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BIBI's handling of Coroavirus applauded :
https://m.jpost.com/Israel-
But still not government formed:
https://m.jpost.com/Israel-
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Ross Rants:
Subject: FW: Ross Rant
Keep in mind that in 2008, when Lehman crashed, followed by Congress turning down TARP, we thought the entire world financial system was going to crash and wipe us out. It nearly did. Unfortunately Obama screwed up the recovery by attacking the banks and fining away their badly needed capital base, along with over regulation. Thus recovery took far longer than it needed. The virus is harder to understand and predict, but we got through 2008 despite the idiots in Congress and Obama, and we will get through this as well, despite Pelosi and her band of fools. This time there are simply so many unknowns it is impossible for anyone to predict what is happening when with the economy and markets.
This next week is critical. There are suggestions the peak might be reached in NY,NJ, an FL by mid-week, or we may already be there. If true, that changes things a lot. It now appears NY will not come close to the original modeling scenario. It means the shortages of ventilators does not exist, and the projections of 100,000 dead in the US is way off. I never understood that number given we were only at around 11,000 so far. It would have meant massive numbers of deaths increasing despite now having several therapies that are being tried in trials to cure patients. It would not be surprising that deaths end up less than 30,000. I have worked with financial models for decades. Despite very smart people making the models, and using what was believed to be good data, I am not aware of the actuals ever matching the models. Some were in the ballpark, but many were not. The medical models are no different. They all depend on assumptions, and nobody has a clear crystal ball, or even full data, so no model is ever accurate. If the reduction in cases seeming to be happening, it means we may be able to begin the process to return to normal in many parts of the country by May 1. Resolve the increases in NY and NJ, and the entire numbers calculations and political issues change. It will also have major economic story and stock market changes for the better.
The non-agency backed and agency backed mortgage markets are still in some turmoil. Millions of borrowers have stopped paying and asking for the 90 days forbearance. The head of the agency that oversees Fannie and Freddie, Clabria, has said, don’t look to us to solve the default problems, we don’t have money. Look to Congress. He is determined to see the two taken private no matter what. The chance of these agencies now going private is likely dead. Congress is going to have to figure out all the defaults Pelosi created because the agencies guarantee the bondholders principal, not return. Issuance of new home mortgages is dead for now as a result. The problem is nobody knows where pricing needs to be, nor where it might be when the originator goes to sell the mortgage. The lock rate periods have expired on loans in inventory waiting to be securitized, so now the lenders are at rate risk on loans they committed to close. Another problem is apparently the CARE Act, thanks to Pelosi, says banks also can’t push foreclosure for 90 days. Result is there is already a 25% default rate and getting worse. There is also a prohibition against anyone being evicted for 90 days. It is also pretty sure that judges will not be bank friendly in foreclosures, so nobody really can project with any certainty when payment might restart. Supposedly the borrower will pay at the time of sale, or under some prorated repayment program, but that is not able to be projected as to timing, so pricing the loan, and so the bonds is impossible at the moment. There will be a large number of loan modifications and some deed in lieu. For loans on securitized pools the servicer has to cover the bond payments for 90 days and uses his bank lines to do that. It is unclear if all servicers have the lines to do that fully.
Another huge issue is, the market had priced loan pools on the then sound assumption that, on average, mortgages would be outstanding for 7 years, so they priced the pool on that assumption. Due to the new ultra-low rates that average has become 3 years, so there are big losses due to prepayments being early, and the prices paid for the pool assuming 7 years was much too high for what has become a three year term. Prices are dependent on net present value of the income steam over the life of the loan, so average term matters. The Fed has stepped in to some extent to save lenders by buying paper. Master servicers on mortgage pools are liable to pay the bondholders for 90 days out of their own pocket for which they get super priority repayment when the loan is finally paid off. There is no way now to know when that might be. It could take years to collect. So lenders who still hold loans are getting margin calls when the value of the portfolio is reduced due to the three year average now priced in vs seven years, and many smaller servicers are likely to go out of business. This is going to be a real problem in 90 days when the servicers no longer cover debt service on bonds, and the bonds go into default. The mortgage market had become 50% non-bank lenders, so now the big banks who supply warehouse credit lines to them are happy to see all these originators and servicers fail by not extending more credit to them, and by margin calls. Survival of the fittest. Jungle rules. The CFPB under Elizabeth Warren and Obama had a team of guerilla women who hated the banks and non-bank mortgage lenders, and who were draconian when dealing with them. That has changed a lot under Trump, and is far better now, but there are still a few regs remaining from those days that are problems for lenders. Congress will eventually have to deal with the default fallout they created with the Pelosi no foreclosure rule in the CARE Act. This is going to get very ugly in the next 90-120 days. Ben Carson is cooperating as best he can, but this is not his field of expertise. Elizabeth Warren and CFPB did a lot of damage to the mortgage market.
The Fed has initiated a vast array of programs to back all sorts of different markets from repos, asset backed bons, currencies, investment grade corporate loans, commercial paper, mutual fund liquidity, primary dealers credit facility, money market fund liquidity, CD’s, muni bonds, and more underway. In short, the Fed saved the country and financial markets
The small business loan program is still having issues due to overwhelming interest, slow computers and an uncoordinated authorization program at SBA, banks reaching their limits, and a few remaining issues to be cleaned up, but loan apps are being taken now with well over 200,000 already in the pipeline. $70 billion has already been funded. A number of banks simply are not smart enough to figure out how to implement the program. It is still far from perfect, and some banks just can’t handle it. The SBA system seems to be the biggest issue as it is not set to handle the flood of apps and authorizations. Keep in mind this is a sudden gargantuan program rolled out fast, in order to start to get cash in the hands of small business to save jobs and companies. The SBA is not manned by computer geniuses, so it is taking a little longer. They are working with Amazon to fix the system using Amazon cloud. The Consumer Banking Assoc says some of its members are already funding loans. The Fed has stepped in to provide funding to the banks to cover the loans quickly. The Fed rides to the rescue again. One typical bureaucratic problem is some in SBA they did not think they needed to work over the weekend. Bankers and other people who call Mnuchin and his staff morons and worse as has been sent to me, have no idea who Mnuchin is, or his extensive experience with banking and mortgages. I do. That is just childish crap. He needs to depend on SBA to do their part much better.. I’d like to see the complainers do better under this kind of political and public pressure. It must be working at least partially if Congress is already planning to add a lot of money to it. They will get it sorted out quickly.
If you think the Republicans eliminated a lot of what Pelosi wanted the list of things funded that have zero to do with the virus added up to another $184.4 billion. Things you would not believe. The Kennedy Center was the least of it. That is almost enough to fund the second round of $250 billion for the loan program. Pelosi held up the bill for a week for this crap. That is why I find Congress and her to be disgusting, and why nobody has respect for Congress.
The accounting now for REITs is that if they have a lease with a retailer, they need to accrue the rent collection even if not paid. So the REIT shows income, but not the cash. Under REIT rules they need to pay out 90% of income. So expect REITs to issue stock in place of cash to fill this cash hole once they use up their cash reserves and bank lines. Lots of potential dilution. This will get uglier for retail REIT’s. Nobody knows how many people will really come back to the mall to shop vs online.
Malls have giant parking lots that are no longer needed. Either the customers are not coming due to online shopping before the virus, or as malls lose major tenants, they are stuck with large parking lots that sit idle. If the major tenant is still there, like a Wal Mart or Macy, they have clauses in leases that say the landlord can’t do anything about the parking without their approval. So when the landlord wants to use the unused portion of the lot to build an apartment building, or whatever, they need to pay the major tenant some big price to get the space back in his own site. One might say extortion, but it is perfectly legal. There are going to be a huge amount of unused parking lots all over the country very soon. We had one experience with a dying mall that had a Wal Mart out parcel with this type lease. Wal Mart had a say over everything. We never did the deal. There will be a lot of shopping centers where the major tenant is gone and the landlord will be happy to sell or lease part of the excess parking to a developer. The younger generation think communication is by text, email, or some app. They no longer know how to have a face to face conversation. Result is, working remote for them will be normal, and that trend will be bad for office landlords, hotels and airlines over time. The communication revolution has arrived.
Pension funds are now having to do major rebalancing. A real issue. They can’t earn anything on bonds since they can only buy investment grade. They are turning to more private equity funds for investment allocation where they can concoct the value of their investment to some degree, but they have real limits as to how much they can allocate to that. The states and cities now are in very deep financial trouble due to lost sales and room tax revenue, and thanks to SALT they have limits on how much property tax they can charge. So there will be more NJ situations where there is no money to make pension contributions, and they get skipped. Between not being able to make much return on their bonds, and limited, or no, contributions from their state or city trustees, there will be a major pension crisis coming your way. You will hear Pelosi bellowing more and more that states and cites need help. This is why. She needs to try to bail out her Dem govs and mayors who made outrageous concessions to the unions over pensions and healthcare. Some states even made paying pensions a constitutional duty, so it is a monster crisis waiting to explode. The Fed is buying muni bonds, so for now things in that market are OK, but watch out what might be coming.
Florida is very heavily dependent on sales taxes and room taxes from Disney and Universal. That is dead for now, and no way to know when that returns to normal. The city of Orlando is already highly levered and so is now screwed without those taxes. It is unclear what Orlando is going to do to meet its debt service and pension contributions. Miami is no different. With no income tax, FL will have to raise sales and property taxes. You see where all this is headed. No place good for anyone. These are the things that will play out after the virus is gone. Count on taxes going up.
It is unclear how many companies will take loans from the Treasury/Fed. Pelosi put in a lot of unpleasant covenants like limits on salaries, no buybacks, and other things that may limit how many companies take the money. The exact issue Boeing has raised already. Now of course the Dems are begging Boeing to take the money and can’t understand why Boeing laid off so many workers. These politicians never connect the dots. Duh. One more example of how the left can screw up the economy with their radical ideas of how the government needs to control private enterprise. This is a real hidden danger as we go through this. If Trump and the Republicans did not have control, the economy would be transformed into some version of socialist/capitalist. Pelosi is dangerous to workers who will lose jobs when companies decide not to take a loan from the Fed. It is for this reason I am not at all convinced there will be a Phase 4. The Senate will throw up over what Pelosi tries to do. Keep your eye on Mnuchin. He is the key player in all of this, not Trump. He knows better than any of them what needs to be done, and what does not work, but in Phase 3 they had to get a deal done fast, (she already wasted a full week) so they gave in to some of Pelosi wasteful crap. Next round I predict will be different. The fight will be very nasty as we get closer to the election. She will claim Trump is hurting the workers to help the corporations. In the end workers get hurt again while she plays politics.
The EU is pouring out cash all over Europe, but there is no coordinated EU plan to deal with the financial crisis now appearing. We have not even seen the start of a real financial crisis in Europe. It is coming soon. This may lead to political unrest as well. The EU is in serious trouble on all fronts. If Boris were to die, it would be terrible for the UK, and not good for us. He is the one to renegotiate with the EU successfully on Brexit and a trade deal with us. The bad economic situation in the EU will be a drag on the US recovery, and if Boris does not recover, it will be even worse.
My own view of buybacks are a waste of capital. In 2019 there were actually less than in 2018, but in 2018 the market was down, and in 2019 it was up tremendously. I read some research a few years ago that showed buybacks do nothing for stock prices. I believe these companies should save the cash to use in the business where they could get a better return on capital, or pay I tout as dividends. Borrowing to do buyouts is very bad policy in my opinion. Why take on more debt when you can just save the cash on the balance sheet and be ready for the next crisis. I obviously am a conservative when it comes to balance sheet management. Wall St does not generally agree.
Russia and Saudi have no choice but to make a huge cut in production now. The press mocked Trump for saying a 10 million barrel cut, but that is what they are very likely to do, or more, and the US is going to say let the free market decide. They are both really stretched. The US has the best bargaining position due to space in the reserve which Pelosi has stopped in the big bill by barring $3 billion to fill the reserve. Maybe Trump can do it another way. .
A prominent money manager asked several of us to answer four questions related to the market. Generally there was a split, with some thinking there will be another test of the bottom, and some of us (me included) who think we are off the bottom. There will be a lot more volatility, but those of us more optimistic, think the general trend is up from here, with some bad down days. Almost all said the market would be around 2800 at year end. Some think it will be higher in 2021. My forecast is 2800-3000 if Trump is reelected, which I think is almost certain now. It was unanimous that taxes go up considerably if Biden wins. If you agree with the optimists like me, it is time to be in. If you agree with the group who think there is another bottom, wait and buy then, but if my forecast is right, you will wait too late. It is all up to you. I give no advice, just personal opinions.
The WHO, like the WTO, is in the pocket of China, and worse than useless. The WHO seems to have helped China lie and cover up the pandemic, and led to thousands of dead that did not need to happen.. The WTO failed miserably to stop cheating and ignoring WTO rules by China. Unfortunately Obama ignored all of the failures of WTO, and over eight years China just did what it wished regardless of WTO. Obama Biden said nothing. Years ago the world foolishly thought if China was allowed into WTO, they would act properly and join the world trade norms. How stupid. China has a culture of lying, cheating and corruption. Why anyone thought they would change just by joining WTO is hard to understand. They are working hard to get control of every UN organization since the world until Trump lets them get away with the same cheating and lying. Now it has cost tens of thousands of lives. Now China is appointing the head of the UN human rights organization. How stupid can the world be. The UN has proved once again it is a worthless waste of American tax payer money, and it is used by Russia and China to thwart the US in various situations.
I previously mentioned the small business loan program which has already put out over $70 billion despite complaints it is in chaos. Anyone who thought it was going to be without major problems the first days is stupid or five years old, or a reporter. There was no possibility this was going to be without glitches day one or two, or even week one. This is a giant, complex program rushed into place with no time to test it, nor to clearly think through all of the issues. Now most of the real policy problems are settled. The SBA computers had to be set up for it, and that is always subject to capacity, and a software glitch. The bank computers had to be linked properly, and set for a flood of apps they were not ready to handle. Like nobody ever experienced. Of course some people, and some banks, are just not able to figure it out quickly. Then, of course, the press immediately had to report that there were problems without ever saying, but it did begin to work at B of A and many community banks, and it is being be sorted out quickly. This is a classic example of the press reporting on something they are too inexperienced to understand. Some just want to find anything negative to make Trump look bad. All of the problems are fixable in a few days, or a week. The issues around PE firms, how to get it forgiven, and similar things are now settled. There are likely some other issues, but they will get sorted out quickly by Mnuchin. Can you imagine what would happen if politicians had been in charge.
Health helpful advice not related to virus. I have had knee problems due to arthurites for years. Playing tennis every day, as I have been doing here in Longboat, including through today, has just made it worse. I started using Capzasin cream three times a day and rubbing it in. I have done this for weeks. I now have almost no remaining pain, and can aggressively run around the court with no problem and no pain. I feel like I have a new knee. I went form thinking I need a knee replacement to no pain. Many years ago I had a similar problem in a finger. Top docs said they had no solution. I used the exact same Capzasin treatment, and once it got 100% better, I stopped the treatment and never had any new pain. That has been several years. Get the cream, not the roll on tube. Massage it in twice or three times a day depending on how bad the pain is . It takes several weeks to really start to work, so do not get discouraged, just continue to use it until the pain is all gone for a few weeks. If this does not work for you I suggest go to a real doctor who is likely to suggest knee replacement, because that is a real profit maker for them. A tube of Capzasin costs almost nothing. My advice is free.
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Collins surges and Loeffler to liquidate:
Sen. Kelly Loeffler and
her CEO husband will sell
all individual stock
shares after coronavirus
trade furor
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