Monday, May 17, 2010

A Few Notes

I am out of any real time. I had to finalize a contract for some kitchen work to be done and it took longer than I thought it would. What can you do? Just a few notes for tonight. Anyone rememebr those notes we used to write in grade school that you would fold up in nifty ways so the teacher could not open them? HA!

Quote of the Week
I had one of those "I Wish I Had Said That"moments today on this section from Brendan O'Connor in the Irish Independent (via Bill Fleckenstein's MSN piece):
"If there is plenty of money in the world, it has to make you wonder. It gradually became apparent during the week that any bailouts of countries are actually bailouts of banks, German banks more often than not.

"And given that there is plenty of money in the world, and yet everybody is up to their neck in debt, there is something not adding up, and maybe it's time to start again.

"Maybe it's time for not just us to default, but for everyone to default. They (whoever 'they' are) will get over it soon enough and they'll give us more money to buy stuff from them.
" Exactly!
I have been saying this for a long time. The two oldest professions are prostitution and banking. Both are easy money and very hard to screw up (pun intended). The whole "if bond holders get hurt the world will end" baloney was just that; baloney. The debt markets will always work because there is money to be made.

Housing Bust Still Going On
While many really dumb, I mean savvy buyers ran out to scoop up a "free" 8k towards a home buy they may find out that 8k matters little when you are underwater on a new mortgage by 50k. Of course the days of no documentation loans is over right? Well, not exactly. From Diana Olick of CNBC:
Mortgage Mods Doomed by Back End Debt
The whole thing is worth a read but check this glaring jaw dropper;
While most don't want to go on the record with me, lest they rile the regulators, Bank of America's Rick Simon says initially, "All the major banks, at Treasury's suggestion, went to non-verified income for verification."
This should be criminal. More:
That seems to be the crux of the problem.
Imagine that: Folks who didn't have to show any proof of anything to get a trial modification, weren't able to sustain that modification. The big guys have now changed that, requiring full documentation.

A 64.3% DTI is so far out of scope with the pre-bubble years safe and sound 36% total DTI — and even typical bubble-years full-doc DTI's of 50% — it is absolutely irresponsible," says mortgage analyst Mark Hanson. "Servicers are pushing the envelope with respect to getting people to qualify," he adds.

I have to wonder if any mortgage originator today would even offer a new loan to anyone with those kinds of stats. My guess is no.
And that is the point. No bank would offer this loan, but the government can and does and will. I fully expect housing support program take 10 to begin in the fall.

Gold and Silver in the Near Term
As always, Jesse over at the Cafe Americain has a good write up and this one is metals specific:
Gold and Silver Intermediate Targets
If you are a metals watcher then you should read this one. Some snippets:
On Gold:
Gold is currently above the neckline which is around $1200. While it remains above this neckline, the target for this leg of the move would be $1350 as a minimum measuring objective.
If the price breaks below 1200 it is no longer an active formation, but it remains potential while the price is above 1044.

On Silver:
Silver has a massive inverse H&S bottom, that is 'working' while it is above 18.80. The target for this move is around $30 per ounce. But it remains valid and potential while the price of silver is above 16.
If the price of silver falls below 18.80 then the formation is not active.

On various Wild Cards:
It should be noted that in our opinion both markets are being subjected to significant manipulation by large short interests, which are particularly concentrated in the case of silver, and especially stubborn and 'official' in the case of gold, involving the central banks. This is our judgement based on the circumstantial evidence.
We also suspect that the Fed is buying across the US Treasury curve, but especially at the longer durations, and that the Treasury and Fed are working with one or more groups to support the equity markets primarily through the SP futures.
This adds quite a bit to the picture, although it is difficult to forecast since it is not natural market action and can distort the trends, but only in the short term.
Great stuff!

Using my own proprietary blend of technical analysis, market momentum, gut feelings, the force (darkside only), and macro analysis I have similar targets for the metals. On gold my target is for $1500 an ounce looking out 2-3 months. This is higher than some other calls. My target for silver is $25 over the same time period. Significant headline risk is present for the metals and the total meltdown of the commodities as of late (have you seen Copper prices???) is troublesome for the re-inflation crowd.

I may set up a position in the paper vehicles for a trade tomorrow. You may ask "Why bother with paper when you love the physical stuff" and that is a good question. At this point I would like to have a more nimble position and the paper world can provide that. Long term I think the paper metals are going to have a real issue, but not in the next 3 months, though you never know! Also my neighbor keeps asking me why I am in his back yard with a shovel and a flashlight at 2am and it is getting annoying. I figure no one would think my next door neighbor had any metals and if I bury it in HIS backyard then the odds of it being found are pretty slim! Kidding, just kidding.

Full disclosure: I am LONG gold and silver via physical holdings. None of this is investment advice and should not be used as such. My investment advice is to deposit a large amount of money at my donation button and I will post pictures of the gold and silver I buy with it. I want a 10 ounce Kookaburra!

You have to see this one. The phrase "Get Out of There" used in countless films:

Very nice.

Have a good night.


getyourselfconnected said...

Good stuff, periodic table for superheroes:

sedintary state said...

Jon Stewart on the banks and a rigged game.

GawainsGhost said...

Well, debt to income ratio is a significant ratio. The higher it is the worse off you are. This is so obvious that even an embicile can understand it, so one has to wonder why so many people and governments and banks keep increasing their debt levels.

As far as mortgage modifications go, I said a long time ago they were doomed to fail. If someone is unable to service their debt, extending them credit is an exercise in stupidity. Real estate is a serious business, and buying a home is a serious consideration. It is not the playground for fools.

What most people forgot during the bubble is how truly expensive it is to own a home. There are principal, interest, tax, insurance, and utility payments to be made. That makes for an acronym, PITIU, which stands for pity you.

When you add car payments and maintenance, gas, food, clothing, and other living expenses, not to mention income taxes, it's easy to find yourself in a perilous situation rather quickly. This is why, in the pre-bubble days, standard practice was for PITIU not to exceed 1/3 income.

But that went the way of all things when credit mania took over. This is what happens when finance amounts to 40% of GDP.

Credit is just another word for debt. But now that so much of the economy is based on extending credit, even to the most unworthy, debt levels have nowhere to go but up.

In The Millionaire Next Door, by Stanley and Danko, the vast majority of people who have a net worth of over $1,000,000 all share on defining characteristic, frugality. 80% made their fortune in the last forty years. Most are small business owners in small towns. They live in houses that cost less than $200,000, drive used cars, wear inexpensive clothes, and for entertainment go to high school football games on Friday nights.

This doesn't fit the conventional, read tv, idea of the rich. If they're millionaires, why aren't they living in mansions, wearing Armani and driving Ferraris? Because they'd rather have the money.

This is what happened in the bubble during the mania. People mistook the appearance of wealth for actual wealth. And went broke. Oh, well, c'est la vie, as the losers say in French.

insanity shelter said...

>c'est la vie

I thought it was the winners that say that, like you just did.