Hopefully this will encourage enough borrowing to pay off our excess debts.

By the way, ditech.com is currently offering a 4.875% 30 year fixed with 2 points on refinance. APR 5.147% anyone have any opinions on how low 30 year fixed will go in this meltdown?

This in a world where a 1% daily decline in the Dow is considered the SUCCESSUL result of a 3/4% reduction in the fed rate.

The .75 cut suggests panic from the Fed. Giving another .50 cut one week later will confirm it.

You can see what happens when you take the the shorts out from under stocks by watching the big tech names today

AAPL, RIM, GOOG, POT, there are no buyers to catch these today.

No one dared short them as everyone said that a move to tech was safe since it was "immune" from the mess in financials and consumer discretionary.

Bernanke's unpredicatable moves, ie. the Bernanke Put, will mean no support for falling financials. They will be bid up with only air underneath.

His moves are setting up for a big stock overdrop.

Another day of shaky stocks getting big bounces. I did buy puts on RIMM yesterday and QID last week. However, it will be interesting (and painful for me) if retail, homebuilders and financials (and small cap value in general) keep skyrocketing up. Some of these "value stocks" will start looking very tempting as shorts/puts again. But maybe that will be after the next fed hike.

Mortgage rates:

Soon they'll figure out that mortgage rates should be going up, regardless of long term treasuries.

Mortgages should be tied to risk and not the price of money.

How can rates be going DOWN, when people wanting mortgages are wanting it to buy overvalued homes (30% according to MER) heading into a recession. Risks are going UP not DOWN.

Fed and Fannie have to fail before risks can be priced correctly.

Yeh. You better go and just comfort Conjure Bag. Looks like he could use a hug. Just don't get any cigar burns in the process.

F. F. - don't forget - you may be paying low interest, but why pay it on a depreciating asset? Still makes no sense. They can lower to 0% and Im not buying for a long long time. (Of course, I do live in CA.)

Fed and Fannie have to fail before risks can be priced correctly.

Yes. I am concerned that nationalization of mortgages, via fannie, freddie, and the FHLB, is the truly inflationary part of all this. The government cannot afford the debt it now has, let alone buying up mortgages. I am worried that a massive mortgage bailout is already in process.

M-F check out Indymac,they were offering 5.375% with no points yesterday.If you are doing a Rate/Term refi and have 20% or better equity it should go smoothly.

LawStudent,

You are right about the conundrum. Generally speaking, paying less for the asset is better than paying less for the loan, since you can conceivably refinance someday, but you can't readjust your principal.

But high rates still cost and there may be a sweetspot point where prices are close enough to the bottom and rates are still artifically low.

When that is, is the 64 billion dollar question.

LawStudent,you can refi,you can not re buy.Homes are entropy in action,Wait until the numbers work, IE income/price ratios and GRM's are at historically sustainable levels.We have $200k plus to drop in Sonoma county before median prices return to historic levels...That is a lot of $ to eat.

is it really worth it to wait?

Yes.

What Average Joe said, smart man.

According to Bloomberg, Dow is down 180 points.

Shouldn't the Fed kick in an emergency 25 bp cut today?

Everyone knows that Fed rate changes have effects only months in the future, so for Bernanke to cut in a manner that makes it seem like he is not looking past the end of his nose is a great mistake.

Not if you're a speculator. Your margin interest payments nosedive, your carry goes even more positive (or less negative) and you can gear up to even greater heights!

In Australia, they think the central bank will raise rates to 7% next month to fight inflation. (Remember that old concept?)

This could make the U.S. dollar a great carry trade. Short the dollar and buy Aussie bonds at 7%+.

Dollar goes down, gold/silver up.

I just turned on the news,and they had a picture of the White House.Why are all those chickens on the roof?

So, any bets on how long until the dollar is worth little enough to be replaced by the New Dollar?

Funan: The CITI bankruptcy rumor is ridiculous. It's a dump and frump fictive rumor.

Ambac is possible but probably not. They record losses long before they pay so a regulatory takeover is far more likely than a BK. Strictly speaking, they are probably preparing a BK, but only to have the option, not with any intent to use it in the near future.

LawStudent,

I am much like yourself (though I just graduated from my grad program). I wouldn't worry too much about it. If interest rates rise, that will place even more pressure on the housing prices. Remember, things eventually have to fall back to where the median family can afford the median house.

So rising interest rates are a great thing for you. As home prices plummet, you can get a house for a much lower price, but equal payments. This means your (projected) huge income stream will be able to make additional payments to drop the principal, getting you the house for much much less than if you bought with a higher price, lower interest rate scenario.

t's starting to look like yesterday was the suckers rally

easy to do when you start 600 in the hole!

e-loan has a 4.75% 15 yr with 1.4 pts, (5% down required, $400,000 principal).

This is basically the equivalent to the apartment I'm in now (for which I'm paying $1500 now and surely $2000 eventually).

Running the numbers, that's a TCO on the condo of $2137. Tempting even though prices here have only come down 10%.

I prefer the more responsible policy with more market freedom

Corporations and "market freedom" simply don't mix. Everyone in the mortgage production chain -- from the drive-by appraiser to the broker to the Wall Street packager to the respective CEOs of these borderline criminal organizations -- personally profited from the scam and are free now to find a new corporate host -- or retire on their ill-gotten millions -- now that their old one has kicked the bucket.

M-F said: "Well they just called me back and offered me 4.75% with 1.5 points, an even better deal on a 30 year fixed, I am getting very tempted - we have a 5.875% 30 year fixed now."

I don't have any particular downside target in mind for mortgage rates but, personally, if I could do a cash-out refi at 5.5% or better on a 30-year fixed with no points I'd be happy. JMO, but anything below 6% is going to trigger a ton of refi activity and probably new buying, too.

S.

Why was hardly anybody outraged after 9-11 when our leader told us to go shopping? When we re-elected the man and his message, the blame shifted to us.

On special mortgage deals: make sure that monthly payment covers tax and insurance.

I feel like we're all coming out of a fog of insanity. We thought we could borrow and spend, borrow and spend, where spend equals consume. Businesses borrowed to invest--investing in commercial real estate to provide the stores that survived on our consumption. All along, there were people (whose voices often broke into mainstream media, at least on the print side) saying that this could not go on forever. We all knew this was true, and yet the music was still playing, and most of us kept dancing, from Mr. Prince all the way to J6P. (I just figured out what J6P meant a few minutes ago.)

Okay, now that we have defined the problem, what's next? Where do we go from here? If you were the President, what would you do? What would you say.?

today is a great opportunity to buy SRS. just bought some more.

It would be tempting to convert EEV shares to SRS about now wouldn't it?

Funan: The CITI bankruptcy rumor is ridiculous. It's a dump and frump fictive rumor.

Fair Economist

It's likely a rumor, but it ain't ridiculous.

The bake sale they've had to get their reserves up worked for now, but they've got $200-300 billion of pier loans still on the books and it's tying up a ton of capital. They still have leftover writedowns coming and the question suddenly becomes this:

If another shock comes(counterparty risk, monoline failure, CRE exposure) do they have enough capital to be considered a "well reserved" bank?

If they have another $25B episode, then no. And considering on how big they bet in so many areas, it's possible.
.

"Why was hardly anybody outraged after 9-11 when our leader told us to go shopping?"

I was so enraged by that I nearly had blood pouring out of my eyes. I am sure that many other posters here reacted the same way.

After voting for that clown in 2000, that was one of the things that irrevocably turned me against the GOP. That and the pandering tax cuts with the shifting justification (strong economy? tax cuts! oh wait, weakening economy? tax cuts!)

Nobody made us borrow all that money.

What do you mean "we," Paleface?

If it weren't for the fact that we're all more or less screwed, I'd be laughing in the faces of all the people I know who looked down on people like me for using my credit wisely and having living arrangements that were maybe unglamorous, but didn't put me in debt at all.

I own my home. Mortgage paid off in 1973. Yeah, I inherited it from Grandma. So what? It meant I had to take care of Grandma instead of putting her in a nursing home. Nice house, well-built (from the 1950s), dull neighborhood but conveniently located to my job. No 60 minute commutes for me.

I bought unfashionable cars like Saturns. With traditional 4- or 5-year financing. Second car will be paid off in spring. Both cars are still in good shape. Sure, they don't have in-dash CD players, which makes me an inferior human being I suppose, but at least I'm not in debt.

One credit card at a time for the last 20 years. One. Credit. Card. Used it quite a bit, but often for big ticket items which I'd pay off immediately. Banks hate people like me.

My lifestyle is exactly the "poverty" that most of America seems to fear. Actually, not being in debt at a time like this is sort of fun. Will still have to deal with inflation, but I feel like a small forest-floor=-dwelling mammal in the age of the dinosaurs, and the asteroid's about to hit.

Interesting view.

"People need to actually work for a living"

MADNESS

Such talk shouldn't be found on a decent financial blog... even in the comments.

What would the rates be if Freddie and Fannie were not rate fixing the mortgage market?

i'm about ready to head over to the Bankerdome with all my money. does it have a bar?

"Running the numbers, that's a TCO on the condo of $2137."

hmmm... are you sure?

Running the numbers, I get $380k loan at 4.75% for 15 year fixed to have a $2955.76/month for Prinicpal and interest.

Then you need to add tax and insurance to that. and maintenance.

In the end, if you're going to be a lawyer, I would assume you will have a decent income.

If lending really tightens then you will be in a good position to buy... because asking prices for housing will need to drop dramatically if lending is tightened. Look at what has happened in most of California now that it's mainly only conforming loans getting done.

only you can tell when it is time for you to buy. buying is risky. you may get in for a TCO of $2000 or $2500... but that's no consolation if your home loses 30% more (or over $100,000) while you own it!

I guestimate that my house has lost $65,000 in the last 18 months.

luckily for me,
-I love my home
-I can afford it (my mortgage payment is around 8-9% of my take home pay)
-I don't mind the loss. If I did mind the loss, I would have sold 2 years ago.

six,

Don't want to step on mp's toes but he seems not to be around atm - last clock call I saw was 11:59:30 - emergency rate cut ratcheted forward the hour...

I dunno about C but on CNBC a constant refrain, about 6 times, from 6 different people is that the Fed cut because it was approached by a bank in serious trouble, or that it knows there is a bank in trouble(they have their own examiners physically located in the banks ) and so on.

-K

Business leaders criticize the Fed

“Central banks have lost control,” said billionaire financier George Soros.

Lawrence Summers, a former U.S. treasury chief, was critical too: “It’s hard to give a high grade (to central banks) for what’s happened in the last six months.”

And the boyz friends at Treasury had two auctions this morning, TIO pumping out ~$15.5 B tomorrow, ~$3.5 B that comes off in two days and the other ~$12 B comes off in five days...

One other thing: Standard of living has been confused with wealth for too long and for too many in the middle class.

My home may be humble, but when the smoke clears, I'm gonna be landed gentry compared to too many other people who started out where I did. (and that's pretty sad)

It would be tempting to convert EEV shares to SRS about now wouldn't it?

Yes.

It would be tempting to convert EEV shares to SRS about now wouldn't it?

Yes.
rich

Wow. That's exactly what I just did. (Makes me feel less like a moron) rich, thanks again for the heads up on EEV. Bought Friday, sold today. Will likely go back in if EEV goes down.

no kidding on the 4 horsemen. the mkt is toast.

thanks for your work on SRS and CDS swaps. ever get a satisfactory answer from rich?

idoc,

If you check that comment thread.. I posted a link to the daily holdings for proshares stuff.

Essentially, all (98%-100%) of each proshares short or ultrashort etf consists of swap agreements (not credit default swaps.. those are just a particular type of swap).

Proshares, for example, would have $1 on hand... and they would enter into a swap agreement with some bank. The swap would say that Proshares would pay out the percent of positive return on $2 notional of QQQQ's over some time period to the bank.

And, the bank would pay out any negative return on that $2 notional to Proshares.

This is how they do the 2-1 "shorting"

"the whole stupid thing is that now credit is going to be seen as eeeeevil. Which it isn't. "

I disagree; not credit, but the creditors, rightly or wrongly. Look for a lot more regulation, eventually. Some of it possibly punitive and wrong-headed, but that's life.

I do hope that all the good folks who think a good FICO score is most important will begin to see that savings and real assets (and lack of indebtedness) is where it's at. Boy, would that bring changes....

You may very well be right that the market will continue to slide, but sounds like a lot of folks are becoming complacent on one side of the boat.

MTMHood,

I'd say.. try buying underwater puts if you want to avoid whiplash.

Hopefully this will encourage enough borrowing to pay off our excess debts.
ac | 01.23.08 - 10:54 am | #

A quote I am going to remember. Have already passed it around to my colleagues.
Captures the incongruity of rate cuts in one sentence.

regards
sbarrkum

Sebastian - I am using ditech and you get a 30 day lock with the application. I guess they are taking the risk, but they give you a lock for nothing.

"but in reality, it's all about the stuff. Same thing with the "well, I need room for the children." No, you need more room for their sports equipment - the stuff you feel compelled to buy to keep your kids in step with the Joneses."

Mal, that's probably why property storage has been the growth industry for the past 20 years. Funny thing is, they rarely get rid of their storage lockers after they buy a bigger place!

OTOH, I'm looking to get into storage auctions for delinquent rent in the coming year. That should be another growth industry.

MTHood

i think sk said i right the other day. being a contrarian means getting out ahead of the crowd but then letting the crowd catch up and run with u until the masses r totally on board. we aren't there yet by my estimation.

The Citi rumor is ridiculous not because Citi can't go insolvent but it would be addressed by regulatory seizure rather than bankruptcy. Even more likely, the Feds would cover up for them and let them keep going, which is what happened the last time Citi merited BK. Because the second part of the rumor is made up I suspect the first part is too.

Misean - mortgage rates are dropping in response to the cuts. The market smells deflation. Bad, stinky deflation. Probably the same odor is emanating from the Fed's auditing screen, but even fresher.

at Davos they r apparently spraying all bankers with perfume on their way into the bldg, no kidding. i guess its to quell the stench.

Is this intended to provoke the last few people with money in the bank (and little or no debt) to run right out and spend it ?

Leaving it in the bank is going to provide zero equity improvement (or at least thats how I'm interpreting this).

Maybe some really big institution is tottering on the edge of insolvency. How can we tell who is actually borrowing from the Fed at these rates ? God help them if everyone who has funds on deposit tosses in the towel and says "oh what the hell".

did anyone find Mishkin?

I thought it was your day to watch him sheesh

"OTOH, I'm looking to get into storage auctions for delinquent rent in the coming year. That should be another growth industry."
Bob Dobbs

When you open up one of those abandoned lockers, be careful. One time a guy found a live, but starving bengal tiger in one.

Another time, the storage manager opened up a defaulted locker and found the decomposing body of the renter's first wife. (Seems his second wife decided to stop paying the bill on the thing, and forgot to tell her hubby...)

What the hell is going on with mortgage rates?

Are 10yr treasuries simply dragging the MBS's down with them?

Misean - does inflation smell like gin?

mal asked: "so why IS the Dow going up this afternoon? Do they believe they're going to get another .75 cut tomorrow?!"

Well, yesterday there were about 1,100 new 52-week lows on the NYSE. I think that's the highest number since late-August, 1998, around the time of the LTCM/Russian currency crises. IOW, based on the panic level it's looking like a major stock-market low is forming here.

S.

Kass should stick to writing about topics where he has at least a glimmer of a clue.

He confuses market cap with claims-paying ability. There is no direct relationship. Maybe he thinks insurers pay claims with stock?

He asserts a lot of things that just aren't true.

He's just looking for a huge government handout. Welfare for the rich.

IF there needs to be a massive government bailout of the mortgage markets (and I think this is far from proven), there's a very good model for how to do it that's worked in the past, with no taxpayer liability.

http://en.wikipedia.org/wiki/Home_Owners'_Loan_Corporatio

recession smells like vermouth

inflation smells like whiskey

stagflationary mark has it right.

the fed is serving cocktails on the fan deck...we are all drinking manhattans.

mal:

Curiously, what I'm starting to see amongst some of my friends is a drive to "simplify" and remove all of the stuff. Xmas was much less for the kids (theirs and ours) and there's a push to get rid of extraneous stuff.

Some is this is related to a religious message about simplifying and some is just the sense that things are too out of control.

FWIW - we moved to a newer smaller house two months and are already talking refi.

Anonymous asked: "...Does this mean that there will be more jobs at Treasury printing press, in regard to lowering interest rates further?"

I'm not much into subjective "what all this means" speculations, but based on the fact that there's still a pretty wide spread between the Fed funds rate and the 13-week Treasury Index, it looks like an excellent bet that the Fed will be easing yet again before this is all over.

Sebastia

"John Stark - Nobody knows how to get out of this."

I suspect that's true, if by "get out of this" you mean, get things back to the way they were. I'm guessing we all agree that's not going to happen.

And it is infuriating to hear grown men and women talking as though a rate cut and a rebate check could actually MAKE that happen.

I don't for a minute think that a public works program will make that happen either--but it doesn't mean it's not worth doing. A big part of the public works program, as I suggested above, should be 21st century communications, transportation and energy infrastructure--infrastructure that enables us to reduce our energy consumption.

After all, we don't really want to go back to the way things were (way back in 2006) do we? That's not the point of the exercise. The question is, what's the best way to keep the greatest number of people happy and healthy, going forward? We need to go beyond philosophy to policy.

That said, philosophy and psychology are going to be a big part of the solution, since they were a big part of the problem. As many have suggested, we need to recognize that "stuff" doesn't equal the good life. Maybe people are going to discover that, in the years ahead, because they won't have any choice.

Personally I'm going to enlarge the garden this year and dig more clams, assuming that guys with guns haven't claimed all the best tideflats.

You may very well be right that the market will continue to slide, but sounds like a lot of folks are becoming complacent on one side of the boat.

We all have to be a little careful of the short-term volatility, and the fact that bulls haven't all given up yet. But given that there's at least 6 months of overall misery left, and maybe as much as 18, I can't see stocks going higher over the intermediate-term. It's kind of like having a short put. If you're wrong on timing, you can make it up by holding. That's how I feel, anyway.

I am not high on SKF. Too late in the cycle.

One interesting ultra short I'm considering is RXD, double short health care. I think the political scene over the next couple of months may hammer it. So far, it hasn't dropped as far as other shorts mentioned here

Well, if they are reporting that a bank is in trouble, I can almost guarantee you that Corus Bankshares is in trouble, even though there's not one word of news about it and I don't have any inside information.

There's no way that many South Florida high-rise $60 million+ condo loans can be above water.

"Schooling on the U.S. is basically done on the industrial, one-size-fits all model, more brains for the buck, that sort of thing. It doesn't really work."

David Halberstam's book on the 1950s explains how this happened. School officials did not see the baby boom coming. (I mean, who could've known?) So when kids started to show up for kindergarten and first grade in unprecedented numbers, they basically invented our modern public school system, based on processing the maximum number of kids at minimum expense. (Apologies to all the dedicated and hard-working school teachers and administrators out there--I know you exist, but I also know that many of you agree with me...)

Sorry for posting so much today. I've got the morning off. (Pacific Standard Time.) Gotta run soon.

"Bob,

That's cuz they got one on the interwebs."

Nice... but mine, you can hit. It even complains if you hit it too hard.

Speaking of the WPA:

Lawmakers Urge Spending on Infrastructure, Housing (Update2) - Bloomberg.com

I'll tell you what - that's a whole lot better of an idea than "give everybody $800".

I'm glad Seb just re-iterated his no recession call, otherwise it would start to look like I was agreeing with him. We're in a recession now - whether it lasts long enough to become an "official" recession is another question, but I'd say that's better than an even money bet. I'm not calling for a bottom in stocks either, but the market has marked down a number of stocks to levels that look like excellent value to me. Housing - definitely further to run on the downside there, but 5% mortgages and 4% inflation does bring nominal house prices somewhat more back into line.

ratefink - those are the traditional outcomes of a liquidity trap but I wouldn't call 2 or 3 an "out". More like "out of the frying pan into the fire". 1, maybe, but when's the last time that was tried in an economy-wide trap, when it results in the death of most existing financial organizations?

Thanks for the link, I'll take a look later today.

Interesting Chris, I have never shopped at a pawn shop. You really get some deals on guns there? I think I'll check it out.

mock turtle said: "...but hey seb you gotta admit the econ trends are just awful...plus just look how shaky the hands of all our leaders are on the controls...you can smell the fear."

You're right about the fear, but by the very numbers that policy-makers use to measure the economy there's no recession and no compelling reason to think there's going to be one, a big disconnect. What they're afraid of and what is are two different things.

It's "Iraq has WMD, they're a threat to our security and we must invade" all over again.

S.

"Where can the next bubble be? We had a stock bubble, a real estate bubble, what's the logical next one?"

Energy's a logical choice, I agree with beryl "west with the night" markham, that green energy might be real bubble material. Imagine how much economic activity -- and speculation -- could be generated by refitting American homes and businesses for solar, geothermal heating, etc. etc. etc., especially with new and cheaper thin-film solar a possibility. And that's just a slice of it.

Short term, speculative money could go into oil or any other commodity that looks likely, especially if the international situation gets shakey.

Sebastian: No recession now, no recession at any time in 2008, and a pick-up in housing in 2008.

Yea, tell that to my NJ-based contractor friends, including my brother, who over the last two months have witnessed the most significant and abrupt slowdown in their business since 1991. The phones are not ringing anymore.

Dow 2000 or Dow 20000 -- doesn't matter. Construction at the very least is in recession...right now.

Remember...Denial is a river in Egypt.

Thanks for posting that link to the Element. 34 floors high, 395 units, 15,000 square feet of condo space located in downtown Tampa, a true residential paradise. ("24-hour amenities!" Must mean hookers.)

Here's a breakdown on Corus' condo construction projects in the works:

In Florida, 27 condo projects (mostly Gold Coast) with $2.9 billion of Corus construction loans.

In California, 25 condo projects, with $1.7 billion of Corus construction loans.

Are they ground zero or what?