Economic impact of one man

Enron, Worldcom, Bernie Madoff, Tiger Woods? These scandals have cost people millions of dollars. Tiger's latest scandal is no different. The PGA Tour and people who make their living off of the enterprise known as Tiger Woods stand to lose a lot of money. The PGA Tour has seen a record amount of profits due to the interest in the number one athlete in the world. Charities, which the PGA does a great job helping in it's efforts, will certainly see this decline of revenue. The tree of the Tiger Woods branches out into many different areas. This list can go on and on. As if the recession is not bad enough, PGA and the entire golfing industry is going to have to deal with it's own financial storm. Only time will tell how much revenue will be lost and the overall effect of the incident. It just goes to show, the old adage is true, one mistake will not only effect you, but have an effect on many. Lesson to learn, never place your eggs in one basket, and anyone who is bathed in flesh will fail.

Looks can be deceiving

Behind the "good" economic numbers for home sales lies a monster. Yield curve is the steepest in history, which means banks are doing very well by borrowing at 0 and lending at high rates. Spreads are huge. With these good numbers though, you have to look deeper, the home sales are low cost home prices that were bought at distressed levels by investors and reselling them at quick turnarounds. Also people thought the November tax credit was going to end, so, Nov home sales were inflated. Also we saw GDP revised down, but no one cares. Mortgage rates rising is seen as a good thing due to economic recovery, but when all the tools are put back in the Fed's tool belt, is the building going to collapse? Time will tell, but in Q4 expect huge bank earnings which will get everyone excited. Expect good retail sales, but we are comparing these numbers to last year, which was horrible. This better than worse mentality has to stop, and let's start comparing ourselves to "normal" economic times, we'll see we have a long way to go.

End of low rates are here to stay

 

Mortgage rates today climbed today, as the Fed announced that they will be stopping their Mortgage Backed Security purchases in late March. Rates rose from 4.875% to 5.215% in two days. This is going to be interesting to see how this will effect the recovery efforts and housing. Also, the Senate made it a step closer for Health Care reform, all the HMO's rose today in trading. Add this to the list of Social security, Medicare, and Amtrak, all government disasters. I do not have to tell you that the government is the worst run business in the world.

Dollar continues to climb

Today no change in reverse momentum for the dollar trade. Gold continues to lose ground, and commodities sold off again. McDonalds reports worse than expected same store sales numbers which effected the Dow and 3M reported earnings today and gave disappointing guidance. On the rate front, we saw the 10 yr sell off at the end of the day pushing yields to a higher level. Mortgage rates rode intraday and now stands at a flat 5% on a 30 year. Meanwhile interesting weather is going to effect travel over most of the nation, everyone stay safe.

Back to life, Back to Reality

 

Markets received confidence today from Ben Bernanke regarding interest rates. His comments assured markets once again the rates will stay low for "extended period" of time. This helped the market to recover from a day in the red. Good news from after Fed Ex after the bell, gives a cheery insight into the future which may have a positive effect on trading tomorrow. Dollar weakened again which led to commodities rising and gold recovering somewhat. Now onto what really matters, did you see the football this weekend? Texas and Alabama for the National Championship game, FLA takes on Cincinnati, and the two undefeated teams Boise St and TCU go at it. Rose Bowl Ohio St and Oregon, which will be a good game. NFL, Cowboys, Steelers, Vikings, Redskins, and Patriots see gut wrenching loses. The two undefeated Saints and Colts keep rolling. Tonight, Ravens and Packers go at it, being a Bear fan, go Ravens!

Rates are on the rise to stay

This week was very volatile in the mortgage rate front. We started the week with rates at all time lows, then quickly rates rose by Friday. With the better than expected jobs report, with only 11,000 lost for Nov, the Treasuries sold off on all parts of the curve. Friday, stocks futures started up 120 points directly after the announcement, market opened up 1.5%, then as the dollar started to rise, commodities and stocks that follow started to fall. Oil then retreated and the market ended flat. My favorite stocks here would be TBT – short treasuries, and DTO, short oil. DZZ is worth looking at as gold trades starts to unwind. Key of the trading next week will be watching the VIX, which ended at 21 on the cash. Also look at GS and AAPL as they are good market indicators of what the whole market might do. If profits are recognized for the year, I'd start hedging or sell. Beginning 2010 will be interesting as people will try to guess the timing for Fed to start to retreat some liquidity from the market. Fed futures rose from 40% chance of raising rates in June to 70% on Friday.

Interesting Data

By Greg Nosar

Today’s markets are down due to the higher than expected jobless claims and the disappointing Manufacturing data coming out. The 10 yr treasury continues it’s bid with a yield now posting 3.22%. Some encouraging data though is the pending homes sales were up in August, showing a decline in inventory. This recession started with homes, it needs to end with homes sales. The tax benefit of $8000 buyers credit seemed to have been the catalyst to increase the sales. However; this is scheduled to end in November. Other notables are Airline stocks taking a hit due to United Airlines announcing a stock dilution to increase capital. There is a battle between the bulls and bears today, conflicting data for recovery is setting the stage, but I think the real important number is the jobs number tomorrow, stay tuned.

Market Imbalances

Market Imbalances

By Greg Nosar

We have seen a tremendous run in the market since March 9, 2009. Many stocks are up over 100% from their lows, the S&P 500 has rebounded nicely. I am however concerned of the over enthusiasm in the recent rally. Looking at indicators that existed in the market before and during the downturn, gold at $1000 an oz, oil at all time highs, bond yields at low, yield curve flat. We see these same indicators today, however the market keeps rallying. The market has been fed by quantitative easing, “better than expected” earnings, which are still off 50-60% from 2007-2008. Jobs are still in negative figures. Market is trading at 20x earnings, these factors have me concerned that the market will give back a lot of it’s gains.

What I am looking at the most is the disconnect of the low treasury yields, today we hit a 3.28% yield on the 10yr, and yet the market is up near Dow 10,000. Somebody is wrong, fixed income or equities, time will tell to see who is right.

The Truth about the Recession

The truth about the Recession

By Greg Nosar

I do not have to tell you how severe this recession has become. Jobs have been lost, unemployment is creeping up to 10%, profits have been cut in half, 401k’s have turned into 101k’s. Our baby boomers nearing retirement age may have to work for 5-10 more years to feel comfortable in their fixed income setting. This financial meltdown has had and will continue to have extreme effects on the future of business and markets. Like it or not we are a global economy. The US is not the only one that has been affected. Markets worldwide have been affected by this massive crisis. I have worked in the financial industry for 12 years and September 2008 was one of the scariest times I can remember in the financial industry. Warren Buffet phrased it “an economic Pearl Harbor”. Firms with prior successes such as Bear Sterns and Lehman Brothers were forced to close their doors, Meryl Lynch and Countrywide was forced to sell to Bank of America, Wells Fargo had to buy Wachovia, JP Morgan gobbled up Washington Mutual, and the lists go on and on. And today banks are continuing to fail at an enormous rate. We know what appears to have happened but what REALLY happened? As an insider of the industry, I am exposing the truth behind the recession.

In 1999 President Clinton made the following statement, “For many potential homebuyers, the lack of cash available to accumulate the required downpayment and closing costs is the major impediment to purchasing a home. Other households do not have sufficient income available to make the monthly payments on mortgages financed at market interest rates for standard loan terms. Financing strategies, fueled by the creativity and resources of the private and public sectors, should address both of these financial barriers to homeownership.”The Clinton administration urged financial institutions such as Freddie Mac and Fannie Mac to create plans which would allow anyone interested in purchasing a home to be able to reach their goal. Lenders under the guidance of Freddie Mac and Fannie Mae lightened their requirements of qualification to buy or refinance a home. 100% financing was available to clients that had less than stellar credit. Stated income loans, no income verification loans, and no assets verification loans were created. The worst lenders were incentivized by selling these loans.

Pricing for a borrower was better for jumbo loans (loans above at that time $333,700) if the lender put them into a no income verification loan (NIV). For the lender, it was an easy transaction with better rates, less work and easy sale to the market place through Freddie Mac. This created an onslaught of buying which pushed real estate prices soaring and construction was at an all time high. It was not unusual for someone to buy a property for one price and three months later to sell for $100k profit. This was very common during the years of 2003-2006. With all the construction in most major cities booming, many construction companies would hire immigrants to help with the work. Immigration surged with people from Mexico, El Salvador, Panama, and other Central and South American countries. They were the buyers of all the inventory and homes being built. It was a true sellers market. I remember frustration from my buyers that could not compete with the demand of homes. They would call me and tell me they were losing bids left and right due to the other contracts being offered. People were out bidding each other by $30-$40k at a time. Home values were at a massive bubble.

The market was at a point where the “Home affordable program” was not affordable. People were giving up on the market place because it was cheaper to rent than to buy. It finally reached a pointer where people who could once afford to buy could no longer afford to buy. This caused construction to slow, workers became unemployed, and immigrants started moving back. All of this led to massive inventories being left behind. Defaults started to happen first in the subprime market due to mortgage fraud and false documentation being given to lenders. It was easy for people to walk away from home that they were now upside down on. This started to creep it’s ugly head on October 9, 2007.

Investment banks who held these mortgages as Mortgage backed securities (MBS) were starting to see a rise in defaults in their portfolios. This led to now value cutting these securities which then led to losses and write downs. The accounting practices from the FASB did not help the matter either with the forceful write downs of these securities to what is called Mark to Market accounting. Before long the market for these securities was nonexistent and banks were having to right down their portfolio to zero. This caused massive panic and a race for capital injections to offset huge balance sheet losses. This when the people began to speak of the government stepping in to save the day.

Federal Chairman Benjamin Bernanke and Treasury Secretary Paulson, were in the middle of a firestorm and had to somehow offset these losses and not cause a financial meltdown. On September 16 and 17^th, 2008 Bear Sterns and Lehman Brothers went bankrupt. Lehman Brothers were huge players in the secondary market (this is where the mortgage securities were bought and sold). These investment banks not only had huge portfolios of these instruments, but they were leveraging these investments 30:1. If you or I were leveraged 30:1 we would be bankrupt tomorrow! Rumors around Wall Street were flying around as to who would be next, credit spreads were at all time highs, and LIBOR borrowing rates were getting out of control. In stepped the Federal Government and as people were pulling their money out of banks, they were guaranteeing money markets and were insuring these securities. They had to buy a massive amount of MBS and 10 yr fed treasuries to counteract this crisis. TARP and TALF was created, and we now have the government owning publicly traded companies such as Citigroup and AIG.

Risk tolerance has been neutralized and this has changed the markets forever. We now see this great country founded on capitalism being turned into socialism. Wall Street has given up it’s control to Washington DC. Elected officials have become more powerful than the CEO’s of the major companies in America. Mortgages are getting harder and harder to come by and the “easy” everyone can get a mortgage stage has passed. We now have the pendulum swung to very tight regulations. Freddie Mac and Fannie Mae require 20% down for buyers, credit scores above 660, fully documented income for 2 years, a very strict analysis if you are self employed, and new laws and regulations are being made everyday.

In my opinion, it’s too little too late. The once government who is casting blame on capitalism and free markets are the very ones who encouraged the massive home crisis in the first place. Washington DC needs to stop being hypocritical, let free markets reign, let failure occur and let reward happen to those who do things right.