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 adult...it 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.

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.