Friday, December 18, 2009

Jingle Mail, Jingle Mail...

Jingle all the way to Wall Street!

Morgan Stanley has decided to turn in the key on 5 San Francisco high rises, because these five buildings are about 50% in The Red.

Jingle Mail is where a homeowner is so upside down on a loan that they simple walk away from the home and mail the keys in to the bank.

I don't know who Morgan Stanley stuck with these keys, but there will no doubt be a serious hit to somebody's CRE MBS (Commercial Real Estate Mortgage Backed Security). Ouch...

How freakin' stupid is Morgan Stanley? If they are mailing in their keys, then what is to stop all of those Millions of homeowners currently with Negative Equity?

According to the Wall Street Journal today, here are the current percentages of homeowners with Negative Equity (WSJ) (keep ion mind that these are 2008 numbers and 2009 are far worse)-

California 31%
Nevada 27%
Arizona 24%
Florida 22%

Do you wonder why people are angry with Wall Street when they pulling stunts like this? Check out he Huffington Post today -

If Morgan Stanley Walks Away, Why Shouldn't You?

"To the extent that Morgan Stanley is leading by example, the securities colossus is sending an unlikely message to underwater homeowners: Walk away."

"In Thursday's Wall Street Journal, John Courson, the head of the Mortgage Bankers Association, played up the moral argument against walking away, telling the paper: 'What about the message they will send to their family and their kids and their friends?'

'It highlights the double standard we have in this country,' White says. 'Businesses strategically default all the time and, in fact, they should -- they're obligated to maximize profits and minimize losses. But so should homeowners.'"

The collective greed of Wall Street is staggering. This makes them so deaf to their public image and is such an albatross around Obama's neck.

Now you have Citigroup, Wells Fargo and BofA repaying TARP, not because it helps their shareholders (See Citi down -14% in 3 days on a massively dilutive sales of stock) but because it allows then to get out from under the Pay Czar. The bankers are doing whatever they can to make as much money as they can and the public is getting pretty upset about it - check Obama's Poll numbers.

2010 will be a referendum on Washington's conduct towards Wall Street. So expect the anti-Wall Street rhetoric to pick up in Washington after the Health Care socialist-wealth-transfer-scam is passed or shelved.

Sunday, December 13, 2009

Illinois Downgraded _ Can California Be Far Behind?

Substitute “California” or “The United States” for “Illinois” and you get an idea of where this is all going…

“Standard & Poor's Ratings Services lowered its rating on Illinois's general obligation bonds, reflecting the state's budget gap.

The legislature's difficulties in passing a fix before the end of the fiscal year on June 30 are heightened by a constitutional rule requiring a supermajority of 60% to pass any law taking effect before June 1 of the following calendar year, Moody's said.

S&P said Thursday the state has made limited progress in addressing this year's budget gap and next year's budget balancing depend on uncertain savings from spending reductions and debt restructuring. “

"The downgrade reflects what we view as the state's deteriorating liquidity and financial position," said analyst Robin Prunty. "Illinois failed to address its fiscal 2009 deficit, which was carried into fiscal 2010. Similar to many other states, revenues are performing below originally forecast levels."

“The firm has a negative outlook on the debt, now rated at A+, largely because the credit rater has doubts about the government's willingness to implement politically unpopular measures to close the gap. The new grade is four steps below AAA.”

Illinois did what California did in 2009 and blinked. They decided to borrow from 2010 to pay for 2009 and not make any real cuts. They will have to make difficult decisions in 2010, or they will have to pay more to borrow in 2011.

Oh wait, that’s not true. Because they US Government will bail the states out by giving Municipal Bonds implicit guarantees of the US Government, moving the obligations for state spending from the states to the US Taxpayer…

I don’t know if this stuff all hits the fan after the Mid-Term Elections of 2010 or the Presidential Election of 2012, but at some point, investors will start to sell their US Treasury holdings and the US will have to devalue the US Dollar. It is simply a matter of when.

Watch the likes of Greece, Ireland, Spain and the UK to get an idea of how things will be done when the US devalues the Dollar.

US Treasury Yields Up, Commodities Down

The Demand for US Treasuries is slowing, causing Bond prices to fall…,-You-Think-Youre-Gonna-Crank-Out-Bonds.html

And Interest Rates ($TYX) on US Treasuries to rise…

Which causes the US Dollar ($USD) to rise (because you want to own currencies that pay higher yields)…

Which kills the Dollar Carry Trade, and forces sales of Crude Oil ($WTIC) and Gold ($GOLD) …

The lower cost of Energy helps Airlines ($XAL) and Retail (XRT)

Here are the charts above on one chart, for easy viewing. Since approximately December 1st, you have had $TYX, $USD and $XAL up and $GOLD and $WTIC down.

And Stocks remain in a trading range, with The Bullish Percent ($BPNYA) and the Summation Index ($NYSI) well below their highs of September. So you have fewer names in uptrends, holding the markets up.

This can’t last. We either need to see a selloff, to clear the decks for another rally attempt, or we need to see new buyers show up and break the markets out of this trading range on big volume.

You have to ask yourself, if asset price appreciation and the Global Recovery is predicated on a falling US Dollar, and the Dollar is weak because of low Interest Rates on US Treasuries, then how far can a Dollar rally and a Commodity selloff really go?

A second theory is that everybody is short the US Dollar and when you get crises like Dubai and the Credit downgrade in Greece and the downgrade watch on the Credit of Spain, then people need to cover their shorts and you get a vicious rally in the US Dollar. Moreover, you get fear that countries in the Euro (Greece, Ireland, Spain) are going to leave, so that they can start printing their own money to deflate away their debt – putting pressure on the Euro and benefiting the US Dollar.

In my mind, that makes the Dollar rally Cyclical (Trade) and the Commodity rally Secular (Buy and Hold).