Friday, October 31, 2008

Presidential Poll: Vote Here Now!!!

Originally uploaded by KCIvey

Presidential Poll:

Cast Your Vote Now

I am conducting this poll through Monday afternoon in order to get a feel for how the ordinary American as well as the exceptional American that reads this blog feels about the candidates going into Tuesday's critical election.

What I would like hear about is who you think that you are voting for, if you are undecided, the state you live in (other than my state of confusion) and the issue going forward that is of most importance to you.

I will post the results on Monday night, and your comments will only be posted if you would like them to be.

Please forward this on to anyone you think might be interested in participating, so that we get as large a "turnout " as possible.

Presidential Ticket:

  • McCain/Palin
  • Obama/Biden
  • Other
  • Undecided

State You Will Be Voting In:

Area Most Critical In Your Decision:

  • Economy
  • National Security
  • Experience
  • Trust
  • Change
  • Other

Additional Comments:

Remember, no matter who you are voting for, get out and vote!!!

Some Quick Economic Statistics To Use At Cocktail Parties

Just Days Before The Election, What's Going On?

In about 5 days we are going to know who our new president is, and have a better idea of the direction that our fiscal policy is going to head in. Higher taxes, lower taxes, higher taxes for the rich (if earning above $250 K is considered rich), more drilling, less drilling, more green, less green, more government, less government, etc.

How the markets will react to the eventual winner will start to be apparent on Wednesday morning, or even on Tuesday afternoon as the exit polling kicks into high gear. That being said, what we can say for now is that we have endured an enormous amount of trauma the past months, and that at least for now things seem to have stabilized somewhat.

Cocktail Party Talk

With the weekend upon us, it is important to look at some of the key indicators so that as we go off to our smart dinner parties or the local gin mill or just hang out at home we have some idea of what is going on out there.

The 3 month LIBOR rate had about a .25% drop into Thursday bringing it below 3.2%, and the TED Spread continued to improve with an afternoon level of 2.76.

The VIX, always a big topic among friends remains at very high levels relatively, but far off of the highs that approached 90. While normalcy used to be in the high teens, low 20's, things seem absolutely tranquil at 67.5.

Commodity prices as measured by the CRB Index has fallen from 474 on July 3 to the current level of 268, off the low of 253 set just 3 days ago. While this is good in terms of lower raw material costs, it is bad in that it is a further indication of what we already know. We are in a recession.

Speaking of recession, the GDP news on Thursday was that the economy was at an annual rate of negative .3% . Most people did not need this report to tip them off. Ironically, the National Bureau of Economic Research has not yet decided as to when they would declare recession.

Crude, which had been an albatross around our necks a very short time ago close to $150 a barrel, has provided the equivalent of a tax cut falling to the current level of about $65 a barrel.

Hope this helps. Have a great weekend.

Thursday, October 30, 2008

Stick To What You Know!!!

This Is Why You Stay On Topic!!!

I am using this picture as an analogy in that you should not recommend things that you are not 100% sure of. Ironically, only yesterday, I had recommended a source for promoting your blog, if you had one. Today, that service, BlogRush, has shut down.

Dewey Defeats Truman
Originally uploaded by scriptingnews

While I had no way of knowing it was going to shut down, from here on out I will stick to the focus of my blog: politics, financial markets, credit markets, mortgage markets, etc.

The management apologizes for any inconvenience that this has caused.

Headline: Federal Reserve Cuts Rates 50 basis points and more

The Two Day Fed Meeting Ends With A Cut Of 50bp.

The Fed lowered its' overnight lending rate to 1.00% and the discount rate to 1.25%. Along with this was the statement that downside risk to the economy remains that would seem to leave open the window for further rate cuts. We are chasing Japan which is rumored to be lowering its' key rate to .25%.

This move is somewhat symbolic in nature since actual rates were already trading down around or below this level. In a slow but continuing improvement in LIBOR, the rate on Wednesday was at 3.42% indicating that there is a slow thaw in banks willingness to lend. The TED Spread is at 2.82,up slightly from yesterday.

Help For Homeowners In Trouble On The Horizon?

The Treasury Department and the FDIC are working on a plan that would provide $500 billion in government guarantees for people in trouble on their mortgages. The framework has not been developed yet, but it would offer some kind of an incentive to lenders to restructure a loan into an affordable payment for the homeowner that would be in effect for 5 years before the rate could begin to be raised.

Is The Pinnacle Still As High As It Once Was?

Goldman Sachs, the equivalent for every MBA of climbing Mt. Everest, announced its' class of new partners today, with 94 given the "honor" of sharing in the bounty of about 20% of the firms compensation pool. Unfortunately for them, Goldman may be in the beginning stages of earnings declines as it is forced to behave more like a bank and less like an investment bank. Whatever, still an unbelievable achievement.

The Charlie's Angels' Ferrari

In a sign that things are not so bad everywhere, the car driven by Cameron Diaz in the movie Full Throttle may sell for close to $5 million.

Wednesday, October 29, 2008

Promoting Your Blog

A Little Off Topic

Maximizing Your Blog Through Blog Syndication

I know that many of the readers of this blog are bloggers in their own right, so I thought that I would share this tool.

If your blog has been in existence for a few months, and you want to achieve maximum exposure, blog syndication is a key component in the process.

BlogRush is one of the top blog syndication sites, and works in the following way. You first send your blog URL in so that they can take a look at how long it has been around and in the quality of the content. Once approved you add their HTML onto your blog, and your readers will be able to click on the five listed blogs that are consistent with your content.

Those bloggers get credit every time someone clicks on their link, as you will get credit for every time someone clicks on your link on another website. I have been using it on my blog, The Political and Financial Markets Commentator at (on the right hand column) for some time, and have seen an increase in traffic.

It is free to apply (they don't accept all blogs), so there is really nothing to lose. Click on BlogRush sign-up. Let me know if you have any questions.

It's Beginning To Look A Lot Like Christmas?

Are You Confident?

When I first started writing the Politics and Finance blog at the beginning of the summer, in my wildest imagination I would not have expected that my daily rant would be so consistently negative. The goal, which has morphed slightly since the inception was to provide commentary on the ever changing political and financial landscapes that affect us all. The goal has not yet been attained, because the landscape has not been ever changing, but going in one direction.

While I have been accused in the past of having the trait of negativity, I have always called it pragmatism and realism. Just try and call them like I see them. Just wanted to get that out there. In any event, we had the report Tuesday morning for consumer confidence, and the survey says.....they aren't.

The Conference Board announced the October reading fell to 38, well below the expected number of 52, and one of the lowest, if not the lowest reading since this number has been reported. I was listening to a talking head on the radio who said that it is not what the consumer says, but what they do. These can sometimes be different. They are now unfortunately the same.

Very Positive News From The Commercial Paper Market

It looks like there might be a thaw in the credit markets with the Fed getting involved buying corporate commercial paper. On Monday there were 1,511 issues sold with maturities over 80 days with an aggregate value of $67.1 billion. The Fed bought about $60 billion of the total. This end of the CP market has pretty much been frozen since the Lehman bankruptcy.. Last week there were 340 issues brought to market with an aggregate value of $6.7 billion. There was over $232 billion of CP sold of all maturities. (Source: Bloomberg)
Trading In Financials

I am writing this on Tuesday morning at about 10:35 AM, and the stock market is still in rally mode after an extremely strong rally in Hong Kong over night. The rally weakened some after the consumer confidence number, but is still hanging on.

What peaks my interest is the way that the financials are trading, particularly Goldman Sachs and Morgan Stanley, both on no particular news. Goldman is down over $8 to $84 and change, while Morgan is down over $2.50 , make that $3.00 at $10 and change. Other financial are not particularly strong either. This type of trading, with an increase in volume during the slide down definitely bears watching. Both are trading at or near yearly lows. I will come back if there are any developments.

During the slide in these two stocks, the overall market has taken a hit, and looks like it is headed back into negative territory (10:42 AM EST).

(3:23 PM) Whoops. Bad call at 10:42. This is the monster rally I talked about Tuesday morning that would eventually come. The yellow caution flag needs to remain out, as this is probably a vicious bounce within what remains a bear market, unless of course the anecdotal evidence begins to show an improvement in bank lending and in the prospects for improved corporate earnings.

The commentary on the radio is that investors are attracted by the most attractive valuations in 20 years (unlike the investors selling at these valuations yesterday), but these valuations will only be attractive if we can believe in the E in the P/E ratios.

Tuesday, October 28, 2008

Some Good News In Housing?

October 28 and 29, 1929 was the culmination of the sell-off that began on October 24th.
An Uncomfortable Anniversary

October 28, 1929 was the apex of peak of the selling that led us into the Great Depression. This is not meant as any type of prediction, but merely as a political reference.

New Home Sales For September Announced

The report for new home sales in September was released Monday morning, and what we saw was an increase that was slightly above expectations. Sales were particularly strong in the West up 23%, while sales in the Northeast fell to a 35 year low. You know what they say, location, location location.

The Fed Is Meeting

The Fed is holding a two day meeting this week, with their interest rate decision being announced Wednesday at about 2:15 PM EST. The overwhelming expectation is that they will be lowering rates as the economic conditions outweigh any fear of inflation, although the fear now is more along the line of deflation. All you have to do is watch the CRB, the gauge of commodities prices, to realise that is the case.

GDP is being released on Thursday, and this could be the first "official" indication that we are in recession, although in real life you really don't have to look far to see it. The consensus is for a decline in 3rd quarter GDP of about .65%. You know the story about the difference between a recession and a depression. Recession is when your neighbor loses his or her job, and depression is when you lose your job. Very true.

In the meantime, the markets are looking for some new coordinated government intervention, whether it is in the currency market or through interest rates.

Selling Rally's

It was looking good for a while there today, but it turned into another case of close but no cigar. The stock market rallied for a good part of the day after a sell-off at the open, but faded into the close down another nice percentage piece. The reality is that until further notice, whether it is hedge fund selling, recession fears, a lack of buyers or any other cliche or reason you would like to come up with, the market is firmly entrenched in a downward spiral.When will we know when the time is right to buy assuming we still have some money left?

The key will be to watch for bad news that no longer pushes the market down, or even better, a string of some positive economic news. Until that point any rally is going to be sold, and the eventual monster rally we will have would be a rally within a bear market that would fade. Tradeable, but you need to be nimble.

Monday, October 27, 2008

Where Do The Markets Go From Here?

What Market Am I Talking About?

The answer to that question is really that it is the readers choice to decide. Whether we are talking about housing, mortgages, commodities, stocks, bonds, currencies or commercial real estate, we are at what can only be called an extremely elevated state of flux and angst in all of them.

Some good news came out of the the housing sector on Friday with a greater than expected number for existing home sales from September. While good news, the reality is that the housing sector remains stalled and borrowers that want to borrow had better have stellar credit, strong income and plenty of money to put down.

The Ted Spread, after showing signs of improvement most of the week went into a stall as LIBOR remained pretty much unchanged and there was a renewed flight to quality in T-bills.

Volatility measured by the VIX reached new record highs. This measure of fear and anxiety which has normally ranged between 15 and 25 hit a record close to 90 before settling at 79.13.

So What Is The Answer?

The bottom line is that there are an incredible amount of cross currents and events that are going to play key roles. At this point many remain unknown as to how they are going to play out, which makes making bold predictions extremely difficult at best, and insane at the worst.

Who is going to win the presidential election in the United States, as this will play a role in how we move forward? How well and successfully will the bailout plan be implemented, and what new developments will crop up (such as the plan to include some insurance companies under the TARP)? How long and how deep will the recession be in the United States, Europe, Japan and the developing countries? Will there be any extraneous events that will create even more world turmoil? Can the governments around the world continue to cooperate with each other in the implementation of fixes designed to mitigate the problems.

Can we avoid the political finger pointing and search for the "cause" of this problem, accept the fact that politicians on both sides of the aisle are complicit and move forward in a bi-partisan way to really look for solutions that benefit the people that put them in office in the first place?

These plus any others that anyone can think of. I certainly hope so. Fed meeting this week, with no reason for them not cutting rates at least 25 b.p.

An Admission Of Economic Angst From A Surprising Source

The sports industry, normally only interested in squeezing every last nickel out of the people that attend the games (which with current prices tends to be the corporate suits), has begun to put a freeze on ticket prices in many markets, and some are offering packages designed to make a game affordable to the typical family of four that is quickly getting priced out.

Score one for the true "fans" (at least in some markets).

Friday, October 24, 2008

Mortgage Modifications: What Are They?

Watching Stock Market Futures

I had been asked to write a piece on mortgage modifications that I was not going to post on my blog, but watching what could be a Black Friday in the markets has inspired me to submit it.

If You Are Late On Your Mortgage Payments Or About To Face A Foreclosure Action: You Do Have Options!

Do Not Just Assume That Your Lender Holds The Upper Hand

Mortgage Loan Modifications:
Why It Is Critical To Use An Experienced Professional

My firm, Exeter Commercial LLC, is a commercial mortgage lender, broker and trainer. Many of our deals come to us through referrals from residential mortgage brokers. Because of this we have heard 1st hand the stories behind the rash of foreclosures and soon to be foreclosures that are happening around the country.

We have also seen and heard the stories of people that are facing this prospect of losing their homes, that are trying to work with their banks to save their homes or hiring someone that says that they can help them, when in reality they really can’t. Due to all of this, as well as to the fact that some of these same situations are now arising in the commercial real estate market, I have looked into some of the options that mortgage holders have.

What I found is a process known as mortgage modifications. These are explained below, as well as some of the reasons that using a true professional is critical. The key word here is true. If you were having heart surgery you would not want to use a Dr. doing their 1st one, and the same holds true here.

At the end of this piece I have posted my contact information in the event you need any advice.

What Happens To Your Home When You Can No Longer Afford Your Mortgage Payment?

With the turmoil in the financial markets, rise in unemployment, drop in the equity markets, and the incredible increase in the amount of mortgage lates and foreclosures around the country, is there anything that a homeowner can do to save their home from the lender that is holding the mortgage note?

What Is A Mortgage Modification?

When a homeowner can demonstrate a hardship that is taking away their ability to make their mortgage payments at the current level, a mortgage modification can be negotiated that could:

· Lower the existing rate and turn an adjustable rate into a fixed rate.
· Put the amount that has been missed on the back of the loan in a recapitalization.
· Defer payments for a number of months.
· In some cases reduce the principal amount of the loan

How Can A Modification Be Accomplished?

There are two ways for a modification to be accomplished. The 1st is for a homeowner to go to their lender and attempt to negotiate the modification themselves. In many cases this can be penny wise and dollar foolish, because a homeowner is in a state of maximum stress and anxiety, doesn't really know the process and is typically dealing with a person within the institution that may not have a real interest in working with them or in helping them.

The other way is to work with an attorney who is specially trained in modifications, who knows the people in the banks to speak with, knows the borrowers rights and all of the laws in a specific jurisdiction. What are some of the reasons to use a professional?

· The complexity of the process.
· They know the point people in the banks to speak with and work with.
· They know the exact information that a bank wants to see and how to package and present it.
· They know what can be negotiated and what should be attainable.
· Their ability to halt or delay the foreclosure process.

Some Of The Typical Objections To Hiring A Professional

Why can’t I do this on my own and save some money?

Ò This process is not as simple as making a phone call and getting the deal done. It is a complex process that requires a professional that has seen it and done it successfully. Saving your house is not the time to learn something new!
Ò It is critical to get to the RIGHT people at the lender, and a professional will know them and have a relationship with them. A borrower will typically be speaking with the collections department.
Ò A professional knows the right information to present—cost analysis, valuation of house, etc.
Ò The mortgage modification professional will present a clear and specific proposal in writing instead of asking the bank what they will do. Modification experts will know what the different lenders have been willing to do in the past
Ò The bottom line is that you could save money and attempt to do a modification yourself—but it could cost you the house if it is not done correctly
Ò The professional knows how to stave off foreclosure (halting the process)
Ò If your loan modifications expert can negotiate just one extra item (such as rate adjustment), a borrower could save tens of thousands of dollars.

Why the cost?

Ò The team that you will be hiring will be taking all of your financial and personal information, and be preparing a formal proposal that will be speaking to your specific lender and to the proper decision makers within that lender.
Ò Each modification requires 30 to 40 hours in conversations with the lender.
Ò Once the framework has been worked out, your team will move you from the agreement to settlement.
Ò If you hired an attorney to negotiate on your behalf at $300 per hour (conservative)—35 hours of work would be a cost of $10,500 and they would not typically be as experienced as the attorneys that specialize in mortgage modifications.

What if you don’t have the money to pay for this?

Ò In reality, paying a professional $2,000-$4,000 to save $100,000, save your long-term credit and save your house? There is really no question!
Ò There are different ways to get the fee, none of which are ones that you would typically want to think about, but again the goal is to keep your house: credit card, savings, personal loan, loan/gift from relative. You can typically use any combination.
Ò If a homeowner has already stopped making their mortgage payments—where is that money going to?
Ò A typically overlooked cost is what it would take them to move out of your home and into a rental, including deposit, moving costs, first months rent, utilities and more.

What if you need a guarantee of success?

Ò You are paying a mortgage modifications expert and its’ legal team to negotiate on your behalf just as you would an attorney in any action. If you hired an attorney, and you lost the case, would the attorney refund your fees?
Ò Your modification firm will spend up to 50 hours or more preparing documents and negotiating.
Ò Reputable and time tested mortgage modification firms do not accept files that are not reasonable or clients who are not qualified. Accepted files have a 90%+ chance of success.
Ò You, the homeowner, have the final say-so in accepting the offer from the bank.

The bottom line, is that it is imperative to work with a firm that comes highly recommended, that is professional and ethical and that provides you with as good an experience as possible during an extremely stressful and emotional time.
Remember that you do have options!!!

If you have any questions, please email me and I will be more that happy to share my knowledge with you.

Michael Haltman, President
Exeter Commercial LLC
131 Jericho Turnpike, Suite 202
Jericho, New York 11753

Remember the B-52's: "Who's To Blame?"

Who Is To Blame For The Financial Crisis We Find Ourselves In?

I am dating myself with the reference to the B-52's (great band from the '70's or '80's if you never heard of them), but the lyric is just to appropriate. I had written about finding scapegoats a few days ago, and this is just more of the same. I agree it is important to know where you have been in order to avoid going there again, but the only goal now should be to improve things going forward.

I know the argument that going back is critical to making sure some of these things don't happen again, but we all know how government works, and in my opinion this is not the purpose of these hearings.

In a continuing effort to find the absolute culprit for the financial mess that we Americans and those around the world find ourselves in, the parade to Capital Hill continued today. This serves two purposes.

The first is to allow the members of the House on the panel to ask questions in order to make themselves look tough on the issues, when way back when they may have been complicit in the current problem. Hindsight is always 20/20. Let's not get caught up in the details.

The second is to allow those brought in front of them, including former Chairman Greenspan, the current FDIC Chairwoman Sheila Blair, SEC Chairman Christopher Cox and Neel Kashkari who is in charge of the disposition of the $750 billion bailout fund, to defend both past, present and potential future actions. Not exactly must see TV.

Merely A Sideshow

This sideshow takes place in the shadow of a potential or actual worldwide recession in conjunction with a vast destruction of wealth in the form of declining home prices and a continued decline in the stock markets. The economic news simply gets worse and worse.

The stock market, after a 500+ decline in the Dow yesterday and a short lived bounce this morning is declining once again. Commodity prices are getting crushed amid the perception that economic growth, which prior to the Olympics had no chance of ending, seems to be gone.

Foreclosure Idea

I certainly don't want to leave the impression that nothing good ever comes out of these Congressional circuses. A proposal was discussed by Sheila Blair regarding foreclosures, but if it is ever implemented is another story:

From AOL Money & Finance:

"Sheila Blair, chairman of the Federal Deposit Insurance Corp., told the same Senate panel that the government needs to do more to help tens of thousands of home borrowers avert foreclosure, including setting standards for modifying mortgages into more affordable loans and providing loan guarantees to banks and other mortgage services that meet them."

"Loan guarantees could be used as an incentive for servicers to modify loans," Blair said. "By doing so, unaffordable loans could be converted into loans that are sustainable over the long term."

Thursday, October 23, 2008

When Is Good News Bad News?

When Is Good News For Our Pocketbooks Really Bad News?

Who would have thought a few months ago that we would see the handle on a barrel of oil start with a 6? We had many of our market "experts" predicting that $200 a barrel oil was a given, it was just a matter of time. That is typical expert talk, jumping on the momentum bandwagon and predicting that the momentum has nowhere to go but in the same direction for an extended period of time.

Kind of reminds me of the "experts" you see on TV after the market has rallied a thousand points off of the bottom say that they think we have seen the bottom and that the low has been put in. It's seems like an easy call now since we are 1000 points off of it, and where were they the day that it hit that low? Truth be told they are probably wrong anyway.

I Digress From My Point: When Is Good News Not Good News?

The point that I wanted to make is that $60 something dollars a barrel and $2 something at the gas pump is great news, but only if you have a job to drive to and the money in your pocket to buy the gas.

The R Word

Mentioned by a high ranking official in Britain Wednesday morning, global recession is the reason that we are seeing gasoline prices come in off of its' $148 a barrel high during the height of the commodity bubble when it was clear to many that the global demand, led by China and India would continue unabated. Missed that one too.

Boeing and Merck yesterday were but two of the latest companies to announce steep job cuts, with many predicting we have not seen the high point in unemployment rates. Companies that are hitting their low bar earnings expectations are sounding very cautious for the next few quarters.

I guess for the time being let's just enjoy the lower gas prices and hope that the "experts" on the side of a long recession and higher unemployment going forward are wrong, as they so often are!

Wednesday, October 22, 2008

And The Scapegoats Are?

Today's Market Action

Before we get into the discussion of who is going to be the fall guy(s) and gal(s) for the debacle that we now refer to as the Financial Crisis of 2008, let's take a quick look at the continued improvement in the indicators of credit market liquidity.

The Ted Spread

The LIBOR rate continues to show improvement by dropping to the lowest level we have seen in weeks at 3.8%. The 3-month bill is at a level of approximately 1.06%, bringing the spread to the neighborhood of 2.7%, still extremely wide but well below the close to 5.0% at the worst.

For new readers LIBOR represents the London Interbank Offered Rate, the rate at which banks are willing to lend to each other. The 3 month bill is what is called the risk free rate, or an investment, because it is backed by the full faith and credit of the United States, that holds no risk of default.

When market fear was at its' worst and trust between the banks in terms of each other solvency was at its' highest, the Ted Spread was the widest (LIBOR - 3 month bill).


The VIX, a measure of angst and fear closed at 53, well off the highs of 81 but well off of the typical range in the 15 to 20 range. Getting better but still a long way to go.

The Envelope Please

As is the American way, any problem requires that the villain(s) be identified and paraded in front of us so that we can find closure. In this case, many of the people that are most complicit in the problems that we now have are some of the loudest in saying that someone has to pay. Of course that doesn't mean them.

Our politicians that ignored what was going on, and even passed legislation that enabled many of these companies to proceed is classic posturing and might even constitute pomposity. These are many of the same guys that benefited from sweetheart mortgages that the companies lavished on them. These perks were at the very least a lack of judgement, and at the very most approaching something else.

The American public that for the most part ignored any sense of a problem giving 110% LTV mortgages to people with no income and poor credit history, who saw housing prices skyrocket and nothing but construction cranes dotting the skylines of many cities such as Miami and Las Vegas, is screaming for the heads of someone, anyone, that has led us down this slippery slope of financial destruction.

Does that mean that the corporate executives of some of these firms that earned big money while driving their stocks into the ground while professing that all was well have no guilt? Of course not. And pay some of them will.

The Winner (Loser) at least for now

Lehman Brothers and particularly Richard Fuld (until a new villain is chosen)

Tuesday, October 21, 2008

Should The Focus Be Stimulus Or Housing?

The Stock Market Was Up, Volatility Down and The Ted Spread Narrowed To Below 3%!

Those were the statistics of todays financial and credit markets, and at least for today very good news. Earning released so far are a disappointment if you look at them in comparison to last year, but on Wall Street they are primarily beating reduced expectations or jumping over the lowered bar, so all is well.

Housing Relief May Trump Stimulus Plan

Bernanke Talks About More Stimulus But Is That Where The Focus Should Be? from

(Oct. 20) - Having already passed one piece of legislation to rescue the housing sector, the government appears ready to embrace a bigger and more costly plan, hot on the heels of its historic efforts to bail out financial firms.

"There's a sense that if we don't do something about housing, we will end up throwing good money after bad," says Christopher Mayer, senior vice dean and professor of real estate at the Business School.

The push for another housing rescue plan comes amid growing calls for a second economic stimulus package. Federal Reserve Chairman Ben Bernanke backed the idea during his testimony before Congress on Monday, and President Bush signaled he's "open to the idea."

But economists say the best bang for the buck will come from helping housing, not another tax cut or extended unemployment benefits. That's because home prices, much like stock prices, fundamentally affect on people's sense of wealth.

"We can't stop them from falling," says Mayer. "What we're trying to so is prevent them from collapsing."

Mayer is among those who expect home prices to fall another 15 percent in the next 18 months, on top of 15-20 percent drops already.

"Banks are not lending out much of that money in part because they are anticipating more losses on their balance sheets," he adds. "You could easily see billions more in write-offs."

At the moment, there's no shortage of proposals to jumpstart the housing sector, from the presidential candidates to Congress to the trade groups.

And whatever that is, it has to be done relatively quickly and be in place for the traditional spring housing season. One big question then is whether it becomes the job of a lame duck Congress and president or a the new government in late January.

Any new plan will also have to be more well-received and highly regarded, unlike its predecessor, the Hope for Homeowners mortgage modification program of last July, which now seems hastily conceived, poorly received and otherwise forgotten or written off by most in Washington.

"We need to drive activity to banks, so [interest] rates will come down," says Mary Trupo, who follows policy for the National Association of Realtors' policy expert. " The unforeseen consequences of all this legislation is that mortgage rates have increased."

Indeed, rates on 30-year mortgages -- which have hovered between 5.75 percent and 6.25 percent in recent months -- are higher than they were at the beginning of the year when the Federal Reserve began to aggressively trim interest rates.

The NAR's plan is more modest than most, and tweaks existing measures, such as tax credits for homebuyers and higher borrowing limits for conforming loans, the latter of which are now slated to expire at the end of this year.

"We'd like to see it as simple and uncomplicated as possible," says Trupo.

By contrast, the plan of Democratic presidential nominee Sen. Barack Obama is multi-faceted and somewhat similar to the existing plan. So are the proposals of Sen. Hillary Clinton. The plan of GOP rival Sen. John McCain, though simpler, is also considered cumbersome and slow.

Monday, October 20, 2008

LIBOR Drops Significantly

On The Road, But We Have  a Key Development

I am writing this from the airport in Denver, but thought that this development in rates was extremely significant, so I found a computer to write this on.

The 3-month LIBOR rate, which has been showing a slow but steady improvement over the past week, dropped this morning from 4.42% to 4.04%.  What had been under 10 bp drops, surged to close to 40 bp.

This is key for the credit markets as well as the stock markets as index futures rise strongly. 
This is a VERY positive development.

Round And Round She Goes...

Where She Stops Nobody Knows

As Howard Beale said in the movie Network, "I'm as mad as hell, and I'm not going to take this anymore!"

For anyone involved in the credit markets, stock markets, mortgage markets and even the supermarkets, watching the action and seeing the results of the action all day every day makes me think of the quote above.

Up down, up down, up down...well you get the idea. The stock market reminds me of the world famous Cyclone Roller Coaster in Coney Island (now closed I think). The level of volatility is historic as evidenced by the VIX closing over 70, although still off of the high of 81.17.

One gauge of liquidity in the credit markets seemed to improve on Friday, with the 3 month LIBOR at 4.44% and the 3 month T-bill at .60%, bringing the TED Spread under 4%. Still wide by what had been considered to be normal standards, but an improvement none the less.

It seems as if what we need to see is a climactic blowoff that will finally allow the washout and final capitulation and let us begin to move forward in a much more positive way.

What Are The Consumers Up To?

We had some more evidence released today on the state of the consumer. It has been the consumer that has been keeping things going, seemingly oblivious to many of the things going on around them (me included). Friday we had some more evidence released that the consumer could possibly have hit the proverbial brick wall, as consumer confidence had its' steepest monthly decline ever, and housing starts declined to a 17 1/2 year low.

With the "all important" holiday season fast approaching, the moves being made to shore up the credit markets and to put a floor under the economic problems we are all facing will hopefully gain some "traction" and improve all of our confidence in our prospects "going forward" (I am going to try and put wall street pundit cliches in quotations so if you are not a regular reader or viewer of these guys and gals, you will recognize them). Stay tuned.

On The Positive Side

For all of us, or any of us that still have money in the bank and jobs, we now have the opportunity to buy the homes of our dreams, stocks on a 50%+ off sale, and can definitely get into the restaurants that were off limits not that long ago.

Seriously though, one of the truest things is that at times when things seem a little dark, that is when they will start to improve.

The point is also that nothing happens in a vacuum, and that the only way that we will improve our own personal situation (if it needs improving) is to avoid the common tendency of feeling sorry for ourselves, feeling comfortable that we are part of the crowd, and to sit down and really think about where we are, and where we want to go. And then do something about it!

Let's Go People

Saturday, October 18, 2008

Don't Give Up On The American Dream Of Owning A Home

Don’t’ Give Up On the American Dream Of Owning A Home

For a weekend change of pace, I wanted to move away from looking at the credit, stock and commercial mortgage markets (at least for today), and talk about a topic that is probably much more on the minds of the majority of people around the country today.

Can I Afford To Buy A Home?

A better question, given the steep drop in housing prices and the fact that we are in one of the best buyers markets seen in a long, long time, is can you afford not to buy a home if you have been considering it.

What brought me to this topic?

I am not a real estate broker, but I know what I see driving down the streets in my town and every other town. Today I write from Boulder, Colorado, and am seeing the same thing. A large amount of For Sale signs lining the streets. More than I have seen in a long time. What does this mean to me or you? Simple supply and demand and a great opportunity for people in the market to buy a home, assuming that they don’t have to sell one 1st.

Everybody that you talk to is more than just a little aware of the turmoil in the credit markets, stock markets, mortgage markets and housing markets. It has been well documented that for anyone other than the most pristine borrowers (i.e. credit scores above 700) with 20% or more to put down on their homes, the ability to qualify for a home mortgage is an uphill walk to the summit of Mt. Everest.

I Reached Out To A Residential Mortgage Broker Friend Of Mine

In my day to day business of the commercial mortgage market, I know first hand how the banks unwillingness to lend has made the process of getting loans underwritten extremely difficult.

I asked the question of what it is that people do if they can’t go to their local S&L and apply for a mortgage due to any number of issues that they may have either with credit, income or down payment (or maybe all three).

This Is What He Told Me

Many of you probably have heard of the FHA or Federal Housing Administration and FHA loans. Many of you may be aware of how they work and who can qualify. I know that I have heard about the program, but I was not really aware of the details and what it is really there for, which is to make home ownership possible to people who might otherwise not qualify through conventional means. It was created during the Great Depression, and definitely has some relevance today.

Summary Of The Program

Just to summarize some of what he told me, these are a few of the basics. With some of the changes in the size of the loans that FHA will allow, more and more homes and buyers will be able to qualify.

-To make FHA a realistic option in higher priced areas, loan limits have been raised (differs by state and county).
-Credit scores below 600 can qualify.
-Down payment requirements are much lower than the typical 20% level.
-Low to moderate income earners qualify and other than earned income streams can be considered.

What Information Will The Lender Need To Make An Initial Decision To Move Forward?

The information that you would have to provide a lender so that they can make an initial determination of the viability of your loan request is pretty basic. Moving forward, you would of course have to provide more documentation.

-What state is the property in?
-Property type?
-Loan term desired?
-Purchase price or estimated property value for a refinance?
-Credit score?
-Purchase or refinance?
-Any previous mortgage lates, bankruptcies, foreclosures, payment lates on other credit?
-Monthly housing expenses, monthly non-housing expenses and monthly combined income

Because these loans are insured by the federal government, the lenders are ready, willing and able. These are just a few of the basics. More available upon request.

We’ll get back to talking about the markets again Monday.

Friday, October 17, 2008

The Market and Content Contributions

The Thursday Market: As Written Thursday at 8:00 AM EST

A couple of observations pre-open and pre-economic data. LIBOR has come in from 4.55% to 4.5%, a slight decline but a decline none the less and the 3-month T-bill rose in yield from .22% to .3%. As a prognosticator on TV mentioned, LIBOR was always supposed to be a floating rate and came to be treated as more of a fixed rate benchmark. As such, the likelihood is that we probably won't see it back in the range that we had become accustomed to. That said, a slow decline is still a positive.

As a former trader, one of the tenets that is taught is that nothing goes straight down, that a stock, commodity or market will tend to bounce, particularly off of a drastic move such as we had yesterday. The fact that, at least at this time (8:04 AM EST) the stock market futures are below fair value and are not bouncing, even a little bit, would tend to indicate to me that we may be in for another a long day. This is hopefully not going to be the case.

Quick addendum at 9:43 before I hit the road for the day: The economic data at 8:30 was good, some earnings were not bad, and we did get the small bounce up at the open. If form holds, that will probably fade. Stay tuned.

Reader Homework If Interested

I am going to reach out to all of my readers that receive my blog by feed, email and who also read it in any number of other forums.

There are millions of blogs out there, and I am sure that mine is not the only one that you read. There are plenty of other good ones. What I would ask you to do if interested, is to send in the titles and URLs of those you read that are written for the purpose of providing feel good information. Those that talk about the art of positive thinking and ways of approaching life in a productive way.

I will then take snippets out of those and provide it when appropriate. There always has to be a light at the end of the tunnel, or we might stop trying to get to the end of the tunnel.

Reality vs. The Future

I am at a slight crossroads, due to the fact that I typically like to view things in terms of reality and potential impact on my life and business, as well as on other peoples lives and businesses. Given the goings on that are currently taking place in the markets and the economy, this has meant, unfortunately, a relatively high degree of stories that look at problems, but also at potential resolutions for those problems.

There is no question that if we dwell on looking at things as they occur, and those things are negative, that it can affect our frame of mind. By the same token, if we don't look at all, but stick our heads in the sand, then this will in no way work to our benefit when strategizing for the future.

Nobody Should Shy Away From Reality

Whether we are involved in the real estate or mortgage markets, law, manufacturing, retail, student or homemaker, we need to stay on top of things.

By the same token, we also need words of positivity that will help us to look at the world at large, potential outcomes, the potential landscape when we come out of all of this (which we will in time) and to plan accordingly. For instance, what are the industries that will thrive and which will not. Geographic areas that will remain strong and those that may decline, etc.

Is That The End Of Reality?

No way!!! I will continue to write on the things that are happening in all of the markets, Washington and anywhere else that has the potential to effect us.

Thursday, October 16, 2008

The Good News Express

Let's Get This Over With

The stock market was down over 700 points, the economic news came in ugly, and investor and consumer sentiment took a big turn for the worse after a false start on Monday and first thing Tuesday morning. The LIBOR rate is coming down, but it appears we are heading into a recession which will hopefully be shallow. In the anticipation of the recession, oil traded down to a new recent low (is this good or bad news?). The futures are down for tomorrow, although LIBOR will hopefully come down as well.

That pretty much sums up the day.

Let's Move On To Some Happy News

Enough of bad news on top of bad news. How much can one man take? Instead of dwelling tonight, instead of watching the presidential debate or the business channels, I found some stories that are actually uplifting, or at the very least interesting. There will be plenty of time tomorrow to get back to business. These headlines come from the website,

Who-dunnit: Owl found on animal hospital doorstep
Judge sentences rap music fan to Bach, Beethoven
Lost dog finds Fla. travel agency, and a way home
Grandma, 92, is Michigan woman's matron of honor
Pa. trading cards highlight brains, not brawn
Big fossil found in Ike-ravaged home's front yard
"Smoot" Measurement Reaches New Heights at MIT
Peace, Prosperity & Liberty Forum Brings Together Leading Voices of Change
Farmer carves out Calif. record with huge pumpkin
California Canine Named “Dogs of Valor” Finalist by HSUS
Arizona Saloon Owner Takes Down Antiquated Dance Ban
White Shark Returned to Wild
"Take a Child Outside" Week gains some ground
Elderly Women Win Battle Over Crab Apple Tree
Skeptical bank teller scares off would-be robber
Hospital tells grandfather, 71, that he's pregnant
Homeowner, friends tie suspect Old West-style
18th-century viola left in cab returned to owner
Laura Bush, daughter Jenna read at book festival
Milton Hershey School hosts 78th Annual Homecoming
Erin Brockovich working for NYC law firm
AMAZING!: Palin carved into Ohio cornfield
New Smithsonian Ocean Hall opens Saturday
Legacy of NC's Black Mountain College continues

Wednesday, October 15, 2008

From Exuberance To Business As Usual

Back To Business As Usual
Monday we had the huge stock market rally on the heels of the news coming out of Europe over the weekend, which took us into the pre-open announcements in the US on Tuesday, which led into a continuation rally, at least at the open of trading on Tuesday (the open was the high). We are now back to the basics of the market, trading on uncertainty, prospects for a recession of undetermined length that will have a large impact on corporate earnings as well as a slew of economic data being released today and down the road.

At this point, although it is the stock market that tends to get all of the headlines, the performance of the stock markets are secondary to the functioning of the credit markets and the hope for renewed willingness on the part of the banks to lend. Given the magnitude of the injection of liquidity by the central banks around the world in addition to all of the other moves being made, this should happen.

On The Docket For Today

Today we will be seeing the release of retail sales for September, wholesale prices for September, a read on the health of manufacturing activity in October, business inventories for August and the Fed's Beige Book that gives a read on economic activity. With the backwards looking nature of most of these numbers they are not all that important, but will have some impact.

Health Of The Credit Markets

In a continuing trend of the past couple of days, the LIBOR rate is slowly moving down, set this morning at 4.55%, down about 6bp from yesterday. Still very high, compared to the 2% range prior to the Lehman fallout, but it is definitely moving in the right direction. For those not familiar with LIBOR, it is the London Interbank Offered Rate and is the rate that many loans around the world, such as mortgage loans, are set off of.

We continue to watch and listen. New addition on the blog: current stock and mortgage rate quotes on the right side midway down, brought to us by SaneBull. Let me know if you think this is good to have there.

Tuesday, October 14, 2008

Want A Repeat Of Yesterday? Tune In At 8:05 AM EST

Markets Soar!!!

The bond markets were closed Monday, but the equity markets soared on the heals of the announcements made by the EU, Britain as well as other countries around the world detailing their plans for dealing with the financial crisis.

As I mentioned Sunday in my blog, Pleasure or Pain?, the rally in the markets on Friday afternoon came in part due to the belief that the finance ministers would do WHATEVER it takes to restore confidence and stability, particularly in the credit markets.

Do We Want To See a Repeat Of Yesterdays Market Action?

Of course we do. We came down so far so fast that it is only logical that we would see a bounce. Monday we saw one hell of a bounce. Gains in the stock markets not seen for 70 years. But how far do we go? Are we out of the woods? Did we avoid a recession? No and no, but we could still have a significant rally.

What's it going to take? Today at 8:05 EST, President Bush will hold a press conference providing further details of the package to restore public confidence, financial stability in the credit markets and a plan get the banks lending to each other again.

The Critical Point

In the points presented, we will hopefully hear of some aspect that will guarantee interbank lending which is critical to unfreezing the flow of credit. Something similar to what was announced in Europe.

This will help all of the people that need credit get it, and help to keep the wheels of the economy from falling off. It is supposed to be in the plan and hopefully will be.

We'll see what happens.

Interesting Trivia: The 10 Most Expensive Zip Codes

From The Real Estate Bloggers, these are the 10 most expensive zip codes in the United States:

Top 10 Most Expensive Housing Zip Codes In United States

33109 – Fisher Island, Fla., Miami-Dade County Median sales price: $3.85 million

07620 – Alpine, N.J., Bergen County Median sales price: $3.59 million

11765 – Mill Neck, N.Y., Nassau County Median sales price: $3 million

92657 – Newport Coast, Calif. Orange County Median sales price: $2.8 million

11976 – Water Mill, N.Y. Suffolk County Median sales price: $2.72 million

94027 – Atherton, Calif. San Mateo County Median home price: $2.7 million

93108 – Santa Barbara, Calif. , Santa Barbara County Median home price: $2.7 million

11975 – Wainscott, N.Y. Suffolk County Median home price: $2.56 million

92067 – Rancho Santa Fe, Calif. San Diego County Median home price: $2.47 million

90210 – Beverly Hills, Calif. , Los Angeles County Median home price: $2.41 million

via Forbes

Monday, October 13, 2008

Stocks, Credit Markets and the Man

Who Is The Man?

I am watching and listening, trying to figure it out. Watching the markets and the news flow. Listening to the politicians, government spokespeople and the talking heads of business news. If I can figure this puzzle out, it will tell me where we are going. Then I will tell you.


Watching LIBOR, the indicator of banks willingness to lend to each other, I see a 7 bp move down to approximately 4.75. This is the largest move down in many months, but I would have hoped for a little bit more given the fact that the governments in Europe have pledged to guarantee the loans made between banks. Maybe we are waiting for the US to make the same pledge.

Interim Assistant Secretary for Financial Stability

This morning I was listening to Interim Assistant Secretary for Financial Stability Neel Kashkari talk about the plan and implementation, and to be honest it sounded like an incredible amount of new government bureaucracy that will hopefully work better than some of the other government bureaucracies. This guy is also 30 something, and I am hoping he is seasoned enough to handle this position. Maybe he's going to learn on the job.

Stock Market

I am watching the stock market soar, partially in hopes of this global intervention saving us, and partially in a large short squeeze (those that were betting on lower stock prices have to come in and cover their bets). I am also watching the financial index XLF underperform and GE trade in the red which is curious.

Talking Heads

Finally, I am listening to the talking heads on radio, and you have half say we are going down and half that we are going up.

What are we to take from all of this? In my humble opinion that the bottom line is that the policy makers around the world will do whatever it takes (in something of a hit and miss strategy) to stabilize the markets, that the economy will be weak for a little while, that there will be some additional pain and that it will be a bumpy ride.

Fasten your seatbelts.

Sunday, October 12, 2008

It's A New Week: Pleasure Or Pain?

We Got Through The Weekend... Almost

I am watching a little football, doing a little work around the house, and at the same time keeping my eye on the business wires to see if there are any new developments around the world that could impact the stock markets, but more importantly the credit markets and the willingness of the banks to lend to each other as well as to us, the rank and file citizens currently paying the price.

I was not happy on Friday night listening to Chairman Paulson, or Saturday morning listening to President Bush give a brief update in front of the G-7 leaders. It all sounded like so much of an outline to potential solutions that could be put in place, instead of a firm and definite plan that was set to be implemented.

Some Sunday News Flow

It seems that as of today there is some definite movement coming out of the EU, United States and Great Britain that sounds like it could have some positive impact on both stock and credit markets. Some of them include:

  • An EU agreement to guarantee loans between banks through 2009.

  • The EU to buy stock in cash starved companies.

  • Purchase of preferred stock in certain financial institutions.

  • An EU commercial paper facility similar to the one announced in the US last week that will help to unfreeze that very critical market.

  • A plan to be announced in Britain that will inject a large amount of capital into 4 of the countries largest banks.

  • A large facility in Germany to provide a backstop to its' major banks.

  • Fannie Mae and Freddie Mac are being told to purchase $20 billion a piece per month in toxic loans.

Other moves are being considered around the world as other countries deal with their own banking and credit crisis's.

We will get an idea of what impact the markets believe all of these steps will have when we see how the Asian markets open tonight, and the European markets early in the morning.

There are fewer and fewer bullets left in the guns of governments.

Postscript: The futures markets for stocks are showing some early strength, so at least at this point the markets seem to have liked what they have heard. This will hopefully have staying power.

Positive Action At The End Of Trading Friday

As an indication of the markets optimism that governments would do whatever it takes to restore confidence, there was an impressive rally in the US markets going into the close of trading on Friday.

Saturday, October 11, 2008

What's In A Name? Turns Out A Lot

The Commercial Mortgage and Political Hotline: The Name Is Obsolete

When I first decided to write a blog, I initially wanted to provide a forum to discuss the commercial mortgage and real estate markets, and provide insights to training and market trends.

As I am sure that you have noticed, the nature of the blog has taken a detour, and has become more of a discussion of politics, the world and the financial marketplace. Part of this has been a function of the incredible amount of flux in the world, and part has been the fact that the mortgage and real estate markets are hostage to these arenas.

Where Do We Go From Here?

First I want to thank all of my email subscribers and feed subscribers for having an interest in what I have to say and the way that I present it.

I have always had my opinions and views of our politicians and the world at large, have written opinion pieces and letters to the editor, and have found this blogging opportunity to be a great forum.

None of this is going to change, but what is going to change, for the final time, is the title of the blog. You will still receive my insight and commentary on the actions of our poltiticians, the performance and trends in the financial markets and how I see it affecting us all.

As I said before, being new to the world of blogging, I didn't really understand the importance of the title, but do now, as this is the way that people identify you and your subject matter. Going forward, the name of The Commercial Mortgage and Political Hotline, will be:

The Political and Financial Markets Commentator

Paulson and The G-7: Are You Kidding Me?

The G-7 Met, The G-7 Disappointed (at least me)

I actually moved some cash in my 401-K from a money market fund into stocks yesterday, under the theory that there was no way, no possible way, that with the turmoil in the international markets and the continued lack of liquidity in the credit markets, that they would come out with anything except a plan so bold that the markets couldn't help but love it.

Paulson Speaks

I waited with baited breath for the press conference by Treasury Secretary Paulson last night, to hear about the plan and how the G-7 was riding into town and saving the markets from something potentially not seen since the 1930's.

You know in Charlie Brown cartoons when the adults speak and all the children hear is blah, blah, blah, blah. That is exactly what I heard last night. A lot about frameworks and platitudes about doing whatever it takes.

The Details (or lack there of)

There were some good "ideas" presented in terms of recapitalizing the banks, increasing deposit insurance and the valuing of the toxic securities to be bought from the banks.

What I didn't hear, and what left me shaking my head, actually upset and to be honest a little nervous about next week, is any plan to set up some type of guarantee of the lending between banks. The plan for what it is that is going to be done to unfreeze the credit markets and get banks lending again to you and I, small businesses, etc. The plan for what will get the LIBOR rate from its' current level down to "normal" levels.

Hopefully I was tired or distracted and just missed that part in Paulson's speech, but I don't think so.

Could be a very long week coming up, but maybe I missed something.

Friday, October 10, 2008

New Levels Of Market Futility

The Credit Markets Remain Frozen and Fear Indicators Reach New Highs

I just wanted to give a quick intra-day update, particularly since today and this weekend represents a critical point in time for our current crisis. Today we have the unwinding of some Lehman paper, and this weekend the G-7.

With the G-7 meeting over the weekend, and President Bush giving a Rose Garden speech to calm the markets anxiety, the indicators of liquidity and anxiety reach new levels.

The Ted Spread, the indicator of liquidity in the credit markets has reached 4.52, with the LIBOR reset this morning at 4.81, up from yesterdays 4.75.

The VIX, that indicator of market fear has reached a new high, almost touching 71.

These indicators are showing us once again that our leaders had best come up with a viable plan that the MARKETS actually believe in, as we are sliding down a slippery slope. We will know if the G-7 can actually come up with a plan that has some legs. I gotta believe that at this point in time there is nothing that is not on the table.

I know this is not happy talk, but I am hoping that these blogs of market turmoil can soon give way to discussions of the mortgage markets and new ways to drive business. Let's all keep our fingers crossed.

Thursday, October 9, 2008

Good Thing I Work On The First Floor?

Morning Update From The World

News since last night: Tokyo down close to 10%, the European markets opened down close to 10% and have since improved but are still down over 5%. Russia and Jakarta are not opening and it appears that LIBOR is being set at a higher rate that yesterday. On the bright side (although not really because it is an indication of economic weakness), crude continues to drop. Are we getting to the point of capitulation, or is this something else?

A Way Out?

Anyone can take a look at the action today, yesterday, the day before...well you get the idea, and say that there is no end in sight and that gloom and pessimism will rule the day. Very logical, and I will get to that after I begin with the fact that I believe the global governments will get this right. After all, even a broken clock is right twice a day.

First, Is There A Light At The End Of The Tunnel?

On the bright side, the solution to loosening up the credit markets will be found, hopefully sooner than later, and the recession resulting from all of this will hopefully be short and shallow. The government is throwing the kitchen sink at this problem, and will find the right combination. The incredible amount of cash that is sitting on the sidelines will pounce on stocks and real assets, and we will see a ferocious amount of buying.

There will come a time when this debacle will be a fading memory, and fortunes will be made off of the bottom. There won't be a whistle or a bell telling you when that is, and sometimes when things are the darkest and fear the greatest you have to hold your nose and take the plunge.

Tomorrow could be the day, as you have to assume that the G-7 will make damn sure that they have an answer before the Asian markets open Sunday night.

Global Recession, Frozen Liquidity and Record Levels Of Fear

Good Thing I Work On The First Floor?

I hate to continue to beat a dead horse, but the indicators that we have been watching to see improvement not only don't improve, but continue to get much worse.

The Ted Spread, the difference between the 3 month Treasury and 3 month LIBOR set a new post 1985 high at 4.23. This spread, with all of the intervention that has occurred was supposed to narrow, and narrow significantly. Since September 12, the LIBOR rate has soared 200 basis points.

LIBOR is the London Interbank Offered Rate, and is the benchmark that many of the worldwide adjustable loans are set off of. This weekend the G-7 is meeting, and it is hoped that there will be a government guarantee of loans that banks make to each other. This guarantee will allow banks to trust each other, and will bring the LIBOR rate down.

The key for the credit markets is to create an environment of trust. We have gotten to the point in this crisis where that simply means more government guarantees.

The VIX, that measure of terror in the marketplace, is at another incredible closing level of 63.92.

The damage that is being done to the economy in terms of the lack of liquidity to businesses that need immediate cash flow, consumers seeing there nest eggs shrivel, and access to the piggy banks that were homes having disappeared is not calculable right now, but it will be huge.

These are unprecedented times, and our leaders are doing a patchwork job of addressing each new problem as it comes up. What we need is greater cooperation from overseas to recognize that we face an economic world war, and that if all countries don't work together in some coordinated fashion to solve it, the consequences will be something that none of us wants to see.

The Financial Crisis Welcomes The World!

Another Day, Another Move To Save The Financial System

Today we got the news that many in the markets have been waiting for. They have been waiting for what seems to be a very long time. That was the coordinated global rate cut by the central banks of the US, Canada, EU, England as well as a few other countries. EU rates have been to high and still remain that way even post cut.

As I discussed yesterday morning, we had an immediate strong move up in the stock futures, a quick and severe fade and several other moves all before the market opened. After that it was schizophrenic trading all day until the stock market indicators finally finished in the red for the nth day in a row. The end of the day move lower seemed to coincide with a speech being given by Bernanke.

As far as indicators of stock market volatility and fear go, the VIX ended at over 57, which is historically an extremely high number.

Post cut, the TED Spread also remained at an extremely high historical number of 3.75, ending the day at 3.57.

What is the message of the markets?

As is always the case with markets that are free to trade, they will tell you the truth about what participants are thinking. This is somewhat different than listening to the rhetoric of actual people involved in this process. What does the action from Wednesday tell us? That up to this point, the steps that have been taken by the governments around the world are either to insufficient or to undefined to be making much of a difference.

The Fed, the inflation fighter of last resort, has now thrown in the towel on that mandate and is now instead focusing on the fact that our economy is on the edge of something that could potentially be very bad. While it is a good thing that they recognize this, the fact that they finally recognize this gives me some ammunition to be very concerned. The fact that the EU, never a willing participant got involved in this coordinated cut is also an indicator of where we are.

The action in the stock market is also making it clear that, officials and many market "experts" not withstanding, we are in a recession and one that may not be mild. Despite the trillion plus dollars that are now dedicated to this problem, we are not seeing much respite. At least not yet.

What Bullets Remain In The Gun?

An old market cliche' is that you want to keep some of your powder dry, so that when you need to make a move you will be able to. The Fed, at a new Fed Funds rate of 1.5% still has room to move lower, and the EU, which has stubbornly refused to lower rates until today, still has plenty of room to move as well.

It is now obvious to all but a few that jawboning and token responses that have worked in the past will not work this time, and that these guys better get it right, and get it right very soon. This is no time for trial and error, but it is a time to bring all guns to bear.

What Lies Ahead For The Mortgage Market? (MarketWatch Databased News - September 28, 2008)

"On Sunday, U.S. policy makers said they'd reached accord on a financial-market bailout but needed to put it on paper before declaring it final.

No matter what its ultimate shape, the final bill isn't expected to turn the economy around -- plenty of economists see more economic sluggishness and job losses ahead even with a rescue plan in place -- but the credit freeze constricting the financial markets will likely start to thaw, helping more U.S. companies tap the funds they need.

That, in turn, will help prevent a major increase in job layoffs, experts said.

The housing market is another story. "We have a collapsing housing bubble," said Dean Baker, co-director of the Center for Economic and Policy Research. "This bailout won't do anything, as best I can tell, about the collapsing housing bubble, nor should it. The bubble has to collapse."
Meanwhile, the rescue plan may lead to a slight increase in credit available for consumers seeking auto loans, mortgages and credit cards. "There may be some improvement in [credit] availability in the sense that banks might be a little more willing to take risks with people that don't have perfect credit histories," Baker said."

Some good news: IBM pre-announced a positive surprise after the close, and it was announced that PIMCO, the extremely well regarded fixed income manager (led by fixed income superstar Bill Gross) will lead the Treasury foray into the commercial paper market.

Wednesday, October 8, 2008

Hallelujah: Coordinated Global Rate Cut

Coordinated Rate Cut Move By The Central Bankers

As I said as my closing line to my blog yesterday, if only we could get the EU to cooperate with the global financial crisis that we are going through. This morning as I write this (7:00 AM EST), the U.S., Canada, Britain and the EU cut rates 50 bp in a coordinated move to loosen the flow of credit around the world.

This came on the heels of close to double digit drops in the stock markets in Asia (10%+ in some and close to 20% in some of the Russian stocks), and close to double digit drops in the European markets. The announcement sparked an immediate rally in Europe with those markets moving into positive territory, and in US stock market futures that had been down large and are now up large.

The TED Spread is currently at 3.75% which is still not a very good number, and the VIX which closed at 53.68 should drop a decent amount, at least at the open.

How Many More Bullets Are In The Gun?

Will this coordinated rate cut do the trick in stabilizing stock markets and loosening the credit markets so that those of us in the mortgage markets and every other credit market can get back to business.

Oil rallied on the announcement and have since pulled back. Stock market futures in the few minutes since I started writing have pulled well off of the highs and the European stock markets have slipped back into the red.

In an environment where there is a new announcement every day from the Fed or Treasury, this may just be another attempt that fails. The indication seems to be that the action is more along the lines of a commentary on the fact that we have slipped into recession than on anything else at this point.

Early S&P futures rallied from down 13 points, to up 24 points to up 7.5 points as I prepare to sign off. Similar spikes and pullbacks in the other indices. Given the volatility, I stayed a minute more and the futures have rallied once again. Maybe I'll just sit here all day.

Let's hope for the best today, but definitely be prepared for the worst.

8:48 AM EST Update: Unfortunately for now, my initial warning has proved out, with S&P futures now down over 20 and NASDQ Futures down over 32.

Still no improvement in the Ted Spread either.

Put your combat helemt on.

Tuesday, October 7, 2008

The Fed Gets Involved: Commercial Paper

The Commercial Paper Market

The Fed came in this morning and said that they would create a facility which would buy short-term, high quality and unsecured highly rated debt in a step which will hopefully grease some of the wheels in this critically important market that has has been stagnant.

Liquidity and Volatility Indicators

As an indication of the fact that the market s like this move, the TED Spread has narrowed to as low as 3.29 and is now at 3.46. Still high, but an improvement in this indicator of credit market liquidity.

Another interesting point is that the VIX, while still high at 49.51, is down 2.54 in the face of the stock market being down 200. This would indicate an easing in volatility, also a positive sign.

The Fed Speaks

Finally, Federal Reserve Chief Bernanke signaled in a speech that the Fed is ready to potentially lower rates in response to the weakness in our economy, and stray away from the focus that they have had on fighting inflation.

"Continued efforts to stabilize the financial markets are essential," he said. "The Federal Reserve will continue to use the tools at its disposal to improve market functioning and liquidity," he added.

While as always these moves are not a panacea, they are without question a positive first step in what are no doubt going to be many steps.

Now if we could only get the EU to follow along.

Monday, October 6, 2008

Let's Lose This Line: What Inning Are We In?

What Inning Is The Financial (Mortgage) Crisis In?

Nicasio Baseball Scoreboard
Originally uploaded by ed100

Over the past months I have been watching both the prognosticators and experts giving their opinion on the financial crisis, and when we would be coming out of it. The typical opinion some months back was that we were in the late innings of this "game", and that the light would soon be seen at the end of the tunnel.

Still more were positive that we might test the stock market lows set earlier in the year, but hold it and move higher. No recession here is what they said. The U.S. economy is just too resilient.

I have also watched government officials who have been tasked with making the policy that would set this economic and financial ship back on course, these ivory tower academics that at the end of the day were in over their heads because the solutions that work in a college classroom may not work in real life.

The end result was a stock market down 800 points, before closing down a mere 370. A down 370 day never felt so good. We have the 3-month treasury bill down in the .49% range, which means that soon you may have to pay the Treasury to invest in its' paper. The flight to quality shows no signs of abating. The tightness in the credit markets remains as well.

The Bottom Line

Bottom line is, this incredible mess is not a game, not something to be thought about in terms of innings but to be thought of in terms of actual pain. The "Main Street" that the jokers in Congress love to talk about knowing about is not being saved by the bill passed this week. At least probably not in the near term. This bill was passed with a framework for implementation days or weeks off.

While they are up on Capital Hill getting their face time and playing the most dangerous game of partisan politics that I have seen, the rank and file citizens, the ones that have to make payroll, pay the rent, put food on the table and that basically function on a day to day basis continue to suffer.

The process for getting this problem solved could be to take away the life of privilege that a large majority of the guys in Washington have, and to have them actually "feel the pain of the middle class" that they say they understand, but probably don't (or that they did at one point in their lives, but have probably forgotten).

Jim Cramer of The and Mad Money

I must say, that in times of turbulence in the stock market and economy, there is no one that I listen to more than Jim Cramer, the loud (and some would say obnoxious) guy on T.V. With his background, market savvy and experience, as well as an inside track to some of the smartest minds on Wall Street and in business, I think he is a voice worth listening to. Here are his thoughts on solving the current crisis:

Cramer said the first thing that needs to happen is the FDIC needs to stop seizing banks and announce once and for all that they're done with seizures. With the bailout package now in place and the FDIC insurance limits raised to $250,000 per account, he said the market has the tools it needs to work out the rest of its problems without government intervention. Furthermore, he said, a bold statement from the FDIC that the seizures are over will go far to stabilize the market.

Second, he said, the government needs to start putting the newly allocated $700 billion under the Troubled Asset Relief Program to work. He suggested first buying individual home loans, a move which will allow the government to immediately end the foreclosures and begin the renegotiation process to lower the terms of the troubled mortgage loans while taking the toxic assets off the balance sheets of the banks.

Lastly, Cramer said the government should buy the credit default obligations (CDO's), but only after it has exhausted the individual loan options. For these CDO's, Cramer suggested they be grouped by geography and vintage, so the government can hold them until their values increase, then sell them in an orderly manner.

Cramer said if the government follows this plan, only then can it avoid a repeat of the Great Depression.

Let's lose the inning analogies, and get this game in gear.

Survival Tips: Managing Your Business During A Down Market

The stock market is down 700+, the VIX is close to 60, and I figurured that this would be a great time to reprint an article from a blog that I read every day, The Mortgage Cicerone. The article refers to belt tightening practices and the ways of running your business, particularly in bad times.

I came up out of my bomb shelter to write it.

The information, if you are not already thinking in this direction, is some good food for thought, and a lot of it can be applied to many industries, not just mortgage.

Survival Tips: Managing Your Business During A Down Market

A New Post By The Mortgage Cicerone
A Guide for Mortgage Professionals
Read other posts by The Mortgage Cicerone

Managing your book of business, branch or small mortgage brokerage often leaves little time to keep track of national or even regional, economic indicators that might affect your sources of income and the operational systems you have in place. Yet conditions such as interest rates, inflation, gross national product, stock prices and consumer confidence have an impact on your profitability, relationships with referral partners, customers and even employees.

During a period of economic decline, whether widespread or local, mortgage sales professionals are most likely to bear the brunt if they do not adapt. Yet the fact that conditions are changing opens up opportunities for resourceful LO's to outsmart larger or more established competitors who, during a downturn, carry on business as usual or are unable to adapt quickly...sound familar?

Such innovative individuals or firms can:

Gain market share by taking it away from competitors unable to adjust to shifting market conditions.

Maintain a strong cash stream throughout the downturn, in contrast to other individuals/companies that may have liquidity problems.

Become a leaner, more cost-effective and more efficient operation, better positioned to do well when the market improves.

The challenge is to be aggressive and imaginative. LO's that survive and even prosper during hard times must be able to look beyond the present, to overcome the constraints of tradition, to see their environment from a new perspective, and to do business differently.

Here are specific recommendations for LO's and mortgage brokerage owners and managers to follow during economic upheavals:

1. Watch your opportunities carefully and the loan programs that can help you fill the niche the market opportunity presents. Typically during a downturn, there is a tightening of credit guidelines and subsequently many of the popular loan programs are either eliminated or tightened. Can the replacement programs be old and forgotten ones?

2. Monitor your cash flow very diligently, and forecast it monthly to ensure expenses and planned expenditures are in line with your receivables. Make sure you know your key numbers and metrics that provide information that is timely, relevant and accurate. Be able to project where you will stand three months in advance.
Negotiate with suppliers, contractors and landlords for better prices or short-term reductions.

If the cash bind has already surfaced, talk to creditors before the bills are past due to persuade them to extend payments of your current bills. Your chances of getting their cooperation will lessen if you wait until they send collection memos. Keep in mind that suppliers' credit managers will be more receptive if your payment history is a solid one, and you can assure them future bills will be paid on time.

3. Separate the "nice to do" from the "have to do," and eliminate nonessential expenses as much as possible. Ask yourself, is that activity necessary? If not, don't do it. Also consider cutting personal spending. Simple solutions such as brown bag lunches can make a difference.

4. Evaluate the marketing worthiness of all your referral sources. Remain close to existing customers, and checking to see how they are getting on during the economic downturn, not only helps avoid unpleasant surprises but could also lead to new opportunities.

Besides, when sales are sluggish, keeping in touch with customers (always a sound business practice) becomes vital to head off eager competitors. If appropriate, call on every customer on a regular basis. Frequent face-to-face meetings with your referral partners provides an excellent opportunity -- probably your only one.

5. In a related vein, look hard at capital spending. Consider delaying both the purchase of high ticket items and expansion plans that take a long time to pay off. At the same time, make sure you have enough capacity to start filling orders again when the economy stabilizes.

6. Strengthen your banking relationships. Just like you, banks are looking for business to boost their income, but are also trying to minimize risk, so they are careful about what kind of loans they undertake. Most experts agree, however, that seeking additional credit during a recession is not advisable.

7. Look for opportunities to reduce rented space. If, similar to many companies, you acquired space in anticipation of staff expansion that ultimately proved unnecessary, this may be a good time to sublet that space -- thus reducing overhead and generating extra income.

With this in mind, commit yourself to subleasing a set percentage of your company's space. By consolidating operations and removing unused equipment, you may find that much of the space you thought you had to have was simply draining the bottom line.

8. Now is the time to be prudently aggressive in the marketplace. Actively seek out new business, and perhaps add a salesperson or two or an extra service to give you an edge over competition.

9. Similarly, don't skimp on service and quality by being understaffed. One advantage of a slowdown is that hiring gets easier because there are more candidates from which to choose due to layoffs and other cutbacks.

10. The importance of excellent service cannot be overstressed -- especially as their buying power or willingness to spend is lessened during tough economic times. Studies show that perception of service is fixed primarily in terms of time in a customer's mind. Three examples are: waiting time to obtain service; reaction time to deliver service; and length of time of the service. In mortgage banking, prospective customers will walk out or hang up if their time perception is strained.

While economic downturns are admittedly difficult, and increase the obstacles LO's face in trying to survive and grow, it is essential LO's not take too long to realize what must be done, or which resist change. Resourceful LO's capture the available opportunities, and take steps during today's hard times to lay the groundwork for tomorrow's prosperity.