Market meltdown...?!

Looks like you will be in a Porsche sooner than later

Mortgage defaults start to spread
Ruth Simon and James R. Hagerty
Wall Street Journal
Mar. 1, 2007 12:09 PM

The mortgage market has been roiled by a sharp increase in bad loans made to borrowers with weak credit. Now there are signs that the pain is spreading upward.

At issue are mortgages made to people who fall in the gray area between "prime" (borrowers considered the best credit risks) and "subprime" (borrowers considered the greatest credit risks). A record $400 billion of these midlevel loans - which are known in the industry as "Alt-A" mortgages - were originated last year, up from $85 billion in 2003, according to Inside Mortgage Finance, a trade publication. Alt-A loans accounted for roughly 16 percent of mortgage originations last year and subprime loans an additional 24 percent.

If you read 'Barron's', FT, WSJ or are otherwise among the cognescenti, the warning bells were ringing loudly for the past six weeks.
For those who kept their powder dry, there is now/soon/later some great opportunities to buy some large caps right or, depending on your persuasions, look for some blood in the markets...even some corners of the yacht markets...and pick up a deal.
Subsequent to October 1987 ( just in time for the Ft. Laud. Boat Show! ), there was a short quiet period, followed by a good two-year run in the boat biz.
9/11 took about five months for the phones to start ringing again, but that was a different scenario altogether.
Greenspan aside, the pundits see no impending doom on the horizon... and as for the sub-prime borrowers and those on the ladder step just above, well, if you're gonna be dumb, you'd better be tough.

FannyMae, Fanny Fox, what's the difference?

I meant the 'Dow,' not DJA which only slid -12pts on Fri., but not sure of my source, or the statistical disparity even now.

FT used to have a forum where one could bet the movement of the Euro. Always ahead of the game, I foolishly had it pegged at a whopping $1.30 back in '03?. (Just ahead of it's low at $1.179.) My predictions were so askew, I spawned a jucy discourse from the editors, nevermind their pedantic response; something about "taking a pre-paid vacation."

I see housing down for the count, and the ripple-effect will impact every sector of the American labor market. The message is simple: "take your money and run!"

Speaking of NINA's, need I cite the Toll Bros., living large off ma & pa, on the Rivera?
Obviously, the vulture's chips are moving to private equity, but this Paulson daisy-chain finance orgy can't last forever. The 'blip' is just War, and rumors of more...

"Everything must go"

Evidently, Loren's liqidity has him reaching for the premium aged scotch. But for the rest of us, let's not forget: Once we had Clinton, Johnny Cash and Bob Hope. Now we have Bush, no Cash and no Hope!

The number of foreclosures are overwhelming courts & clerks in the highly speculative city of Port St. Lucie, Florida. This scenario is playing out in other areas of the nation too.

http://www.palmbeachpost.com/localnews/content/local_news/epaper/2007/03/04/m1a_SLCLERK_0304.html

the problem with the chinese market was due to the government suggesting that they would tax profits on stock trading. they eventually backed down on this. also many investors decided to take their profits at that time. the market has been very good over the past years going up and up. this led to other markets falling as well.

talking about globalisation, the worrying thing is so much manufacture subcontracted to china etc. now we are seeing even design to be subcontracted as research and development expenditure affects badly the profitability of companies. this is one thing i really hate. when a company becomes public it becomes a slave to the profitability which must increase every quarter or year. real investment and indeed strong research takes years to mature and a company may be in bad profitability during that period until the investment finally pays off and the company takes off into another level of profitability.

Ad hoc advice: Buy A Seaworthy Boat!

Reviewing this past week's news items suggests an even more precipitous storm-front than the failure of sub-prime real estate loans. There is more to this than simply padding the books, off-shoring assets, 500% more to the top executives than they are paying their average laborers, false government statistics, hidden inflation and trusting Hollywood to take care of our (children's) educations.

Bob Chapman's assesment is quite explicit:
Tuesday’s stock collapse is a strong indication that the four-year bear market rally arranged and managed by the Treasury and the Fed is over. The US economy has faltered for a year and few wanted to recognize it. The self-reinforcing asset inflation spiral is changing. Lower equity/asset prices will produce stress on earnings, consumption and debt, which will force liquidation of assets and institutes a negative spiral. Significant busts occur in March and April. In 1929, the first three days of March produced a 5% decline. A rally followed and by month’s end stocks had fallen 12%.

In 1987, stocks fell 8% in April and after an early May rally stocks declined to a 10% springtime loss.

In 2000, stocks collapsed in March, led by OTC stocks. They bottomed in April then rallied to September 1st. Then the real decline began just like it did in 1929 and 1987. 1973 also saw the same action, which was worse than 1987.

The present decline will last into April. Then there will be a brief summer rally and in September-October the bottom will fall out!
http://www.theinternationalforecaster.com/trainwreck.php?Id=163


Lindsey Williams phrases it this way:
There is so much to touch on regarding the dollar this month, I hardly know where to start. Regardless of where I begin, the news is not good and affects all of us.

First on our list is China. They have now announced that they are refusing to accept American Corporations purchasing into their stock market any longer as they did in the past. China also said that they are no longer going to be purchasing our securities as they have in the past, including bonds and T-bills. China's decisions and subsequent announcements at the beginning of the week has sent a panic across the World's markets.

March 21st 2007 will be one of the most significant dates this month. Iran has outlawed the American dollar and will put anyone in jail that uses it in their country after that date. They have the ominous notoriety of being the first nation in the world to do such a thing. The real issue in Iran is NOT nuclear, but rather the decision to not use the American dollar for trade and the sale of oil. On the heels of Iran's decision, North Korea has followed suit and also outlawed the use of the American dollar in their country. Finally, Malaysia the next day did the same thing.. Iran will distribute from mid-March a new banknote carrying a portrait of the leader of the Islamic revolution, Ayatollah Ruhollah Khomeini, as well as the nuclear energy emblem, the Tehran press reported Sunday.*


More mixed news on China:

Reuters Canada
By Chris Buckley. BEIJING (Reuters) - China's will boost defense spending by 17.8 percent in 2007, accelerating the emerging power's string of annual double-digit rises in money for a modern military that reflects its economic strength.
http://ca.today.reuters.com/news/newsArticle.aspx

China's Parliament To Approve Controversial Property Law
The National People's Congress spokesman Jiang Enzhu on Sunday defended the new law and said it should give "equal protection" to public and private property. "Under the socialist market economy, state, collective and private properties should be entitled to equal rights. If various property rights were not protected equally, the initiative of legally creating and accumulating wealth by the masses of people would be harmed, and national strengthen and social harmony would also be impaired," Jiang said.

"NPC members will be asked to approve a new corporate tax law that removes tax breaks for foreign firms setting up businesses in China."

Max
You may wish to amuse yourself by taking a look at things from a different perspective. Perhaps it'll just be a headache.
All labour, all products, all intellectual production, all currencies are simply commodities that establish their values relative to each other via the normal mechanics of supply and demand. Artificial interventions by governments, monopolies of certain commodities, are always temporary. Sooner or later the artificial or contrived imbalances in relative values will be circumvented.
The greater the artificiality of a value affixed to a given commodity and the longer that that artificiality exists the greater the correction will be and rather than resting easily at it's real value it will fluctuate to either side of it's real value swinging to and fro through a few cycles until it comes to rest.
As an amusing exercise, watch the German economy while it adjusts to the recent VAT increase there.
J. Galbraith was a Canadian. Some of us dig through the navel lint of economic theory as though it were a birthright.

This just in from Saturday's WSJ:
Seems the analysts at Legg Mason Capital Management found past market performance of the DJIA, S & P 500, & Nasdaq after they fell at least 3% on the same day all showed, one year later, to have gained at least 14%.
Including last Tuesday's stumble, there have been 27 such daily drops, going back to 1974.


"Do you know what the markets will do?", asked one wag of the wizened financier who replied, "Yes, of course.....they will change."

Oh, Gee, "I could have had a VAT!"

Codger's point is well taken. I did enjoy listening to the Ozzie's frustration and their initial disputes over this legendary VAT. What I did not witness was its implimentation, nor any of the adjustments to which you speak.

Broadly speaking, I think it annexes the upwardly mobile middle class. And I think it may well simplify the continual funding of their welfare and health care systems. I will note that they had low crime statistics in 1993, having precluded that their 'dole' enabled this as long as it remained at about 5 to 6.5%. Ours is closer to 1.8%, while corporate welfare is what 5%? (Not counting Haliburton.)

Speaking of George Soros, and the like, they better keep spending on yachts, but it's true what they say about 'new efficiency requirements.' Shipping contributes a whopping share to CO2-loading, and diesel fumes are as bad as second-hand smoke to our health.

A watered down explanation to market trends:


“The Plankton Theory, like life itself, begins and ends in the ocean. Plankton, of course, are almost microscopic organisms that serve as food for higher life forms. Without plankton almost every fish and mammal in the sea could not survive, since most species depend upon other fish for their existence and plankton are the initial building blocks of the entire process. Logic would suggest, therefore, that in attempting to forecast the well being of the Great White Whale, Jaws, or even Jaws II, that one of the factors to consider would be the status and future outlook of the plankton. That, in one hundred words or less, is the Plankton Theory.



Now, what possible significance could this have for the investment world? Plenty. Take for example, the area of real estate, especially that of single family housing. We’re all familiar with the rapid escalation of home prices over the last 10 years. For most Americans, their homes have been the best and in many cases the only investment that they have made in their entire lives. Some have gone so far as to invest in several homes and have endured ‘negative carry’ on the cash flow in anticipation of leveraged capital gains a few years down the road. But where does it stop? Can housing continue to increase at twice the Consumer Price Index for the next 10 years?



One way to measure might be via the Plankton Theory. In the case of real estate, the plankton would be the first-time buyer (perhaps a young married couple) with a desire to own their own home but with very little capital to carry it off. When the time comes that they can’t pull it off – either through an inability to come up with a down payment, or to service the monthly mortgage – then the ‘plankton’ would disappear and the rapid escalation in housing prices would ease as well. For, unless the current homeowner has someone to sell his house to, he’ll be unable to afford the house with the view or that extra bedroom, and the process would continue into the echelons of Beverly Hills and Shaker Heights. In the end, the entire market would wither on the investment vine and home prices would stop increasing at the same rapid rate. So to gauge the health of the housing market, look first at the plankton. Without their presence and financial vitality, the market’s not going to repeat the experience of the past 10 years.”

Courtesy: GCB & PM

What assures the health of the plankton?

After you get your family yacht in order, buy commodities-based market currencies. Silver at $12.xx, and every jar of Honey you can find! I say this because there is no future in 'futures,' when the supply itself is gone!

Unless you have the keys to the Rothchild's Castle, is it not a fair assumption that a market-crash before a war is preferrable to a war, and then the combined consequence of a crash? I have to take a grim outlook, because the wheels of greed are steering us into the perfect storm. And Americans are not likely to take kindly to the but-end of a rifle from some foreign troops.

The 'answer' is to shut off all the inputs, and have everyone on this planet spend a week or so, tilling the garden, ie: real sweat-equity, plus a chance to clear our minds!

Equity being used for leverage// Insurance damper.

Just came across this article. Wondering what effect this will have on those that are using accumulated property equity as backup for credit lines that they use in the general market. Hmmm.
http://www.washingtonpost.com/wp-dyn/content/article/2006/12/01/AR2006120101759.html

Bop 'till you drop!

"'The party is over and the fat lady is singing. Bernanke may lower rates, but the dollar will tank if he does,' Anderson said."

I'm not a subscriber, so can't get the WPost article above. But it doesn't matter because we've already seen 100 fresh reports concerning the up-shot from the sub-prime fall out. It's interesting that Broward has seen a moderate 100% increase in defaults, while Palm Beach has seen a whopping 320% increase. 'Trump Tower, Tampa,' -almost belly up! Oh well, the bigger they come...

Rather than wear out my welcome with just another grim doomsayer news piece, I am more than happy to recant my vivid apocalyptic nightmare from the other night. Somehow, I had gotten a real job aboard a big yacht!

In my dream, I was readily appointed to the task of IT Manager for a very distinguished family of global repute. Stem- to-, I suppose their pristine rig was well over 200', and somehow, I had already risen to the task of keeping all of their data issues sorted out, but under no circumstances was I ever to leave my post, day or night...

*Now, it doesn't mater to me what the business at hand, when I devote myself to a position of loyalty, I take it to the inth degree. Since I could not allow any calls to be dropped, I had to monitor most of the family's conversations by a sort of real-time streaming, on-screen & analog process, and if a call was dropped, I was to restore it as fast as I could hit 'restore.' Though I had only met the owner and his wife for a total of say, 10 minutes, I could certainly feel the tremble in her voice as this particular conversation played its course...

Outgoing; (212)-: "Matthew, We don't have time to chat. You are not to speak to anyone on this boat but Me, or my Husband! When we get to New York, you are to unload everything as fast as you can bring it aboard. Do not, under any circumstances explain, or stop to discuss any of this with my crew! At the slightest sign of trouble, we will lock ALL of the cabin doors, and no one is permitted to board the ship except you. Is that clear? Yes, mam-Good! That means Everything, all of the safes, all of my jewelry, everything at the Condo too. Have you secured the cash at the Bank?"

-At which point, I quit live monitoring, you know; how it's not polite to pry. Suddenly, I awoke from my dream as 'alert' as a wet Cheshire cat! Now that's my idea of a 'real job,' and a true adventure too! I just can't wait to man those real cannons on the high seas!

Outmywindow.

This just came at me. Not China, but does put a bit of a light on differences in real property registration 30 years and the property registration still up in the air.
http://www.youtube.com/watch?v=QLA1tiadza8
http://www.youtube.com/watch?v=NuXtdvJSMmU

Codger, that's equally out in left field, but I'm sure I deserved it. I'll never see the Orient from an insider's perspective, but you probably have a good point.

So, I always wondered, how much would a $15M. house be worth in Hawaii if there is only 3 years left on the 99 year lease?

Actually Max, I had just rec'd the wierd one above and was wondering if I should post it when i saw yours and went.. "What the hay"

Codger

I'm on a low speed connection, so watching movies on my PC is the equivalent of watching paint dry. Maybe let me know what the punchline was?.