Pending Sales No Longer Good Indicator Of Future Sales

Link:
http://housingdoom.com/2008/06/09/pending-sales-no-longer-good-indicator/

Highlights:

• Year over Year: National home sales were down 13.1%
• Pending sales in 2005: implied a 30 day close. In 2008, it can take much longer than 30 days regarding when the house will close or experience fallout.
  
• Foreclosure and Short sales: are mixed with regular home sales and pending data. It would be helpful to understand what percentage of this month to month improvement was due to forced sales.

Comment:

Referring to the graph above: you can see the correlation between pending sales and actual home sales are diverging. The chart is illustrating a slight pick up in pending sales along with a continued downward drift of actual home sales.

Jim

Your comments are welcome.

Lehman Plans Higher Capital Raising, Expects to Post $2.8 Billion Net Loss

Link:
http://docs.google.com/Edit?docID=dcbc2vhk_2hcv5hwgv

Comments:

Lehman is another well organize Wallstreet firm who is trying to prevent a tipping point in the firm's ability to stay solvent.

• Hedge Effectiveness: Was negatively impacted due to problematic assets that were difficult to correlate and experienced basis drift during the process.
• Realizing Losses: Chief Financial Officer Erin Callan found the bid side to many of the less liquid assets they sold, a good move, even though it may have been painful.
  
• Illiquid Assets: (BYOF) Bring Your Own Financing is the mantra, Unfortunately not always possible with some of the more radioactive structured assets.
• De-Leveraging: Lowering the leveraged risk profile makes me think of a team of experts in a large plane going down. "Throw everything out that isn't welded down, we got to get more lift so we can suck in more financing."

Food for thought:

Another Wallstreet Firm in Trouble: This isn't Beat Stearns but the continued decline of the various underlining assets being held by both Wallstreet and Investors is toxic.

Best Practices: Hedging is an art form with science mixed in to make it more respectable. It is easy to miscalculate a variable or not refresh the data frequently enough and later find yourself upside down on the hedge.

Chicken Salad: As we all have heard before, "You can't make chicken salad out of chicken poop." There is still alot of poop out there.


Jim

Note: Your comments are welcome.

Frank-Dodd Rescue Prolongs Housing Crisis by Deferring Defaults

By Bob Ivry

June 5 (Bloomberg) -- Dan Castro

Barney Frank, U.S. representative from Massachusetts, chairs a hearing of the House Financial Services Committee in Washington, April 9, 2008. Photographer: Dennis Brack/Bloomberg News





Link:
http://www.bloomberg.com/apps/news?pid=20601103&sid=aKlXIcX4YHzk&refer=news

Comments: We must recognize there is a group of people who are beyond help right now and that a certain percentage of homeowners and speculators were reckless regarding their home purchase.

What can we do?

• Understand: solutions need to be formulated at the Federal, State, and Local levels that will motivate free market participates to embrace the new programs.
• Cooperation: and linkages to solutions at the Federal, State, and Local level will greatly enhance success.
• Market Solution: involves a refinanced loan not a rewritten old loan.
• Many Second Liens: stakeholders offered Piggyback Loans which were highly speculative an very lucrative. This loan helped the homeowner avoid Mortgage Insurance (MI).
• Better Definition: of whom do you assist, for how much, and for how long.

Food for thought: Many of the recommendations are trying to use mortgage tools that don't have the capacity to solve the problem. A vertically and horizontally integrated program using newly created MBS instruments could go a long way in discouraging the fast buck speculators and encouraging market investors to continue to support MBS and Structured Market Environment. It can be done in a timely manner with available resources.

Best Regards,
Jim

New York sets rating agency fee reforms and SEC weigh in

Thu Jun 5, 2008 4:27pm EDT - - - Reuters --- By Martha Graybow and Walden Siew

Links:
http://www.reuters.com/article/ousiv/idUSN0528456020080605

http://www.financialweek.com/apps/pbcs.dll/article?AID=/20080605/REG/656329280

Comments: A move in the right direction regarding potential conflict of interest between the Rating Agencies and the Broker/Dealer Community. Cuomo is certainly asking the right questions and kudos to him for attempting to take action. However, I don't view the solution robust enough to solve the problem.

Food for Thought: As a follow up, look for the
6/11/08 proposal by the Securities and Exchange Commission.
I believe they need to bifurcate the Structured Finance Securities ratings to:

• Raise Investor awareness regarding the risks inherent to these type of investments.
• Highlight the unique performance qualities of these Structured Finance Securities.

Your thoughts and comments are always welcome.

Jim