Sunday, July 20, 2008

Paulson Picking A Bottom

Warren Buffet said "be fearful when others are greedy and greedy when others are fearful". It looks like Paulson's getting in on Fannie and Freddie by calling a bottom with a plan to buy stock in the two GSEs. If you believe Warren, maybe this will prove to be the best long term investment around. On the other hand, many foreign sovereign wealth funds played similarly in other banks - Citi, Etrade, the long term they may be vindicated, but they certainly missed the bottom short term.

Ok, switch gears from the speculation and possible later vindication of such a move - much like the Resolution Trust Corp did in the savings and loan crisis of the early 90's to those who worry "we're putting taxpayers money at risk". Excuse me - I consider a large portion of my tax bill to be "thrown away" each year through wasteful pork barrel spending, farm subsidies, a war in Iraq, etc...if Paulson says he wants to invest in the U.S. Housing market which is really an investment in the economy long term - I'll be happy to consider this just another piece "thrown away" except maybe, just maybe we'll see some sort of return that Congress won't be able to get its hooks into immediately.

Monday, July 14, 2008

I thought 2012 was the end of the world, not 2008!

The quarterly update on the financial health of America seems long overdue as lack of any attention to this blog by anyone capable of implementing timely and sound public policy has sent Fannie Mae and Freddie Mac to the point where we actually find out the meaning of "GSE - Government Sponsored Entities".

In case you read my previous posts - no policy has really been enacted, so what more did you expect? In the grim light of reality - the banks got a fed backing through the discount window, but I'm worried the problem isn't shifting onto the other parties now - the borrowers/homeowners. I'm not sure now if it was Businessweek or elsewhere who first reported the propensity of the current swath of new homeownwers to begin to view their homes more as investments than "Homes", but this viewpoint is both short term and incredibly destructive. If one asset is to be considered and maintained as illiquid and long term it should be your home. If you disagree, first have your head checked and then tell me what the real estate broker rate on transactions is compared to your discount stock broker. When was the last time your stock broker clipped 6% on your portfolio for selling?

So, for those who are saying "I bought my home at the top, now its worth less, why should I keep paying for more than my home is worth?" - didn't you buy the home because you liked it? If you liked it, don't you think others will eventually (you do keep up with the Jones's) and therefore, long term, don't you feel you'll be vindicated from your current short term paper loss by a long term appreciation?

Yep - there is the problem - most people used to buy homes as a place to live. Unfortunately, now many are viewing them as temporary housing/assets on the way to better places later....first rule broken in buying an illiquid asset.

Stop walking away from your houses! You're not doing yourself or anyone any good if you can afford your mortgage, if you can't - call HSBC or other banks and negotiate settlements - they'll do it!

Bottom line - we're now too far into this spiral to rise out phoenix like without first being encircled with flames. Lots of money will be lost in the banking sector and future mortgages will forever be more expensive (yet another reason not to leave your house), but eventually the world will continue, more like back in the late 80's with 8-9% mortgage rates, which if you ask your parents - they remember as being quite normal, and with larger deposits etc. Don't think once Fannie and Freddie gets swallowed, they'll come out leaner and meaner like the Airlines offering more cheap loans - unfortunately their obligations are much harder to cut and their baggage, also unlike airlines, cannot be "lost".

Its hard out there - try buying Altria instead of starting smoking, buying Walmart stock and shopping at Walmart, and consider start saving for your next downpayment through a direct debit savings plan...