Will Subprime Foreclosures Spread?

[d]

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It seems like a lot of what Greenspan says lately, has to be taken with a huge grain of salt.

... the media has clearly misrepresented what Greenspan has had to say lately. The media reports he thinks a recession is likely, what he said was that it is possible, but that one was not being predicted. The media reports he thinks the subprime problem will spill-over, what he said was that there was no indication that it would.

The media is absolutely illiterate in things financial/economic.

[cute fuzzy bunny]

One just needs to look at the media misreporting on the savings rate/401k-ira from last month for a good example of that...

[tryan]

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Total 3,550 dollars a month JUST TO LIVE IN A HOUSE!

... and to think they could rent a similar house for much less ... with no downside risk.

[wabmester]

If you want the bearish view, let me introduce you to an economist:

Nouriel Roubini

it will be the worst housing recession in the last five decades

The economy will experience a hard landing, at best in the form of a growth recession (growth in the 0%-1%) for most of 2007 or, more likely, an actual recession starting in Q2. Greenspan thinks a recession by Q4 has a 30% probability; the Fed’s yield curve model prices a 54% probability of a recession in 2007.

the Fed will try but will not be able to rescue the economy.

[Alex]

Q- How many times can you be wrong about a future event and still be credible?
A - if you are an economist, stockbroker, or market guru, an unlimited amount of times.

Barnum was right, a sucker IS born every minute.

IF you ask me, this is all just more financial porn. Stick with your AA and enjoy your life

[wabmester]

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Originally Posted by Alex Barnum was right, a sucker IS born every minute.

I hope you're right. That's the only thing that keeps me in the markets -- the hope that there's always another sucker willing to pay a little more for houses and stocks. Heaven help us all if we run out of suckers.

I've been thinking about this recently. The 80's and 90's both had high speculative returns (i.e., P/E expansion). What drove that P/E expansion, and do we still have the ingredients to do the same for the next decade, say?

My guess is that the 80's speculative return was driven by new-fangled IRAs and optimism that personal computers would transform the world.

The 90's were obviously driven by internet euphoria.

Do we still have a magic cookie to bring new money into the market again?

[mb]

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Originally Posted by Sam I'm totally surprised by this list. I was expecting to see, Cali, Mass, NJ, Florida to be at the top of the list. What gives?

An article in the San Jose Mercury News last week showed that Silicon Valley has a relatively low rate of sub-prime mortgages.

MB

[Alex]

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Originally Posted by wab I hope you're right. That's the only thing that keeps me in the markets -- the hope that there's always another sucker willing to pay a little more for houses and stocks. Heaven help us all if we run out of suckers. I've been thinking about this recently. The 80's and 90's both had high speculative returns (i.e., P/E expansion). What drove that P/E expansion, and do we still have the ingredients to do the same for the next decade, say? My guess is that the 80's speculative return was driven by new-fangled IRAs and optimism that personal computers would transform the world. The 90's were obviously driven by internet euphoria. Do we still have a magic cookie to bring new money into the market again?

hmm..... I am in the market because I'm NOT a sucker. Suckers put their money into lottery tickets and bet the house at horse tracks.....So it comes down to perspective. I have faith in the US economy and the ingenuity of our people. I am an optimist.

You, by contrast are as cynical a pessimist as I've ever encountered. You should be buying bags of junk silver, you'll need 'em, for the coming 'hard' times......

[wabmester]

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Originally Posted by Alex I am an optimist. You, by contrast are as cynical a pessimist as I've ever encountered. You should be buying bags of junk silver, you'll need 'em, for the coming 'hard' times......

Are you telling me that all I have to do is think happy thoughts, wish upon a star, and the economy and my investments will go gangbusters? What a cool idea!

Let me ask you something. Do you look both ways when you cross the street, or do you run across with your eyes closed? The historical data says that you'll probably get across the street fine either way, but that doesn't mean that you should walk in front of an oncoming bus.

[haha]

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Originally Posted by Alex You, by contrast are as cynical a pessimist as I've ever encountered.

Another guy who has led a very sheltered life.

Ha

[Alex]

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Originally Posted by wab Are you telling me that all I have to do is think happy thoughts, wish upon a star, and the economy and my investments will go gangbusters? What a cool idea! Let me ask you something. Do you look both ways when you cross the street, or do you run across with your eyes closed? The historical data says that you'll probably get across the street fine either way, but that doesn't mean that you should walk in front of an oncoming bus.

well, I didn't say that. Maybe you read that by looking at tea leaves, or chicken entrails? That is how you make your investment decisions, right? Or maybe you just consult Greenspan, MONEY magazine, or another 'guru'? Short term timing schems don't interest me WAB, I invest for the long term. YOu should try it, it's very relaxing.

[wabmester]

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Originally Posted by Alex Short term timing schems don't interest me WAB, I invest for the long term. YOu should try it, it's very relaxing.

"Long" is relative. I've done the math. Stock returns for the next 10 years or so look about as attractive as T-bills *unless* we have euphoric P/E expansion again. So, I'm looking both ways before I cross the street. I see the oncoming bus, and I'm still looking for the rollercoaster ride that just keeps going up no matter what gravity says.

We don't even need a recession to make stocks unattractive. Just a slower rate of GDP (or earnings) growth would be pretty miserable for stocks. Unless we get another burst of euphoria from left field. I'm willing to make a small bet on euphoria, and that's why I'm looking for clues to where it might come from.

What do the optimists think is going to make everything warm and fuzzy again?

[perinova]

Foreclosures do not hit states at the same rate of speed. I recollect that in Texas a home can be foreclosed after only one month, while in NewYork (the other extreme) it will take more than a year of non-payment before foreclosure.

[Alex]

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Originally Posted by wab "Long" is relative. I've done the math. Stock returns for the next 10 years or so look about as attractive as T-bills *unless* we have euphoric P/E expansion again. So, I'm looking both ways before I cross the street. I see the oncoming bus, and I'm still looking for the rollercoaster ride that just keeps going up no matter what gravity says. We don't even need a recession to make stocks unattractive. Just a slower rate of GDP (or earnings) growth would be pretty miserable for stocks. Unless we get another burst of euphoria from left field. I'm willing to make a small bet on euphoria, and that's why I'm looking for clues to where it might come from. What do the optimists think is going to make everything warm and fuzzy again?

So I guess it is chicken entrails then? Sorry wab, I can't take people like you seriously. You actually think you can determine what future stock market returns will be? My attitude is that nobody (that means you too wab) can predict what the future will bring, NOBODY. So, why worry about it? Life is for living and enjoying. I really could give two sh!ts about what Greenspan says, or if we are in a housing bubble or a subprime foreclosure nightmare. I am too busy living and enjoying my life. When I need my money, hopefully it will be there and I'll have enough to do what I want to do. Otherwise I'll adjust my plans. I don't worry about events out of my control.

Now about those junk silver coins, how many bags do you have hoarded in your fallout shelter

[wabmester]

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Originally Posted by Alex You actually think you can determine what future stock market returns will be?

You're a smart guy, Alex. I'm sure you've seen this, but let's do a little Stocks 101 together.

stock return = dividend yield + earnings growth + P/E growth.

That's it. No gurus up my sleeve. Tell me if there is a hidden factor I'm missing.

We know dividend yield -- about 1.5%. The oncoming bus suggests that earnings might not be growing very fast. So, our only hope is P/E expansion. You are betting on P/E expansion even if you didn't realize it.

[Alex]

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Originally Posted by wab You're a smart guy, Alex. I'm sure you've seen this, but let's do a little Stocks 101 together. stock return = dividend yield + earnings growth + P/E growth. That's it. No gurus up my sleeve. Tell me if there is a hidden factor I'm missing. We know dividend yield -- about 1.5%. The oncoming bus suggests that earnings might not be growing very fast. So, our only hope is P/E expansion. You are betting on P/E expansion even if you didn't realize it.

You must have missed the Asset Allocation part of that school. I have a good portion of my assets in Bonds, cash and reits. I also own my own business and a rental property with positive cash flow. So really, I don't care what stocks do, I don't want to beat the stock market, I am content to simply match the market returns. If P/E's expand, great. If not, thats ok too. No matter what happens I will be very content, relaxed, and comfortable.

[cute fuzzy bunny]

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Originally Posted by wab or do you run across with your eyes closed?

Bag over his head. Done it 1000 times. Nothing bad ever happened.

[wstu32]

1. subprime is 10% (give or take) of all mortgage paper.
2. while i dont think the blow up is good, i do honestly believe it is overblown
3. there is a concern not to let all subprime lenders go "under" by the fed and large institutional holders of subprime debt
4. their is actually a need for subprime
5. better regulation and change coming ~good

so, in my opinion, i think we have seen the worst.... but what do i know

[crazy connie]

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Originally Posted by Sam I'm totally surprised by this list. I was expecting to see, Cali, Mass, NJ, Florida to be at the top of the list. What gives?

1st 3 are hit by auto industry downturn, Des Moines is home to Wells Fargo Home Mtg division & Maytag which outsourced as I recall and they have both been whacking, Mississipi well you must remember a lot of the sub-primes and liar loans came before Katrina which wiped out jobs.

Overall the Subprime is a shame on the lender and borrower. The ones we have yet to hear a lot about are the liar loans. I saw a lot of fools buying 7 figure properties (some with 5% down) because they could afford a negative amortization with buydown payment... That is going to bite a lot of fools hard with the leveling off of housing prices and slowing of raises and income.

[wstu32]

i agree..

but liar loans is not all subprime!

neg-amortized loans are absolutely immoral!! but lets not let all borrowers off the hook too! some borrowers were looking to make a quick buck in an insanely hot R.E. market and some seemed to get caught at the wrong time.

also, some subprime comanies that 'specialized" in that 1.4% teaser mortgage rate are better off dead, but didnt i see reputable companies offiering this?

countrywide
quicken loans
etc?