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.
Wednesday, January 30, 2008
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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