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Reading Between The Lines

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Crazy Times Remind Me of…

There’s a common and disturbing thread behind these volatile economic times and its akin to inside investing.

A little background… back in July, I stroked a post insinuating that Fannie Mae and Freddie Mac’s falling stock prices were the result of the Financial Accounting Standards Board (FASB) implementing an accounting standard that required mortgage loans to be viewed and have their financial viability reported in a far more transparent manner, including the GSEs (Fannie and Freddie).   Whoopsy…liquid to insolvent overnight.

Two months later they melted into a government receivership, in other words the government bought Fannie and Freddie and shored them up with Treasury money.

Reading between the lines…

…Fannie and Freddie have always been staunch Washington beltway lobbyist and political campaign contributors…so they were not about to be left high and dry.

But what about mortgages not originated by the GSEs and held by other financial institutions?

All you have to do is open Pandora’s box once. The new transparent accounting standards infected most every financial institutions portfolio, as they contained vast, newly ‘toxic’ tranches of Mortgage Backed Securities.  They began to fall one by one in well publicized fashion.  I suggested this all seemed a little contrived, but it was purely speculation at the time.

Why the Bailout Came To Be

Well, the Treasury Department can’t buy everyone, and so The Bailout was crafted…a couple of times.  I’m the first to admit to having no clue as to what it initially meant for Wall Street or Main Street, except that something had to be done in attempt to restore confidence in the Market, and $700B seemed like enough raw hard cash to shore things up for a bit.  I could make that type of coin go a long way and it would give me new found confidence 🙂

Well, clues have begun to manifest.  Still not sure if it was Mr. Green(span) in the kitchen with the pipe but, reading between the lines…I have a few (rhetorical) questions, while reading between the lines:

  • Why doesn’t the Bailout provide money to banks to lend instead of buying up the toxic assets (similar to Europe’s ‘bailout’ plan)?  They rode it all up, why shouldn’t they ride it down?
  • Why did the U.S. Chamber of Commerce spend $30M in lobbying in the 3rd quarter this year, twice the amount spent in the 2nd quarter?  Did you know AIG (yes that AIG which spends $400k on corporate retreats) contributes heavily to the Chamber?
  • Did you know that Goldman Sachs was the largest corporate contributor to political campaigns this past quarter?  The same Goldman Sachs that has many ‘former’ executives heading up the Treasury’s Bailout Plan?
  • How about JP Morgan and Citigroup, the latter of which absorbed Chase, each contributing over $4M to political campaigns.  Yes that JP and Citi, who also received handsome federal aid checks.
  • If these company’s can buy their way into huge chunks of tax payer fueled cash for relatively little ‘investment’,  how in the world can the markets ever hope to restore any semblance of consumer confidence??

Black Monday Casually Passed

On September 15th, 2008 the Dow Jones Industrial Average dropped 504 points, which was pretty shocking.  Looking back it turned out to be ‘Just Another Black Monday’.  Since then the Dow has had 5 of the top 10 single day largest point drops in history.  Conversely, the Dow has had 5 of the top 10 single largest point gains since 9/15/08.  Granted, a lot of money has left the market but its mainly Main Streets money that’s gone…under peoples mattresses or into ‘safer’ securities like Treasury bonds.

Reading between the lines, the people that truly run our economy are special interest, political backslapping, welfare check inducing, greedy, smarmy a-holes who really don’t care about you (or me).  There is no real logic behind all this economic mumbo-jumbo, well there is, its called ‘hedge fund redemptions‘ but that’s another topic for another day.  It’s just a big game that only a few party insiders are allowed to play in anyway…mainly those who contribute to the political campaigns who the bail them out when they’re out of money.

Quick logic test (and reading between lines):

If some people make money when the market goes up and some people make money when the market goes down…and the market is going up A LOT and falling back down A LOT…then some people are making A LOT of money.

I’m purposely not stating which political group received contribution from whom on purpose because it really doesn’t matter. What does matter is that there is a relatively small group of people making a BOAT load of money right now, and its not anyone from Main Street.

I hope they hurry the hell up so the rest of this country (and greater Earth) can get back to doing business with some confidence.

The Next American President

Finally, reading between the lines, whoever is elected President is going to inherit an economy on the rebound and will look like a genius.  I guess he paid for it.

**This week’s sign that the economic markets are scraping bottom:

California’s median home price dropped 34% from $430,000 to $283,000 compared to this time last year…as a result, sales are up 65%.  As California housing economics approach the other 49 states, you know we’re bottoming out.

Reading between the lines, its a great time to buy!

Jeff started TheXBroker.com in August of 2006 to express his industry knowledge and provocative opinion. He’s been an adversary of traditional real estate and mortgage business since running his own brokerages. Formally educated in the biological sciences at Syracuse University and Barton College, once Jeff discovered how little entry level research science paid, he started his post collegiate career working for Branch Banking and Trust in The Triad area of North Carolina. He learned about the worlds of finance and real estate and began to personally purchase property at the courthouse steps. Today, Jeff is VP Operations and Business Development of ActiveRain Corp and still The XBroker

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8 Comments

8 Comments

  1. Missy Caulk

    October 30, 2008 at 4:05 pm

    Jeff, same thing here in Ann Arbor, prices are down, home sales up.

  2. Chris Shouse

    October 31, 2008 at 8:41 pm

    Things are looking up in Las Vegas also.

  3. Linsey

    November 1, 2008 at 11:54 am

    I’m not ready to throw a party about California’s ‘sales are up’ news just yet. Most of that movement is in the low price points and in the most distressed sectors of the market.

    65% of the active inventory of homes in Rancho Santa Margarita under $500,000 are short sales. In Mission Viejo, 50% of the active inventory under $500,000 are short sales.

    I just wrote about this issue on my blog a couple days ago. Solving the short sale crisis is the help ‘Main Street’ needs. We need efficiency – yesterday.

    The negotiator with the bank on one of my short sale listings will only commit to a 4 to 6 month response time – and they’ve already approved the hardship. Our first 4 buyers at full price walked over the course of the last 4 months waiting for a response. She says the file starts all over with a new buyer! There is no excuse for this kind of inefficiency. The value on my short sale I mentioned has fallen at least $50,000 since the initial offer.

    Until we solve this facet of the market, inventory is misrepresented higher than it should be, buyers stand by waiting to hear (pent up demand), property condition deteriorates, and values continue to decline.

    Solve the short sale market and we’ll have a good head start to a recovery. Until then…I’m not sure about the benefits of this great bailout.

  4. George McCumiskey

    November 19, 2008 at 8:51 am

    Once upon a time my checking account was overdrawn because some fool stopped payment on a check. Then this fool didn’t bother to check his balance before paying bills. Cost to me – $489.00 in the red. I did moan and cry for the bank to bail me out. Fat chance.

    Cost to me. $210+

    Now my bank has screwed up. They cried for the government to bail them out. Voila – they are bailed out.

    Cost to the bank – nada.

    One other thought. Shouldn’t a bank be smarter about finances than I was?

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Economic News

Is the real estate industry endorsing Carson’s nomination to HUD?

(BUSINESS NEWS) Ben Carson’s initial appointment to HUD was controversial given his lack of experience in housing, but what is the pulse now?

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NAR strongly backs Dr. Carson’s nomination

When President-Elect Donald Trump put forth Dr. Ben Carson’s name as the nominee for Secretary of Housing and Urban Development, NAR President William E. Brown said, “While we’ve made great strides in recent years, far more can be done to put the dream of homeownership in reach for more Americans.”

At the time of nomination, the National Association of Realtors (the largest trade organization in the nation) offered a positive tone regarding Dr. Carson and said the industry looks forward to working with him. But does that hold true today?

The confirmation hearings yesterday were far less controversial than one would expect, especially in light of how many initially reacted to his nomination. Given his lack of experience in housing, questions seemed to often center around protecting the LGBT community and veterans, both of which he pledged to support.

In fact, Dr. Carson said the Fair Housing Act is “one of the best pieces of legislation we’ve ever had in this country,” promising to issue a “world-class plan” for housing upon his confirmation…

>>>>>Click to continue reading…<<<<<

#CarsonHUD

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Economic News

Job openings hit 14-year high, signaling economic improvement

The volume of job openings is improving, but not across all industries. The overall economy is improving, but not evenly across all career paths.

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Job openings hit a high point

To understand the overall business climate, the U.S. Labor Department studies employment, today releasing data specific to job vacancies. According to the department’s Job Openings and Labor Turnover Survey (JOLT) for April, job openings rose to 5.38 million, the highest seen since December 2000, and a significant jump from March’s 5.11 million vacancies. Although a lagging indicator, it shows strength in the labor market.

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The Labor Department reports that the number of hires in April fell to 5 million, which indicates a weak point in the strong report, and although the volume remains near recent highs, this indicates a talent gap and highlights the number of people who have left the labor market and given up on looking for a job.

Good news, bad news, depending on your profession

That said, another recent Department report notes that employers added 221,000 jobs in April and 280,000 in May, but the additions are not evenly spread across industries. Construction jobs rose in April, but dipped in professional and business services, hospitality, trade, and transportation utilities. In other words, white collar jobs are down, blue collar jobs are up, which is good or bad news depending on your profession.

Additionally, the volume of people quitting their jobs was 2.7 million in April compared to the seven-year high of 2.8 million in March. Economists follow this number as a metric for gauging employee confidence in finding their next job.

What’s next

If you’re in the market for a job, there are an increasing number of openings, so your chance of getting hired is improving, but there is a caveat – not all industries are enjoying improvement.

If you’re hiring talent, you’ll still get endless resumes, but there appears to be a growing talent gap for non-labor jobs, so you’re not alone in struggling to find the right candidate.

Economists suspect the jobs market will continue to improve as a whole, but this data does not pertain to every industry.

#JobOpenings

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Economic News

Gas prices are down, so are gas taxes about to go up?

Do low gas prices mean higher gas taxes are on the way? Budgeting for 2015 just got a bit more complicated, if some politicians have their way.

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Gas taxes and your bottom line

Many industries rely heavily on time in their vehicle, not just truck drivers and delivery trucks. Sales professionals hop in their vehicles throughout the day, as do many other types of professionals (service providers like plumbers, and so forth). For that reason, gas prices and taxes are a relevant line item that must be budgeted for 2015, but with politicians making the rounds to push for higher gas taxes, budgeting becomes more complicated.

Gas prices are down roughly 50 cents per gallon compared to a year ago, which some analysts say have contributed to more money in consumers’ pockets. Some believe that this will improve holiday sales, but others believe the timing is just right to increase federal taxes on gas. The current tax on gas is 18.40 cents per gallon, and on diesel are 24.40 cents per gallon.

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Supporters and opponents are polar opposites

Supporters argue as follows: gas prices are low, so it won’t hurt to increase federal gas taxes, in fact, those funds must go toward improving our infrastructure, which in the long run, saves Americans money because smoother roads mean better gas mileage and less congestion.

Gas taxes have long been a polarizing concept, and despite lowered gas prices, the controversial nature of the taxes have not diminished.

While some are pushing for complete abolition of federal gas taxes, others, like former Pennsylvania Governor, Ed Rendell (D) tell CNBC, “Say that cost the average driver $130 a year. They would get a return on that investment” in safer roads and increased quality of life, he added.

The Washington Post‘s Chris Mooney points out that federal gas taxes have been “stuck” at 18 cents for over 20 years, last raised when gas was barely a dollar a gallon and that the tax must increase not only to improve the infrastructure, but to “green” our behavior, and help our nation find tax reform compromise.

Is a gas tax politically plausible?

Mooney writes, “So, this is not an argument that a gas tax raise is politically plausible — any more than a economically efficient tax on carbon would be. It’s merely a suggestion that — ignoring politics — it might be a pretty good idea.”

Rendell noted, “The World Economic Forum, 10 years ago, rated us the best infrastructure in the world,” adding that we “need to do something for our infrastructure, not in a one or two year period, but over a decade.”

Others would note that this rating has not crumbled in just a few years, that despite many bridges and roads in need of repair, our infrastructure is still superior to even the most civilized nations.

Regardless of the reasons, most believe that Congress won’t touch this issue with a ten-foot pole, especially leading up to another Presidential campaign season starting next year.

“I think it’s too toxic and continues to be too toxic,” Steve LaTourette (the former Republican congressman best known for his close friendship with his fellow Ohioan, Speaker John Boehner) tells The Atlantic. “I see no political will to get this done.”

Whether the time is fortuitous or not, and regardless of the positive side effects, many point to a fear of voters’ retaliation against any politician siding with a gas hike, so this matter going any further than the proposal stage is unlikely.

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