Hugh Hendry watch - September 21, 2010 on BBC

Hedge fund manager Hugh Hendry has a long conversation on BBC Hardtalk regarding taking risk and the public bailouts.  It is refreshing to see a 25+ minute discussion regarding taking risk and losses, unlike the nanosecond blipverts so common in American business TV.

Part 1



Part 2



Part 3

Shadow inventory: More homes coming

I have spoken before about how the supply of forced sale (foreclosed or short sale) inventory continues to increase but may be close to peaking. Here's an article stating the peak is not yet in and we have more to come:

From Realestatechannel comes some rather scary data regarding how the pipeline continues to be filled and they see no let up on new supply being dumped on the market.

If this were early 2005, one could claim that 40% of homeowners who were delinquent 90 days or longer would eventually bring the mortgage current. But the cure rate has plunged along with home prices. As early as one year ago, the cure rate had dropped to almost zero. A delinquency of 90+ days now means almost certain foreclosure or short sale.

. . .  To come up with a total for the shadow inventory, let's first add the total number of loans in default to those delinquent 90 days or more since we know that these loans are headed for foreclosure or a short sale. That comes to 4.5 million properties. Based on the cure rate for loans delinquent at least 60 days, we will add 95% of those 60-day delinquencies. That is an additional 723,000 residences. For the same reason, we will add 70% of those delinquent for at least 30 days - 1.25 million properties.

And, of course, let's not forget the REOs that have not yet been placed on MLS listings by the bank servicers. We'll be conservative and estimate them at 500,000. Adding all of these together, we come up with a total of roughly 6.97 million residences which are almost certainly going to be thrown onto the resale market as distressed properties at some point in the not-too-distant future. This massive number of homes will put enormous downward pressure on sale prices. To believe that prices are firming now is to completely ignore this shadow inventory. Ignore it at your own risk.

I suggest you read the whole article.

ht: PragCap

One small facet of the the mortgage mess

NPR (National Public Radio) has a great ongoing series about the mortgage mess.  As a centerpiece to the series they purchased a slice of one very sick package of mortgages and are investigating the mortgages inside it.  So far they have found some serious mortgage fraud as well as some other interesting stories.  Take a look at one small facet of the housing bubble:

NPR: Planet Money's Toxic Asset

ht: NicTrades

The Humans are dead -- At least to the HFT computers

For those of you who aren't knee deep in the markets, you may not know about the HFT (high frequency trading by computers) and their affects on the markets. HFT was implicated in the May 'flash crash' and with the declining volume in the stock market it appears most trading is between computers.  In that spirit I present a more humorous slant on the entire situation:



Here's the acoustic version:
http://www.youtube.com/watch?v=WGoi1MSGu64

And some news regading HFT systems getting fined (Zero Hedge)

Update: The Reformed broker has some new HFT toys for Christmas! :)

Oil inventories creeping upwards

While oil prices have not done much recently total oil product inventories have been creeping upwards in America and throughout the rest of the OECD.

Looking at total US oil and petroleum products inventory levels you will see they are at 20 year peaks!  The OECD is also above its 5 year average inventory levels.

So if the industrialized world is filling up with oil where is it all going and why have prices not dropped?  Some possible reasons are:
* Emerging market demand and specifically China is a great unknown. 
* The Iran / Israel situation is keeping people jumpy. 
* The financialization of commodities also provides a firm bid on oil prices. 
* Hurricane season is just warming up in the US.  We'll see how much carnage they produce.

Here's some previous entries on the topic of hurricane season:
http://merrillovermatter.blogspot.com/2009/08/weather-and-oil.html
http://merrillovermatter.blogspot.com/2009/09/so-far-no-hurricanes-this-year.html