Gasoline Price Increases: Prelude To The Next Recession? [View article]
Dave - - -
The suspicion of inordinate influence of speculation on gasoline prices is supported by observation of the price elasticity of demand. The slope of the aggregate demand curve is expected to be negative (higher price - lower demand) Yet data over the past 20 years shows just the opposite - increasing change in price has a tendancy to correlate to increasing sales changes (and vice versa, demand falling when price falls). These are counterintuitive for demand driven purely by consumption.
ECRI Says Recession Is Still Coming - Evidence Is In Coincident Data [View article]
Jack - - -
There is an argument that says that the QEs have created commodity, stock and bond asset bubbles, as well as leaking into inflation for China and India.
With respect to stocks, though, earnings have been rising and PE ratios are at fairly valued levels. So until earnings growth rolls over those looking for a stock bubble to deflate should not hold their breath.
Weighing The Week Ahead: Time For A Turn In Housing? [View article]
thiazole - - -
You are correct up to a point. The household survey determines the estimated size of the labor force and that tends to get reduced when people fall off the end of the unemployment insurance benefits rolls. Some of them become discouraged and stop looking for work. If they answer negatively to the question "Have you actively looked for work in the past four weeks?" then they are not counted as unemployed or as "in the labor force." They were counted in both categories as long as they were receiving unemployment benefits.
Weighing The Week Ahead: Time For A Turn In Housing? [View article]
thiazole - - -
You wrote: "The number of foreclosures that have occurred over the past 3 years dwarfs what is ahead."
That could possibly be true if we had a raging economic recovery with 15 million new jobs in the next 2-3 years and a resulting housing market recovery that removes a significant amount of the negative equity that exists today.
If we continue with a weak to moderate recovery the numbers are actually quite clear: 4.5 million foreclosures completed as of the end of 2011 and 6.6 million homes already started in the foreclosure process but not yet completed. There are an additional 4+ million homes seriously delinquent that are likely to enter the foreclosure process.
If the economy stays on the current course we are only about 1/3 through the foreclosure fallout from the credit/housing bubble. If the economy improves things could get better and some of the foreclosures not yet started or not yet completed might achieve workputs with mortgagors (borrowers). If we enter another economic downturn things could get worse.
Oil Service Companies: Time to Buy? [View article]
Vol Fan - - -
This correction is a little late but I had bought one oil service stock. On July 17, 2010 I bought SDRL. Just noticed my comment here and was alerted to my error having recently completed portfolio reviews for all my clients.
Employment: Return Of The Great Oscillation [View article]
solrac - - -
Thanks for your comment.
I am neutral on FTI, a little put off by its high PEG ration (above 3). The only oil service stock I own currently is SDRL which I bought during the BP oil spill (in the low 20's). I am still holding although I am concerned that EPS growth has been absent the last few quarters. I recently said I would consider buying more shares (when the price was $35-36) but I am not considering that now that the price is over $40. If there is no further information to support the prospects for SDRL I will probably be a seller if it hits $44-45 in the next couple of months.
Yes I will probably do an oil service sector review sometime in the next couple of months. How to play the sector is tricky with the Iran situation pushing oil prices above what they would otherwise be. If there were to be a relaxing of tensions in that area oil could quickly drop $10-20 (or even more) and oil service stocks could take quite a hit. However, if things get worse oil could spike. (I've seen some suggest $200 within reach this year in a full blown crisis.) That would be a tide that would lift all ships and a lot of oil service sector stocks could double from here.
Tricky sector, sort of a crap shoot on geopolitical factors.
How Greece Could Take Down Wall Street [View article]
Dig Deep - - -
I believe you are thinking of Brooksley Born, chair of the CFTC 1996-99, whose efforts to warn about the risks of "modernization" of the commodities futures markets and the unleashing of a myriad of unregulated derivatives was shouted down by Summers, Rubin and Greenspan. She was ignored. See http://bit.ly/A3s57G
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
MengXi - - -
For U.S. stocks I have to see earnings start to top out before I start evaluating probability of a meltdown. The market can have a pullback of 10-20% any time, even when earnings are growing quarter to quarter. But a meltdown (40-50% or more) is unlikely unless earnings have at least started to decline.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
Jeff - - -
I have considered the entire European fiasco as background music to the U.S. markets which have been driven more by internals such as earnings. There are day-to-day (even week-to-week) global effects that have a temporary effect on U.S. stocks but the major effects are U.S. internal. As you know from our discussion at the time, I felt that the European situation would have more of a negative effect in October than it had (the U.S. had a massive rally that lasted far longer than I thought it would), while you thought Europe would be off the radar by December. We both were wrong but your market call was better.
What is the biggest drawback for U.S. markets? The uncertain outlook for bank earnings. The "settlement" announced last week now looks like a proposed plan rather than a signed agreement so I don't think the uncertainty has been mitigated that much, if at all. Yves Smith has written that a significant aspect in favor of the banks with the proposed agreement is that it will enable them to promote hundreds of billions of worthless second mortgage liens and home equity lines of credit from no value (if marked to market - which they don't do) to partially recoverable as first lein positions are underwritten by writedowns passed to investors and tax payers. Those first lien writedowns allow transfer of equity to second lien positions, according to Yves.
If all she says is correct, that would help with the banks earnings problem. But if what she says is correct the agreement may meet sufficient political opposition to remove some of the bank advantage. After all, this is an election year where everyone running for office will posture with the 99%.
So financials remain the biggest reason why the PE ratio will likely remain below the historical average.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
DAG1996 and Trader 2708 - - -
My assessment is than Jeff is quite reasonable with the 15,000 by mid-2013 idea and 17,000 by yearend 2013. The former requires an 11% annualized rate of growth for the Dow and the latter 15%. Neither is an unreasonable expectation.
But reasonable doesn't mean that I agree with Jeff either. I was bullish when Jeff was bearish late Sept. through mid-October, then neutral into early November and bearish since mid November. I think it is clear that Jeff's calls have been better than mine over the 4+ months in spite of my beating his with a few weeks of bullishness in October before he made the turn.
I still disagree with Jeff today and am still voting bearish every week. My assessment is based on a slowing global economy, a muddle through U.S. economy and persistent macro workarounds that still lie in front of the world. I would put an expectation bracket on 2012 for the year to see somewhere between +5% and -10% for U.S. equities. That would put brackets on the Dow of 11,500 to 13,500. This compares to my expectation range for the past 15 months of Dow 10,500 to 12,500.
Using my expectation range I will be bearish (30-day outlook) when the Dow is above mid-range (12,500), neutral 12,000 to 12,500, and bullish below 12,000. My slightly assymetric pattern reflects my belief that a downside fat tail is more likely that an upside.
So Jeff's assessments that 15,000 and 17,000 are reachable are very well within reason. Personally I put them in the 20% or so probability range. The downside that Trader2708 mentions (S&P 500 at 800) I give less than 10% probability. The trading range market I envision is about 50% probable in my opinion.
The other 20% probability? Mostly for the region between the bottom of my range and something above Trader2708's 800 target, with a very tiny probability (less than 1-2% tail) for something significantly above 17,000 in the next two years.
That's my view - now let's see if there will be reversion to the mean or will Jeff keep on beating my butt as he has the past few months.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
We have posted a detailed summary of the mortgage settlement announced today: http://bit.ly/yK44G2 and will have at least one more news summary this evening. I will post an Instablog that summarizes both and gives both (or all if more than two) links later.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
thegoodoledays - - -
The problem is that the processes instituted over the past 20-25 years have created millions of potentially broken title records through the implementation of short cuts in maintaining the legal connection between promissory notes and the mortgages they relate to. This was done to enable the functioning of the MBS (mortgage backed securities) market.
The MBS market only works if the securities can be readily traded, sometimes even on an hourly and/or daily basis. If the legal process of recording every mortgage transaction were enforced the MBS market would be clogged with paperwork and delays while county records offices recorded every mortgage change. And I haven't even talked about the expense.
So the banks had a new entity created in the mid 1990s called MERS (Mortgage Electronic Registry Service) that used modern technology to presumably handle all the transactions data and keep the records that would otherwise have been handled through county recording offices. This led to at least two problems:
1. By law the mortgage transactions are required to be filed at the time they occur in the local records offices; and 2. The MERS system did not in fact accurately track the sequence of transactions so the records could not be reconstructed at a later date in many cases.
That led to a process known as robo-signing to produce the required documentation to establish a phony transaction record for the presumed mortgage holder to use when pursuing foreclosure on a delinquent property.
This has led to many cases of multiple foreclosures being filed on the same property because more than one bank produced forged documents to establish standing to foreclose.
Mr. Lavalle, because of his own experience in seeing his family defrauded in the 1980s (on a mortgage for which all payments were made on time), started an investigation of mortgage industry practices in the 1990s and found this documentation problem had roots going back 20 years or more from today.
His standing for seeking action with the banks? He was a stockholder and wanted to protect his investments. We can only hope that he gave up on that objective and sold his bank stocks by the time he was basically thrown out by Fannie Mae in 2006.
By the way, there is criminal action being started in a few cases, the most recently in Missouri this week: http://bit.ly/yH5mcN There was also some action in Massachusetts in December (sorry I don't have a link).
A lot of people are upset that a group of about 25 states Attorney Generals are negotiating a civil settlement with the banks for a few tens of billions of dollars to resolve all legal issues associated with the banks and the mortgage documentation mess. People are upset because they feel that widespread criminal prosecution is warranted.
What is happening is another one of those settlements where the banks will make payments totaling $XX billions and sign statements saying "we did nothing wrong and we promise not to do it again."
I understand why you said "It's a little hard for me to understand exactly what this issue is..." The reason it is hard to understand is because this is such a colossal fraud which permeates to the very heart of our property ownership system that without many hours of study the details of what has actually happened sound unbelievable. For most people the amount of time (and actually the mental tenacity) necessary to start to understand what has happened just isn't available.
When I write updates on happenings in this area I don't go back to the basics, but simply provide reference links (which I did here if you click back through the GEI News link in the article. Many people just don't have time to track back through the references. And I don't have time to keep retelling the whole story from the beginning. That puts me in the position of having to write long comment replies like this, so I just can't win!
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
Readers - - -
Thanks for commenting. Without feedback I don't know what is being read on the Instablog and what is not. With articles I can see reader counts and have a pretty good idea when what I have written is wasting time and space on SA.
Since this is summarizing what I have already written on GEI and brings in the additional views that Ritholtz had on the subject I will not be posting it on our own site. I may send it to Credit Writedowns. I have to check what Edward has on this over there - don't want to be redundant.
Employment: Return Of The Great Oscillation [View article]
lyeonn - - -
There is some movement in the direction you suggest although in the modern era the data shows that there are more men not working in a single earner household compared to the 1950-1970 era.
Gasoline Price Increases: Prelude To The Next Recession? [View article]
The suspicion of inordinate influence of speculation on gasoline prices is supported by observation of the price elasticity of demand. The slope of the aggregate demand curve is expected to be negative (higher price - lower demand) Yet data over the past 20 years shows just the opposite - increasing change in price has a tendancy to correlate to increasing sales changes (and vice versa, demand falling when price falls). These are counterintuitive for demand driven purely by consumption.
See http://bit.ly/yWr1oi
ECRI Says Recession Is Still Coming - Evidence Is In Coincident Data [View article]
There is an argument that says that the QEs have created commodity, stock and bond asset bubbles, as well as leaking into inflation for China and India.
With respect to stocks, though, earnings have been rising and PE ratios are at fairly valued levels. So until earnings growth rolls over those looking for a stock bubble to deflate should not hold their breath.
Oh-Oh! Is earnings growth slowing down?
Weighing The Week Ahead: Time For A Turn In Housing? [View article]
You are correct up to a point. The household survey determines the estimated size of the labor force and that tends to get reduced when people fall off the end of the unemployment insurance benefits rolls. Some of them become discouraged and stop looking for work. If they answer negatively to the question "Have you actively looked for work in the past four weeks?" then they are not counted as unemployed or as "in the labor force." They were counted in both categories as long as they were receiving unemployment benefits.
So there is a an indirect relationship.
Weighing The Week Ahead: Time For A Turn In Housing? [View article]
You wrote:
"The number of foreclosures that have occurred over the past 3 years dwarfs what is ahead."
That could possibly be true if we had a raging economic recovery with 15 million new jobs in the next 2-3 years and a resulting housing market recovery that removes a significant amount of the negative equity that exists today.
If we continue with a weak to moderate recovery the numbers are actually quite clear: 4.5 million foreclosures completed as of the end of 2011 and 6.6 million homes already started in the foreclosure process but not yet completed. There are an additional 4+ million homes seriously delinquent that are likely to enter the foreclosure process.
If the economy stays on the current course we are only about 1/3 through the foreclosure fallout from the credit/housing bubble. If the economy improves things could get better and some of the foreclosures not yet started or not yet completed might achieve workputs with mortgagors (borrowers). If we enter another economic downturn things could get worse.
For a more complete discussion and analysis see: http://bit.ly/xgb7S3
Oil Service Companies: Time to Buy? [View article]
I replied to your comment here: http://seekingalpha.co...
Oil Service Companies: Time to Buy? [View article]
This correction is a little late but I had bought one oil service stock. On July 17, 2010 I bought SDRL. Just noticed my comment here and was alerted to my error having recently completed portfolio reviews for all my clients.
Employment: Return Of The Great Oscillation [View article]
Thanks for your comment.
I am neutral on FTI, a little put off by its high PEG ration (above 3). The only oil service stock I own currently is SDRL which I bought during the BP oil spill (in the low 20's). I am still holding although I am concerned that EPS growth has been absent the last few quarters. I recently said I would consider buying more shares (when the price was $35-36) but I am not considering that now that the price is over $40. If there is no further information to support the prospects for SDRL I will probably be a seller if it hits $44-45 in the next couple of months.
Yes I will probably do an oil service sector review sometime in the next couple of months. How to play the sector is tricky with the Iran situation pushing oil prices above what they would otherwise be. If there were to be a relaxing of tensions in that area oil could quickly drop $10-20 (or even more) and oil service stocks could take quite a hit. However, if things get worse oil could spike. (I've seen some suggest $200 within reach this year in a full blown crisis.) That would be a tide that would lift all ships and a lot of oil service sector stocks could double from here.
Tricky sector, sort of a crap shoot on geopolitical factors.
How Greece Could Take Down Wall Street [View article]
I believe you are thinking of Brooksley Born, chair of the CFTC 1996-99, whose efforts to warn about the risks of "modernization" of the commodities futures markets and the unleashing of a myriad of unregulated derivatives was shouted down by Summers, Rubin and Greenspan. She was ignored. See http://bit.ly/A3s57G
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
For U.S. stocks I have to see earnings start to top out before I start evaluating probability of a meltdown. The market can have a pullback of 10-20% any time, even when earnings are growing quarter to quarter. But a meltdown (40-50% or more) is unlikely unless earnings have at least started to decline.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
I have considered the entire European fiasco as background music to the U.S. markets which have been driven more by internals such as earnings. There are day-to-day (even week-to-week) global effects that have a temporary effect on U.S. stocks but the major effects are U.S. internal. As you know from our discussion at the time, I felt that the European situation would have more of a negative effect in October than it had (the U.S. had a massive rally that lasted far longer than I thought it would), while you thought Europe would be off the radar by December. We both were wrong but your market call was better.
What is the biggest drawback for U.S. markets? The uncertain outlook for bank earnings. The "settlement" announced last week now looks like a proposed plan rather than a signed agreement so I don't think the uncertainty has been mitigated that much, if at all. Yves Smith has written that a significant aspect in favor of the banks with the proposed agreement is that it will enable them to promote hundreds of billions of worthless second mortgage liens and home equity lines of credit from no value (if marked to market - which they don't do) to partially recoverable as first lein positions are underwritten by writedowns passed to investors and tax payers. Those first lien writedowns allow transfer of equity to second lien positions, according to Yves.
If all she says is correct, that would help with the banks earnings problem. But if what she says is correct the agreement may meet sufficient political opposition to remove some of the bank advantage. After all, this is an election year where everyone running for office will posture with the 99%.
So financials remain the biggest reason why the PE ratio will likely remain below the historical average.
Weighing The Week Ahead: Time To Reconsider The Upside For Stocks? [View article]
My assessment is than Jeff is quite reasonable with the 15,000 by mid-2013 idea and 17,000 by yearend 2013. The former requires an 11% annualized rate of growth for the Dow and the latter 15%. Neither is an unreasonable expectation.
But reasonable doesn't mean that I agree with Jeff either. I was bullish when Jeff was bearish late Sept. through mid-October, then neutral into early November and bearish since mid November. I think it is clear that Jeff's calls have been better than mine over the 4+ months in spite of my beating his with a few weeks of bullishness in October before he made the turn.
I still disagree with Jeff today and am still voting bearish every week. My assessment is based on a slowing global economy, a muddle through U.S. economy and persistent macro workarounds that still lie in front of the world. I would put an expectation bracket on 2012 for the year to see somewhere between +5% and -10% for U.S. equities. That would put brackets on the Dow of 11,500 to 13,500. This compares to my expectation range for the past 15 months of Dow 10,500 to 12,500.
Using my expectation range I will be bearish (30-day outlook) when the Dow is above mid-range (12,500), neutral 12,000 to 12,500, and bullish below 12,000. My slightly assymetric pattern reflects my belief that a downside fat tail is more likely that an upside.
So Jeff's assessments that 15,000 and 17,000 are reachable are very well within reason. Personally I put them in the 20% or so probability range. The downside that Trader2708 mentions (S&P 500 at 800) I give less than 10% probability. The trading range market I envision is about 50% probable in my opinion.
The other 20% probability? Mostly for the region between the bottom of my range and something above Trader2708's 800 target, with a very tiny probability (less than 1-2% tail) for something significantly above 17,000 in the next two years.
That's my view - now let's see if there will be reversion to the mean or will Jeff keep on beating my butt as he has the past few months.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
and will have at least one more news summary this evening.
I will post an Instablog that summarizes both and gives both (or all if more than two) links later.
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
The problem is that the processes instituted over the past 20-25 years have created millions of potentially broken title records through the implementation of short cuts in maintaining the legal connection between promissory notes and the mortgages they relate to. This was done to enable the functioning of the MBS (mortgage backed securities) market.
The MBS market only works if the securities can be readily traded, sometimes even on an hourly and/or daily basis. If the legal process of recording every mortgage transaction were enforced the MBS market would be clogged with paperwork and delays while county records offices recorded every mortgage change. And I haven't even talked about the expense.
So the banks had a new entity created in the mid 1990s called MERS (Mortgage Electronic Registry Service) that used modern technology to presumably handle all the transactions data and keep the records that would otherwise have been handled through county recording offices. This led to at least two problems:
1. By law the mortgage transactions are required to be filed at the time they occur in the local records offices; and
2. The MERS system did not in fact accurately track the sequence of transactions so the records could not be reconstructed at a later date in many cases.
That led to a process known as robo-signing to produce the required documentation to establish a phony transaction record for the presumed mortgage holder to use when pursuing foreclosure on a delinquent property.
This has led to many cases of multiple foreclosures being filed on the same property because more than one bank produced forged documents to establish standing to foreclose.
Mr. Lavalle, because of his own experience in seeing his family defrauded in the 1980s (on a mortgage for which all payments were made on time), started an investigation of mortgage industry practices in the 1990s and found this documentation problem had roots going back 20 years or more from today.
His standing for seeking action with the banks? He was a stockholder and wanted to protect his investments. We can only hope that he gave up on that objective and sold his bank stocks by the time he was basically thrown out by Fannie Mae in 2006.
By the way, there is criminal action being started in a few cases, the most recently in Missouri this week: http://bit.ly/yH5mcN
There was also some action in Massachusetts in December (sorry I don't have a link).
A lot of people are upset that a group of about 25 states Attorney Generals are negotiating a civil settlement with the banks for a few tens of billions of dollars to resolve all legal issues associated with the banks and the mortgage documentation mess. People are upset because they feel that widespread criminal prosecution is warranted.
What is happening is another one of those settlements where the banks will make payments totaling $XX billions and sign statements saying "we did nothing wrong and we promise not to do it again."
I understand why you said "It's a little hard for me to understand exactly what this issue is..." The reason it is hard to understand is because this is such a colossal fraud which permeates to the very heart of our property ownership system that without many hours of study the details of what has actually happened sound unbelievable. For most people the amount of time (and actually the mental tenacity) necessary to start to understand what has happened just isn't available.
When I write updates on happenings in this area I don't go back to the basics, but simply provide reference links (which I did here if you click back through the GEI News link in the article. Many people just don't have time to track back through the references. And I don't have time to keep retelling the whole story from the beginning. That puts me in the position of having to write long comment replies like this, so I just can't win!
One Man’s 20-Year War Against The Mortgage Fraud Industry [View instapost]
Thanks for commenting. Without feedback I don't know what is being read on the Instablog and what is not. With articles I can see reader counts and have a pretty good idea when what I have written is wasting time and space on SA.
Since this is summarizing what I have already written on GEI and brings in the additional views that Ritholtz had on the subject I will not be posting it on our own site. I may send it to Credit Writedowns. I have to check what Edward has on this over there - don't want to be redundant.
Thanks again for the feedback.
Employment: Return Of The Great Oscillation [View article]
There is some movement in the direction you suggest although in the modern era the data shows that there are more men not working in a single earner household compared to the 1950-1970 era.