Thursday, October 14, 2010
A handful of recent developments in the mortgage market all point to an easing of lending standards, which have been onerously high since 2008. Private lenders and the federal government have reinvigorated the jumbo mortgage market, making bigger loans more available to more borrowers. And in general, would-be homeowners can now qualify for a loan with a lower credit score and make a smaller down payment – in some cases, as low as 5%. Those moves, taken together, mean that more borrowers have access to mortgages, a necessary precondition for housing to rebound.
“When you see those moves on the upswing, it gives you a hint of what’s coming later on,” says Chip Cummings, president of Northwind Financial, a consulting company for mortgage and realtor firms.
Of course, these are only the first signs of what could be a very long recovery. So far, the changes in the private lending market are aimed strictly at the best loan applicants, those with credit scores of 700 or higher. Riskier borrowers are still undesirable in the eyes of the banks – even the Federal Housing Administration has raised the floor on credit scores for prospective applicants. And without a drop in unemployment and other economic improvements, demand for the new mortgages may not keep pace with supply. But the moves do suggest that lenders, at least, are more willing – and the easier it is to get a loan, the easier it is to get a house.
Here’s a closer look at the three changes. (more)
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Opportunistic Price Outlook
The U.S. Energy Information Administration probably spends more money than any other group to forecast energy price. Yet the product of their effort falls within a wide band of uncertainty. Forecasting a price of $5.24 for December 2011, the actual price might be as high as $10.04 or as low as $2.79 and still be within the confidence interval (see chart Henry Hub Natural Gas Price, below). The oil price forecast for December 2011 is $84 a barrel within a confidence interval of $41 to $164 (see chart West Texas Intermediate (WTI) Crude Oil Price, below). Natural gas price is at a low extreme at a third the energy equivalent of oil (see chart Oil/Natural Gas Futures Ratio, below). (more)
Sorry CNBC (and Bob) but there is no way to spin this. ICI has just reported the latest in what is now a weekly farce: nobody wants a piece of this market. Nobody. Retail is out permanently, as was confirmed by the 23rd sequential outflow from domestic equity mutual funds, this time redeeming $5.6 billion, the highest since the beginning of September, right before the Fed full blown stock ramp intervention began. And that brings the total YTD mutual fund redemptions to $80 billion. Sorry bankers - no greater fool, no hot potato. The jig is up. Have fun selling AAPL at $50,000,000 to each other (and of course ENIAC) in subpenny increments. Everyone else will stick to bonds and gold. Lights out.
The investing road is always full of twists and turns.
There is much that can go amiss without even trying.
Wise investors know the value of regularly reviewing what works.
And, more importantly, what does not.
Here is our summary of 10 "must avoid" bloopers of investing:
1.) Not setting portfolio goals.
2.) Not following any long-term investment plan.
3.) Not saving enough on a regular basis.
4.) Not establishing asset mix targets.
5.) Not conducting regular portfolio reviews.
6.) Insufficient diversification.
7.) Taking on more risks than financial comfort allows.
8.) Getting emotionally attached to investments owned.
9.) Chasing hot bandwagons of the day.
10.) Not rebalancing the asset mix periodically.
Stewarding the "serious" money is a marathon, not a 100 yard dash.
It requires patience, discipline, objectivity and clear investment strategies.
Investors who avoid these 10 bloopers will typically make better portfolio decisions.
However, some game plans may have to be occasionally changed or even scrapped.
KCM Wealth Management Inc.
Investors everywhere just got a good answer to that question from a surprising source: the Vanguard Group. Vanguard is the world’s largest mutual fund firm, known for low-cost indexed investments that at least generate the return of the fund’s benchmark. As of the end of June, according to the company, only five of the company’s funds had underperformed its benchmark over the last decade.
So when Vanguard fired a manager of one of those lagging funds late last week, it sent a double message to investors.
On one hand, the decision shows “best practices” — the adverse conditions to look for before dumping a manager.
On the other, it suggests that even good investors sometimes put up with bad management for way too long.
Chances are, investors can learn both lessons at the same time. (more)
By PAUL CRAIG ROBERTS
For a number of years I reported on the monthly nonfarm payroll jobs data. The data did not support the praises economists were singing to the “New Economy.” The “New Economy” consisted, allegedly, of financial services, innovation, and high-tech services.
This economy was taking the place of the old “dirty fingernail” economy of industry and manufacturing. Education would retrain the workforce, and we would move on to a higher level of prosperity.
Time after time I reported that there was no sign of the “New Economy” jobs, but that the old economy jobs were disappearing. The only net new jobs were in lowly paid domestic services such as waitresses and bartenders, retail clerks, health care and social assistance (mainly ambulatory health care services), and, before the bubble burst, construction.
The facts, issued monthly by the US Bureau of Labor Statistics, had no impact on the ”New Economy” propaganda. Economists continued to wax eloquently about how globalism was a boon for our future. (more)
Someone is going to be voted off the island in America. It will either be the bankers or the borrowers. Or maybe a giant debt default/amnesty is coming in which both negligent lender and delinquent borrower are let off the hook. Hmmm....
But how about let's look at the can't-miss metal of the moment, copper! Our friend and Diggers and Drillers editor Alex Cowie was all over the copper story a few months ago. And now the metal has reached a mainstream tipping point. Dr. Copper is trading near a 27-month high of US$8,360 per tonne.
Delegates to the Macquarie/London Metals Exchange conference in London predicted a 17% rise for copper in the next twelve months and a 35% rise in the weighted average price of all base metals. If there were any base metal/China bears at the conference, they were probably shot and served as a delicacy, with their pelts used as doormats.
"I think we're in phase two of the super cycle," Alex told us over coffee yesterday. "Of course these smaller projects are always risky. But there are a lot of great stories out there to tell and if metals prices keeping going up, there's money to be made." (more)
The issue with the recent robo-signing scandal is that clear title could disappear in the American mortgage market. Part of the outrage is that U.S. banks have been foreclosing on mortgages which they don’t even own. Part of the reality is that the convoluted process of securitisation means banks may not be able to prove at all they actually do own the mortgages.
Already large unions in the U.S are encouraging borrowers to challenge banks to prove they won your mortgage. They’ve set up a website asking the question, “Where’s your note?”
You can see where this is headed. No one in America wants to own a failure. The banks want to foreclose on homes and sell them and avoid taking losses. Borrowers (some of them, and some of them rightly) want to avoid paying a debt for an asset that’s worth less. No one wants to be responsible anymore because the most lucrative and least painful route is to abandon responsibility and your word.
This is a serious breakdown in one of the most basic elements of a functioning market: contract (doing what you said you’d do). People at every level appear to have cheated and lied during the housing boom. The borrowers who lied on their loan applications…the mortgage originators who made the loan without any documentation of work or income…the securitiser who packaged it up and sold it to investors…the ratings agency that rated the debt investment-grade…the insurance companies who sold default insurance against the bonds multiple times…and the government that encouraged home-ownership and subsidised the fraud with an implied guarantee on the bonds of Fannie Mae and Freddie Mac, the government-sponsored enterprises that bought a lot of the garbage bonds. (more)
Moreover, most stock market sentiment indicators are high enough to allow for major, stock market losses. And one of them, a German sentiment index, grabbed my attention.
The Sentix Sentiment Indicator measures the six-month expectations of European institutional and individual investors. It’s calculated with the following formula:
And it’s revealing that …
European Investors Have Turned Very Bullish
As you can see on the chart below the Sentix took a huge jump recently. It actually reached the highest reading since it was invented in 2001, which means according to this indicator European stock investors have never been more bullish. (more)
Dow up 76 on recovery hopes / But financial stocks weaken on mortgage worries. Railroad stocks jump as CSX sees a continuing recovery. Apple tops $300
Attorneys general in all 50 states have joined to start a probe into foreclosure practices. The question is whether the hurry to get foreclosures finished has meant lawyers and others have failed to follow state laws properly.
The financial pullback substantially cut into gains for the major indexes. JPMorgan Chase (JPM) had a good report, but shares fell 1.3% to $39.86 in part because it increased reserves for litigation costs over foreclosures. The banking giant will review the paperwork associated with 115,000 mortgages it owns.
At the same time, Intel (INTC) which also reported better-than-expected earnings on Tuesday, also fell.
Still, the Dow Jones industrials ($INDU) closed up 76 points, or 0.7%, to 11,096; the blue chips had been up as many as 135 points. The Standard & Poor's 500 Index ($INX) was up 8 points, 0.7%, to 1,178, and the Nasdaq Composite Index ($COMPX) was up 23 points, or 1%, to 2,441. (more)