Archive - Sep 20, 2010 - Story

From Barclays' Jasraj Vaidya, who states: "At this stage, we are unable to ascertain what that exact issue might
be. What is certain is that foreclosure timelines in those states for
GMAC loans will be extend further, potentially adversely affecting their
eventual severity" which echoes verbatim what Zero Hedge suggested a week ago on the Florida Judge news: "The implications for the REO and foreclosures track for banks could be
dire as a result of this ruling, as this could severely impact the
ongoing attempt by banks to hide as much excess inventory in their books
in the quietest way possible." Jasraj also notes: "Using publicly available data from HUD and RealtyTrac, we have created a list of judicial foreclosure states. These are states where judicial foreclosures are most common and in which the lender has to appear before a judge and obtain a court order before initiating foreclosure proceedings against the delinquent borrower. Such states tend to have much longer foreclosure timelines than non-judicial states. What is striking about the list of states in the GMAC announcement is that all but one (North Carolina) are judicial states. Also, all judicial states in the country but one (Delaware) are in the GMAC list. This would hint at some potential issues with judicial states that is driving the GMAC directive." In the meantime, class actions lawyers across the country will not be sleeping for days.

If you would like to subscribe to Shadow Capitalism Daily Market Commentary, please email me at naufalsanaullah@gmail.com to be added to the mailing list.

Opinions on the future are pretty binary: either uberdefl*tion or hyperinfl*tion. These views premised on an overreaction to some policy or belief that no policy matters at all. Do policies really mean nothing—or everything? Please. On the one hand, the Fed isn’t omnipotent, and on the other hand society will not tolerate leaders standing around slack-jawed as people starve to death. Seriously, whatever happened to old-fashioned flat prices or high inflation? Nature is too crazy in the head to predict with certainty, sure. But that does not imply a hell on earth scenario. Outcomes are a question of exit times on a non-Markovian process subject to drift and random jumps. Nature takes her time and the path of least resistance. She’s awful at chess, but plays with three queens. Make no mistake: Mother Nature is going to do her thing and she’ll just move on after she burns the club to the ground.

Concerned what will happen tomorrow at 2:15pm? You should be: after all the Fed is now in charge of everything, and this (in)decision will impact your life much more than who the fattest person on this season's Biggest Loser is. Here is this year's most prescient economist, Jan Hatzius, once again doing the best summary on the four possible outcomes of tomorrow's FOMC decision. In a nutshell these are: i) No substantive change in the policy statement, ii) Recognition of a weaker economic outlook, but without an explicit signal that renewed unconventional easing is under consideration, iii) An explicit signal that renewed easing is under consideration, and iv) An announcement of renewed easing. Our personal choice is entree #2, although this being Chez Shalom, no matter what, it will always end being an omakase type of affair - fiat prix tres unfixe. (Oddly enough, Chez Shalom still does not have a Zagat's entry. As everyone in America eats (or defecates) there every single day, it is about time our more industrious readers provided their feedback and rating).

Oil prices rallied on Monday as traders reacted to a US dollar that was under selling pressure for most of the day, even though it rallied later on, news of tension between China and Japan and on the strength of US equities, which were higher and implied to investors that risk trades were back as a successful mode of placing money. After four days of decline, the oil markets seem to have been ready for a rally, and prices were oversold on the most sensitive measurements. Having said all this, we have our doubts about several of Monday’s factors being able to take root in as fertile soil as we move through this week. Some of the reasons for the rally seem to have been specific to Monday, and might not be easily repeated later in the week. - Cameron Hanover

A few interesting observations out of ETF Securities, which concludes that not only is silver a cheaper play on precious metal trends, but is the equivalent of a levered gold play. Yet based on the 50 year average gold/silver ratio of 50, silver still has about 20% upside to catch up to its technical value.

Now that the United States has had its own real-estate bubble pricked, a lot of smart people have been selling the idea that the U.S. will experience what Japan has experienced. But as a look at the balance of payments shows, Americans and their government have gone into massive debt with the rest of the world, in order to finance all their spending over the last 35 years. Japan, meanwhile, has been carrying a current account surplus. Therefore, the Japanese government has been borrowing money not from overseas, but from its own citizen’s savings. All of the Japanese government’s stimulus spending has been paid for by the Japanese people. This is the main difference between the United States and Japan. It should be obvious—and ominous—what this difference means. —Gonzalo Lira

Since we live in a day and age when nobody in their right mind has the attention span to read an actual deposition transcript, here is a powerpoint presentation prepared by Max Gardner's Bankruptcy Boot Camp excerpting the deposition of GMAC Mortgage employee Jeffrey Stephen in which he essentially confirms that the firm executes up to 10,000 fake documents per month. The punchline:

Q. So other than the due date and the balances due, is it correct that you do not know whether any other part of the affidavit that you sign is true?

A. That could be correct

"Please ensure your staff is aware of these requirements immediately."

The much anticipated "low volume market" casualties are accumulating. As we noted first a few weeks ago, and subsequently picked up by other MSM publications, it was only a matter of time before Wall Street, which earlier in 2010 decided to foolishly lever up on the economic "reflation" myth and hire tons of people, is once again preparing to fire in droves, a phenomenon which traditionally is the best indicator a given economic cycle's peak has come and gone. Bloomberg has just disclosed that Bank of America is following similar actions from RBS disclosed earlier, and is firing as many as 400 employees in global banking and markets division. Charlie Gasparino, who first broke the news, also added the twist that the departures are taking place now "so as to deprive the unlucky employees year-end bonuses." Gotta love Wall Street's code of ethics. At least in the past layoffs would wait until after year end. No such luck anymore, now that most other banks are also likely considering comparable steps, and news of terminations start flooding in.

The compare and contrast between Japan and the rest of the developed world is a topic that will only get more and more attention as increasingly more pundits debate America's plunge into a deflationary spiral (sorry, with $2.1 trillion in shadow debt evaporating YTD, it is inevitable. It is the economy's reaction to the Fed's response, i.e., the nuclear option, at that point that is the topic of most contention - whether it will rekindle hyperinflation or have no impact on the deflationary collapse into a Keynesian black hole). The latest to chime in, interestingly, is the all important Bank of International Settlements, recently best known for promoting the regulatory farce that is Basel III. A just released paper by Shinobu Nakagawa and Yosuke Yasui looks at the nuances of Japanese household debt, and how its build up, concentration and composition is uniquely Japanese, and why Japan, unlike the US, has traditionally had the capacity of falling back on its domestic population to bid up its sovereign bonds (which is all in flux currently, as the Japanese savings rate is plunging, as the demographic shift so well covered in the past by Dylan Grice is currently taking place). Here are the findings of the BIS economists, which may provide some insight on how America's upcoming fight with deflation could proceed. Of particular note is just how skewed US society (based on GINI scores and the distribution of net worth) is compared to Japan. It also explains why America is now a democracy only on paper, while in fact it merely caters to the interests of the top 1% of the population.

The key story from this morning was the Bloomberg report that GMAC Bank had halted foreclosures in 23 states, following disturbing news from last week that rekindled the latent debate over whether servicer banks do in fact own deeds to mortgages on which they foreclose on, and whether the entire foreclosure process is in fact fraudulent (one judge found it to be so, creating a massive headache precedent for the banker community). Yet the company which initially agreed with Bloomberg's version of events, is now retracing and claiming that foreclosures are in fact continuing... with a footnote. Reuters reports: "GMAC Mortgage, a unit of Ally
Financial Inc, is continuing with all new residential
foreclosures despite a report it had stopped them, a
spokeswoman said on Monday. But some evictions have been suspended while the company
reviews its internal procedures, the company said." Maybe the company can clarify just what event catalyzed the decision to suspend evictions, and specifically which "internal procedures" are being reviewed. Also, it is about time for the ABA to step in and share some insight on a topic that has millions of Americans suddenly in arms. And since that won't happen, it is up to the one or two politicians who are not in the bankers' (and the Fed's) pockets to raise some noise. Enter Alan Grayson who in a letter just released to a Florida Supreme Court Justice says:"If the reports I am hearing are true, the illegal foreclosures taking
place represent the largest seizure of private property ever attempted
by banks and government entities."

RANsquawk Market Wrap Up - Stocks, Bonds, FX etc. – 20/09/10

According to Bloomberg,
for the week ended September 17, corporate insiders bought $1.4MM in
shares in a whopping 7 different companies. This was just marginally offset by sales of $441MM in 98 different companies, a ratio of 290 to 1 of stock notional sold to bought. But wait: this is GREAT NEWS: last week the ratio was 650 to 1! So this is a huge improvement and certainly yet another reason for today's rally, even though last week total notional sold was $332 million, or just under 25% lower, and sellers came in well lower at "just" 72. But who needs details when you have the Fed... Certainly not retail, which has now pulled money out of domestic stock funds for 19 straight weeks. So for those wondering just who is orchestrating today's move higher, please let us know if you find out.

Ray Bradbury wrote his dystopian novel Fahrenheit 451 in 1950. Most kids were required to read this book when they were seventeen years old. Having just re-read the novel at the age of forty-seven makes you realize how little you knew at seventeen. It is 165 pages of keen insights into today’s American society. Bradbury’s hedonistic dark future has come to pass. His worst fears have been realized. The American public has willingly chosen to be distracted and entertained by electronic gadgets 24 hours per day. Today, reading books is for old fogies. Most people think Bradbury’s novel was a warning about censorship. It was not. It was a warning about TV and radio turning the minds of Americans to mush.