Opportunity in Disaster.

· Former hedge fund manager Raj Bhatia and mortgage broker Albert Behin have found opportunity in the disastrous residential housing market, the housing sector that has been blamed for igniting the current evaporation of American wealth. In this disaster entrepreneurs Raj and Albert have found a ripe pipeline of business. Home mortgages have become for many bank  balance sheets toxic waste. As of March 9th, 2009 17 U.S. banks and savings and loans have closed. Raj and Albert are capitalizing on this by raising money to purchase pools of bad mortgages. Once the mortgages have been purchased, in most cases at huge discount, Raj and Albert work with individual home owners to find the best solution. Good explanation on NPR. This is an unfortunate time that we are facing hopefully the opportunities presented will be used to help the American people and not as a piggy-bank for shady bankers. I like the idea because it allows the opportunity for investors to profit while helping homeowners move on from forclosure.

NO SIGNS OF RELIEF IN HOUSING, ASK D.R. HORTON!

Residential housing is sliding to the downside faster and harder than Americans were lead to believe could ever be possible. Does the fact that, D.R. Horton reported its sixth straight loss and cut its dividend as record foreclosures and tighter lending deepened the housing slump, mean the FED has failed at its stated “goals of repairing and reforming our financial system and restoring prosperity.” Even though billions of dollars have been pumped into banking institutions by the FED and Treasury, in an attempt to free up liquidity and get the gears of lending lubricated, institutions have been reluctant to lend. The unwillingness of financial institutions to move liquidity back into the markets is leading to a prolonged downturn and further household equity decline. U.S. home prices dropped an average 11.2 percent in September as foreclosure sales and a glut of unsold properties depressed values, according to the First American CoreLogic home- price index. Rising unemployment and falling stock prices are hurting consumer confidence. The uncertainty behind the amount of time that this mess is going to last coupled with the absence of any firm numbers regarding the cost of the financial bailout has allowed the undesirable effect of accelerated home value degradation. The U.S. jobless rate rose to 6.5 percent, the highest since 1994, and payrolls dropped for the 10th straight month in October, according to the Labor Department. Home prices in 20 cities declined at the fastest pace on record in August and have fallen every month since January 2007, according to the S&P/Case- Shiller home-price index. All this leads me to the conclusion that we have not seen the bottom of the housing market and there is still some pain to come for homeowners.

BACK TO THE DRAWING BOARD FOR THE BIG THREE.

Flying in via privet jet CEO’s of the big three showed up with no viable plan for the future, prompting lawmakers to send them back to the drawling board. They will have another chance to make their case when everyone returns from Thanksgiving vacation on December 8th. Lawmakers are looking for prof that the big three can compete as “going concerns”. This situation is on hold for the moment.

PAULSON PICKS FINANCIAL INSTITUTIONS!

On November 18th, Treasury Secretary Henry Paulson told lawmakers he is “going to keep working and looking for ways to use the taxpayer money as they expect me to here with regard to foreclosure mitigation” even as he said that buying mortgage assets “is not the most effective way” to use government funding reinforcing his unwilling to send relief to homeowners directly. Chairman Barney Frank spoke bluntly to Paulson telling him “we understand that there are other activities going on, I don’t accept them as a substitute for using the authority that we very specifically and carefully wrote into the tarp and that was essential to it getting past,”  pointing out the four pages allocated, in the TARP program, to the purchasing and writing down of distressed mortgages. Paulson and the team charged with allocating TARP funds deemed shifting the intended TARP focus form the purchase of toxic loans to remove them from bank balance sheets, to the purchase of equity in financial institutions, a move that has proven disastrous as investments in Citigroup $25 billion and AIG $40 have rendered huge losses, Citigroup (NYSE:C) shares currently sit at $5.11 and AIG (NYSE:AIG) shares at $1.54, both companies are still showing major signs of weakness.

Even though lawmakers feel a more pertinent use of TARP funds would be to buy up mortgages from distressed homeowners and write them down, rather than giving the money to the financial institutions, Treasury is not coming on board. In closing Chairman Frank reiterated that “It is nobodies view that we have been as successful as we need to be for the stake of the economy in reducing foreclosure’s.”

APEC SUMMIT KICKING OFF TODAY.

Today the weeklong Asia-Pacific Economic Cooperation forum, APEC, is scheduled to kick off in Lima, Peru. This is all happening under tight security after remnants of the Maoist Shining Path rebels shot dead three police officers and injured another one in southeastern Peru. Participants should be safe however as officials have the capitol locked-down with 800 police officer, three rings of security around the airport to protect arriving participants and some 99,000 police deployed across Peru. Tight security at annual APEC meetings is not something new. In 2007 the meeting was held in Sydney, Australia where officials felt it necessary to stage the largest security operation in its history. 21 countries including The United States, China and Russia, representing roughly 60% of the world economy, will be sending ministers of trade and foreign affairs to the APEC summit to discuss the regional economy, cooperation, trade and investment. One of the focuses at this years summit will be on the current turmoil ravaging international financial markets.

HURRICANE IKE LEAVING A LASTING IMPRESSION

The University of Texas Medical Branch in Galveston, will be laying off 3,000 employees in the coming five days due to the devastation caused by Hurricane Ike and a severe miscalculation on their insurance policy. UTMB suffered $710 million in storm damage, but carried only $100 million in insurance coverage. losing more than $40 million a month, mostly from salaries, UTMB is focusing on survival with the layoffs. The economy in Galveston has been devastated by Hurricane Ike who is leaving a lasting impression on the community.

HOW TO SPEND IT!

I have to give props to, The Fly for posting this informative clip. Remember that right now a group of buddies, Treasury Secretary Henry Paulson who is a former Goldman Sachs CEO and Neel Kashkari former Vice President at Goldman Sachs and currently the Interim Assistant Secretary of the Treasury for Financial Stability charged with the responsibilities of disbursing funds allocated to the TARP program, are deciding which financial institutions will be allowed to live or die. As is pointed out in this clip real world considerations are not being factored into the survival equation. Take a look and see how the decision making process makes you feel.

Don’t doubt Woods.

Tiger Woods proved this weekend that even in a real estate market more fucked up than Amy Winehouse on meth, celebrate sells. According to CNBC $43 million in contracts were signed at the inaugural release of home sites available within the newly conceived community, The Cliffs at High Carolina near Asheville, NC, this weekend. Do you think Tiger is sweating how many buyers will show up to the closing table? I doubt it, but the team at Cliffs Communities who’s sales have been off by 20% this year have to be contemplating the possibility of contracts not closing.

Lean Times.

As more Americans find themselves out of work, “Since August, the economy has lost 651,000 jobs — more than three times as many were lost from May to July. So far, 1.2 million jobs have been lost this year.” Unemployment Rate at 14 Year High , the downturn that started with the meltdown of the sub-prime mortgage market can be expected to intensify. Though the government has injected huge amounts of liquidity into the banking system, it has missed the underlying problem of the American consumer. A large swath of American households are going to be forced to consolidate spending and live lean for the time being. The fact that many Americans, through the availability of easy credit coupled with job losses and pay cuts, have accumulated too much fat to trim in an efficient manner is going to help exasperate the current financial crisis. “Roughly 1.5 million homes were in foreclosure at the end of June, and economists expect several million more borrowers may default in the coming year as housing prices erode and job losses rise. Nearly one in 10 mortgages is either delinquent or in foreclosure.” Banks to Head Off Foreclosures What this means everyone is the economy and housing prices still have some room to get worse. However, everyone knows things are always the darkest before the light, meaning my fingers are crossed that with the taking of office by the new President Elect, Barack Obama the economy will find the confidence it has been lacking and get to the job that is fixing the broken system. Cheers to a better tomorrow!

A Welcomed Change

Barack Obama and his staff proved that change was a winning slogan.