The Blame Game
Not surprisingly “victims” and “Sheeple” are out in force with the blame game. Of course I am hearing blame Bernanke for “not cutting soon enough”, blame Congress for messing with the Pig Men’s “activities”, and so on. But now just about anybody connected with a Bubble activity is in the cross hairs too. The bursting of the Bubble promises to keep the lawyers prosperous for a decade to come. I myself have spent plenty of time complying and archiving background on the scamsters, criminals, and negatively selected government officials involved in the travesty. But now apparently all you had to be was a realtor. Gee, a realtor withholding the full truth, who’d da thunk? The courts will never be open for serious matters ever again. Some how I suspect these Sheeple would have acted in the same get rich quick manner regardless of what a realtor or mortgage broker would have disclosed.
CARLSBAD, Calif. — Marty Ummel feels she paid too much for her house. So do millions of other people who bought at the peak of the housing boom. What makes Ms. Ummel different is that she is suing her agent, saying it was all his fault.
The New York Times follows with a similar article.
A wave of lawsuits is beginning to wash over the troubled mortgage market and the rest of the financial world. Homeowners are suing mortgage lenders. Mortgage lenders are suing Wall Street banks. Wall Street banks are suing loan specialists. And investors are suing everyone. The legal and regulatory wrangles could dwarf the ones that followed the technology stock bust and the Enron and WorldCom debacles. But the size and complexity of the modern mortgage market will make untangling the latest mess even trickier. Some cases stretch across continents. Others are likely to involve state and federal regulators.
If the Sheeple, Berserkers and the excuse for “Leadership” had paid more attention to the economic fundamentals offered in this chart showing that incomes and housing prices were about 3.5 standard deviations from the norm, they could have saved everyone and themselves a lot of grief. Unfortunately with the number still around a 3 deviation (and causing plenty of trouble) it looks like the return from fictitious to normal still has a ways to go. And that presumes incomes can hold up. If you want clues about the collateral backing over $10 trillion in mortgages, and a billion in home equity lines of credit, look no further.
The Fed responds to the collapse of underlying fictitious capital with a rate cut of 75 basis points and seemed to stem the panic for about half a day. Even so it feels that the old moral hazard game of getting “take these dice from my cold dead hands” Boyz to buy, for example, mortgages supported by incomes 3 deviations from the norm, has about run out of gas. At this stage it is a little unclear what if anything the Boyz might be inclined to bid for with these cheap rates.
Clues of this are the same pattern of trying to ramp stocks into earnings. But after the close Tuesday comes the kind of reports one would expect from a consumer and credit collapse and the stocks subsequently bomb.
6:13 PETsMART issues downside Q4 EPS guidance. Co issues downside guidance for Q4 (Jan), sees EPS of $0.57-0.61 vs. $0.71 First Call consensus, which includes an estimated benefit of $0.07 per share for a 53rd week of sales. “We experienced relatively weak sales during the later half of November and the majority of December in what we believe was a challenging consumer environment.”
One of the Four Horsemen headed for the glue factory:
16:30 AAPL sees Q2 $0.94 vs $1.09 First Call consensus; sees revs $6.8 bln vs $6.98 bln First Call consensus
Americredit:
6:11 ACF AmeriCredit misses by $0.41, reports revs in-line; guides FY08 EPS below consensus (10.28 -0.17). Reports Q2 (Dec) loss of $0.17 per share, $0.41 worse than the First Call consensus of $0.24; revenues rose 13.5% year/year to $653.3 mln vs the $652.6 mln consensus. Co issues downside guidance for FY08, sees EPS of $1.35-1.55, down from $2.30-2.50 vs. $1.74 consensus. FY08 originations target reduced to $6.5-$7.0 bln. Provision for loan losses as a percent of average receivables of between 5.8% and 6.3%.
So if the fundamentals aren’t even remotely there, what difference does it make if you can borrow marginal amounts of money at the Fed for 3.5%. And even if the Libor rate is 4%, what are they going to leverage? The problem is they are already overleveraged into lousy situations. Keep in mind that margin debt as a percent of market capitalization was at record even BEFORE the market’s rout.
Secondly, Federal income tax receipts through Friday (which picks up most Jan. 15 deadline payments) from what I’ve called the One Trick Pony were falling year over year BEFORE this market rout. For the fiscal year to date which starts October 1, corporate taxes collected were 112.9 billion versus 115.35 billion year over year, and individual income taxes not withheld (typically investment gains) were 64.95 billion versus 66.6.
1
This sample article is reprinted in its entirety from Russ's premium service, Russ Winter's Actionable. Learn more about Russ Winter's Actionable, and get instant access.
Click here to access Russ Winter's Actionable
