Since I am commenting on bubbles, let me share with you a few observations I have made after doing a little research on this phenom known as Interest Only mortgages. As you may have picked up from our various conversations over the last year, I have concluded that the cause of the run up in real estate values has been not just the reduction in rates, but more importantly the new loan structures that have been popping up . The most prevalent of these have been the Interest Only loans. In places like CA and FL, and other major markets, these loans are easily 50% of the volume in the last 6-12 months. Also increasing have been what are called Stated Income mortgages (where the borrower does not need to document his income); we also have another name for these mortgages - Liar Loans.
Anyway, let's look at the numbers, shall we ? (as I have also said over the years, based on my vast level of commercial banking experience, "Numbers don't lie - people do!") As of this past Spring, the payment on a 3-yr ARM I/O was approximately 51% of a what the payment would have been on a 30-yr fixed fully amortizing mortgage (3.5% rate on the 3-yr ARM I/O vs. 5.5% rate on the 30-yr fixed); and the I/O payment was 65% of a similar rate amortizing 3-yr ARM. It gets scarier. In three years when the I/O begins to amortize (over the remaining 27 yrs. rather than 30 yrs.), assuming that the rate bumps up to its cap of 2% over the start rate, the rate is now 5.5% and the payment is double what it had been. Assuming that these borrowers qualified for these loans with what we call a front-end ratio of about 28-30% (to be fair, the numerator in this fraction includes not only P&I, but also taxes and insurance, which will probably not double in cost but can certainly rise), then this doubling of the payment will now mean that the new payment is between 50 and 60% of the borrower's gross income. Ouch! That's gotta hurt! Interestingly, the MI companies have not been charging any additional premium for I/O loans versus amortizing loans. To paraphrase a song title from the great and late grunge rocker Kurt C, "smells like a shorting opportunity." As an offset to massive defaults, the other trend it may portend, is another refi boom beginning in a couple years as the I/O's start amortizing. Think about it.
Let me move on to something a little more light-hearted (since I also promised when I started this blog some current events and culture). I saw the movie "Dodgeball" a couple days ago and it was great. I really need to take a notebook with me if I am going to comment on these movies since I seem to have the memory of RR in his golden years, but basically, you all know the plot, right? Group of lovable losers needs to play a rival group of steroid induced, Teutonic specimens to save their lowly gym from certain destruction by a demonic psychopath (sort of like "The Country Bears" without the great music and dance numbers). Anyway, the promos mention Ben stiller and V. Vaughan, and they are pretty good, but movie is made by a couple other characters, including Jason Batemen, and Rip Torn (even Lance Armstrong has a great cameo).
Friday, June 25, 2004
Saturday, June 05, 2004
Saturday June 5, 2004
Don't you love my optimism? Like this Blog will still be holding my interest in 2005.
Anyway, it was a good news day to comment on (I'll skip Tenant resigning opinion since that was yesterday's news, literally). Reagan died and Smarty Jones lost.
Reflecting on Reagan and his legacy has been building over the last couple days as rumors were leaking from CA that he was nearing the end. I have to say that it has been interesting to compare/contrast our current Pres with RR. They both were looked down upon by the intellectual elite, but at the core I think there is truly a profound difference. RR may have come across as a simpleton, but his core ideas - Ending the Evil Empire, recognizing that government had limits, i.e. shrinking Gov't, including tax reduction, rebuild defense - as it turned out really worked, and were born from years of real life experience.
On the other hand, we have the current President. He is launching ideas that are straight out the Democrat playbook. Unfunded mandates that expand the federal government, like no child left behind. Nice idea, doesn't work in real world. Schools are clearly an area that work more effectively on the local level. I suspect if there are problems with some schools on a national basis it is funding driven rather than what should the children be taught. Medicare expansion through the prescription drug benefit. Incredible expansion of the welfare state, and the budget deficit. And lastly the war in Iraq. The current occupant has ideas that he only communicated after launching this illconceived war in Iraq, i.e. he wants to remake the middle east as a paragon of democratic virtue. Yeah right, like anyone here at home would have signed on for that when he proposed launching the proactive war 18 months ago. I guess he thinks that since Israel is a democracy, than the rest of the middle east can become one. An then he wraps everything in these blatant evangelical Christian overtones, like he is on a mission from God. Very scary. And lastly the sheer incompetence of the senior civilian management coming out of the Pentagon. Between thrusting the urgency of launching the invasion because Saddam had his finger on the button and he was itching to push it, and thereby bypassing diplomacy with Turkey to let our troops launch from there for a northern front, to concluding that the 135,000 number was more than enough to secure a country the size of California. I mean how naive can they be. There were more people at the Belmont Stakes than that, which leads me to my next topic....
Smarty Jones lost his chance for the record books. Truly was sad because everyone wanted him to win and they seemed to need this Seabiscuit-like story to reach completion. My Mom and aunt and sister were all very disappointed, and it seemed that even the winning jockey and trainer were disappointed. I did notice that based on the odds before post time, that if one had placed a bet on all of the other eight horses, if any of them had won (except for Hard Luck Ten, which was 7-1) you would have made at least twice your money back. Almost a can't lose bet (unless the favorite wins, but clearly those were great odds). As it turns out the winner was something like 36-1, so he paid $72. Therefore, if you had bet $10 on each of the other eight horses, then you would have bet $80 and received $360. Too bad for Smarty Jones, but more importantly too bad for me for not noticing these outrageous odds until it was too late to do anything about it. Also, it would have been the classic hedge for me. Bet the opposite way of what my heart wants. If Smarty Jones wins, well emotionally I am happy, even though I just lost $80. If he loses, well than counting my winnings helps to heal a broken heart. This is pretty much what I do every time the Buckeyes play Michigan.
Anyway, it was a good news day to comment on (I'll skip Tenant resigning opinion since that was yesterday's news, literally). Reagan died and Smarty Jones lost.
Reflecting on Reagan and his legacy has been building over the last couple days as rumors were leaking from CA that he was nearing the end. I have to say that it has been interesting to compare/contrast our current Pres with RR. They both were looked down upon by the intellectual elite, but at the core I think there is truly a profound difference. RR may have come across as a simpleton, but his core ideas - Ending the Evil Empire, recognizing that government had limits, i.e. shrinking Gov't, including tax reduction, rebuild defense - as it turned out really worked, and were born from years of real life experience.
On the other hand, we have the current President. He is launching ideas that are straight out the Democrat playbook. Unfunded mandates that expand the federal government, like no child left behind. Nice idea, doesn't work in real world. Schools are clearly an area that work more effectively on the local level. I suspect if there are problems with some schools on a national basis it is funding driven rather than what should the children be taught. Medicare expansion through the prescription drug benefit. Incredible expansion of the welfare state, and the budget deficit. And lastly the war in Iraq. The current occupant has ideas that he only communicated after launching this illconceived war in Iraq, i.e. he wants to remake the middle east as a paragon of democratic virtue. Yeah right, like anyone here at home would have signed on for that when he proposed launching the proactive war 18 months ago. I guess he thinks that since Israel is a democracy, than the rest of the middle east can become one. An then he wraps everything in these blatant evangelical Christian overtones, like he is on a mission from God. Very scary. And lastly the sheer incompetence of the senior civilian management coming out of the Pentagon. Between thrusting the urgency of launching the invasion because Saddam had his finger on the button and he was itching to push it, and thereby bypassing diplomacy with Turkey to let our troops launch from there for a northern front, to concluding that the 135,000 number was more than enough to secure a country the size of California. I mean how naive can they be. There were more people at the Belmont Stakes than that, which leads me to my next topic....
Smarty Jones lost his chance for the record books. Truly was sad because everyone wanted him to win and they seemed to need this Seabiscuit-like story to reach completion. My Mom and aunt and sister were all very disappointed, and it seemed that even the winning jockey and trainer were disappointed. I did notice that based on the odds before post time, that if one had placed a bet on all of the other eight horses, if any of them had won (except for Hard Luck Ten, which was 7-1) you would have made at least twice your money back. Almost a can't lose bet (unless the favorite wins, but clearly those were great odds). As it turns out the winner was something like 36-1, so he paid $72. Therefore, if you had bet $10 on each of the other eight horses, then you would have bet $80 and received $360. Too bad for Smarty Jones, but more importantly too bad for me for not noticing these outrageous odds until it was too late to do anything about it. Also, it would have been the classic hedge for me. Bet the opposite way of what my heart wants. If Smarty Jones wins, well emotionally I am happy, even though I just lost $80. If he loses, well than counting my winnings helps to heal a broken heart. This is pretty much what I do every time the Buckeyes play Michigan.
Thursday, June 03, 2004
Opening Salvo
Welcome to my forum to rant, postulate, digress, and generally comment, without any repercussion, on anything that happens to move me. I expect this will cover politics, pop culture, sports, books, social interactions, and anything else that happens to bug me that day. Hopefully this Blog will be humorous, long-lived, irreverent, prescient, and occasionally thought-provoking. If anyone ever happens to read any of this, feel free to comment on anything (except spelling and grammar) without any fear of physical reprisal.
I will open by saying I just returned this evening from a nice five-day vacation in SF with my family. Generally, had a great time. Took in a Giants game (they really know how to market a team). Saw most of the sites. Cruised the Bay. The kids had a great time. We rented these talking go-cart things one afternoon (www.gocarsf.com), which was really the highlight of the trip. Went to Napa one afternoon with the kids. Big mistake. Not really anything for them to do, so they went a little berserk in the car on the way back. Very hot up there in the summer. If anyone from SF needs a reprieve from the cold wet summer in the city, just drive an hour north, and you'll be is hot as Ali Baba and his forty thieves. Great City. Wish I lived there (along with a half-dozen other places).
A few observations:
I hadn't really followed the Scott Peterson case at all except for one article in VF about six months ago. The SF paper is covering it closely and the opening arguments began this week. I'm no attorney, but based on what I read in the paper, he may be a cad and a real scum but it doesn't sound like they have any real evidence that he killed his wife. He certainly isn't the first dude to cheat on his wife, but that doesn't make him a murderer. It sounds like the Modesto police really f'd up the investigation and pretty quickly eliminated all other suspects, and so now they are stuck prosecuting a case with a lot of coincidences but no physical evidence. I will definitely be following the case now.
I noticed a few fat people out there. I thought the major cities would be free of serious obesity but I was wrong. Definitely less than here and other places, but still there nonetheless. I just don't know how these fat people can get through the day. They truly have no shame.
Well that is it for my opening statement. As I get more comfortable with the forum, I will become more provocative.
I will open by saying I just returned this evening from a nice five-day vacation in SF with my family. Generally, had a great time. Took in a Giants game (they really know how to market a team). Saw most of the sites. Cruised the Bay. The kids had a great time. We rented these talking go-cart things one afternoon (www.gocarsf.com), which was really the highlight of the trip. Went to Napa one afternoon with the kids. Big mistake. Not really anything for them to do, so they went a little berserk in the car on the way back. Very hot up there in the summer. If anyone from SF needs a reprieve from the cold wet summer in the city, just drive an hour north, and you'll be is hot as Ali Baba and his forty thieves. Great City. Wish I lived there (along with a half-dozen other places).
A few observations:
I hadn't really followed the Scott Peterson case at all except for one article in VF about six months ago. The SF paper is covering it closely and the opening arguments began this week. I'm no attorney, but based on what I read in the paper, he may be a cad and a real scum but it doesn't sound like they have any real evidence that he killed his wife. He certainly isn't the first dude to cheat on his wife, but that doesn't make him a murderer. It sounds like the Modesto police really f'd up the investigation and pretty quickly eliminated all other suspects, and so now they are stuck prosecuting a case with a lot of coincidences but no physical evidence. I will definitely be following the case now.
I noticed a few fat people out there. I thought the major cities would be free of serious obesity but I was wrong. Definitely less than here and other places, but still there nonetheless. I just don't know how these fat people can get through the day. They truly have no shame.
Well that is it for my opening statement. As I get more comfortable with the forum, I will become more provocative.
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