Must read: Excellent presentation goes quickly - Matt Simmons: Peak Oil Update - The world probably hit peak oil around 2005. We are running out of oil. - This has huge implications for the energy industry and the future of humanity. Most people haven’t realized the extent of the growing energy problem. Unfortunately, it is human nature to ignore a problem until it becomes a crisis. - has bottom line and what to do - planBeconomics

————

Director of trader film makes a documentary for hard times - Greg Burns - “Floored” is more about struggling to make a living than derring-do in the pits - It started three years ago as a film project aimed at capturing the thrill of Chicago’s open-outcry trading floors before they disappeared.  Now, finally, it’s almost complete.  But the documentary movie “Floored” conveys a message different than what filmmaker James Allen Smith intended at the outset: The music is more somber, the lighting darker and the stories less about derring-do in the pits than struggling to make a living. Instead of focusing on high rollers in the casino of global finance, Smith, 36, aims his camera at the everyman thrown off track by the transition to electronic trading. - Chicago Tribune

————

US Consumers Choosing Not to Spend - US consumers have responded to the global economic crisis by curtailing their expenditures, paying down debt, and saving more—all logical responses to a recession. Yet most consumers have acted by choice, not necessity, according to McKinsey. Spending, saving, and debt averages are not at abnormal levels today but rather returning to long-term trends. - Research Recap

————

TALF blunts steep decline in ABS issuance in Q2 - By Nancy Leinfuss  - U.S. asset-backed securities (ABS) issuance fell 30 percent in the second quarter but avoided a steeper decline due to an emergency loan program from the Federal Reserve to unclog consumer lending -  Reuters
————

PRESS RELEASE - Hyperinflation Nation Surpasses 25,000 Views in 36 Hours - MarketWatch  watch videos at  http://inflation.us/videos.html
————

There’s No News Like Bad News  - Thomas F. Cooley  - More reflections on the beleaguered middle-class. - Forbes

To Our Clients, Colleagues and Friends, 

• Next week you’ll be coming to the Western Secondary Marketing Conference in San Francisco, our cool, gray City of Love, so here are a few suggestions: (1) Never go out at night without a sweater, and be prepared for afternoon coolness and fog on even the warmest of days, (2) skip the high heels as the city is just too hilly, and (3) take a cable car at least once.  It’s the only National Monument that moves. 
• As for our hills, Robert Louis Stevenson wrote that “When you get tired of walking in San Francisco , you can always lean against it.”  A funny guy.
• And Mark Twain famously wrote that “The coldest winter I ever spent was one Summer in San Francisco .”  It’s true, especially in the late afternoon when the winds pick up and the fog rolls in.  For us, 70-75 degrees is a hot day.
• As for our idea about bank lotteries, Ellen Wilson of Corridor Mortgage in Maryland wrote that her bank does monthly drawings all the time!  “The drawings are for deposits or just for signing up for whatever it is they happen to be promoting. The prizes are correlated to the size of the investment, like maybe $500 cash for little things or a vacation for large-deposit savings accounts.”  And friend Ardythe Brandon of Prospect Mortgage wrote that “Every month in their monthly news letter, my bank has an account number hidden, and if it’s yours, you win $50.  Funny thing, I read the news letter from front to back looking for my account number.  Funnier still is that in reading through the news letter, I actually learn a lot about my bank and their commitment to my community.”
• A friend in Canada tells us that The Bank of Montreal has been having lotteries for years.  And someone wrote that Guaranty Bank also has them.
• We don’t care one way or the other, but do you use your credit card at shops specializing in secondhand clothing, retread tires, bail bond services, massage parlors, or casinos? Do you buy generics rather than brand name products?  Your credit card issuer may be taking note and making decisions about your creditworthiness based on your buying behavior. Their theory is that buying used clothing or retread tires may be an indication of financial distress and a precursor to missed credit card payments or defaults.  Kind of Big Brother-ish, isn’t it?
• Retired General Tommy Franks was paid $127,000 last year to be on the Bank of America’s Board of Directors.  The Bank also had a retired Navy Admiral on their Board, and he too just resigned.  We’re sure they’re good guys and great leaders, but did they really understand the many subtleties of banking issues, Pay Option Arms, and asset-liability management?
• And what about the California Budget Crisis?  The State has run short of money and is issuing IOUs.  The Bank of America has agreed to accept them as deposits for the next ten days, and we’ll hopefully have a budget by then.  Arnold is having no fun in Sacramento and he’d probably rather be starring in Terminator IV.
• First quarter numbers are in, and Wells Fargo originated 23% of all mortgages.  That’s real market share, almost one out of four.  Congratulations to all you People of the Stagecoach.
• We got blasted by tons of you for daring to say that Chuck Berry was more significant than Michael Jackson.  But some agreed, and here’s one from Rich B. at HomeStreet Bank:  “You’re right about Chuck Berry,  but you left out what I believe was his most significant contribution to high culture, which is his large and really great catalogue of music — Johnny B. Goode, Roll Over Beethoven, Maybelline, Carol, Little Queenie, Rock and Roll Music, etc., etc.  It’s a long list.  And think of his influence on other artists, including the Beatles, and especially the Rolling Stones. Michael Jackson was anything but original, and I doubt that he had much influence on anybody.”
• We’ve been doing more and more FOCIS-plus Reviews.  What exactly is FOCIS-plus?  It’s a full-blown FOCIS Risk Audit, the kind your warehouse lender might order, but on top of that, we overlay our basic Profitability Review.  We do the FOCIS Audit, but on top of analyzing your areas of risk, we make concrete suggestions throughout the Report on ways to increase revenues, better control costs, and manage your risk.  We’re in dozens and dozens of shops, we see what works and what doesn’t, and we point out to you ways the top-performers generate superior returns so that you can use the same techniques.  It’s actually pretty cool.
• Chuck Berry wrote “Up in the morning and off to school, the teacher is teaching the Golden Rule, American History and practical math….” Or how about “Sweet little sixteen, she’s got the grown-up blues, tight dresses and lipstick, she’s sportin’ high heal shoes, oh, but tomorrow morning, he’ll have to change her trend, and be sweet sixteen, and back in class again…”  And finally “You know my temperature’s risin’, and the jukebox’s blowin’ a fuse; my hearts beatin’ a rhythm, and my soul keeps singing the blues, so Roll over Beethoven, And tell Tchaikovsky the news.” Now imagine these sung to a driving, pounding and danceable beat!   But the lyrics to the opening song on Michael Jackson’s Thriller album?  “Still they hate you, you’re a vegetable, You’re just a buffet, you’re a vegetable.”  Is there any comparison?  Chuck Berry was the poet laureate of the 1950’s and teenagers everywhere.
• We were in Mountlake Terrace yesterday and will be in Ann Arbor , Salt Lake City , and Kansas in the next few weeks.  Mountlake Terrace is just barely north of Seattle , and the weather was 1000% spectacular.  At the airport, the TSA person told us “We hope you enjoyed the weather here, but tell all your friends it rained all day.”  We guess they don’t want too many tourists descending on them.

See you in a few days at the Conference, and can you imagine being a Warehouse Lender there next week?  You’d almost want to wear Groucho glasses or some other disguise so you don’t get inundated with requests for new lines.  “You don’t know me but…”  And while we’re at it, yes, Chinatown is just a few blocks away from the Conference, but if you want non-tourist Chinese food, the real thing, take an 8-9 minute BART ride to Oakland’s 12^th Street station and walk one block to Oakland’s Chinatown.  Much more authentic.  If you need a Chinese food fix and want to stay in San Francisco , try Yank Sing, truly incredible Dim Sum.  There are two of them, both a 10-15 minute walk or a $4 cab ride away.

And while we’re at it, Happy Birthday, America .  We have our problems like any country, but this is still the birthplace of self-rule and a beacon of hope to people everywhere.

See you next week, hopefully at the Conference. 

Garrett, Watts & Co.  -  Joe Garrett    (510-469-8633)  -  Corky Watts    (408-497-3135)

“Helping mortgage lenders increase revenues, control costs, and better manage risk.”

When I graduated from Cal with a fresh business degree, I tried to get an apartment in Manhattan. They wouldn’t let me in. I knew it would be expensive, but I just assumed that for $2,000 a month, the toilet would be inside the apartment. That has changed a little, since in the last year Manhattan apartment sales dropped more than 50% and the average price dropped about 23%. The average price of Manhattan apartment in the second quarter slid to $1.3 million down from $1.7 million a year earlier, according to a Prudential Douglas Elliman Real Estate report. Gee, are tougher mortgage requirements and unemployment having an impact?

HVCC? A bill, now in committee and sponsored by U.S. House Rep. Travis Childers, D-Mo., includes a provision that would suspend enforcement of the Home Valuation Code of Conduct for 18 months. Childers believes that the code threatened to put some independent appraisers out of work, and thus put the provision in HR 3044.

I see that the Federal government is coming out with 125% LTV Fannie & Freddie loans. Whether or not investors go along with them is another story. Through HUD’s “Home Affordable Refinance Program”, it will raise the “underwater” limit on the program from 105% LTV, and was, not surprisingly, announced in Las Vegas. Treasury Secretary Tim Geithner called the move “a crucial step in our broader efforts to get America’s housing market and economy on the path to recovery.” Obviously these guys are a lot smarter than I am, because I am really skeptical about any LTV above 100% in this market. HUD states that “Since the administration announced Making Home Affordable Feb. 18, more than 200,000 borrowers have received offers for trial loan modifications, tens of thousands of refinances and trial modifications have gotten under way and more than one million potentially eligible borrowers have been sent informational mailings.” Some naysayers would view those results as disappointing.

Freddie, for example, stated “This expanded eligibility will apply to both the Same Servicer and Open Access options under the Freddie Mac Relief Refinance Mortgage, our business implementation of the Home Affordable Refinance.” Freddie is pushing a 25-yr mortgage: “To incent borrowers to consider this shorter amortization term, we will lower the Relief Refinance Mortgage delivery fee cap by 50 basis points to 150 basis points for qualified borrowers who refinance from a 30-year fixed-rate mortgage into a 25-year fixed-rate mortgage. We encourage you to pass on the savings to borrowers.”

Back to something safe, like interest rates. Yesterday we had yet another bag of mixed economic news. The ADP jobs report, which leaves off government jobs, was worse than expected, but Pending Home Sales increased .1% in May and up 4.6% versus a year ago. Construction Spending dropped .9% in May to its lowest level in 5 years, worse than expected, but the Institute of Supply Management Index rose to 44.8 from 42.8. On top of all of that, Federal Reserve Bank of San Francisco President Janet Yellen said that overnight rates could remain at .25% or lower for a few years.

Non-farm Payroll was expected be down -365K and the employment rate is expected to increase to 9.6% from 9.4% in May. But employers cut 467,000 jobs in June, far more than expected, while the unemployment rate rose to 9.5% - the highest since mid-1983. May’s numbers were revised down, but April’s were revised upward. We also had Jobless Claims, which dropped 16,000 – better than expected. But what will grab the headlines, and probably push the bond and stock markets, is the Non-farm Payroll number. After the numbers, sure enough, and heading into a holiday weekend, stock futures are pointing down, whereas the 5-yr and 10-yr (3.525) Treasury notes are better by .250 in price, as are 30-yr mortgages.

Yesterday I had a flat tire on Interstate 5. So I eased my car over to the shoulder of the road, carefully got out of the car and opened the trunk. I took out 2 cardboard men, unfolded them and stood them at the rear of my car facing oncoming traffic. They looked so lifelike, you wouldn’t believe! They were in trench coats, exposing their nude bodies and private parts to the approaching drivers.
Cars start slowing down looking at my lifelike men.  And of course, traffic starts backing up with everybody tooting their horns and waving like crazy. It wasn’t long before a state trooper pulls up behind me. He gets out of his car and starts walking towards me.  I could tell he was not a happy camper.
“What’s going on here?”
“My car has a flat tire,” I said calmly.
“Well, what the heck are those obscene cardboard men doing here by the road?”
I couldn’t believe that he didn’t know. So I told him, “Welllllll, those are my emergency flashers!”

Rob

(For archived commentaries, check www.robchrisman.com,

or to subscribe/unsubscibe write to rchrisman@robchrisman.com)

The Joint Center for Housing Studies of Harvard University is pleased to share The State of the Nation’s Housing 2009.
————

Reverse Mortgages for Home Purchases - BOB TEDESCHI - THE federal government issued new guidelines at the start of 2009 that would allow older borrowers to use reverse mortgages to buy a principal residence. But few lenders were ready to offer this option — until fairly recently.  The problem, said Peter Bell, the executive director of the Reverse Mortgage Lenders Association, had been that lenders needed more information from the government about acceptable underwriting procedures.  These details have since been worked out, he said … - NY Times
————

has 7 observations: O.C. house price declines getting smaller - posted by Jeff Collins - House prices continue to fall from year-ago levels but the rate of decline is slowing, a possible sign that price drops are approaching bottom, said Santa Ana-based First American CoreLogic’s latest Home Price Index. - OC Register

————

What was a subprime loan modeled on?  - by Rortybomb - discusses differences of subprime and CRA loans  - Delinquencies Double on Least-Risky Loans, U.S. Says - By Margaret Chadbourn - Delinquency rates on the least-risky mortgages more than doubled in the first quarter from a year earlier as U.S. efforts to help homeowners failed to keep pace with job losses that pushed more borrowers toward foreclosure.  Prime mortgages 60 days or more past due climbed to 2.9 percent of such loans through March 31 from 1.1 percent at the same point in 2008, - Bloomberg
————

1.  Case Shiller Index Falls 18% - By Barry Ritholtz - Home prices continued to decline in April 2009, but at a slightly less bad rate than expected.  Don’t break out the champagne, just yet. … And once the various government stimuli gets withdrawn — very low rates, $8,000 first-time home buyer tax credit — we can expect even these weak reports to turn south. … - The Big Picture Blog

2.  Updated: Case-Shiller 100-Year Chart - By Barry Ritholtz - The Big Picture Blog

————

another problem for 2005-07 vintages:  Cracked Houses: What the Boom Built - By M.P. MCQUEEN - Robert and Kay Lynn lay in bed shortly after closing on their new home in the Blue Oaks subdivision in Rancho Murieta, Calif., abutting an 18-hole golf course. They were listening to the “pop, pop, pop” of what they thought were acorns falling onto the roof. … “Little did we know it was the house cracking,” says Mrs. Lynn, 67 years old - (This can only hurt appraisals, default rates, and loss severities - thanks X) - Wall Street Journal

————

Housing Affordabilty Index: 7.2 Point Drop in May From Rising Home Prices: Market Reached Bottom? - Mark Perry - Carpe Diem Blog

————

Home Prices In 2014? Dead Flat From Here - Written by Matthew Hougan - We know that by looking at the new MacroShares Major Metro Housing Up (NYSE: UMM) and MacroShares Major Metro Housing Down (NYSE: DMM) products, which began trading on the New York Stock Exchange this morning. We covered the launch here.  As of 10:02 a.m. EDT this morning, UMM was trading for $20.13 per share and DMM was trading for $30.97 per share. So how does that translate into a flat market over the next five years?
Here’s how the math works:
The new products are designed to provide 300% and -300% of the return of the S&P/Case-Shiller Home Price 10 Index, the leading measure of national home prices. But they are not designed to track those changes on a day-to-day basis; rather, they are designed to track the total performance change from December 31, 2008, through August 31, 2014. - Index Universe Blog

————

Prices in Major Markets Return to 2003 Levels - By DIANA GOLOBAY - Two separate indices calculated by Standard & Poor’s showed house prices in major US metropolitan areas continued to fall in April, although year-on-year declines show signs of slowing.  Both the 10-city and 20-city composite indices have returned to their mid-2003 levels, according to the S&P/Case-Shiller Home Price Index, released today. - HousingWire
————

FHFA AUTHORIZES FANNIE MAE AND FREDDIE MAC TO EXPAND HOME AFFORDABLE REFINANCE PROGRAM TO 125 PERCENT LOAN-TO-VALUE - FHFA.gov

excellent - Dick Bove Sees Hope For Banks - Steve Forbes - The analyst whose call on BankAtlantic inspired a SLAPP lawsuit is optimistic about banking’s future - video at Forbes.com

————

FICO Scores Show Flaws as U.S. Banks Cut Consumer Credit Lines - By Alexis Leondis -… “Reductions to a consumer’s line of credit based upon the lending institutions’ overall appetite for risk has little or no bearing on a consumer’s own risk of default,” said Gutierrez, chairman of the House Subcommittee on Financial Institutions and Consumer Credit. … - Bloomberg
————

SoberLook - US Banks Will Roll the Wall of Maturing Debt - Author: Walter Kurtz - From NYT DealBook “Barclays Capital has analyzed financial company debt among United States institutions coming due over the next decade. During the rest of the year, for example, roughly $172 billion in debt will mature; in 2010, an additional $245 billion comes due. That amounts to about $25billion a month in debt rolling into a market with a shortage of buyers willing to invest in it.” - Riskcenter.com

————

George Soros: Obama Team Falls Short in Financial System Overhaul - Posted by: Mara Der Hovanesian - George Soros spoke to a full house of bankers, lawyers, Wall Street types and journalists this morning at Bryant Park Grill behind the landmark New York Public Library this morning. … He says that political rhetoric and “story telling” is shielding Americans from the harsh truth that the financial system is still in dire need of a dramatic overhaul and that our living standards based on debt and over-spending must be changed. “The political discourse is effectively manipulating reality,” he said. “The electorate needs to be concerned with the truth.” … - BusinessWeek Blogs

Last week I asked my doctor, “Should I reduce my alcohol intake, and consume more fruit and grains?” She replied, “No, not at all.  Wine is made from fruit.  Brandy is distilled wine, which means they take the water out of the fruity stuff so you get even more of the goodness that way. Beer is also made out of grain. Bottoms up!”

Alcohol is proven, by college students around the globe, to increase confidence. But why is confidence, or a lack of confidence, so important when it comes to the economy? Just like some diseases spread through being contagious, so does confidence. You’re at a party and overhear someone, or hear of someone, who says, “You know, things are getting better…” And so you start to look for signs to verify that. When people are confident they will go out and buy, invest, and lend. Math-a-letes, far smarter than me, have developed correlation models between how confident the public is, shown in various surveys, and the GDP of a country. And in fact if you look back at the depressions in the 1890’s, or 1930’s, what is obvious is a lack of confidence, and people are distrusting. (In the dictionary “confidence” means trust or belief, and in fact comes from the Latin “fido”, meaning “I trust”. “Credit” comes from credo in Latin, meaning “I believe”. See, who said you never learn anything new?)

Yesterday the Conference Board announced that Consumer Confidence dropped to 49.3 in June from 54.8 in May. Based on that alone, you would believe that the economy is not out of the woods yet – which is probably true. The S&P/Case-Shiller Home Price Index of 20 U.S. Cities decreased 18.1% in April from a year earlier following an 18.7 percent drop in March. But the measure was down 0.6 percent in April from the prior month, the best performance since June 2008, and eight of the 20 cities showed an increase in prices from March. In the last 12 months the worst performers were Phoenix (-35%), Las Vegas (-32%) and San Francisco (-28%). In more news, the Chicago Purchasing Managers Manufacturing Activity index rose to 39.9% in June from 34.9% in May, although a reading below 50 indicates a continued contraction.

Although the 10-yr yield is at a 1-month low, why aren’t rates lower? Well, as has been mentioned, not only is the government selling lots of bonds (supply goes up, so unless demand goes up prices will go down, and thus rates move higher) but there are also fears that a big increase in debt-fueled government spending will push up inflation. Tomorrow we have the Employment report, which is predicted to show Non-farm Payrolls down 363,000, with the unemployment rate hitting 9.6%, already at the highest level in more than 25 years. Today we have Construction Spending and Institute of Supply Manager’s Survey, and ahead of those numbers the yield on the 10-yr is at 3.58% and mortgages are worse by .250 in price.

Things slow at your lock desk? With these higher rates, mortgage applications fell last week by the most since February. The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan was -19%, with the refinancing gauge down 30 percent, and purchases down 4.5 percent.

In other business/moral news, Russia closed down its casinos overnight as gambling was banned nationwide, which may impact over 300,000 workers. According to the Reuters story, “Vladimir Putin, now prime minister, came up with the idea in 2006 when he was president after the Interior Ministry linked several gaming operations in Moscow to Georgian organized crime. The Kremlin plans to restrict gambling to Las Vegas-style gaming zones in four rarely visited regions deemed to need investment, including one near the North Korea border, but nothing has been built and critics say the zones will fail. Though gaming establishments knew the shutdown date for at least a year, few thought the government would go through with it, but officials moved in overnight to close them down.”

Starting today, Wells Fargo wholesale is offering the Freddie Mac Relief Refinance Mortgage and DU Refi Plus programs in combination with the High Balance Conforming Loan programs.

How is the mortgage relief program going? The Treasury Department has approved three more firms for its mortgage relief program: National City Bank of Miamisburg, Ohio; Technology Credit Union of San Jose, Calif., and Citizens First Wholesale Mortgage Co. of The Villages, Fla. This brings the number of companies participating in the mortgage effort to 23 with the total amount authorized for all of the firms rising to $17.98 billion out of a maximum of $50 billion the government has said it could spend on this program. The money is being provided to support the government’s effort to combat a wave of mortgage foreclosures by giving incentives for homeowners to modify their existing mortgages.

Finally, this from the latest issue of “Women’s Health”:
“Do you have feelings of inadequacy? Do you suffer from shyness? Do you sometimes wish you were more assertive?
If you answered yes to ANY of these questions, ask your doctor or pharmacist about Margaritas.
Margaritas are the safe, natural way to feel better and more confident, about yourself and your actions.
Margaritas can help ease you out of, your shyness and let you tell the world that you’re ready and willing to, do just about anything.
You will notice the benefits of Margaritas almost immediately and with a, regimen of regular doses you can overcome any obstacles that prevent you, from living the life you want to live.
Shyness and awkwardness will be a thing of the past and you will discover many talents you never knew you had. Stop hiding and start living with Margaritas.
Margaritas may not be right for everyone. Women who are pregnant or, nursing should not use Margaritas. However, women who wouldn’t mind nursing or becoming pregnant are encouraged to try it.
Side effects may include: Dizziness,  nausea,  vomiting,  incarceration, loss of motor control, loss of clothing, loss of money, loss of virginity, table dancing, headache, dehydration, dry mouth, and a desire to sing Karaoke,
The FINE PRINT on bottles says: WARNING: The consumption of Margaritas may make you think you are, whispering when you are not. The consumption of Margaritas may cause you to tell your friends over and over again that you love them. The consumption of Margaritas may cause you to think you can sing.
WARNING: The consumption of Margaritas may make you think you can, logically converse with members of the opposite sex without spitting.”

Rob

(For archived commentaries, check www.robchrisman.com,

or to subscribe/unsubscibe write to rchrisman@robchrisman.com)