2 items worth reading – Loan Growth at Public Expense; Jack Sustman on the Vortex as Market Descriptor - Chris Whalen – The Institutional Risk Analyst 

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The New Nostradamus – Posted by: Michael Lerner, Ethan Hill – Can a fringe branch of mathematics forecast the future? A special adviser to the CIA, Fortune 500 companies, and the U.S. Department of Defense certainly thinks so. - Good.is Magazine

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We’re In The Final Month Before Inflation Hits – Joe Weisenthal – Business Insider The Money Game

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The Great Disconnect Between Stocks and Jobs – Robert Reich’s Blog – … The (stock) market is up because corporate earnings are up. Corporate earnings are up because companies are cutting costs. And the biggest single cost they’re cutting is their payrolls. So they let people go and, presto, their balance sheets look better and their stock prices rise. … Where is this heading? No place good. Without a major shift in policy — both at the Fed and in the White House — the economics point to a big stock-market correction and a double dip.

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Chart of the Day – … Today’s chart illustrates how earnings declined over 92% from its Q3 2007 peak to its Q3 2009 trough, which makes it easily the largest decline on record (the data goes back to 1936). On the positive side, S&P 500 earnings bottomed and are moving up sharply. …

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2010 Outlook for Banking – Posted by Larry Doyle – … The American Banker is the banker’s bible when looking for cutting edge analysis and perspectives. Today, this fabulous journal brings us over the wall and into the minds of top rated banking analysts on Wall Street. Let’s navigate, 2010 Outlook : Red Tape, Housing Could Impede Banks’ Recovery: – has summary – Sense on Cents

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READ THIS – Bill Gross tells you what to do with your money - PIMCO’s December 2009 Investment Outlook, “Anything but .01%” by Bill Gross, is now available at PIMCO

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Harvard Poker Pro Says Texas Hold ‘Em Can Teach Traders to Fold – By Mason Levinson – Brandon Adams, who teaches behavioral finance at Harvard University’s Department of Economics, says some of the best candidates for Wall Street trading jobs are the professional card players at FullTiltPoker.com and similar Web sites. – Bloomberg

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The inverted T-bill curve – an anomaly or a signal for another downturn? - The 3-month T-bill yield has collapsed to new lows, yielding half a basis point. – more … – Sober Look Blog

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Negative T-bill yields – Simon Avery – … “This time around it appears there is simply too much money that wants to sit tight and look respectable come year-end. Which means that we shouldn’t read too much from the negative T-bill yield and this will eventually rebound back to at least 0 per cent, once the year-end regulatory dance comes to an end.” … – Globe and Mail Blogs

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The Message of the 2yr Treasury, Deflation, and Japan – Larry Doyle – … Don’t think for a second that Bernanke and Geithner aren’t primarily concerned with the prospects of a deflationary cycle here in the United States and are trying to create inflation while risking the value of our greenback in the process. Idle factories? Limited demand to borrow? Yes, Japan has plenty of that – as does America.  This is the real message of the 2yr Treasury. … – Sense on Cents

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Thoughts from the Frontline Weekly Newsletter – Where the Wild Things Are – by John Mauldin – John’s thoughts on a possible dollar rally.

To Our Clients, Colleagues and Friends,

· At mid-year 2009, the three top banks held 53% of all deposits in California .  Here are the top six, which collectively hold 65% of all deposits in the state.

1.    24.5%  BofA

2.    19.2%  Wells Fargo

3.    9.6%  JPMorgan Chase

4.    5.5%  Citigroup

5.    3.5%  Mitsubishi UJF

6.    3.4%  U.S. Bancorp

A year ago, Wamu was #3 with 14% and World Savings was #4 with 5%.  Things change.

• Okay, here’s how you pay for college in 18 years, based on what Paul Tuttle suggested when Hannah Garrett was born.  (1) Figure out how much money you’ll need, and (2) buy enough zero coupon bonds that mature in 18, 19, 20 and 21 years to fund that amount.  If you need, say, $100,000 in 18 years, you can buy $100,000 U.S. Treasury Zeros today at about 42.  This way, you’ll write a check for $42,000 and know that in 2027 when your son or daughter becomes a freshman, the bonds will mature at $100,000.  Do the same thing for each year, and as that guy says on late night TV, “Set it and forget it.”  The higher rates go, the cheaper the bonds will get, so be sure to schedule your baby’s delivery when rates are really high.
• Hannah Garrett was astute enough to be born in 1991 when Treasury rates were about 8%.  At that time you could buy $100,000 of zeros for about $31,000.  This was one insightful baby, and her college bonds start maturing this year.  This is all thanks to Tuttlenomics.
• We were on a local freeway yesterday when traffic came to a halt.  Maybe 20 feet away was a downed motorcycle, with the motorcyclist sprawled dead on the freeway. Things like this are disturbing on many levels and remind us of how fleeting life can be.

· In an act of great charity, the FDIC has stopped issuing Cease & Desist orders.  They think it scares the public!   Instead, the kinder, gentler FDIC will now call them Consent Orders.  This, of course, is because the opening sentence has the Board of Directors signing a document in which they consent to receive a C&D.  People, a Board consenting to a Cease & Desist Order is like a man on death row consenting to a lethal injection.  And the best part (we’re being sarcastic) is that if you appeal it, it will be called a C&D and not a Consent Order.  Is this a great regulator, or what?

· Did you know that at California banks under $100 million, only 25% of all CEO’s have their country club dues paid for by the bank?  If the bank is over $1 billion, 83% have their dues paid for.  This should make it obvious where you want to work.    At the smaller banks (under $100 million) the average CEO salary is $192,000. At a billion it goes to $482,000.

· And what about Chief Financial Officers?  At banks under $100 million, the average salary is $131,000.  Once you get over $1 billion, it goes to $259,000. Quite seriously, higher salaries with increased size often, in our view, could be a very real reason why bankers grow their banks.

· But what about Board members? Why would they want to see a bigger bank? At under $100 million, only 13% of the banks pay Director Fees, at an average of about $290 per meeting.  Once you get to $1 billion, fees go to about $1,080 per meeting.

· Do you ever feel overwhelmed with reading material?  Pre-internet and e-mail, you read your daily newspaper, maybe 2-3 magazines a week, and the rest of the time was reserved for reading books. Now, you start the day with 100 e-mails, blogs, stuff people send you, etc, etc. etc.  You really need to fight to have time for books, but there’s really nothing quite like having a perfect book you can’t wait to pick up and read.  We’re re-reading An American Tragedy, and it’s that kind of book.

· Forty years ago on Sunday, President John Kennedy was assassinated while on a motorcade in Dallas .  Strangely, Aldous Huxley and C.S. Lewis both died that same day.  Both were enormously popular writers, but their obituaries were very small stories buried in the back pages.  If you have to die, it’s useful to do it on a day when there isn’t much else happening in the news.

· A long. long time ago we wrote down the ten things we thought people should learn from going to school: (1)  Discipline and perseverance, (2)  tolerance and compassion (3)  how to make friends (4) honesty  (5) courage to deal with the unknown  (6)  curiosity  (8)  ability to have fun   (9)  introspection  (10)  taking responsibility for your actions  (11) a love of reading and (12) a sense of history.  And long after you’ve forgotten what a cosine is or how to conjugate French verbs, won’t these lessons still be with you?

· And isn’t it amazing that Google, which didn’t exist as recently as 1997, generated $22 billion of revenue last year?  This is the sort of thing that makes us so optimistic about our nation’s future. When people worry about what America will do, now that we’re not really a manufacturer anymore, the answer is “No one knows, but no one knew that Google would come along when it did.”  As long as we have entrepreneurs, the profit motive will continue to create new businesses that create jobs and wealth.

· And how about that Manny Pacquiao?  Have you ever seen a tougher boxer?  He goes out and beats the hell out of Miguel Cotto, sending Cotto to the hospital, then goes to a nightclub where he performs late into the morning with his band.  We saw Oscar de la Hoya in a few fights and never saw someone as tough, but Pacquiao beat the absolute stuffing out of him a few months back.  This guy Pacquiao just might be a smaller version of Muhammad Ali.

· When we wrote about the types of risk financial institution faced, we got a ton of suggestions. We can’t go into them all here for lack of space, but thanks, Peggy, Herb and the rest of you who wrote in with your thoughts on risk management.

· We waste lots of time looking up statistics on the Oakland A’s, even when they were in Kansas City or Philadelphia , so here’s a doozy.  On April 22, 1959, the White Sox held an 8-6 lead over the A’, but they went on to score 11 runs on only 1 hit in the 7^th!  That inning featured one single, two players reaching base on errors (plus an additional error), a bases-loaded hit batsman, and 10 walks, 8 of them with the bases loaded.  The A’s outfielder that day was Roger Maris who was probably so disgusted that he decided then and there to get traded away, preferable to the Yankees.

· What’s up with TARP? The government has invested $204 billion in banks, has been paid back $71 billion, and has received $10 billion in interest and dividends.

· What would happen if you lost your Blackberry, i-Phone or cell phone?  We’d suggest typing up your name, your e-mail address and home or office phone number and then taping it to all these devices.

· Here’s the most amazing short surfing video you’ll ever see.  Skip the intro button on the bottom and get right to it.  It’s a 40-50 foot wave, maybe from Mavericks: http://www.metacafe.com/watch/4684/amazing_wave_surfing/

· We just finished the Due Diligence involving a $2.0 billion mid-west bank buying a mortgage banking company.  We covered finance, operations, secondary marketing, systems, and countless sub-areas, along with due diligence on their servicing portfolio.  One of the main attractions to the bank was that the servicing department has $25 million in DDA impounds.

· We just saw the perfect movie, perfect in that it’s perfect for a first date, a last date, college kids, a married couple, a father and his daughter, a son and his mother, you and your grandmother, people with tattoos and piercings, and people disgusted by tattoos and piercings.   It’s Forget Paris starring Bill Chrystal.  Very hilarious, sweet, romantic, and very engaging.  See you next week, maybe once before Thanksgiving.

Garrett, Watts & Co.  

Helping mortgage lenders increase revenues, control costs, and better manage risk.

• Corky Watts         408-497-3135
• Joe Garrett         510-469-8633   
• Mike McAuley      281-250-2536

One top ex-secondary guy wrote to me and said, “Things I sort of miss hearing in mortgage banking: “What are rates gonna do tomorrow?” “Why is IndyMac a point better than we are?” Anything associated with “Did you hear what they said on CNBC this morning…….?” “How come I’m losing money on the hedge?” And “See that rep over there? We ended up naked in a hot tub at a conference back in ‘94.” I tell you, sometimes this commentary writes itself.

Right now, companies all over the US are talking about next Friday. Either the companies are closed, and the employees have the day off to go spur the economy, or companies are open. Those that are open may have low seniority people at the desks, or people who don’t care about taking the day off and would rather “bite the bullet” and come in for the day after Thanksgiving. US Postal service is in effect, and therefore it counts as a rescission day. But lock desks, and loan sales, will slow down next week with the holiday coming up.

Maybe folks are out there thinking about their upcoming holiday parties, assuming lay-offs have not been too dramatic and they’re actually going to have one. So here is one for you men out there: http://news.bbc.co.uk/2/hi/health/8367141.stm

Will the jumbo market ever come back? I, for one, believe that it will. Obviously many banks offer the product through their retail branches – it earns them a very nice spread versus their cost of deposits. Things are a little iffier through the correspondent channel, but moving in the right direction. Chase, for example, offers non-agency product to eligible Chase clients.

More news about Chase, GMAC Correspondent, D.R. Horton, Suntrust, stock and bond markets, more on short sales, and joke of the day <<< CLICK HERE

 Canadian Dollars – The US in Real Terms – … In Canadian-dollar terms, US GDP is the lowest it has been since the first quarter of 1998. While significant inflation has yet to show  up in US CPI numbers, it is apparent that the US ‘growth’ of the past decade was largely a money-illusion. ... – Plan B Economics

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Welcome to the 2009 Worldwide Bull Market Rally – Mark Perry’s Carpe Diem Blog

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Charts: Betting Your Dollar’s Bottoming - by RANDALL W. FORSYTH – … Veteran technical analyst Martin Pring sees signs the Dollar Index may be on the verge of a rebound. In his weekly note to subscribers, Pring says the dollar has the potential to rally as it is “challenging” its downward sloping trend line while its rate of change is turning positive. At the same time, however, there also is a potential for the Dollar Index to break down as it has been moving in an ever-narrowing channel.  “The battle lines then, are at 77 on the upside and 74.4 on the downside,” Pring writes.  … – Barron’s

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Investors strategize for Fed’s exit from MBS market - By Julie Haviv and Daniel Bases -  Investors who reaped robust gains in U.S. mortgage-backed securities by piggy-backing on the Federal Reserve’s $1.25 trillion buying program are bracing for the end to the central bank’s support — and positioning themselves for a new round of profits as prices cheapen – Reuters

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2 interviews – Danielle Park Provides More Sense on Cents – we hare half way thorugh a aseclar bear market says Danielle – good thoughts on risk – Larry Doyle – Sense on Cents

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Carry Trade and market rallies – The Fed’s airheaded bubble orthodoxy – By Steven Pearlstein – … For many investors, in fact, the cost of money is effectively less than zero, as economist Nouriel Roubini likes to point out. If you borrow dollars at near zero percent interest in the United States, exchange the dollars for Thai bhat, and invest the bhat in government bonds paying 4 or 5 percent, you not only get the benefit of the interest rate arbitrage but you also gain when you sell the bond and exchange the bhat back into dollars that have since depreciated. Roubini calls it “the mother of all carry trades,” … – Washington Post

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How US investors can play the carry trade – Felix Salmon – has a list – When I wrote my blog entry on currency ETCs yesterday, I wasn’t aware of the various carry-trade products available on US exchanges. But after a very informative conversation with Morningstar’s Bradley Kay this morning, I’m now much more up to speed. And while there’s nothing in the US quite like the UK products, there are still a fair few carry-trade vehicles to choose from. – Reuters Blogs

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Picture du Jour: Plunging dollar erodes non-US investors’ returns – Posted by Prieur du Plessis – … The graph below shows the performance of US 10-year Treasury Notes since the beginning of March in both US dollar terms (red line) and euro terms (blue line). Whereas US investors are showing a poor return of -2.8% for the period, European investors are completely under water to the tune of -17.5%.  … – Investment Postcards from Cape Town 

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New York Fed Bringing Mortgage Bond Purchasing In-House, Halves External Managers – Submitted by Tyler Durden  – … has chosen to throw sand in the eyes of all those who claim its days of secrecy must end, and has decided to beginning purchasing the QE allocated portion of MBS/Agency bonds directly from the market using in-house personnel, and bypassing external managers. This way, most information leakage will be prevented, the Fed can buy (never sell) however many MBS it wants while disclosing whatever (if anything) it chooses, with nobody being the wiser, and 30 year mortgage rates continuing their inexorable creep to zero percent. – Zero Hedge

When I talk to realtors in many parts of the nation, they admit that foreclosures and short sales continue to be a key part of the housing activity in their area. Many analysts feel that the pace of short sales is likely to increase, especially given market conditions and the opinion that short sales are an alternative to foreclosure that can benefit the borrower and the lender. The lender sees potentially lower losses on the loan, and the borrower avoids the stigma of having a foreclosure on their credit history. The government continues to use various tools, such as modifications or foreclosure moratoria (moratoriums?) to prevent more loans from entering the REO market.

The short sale option is mostly offered to borrowers who are ineligible for or have failed to succeed in loan modifications, or just choose not to be modified and are certain to enter foreclosure (or are already there). The program can be economically beneficial to both parties involved.

For the servicer, the four main costs involved in selling the house are:

• Possible further depreciation in a declining market
• A discount to the overall market when sold
• The cost of principal and interest advanced to the trust until the house is sold
• Repair and maintenance costs.

Foreclosures, which turn into REO situations, typically take longer than a short sale, exposing the parties to more possible depreciation, and few banks & institutions are in the business of owning real estate (despite Fannie’s D4L program).In a foreclosure, servicers find that the expenses associated with the liquidation and repair costs are significant, given that foreclosed upon borrowers are unlikely to maintain the property. Most of the benefits of a short sale are due to the shortened timeline and cooperation from the resident. The house would also potentially attract better bids, as it is being actively maintained and lived in.

more news on UBC, Freddie Mac, Flagstar, Wells Fargo, Citi, Bank of America, our government, and joke of the day  >>>  CLICK HERE

China’s Role as Lender Alters Obama’s Visit - By HELENE COOPER, MICHAEL WINES and DAVID E. SANGER – When President Obama visits China for the first time on Sunday, he will, in many ways, be assuming the role of profligate spender coming to pay his respects to his banker.  That stark fact — China is the largest foreign lender to the United States — has changed the core of the relationship between the United States and the only country with a reasonable chance of challenging its status as the world’s sole superpower – thanks V –
NY Times
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ZIRP Challenged – China Banking Regulation Chief Says Fed Rates Fuel Speculation – … “The continuous depreciation in the dollar, and the U.S. government’s indication that, in order to resume growth and maintain public confidence, it basically won’t raise interest rates for the coming 12 to 18 months, has led to massive dollar arbitrage speculation,” Liu Mingkang, chairman of the China Banking Regulatory Commission, said in Beijing yesterday … – Bloomberg

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China slams U.S. for inflating global asset prices via carry trade – by Edward Harrison – … In my view, this is pure political posturing by the Chinese in order to defuse any U.S. criticisms of Beijing’s currency peg. Call it a pre-emptive strike. … – Credit Writedowns

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China has now become the biggest risk to the world economy – By Ambrose Evans-Pritchard – Far from taking over as the engine of growth from an exhausted West, China is making matters worse. Its “beggar-thy-neighbour” policies continue to play havoc with global trade and risk tipping the world into a second leg of the Great Recession. – Telegraph.co.uk

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Eclectica November Fund Commentary – Below is the November commentary from Eclectica fund manager Hugh Hendry. He challenges the current preoccupation with the falling dollar and China, and posits what would happen if that thinking is wrong? It offers some very thought-provoking ideas.  – John Mauldin’s Outside the Box E-Letter
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China, U.S. eye pact to help troubled banks: sources - By George Chen – … Chinese and U.S. regulators are negotiating a pact aimed at encouraging Chinese financial institutions to buy into small and medium-sized banks in the United States, bankers briefed on the plan said on Tuesday. … – Reuters

Many observers believe that enacting specific federal legislation governing covered bonds will be essential to foster the development of covered bonds as a funding source in the U.S. The following story — hot off the presses — documents a potentially momentous step in that direction:

WASHINGTON, D.C. — U.S. House Financial Services Committee Chairman Barney Frank (D-MA) gave assurances that covered bonds would be the subject of a Housing Subcommittee hearing next month, prompting Rep. Scott Garrett (R-NJ) to withdraw a covered bonds amendment he had just offered to the Financial Stability Improvement Act of 2009.

The assurances were given during the markup of the Act on Wednesday (Nov. 18.)

Calling Garrett “a very staunch advocate of a very good idea,” Frank requested the congressman to withdraw the amendment for now “with the commitment for a hearing in December and the likelihood of being able to put this in the bill in the final version” of the Financial Stability Improvement Act. READ MORE>>

http://www.coveredbondinvestor.com/news/barney-frank-promises-hearing-covered-bonds

The Federal National Mortgage Association, more commonly known as Fannie Mae, recently announced a new program designed to keep mortgage-challenged borrowers in their homes. The Deed for Lease (D4L) program allows qualified borrowers to relinquish the deed to their property and rent their home at the market rate for 12 months.

Our team at Property Management Software Advice has broken down the program to show you what to expect for borrowers, tenants and property managers.

These questions are answered:

• How Deed for Lease Works
• Who is eligible?
• What about the property?
• Own to rent: Do the numbers make sense?
• Your turn: How will this affect borrowers, tenants and property managers?

Continue Reading >>> CLICK HERE

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Chris Thorman
Chris at SoftwareAdvice.com
(512) 364-0118