August jobs down 4,000..........

twaddle said:
How are they doing on loan origination volume?

Seems to be slowing in general.

Bloomberg.com: U.S.
Click to expand...

:confused:??

We are talking about portfolio lenders, remember? They don't try to originate tons of loans to resell, they try to originate an appropriate amount of good quality stuff they plan to hold onto. Slowing origination/refi activity is actually good for portfolio lenders because they don't have to incur the costs of putting lots of loans on the books just to maintain their existing portfolio (let alone grow).
 
Sorry, I don't get it. They have declining revenue, declining earnings, increasing costs, but they don't need to increase their originations? So, your bet is based purely on decreasing interest costs they'd have to pay to depositors if the fed cuts rates?
 
I don't see what all the fuss is about-

4,000 jobs is 80 jobs in each state. Almost negligible.
 
I keep forgetting that most people don't look at banks too often.

Revenue is an effectively meaningless number for a financial institution. What you care about is net interest income after provision for loan loss. That is the "top line" for a portfolio lender like AF. This is their net spread after accruals for future loan losses.

The future is going to be very different than the recent past for these guys. Their loan book will reset slowly, and what does refi will get done at higher spreads and tighter terms. Their funding base is somewhat quicker to re-set, and it will re-set at lower rates, which will widen their spreads further. Finally, the world of fatter spreads will mean that it is now attractive to start growing the balance sheet, which is what they will start doing. All of this will serve to steadily increase EPS over the next several quarters.
 
Brewer, assume, for a theoretical exercise, that the Alt-A & even prime loans become "unmeetable" for a substantial number of borrowers.
Say maybe 20%.

Would you change your predictions then?
 
barbarus said:
Brewer, assume, for a theoretical exercise, that the Alt-A & even prime loans become "unmeetable" for a substantial number of borrowers.
Say maybe 20%.

Would you change your predictions then?
Click to expand...


:confused:

What do you mean by "unmeetable"? That 20% of prime and Alt A borrowers cannot make their payments? Thats about what is happening now in subprime. If that becomes the case in prime and Alt A, I don't think I will be worried about my securities portfolio, as we will have eneterd a replay of the Great Depression. Ain't gonna happen.
 
Yes, I mean not being able to afford make the monthly payment.
I think the problem is much more widespread than it appears now.
A year from now I'll have a much more definite opinion.
grin.gif


An interesting blog that deals with the topic is

The Housing Bubble Blog

While about 80% of the posts are feces, there are a few bright, knowledgeable folks that make it a good read.

And yes, these guys are uberbears, at least on housing.
 
barbarus said:
Yes, I mean not being able to afford make the monthly payment.
I think the problem is much more widespread than it appears now.
A year from now I'll have a much more definite opinion.
grin.gif


An interesting blog that deals with the topic is

The Housing Bubble Blog

While about 80% of the posts are feces, there are a few bright, knowledgeable folks that make it a good read.

And yes, these guys are uberbears, at least on housing.
Click to expand...

Tinfoil hat alert!

The Fed was pretty much explicitly set up to avoid a repeat of the Depression. If we ever got to the point of 20% of prime loans going bad, you would see a huge fleet of Federal Reserve helicopters money-bombing every city in Merkinland.

I think that the PS/Over-Enthusiastic Farm Workers are running around without their ball-gags again.
 
Barbarus can only afford aluminum foil, which, being of a lower atomic number than tin, resonates much less effectively to the ethereal financial vibrations.

Nevertheless, I assume that the schvances that acquired coastal McMansions in the last three years didn't use subprime to buy before they were priced out forever. I too have a feeling the big banks will eventually come out smelling like roses, that being the way of the world. I'm not so sanguine about the shorter term prospects of any equity. Guess thats what makes the market.

I likewise think the house buyers, to whit, Mr. & Mrs. Yuppie, are in for a tiny bit of disappointment. This brings a bit of brightness into this observer's otherwise dull existence.

B the U.
 
barbarus said:
I likewise think the house buyers, to whit, Mr. & Mrs. Yuppie, are in for a tiny bit of disappointment. This brings a bit of brightness into this observer's otherwise dull existence.

B the U.
Click to expand...

Why is it that so many of the bears remind me of how HL Mencken described Puritanism?

"Puritanism: the haunting fear that someone, somewhere is happy." -HLM

FWIW, I think the cycle will run like this:

1) The credit markets continue to be bunged up for a while, espcially the money markets and mortgage markets.
2) The economic fallout continues to become obvious
3) Bernanke & Co soil themselves, then start whacking rates
4) Housing prices take a long, slow slide but mostly just don't move that much.
5) Banks and any other lenders who retain funding start lending with abandon, since they coin money in the new world of expensive credit and cheap deposits
6) In a few years we start seeing sign s of teh next bubble puffing up.
 
brewer12345 said:
Tinfoil hat alert!

The Fed was pretty much explicitly set up to avoid a repeat of the Depression. If we ever got to the point of 20% of prime loans going bad, you would see a huge fleet of Federal Reserve helicopters money-bombing every city in Merkinland.

I think that the PS/Over-Enthusiastic Farm Workers are running around without their ball-gags again.
Click to expand...

Therein lies the problem. The FED has but one weapon - interest rates. Lowering interest rates is directly inflationary and anti-dollar (and a falling dollar is also inflationary in-and-of itself). This at a time of near record high commodity prices and sharply rising food prices - the "basics of life" that are conveniently stripped out of the core rate. The dollar at 20-plus year lows...

So yes, the FED could drop money from helicopters. They tried that once - in post-WWI Germany. Although I think at that time it was from zeppelins...
 
Well as State Street is finding out, you create a vehicle that combines long term debt with short term commercial paper and you don't list anywhere on your balance sheet. If noone wants your commercial paper you have to buy it back. But if the value of the underlying asset has fallen you will take a loss as you attempt to sell the paper. Great way to make money invest long and borrow short, nice little subsidairy income, until now.



This is what Greenspan was talking about yesterday when he said present market conditions remind him of Long-term capital times and October 1987.
 
Brew, I'm with you til #4. I see a long, substantial drop in the high-runup areas.
Houses should not appreciate much faster than inflation. It's finantial insanity to thing that a house should be worth two, three four or more times as many dollars as it was in 2000. Even at zero interest, those owners will need to live another lifetime to break even on a purely numerical basis.

This might effect the larger economic picture.

We are seeing vast developments, some still being constructed, that will never be occupied.

Now if Uncle Ben reves up the choppers, we can monetize our way out.
Inflation. Ya gotta love it, no?
 
Part of the problem in any discussion of credit markets and banks is the definition of the word "bank". Unfortunately the meaning/application of the word has been hijacked by the mortgage industry (and Wall Street) in an effort to lend some credibility to their horrendously shady practices. Brewer, please correct me if I am wrong, in the context of your initial comments "bank" refers to those institutions that are regulated by their association with the FDIC.

I believe Brewer is correct, your local/regional bank will not suffer significantly due to the excesses in the real estate market. In fact, your local bank may be in a great position to take advantage of the situation.
 
barbarus said:
Brew, I'm with you til #4. I see a long, substantial drop in the high-runup areas.
Houses should not appreciate much faster than inflation. It's finantial insanity to thing that a house should be worth two, three four or more times as many dollars as it was in 2000. Even at zero interest, those owners will need to live another lifetime to break even on a purely numerical basis.

This might effect the larger economic picture.

We are seeing vast developments, some still being constructed, that will never be occupied.

Now if Uncle Ben reves up the choppers, we can monetize our way out.
Inflation. Ya gotta love it, no?
Click to expand...

Maybe, maybe not. But remember, it goes in cycles. After the bust, the boom starts up again like a phoenix. I'm only 33 but I have already seen a full cycle: bust in '98, reinflation, housing boom, and now the bust. Next comes reinflation and, eventually, boom. If you bought AF (purely as an example) in 98, 99, or 2000, you made out like a bandit for years.

As far as housing values go, I am not so sure we will see prices drop that far in all but the most bubblicious areas. For example, 10 years ago I could have bought my house for 175k. 5 years ago, I bought it for 300k. Its probably worth a little over 400k. Will it drop back down to 200 or 300k? Possible, but unlikely. Why? Renting the equivalent would run me at least 1750 a month plus utilities. You could buy with a 30 year conforming mortgage and come out about the same. And rents are rising. Naturally, since I have no plans to sell and no issues with refinancing or making payments, I don;t care what the value of the house is unless it falls under 100k (in which case I will buy two more) or goes over 1MM (in which case Iwill sell). I suspect that a majority of homeowners are in the same boat, alarmist headlines tothe contrary.
 
NotSoonEnough said:
Part of the problem in any discussion of credit markets and banks is the definition of the word "bank". Unfortunately the meaning/application of the word has been hijacked by the mortgage industry (and Wall Street) in an effort to lend some credibility to their horrendously shady practices. Brewer, please correct me if I am wrong, in the context of your initial comments "bank" refers to those institutions that are regulated by their association with the FDIC.

I believe Brewer is correct, your local/regional bank will not suffer significantly due to the excesses in the real estate market. In fact, your local bank may be in a great position to take advantage of the situation.
Click to expand...

I was talking about a bank in the sense of the Bailey Savings & Loan, or in the sense of the typical bank in KRE: a boring, retail-oriented, take-deposits-and-make-loans-with-the-money FDIC backed institution. They wouldn't know a SIV or a CP conduit if it bit them in the ass, and a majority of them cross to the other side of the street when they see a subprime mortgage borrower coming their way. Some of them originate loans for sale into the secondary market, but in most cases this is a sideshow rather than the main event. The spread they can get on a loan and the cost of deposits matters far more to them than secondary mortgage market conditions ever will. And it is remarkably hard to kill one of these institutions, even when management seems bent on doing so.

Having said that, I find it amusing to see peoplewringing their hands over the likes of Citi WRT CP conduits potentially coming back onto their balance sheets. We are talking about maybe 50 billion landing on their doorstop vs. a 1 trillion balance sheet and entities that have direct access to the FHLB and the discount window. There is no possibility that the monster money center guys will get into trouble. If yyour tinfoil helmet is loose and you think they will, consider that the Fed would certainly step in and prop one or all of them up rather than see the Western world collapse.
 
PS Maker's MArk does not help with my already iffy typing "skills."
 
twaddle said:
So, your bet is based purely on decreasing interest costs they'd have to pay to depositors if the fed cuts rates?
Click to expand...
My "bet" (2% of the ER portfolio) is based on a sector fund selling at a backtested 10-year low.

I wonder what percentage of geographically-diversified sector 10-year lows have continued to be sucky investments-- while yielding 5%. The 1980s-1990s steel industry? Nah, Nucor cleaned that up. Detroit? No, Nissan & Toyota took over. Houston oil? Well, you couldn't tell from the rest of the world a decade later. The NASDAQ? People are starting to make money again there too.

"Yeah, but" talk is cheap, guys. If it's such a bad investment then either short it or propose a better one. I hear Bay Area rental properties are a slam-dunk double-digit return!
 
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