2008 November | money blog

30 11 2008

Many people stop contributing to their retirement plans

Posted by: admin in Stocks Money News

Filed under: TD AmeriTrade Holding (AMTD), Financial Crisis

Here is a frightening statistic: about 63% of people with retirement accounts have stopped contributing to them. That little nugget comes courtesy of a recent survey conducted for TD Ameritrade (NASDAQ: AMTD).

Half of those who stopped contributing to their retirement accounts cited “financial strain due to the economic downturn.” Another 32% cited unemployment, while 25% mentioned health care costs, according to a company press release. Of those polled, 34% had less than $50,000 in investable assets.

Many of the people who’ve quit or curtailed contributing — nearly one in four — are aged 35 to 44, which should be prime earning years. I am not going to bore you with financial planning 101, but the earlier you start to save (absent a market meltdown), the better because over time the stock market is your friend. Lately, though, it has not been much of one.

Mulling over this survey got me thinking that whoever is elected president is going to face the gargantuan challenge of rebuilding the financial security of millions of Americans who are being forced to push back their retirement plans or who have mortgages they can no longer afford. It’s going to take years for people to rebuild their nest eggs and undo the damage they have done to their credit by over-extending themselves. Many people may never be able to return to their former lifestyles.

Of course, that may not be such a bad thing. If this crisis has taught us anything, it’s that people need to live within their means.

Many people stop contributing to their retirement plans originally appeared on BloggingStocks on Tue, 28 Oct 2008 14:27:00 EST. Please see our terms for use of feeds.

30 11 2008

Is a GM / Chrysler bailout and merger really the way to go?

Posted by: admin in Stocks Money News

Filed under: Deals, Bad news, Rants and raves, General Motors (GM)

You may file this under he can’t be serious.

Looking in The New York Times business section, I notice that GM CEO Rick Wagoner skipped on over to Washington with his hat in his hand. It seems that Mr. Wagoner has discovered that the bailout legislation has been written in a manner that would allow him to get some money for his flailing company, General Motors Corp. (NYSE: GM). The funniness starts when you realize that Rick wants some money from the government (read that, us, the taxpayers) so he can finish totally wrecking his company by merging it with Chrysler. Really, the idea is almost too funny to laugh at. It makes me glad that my dad dumped his GM holdings when he did.

The Times‘ article states: “If G.M. or Chrysler were to go under, tens of thousands of people would be thrown out of work.” That may be true in a fashion, but I have news for the Times and Mr. Rick Wagoner: if this merger happens, about 40% of those people now employed by the two companies will probably be out of work anyway. On the other hand, a merger of this sort would effectively pitch the UAW into the street, pretty much for good. Oh, I bet our friend Rick already thought about that.

If anyone who reads this has a chance to talk with GM’s CEO Rick Wagoner before he pillages the public coffers to assure his income for a few more quarters, he/she might want to offer him this one little gem of wisdom:

An attractive, quality product, in keeping with the times, would really get your rear out of a jam, Rick.

Is a GM / Chrysler bailout and merger really the way to go? originally appeared on BloggingStocks on Tue, 28 Oct 2008 09:25:00 EST. Please see our terms for use of feeds.

30 11 2008

Fed Implode-o-Meter Update

Posted by: admin in mortgage industry

Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

At the end of October (see Fed Implode-o-Meter October 31), it looked like the Fed had spent about $3.8 trillion in the year to date. Not even three weeks later, that figure is now up to $4.28 trillion. According to CNBC, “To put it in perspective that’s . . . more than what was spent on WW II.” Funny choice of comparison; the Iraq war, the longest-running conflict in the history of the US, has also cost more and the final tab won’t be in for years. Anyway . . .

So, where’s all the money going? Here’s a list (hat tip to CNBC) of what has been made public:

The Telegraph UK quotes Paul Volcker, former chairman of the US Federal Reserve and short-list candidate for Treasury Secretary, as saying, “. . . it is already too late to avoid a severe downturn even if the credit markets stabilize over coming months. I don’t think anybody thinks we’re going to get through this recession in a hurry. The economic slump has begun to metastasize after a shocking collapse in output over the past two months . . . normal monetary policy is not able to get money flowing. The trouble is that even with all this [government] protection, the market is not moving.” Further, he said “What this crisis reveals is a broken financial system like no other in my lifetime,” he told a conference at Lombard Street Research in London. Mr. Volker is 81 years old. Normal monetary policy can’t restart economic activity because credit is contracting at a faster pace than new money is coming into the system. Fractional reserve lending can’t work unless banks lend.

Through all of this, the Fed is still taking as collateral illiquid, mark-to-model assets, presumably at notional value, from the banks. In return, the banks receive brand-new treasuries that, in principle, could be lent out. At this point, most, or probably all, of the Fed’s general collateral is comprised of toxic waste. Currently, the Fed does not even have enough reserves to cover dollars in circulation.
Good thing we’re only talking about Monopoly money. If it were real money we’d be in big trouble.

There are a number of grass-roots efforts trying to put an end to the Fed’s out-of-control borrowing. One of them, End the Fed.us is having a meet-up on November 22 in 39 cities. Mish of Global Economic Trend Analysis is putting together another email, fax, and phone-call campaign to stop further auto company bailouts. Chances are slim that the brakes will be put on before the end of the year.

However, with a new administration coming in, 2009 could be another story.

Source [blownmortgage]

Real Homes of Genius: The Downey Twins. Properties that Reinforce a Long and Drawn out Recession. Smallest Home Ever. 364 Square Feet.

30 11 2008

Real Homes of Genius: The Downey Twins. Properties that Reinforce a Long and Drawn out Recession. Smallest Home Ever. 364 Square Feet.

Posted by: admin in Real-estate news

The catchphrase of the day seems to be capitulation. Like the daily word on Sesame Street. Things have gone from bad to worse in the matter of a few short and arduous weeks. I’ve started getting messages from people that say we are nearing a bottom. That is absolutely incorrect. The worst is yet to […]
Related Posts:
■Real Homes of Genius: Today we Salute you Santa Ana. 498 Square Feet for $440,000, What a Deal!
■Real Homes of Genius: Today We Salute you Huntington Park. Tweedledum and Tweedledee of housing. $500,000 Homes in Wonderland.
■Real Homes of Genius: Today we Salute you Compton. 3 Bedrooms on 806 Square Feet!
■Real Homes of Genius: Today we Salute you Pacoima. Zillow says $457,000 but Listed at $225,000?
■Real Homes of Genius: Today we Salute you Santa Monica. Examining 5 Adjacent Homes for Peak Prices and Foreclosures.

The catchphrase of the day seems to be capitulation. Like the daily word on Sesame Street. Things have gone from bad to worse in the matter of a few short and arduous weeks. I’ve started getting messages from people that say we are nearing a bottom. That is absolutely incorrect. The worst is yet to come.

Even if certain markets are bottoming out like oil or maybe real estate in Detroit, that doesn’t mean that high flying bubble states like California are near a trough. In fact, the unemployment numbers for individual states came out last week and California is now at 8.2%, the third worst rate in the country. That is 1 of the 10 reasons why we will not even see a bottom until May of 2011. Sure, some states are bottoming out but how much lower can you go if homes are selling for $50,000 or $60,000? Or how much lower can a stock go if it is trading in the pennies? You can only go to zero which seems a common occurrence in today’s action packed market. The median price of a home in California is still $300,000 which seems a lot better than $505,000 reached during the peak but it really is only a siren call for those who want to lose some additional money. Be wary of those gorgeous and angelic voice calling you into the market.

This weekend 3 institutions failed, 2 of them being here in California. The lenders in California that failed were toxic mortgage experts and connoisseurs who specialized in the tsunami pay option ARM loans that will recast in large numbers in 2009 and 2010. Downey Savings and Loan based out of Newport Beach and PFF Bank and Trust out of Pomona. Downey Savings and Loan had nearly $13 billion in assets when the FDIC got involved. The so-called receiver and proud owner is U.S. Bank. The FDIC estimates that upfront this will cost the FDIC fund about $1.4 billion for Downey and $700 million for PFF, (these numbers are ridiculously low). These lenders are toxic supreme with all the toppings. Any models they are currently using are out the window in 2009.

In honor of Downey, today’s Real Home of Genius Award will be given to 2 Downey homes. Before we examine the homes, let us first take a look at Jim Cramer who we talked about in a previous article critically looking at his stock picks. Cramer, at one time was pumping this horrific and toxic stock. The Wall Street Examiner has a nice chart showing Cramer’s uncanny ability to pick winners like Bear Stearns and Downey:

[click for a clearer picture]

In fact, on July 24 2007 Cramer with his psychic abilities was hinting that WaMu should buy Downey at $100 a share! Bwhahaha! Yup, the WaMu that utterly and completely failed this year. Then on August 17, he mentioned it was “time to buy DSL” which was not a good move since this is the inflexion point where California went off a cliff. On September 19 2007 he recommends the stock yet again. Great stock picking ability! That crystal ball has been spot on. Both are now gone only one year later.

But what could be the biggest news of the week is Citigroup is now trading at $3.77 a share when only a year ago it was at $35 a share. Take a look at the chart:

Citigroup Stock

We’ve talked about how Citi was going to be cutting over 50,000 jobs to remain efficient (and alive). It is hard to remain efficient when you have 374,000 employees on the payroll and your company is now in the single digits and going lower each year. This is one institution that would be too big to fail. This right now should be the biggest story. All other failures including AIG, Lehman Brothers, Bear Stearns, and whatever else that has failed doesn’t even come close to this. Citi has total assets of $2 trillion on their books. They also have $1.9 trillion in liabilities. This is definitely something to keep our eyes on.

People keep pointing out similar bailouts in the past. The airlines, Chrysler, and help in Long Term Capital Management and assume that we’ve been here before. We haven’t. In those times, we had at any pressing moment maybe 1 or 2 big events happening at once. Today? We have a systemic meltdown in everything all around the world. The big 3 automakers want a bailout. We’ve already allocated $700 billion in the TARP program for banks. AIG an insurer is now partially owned by the government. We now own Fannie Mae and Freddie Mac. Major banks are failing on a weekly basis. Retail sales have fallen off a cliff. We haven’t seen stock declines like this since the Great Depression. This has no precedent because everything is falling at once. The only other precedent is the Great Depression. There was a reason that we started the Great Depression series well over a year ago. The American public is now having bailout fatigue because none of it is really working on Main Street.

Let us now go to Downey with our Real Homes of Genius Award.

Downey Love

Downey California

Downey is a typical working class suburb of Los Angeles. These are the areas where most of the delusion really took place. They had the appeal of nice starter homes for working class residents but didn’t have the charisma or the zip code in Santa Monica. This home is the smallest home we have ever featured on the Real Homes of Genius series.

At 364 square feet with 1 bedroom and 1 bath, you’ll have a lot of fun hosting parties here. It looks like charcoal above the door with boards lying nicely next to it. We’ve seen a lot of Garbage Can 2.0 photography but this now adds a new feature. Garbage Pod 1.0 technology.

Downey California

You would think that they are giving this house away. It is currently listed at $160,000 but let us look at the pricing action here which is manic and wild just like the grass in the picture:

Price Reduced: 03/08/08 — $370,000 to $240,000
Price Reduced: 07/03/08 — $240,000 to $210,000
Price Reduced: 09/29/08 — $210,000 to $189,000
Price Reduced: 10/08/08 — $189,000 to $170,000
Price Reduced: 10/27/08 — $170,000 to $160,000

Bwahaha! Someone in March of this year listed this home at $370,000! Hold on a second. Bwahahaha! You have got to be smoking peyote to think this place would have gotten that price. Its as if someone on the street asked you, “how much do you want for that shirt?” You look down at your shirt and with a cool response say, “$5,000.” Someone should be embarrassed for asking that price. Since March, this home has quickly been falling and falling as any 364 shack should in a reality based world. What did this home once sell for?

Sale History

06/01/2005: $235,000 *

02/01/1994: $62,500 *

It looks like this home was taken back 2 times in history so it is hard to say who really owned this home. It may have been on the lenders book for sometime. Yet whoever listed that first price deserves an award in delusion.

Downey home

Our next home is a nicer home that isn’t saying much compared to the above modified Doritos bag. This home was built in 1923 and has 2 bedrooms and 1 bath on 1,036 square feet. This is a short sale and the current price is $199,000. We are seeing a lot of prices like this now in Los Angeles County when only a year ago, you saw only a handful. What did this home once sell for?

Sale History

03/15/2005: $425,000

Over a 50% discount here folks. Keep in mind the lender had to approve this so you now get an idea of where they sit at the bargaining table. Why would anyone rush out and buy homes right now? They are in a corner and each day someone doesn’t buy a home like this, 2 more distressed properties come on the market. Just look at the state unemployment rate. People can’t pay for their homes with no jobs. I’m not sure what reason we have that prices will be bouncing up. The only reason I’ve heard is that prices have fallen so hard already. That is not a good enough reason.

Let us look at some of the facts for Downey and this area in particular:

Income

Median Mortgage Debt: $39,443

Average/Household: $62,665

Per Capita: $21,518

Average household income is $62,665 which isn’t much. If you want to do a 3 times annual income ratio we get $187,995 for an upper price limit for a home. I’d be cautious about this since the number is an average and not a median which would be a better indicator. The few families that make 6 figures a year skew this data and that is why the median is a better factor. But even with the average, this home with a 50% price cut is still too expensive. The first home, with the portable pod and wild grass is too expensive even if it was being given away.

Today we salute you Downey with our Real Homes of Genius Award.

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Post from: Dr. Housing Bubble Blog

Via [DrHousingBubble]

Continue reading Next year’s investment plan: What Obama’s green energy economy might portend

30 11 2008

Next year’s investment plan: What Obama’s green energy economy might portend

Posted by: admin in Stocks Money News

Filed under: Ford Motor (F), Home Depot (HD), Politics

Over the past few months, as election rhetoric heated up and the economy has cooled, one of Barack Obama’s recurring themes has been that the secret to America’s future will be the development of an alternative-energy economy. To a populace that has grown increasingly weary of the lackadaisical government approach to economic disaster, this has been particularly galvanizing, and was undoubtedly a major influence on the election. Now that Obama has won, however, the next question is how he will transform those exciting New Deal-esque words into concrete action.

John Podesta, co-chairman of the Obama/Biden transition team, may provide a useful insight into this question. In his day job, Podesta is president of the Center for American Progress (CAP), a liberal think tank that is based in Washington D.C. CAP has already drafted a green-energy stimulus plan; with several programs that are ready to go, it would create 2 million jobs, and would cost a relatively meager $50 billion. While there is no guarantee that CAP’s plan will be adopted, given Podesta’s proximity to the presidency, it seems likely that at least part of it will become reality within the next year. For a savvy investor, this could be a blueprint for industries that are, potentially, poised to explode with a massive influx of new funds.

Green Autos: Obama has made it very clear that he intends to directly tie any automotive bailout to the development of green technologies. CAP’s plan calls for a 4% per year increase in fuel-efficiency standards, as well as investment in new battery technology for plug-in hybrids. With this in mind, it’s worth seriously considering which automakers are best poised to go forth with more fuel-efficient models. Furthermore, programs like CAP’s “Cash for Clunkers” could be a major boon for companies that process or deal in recycled metals.

Next year’s investment plan: What Obama’s green energy economy might portend originally appeared on BloggingStocks on Sat, 29 Nov 2008 09:40:00 EST. Please see our terms for use of feeds.

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30 11 2008

Ratings Services Release RMBS Rules

Posted by: admin in mortgage industry

Fitch Ratings and Standar & Poors (S&P) Ratings services both published their methodology and assumptions for evaluating residential mortgage-backed securities (RMBS) in November. Look for both services to issue updated ratings over the next few weeks.

Fitch Ratings has revised its surveillance methodology for U.S. sub-prime RMBS to reflect increased emphasis on ResiLogic, their loan-level and loss model. Going forward, ResiLogic will be used to guide collateral loss projections by estimating the frequency of foreclosure for all mortgage pools regardless of seasoning and the loss severity of pools seasoned less than 30 months. For pools seasoned more than 30 months, Fitch believes actual loss severity trends exhibited by the pools are the best indicator of future severity trends. This loan-level analysis will be used in conjunction with Fitch’s existing break loss analysis to determine each bond’s loss coverage ratio.

The ResiLogic stressed mortgage pool loss scenarios will also be used in determining targeted loss multiples at each rating category resulting in pool-specific category thresholds as opposed to using a static set of thresholds. Other adjustments to the methodology include:

An adjustment to the ResiLogic derived default rates for performing loans to account for the actual performance of each transaction relative to original expectations.
The use of historical loan-level loss severities on seasoned (greater than 30 months) pools.

Fitch is reviewing its rated transactions for 2005, 2006 and 2007 and will be releasing revised ratings soon. The current revised cumulative loss expectations for these years are 12 percent, 27 percent and 31 percent respectively. The Updated Surveillance Criteria for U.S. Subprime RMBS are available online at www.fitchratings.com.

Standard & Poor’s Rating Services also recently published the methodology and assumptions fo rating U.S. RMBS backed by non-performing or re-performing mortgage loans. Given the current market conditions and the stresses on lenders, borrowers, and the real estate industry, S&P aexpects the volume of transactions backed by non-performing or re-performing collateral submitted for review to increase.

Collateral for RMBS can be real property or loans. Loans which are more than 90 days delinquent are considered non-performing if the borrower has not exhibted consistent payment behavior. Re-performing loans are loans which have been delinquent more than 90 days in the past year but are currently less than 90 days delinquent or that are 90 days delinquent but the borrower is exhibiting consistent payment behavior. When assessing the expectations regarding the timing and liquidation values of non-performing loans the following factors are taken into account:

The accuracy of a licensed real estate broker’s opinion of the property’s value (the so-called broker price opinion or BPO value.
State foreclosure and REO time-line variations and expenses.
Housing market conditions.

Re-performing loans are assessed using substantially credit analysis to estimate foreclosure frequency and loss severity. The analysis of the age of credit scores, treatment of arrearages and loan seasoning adjustments differ for re-performing loans.

S&P continues to update methodologies and assumptions for the analysis of non-performing and re-performing loans based upon performance trends and updated economic projections. In addition, S&P believes unique risks must be evaluated in proposed transaction structures with regard to liquidating trusts. The methodologies are published on the S&P web site at www2.standardandpoors.com.

Source [blownmortgage]

29 11 2008

Fed Implode-o-Meter Update

Posted by: admin in mortgage industry

Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

So, where’s all the money going? Here’s a list (hat tip to CNBC) of what has been made public:

However, with a new administration coming in, 2009 could be another story.

Source [blownmortgage]

Continue reading Comfort Zone Investing: If you think inflation is bad …

29 11 2008

Comfort Zone Investing: If you think inflation is bad …

Posted by: admin in Stocks Money News

Filed under: Comfort Zone Investing

Ted Allrich is the founder of The Online Investor and author of the book: Comfort Zone Investing: Build Wealth and Sleep Well at Night. In this weekly column, he’ll offer advice to investors who are just getting started.

… wait until deflation hits the economy. That’s when prices go down instead of up. What could be wrong with that? Plenty.

When there’s inflation, people scramble to buy things now, right now. The overriding psychology is that prices will go up forever so buying something has to be cheaper today than it will be tomorrow.

Comfort Zone Investing: If you think inflation is bad … originally appeared on BloggingStocks on Sat, 29 Nov 2008 10:30:00 EST. Please see our terms for use of feeds.

29 11 2008

Verizon: Good dividend stock (at a lower price)

Posted by: admin in Stocks Money News

Filed under: Earnings reports, AT and T (T), Sprint Nextel Corp (S), Verizon Communications (VZ), Qwest Communications Intl (Q)

Telecommunication concern Verizon (NYSE: VZ), whose competitors include AT&T (NYSE: T), Sprint Nextel (NYSE: S), and Qwest Communications (NYSE: Q), reported earnings for the third quarter on Monday, and investors could not have been happier. As Wall Street continued its painful bearish slide, shareholders of Verizon were bragging about the 10% rise in the company’s stock price. Question is, should you be a buyer of Verizon’s stock at this point?

The numbers were decent enough. According to the press release, earnings per share were $0.66. Management only succeeded at matching expectations for Q3, according to this earnings-preview piece by Brent Archer. Honestly, I was surprised at the big pop in the stock yesterday. Considering how badly the markets have been doing, and the fact that we’re facing a global recession, I would have figured on a more muted response to Verizon’s numbers. After all, if we are facing a tough recession (and I’m fully on board with that sentiment), what’s going to happen to the growth rate of the FiOS product? That product is doing well, as are other parts of the Verizon portfolio, but I wouldn’t have been a buyer into the stock’s strength today. And I say that without a doubt.

But, with Verizon, there is that great dividend yield and cash-flow growth. Operational cash flow from continuing operations was up almost 6%, and capital expenditures decreased. That’s great news for dividend investors, as more free cash was left over. I think the market looked at Verizon as being oversold and decided to buy in. The company seemed to have a good Q3, and I think long-term investors will definitely do well with the stock; in fact, the press release mentioned that management saw fit to increase its dividend 7% during the quarter, expressing confidence in the company’s current business models. But I believe even longer-term thinkers would do well to wait for a pullback in the share price before either initiating a new position or adding to an existing holding. I simply think there was too much excitement around the stock after its report.

Disclosure: I don’t own any company mentioned; positions can change at any time.

Verizon: Good dividend stock (at a lower price) originally appeared on BloggingStocks on Tue, 28 Oct 2008 09:40:00 EST. Please see our terms for use of feeds.