GMACs Candid Response to "The Rest of Us." ... China Syndrome... College Football Results...

GMACs Candid Response to "The Rest of Us."
Since our house is on the market, I thought it a good idea to call GMCA. This fine institution holds our mortgage. I was curious about our payoff figure if and when we sell our house. After that vital information was shared, I had a few questions I needed answered:

Question: If my house does not sell, am I privy to the government refinance programs?

GMAC's Answer: If you are referring to the Obama Loans (as we call them at GMAC), you must meet three criteria.

1. You must submit a letter requesting loan modification.

2. You must submit financial information which demonstrates economic hardship.

3. Our underwriters must agree that your unique financial situation qualifies for the Federal Loan Adjustment Program.

Should that be the case, there was little or no reason to carry this conversation any further. My credit score is in the 800s. While my income is not as high as some of the charlatans applying for the help for homeowners program, I was certain that I have no chance meeting the underwriting standards for loan modification. It seems as though the deadbeats are getting rewarded here, while they are in many cases keeping a home that they never should have bought in the first place... Go figure. Yet, I do see this as a plan aid banking and mortgage companies.

The China Syndrome
China became a bit more intriguing as the Communist country announced that there will a shut down of specialty elements. These are the same elements that are used in ceramics, cell phones, etc. Should China continue this degree of politics, you can rest-assured that this move will hurt China more than the rest of the world.

Since China is responsible for nearly 99% of rare earth mining, it does put those companies who specialize in those products subjects of interest. China will create pricing pressures on these materials. As a result, ceramics to cell phones will increase in price. Maybe it is time to consider a few companies which specialize in this mining area. As for the rest of China, FXI is probably the best way to short them. A "sluggish" growth prospect for the rest of the world means China will have to sop up their extra demand... or concentrate massive wealth reserves on infrastructure.

College Football
To those who followed my college football selections were treated to a 3-0 sweep.
Notre Dame was an easy cover. Connecticut did what it took to cover the spread against Ohio University. (Why does the MAC even have football?) And Army was an outright winner against Easter Michigan.

I hope to list three more complementary picks buy Friday.

GMAC's Bad Medicine

More Bad Medicine: Rates Were Never the Problem
More good news for GMAC. Now that GMAC is more like a bank, the Treasury gave them $6 Billion dollars in TARP money. GMAC said that it would use these monies immediately to introduce 0% loans, and loosen lending standards. Management hopes that this move will help GM reduce its car inventory, and create additional cash to keep it floating. I am not as optimistic. As we have noted rates (whether they were for cars, credit cards, homes, or business loans) were never really the problem. When rates were lowered it encouraged more people to buy and refinance, money was cheap to borrow. Now that we have extended too much credit to the wrong borrowers, we are seeing the fallout. GMAC's move may be the initial step. It may temporarily sell cars. The large glut of inventory may move. However, extending more credit could well be a recipe for disaster.

According to Nouriel Roubini "Today's global crisis was triggered by the collapse of the US housing bubble, but it was not caused by it. America's credit excesses were in residential mortgages, commercial mortgages, credit cards, auto loans, and student loans. There was also excess in the securitized products that converted these debts into toxic financial derivatives; in borrowing by local governments; in financing for leveraged buyouts that should never have occurred; in corporate bonds that will now suffer massive losses in a surge of defaults; in the dangerous and unregulated credit default swap market." (1)

As companies and governments attempt to remedy borrowing through reduced rates... and loosening credit standards, they may only exacerbate the situation. I remind readers that government intervention is not only limited to GMAC, but a variety of lending institutions which have received direct infusions from the Fed as well. To encourage the same practices that caused the original problems is not only senseless, it encourages the same people who have helped cause the financial crisis to remain in the picture. It is almost as if governments are encouraging a policy of Natural De-Selection (encouraging the weak, in-efficient, and dumb) to survive. And we watched Wall Street react with 185 point run-up... go figure!

1. http://www.guatemala-times.com/opinion/175-year-end/663-will-banks-and-financial-markets-recover-in-2009.html