OT: I saw a long ad on TV last night from some subsidiary of Indymac called the "Reverse Mortgage Specialist" or somesuch. It was telling about the marvels of reverse mortgages (have I got the right term?; it is where you gradually cash out the equity in your home). Told viewers they would "own the home" and could then buy all sorts of good things. But what happens when the equity is all gone and the "homeowners" are still alive in the home? I'd like Tanta to give us a kind of primer and evaluation of reverse mortages. Evidently it is something lenders are pushing with lots of ads, etc.
"Consumer Sentiment Falls to 26 Year Low"
That's the problem with consumers, so sentimental.
Why can't they be more like Wall Streeters that only have one emotion?
This is actually really good news. We're seeing 1982 type numbers - the year the greatest bull market in history started:
"...by mid-October, the number of good-looking leading stocks was tiny. And that's when the bear forces took control.
During the past couple of months, we believe we're seeing the opposite. Beginning in late January, when an enormous 1,114 stocks hit new lows on the NYSE, the market has been building a sustainable bottom. We've seen plenty of bad news, lots of bobbing and weaving by the major indexes, and a successful re-test of the January low on the Bear Stearns failure in March. And now we're seeing a gradual broadening out of the market's leadership. Thus, step by step, the market is putting the pieces in place for its next big upmove. In fact, that upmove may be underway!"
Reverse Mortgage is a category of loans that allow you to pull equity from your home.
There is the more legitimate "HECM" reverse mortgage which is an FHA loan. That one requires you to be 62, have a big chunk of equity in your home (usually at least 50%), and based on the rules of the loan you are guaranteed to be allowed to stay in your home till you die. On the off chance that you die before you pull all the equity out, you will even get that equity paid back to your estate after the home is sold if there is equity left.
As far as the non-FHA reverse mortgages go, you could be in for anything. There are many reverse mortgage scams going on right now where they will package your reverse mortgage with various types of insurance or annuities that old people usually do not need, especially the kinds that end up being pushed on them.
In any case there are going to be a lot of baby boomers that will end up needing this because they don't have the retirement savings to hold on to their home and they will end up become fixed income retirees before fully paying off their homes.
Top 10 Hits of 1982/Top 10 Songs of 1982
1. Physical, Olivia Newton-John
2. Eye Of The Tiger, Survivor
3. I Love Rock N' Roll, Joan Jett and The Blackhearts
4. Ebony And Ivory, Paul McCartney and Stevie Wonder
5. Centerfold, J. Geils Band
6. Don't You Want M, Human League
7. Jack And Diane, John Cougar
8. Hurts So Good, John Cougar
9. Abracadabra, Steve Miller Band
10. Hard To Say I'm Sorry, Chicago
Well GW is Reassuring the Nation today.We have a firm hand at the helm of the ship of state and everything is OK!hey ac,gimme a hand with these deckchairs willya?
GW needs to get out and do some of his own shopping. Perhaps he could even take a drive buy a gas station and even fill the gas tank of his limo. Yup, i think that would be a wake up call for him.
ipodius writes:
ac, you are dangerously flirting with calling a bottom there. but i do like the phrase "sustainable bottom".
Yes the only difference between now and the early 80s is P/E at high single digits and the longest cycle of interest rate cuts/reductions in the history of man. last time I check EPS implied double ditgit growth in 2H and 2009. Oh yeah and interest rates are negative on a real basis. Just to ice the cake, input costs are rising which is crimping unustainbly hgih profit margisn and the rising credit spread is making those leverage recaps (and massivily dilutive share repurchase over the past few years) that provided the EPS nitro are gone. So what exactly moves this market higher other than wishful thinking or abject manipulation versus the softer variety we have seen of late.
I would think that relatively high real interest rates and relatively low P/E earnings would be the best setting for a raging bull to develop. We're not there yet.
So what exactly moves this market higher other than wishful thinking or abject manipulation versus the softer variety we have seen of late.
boob | 04.25.08 - 11:05 am | #
Flabby Cone's predictions used to move the market higher, but I think she has stopped predicting. Her pulpit was removed.
Proposal 2. Changes to fundamental investment policies
Modification of the Funds' fundamental investment policies...
Proposal 2.A-Borrowing-For all Funds
Current fundamental investment policy: The Funds' current fundamental investment policy regarding borrowing reads:
A fund will not issue senior securities (including borrowing money from banks and other entities and through reverse repurchase agreements and mortgage dollar rolls) in excess of 33 1/3% of its total assets (including the amount of senior securities issued, but reduced by any liabilities and indebtedness not constituting senior securities), except that a fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for extraordinary or emergency purposes....
Proposed new fundamental investment policy: If the proposed amendment is approved by Shareholders, each Fund's fundamental investment policy regarding borrowing would read:
Each fund may borrow money to the extent permitted under the 1940 Act, as amended, as may be interpreted, modified or applied by government or regulatory authorities having jurisdiction, from time to time, to provide greater flexibility....
Therefore, no further Board or Shareholder action would be needed to conform the borrowing policy to future changes in the 1940 Act, and interpretations thereof that provide greater flexibility of investment, that govern borrowing by mutual funds...
Proposed new fundamental investment policy: If the proposed amendment is approved by Shareholders, each Fund's fundamental investment policy regarding issuing senior securities would read:
Each fund may issue senior securities to the extent permitted under the 1940 Act, as may be interpreted, modified or applied by government or regulatory authorities having jurisdiction, from time to time, to provide greater flexibility.
Discussion of proposed modification The 1940 Act prohibits mutual funds from issuing senior securities, except for borrowings where certain conditions are met. In addition, the SEC has interpreted the 1940 Act to provide that certain types of transactions entered into by a mutual fund, including reverse repurchase agreements, short sales, and whenissued and delayed delivery transactions, forward and futures contracts and certain other transactions involving derivatives, may be considered forms of indebtedness and, therefore, senior securities unless certain collateral or asset coverage requirements are met. In addition, the scope of these requirements.....has been subject to changing SEC interpretations from time to time.
Under the Funds' current fundamental investment policy, each Fund is generally prohibited from issuing senior securities....In all cases, the Funds will continue to be subject to the 1940 Act limitation on issuing senior securities. However, the proposed modification would clarify that a Fund is not issuing senior securities when it is acting in a manner consistent with SEC interpretations that may have the result of providing additional flexibility of investment. In addition, although not part of its fundamental investment policy, a Fund would be able to engage in such activities only if its other investment policies and strategies so permitted at that time.
That is the reverse mortgage that a senior wants to be in, if its right for them. They need to see a HUD certified housing counselor who will figure out whether it works for them and all that jazz though.
Indymac is a certified lender so it is likely that this is the product that they are offering.
tyaresun, Sentiment indicators aren't reliable gauges for severity - this just means consumer spending in April is probably weak (and we have plenty of evidence that March was weak too). I don't think anyone could forecast recession severity reliably based on sentiment.
Also - to be clear - the headline unemployment measures hasn't change, the alternate measures HAVE changed. Did you read the paper I linked to earlier on unemployment measures? Gee - it's not me "saying" it!
wow boob, you betray that handle. This is why I keep saying that I do not see what is moving the market higher at this point. I don't see anything in the next quarters to justify the high p/e's i'm seeing...especially when you dig into the latest earnings statements and you see that currency gains or foreign sales are a big part of why some revenues were buoyant.
If I take my models and adjust out the future earnings to what I'm thinking, I get at relative component valuation on the portfolio i've chosen that would put the dow where i said...around 11,200. And take a look at financials. Hmmm..what would some of them be without the Visa line item in there? I guess we'll see next quarter.
"After struggling with soaring heating costs through the winter, millions of Americans are behind on electric and gas bills, and a record number of families could face energy shut-offs over the next two months, according to state energy officials and utilities around the country."
Three things can happen:
A million or more U.S. households can lose electriciy and/or heat; or
The federal govt. can cough up more money to help those people get through one more winter; or
Congress can pass a law forbidding utilities from turning off service to the poorest people.
It's mainly heating in the North. But a hot summer in the South and SW could strain budgets for air conditioning, too.
Utilities are losing money to walkaways. They don't want to get stuck holding a lot of receivables.
We've only been above $100 on oil for what 6-7 weeks?
The pig is still moving through the python. Unlike previous monetary policy actions....this psychotic series of rate cuts WILL have "trickle down" effects.
There is no floor for the economy yet. Those who tell you different or either stupid or dishonest.
I was in Detroit yesterday to attend a funeral, and on the way to the church my wife and I saw a Dollar Store with a big "Clearance" banner hanging in front. Talk about hard times...
So what exactly moves this market higher other than wishful thinking or abject manipulation versus the softer variety we have seen of late.
We're in a period of bear fatigue (short covering) and there are enough people dipping back in to keep the market moving higher. These people will exit with blinding speed when the next shoe drops, and be much more hesitant to get back in if they're not wiped out by the next leg down.
All I know is just about every necessity is much more expensive. I don't see how people making the median income in the US can handle the increase very long. The people below the median are in dire straits. I'm happy I studied hard, b/c, otherwise, I'd be in a panic by know.
my bold prediction is that we will run into a wave of consumers that through a combination of financial illiteracy and misunderstanding of what is and is not a necessity, people will continue to buy I-phones while being unable to afford actual necessities like food and shelter. The result will be an endless barrage of man on the street interviews this summer where people will be holding bags filled with designer clothes and electronics, talking about how their are either declaring bankruptcy or living off of ramen.
I was in Detroit yesterday to attend a funeral, and on the way to the church my wife and I saw a Dollar Store with a big "Clearance" banner hanging in front. Talk about hard times...
Don't fall for this trick. Just wait awhile and you can buy their inventory for even less at the Dime Stores.
Spot on energyecon. Those of us who toil in the bowels of the fixed income market are completely mystified by the current bout of optimism, particularly with regard to financials. There are several boilers out there that feel about ready to blow.
energyecon: From Russ Winter:
As Ive predicted we are now seeing problems emerging in Treasuries. Foreign central banks (FCB) finally this week took a little hiatus from their two month long buying binge, only picking up $1.4 billion in new purchases. Yesterdays five year Treasury auction was especially poor as a result.
Add this to the long list of things that can go wrong.
There is one thing that can help the markets go up. That stomulus package means that consumers will have money, so the market will go up because of retailers and financials. Why, spending and less hherm defaults because will pay off debt.
It is all very logical. Then, when the wheels fall off and lo and behold consumer spending really is still bad. (lost jobs, cut-backs, trickle down for suppliers/subs) The bottom will fall out.
That is my prediction. I have all the bear I want for now(30%), if we get a super rally, then I will embrace the bear in me.
Obviously anyone who follows diligently CR for many years has his ear to the ground... After the next plunge, I am going cash, precious metals and water (still do not know how, but it will come to me).
I gotta show Cramer some love here. That guy is the biggest optimist I know. In tough times we need somebody willing to go out there and tell us that the sun will shine and that things will be nice again.
Without a few Cramers, we all end up gloomy on nice days like this.
Jas,
In CR's defense, most people were wrong about home low new home sales would go and how high demand is. You tried to warn and, so did I, but who are we anyway? Why trust us? For all anybody knows, we are raving lunatics that have no basis in fact and only make things up for sensationalism.
People still don't think the Patriot Act has any bearing on the financial markets. Crazy thought, huh?
Still this is the lowest reading since the severe recession of the early '80s - and this probably means consumer spending in April will be especially weak.
For U.S. in general, probably yes. But in some states, you probably shouldn't underestimate the power of extravagance, greed, and stupidity...
we never know in the short term why a market trades at a certain level. what we can do is make prudent decisions about the expected 5 year return baked into the current market price and make a decision whether you think that return is worth the risk.
from peak to peak, the SPX has grown real earnings at a 6% CAGR.
We had the last trailing 4 quarters EPS peak back in the summer at $85.
since SPX EPS doesn't grow faster than 6% peak to peak, let's grow that $85 at 6% for 5 years, you get $114.
now let's put a PE on that. the historical average is 14x trailing PE. i'd use a trailing because forward estimates are systemically high.
14x the 2012 EPS of $114 is an SPX at 1,600, from today's level of 1,380 that is a CAGR of 4%.
not a great return for 5 years. If the SPX was at 1,100 then the rise to 1,600 would be an 8% CAGR. much more in line with historic long term trends.
just one way to gauge market prices, expected returns, etc. doesn't help for the short term though because the market can remain priced to deliver low returns for a long time. just my 2c worth.
Off Subject, but I came across this from Bloomberg and it's called a Perpetual Hybrid Bond.
Merrill Lynch
Hybrid bonds such as preferred shares that have characteristics of both debt and equity count toward capital reserves, allowing banks to replenish their coffers without diluting equity. Hybrids typically allow issuers to defer interest payments without defaulting, and credit-rating companies usually consider the bulk of the money raised as equity, meaning only a portion is counted as debt on an issuer's balance sheet.
So let me get this straight. I am going to buy a bond from a company that for all intents and purposes is about at the end of marking down bad assets, but at the beginning of a time when real losses in the assets it holds will start.(recession). I am willing to give them money in exchange for a hybrid that allows them to stop making payments and I dont hold claim to an underlying asset in the event of default.
I would steer clear of anything containing the word "perpetual" I also think that the people buying these have received the benefits of the FED's TAF auctions. Ponzi finance 101 at it's finest.
Cramer's rants have done more bad than good in my view. I don't think we need idiots telling us things are or will be just fine. Esp. idiots who for some inexplicable reason are allowed a big TV audience.
Yeah Cramer was this morning on. I again puked my coffee all over the table. I don't understand that this clown is giving an audience. My god what a poor judgement and people digg this dude..well the dumb one's that watch Oprah.
All you disgruntled consumers--Relax. Calm Down!!! It's just another micro-bump in the road to rapture. McBush and Helicopter Ben have the economy and Iraq under expert supervision. After four more years of compassionate conservatism, we will all find ourselves sleeping much better in cheaper houses we can't afford.
As an example, Jas used to compare housing starts directly to new home sales - I corrected him several times (housing starts include owner built units, apartments and some condos not included in new home sales report). It finally sunk in - I think.
That is just one example. Jas' forecasts have been way too bearish (not a surprise) and his comments boorish.
Whereas I admit my mistakes, you'd think Jas would at least acknowledge - when he wants to disagree - that I've been much more accurate than him - or that I taught him how to use many of the numbers - instead he thinks anyone that disagrees with him is morally flawed.
Once I offered to answer all his questions in one post. I suggested he send me his questions, and I'd post my answers so he could point to that post - naturally he declined.
There are lots more dumb shows than just Oprah and Cramer. In fact the problem is to find an intelligent show. The anti-Bush guy (Obermann) on MSNBC is about as good as you can find and he is probably too shrill for many. So more watch O'Reilly (bottom of the barrel) than him.
O'Reilly? The one who never let's his guests have a word if they don't share his opinionated views? That guy? He is the prime example of mediocre broadcasting on the same level like Oprah and Obermann.
I wouldn't put Obermann in the same category with O'Reilly. First, Obermann is right about things while O'R is wrong. Important difference. Second, Obermann doesn't browbeat and insult his guests. He picks ones who agree with him mainly, but he treats them well. Not the same kettle of fish at all.
Seat of the pants guess about consumer confidence. There is a large dose of pure "mood" in confidence measures. If you are worried about the economy in a general way, that may be bad for confidence. If you had thought your house made you wealthy and no longer do, that is bad for your mood. You'll notice that the dive since around February coincides roughly with a downward shift in assessments of what one's home would be worth in the future.
We US folks, in the aggregate anyhow, have a long-standing habit of spending for fun. When you can no longer do that so much, you don't get that little lift. When the habit is strong, you also end up wanting to have the jolt of buying a new guitar or couch or whatever, but have to tell yourself "no".
Re: buy food
I notice that rainchecks for weekly specials at my local grocery store now have an expiration date of a month or so. Didn't see an expiration date before just a few months ago...
CR,
I don't blame you. Jas lacks the tact and diplomacy necessary to get respect. And, like I alluded to earlier, as host, you need to make predictions on what you believe from your analysis. Not from what credit/reliability questionable commenters think. Especially angry ones.
You do a great job. You know more than most, including way more than me. This site is great.
The perfect storm on the economy has coalesced. Bernanke, Congress, gov't agencies - they are all powerless in its grip.
Why does anyone wonder why consumer confidence is eroding? I live in a big Western State. Our kid plays soccer. Driving 220 miles one way and maybe staying overnight for a couple of soccer games for a 13-year old was something I never gave a second thought. Until recently. Gas was only an incidental expense then. Now, it's a whole different matter.
My wife never thought twice about it either. Now, we are both thinking we'll take the car if we can, rather than the Odyssey van we bought for just this purpose. The van is more expensive to operate, by far. When my wife started thinking of opting out of the van for these trips, that's when I knew the cost of gas must be weighing heavily on every American consumer. And the ripple effect out into all commodities and other consumables is just beginning to be felt, but watch out for the price of all consumer goods by the end of the year.
We're heading for a major adjustment in the American economy. This is going to be a prolonged recession (possible depression) because there is no easy solution. There is going to be a lot of pain financially before we get through this. By the way, I think every step taken by the gov't (Bush has done nothing, no surprise there, but Congress has the unerring quixotic ability to mount their ride and storm off in a thousand different directions, all of them bad policy and bad law) has exacerbated the problem, and really, I think we have painted ourselves into a corner. There simply is no way out without a lot of pain. Let's just hope that out of all this pain some good sound economic and public policy will result. Take heed. The end is nigh.
All I know is this: drove by the Countrywide Mortgage office in our area, and the big banner outside read "REVERSE MORTGAGES!"
Countrywide's saying, Now that we've ripped off wanna-be homebuyers, let's prey on people who own their homes outright and are worried about the future (that we helped make).
This is actually really good news. We're seeing 1982 type numbers - the year the greatest bull market in history started:
AC, I know you posted this as snark, but I thought this was the greatest piece of spin I've seen to date! Elegant, concise, ironic, and breathtakingly bullish. I would not be surprised to see some of the television bulls take this up. If they do, you should get an award.
I don't think reverse mortgages are limited to people over 62. It's just that they are most useful for people who have paid off their mortgage, are "up in years" and need a little income to supplement SS and pay their RE taxes so they can stay in their homes for a few more years.
Tanta had a great uebernerd tutorial on this a while back. I think it is still available.
It might be illuminating to post of chart of sp500 overlayed with consumer confidence. I think you might find it a bit disconcerting to be carrying big short positions after looking at it....
"... consumer confidence just reflects the past. You lose your job, your confidence falls. There's not really anything new there."
Yeah, and in the six months or a year before you find a new job, your spending falls too. And then more people lose their jobs. It's part of the cycle, don't make it sound as if a drop in consumer confidence has no predictive power.
i'm noticing more stores that have a 90 day return/exchange policy changing it to 30 days. just another tactic to keep profits up in the same category as shrinking the products but charging the same.
I miss the arcades full of new exciting games, loud, dark, blacklights everywhere, and a grid of monitors on a wall playing the latest music videos from laserdisc.
Lots of people out having a good time together, competing with one another, forming friendships and dreaming about the future.
Where did all the fun go? sigh
Now, everybody stays home in their small darkened apartments, afraid to go outside, too expensive to drive or go out to eat, just sit at home and play WOW all day or make postings to bearish investment forums
CR,
Is this an input that will make you change your recession severity forecast?
But this recession will be very shallow and evanescent, right, CR?
In other words, since the recovery is already foreseeable, the market should really be skyrocketing right now.
does this mean we might have to become savers now? lame...
what is saving?
Is that like leftovers? It always tastes worse the next day. Give me mine now!
CR,
How about measures of inflation? You say that unemployment measures have not changed, do you think it is true of inflation measures as well?
Page not found
OT: I saw a long ad on TV last night from some subsidiary of Indymac called the "Reverse Mortgage Specialist" or somesuch. It was telling about the marvels of reverse mortgages (have I got the right term?; it is where you gradually cash out the equity in your home). Told viewers they would "own the home" and could then buy all sorts of good things. But what happens when the equity is all gone and the "homeowners" are still alive in the home? I'd like Tanta to give us a kind of primer and evaluation of reverse mortages. Evidently it is something lenders are pushing with lots of ads, etc.
tyaresun, Are you Jas Jain?
What about "I go to the grocery store and everything costs a lot more."
Tough to curb spending when you can't.
I think the reverse mortgages were limited to people "over 62" for some reason.
Stiglitz gives "hats off" to Roubini. Despite being an ultrabear, Roubini is not far off.
Video - CNBC.com
The outfit was called "Financial Freedom". I liked that. It sounds nice.
"Consumer Sentiment Falls to 26 Year Low"
That's the problem with consumers, so sentimental.
Why can't they be more like Wall Streeters that only have one emotion?
This is actually really good news. We're seeing 1982 type numbers - the year the greatest bull market in history started:
"...by mid-October, the number of good-looking leading stocks was tiny. And that's when the bear forces took control.
During the past couple of months, we believe we're seeing the opposite. Beginning in late January, when an enormous 1,114 stocks hit new lows on the NYSE, the market has been building a sustainable bottom. We've seen plenty of bad news, lots of bobbing and weaving by the major indexes, and a successful re-test of the January low on the Bear Stearns failure in March. And now we're seeing a gradual broadening out of the market's leadership. Thus, step by step, the market is putting the pieces in place for its next big upmove. In fact, that upmove may be underway!"
link
ac, you are dangerously flirting with calling a bottom there. but i do like the phrase "sustainable bottom".
Reverse Mortgage is a category of loans that allow you to pull equity from your home.
There is the more legitimate "HECM" reverse mortgage which is an FHA loan. That one requires you to be 62, have a big chunk of equity in your home (usually at least 50%), and based on the rules of the loan you are guaranteed to be allowed to stay in your home till you die. On the off chance that you die before you pull all the equity out, you will even get that equity paid back to your estate after the home is sold if there is equity left.
As far as the non-FHA reverse mortgages go, you could be in for anything. There are many reverse mortgage scams going on right now where they will package your reverse mortgage with various types of insurance or annuities that old people usually do not need, especially the kinds that end up being pushed on them.
In any case there are going to be a lot of baby boomers that will end up needing this because they don't have the retirement savings to hold on to their home and they will end up become fixed income retirees before fully paying off their homes.
"Thus, step by step, the market is putting the pieces in place for its next big upmove. In fact, that upmove may be underway!"
As long as the Patriot Act supports a strong stock market, stocks will probably stay supported or go up. Let's see what happens post elections.
Top 10 Hits of 1982/Top 10 Songs of 1982
1. Physical, Olivia Newton-John
2. Eye Of The Tiger, Survivor
3. I Love Rock N' Roll, Joan Jett and The Blackhearts
4. Ebony And Ivory, Paul McCartney and Stevie Wonder
5. Centerfold, J. Geils Band
6. Don't You Want M, Human League
7. Jack And Diane, John Cougar
8. Hurts So Good, John Cougar
9. Abracadabra, Steve Miller Band
10. Hard To Say I'm Sorry, Chicago
Well GW is Reassuring the Nation today.We have a firm hand at the helm of the ship of state and everything is OK!hey ac,gimme a hand with these deckchairs willya?
I can't remember now, is this good or bad news?
Will,
Rocky II and leg warmers. Bring back the 80s.
GW needs to get out and do some of his own shopping. Perhaps he could even take a drive buy a gas station and even fill the gas tank of his limo. Yup, i think that would be a wake up call for him.
Patrick: thanks for the elaboration. These reverse mortgages are offered by Indymac. Whether they are scams, I can't or won't try to determine.
ipodius writes:
ac, you are dangerously flirting with calling a bottom there. but i do like the phrase "sustainable bottom".
Yes the only difference between now and the early 80s is P/E at high single digits and the longest cycle of interest rate cuts/reductions in the history of man. last time I check EPS implied double ditgit growth in 2H and 2009. Oh yeah and interest rates are negative on a real basis. Just to ice the cake, input costs are rising which is crimping unustainbly hgih profit margisn and the rising credit spread is making those leverage recaps (and massivily dilutive share repurchase over the past few years) that provided the EPS nitro are gone. So what exactly moves this market higher other than wishful thinking or abject manipulation versus the softer variety we have seen of late.
Great list will! I was more of a Human League sort of guy...back when MTV still played videos. I was the teen with the aqua blue streak in his hair
I would think that relatively high real interest rates and relatively low P/E earnings would be the best setting for a raging bull to develop. We're not there yet.
So what exactly moves this market higher other than wishful thinking or abject manipulation versus the softer variety we have seen of late.
boob | 04.25.08 - 11:05 am | #
Flabby Cone's predictions used to move the market higher, but I think she has stopped predicting. Her pulpit was removed.
What would SEC do?
Proposal 2. Changes to fundamental investment policies
Modification of the Funds' fundamental investment policies...
Proposal 2.A-Borrowing-For all Funds
Current fundamental investment policy: The Funds' current fundamental investment policy regarding borrowing reads:
A fund will not issue senior securities (including borrowing money from banks and other entities and through reverse repurchase agreements and mortgage dollar rolls) in excess of 33 1/3% of its total assets (including the amount of senior securities issued, but reduced by any liabilities and indebtedness not constituting senior securities), except that a fund may borrow up to an additional 5% of its total assets (not including the amount borrowed) for extraordinary or emergency purposes....
Proposed new fundamental investment policy: If the proposed amendment is approved by Shareholders, each Fund's fundamental investment policy regarding borrowing would read:
Each fund may borrow money to the extent permitted under the 1940 Act, as amended, as may be interpreted, modified or applied by government or regulatory authorities having jurisdiction, from time to time, to provide greater flexibility....
Therefore, no further Board or Shareholder action would be needed to conform the borrowing policy to future changes in the 1940 Act, and interpretations thereof that provide greater flexibility of investment, that govern borrowing by mutual funds...
Proposed new fundamental investment policy: If the proposed amendment is approved by Shareholders, each Fund's fundamental investment policy regarding issuing senior securities would read:
Each fund may issue senior securities to the extent permitted under the 1940 Act, as may be interpreted, modified or applied by government or regulatory authorities having jurisdiction, from time to time, to provide greater flexibility.
Discussion of proposed modification The 1940 Act prohibits mutual funds from issuing senior securities, except for borrowings where certain conditions are met. In addition, the SEC has interpreted the 1940 Act to provide that certain types of transactions entered into by a mutual fund, including reverse repurchase agreements, short sales, and whenissued and delayed delivery transactions, forward and futures contracts and certain other transactions involving derivatives, may be considered forms of indebtedness and, therefore, senior securities unless certain collateral or asset coverage requirements are met. In addition, the scope of these requirements.....has been subject to changing SEC interpretations from time to time.
Under the Funds' current fundamental investment policy, each Fund is generally prohibited from issuing senior securities....In all cases, the Funds will continue to be subject to the 1940 Act limitation on issuing senior securities. However, the proposed modification would clarify that a Fund is not issuing senior securities when it is acting in a manner consistent with SEC interpretations that may have the result of providing additional flexibility of investment. In addition, although not part of its fundamental investment policy, a Fund would be able to engage in such activities only if its other investment policies and strategies so permitted at that time.
Pointing to history as proof of a bottom is proof we're nowhere near the bottom. True bottoms are never predicted, they're phenomena of hindsight.
ac, you are dangerously flirting with calling a bottom there. but i do like the phrase "sustainable bottom".
I'm finally starting to understand that you can make a whole lot more money by lying then by telling the truth.
HUD FHA Reverse Mortgage for Seniors (HECM)
That is the reverse mortgage that a senior wants to be in, if its right for them. They need to see a HUD certified housing counselor who will figure out whether it works for them and all that jazz though.
Indymac is a certified lender so it is likely that this is the product that they are offering.
tyaresun, Sentiment indicators aren't reliable gauges for severity - this just means consumer spending in April is probably weak (and we have plenty of evidence that March was weak too). I don't think anyone could forecast recession severity reliably based on sentiment.
Also - to be clear - the headline unemployment measures hasn't change, the alternate measures HAVE changed. Did you read the paper I linked to earlier on unemployment measures? Gee - it's not me "saying" it!
Inflation measures have definitely changed.
Best to all.
wow boob, you betray that handle. This is why I keep saying that I do not see what is moving the market higher at this point. I don't see anything in the next quarters to justify the high p/e's i'm seeing...especially when you dig into the latest earnings statements and you see that currency gains or foreign sales are a big part of why some revenues were buoyant.
If I take my models and adjust out the future earnings to what I'm thinking, I get at relative component valuation on the portfolio i've chosen that would put the dow where i said...around 11,200. And take a look at financials. Hmmm..what would some of them be without the Visa line item in there? I guess we'll see next quarter.
Consumer sentiment is low in part because a lot of people don't have the money to afford necessities.
For example, a lot of people are facing a much colder winter in 6-7 months.
Cutoffs Loom As Heat Costs Continue To Take Toll - NY Times
"After struggling with soaring heating costs through the winter, millions of Americans are behind on electric and gas bills, and a record number of families could face energy shut-offs over the next two months, according to state energy officials and utilities around the country."
Three things can happen:
It's mainly heating in the North. But a hot summer in the South and SW could strain budgets for air conditioning, too.
Utilities are losing money to walkaways. They don't want to get stuck holding a lot of receivables.
We are heading back to Hooverville.
We've only been above $100 on oil for what 6-7 weeks?
The pig is still moving through the python. Unlike previous monetary policy actions....this psychotic series of rate cuts WILL have "trickle down" effects.
There is no floor for the economy yet. Those who tell you different or either stupid or dishonest.
Anybody got more info on this?
CRUDE SURGES ON REPORT THAT U.S. FIRED ON IRANIAN SHIP IN GULF
I was in Detroit yesterday to attend a funeral, and on the way to the church my wife and I saw a Dollar Store with a big "Clearance" banner hanging in front. Talk about hard times...
So what exactly moves this market higher other than wishful thinking or abject manipulation versus the softer variety we have seen of late.
We're in a period of bear fatigue (short covering) and there are enough people dipping back in to keep the market moving higher. These people will exit with blinding speed when the next shoe drops, and be much more hesitant to get back in if they're not wiped out by the next leg down.
Captain the dilithium crystals canna take the strain!
Slosh = $250.2 B (TOMO, TAF, TIO - but not including PDCF - in the 'old days' was ~$50 B)
TED Spread = 1.64 (before August ran ~0.5)
CP 30 day spread = 107 bps 5 day MA and trending up ATM (before August was ~12 bps)
Anyone know what the old record is for TIO in the Slosh? It is $46.4 B as of today.
Anyone who is more of monetary hotshot please weigh in, but this just seems like on of the old boilers that is right on the edge of its tolerances...
[Re-post as it ties more to this thread]
All I know is just about every necessity is much more expensive. I don't see how people making the median income in the US can handle the increase very long. The people below the median are in dire straits. I'm happy I studied hard, b/c, otherwise, I'd be in a panic by know.
I do like the phrase "sustainable bottom"
Love it! Is the 'sustainable bottom' in yet?
my bold prediction is that we will run into a wave of consumers that through a combination of financial illiteracy and misunderstanding of what is and is not a necessity, people will continue to buy I-phones while being unable to afford actual necessities like food and shelter. The result will be an endless barrage of man on the street interviews this summer where people will be holding bags filled with designer clothes and electronics, talking about how their are either declaring bankruptcy or living off of ramen.
Just like college!
I do like the phrase "sustainable bottom"
Love it! Is the 'sustainable bottom' in yet?
Would that be the "permanently low plateau"?
Love it! Is the 'sustainable bottom' in yet?
I was just trying to think of all the ways I could use "sustainable bottom" in a sentence.
CR should use this as his phrase of the year, in my opinion!
Don't fall for this trick. Just wait awhile and you can buy their inventory for even less at the Dime Stores.
Wall Street Journal online says hoard food - it's a better investment than money in a savings account:
Load-Up-the-Pantry: Personal Finance News from Yahoo! Finance
"the markets are still seeking a sustainable bottom..."
"the data points to a plateau, but we won't see any recovery until we can hit a sustainable bottom"
"Maria, do you believe you've seen a sustainable bottom?"
"Bill Gross says he's seeing the sustainable bottom"
"I don't think Cramer could find a sustainable bottom with both hands"
Spot on energyecon. Those of us who toil in the bowels of the fixed income market are completely mystified by the current bout of optimism, particularly with regard to financials. There are several boilers out there that feel about ready to blow.
So is this it for our bear market rally?
energyecon: From Russ Winter:
As Ive predicted we are now seeing problems emerging in Treasuries. Foreign central banks (FCB) finally this week took a little hiatus from their two month long buying binge, only picking up $1.4 billion in new purchases. Yesterdays five year Treasury auction was especially poor as a result.
Add this to the long list of things that can go wrong.
There is one thing that can help the markets go up. That stomulus package means that consumers will have money, so the market will go up because of retailers and financials. Why, spending and less hherm defaults because will pay off debt.
It is all very logical. Then, when the wheels fall off and lo and behold consumer spending really is still bad. (lost jobs, cut-backs, trickle down for suppliers/subs) The bottom will fall out.
That is my prediction. I have all the bear I want for now(30%), if we get a super rally, then I will embrace the bear in me.
Obviously anyone who follows diligently CR for many years has his ear to the ground... After the next plunge, I am going cash, precious metals and water (still do not know how, but it will come to me).
Wall Street Journal online says hoard food
The local radio show I was listening to on the way to work this morning was saying the same thing.
It's mostly a comedy show and ordinarily the host is quite level headed.
Today people were calling in asking about stockpiling food and a depression where people starve.
It's astonishing how quickly peoples' thinking changes. I would never have expected to hear this kind of thing so soon on a local radio program.
I gotta show Cramer some love here. That guy is the biggest optimist I know. In tough times we need somebody willing to go out there and tell us that the sun will shine and that things will be nice again.
Without a few Cramers, we all end up gloomy on nice days like this.
Jas,
In CR's defense, most people were wrong about home low new home sales would go and how high demand is. You tried to warn and, so did I, but who are we anyway? Why trust us? For all anybody knows, we are raving lunatics that have no basis in fact and only make things up for sensationalism.
People still don't think the Patriot Act has any bearing on the financial markets. Crazy thought, huh?
Still this is the lowest reading since the severe recession of the early '80s - and this probably means consumer spending in April will be especially weak.
For U.S. in general, probably yes. But in some states, you probably shouldn't underestimate the power of extravagance, greed, and stupidity...
we never know in the short term why a market trades at a certain level. what we can do is make prudent decisions about the expected 5 year return baked into the current market price and make a decision whether you think that return is worth the risk.
from peak to peak, the SPX has grown real earnings at a 6% CAGR.
We had the last trailing 4 quarters EPS peak back in the summer at $85.
since SPX EPS doesn't grow faster than 6% peak to peak, let's grow that $85 at 6% for 5 years, you get $114.
now let's put a PE on that. the historical average is 14x trailing PE. i'd use a trailing because forward estimates are systemically high.
14x the 2012 EPS of $114 is an SPX at 1,600, from today's level of 1,380 that is a CAGR of 4%.
not a great return for 5 years. If the SPX was at 1,100 then the rise to 1,600 would be an 8% CAGR. much more in line with historic long term trends.
just one way to gauge market prices, expected returns, etc. doesn't help for the short term though because the market can remain priced to deliver low returns for a long time. just my 2c worth.
So is this it for our bear market rally?
Sort of leaves you wanting, doesn't it?
Off Subject, but I came across this from Bloomberg and it's called a Perpetual Hybrid Bond.
Merrill Lynch
Hybrid bonds such as preferred shares that have characteristics of both debt and equity count toward capital reserves, allowing banks to replenish their coffers without diluting equity. Hybrids typically allow issuers to defer interest payments without defaulting, and credit-rating companies usually consider the bulk of the money raised as equity, meaning only a portion is counted as debt on an issuer's balance sheet.
So let me get this straight. I am going to buy a bond from a company that for all intents and purposes is about at the end of marking down bad assets, but at the beginning of a time when real losses in the assets it holds will start.(recession). I am willing to give them money in exchange for a hybrid that allows them to stop making payments and I dont hold claim to an underlying asset in the event of default.
I would steer clear of anything containing the word "perpetual" I also think that the people buying these have received the benefits of the FED's TAF auctions. Ponzi finance 101 at it's finest.
Cramer detailed his investment plan about 2 1/2 weeks ago-- go for the addicts! Loan Sharks are so 2004...
Boo-ya!
Cramer's rants have done more bad than good in my view. I don't think we need idiots telling us things are or will be just fine. Esp. idiots who for some inexplicable reason are allowed a big TV audience.
Yeah Cramer was this morning on. I again puked my coffee all over the table. I don't understand that this clown is giving an audience. My god what a poor judgement and people digg this dude..well the dumb one's that watch Oprah.
All you disgruntled consumers--Relax. Calm Down!!! It's just another micro-bump in the road to rapture. McBush and Helicopter Ben have the economy and Iraq under expert supervision. After four more years of compassionate conservatism, we will all find ourselves sleeping much better in cheaper houses we can't afford.
ac, nice Kudlow imitation in that first post. You are ready for stand-in duty!
Elvis, Jas has been wrong consistently.
As an example, Jas used to compare housing starts directly to new home sales - I corrected him several times (housing starts include owner built units, apartments and some condos not included in new home sales report). It finally sunk in - I think.
That is just one example. Jas' forecasts have been way too bearish (not a surprise) and his comments boorish.
Whereas I admit my mistakes, you'd think Jas would at least acknowledge - when he wants to disagree - that I've been much more accurate than him - or that I taught him how to use many of the numbers - instead he thinks anyone that disagrees with him is morally flawed.
Once I offered to answer all his questions in one post. I suggested he send me his questions, and I'd post my answers so he could point to that post - naturally he declined.
I just ignore him now.
Best Wishes.
When Stiglitz says things will be alright, I'd give that some weight. Cramer's opinion isn't even a blip on the burnside screen.
Wow. I can't believe CR actually called someone out.
Although I can believe who he called out.
Cheers,
prat
well the dumb one's that watch Oprah.
There are lots more dumb shows than just Oprah and Cramer. In fact the problem is to find an intelligent show. The anti-Bush guy (Obermann) on MSNBC is about as good as you can find and he is probably too shrill for many. So more watch O'Reilly (bottom of the barrel) than him.
CR,
Off topoic but do you know approximately when the next quarterly MEW report is coming out?
Does anybody know the results of the first borrowed redemption of the TAF facility for today?
Term Securities Lending Facility - Federal Reserve Bank of New York
O'Reilly? The one who never let's his guests have a word if they don't share his opinionated views? That guy? He is the prime example of mediocre broadcasting on the same level like Oprah and Obermann.
Re: above taf ? Could be settlement instead of redemption. I'm a newbie!
praetorian, I usually see his name and skip the comment, but I read a couple of his comments and actually laughed.
Sequoia, MEW is released right after the Fed's Flow of Funds report. The last one was early March (for Q4 2007) and the next one will June 5th.
Best to all.
I wouldn't put Obermann in the same category with O'Reilly. First, Obermann is right about things while O'R is wrong. Important difference. Second, Obermann doesn't browbeat and insult his guests. He picks ones who agree with him mainly, but he treats them well. Not the same kettle of fish at all.
Seat of the pants guess about consumer confidence. There is a large dose of pure "mood" in confidence measures. If you are worried about the economy in a general way, that may be bad for confidence. If you had thought your house made you wealthy and no longer do, that is bad for your mood. You'll notice that the dive since around February coincides roughly with a downward shift in assessments of what one's home would be worth in the future.
We US folks, in the aggregate anyhow, have a long-standing habit of spending for fun. When you can no longer do that so much, you don't get that little lift. When the habit is strong, you also end up wanting to have the jolt of buying a new guitar or couch or whatever, but have to tell yourself "no".
We are slaves to our emotions.
Re: buy food
I notice that rainchecks for weekly specials at my local grocery store now have an expiration date of a month or so. Didn't see an expiration date before just a few months ago...
CR said: "...That is just one example. Jas' forecasts have been way too bearish (not a surprise) and his comments boorish....
...I just ignore him now."
I was Jas-jousting on another board since long before I was here CR-jousting.
JMO, I think they're both too bearish, but CR has a better mind and is more of a gentleman.
Sebastia
Wake me when consumer sentiment falls to the lowest level in 79 years.
CR,
I don't blame you. Jas lacks the tact and diplomacy necessary to get respect. And, like I alluded to earlier, as host, you need to make predictions on what you believe from your analysis. Not from what credit/reliability questionable commenters think. Especially angry ones.
You do a great job. You know more than most, including way more than me. This site is great.
I am sick of Oberman's elitist attitude. The only difference between him and orielly is he smetimes allows guests to finish a sentence.
The perfect storm on the economy has coalesced. Bernanke, Congress, gov't agencies - they are all powerless in its grip.
Why does anyone wonder why consumer confidence is eroding? I live in a big Western State. Our kid plays soccer. Driving 220 miles one way and maybe staying overnight for a couple of soccer games for a 13-year old was something I never gave a second thought. Until recently. Gas was only an incidental expense then. Now, it's a whole different matter.
My wife never thought twice about it either. Now, we are both thinking we'll take the car if we can, rather than the Odyssey van we bought for just this purpose. The van is more expensive to operate, by far. When my wife started thinking of opting out of the van for these trips, that's when I knew the cost of gas must be weighing heavily on every American consumer. And the ripple effect out into all commodities and other consumables is just beginning to be felt, but watch out for the price of all consumer goods by the end of the year.
We're heading for a major adjustment in the American economy. This is going to be a prolonged recession (possible depression) because there is no easy solution. There is going to be a lot of pain financially before we get through this. By the way, I think every step taken by the gov't (Bush has done nothing, no surprise there, but Congress has the unerring quixotic ability to mount their ride and storm off in a thousand different directions, all of them bad policy and bad law) has exacerbated the problem, and really, I think we have painted ourselves into a corner. There simply is no way out without a lot of pain. Let's just hope that out of all this pain some good sound economic and public policy will result. Take heed. The end is nigh.
I have been feeling really depressed since I got up this morning. This explains it...
All I know is this: drove by the Countrywide Mortgage office in our area, and the big banner outside read "REVERSE MORTGAGES!"
Countrywide's saying, Now that we've ripped off wanna-be homebuyers, let's prey on people who own their homes outright and are worried about the future (that we helped make).
ac writes:
This is actually really good news. We're seeing 1982 type numbers - the year the greatest bull market in history started:
AC, I know you posted this as snark, but I thought this was the greatest piece of spin I've seen to date! Elegant, concise, ironic, and breathtakingly bullish. I would not be surprised to see some of the television bulls take this up. If they do, you should get an award.
Turn that frown upside down!
Chris @ 10:52 am
I don't think reverse mortgages are limited to people over 62. It's just that they are most useful for people who have paid off their mortgage, are "up in years" and need a little income to supplement SS and pay their RE taxes so they can stay in their homes for a few more years.
Tanta had a great uebernerd tutorial on this a while back. I think it is still available.
"AC, I know you posted this as snark"
It might be illuminating to post of chart of sp500 overlayed with consumer confidence. I think you might find it a bit disconcerting to be carrying big short positions after looking at it....
Well GW is Reassuring the Nation today.We have a firm hand at the helm of the ship of state...
Omygod. Please tell me they aren't letting him steer the ship again. May God have mercy on our souls.
"... consumer confidence just reflects the past. You lose your job, your confidence falls. There's not really anything new there."
Yeah, and in the six months or a year before you find a new job, your spending falls too. And then more people lose their jobs. It's part of the cycle, don't make it sound as if a drop in consumer confidence has no predictive power.
i'm noticing more stores that have a 90 day return/exchange policy changing it to 30 days. just another tactic to keep profits up in the same category as shrinking the products but charging the same.
1982 was a great year... for video games!
I miss the arcades full of new exciting games, loud, dark, blacklights everywhere, and a grid of monitors on a wall playing the latest music videos from laserdisc.
Lots of people out having a good time together, competing with one another, forming friendships and dreaming about the future.
Where did all the fun go? sigh
Now, everybody stays home in their small darkened apartments, afraid to go outside, too expensive to drive or go out to eat, just sit at home and play WOW all day or make postings to bearish investment forums