Foreclosure Inventory: 103 Months

Monday, April 26th, 2010

From The Daily Capitalist

In a piece from the Wall Street Journal on Saturday, LPS Applied Analytics estimated that foreclosures would create so much market supply that it would take 103 months to liquidate it.

As of March, banks had an inventory of about 1.1 million foreclosed homes, up 20% from a year earlier, according to estimates from LPS Applied Analytics. Another 4.8 million mortgage holders were at least 60 days behind on their payments or in the foreclosure process, meaning their homes were well on their way to the inventory pile. That “shadow inventory” was up 30% from a year earlier.

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Based on the rate at which banks have been selling those foreclosed homes over the past few months, all that inventory, real and shadow, would take 103 months to unload. That’s nearly nine years.

The HAMP (Home Affordable Modification Program) program started by the Obama Administration is trying to modify loans so that lenders will not foreclose:

According to Goldman Sachs, HAMP started less than 80,000 trial modifications in March, less than half the number in the peak month of October 2009. At the same time, a growing number of modifications are being canceled as borrowers prove unable to pay. By Goldman’s count, about 68,000 were canceled in March.

All this means that little can stop banks’ inventory of distressed homes from growing. Too many people owe too much more on their homes than they can afford. For the housing market, that could mean a long-lasting hangover.

Tags: 1 Million, Banks, Borrowers, Capitalist, Estimates, Foreclosure Process, Foreclosures, Gold, Goldman Sachs, Hamp, Hangover, Housing Market, Lenders, Loans, Lps, Mortgage Holders, Nine Years, Wall Street, Wall Street Journal
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Eric Sprott Speaks Out About Physical Gold

Friday, April 16th, 2010

Here is a transcript of Eric Sprott’s interview with Maria Bartiromo, on CNBC.

I haven’t bought in and I’ve been wrong since March ‘09. I still have a deep deep concern about the leverage in the banking system, a view which I’ve expressed over the last decade. I look at the inability of the government who are spending vast amounts of money to generate much growth in GDP.

In fact, there’s been some excellent work done on how the marginal value of a dollar spent by government is now negative. I can give you the example of running a $1.5-trillion deficit last year, and GDP goes up $200-billion, so we’re not getting much bang for our buck, but we still owe the buck at the end of the year, as we will at the end of this year, so I very much worry about that.

I also worry about what’s going on in China. The Chinese government has asked the banks to cool down the lending. The latest data in March shows that lending’s gone from 300-billion in the month, to $100-billion. I just look at $200-billion less each month, that’s $2.4-trillion less per year if it was to stay that way, and it obviously has to have an effect on their economy, as the lending of $2-trillion did, positively, last year.

When you look at China in 2009, they had a $4-trillion economy; they lent $2-trillion to people, they had a $600-billion stimulus, should generate some GDP growth. I’m not even convinced that 10% growth, which would be maybe $400-billion is a very good response to all the measures that we’re taking.

Re: Sprott Physical Gold Trust (PHYS)

Toronto is the capital for mine financing in the world, and in fact some people think, for resource financing in the world, and we’ve been a big part of it. Our view was that we wanted to could come up with a better vehicle than the SPDR Gold Trust (GLD). We think that we have a much better vehicle than the SPDR Gold Trust (GLD) for THREE main reasons:

1) You can actually get physical gold with your Sprott Physical Gold Trust (PHYS) units. You can’t with the SPDR Gold Trust (GLD)

2) the Tax rate on capital gains on our vehicle (PHYS) is 15%, in SPDR Gold Trust its 28% because the IRS considers it a collectible, and therefore taxes it differently.

3) The counterparty to owners is the Royal Canadian Mint, where we store the gold, and I would assure all your listeners that every bar is there. Its not a leveraged financial institution, its part of the government of Canada, and the risk of that institution not having the gold is remote.

Why Gold? Why gold now after the run its had …
Its been the investment of the decade, hands down, not withstanding central bank selling in it all decade long. I would say that gold looks better today than its ever looked. We have sovereign risk on the economic map today, that we didn’t have on the economic map before, and as I look at the problems in Greece, and I see people taking $4- or $8-billion out of the banks because they’re worried about the government, so they’re taking their money out of the banks, and maybe it’ll move to the other PIG countries, where do those people put those currencies? I think we can see that lots of people are putting it into gold, including some of the smartest investors in the world today.

Do you like other mining related commodities?
We love Silver, obviously as an offshoot to gold; Silver will act better than gold. There’s not as much silver inventory in the world as there is gold inventory. I’ve not been as big a proponent of the cyclical-based metals, copper (has doubled or tripled off the bottom), nickel, zinc, (some have tripled or quadrupled off the bottom), but I haven’t been there, because I worry that the economy, that the financial crisis that we went through, that we are supposedly out of, that we’re probably not out of it.

We’ve moved things from the private company space to the public company (sector) space, you know with the government taking over Fannie, the Freddies, and the AIGs, the Europeans bailing out the banks, the British bailing out their banks, and now the focus goes back to the government; so we’ll just see how long people will continue to buy their sovereign debt. If they stop buying their sovereign debt, then the reason we’re owning gold will just become more apparent.

How should a portfolio be positioned (or rather, how are you positioned)?

We run hedge funds, so you can be long and short at the same time, and as long as your longs are doing better than your shorts you’re okay. How deeply should you be involved in precious metals. I’m only going to give you my own experience:

We are 40% long precious metals, and we’re another 35% long precious metals stocks. We’re 20% long in Oil and Gas, and the rest miscellaneous. So, we’re essentially all in. We probably have the most levered position to those products that you could possibly imagine.

What’s the catalyst to move stocks lower?; I know you’re looking for this market to crack.

I think if a problem of slowing in China happens – you know the market in China peaked out in August last year, hasn’t gone anywhere. Their market doesn’t look like its buying into the Chinese experience as much as we’re buying into the Chinese market experience.

Source: CNBC.com

Tags: Banking System, Banks, Canada, Chinese Government, Cnbc, Commodities, Economy, Eric Sprott, GDP, GDP Growth, GLD, Gold, Last Decade, Lent, Leverage, Marginal Value, Maria Bartiromo, Measures, Phys, physical gold, Stimulus, Trillion, Value Of A Dollar, Wince
Posted in Canada, Commodities, Markets | No Comments »

Buffett buffet

Tuesday, March 2nd, 2010

In the video clips below, legendary investor Warren Buffett, chairman and CEO of Berkshire Hathaway, talks to CNBC about a variety of topical issues.

On the economy and politics

Source: CNBC, March 1, 2010.

On currencies and market lessons

Source: CNBC, March 1, 2010.

On deal making and financial regulation

Source: CNBC, March 1, 2010.

On Obama and politics

Source: CNBC, March 1, 2010.

Buffett on health care reform

Source: CNBC, March 1, 2010.

Buffett on succession planning and investment strategy

Source: CNBC, March 1, 2010.

Buffett on banks and earthquake insurance

Source: CNBC, March 1, 2010.

Tags: Advertisement, Banks, Berkshire Hathaway, Ceo, Cnbc, Currencies, Earthquake Insurance, Economy, Health Care Reform, Insurance, Insurance Source, Investment Strategy, Investor, March 1, Market Lessons, Obama, Politics, Succession Planning, Topical Issues, Video Clips, Warren Buffett
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Economy and Bond Market Highlights

Sunday, January 24th, 2010

The Economy and Bond Market
Treasury yields rallied again this week as concerns over Chinese attempts to slow their economy may threaten the global economic recovery. It was reported that China’s government ordered banks to slow down their lending to prevent overheating the economy. The Chinese government has enacted several measures in recent weeks aimed at slowing their economy which expanded 10.7 percent on a year over year basis in the fourth quarter.

Economic data was mixed this week and other macro issues were more significant in driving the market. The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December. The chart below plots the LEI index and GDP on a year over year basis since 1980. If economic activity follows historical patterns, GDP is due for a significant recovery as we move through 2010.

Strengths

• The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December.
• China’s GDP rose a very robust 10.7 percent in the fourth quarter.
• 30 year mortgage rates dropped below 5 percent for the first time in four weeks.

Weaknesses

• The Chinese government has enacted several measures in recent weeks aimed at slowing their economy.
• Housing in general appears to be bouncing along a bottom but unable to make sustained improvement.
• The producer price index rose 0.2 percent in December and on a year over year basis has jumped 4.4 percent driven largely by rising energy prices.

Opportunity

• Expectations continue to build for growth in the U.S. in the current quarter, possibly as much as 4 to 5 percent. The global economic recovery appears to be taking hold.

Threat

• Coordinated global removal of fiscal and monetary stimulus is the biggest threat to the financial markets.

The Economy and Bond Market

Treasury yields rallied again this week as concerns over Chinese attempts to slow their economy may threaten the global economic recovery. It was reported that China’s government ordered banks to slow down their lending to prevent overheating the economy. The Chinese government has enacted several measures in recent weeks aimed at slowing their economy which expanded 10.7 percent on a year over year basis in the fourth quarter.

Economic data was mixed this week and other macro issues were more significant in driving the market. The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December. The chart below plots the LEI index and GDP on a year over year basis since 1980. If economic activity follows historical patterns, GDP is due for a significant recovery as we move through 2010.

Strengths

• The Index of Leading Indicators (LEI) rose more than expected, rising 1.1 percent in December.
• China’s GDP rose a very robust 10.7 percent in the fourth quarter.
• 30 year mortgage rates dropped below 5 percent for the first time in four weeks.

Weaknesses

• The Chinese government has enacted several measures in recent weeks aimed at slowing their economy.
• Housing in general appears to be bouncing along a bottom but unable to make sustained improvement.
• The producer price index rose 0.2 percent in December and on a year over year basis has jumped 4.4 percent driven largely by rising energy prices.

Opportunity

• Expectations continue to build for growth in the U.S. in the current quarter, possibly as much as 4 to 5 percent. The global economic recovery appears to be taking hold.

Threat

• Coordinated global removal of fiscal and monetary stimulus is the biggest threat to the financial markets.

Tags: 30 Year Mortgage Rates, Banks, Bond Market, China, Chinese Attempts, Chinese Government, Economic Activity, Economic Data, Economic Recovery, Economy, Emerging Markets, Energy Prices, Financial Markets, GDP, Index Of Leading Indicators, Macro Issues, Market Economy, Measures, Producer Price Index, Rising Energy, Stimulus, Treasury Yields, Year Mortgage
Posted in Canadian Stocks, China, Markets | No Comments »

A Yen for Canada?

Monday, January 18th, 2010

Back in September I wrote Canada on the Cusp of Something Big outlining my case about the Canadian economy, markets, and loonie. My central argument then, and now, was that Canadians need to get in front of the “invest in Canada,” theme before foreigners do. Sound fiscal policy, strong, well capitalized banks, a productive commodity complex, and our good-old-fashioned brand of conservatism, continue to make Canada the leading destination for investors, both on the domestic front, and internationally, in the G7.

There is more to the Canada story than meets the eye. The fundamentals, are only half the story, and relevant, particularly for the longer term outlook . What matters equally in the near and long term, however, is what is going on behind the scenes in the proprietary institutional and hedge fund trading rooms.

Read the whole article here.

Pierre Daillie (AdvisorAnalyst.com), GlobeAdvisor.com, January 18, 2009

Tags: Advertisement, Banks, Canada, Canada Story, Canadian Economy, Canadians, Central Argument, Commodities, Commodity, Conservatism, Cusp, Foreigners, G7, Globeadvisor, Half The Story, Hedge Fund, Investors, Sound Fiscal Policy, Term Outlook, Yen
Posted in Canada, Markets | No Comments »

The Case Against Tim Geithner

Thursday, January 14th, 2010

As we sit here today, Wall Street continues to exploit a policy of government-sponsored giveaways and secrecy to pay themselves billions.

Record-setting bonuses due to banks like Goldman Sachs as early next week.

Yet instead of acting as our cop, Secretary Tim Geithner has become central to what may be a cover-up of the greatest theft in U.S. history.

Here is the evidence.

Read the whole article here.

Source: The Case Against Tim Geithner, by Dylan Ratigan, The Business Insider
http://www.businessinsider.com/dylan-ratigan-the-case-against-tim-geithner-2010-1

Tags: Acting, Banks, Billions, Business Insider, Cop, Dylan Ratigan, Giveaways, Gold, Goldman Sachs, Government Giveaways, Secrecy, Sit, Tim Geithner, Wall Street
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Chart of the Day: Lending Still Shrinking

Tuesday, January 5th, 2010

As shown in the graph below, courtesy of Clusterstock – Business Insider, the latest figures from the St. Louis Fed show that commercial and industrial lending is still declining.

The dilemma is that US banks can borrow for almost nothing and lend money to the government by buying 10-year Treasury Notes and 30-year Treasury Bonds with yields of 3.8% and 4.6% respectively. “Thus, the banks are thriving on the ‘yield curve’ while the poor slob on the street gets nothing for his savings (assuming he has any savings at all). And when you think about it, why should the banks make risky loans to the poor goof on Main Street when they can play the yield curve with almost zero risk?, remarked Richard Russell, author of the Dow Theory Letters.

It goes without saying that lending needs to expand before a decent economic recovery can get under way.

Source: Clusterstock – Business Insider, January 4, 2009.

Tags: 10 Year Treasury Notes, 30 Year Treasury Bonds, Advertisement, Banks, Business Insider, Dilemma, Dow Theory Letters, Economic Recovery, Goof, Graph, January 4, Money, Poor Slob, Richard Russell, risk, Risky Loans, Treasury Yields, Yield Curve
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Eliot Spitzer’s New Crusade Against Obamanomics

Friday, November 20th, 2009

Are Obama’s economic policies actually working? Eliot Spitzer says No!

Spitzer is taking aim at the [Obama} administration’s approach, accusing it of shying away from the kind of comprehensive reform that the financial system needs. The Obama administration is not so different from the Bush administration, at least so far as their approach to the banking crisis goes, he claimed:

“The fundamental error of this administration is that it is continuity. They have embraced the Bush Administration view that if you solve the problem of big banks everything else flows from that. They are wrong. Too big to fail is too big. They don’t get it. The only two people I know who don’t appreciate that are Tim Geithner and Larry Summers. Paul Volcker, Alan Greenspan, Henry Kaufman, Mervyn King — every major academic has said, We must get rid of too big to fail.”

Watch Spitzer make his case against Obama’s effectiveness as manager of the financial crisis below:

Eliot Spitzer arguing against Obamanomics from Intelligence Squared US on Vimeo.

Tags: Alan Greenspan, Banking Crisis, Banks, Bush Administration, Case Manager, Continuity, Economic Policies, Eliot Spitzer, Financial Crisis, Fundamental Error, Henry Kaufman, Intelligence, Larry Summers, Mervyn King, New Crusade, Paul Volcker, Taking Aim, Tim Geithner, Watch Case
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Velocity of US money supply at long last edging up

Friday, November 20th, 2009

Despite ballooning Fed reserves to bail out banks, money supply as measured by the growth in money supply with a zero maturity (notes and coins, check accounts, savings deposits and money-market accounts collectively) continues to slow.

The slowing growth is contra to what normally happens when the Fed lowers the Federal funds rate.

In real terms the growth rate is also slowing.

The slowing in MZM growth is a consequence of US banks’ tight lending standards. The trend is likely to continue until the banks relax these standards.

Velocity of MZM is at long last picking up after it started falling in the first quarter of 2007 – six quarters before economic growth slumped. The increase in MZM velocity effectively points to increased economic activity. Further increases in this velocity are essential for sustained economic growth.

Bottoms in consumer sentiment and MZM growth coincide, emphasizing the importance of improved consumer sentiment to get the economy going.

Lastly, the US bond market is an excellent indicator insofar as MZM velocity is concerned. Currently the yield on the 10-year note is pointing to further improvements in money velocity. The US bond market therefore also suggests that consumer sentiment is likely to continue improving and that the current improvement in the economy is sustainable, albeit probably at a slow rate.

Note: The source for all graphs is Plexus Asset Management, based on data from I-Net Bridge.

Tags: Asset Management, Banks, Bottoms, Bridge, Coins, Consequence, Consumer Sentiment, Economic Activity, Federal Funds Rate, First Quarter, Graphs, Improvements, Money Market Accounts, Money Supply, Money Velocity, Mzm, Quarters, Sustained Economic Growth, Us Bond Market, Zero Maturity
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Overweight Canadian banks?

Monday, September 21st, 2009

Darko Mihelic, financial sector analyst at CIBC World Markets believes there is a viable case for investors to overweight bank stocks. All but CIBC recently beat the street, and healthily. So what do you do?

Andrew Willis, Globe and Mail columnist writes:

This situation leaves analysts with two options. Door No. 1 is to tell institutional clients that the banks stock are expensive, and likely to tumble, or at least go sideways, and should therefore be under-weighted in portfolios. Much of the Street is pitching this strategy right now. It’s not without risk: The banks make up a substantial portion of the equity benchmark, and if they continue to rally, anyone underweight banks will underperform.

Mihelic’s case is:

On Friday, Mr. Mihelic rolled out his estimates for 2011 earnings at the major Canadian banks. His crystal ball says the banks will, on average, see their profits rise 27 per cent from what they are expect to post in 2010.

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…

“Valuing the bank stocks on reasonable valuation parameters, the group appears to have approximately 17 per cent total return upside from current levels, on average.”

…

“Near-term challenges could affect the stocks since the group “looks” expensive on fiscal 2010 estimates,” said Mr. Mihelic. “. However, we believe investors can go overweight with the group and use short-term noise as an opportunity.”

Read the whole article here:

The case for overweighting banks – The Globe and Mail.

Tags: Andrew Willis, Bank stocks, Banks, Benchmark, Canada, Canadian Banks, CIBC World Markets, Columnist, Crystal Ball, Earnings, Estimates, Financial Sector, Globe And Mail, Globe Mail, Institutional Clients, Investors, Parameters, Portfolios, Profits, Substantial Portion, Term Challenges, Term Noise
Posted in Markets | No Comments »

Meredith Whitney: Banking Sector Outlook Less Optimistic

Monday, September 14th, 2009

Meredith Whitney says economic and banking fundamentals in the US have not changed in the last year. Whitney sounds less optimistic now than when she upgraded Goldman a few months ago.

Click play to view:
Part 1:

Part 2:

Whitney made the following points:

“No bank underwrote a loan with 10 percent unemployment on the horizon”.

“I think there is no doubt that home prices will go down dramatically from here, it’s just a question of when.”

She said local governments and states are chronically under-funded and “most states are under water,” adding to the problem of low private consumption.

“If you look at the drivers for unemployment I don’t see that reversing very soon,” Whitney said.

If consumers were to decide to spend, “that would be a game-changer,” but it would be an unnatural thing to do in a recession, she said.

“A lot of themes are constant, which is the US consumer and the small business doesn’t have any credit, credit is still contracting.” Whitney said.

Consumer debt and consumer credit have dropped according to the latest figures which also show that people have been spending more from their debit cards than from their credit cards.

“Obviously that doesn’t bode well for spending,” Whitney said.

Whitney maintains only one buy rating – GS – Goldman Sachs still has a lot of “gas in the tank” and it is taking up a lot of what Lehman left on the table.

“Banks are taking advantage of what the government is doing by artificially inflating asset prices so they can ride a steep yield curve and they’re going to have a third quarter that reflects that.”

The buy rating on GS is a reminder that PIMCO’s advice to “shake hands with the government,” and the ‘new normal,” remain significant themes in this market.

Source: CNBC.com, September 10, 2009

Tags: Asset Prices, Banking Sector, Banks, Bill Gross, Cnbc, Consumer Credit, Consumer Debt, Consumers, Credit Cards, Debit Cards, Gold, Goldman, Goldman Sachs, Horizon, Lehman, Local Governments, Market Source, Meredith Whitney, No Doubt, Private Consumption, Recession, Reminder, Sector Outlook, Sounds, Unemployment, Yield Curve
Posted in Gold, Markets | No Comments »

Keep a Close Eye on Lending Standards

Tuesday, August 4th, 2009

The Federal Reserve Board’s Senior Loan Officer Opinion Survey is due to be published on August 17. This is an important document for assessing to what extent credit markets are thawing and confidence is returning to the financial system.

In the meantime, the European Central Bank’s Euro Area Bank Lending Survey has just been published. The net percentage of banks reporting a tightening of credit standards for loans to firms more than halved to 21% in the second quarter of 2009 from 43% in the first quarter – down from a peak of more than 60% in the third and fourth quarters of 2008.

As one would expect, there is a strong correlation between the lending standards in the US and Europe, as shown in the graph below. Based on the historical relationship it seems likely that the number of US loan officers reporting a tightening of lending standards later this month could decline significantly – from 40% to possibly in the region of 20%.

Source: Federal Reserve Board’s Senior Loan Office Opinion Survey and the European Central Bank’s Euro Area Bank Lending Survey

A decline in the lending standards of US banks should be bullish for the economic recovery and financial markets, but the demand for loans also needs to improve in order for confidence in the world’s financial system to return to more “normal” levels and liquidity to start flowing freely again, fueling a descent economic recovery. The Senior Loan Officer Opinion Survey due out in two weeks’ time should provide quite a few answers.

Tags: Bank Lending Survey, Banks, Confidence, Correlation, Credit Markets, Economic Recovery, Extent, Federal Reserve, Federal Reserve Board, Few Answers, Financial Markets, First Quarter, Graph, liquidity, Loan Office, Loan Officer, Loan Officers, Opinion Survey, Quarters, Second Quarter
Posted in Markets | No Comments »