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Home Valuation Code of Conduct

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Source: Fannie Mae

Good Evening: In the wake of yesterday’s beating, U.S. stocks were mostly unmoved today by a series of new stories and economic releases. Much of today’s trading desk debates centered on the current Fed meeting and the exit strategies from quantitative easing the FOMC may or may not announce tomorrow. Given the uncertainty ahead of tomorrow’s Fed decision, it is quite possible investors decided to sit on their hands while waiting to hear from our central bank. Let’s use the momentary lull in trading to examine a surprising assertion by the BAC-Merrill economics team that the Great Recession is either already over, or soon will be.

U.S. stock index futures were fairly well behaved last night, probably since overseas bourses weren’t hit too hard in response to yesterday’s sell off in Wall Street. As for today’s economic data, existing home sales rose, but econo-watchers were disappointed. The 2.4% increase didn’t match expectations for 2.9%, nor were analysts thrilled that it took a hefty amount of foreclosures to achieve the smallish gain (see below). Boeing also dashed hopes for a quick rebound today – at least in the Dow – when it reported yet another delay in its 787 Dreamliner program. Still, the major averages never did wander too far from unchanged during the session, as a weak dollar sparked some strength among yesterday’s hard hit metals, mining, and materials names.

President Obama did create a bit of a stir when he took to the podium for a press conference this morning. Though it seemed as if his primary intent was to forcefully speak out against Iran’s clerics for their heavy-handed tactics after that country’s presidential election, it soon devolved into questions about Mr. Obama’s struggles with smoking. Sandwiched between these topics were a few swipes at the healthcare insurance industry and our nation’s smokestack-belching corporations. Mr. Obama wanted to remind everyone of the legislation he has sent to the Hill in answer to these perceived ills. I will try to tackle the policy aspects of these proposals another day, but the sheer cost of these ambitious programs will only complicate future policy decisions for the Federal Reserve. They finish up their two day meeting tomorrow, and one of the main topics is quantitative easing. Some observers want the Fed to press its bets in support of lower interest rates, while many more would like the central bank to announce a clear exit strategy from all the money printing and bank reserve creation. The debate alone gives me comfort holding my precious metals exposure.

Equity market participants felt less comfortable and it was easy to see in today’s market action. Volume was on the low side and the major averages finished mixed. While the S&P and Dow Transports managed small gains, the other indexes finished with similar sized losses. One of the other factors causing equity investors to question themselves was today’s 2 year note auction. A full $40 billion went under the electronic gavel today, and the results seemed to give the lie to the notion that Treasury supply will soon swamp demand. In every respect — from the low winning yield, to the strong bid-to-cover ratio, to a high percentage of indirect bidders — the two’s enjoyed a blowout auction. Other Treasurys benefited, too, and yields fell between 2 and 7 bps across the curve. The dollar’s 1.2% drop took back yesterday’s gain and then some. The greenback’s woes helped commodities perk right back up, though. Nice upticks in energy and metals prices propelled the CRB index to a gain of 1.5%.

Now that noted bear on the U.S. economy, David Rosenberg, has departed BAC-MER and New York for a similar position in Toronto, the economics team he left behind is taking a more optimistic stance. In the piece you see below, BAC-MER economist, Neil Dutta, steps out of Mr. Rosenberg’s considerable shadow to proclaim the Great Recession is all but over. He says the turn in a number of different statistics that have historically marked the end of recessions suggest the one that began in December of 2007 probably ended in April (or will end this summer). All that remains is for NBER to affix a toe tag and submit the paperwork. Mr. Dutta’s piece is well reasoned and leaves any bear on the U.S. economy in the unenviable position of arguing against history.

Mr. Dutta may well prove right with this call, but I question the underlying premise of his argument. History has been a poor guide during the 2007-2009 period, a stretch of time that has seen quite a number of “firsts”. The economic weakness hitting the U.S. and global economies is not due to a typical, post-WWII, over-heat and cool-down cycle. This downturn is the result of a broken credit bubble, one so large that the housing bubble was only a subset of the ways in which capital was grossly misallocated. Broken bubbles are not easy to patch and reinflate — just ask Japan. I will admit that our fiscal and monetary responses to this credit crisis have been every bit as unprecedented as the problems they are meant to address, but if it was possible to print one’s way to prosperity, then wouldn’t Zimbabwe be the richest nation on earth?

I do agree with one aspect of Mr. Dutta’s analysis. He says that the end of a recession does not mean a return to growth, and he cites the 2001-2002 period as an example (which, appropriate to this discussion, followed a broken equity bubble). He fears a sluggish economy lies on the other side of the Great Recession. I fear what lies on the other side of the overly activist policy responses. And therein lies the trouble with allowing bubbles to inflate in the first place. The resulting decision sets are somewhere between poor and horrendous. I’m sure David Rosenberg would find a better way to say it, but when it comes to the economic disease that takes hold once a bubble pops, an ounce or two of prevention is indeed far less costly than the many, many pounds of cure administered afterwards.

– Jack McHugh

U.S. Stocks Gain, Led by Banks, Commodity Shares; Boeing Slumps
U.S. Economy: Lower Home Prices Fuel Gain in Resales
Dollar Near Three-Week Low Versus Yen; Fed May Keep Rates Low
The end is near or nearly here

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The request was made for a mid-town book reading, and it is now scheduled.

This Wednesday June 24, 2009 6:30 PM
Barnes & Noble
555 Fifth Avenue, New York
212-697-3048

Should be fun!

The National Association of Realtors’ economist Lawrence Yun is anxious about the new appraisal rules.  He talks to various sycophants about how appraisals are hurting home sales.

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May Existing Home Sales, a measure of closings where the contracts were likely signed a few months prior so thus doesn’t reflect the rise in mortgage rates, totaled 4.77mm annualized, 50k less than expected but is up from 4.66mm in April which was revised lower by 20k. The NAR said about 33% of the sales were foreclosures, well below the pace of 45-50% seen in months before. This was likely due to the moratorium’s put in place at the beginning of the year which have now ended. Months supply was the relative positive within the # as it fell to 9.6 from 10.1 in April as the absolute # of homes for sale fell to 3.798mm from 3.937mm in April. The median price fell 16.8% y/o/y but was up 3.8% sequentially and that likely reflects the slowdown in foreclosure sales which has been lowering the median price. Net-net, mortgage rates are up 40-50 bps since the contracts were likely signed and we need more data to see its impact.

DISCLAIMER

Although the information contained herein has been obtained from sources Miller Tabak + Co., LLC believes to be reliable, its accuracy and completeness cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. At various times we may have positions in and effect transactions in securities referred to herein. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and involves risk of loss. Although the information contained in the subject report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. An options disclosure document may be obtained from Mr. Jay Stenberg, Miller Tabak + Co., LLC., 331 Madison Avenue, New York, NY 10017. Additional information is available upon request.

Member NYSE, NASD, CBOE, PHLX, ISE, NFA.

Member SIPC.

The euro has lifted back to near the 1.40 level vs the US$ after ECB member Weber basically said their benchmark rate will not go any lower, “the ECB governing council has used the room for rate reductions that was created by waning inflation risks and a dramatic worsening of the economic situation.” On other steps they have taken, such as liquidity facilities and the buyback of covered bonds, “additional steps are not necessary at the moment.” In likely a timing coincidence but ironic that its on the same day the FOMC begins its two day meeting, he says in a jab at the Fed, “the past has shown that an overly generous provision of liquidity in global financial markets in connection with a very low level of interest rates promotes the formation of asset price bubbles.”

DISCLAIMER

Although the information contained herein has been obtained from sources Miller Tabak + Co., LLC believes to be reliable, its accuracy and completeness cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. At various times we may have positions in and effect transactions in securities referred to herein. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and involves risk of loss. Although the information contained in the subject report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. An options disclosure document may be obtained from Mr. Jay Stenberg, Miller Tabak + Co., LLC., 331 Madison Avenue, New York, NY 10017. Additional information is available upon request.

Member NYSE, NASD, CBOE, PHLX, ISE, NFA.

Member SIPC.

The new Banksters are proving Willie Sutton wrong. Sutton famously answered the question Why do you rob banks  by saying  “Because that’s where the money is.”

Ahhh, the good old days, when robbers used guns to hold up a single bank and tried to steal money $10,00 at a time!

Sutton was small time. The real money is in emptying out the Treasury trillions iof dollars at a time.

Why?

“Because that’s where the REAL money is.”

Here’s a Jim Flora retro throwback to that simpler time:

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The Big Bank Robbery

The Obama administration continues to demonstrate their lack of understanding about a) how derivatives work, and b) their role in the crisis and collapse.

The proposals to regulate derivatives are weak and ineffective. CDOs and CDS may be trading at healthy discounts to their notational value, but at least Wall Street is getting 100 cents on the dollar for its lobbying efforts.

WaPo:

“The multitrillion-dollar derivatives market, which currently isn’t regulated, enables financial firms to speculate on whether stocks, bonds, currencies and natural resources, among other things, will rise or fall in value. A particular type of derivative called a credit-default swap exacerbated the financial crisis and contributed to the collapse of American International Group, which made bets on derivatives it could not afford. Credit-default swaps, which are linked to the value of bonds, would be overseen by the SEC under the proposed agreement . . .

Obama’s proposal calls for derivatives to be traded through “central clearinghouses,” which would collect data about the market and require that buyers and sellers allocate enough money to cover any trades.

Gensler wants to go a step further and require that derivatives be traded on electronic exchanges, just as stocks are traded on the New York Stock Exchange and the Nasdaq. A derivatives exchange would offer the advantages of a clearinghouse but also provide public information about the pricing and volume of trades.

Non-standard derivatives would be exempt from much of this regulation. These are derivatives linked to highly complex investments, such as securities composed of mortgages and other kinds of debt. But Gensler and Schapiro said it would be important to be vigilant about policing this market.”

No no no!

This is simple, people! Repeal the CFMA to begin with, put ALL derivatives on exchanges, require transparency and reserves.

Fixed!

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Source:
Broad Agreement Reached on Derivative Oversight
Zachary A. Goldfarb
Washington Post, June 23, 2009

http://www.washingtonpost.com/wp-dyn/content/article/2009/06/22/AR2009062201970.html

An emailer asks: “Why do you diss the monthly numbers when they are improving?”

Well, because they are not really improving, if you understand the seasonality associated with them.

Let’s have a look at the monthly numbers relative to these seasonal trends. They ALWAYS improve from January through the Summer, as this is the prime season (many families want to be settled in the new house before the new school year begins in September) with actual improvements

The chart below makes it clear that the overall trend is seasonally driven:

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Home Sales Trend, 2005-2009 (NSA)

click for larger chart

chart courtesy of Calculated Risk

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For the past few weeks we have provided ample evidence, mostly via private industry data and oration, that ‘green shoots’ are just another Bernanke equivocation and Street yearning.

We also opined that requisite ‘insider’ banks have fleeced patsies for necessary capital, so market beware.

Another of our themes is that the dollar, bonds and commodities keep checking the Fed across the big game board. And in order to avoid being checkmated, the Fed would have to sacrifice stocks.

The past week or so we have argued that this ‘second derivative’ rally, which is the latest permabull/Street shill euphemism for ‘dead cat bounce’, is occurring on very poor technicals. Volume is contracting, which is contrary to the start of any bull market. And leadership is by the misfits, which is never good.

In our June 16 letter we noted that technical indicators on the DJTA were declaring that its rally had ended; and because stocks were still in a ‘weekly’ sell, the daily ‘sell’ signals took on added gravitas.

Numerous pundits noted that insider selling had reached 2007 levels as did sentiment jigginess.

And finally, if all of the above escaped one’s consciousness, Goldman CEO Lloyd Blankfein, a week and a half ago, stated that this is not a recovery, the recession will be ‘long and protracted’, and any recovery would be ‘shallow’. Astute traders snickered that Goldman now had to be short.

Ergo, there have been enough warnings to induce the prudent to lighten up and move to the sidelines.

The FOMC Communiqué will be important only if it clearly indicates a significant change in policy. Anything else is a sideshow that will produce a fleeting effect on the markets.

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