Art Cashin On Fraudclosure Reminds Everyone That "Things Could Turn Very Ugly"
A very troubling anecdote by Art Cashin today on the possible future developments in fraudclosure.
An Amazing Assertion – Last week one of the FoF regulars brought a friend to one of the plenary sessions. The gentleman, in addition to being quite personable, was a lawyer who had a lot of experience in asset backed securities. Naturally, I tried to pick his brain on the real status of the foreclosure fiasco.
In the middle of the discussion, I avowed that I had become very concerned when several large servicers suspended mortgage foreclosures. It smacked of wholesale legal protections to avoid exposure to court reversals and possible sanctions for undecipherable records of true ownership. I remarked to our guest that it was with a large sigh of relief I greeted the announcement that foreclosures would resume – not in a scrooge-like manner, but only because resumption suggested the records might be in order.
That’s when our guest blew me away. He asserted that they had only “announced” foreclosures would resume and, in fact, were still in stand-by mode. He claimed that the announcement of suspensions had prompted many mortgage payers to consider defaulting since there would be no punishment. The guest said that, sensing that suspending foreclosures could lead to a tsunami of new defaults among “current” mortgagors, they simply announced resumption as a warning. He claimed that foreclosures were not resuming because the records remain murky and would promote challenges and, perhaps, legal penalties.
We certainly hope he was wrong since things could turn very ugly. We’ve begun checking around to see if we can get some hard data on the status of the foreclosure process. Stay tuned.
Also, Cashin chimes in on the gold and dollar going up together for the first time:
Dollar Firms; Stocks Slips; But Gold Gains – Worries about Ireland and Portugal put a bid under the dollar, frustrating the Fed and more than a few traders.
Credit spreads in Europe widened, reigniting alarms about a possible sovereign crisis on the continent. While the debate, and even furor, over QE2 dominated global headlines, the markets turned their attention elsewhere.
Traders felt that the key risk to the stock market could be the fact that the Fed sponsored rally is based on a weaker dollar. If there were to be one or more sovereign defaults, the resultant flight to safety into the dollar could pull the rug out from under stocks.
Even more worrisome would be some geo-political surprise. An Israel/Iran dust up could send the dollar soaring in a nano-second. That could send stocks into a trapdoor selloff that could look a lot like the “flash crash”.
Flights to safety became a topic yesterday as gold shrugged off a firmer dollar to rally to a record high. Traders wondered if gold was morphing from “commodity” status to “safe haven” status. They’ll be watching the dollar/gold relationship over the next week or so to test that thesis.
Away from the debate about the apparent dollar/gold anomaly, there wasn’t much doing in stocks.
Based upon the previously noted sovereign worries, and the resultant strength in the dollar, stocks opened lower and continued to slip until around 10:00. They circled the wagons at what would turn out to be the day’s lows. The circling seemed to be a response to the dollar’s rally flattening.
About 45 minutes later, the dollar firmed again sending stocks back toward the lows. The dollar stalled at 11:00, reigning in the stock market weakness just above the 10:00 lows.
For the balance of the day, stocks cut their losses in small choppy moves responding to each tic in the greenback.
By the close, Nasdaq had inched into plus territory. The Dow and S&P just missed. Let’s call it a mixed Monday in light volume.
Next, Cashin observes a topic we have discussed long ago: namely the dollar FX-adjusted loss that China is suffering on its UST holdings:
China And QE2 – Inflation in China is beginning to flare up and some officials are blaming it on the recent weakness in the U.S. dollar since Bernanke began talking up QE2. Chinese officials are taking steps to raise rates and force banks to hold more foreign reserves to prevent “leakage” into the Chinese domestic market. There is even talk of instituting capital controls to battle what China sees as QE2’s purposeful weakening of the dollar.
As the dollar has weakened, the Chinese have sustained a massive “paper loss” on their huge holdings in U.S. Treasuries.
Dick Bove seems to thinks some of China’s concerns are justified. In a recent piece he suggests that with QE2, the Fed may have declared “financial war with China”. Additionally, Bove thinks the plan may also be a Bernanke conceived attempt to create credit outside the banking system.
We’ll carefully monitor Chinese comments as the G-20 meeting approaches. Keep your side-arms handy.
Lastly, the good old history trivia is always present:
On this day in 1855, a New York census taker probably mumbled something about immigrants as he turned up Oliver Street to continue his work. At the time, the state felt compelled to do more frequent counts of the citizenry than the Federals, since immigration swelled the city's population daily - if not hourly.
So this poor civil servant climbed yet one more set of stairs and knocked on yet one more door. Slowly, maybe cautiously, the wife opened the door. Mr. Census identified himself and began to record the data. Family name: "Smith" (probably Americanized from something else). Husband: "Manny...er...Emanuel" she probably corrected, realizing this was a government official. His age: 42; living in New York for 30 years; came as a boy from Genoa, Italy, where he was born; occupation: sailor. The wife, Magdalena, then probably asked their fifteen year-old son, Alfred to help finish the answers needed.
Finally, the census taker packed up his goods and moved to the next set of stairs and the next door. His thorough records would be reviewed by the state, updated every few years and filed away in the public archives. The government thought it was just counting its goods and its citizens. What it was also doing was cataloging the growth of a nation.
Take our little example here. The census taker thought he was just logging an Italian-American family in the 4th Ward, 3rd Assembly District. But he was doing much more. In this case, young Alfred, the son, would have a son of his own. And that son would be named Alfred Emanuel Smith - he would go on to be the Governor of NY and a candidate for President of the United States. He was a political reformer beyond his time. In fact, he was so "90's"; so "non-hyphenated" that he never flaunted his Italian-American heritage - a tradition the family has honored to this day.
To mark the day, fill out a questionnaire - corporate, governmental or junk mail - but remember what you say may just be for the ages - kabish?
The markets raised more questions than they answered yesterday. Asset correlation became less correlated and traders wondered if it was one day wonder.
h/t London Dude Trader