The Federal Reserve will ease terms on residential mortgages acquired in the rescues of Bear Stearns Cos. and American International Group Inc., seeking to stem foreclosures.
The Fed policy is targeting borrowers who are 60 days or more overdue on loan payments and covers modifications of interest rates and payment plans. The program uses the Fed’s authority in the $700 billion Troubled Asset Relief Program and was released today by the House Financial Services Committee.
“It reflects the understandable desire of the Federal Reserve to have some cooperation” with the Obama administration, House Financial Services Committee Chairman Barney Frank told reporters today in Washington. “This is a very big deal.”
The Fed’s “Homeownership Preservation Policy” lets the central bank or its agents “promptly” review applicable mortgages to determine whether the borrowers should be offered a loan modification, the document said. Qualified borrowers must be at least 60 days late on their payments.
The policy applies to the residential-mortgage assets the Fed acquired in its rescues of Bear Stearns in March and AIG in September.
The Fed will distinguish between loans in which the central bank may hold only a fractional interest along with other investors, the Fed said. It will encourage the servicers of those residential mortgage-backed securities “to implement a loan-modification program that is consistent with this policy,” according to the document.
The Fed’s "Homeownership Preservation Policy" will not preserve many homes, but it will encourage homeowners to get 60 days late. For now, the policy only pertains to AIG and Bear Stearns loans, a very small subset of loans. When the policy fails, as it will, expect the Fed to expand it to other areas. Every failed policy to date has been expanded. This one will be no different.
Sunday night, I posted an article by Mish discussing Peter Schiff’s record, or as Barry Ritholtz at The Big Picture describes the article, "Mike Shedlock lobbed a hand grenade Peter Schiff’s way (here, and mirrored here)."
Barry now writes a follow up, here are a few excerpts:
Around late 2008, some PR flacks were circulating a Schiff’s greatest hits — short excerpts of his appearances on major media. It was apparent to me that these heavily edited clips were not coming from random readers, but rather, were part of an organized PR campaign. I do not know if this annoying guerilla marketing approach is what motivated Mish to write his takedown, but it sure made me come close several times.
Regardless of the motivation, in a meticulous, fact-based post, Shedlock highlighted the poor investment returns Schiff has generated in 2008. Through the grapevine, I have heard that Schiff was livid, and is threatening a lawsuit.
Too late: I understand more fireworks are coming,…
I’m not sure you call me neutral — but I am certainly even handed in this case. However, I simply cannot find anything in Mish’s blog post that is actionable. Besides, who would want to open themselves up to the sort of discovery process slander/libel litigation would entail for the plaintiff. It would make a colonoscopy look pleasant by comparison . . .
After already spending enough money to make 8 Million Americans Millionaires (that’s what $8Tn is!), the government is NOW looking to step in and buy up all the toxic assets Paulson said they were going to buy last year.
This is called "leverage" – Paulson and Co. allow the situation to get so bad that you are forced to give him a blank check for $700Bn to "Fix It" and the Bush administration levers your cooperation into $8Tn of spending, NONE of which actually goes towards buying up any of the bad assets that we were told was critical to the system’s recovery in the first place. So NOW we are going to be writing a $1Tn check (the opening, pre-levered estimate) to take the "bad assets" off the books of the surviving banks. Don’t get me wrong, we did a similar thing with the Resolution Trust Corp and that worked but, knowing that history, wouldn’t it have made sense to have done this first?
Had I known the government was willing to spend $100,000 times 80M households over just a 4 month period, I would have been more generous in my proposed program last April that solved the housing crisis by merely lending $100,000 to the then 4M homeowners at risk of foreclosure (a mere $400Bn stimulus) who could be saved by cutting their mortgage down with a principal reduction. In September, as the situation got worse, I pointed out that it would be much cheaper to just guarantee the mortgage payments on all 5M homes that faced foreclosure – a cost of "just" $5.8Bn a month that would effectively clean up all the balance sheets without necessitating taking possession of a Trillion dollars worth of properties and dislocating their owners.
I will make one final pitch for my idea, I won’t rehash what is in the linked articles but, conceptually, if you offer $100,000 or more (since the government is 10x more generous than I proposed already) to reduce the average homeowner’s mortgage payment by 50% to anyone who wants it (in exchange for $125,000 of equity in the home and 6% interest deferred to the eventual sale) you can allow the homeowner, with their government "partner" to refinance the remaining balance at 5% or less and save roughly $800 PER MONTH in payments. Now THAT is stimulus! The bank gets $100K in cash back…
StockJockey discusses the Bloomberg story of John Mack, CEO of Morgan Stanley, and particularly Mack’s efforts to ban short selling of financial stocks.
In the waning days of his SEC career, Chris Cox admitted that the ban on short selling financial stocks was perhaps his greatest mistake. The hours and days following the implosion of Lehman Brothers were a blur, then and now, but the short selling ban was probably the final fork that was stuck in the market, and sealed our fate as money managers threw in the towel and sold stocks indiscriminately in mid-September.
For the hard working employees of Morgan Stanley’s (MS-NYSE) prime brokerage division, the disclosure that John Mack was behind the lobbying effort to ban financial shorts hit like a ton of bricks -dazed clients pulled money out fast and furiously, as Hedgistan fought for survival, enraged at Mack’s decision which came after the prescient among them narrowly avoiding having funds locked up at Lehman:
“Wednesday (September 17th) was an absolute disaster,’” says (MS CFO) Kelleher. “I don’t mind admitting it — in prime brokerage, we had a run on the bank.”
The prime brokerage unit lends money and securities to hedge funds. When some funds learned that money they had parked at Lehman was now frozen in legal proceedings, they decided to pull cash and assets from Morgan Stanley. Bloomberg
The decision to ban shorts in perhaps 15% of U.S. equities set off a chain of unintended consequences that are still reverberating – Lehman’s demise was bad, but the short ban threw more fuel on the fire.
Mack’s desperate efforts to save his beloved firm made him one of the most hated men in Hedgistan, although his public image held up far better. In Main Street’s eyes he is no Fuld, Cayne, Thain or Rubin, but those in the know on the BuySide will probably never warm up to the man.
It is a shame that a few hours in September tainted a career that was largely considered a success, although insider trading allegations in Le Affaire Pequot (pardon my…
Again bulls were able to effect a few “stick saves” as markets were wobbly early. But there’s something to be said for bulls who seem perfectly able to absorb a blizzard of bad news (Consumer Confidence at lowest level since records were maintained back to 1967 and home prices took a record dive). But, oh pish-posh let’s look at really good news on earnings shall we?
AXP rose because if lost less money than feared. Great!
TXN rose because earnings only fell 86% and they’re firing thousands. Great!
X rose nearly 7% because it made a profit due to an acquisition. Wow, more accounting wizardry!
NFLX rose sharply because consumers are retrenching and making their own popcorn and enjoying their big screens they bought with the last stimulus check.
And lastly, but the most fun, were statements that the markets are now rising because financial companies are done reporting and, well, out of sight out of mind.
Volume was light today and breadth was positive.
So we wait whatever new tricks Ben & Co. have up their sleeves. We could have a Big Wednesday result. Bulls have plenty of incentive to try and save January.
I won’t be posting tomorrow as I’ll be in the air flying to DC. Perhaps I’ll have time to post something Thursday morning depending on whatever schedule ProShares has arranged for me.
Let’s see what happens.
Disclaimer: The ETF Digest maintains a position in GLD.
Just thinking about the post office can give you the willies: Its mind-numbingly drab interior, the lines upon lines of automatons shuffling blankly along, hoping that the edgy folks on the other side of the counter don’t give credence to that whole "going postal" idea.
Now, if you will, imagine you’re waiting in that same line to withdraw money from the bank.
Yikes.
Nationalization is a creepy concept in this country, especially when the most common contact we have with a state-run institution is, for the fortunate, the US Postal Service; for the unfortunate, it’s the IRS.
Nationalization is a simple idea really: It’s when the government takes ownership of an industry or other private assets.
Take the Department of Homeland Security, for example: After September 11, the airport-safety industry was relieved of its responsibility to keep the skies free of maniacal would-be terrorists. To be sure, there hasn’t been another attack, but flying is downright miserable thanks to long lines, redundant inspections and queues of unmanned metal detectors on light travel days like the Wednesday before Thanksgiving and 4th of July weekend.
Recently, with the near-collapse of the banking and automotive sectors, the subject of nationalization has once again reared its controversial head.
Advocates of the free market argue that General Motors (GM), Chrysler and Ford (F) should be allowed to fail, if that is indeed their destiny. Others contend the government should seize control of the firms, toss out their incompetent management teams, and start making cars people actually want to drive.
The question, of course, is whether fire-breathing bureaucrats would succeed where private businessmen failed.
We may never know, as the current course of action seems to be a bastardized version of nationalization, in which government offers up tens of billions of dollars in cheap loans in exchange for some miracle turnaround strategy that may or may not materialize. Meanwhile, it offers gentle suggestions of exactly what kind of cars these “private” corporations should make.
The banking system, which some say has already been effectively nationalized, is even trickier.
And the problem extends beyond choosing a name for this would-be all-American bank (Bank of America…
Henry Blodget at ClusterStockargues the logical: let’s skip another long, drawn-out, incrementally painful and expensive denial phase and nationalize certain banks that should ultimately be nationalized anyway.
What Will Citigroup (C) Be In Four Months? Fannie Mae
The "irresponsible" suggestions that Fannie Mae and Freddie Mac were insolvent,
the vehement denials,
the regulator-approved capital ratios,
the inconceivable theory that the two companies would eventually be, horrors, nationalized
the plummeting stock prices,
the additional denials,
the gradual realization on the part of everyone except management that the two giants were dead men walking
the $200 billion government bailout
And, now, four months later, we get news that $200 billion probably won’t even begin to cover it, that Fannie and Freddie were so colossally insolvent that management’s denials of last summer were nothing short of absurd.
Welcome to the future of Citigroup. And Bank of America. And a half-dozen other huge insolvent banks that seem so central to our national psyche and economy that even the forthright Obama administration still can’t even bring itself to utter the word "nationalize" (even though it’s hard to find any smart economist anywhere who doesn’t think this is 1) inevitable, and 2) the best plan for the country).
Citigroup and Bank of America are where Fannie and Freddie were last summer, except that they’ve already sucked down (and partly paid themselves) about $100 billion in bailouts. And Citi and BOFA’s boards and management are where their Fannie and Freddie counterparts were last summer: In denial.
Once we finally nationalize Citigroup and Bank of America, doing so won’t seem like a big deal: It will seem like the obvious, inevitable, and fair solution to their own dumb-ass gambling bets, the ones that made them so rich and beloved on the way up. Hopefully, the Obama administration will have the courage to do this the way it should be done: by converting debt to equity, but that remains to be seen. In any event, it won’t wreck the country or rock the foundations of capitalism. On the contrary, it will be mostly forgotten in a week. (Most people actually have bigger things to worry about.)
So let’s stop tiptoeing around and just get it over with.
VIA B – Viacom Inc. Class B – Our ‘hot by options volume’ market scanner picked up Viacom this morning due to an interesting risk reversal strategy initiated by an investor at the March contract. The combination involved the sale of 5,000 puts at the 12.5 strike for 60cents each and the purchase of 5,000 calls at the 17.5 strike for 70cents per contract. This strategy protects the investor short of the stock and allows for an exit strategy should shares of VIA drop from the current price of $15.17 to the 12.5 strike or below come March. The investor, who possibly initiated a short stock position as high as $20 earlier in January, is also protected should shares rally above the 17.5 strike as the 10cents paid for this risk reversal provides the right to get long of the stock at the strike into the March expiration.
AMAT – Applied Materials – Shares are 3.5% higher at $10.20 at AMAT and we think we’re observing some covered call activity involving two blocks of 10,000 call options in each case. It appears that an investor sold both blocks to the bid at the March 11 strike calls and the July expiration 13 strike calls. Both trades went through at a 50 cent premium on the semiconductor manufacturer. A covered call would involve the purchase of the underlying stock hoping for share price gains, while the sale of the call options provides income and an exit strategy assuming the shares are called away at the strike price by expiration. In the case of AMAT, the shares spent just two days in the past 74 above $11.00 per share, which is sufficient reason to sell calls. Prior to that they broke down from a short-lived rally above $13.00, which again is further cause to use that strike price as resistance.
NVLS – Novellus Systems Inc. – The company manufacturers the component parts of semiconductors and in a sense that makes them higher up the food chain in recovery terms than AMAT. Shares are almost 5% higher today at $14.88 and appear to have made a sustained break above $14.00 for the first time since November 11, 2008. Our option scanners highlight bullish call buying of around 8,500 contracts at both the March 15 contract and the June 17.50 contract clearing indicating investors expect…
It is being reported on CNBC (and now on Marketwatch) that Andrew Cuomo (one of the few law enforcement folks who actually take the word law and enforcement as serious commitments, in my experience) has decided to subpoena former CEO Thain under the Martin Act (a securities guy’s nightmare, as it is a criminal fraud statute!) related to the bonus payment move-up.
I’ll say this – if Cuomo starts bringing charges related to the collapse and bullcrap that has gone on over the last year and a half, especially if he starts targeting the fools who paraded their companies around CNBC claiming they were "Well capitalized" days before collapse, I’ll kiss Cuomo on the lips – and I’m not gay.
I’m truly impressed, and will pray nightly that Cuomo hasn’t hired any $3,000/hour hookers that can be used to derail his investigation as happened with Spitzer.
*****
The Martin Act is a 1921 piece of legislation in New York that gives extraordinary powers and discretion to an attorney general fighting financial fraud. People called in for questioning during Martin Act investigations do not have a right to counsel or a right against self-incrimination. The Act’s powers exceed those given any regulator in any other U.S. state.
I could not help noticing that China’s imports from Japan fell 16.2pc in December. Imports from Taiwan fell 6.2pc. The strong yen strikes again: Honda decides to build a high-performance hybrid Acura in Ohio – instead of its home nation of Japan. The firm’s continued shift in p...
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In an effort to reach the angry mob, CNBC's Rick Santelli goes all Sesame Street on the numbers behind the US Debt Ceiling Rise. Focusing for two minutes on what this practically means for every man, woman, child, and politician, the shouting Chicagoan points out that when the US breaches this new limit then the world's entire population will be on the hook for $2,346 each (and $52,409 per US person).
The Weekly Leading Index (WLI) growth indicator of the Economic Cycle Research Institute (ECRI) posted -6.5 in its latest reading, data through January 20. The latest public data point is a reduced contraction from last week's -7.6 (a slight downward revision from -7.5). This is the highest level (i.e., least negative) since early September. However, the underlying WLI declined fractionally from an adjusted 123.3 to 122.8 (see the third chart below).
Early last December Lakshman Achuthan, the Co-founder of ECRI, spoke with Tom Keene on Bloomberg Television's Surveillance Midday. You can watch the video on the ECRI website here, with bold heading Recession Update. The eight-minute video is well worth watching in its...
Some combination of better made cars, and less Americans able to pay new car prices has conspired to push up the average age of U.S. vehicles to a new record high. Reflecting this sea change, one of the best investment g...
Shares of battered tech company Research in Motion (NASDAQ: RIMM) are seeing much strength during Friday's trading session.
Fairfax Financial Holdings released a 13G filing with the SEC this morning, in which they disclosed a 5.12% stake in Research in Motion.
Currently, shares of Research in motion are up over 4% at $16.85. Over the last year, Research in Motion is down over 72%.
Research In Motion Limited is a designer, manufacturer and marketer of wireless solutions for the worldwide mobile communications market. RIM provides platforms and solutions for access to information, including e-mail, voice, instant messaging, short message service.
Top 5 RisersStockRatingAnalysisASBCBUYMany analysts are expecting higher than previously expected long term growth from Associated Bancorp, and its near-term earnings outlook is also improving.CZZSTRONGBUYThe recent earnings history for Cosan Ltd shows significant improvement while projected valuation continues to rise.STLDBUYProjected value continues to rise for Steel Dynamics while long term increases in earnings growth are also becoming more widely expected.PSESTRONGBUYAn increasingly attractive expected long term growth rate and a significantly higher projected valuation from just a fe...
Major markets and major index ETFs corrected slightly today after the stock market’s euphoric party yesterday
Major markets suffered a slight hangover today, as the S&P 500 dropped .57%, the Dow Jones Industrial Average dropped .18%, the NASDAQ dropped .46% and the Russell 2000 Index dropped .34%, after yesterday’s crazy Fed and Tech Sector induced Wall Street Party. The NASDAQ, in particular, partied very hard, so hard in fact that the NASDAQ reached its 11 year record high.
The major market index ETFs were hungover too as the SPDR S&P 500 ETF lowered .51%, the SPDR Dow Jones Industrial ...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
We also indicate our stop, which is most of the time the "5 day moving average". All trades, unless indicated, are front-month ATM options.
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Here is the virtual portfolio weekend update. Basically a recap of the positions and some notes about the trades. As usual, I'll post the previous week's P&L for comparison. Not the greatest of week in general!
AA Money
Only transaction last week as we bought back the AA Feb 9 puts on Tuesday for close to a 70% profit. The idea is to sell another set of put as soon as we get a chance.
Previous week P&L - $400.00
We lost some ground this week, but we'll keep on selling premium!
FAS Money
We also lost some ground in this virtual portfolio, but we have sold plenty of premium for the coming week. A little correction would go a long way to help! On Wednesday we sold the FAS Feb 72 puts (already good for 50%), on Thursday we added the Jan4 78 calls and on Friday we had to roll the Jan 78 puts to the Jan 80 puts. We were hoping for these ones to expire worthless on Friday, but a late stick killed that hope.
Previous week P&L - $4372.00...
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Here's the latest Stock World Weekly. We discuss the Fed's next move, and it's new policy for more QE-cating. Brief review of Sabrient's trade ideas for 2012 (already doing well) and a few new buy-writes from Phil and Pharmboy. Enjoy! (Feedback appreciated - give some life to the comment section below.)
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Finding new and exciting Biotech companies that target novel mechanisms is like trying to find a needle in a haystack. Sure there are many companies working on cutting edge science, but investing in those companies to reap the rewards of their work is a very dangerous game. More often than not, companies fail because the mechanism does not pan out, the compound(s) do not have pharmacokinetics (get into the body or last very long in the body), or an adverse event happens that knocks years off a development timeline. In addition, the stock can be manipulated by market makers so investors don't know which way is up. I approach investing in biotechs as a long term prospect. I continue to like our current portfolio of biotech companies (join in chat for many of those plays), and we continually add/subtract shares and sell/buy options on ...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
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