Sunday, December 30, 2007

The Next Round of Wall Street Survivor Starts Jan. 2, 2008

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Friday, December 28, 2007

Portfolio Update

So, it has been awhile since I gave you an update on my stock picks. This post will focus on performance over the last month of this year. Starting next year I will try to bring you an update at least once a week (or two weeks).

First, my loser stocks. I start with this first because I would like to end on a high note. Right?

Ford (F): You know that F can stand for so many things. But let's agree just to say F is for failure. I don't know what I was thinking back in July when I picked this stock. And things started so well too. The stock peaked at $8.95 on November 2nd. Now the stock has plummeted and closed today at $6.70. And things don't look good going forward. Credit is getting harder to get in all credit arenas and the consumer spending outlook is gloomy at best. Not good news for Ford. I am selling the stock out of my portfolio with a loss of 23%.

DaVita (DVA): Ok, I was wrong here too. The stock has maintained it's 10% loss since it's announcement of their 3rd quarter earnings. The stock gained back a portion of it's loss recently only to see it slip away. It's time to cut my losses here also. I am going to take a loss at 9.75% since adding the stock to my portfolio.

For the most part, those two stocks have been the drag on my portfolio. Getting rid of them prior to the end of the year will help with taxes, if that is a consolation, especially in a "practice" portfolio.

As for my winners.

Transocean (RIG): With oil continuing to threaten exceeding $100 per barrell holding this stock has been a good move. It is up over 12% for the month of December and 25% since I added it to my portfolio. I don't see fundamentals changing in the oil markets and this deep driller is positioned to profit from it.

Barrick Gold (ABX): The stock is up over 5% this month. And the stock is up 24% since we added to our portfolio. ABX is the largest gold bullion producer in the world. The precious metal will continue to outperform as long as the greenback is under pressure.

For the most part, the rest of my stock picks have performed reasonably well. My portfolio was started at the end of July and the stock markets have seen a credit crunch and two 10% corrections in the meantime. The S&P has done nothing, literally, with a change of just 4 points during that time frame. A whopping .31% advance.

We are off to a great start. Let's see what the future holds.

Friday, December 21, 2007

The 5 Best of 2007

You cannot have a "Worst of" list without the "Best of" list to balance the scales. So, here you go.

5. Inflation. Ok, so inflation isn't necessarily the best thing to have the best of list. But can you really deny it? We have seen commodities such as oil, corn, and gold make major runs. Have you gone to the grocery this year? Talk about payment shock. The dollar just doesn't buy what it used to (and that is not even a depressed dollar joke).

4. Goldman Sachs. Even though shorting mortgages while actively promoting and selling mortgages at the same time is at best sleazy it did turn a buck quite nicely. They were the only major investment bank not to have major write downs due to mortgage related debt due to their "creativity" and hedging their bets. There is a reason they are considered the Rolls Royce of investment banking.

3. We're leaving this one blank. Yeah, 2007 hasn't been that great of year. Who has ever heard of a 4 Best List?

2. Google. The world is slowly being taken over by the behemoth. And it seems that everyone is cool with it. Want to know why? They do it right. Google and cool. Gmail...better than any other free email service. And the possibility that Google will enter into the cell phone market with killer apps...even better.

1. Apple. They have the best Mac vs PC commercials. They have the best ipod commercials. Any song pitched on the ipod commercials become hits. Who hasn't found themselves going, "1,2,3,4 tell me that you love me more," in the last couple of months. And then there is the iphone which has been a phenomenon unto itself. Great year, great run, great profits.

Thursday, December 20, 2007

The 5 Best of the Worst 2007

Well, just a few days away from the end of the year. When I started this blog in July, I was just trying to see if I could find a voice and hope that someone out there would enjoy it. I think I've done just that, although I admit, I don't post nearly as often as I did. It just took too much time. Maybe I will produce more for you in the near future.

Now with that out of the are the Financial Bullet's Worst of 2007

5) Robert Nardelli: What a year for Robert. He left Home Depot in shambles at the start of this year and received a nice $210 million golden parachute. And then later this year he was named Chyrstler CEO as the company was taken private.

4) Stan O'Neal: Clueless at best. Fraudulent at worst. Stan O'Neal lead Merrill Lynch into an overabundance of risk. The company posted a write-down of over $8.4 billion, he allegedly spoke to Bank of America about a possible merger without the board's permission, and was not liked by just about every individual at Merrill Lynch. And for all that, he was allowed to retire and collect $160 million on the way out the door.

3) Ben Bernanke: Sorry, at first I was impressed by Ben when he starting in this mess. But he has turned out to be a GIGANTIC WUSS. He has bent to every market urge and cry. The best medicine for this market would be discipline. Yet our current Fed boss is hesitant to put a good spanking to the market to shake out the froth.

2) Alan Greenspan: How can he not look at his hands and see blood? He has pointed the finger at everything he can possible point to. The fall of the Berlin Wall caused the sub-prime crisis? Well, he is right...but not because the wall fell. That was when Greenspan took the reins of the Fed. Remember, always remember, that it was Greenspan who called for more ARM products in 2004. It was Greenspan's Fed that dropped the rates to 1% and held them there for a long period of time. It was him.

1) Angelo Mozilo: Who else would you expect to be the Financial Bullet's Worst of 2007 poster child? More of my time this year has been spent on blasting Countrywide and their slimy CEO than any other this year. He is has been questioned for selling his stock before it fantastically tanked since August. His company is a shell (at least on the origination side) of what it once was, limiting itself to Fannie and Freddie loans only. It got ugly fast at the company. But this was the man who told all his staff, "We can't be to blame?" Well the commercials say, "No one can do what Countrywide can." No one helped run up the market and help tear it down quite like Countrywide has. And although some of the press recently has been focusing elsewhere, the stock still hovers under $10 and the company is still not out of the woods yet.

So that is it! 2007 has turned out to be a highly volatile year for everyone and 2008 has dark clouds darkening everything in the future. May you and yours have a great holiday season and good trading in the future!

Saturday, December 15, 2007

Away from Finances For This One

The Mitchell Report.

I am a big baseball fan...just ask my wife. And the much awaited report hit this week and we all now have heard that Roger Clemens was listed as a user of performance enhancing drugs.


Is this surprising at all? The man has an amazing career, seems like he has hit the end, moves to a different team, and then starts the second half of an amazing career. The only difference between Bonds and Clemens is that Clemens switched teams and then he improved again. Dramatically. But we see this in sports. When a player and a team reach the end for each other. The player moves on an returns to their previous level. The thing is, normally those players are in the prime of their careers. Clemens had spent 13 seasons in Boston. He should have been on the back end of his career. But he regained form and won 3 Cy Young Awards.

Oh, more significant difference. Bonds is black and Clemens is white. And if you don't think that this is significant. You don't live in the real world.

Compare their career tracks. Go look at their respective stats. Here is Bonds. Here is Clemens.
Both of them start gaining speed in their careers after 1997. And continue their excellence until the last couple of years. That doesn't seem to match the typical career all.

So Bonds got wrapped up in BALCO stuff and is a complete jerk. But he has been vilified and say that the stats themselves speak to his steroid use.

Clemens has long been rumored (quietly) about performance enhancing drugs and his stats would seem to me that they were increasing.

The casual argument for Clemens was his "work ethic" was fantastic and that was why he was able to stay on top. To me, work ethic is a great thing...but it won't stop you from cheating. You can cheat AND have great work ethic. I don't see that the two are separate from each other.

If Clemens plays again, which I think he won't, it would be interesting to watch the fans reaction to him. Would they throw syringes at the field? Hold up fakes asses with pimples on them? Or would they support him. I hope they would throw him under the bus. That is where he belongs.

I don't think it would ever come close to the scrutiny that Bonds has faced. Which is unfair. McGwire hasn't received the scrutiny he deserves either. He hasn't made good on any promise he made during his congressional testimony. He said that he was going to be a spokesperson to sway kids away from these drugs. Has he done it. No one has heard from him since his testimony. He lied to the fans and he made empty promises to congress. What a fake.

I believe that Bonds and Clemens have cheated. And honestly, I don't care. I love the game but ultimately it is entertainment. We, as fans, pay to see these individuals compete. It has been entertaining. They can take away records or put asterisks by their names. It does not accomplish anything important. Records are meant to be broken, right?

I remember a football coach at my school who said, "If you cheat. You suck." I think that is about the best you can say for the whole steroid issue.

Thursday, December 13, 2007

What the Fed Is Trying

It has become obvious, even to the Fed, that interest rate cuts alone are not going to right the ship. So they have come up with a plan for an "auction facility". They are going to auction off $20 billion, twice in the next couple of weeks, and more in January. The total amount is reported to be $64 billion (domestically). But that number can change determining on market conditions.

I will hand it to them...they are getting a good portion of the world to go along and offer money and using different collateral than normally allowed (specifically the Bank of England). It has come a time in our history where these moves will need to be a global effort. As we have seen in the last few months, an issue here can have a huge impact overseas.

These auctions are meant to help open up liquidity, where interest rates have failed in that attempt. If this works, and it might. The rate cuts may be at an end. I think the amount of money involved in these auctions will ultimately be significantly higher. But an alternative had to be determined. An inflation report today didn't have good news. It's on the way up. You cannot continue to cut rates in the face of inflation.

Monday, December 10, 2007

Wall Street Survivor Update

I have written that Wall Street Survivor is a FREE GAME that you can make REAL money by just making a portfolio of stocks and seeing how well you stack up against the competition.

Well, this sessions game ends this Friday. I got into the game a bit late, basically right at the start of the most recent correction we have seen. Good times. I also totally misread some of the rules and timing of a short trade and totally messed up my game.

But I have rebounded! Earlier, after my gigantic shorting mistake, I bought some stocks and stopped trading all the time. I have gone from being in the 6,000 to being in the top 2000 by just holding my current picks. I haven't won anything, nor do I expect to, this session.

However, I am gearing up for the next round which starts Jan 2, 2008 and runs through market close April 25, 2008. And this next round the prize categories are different and in my opinion much better to my strategies. Check them out. The game now has been broken down into two separate categories, traders and investors. If you make more than 50 trades in the span of the next game, you're a trader. Less than 50, an investor. I am going for the investor tag. I am currently researching stocks that I think are going to outperform the market in that time frame.

Get in the game already. You can test your wits and see just where you stack up.

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Thursday, December 6, 2007

The Bailout

Ok, here is what I really think of this bailout.

A) It's great for the individual homeowner that may benefit from this. I have heard numbers from Bush (1.2 million) to analyst expectations ranging from 250,000 to 750,000.

B) There will be totally solvent homeowners trying to milk this gift. Why should someone financially capable/responsible not get the same benefit as those who are not?

C) Why would mutual funds, hedge funds, and foreign investors ever again believe in the investment their putting money towards when the United States government can step in and simply state, "You know, you thought you were going to get this much interest paid to you on this/these loans. Well, think again. You get this (which is less) and you're going to like it."

Points A&B, in and of themselves are good and expected. Point C, however, is where this all gets really expensive.

The outcome from this is, when it comes time that a company tries to sell debt (mortgages, credit cards, car loans, etc) on the open market any company that invests in those loans will require a larger risk premium than they have in the past. Why? If they can't earn what they expect now, why should they trust that they are going to get what they think later? Therefore, the cost of doing business just got more expensive. And who will ultimately feel the pain from that? You got it. You and me.

A plan such as this may sound necessary but you have to realize that any plan to fix this is going to have real effects. It will have real costs associated going forward. And who knows...what if the housing market isn't appreciably better 5 years from now? Then what? This plan would be seen as a bandage over a fatal wound.

Tuesday, December 4, 2007

Customizable Gift Cards

Want to do something cool when giving the gift of a boring gift card.? Give your loved one a gift card with your ugly mug on it. Ok, you can put that cute picture of your kids, or dog. Whatever you want. It is accepted anywhere where Visa is accepted in denominations of $10 up to $250.

I think this is really cool. Check it out.

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Sunday, December 2, 2007

The New Bailout Plan

So, they have a new shiny bailout plan for banks and homeowners to avoid a major surge (more than we currently are seeing) wave of foreclosures. Is it good? I think it is positive.

I even think that it is morally correct. By making this law for ARM loans that have adjustment periods of three years or less to keep rates the same for an extended period, it saves thousands of homeowners. It will save them money, stress, and time. I do not think that the rates need to be extended more than 5 years going forward, I think 7 years is excessive.

I also like Gov. Arnold California law that the rates will stay the same for 5 years and only if the owner sells in that time period would there be any kind of trigger for interest that should have accrued. I think that is extremely fair.

I have said it multiple times, this country has to start looking at a home as a place to live instead of an ATM machine and investment. By making a homeowner stay in there current home for an additional 5 years changes the mindset of many individuals. We have to see how this all pans out.

Just be aware, there is a cost to do this. And it will be passed through in different ways...higher rates on other loans, lower interest paid on CD (even lower than now), and more miscellaneous fees to your everyday accounts. It stinks, but this was going to happen no matter what the bailout plan was going to be or will ultimately be. We are still the ones that will pay for all of this.

Saturday, December 1, 2007


First, I want to apologize for my last post. It was short and pretty much uninformative. I wasted your time. I was going to take it down all together but I have decided that I will keep it up and hope for your forgiveness.

I am going to try to blog when I actually have something to say rather than trying to force a post just for the sake of posting.

Second, let me give you some updates regarding my picks. I'm not going to give a run down, just some highlights. DaVita (DVA) has started to come back from it's low established after their earning disappointment. The stock ended November down 2.88%, but it did put up an impressive performance at the end of the month, as did much of the market. Jim Jubak, who suggested the stock, has sold DVA out of his portfolio over at MSN. I have decided to hold onto the stock. Being that DaVita is such a major player in the dialysis market and our country has "a little bit of a weight problem", I think that it is still a stock to stick with for the time being.

Transocean (RIG) has been an out-performer for some time now. This month alone the stock surged forward a little over 19%. I have run this blog as an all or nothing type of picking site, meaning that I don't say how many pretend stocks I hold. That also means that I do not add or sell portions out of a position. Which is too bad in this situation. I think RIG is good going forward, but I see oil prices starting to recede a bit. With OPEC rumored to be raising production the commodity has been under pressure. But the other issue is that there has been a lot of hot money trading in oil and gold. If oil holds under $90 for a few days, falling under $80 per barrel is a real possibility. If I could sell part of my position now, I would.

My real position in iShares MSCI Brazilian Index EFT (EZW) has been extremely volatile. It has lost 16% in a day and regained it back the next. It is just wild to watch. I expected some ups and downs but man. I do not have a large position in the EFT so I willing to let it ride. If I had a much bigger position I would not be nearly as comfortable watching it. With that said, the EFT showed a loss for November of just under 2%.

The market has been just as crazy as EZW. I think the roller coaster ride may continue. And if the Fed decides to show a backbone, which is becoming increasing unlikely, the markets will take an absolute beating. But Helicopter Ben will deliver the goods to the bankers calling for help. He shown that he will if they cry just loud enough.

Thursday, November 29, 2007

Is There Really A Question?

The Fed will be cutting rates in a week and a half. It is what it is. There is no real reason that they shouldn't. If they were going to make a stand, they should have done that two cuts ago.

Goldman Sachs see rates reaching 3% within the next 12 months, which would be 1.5% lower than it currently is. What will this mean.

Continued downward pressure on the dollar.

Higher oil mostly due to the lower dollar.

Even though cutting is trying to give a kick in the pants to the economy to get everything jump started, I think you will continue to see a malaise in housing and business spending.

I think the bull has just run out of gas and no matter how you beat it, it just won't run. But I'm not going bearish either. I have a feeling that the cuts will be enough to avoid the fetal position in the economy and will avoid a recession overall. But don't expect to go anywhere, fast.

My impression. What do you think?

Monday, November 26, 2007

Just Wait Until Next Year

I am a huge Cubs fan and our mantra is, "Wait 'til next year." We have been waiting for one hundred years now (just about 30 for me personally) but in the mortgage market, next year is shaping up to be absolutely horrid.

2008 is already turning into the year that we want to forget and it hasn't even started yet. Let's start with the obvious...2 million homeowners ARM loans adjust next year. Right now, about a third to a half of the loan applications that I am doing have ARM loans and are currently behind on their mortgage payments.

I have done more denials on these loans than I can ever remember. And really, there isn't one file that we have denied where I have thought, "We could have done that." Not one. Every situation has been one where the loan was going to foreclose at some point in the near future and it was just a matter of who the lender was at the end.

It is only going to get worse. Fannie and Freddie are facing serious liquidity issues that threaten to choke off the one constant source of funds through this crunch. I was in a conversation Friday where my Executive stated that by this time next year, if you want to refinance or by a home with less than 10% equity or down payment, it would have to be a FHA loan. That is truly sobering. And honestly, it wouldn't surprise me at all.

PMI companies are going to struggle to survive, if they even can with the wave of foreclosures coming.

And best of all, there is not a thing the Fed can really do to help it. Banks, lenders, credit unions, all of them have to hope that what is really coming, not just in home loans, that they are prepared. Most are not. You are going to see some more major consolidation in banking institutions as this shakes out over the next couple years.

If it gets as bad as it possibly could be, there will be a run on at least one major US bank. I would like for it to happen sometime in the first half of next year. I hope it doesn't happen. But I would not be surprised in the slightest.

Just wait until next year. 2007 is just the appetizer.

Tuesday, November 20, 2007

How to Fix Fannie & Freddie

Today was absolutely brutal for the two government sponsored enterprises (GSE). Freddie posted a much larger than expected loss for their third quarter and possible concerns about liquidity were raised about the company.

I have mentioned this before in multiple postings but it is worth saying again. You will a huge credit crunch if Fannie and/or Freddie start having liquidity issues. Well, obviously that day is here.

Look at Countrywide, one of my favorite targets, it was also just bashed because they use Freddie Mac as one of their main investors in their loans.

I have been discussing recently how Fannie specifically has been tightening their requirements going into 2008. I was worried at the time that Freddie would follow suit by adjusting interest rates based on credit score only for loans above 70% LTV's on 20 & 30 year fixed rate mortgages. Freddie announced that the exact same changes, starting on the same date as Fannie.

But instead of complaining about all this. How do you position Fannie Mae and Freddie Mac to meet their requirements set forth by Congress to provide liquidity, stability, and ability to fulfill the American Dream? Here are some of my ideas.

1) 100% financing needs to be a thing of the past. As of right now. It is too much risk for these companies. It is too easy for a borrower who has fallen behind on the mortgage or knowing that their home value has declined to just walk away. Why stay? Why try? What do they really have in the home? At 100% financing, a borrower cannot sell the home through traditional means (i.e real estate professionals) because they would have to bring money to the closing to sell the house. And that is why they bought the home at 100% to begin with.

I know that I would not be popular and I would cut a large number of potential buyers from the market, but it would be for a long term good.

97% max LTV on purchase and limited cash out refi's. No EA levels. The loan is approved or denied, otherwise, old school 5% down payment. I would be ok with EA level loans (higher rate loans) on homes with more built in equity.

2) Elimate interest only loans and 40 year mortgages. Unless there is substantial amount of down payment. I would put the max LTV for these at 75%.

3) I have no problems with ARMs, if used correctly. 3 year would be minimum initial teaser period.

4) Change how jumbo loans are determined. Why is it that for the MyCommunityMortgage & Home Possible loan, Fannie and Freddie are able to limit how much income you earn for where you live...but no matter where you live the highest loan you can get is $417,000?

I can tell you, where I live....$417,000 is an absolute monster of a house. In California, New York, Boston, it's nothing. Change this. My area, the jumbo limit should be somewhere around $250,000. If we get bigger than that we say, "That's a big loan." Sounds like a jumbo loan to me. But if I am in San Francisco, a $650,000 or higher, (I don't know that market) would be more acceptable. My point is that it should not be a one size fits all scenario.

5) Don't judge interest rates on credit scores. It is unfair at best. Discriminating at worst.

These are just some of my personal ideas. I haven't a clue what is required to dig these two behemoths out from their depths. But if things get worse...nobody is going to be able to qualify for a mortgage loan...boy that will be fun.

Saturday, November 17, 2007

Fannie Follies Continues

You would think that a company that has had accounting problems in the last few years, restating billions of dollars over a number of years, would be especially careful when they finally started reporting again right? And this would go double for a company that is a government sponsored enterprise that is highly regulated. Triple for a company that is in the middle of a housing crisis not seen since the early 1990's. I'm right...right?

Not right. Not even close.

Fannie Mae's stock (FNM) is at decade lows, partly after an article in Fortune magazine stated concerns that Fannie Mae was "camouflaging" loan losses. Fannie Mae called an emergency conference call to discuss their "technical accounting questions". Let's just say the call didn't go very well when investors openly questioned the company's executives about being truthful.

Now, I think most of this is overblown. But let's just say accounting isn't my strong suit. I do believe Fannie Mae is not trying to pull the wool over anyone's eyes. If there was a time to report significant losses, it would be now. Even for Fannie or Freddie who are supposed to be limited to exposure to most of these issues, write downs are expected. Fannie did write down and questions surfaced that it should be more.

I don't know what the real answer is. But it would be good for Fannie to be fully truthful in all it's dealings with investors, the government, and the public in general.

With all the changes happening, specifically at Fannie in regards to changing the rules regarding underwriting of their loans and now's definitely not all rainbows and butterflies for Fannie. Which is really, really scary.

Monday, November 12, 2007

Scary Days

Wow, what a Monday. I didn't have to work today. I was paying thanks to those who fought for this country by not working. Seems wrong, I know. But I work at a credit union. What? Like I am going to force them to let me in.

But I did get to see a day where everything, and I mean everything was under selling pressure. Oil, gold, big techs, financials, foreign companies, the list went on and on. I guess it was not as bad as I make it sound. Companies like Johnson & Johnson, Proctor & Gamble, and others on the Dow, S&P, and Nasdaq. For the most part it was really split, but it seemed more gloomy than the numbers show.

Apple, Google, Rio Tinto, Citigroup, ExxonMobile, and I could keep going, all pushed lower. It just seems to me, that right now, we have already slipped off the ledge and we are holding on by our fingertips. I don't even remember seeing a cliff there!

Everything that had been keeping the market going forward, has reversed course, quickly. I have a bad feeling that tomorrow it will not be a sunshiny type day.

E-Trade (ETFC), lost 60% of it's value. A Citigroup analyst put their chances of being forced into Bankruptcy at 15%. The company rushed to dispute the rumor and said they are well capitalized. Who knows. E-Trade screwed up getting their nose into where it didn't belong, as discussed in this space before.

Scary, scary stuff. Where to put your money now. I mentioned two above JNJ and PG. I will throw in Colgate-Palmolive (CL), and keep with other companies such as PepsiCo, Coca-Cola, and McDonalds. We will see how the rest of this week shakes out. I may need to start making some changes to my portfolio if this continues.

Saturday, November 10, 2007

Market Suffers From A Bad Week & And Concerns of Holiday Sales

Banks and techs led the way lower this week. I was able to avoid the issues in financials. I think those of you that read this know that by now. However, I was taken down in the tech area. My real life portfolio holds the cubes, QQQQ, which is major tech stocks. With the likes of Cisco Systems and Qualcomm both disappointing and being 2 of the top 5 holdings in the EFT, I took a beating there. I am now back to where I began in that EFT, even.

My portfolio here performed slightly better than the S&P. The S&P was down 3.34% this week. I ended up losing 1.34%. Four of my 10 stocks actually turned a profit this week, PepsiCo, Transocean, CocaCola, and my bigger winner of the week, Davita (DVA) with a gain of 2.1%. Yes, this was just the company rebounding from it's drubbing the previous week. But it is still a good sign that the stock could rebound in the face of a really ugly week.

And now the market is starting to really worry in earnest about the Holiday shopping season. It is now expected to be the worst in years. As a financial blogger and a parent I see two reasons for this:

1) Lack of disposable income with energy costs and food running higher than ever. Many are now trying to save their money instead of incurring more debt.
2) Lack of "must have" toys and items coupled with toy recalls that scare parents to death.

This week, for example, Toys R Us pulled the AquaDots toy off the shelves because the dots would release a date rape drug if ingested. And you guessed it, yours truly had bought an AquaDots toy for my oldest child for her birthday back in August. Thankfully, we ran out of dots a long time ago but we still find stray dots now, months later. It's scary and I really don't want to buy a lot of toys this year.

Oh yeah, and gas is expensive. And oh yeah, yeah, I still have to pay for food. And oh triple yeah, my wife wants a remote start for her car. It all adds up. Hopefully, the market turns in the next few weeks so Daddy can cash a little in for a nice surprise for everybody.

Monday, November 5, 2007

Fannie Changes....AGAIN

Fannie Mae continues to tightening the noose around the mortgage lending market. While many lenders such as Countrywide and IndyMac are stating they want to write more conservative loans that meet Fannie and Freddie guidelines, Fannie Mae counters by changing and making sure that LESS people will be able to get a conventional financed loan.

Just last week, I detailed how a borrower who was pre-approved 6 months ago that now has a better credit score and $6 more per hour was turned down for a mortgage last week because of the changes that Fannie had made to their Flex products.

Now today Fannie Mae put out a lender announcement titled, "New Flow Business Pricing Requirements". So what the heck does that mean? Big changes to how the average loan for the average borrower is going to be priced. And it won't be less.

Starting March 1, 2008 a person that has a loan to value of over 70%, meaning less than 30% equity in the home) will have pricing adjustments if their credit scores fall into certain ranges. These adjustments start with credit score of 680 and less.

First, the average credit score in the country is between 660 and the average borrower will automatically have an adjustment to their interest rate unless they have lots of equity (not likely in declining markets) or do a 15 year mortgage or less (hope you like those higher payments).

How much can this affect the rate...expect to see the rates go up by .125 - .5% depending on the scores.

What really irritates me about this change is that pricing is solely based on credit scores. There are just so many issues that can arise that are outside of the individuals control that can affect the score. Divorce, sickness, death, mistakes on the report, can all have a material impact on the overall score. There are people who have never had a late payment in their life who have credit scores in the 660-679 range because A) They may carry higher debt loads or B) just might not have a long history of making payments. My opinion is that this change just sucks.

Be sure that Freddie will not be far behind in making changes to how they will price their loans too. Hopefully, it is not quite so arbitrary or idiotic.

It also makes me concerned that the PMI companies will also follow suit. Most PMI companies price the premiums solely off the credit score already, but knowing that Fannie is charging more gives the PMI companies free reign to do the same.

These changes make the modernizing of FHA lending all that more important. If these tightening measures continue, many well qualified borrowers will be turned away or pay well more than what they should be charged.

If you are looking at refinancing, look at doing it soon. It won't matter what the Fed does with the rates. It will just allow Fannie and Freddie to charge more.

Sunday, November 4, 2007

DaVita Inc

No, I'm not going to ignore it. DaVita Inc's (DVA) third quarter earnings missed estimates but even more concerning is that the company stated that they were uncertain about 4th quarter performance. They were so concerned about it, the company did not give specific guidance for the coming quarter.

Accordingly, the market sold off the stock. It sank 9% Friday. I have been doing this blog for a little over 3 months now and this is the largest one day drop for any of the stocks I have held. Not only that, this drop wasn't in reaction to other factors, such as RIG reacting to oil or ABX reacting to gold. This is a company specific issue.

So, what am I to do with the stock? Since I added the stock in mid September, it now has shown a loss of just over 1% with Friday's drubbing. I'm holding on to the stock for the time being but I am going to watch it's performance over the next few days closely. If it continues to fall (beyond what the overall market does), I am going to ditch the stock if it falls another 4%. I'll cap my loss at 5%.

You get many divergent advice on what to do with your stock holdings. Some say, buy and hold and only check your stocks once a year so you can re-balance your holdings. Others say you need to sell out of a losing stock to put your money to better use...which means you need to keep closer tabs on your portfolio.

What you need to do is somewhere in between. You purchase a stock as an investment, something you are going to hold, presumably forever. Think Berkshire Hathaway. But you have to have a game plan. For example, my plan with DVA is to limit my overall loss to the stock at 5%. If the stock had sold off and the company was more certain of their performance going forward, I may have given it more room to the downside.

But the same applies to the other direction. I held Las Vegas Sands for over a 50% gain. But I knew that the company was headed towards a fall. It was just too hot. It posted lower guidance for the third quarter and lost 15% over 2 days. I was out long before the fall. I sold out on September 24th, LVS has lost 11% since that time.

You need to keep the pulse of the companies you hold. I suggest if you own individual need to check them at least once a week or so. Know when their quarterly earnings reports are coming out. Read a little bit about the company again before they report. And know what gain or loss you are comfortable with. Knowing what you are going to do and what risk level you are willing to take....that is more important than any advice that is given.

Saturday, November 3, 2007

How Fannie Mae Has Changed

Fannie Mae has always stated that they are all about promoting home ownership. But what I find strange is that for a company that is wanting to raise it's cap to be able to invest in more mortgages, they are certainly tightening the reins on their products.

Fannie Mae has touted the Home Stay initiative, even in statements to Congress. They claim that they have written 40,000 ARMs into prime loans using this program.

Fannie provides this information regarding the Home Stay Initiative

Point one discusses EA loans. EA stands for, "Expanded Approval". These loans are approvable loans, with higher interest rates. So a borrower may receive an Approve (best rate) or any of the three EA levels (each level higher means a higher rate) and still get the loan.

The second point discusses the Flex Products which allow higher loan to value purchases (low to no down payment) and what is called limited cash out refinance loans (balance of mortgage owed plus closing costs). The key is that they will continue to offer these loans to borrowers with good credit.

Now here is where it gets tricky. As of October 22, Fannie discontinued offering EA level II and III on 100% LTV refinances and purchases. And discontinued EA III pricing on 97% LTV loans. See a slight contradiction here? They say they want to help, while at the same time, cut the loan offerings to the very people that need it most.

Want a real life example? I had a member come in Friday and reapply with me. He had put an application in with me in April and was approved at 100% financing at an EA level III. He did not have bad credit, he had a limited history and his debt to income ratio was in the low 50's. He wasn't the best borrower in the world, but he really just didn't have the history to give a better rate to at that time. His pre-approval had expired and had finally found a home he was interested in purchasing. We did the application again.

He had continued paying his one credit line on time, so his credit score had improved by 20 points. And the job he was at, his pay was based on time at the job. He had just started in April as an apprentice. He had graduated and now made $6 per hour more than what he did six months ago. His debt to income ratio was now in the low 30's.

But when I ran the loan through, the findings came back as an EA-II loan, which for 100% financing was now ineligible for delivery to Fannie Mae. Let me rephrase this, a person who was approved 6 months ago and now had a better credit score and income, was now being denied.

He was shocked. I was embarrassed to have to give him the news. My underwriters wouldn't listen to my requests. I was given the answer, have him put 3% down and we can do the loan. My member didn't have 3% to put down or able to get a gift. He was shocked. I was embarrassed to have to give him the news.

Wall Street Survivor

You may notice at the top of my blog is a banner for Wall Street Survivor. This is a free contest that awards the best stock pickers around. The contest actually started October 1st but will run through into December, so you have plenty of time to get your portfolio put together. The winner of the contest overall will win $25,000. The site also offers weekly prizes for best performer.

This is a great way to test your stock picking skills and even share ideas with other competitors. I have signed up under FinancialBullet. My portfolio includes two of my real portfolio EFT's, the cubes, QQQQ and EWZ, my little Brazilian EFT. I also have added two of my choices here with Transocean (RIG) and Barrick Gold (ABX).

What is really nice about this site is, A) It will only allow you to put $25,000 into one stock pick. B) No stocks off the pink sheets, so no little volotile stock can skew the numbers. C) Some stock company would not allow the use of their company in this game, for example, you can't pick Apple (APPL).

The rules are square, the game is free, the prizes are real, the contest is on, and you should be in the game for the fun and the knowledge.

Sign up now! For real. You need to do this.

Thursday, November 1, 2007

Are the Cuts Really Done?

I had worried a bit that the rate cut would be just the .25% that was expected and the market would be disappointed that the Fed didn't add more fuel to the flame. Initial action after the cut and remarks was negative and I thought to myself, "Boy am I smart or what? The market is upset that the cut wasn't more." Then we had a rally...and I knew that I am not nearly as smart as I like to think I am.

And yesterday's rally? It was wiped away, by about three times as much, today. News out of the financial sector continues to disappoint. Of all banks, Citi's liquidity was called into question today. Rumors that Merrill and many other banks may have to write down the value of their assets in the coming quarters should keep investors on edge for the near future.

Oil is continuing to soar. It looks like hitting $100 per barrel will happen within the next couple of weeks if current pressures continue.

And in the face of all this stands the Fed. The .25% cut was not unanimous. It was only called for by six of the regional banks. I think the Fed is starting to have a conscious. What a time to have one? Hello have already cut by .75%. Inflation in energy and food continues to rise, almost on a daily rate. The dollar buys less and less each day, which on exacerbates the prices for energy and food more.

What a mess. I have been saying for a while now, this is going to end badly. We are going to find ourselves in a situation where the only answer to the inflation issue, is to raise the rates to a point where no one will want to borrow any money. You think banks are felling the pinch now? Wait until you hear the wail from that sector when that day comes to fruition. How long can it be pushed off? Three years? Five years? We will all just wait and see. I hope I am not nearly as smart as I think I am.

Tuesday, October 30, 2007

Stan O'Neal Is Retired, As of Like.....Now.

So it finally is finished. But what a weird way to go. Merrill Lynch announced that Stan O'Neal was not being fired, or that he was simply stepping down. No, Stan O'Neal retired...immediately. Like he is sooo retired. Do you think they threw him a retirement party? Do you think they got him a cake at least?

I think the $160 million will help ease those wounds. But I bet it still smarts that he didn't get any "over the hill" kind of jokes that come with retirement.

But lets get one thing straight...he is going to get $160 million for pissing off his company in general, making bad bets on sub-prime loans, and post a quarterly loss of $8 billion and he still has the rights to that money. I think I could handle a job like that.

$160 million for screwing up so royally that everyone from top to bottom is cheering you out the door. Where can I get a job like that? I have no problem with people not liking me for stupid decisions that I make and get paid handsomely for it.

And now the company has had a class action suit file against them for not being transparent enough with their bets on the sub-prime market. And poor Merrill Lynch is holding the bag while Stan is out there enjoying his immediate retirement.

Now certainly, Stan O'Neal was not the person making all the decisions in the sub-prime arena. But the buck does stop at the CEO. If he isn't aware or approving of what is happening, he shouldn't have been CEO to begin with. Be certain, that he is not the only one whose head is going to roll. How many other immediate retirements are coming out of Merrill.

What a mess.

Sunday, October 28, 2007

Month Review...A Few Days Early

This may be a little bit early but I think it is an appropriate time to give a monthly recap of the site and some things of interest.

Earnings seasons has been in full swing. We have seen:

1) Google, Apple, & Microsoft post good gains and advance.
2) Amazon post good gains, but not considered good enough and get whacked.
3) Bad earnings reports from Merrill Lynch and Bank of America.

It looks like Stan O'Neal looks like he is just going to step down at Merrill after all. It is much smarter than getting shown the door, which was a foregone conclusion already. You just can't report a write off loss of $5 billion and report a loss of just shy of $8 billion a few weeks later. Mr. Market isn't a big fan of that type of performance.

The Fed meets this week...I'll definitely be posting more about this in the coming days. This cut, whatever amount it is, and subsequent notes from the Fed will give direction for the remainder of this year.

But on to the review. I have now had this blog for 3 full months. And traffic has increased each month. Still not setting the world on fire with hits, but progress is progress. Here is the list of my most popular blogs this past month.

1) Subprime is Gone, FHA, & Credit Unions was by far the most popular choice from this month. It was featured in the blog carnival at Thanks to truth and check out the other posters. It's always good to share.
2) One of my earliest blogs, Death of the 2/28 ARM continues to draw a good portion of traffic. I plan to go over steps individuals should take when facing ARM resets in November.
3) Repair Your Credit discusses what you can do to fix errors on your credit report and also a third party that can help you with issues if you are uncomfortable handling issues yourself.
4) Countrywide's Loss is Investors Gain, was just a post from last week, but my fellow Nesteggr Zach, linked it in his blog Thanks to Zach.

Remember, check out my dad's book, Cold Trail listed on the side of this blog. Doesn't the cover look cool? Like mysteries? This is the book for you. Help my dad out with his initial book, Cold Trail.

Again, I'm begging for comments. I will send a Financial Bullet magnet to the next three commentors. Make a comment, leave your mailing address and I will send you my beautiful logo magnet to you immediately. US only mailing addresses only. Sorry my international friends.

Saturday, October 27, 2007

Next Up... The Fed

Of course the Fed makes their next interest rate announcement on Halloween. Seems appropriate. The market is spooky right now.

The big question is, .25 or .5% cut? Right now the market is pricing in 100% chance in a .25% cut and only about 20 percent for a half point reduction. Remember the Fed surprised us last time with the half point cut.

We did see the market boost Friday on rumors of an emergency rate cut of .5%. Didn't happen. And the timing seemed awfully odd. Why wouldn't they just wait the three business days? But that is Mr. Market for you. Just plain old weird.

Kind of like Microsoft paying $240 million for a 1.6% ownership interest in Facebook. That seems like a really steep price to me. That puts a value of $15 billion on Facebook. I know that Microsoft gets exclusive advertising what extent that really means, I'm not sure. But $15 Billion for Facebook? I can't get over that. Rupert Murdoch purchased MySpace in 2005 for $580 million. See my shock?

Did Google inadvertantly win this one too? Did Microsoft feel the need to make a splash after having it handed to them again and again by the Google goons? I think this is a good possibility. We will see if this transpired.

And by the way, I haven't heard if Stan O'Neal is gone from Merrill Lynch yet. I thought that was supposed to be a done deal? The stock rallied over 5% Friday based on that news. I'm guessing it will still happen. Too much stuff between the larger than expected write down and then the unapproved contact with Wachovia about a possible merger.

What are your thoughts? I would love to hear some comments. In fact, first three to comment, get me your mailing address and I will shoot you a Financial Bullet magnet for your time. US only. Sorry my international friends.

Friday, October 26, 2007

Countrywide's Loss Is Investor's Gain

Ok, not really. The stock simply rebounded today based on comments that the company thinks this is an earnings trough and things look good for the fourth quarter and through 2008.

The stock rallied 15% today close at $17.03. Don't get too excited. It is still down from a high of $45 in February, and still below the $18 price target Bank of America had the right to buy common stock when BoA infused $2 billion into the company.

The company reported a $1.2 billion dollar loss, including losses from operations, loss due to the 10-12 thousand works it plans to lay off, and increasing it's provisions for loan loss over 2000% year over year. The loss doubled analysts estimates and the company still gain more than it has in over two decades.

I'm still not buying this. "No one can do what Countrywide can," is their famous motto. Maybe it should be more like, "Nobody claims what Countrywide can." Have you noticed not one other major bank is saying that the mortgage market is stable or that they see gains for the coming quarters? So how is Countrywide going to pull this off?

I'm really not sure. If they can really pull it off, my hat is off to them. But there are a number of problems.

1) The possible SEC investigation into Angelo Mozilo stock sales.
2) Consumer confidence in the company is at an all time low.
3) They are losing market share due to consumer sentiment and changing their style, focusing on more conventional/conservative lending guidelines.
4) Does the company realize that we are in the middle of the largest housing slump since the early 90's?

I know, I know, the company announced that they were going to aid some 82,000 homeowners to help them avoid foreclosure. Well, first of all, they should. It is more profitable to keep these loans performing and charge some closing costs as opposed to letting the homes fall into foreclosure and have to drop the properties onto market. But this won't be enough to really give the company a shot in the arm it really needs.

We will see what happens. But I'm not smoking what Angelo is selling...that is for certain.

Wednesday, October 24, 2007

Merrill's Bad Surprise, Countrywide, & A Sell

I know that I'm not alone on this, but I swear that Merrill Lynch had said just a couple of weeks ago that their write down would be about $4.5 billion. Then when they announced in their earnings report that they wrote down $7.9 billion instead.

What the, huh? Now this is just wild to me. How could they be that far off in their initial guidance? CEO Stan O'Neal said,

"As of the date we preannounced, the amount we were indicating was within the range of evaluations and as we looked at it and went back and examined it in the context of why -- where the markets are, we believe it's appropriate to be at the conservative end of the range," O'Neal said."

Well, that is great. But why not be conservative before now? A write down is just devaluing your own assets. No money has changed hands. Merrill just doesn't think their assets are valued as much as they used to.

This just goes to show that Merrill didn't hedge it's risks nearly as well as the other big investment banks. It also makes me think that the much bally-hooed bank bailout fund might not be as imminent as commonly thought.

If the bailout fund was a go, Merrill would not have written down this much. They would have had another outlet for their "bad" assets. Not good.

Countrywide, the downtrodden and beaten mortgage lender continues it's slide. Today the stock fell another 8%. If closed today under $14. The company reports their earnings (or the lack thereof) on Friday. If the company misses, which I have a sneaky feeling it will, look for the stock to around the $12 mark.

And it is getting to be that time of the year...I might be a little early but it's time to sell off your losers and hangers-on for tax purposes. My eyes are set on Quest Diagnostics (DXG). The company reported less than stellar earnings. It has gone nowhere overall and down over 4.5% today. I am selling the stock at a loss of 2.9% since I added it to my portfolio.

Monday, October 22, 2007

Apple Soars & Am Ex Surprises

Everyone was expecting Apple (AAPL) to post great earnings. And the company came through. The stock added over 3% during the choppy trading day and has packed on another 7% in after hours trading. I was really interested in Apple's earnings, not from the aspect of the company itself, but the mood of the market going into tomorrow.

Why? Apple is a tech bell-weather, much like Google. With both companies posting blow out earnings in the last week, investors in the technology sector will continue to pour the hot money in as the rest of the economy struggles.

But it isn't all rainbows. Texas Instruments issued guidance that the fourth quarter will be flat for them. The largest chip maker for cell phones doesn't see a rosy picture. The decision by Nokia to have other suppliers for their cell phones have clouded the picture for Texas. The companies issues (if you want to call it that) won't have a material effect on the overall mood with techs. Look out, they will continue to climb for the foreseeable future.

And just as a side note. It was good to see American Express put up a good quarter. The company was hammered the last time it reported as it raised it's loss provisions by 85%. No real news on that front means that the company is prepared to handle a more harsh climate as people struggle with house payments, lower equity, and inflation.

Saturday, October 20, 2007

The Zen of Manny Ramirez & Joe Torre

I'm a huge baseball fan. Anyone that knows me, knows this. So, how does Manny & Torre fir into a financial blog? This is how.

Manny Ramirez

Everyone has heard by now that Manny stated if the Red Sox lose and are out of the playoffs, "There's always next year. It's not like it's the end of the world." Some people got upset. Ramirez must not care by saying this. Some people resorted to the , "Manny being Manny," catch-all excuse. And others thought, like I do...Manny actually had it right.

It's not like he doesn't care. He works hard at his job and is good at it. He is going to go out and play the way he always does. If they win, they win and they keep playing. If they lose, well, we will try again.

Isn't that what investing is about? We try our hardest to make the best decisions that we can. Sometimes we succeed and pat ourselves on the back and think we are great. But when we make a mistake? It can shake our confidence and make us want to pull all of our money out of the markets and never come back. But remember, "It's not the end of the world." Manny said. Friday and this week in general, frankly stunk for the market but it's not the end of the world. Yes, you probably lost money this week, no matter where you had it. You probably lost more if you owned financials in your portfolio. "There is always next year," said the prophet Manny. Monday the stock market will open and we will try again. And if that doesn't work there is always Tuesday. But you stick with it. You don't let one day define you. There is always another chance in the market. You just have to have the confidence and coolness that it will turn in your direction.

Joe Torre

So Joe Torre turned down an offer that would have paid him a base salary less than what he was currently getting. The contract was laiden with team performance incentives and if the team reached the world series his next year was guaranteed for a much higher amount. And no matter how you looked at the contract Joe Torre was to remain the highest paid manager in baseball. But Torre turned it down and walked away. Why?

For one, it was a major paycut of $2.5 million. The incentives were based on the team reaching the playoffs, winning the division, and championship series, and reaching the world series. All of which, Joe Torre has only an indirect effect on. Torre does not throw a pitch, field a ball, swing a bat, or run the bases. He puts the lineup together and manages the game. Injuries, age, and players having a down season, he can't control. That is why the contract was insulting. But it was even more than just that. Ownership is changing hands. It's not just George now. It's George, his sons, Brian Cashman, and others calling the shots. The Yankees have changed.

How does this relate to the stock market? Say you have a stock that you have loved for years, like 12 years. And the stock has underperformed comparable to it's past performance for the last few years. And now image that management of your favorite stock is changing, and you're not sure that the change is positive. It's probably time to sell.

A future example of this would be when Steve Jobs plans on leaving Apple. How much premium does the fact Steve Jobs works there does the stock have? I would say at least 10%. That is why the option back-dating issues at Apple last year was a big deal. Remember how much the company tried to separate Jobs from that issue?

Torre left the Yankees for the same reason you may have to leave one of your favorite stock picks. It isn't what it used to be and the future isn't so great either.

Thursday, October 18, 2007

Bank America's Secret Is Out

I was wrong about JP Morgan Chase...I thought they were going to post numbers similar to what Bank of America posted today. But what I missed is that JP Morgan Chase was fantastic at spreading it's bets so that when the the sky came falling in mortgages that the bank was able to post a profit and bet the number game called "earnings season".

Bank of America and Washington Mutual...not so much. Both banks got slammed today when earnings fell well shy of estimates. In fact, the quarter was so bad for BAC that income from the firm's investment fell 93% year over year. Quarterly profit was down 32% overall.

Wa-Mu reported with much the same results. The company earned $210 million vs $748 million a year earlier.

This leads me to question that I have been asking for over a month....Why did these banks not release significant earnings warnings prior to reporting. Neither Bank of America or Washington Mutual were really close to the analysts expectations. Why not lower them earlier and avoid shocking the market even more?

And this will not be the last quarter these banks are going to struggle. Raising provisions for loan losses is inevitable in this enviroment but we haven't even reached 2008 yet when an estimated 2 million more loans will reset. These provisions for losses will increase.

And notice that Citi, Bank of America, and Wa-Mu all state something along the lines of, "We knew we had a tough quarter, but we are disappointed with the results." Really? No kidding huh? And also notice that none of them give any meaningful guidance for quarters to come. Why? Either A) they have no idea what is going to happen and are hoping for the best or B) They are hiding even more losses/secrets and are hoping rate cuts and other help from the government will make things all better.

Of course, making the Ultra $100 Billion Bank Bailout Fund lets you know the answer. When the banking industry comes together and make a fund to help ease the credit crunch...there can only be one explanation. There are some large potential losses out there and this fund will help mitigate the pain. It will allow the banks to control the sale of assets instead of just dumping them on the market to be priced accordingly. This way they still have the pricing power or price determining power for their "assets". While maybe this will help overall. It does not bode well for what is hiding on the big banks balance sheets.

Wednesday, October 17, 2007

E-Trade & Mortgages...Not A Good Combo

Want more proof that some players should have never gotten in the game to begin with? We present to you E-Trade (ETFC) and their miserable third quarter earnings. I especially like the sentence referencing that they were going to allow their 2nd mortgages to "bleed off."

Yep, that is exactly what those loans are doing to E-Trade. Bleeding them and dearly. E-Trade would purchase 2nd mortgages up to 125% loan to value. They gladly to put you upside down on your home. See the problem?

E-Trade and so many borrowers thought that the good times would never come to an end. A 125% loan would be only 100% loan in 6 months and 85% loan in a year because home appreciation was out of control. And now, we see the trend reversing itself. So many of these 125% loans are now more like 140% loans in some markets. Not good.

And E-Trade can't sell their problems to someone else. Who is going to buy that? And borrowers, if they are in a jam would rather walk away than pay for a home that is worth only a fraction of what it was just 2 years ago. So E-Trade is left to "Bleed off" these loans.

The company is also closing their wholesale mortgage department and focusing on A paper mortgages. Just like everybody else. E-Trade should be an afterthought mortgage company, at best. The company should focus on their main brand and get out of areas they don't belong.

Tuesday, October 16, 2007

Another Cut Is Coming Why Not Now?

Everyone knows that it is going to happen. Why wait? Ben and the Fed are going to cut rates again this year. It is a fairly well known rumor that will be fact. Bond legend Bill Gross is calling for a rate cut sometime before the end of this year and ultimately getting the Federal Funds rate to 3.75%, a full percent lower than where we currently stand.

Well, if we are going to see another it at the October 31st meeting. Don't wait. Earnings are coming in fairly low comparable to most seasons. This is going to continue. Cut now. Do it. Get it into the system.

Yes, I have had a change of heart. Ok, not really. I didn't think that the first cut was necessary. I would rather have the issues with liquidity now to avoid a MAJOR issue later with inflation at it's heart. But that isn't going to happen. So if this is how we are planning on fixing this issue...get on it now. Don't pause at the October meeting.

Every time I see a respectable company like Wells Fargo miss estimates and ratchet up their holdings for loan makes me nervous. Wells Fargo is a conservative lender comparable to most out there. If they are struggling, guaranteed other banks have some nasty earnings surprises out there. At the same time it kind of makes me happy. Every earnings miss by a major player, the closer we get to that next cut that is imminent anyway.

Get on with the cuts already!

Saturday, October 13, 2007

Subprime is Gone, FHA, and Credit Unions

I work for a very small lender (credit union) at this time. We deal in only conventional financing with the two GSEs Fannie and Freddie. Anything else that we do that does not meet Fannie or Freddie guidelines are placed into our portfolio of loans. What does that mean to the average person? For one, it means that we have not done "subprime" loans. Every loan we do has the idea behind it...will the person be able to afford/pay us back.

Now before I worked at this credit union, I worked at Waterfield Mortgage, which was in turn bought by American Home Mortgage. Sound familiar? Yes, American Home Mortgage blew up just a couple months ago. I have a good idea what types of loans were being made in the market.

I have recently went to both the Indiana Mortgage Bankers Association annual meeting and the Northeast Indiana Mortgage Bankers associations meetings. What just stunned me in my tracks is how other lenders spoke about subprime lending. They talk about that it is gone. Just absolutely gone. Not that you can, "still do this or that," but just not available anymore. What a change in just a few months time!

Now all the lenders are trying to pile into FHA financing for their needs. Many lenders loving refer to FHA financing as "government subprime". It is somewhat true. Deliquency rates on FHA and subprime loans run about equal at just shy of 17%, but it is in the foreclosure rates where you see the big difference. FHA foreclosure is less than half that of subprime loans. Why is this?

For one, both FHA and subprime lending help those with less than perfect credit. FHA has no minimum credit score required. The difference really lies in the idea behind FHA. FHA is a "common sense" type of lending. The big question is, "Does it make sense?" and then document the snot out of it. Medical issues with documentation, interest rate increases (FHA Secure, even though many times you have to do a 203b instead) and any other documentable situation can be considered for FHA.

But make no mistake FHA is not subprime, nor will it ever be. FHA tracks lenders rigorously and make sure that they are making good loans comparable to other lenders in the same market. If a lender has a higher rate of foreclosures than the market, the lender comes under higher scrunity and possibly loss it's endorsement.

Subprime turned a blind eye to many issues. Self-employed? Do a stated income loan. How often did this happen? I skipped out on the last couple hours of the IMBA annual meeting because it was on "How to determine income from a tax return." No kidding. So many lenders got in the habit of placing individuals into loans of convenience such as subprime, stated income loans, no ratio, or no income no asset related loans that they had to spend time at the annual meeting either teaching those new to the industry to do it or remind the old timers how to do it again.

So what will happen to those who are facing rate resets, higher payments, and possible foreclosure to do? First, your their current lender and see what can be done. Ask to refinance. Ask to see if a loan modification is available (which will change the terms of your loan, such as taking an ARM and making it a fixed rate).

If these options are not available to you try refinancing with another lender. If you have a relationship with a credit union, it may be a good option when all else fails. Credit Unions value their members and if you have a long history with your credit union the more likely they are to make exceptions that other banks and lenders will not. If you're not part of a credit union, well frankly, you're probably paying too much for your banking services to begin with. Find one in your area. Most now have community charters that state if you live, work, worship, etc in their area, you can become a member. Not only will your banking services be cheaper. They can offer help to those who are loyal to them by being loyal to their members in times of need.

Friday, October 12, 2007

New Investments QQQQ & EWZ

I haven't given a weekly update in awhile. The S&P gained .72% this shortened trading week. My portfolio gained just.88% in that same period. My standout this week was Ford with over a 9% gain. The company gained on news that the UAW contract work may be easier for them as opposed to GM and Chrystler.

Pepsico. (PEP) underperformed this week on the back of good earnings news. Go figure. It happens sometimes. Look at McDonald's today. MCD stated that Q3 earnings would be better than what is expected (MCD didn't release Q3 earnings yet) and gained over 1% today.

Another quick update I wanted to give. I have also purchase another EFT. This time it is the popular Powershares QQQ (QQQQ) also known as the Cubes. This predominantly tech EFT gives me some exposure to large tech companies such as Microsoft, Intel, and Apple but also holds consumer services and healthcare stocks to the tune of 25% of overall holdings. Basically, it invests in everythings S&P excluding financials.

Since purchasing the EFT on September 24...ok, I haven't disclosed this to you before, the EFT has gained over 6% compared to the S&P 2.3% advance in that same period. I wrote about the Cubes over at Nesteggr this week. It is a good hold at least through the end of this year...and if techs continue to outperform, longer.

Next week I will be purchasing my first really "risky" EFT. I am going with the emerging market of Brazil with iShares MCSI Brazil (Free) Index. The EFT has gained over 70% this year to date and shows no signs of slowing down. And with the dollar low, overseas investments will continue to outperform domestic equities. I have to keep a little bit of a closer eye on this EFT (like I don't watch everything I own).

Thursday, October 11, 2007

Countrywide Again

It's been awhile since I wasted my time talking about Countrywide. But they are in the news again. Today they announced they were cutting 5,000 jobs, which is part of the 10,000-12,000 already announced. That really wasn't the news. It was that NC Treasurer, Richard Moore, has asked that the SEC look into the timing of stock sales completed by one Angelo Mozilo.

Oh tell me it isn't so Angelo! Mr. Mozilo has stated that the trades were preplanned and has been doing such since 2004. Which is totally correct and some of the stock he was actually required to sell. But is what really is getting people upset is that the selling of his stock accelerated rate in October of 2006. And it changed (picked up steam) on a month by month basis.

Suspicious, absolutely. Consider that Countrywide's stock has gone from over $45 in early February (before New Century's demise)to under $18 in the last few months (CFC closed at $18.28 today). Mr. Mozilo has pocketed over $100 million in that time frame. You can see why people would be upset.

I will give Angelo the benefit of the doubt here. I think that his stock sales have been perfectly legal in all aspects. However, I feel that legal and ethical are two entirely different things. If Mozilo, who is already a very rich man, sold his stock to pocket even more money, in a conscious effort. Well, that is just sleazy. Which is what I call Angelo Mozilo consistently....a sleaze-ball.

Monday, October 8, 2007

Repair Your Credit

Do you have bad credit or need you credit repaired to it's former status? You're not alone. Here is what you can do.

As a mortgage loan originator I see a lot of credit reports and lots of errors associated with it. Many times, these once delinquent accounts such as judgments, collections, tax liens, and charged off accounts were actually paid off long ago but were still showing on the credit report. If they are on the credit report, these items will affect your credit score negatively. Making you look like you have bad credit. This can and does make a material impact on whether the lender approves or denies a loan. And if the loan is approved it can also have a major impact on what interest rate your lender may be able to offer you.

So what can you do if you have bad credit or if you have to have your credit repaired? You, as the consumer, can contact the creditors showing on the report and see if they will remove them the next time they report to the credit reporting agency. Or you can contact one or all of the three major credit reporting agencies to dispute the items in question. This can be a time consuming process and depending on how the request is worded (if you have to place your inquiry in writing, as many companies will require) the error may not be deleted from your report.

There are other options that are available to you such as a third party agency that can help you. One of such on the internet is RMCN Credit Services, Inc ( This company specializes in helping move erroneous information from your credit report. The company has been in existence for the last 10 years and has a satisfactory record with the BBB (yes I checked before recommending).

What RMCN basically does is request all credit lines (current and old) to verify the accuracy of the information that they have reported and request any incorrect information be deleted from your report.

You can see a number of testimonials and examples listed on their site. Notice that especially on the credit reports they have listed their is a few month difference from the beginning report and the end report. This is not a fast process. Your score will not go from 600 to 720 overnight. You will have to allow the requests and subsequent adjusts to the report to be made.

If you are just struggling to make your payments this type of service will not benefit you. RMCN works to correct errors on your credit report to improve your scores. If you are indeed behind on your payments and need help you may want to contact another agency such as CCCS that may be able to help you.

Again, this is something that you are able to do on your own at no cost. But if you are unsuccessful in your attempts or just want to have another party work for you (for a fee of course) RMCN is there for you.

Friday, October 5, 2007

Better Job Numbers Mean Rate Cuts on Standby

September job numbers showed an increase of 110,000 of non-farm payroll jobs. This was higher than analysts estimates of 100,000. But almost as important was that August's job numbers were revised to show a gain of 89,000 versus the -4,000 that was initially reported. Now while that number was surprise, most of the difference in jobs was due to Government hiring, which can be volatile.

Unemployment did edge up to 4.7% and personal income increased .4% to an annually amount of 4.1%. None of these numbers really speak to a weak employment sector.

The stock market is trying to price in lower earnings estimates for the third quarter in financials and retail but have already (within a period of about a week, especially in financials) started to eye the fourth quarter earnings thinking they will be better. If in deed they are better in the next quarter. If Q3 earnings aren't as poor as expected (which is what I fully intend on seeing) and employment remains strong...there is no reason for the Fed to cut rates anymore at this time.

The dollar has really faltered in the last month with other countries central banks either staying pat with rates as is or increasing rates (there were a couple of smaller economies that lowered rates also). A low dollar will put pressure on any imports we buy...including oil. So expect to pay a little higher at the gas pump just because our dollar doesn't go as far as it did just last month.

I also wrote about A New Way of Looking At Inflation over at Nesteggr. Check it out. Basically, we are in a global economy now that has a growing middle class that can afford a more varied diet than ever before.

Wednesday, October 3, 2007

Update & The Mortgage Czar

Ok, so it's been a week since I last write. Get over it. I am going to be reducing the number of posts now. Expect more like one to two a week instead of four to six. I just can't keep plugging away and giving you less than the best posts. Plus it is the baseball playoffs. I kinda sorta have to watch it. It's a compulsion.

Just one update in my stock picks/sells. I was starting to fell bad that LVS was still advancing along like it was going to break right on through that $163 price target, until today. It lost 11% today to close at $127, less than when I sold out. Why? News that income from Macau revenue pushed LVS to a gain of 55% from a year ago. And that was bad. Just like I stated when I sold the stock. The market was expecting a 75% gain. Talk about your moon and stars hopes. I told you so.

Today, Democrats wanted the Bush Administration to create a new position of Mortgage Czar to help cope with the wave of expected foreclosures. Bush's camp threw out, there already is one, Alphonso Jackson, secretary of housing and urban development (HUD). And Bush is right. What good is it to add another layer of government to mimic the job of another. The Mortgage Czar is a stupid idea pushed forward by democrats desparate to find an answer to the mess before election time. I say this, and proudly say that I'm a Dem but this idea is bad bad bad. But if it goes through, can I apply for the job?

I've always wanted to be a czar and then to put "mortgage" with it. Heaven

Wednesday, September 26, 2007

Adding 3 new Picks

I cut LVS loose earlier this week and the question was how to replace it? My first idea is to go with domestic companies that have a global reach...and make a large portion of their income from that "reach". Why this type of business? First, if we really are going to face a slowdown here at home, having a large portion of your income coming from outside the United States is great. Second, I don't think we are going to see the huge slowdown that most analysts are expecting, outside a few well worn sectors.

First choice: McDonald's (MCD). Now here is a comeback story. McDonald's went from a cheesy burger joint for kids to totally changing their product line and presenting their stores in a much more adult friendly kind of way. And it work. The stock has been on a great run over the last year or so. Don't expect it to slow down any time soon.

Second choice: Coca Cola Company (KO). Jim Cramer likes this company if the economy tanks. Great. I agree with Cramer on something. Now I don't feel so great about this pick. And I already hold PepsiCo also. I don't care. This company reaches around the globe and millions upon billions of the growing middle classes around the world will have to have their "Coke fix". Coca Cola has been buying up all sorts of little companies to diversify it's product offerings. It will work and continue to work.

Now for my third pick I am going away from the above reason and go back in the pharmaceutical area with my choice of Gilead Sciences Inc (GILD). This stock has grown and grown where most companies have big ups and downs. The company has a few hypertension drugs in the pipeline that are in Phase III trials, but the preliminary reports are looking good.

Here are the newbies. What do you think?

Monday, September 24, 2007

Leaving LVS Behind

I have been riding Las Vegas Sands to higher returns since I first started this blog. In fact, I've ridden it to a 55% gain over the last two months, but I think that it is time to say adieu to my beloved LVS.

Why? It will become increasingly harder for the stock to continue to outperform at current levels when earning for Q3 are announced. Two weeks ago, analysts had raised their price target to $120. It took two days for the stock to break through that amount. Today, another analyst raised his price target to $163. That would be about a double since I suggested the stock in July.

I just don't see it. When the announce Q3 earnings, it will only take a portion of the new Macau facility which opened at the end of last month. I don't care how good the numbers are, it won't be enough for those investors that are looking for the moon and stars from the stock.

With all this good news surrounding the stock, I think it is a big red flag that says, "Get out". And that is exactly what I will do. Can't argue with a 55% gain in two months time.

Saturday, September 22, 2007

Week Review

I have been loud about my impression of the Fed rate cut this week. I was against it and I am fully against any other cuts that seem to be pricing into the system. It is a contrarian approach I'm aware. It's just by cutting now will only make the fallout later larger and more painfully. It's kind of like getting chicken pox when you're an is much worse than if you just got it over with when you were a kid.

That being said, I'm not against taking advantage of earning some money while the getting is good. The S&P advanced an impressive 2.8% this week. Someone over at Nesteggr had written that you had to be pretty dumb to not make money this week, or next. We will see about next week but it does look like it will shape up to be positive for equities.

How did I do? My portfolio sported a gain of 3.9%. It would have been better but a Merrill Lynch analyst downgraded ABX to neutral from buy based on the stocks current run. It shed over 2% Friday. Gold bullion is still a good place to be with a low dollar, which will only continue to trend lower.

AGN was one of my two stocks this week that posted a loss. Allergan was down a whopping 8 cents for the week. It should look a little brighter next week as analysts at Credit Suisse maintained their outperform rating on the stock and raised their price target to $67. That should be good news.

Where Has All The Equity Gone?

<---------- Is this what happened to your home equity?

Of course, that is not a funny joke. I have dealt with a number of people that had the experience of having their home burn down. They lost everything and had to fight with insurance companies. Not a good combination.

But many areas of the country feel that in many cases their value of their home has gone "up in smoke". I've had many people just in my community say, "But it just appraised at $xxx,xxx just last year and now it only appraised for$yyy,yyy?" My answer, normally? "Yes."

Greenspan, yeah he is still talking, has said he sees prices of homes falling even further. Can we really be surprised? Many areas saw home appreciation in the 20% range each year and some of the hottest areas even more than that. But what ultimately happens? Homes get overpriced. People find their brain and decide they won't overpay for a home. Rates go up (kind of). Builders build too many homes. Foreclosures start to spike (because of the kind of higher rates). And then down, down, down, come the prices.

The higher your market appreciated in the last few years the more accelerated the decline. It sucks if you bought at the top or need to sell your home but it is necessary for healthy growth in the future.

Home appreciation has outstripped gains in income within the last 10 years. It has to stop somewhere. For most, if they can "wait it out" before moving they will. Why sell the house today for $20,000 less than it was just two years ago when I don't have to move?

If it were any other type of market, such as the stock market, you would cut your losses and move on. But the housing market doesn't work that way. Both buyers and sellers think that they are going to find a sucker. Buyers are going to get a seller to sell their home for a song. Sellers think they can get buyers to pay the moon and stars. So nothing happens.

Meanwhile builders haven't ramped down production and have lots of inventory to move. They would rather move it for less than have it sit and make payments on it. So the home sells for less. With ARM resets and people walking away from their homes, banks are only able to sell those home for 50 cents on the dollar if their lucky. If too many foreclosures happen in one area, prices start to decline there too.

When will this end. Later rather than sooner. There isn't much that the Fed can do. Even if they continue to drop the rates, you will not see the froth that caused so much of this mess to begin with. Look to 2009 or later before prices in most parts of the country to start to rebound.

Thursday, September 20, 2007

The Rally Ends & Inflation Begins

Told you that FedEx would play a roll in the rally. Today the company announced better than expected earnings but lowered their forecast based on the rising cost of energy. Probably wise on their part, with oil hitting $83.90 as an intraday high. Oil won't get better near term with producers in the Gulf still being jitterish about hurricane season. Also the low dollar doesn't help either.

Two more things about the dollar. First, the Canadian dollar hit parity with the US dollar. Uh, what? My Canadian nickel is actually worth 5 cents? Get out! And second, the Saudi's did not cut their rate in step with the US for the first time. Does this signal the end of their pegging their currency with the US dollar? If so, that is bad news for the dollar and the economy. If the Saudi's end the peg, so will other countries. This will trigger a mass pull out of the dollar, which will make our currency fall further. People, a rate cut cannot help this sort of issue. It would only enhance the issue.

Long term bonds continue to sell off, pointing to inflation. Oil hitting record highs, points to inflation. The lower dollar, points to inflation. Higher gold, points to inflation. You can't cut rates anymore in the face of inflation.

Want to guess what stock was my best performer on the day? Barrick Gold (ABX) was up 5.68% today. The stock is up over 30% on the month.

And just one more issue from my little meeting today. The genius who kept proclaiming the profitability of FHA loans, said that he fully expects mortgage interest rates to come down and we will see a refinance boom (though small) next year. Hey genius! If long term bonds keep selling off (which they will unless the dollar rebounds and oil comes down) the yield will increase pushing mortgage rates higher. Obviously I don't share his view. The mortgage arena is going to stay ugly next year. Rates, at best, will remain at current levels or move slightly higher. Rates aren't bad now.

If you are facing an ARM reset set and do not have a pre-payment penalty, do yourself a favor, get out of the loan sooner than later.

In a Room Full of Mortgage Originators

I'm back from the IMBA annual meeting. I'm a little glazed over with all the information and frankly, the crap that I had to listen to over the last day and a half. I love doing mortgages. I love helping people realize their goal of homeownership. I love helping people get out of financial quicksand or help them realize another long term goal (such as funding college educations or buying a dream home). I love the challenge of those ugly loans getting completed. What I can't stand are other mortgage originators.

Whenever I am in a room with other mortgage originators I just sit and watch them. It is amazing to see just how important they think they are. You should have seen the blackberries and elbow rubbing these people do. No wonder mortgage loan officers are considered less reliable than members of Congress. No lie, that was a Gallup survey from a few years ago.

First, all most of these people care about is what loan can fetch them the most money and not get them in trouble. Meeting the consumer's needs is just a facade to make them feel better about themselves. One of the speakers, an a-hole of the highest regard, called his loan office "a practice" so it is on par with other professions such as a law or doctors office. He insisted that he was a "Mortgage Planner" to make the mortgage part of the entire financial plan of an individual and not a transaction. He wasn't a loan officer or loan originator, oh no, he was so much more than that. He called his customers "clients", not borrowers. I get what he was trying to say, but that is all just window dressing to me. Shut up and tell me something profound.

This a-hole of the highest regard was great with his ideas for the high end customer. He discussed strategies for people with large amounts of equity or large down payments. He had partnered with financial planners, estate attorneys, and CPAs to create a one stop financial shop. The problem is, is that this is Indiana. I deal with large amounts of equity and down payments on a small scale. And when I do have those situations, they rarely fit the types of transactions he was discussing. Talk about missing your target audience. But to his credit he was a great presenter. Funny, engaging, and well prepared. No doubt that he was very smart and very successful at what he does.

Then he had to sit at my table to lunch. What is the first thing out of his mouth? He complained about people who called his "practice" and just wanted a rate and good faith estimate. And I quote, "I could care less about them. I just put it together and hope they go somewhere else." Nice. Then for the next two hours I listened to his buddy talk about FHA mortgages (good products) and that they paid very nice yield spreads.

I left when the a-hole of the highest regard was going to tell everyone how to read a tax return. They had to go into this because most originators over the last few years just put self employed borrowers into stated income, no ratio, or no doc loans. Again, nice. This is one originator that knows how to document income from a tax return. Why? Because I used the products that were available to me correctly and a self employed borrower didn't always need to be put into a stated income loan. I'm not lazy as many originators are.

I guess that I'm just jaded today. I've never been about the money or about pushing myself as some big hot shot. Maybe I do by writing this blog. Maybe I should cut the a-hole of the highest regard some slack.

But I don't think my anger is misplaced. I really don't. And what I came away from this meeting today? Even though the market has changed for the better, the people running the game are still looking for additional ways to squeeze a buck out of the person sitting in front of them.

Bad times all around.