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Posts Tagged ‘mortgages’

 

 

The bottom line is that we are in the eye of the storm right now and the foreclosure situation could potentially fall back into crisis mode.  Now, I think that we can handle it a little better this time around, however, this is a risk that no one is anticipating.  I guess the thought is that the Obama administration has this handled.  The truth is that we don’t have solutions for this problem. We only have ways to make the situation more tolerable. 

 

 

 

 

I have been writing over the past few days about what Wall Street is not really paying attention to right now.  I made the same argument back in late 2006 and early 2007 that there was a category 5 financial storm brewing and Wall Street is ignoring the risk.  Well, there is still yet another category 5 storm brewing. 

The storm consists of many components.  Yesterday, I wrote about unemployment.  Today, the root of the whole financial crisis could potentially be raising its ugly head again.  Now, I want to keep this very general so that you can see the risk. This is a discussion that can even get over my head at times. 

Let’s start at the beginning, where all of this started.  The mortgage industry became greedy and gave mortgages to millions of people who could not really afford them.  Upfront, these mortgages seemed affordable.  However, something very horrible happened and the interest rate and the payments changed.  The mortgage “re-set.” It changed in such a way that people could not afford to keep their homes.  They couldn’t refinance and the home went into foreclosure.

The foreclosure crisis is causing all of the problems.  So, in order to get past the credit crisis, we need to get past the foreclosure problem.  Well, unfortunately, between the second half of 2007 and 2008, hundreds of billions of dollars worth of these mortgages were re-set, causing countless numbers of people to lose their homes.  Then we had a slowdown in the number of re-sets. At this time, the re-sets are starting back up again.  Take a look at this chart:

mortgage-re-sets

You can see all of the green at the beginning of the chart.  That is the escalating number of mortgages that re-set.  Then you can see it died down again.  Well, different types of mortgages are facing re-sets.  Unfortunately, it appears to be a larger problem.  Look at how high that graph spikes!

The bottom line is that we are in the eye of the storm right now and the foreclosure situation could potentially fall back into crisis mode.  Now, I think that we can handle it a little better this time around, however, this is a risk that no one is anticipating.  I guess the thought is that the Obama administration has this handled.  The truth is that we don’t have solutions for this problem. We only have ways to make the situation more tolerable.

I don’t think we are out of the woods yet.  The determining factor is the foreclosure situation and it appears that we still have a ways to go. The good news is that we might get a fairly long period of time where things start to look better.  For those mortgages that go into foreclosure, it will take 6 months or so to work themselves into the system.

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The market is getting all types of signs of confidence.   Everyone with a vested interest in this turning around (with the exception of President Obama who still doesn’t understand that the market matters) is doing everything possible to build confidence. 

First, you have Citigroup’s CEO, Vikram Pandit, sending out an “internal” memo stating that they were going to make a profit during the first few months of the year.  This would be the first time since 2007.  Of course, this doesn’t take into consideration all of the losses from the toxic mortgages that they have on the books.  Conveniently, he didn’t really know that number. 

Newsflash, I have $1,000,000 dollars in the bank account and I owe $1,200,000 to other people.  Just because I have $1,000,000 doesn’t make me a millionaire.

However, this made the market giddy and confident. Then my favorite confident booster from the week – General Motors said that they didn’t need anymore taxpayer money. Well, that is good to know that we dodged that bullet.  Maybe, just maybe, those billions of dollars are still keeping them in business and they don’t need anything “this” week.  After all, we know that they are not selling cars.  So, it is not like they have tons of money coming in from someone other than their creditors (taxpayers).  GM is saying, “please stop making our stock go down.  We don’t need your money until next week.”

No, last week’s rally was (in my opinion) nothing more than a technical occurrence that just happens when the stock market goes through these big declines. 

Nothing really differs from what I wrote last week about this stock market rally. I think that this is a bear market rally.  I have been looking for a pretty impressive bear market rally that could go as high as 30 to 40%.  However, I don’t think that this is the beginning of that rally.  It would not surprise me if we see the selling start up again.  If the market continues to go up this week and reach some of the price levels I wrote about last week, we might be in for “the” bear market rally and I would clearly be wrong.

Then there was all of my favorite quotes:

The legend in investments, Warren Buffett, said the economy has “fallen off a cliff”  (much like the stock from his Berkshire Hathaway company).  I guess he needs to justify his losses (although I do agree with him).  Now that we see he can lose money like the rest of normal Wall Street people, do you think it is time that CNBC stops immortalizing the guy?

Fed Chairman Ben Bernanke said that he believes we can be out of the recession by the end of 2009 if we solve the problems.  OK, he came up with some very eloquent reason why he should be right.  Cutting through everything he said, the interpretation would be  – “we will be OK if we solve the problems.” 

If Tony Romo leads the NFL in quarterback ratings, we have the top defense in the NFL, and our running back tandem is the best, we will probably win the Superbowl.  These are the kinds of things that are intended to build confidence.

The problem is that there is very little to be confident about as the Government continues to address every other problem except the one that is bankrupting America.  The cancer is setting in and no one is administrating chemo.

For this week, the key will be for the S&P 500 to stay above 741 and to possibly close the week over 800.  If that were to happen, there is something to like about this stock market rally.

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