Beginner Financial Investing.

[SMASH]

On the contrary to what you seem to think, I do NOT think that I understand the market better than everyone. If I did, I wouldn't have been where I'm now.

You wouldn't be in Israel?

If it really requires "a bit of brains, a lot of common sense and discipline, and a good work ethic" to outperform the market, why no research has shown any result, thus making the efficient market theory as accepted in academic circles as the Relativity Theory? So, all the financial models are based on a "crock"? With all respect, I don't think that you're smarter than the rest of the world.

It is called Effecient Market Hypothesis and it is absolutely not accepted, especially by people who know what they're doing, or even anyone that simply studies the markets. You've heard of Warren Buffett?

The list of people who beat the indexes over time consistently during booms and busts is actually a very long one. Their existence disproves that hypothesis, as do the examples I made above - to which I could add dozens - as does your admission that bubbles exist.

Effient Market Hypothesis isn't proven by the fact that bubbles correct, it is disproven by the fact that massive ones exist regularly, and that they're often the same bubbles over and over. If people were taking action on the available info. as the hypothesis suggests, there'd be no bubbles in the first place. There'd be no people going broke. I've personally given info. that would have resulted in massive gains to people and watched them somehow lose money on the deals. I've seen this often, in fact. It's a component of human nature.

People are not terribly rational or responsbile, on average, when money is involved, and much less so when you factor fear, greed, confusion, ego, and the chance to take the easy way out. You've heard of casinos? It's not so simple as having available info, if only for the simple reason that most people haven't got the background or the brains to process the info. if they can even find it. But some can learn.

What financial models are you talking about? When did I say I was smarter than the rest of the world? I'll tell you I am absolutely more successful and consistent than most of the investors, and with a stronger background and more hours put in to achieve that result. That's enough for me.

If you want to talk about a Darwin Market Theory perhaps (I made that up) then let's do so. I've been proving that one most of my life. I was once a gullible guppy but through a lot of luck and very long hours I was abole to grow into a great white shark, because I learned and adapted to the actual environment rather than throwing my hands up and accepting ideas that don't reflect reality.

I was able to do so only because I was willing to realize I didn't know it all and there wasn't any silly idea that could make it simpler than doing the work and learning from those who are successful. That's still true today, even at my level, only now I'm pretty comfortable with my spot on the investing food chain, and it allows me to laugh heartily at people with silly hypotheses and then swallow their capital. Yummy !

Again, I'll let my record speak for itself. Let me know a source where I can find even a fraction of the accuracy and gains I've demonstrated here, much less for free, 'cause that'd save me a lot of work and expense.

As for bubbles of all kinds, they derive from wrong pricing of assets, and at the end the price returns to the real one. Anomalies like "january syndrome" and "bad monday" do exist, but can you consistently profit from them?

I can be wrong about almost anything, and I'm always glad to be called on it and discuss it, but I'm not going to waste my time with a kid that cops the tone that you know so much, especially given that this very question reveals you know very little - perhaps nothing - about the markets. My guess is that you've read a Wikipedia blurb about Efficient Market Hypothesis and think you know what's what. Probably you lost a lot of money in the markets and now you're bitter, preferring to feel helpless than take resonsibility and control. People who come off as you do usually fit that description, in my real-world experience. Again, human nature.

Consider a game when a coin is flipped and if you get heads, you earn $1.5, and if you get tails you lose $1. After playing the game daily for a year, I will be truly surprised if you're be able to discern between a graph of the game balance, and a graph of an average stock.

As for real inflation "outperforming the indexes"... Give me a break, this is ridiculous. Dow has grown from 2700 in 1991 to 13000 today. So, has the real inflation exceeded 450%? In this case, 25K salary then would be better than 100K salary today.

Sorry, you don't get to pick in hindsight a theoretical entry and exit over a short convenient period that appears to support your "theory". Try going back 80 years when the dollar was worth 25 times what it is now and then do the math.

Speaking of which, if you think that 13000 is a 450% gain from 2700 then I suggest you start by learning basic math if you want to comment on investing, because you're very wrong again.

As for inflation, it might be more than you seem to realize. Yearly average price of gas in California in the 1970s - 35c In 2006? $2.80 That's a 700% increase. Median household income in the US in 70s? $9000. Now? $48000. That's a 430% increase. Cost of a first class stamp in the 70's 7c Now? 41c 485% increase. Oil up 2600% since 1971 and 395% since 1991. Gold up 2200% since 1971.

Is there trend of reliable price behaviour here one could study and draw accurate conclusions from or would such an attempt be delusional in your view? Now let's consider the current economy and check the DOW in perhaps 10 years and compare to those prices again and see what the deal is.

Not to mention you won't find me anyone who bought into the DOW at the very low and sold at the very high. No one takes people seriously in this business who simply subtract the low from the high and pretend that's a number worth discussing. Real Market Facts show that most people will have done much worse, even lost money, while all people suffer inflation.

That's what I meant originally. We all know people "could" have bought at the very low in 1991 and held until now, but people that have been around awhile realize that the vast majority didn't. Real life, you'll learn when you're around another 20 years, ain't like that. Most people will buy high and be forced to sell during a recession or market crash. People don't just put all their money in at once and never withdraw it, but even if they did then inflation and opportunity cost still has to be factored.

I think I've made my point to anyone reading with an open mind. Please do post your trade ideas here in real time, because the only cachet in this business comes from being correct.

 

[SMASH]

It's been said, erroneously, that insiders beat the markets. They do appear to do so simply because of the cheap shares and options they are granted. When it comes to actual timing of buying and selling in the open markets though, much of the time their results are abysmal.

Here's a fractional list of companies that spent tens or even hundreds of millions of dollars each in shareholder funds to buy back their shares before the price collapsed (meaning they wasted the company's money buying their own shares in the market, sometimes borrowing money to do so, and lost a lot of money on these investments despite their complete insider info. and supposed expertise in the are of business they operate in). It's a "who's who" of stocks the charts for which this year look like a brick thrown off a cliff.

Countrywide
Home Depot
Citigroup
Fannie Mae
Freddie Mac
Ambac
MBIA
Circuit City
KB Home
Pulte Homes
Centex
Toll Brothers

Now many of these companies are already having to sell at today's much lower prices those shares they bought recently at much higher prices (in other word sell at a huge loss) to raise funds to stay afloat and meet their obligations, so there's no chance in that scenario that time will bail them out and they'll actually turn a profit on those stock purchases.

All the while the CEOs get record bonuses. Paid for with shareholder money, of course. That's "blue chip" stocks for you, which make up the indexes, and most mutal funds and retirement funds. Not a surprise it's easy with a bit of effort and know-how to beat their performance.

I am wondering what the recent rally of the dollar the past few days is driven by, seeing as how the price of oil is up again, and may even go higher short-term.

Even in an overall downtrend, there are occasional rallies, some even lasting month or years. I can often predict the points of these reversals, as I did in this case, via ... wait for it ... my methods of "technical analysis" which are derived in no small part via hard work, common sense, and consideration of historical precedence. Funny how consistently that pays off, in all aspects of life.

Freddie has traditionally been more willing to take on risk than Fannie. I didn't realize that they were buying the subprime paper. Not a smart thing to do at all.

And buying their own garbage stock at much higher prices. Odd, eh? Once again, can't say I'm surprised. Kinda like when much was made of Bank of America buying $2 billion worth of Countrywide shares at $18. Now it's an $8.60 stock just a few months later. As per the record, I was correctly short all along (wish I still had my puts!) and yet Bank of America got to actually have the advantage of looking into Countrywide's books. Odd, that.

Or is it? Conspiracy lovers will say some kind of government back-room deals were part of this, cutting B of A a sweet deal in order to make the markets look OK which was desperately needed during the mid-August sell-off. Or maybe B of A is just no better at trading or even reading financial statements than most anyone. That wouldn't surprise me at all, so that's how I bet correctly and very profitably.

Is the chart driven by fear or greed and how do we make money off of this? That kind of drop looks like fear - can greed be too far behind at prices like that?

Both. Also necessity. As with houses, cars, basses, and big TVs, stocks are bought largely on credit and when the margin calls come irrepsonsible investors who don't wish to take responsbility for their actions, perhaps preferring to blame the randomness in the universe, have their debts called in and are forced to sell at any price thereby exacerbating the collapse.

How do we make money of it? That's the real important question. Usually it' by simply doing the opposite. Looking ahead with history in mind, deciding what we believe, and investing accordingly. Covering shorts/puts for profits while others are still selling and picking up cheap shares or call options on good financials and homebuilders right now is what I'm doing. Shorting retailers I expect to do poorly (Tiffany's and Coach) and buying ones that seem to be doing well (Barnes and Noble). Guitar Centre would make a perfect short in this economic environment, but they were bought out by a private firm in early October - of course at the exact peak of the market (I'm not kidding - that was the *exact* market peak, possibly for years and years to come).

Again, no surprise. Those brilliant insiders/experts could have waited a few months and paid half, maybe even waited a year or two and paid 1/4 or 1/10. Not many kids going to be getting new Gibsons for Xmas when their parents are getting foreclosed on and have their retirement funds invested in Fannie Mae and Freddie Mac. You're going to see dozens of "For Sale" listings here on TB per day and some small "boutique" shops and luthiers going out of business before you see increasing sales for GC.

I actually took this as one of many signals of imminent collapse in the market - gross overpayment by punters and "experts" alike for companies is always a hallmark of a market top. Recall the tech boom/bust. Or the real estate booms/busts past and current. Same pattern, though some simplistic hypotheses and their proponents would have you believe there are no such patterns. Even if that were true, given the housing and credit and dollar outlook, what worse time could there have been to pay top-dollar for an utterly discretionary retailer with lots of competition such as Guitar Ctr? Hooray for the "experts" - their folly lights my way!


One good way to play these situations, though I see it as beyond the relatively basic scope of this thread so I won't expand on it unless asked - is via straddled option positions. I like these when stocks move too much one way or the other. They will almost always keep moving even more incredibly in the same direction, or reverse considerably. Very seldom will they be in the same place a month later.

In other words, if Google (GOOG) which is now at $666 per share (yes, really) pops up to $800 tomorrow, in a month's time it'll maybe be $1000 or $600 but very unlikely will it still be around $800. In this scenario, I buy both puts and calls at the same strike price (say $800) with the same expiry (say mid-December), thus making money if the stock goes up or down ! Can't lose, unless it somehow stays flat or as it sometimes does it perhaps moves one way then back by the time I unload (say it runs to $900 but by the time I bail it's back to $800 so I lose). On average though, I score very well doing this.

As always many factors come into play, not least of which is the price of said options (usually cheap with such a near-term expiry), time until expiry (am I allowing enough time for a significant rise/correction in price?), etc. I considered this on Fannie and Freddie, but IMO the options I wanted were a bit too dearly priced. It's my version of "Black Friday" shopping, and maybe I'll check again in light of today's selloff.

 

[joelb79]

Since most of my assets are going to be cash this year, whats the best way to avoid the pending market recession while maintaining liquidity of my money?

 

[Bassic83]

Since most of my assets are going to be cash this year, whats the best way to avoid the pending market recession while maintaining liquidity of my money?

Offshore account in Euros, perhaps?

 

[SMASH]

Since most of my assets are going to be cash this year, whats the best way to avoid the pending market recession while maintaining liquidity of my money?

Nothing is more liquid than cash. "Cash is king" as they say.

So, it really depends. If you truly need liquidity, then US dollars it is. I expect the rally in US dollars to continue awhile, possibly for much longer than anyone might believe. Longer-term though, the outlook is still dire.

You do have some attractive options even while maintaining liquidity. Check out the unique and progressive offerings from EverBank, which includes products such as no-risk CDs backed by gold.

Here's a TB thread someone just started which my be of interest to readers here : http://www.talkbass.com/forum/showthread.php?t=383502 "Two Out of Three Middle Class American Families on Shaky Financial Ground"


In the news today : Al Hubbard, President Bush’s chief economic adviser, quit his job.


From today's "5-Minute Forecast" :

"In 2004 Fannie Mae, the nation’s biggest -- and government-backed -- enabler of the subprime mortgage market, was in deep ####. Internally, it had published a report revealing the firm’s exposure to the derivatives market. The author of the report was reprimanded… fired… and then the report mysteriously disappeared from the Internet.

Fannie had been engaged in Enron-style accounting. Heck, it even used Arthur Andersen as its accountant -- the same firm used by Enron. Franklin Raines, then CEO, was asked to resign. His severance and bonus structure came under scrutiny. And several of the top executives he’d brought in to Fannie after his tenure as budget director in the Clinton White House suffered a similar fate.

Congressional hearings followed suit. The great fear at the time was that Fannie would have to slow its purchasing of mortgages… and tank the housing market. It was ugly. It looked bad.

It was soon completely forgotten.

Today, however, the saga rears its ugly head once again…

After the closing bell yesterday, Freddie Mac, Fannie’s more heavily exposed brother, halved its quarterly dividend and announced it would sell $6 billion of its own stock. Ouch…

Freddie posted a $2 billion loss last week -- three times what analysts had expected. And disclosed that it needed to raise more capital to meet regulatory requirements. In order to raise that capital, Freddie cut its dividend by 50%. The trouble in Freddie's accounting department has whacked the stock for 50% since the beginning of November.

“News from Freddie Mac lately has been nothing short of terrifying,” reports Brian McAuley of The Survival Report. “While the market seemed fixated on the dividend news, the far more important news went largely unnoticed. If market conditions continue to deteriorate and the dividend cut fails to raise enough capital to meet regulatory requirements, Freddie says it will consider slowing purchases in its mortgage portfolio.

“This is a very big deal for the housing market. Ever since the secondary market for mortgage-backed securities dried up over the summer, Freddie Mac and Fannie Mae have been the reliable source of credit that has kept a pulse beating in the mortgage market. Now Freddie is telling us that if conditions continue to deteriorate, it may have to purchase fewer mortgages....

“Up to this point, even as the availability of jumbo loans, no-doc loans, interest-only loans and various adjustable-rate products became scarce, there was some comfort in knowing that Freddie and Fannie would always be there to buy standard full-documentation loans for amounts less than $417,000.

“However, if Freddie and Fannie are forced to curtail their purchasing of mortgages, this would take even more homebuyers out of the market.” In other words, the mortgage industry is continuing to slide from bad to worse… and taking the housing market with it.

As if on cue, the worst home sales report of all time was issued this morning. Existing home sales fell 20% in October (year over year), to an annual rate of 4.9 million, the lowest ever recorded by the National Association of Realtors.

The median price of homes sold during October fell over 5% from the same time in 2006, to $207,800 -- a record drop and record low of its own. October marked the 15th out of the last 17 months in which this price measure posted a year-over-year decline.

And wouldn’t you know, a record level of homes are now sitting in inventory -- a whopping 11-month supply."

 

[GregC]

dangnewt & GregC, you'll recall our recent discussion of Fannie Mae and Freddie Mac?

While I covered my shorts in these two stocks some time ago, for very little profit, I can't say I'm surprised. Are those beautiful charts or what? Suitable for framing, and yet another great example of why government has no business in this business. I say again that "history repeats".

Yep, Fannie and Freddie screwed up worse than I thought, no doubt. Yet I still regard the statement that lending practices wouldn't have gotten crazy without Fannie as unfounded, politically motivated hooey. Were public and private companies (as opposed to the GSEs) generally more responsible lenders? The recent record sure as heck doesn't indicate that.

As for whether government belongs in this business, I think F&F have gotten a lot of responsible lower-income folks into homes the banks couldn't (or wouldn't due to red-lining, etc.). But let's not get too deep into politics, for the good of the thread.

As for whether F&F's stock prices currently reflect an overreaction--I think so, but I'd also wait and see what else may or may not come out.

 

[dangnewt]

My fourth thread-inspired move was to buy some Fannie and Freddie on the recent downturn since it struck me as an opportunity to follow Buffet's advice to be greedy when everyone else is fearful. Today I am up 10% on each, but given the way Mr. Market has been wobbling up and down Wall Street, I could be 10% down by noon tomorrow.

My first move was to coffeehouse a good chunk of my retirement accounts (thanks Joshua) as I wasn't paying as much attention to them as I used to.

My second was to buy a foreign bond fund (SMASH provided ample evidence that diversifying out of dollars was a prudent move).

My third was to buy a Canada index ETF - partly in honor of SMASH and partly because I read that Canada isn't represented in many international mutual funds and ETFs (including the ones that I own) and I think I had only one or two Canadian firms among my stocks.

 

[SMASH]

Dangnewt, "congrats!" ... I think. Hopefully you're not one of those "contrarian indicators".


Here's a fun bit of speculation, courtesy of Dan Denning via today's "The Daily Reckoning". The bolding is mine, which I suggest people correlate with the chart linked at bottom and with recent discussion about Countrywide and gov't getting involved in this general lending mess.


“This sounds like a job for a new federal agency to buy the debt from the bankers at an agreed upon discount, say 50 cents on the dollar. The agency then becomes the landlord of the ARM borrowers...and is free...on behalf of the government of the United States and the American people...to re-set the loan at a fixed rate for a different maturity.

“The financial markets get transparency and the risk is moved off bank balance sheets on to the Fed or the Federal Home Loan Banks. Stocks rally!

“Borrowers get a reprieve from the hangman’s noose. Stocks rally!

“The Fed gets order back in the credit markets and some measure of control of the situation. Stocks rally!

“I’m not saying the dollar would respond well to this massive socialization of housing losses.

“But...we live in the 21st century. All financial losses are socialized. The only question right now is how this one will be managed.

“We have some clue with the fact that the Atlanta Federal Home Loan Bank has loaned – get this – $51 billion to Countrywide Financial...since September 30th. I’m not kidding. California is not in Atlanta, in case you were wondering. [EDIT : note correction by GregC in the following post]

“I would have suggested Fannie and Freddie as the preferred bail out vehicles. But they need bailing out themselves, faced with write-downs in the value of their own mortgage portfolios and a regulatory inability to purchase mortgages. Congress could simply change the limits on the size of the GSE portfolios...and the Fed could loan them the money to purchase the toxic stuff from other lenders. But it’s likely these two have been sullied too much to be saviors.

“Or the Fed could just load up the garbage on its balance sheet and extend the term of its loans...trading cash for trash for as long as the trade takes. Come to think of it, the Fed’s been turning cash into trash for years, so this is probably the least exotic option.

“...But I’d say the trade of the decade is still a good one: sell the dollar, buy gold. In fact, I think you’re going to see the liquidation of all sorts of higher-risk assets...bonds, emerging market stocks, and high-yield currencies....to maybe buy call options on 90-day t-bills. Or precious metals.

“Either way, I’d expect something big, but low-key. The action of the Atlanta FHLB was very low profile...lest taxpayers realize it was back-door bailout of Countrywide. But you know, this seems like the kind of bailout everyone can get behind...unless you own a lot of dollars and are counting on them to retain their value.

“If you’re one of those people, you know, a saver...well sorry. Good behavior should be its own reward. But don’t expect to get paid for it.

“Meanwhile, I expect the formation of a pseudo-public ARM/CDO slush fund, like the Resolution Trust Coporation. Banks might even capitalize this entity a little, to make it less obvious bad loans are being transferred from the private sector the public balance sheet.

“Heck, they might even sell shares in the thing. Why not an IPO and let people buy shares in the recovery of the housing market. Pay a dividend (those IO loans need to keep performing), and make it tax deductible. Don’t just socialize the risk, make it investable!”

Invalid Link Removed

 

[GregC]

Additional info on Countrywide: Charles Schumer is calling for an investigation into the cash advances, which Bloomberg says totalled $51 billion as of Sept. 30, not since that date.

Invalid Link Removed

 

[SMASH]

You're correct. Thanks. I edited that into the story above when you posted the correction.

Today's news is dire, IMO. With all due respect to those that this might help, it's a total desperation play and IMO the vast majority of those who can't pay if rates reset still won't be able to pay ... this will just protract the whole debacle to a 15-20 year thing instead of a 5-10 year thing I think.

It's like giving an addict free heroin so they can waste away slowly instead of OD'ing in one shot, the magnitude won't appear as severe, which of course is in the best interests of politicians and greedy irresponsbile banks/investors who went too deep into these plays, but the end result is not likely to differ.

If they pull it off, hopefully I'm wrong. It's also grossly unfair though to whomever they deem not to qualify. That'd be yet another penalty against those who work hard, save, and are fiscally responsbile - they get to pay hundreds of thousands more over the course of their mortgage ... yay ! That's Socialism.

Invalid Link Removed

"WASHINGTON (MarketWatch) -- Federal authorities and major U.S. banks are close to an agreement under which interest rates on adjustable-rate loans will be frozen, a plan that would allow stretched homeowners to potentially avoid foreclosure, The Wall Street Journal reported Friday."

 

[louieeadg]

It's like giving an addict free heroin so they can waste away slowly instead of OD'ing in one shot, the magnitude won't appear as severe, which of course is in the best interests of politicians and greedy irresponsbile banks/investors who went too deep into these plays, but the end result is not likely to differ. If they pull it off, hopefully I'm wrong.



"WASHINGTON (MarketWatch) -- Federal authorities and major U.S. banks are close to an agreement under which interest rates on adjustable-rate loans will be frozen, a plan that would allow stretched homeowners to potentially avoid foreclosure, The Wall Street Journal reported Friday."

One of my best friends is a manager at a Bank. We were talking this morning about interest rates and such. He said they had a corporate meeting yesterday and their CEO seemed troubled about something that's going on...I mentioned something that I'd read up here about the rates going down to 2.5% or so...and he said "yeah, maybe even 2%."

I understand the heroin analogy to a point...I see that dropping interest rates usually means they want people to buy houses which means they aren't right now. Or too many people are and foreclosing...so what does all this mean as far as our economy goes? Besides the fact our dollar is getting weaker by the day...

 

[iamlowsound]

One of my best friends is a manager at a Bank. We were talking this morning about interest rates and such. He said they had a corporate meeting yesterday and their CEO seemed troubled about something that's going on...I mentioned something that I'd read up here about the rates going down to 2.5% or so...and he said "yeah, maybe even 2%."

I understand the heroin analogy to a point...I see that dropping interest rates usually means they want people to buy houses which means they aren't right now. Or too many people are and foreclosing...so what does all this mean as far as our economy goes? Besides the fact our dollar is getting weaker by the day...

This is the first that I have heard of it, and I haven't really had time to reflect, but the way I see it happening is that people will be able to make their payments much easier without facing a major crunch. This will also make it more attractive to buy a house again. Doing this will avoid a major economic crash, for now, but it will also make people feel safe to keep spending more than they make. Thus resulting in a much larger crash somewhere in the future. That is my take on things after knowing about this for less than 5 minutes.

lowsound

 

[Bassic83]

One of my best friends is a manager at a Bank. We were talking this morning about interest rates and such. He said they had a corporate meeting yesterday and their CEO seemed troubled about something that's going on...I mentioned something that I'd read up here about the rates going down to 2.5% or so...and he said "yeah, maybe even 2%."

I understand the heroin analogy to a point...I see that dropping interest rates usually means they want people to buy houses which means they aren't right now. Or too many people are and foreclosing...so what does all this mean as far as our economy goes? Besides the fact our dollar is getting weaker by the day...

Which rates are you referring to? Mortgage rates? They're looking *fairly* stable right now. I'm in the midst of doing a refi on my house, and I've got a 5.87% rate for a 15-year note. With bi-weekly payments, I can expect to shave that down to 12y7mo or something close to that, I'll be shaving even more years off with an annual prepay of just one extra payment applied to principal. If I can swing an annual $2k around bonus time, then I'll be even better off. The quicker I can pay off my house, the better I'll like it. Even paying an extra $100 a month will pay huge dividends. That's one thing that people are not realizing about mortgages. The way you structure your loan has a lot to do with your future monetary health. The tens of thousands I will save in interest, combined with the MUCH quicker equity buildup will allow me to bail in a few years and not have to take it in the shorts compared to someone in a 40-year ARM that resets every 6 months. After 7 years, I will own half of my house outright. My neighbor down the street refinanced into a 30-year, at 7.25%. In 7 years, he'll own his vent stacks, 453 shingles, and two doorknobs of his choice. I tried to tell him to go with the 15y, but he said he was afraid of the payment being $180/mo higher. He WAS getting squashed with an ARM, it was at 12.9% and due to reset again in a few months, plus, to add insult to injury, it was a 40-year. But the mortgage broker he dealt with played on his "monthly payment psychological threshold" and convinced him that 30 years at a higher rate was "cheaper" than the 15. He hasn't answered my questions about his payments, and whether he can possibly either go biweekly, or prepaying even one payment a year. If he can handle either, or preferably both, he'll be miles ahead financially. I'm trying to help people, but some people already "know everything".

 

[louieeadg]

Yeah, when I was getting my real estate license(I've never used it)we went over types of loans and such and I never understood ARM's...but I know nothing really...

And about the rates, I believe it was Interest Rates he was talking about...


And I see what you're saying lowsound, that's what SMASH'S analogy was I suppose. Instead of OD'ing at once, give the heroin addict little bits at a time and wait for him to die later...I guess.

 

[iamlowsound]

Which rates are you referring to? Mortgage rates? They're looking *fairly* stable right now. I'm in the midst of doing a refi on my house, and I've got a 5.87% rate for a 15-year note. With bi-weekly payments, I can expect to shave that down to 12y7mo or something close to that, I'll be shaving even more years off with an annual prepay of just one extra payment applied to principal. If I can swing an annual $2k around bonus time, then I'll be even better off. The quicker I can pay off my house, the better I'll like it. Even paying an extra $100 a month will pay huge dividends. That's one thing that people are not realizing about mortgages. The way you structure your loan has a lot to do with your future monetary health. The tens of thousands I will save in interest, combined with the MUCH quicker equity buildup will allow me to bail in a few years and not have to take it in the shorts compared to someone in a 40-year ARM that resets every 6 months. After 7 years, I will own half of my house outright. My neighbor down the street refinanced into a 30-year, at 7.25%. In 7 years, he'll own his vent stacks, 453 shingles, and two doorknobs of his choice. I tried to tell him to go with the 15y, but he said he was afraid of the payment being $180/mo higher. He WAS getting squashed with an ARM, it was at 12.9% and due to reset again in a few months, plus, to add insult to injury, it was a 40-year. But the mortgage broker he dealt with played on his "monthly payment psychological threshold" and convinced him that 30 years at a higher rate was "cheaper" than the 15. He hasn't answered my questions about his payments, and whether he can possibly either go biweekly, or prepaying even one payment a year. If he can handle either, or preferably both, he'll be miles ahead financially. I'm trying to help people, but some people already "know everything".

Go weekly payments and you will pay it off even faster. Also whenever you get a raise at work, put all that extra money into your mortgage payments.

lowsound

 

[SMASH]

One of my best friends is a manager at a Bank. We were talking this morning about interest rates and such. He said they had a corporate meeting yesterday and their CEO seemed troubled about something that's going on...I mentioned something that I'd read up here about the rates going down to 2.5% or so...and he said "yeah, maybe even 2%."

I understand the heroin analogy to a point...I see that dropping interest rates usually means they want people to buy houses which means they aren't right now. Or too many people are and foreclosing...so what does all this mean as far as our economy goes? Besides the fact our dollar is getting weaker by the day...

I think it was Lehman Bros. that released a report this week claiming the Fed would/should drop interest rates another half to full point by summer '08.

The dollar would tank very hard, other countries would engage in "competing currency devaluations" and drop their rates too, gold and oil and other commodities would rise, inflation would rise while the official stats would grossly underreport it ... in other words more of the same, perhaps at best postponing the inevitable or just prolonging it.



I'm of course in complete agreement with paying down mortgages/debt ASAP and a good way to do that is with more frequent payments and of course extra payments.

This is the first that I have heard of it, and I haven't really had time to reflect, but the way I see it happening is that people will be able to make their payments much easier without facing a major crunch. This will also make it more attractive to buy a house again. Doing this will avoid a major economic crash, for now, but it will also make people feel safe to keep spending more than they make. Thus resulting in a much larger crash somewhere in the future. That is my take on things after knowing about this for less than 5 minutes.

lowsound

What about the socialist aspect of it? Are people who work hard and save and think about their finances rather than watching The Bachelor re-runs happy with their gov't borrowing in printing money - which we and our children's children's children are on the hook for - to bail out the dumb, the lazy, and the greedy yet again?

Here's more on that - [Invalid or Expired Link Removed] (link might only be relevant this weekend - it changes daily on weekdays, but if reading this later search for an article titled "The Great Flood…Of Money"

What about SWF's, which I've written about before ... any concern in "Arabs" buying up the US as I've often predicted (my rants about modern wars being fought economically, but the West not getting the memo)? "They" now own 1/3 of the US's largest bank and much more - Invalid Link Removed

 

[dangnewt]

Today's news is dire, IMO. With all due respect to those that this might help, it's a total desperation play and IMO the vast majority of those who can't pay if rates reset still won't be able to pay ... this will just protract the whole debacle to a 15-20 year thing instead of a 5-10 year thing I think.

This is not dire news. The bureaucrat in my recognizes this as the money quote - "Last week, Paulson told the Journal that it would be impossible to "process the number of workouts and modifications that are going to be necessary doing it just sort of one-off." "

Part of the problem in working these things out is knowing who's on first and who has the authority to approve or disapprove a workout. Just as the old saying went that no one ever got fired for buying IBM hardware - no one gets fired when they simply plow ahead with a foreclosure even when a workout or deed-in-lieu would be in the lender's best interest.

I'll wait for the details before passing judgement. But if the basic idea is that you are current on your payments now; then you will be able to participate; and chances are that you will continue to make your payments. The loan will not make as much as the folks who bought the high-risk tranches had hoped; but at least the prinicipal won't be wiped out. Something is better than nothing.

While there will be disappointed folks who may just miss qualifying for this - it is not unfair in a strict sense. By that I mean that the folks who do not qualify are no better or worse off than they were before the program went into effect.

If you mean all the good hard-working folks (like me who have a mortgage that they can handle will be pissed. I hope not. If I was in a neighborhood where there were a lot of these mortgages and a lot have already been foreclosed on - I'd rather my neighbors get a break on the interest rate and hang on rather than get thrown under the bus and the properties dumped on the market during a credit squeeze thus depressing my home's value.

If you are advocating that since we can't help everybody we shouldn't help anybody because the unhelped will fell left out; I am not with you.

 

[iamlowsound]

I think it was Lehman Bros. that released a report this week claiming the Fed would/should drop interest rates another half to full point by summer '08.

The dollar would tank very hard, other countries would engage in "competing currency devaluations" and drop their rates too, gold and oil and other commodities would rise, inflation would rise while the official stats would grossly underreport it ... in other words more of the same, perhaps at best postponing the inevitable or just prolonging it.



I'm of course in complete agreement with paying down mortgages/debt ASAP and a good way to do that is with more frequent payments and of course extra payments.






What about the socialist aspect of it? Are people who work hard and save and think about their finances rather than watching The Bachelor re-runs happy with their gov't borrowing in printing money - which we and our children's children's children are on the hook for - to bail out the dumb, the lazy, and the greedy yet again?

Here's more on that - [Invalid or Expired Link Removed] (link might only be relevant this weekend - it changes daily on weekdays, but if reading this later search for an article titled "The Great Flood…Of Money"

What about SWF's, which I've written about before ... any concern in "Arabs" buying up the US as I've often predicted (my rants about modern wars being fought economically, but the West not getting the memo)? "They" now own 1/3 of the US's largest bank and much more - Invalid Link Removed

This may sound harsh, but I am really looking forward to the big crunch that is coming. A lot of people are going to be hurt from it, but in the end it will all rebound and be better, judging by what has happened in the past. The 1950's were some of the best years for economic expansion. It will also make people think about what they buy and what they do with their money. Mass market consumerism is hurting the US and people don't realise this. The whole mess right now reminds me of the Great Gatsby.

lowsound

 

[SMASH]

This is not dire news. The bureaucrat in my recognizes this as the money quote - "Last week, Paulson told the Journal that it would be impossible to "process the number of workouts and modifications that are going to be necessary doing it just sort of one-off." "

Part of the problem in working these things out is knowing who's on first and who has the authority to approve or disapprove a workout. Just as the old saying went that no one ever got fired for buying IBM hardware - no one gets fired when they simply plow ahead with a foreclosure even when a workout or deed-in-lieu would be in the lender's best interest.

I'll wait for the details before passing judgement.

What do you think ?

http://biz.yahoo.com/ap/071206/mortgage_crisis.html

http://biz.yahoo.com/ap/071206/home_foreclosures.html

Apparently the idea is that those who remained in good standing with their payments will get the break. I'd imagined it was going to be those failing to pay getting bailed-out, so my view on this is neutral at this point.

I think the claims that it won't cost taxpayers are a lie however, otherwise there was no need for gov't to get involved at all since lenders could have made these decisions for themselves easily enough (and Countrywide was already going down that path in fact). Probably the feds are buying houses or mortgages under the table to prop things up, as they've done in accepting mortgage-backed "assets" as collateral on a lot of their lending lately (see a recent post) which the taxpayer will eat eventually. A scandal will emerge over this in time, I believe.

Or perhaps gov't only got involved to explain behind closed doors that the entire fiscal system is on the brink of collapse. There's a reason why a "free market" (supposedly, but not in fact) gov't would start telling big banks what to do. Those who can do the math assert that if all major banks had to mark their bogus "assets" to market value right now, the majority of them would be insolvent. This strange gov't action leads me to believe that. Those on the inside who are speaking up are saying that the credit markets have not been so dry in their 40+ years in the business, while others are saying it hasn't been so bad since the Great Depression. Very scary if it's true.

Could also be a way to look good for the election next year - when most ARMs were due to reset, and thus move the inevitable result and public displeasure into a Democrat presidency or at least well into the next term regardless of who wins.

In any case, anyone who was going to default still will default, it'll just be later on. They'll still carry negative equity, since there'll be no rebound in domestic real estate for years to come. Bankruptcies and foreclosures will still rise.


---------------------------------------------

On to the sample portfolio, it's at its highs and I think I've made my point with it. Just shy of two years old now, it has gone up during rising and sliding markets. Currently +163% since inception, and if marked in US Dollars (meaning I measured in my currency but if someone in the US had followed it...) that's effectively circa +215%.

I remind readers that this was without shorting, without options trading or any leveraged risk, and without frequent trading (by my standards I mean - there's been a trade every 2 months or so) or expensive services or insider info., and without even trading during market hours or taking on as much risk as I believe most mutal funds or indexes carry. And it's despite the fact that it carries a couple losers at present, and that RSG was recently +56% but is now -3%. It doesn't include the several 100/200/300%+ gains on short/put trades I posted in real-time since August, and it doesn't really reflect the accuracy of the economic and market forecasting I've demonstrated. In other words, no real sweat. If anyone ever comes across a free resource or any index/passive style that can come close, PLEASE let me know. Hack, even a paid resource - let me know. For perspective, the Dow rose approximately 25% in that time, the NASDAQ 19%, the S&P 17%, and the TSE 24%. All will be much lower in a year or two, I expect, except perhaps the TSE.

While this was better than I'd expected, it's no fluke in my experience. I hope it illustrates that anyone can do it - that's my point in all this - it's not about what I can, it's about the fact that *you* can do it too, regardless of your level of education or where you live. If it hasn't inspired that belief by now, there's not much more I can imagine doing to foster that confidence so I'll leave the skeptical to their bogus hypotheses about efficient markets and claims of not having enough time to take an interest in their finances. I started with $300 and no clue, but with enough determination and a willingness to take responsbility for, and learn from, my errors I've done quite well and still improving. Suffice it to say that with the same determination you can go from wishing you could qualify to go shopping for mortgages to actually simply shopping for houses.

I may or may not update this going forward, and for now I'll just post what might be a final update. I'd still take (and do hold) positions in these, with my least favourite being RSG. I'll also add one final stock, CVT from the Toronto exchange to sop up the remaining cash.

ticker.exchange    # of shares held    price paid    current price   % gain

BAY.v                  100               1.61            .70             (56)
HPS-A.to               100              11.90         16.25               36
ER.to                  200                .85            .69             (19)    
RSG.v                  400                .17            .16              (3)
WGP.v                 1000                .385           .44              14
CVT.to                 300               1.00            n/a (new)

Cash $0      

[b]Net Gain to date per the trades in this thread is 163% in nearly 22 months.[/b]

If measured in real terms for people in the States it'd be approx +215%    

* I may no longer update this going forward.

 

[dangnewt]

I still like the plan. While Countrywide had indeed made steps in the right direction, the rest of the lenders/investors needed some help to see the light. Rhetoric about bailouts notwithstanding, this is really a win-win situation for the borrowers who can handle the current interest rates and the investors who are holding the paper. By freezing the rates on those who pay you preserve much of the value of those loans - believe me - I wouldn't mind investing in seasoned mortgages with a positive two year payment history at rates in the 7 and 8% range. However, if you let the mortgages reset - the people can't pay and the investors end up taking a bigger hit after the expenses of foreclosure and the house selling in a down market - everybody loses.

The only loser in the deal now would be an investor holding the riskiest portion who is salivating at the opportunity to collect on mortgages that would be resetting to 11% or more and who now thinks that the MEAN OLD GOVERNMENT has taken that away from him. But guess what - those investors were not going to see anyone pay on reset rates - the borrowers don't have the money. Even if the government had not lifted a finger - if the people don't have the payment, they can't make the payment.


My favorite housing policy blogger is David A. Smith - here are his subprime musings
[Invalid or Expired Link Removed]