently for approximately two years. The initial recipients of these sub-prime mortgages, were in the re-set mode after their required two year wait (before they could refinance). The resulting increase in their mortgage payments was a shock to their personal financial situation. Multiply these shocks, by the thousands, if not the tens of thousands nation wide, and then you know how Country Wide Financial ended up staring bankruptcy in the face. Realize also, that the further down the road we go, the worst examples of credit worthiness will be exposed to the reset.
With a low family and household median income, Hammond, no doubt has some percentage (currently unknown) of property owners exposed to sub-prime mortgages. Local government is limited in it's options, but it does have an obligation to consider all of them in attempting to minimize the damage from this problem. Don't be suprised if a Republican proposal is initiated by the freshman councilwoman.
Saturday, January 12, 2008
Tax Relief & Hammond Propety Values
The potential for meaningful property tax relief, coupled with the probability that the sub-prime crisis is closer to the finish than the beginning, now might be the time to contemplate future property prices in Hammond.
Taking away the uncertainty of property tax expense, will remove a major barrier for real-estate investors looking to invest in Hammond. Quality rental units are an asset to the city as well as the neighborhood they are situated in.
The Sub-prime mortgage crisis is in a critical phase in which the true nature of the problem is finally being acknowledged. There is probably more bad news ahead, but at some point in the near future, everyone will have had to come clean with their losses. At that point, capitulation will have occurred, which will set the stage for the inevitable recovery.
Without pointing the finger at anyone, Hammond did not participate fully in the previous upward cycle in the real-estate market. Now might be a time to consider some "contrarian" theory in regards to real-estate. Interest rates are low and going lower in the near term. As the probability of a property tax solution increases (in Indiana), coupled, with a resolution of the sub-prime disaster, combined with very low interest rates, that is a very positive combination of events IMO.
There is the immediate concern of numerous loans that will re-set during most of 2008. The chances are, that the "coast is clear" won't be given until sometime mid 2009. At that point however, it should be obvious the bottom is in, if my theory holds water. Tax relief and a bottom in interest rates would have to be in place before that mid 09 time frame.
Taking away the uncertainty of property tax expense, will remove a major barrier for real-estate investors looking to invest in Hammond. Quality rental units are an asset to the city as well as the neighborhood they are situated in.
The Sub-prime mortgage crisis is in a critical phase in which the true nature of the problem is finally being acknowledged. There is probably more bad news ahead, but at some point in the near future, everyone will have had to come clean with their losses. At that point, capitulation will have occurred, which will set the stage for the inevitable recovery.
Without pointing the finger at anyone, Hammond did not participate fully in the previous upward cycle in the real-estate market. Now might be a time to consider some "contrarian" theory in regards to real-estate. Interest rates are low and going lower in the near term. As the probability of a property tax solution increases (in Indiana), coupled, with a resolution of the sub-prime disaster, combined with very low interest rates, that is a very positive combination of events IMO.
There is the immediate concern of numerous loans that will re-set during most of 2008. The chances are, that the "coast is clear" won't be given until sometime mid 2009. At that point however, it should be obvious the bottom is in, if my theory holds water. Tax relief and a bottom in interest rates would have to be in place before that mid 09 time frame.
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