Mar. 19--Lenders have become so overwhelmed by the foreclosure crisis that they are starting to unload properties in bulk to investor groups at steep discounts. Investors then flip the properties for a profit without necessarily improving the home.
For example, a unit of Citigroup, the troubled financial giant, sold a foreclosure in Temecula to an Arizona investment firm for $139,000 when comparable homes in the area were selling for $240,000 to $260,000.
The firm listed the home for $249,000, received multiple offers and the property has entered escrow, said Amber Schlieder, the real estate agent who handled the listing.
The Temecula foreclosure was first listed for sale by Citigroup in May 2007 for $420,000, according to Multi-Regional Multiple Listing Service, a real estate posting site used by real estate agents.
The property was listed on the site for 19 months before selling to the investors in a bulk sale in December 2008. The lowest price it was listed for was $314,000.
"It should have been listed for less," said Craig Finlayson, a real estate agent in the area who listed the property for Citigroup. "But it would have sold for more than 139 (thousand); 139 was a giveaway price."
CR Capital was the firm that flipped the Temecula foreclosure property, an investment group based in Tucson, Ariz. Calls to CR Capital were not immediately returned.
Incompetence In Pricing
The house never sold because Citigroup had it priced way above market. That is incompetence, lack of concern, an overworked unit or a combination of the above. I vote for the latter.
In November, the government agreed to limit Citigroup’s losses on a portfolio of $301 billion of troubled assets. Last month, the government issued a similar guarantee to Bank of America covering $118 billion in troubled assets. In both cases, the companies agreed to absorb an initial increment
The Senate plans to vote next week on steep levies on employee bonuses after the House overwhelmingly approved a 90 percent tax on bonuses at American International Group Inc. and other companies receiving bailout funds.
The Senate’s proposal on companies that got federal money would place a 70 percent tax on the bonuses. Half that amount would be paid by employees, half by the companies.
The 328-93 House vote came amid a national outcry over $165 million AIG paid in bonuses last week after receiving $173 billion in bailout funds as part of the government’s efforts to stabilize credit markets. President Barack Obama said he was “stunned” by the bonuses and vowed to recoup the money. Nineteen state governments have begun probes of the AIG bonuses.
“Paying excessive bonuses to the same group of folks that helped get us into this crisis is simply unacceptable,” Senate Finance Committee Chairman Max Baucus said in a statement. “Millions of Americans continue to struggle to get by, counting their dollars, and Congress needs to do the same.”
The House measure would cover companies receiving 75 percent of federal bailout funds, according to the Ways and Means Committee. The Senate proposal would affect a larger pool of workers and the chamber may vote on it next week, said its primary sponsor, Baucus, a Montana Democrat.
Meanwhile, House Financial Services Committee Chairman Barney Frank proposed legislation late yesterday to ban payments at companies getting U.S. aid until the government is repaid.
The global economic crisis isn’t about money – it’s about power. How Wall Street insiders are using the bailout to stage a revolution
It’s over — we’re officially, royally fucked. no empire can survive being rendered a permanent laughingstock, which is what happened as of a few weeks ago, when the buffoons who have been running things in this country finally went one step too far. It happened when Treasury Secretary Timothy Geithner was forced to admit that he was once again going to have to stuff billions of taxpayer dollars into a dying insurance giant called AIG, itself a profound symbol of our national decline — a corporation that got rich insuring the concrete and steel of American industry in the country’s heyday, only to destroy itself chasing phantom fortunes at the Wall Street card tables, like a dissolute nobleman gambling away the family estate in the waning days of the British Empire.
The latest bailout came as AIG admitted to having just posted the largest quarterly loss in American corporate history — some $61.7 billion. In the final three months of last year, the company lost more than $27 million every hour. That’s $465,000 a minute, a yearly income for a median American household every six seconds, roughly $7,750 a second. And all this happened at the end of eight straight years that America devoted to frantically chasing the shadow of a terrorist threat to no avail, eight years spent stopping every citizen at every airport to search every purse, bag, crotch and briefcase for juice boxes and explosive tubes of toothpaste. Yet in the end, our government had no mechanism for searching the balance sheets of companies that held life-or-death power over our society and was unable to spot holes in the national economy the size of Libya (whose entire GDP last year was smaller than AIG’s 2008 losses).
So it’s time to admit it: We’re fools, protagonists in a kind of gruesome comedy about the marriage of greed and stupidity. And the worst part about it is that we’re still in denial — we still think this is some kind of unfortunate accident, not…
In Financial Armageddon, I warned that a great deal of ugliness would come to light once the Great Unraveling was underway (from Chapter 10, "Financial"):
Newfound transparency in the wake of the unfolding financial crisis will expose a scale of fraud, corruption, and self dealing that many will find almost impossible to comprehend. Day in and day out, reports will surface about hidden losses, false accounting, inflated appraisals, sizable off-balance-sheet obligations, valuation discrepancies, unregulated offshore entities, phantom profits, insider trading, and businesses bled dry to enrich a few individuals at the expense of employees, investors, bankers, and bondholders. Other revelations will reinforce the idea that companies, governments, and individuals are in far worse shape than people had assumed only a few years earlier. Much like the child watching the royal parade in Hans Christian Anderson’s tale, "The Emperor’s New Clothes,” they will be bewildered by the starkness of businesses lacking any real substance.
Yet despite all the chicanery that has been exposed so far, it looks like there is plenty more to go if the following Financial Times report, "Watchdog Fears Market ‘Ponzimonium,’" is anything to go by.
US federal regulators have warned of a “rampant Ponzimonium” as they disclosed they are investigating “hundreds” of possible scams in the aftermath of the $50bn fraud allegedly perpetrated by Bernard Madoff.
Bart Chilton, a commissioner at the Commodities Futures Trading Commission, the US regulator, said the watchdog was “seeing more of these scams than ever before” in commodities and other futures markets.
Mr Chilton said the CFTC, which patrol commodities and financial futures markets such as derivatives on stocks and foreign exchange, was investigating “hundreds of individuals and entities, many of which were related to Ponzi scams”.
The CFTC has filed charges against 15 alleged Ponzi schemes so far this year, compared with 13 during the whole of 2008. If the rate were sustained, the regulator could end the year filling more than 60 cases, officials said.
Here’s a fun chart that illustrates why I like gold. Don’t take it too seriously but do take seriously that this is exactly what happened to the US when we got embroiled in the Vietnam war and Nixon took over and the country plunged into debt and we cut taxes to the rich and dropped the gold standard. The ratio of the Dow to gold dropped from 47:1 to 2:1 but the middle of Reagan’s first term. During the Clinton years, as we moved towards a budget surplus, the ratio of Dow to gold jumped from 7:1 in 1993 to 40:1 in 2002 but, since then, has dropped back to 15:1. The bottom line is: If you are worried about the markets – buy some gold. If you are worried about the dollar – buy some gold. If you are worried about terrorism – buy some gold.
I still think we should get a correction in gold back to $875 (no longer $850 as the trendline has been yanked up) but we’re not hedging gold because we are worried it will hit $1,000, we are hedging because we are worried it will hit $2,000. That means that the difference between buying gold at $850 or $950 is not a big enough deal to stay completely out of it now. We would LIKE to be in the 2011 $70 calls for $20. Sadly, they are $32.25 at the moment. Here is how you can use a rolling plan to enter something high and still be happy when it’s low.
We pick a target amount of gold. Say 10% of our virtual portfolio and say that’s $10,000.
We scale in so we buy $2,500 at a time (roughly)
We FIRST look at what rolls cost. The roll from the $120s to the $115s is $1. Well that’s silly, we’d pay that now. The roll from the $75s to the $70s is $3 so let’s say we’ll be happy to spend $1.50 a roll. THEREFORE we buy in at the first strike we CAN’T roll down for $1.50, which is the 2011 $100s at $19.
If we plan on spending $1.50 per $5 roll down as gold falls, it will cost us $9 ($1.50 x 6 rolls) to get down to the 2011 $70s. That would put us in for $28 total dollar and now the question is –
I really can’t take all this AIG talk in the media anymore.
I’m not looking to defend the bonuses or argue the point but gee America, can we move on? We have TONS of problems that need solving yet the "finest minds" the media can assemble spend all day long on TV discussing whether or not to punish AIG workers retroactively. On top of that, turning this into a referendum on Tim Geithner after 60 days on the job is simply ridiculous.
I mentioned Friday that the real problem is Congress passing retroactive tax laws, which will do far more economic damage to this country than the 90% of $165M they are using the legislation to go after. What really cracks me up is the LACK of outrage at the 85 REPUBLICAN Congressmen who voted for the 90% clawback tax. I’m outraged at the Democrats, this is ridiculous populous pandering and if this bill actually goes through I’ll be very, very disturbed about what is happening in this country. I am still hoping cooler heads do prevail.
I put in my mandatory Fox viewing time this morning (their "Cost of Freedom" block) and, if you wonder why people are still worried about the economy, all you have to do is spend a half hour listening to these talking heads ramble on for a segment and you too will be heading down to the nearest bomb shelter will all the canned food, guns and gold you can carry before the government comes to take it all away from you! What I have learned this morning from Rupert Murdoch’s Fox News is that Geithner must resign now because he knew about the bonuses on March 3rd, not on March 10th as he indicated when he said "last Tuesday." I also learned that no one who voted for TARP read the bill and that that is Obama and Geithener’s fault – even though they weren’t in office at the time. I learned that our deficit is really $3.6Tn, not $1.7Tn and that Obama hates the handicapped.
I know all of this is true because the people who agree with these points are much louder than the people who disagree. Also, Rupert Murdoch’s Wall Street Journal agrees as well and that legitimizes the whole thing, right? My favorite part is the girl who keeps interrupting in the deficit segment saying "this is supposed to be fair and balanced" to justify the fact…
The Obama administration is now completely wedded to the idea that there’s nothing fundamentally wrong with the financial system — that what we’re facing is the equivalent of a run on an essentially sound bank. As Tim Duy put it, there are no bad assets, only misunderstood assets. And if we get investors to understand that toxic waste is really, truly worth much more than anyone is willing to pay for it, all our problems will be solved.
To this end the plan proposes to create funds in which private investors put in a small amount of their own money, and in return get large, non-recourse loans from the taxpayer, with which to buy bad — I mean misunderstood — assets. This is supposed to lead to fair prices because the funds will engage in competitive bidding.
But it’s immediately obvious, if you think about it, that these funds will have skewed incentives. In effect, Treasury will be creating — deliberately! — the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem. …
This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And I fear that when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan
According to The New York Times and the The Wall Street Journal, the Treasury Department is set to announce its plan for troubled assets early next week. It will include three components. The details aren’t clear since these are anticipatory news stories, but it will be something like this (combining bits of information from the two stories):
The FDIC will create a new entity to buy troubled loans, with the government contributing up to 80% of the capital and the remainder coming from the private sector. The Fed or the FDIC would then provide non-recourse loans* for up to 85% of the total funding (NYT), or guarantees against falling asset values (WSJ), which more or less amount to the same thing.
Treasury will create multiple new investment funds to buy troubled securities, with Treasury contributing 50% of the capital and the rest coming from the private sector. It’s not clear from the news stories, but I think it’s highly likely that these funds will also benefit from either non-recourse loans or asset guarantees.
The Term Asset-Backed Securities Loan Facility (TALF) is a program under which the Fed was already planning to buy up to $1 trillion of newly-issued, asset-backed securities** (backed by car loans, credit card receivables, mortgages, etc.). The idea was to stimulate new lending in these categories. This program will be expanded to allow the Fed to buy “legacy” assets – those issued prior to the crisis. This enables the Fed to buy toxic assets off of bank balance sheets.
Instead of coming up with one plan to buy troubled assets, it looks like the government has come up with three. (As Calculated Risk said, however, ” More approaches doesn’t make a better plan” (emphasis in original).) For now, I think the concerns I expressed last month still hold. If we take as given that the government will only negotiate at arm’s length with the banks (meaning the banks can decide at what price they are willing to sell the assets), then the most important thing is for the plan to work. But…
Fears that a huge tax increase at the firms subject to the 90% bonus tax might shatter the performance of those banks were reflected in the performance of their stocks at the end of the week.
The folks at Bespoke Investment Group produced the list next door contrasting the performance over the last two days of the 20 largest non-bailout global financial firms against those that took enough bailout bucks to fall under the 90% tax penalty. The unaffected firms are primarily foreign banks, with Bank of New York Mellon being the only exception.
As shown, the non-bailout firms are down an average of 1.38%, while the 90% bonus tax firms are down an average of 14.02%. While the companies that would fall under this bonus tax rule are heading lower, their competitors are probably licking their chops for the top talent to come their way. And the government still hopes to get the taxpayers their money back.
Today's losses took indices to test March lows before buyers stepped in to bring things back by the close.
For the Nasdaq, bulls came in at the 50-day MA, although today's action registered as higher volume distribution.
The S&P didn't quite make it to the more significant March low, instead buyers stepped up on the test of last week's swing low. However, technicals returned to net bearishness, with on-balance-volume trending lower across the March double top; whatever late day buying there was, it was outgunned by the selling trend.
There were 25 pieces of legislation entered in the Congress of the United States of America to try and outlaw the sale of junk bonds. … So I took several of my guys and went to Washington for the spring and summer of 1985. And I got 25 pieces of legislation withdrawn.
As a reminder, US equities diverged from forward earnings estimates and to an even greater extent, from macro data way back in October and as you can see from the following chart (which we are very fond of using for illustrative purposes), the decoupling persists to this very day even as stocks have suffered through a few rather nasty sessions of late:
Meanwhile, even some on the sell-side have thrown in the towel with Deutsche Bank recently becoming...
Last week, the major indexes fell back below round-number thresholds that had taken a lot of effort to eclipse. There has been an ongoing ebb-and-flow of capital between risk-on and risk-off, including high sector correlations, which is far from ideal. But at the end of it all, the S&P 500 found itself right back on top of long-standing support and poised for a bounce, and Monday’s action proved yet again that bulls are determined to defend their long-standing uptrend line.
In this weekly update, I give my view of the current market environment, offer a technical analysis of the S&P 500 chart, review our weekly fundamentals-based SectorCast...
Former Federal Agents Charged With Bitcoin Money Laundering and Wire Fraud
Agents Were Part of Baltimore’s Silk Road Task Force
Two former federal agents have been charged with wire fraud, money laundering and related offenses for stealing digital currency during their investigation of the Silk Road, an underground black market that al...
Reminder: OpTrader is available to chat with Members, comments are found below each post.
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.
Please feel free to participate in the discussion and ask any questions you might have about this virtual portfolio, by clicking on the "comments" link right below.
To learn more about the swing trading virtual portfolio (strategy, performance, FAQ, etc.), please click here
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
Bullish trades abound in Cypress Semiconductor options today, most notably a massive bull call spread initiated in the July expiry contracts. One strategist appears to have purchased 30,000 of the Jul 16.0 strike calls at a premium of $0.89 each and sold the same number of Jul 19.0 strike calls at a premium of $0.22 apiece. Net premium paid to put on the spread amounts to $0.67 per contract, thus establishing a breakeven share price of $16.67 on the trade. Cypress shares reached a 52-week high of $16.25 back on Friday, March 13th, and would need to rally 4.6% over the current level to exceed the breakeven point of $16.25. The spread generates maximum potential profits of $2.33 per contract in the event that CY shares surge more than 20% in the next four months to reach $19.00 by July expiration. Shar...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
PSW Members - well, what a year for biotechs! The Biotech Index (IBB) is up a whopping 40%, beating the S&P hands down! The healthcare sector has had a number of high flying IPOs, and beat the Tech Sector in total nubmer of IPOs in the past 12 months. What could go wrong?
Phil has given his Secret Santa Inflation Hedges for 2015, and since I have been trying to keep my head above water between work, PSW, and baseball with my boys...it is time that something is put together for PSW on biotechs in 2015.
Cancer and fibrosis remain two of the hottest areas for VC backed biotechs to invest their monies. A number of companies have gone IPO which have drugs/technologies that fight cancer, includin...
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
Note: The material presented in this commentary is provided for
informational purposes only and is based upon information that is
considered to be reliable. However, neither PSW Investments, LLC d/b/a PhilStockWorld (PSW)
nor its affiliates
warrant its completeness, accuracy or adequacy and it should not be relied upon as such. Neither PSW nor its affiliates are responsible for any errors or omissions or for results obtained from the use of this information. Past performance, including the tracking of virtual trades and portfolios for educational purposes, is not necessarily indicative of future results. Neither Phil, Optrader, or anyone related to PSW is a registered financial adviser and they may hold positions in the stocks mentioned, which may change at any time without notice. Do not buy or sell based on anything that is written here, the risk of loss in trading is great.
This material is not intended as an offer or solicitation for the purchase or sale of any security or other financial instrument. Securities or other financial instruments mentioned in this material are not suitable for all investors. Any opinions expressed herein are given in good faith, are subject to change without notice, and are only intended at the moment of their issue as conditions quickly change. The information contained herein does not constitute advice on the tax consequences of making any particular investment decision. This material does not take into account your particular investment objectives, financial situations or needs and is not intended as a recommendation to you of any particular securities, financial instruments or strategies. Before investing, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.
Site owned and operated by PSW Investments, LLC. Contact us at: 403 Central Avenue, Hawthorne, NJ 07506. Phone: (201) 743-8009. Email: firstname.lastname@example.org.