March 2007

The latest tightening of mortgage guidelines after the “subprime” scare is making everyone to bring a little bit more at the closing. The family that would qualify for 0% down now needs to prepay 5%. Those who used to borrow with 5% down now need to put 10% of the purchase price on the table – and so one.

Let assume that the average increase of downpayment is 3% across the board and the estimated mortgage origination for 2007 is $2.4 trillions. That will mean that consumers will put about $70 billion more of downpayments than last year – and those money are taken away directly from consumption – with negative savings rate it is not much that could be taken from savings. It’s about full percentage point of consumption reduction – on top of everything else.


What happened this week:

What to watch next week:

  • We have big housing week. Housing starts will be bad. Existing home sales will be more or less ok
  • Market is still in correction. It will go rather down then up

Cramer just said on CNBC that markets are going down because the weather in Manhattan is bad.

Oh yeah, it’s all weather. Just scroll down my blog. I comment a lot about the freeze in hell.

All the last several weeks we are continuously getting more and more hints that inflation is coming back. As far as today, producer price index came well above expectations.

Intermediate matherials core is +0.2%, but PPI core is +0.4%. Very unwelcome development.

If you didn’t kiss those “Cramer rate cuts” goodbye yet now is the last time to do that. The Feds will rather make us go to recession then destroy the dollar franchise.

Oh, and destroying the dollar franchise will not save us from recession anyway.

The will use your name to trade real estate. You just get paid from every deal, up to $50k.

One day you will learn that you are foreclosed 🙂

I probably will post once per week or so this topic “What to watch next week“. Everybody do that, me too.

Some event that happened this week:

  • Yen carry trade scare is fading, Yen retreated
  • New Century Financial went belly up
  • Many lenders are tightening the lending standards
  • Market bounced ater last week sell-off, that was no more than correction
  • Retail sales are below expectations, third month in a row

What to watch next week:

  • Fortunately (or unfortunately) there is no market moving news on schedule next week
  • Inflation reports will not make any surprise
  • Markets should decline 3-4%, as the correction is not done yet

We got relatively good payroll numbers, 97k new jobs in February. The bullets are:

  • Uncle Sam came to rescue by hiring about 39k people. We are probably just sending those who we don’t need to Iraq. Like Britain was sending criminals to Australia
  • 62k job lost in construction. This is just the beginning. I suppose some of them are already packing for Iraq and more to come
  • Manufacturing lost 14k. Toyota is just better
  • Unemployment fell back to 4.5%

Ok, so unemployment fell back to 4.5%. Good or bad? The futures show that probability of the rate cut anytime soon fell dramatically just few seconds after job report.

The mental Cramer on CNBC is jumping in front of the camera calling for the rate cut by May. And then the stocks will go up, up up – the sky is the limit.

We have a strange situation here. Sure the rate cuts are impossible when unemployment is 4.5%. The dollar will just collapse if Uncle Ben just hints that the rate cuts are possible before unemployment gets to 5%. Unlike Cramer, Ben is no idiot.

But at the same time we have all signs of consumer credit crunch:

  • December, January and February retail sales – all disappoint. People just don’t spend so much. Why’s that?
  • New Century and 33 other mortgage lenders went out of business. People just found that paying for the mortgage is just not a sound financial decision anymore. Even if they have money. Especially if they don’t. If you stop paying for mortgage and taxes you will have 6 month of free housing. Too good to ignore
  • There is absolutely no Spring rebound in home sales, as Goldilocks expected. We are still in early stage of the housing slump. 3-4 more years to come before it bottoms out

So we would like to have rate cuts, but we won’t get them. Cramer can shove them up his ass

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