Tuesday, June 24, 2008

Is there a Goat in the house?

A local UPS dirver stopped by and we engaged in conversation on the housing market. He noted that his grandmother's house is on the market for $114,000.00. It is a post-war bungalow...but still in pretty decent shape. He told my wife an I that they had an offer for $92,000 on the house and the potential buyers asked that the seller come up with a down payment for them as well. He said "I will burn it down before I give the house away." The UPS guy is not a goat!

Just when you thought you have heard it all...another half-cocked loan scheme has come to fruition. Evidently, non-profit organizations have now entered the housing picture. They are "helping" people with their down-payment. I guess this is a nice effort of behalf of the non-profit organizations...but so goes the old adage..."Give a man a fish...he fishes for a say. Teach a man to fish, and he fishes for a life-time." Sometimes non-profits have a heart that is in the right place, but they have the brains of a goat. Money is easily squandered if it is not respected...hey it's not my money.

According to chart one on average it appears that 22.50% (on a conservative estimate) of these loans have gone belly-up. An employee of Household Finance has told me the basic problem is people are not managing their money well. They are buying things they don't need with money they don't have to impress people they don't even like. While owning a home is part of the American Dream, responsibility of ownership plays a major role. Quite simply, if you can't afford things, don't buy them.

More dismal news on the housing front. "Inflation, political flux and job insecurity have created an "uncertainty more acute, perhaps, than any time since 9-11," said William Hummer, chief economist at Wayne Hummer Investments. An analyst at Wachovia said that consumer confidence hit the 1992 low, and pointed out this is the most troubling economy since the 1980's. (1) Interestingly enough, banks found cause to rally today.

Dodd's Housing Bill received an 83-9 vote to limit discussion. However, discussion is what makes America a Democracy...and this could be one of the most anti-democratic moves of this century. Even Bush didn't pull this kind of stuff on the road to Iraq! At least we can count on Bush to VETO this bill. (2) While some of the financials responded positively to the news that this bill may pass, it won't. There is no quick fix to Wall Street's problems. The U.S. taxpayer should not be the scapegoat on this one! Could you imagine what would happen to the value of a dollar if the U.S. government took on the sub-prime loans? That's just crazy!

Please note the Countrywide is facing the first, in what will eventually become a landslide of lawsuits against deceptive and unfair lending practices. (3)

For me, I found another opportunity to buy BAC 1/22.50s. I see no reason for anyone to rally around Wall Street anytime in the future. I was slightly rewarded as the put moved into positive territory as market close. A quick trigger on the inflation button would see a move on interest rates...with housing in the dumps...and a need to encourage investment and innovation this would be a mistake at this juncture. There is an outside risk of a .25-.50 percent increase in Fed rates...however, the biggest concern at this juncture is the economy...then inflation...getting oil under control will be the quick fix for inflation...

Must read article. Click here

Works Cited
1. http://biz.yahoo.com/ap/080624/economy.html
2. http://www.marketwatch.com/news/story/senate-votes
3. http://news.yahoo.com/s/ap/20080625/ap_on_bi_ge/


AX said...

Please explain. If inflation hits 10%, how is that not going to hinder the economy?

Tiger Coach said...

Ax... Great point about inflation and the economy. I do agree with you about the inflation monster...and the possibility of double digits as I have mentioned in a few posts and articles.

It is my belief that the #1 priority will be the slowdown... #2 inflation. If...If a handle can be put on oil prices...if the oil community will accept the same amount of American dollars ( which they actually seem to be contemplating... then the slowdown will take precedence. If oil remains high... it will influence the inflation argument.) Obviously, there are more factors which would take a book to write. I will simply state this point...both the economy and inflation are serious concerns...a heavy move by the Fed would suggest activism toward the inflation scenario. More than likely, they will give they will wait to see if stimulus efforts work their way through... I believe oil is the key...and the quick fix now as far as inflation goes...

Two awesome reads one from Itulip about inflation v. deflation...the second about the first of many lawsuits against the mtg. industry.


2. http://news.yahoo.com/s/ap/20080625