Wednesday, August 29, 2007
Apparently, prices have gone down recently: "The average retail gasoline price is down 47 cents per gallon since its peak the week before Memorial Day"...but "with gasoline demand set to fall significantly after Labor Day, the low level of inventories is not likely to cause a sharp spike in retail prices, but more likely will limit the usual seasonal decline seen after Labor Day, with the possibility remaining of an atypical slight increase over the next few weeks."
Gasoline prices in the US didn't keep up with inflation for many years; and it was uneconomic for oil companies to build new refineries as a result. As a result, we can expect that the days of gasoline for less than $2 per gallon are gone for a long time.
Tuesday, August 28, 2007
Monday, August 27, 2007
I had plenty of cash for a downpayment and a good credit score. The escrow process was a nightmare. The bank would literally call each day and ask for a new piece of documentation. They should have given me a list up front, but instead dragged it out. Then one day, the branch lending officer called me up and told me the underwriters wanted an extra 5% down. Fortunately for me and my family, I had realized enough cash from my sale that I just had to say, "No problem, do it." I imagine there are a lot of folks out there that received the same message from their lenders and couldn't come up with the cash.
Then the bank's underwriting department didn't seem to think that closing my loan was particularly important, as we would send them the information requested and then hear nothing for an entire day. I had my attorney send the bank branch an email asking why the bank didn't consider the closing an urgent matter and I called and complained to the branch manager as well. Their response was that the underwriting department (located in Chicago) wasn't being very responsive. So we finally get the keys two weeks after the original expected closing date. Of course, this was all going on at the same time that the credit markets were seizing up, so I had a few heart palpitations there. This is just my story, but I suspect that there are quite a few others out there who could relate.
Thursday, August 23, 2007
Clearly the issuers of ABS CP do so as a sort of bridge financing while they find long term buyers of the ABS. Personally, I think that the seize-up of the market for this sort of CP is healthy as it will force issuers of ABS to demonstrate plainly that the mortgages they are selling warrant the ratings they receive.
Friday, August 17, 2007
-a genuine run on a bank...Worried about the stability of mortgage giant Countrywide Financial, depositors crowd branches.
Anxious customers jammed the phone lines and website of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.
At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early '90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.
-a liquidity crisis in short term money markets that prompted central banks around the world to take emergency action... ECB Injects €94.8 Billion To Ease Jittery Markets... Bank of Canada Says It Will `Provide Liquidity' to Aid Markets...Fed Enters Market To Tamp Down Rate...
-whipsaw volatility in global stock markets resulting primarily in major declines...
-mortgage lenders going bankrupt...Aegis Mortgage files for Chapter 11 bankruptcy...
"Aegis has described itself as one of the 30 largest U.S. mortgage lenders. It made "prime" and "Alt-A" wholesale loans, and "subprime" retail and wholesale loans to residential borrowers who couldn't qualify for the best rates.
In court papers, Aegis listed more than $100 million of assets, and estimated it owes more than $600 million to creditors. The latter included $178 million of unsecured debt owed to Madeleine LLC, a Cerberus affiliate that has an 80.9 percent equity stake, the papers show"...
-exchange rates move radically...the yen has strengthened quite a bit against the dollar...this suggests that many investors are exiting the "carry trade"...
Tuesday, August 14, 2007
"Nearly every day, home appraiser Terry Bernhardt tells mortgage brokers that homes they're seeking to finance are badly overvalued.What this means is that there is plenty of over-priced housing in the Portland metro, and the local real estate industry is trying to hide that fact. So expect to see falling home prices here for a while...
Their response, often, is to threaten to withhold Bernhardt's payment until he raises the home's appraisal value. If he doesn't, they'll find an appraiser who will, thereby ensuring they close the deal and collect a commission.
"The perception is, if you don't play ball with them, you won't get their business," said Bernhardt, an appraiser for Portland-based Valuation Trust Corp. "It puts us between a rock and a hard place."Such high-pressure tactics have helped generate more complaints to Oregon's Appraiser Certification and Licensure Board than ever, said Bob Keith, the board's administrator. Overall mortgage-related complaints now exceed 300 annually, a fourfold increase since 2001."
Rodriguez says that
"Two years ago, we noticed a problem developing in our bond portfolios involving Alt-A securities. Despite having average FICO scores of 718 on the underlying loans, these securities experienced rapidly escalating delinquencies and defaults after just nine months. We sold them since we did not want to wait around to find out the reason why this was happening."Doubtless, his firm had little trouble selling the bonds at the time. He follows up by stating that
"Our worst fears were recently confirmed in a study by First American Financial entitled, "First American Real Estate Solutions Report, Alt-A Credit: The Other Shoe Drops" This report shows the following changes in underwriting standards between 1998 and 2006, with the major changes occurring in the last two or three years:There is much more in the linked post...well worth your time. To me, this data just confirms the emerging picture that financially sound homeowners got caught up in the tide of buying larger houses than they could afford, or sucked out all of their equity to spend.What is interesting is that the origination volumes for the last two years, when the most egregious deterioration in underwriting standards occurred, total more than the previous seven years of originations combined. "
* ARM % of originations rose from 0.7% to 69.5%
* Negative Amortization rose from 0% to 42.2%
* Interest Only rose from 0.1% to 35.6%
* Silent Seconds rose from 0.1% to 38.7%
* Low Documentation rose from 57% to 79.8%
* FICO scores were essentially unchanged at an average of 706.
Friday, August 10, 2007
Congress needs to get the companies ``reformed, get them streamlined, get them focused, and then I will consider other options,'' Bush told a White House news conference today in response to a question about whether the two companies would be allowed to buy more mortgages to help spur the housing market. "
That's the right move, Mr. President. No bailouts for bogus loans or folks whose eyes were bigger than their wallets.
Thursday, August 09, 2007
``There are indiscriminate sell orders from panicked investors,'' said Liu Juming, a fund manager at Ta Chong Investment Trust Corp., which manages $1.1 billion of assets. ``The old saying in the investment world that `cash is king' came about because of days like today.''
"Stocks got crushed Thursday, plunging right out of the gate; and every attempt to buy on the day's dips was met with even stronger waves of selling pressure. Renewed fears about credit risk, this time from across the pond, prompted investors to take a deeper look at the severity of the ongoing subprime problem and the difficulties that diminishing liquidity is having on banks and brokers to accurately value assets...The news out of Europe prompted a 50-basis point jump in Libor (London Interbank Offered Rate) to its highest level in six years and prompted the ECB to inject nearly 95 bln euros ($130 bln) into money markets. The Fed also chimed in by adding $24 bln in banking reserves. Such attempts to temporarily ease the pain of a possible credit crunch, however, were viewed with a glass half empty and merely exacerbated the worst of liquidity fears."
The liquidity moves by the ECB and the Fed are intended simply to prevent panicky actions by banks; the extra funds availability will likely be very short-term. Today's situation is precisely what central banks are set up to handle. The extra funding will be pulled back by the central banks once their member banks get a handle on what their true market positions are. With the volatility that we've seen, I see it as humanly impossible for financial institutions to keep up with the market fluctuations. The central bank actions reassure their member banks that funds will be available, so the banks can review their positions without feeling the need to take rash actions.
I don't have a link for a quote, but I recall seeing a comment on a discussion thread suggesting that the spike in LIBOR rates could mean that banks didn't have confidence in their own balance sheets and thus were looking to get capital quickly, which would of course drive up the rates. This clearly prompted the central bank actions. Today would seem to be a red letter day in that we have seen an actual short term credit crunch. It doesn't happen that often.
I just spotted a great quote over at Calculated Risk:
"So, today the monetary base in the North Atlantic economies is 7% higher than it was yesterday--an annualized growth rate of 2100% per year.This is indeed a significant liquidity event...Professor DeLong, August 9, 2007 "
Here are the NASDAQ charts for the last 5 days and the last 3 months:
Thursday, August 02, 2007
Although there has been a bit of a bounce the last two days, said bounce has been insignificant compared with the overall downtrend. It appears that more of the buyout premium was priced into the Nasdaq Composite, which would make sense as the proportion of stocks in the S & P that have been considered buyout candidates would have been relatively smaller.
Wednesday, August 01, 2007
In my post Why major oil companies aren't making new finds I presented information from an oil industry expert which seems to indicate that the major independent oil companies have very limited prospects for new finds of traditional oil fields. Based on that the purchase by Marathon makes great sense, and I would be surprised if the other majors listed below do not follow suit with investments in alternative sources of petroleum such as shale, tar sands and coal. Oil can be extracted from all three of those sources, and given current oil prices the extraction processes should be economically viable.
E... Eni S.p.A.
[XOM...Exxon Mobil Corporation