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New Evidence on the Foreclosure Crisis

Zero money down, not subprime loans, led to the mortgage meltdown.


By STAN LIEBOWITZ
The Wall Street Journal
July 3, 2009

What is really behind the mushrooming rate of mortgage foreclosures since 2007?....Many policy makers and ordinary people blame the rise of foreclosures squarely on subprime mortgage lenders who presumably misled borrowers into taking out complex loans at low initial interest rates. Those hapless individuals were then supposedly unable to make the higher monthly payments when their mortgage rates reset upwards.....the most important factor related to foreclosures is the extent to which the homeowner now has or ever had positive equity in a home.....

http://online.wsj.com/article/SB124657539489189043.html
 
Kass: Many Challenges Still Ahead
06/29/09 - 12:02 PM EDT
Doug Kass


.....The surfeit of consumption and the overindulgence in the credit and debt markets, however, are residues that argue in favor of a long-lived transformation in consumer behavior, much like our parents and grandparents endured after The Great Depression.....

.....Most notably, the personal savings rate will remain elevated, and personal consumption expenditures will be deflated for an extended period of problem......

.....The construction industry (residential and nonresidential), which provided as much as 40% of the job growth in the early 2000s, will not provide the historic role in expansion of employment, and there is little to replace real estate as a catalyst to growth.....

.....Besides the consumer, the banking industry will adopt a more conservative approach to lending as the pendulum of credit moves in the opposite direction of 2000-2006.....

.....Corporate and individual tax rates will rise and provide a further headwind to growth.....

.....I see an inconsistent and uneven period of growth (not just subpar growth and a shallow recovery) that will be difficult for investment managers and corporate managers to navigate. The odds of economic/profit disappointments and an eventual double-dip in 2010 will be magnified as it's very different this time, owing to the prevalence of so many unconventional headwinds.....

http://www.thestreet.com/story/10529842/1/kass-many-challenges-still-ahead.html
 
Made In America

Edited By Steve Kichen, 05.28.09, 06:00 PM EDT
Forbes

Made in America meant something very different 30 years ago. It will mean something very different 30 years from now. All we can do is make good guesses. The facts are that 12 million adults make something for a living in the U.S., and their output accounts for $1.6 trillion, one-fifth of world manufacturing, more than that of any other nation. Yet our unprecedented manufacturing muscle is, to many, and justifiably so, in a state of crisis. Those 12 million jobs were once 19.5 million jobs. Since its peak in 1979, factory employment has never stopped falling. The hard truth? It never will. Manufacturing is always in crisis. Productivity eliminates jobs here, in China, in Mexico and everywhere. Making goods will continue to play an important part in our economy, but it will employ a smaller workforce. The growth will be in the ideas that come with the hands: innovation, automation and customization. Hands have skill; people have passion..................

http://www.forbes.com/2009/05/28/american-manufacturing-factories-business-makers_land.html
 
June 25, 2009
Medicare Administrative Costs Are Higher, Not Lower, Than for Private Insurance
by Robert A. Book, Ph.D.
WebMemo #2505

Many advocates of a public health plan--either a "single-payer" plan or a "public option"--claim that a public health plan will save money compared to private health insurance because "everyone knows" that the largest government health program, Medicare, has lower administrative costs than private insurance.....

.....However, on a per-person basis Medicare's administrative costs are actually higher than those of private insurance--this despite the fact that private insurance companies do incur several categories of costs that do not apply to Medicare.....switching the more than 200 million Americans with private insurance to a public plan will not save money but will actually increase health care administrative costs by several billion dollars.

Fuzzy Math
Medicare patients are by definition elderly, disabled, or patients with end-stage renal disease, and as such have higher average patient care costs, so expressing administrative costs as a percentage of total costs gives a misleading picture of relative efficiency. Administrative costs are incurred primarily on a fixed or per-beneficiary basis; this approach spreads Medicare's costs over a larger base of patient care cost.

Even if Medicare and private insurance had identical levels of administrative efficiency, Medicare would appear to be more efficient merely because of an artifact of the arithmetic of percentages--Medicare's identical administrative costs per person would be divided by a larger number for patient care costs.

Imagine, for a moment, that Fred and Jane each have a credit card from a different bank. Fred charges $5,000 a month, and Jane charges $1,000 a month. Suppose it costs each bank $5 to produce and send a plastic credit card when the account is opened. That $5 "administrative cost" is a much lower percentage of Fred's monthly charges than it is of Jane's, but that does not mean Fred's bank is more efficient. It is purely a mathematical artifact of Fred's charging pattern, and it would be silly to compare the efficiency of bank operations on that basis. Yet that is how many analysts compare Medicare with private insurance...........

http://www.heritage.org/Research/HealthCare/wm2505.cfm
 
I just finished reading House of Cards: A Tale of Hubris and Wretched Excess on Wall Street by William D. Cohan. An excellent read on Bear Stearns' demise and how the investment banks are so intermingled.

About the book:

On March 5, 2008, at 10:15 A.M., a hedge fund manager in Florida wrote a post on his investing advice Web site that included a startling statement about Bear Stearns & Co., the nation’s fifth-largest investment bank: “In my book, they are insolvent.”

This seemed a bold and risky statement. Bear Stearns was about to announce profits of $115 million for the first quarter of 2008, had $17.3 billion in cash on hand, and, as the company incessantly boasted, had been a colossally profitable enterprise in the eighty-five years since its founding.

Ten days later, Bear Stearns no longer existed, and the calamitous financial meltdown of 2008 had begun.

How this happened – and why – is the subject of William D. Cohan’s superb and shocking narrative that chronicles the fall of Bear Stearns and the end of the Second Gilded Age on Wall Street. Bear Stearns serves as the Rosetta Stone to explain how a combination of risky bets, corporate political infighting, lax government regulations and truly bad decision-making wrought havoc on the world financial system......
 
Jul 10, 2009, 7:49 p.m. EST

Greenback on the back burner

What a weak U.S. dollar means for your international investments


By Jonathan Burton, MarketWatch

SAN FRANCISCO (MarketWatch) -- Is it over, over there, for U.S. investors? Not if the U.S. dollar stays weak against other currencies.

A subdued dollar helps mutual funds that invest in developed and emerging markets, as well as U.S.-based companies with substantial international sales. Investors in pure currency funds would also gain an advantage.

Here's why: Investment returns earned abroad are worth more in dollars, giving U.S.-based investors a currency-related boost. The same is true for U.S. companies doing business overseas -- revenues earned in local currency are more valuable when translated into dollars..............

http://www.marketwatch.com/story/where-to-invest-when-the-dollar-is-weak
 
Jul 10, 2009, 1:41 a.m. EST
The Chartist now charts a downward path

Commentary: Top-performing adviser is back in cash, again

By Mark Hulbert, MarketWatch


ANNANDALE, Va. (MarketWatch) -- Dan Sullivan has thrown in the towel on the stock market's four-month-old rally.

That's bad news, since Sullivan is not just any adviser.

His stock newsletter, entitled The Chartist, is in first place for stock market timing over the last three decades among those newsletters the Hulbert Financial Digest has tracked over this period. And though his mutual-fund newsletter -- The Chartist Mutual Fund Letter -- hasn't been published for all three of those decades, it also is one of the top performers over the years it has existed......................


http://www.marketwatch.com/story/top-performing-newsletter-now-completely-in-cash
 
How the Crash Hit 401(k) Investors


By TOM LAURICELLA

The Wall Street Journal

July 19, 2009

During the worst of last year's stock-market declines, most investors nearing retirement stayed true to advice warning against responding to short-term ups and downs: They didn't make changes to their 401(k) accounts. Those who did react became more defensive and scaled back on stocks.

Which group was right? Was it those who stuck with a buy-and-hold plan focused on long-term results or the minority of investors who tried to protect their nest eggs?

Even though stocks are down about 40% from their peak, the conventional wisdom is that investors should have stuck to their long-term plan and not responded to the market downdraft. But a growing number of advisers think that's foolish. With near-retirees having a limited time to recoup losses with the help of a paycheck, they argue it's better to be safe than sorry................................

http://online.wsj.com/article/SB124795660287062371.html
 
For most people it has taken a lifetime to build an asset base in a 401K plan - and no one is going to spend all the money at once. Already they have seen some come back especially if they kept true to adding more money on the lows. Most retirees will have many years yet to watch their asset base grow and it will grow. Anyone who held steady in the last bear market that continued to DCA their contributions came out smelling like a rose after the 2003-2007 bull market. The same thing will happen this time - these ugly panic bear markets don't last long especially inside a mega trend secular bull market.
 
Birchtree said:
For most people it has taken a lifetime to build an asset base in a 401K plan - and no one is going to spend all the money at once. Already they have seen some come back especially if they kept true to adding more money on the lows. Most retirees will have many years yet to watch their asset base grow and it will grow. Anyone who held steady in the last bear market that continued to DCA their contributions came out smelling like a rose after the 2003-2007 bull market. The same thing will happen this time - these ugly panic bear markets don't last long especially inside a mega trend secular bull market.
Click to expand...

In complete agreement. I'll continue to add money every other week, in good and bad. I've got 30 years before I'm even thinking about touching my TSP. Once I do start drawing on it, I'll probably live another 25 years or so in retirement, if not more.

Nothing against the market timers, but B&Hing is for me. Though I do find it amusing sometimes when some market timers belittle B&Hing as a fools errand, as if only they (timers) have the requisite skill and knowledge to tame the financial markets. More power to them if they do; I'm happy to admit I have neither the time nor the knowledge to effectively time the market every day for the next 50 years. I have a funny feeling that the vast majority of timers don't have the skill or knowledge either, though I hope they realize that sooner rather than later into their investing lifetime.

Everytime the market dips the timers come out and proclaim the death of B&H. Different strokes for different folks, I guess.
 
Must be nice to be a 51 year old retired fire chief in California, bringing home a $241,000 a year pension, when you retired making $186,000 per year. It's that kind of funny math that the states like California are realizing just doesn't add up.....


Pension Calculus Draws New Scrutiny

By CRAIG KARMIN
A California dustup over large pension payments is shining a spotlight on the practice of spiking -- increasing a salary just before retirement and boosting the lifelong payout.

Pete Nowicki had been making $186,000 shortly before he retired in January as chief for a fire department shared by the municipalities of Orinda and Moraga in Northern California. Three days before Mr. Nowicki announced he was hanging up his hat, department trustees agreed to increase his salary largely by enabling him to sell unused vacation days and holidays. That helped boost his annual pension to $241,000......................

http://online.wsj.com/article/SB124804047828063059.html
 
Stocks Are Far From Fair Value

Brian S. Wesbury and Robert Stein, 07.21.09, 12:01 AM EDT
Indicators show the economy turning around.

A few weeks ago it looked like the economy and markets were on the mend. Confidence was rising, the Dow Jones Industrial Average (DJIA) was trading near 8,500, and the yield on the 10-year Treasury note was above 3.5%. All these indicators were significantly higher than the lows set earlier this year......................

................Our forecast is that the Dow will finish the year at 10,000, but with the risks for the economy and the markets tilted to the upside. This rally will not be over until some short-only hedge funds go bankrupt. As a result, a sharp upward run to new highs is likely at any time...............

http://www.forbes.com/2009/07/20/stocks-employment-recovery-opinions-columnists-wesbury-stein.html
 
Stock Traders Find Speed Pays, in Milliseconds
By Charles Duhigg
Published: July 23, 2009
The New York Times

It is the hot new thing on Wall Street, a way for a handful of traders to master the stock market, peek at investors’ orders and, critics say, even subtly manipulate share prices.

It is called high-frequency trading — and it is suddenly one of the most talked-about and mysterious forces in the markets.

Powerful computers, some housed right next to the machines that drive marketplaces like the New York Stock Exchange, enable high-frequency traders to transmit millions of orders at lightning speed and, their detractors contend, reap billions at everyone else’s expense.

These systems are so fast they can outsmart or outrun other investors, humans and computers alike. And after growing in the shadows for years, they are generating lots of talk..................................

http://www.nytimes.com/2009/07/24/business/24trading.html?em
 
I recently read When Genius Failed: The Rise and Fall of Long-Term Capital Managementby Roger Lowenstein, which chronicles the spectacular rise and crushing fall of Long Term Capital Management, one of the early and largest hedge funds. It ended more than a decade ago in complete and utter failure, arguably sparked the first Fed orchestrated 'bailout' of a financial-related institution with desperate cries of "systemic risk,' and is eerily similar to the investment bank bailouts of the past few years (relative to the incredible levels of leverage). It's an interesting read and worth the effort at around 230 pages.
 
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