Saturday, December 29, 2007

Snail Mail Update - 5%

Effective December 31, 2007:

  • UPS Ground and UPS Standard to Canada services will increase 4.9%.
  • Air and International express services will increase a net 4.9% through a combination of a 6.9% increase in rates and a 2% reduction in the air and international fuel surcharge.

Friday, December 28, 2007

Just the Numbers: Week 52, The Finish Line or Near to It?

THE NUMBERS

Romney and McCain firm, going into Iowa next week. Clinton does, as well, but not as much. Thompson is unloved, not making a stir in the VP standings, either.

THE STRATEGIES

I don't like binary bets, much. The Clinton-Giuliani parley has collapsed. If you think that they will be the two, there is gold available, right now. The contract may fair quite well if that is the ultimate outcome, and offer some near-term 'protection', if Clinton does well, while Giuliani slides further on the heels of possible losses in Iowa and/or NH.


TABLES

[n.b. changes are from three weeks ago.]

Next PresidentPr (%)Chg Wk.bid-ask
CLINTON(H)443.92%
GIULIANI11.9-63%
OBAMA13.6-2.57%
HUCKABEE4.3-3.95%
ROMNEY8111%
McCAIN8.65.93%
PAUL3.20.631%
2007 Week 52: Last week newspaper endorsements favor McCain and Clinton. Campaigns sprint to the end.
GOP NomineePr (%)Chg Wk.bid-ask
GIULIANI30.3-9.20%
ROMNEY22.43.53%
MCCAIN18.19.94%
HUCKABEE14.5-5.34%
PAUL6.41.42%
THOMPSON(F)3.1-216%
RICE0.6-0.5n.m.
DEM NomineePr (%)Chg Wk.bid-ask
CLINTON674.80%
OBAMA23.4-5.66%
GORE2.1-0.310%
EDWARDS5.20.34%
RICHRDSN0.2-0.1n.m.
BIDEN0.1-0.2n.m.
DODD0.10n.m.
SenatePr (%)Chg Wk.bid-ask
DEM83.32.310%
GOP10-0.189%
Next ExecutivePr (%)Chg Wk.bid-ask
DEM61.21.61%
GOP37-1.51%
OTH2010%
DEM VP NomineePr (%)Chg Wk.bid-ask
OBAMA6.8-4.359%
BAYH17-0.911%
FIELD13.61.41%
RICHARDSON11.8-0.722%
GORE9.2-1.429%
CLARK12.20.29%
WEBB4.2-126%
GOP VP NomineePr (%)Chg Wk.bid-ask
FIELD23.3-1.971%
HUCKABEE21.1-7.218%
PAWLENTY7.20.838%
THOMPSON(F)2.6-2.6250%
GIULIANI3.93.685%
GINGRICH6.31.22%
BUSH(J)2.5-2.5132%
President ParleyPr (%)Chg Wk.bid-ask
CLINTON-GIULIAN23-10.29%
CLINTON-ROMNEY15.52.510%
OBAMA-GIULIANI8-21%
CLINTON-HUCK9-0.149%
OBAMA-HUCKABEE5.6-2.471%
OBAMA-ROMNEY82.513%
CLINTON-McCAIN11.37.315%
OBAMA-McCAIN5378%
src: intrade.com; bid-ask are not points, but spread as a percentage of the bid. Polls comparison, via RealClearPolitics.
IMPORTANT DISCLAIMER: this is just an informational note and not a solicitation or recommendation to buy or sell securities and there is no guarantee implied and people can lose all money on all investments. Numbers are believed to be correct, but do your own math and make your own conclusions or consult with an advisor before making any decisions.

Caucus/CandidatePr (%)Chg Wk.bid-ask
Iowa Caucus
Democratic
CLINTON40.13.17%
OBAMA37.6-8.52%
EDWARDS21.211.118%
FIELD0.1-0.1n.m.
Republican
ROMNEY307.715%
GIULIANI0.2-0.2n.m.
THOMPSON(F)1.51n.m.
FIELD5.54.498%
HUCKABEE59.8-10.20%
MCCAIN2.52.4176%
New Hampshire Primary
Democratic
CLINTON55555%
OBAMA35426%
EDWARDS1.60.5n.m.
FIELD0.10111%
Republican
ROMNEY47-13.915%
GIULIANI1.2-6.565%
THOMPSON(F)0.30.2n.m.
FIELD6.51.254%
HUCKABEE3.8-9.6149%
MCCAIN26.317.5n.m.
South Carolina Primary
Democratic
CLINTON40.15n.m.
OBAMA5013.6n.m.
EDWARDS1.3-0.7n.m.
FIELD0.10146%
Republican
ROMNEY10-0.410%
GIULIANI5.3-11.7168%
THOMPSON(F)7.1-8.8n.m.
FIELD526.6n.m.
MCCAIN10.19.1150%
Florida Primary
Democratic
CLINTON70.1-10n.m.
OBAMA15.12.5190%
EDWARDS2-0.510%
FIELD0.10100%
Republican
ROMNEY76100%
GIULIANI46.1-23.9n.m.
THOMPSON(F)20.8n.m.
FIELD214.9n.m.
MCCAIN10.18170%
New Jersey Primary
Democratic
CLINTON0-80n.m.
OBAMA10598%
EDWARDS10.90%
FIELD0.10200%
Republican
ROMNEY5.10.1393%
GIULIANI50.250.2n.m.
THOMPSON(F)10n.m.
MCCAIN85.9500%
Nevada Caucus
Democratic
CLINTON35-45n.m.
OBAMA5.1-524%
EDWARDS10.9329%
FIELD0.10n.m.
Republican
ROMNEY16.2-12.931%
GIULIANI25.60.4n.m.
THOMPSON(F)6.11.1n.m.
MCCAIN5.65.5n.m.
Pennsylvania Primary
Democratic
CLINTON50-20n.m.
OBAMA105n.m.
EDWARDS11n.m.
FIELD0.10n.m.
Republican
ROMNEY5.10n.m.
GIULIANI65.2-6n.m.
THOMPSON(F)50n.m.
FIELD10.52.5n.m.
MCCAIN107.9n.m.
California Primary
Democratic
CLINTON50-25n.m.
OBAMA105n.m.
EDWARDS10.9n.m.
FIELD0.10n.m.
Republican
ROMNEY10.10.1n.m.
GIULIANI54.9-10.1n.m.
THOMPSON(F)50n.m.
MCCAIN10.18.1n.m.
Michigan Primary
Democratic
CLINTON40-40n.m.
OBAMA102.5n.m.
EDWARDS00n.m.
FIELD00n.m.
Republican
ROMNEY40.140.1n.m.
GIULIANI5.1-20.9n.m.
THOMPSON(F)0.7-4.3n.m.
MCCAIN20.619.5n.m.

Friday, December 21, 2007

Consumers Are Making and Spending

SANTA SAYS NO RECESSION, YET, VIRGINIA

These numbers don't look like everyone will be revising their growth outlook, do they?

DPI is stalled in real terms as prices tick up, indicating stress; but still growing year-to-year.

It's not 'high-quality' growth, as savings is slipping a bit, but hardly over the cliff.

PERSONAL INCOME AND ITS DISPOSITION

2007:Sep\r\2007:Oct\r\2007:Nov\p\
PCE


Real, %yoy3.22.73
Deflator-All2.533.6
Deflator-Core1.922.2
Real, %m0.20.10.5
Deflator-All0.30.30.6
Deflator-Core0.30.20.2




DPI


Real, %yoy3.62.72.1
Real, %m0.2-0.2-0.3




Personal Income, %m0.50.20.4
Wages/Salary, %m0.600.6




Savings/DPI0.50.3-0.5
Personal Income BEA
*PCE=personal consumption expenditures; DPI=disposable income, Deflator=price index, Core=prices ex Food,Energy

REVISIONS TO PRIOR MONTHS
CHANGES2007:Aug\r\2007:Sep\r\2007:Oct\p\
PCE


Real, %yoy00.20.3
Deflator-All00.10.1
Deflator-Core0.100.1
Real, %m00.10.1
Deflator-All000
Deflator-Core0.10.10

000
DPI000
Real, %yoy00.10
ReaL, %m00-0.1

000
Personal Income, %m0.10.10
Wages/Salary, %m00-0.1

000
Savings/DPI0-0.2-0.2

The Fed's Salt Water "Taf"fy Facility

ENOUGH LIQUIDITY TO PREVENT INSOLVENCY?

No one can answer that question, but here's the Fed's new Taffy auctions, two of which completed this week (before many banks have year-end).

Candy takers get to remain anonymous.

Maximum bid is $2 billion (for last auction). No info on how many put in bids for the max, though.

93 bidders and no non-competes at this time. Does that seem high to you?

Discount window rules for collateral apply, however. So, if you want cash, you can get it, but it's not easy love with high collateral requirements.

Thursday, December 20, 2007

Rearview Mirror on US GDP

Not much change to the GDP figures in today's final revision. Growth in Q3 was strong, but corporate profits were weak. (National Defense at nearly a trillion dollars, at annualized rates ...)

To note: Housing, falling at 20% per annum on these figures, knocks about 1% off GDP growth. Growth in Government spending continues to offset that as does a remarkable rise in net exports.

Tomorrow's personal income figures will be more interesting.


%Contrbution%GrowthGDP-$B
Percent change at annual rate:%ContrbRev'd
%Contrb
%G-Rev'dR-Chng
%Grwth
GDP-$B
Gross domestic product4.904.9013,971
Personal consumption expenditures2.010.132.80.19,786
Durable goods0.350.044.50.51,082
Nondurable goods0.460.072.20.32,846
Services1.20.022.805,858
Gross private domestic investment0.77-0.155-0.92,163
Fixed investment-0.11-0.05-0.7-0.32,128
Nonresidential0.96-0.019.3-0.11,500
Structures0.520.0616.42.1483
Equipment and software0.44-0.076.2-11,017
Residential-1.08-0.05-20.5-0.8627
Change in private inventories0.89-0.09---
35
Net exports of goods and services1.380.0114.70.1-695
Exports2.10.0219.10.21,686
Goods1.960.0226.20.41,191
Services0.14040494
Imports-0.72-0.024.40.12,380
Goods-0.670.014.8-0.12,007
Services-0.05-0.031.70.8373
Government0.74-0.013.8-0.12,717
Federal0.50.017.10.1
National defense0.47010.10990
Nondefense0.030.011.10.2674
State and local0.24-0.021.9-0.2317
Overview of NIPA Accounts
BEA Primer on NIPA

Housing Storm - The Same

Home starts and foreclosures this week indicate that the national housing markets remain stressed, but not getting rapidly worse.

Fixed mortgage rates have ticked up slightly in the past few weeks.

The futures markets appear to have reassessed the prospects for Los Angeles downward. However, these markets are extremely thinly traded, from what I can tell, so it is hard to make firm conclusions.

Case-Shiller Real Estate Index Contract Futures by Month
% rise or fall from last Index reading

FUTURES08Feb08May08Aug08Nov09Feb09May09Nov
Composite-2%-4%-7%-9%-9%-9%-14%
Boston-2%-5%-6%-6%-8%-9%-12%
Chicago-1%-2%-3%-4%-4%-5%-6%
Denver-2%-3%-4%-7%-8%-9%-12%
Las Vegas-4%-6%-7%-9%-10%-12%-13%
Los Angeles-3%-6%-8%-12%-14%-11%-16%
Miami-4%-7%-11%-14%-15%-18%-18%
New York-2%-3%-6%-6%-8%-9%-11%
San Diego-2%-4%-6%-6%-8%-10%-12%
San Francisco-3%-5%-6%-7%-10%-13%-15%
Washington-3%-5%-6%-8%-8%-10%-11%


Changes since
Nov-28
08Feb08May08Aug08Nov09Feb09May09Nov
Composite0%0%-1%-2%-1%0%-4%
Boston0%0%0%0%0%0%0%
Chicago0%-1%-1%0%0%0%0%
Denver0%-1%0%0%0%0%0%
Las Vegas-1%0%0%-1%0%0%0%
Los Angeles0%-1%-2%-5%-6%-2%-6%
Miami-1%-1%-1%0%-1%-2%-1%
New York1%2%1%2%1%2%1%
San Diego0%-1%-1%0%0%0%0%
San Francisco-1%-1%0%1%0%0%0%
Washington0%0%0%0%0%0%0%

Changes include changes to term interest rates, that may affect futures prices.

RealtyTrac suggests that the real test for foreclosure rates will come in the next quarter, which makes sense if there are seasonal patterns and Nov-Dec is a seasonally weak period.

Many of the foreclosure series have months during which the foreclosure rate spikes.

Wednesday, December 19, 2007

Mankiw Ignores the "Allocation" Evidence from the Current Subprime Mess

The right sees government as a terribly inefficient mechanism for allocating resources, subject to special-interest politics at best and rampant corruption at worst. The left sees government as the main institution that can counterbalance the effects of the all-too-powerful marketplace. - Greg Mankiw
humm....

This isn't nuanced enough.

The Right uses inefficiency as an excuse, as much as anything, arguably. One could give a long discourse on 'an excuse for what', perhaps, but that's best left to those willing to think about it themselves.

The Left ... has had numerous critiques of 'market mechanisms' that need correction, some of which do not have to do with "power" (especially monopoly or monopsony power).

Right now, major banks and brokerages are writing off billions - billions - of dollars. If the Government did that, the Right would be at arms, waving an "I told you so". Yet, somehow we are meant to accept that Government is inefficient versus ... how well resources have been allocated, just recently.

What's more, one seldom sees right-wing economists writing or talking about how efficiently or inefficiently the government manages the largest part by far of the taxes it collects, the spending on National Defense in America.

If taxes are "deadweight loss" - to whatever degree - and the government is inefficient, by definition, why do Right-wing economists seldom insist that the government minimize its National Defense budget, eh?

Sunday, December 16, 2007

Just the Numbers: Week 50

THE NUMBERS

Obama continues to have the mo. Huckabee tops out at last week's 20%.

The GOP race has widened, even as the DEM race has narrowed. McCain and Ron Paul both showing some late-day strength.

THE STRATEGIES

The crosses (parley contracts) continue to look attractive, in particular if Obama goes all the way. The past week alone would would have profited 48% for an Obama-Giuliani contract (before a sizeable 10% paid for the wide bid-ask)!



Next PresidentPr (%)Chg Wk.bid-ask
CLINTON(H)38.2-1.92%
GIULIANI15.5-2.45%
OBAMA18.121%
HUCKABEE6.1-2.17%
ROMNEY7.80.819%
McCAIN3.10.413%
PAUL4.624%
2007 Week 50: Clinton campaign gets blowback from comments about Obama; last of the "debates" for GOP and Dems.
GOP NomineePr (%)Chg Wk.bid-ask
GIULIANI35.6-3.90%
ROMNEY22.63.710%
HUCKABEE16.5-3.34%
MCCAIN9.81.62%
PAUL8.53.51%
THOMPSON(F)4.5-0.69%
RICE0.2-0.9n.m.
DEM NomineePr (%)Chg Wk.bid-ask
CLINTON58.6-3.61%
OBAMA33.14.10%
GORE2.60.28%
EDWARDS4.8-0.12%
RICHRDSN0.30n.m.
BIDEN0.2-0.1n.m.
DODD0-0.1n.m.
SenatePr (%)Chg Wk.bid-ask
DEM81.10.111%
GOP10-0.11%
Next ExecutivePr (%)Chg Wk.bid-ask
DEM59.3-0.31%
GOP38.3-0.23%
OTH2010%
DEM VP NomineePr (%)Chg Wk.bid-ask
OBAMA11.70.634%
BAYH15.5-2.419%
FIELD12.60.413%
RICHARDSON11.6-0.928%
GORE12.11.523%
CLARK14.12.17%
WEBB5.30.113%
DEM VP NomineePr (%)Chg Wk.bid-ask
FIELD23.8-1.467%
HUCKABEE28.1-0.26%
PAWLENTY6.40117%
THOMPSON(F)5.30.187%
GIULIANI2.62.396%
GINGRICH5.1055%
BUSH(J)5.10.127%
President ParleyPr (%)Chg Wk.bid-ask
CLINTON-GIULIAN31-2.22%
CLINTON-ROMNEY13.10.115%
OBAMA-GIULIANI14.84.88%
CLINTON-HUCK100.934%
OBAMA-HUCKABEE8030%
OBAMA-ROMNEY7.11.661%
CLINTON-McCAIN5160%
OBAMA-McCAIN2065%
src: intrade.com; bid-ask are not points, but spread as a percentage of the bid. Polls comparison, via RealClearPolitics.
IMPORTANT DISCLAIMER: this is just an informational note and not a solicitation or recommendation to buy or sell securities and there is no guarantee implied and people can lose all money on all investments. Numbers are believed to be correct, but do your own math and make your own conclusions or consult with an advisor before making any decisions.

Friday, December 14, 2007

Hired Economist Outlook

HOW TO SPIN EVEN BAD ECONOMIC NEWS

Bad inflation news today for the USA.

It's true, Virginia, Santa Claus is ... riding on a different sleigh, as he approaches. We can still "import inflation" (see the apparel figures).

But here's the thing. [No Kathy Griffin imitation].

General inflation is bad for financial assets, right, especially accelerating inflation; but it is positive, in a relative way, for real assets.

REAL ESTATE

So, if you were to spin this number positively, you might say that it gives a macro boost to the struggling real-estate prices market. It makes real estate relatively more attractive as an asset class.

:-)

Sunday, December 9, 2007

Just the Numbers: Week 49

THE NUMBERS

The big moves have been in Obama and Huckabee. The latter has been astonishing and could have made a lot of money, for anyone who had the foresight to buy after his straw-poll win in Washington, D.C. with evangelical groups.

Huckabee's advance has come at the expense of Romney, particularly in Iowa.

There are new contracts for the number of seats in the Senate and House (as well as a contract on Ron Paul to enter as an independent, even though he continues to say "no" to that possibility, it's traded at 15, last).

THE STRATEGIES

Obama is on the move in the parleys, and those betting the Obama ticket(s) could have doubled their money in the past month or so (although the bid-ask spreads will eat you alive).

McCain continues to look flat.

There is still significant probability on Edwards in the Iowa caucuses that seems to be an opportunity.

Next PresidentPr (%)Chg Wk.bid-ask
CLINTON(H)40.1-92%
GIULIANI17.90.81%
OBAMA16.18.12%
HUCKABEE8.205%
ROMNEY7-2.83%
McCAIN2.70.411%
PAUL2.6-0.919%
2007 Week 49: GOP debates "youTube" in SC, just as news of Giuliani's security blanket on girlfriend breaks; Oprah in Iowa; Clinton, Bill in SC; Romney with flashy Faith-in-America speech
GOP NomineePr (%)Chg Wk.bid-ask
GIULIANI39.5-63%
ROMNEY18.9-8.24%
HUCKABEE19.811.61%
MCCAIN8.21.21%
THOMPSON(F)5.10.22%
PAUL5-14%
RICE1.1-0.3n.m.
DEM NomineePr (%)Chg Wk.bid-ask
CLINTON62.2-94%
OBAMA2911.93%
GORE2.4-2.221%
EDWARDS4.9-0.52%
RICHRDSN0.30n.m.
BIDEN0.30n.m.
DODD0.10n.m.
SenatePr (%)Chg Wk.bid-ask
DEM81-1.111%
GOP10.1-4.998%
Next ExecutivePr (%)Chg Wk.bid-ask
DEM59.6-42%
GOP38.53.89%
OTH20.45%
DEM VP NomineePr (%)Chg Wk.bid-ask
OBAMA11.1-46%
BAYH17.9-0.19%
FIELD12.20.216%
RICHARDSON12.5-3.227%
GORE10.64.250%
CLARK12221%
WEBB5.21.613%
DEM VP NomineePr (%)Chg Wk.bid-ask
FIELD25.22.257%
HUCKABEE28.31.15%
PAWLENTY6.41.1116%
THOMPSON(F)5.21.287%
GIULIANI0.3-5.3n.m.
GINGRICH5.1053%
BUSH(J)5-0.432%
President ParleyPr (%)Chg Wk.bid-ask
CLINTON-GIULIAN33.2-5.88%
CLINTON-ROMNEY13-7.138%
OBAMA-GIULIANI105.927%
CLINTON-HUCK9.1047%
OBAMA-HUCKABEE8063%
OBAMA-ROMNEY5.52.52%
CLINTON-McCAIN4-1.163%
OBAMA-McCAIN21.750%
src: intrade.com; bid-ask are not points, but spread as a percentage of the bid. Polls comparison, via RealClearPolitics.
IMPORTANT DISCLAIMER: this is just an informational note and not a solicitation or recommendation to buy or sell securities and there is no guarantee implied and people can lose all money on all investments. Numbers are believed to be correct, but do your own math and make your own conclusions or consult with an advisor before making any decisions.

Caucus/CandidatePr (%)Chg Wk.bid-ask
Iowa Caucus
Democratic
CLINTON37-13.118%
OBAMA46.117.117%
EDWARDS10.1-4.957%
FIELD0.20.1n.m.
Republican
ROMNEY22.3-23.248%
GIULIANI0.4-2.9n.m.
THOMPSON(F)0.5-0.9n.m.
FIELD1.1-6.1n.m.
HUCKABEE7008%
MCCAIN0.1-0.2n.m.
New Hampshire Primary
Democratic
CLINTON0-79.9n.m.
OBAMA311213%
EDWARDS1.1-0.1n.m.
FIELD0.10n.m.
Republican
ROMNEY60.9-8.66%
GIULIANI7.7-4.356%
THOMPSON(F)0.1-1.4n.m.
FIELD5.3-3.755%
HUCKABEE13.4054%
MCCAIN8.81.841%
South Carolina Primary
Democratic
CLINTON35.1-44.750%
OBAMA36.421.454%
EDWARDS2-1285%
FIELD0.10n.m.
Republican
ROMNEY10.4-14.646%
GIULIANI17-316%
THOMPSON(F)15.9-9.155%
FIELD45.432.810%
MCCAIN1-3.5n.m.
Florida Primary
Democratic
CLINTON80.1-0.910%
OBAMA12.60.183%
EDWARDS2.50.460%
FIELD0.10n.m.
Republican
ROMNEY1-5n.m.
GIULIANI70-9.97%
THOMPSON(F)1.2-4.8n.m.
FIELD16.110.124%
MCCAIN2.1-0.4310%
New Jersey Primary
Democratic
CLINTON80013%
OBAMA5-0.1n.m.
EDWARDS0.1-1n.m.
FIELD0.10n.m.
Republican
ROMNEY51.9200%
GIULIANI0-80n.m.
THOMPSON(F)1-4.1n.m.
MCCAIN2.1-1.9376%
Nevada Caucus
Democratic
CLINTON800.16%
OBAMA10.12.198%
EDWARDS0.1-5n.m.
FIELD0.10n.m.
Republican
ROMNEY29.11724%
GIULIANI25.2-33.8113%
THOMPSON(F)5020%
MCCAIN0.1-1.9n.m.
Pennsylvania Primary
Democratic
CLINTON70-1027%
OBAMA5-0.1n.m.
EDWARDS0-1.1n.m.
FIELD0.10n.m.
Republican
ROMNEY5.1-3192%
GIULIANI71.2-0.812%
THOMPSON(F)50100%
FIELD80n.m.
MCCAIN2.10329%
California Primary
Democratic
CLINTON75013%
OBAMA5-5n.m.
EDWARDS0.1-1n.m.
FIELD0.10n.m.
Republican
ROMNEY10-0.150%
GIULIANI6508%
THOMPSON(F)54200%
MCCAIN2-0.1350%
Michigan Primary
Democratic
CLINTON80024%
OBAMA7.5-7.5227%
EDWARDS0-2.1n.m.
FIELD00n.m.
Republican
ROMNEY0-46.5n.m.
GIULIANI26034%
THOMPSON(F)50140%
MCCAIN1.1-5n.m.

Wednesday, December 5, 2007

Being a Contrarian Can Dull Your Prospects

How much does herd mentality dictate opportunities?

These charts on home ownership recall a 1996 presentation that I did in which I suggested that, while the housing "boom" had been going a long time and builders were printing quarter after quarter of records, major worries that it was all going to "roll over" "just around the corner" were probably not right, if only because home-ownership rates could move up another leg, against the backdrops of retirement booms in Phoenix and Florida, if for no other.

They did. I didn't. Gulp! *sigh*


(h/t Calculated Risk)

By the way, I'm unconvinced that sub-prime, at the margin, has greatly increased home ownership (and this is not what the Fed Atlanta studying is saying. The biggest years for sub-prime lending were 2005 and 2006, and you can see that homeownership rates did not nudge up).

FHA: Don't raise the caps just because ...

Interesting piece on sub-prime, from the auto market experience (from NBER).

Money quote:

This kind of sensitivity of repayment to loan size is the driving force in moral hazard models of credit imperfections.
Some evidence that the proposed reforms of the FHA, specifically to raise the cap and to pretend that protection to do so exists by raising insurance premiums at the outset, is the wrong way to go.

A STYLIZED ABC's OF BEST PRACTICES FOR SUBPRIME

As best one can say, from a distance, is that sub-prime lending works best, (a), when amounts are small, (b), leverage in the loan portfolio held by the bank is kept low and, (c) the packages held are financed long-term.

All three of these good-business practices seem to have been violated.

Low doc real estate loans let the amounts lent grow. Those holding the portfolios leveraged up, maybe even as much as regular-way mortgages held. Last, a lot of brokers with portfolios and, apparently, SIVs, ended up with liquidity nightmares, because they financed a big bucket in the short-term markets.

Paulson's Four Categories - Now We Need the Numbers

What would be interesting would be to understand the relative proportions that he thinks are in each category.

How many are affording 11% mortgages?

More importantly, how many can re-finance to fixed rates?

That's a number I'd really, really like to know, because it is an indicator, possibly, of how many people got "sold" an adjustable-rate nightmare. (I'd be willing to wager that figure as high as 66% of all the categories). Refinance applications are soaring, in the current quarter, if that is any indication ...

Hank Paulson's thinking on how to analyze the problem:

While the reality is a bit more complex, in the interest of simplicity, there are four categories of subprime borrowers.

  • There are those who can afford their adjusted interest rate; these homeowners need no assistance.
  • There are also a substantial number of homeowners who haven't been making payments at the starter rate on their subprime loan and may not have the financial wherewithal to sustain home ownership; some of these homeowners will become renters again.
  • A third category of homeowners might choose to refinance their mortgage - putting them in a sustainable mortgage while keeping investors whole. This is the first, best option. Servicers should move quickly to assist those who can refinance.
  • And the fourth category is those with steady incomes and relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate. We are focusing on this group, determining who they are and what steps may appropriately assist them

Santi-Claus In Town

You know that Santa Claus is in town when the stock markets react positively to both good and bad news ...

Challenger and ADP say that the job market, overall, is not falling apart, despite a trickle of somewhat high-profile layoff announcements. ISM says that services part of the economy is expanding. Those two - That's good enough for Santa (remember that "recessions" are labor shedding events ...).

Holiday sales - not so hot, on an adjusted basis.

Prices ... will the run-up in costs of all kinds squeeze margins a bit?

Tuesday, December 4, 2007

The Myth of Managing Your FICO Score ...

So much more to say, so little need to:

In one of the cases cited by the subcommittee, Marjorie Hancock of Arlington, Mass., wound up with interest rates on her four Bank of America credit cards of 8 percent, 14 percent, 19 percent and 27 percent, even though her credit risk is the same for all four.

Monday, December 3, 2007

"The Institute" Reports - Just Slow U.S. Growth

The ISM, formerly the National Association of Purchasing Managers (NAPM) and now all grown-up into an Institute, report that activity is on-balance positive, but hardly zippy. (Read it yourself. That's best).

Worrisome points included a falloff in the employment index. Also, prices are rising - natural gas, plastics, - everything!

Encouraging points included an accelerating export versus import picture. Also, inventories reported to be in quite good condition.

Saturday, December 1, 2007

Social Security

Ruth Marcus has a really balanced synopsis.

I have an idea, an "income singularity year" for Social Security benefits, starting now.

Each generation gets means-tested for one year (based on some sufficiently long period of income, so that it cannot be gamed).

I wonder what the impact of that would be. (I mean apart from those who would probably immediately want 2 years and more, once they got one year...).

As for worrying about a 75-year actuarial balance ... Ruth, I'm more concerned about winning against the microbes, I think, in the meantime.